##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K





ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2004


Commission File Number 0-26561


THE KEITH COMPANIES, INC.


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|California                                                         |  | 33-0203193                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

19 Technology Drive, Irvine, California 92618


(Address of principal executive offices and zip code)


Registrants telephone number, including area code:


(949) 923-6001


Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, $0.001 par value


þ o


þ


þ o




DOCUMENTS INCORPORATED BY REFERENCE









|    |                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | For purposes of this calculation, shares owned by executive
    officers and directors have been deemed to be owned by
    affiliates. This determination of affiliate status is not
    necessarily a conclusive determination for other purposes.









---










THE KEITH COMPANIES, INC.


Annual Report on Form 10-K





Table of Contents


|              |  |                                                                                                        |    |      |    | 
|------------- |  | ------------------------------------------------------------------------------------------------------ | -- | ---- | -- | 
|              |  |                                                                                                        |    | Page |   
|              |  |                                                                                                        |    |      |   
|PART I       
|Item 1.       |  | Business                                                                                               |    |      | 1  | 
|Item 2.       |  | Properties                                                                                             |    |      | 14 | 
|Item 3.       |  | Legal Proceedings                                                                                      |    |      | 14 | 
|Item 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                |    |      | 14 | 
|PART II      
|Item 5.       |  | Market for Our Common Equity Related
    Stockholder Matters and Issuer Purchases of Equity Securities |    |      | 14 | 
|Item 6.       |  | Selected Financial Data                                                                                |    |      | 15 | 
|Item 7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations              |    |      | 16 | 
|Item 7A.      |  | Quantitative and Qualitative Disclosures
    About Market Risk                                         |    |      | 36 | 
|Item 8.       |  | Financial Statements and Supplementary
    Data                                                        |    |      | 37 | 
|Item 9.       |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure               |    |      | 60 | 
|Item 9A.      |  | Controls and Procedures                                                                                |    |      | 60 | 
|Item 9B.      |  | Other Information                                                                                      |    |      | 60 | 
|PART III     
|Item 10.      |  | Directors and Executive Officers                                                                       |    |      | 60 | 
|Item 11.      |  | Executive Compensation                                                                                 |    |      | 60 | 
|Item 12.      |  | Security Ownership of Certain Beneficial Owners and Management
    and Related Stockholder Matters     |    |      | 60 | 
|Item 13.      |  | Certain Relationships and Related Transactions                                                         |    |      | 60 | 
|Item 14.      |  | Principal Accountant Fees and Services                                                                 |    |      | 60 | 
|PART IV      
|Item 15.      |  | Exhibits and Financial Statement
    Schedules                                                         |    |      | 61 | 
|              |  | 1. Consolidated Financial
    Statements                                                               |    |      | 61 | 
|              |  | 2. Financial Statement Schedules                                                                       |    |      | 61 | 
|              |  | 3. Exhibits                                                                                            |    |      | 61 | 
|Signatures    |  |                                                                                                        | 63 |     
|EXHIBIT 10.11
|EXHIBIT 10.12
|EXHIBIT 10.13
|EXHIBIT 10.14
|EXHIBIT 21.0 
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 
|EXHIBIT 32.2 



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PART I


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS






| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | forecasts of earnings, revenue or other financial items;                                                                                            
|
| |  | anticipated activity in the real estate development, public
    works/infrastructure, and energy/industrial industries;                             
|
| |  | our business strategy for expanding our presence in these
    industries;                                                                           
|
| |  | anticipated growth and economic expansion in the Western and
    Midwestern United States;                                                          
|
| |  | anticipated trends in our financial condition and results of
    operations;                                                                        
|
| |  | anticipated growth in the pace and size of our acquisitions;                                                                                        
|
| |  | anticipated impact of future acquisitions and/or new
    divisions/offices on the condition of our business by industry
    and geographic location;
|
| |  | the long-term nature of our projects;                                                                                                               
|
| |  | our ability to attract and retain employees;                                                                                                        
|
| |  | our business strategy for integrating businesses that we acquire
    and/or internally create;                                                      
|
| |  | our ability to sustain our growth and profitability; and                                                                                            
|
| |  | our ability to distinguish ourselves from our current and future
    competitors.                                                                   








|        |         
|------- | --------
|ITEM 1. | BUSINESS

General




1



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Industries Served






| |                        
| | -----------------------
| | Real Estate Development





2



---



##### Table of Contents











| |                             
| | ----------------------------
| | Public Works/ Infrastructure



Water Resources.


Transportation.


Institutional Projects.






| |                   
| | ------------------
| | Energy/ Industrial



3



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##### Table of Contents









| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | Design or redesign of electrical, heating, ventilation and air
    conditioning systems;                       
|
| |  | Mechanical equipment design;                                                                                   
|
| |  | Equipment selection and purchasing;                                                                            
|
| |  | Design of integrated computer and monitoring device systems to
    control manufacturing and process equipment;
|
| |  | Chemical/process engineering;                                                                                  
|
| |  | Energy generation and usage consulting;                                                                        
|
| |  | Fire protection engineering;                                                                                   
|
| |  | Material handling and process flow planning;                                                                   
|
| |  | Automation and robotics design;                                                                                
|
| |  | Construction management and installation supervision;                                                          
|
| |  | Plant testing during construction and start-up;                                                                
|
| |  | Plant operations and maintenance;                                                                              
|
| |  | Project management; and                                                                                        
|
| |  | Computer programming.                                                                                          





| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Energy/ Power Generation and Management: power plants,
    wind farms, natural gas/electrical systems and distribution
    systems;                            
|
| |  | High Tech Facilities: biotechnology, pharmaceutical and
    laboratory facilities, computer centers, control rooms and
    research and development facilities;
|
| |  | Heavy Manufacturing: automotive assembly, port terminal
    facilities and pulp and paper processing;                                                          
|
| |  | Consumer Products: beverage, household products,
    packaging, and food processing;                                                                           
|
| |  | Educational Facilities: school and university buildings
    and campuses; and                                                                                  
|
| |  | Public Facilities: medical buildings, hospitals, and
    publicly owned or occupied buildings.                                                                 

The Keith Companies Advantage






| |           
| | ----------
| | Reputation



4



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##### Table of Contents







| |                  
| | -----------------
| | For the 2004 Year



| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | Outstanding Private Sector Civil Engineering Project of the
    Year  American Society of Civil Engineers
    (ASCE), Los Angeles Section
|
| |  | Sears American Dream-Maker Award for Habitat for Humanity                                                                                   
|
| |  | Outstanding Land Development Project of the Year 
    ASCE, Orange County, CA Branch                                                       
|
| |  | Outstanding Government Civil Engineering Project
    Award  ASCE, Los Angeles Section                                                      
|
| |  | Outstanding Engineer of the Year, Private Sector 
    ASCE, Los Angeles Section                                                            
|
| |  | Engineer of Merit  ASCE  Mr. Bill
    Lawson, PE, F. ASCE                                                                                 
|
| |  | Water Quality Award Honorable Mention  Michigan
    Association of County Drain Commissioners                                              
|
| |  | Award of Merit for Engineering Excellence  American
    Council of Engineering Companies, Michigan                                         
|
| |  | Award of Excellence  Michigan Concrete Paving
    Association                                                                              



| |               
| | --------------
| | Previous Years



| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Three Engineer of Merit Awards  ASCE, Orange County,
    CA Branch                                                                                          
|
| |  | Water Quality Awards for Innovational Excellence  The
    Michigan Association of County Drain Commissioners                                                
|
| |  | Award of Excellence  Honor Award from the City of
    Rancho Cucamonga, CA for design excellence                                                            
|
| |  | Engineering Project Achievement Award  Orange County,
    CA Engineering Council                                                                            
|
| |  | Project Achievement Award  ASCE, Orange County, CA
    Branch                                                                                               
|
| |  | Outstanding Environmental Analysis Document  Large
    Jurisdiction Award from the Association of Environmental
    Professionals, Inland Empire, CA Chapter



| |                                     
| | ------------------------------------
| | Industry and Professional Experience







| |                      
| | ---------------------
| | Full Service Approach



5



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##### Table of Contents







| |                
| | ---------------
| | Cross-Marketing







| |                                   
| | ----------------------------------
| | Effective Organizational Structure



Business Strategy






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Maintain High Quality Service. To maintain high quality
    service, we focus on being responsive to customers and working
    diligently and responsibly to maintain schedules and budgets. As
    a result of our focus on quality and timely service, we believe
    that we have established an excellent reputation in most of the
    markets we serve. We intend to continue providing high quality
    services as we expand our geographic presence and our service
    offerings.
|
| |  | Continue to Recruit and Retain Highly Qualified
    Personnel. We believe that recruiting and retaining skilled
    professionals is crucial to our success and growth. As a result,
    we intend to continue to recruit experienced and talented
    individuals who can provide quality services and innovative
    solutions.                                                                                                                                                          
|
| |  | Enhance and Strengthen Existing Client Relationships. By
    maintaining strong relationships with existing clients and
    promoting the cross-selling of services, we believe that we can
    further enhance our reputation and business opportunities. By
    focusing our efforts in this area, we can utilize the time that
    we spend with our clients on active work to promote additional
    services to them and gain additional                                              

6



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | contract opportunities for us. We believe that our existing
    relationships between our clients and employees is one of our
    greatest business development assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Expand Services in Public Works/ Infrastructure, and Energy/
    Industrial Industries. To reduce our susceptibility to the
    economic cycles affecting any particular industry, we intend to
    continue expanding our work in public works/infrastructure and
    energy/industrial. Much of our expertise, including Computer
    Aided Drafting (CAD) work, certain engineering
    specialties and administrative functions, can provide support
    across industries in the event that a particular industry
    segment experiences economic downturns. We believe that by
    expanding our services into industries which follow different
    economic cycles, we are able to reassign talented employees to
    other project types and help provide stability for our core
    staff, management and profit levels. Our acquisitions of John M.
    Tettemer & Associates Ltd.; ESI, Engineering Services
    Incorporated; Thompson-Hysell, Inc.; Pacific Engineering
    Corporation; Universal Energy, Inc.; and ALNM Group Inc. have
    enhanced our ability to expand our services, some of which
    follow different economic cycles.
|
| |  | Expand Geographically. To diminish the impact of regional
    economic cycles and to further enhance cross-selling
    opportunities, we intend to continue to expand our geographic
    presence by making acquisitions, possibly opening additional
    divisional offices and by marketing our services to clients with
    national and international needs. Our geographic growth may
    provide us with broader access to employee pools, work-sharing
    between regions and new business opportunities. We believe that
    our acquisitions of ESI, Engineering Services Incorporated;
    Thompson-Hysell; Crosby, Mead, Benton & Associates;
    Hook & Associates Engineering, Inc.; Pacific
    Engineering Corporation; Universal Energy, Inc. and ALNM Group,
    Inc. have enabled us to more effectively sell additional
    services in the entire Southwest and the Midwest.                                                                                                                                                                                                                                                              
|
| |  | Expand and Enhance Technical Capabilities. We intend to
    diversify our services to meet demands of our clients, industry
    segments and new markets. As part of our effort to continue
    diversifying the scope of our services, we intend to pursue
    strategic partnering relationships and acquisitions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Acquisition Strategy






7



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|               |  |                                        |  |                                       |  |                                                                              
|-------------- |  | -------------------------------------- |  | ------------------------------------- |  | -----------------------------------------------------------------------------
|Acquisition    |  |                                        |  | Primary                               |  |                                                                              
|Date           |  | Company Acquired                       |  | Markets Currently Served              |  | Services Offered                                                             
|               |  |                                        |  |                                       |  |                                                                              
|December 1997  |  | ESI, Engineering Services Incorporated |  | Northern California                   |  | Energy/industrial services                                                   
|              
|August 1998    |  | John M. Tettemer and Associates, Ltd.  |  | Southern California                   |  | Water resources engineering services                                         
|              
|July 1999      |  | Thompson-Hysell, Inc.                  |  | Northern and Central California; Utah |  | Land development design and water resources engineering services             
|              
|October 2000   |  | Crosby, Mead, Benton & Associates      |  | Southern California                   |  | Land development design, infrastructure design and landscape
    architecture
|              
|January 2001   |  | Hook & Associates Engineering, Inc.    |  | Arizona                               |  | Land development and transportation services                                 
|              
|September 2001 |  | Pacific Engineering Corporation        |  | Oregon; Washington                    |  | Energy/industrial services                                                   
|              
|November 2001  |  | Universal Energy, Inc.                 |  | National; International               |  | Power plant operations, training, testing, and start-up                      
|              
|March 2002     |  | ALNM Group, Inc.                       |  | Michigan                              |  | Environmental, water resources, and other engineering services               



Services Provided






| |                           
| | --------------------------
| | Civil Engineering Services





| |                               
| | ------------------------------
| | Surveying and Mapping Services



8



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| |                       
| | ----------------------
| | Land Planning Services







| |                       
| | ----------------------
| | Environmental Services







| |                            
| | ---------------------------
| | Cultural Resources Services







| |                                 
| | --------------------------------
| | Construction Management Services



9



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| |                          
| | -------------------------
| | Site Acquisition Services





| |                                     
| | ------------------------------------
| | Water Resources Engineering Services





| |                                                                      
| | ---------------------------------------------------------------------
| | Instrumentation/ Control Systems Integration Engineering
    Services





| |                                     
| | ------------------------------------
| | Fire Protection Engineering Services





| |                                
| | -------------------------------
| | Electrical Engineering Services





| |                                
| | -------------------------------
| | Mechanical Engineering Services





| |                                       
| | --------------------------------------
| | Chemical/ Process Engineering Services





| |                                              
| | ---------------------------------------------
| | Start-Up, Testing, Operations and Maintenance



10



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Business Development and Marketing












Clients




11



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|                                      |  |                                                   
|------------------------------------- |  | --------------------------------------------------
|Real Estate                           |  | Public Works/Infrastructure                       
|                                      |  |                                                   
|Centex Homes                          |  | Ann Arbor Transportation Authority                
|D.R. Horton                           |  | Central Valley Water Reclamation Facility Board   
|Lennar Homes                          |  | City of Anaheim, California                       
|Pulte Home Corporation/ Del Webb      |  | City of Fenton, Michigan                          
|Pardee Homes                          |  | Coachella Valley Water District                   
|Shea Homes                            |  | Inland Empire Utilities Agency                    
|The Irvine Company                    |  | Metropolitan Water District of Southern California
|                                      |  | Pittsfield Charter Township, Michigan             
|                                     
|Energy/Industrial                     |  |                                                   
|                                      |  |                                                   
|                                     
|Alyeska Pipeline Service Company      |  |                                                   
|Bonneville Power Administration       |  |                                                   
|ChevronTexaco                         |  |                                                   
|New United Motors Manufacturing, Inc. |  |                                                   
|University of Michigan                |  |                                                   
|Weyerhaeuser Company                  |  |                                                   



Backlog




Competition






| |   |                       
| | - | ----------------------
| |  | quality of service,   
|
| |  | relevant experience,  
|
| |  | staffing capabilities,
|
| |  | reputation,           
|
| |  | geographic presence,  
|
| |  | stability, and        
|
| |  | price.                

12



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Factors Most Affecting Our Business








Employees






13



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##### Table of Contents



Available Information


www.keithco.com







|        |           
|------- | ----------
|ITEM 2. | PROPERTIES








|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS








|        |                                                    
|------- | ---------------------------------------------------
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS






PART II







|        |                                                                                                        
|------- | -------------------------------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
    ISSUER PURCHASES OF EQUITY SECURITIES



|                              |  |     |       |  |      |   |       | 
|----------------------------- |  | --- | ----- |  | ---- | - | ----- | 
|                              |  | Low |       |  | High |  
|                              |  |     |       |  |      |  
|Year Ended December 31, 2003: |  |     |       |  |      |   |       | 
|First Quarter                 |  | $   | 9.12  |  |      | $ | 12.83 | 
|Second Quarter                |  |     | 9.55  |  |      |   | 10.95 | 
|Third Quarter                 |  |     | 9.95  |  |      |   | 13.38 | 
|Fourth Quarter                |  |     | 11.97 |  |      |   | 14.30 | 
|Year Ended December 31, 2004: |  |     |       |  |      |   |       | 
|First Quarter                 |  | $   | 13.72 |  |      | $ | 14.59 | 
|Second Quarter                |  |     | 13.72 |  |      |   | 14.90 | 
|Third Quarter                 |  |     | 13.86 |  |      |   | 15.50 | 
|Fourth Quarter                |  |     | 14.05 |  |      |   | 17.59 | 





Recent Issuances of Unregistered Securities




14



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|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA







|                          |                                                        |                                                                          |   |           |        |  |   |           |        |  |      |           |        |      |   |           |        |  |   |           |        | 
|------------------------- | ------------------------------------------------------ | ------------------------------------------------------------------------ | - | --------- | ------ |  | - | --------- | ------ |  | ---- | --------- | ------ | ---- | - | --------- | ------ |  | - | --------- | ------ | 
|                          |                                                        | Years Ended December 31,                                                 |  
|                          |                                                        |                                                                          |  
|                          |                                                        | 2000                                                                     |   |           | 2001   |  |   | 2002      |        |  | 2003 |           |        | 2004 |  
|                          |                                                        |                                                                          |   |           |        |  |   |           |        |  |      |           |        |      |  
|                          |                                                        | (Dollars in thousands, except for share data)                            |  
|Statement of Income Data: |                                                        |                                                                          |   |           |        |  |   |           |        |  |      |           |        |      |   |           |        |  |   |          
|                          | Gross revenue                                          |                                                                          | $ | 57,835    |        |  | $ | 74,314    |        |  | $    | 106,487   |        |      | $ | 99,950    |        |  | $ | 105,346   |       
|                          |                                                        |                                                                          |   |           |        |  |   |           |        |  |      |           |        |      |  
|                          |                                                        | Net revenue                                                              |   |           | 53,381 |  |   |           | 66,844 |  |      |           | 91,598 |      |   |           | 90,744 |  |   |           | 96,754 | 
|                          | Costs of revenue                                       |                                                                          |   | 34,118    |        |  |   | 42,655    |        |  |      | 59,286    |        |      |   | 58,359    |        |  |   | 60,363    |       
|                          |                                                        |                                                                          |   |           |        |  |   |           |        |  |      |           |        |      |  
|                          |                                                        | Gross profit                                                             |   |           | 19,263 |  |   |           | 24,189 |  |      |           | 32,312 |      |   |           | 32,385 |  |   |           | 36,391 | 
|                          | Selling, general and administrative expenses           |                                                                          |   | 11,078    |        |  |   | 14,330    |        |  |      | 19,535    |        |      |   | 21,070    |        |  |   | 23,013    |       
|                          |                                                        |                                                                          |   |           |        |  |   |           |        |  |      |           |        |      |  
|                          |                                                        | Income from operations                                                   |   |           | 8,185  |  |   |           | 9,859  |  |      |           | 12,777 |      |   |           | 11,315 |  |   |           | 13,378 | 
|                          | Interest (expense) income, net                         |                                                                          |   | (310      | )      |  |   | 289       |        |  |      | 431       |        |      |   | 264       |        |  |   | 481       |       
|                          | Other income (expense), net                            |                                                                          |   | 44        |        |  |   | (54       | )      |  |      | 625       |        |      |   | 259       |        |  |   | 46        |       
|                          |                                                        |                                                                          |   |           |        |  |   |           |        |  |      |           |        |      |  
|                          |                                                        | Income before provision for income taxes and discontinued
    operations |   |           | 7,919  |  |   |           | 10,094 |  |      |           | 13,833 |      |   |           | 11,838 |  |   |           | 13,905 | 
|                          | Provision for income taxes                             |                                                                          |   | 3,199     |        |  |   | 3,916     |        |  |      | 5,397     |        |      |   | 4,617     |        |  |   | 5,468     |       
|                          |                                                        |                                                                          |   |           |        |  |   |           |        |  |      |           |        |      |  
|                          |                                                        | Income from continuing operations                                        |   |           | 4,720  |  |   |           | 6,178  |  |      |           | 8,436  |      |   |           | 7,221  |  |   |           | 8,437  | 
|                          | Loss from discontinued operations, net of income taxes |                                                                          |   |          |        |  |   | 329       |        |  |      | 628       |        |      |   |          |        |  |   | 430       |       
|                          |                                                        |                                                                          |   |           |        |  |   |           |        |  |      |           |        |      |  
|                          |                                                        | Net income                                                               |   | $         | 4,720  |  |   | $         | 5,849  |  |      | $         | 7,808  |      |   | $         | 7,221  |  |   | $         | 8,007  | 
|                          |                                                        |                                                                          |   |           |        |  |   |           |        |  |      |           |        |      |  
|                          | Earnings per share from continuing operations-diluted  |                                                                          | $ | 0.89      |        |  | $ | 0.87      |        |  | $    | 1.07      |        |      | $ | 0.91      |        |  | $ | 1.05      |       
|                          |                                                        |                                                                          |   |           |        |  |   |           |        |  |      |           |        |      |  
|                          | Earnings per sharediluted                             |                                                                          | $ | 0.89      |        |  | $ | 0.82      |        |  | $    | 0.99      |        |      | $ | 0.91      |        |  | $ | 1.00      |       
|                          |                                                        |                                                                          |   |           |        |  |   |           |        |  |      |           |        |      |  
|                          | Weighted average shares outstandingdiluted            |                                                                          |   | 5,299,679 |        |  |   | 7,092,505 |        |  |      | 7,868,877 |        |      |   | 7,957,344 |        |  |   | 8,039,457 |       
|                          |                                                        |                                                                          |   |           |        |  |   |           |        |  |      |           |        |      |  

15



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|                    |                                             |                        |   |        |      |  |   |        |  |  |      |        |  |      |   |        |  |  |   |        | 
|------------------- | ------------------------------------------- | ---------------------- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  | ---- | - | ------ |  |  | - | ------ | 
|                    |                                             | As of December 31,     |  
|                    |                                             |                        |  
|                    |                                             | 2000                   |   |        | 2001 |  |   | 2002   |  |  | 2003 |        |  | 2004 |  
|                    |                                             |                        |   |        |      |  |   |        |  |  |      |        |  |      |  
|                    |                                             | (Dollars in thousands) |  
|Balance Sheet Data: |                                             |                        |   |        |      |  |   |        |  |  |      |        |  |      |   |        |  |  |   |       
|                    | Working capital                             |                        | $ | 7,343  |      |  | $ | 38,781 |  |  | $    | 39,613 |  |      | $ | 47,416 |  |  | $ | 55,472 | 
|                    | Total assets                                |                        |   | 33,312 |      |  |   | 71,492 |  |  |      | 82,226 |  |      |   | 87,536 |  |  |   | 97,969 | 
|                    | Total debt, excluding issuable common stock |                        |   | 5,745  |      |  |   | 1,912  |  |  |      | 70     |  |      |   |       |  |  |   |       | 
|                    | Total shareholders equity                  |                        |   | 18,239 |      |  |   | 53,733 |  |  |      | 63,612 |  |      |   | 71,962 |  |  |   | 81,921 | 






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis
together with a description of our business as outlined in
detail in this Report under Item 1. Business and with our
consolidated financial statements and related notes included
elsewhere in this Report. Some of the information contained in
this discussion and analysis or set forth elsewhere in this
Report, including information with respect to our plans and
strategies for our business, includes forward-looking statements
that involve risks and uncertainties. You should review the
Risk Factors section of this Report for a discussion
of important factors that could cause actual results to differ
materially from the results described in or implied by the
forward-looking statements contained in this Report.


Overview




| |         
| | --------
| | Business

Diversification Strategy






| |                  
| | -----------------
| | Services Provided





| |                         
| | ------------------------
| | Diversification Strategy



16



---



##### Table of Contents









| |        
| | -------
| | Revenue





| |                 
| | ----------------
| | Costs of Revenue





| |                                             
| | --------------------------------------------
| | Selling, General and Administrative Expenses





| |                                                           
| | ----------------------------------------------------------
| | Critical Accounting Policies and Significant
    Estimates



Revenue Recognition and Cost Estimates on Contracts.


17



---



##### Table of Contents





Goodwill.


Provision for Doubtful Accounts.


Discretionary Bonus Plan.


18



---



##### Table of Contents



Results of Operations




|                                                       |                                                                          |                          |       |       |      |  |       |       |   |  |       |       |  
|------------------------------------------------------ | ------------------------------------------------------------------------ | ------------------------ | ----- | ----- | ---- |  | ----- | ----- | - |  | ----- | ----- | -
|                                                       |                                                                          | Years Ended December 31, |      
|                                                       |                                                                          |                          |      
|                                                       |                                                                          | 2002                     |       |       | 2003 |  |       | 2004  |  
|                                                       |                                                                          |                          |       |       |      |  |       |       |  
|Gross revenue                                          |                                                                          |                          | 116.3 | %     |      |  | 110.1 | %     |   |  | 108.9 | %    
|Subcontractor costs                                    |                                                                          |                          | 16.3  |       |      |  | 10.1  |       |   |  | 8.9   |      
|                                                       |                                                                          |                          |       |       |      |  |       |       |  
|                                                       | Net revenue                                                              |                          |       | 100.0 |      |  |       | 100.0 |   |  |       | 100.0 |  
|Costs of revenue                                       |                                                                          |                          | 64.7  |       |      |  | 64.3  |       |   |  | 62.4  |      
|                                                       |                                                                          |                          |       |       |      |  |       |       |  
|                                                       | Gross profit                                                             |                          |       | 35.3  |      |  |       | 35.7  |   |  |       | 37.6  |  
|Selling, general and administrative expenses           |                                                                          |                          | 21.4  |       |      |  | 23.2  |       |   |  | 23.8  |      
|                                                       |                                                                          |                          |       |       |      |  |       |       |  
|                                                       | Income from operations                                                   |                          |       | 13.9  |      |  |       | 12.5  |   |  |       | 13.8  |  
|Interest income, net                                   |                                                                          |                          | 0.5   |       |      |  | 0.3   |       |   |  | 0.5   |      
|Other income, net                                      |                                                                          |                          | 0.7   |       |      |  | 0.3   |       |   |  | 0.1   |      
|                                                       |                                                                          |                          |       |       |      |  |       |       |  
|                                                       | Income before provision for income taxes and discontinued
    operations |                          |       | 15.1  |      |  |       | 13.1  |   |  |       | 14.4  |  
|Provision for income taxes                             |                                                                          |                          | 5.9   |       |      |  | 5.1   |       |   |  | 5.7   |      
|                                                       |                                                                          |                          |       |       |      |  |       |       |  
|Income from continuing operations                      |                                                                          |                          | 9.2   |       |      |  | 8.0   |       |   |  | 8.7   |      
|Loss from discontinued operations, net of income taxes |                                                                          |                          | 0.7   |       |      |  | 0.0   |       |   |  | 0.4   |      
|                                                       |                                                                          |                          |       |       |      |  |       |       |  
|                                                       | Net income                                                               |                          |       | 8.5   | %    |  |       | 8.0   | % |  |       | 8.3   | %
|                                                       |                                                                          |                          |       |       |      |  |       |       |  



|                                                       |            |                                                                          |        |       |        |   |         |        |        |   |        |     |       |  |       |      |      | 
|------------------------------------------------------ | ---------- | ------------------------------------------------------------------------ | ------ | ----- | ------ | - | ------- | ------ | ------ | - | ------ | --- | ----- |  | ----- | ---- | ---- | 
|                                                       |            | Years Ended December 31,                                                 |       
|                                                       |            | (Dollars in thousands)                                                   |       
|                                                       |            |                                                                          |       
|                                                       |            |                                                                          |        | $     |        |   | %       |       
|                                                       |            | 2003                                                                     |        |       | 2004   |   |         | Change |        |   | Change |    
|                                                       |            |                                                                          |        |       |        |   |         |        |        |   |        |    
|Gross revenue                                          |            | $                                                                        | 99,950 |       |        | $ | 105,346 |        |        | $ | 5,396  |     |       |  | 5.4   | %   
|Subcontractor costs                                    |            |                                                                          | 9,206  |       |        |   | 8,592   |        |        |   | (614   | )   |       |  | (6.7  | )   
|                                                       |            |                                                                          |        |       |        |   |         |        |        |   |        |    
|                                                       |            | Net revenue                                                              |        |       | 90,744 |   |         |        | 96,754 |   |        |     | 6,010 |  |       |      | 6.6  | 
|Costs of revenue                                       |            |                                                                          | 58,359 |       |        |   | 60,363  |        |        |   | 2,004  |     |       |  | 3.4   |     
|                                                       |            |                                                                          |        |       |        |   |         |        |        |   |        |    
|                                                       |            | Gross profit                                                             |        |       | 32,385 |   |         |        | 36,391 |   |        |     | 4,006 |  |       |      | 12.4 | 
|Selling, general and administrative expenses           |            |                                                                          | 21,070 |       |        |   | 23,013  |        |        |   | 1,943  |     |       |  | 9.2   |     
|                                                       |            |                                                                          |        |       |        |   |         |        |        |   |        |    
|                                                       |            | Income from operations                                                   |        |       | 11,315 |   |         |        | 13,378 |   |        |     | 2,063 |  |       |      | 18.2 | 
|Interest income, net                                   |            |                                                                          | 264    |       |        |   | 481     |        |        |   | 217    |     |       |  | 82.2  |     
|Other income, net                                      |            |                                                                          | 259    |       |        |   | 46      |        |        |   | (213   | )   |       |  | (82.2 | )   
|                                                       |            |                                                                          |        |       |        |   |         |        |        |   |        |    
|                                                       |            | Income before provision for income taxes and discontinued
    operations |        |       | 11,838 |   |         |        | 13,905 |   |        |     | 2,067 |  |       |      | 17.5 | 
|Provision for income taxes                             |            |                                                                          | 4,617  |       |        |   | 5,468   |        |        |   | 851    |     |       |  | 18.4  |     
|                                                       |            |                                                                          |        |       |        |   |         |        |        |   |        |    
|Income from continuing operations                      |            |                                                                          | 7,221  |       |        |   | 8,437   |        |        |   | 1,216  |     |       |  | 16.8  |     
|Loss from discontinued operations, net of income taxes |            |                                                                          |       |       |        |   | 430     |        |        |   | 430    |     |       |  |      |     
|                                                       |            |                                                                          |        |       |        |   |         |        |        |   |        |    
|                                                       | Net income |                                                                          | $      | 7,221 |        |   | $       | 8,007  |        |   | $      | 786 |       |  |       | 10.9 | %   
|                                                       |            |                                                                          |        |       |        |   |         |        |        |   |        |    

19



---



##### Table of Contents





|                              |  |                                      |      |      |         |  |       |     |      |   |         |  |  |      |       |   |         |   |            |       |  |  |         |      |  |       |      |   |         |  |      |    |  |   |      |  |  |  |       |  
|----------------------------- |  | ------------------------------------ | ---- | ---- | ------- |  | ----- | --- | ---- | - | ------- |  |  | ---- | ----- | - | ------- | - | ---------- | ----- |  |  | ------- | ---- |  | ----- | ---- | - | ------- |  | ---- | -- |  | - | ---- |  |  |  | ----- | -
|                              |  | For the Year Ended December 31, 2003 |     
|                              |  | (Dollars in millions)                |     
|                              |  |                                      |     
|                              |  |                                      |      | % of |         |  |       |     | % of |   |         |  |  | % of |       |   |         |   | % of Cons. |       |  |  |         | % of | 
|                              |  | RE                                   |      |      | Net Rev |  |       | PWI |      |   | Net Rev |  |  | EI   |       |   | Net Rev |   |            | Corp. |  |  | Net Rev |      |  | Cons. |      |   | Net Rev | 
|                              |  |                                      |      |      |         |  |       |     |      |   |         |  |  |      |       |   |         |   |            |       |  |  |         |      |  |       |      |   |         | 
|Net Revenue                   |  | $                                    | 63.9 |      |         |  | 100.0 | %   |      | $ | 14.6    |  |  |      | 100.0 | % |         | $ | 12.3       |       |  |  | 100.0   | %    |  | $     |     |   |         |  | 0.0  | %  |  | $ | 90.7 |  |  |  | 100.0 | %
|Gross Profit                  |  |                                      | 24.7 |      |         |  | 38.7  | %   |      |   | 4.7     |  |  |      | 32.2  | % |         |   | 3.0        |       |  |  | 24.3    | %    |  |       |     |   |         |  | 0.0  | %  |  |   | 32.4 |  |  |  | 35.7  | %
|SG&A Expenses                 |  |                                      | 7.3  |      |         |  | 11.5  | %   |      |   | 3.0     |  |  |      | 20.2  | % |         |   | 2.2        |       |  |  | 17.6    | %    |  |       | 8.6  |   |         |  | 9.5  | %  |  |   | 21.1 |  |  |  | 23.2  | %
|                              |  |                                      |      |      |         |  |       |     |      |   |         |  |  |      |       |   |         |   |            |       |  |  |         |      |  |       |      |   |         | 
|Income (loss) From Operations |  | $                                    | 17.4 |      |         |  | 27.2  | %   |      | $ | 1.7     |  |  |      | 12.0  | % |         | $ | 0.8        |       |  |  | 6.7     | %    |  | $     | (8.6 | ) |         |  | (9.5 | )% |  | $ | 11.3 |  |  |  | 12.5  | %
|                              |  |                                      |      |      |         |  |       |     |      |   |         |  |  |      |       |   |         |   |            |       |  |  |         |      |  |       |      |   |         | 

|                              |  |                                      |      |      |         |  |       |     |      |   |         |  |  |      |       |   |         |   |            |       |  |  |         |      |  |       |       |   |         |  |       |    |  |   |      |  |  |  |       |  
|----------------------------- |  | ------------------------------------ | ---- | ---- | ------- |  | ----- | --- | ---- | - | ------- |  |  | ---- | ----- | - | ------- | - | ---------- | ----- |  |  | ------- | ---- |  | ----- | ----- | - | ------- |  | ----- | -- |  | - | ---- |  |  |  | ----- | -
|                              |  | For the Year Ended December 31, 2004 |     
|                              |  | (Dollars in millions)                |     
|                              |  |                                      |     
|                              |  |                                      |      | % of |         |  |       |     | % of |   |         |  |  | % of |       |   |         |   | % of Cons. |       |  |  |         | % of | 
|                              |  | RE                                   |      |      | Net Rev |  |       | PWI |      |   | Net Rev |  |  | EI   |       |   | Net Rev |   |            | Corp. |  |  | Net Rev |      |  | Cons. |       |   | Net Rev | 
|                              |  |                                      |      |      |         |  |       |     |      |   |         |  |  |      |       |   |         |   |            |       |  |  |         |      |  |       |       |   |         | 
|Net Revenue                   |  | $                                    | 73.4 |      |         |  | 100.0 | %   |      | $ | 14.4    |  |  |      | 100.0 | % |         | $ | 9.0        |       |  |  | 100.0   | %    |  | $     |      |   |         |  | 0.0   | %  |  | $ | 96.8 |  |  |  | 100.0 | %
|Gross Profit                  |  |                                      | 29.2 |      |         |  | 39.8  | %   |      |   | 4.8     |  |  |      | 33.2  | % |         |   | 2.4        |       |  |  | 26.8    | %    |  |       |      |   |         |  | 0.0   | %  |  |   | 36.4 |  |  |  | 37.6  | %
|SG&A Expenses                 |  |                                      | 7.6  |      |         |  | 10.4  | %   |      |   | 2.5     |  |  |      | 17.1  | % |         |   | 2.0        |       |  |  | 22.6    | %    |  |       | 10.9  |   |         |  | 11.3  | %  |  |   | 23.0 |  |  |  | 23.8  | %
|                              |  |                                      |      |      |         |  |       |     |      |   |         |  |  |      |       |   |         |   |            |       |  |  |         |      |  |       |       |   |         | 
|Income (loss) From Operations |  | $                                    | 21.6 |      |         |  | 29.4  | %   |      | $ | 2.3     |  |  |      | 16.1  | % |         | $ | 0.4        |       |  |  | 4.2     | %    |  | $     | (10.9 | ) |         |  | (11.3 | )% |  | $ | 13.4 |  |  |  | 13.8  | %
|                              |  |                                      |      |      |         |  |       |     |      |   |         |  |  |      |       |   |         |   |            |       |  |  |         |      |  |       |       |   |         | 



| |                                                        
| | -------------------------------------------------------
| | Years Ended December 31, 2004 and December 31,
    2003

Net Revenue.






20



---



##### Table of Contents









Gross Profit.










Selling, General and Administrative Expenses.


21



---



##### Table of Contents













Interest Income, net.


Other Income, net.


Income Taxes.


Discontinued Operations.


22



---



##### Table of Contents





|                                                       |            |                                                                          |         |       |        |   |        |        |        |   |        |      |        |   |        |      |       |  
|------------------------------------------------------ | ---------- | ------------------------------------------------------------------------ | ------- | ----- | ------ | - | ------ | ------ | ------ | - | ------ | ---- | ------ | - | ------ | ---- | ----- | -
|                                                       |            | Years Ended December 31,                                                 |        
|                                                       |            | (Dollars in thousands)                                                   |        
|                                                       |            |                                                                          |        
|                                                       |            |                                                                          |         | $     |        |   | %      |       
|                                                       |            | 2002                                                                     |         |       | 2003   |   |        | Change |        |   | Change |     
|                                                       |            |                                                                          |         |       |        |   |        |        |        |   |        |     
|Gross revenue                                          |            | $                                                                        | 106,487 |       |        | $ | 99,950 |        |        | $ | (6,537 | )    |        |   | (6.1   | )%  
|Subcontractor costs                                    |            |                                                                          | 14,889  |       |        |   | 9,206  |        |        |   | (5,683 | )    |        |   | (38.2  | )   
|                                                       |            |                                                                          |         |       |        |   |        |        |        |   |        |     
|                                                       |            | Net revenue                                                              |         |       | 91,598 |   |        |        | 90,744 |   |        |      | (854   | ) |        |      | (0.9  | )
|Costs of revenue                                       |            |                                                                          | 59,286  |       |        |   | 58,359 |        |        |   | (927   | )    |        |   | (1.6   | )   
|                                                       |            |                                                                          |         |       |        |   |        |        |        |   |        |     
|                                                       |            | Gross profit                                                             |         |       | 32,312 |   |        |        | 32,385 |   |        |      | 73     |   |        |      | 0.2   |  
|Selling, general and administrative expenses           |            |                                                                          | 19,535  |       |        |   | 21,070 |        |        |   | 1,535  |      |        |   | 7.9    |     
|                                                       |            |                                                                          |         |       |        |   |        |        |        |   |        |     
|                                                       |            | Income from operations                                                   |         |       | 12,777 |   |        |        | 11,315 |   |        |      | (1,462 | ) |        |      | (11.4 | )
|Interest income, net                                   |            |                                                                          | 431     |       |        |   | 264    |        |        |   | (167   | )    |        |   | (38.7  | )   
|Other income, net                                      |            |                                                                          | 625     |       |        |   | 259    |        |        |   | (366   | )    |        |   | (58.6  | )   
|                                                       |            |                                                                          |         |       |        |   |        |        |        |   |        |     
|                                                       |            | Income before provision for income taxes and discontinued
    operations |         |       | 13,833 |   |        |        | 11,838 |   |        |      | (1,995 | ) |        |      | (14.4 | )
|Provision for income taxes                             |            |                                                                          | 5,397   |       |        |   | 4,617  |        |        |   | (780   | )    |        |   | (14.5  | )   
|                                                       |            |                                                                          |         |       |        |   |        |        |        |   |        |     
|Income from continuing operations                      |            |                                                                          | 8,436   |       |        |   | 7,221  |        |        |   | (1,215 | )    |        |   | (14.4  | )   
|Loss from discontinued operations, net of income taxes |            |                                                                          | 628     |       |        |   |       |        |        |   | 628    |      |        |   | (100.0 | )   
|                                                       |            |                                                                          |         |       |        |   |        |        |        |   |        |     
|                                                       | Net income |                                                                          | $       | 7,808 |        |   | $      | 7,221  |        |   | $      | (587 | )      |   |        | (7.5 | )%   
|                                                       |            |                                                                          |         |       |        |   |        |        |        |   |        |     



|                              |  |                                      |      |      |         |  |       |     |      |   |         |  |  |      |       |   |         |   |            |       |  |  |         |      |  |       |      |   |         |  |      |    |  |   |      |  |  |  |       |  
|----------------------------- |  | ------------------------------------ | ---- | ---- | ------- |  | ----- | --- | ---- | - | ------- |  |  | ---- | ----- | - | ------- | - | ---------- | ----- |  |  | ------- | ---- |  | ----- | ---- | - | ------- |  | ---- | -- |  | - | ---- |  |  |  | ----- | -
|                              |  | For the Year Ended December 31, 2002 |     
|                              |  | (Dollars in millions)                |     
|                              |  |                                      |     
|                              |  |                                      |      | % of |         |  |       |     | % of |   |         |  |  | % of |       |   |         |   | % of Cons. |       |  |  |         | % of | 
|                              |  | RE                                   |      |      | Net Rev |  |       | PWI |      |   | Net Rev |  |  | EI   |       |   | Net Rev |   |            | Corp. |  |  | Net Rev |      |  | Cons. |      |   | Net Rev | 
|                              |  |                                      |      |      |         |  |       |     |      |   |         |  |  |      |       |   |         |   |            |       |  |  |         |      |  |       |      |   |         | 
|Net Revenue                   |  | $                                    | 57.5 |      |         |  | 100.0 | %   |      | $ | 13.7    |  |  |      | 100.0 | % |         | $ | 20.4       |       |  |  | 100.0   | %    |  | $     |     |   |         |  | 0.0  | %  |  | $ | 91.6 |  |  |  | 100.0 | %
|Gross Profit                  |  |                                      | 21.5 |      |         |  | 37.3  | %   |      |   | 4.7     |  |  |      | 34.2  | % |         |   | 6.2        |       |  |  | 30.2    | %    |  |       |     |   |         |  | 0.0  | %  |  |   | 32.3 |  |  |  | 35.3  | %
|SG&A Expenses                 |  |                                      | 7.2  |      |         |  | 12.5  | %   |      |   | 2.6     |  |  |      | 19.0  | % |         |   | 2.2        |       |  |  | 10.7    | %    |  |       | 7.6  |   |         |  | 8.3  | %  |  |   | 19.5 |  |  |  | 21.4  | %
|                              |  |                                      |      |      |         |  |       |     |      |   |         |  |  |      |       |   |         |   |            |       |  |  |         |      |  |       |      |   |         | 
|Income (loss) From Operations |  | $                                    | 14.3 |      |         |  | 24.8  | %   |      | $ | 2.1     |  |  |      | 15.2  | % |         | $ | 4.0        |       |  |  | 19.5    | %    |  | $     | (7.6 | ) |         |  | (8.3 | )% |  | $ | 12.8 |  |  |  | 13.9  | %
|                              |  |                                      |      |      |         |  |       |     |      |   |         |  |  |      |       |   |         |   |            |       |  |  |         |      |  |       |      |   |         | 

|                              |  |                                      |      |      |         |  |       |     |      |   |         |  |  |      |       |   |         |   |            |       |  |  |         |      |  |       |      |   |         |  |      |    |  |   |      |  |  |  |       |  
|----------------------------- |  | ------------------------------------ | ---- | ---- | ------- |  | ----- | --- | ---- | - | ------- |  |  | ---- | ----- | - | ------- | - | ---------- | ----- |  |  | ------- | ---- |  | ----- | ---- | - | ------- |  | ---- | -- |  | - | ---- |  |  |  | ----- | -
|                              |  | For the Year Ended December 31, 2003 |     
|                              |  | (Dollars in millions)                |     
|                              |  |                                      |     
|                              |  |                                      |      | % of |         |  |       |     | % of |   |         |  |  | % of |       |   |         |   | % of Cons. |       |  |  |         | % of | 
|                              |  | RE                                   |      |      | Net Rev |  |       | PWI |      |   | Net Rev |  |  | EI   |       |   | Net Rev |   |            | Corp. |  |  | Net Rev |      |  | Cons. |      |   | Net Rev | 
|                              |  |                                      |      |      |         |  |       |     |      |   |         |  |  |      |       |   |         |   |            |       |  |  |         |      |  |       |      |   |         | 
|Net Revenue                   |  | $                                    | 63.9 |      |         |  | 100.0 | %   |      | $ | 14.6    |  |  |      | 100.0 | % |         | $ | 12.3       |       |  |  | 100.0   | %    |  | $     |     |   |         |  | 0.0  | %  |  | $ | 90.7 |  |  |  | 100.0 | %
|Gross Profit                  |  |                                      | 24.7 |      |         |  | 38.7  | %   |      |   | 4.7     |  |  |      | 32.2  | % |         |   | 3.0        |       |  |  | 24.3    | %    |  |       |     |   |         |  | 0.0  | %  |  |   | 32.4 |  |  |  | 35.7  | %
|SG&A Expenses                 |  |                                      | 7.3  |      |         |  | 11.5  | %   |      |   | 3.0     |  |  |      | 20.2  | % |         |   | 2.2        |       |  |  | 17.6    | %    |  |       | 8.6  |   |         |  | 9.5  | %  |  |   | 21.1 |  |  |  | 23.2  | %
|                              |  |                                      |      |      |         |  |       |     |      |   |         |  |  |      |       |   |         |   |            |       |  |  |         |      |  |       |      |   |         | 
|Income (loss) From Operations |  | $                                    | 17.4 |      |         |  | 27.2  | %   |      | $ | 1.7     |  |  |      | 12.0  | % |         | $ | 0.8        |       |  |  | 6.7     | %    |  | $     | (8.6 | ) |         |  | (9.5 | )% |  | $ | 11.3 |  |  |  | 12.5  | %
|                              |  |                                      |      |      |         |  |       |     |      |   |         |  |  |      |       |   |         |   |            |       |  |  |         |      |  |       |      |   |         | 

23



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| |                                                        
| | -------------------------------------------------------
| | Years Ended December 31, 2003 and December 31,
    2002

Net Revenue.










Gross Profit.








24



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##### Table of Contents





Selling, General and Administrative Expenses.


Interest Income, net.


Other Income, net.


Income Taxes.


Discontinued Operations.


Related Party






25



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##### Table of Contents



Liquidity and Capital Resources




Cash Flows From Operating Activities.


Cash Flows Used In Investing Activities.


Cash Flows From Financing Activities.








26



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##### Table of Contents







|                                   |  |                        |            |           |        |   |           |       |  |       |           |  |           |         |           |  |  |   |         | 
|---------------------------------- |  | ---------------------- | ---------- | --------- | ------ | - | --------- | ----- |  | ----- | --------- |  | --------- | ------- | --------- |  |  | - | ------- | 
|                                   |  | Payments Due By Period |           
|                                   |  |                        |           
|                                   |  |                        |            | Less than |        |   | 1 - 3     |       |  | 3 - 5 |           |  | More than |        
|                                   |  | Total                  |            |           | 1 Year |   |           | Years |  |       | Years     |  |           | 5 Years |          
|                                   |  |                        |            |           |        |   |           |       |  |       |           |  |           |         |          
|Operating lease obligations        |  | $                      | 14,372,000 |           |        | $ | 4,116,000 |       |  | $     | 5,865,000 |  |           | $       | 4,171,000 |  |  | $ | 220,000 | 
|                                   |  |                        |            |           |        |   |           |       |  |       |           |  |           |         |          
|Total contractual cash obligations |  | $                      | 14,372,000 |           |        | $ | 4,116,000 |       |  | $     | 5,865,000 |  |           | $       | 4,171,000 |  |  | $ | 220,000 | 
|                                   |  |                        |            |           |        |   |           |       |  |       |           |  |           |         |          

Future Cash Requirements






Effect of Recent Accounting Pronouncements


The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments.


Share-Based Payment Accounting for
Stock-Based Compensation Accounting for Stock
Issued to Employees.


27



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##### Table of Contents





Inflation




The following discussion summarizes material risks which you
should carefully consider before you decide to invest in our
common stock or to maintain or increase your investment. Any of
the following risks, if they actually occur, would likely harm
our business. The trading price of our common stock could then
decline, and you may lose all or part of the money you paid to
buy our common stock.


Risk Factors  Risks Related To Our Industries




| |                                                                               
| | ------------------------------------------------------------------------------
| | Our business could suffer if there is a downturn in the
    real estate market







| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | changes in employment levels and other national and local
    economic conditions;                    
|
| |  | changes in interest rates and in the availability, cost and
    terms of financing;                   
|
| |  | the impact of present or future environmental, zoning or other
    laws and regulations;              
|
| |  | changes in real estate tax rates and assessments and other
    operating expenses;                    
|
| |  | changes in levels of government spending and fiscal
    policies; and                                 
|
| |  | earthquakes and other natural or manmade disasters and other
    factors which are beyond our control.



| |                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We derive revenue from contracts with government agencies.
    Any disruption in government funding or in our relationship with
    those agencies could adversely affect our business





28



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| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We derive revenue from engineering services provided to
    the energy industry. Continued delay and reduction in the pace
    of construction for new power plants, cogeneration facilities,
    and electrical distribution facilities has had, and may continue
    to have an adverse affect on our business





| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may have difficulty in attracting and retaining
    qualified professionals, which may harm our reputation in the
    marketplace and restrict our ability to implement our business
    strategy





| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Increased competition in the industries we serve may
    adversely affect our business





| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | Terrorism and related conflicts may have a material
    adverse effect on our operating results



29



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##### Table of Contents



Risk Factors  Risks Related To Our Business




| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | Our revenue, income and cash flow could decline if there
    is a downturn in the California economy or real estate
    market





| |                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our estimates or assumptions used in arriving at the
    fair value of acquired entities change from those used in our
    current valuations, we may be required to recognize a goodwill
    impairment loss





| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | We could lose money if we fail to accurately estimate our
    costs on fixed-price contracts and/or contracts with
    not-to-exceed provisions





| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | weakness in the management of our projects;                                                    
|
| |  | loss of efficiency resulting from cross-utilization of office
    staff from various locations;
|
| |  | changes in the costs of goods and services that may occur during
    the contract period;      
|
| |  | problems with new technologies; and                                                            
|
| |  | delays beyond our control.                                                                     



| |                                                                                   
| | ----------------------------------------------------------------------------------
| | If our employees leave our company and join a competitor,
    we may lose business





| |                                                                      
| | ---------------------------------------------------------------------
| | Our diversification strategy could decrease our operating
    margins



30



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##### Table of Contents







| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | If we are unable to effectively manage our growth, we may
    experience a decline in our revenue and profitability





| |                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to successfully implement our acquisition
    strategy, we may not meet our current expectations of growth
    and/or operating results





| |   |                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We may fail to consummate an acquisition even if an announcement
    had been made to acquire a target company;                                                                                                                          
|
| |  | As the engineering industry consolidates, suitable acquisition
    candidates are expected to become more difficult to locate and
    may only be available at prices or under terms that are less
    favorable than in the past;       
|
| |  | We may not be able to arrange suitable financing to consummate
    an acquisition;                                                                                                                                                       
|
| |  | We may not be successful in integrating an acquired
    companys professionals, clientele and culture into ours;                                                                                                                        
|
| |  | We may not be successful in generating the same level of
    operating performance that an acquired company experienced prior
    to the acquisition;                                                                                    
|
| |  | As we expand our service offerings and geographic presence, we
    may not be able to maintain the current level of quality of
    services;                                                                                             
|
| |  | We may not be able to maintain our reputation in an acquired
    entitys geographic area or service offerings and as a
    consequence our ability to attract and retain clients in those
    or other areas may be negatively impacted;
|
| |  | An acquired company may be less profitable than us, resulting in
    reduced profit margins; and                                                                                                                                         
|
| |  | The acquisition, subsequent integration, and ongoing operations
    of an acquired company may require a significant amount of
    managements time, diverting their attention from our
    existing operations and clients.            

31



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| |                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | From time to time, we have pursued and may continue to
    pursue and invest in business opportunities that are not
    directly within our core competencies. If these business
    opportunities are not profitable, our results of operations may
    be materially adversely affected.





| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Our business may expose us to liability in excess of our
    current insurance coverage







| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Adverse weather conditions or acts of God may cause a
    delay or elimination of our net revenue otherwise would have
    been recognized and adversely affect our profitability



32



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| |                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We recently opened new offices in Southern California, and
    may open additional offices. We have incurred, and will continue
    to incur, start-up expenses and these offices may not be
    profitable soon, or at all.





| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | Our business could suffer if we are unsuccessful in
    renegotiating our collective bargaining agreement on terms
    favorable to us, if at all.





| |                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to successfully implement our new
    Enterprise Service Automation software system, we may incur
    further costs to implement or upgrade our systems, our cash
    flows may be effected, our ability to make timely filings with
    the Securities and Exchange Commission may be impaired, all of
    which are distractions to management





| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We derive revenue from contracts for work performed in
    foreign countries which are subject to a number of risks that
    could adversely affect the results from these contracts



33



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##### Table of Contents







| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The loss of Mr. Keith could adversely affect our
    business, including our ability to secure and complete
    engagements and attract and retain employees





| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | If we are unable to engage qualified subcontractors, we
    may lose projects, revenue and clients





| |                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------
| | Our backlog is an uncertain indicator of future financial
    performance and is subject to adjustment or cancellation



Risk Factors  Risks Related To Ownership of Our
Stock




| |                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------
| | Our stock price may decrease, which could result in
    significant losses for investors or adversely affect our
    business





| |   |                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the failure of our quarterly operating results to meet
    expectations;                                                                                                                                                                 
|
| |  | adverse developments in the worldwide economy, the financial
    markets, the engineering and consulting services market, the
    real estate market, the public works/ infrastructure market,
    and/ or the energy/ industrial market;
|
| |  | changes in interest rates;                                                                                                                                                                                                               
|
| |  | our failure to meet securities analysts expectations;                                                                                                                                                                                   
|
| |  | lowering our financial guidance;                                                                                                                                                                                                         
|
| |  | changes in accounting principles;                                                                                                                                                                                                        
|
| |  | sales of common stock by our senior management, members of our
    board, existing shareholders, or holders of options/restricted
    shares;                                                                                            
|
| |  | announcements of key developments by our competitors;                                                                                                                                                                                    
|
| |  | the reaction of markets and securities analysts to announcements
    and developments involving our company; and                                                                                                                         
|
| |  | resolution of threatened or pending litigation.                                                                                                                                                                                          

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##### Table of Contents







| |                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our board of directors has the ability to discourage
    takeover attempts, which may reduce or eliminate your ability to
    sell your shares for a premium in a change of control
    transaction





| |                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| | Shares of our common stock eligible for public sale could
    cause the market price of our stock to drop, even if our
    business is doing well





| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | Insiders have substantial control over us, which could
    limit your ability to influence the outcome of key
    transactions





| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our common stock is thinly traded. Consequently, it may be
    difficult for shareholders to sell our common stock, which may
    result in losses for investors





| |                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we need to sell or issue additional shares of common
    stock and/or incur additional debt to finance future
    acquisitions, your stock ownership could be diluted and our
    results of operations could be adversely affected



35



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|         |                                                           
|-------- | ----------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK







36



---



##### Table of Contents








|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

|                                                                                                             |  |      |    | 
|------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                                                                                                             |  | Page |   
|                                                                                                             |  |      |   
|Report of Independent Registered Public
    Accounting Firm                                                  |  |      | 38 | 
|Managements Report on Internal
    Controls Over Financial Reporting                                        |  |      | 39 | 
|Report of Independent Registered Public
    Accounting Firm                                                  |  |      | 40 | 
|Consolidated Balance Sheets as of
    December 31, 2003 and 2004                                             |  |      | 41 | 
|Consolidated Statements of Income for the
    Years Ended December 31, 2002, 2003 and 2004                   |  |      | 42 | 
|Consolidated Statements of
    Shareholders Equity for the Years Ended December 31,
    2002, 2003 and 2004 |  |      | 43 | 
|Consolidated Statements of Cash Flows for
    the Years Ended December 31, 2002, 2003 and 2004               |  |      | 44 | 
|Notes to Consolidated Financial
    Statements                                                               |  |      | 45 | 

37



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Report of Independent Registered Public Accounting Firm












Internal Control 
Integrated Framework




| |             
| | ------------
| | /s/ KPMG LLP





38



---



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Managements Report on Internal Control Over Financial
Reporting










39



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Report of Independent Registered Public Accounting Firm






Managements Report on Internal Control
Over Financial Reporting, Internal Control  Integrated Framework issued








Internal
Control  Integrated Framework Internal Control  Integrated
Framework






| |             
| | ------------
| | /s/ KPMG LLP





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##### Table of Contents



THE KEITH COMPANIES, INC. AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


|                                                   |                                                                                                                                                             |                                            |            |            |            |  |            |            |            | 
|-------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ---------- | ---------- |  | ---------- | ---------- | ---------- | 
|                                                   |                                                                                                                                                             | December 31,                               |           
|                                                   |                                                                                                                                                             |                                            |           
|                                                   |                                                                                                                                                             | 2003                                       |            |            | 2004       | 
|                                                   |                                                                                                                                                             |                                            |            |            |            | 
|ASSETS                                            
|Current assets:                                    |                                                                                                                                                             |                                            |            |            |            |  |            |           
|                                                   | Cash and cash equivalents                                                                                                                                   |                                            | $          | 4,277,000  |            |  | $          | 7,819,000  |           
|                                                   | Securities:                                                                                                                                                 |                                            |            |            |            |  |            |            |           
|                                                   |                                                                                                                                                             | Available-for-sale, at fair value          |            |            | 23,600,000 |  |            |            | 34,325,000 | 
|                                                   |                                                                                                                                                             | Held-to-maturity                           |            |            | 1,000,000  |  |            |            |           | 
|                                                   | Contracts and trade receivables, net of allowance for doubtful
    accounts of $1,328,000 and $1,069,000 at December 31, 2003
    and 2004, respectively    |                                            |            | 19,844,000 |            |  |            | 16,452,000 |           
|                                                   | Costs and estimated earnings in excess of billings                                                                                                          |                                            |            | 9,997,000  |            |  |            | 10,470,000 |           
|                                                   | Prepaid expenses and other currents assets                                                                                                                  |                                            |            | 1,468,000  |            |  |            | 928,000    |           
|                                                   |                                                                                                                                                             |                                            |            |            |            | 
|                                                   |                                                                                                                                                             | Total current assets                       |            |            | 60,186,000 |  |            |            | 69,994,000 | 
|Equipment and leasehold improvements, net          |                                                                                                                                                             |                                            | 4,067,000  |            |            |  | 4,643,000  |           
|Goodwill                                           |                                                                                                                                                             |                                            | 23,059,000 |            |            |  | 23,059,000 |           
|Other assets                                       |                                                                                                                                                             |                                            | 224,000    |            |            |  | 273,000    |           
|                                                   |                                                                                                                                                             |                                            |            |            |            | 
|                                                   |                                                                                                                                                             | Total assets                               |            | $          | 87,536,000 |  |            | $          | 97,969,000 | 
|                                                   |                                                                                                                                                             |                                            |            |            |            | 
|                                                  
|LIABILITIES AND SHAREHOLDERS EQUITY              
|Current liabilities:                               |                                                                                                                                                             |                                            |            |            |            |  |            |           
|                                                   | Trade accounts payable                                                                                                                                      |                                            | $          | 1,640,000  |            |  | $          | 1,685,000  |           
|                                                   | Accrued employee compensation                                                                                                                               |                                            |            | 4,037,000  |            |  |            | 5,445,000  |           
|                                                   | Current portion of deferred tax liabilities                                                                                                                 |                                            |            | 2,444,000  |            |  |            | 1,661,000  |           
|                                                   | Other accrued liabilities                                                                                                                                   |                                            |            | 3,078,000  |            |  |            | 3,809,000  |           
|                                                   | Billings in excess of costs and estimated earnings                                                                                                          |                                            |            | 1,571,000  |            |  |            | 1,922,000  |           
|                                                   |                                                                                                                                                             |                                            |            |            |            | 
|                                                   |                                                                                                                                                             | Total current liabilities                  |            |            | 12,770,000 |  |            |            | 14,522,000 | 
|Issuable common stock                              |                                                                                                                                                             |                                            | 792,000    |            |            |  |           |           
|Deferred tax liabilities                           |                                                                                                                                                             |                                            | 1,560,000  |            |            |  | 1,125,000  |           
|Accrued rent                                       |                                                                                                                                                             |                                            | 452,000    |            |            |  | 401,000    |           
|                                                   |                                                                                                                                                             |                                            |            |            |            | 
|                                                   |                                                                                                                                                             | Total liabilities                          |            |            | 15,574,000 |  |            |            | 16,048,000 | 
|                                                   |                                                                                                                                                             |                                            |            |            |            | 
|Shareholders equity:                              |                                                                                                                                                             |                                            |            |            |            |  |            |           
|                                                   | Preferred stock, $0.001 par value. Authorized
    5,000,000 shares; no shares issued or outstanding                                                         |                                            |            |           |            |  |            |           |           
|                                                   | Common stock, $0.001 par value. Authorized
    100,000,000 shares; issued and outstanding 7,653,935 and
    7,920,903 shares in 2003 and 2004, respectively |                                            |            | 8,000      |            |  |            | 8,000      |           
|                                                   | Additional paid-in-capital                                                                                                                                  |                                            |            | 45,464,000 |            |  |            | 48,114,000 |           
|                                                   | Deferred stock compensation                                                                                                                                 |                                            |            | (169,000   | )          |  |            | (867,000   | )         
|                                                   | Retained earnings                                                                                                                                           |                                            |            | 26,659,000 |            |  |            | 34,666,000 |           
|                                                   |                                                                                                                                                             |                                            |            |            |            | 
|                                                   |                                                                                                                                                             | Total shareholders equity                 |            |            | 71,962,000 |  |            |            | 81,921,000 | 
|                                                   |                                                                                                                                                             |                                            |            |            |            | 
|Commitments and contingencies (Notes 9, 10 and 17) |                                                                                                                                                             |                                            |            |            |            |  |            |           
|                                                   |                                                                                                                                                             | Total liabilities and shareholders equity |            | $          | 87,536,000 |  |            | $          | 97,969,000 | 
|                                                   |                                                                                                                                                             |                                            |            |            |            | 



41



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THE KEITH COMPANIES, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF INCOME


|                                                                                 |                                                                          |                          |             |            |      |   |            |            |  |   |             |            |  
|-------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------ | ----------- | ---------- | ---- | - | ---------- | ---------- |  | - | ----------- | ---------- | -
|                                                                                 |                                                                          | Years Ended December 31, |            
|                                                                                 |                                                                          |                          |            
|                                                                                 |                                                                          | 2002                     |             |            | 2003 |   |            | 2004       | 
|                                                                                 |                                                                          |                          |             |            |      |   |            |            | 
|Gross revenue                                                                    |                                                                          | $                        | 106,487,000 |            |      | $ | 99,950,000 |            |  | $ | 105,346,000 |           
|Subcontractor costs                                                              |                                                                          |                          | 14,889,000  |            |      |   | 9,206,000  |            |  |   | 8,592,000   |           
|                                                                                 |                                                                          |                          |             |            |      |   |            |            | 
|                                                                                 | Net revenue                                                              |                          |             | 91,598,000 |      |   |            | 90,744,000 |  |   |             | 96,754,000 |  
|Costs of revenue                                                                 |                                                                          |                          | 59,286,000  |            |      |   | 58,359,000 |            |  |   | 60,363,000  |           
|                                                                                 |                                                                          |                          |             |            |      |   |            |            | 
|                                                                                 | Gross profit                                                             |                          |             | 32,312,000 |      |   |            | 32,385,000 |  |   |             | 36,391,000 |  
|Selling, general and administrative expenses                                     |                                                                          |                          | 19,535,000  |            |      |   | 21,070,000 |            |  |   | 23,013,000  |           
|                                                                                 |                                                                          |                          |             |            |      |   |            |            | 
|                                                                                 | Income from operations                                                   |                          |             | 12,777,000 |      |   |            | 11,315,000 |  |   |             | 13,378,000 |  
|Interest income, net                                                             |                                                                          |                          | 431,000     |            |      |   | 264,000    |            |  |   | 481,000     |           
|Other income, net                                                                |                                                                          |                          | 625,000     |            |      |   | 259,000    |            |  |   | 46,000      |           
|                                                                                 |                                                                          |                          |             |            |      |   |            |            | 
|                                                                                 | Income before provision for income taxes and discontinued
    operations |                          |             | 13,833,000 |      |   |            | 11,838,000 |  |   |             | 13,905,000 |  
|Provision for income taxes                                                       |                                                                          |                          | 5,397,000   |            |      |   | 4,617,000  |            |  |   | 5,468,000   |           
|                                                                                 |                                                                          |                          |             |            |      |   |            |            | 
|                                                                                 | Income from continuing operations                                        |                          |             | 8,436,000  |      |   |            | 7,221,000  |  |   |             | 8,437,000  |  
|Loss from discontinued operations, net of income taxes                           |                                                                          |                          | 628,000     |            |      |   |           |            |  |   | 430,000     |           
|                                                                                 |                                                                          |                          |             |            |      |   |            |            | 
|                                                                                 | Net income                                                               |                          | $           | 7,808,000  |      |   | $          | 7,221,000  |  |   | $           | 8,007,000  |  
|                                                                                 |                                                                          |                          |             |            |      |   |            |            | 
|Earnings per share from continuing operations:                                   |                                                                          |                          |             |            |      |   |            |            |  |   |             |           
|                                                                                 | Basic                                                                    |                          | $           | 1.15       |      |   | $          | 0.95       |  |   | $           | 1.08       |  
|                                                                                 |                                                                          |                          |             |            |      |   |            |            | 
|                                                                                 | Diluted                                                                  |                          | $           | 1.07       |      |   | $          | 0.91       |  |   | $           | 1.05       |  
|                                                                                 |                                                                          |                          |             |            |      |   |            |            | 
|Earnings (loss) per share from discontinued operations, net of
    income taxes: |                                                                          |                          |             |            |      |   |            |            |  |   |             |           
|                                                                                 | Basic                                                                    |                          | $           | (0.09      | )    |   | $          |           |  |   | $           | (0.05      | )
|                                                                                 |                                                                          |                          |             |            |      |   |            |            | 
|                                                                                 | Diluted                                                                  |                          | $           | (0.08      | )    |   | $          |           |  |   | $           | (0.05      | )
|                                                                                 |                                                                          |                          |             |            |      |   |            |            | 
|Earnings per share:                                                              |                                                                          |                          |             |            |      |   |            |            |  |   |             |           
|                                                                                 | Basic                                                                    |                          | $           | 1.06       |      |   | $          | 0.95       |  |   | $           | 1.03       |  
|                                                                                 |                                                                          |                          |             |            |      |   |            |            | 
|                                                                                 | Diluted                                                                  |                          | $           | 0.99       |      |   | $          | 0.91       |  |   | $           | 1.00       |  
|                                                                                 |                                                                          |                          |             |            |      |   |            |            | 
|Weighted average number of shares outstanding:                                   |                                                                          |                          |             |            |      |   |            |            |  |   |             |           
|                                                                                 | Basic                                                                    |                          |             | 7,363,073  |      |   |            | 7,615,264  |  |   |             | 7,778,661  |  
|                                                                                 |                                                                          |                          |             |            |      |   |            |            | 
|                                                                                 | Diluted                                                                  |                          |             | 7,868,877  |      |   |            | 7,957,344  |  |   |             | 8,039,457  |  
|                                                                                 |                                                                          |                          |             |            |      |   |            |            | 



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THE KEITH COMPANIES, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY


Years Ended December 31, 2002, 2003 and 2004


|                                              |  |             |           |  |        |            |       |         |  |   |                |  |  |          |          |   |       |   |            |  |  |   |            |  
|--------------------------------------------- |  | ----------- | --------- |  | ------ | ---------- | ----- | ------- |  | - | -------------- |  |  | -------- | -------- | - | ----- | - | ---------- |  |  | - | ---------- | -
|                                              |  |             |           |  |        | Additional |       |         |  |   |                |  | 
|                                              |  | Shares      |           |  | Common |            |       | Paid-In |  |   | Deferred Stock |  |  | Retained |          |   |      
|                                              |  | Outstanding |           |  | Stock  |            |       | Capital |  |   | Compensation   |  |  | Earnings |          |   | Total |  
|                                              |  |             |           |  |        |            |       |         |  |   |                |  |  |          |          |   |       |  
|Balance at December 31, 2001                  |  |             | 7,309,684 |  |        | $          | 7,000 |         |  | $ | 42,096,000     |  |  | $        |         |   |       | $ | 11,630,000 |  |  | $ | 53,733,000 |  
|Issuance of common stock                      |  |             | 174,783   |  |        |            | 1,000 |         |  |   | 1,822,000      |  |  |          |         |   |       |   |           |  |  |   | 1,823,000  |  
|Stock options exercised                       |  |             | 29,673    |  |        |            |      |         |  |   | 159,000        |  |  |          |         |   |       |   |           |  |  |   | 159,000    |  
|Tax benefit from exercise of stock options    |  |             |          |  |        |            |      |         |  |   | 89,000         |  |  |          |         |   |       |   |           |  |  |   | 89,000     |  
|Net income                                    |  |             |          |  |        |            |      |         |  |   |               |  |  |          |         |   |       |   | 7,808,000  |  |  |   | 7,808,000  |  
|                                              |  |             |           |  |        |            |       |         |  |   |                |  |  |          |          |   |       |  
|Balance at December 31, 2002                  |  |             | 7,514,140 |  |        |            | 8,000 |         |  |   | 44,166,000     |  |  |          |         |   |       |   | 19,438,000 |  |  |   | 63,612,000 |  
|Issuance of common stock                      |  |             | 70,907    |  |        |            |      |         |  |   | 714,000        |  |  |          |         |   |       |   |           |  |  |   | 714,000    |  
|Stock options exercised                       |  |             | 68,888    |  |        |            |      |         |  |   | 309,000        |  |  |          |         |   |       |   |           |  |  |   | 309,000    |  
|Tax benefit from exercise of stock options    |  |             |          |  |        |            |      |         |  |   | 69,000         |  |  |          |         |   |       |   |           |  |  |   | 69,000     |  
|Restricted stock issuance                     |  |             |          |  |        |            |      |         |  |   | 206,000        |  |  |          |         |   |       |   |           |  |  |   | 206,000    |  
|Deferred stock compensation                   |  |             |          |  |        |            |      |         |  |   |               |  |  |          | (169,000 | ) |       |   |           |  |  |   | (169,000   | )
|Net income                                    |  |             |          |  |        |            |      |         |  |   |               |  |  |          |         |   |       |   | 7,221,000  |  |  |   | 7,221,000  |  
|                                              |  |             |           |  |        |            |       |         |  |   |                |  |  |          |          |   |       |  
|Balance at December 31, 2003                  |  |             | 7,653,935 |  |        |            | 8,000 |         |  |   | 45,464,000     |  |  |          | (169,000 | ) |       |   | 26,659,000 |  |  |   | 71,962,000 |  
|Issuance of common stock                      |  |             | 74,171    |  |        |            |      |         |  |   | 779,000        |  |  |          |         |   |       |   |           |  |  |   | 779,000    |  
|Stock options exercised                       |  |             | 105,181   |  |        |            |      |         |  |   | 616,000        |  |  |          |         |   |       |   |           |  |  |   | 616,000    |  
|Tax benefit from exercise of stock options    |  |             |          |  |        |            |      |         |  |   | 299,000        |  |  |          |         |   |       |   |           |  |  |   | 299,000    |  
|Restricted stock issuance and repurchase, net |  |             | 87,616    |  |        |            |      |         |  |   | 956,000        |  |  |          |         |   |       |   |           |  |  |   | 956,000    |  
|Deferred stock compensation                   |  |             |          |  |        |            |      |         |  |   |               |  |  |          | (698,000 | ) |       |   |           |  |  |   | (698,000   | )
|Net income                                    |  |             |          |  |        |            |      |         |  |   |               |  |  |          |         |   |       |   | 8,007,000  |  |  |   | 8,007,000  |  
|                                              |  |             |           |  |        |            |       |         |  |   |                |  |  |          |          |   |       |  
|Balance at December 31, 2004                  |  |             | 7,920,903 |  |        | $          | 8,000 |         |  | $ | 48,114,000     |  |  | $        | (867,000 | ) |       | $ | 34,666,000 |  |  | $ | 81,921,000 |  
|                                              |  |             |           |  |        |            |       |         |  |   |                |  |  |          |          |   |       |  



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THE KEITH COMPANIES, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                      |                                                                                                   |                                                    |                                                      |             |            |            |           |             |            |             |           |             |            |             |  
|------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ---------------------------------------------------- | ----------- | ---------- | ---------- | --------- | ----------- | ---------- | ----------- | --------- | ----------- | ---------- | ----------- | -
|                                                                                      |                                                                                                   | Years Ended December 31,                           |                                                     
|                                                                                      |                                                                                                   |                                                    |                                                     
|                                                                                      |                                                                                                   | 2002                                               |                                                      |             | 2003       |            |           | 2004        |           
|                                                                                      |                                                                                                   |                                                    |                                                      |             |            |            |           |             |           
|Cash flows from operating activities:                                                 |                                                                                                   |                                                    |                                                      |             |            |            |           |             |            |             |           |            
|Net income                                                                            |                                                                                                   | $                                                  | 7,808,000                                            |             |            | $          | 7,221,000 |             |            | $           | 8,007,000 |            
|Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                                                                   |                                                    |                                                      |             |            |            |           |             |            |             |           |            
|                                                                                      | Depreciation and amortization                                                                     |                                                    |                                                      | 2,283,000   |            |            |           | 2,231,000   |            |             |           | 1,978,000   |           
|                                                                                      | Loss on impairment/sale of equipment                                                              |                                                    |                                                      | 93,000      |            |            |           | 29,000      |            |             |           | 413,000     |           
|                                                                                      | Reduction in purchase price of acquired companies                                                 |                                                    |                                                      | (769,000    | )          |            |           | (137,000    | )          |             |           |            |           
|                                                                                      | Tax benefit from exercise of stock options                                                        |                                                    |                                                      | 89,000      |            |            |           | 69,000      |            |             |           | 299,000     |           
|                                                                                      | Deferred stock compensation expense                                                               |                                                    |                                                      |            |            |            |           | 37,000      |            |             |           | 292,000     |           
|                                                                                      | Changes in operating assets and liabilities, net of effects from
    acquisitions:                |                                                    |                                                      |             |            |            |           |             |            |             |           |             |           
|                                                                                      |                                                                                                   | Contracts and trade receivables, net               |                                                      |             | 3,369,000  |            |           |             | (1,269,000 | )           |           |             | 3,441,000  |            
|                                                                                      |                                                                                                   | Costs and estimated earnings in excess of billings |                                                      |             | (1,545,000 | )          |           |             | 304,000    |             |           |             | (473,000   | )          
|                                                                                      |                                                                                                   | Prepaid expenses and other assets                  |                                                      |             | 108,000    |            |           |             | (53,000    | )           |           |             | 475,000    |            
|                                                                                      |                                                                                                   | Trade accounts payable and accrued liabilities     |                                                      |             | (270,000   | )          |           |             | (652,000   | )           |           |             | 2,074,000  |            
|                                                                                      |                                                                                                   | Billings in excess of costs and estimated earnings |                                                      |             | (1,042,000 | )          |           |             | 298,000    |             |           |             | 351,000    |            
|                                                                                      |                                                                                                   | Deferred tax liabilities                           |                                                      |             | (28,000    | )          |           |             | (728,000   | )           |           |             | (1,218,000 | )          
|                                                                                      |                                                                                                   |                                                    |                                                      |             |            |            |           |             |           
|                                                                                      |                                                                                                   |                                                    | Net cash provided by operating activities            |             |            | 10,096,000 |           |             |            | 7,350,000   |           |             |            | 15,639,000  |  
|                                                                                      |                                                                                                   |                                                    |                                                      |             |            |            |           |             |           
|Cash flows from investing activities:                                                 |                                                                                                   |                                                    |                                                      |             |            |            |           |             |            |             |           |            
|                                                                                      | Net cash expended for acquisitions                                                                |                                                    |                                                      | (8,048,000  | )          |            |           | (722,000    | )          |             |           |            |           
|                                                                                      | Additions to equipment and leasehold improvements                                                 |                                                    |                                                      | (1,872,000  | )          |            |           | (1,548,000  | )          |             |           | (3,017,000  | )         
|                                                                                      | Proceeds from sales of securities                                                                 |                                                    |                                                      | 18,045,000  |            |            |           | 12,740,000  |            |             |           | 19,725,000  |           
|                                                                                      | Purchases of securities                                                                           |                                                    |                                                      | (12,988,000 | )          |            |           | (28,876,000 | )          |             |           | (29,450,000 | )         
|                                                                                      | Proceeds from sales of equipment                                                                  |                                                    |                                                      | 134,000     |            |            |           | 57,000      |            |             |           | 50,000      |           
|                                                                                      |                                                                                                   |                                                    |                                                      |             |            |            |           |             |           
|                                                                                      |                                                                                                   |                                                    | Net cash used in investing activities                |             |            | (4,729,000 | )         |             |            | (18,349,000 | )         |             |            | (12,692,000 | )
|                                                                                      |                                                                                                   |                                                    |                                                      |             |            |            |           |             |           
|Cash flows from financing activities:                                                 |                                                                                                   |                                                    |                                                      |             |            |            |           |             |            |             |           |            
|                                                                                      | Principal payments on long-term debt and capital lease
    obligations, including current portion |                                                    |                                                      | (705,000    | )          |            |           | (52,000     | )          |             |           |            |           
|                                                                                      | Net proceeds from stock options and restricted shares                                             |                                                    |                                                      | 159,000     |            |            |           | 295,000     |            |             |           | 595,000     |           
|                                                                                      |                                                                                                   |                                                    |                                                      |             |            |            |           |             |           
|                                                                                      |                                                                                                   |                                                    | Net cash (used in) provided by financing activities  |             |            | (546,000   | )         |             |            | 243,000     |           |             |            | 595,000     |  
|                                                                                      |                                                                                                   |                                                    |                                                      |             |            |            |           |             |           
|                                                                                      |                                                                                                   |                                                    | Net increase (decrease) in cash and cash equivalents |             |            | 4,821,000  |           |             |            | (10,756,000 | )         |             |            | 3,542,000   |  
|                                                                                      | Cash and cash equivalents, beginning of year                                                      |                                                    |                                                      | 10,212,000  |            |            |           | 15,033,000  |            |             |           | 4,277,000   |           
|                                                                                      |                                                                                                   |                                                    |                                                      |             |            |            |           |             |           
|                                                                                      | Cash and cash equivalents, end of year                                                            |                                                    | $                                                    | 15,033,000  |            |            | $         | 4,277,000   |            |             | $         | 7,819,000   |           
|                                                                                      |                                                                                                   |                                                    |                                                      |             |            |            |           |             |           





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THE KEITH COMPANIES, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended December 31, 2002, 2003, 2004




|    |                                       
|--- | --------------------------------------
|(1) | Organization and Basis of Presentation







|    |                                           
|--- | ------------------------------------------
|(2) | Summary of Significant Accounting Policies



| |                            
| | ---------------------------
| | Principles of Consolidation





| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |           
| | ----------
| | Securities



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THE KEITH COMPANIES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts





| |                         
| | ------------------------
| | Discretionary Bonus Plan





| |                                                    
| | ---------------------------------------------------
| | Revenue Recognition and Cost Estimates on Contracts











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THE KEITH COMPANIES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                                     
| | ------------------------------------
| | Equipment and Leasehold Improvements



|                       |  |  |               | 
|---------------------- |  |  | ------------- | 
|Equipment              |  |  | 3 to 10 years | 
|Leasehold improvements |  |  | 1 to 9 years  | 





| |         
| | --------
| | Goodwill





| |             
| | ------------
| | Income Taxes







| |                  
| | -----------------
| | Stock Option Plan



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THE KEITH COMPANIES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|                            |                         |                                                                                                                  |   |           |          |   |   |           |          |   |   |           |          |  
|--------------------------- | ----------------------- | ---------------------------------------------------------------------------------------------------------------- | - | --------- | -------- | - | - | --------- | -------- | - | - | --------- | -------- | -
|                            |                         | Years Ended December 31,                                                                                         |  
|                            |                         |                                                                                                                  |  
|                            |                         | 2002                                                                                                             |   |           | 2003     |   |   | 2004      |         
|                            |                         |                                                                                                                  |   |           |          |   |   |           |         
|Net income:                 |                         |                                                                                                                  |   |           |          |   |   |           |          |   |   |          
|                            | Net income, as reported |                                                                                                                  | $ | 7,808,000 |          |   | $ | 7,221,000 |          |   | $ | 8,007,000 |         
|                            |                         | Add: Employee compensation expense related to restricted shares,
    included in net income, net of taxes        |   |           |         |   |   |           | 23,000   |   |   |           | 177,000  |  
|                            |                         | Deduct: Stock-based employee compensation expense determined
    under the fair-value based method, net of taxes |   |           | (404,000 | ) |   |           | (472,000 | ) |   |           | (612,000 | )
|                            |                         |                                                                                                                  |   |           |          |   |   |           |         
|                            | Pro forma net income    |                                                                                                                  | $ | 7,404,000 |          |   | $ | 6,772,000 |          |   | $ | 7,572,000 |         
|                            |                         |                                                                                                                  |   |           |          |   |   |           |         
|Basic earnings per share:   |                         |                                                                                                                  |   |           |          |   |   |           |          |   |   |          
|                            | As reported             |                                                                                                                  | $ | 1.06      |          |   | $ | 0.95      |          |   | $ | 1.03      |         
|                            | Pro forma               |                                                                                                                  | $ | 1.01      |          |   | $ | 0.89      |          |   | $ | 0.97      |         
|Diluted earnings per share: |                         |                                                                                                                  |   |           |          |   |   |           |          |   |   |          
|                            | As reported             |                                                                                                                  | $ | 0.99      |          |   | $ | 0.91      |          |   | $ | 1.00      |         
|                            | Pro forma               |                                                                                                                  | $ | 0.94      |          |   | $ | 0.85      |          |   | $ | 0.94      |         



|                                                                         |  |                          |       |   |      |   |       |      |  |   |       |  
|------------------------------------------------------------------------ |  | ------------------------ | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                                         |  | Years Ended December 31, |      
|                                                                         |  |                          |      
|                                                                         |  | 2002                     |       |   | 2003 |   |       | 2004 | 
|                                                                         |  |                          |       |   |      |   |       |      | 
|Weighted average stock price per share of common stock at grant
    date |  | $                        | 13.27 |   |      | $ | 10.03 |      |  | $ | 14.97 |  
|Weighted average exercise price per stock option granted                 |  | $                        | 13.27 |   |      | $ | 10.03 |      |  | $ | 14.97 |  
|Expected volatility                                                      |  |                          | 68.4  | % |      |   | 61.8  | %    |  |   | 57.0  | %
|Risk-free interest rate                                                  |  |                          | 2.7   | % |      |   | 3.2   | %    |  |   | 3.6   | %
|Expected option term (years)                                             |  |                          | 5     |   |      |   | 5     |      |  |   | 5     |  
|Stock dividend yield                                                     |  |                          | 0.0   | % |      |   | 0.0   | %    |  |   | 0.0   | %





| |                   
| | ------------------
| | Earnings Per Share



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THE KEITH COMPANIES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|                                                                                                                                             |  |                          |           |  |      |  |           |      |  |  |           | 
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | --------- |  | ---- |  | --------- | ---- |  |  | --------- | 
|                                                                                                                                             |  | Years Ended December 31, |          
|                                                                                                                                             |  |                          |          
|                                                                                                                                             |  | 2002                     |           |  | 2003 |  |           | 2004 | 
|                                                                                                                                             |  |                          |           |  |      |  |           |      | 
|Weighted average shares used for the basic EPS computation                                                                                   |  |                          | 7,363,073 |  |      |  | 7,615,264 |      |  |  | 7,778,661 | 
|Incremental shares from the assumed exercise of dilutive stock
    options, unvested restricted shares, and contingently issuable
    shares |  |                          | 505,804   |  |      |  | 342,080   |      |  |  | 260,796   | 
|                                                                                                                                             |  |                          |           |  |      |  |           |      | 
|Weighted average shares used for the diluted EPS computation                                                                                 |  |                          | 7,868,877 |  |      |  | 7,957,344 |      |  |  | 8,039,457 | 
|                                                                                                                                             |  |                          |           |  |      |  |           |      | 







| |                                                                             
| | ----------------------------------------------------------------------------
| | Use of Estimates in the Preparation of Consolidated
    Financial Statements





| |                        
| | -----------------------
| | Risks and Uncertainties





| |                  
| | -----------------
| | Reclassifications



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THE KEITH COMPANIES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |           
|--- | ----------
|(3) | Securities



|                        |  |                    |            |  |              |   |            | 
|----------------------- |  | ------------------ | ---------- |  | ------------ | - | ---------- | 
|                        |  | Available-for-sale |           
|                        |  |                    |           
|                        |  | December 31,       |            |  | December 31, |  
|                        |  | 2003               |            |  | 2004         |  
|                        |  |                    |            |  |              |  
|Amortized cost          |  | $                  | 23,600,000 |  |              | $ | 34,325,000 | 
|Gross unrealized gains  |  |                    |           |  |              |   |           | 
|Gross unrealized losses |  |                    |           |  |              |   |           | 
|                        |  |                    |            |  |              |  
|Fair value              |  | $                  | 23,600,000 |  |              | $ | 34,325,000 | 
|                        |  |                    |            |  |              |  







|                        |  |                  |           |  |              |   |   | 
|----------------------- |  | ---------------- | --------- |  | ------------ | - | - | 
|                        |  | Held-to-maturity
|                        |  |                 
|                        |  | December 31,     |           |  | December 31,
|                        |  | 2003             |           |  | 2004        
|                        |  |                  |           |  |             
|Carrying value          |  | $                | 1,000,000 |  |              | $ |  | 
|Gross unrecorded gains  |  |                  |          |  |              |   |  | 
|Gross unrecorded losses |  |                  |          |  |              |   |  | 
|                        |  |                  |           |  |              |  
|Fair value              |  | $                | 1,000,000 |  |              | $ |  | 
|                        |  |                  |           |  |              |  



|                            |  |                    |            |  |            |   |            | 
|--------------------------- |  | ------------------ | ---------- |  | ---------- | - | ---------- | 
|                            |  | Available-for-sale |           
|                            |  |                    |           
|                            |  | Amortized          |            |  |           
|                            |  | Cost               |            |  | Fair Value |  
|                            |  |                    |            |  |            |  
|Due between 1 and 15 years  |  | $                  | 4,400,000  |  |            | $ | 4,400,000  | 
|Due between 15 and 30 years |  |                    | 12,175,000 |  |            |   | 12,175,000 | 
|Due after 30 years          |  |                    | 17,750,000 |  |            |   | 17,750,000 | 
|                            |  |                    |            |  |            |  
|Total                       |  | $                  | 34,325,000 |  |            | $ | 34,325,000 | 
|                            |  |                    |            |  |            |  





|    |                        
|--- | -----------------------
|(4) | Discontinued Operations



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THE KEITH COMPANIES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








|    |         
|--- | --------
|(5) | Goodwill





|                                |  |    |           |  |     |   |           |    |  |   |           |  |  |   |            | 
|------------------------------- |  | -- | --------- |  | --- | - | --------- | -- |  | - | --------- |  |  | - | ---------- | 
|                                |  | RE |           |  | PWI |   |           | EI |  |   | Total     | 
|                                |  |    |           |  |     |   |           |    |  |   |           | 
|Balance as of December 31, 2003 |  | $  | 8,828,000 |  |     | $ | 9,329,000 |    |  | $ | 4,902,000 |  |  | $ | 23,059,000 | 
|Adjustments                     |  |    |          |  |     |   |          |    |  |   |          |  |  |   |           | 
|                                |  |    |           |  |     |   |           |    |  |   |           | 
|Balance as of December 31, 2004 |  | $  | 8,828,000 |  |     | $ | 9,329,000 |    |  | $ | 4,902,000 |  |  | $ | 23,059,000 | 
|                                |  |    |           |  |     |   |           |    |  |   |           | 



|    |             
|--- | ------------
|(6) | Acquisitions



| |                 
| | ----------------
| | ALNM Group, Inc.





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THE KEITH COMPANIES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |                                     
|--- | ------------------------------------
|(7) | Equipment and Leasehold Improvements



|                                          |                                           |      |             |           |      |   |             |           | 
|----------------------------------------- | ----------------------------------------- | ---- | ----------- | --------- | ---- | - | ----------- | --------- | 
|                                          |                                           | 2003 |             |           | 2004 |  
|                                          |                                           |      |             |           |      |  
|Equipment                                 |                                           | $    | 14,075,000  |           |      | $ | 16,606,000  |          
|Leasehold improvements                    |                                           |      | 544,000     |           |      |   | 596,000     |          
|Accumulated depreciation and amortization |                                           |      | (10,552,000 | )         |      |   | (12,559,000 | )        
|                                          |                                           |      |             |           |      |  
|                                          | Equipment and leasehold improvements, net |      | $           | 4,067,000 |      |   | $           | 4,643,000 | 
|                                          |                                           |      |             |           |      |  



|    |             
|--- | ------------
|(8) | Indebtedness





|    |       
|--- | ------
|(9) | Leases





|                          |            |                                           |   |           |            | 
|------------------------- | ---------- | ----------------------------------------- | - | --------- | ---------- | 
|                          |            | Operating                                 |  
|                          |            | Leases                                    |  
|                          |            |                                           |  
|Years ending December 31: |            |                                           |   |          
|                          | 2005       |                                           | $ | 4,116,000 |           
|                          | 2006       |                                           |   | 3,450,000 |           
|                          | 2007       |                                           |   | 2,415,000 |           
|                          | 2008       |                                           |   | 2,265,000 |           
|                          | 2009       |                                           |   | 1,906,000 |           
|                          | Thereafter |                                           |   | 220,000   |           
|                          |            |                                           |  
|                          |            | Total future minimum gross lease payments |   | $         | 14,372,000 | 
|                          |            |                                           |  

52



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##### Table of Contents



THE KEITH COMPANIES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|     |                            
|---- | ---------------------------
|(10) | Common Stock and Stock Plan



|                             |           |               |         |          |                  |   |      |       | 
|---------------------------- | --------- | ------------- | ------- | -------- | ---------------- | - | ---- | ----- | 
|                             |           | Number of     |         |          | Weighted-Average |  
|                             |           | Stock Options |         |          | Exercise Price   |  
|                             |           |               |         |          |                  |  
|Balance at December 31, 2001 |           |               | 797,812 |          |                  | $ | 7.69 |      
|                             | Granted   |               |         | 115,500  |                  |   |      | 13.27 | 
|                             | Exercised |               |         | (29,673  | )                |   |      | 5.37  | 
|                             | Forfeited |               |         | (44,161  | )                |   |      | 13.89 | 
|                             |           |               |         |          |                  |  
|Balance at December 31, 2002 |           |               | 839,478 |          |                  | $ | 8.21 |      
|                             | Granted   |               |         | 154,500  |                  |   |      | 10.03 | 
|                             | Exercised |               |         | (68,888  | )                |   |      | 4.47  | 
|                             | Forfeited |               |         | (54,886  | )                |   |      | 9.35  | 
|                             |           |               |         |          |                  |  
|Balance at December 31, 2003 |           |               | 870,204 |          |                  | $ | 8.76 |      
|                             | Granted   |               |         | 48,200   |                  |   |      | 14.97 | 
|                             | Exercised |               |         | (109,268 | )                |   |      | 5.82  | 
|                             | Forfeited |               |         | (14,137  | )                |   |      | 7.70  | 
|                             |           |               |         |          |                  |  
|Balance at December 31, 2004 |           |               | 794,999 |          |                  | $ | 9.56 |      
|                             |           |               |         |          |                  |  



|                 |  |               |         |          |                  |  |          |          |  |   |               |          |  |          |         |  |  |   |       | 
|---------------- |  | ------------- | ------- | -------- | ---------------- |  | -------- | -------- |  | - | ------------- | -------- |  | -------- | ------- |  |  | - | ----- | 
|                 |  | Outstanding   |         |          | Exercisable      | 
|                 |  |               |         |          |                  | 
|                 |  |               |         | Weighted |                  |  |          |          | 
|                 |  |               |         | Average  |                  |  | Weighted |          |  |   |               | Weighted | 
|                 |  | Number of     |         |          | Remaining        |  |          | Average  |  |   | Number of     |          |  | Average  |        
|Range of         |  | Stock Options |         |          | Contractual Life |  |          | Exercise |  |   | Stock Options |          |  | Exercise |        
|Exercise Prices  |  | Outstanding   |         |          | (Years)          |  |          | Price    |  |   | Exercisable   |          |  | Price    |        
|                 |  |               |         |          |                  |  |          |          |  |   |               |          |  |          |        
|$2.70 to $8.10   |  |               | 221,492 |          |                  |  | 4.03     |          |  | $ | 4.29          |          |  |          | 198,842 |  |  | $ | 4.23  | 
|$8.30 to $10.01  |  |               | 309,807 |          |                  |  | 6.06     |          |  |   | 9.41          |          |  |          | 212,607 |  |  |   | 9.25  | 
|$10.03 to $22.00 |  |               | 263,700 |          |                  |  | 7.66     |          |  |   | 14.15         |          |  |          | 91,740  |  |  |   | 14.78 | 
|                 |  |               |         |          |                  |  |          |          |  |   |               |          |  |          |        
|                 |  |               | 794,999 |          |                  |  | 6.03     |          |  | $ | 9.56          |          |  |          | 503,189 |  |  | $ | 8.27  | 
|                 |  |               |         |          |                  |  |          |          |  |   |               |          |  |          |        







53



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THE KEITH COMPANIES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|     |                      
|---- | ---------------------
|(11) | Employee Benefit Plan





|     |             
|---- | ------------
|(12) | Income Taxes



|                                                      |         |                          |           |           |           |   |           |           |           |   |           |           |            |  
|----------------------------------------------------- | ------- | ------------------------ | --------- | --------- | --------- | - | --------- | --------- | --------- | - | --------- | --------- | ---------- | -
|                                                      |         | Years Ended December 31, |          
|                                                      |         |                          |          
|                                                      |         | 2002                     |           |           | 2003      |   |           | 2004      |          
|                                                      |         |                          |           |           |           |   |           |           |          
|Current:                                              |         |                          |           |           |           |   |           |           |           |   |           |          
|                                                      | Federal |                          | $         | 3,738,000 |           |   | $         | 4,347,000 |           |   | $         | 5,075,000 |           
|                                                      | State   |                          |           | 899,000   |           |   |           | 929,000   |           |   |           | 1,153,000 |           
|                                                      | Foreign |                          |           |          |           |   |           | 77,000    |           |   |           | 174,000   |           
|                                                      |         |                          |           |           |           |   |           |           |          
|                                                      |         | Subtotal                 |           |           | 4,637,000 |   |           |           | 5,353,000 |   |           |           | 6,402,000  |  
|                                                      |         |                          |           |           |           |   |           |           |          
|Deferred:                                             |         |                          |           |           |           |   |           |           |           |   |           |          
|                                                      | Federal |                          |           | 276,000   |           |   |           | (608,000  | )         |   |           | (992,000  | )         
|                                                      | State   |                          |           | 79,000    |           |   |           | (128,000  | )         |   |           | (226,000  | )         
|                                                      |         |                          |           |           |           |   |           |           |          
|                                                      |         | Subtotal                 |           |           | 355,000   |   |           |           | (736,000  | ) |           |           | (1,218,000 | )
|                                                      |         |                          |           |           |           |   |           |           |          
|                                                      |         | Total                    |           | $         | 4,992,000 |   |           | $         | 4,617,000 |   |           | $         | 5,184,000  |  
|                                                      |         |                          |           |           |           |   |           |           |          
|Provision for income taxes from continuing operations |         | $                        | 5,397,000 |           |           | $ | 4,617,000 |           |           | $ | 5,468,000 |          
|Benefit for income taxes from discontinued operations |         |                          | (405,000  | )         |           |   |          |           |           |   | (284,000  | )        
|                                                      |         |                          |           |           |           |   |           |           |          
|Total provision for income taxes                      |         | $                        | 4,992,000 |           |           | $ | 4,617,000 |           |           | $ | 5,184,000 |          
|                                                      |         |                          |           |           |           |   |           |           |          



|                                                            |  |                          |           |   |      |   |           |      |  |   |           | 
|----------------------------------------------------------- |  | ------------------------ | --------- | - | ---- | - | --------- | ---- |  | - | --------- | 
|                                                            |  | Years Ended December 31, |          
|                                                            |  |                          |          
|                                                            |  | 2002                     |           |   | 2003 |   |           | 2004 | 
|                                                            |  |                          |           |   |      |   |           |      | 
|Computed expected federal income tax expense              |  | $                        | 4,704,000 |   |      | $ | 4,025,000 |      |  | $ | 4,728,000 | 
|State income tax expense, net of federal income tax benefit |  |                          | 699,000   |   |      |   | 533,000   |      |  |   | 648,000   | 
|Other                                                       |  |                          | (6,000    | ) |      |   | 59,000    |      |  |   | 92,000    | 
|                                                            |  |                          |           |   |      |   |           |      | 
|                                                            |  | $                        | 5,397,000 |   |      | $ | 4,617,000 |      |  | $ | 5,468,000 | 
|                                                            |  |                          |           |   |      |   |           |      | 



54



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##### Table of Contents



THE KEITH COMPANIES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                          |                                                    |                                |   |           |           |  |   |           |           | 
|------------------------- | -------------------------------------------------- | ------------------------------ | - | --------- | --------- |  | - | --------- | --------- | 
|                          |                                                    | December 31,                   |  
|                          |                                                    |                                |  
|                          |                                                    | 2003                           |   |           | 2004      | 
|                          |                                                    |                                |   |           |           | 
|Deferred tax assets:      |                                                    |                                |   |           |           |  |   |          
|                          | Accrued liabilities and employee compensation      |                                | $ | 578,000   |           |  | $ | 1,073,000 |          
|                          | Billings in excess of costs and estimated earnings |                                |   | 613,000   |           |  |   | 750,000   |          
|                          | Allowance for doubtful accounts                    |                                |   | 470,000   |           |  |   | 395,000   |          
|                          | State tax                                          |                                |   | 301,000   |           |  |   | 359,000   |          
|                          | Other                                              |                                |   | 190,000   |           |  |   | 247,000   |          
|                          |                                                    |                                |   |           |           | 
|                          |                                                    | Total deferred tax assets      |   |           | 2,152,000 |  |   |           | 2,824,000 | 
|                          |                                                    |                                |   |           |           | 
|Deferred tax liabilities: |                                                    |                                |   |           |           |  |   |          
|                          | Equipment and improvements, net                    |                                |   | 270,000   |           |  |   | 74,000    |          
|                          | Section 481, change from cash to accrual           |                                |   | 692,000   |           |  |   | 260,000   |          
|                          | Costs and estimated earnings in excess of billings |                                |   | 3,902,000 |           |  |   | 4,087,000 |          
|                          | Goodwill amortization                              |                                |   | 833,000   |           |  |   | 1,085,000 |          
|                          | Prepaid expenses                                   |                                |   | 248,000   |           |  |   | 46,000    |          
|                          | Other                                              |                                |   | 211,000   |           |  |   | 58,000    |          
|                          |                                                    |                                |   |           |           | 
|                          |                                                    | Total deferred tax liabilities |   |           | 6,156,000 |  |   |           | 5,610,000 | 
|                          |                                                    |                                |   |           |           | 
|                          |                                                    | Net deferred tax liabilities   |   | $         | 4,004,000 |  |   | $         | 2,786,000 | 
|                          |                                                    |                                |   |           |           | 







|     |                                
|---- | -------------------------------
|(13) | Segment and Related Information



55



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THE KEITH COMPANIES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








|                                  |  |                              |            |   |     |   |            |    |  |   |            |  |  |              |            |   |  |   |            |  
|--------------------------------- |  | ---------------------------- | ---------- | - | --- | - | ---------- | -- |  | - | ---------- |  |  | ------------ | ---------- | - |  | - | ---------- | -
|                                  |  | Year Ended December 31, 2002 |           
|                                  |  |                              |           
|                                  |  | RE                           |            |   | PWI |   |            | EI |  |   | Corporate  |  |  | Consolidated |           
|                                  |  |                              |            |   |     |   |            |    |  |   |            |  |  |              |           
|Net revenue                       |  | $                            | 57,535,000 |   |     | $ | 13,673,000 |    |  | $ | 20,390,000 |  |  | $            |           |   |  | $ | 91,598,000 |  
|Income (loss) from operations     |  |                              | 14,320,000 |   |     |   | 2,078,000  |    |  |   | 3,960,000  |  |  |              | (7,581,000 | ) |  |   | 12,777,000 |  
|Loss from discontinued operations |  |                              | (1,033,000 | ) |     |   |           |    |  |   |           |  |  |              |           |   |  |   | (1,033,000 | )
|Identifiable assets               |  | $                            | 33,361,000 |   |     | $ | 15,792,000 |    |  | $ | 10,376,000 |  |  | $            | 22,697,000 |   |  | $ | 82,226,000 |  

|                                  |  |                              |            |  |     |   |            |    |  |   |            |  |  |              |            |   |  |   |            | 
|--------------------------------- |  | ---------------------------- | ---------- |  | --- | - | ---------- | -- |  | - | ---------- |  |  | ------------ | ---------- | - |  | - | ---------- | 
|                                  |  | Year Ended December 31, 2003 |           
|                                  |  |                              |           
|                                  |  | RE                           |            |  | PWI |   |            | EI |  |   | Corporate  |  |  | Consolidated |           
|                                  |  |                              |            |  |     |   |            |    |  |   |            |  |  |              |           
|Net revenue                       |  | $                            | 63,870,000 |  |     | $ | 14,561,000 |    |  | $ | 12,313,000 |  |  | $            |           |   |  | $ | 90,744,000 | 
|Income (loss) from operations     |  |                              | 17,384,000 |  |     |   | 1,748,000  |    |  |   | 829,000    |  |  |              | (8,646,000 | ) |  |   | 11,315,000 | 
|Loss from discontinued operations |  |                              |           |  |     |   |           |    |  |   |           |  |  |              |           |   |  |   |           | 
|Identifiable assets               |  | $                            | 36,115,000 |  |     | $ | 13,778,000 |    |  | $ | 9,194,000  |  |  | $            | 28,449,000 |   |  | $ | 87,536,000 | 

|                                  |  |                              |            |  |     |   |            |    |  |   |           |   |  |              |             |   |  |   |            |  
|--------------------------------- |  | ---------------------------- | ---------- |  | --- | - | ---------- | -- |  | - | --------- | - |  | ------------ | ----------- | - |  | - | ---------- | -
|                                  |  | Year Ended December 31, 2004 |           
|                                  |  |                              |           
|                                  |  | RE                           |            |  | PWI |   |            | EI |  |   | Corporate |   |  | Consolidated |            
|                                  |  |                              |            |  |     |   |            |    |  |   |           |   |  |              |            
|Net revenue                       |  | $                            | 73,372,000 |  |     | $ | 14,407,000 |    |  | $ | 8,975,000 |   |  | $            |            |   |  | $ | 96,754,000 |  
|Income (loss) from operations     |  |                              | 21,593,000 |  |     |   | 2,329,000  |    |  |   | 374,000   |   |  |              | (10,918,000 | ) |  |   | 13,378,000 |  
|Loss from discontinued operations |  |                              |           |  |     |   |           |    |  |   | (713,000  | ) |  |              |            |   |  |   | (713,000   | )
|Identifiable assets               |  | $                            | 34,228,000 |  |     | $ | 13,311,000 |    |  | $ | 9,434,000 |   |  | $            | 40,996,000  |   |  | $ | 97,969,000 |  



| |                        
| | -----------------------
| | Business Concentrations





|     |                                    
|---- | -----------------------------------
|(14) | Fair Value of Financial Instruments



56



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##### Table of Contents



THE KEITH COMPANIES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|     |                                   
|---- | ----------------------------------
|(15) | Supplemental Cash Flow Information

|                                                  |                                             |                                                        |   |           |           |  |   |           |         |  |   |           |         | 
|------------------------------------------------- | ------------------------------------------- | ------------------------------------------------------ | - | --------- | --------- |  | - | --------- | ------- |  | - | --------- | ------- | 
|                                                  |                                             | Years Ended December 31,                               |  
|                                                  |                                             |                                                        |  
|                                                  |                                             | 2002                                                   |   |           | 2003      |  |   | 2004      |        
|                                                  |                                             |                                                        |   |           |           |  |   |           |        
|Supplemental disclosure of cash flow information: |                                             |                                                        |   |           |           |  |   |           |         |  |   |          
|                                                  | Cash paid during the year for interest      |                                                        | $ | 34,000    |           |  | $ | 16,000    |         |  | $ | 13,000    |        
|                                                  |                                             |                                                        |   |           |           |  |   |           |        
|                                                  | Cash paid during the year for income taxes  |                                                        | $ | 3,808,000 |           |  | $ | 6,152,000 |         |  | $ | 4,995,000 |        
|                                                  |                                             |                                                        |   |           |           |  |   |           |        
|                                                  | Noncash financing and investing activities: |                                                        |   |           |           |  |   |           |         |  |   |           |        
|                                                  |                                             | Purchase price adjustment to issuable common stock     |   | $         | 715,000   |  |   | $         | 708,000 |  |   | $         |        | 
|                                                  |                                             |                                                        |   |           |           |  |   |           |        
|                                                  |                                             | Cancellation of note payable                           |   | $         | 1,300,000 |  |   | $         |        |  |   | $         |        | 
|                                                  |                                             |                                                        |   |           |           |  |   |           |        
|                                                  |                                             | Purchase price adjustment to other accrued liabilities |   | $         | 890,000   |  |   | $         |        |  |   | $         |        | 
|                                                  |                                             |                                                        |   |           |           |  |   |           |        
|                                                  |                                             | Cancellation of issuable common stock                  |   | $         | 1,490,000 |  |   | $         |        |  |   | $         |        | 
|                                                  |                                             |                                                        |   |           |           |  |   |           |        
|                                                  |                                             | Restricted shares granted                              |   | $         |          |  |   | $         | 206,000 |  |   | $         | 990,000 | 
|                                                  |                                             |                                                        |   |           |           |  |   |           |        
|                                                  |                                             | Issuable common stock issued                           |   | $         | 1,822,000 |  |   | $         | 714,000 |  |   | $         | 779,000 | 
|                                                  |                                             |                                                        |   |           |           |  |   |           |        



|                                                                       |  |      |            |  
|---------------------------------------------------------------------- |  | ---- | ---------- | -
|                                                                       |  | 2002 |           
|                                                                       |  |      |           
|Contracts and trade receivables                                        |  | $    | (3,208,000 | )
|Costs and estimated earnings in excess of billings                     |  |      | (843,000   | )
|Prepaid expenses and other current assets                              |  |      | (124,000   | )
|Goodwill                                                               |  |      | (8,421,000 | )
|Equipment and leasehold improvements                                   |  |      | (492,000   | )
|Other assets                                                           |  |      | (87,000    | )
|Accounts payable, accrued expenses and other liabilities               |  |      | 1,046,000  |  
|Deferred tax liabilities                                               |  |      | 1,532,000  |  
|Issuable common stock                                                  |  |      | 3,300,000  |  
|                                                                       |  |      |           
|Net initial cash expended for acquisition                              |  | $    | (7,297,000 | )
|Additional cash expended during the year for previous
    acquisitions |  |      | (751,000   | )
|                                                                       |  |      |           
|Cash expended for acquisitions                                         |  | $    | (8,048,000 | )
|                                                                       |  |      |           

57



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##### Table of Contents



THE KEITH COMPANIES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|     |                                  
|---- | ---------------------------------
|(16) | Valuation and Qualifying Accounts



|                                 |      |              |   |           |               |  |   |            |  |            |               |          |   |  |   |           | 
|-------------------------------- | ---- | ------------ | - | --------- | ------------- |  | - | ---------- |  | ---------- | ------------- | -------- | - |  | - | --------- | 
|                                 |      | Balance at   |   |           | Provision for |  |   |            |  |           
|                                 |      | Beginning of |   |           | Doubtful      |  |   |            |  | Balance at |              
|                                 |      | Period       |   |           | Accounts      |  |   | Deductions |  |            | End of Period |         
|                                 |      |              |   |           |               |  |   |            |  |            |               |         
|Allowance for doubtful accounts: |      |              |   |           |               |  |   |            |  |            |               |          |   |  |   |          
|                                 | 2002 |              | $ | 951,000   |               |  | $ | 467,000    |  |            | $             | (295,000 | ) |  | $ | 1,123,000 | 
|                                 | 2003 |              | $ | 1,123,000 |               |  | $ | 483,000    |  |            | $             | (278,000 | ) |  | $ | 1,328,000 | 
|                                 | 2004 |              | $ | 1,328,000 |               |  | $ | 136,000    |  |            | $             | (395,000 | ) |  | $ | 1,069,000 | 



|     |                              
|---- | -----------------------------
|(17) | Commitments and Contingencies





|     |                                                
|---- | -----------------------------------------------
|(18) | Supplementary Financial Information (Unaudited)



|                                                     |  |                             |            |  |          |   |            |               |  |   |              |  |  |   |            | 
|---------------------------------------------------- |  | --------------------------- | ---------- |  | -------- | - | ---------- | ------------- |  | - | ------------ |  |  | - | ---------- | 
|                                                     |  | For the Quarters Ended 2003 |           
|                                                     |  |                             |           
|                                                     |  | March 31,                   |            |  | June 30, |   |            | September 30, |  |   | December 31, | 
|                                                     |  |                             |            |  |          |   |            |               |  |   |              | 
|Net revenue                                          |  | $                           | 22,346,000 |  |          | $ | 22,777,000 |               |  | $ | 22,854,000   |  |  | $ | 22,767,000 | 
|Gross profit                                         |  |                             | 7,514,000  |  |          |   | 7,894,000  |               |  |   | 8,620,000    |  |  |   | 8,357,000  | 
|Income from continuing operations                    |  |                             | 1,398,000  |  |          |   | 1,729,000  |               |  |   | 2,203,000    |  |  |   | 1,891,000  | 
|Net income                                           |  |                             | 1,398,000  |  |          |   | 1,729,000  |               |  |   | 2,203,000    |  |  |   | 1,891,000  | 
|Basic earning per share from continuing operations   |  | $                           | 0.18       |  |          | $ | 0.23       |               |  | $ | 0.29         |  |  | $ | 0.25       | 
|Diluted earning per share from continuing operations |  | $                           | 0.18       |  |          | $ | 0.22       |               |  | $ | 0.28         |  |  | $ | 0.24       | 
|Weighted average number of shares outstanding:       |  |                             |            |  |          |   |            |               |  |   |              |  |  |   |            | 
|Basic                                                |  |                             | 7,588,601  |  |          |   | 7,607,374  |               |  |   | 7,626,534    |  |  |   | 7,637,880  | 
|                                                     |  |                             |            |  |          |   |            |               |  |   |              | 
|Diluted                                              |  |                             | 7,948,933  |  |          |   | 7,940,262  |               |  |   | 7,975,890    |  |  |   | 7,963,622  | 
|                                                     |  |                             |            |  |          |   |            |               |  |   |              | 

58



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THE KEITH COMPANIES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


|                                                      |  |                             |            |  |          |   |            |               |  |   |              |  |  |   |            | 
|----------------------------------------------------- |  | --------------------------- | ---------- |  | -------- | - | ---------- | ------------- |  | - | ------------ |  |  | - | ---------- | 
|                                                      |  | For the Quarters Ended 2004 |           
|                                                      |  |                             |           
|                                                      |  | March 31,                   |            |  | June 30, |   |            | September 30, |  |   | December 31, | 
|                                                      |  |                             |            |  |          |   |            |               |  |   |              | 
|Net revenue                                           |  | $                           | 22,463,000 |  |          | $ | 24,480,000 |               |  | $ | 25,549,000   |  |  | $ | 24,262,000 | 
|Gross profit                                          |  |                             | 7,981,000  |  |          |   | 9,225,000  |               |  |   | 10,085,000   |  |  |   | 9,100,000  | 
|Income from continuing operations                     |  |                             | 1,499,000  |  |          |   | 2,135,000  |               |  |   | 2,520,000    |  |  |   | 2,283,000  | 
|Loss from discontinued operations                     |  |                             |           |  |          |   | 47,000     |               |  |   | 110,000      |  |  |   | 273,000    | 
|Net income                                            |  |                             | 1,499,000  |  |          |   | 2,088,000  |               |  |   | 2,410,000    |  |  |   | 2,010,000  | 
|Basic earnings per share from continuing operations   |  | $                           | 0.19       |  |          | $ | 0.27       |               |  | $ | 0.32         |  |  | $ | 0.29       | 
|Diluted earnings per share from continuing operations |  | $                           | 0.19       |  |          | $ | 0.27       |               |  | $ | 0.31         |  |  | $ | 0.28       | 
|Weighted average number of shares outstanding:        |  |                             |            |  |          |   |            |               |  |   |              |  |  |   |            | 
|Basic                                                 |  |                             | 7,703,566  |  |          |   | 7,782,149  |               |  |   | 7,804,274    |  |  |   | 7,823,874  | 
|                                                      |  |                             |            |  |          |   |            |               |  |   |              | 
|Diluted                                               |  |                             | 8,004,901  |  |          |   | 8,020,844  |               |  |   | 8,038,295    |  |  |   | 8,093,006  | 
|                                                      |  |                             |            |  |          |   |            |               |  |   |              | 

59



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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
    AND FINANCIAL DISCLOSURE








|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES














|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION






PART III




60



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##### Table of Contents






PART IV







|         |                                           
|-------- | ------------------------------------------
|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES






Consolidated Financial Statements.




| |  |                                                                                                                                                            
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The following consolidated financial statements and the Reports
    of Independent Registered Public Accounting Firm are on
    pages 38 through 59 hereof:



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Report of Independent Registered Public Accounting Firm                                                 
|
| | Managements Report on Internal Controls over Financial
    Reporting                                   
|
| | Report of Independent Registered Public Accounting Firm                                                 
|
| | Consolidated Balance Sheets as of December 31, 2003 and
    2004                                        
|
| | Consolidated Statements of Income for the Years Ended
    December 31, 2002, 2003 and 2004              
|
| | Consolidated Statements of Shareholders Equity for the
    Years Ended December 31, 2002, 2003 and 2004
|
| | Consolidated Statements of Cash Flows for the Years Ended
    December 31, 2002, 2003 and 2004          
|
| | Notes to Consolidated Financial Statements                                                              




Financial Statement Schedules.




| |                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All Financial Statement Schedules have been omitted because they
    are not applicable or because the applicable disclosures have
    been included in the consolidated financial statements or in the
    notes thereto.




Exhibits.


|        |    |     |             |                                                                                                                                                                                                                                
|------- | -- | --- | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |            
|Number  |    |     | Description
|        |    |     |            
|        | 3  | .1  |             | Amended and Restated Articles of Incorporation of the registrant
    (incorporated herein by this reference to Exhibit 3.1 to
    the registrants registration statement of Form S-1,
    registration number 333-77273).     
|       
|        | 3  | .2  |             | Amended and Restated Bylaws of the registrant (incorporated
    herein by this reference to Exhibit 3.1 to the
    registrants quarterly report on Form 10-Q for the
    period ended June 30, 2001).                         
|       
|        | 4  | .1  |             | Amended and Restated 1994 Stock Incentive Plan (incorporated
    herein by this reference to Exhibit 4.1 to the
    registrants registration statement on Form S-8,
    registration number 333-61312).                       
|       
|        | 4  | .2  |             | Form of The Keith Companies, Inc. Nonqualified Stock Option
    Agreement (incorporated herein by this reference to
    Exhibit 4.2 to the registrants registration statement
    on Form S-8, registration number 333-61312).
|       
|        | 4  | .3  |             | Form of The Keith Companies, Inc. Incentive Stock Option
    Agreement (incorporated herein by this reference to
    Exhibit 4.3 to the registrants registration statement
    on Form S-8, registration number 333-61312).   
|       
|        | 10 | .1* |             | Severance Agreement between the registrant and Aram H. Keith
    (incorporated herein by this reference to Exhibit 10.14 to
    the registrants annual report on Form 10-K for the
    period ended December 31, 2000).       
|       
|        | 10 | .2* |             | Severance Agreement between the registrant and Eric C. Nielsen
    (incorporated herein by this reference to Exhibit 10.15 to
    the registrants annual report on Form 10-K for the
    period ended December 31, 2000).     
|       
|        | 10 | .3* |             | Severance Agreement between the registrant and Gary C. Campanaro
    (incorporated herein by this reference to Exhibit 10.16 to
    the registrants annual report on Form 10-K for the
    period ended December 31, 2000).   

61



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##### Table of Contents



|        |    |      |             |                                                                                                                                                                                                                                                                                                                               
|------- | -- | ---- | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |            
|Number  |    |      | Description
|        |    |      |            
|       
|        | 10 | .4   |             | Fourth Amendment to Credit Agreement dated January 31, 2001
    by and between the registrant, HEA Acquisition, Inc. and Wells
    Fargo Bank, National Association (incorporated herein by this
    reference to Exhibit 10.17 to the registrants
    quarterly report on Form 10-Q for the period ended
    June 30, 2001).
|       
|        | 10 | .5   |             | Fifth Amendment to Credit Agreement dated April 27, 2001 by
    and between the registrant, HEA Acquisition, Inc. and Wells
    Fargo Bank, National Association (incorporated herein by this
    reference to Exhibit 10.18 to the registrants
    quarterly report on Form 10-Q for the period ended
    June 30, 2001).   
|       
|        | 10 | .6   |             | Credit Agreement dated September 4, 2001 by and between the
    registrant and Wells Fargo Bank, National Association
    (incorporated herein by this reference to Exhibit 10.19 to
    the registrants quarterly report on Form 10-Q for the
    period ended September 30, 2001).                                         
|       
|        | 10 | .7   |             | Line of Credit Note dated September 4, 2001 by and between
    the registrant and Wells Fargo Bank, National Association
    (incorporated herein by this reference to Exhibit 10.20 to
    the registrants quarterly report on Form 10-Q for the
    period ended September 30, 2001).                                      
|       
|        | 10 | .8   |             | Third Amendment to Credit Agreement Dated September 4, 2001
    by and between the registrant and Wells Fargo Bank, National
    Association.                                                                                                                                                                                 
|       
|        | 10 | .9*  |             | Form of Stock Purchase Agreeement for CEO, CFO, COO and other
    select officers under the Amended and Restated 1994 Stock
    Incentive Plan (incorporated herein by this reference to
    Exhibit 10.1 to the registrants current report on
    Form 8-K filed on February 14, 2005).                                     
|       
|        | 10 | .10* |             | Form of Stock Purchase Agreement for all employees other than
    CEO, CFO, COO and other select officers under the Amended and
    Restated 1994 Stock Incentive Plan (incorporated herein by this
    reference to Exhibit 10.2 to the registrants current
    report on Form 8-K filed on February 14, 2005).             
|       
|        | 10 | .11  |             | The Keith Companies, Inc. Board of Directors Compensation 2005                                                                                                                                                                                                                                                                
|       
|        | 10 | .12  |             | The Keith Companies, Inc. Executive Officers Compensation
    for 2005                                                                                                                                                                                                                                                       
|       
|        | 10 | .13  |             | Summary of 2005 Discretionary Cash Bonus Plan                                                                                                                                                                                                                                                                                 
|       
|        | 10 | .14  |             | Independent Director Stock Option Agreement                                                                                                                                                                                                                                                                                   
|       
|        | 10 | .15* |             | Form of Indemnification Agreement (incorporated by this
    reference to Exhibit 10.2 from the registrants
    registration statement on Form S-1, registration number
    333-77273).                                                                                                                                       
|       
|        | 21 | .0   |             | List of Subsidiaries                                                                                                                                                                                                                                                                                                          
|       
|        | 23 | .1   |             | Consent of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                      
|       
|        | 31 | .1   |             | Certification of Chief Executive Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002 Dated
    March 9, 2005                                                                                                                                                                                                
|       
|        | 31 | .2   |             | Certification of Chief Financial Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002 Dated
    March 9, 2005                                                                                                                                                                                                
|       
|        | 32 | .1   |             | Certification of Chief Executive Officer Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002 Dated
    March 9, 2005                                                                                                                                             
|       
|        | 32 | .2   |             | Certification of Chief Financial Officer Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002 Dated
    March 9, 2005                                                                                                                                             






|  |                                                         
|- | --------------------------------------------------------
|* | Management contract or compensatory plan or arrangement.

62



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##### Table of Contents



SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, The Keith Companies, Inc.
has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.




| |                          
| | -------------------------
| | THE KEITH COMPANIES, INC.



| |     |                  
| | --- | -----------------
| | By: | /s/ Aram H. Keith

| |                        
| | -----------------------
| |                        
| | Aram H. Keith          
| | Chief Executive Officer







|                                           |  |                                                                                           |          |               |      |               |  | 
|------------------------------------------ |  | ----------------------------------------------------------------------------------------- | -------- | ------------- | ---- | ------------- |  | 
|Signature                                  |  | Title                                                                                     |          |               | Date
|                                           |  |                                                                                           |          |               |     
|                                          
|/s/ Aram H. KeithAram
    H. Keith         |  | Chief Executive Officer, Chairman of the Board and Director(Principal Executive Officer)  |          | March 9, 2005
|                                          
|/s/ Gary C. CampanaroGary
    C. Campanaro |  | Chief Financial Officer,Secretary and Director(Principal Financial andAccounting Officer) |          | March 9, 2005
|                                          
|/s/ George DeukmejianGeorge
    Deukmejian |  |                                                                                           | Director |               |      | March 9, 2005
|                                          
|/s/ Christine D. IgerChristine
    D. Iger |  |                                                                                           | Director |               |      | March 9, 2005
|                                          
|/s/ Edward R. MullerEdward
    R. Muller   |  |                                                                                           | Director |               |      | March 9, 2005

63



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##### Table of Contents



INDEX TO EXHIBIT


|        |    |             |  |                                                                                                                                                                                                                                                                                                                               
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1          |  | Amended and Restated Articles of Incorporation of the registrant
    (incorporated herein by this reference to Exhibit 3.1 to
    the registrants registration statement of Form S-1,
    registration number 333-77273).                                                                                                    
|       
|        | 3  | .2          |  | Amended and Restated Bylaws of the registrant (incorporated
    herein by this reference to Exhibit 3.1 to the
    registrants quarterly report on Form 10-Q for the
    period ended June 30, 2001).                                                                                                                        
|       
|        | 4  | .1          |  | Amended and Restated 1994 Stock Incentive Plan (incorporated
    herein by this reference to Exhibit 4.1 to the
    registrants registration statement on Form S-8,
    registration number 333-61312).                                                                                                                      
|       
|        | 4  | .2          |  | Form of The Keith Companies, Inc. Nonqualified Stock Option
    Agreement (incorporated herein by this reference to
    Exhibit 4.2 to the registrants registration statement
    on Form S-8, registration number 333-61312).                                                                                               
|       
|        | 4  | .3          |  | Form of The Keith Companies, Inc. Incentive Stock Option
    Agreement (incorporated herein by this reference to
    Exhibit 4.3 to the registrants registration statement
    on Form S-8, registration number 333-61312).                                                                                                  
|       
|        | 10 | .1*         |  | Severance Agreement between the registrant and Aram H. Keith
    (incorporated herein by this reference to Exhibit 10.14 to
    the registrants annual report on Form 10-K for the
    period ended December 31, 2000).                                                                                                      
|       
|        | 10 | .2*         |  | Severance Agreement between the registrant and Eric C. Nielsen
    (incorporated herein by this reference to Exhibit 10.15 to
    the registrants annual report on Form 10-K for the
    period ended December 31, 2000).                                                                                                    
|       
|        | 10 | .3*         |  | Severance Agreement between the registrant and Gary C. Campanaro
    (incorporated herein by this reference to Exhibit 10.16 to
    the registrants annual report on Form 10-K for the
    period ended December 31, 2000).                                                                                                  
|       
|        | 10 | .4          |  | Fourth Amendment to Credit Agreement dated January 31, 2001
    by and between the registrant, HEA Acquisition, Inc. and Wells
    Fargo Bank, National Association (incorporated herein by this
    reference to Exhibit 10.17 to the registrants
    quarterly report on Form 10-Q for the period ended
    June 30, 2001).
|       
|        | 10 | .5          |  | Fifth Amendment to Credit Agreement dated April 27, 2001 by
    and between the registrant, HEA Acquisition, Inc. and Wells
    Fargo Bank, National Association (incorporated herein by this
    reference to Exhibit 10.18 to the registrants
    quarterly report on Form 10-Q for the period ended
    June 30, 2001).   
|       
|        | 10 | .6          |  | Credit Agreement dated September 4, 2001 by and between the
    registrant and Wells Fargo Bank, National Association
    (incorporated herein by this reference to Exhibit 10.19 to
    the registrants quarterly report on Form 10-Q for the
    period ended September 30, 2001).                                         
|       
|        | 10 | .7          |  | Line of Credit Note dated September 4, 2001 by and between
    the registrant and Wells Fargo Bank, National Association
    (incorporated herein by this reference to Exhibit 10.20 to
    the registrants quarterly report on Form 10-Q for the
    period ended September 30, 2001).                                      
|       
|        | 10 | .8          |  | Third Amendment to Credit Agreement Dated September 4, 2001
    by and between the registrant and Wells Fargo Bank, National
    Association.                                                                                                                                                                                 
|       
|        | 10 | .9*         |  | Form of Stock Purchase Agreeement for CEO, CFO, COO and other
    select officers under the Amended and Restated 1994 Stock
    Incentive Plan (incorporated herein by this reference to
    Exhibit 10.1 to the registrants current report on
    Form 8-K filed on February 14, 2005).                                     
|       
|        | 10 | .10*        |  | Form of Stock Purchase Agreement for all employees other than
    CEO, CFO, COO and other select officers under the Amended and
    Restated 1994 Stock Incentive Plan (incorporated herein by this
    reference to Exhibit 10.2 to the registrants current
    report on Form 8-K filed on February 14, 2005).             
|       
|        | 10 | .11         |  | The Keith Companies, Inc. Board of Directors Compensation 2005                                                                                                                                                                                                                                                                
|       
|        | 10 | .12         |  | The Keith Companies, Inc. Executive Officers Compensation
    for 2005                                                                                                                                                                                                                                                       
|       
|        | 10 | .13         |  | Summary of 2005 Discretionary Cash Bonus Plan                                                                                                                                                                                                                                                                                 
|       
|        | 10 | .14         |  | Independent Director Stock Option Agreement                                                                                                                                                                                                                                                                                   

64



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##### Table of Contents



|        |    |      |             |                                                                                                                                                                                  
|------- | -- | ---- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |            
|Number  |    |      | Description
|        |    |      |            
|       
|        | 10 | .15* |             | Form of Indemnification Agreement (incorporated by this
    reference to Exhibit 10.2 from the registrants statement
    on Form S-1, registration number 333-77273).           
|       
|        | 21 | .0   |             | List of Subsidiaries                                                                                                                                                             
|       
|        | 23 | .1   |             | Consent of Independent Registered Public Accounting Firm                                                                                                                         
|       
|        | 31 | .1   |             | Certification of Chief Executive Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002 Dated
    March 9, 2005                                                   
|       
|        | 31 | .2   |             | Certification of Chief Financial Officer Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002 Dated
    March 9, 2005                                                   
|       
|        | 32 | .1   |             | Certification of Chief Executive Officer Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002 Dated
    March 9, 2005
|       
|        | 32 | .2   |             | Certification of Chief Financial Officer Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002 Dated
    March 9, 2005






|  |                                                         
|- | --------------------------------------------------------
|* | Management contract or compensatory plan or arrangement.

65