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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




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FORM 10-K



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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001
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.)

2955 Red Hill Avenue, Costa Mesa, California 92626

(Address of principal executive offices and zip code)


Registrants telephone number, including area code: (714) 540-0800

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

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

Yes x    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x

The number of outstanding shares of the registrants common stock as of
March 15, 2002 was 7,313,202 shares. Based on the closing sale price on the
NASDAQ National Market on March 15, 2002, the aggregate market value of the
registrants common stock held by non-affiliates was approximately
$65,663,000.(1)

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the
registrants definitive proxy statement for the Annual Meeting of Shareholders
scheduled to be held on May 21, 2002.



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|(1) |  | For purposes of this calculation, shares owned by executive officers,
directors and 10% shareholders known to the registrant have been deemed to
be owned by affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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TABLE OF CONTENTS



|             |                                                                                               |                                                           |  |  |  |  |  | 
|------------ | --------------------------------------------------------------------------------------------- | --------------------------------------------------------- |  |  |  |  |  | 
|PART I      
|             | ITEM 1. BUSINESS                                                                             
|             | 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 AND RELATED STOCKHOLDER MATTERS                         
|             | ITEM 6. SELECTED FINANCIAL DATA                                                              
|             | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|             | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|             | ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                             
|             |                                                                                               | Consolidated Balance Sheets                              
|             |                                                                                               | Consolidated Statements of Income                        
|             |                                                                                               | Consolidated Statements of Shareholders Equity (Deficit)
|             |                                                                                               | Consolidated Statements of Cash Flows                    
|             |                                                                                               | Notes to Consolidated Financial Statements               
|             | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|PART III    
|PART IV     
|             | ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                     
|SIGNATURES  
|EXHIBIT 21.0
|EXHIBIT 23.1



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THE KEITH COMPANIES, INC.
Annual Report on Form 10-K



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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 and Related Stockholder Matters                          |  | 15  
|Item 6.    |  | Selected Financial Data                                                               |  | 16  
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 18  
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 28  
|Item 8.    |  | Consolidated Financial Statements and Supplementary Data                              |  | 29  
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 52  
|          
|PART III  
|          
|          
|          
|          
|Item 10.   |  | Directors and Executive Officers                                                      |  | 52  
|Item 11.   |  | Executive Compensation                                                                |  | 52  
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 52  
|Item 13.   |  | Certain Relationships and Related Transactions                                        |  | 52  
|          
|PART IV   
|          
|          
|          
|          
|Item 14.   |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 52  
|(a)        |  | 1. Consolidated Financial Statements                                                  |  | 52  
|           |  | 2. Financial Statement Schedules                                                      |  | 52  
|           |  | 3. Exhibits                                                                           |  | 53  
|(b)        |  | Reports on Form 8-K                                                                   |  | 53  
|Signatures |  |                                                                                       |  |     

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PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain forward-looking statements,
including among others:



| |  | forecasts of earnings, revenue or other financial items;                                                                                      
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | anticipated growth in the real estate development, public works/infrastructure and communications industry and the
industrial/energy industry;
| 
| |  | anticipated growth and economic expansion in the western United States;                                                                       
| 
| |  | our business strategy for expanding our presence in these industries;                                                                         
| 
| |  | 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 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                                                                         
| 
| |  | our ability to distinguish ourselves from our current and future competitors.                                                                 

You can identify forward-looking statements generally by the use of
forward-looking terminology such as believes, expects, may, will, intends,
plans, should, could, seeks, pro forma, anticipates, estimates, continues, or
other variations thereof, including their use in the negative, or by
discussions of strategies, opportunities, plans or intentions. You may find
these forward-looking statements under the captions, Managements Discussion
and Analysis of Financial Condition and Results of Operations (and more
particularly, the factors discussed under the subcaption, Risk Factors, and
Business, as well as under other captions elsewhere in this Annual Report on
Form 10-K. A number of factors could cause results to differ materially from
those anticipated by such forward-looking statements, including those discussed
under Managements Discussion and Analysis of Financial Condition and Results
of Operations (and, more particularly, the factors discussed under the
subcaption, Risk Factors) and Business in this Annual Report and as
described in our future filings with the Securities and Exchange Commission.
These forward-looking statements necessarily depend upon assumptions and
estimates that may prove to be incorrect . We cannot guarantee that we will
achieve our plans, intentions or expectations. The forward-looking statements
involve known and unknown risks, and uncertainties, as well as assumptions
that, if they fail to materialize or are incorrect, may cause actual results to
differ in significant ways from any future results expressed or implied by the
forward-looking statements.

The forward looking information set forth in this Annual Report on Form 10-K is
as of March 15, 2002 and we undertake no duty to update this information.
Should events occur subsequent to this date that make it necessary to update
the forward looking information contained in this Annual Report of Form 10-K,
the updated forward looking information will be filed with the Securities and
Exchange Commission in a Quarterly Report on Form 10-Q or a Periodic Report on
Form 8-K, each of which will be available on the Securities and Exchange
Commissions web site at www.sec.gov.




ITEM 1. BUSINESS

General

We are a full service engineering and consulting services firm providing
professional services on a wide range of projects to the real estate
development, public works/infrastructure, communications industry, and to the
industrial/energy industry.

We provide a full range of services from initial site acquisition studies
to construction management and electrical,

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mechanical and chemical/process engineering services. We benefit from a
diverse public and private client base including real estate developers,
residential and commercial builders, architects, cities, counties, water
districts, state and federal agencies, land owners, commercial retailers,
energy providers and various manufacturers. Our professional staff provides a
comprehensive menu of services that are needed to effectively manage, engineer
and design infrastructure and state-of-the-art facilities.

The following illustrates the range of services that we offer:



From fiscal 1997 through fiscal 2001, our net revenue has grown by a
compounded annual growth rate of 39% and our net income (1) has grown at a
compounded annual growth rate of 67%. We have accomplished this through both
internal growth and through our acquisition strategy to diversify the scope of
our services and our geographic presence. As of March 1, 2002, we have acquired
eight companies in the past five years and now operate from 16 offices
(including 18 operating divisions) in 9 states: California, Nevada, Utah,
Arizona, Colorado, Wyoming, Oregon, Texas and Michigan.



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|(1) |  | For purposes of this computation, pro forma net income was used for 1997
and not our reported net income. Prior to August, 1, 1998, Keith
Engineering, Inc., which was included in the Companys consolidated
financial statements, was taxed as an S corporation. Pro forma net
income for 1997 reflects a pro forma provision for federal and state
income taxes at an assumed annual effective rate of approximately 42%.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Industries Served

We serve the real estate development, public works/infrastructure,
communications industry, and the industrial/energy industry.

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Real Estate Development, Public Works/Infrastructure and Communications

Real Estate Development

Residential, commercial, golf, and other recreational developers use
technical consultants to provide planning and environmental services to create
land use plans, write the supporting planning and environmental documents and
process entitlements and permits through governmental authorities. Technical
consultants also assist clients with obtaining approvals and permits from
federal, state and local agencies. After projects are approved by governmental
agencies, developers need surveying, mapping, and civil engineering services to
survey development sites, create accurate boundary and base maps, and provide
engineering designs for grading, streets, sewer and water pipelines and
facilities, utilities and drainage facilities. Upon completion of the design
phase, surveyors provide construction staking services to identify the precise
locations of streets, utilities, pipelines, and other facilities. In culturally
sensitive areas, developers may also require environmental and archaeology
services for planning and assistance with environmental approvals as well as
construction and post-construction phase monitoring services.

Residential development includes large-scale communities, senior citizen
and retirement communities, single family homes, condominiums and apartments.
Commercial development includes the development and construction of retail,
office, hotel and industrial facilities. Golf and recreational facility
development includes golf courses, driving ranges, parks, clubhouses, theme
parks, resorts and lakes.

There are generally two types of real estate development clients: the land
developer and the builder. Some take on characteristics of both. Developers
generally must look long-term, utilize longer-term investment financing and
evaluate the performance of projects across multiple business cycles. The
developer pursues land development rights and implements the process of
designing and constructing infrastructure utility, roadway and landform grading
improvements. A developers projects often span several years or even decades.
The builder, on the other hand, generally provides an end-user product,
including homes, retail stores, restaurants or clubhouses. The builders
approach is generally based upon current and relatively short-term economic
conditions. Financing for a builders work is often construction-oriented and
anticipates short-term returns. The builder often buys property that has
already been zoned, graded and otherwise improved by the land developer.

Public Works/Infrastructure

Transportation, water resources, and other public works projects provide
ongoing, more reliable sources of revenue for engineering firms and consultants
when private real estate development activities decline during unfavorable
economic periods. These public projects are often long-term and have
historically provided more determinable and consistent revenue streams than
non-publicly funded projects. Recently, the public works/infrastructure
industry segment has shown a high interest in assessing the security of these
facilities in addition to enhancing the quality and availability of them.

Transportation.Highway and interchange projects require engineering
designs for roadways and interchanges for the placement or relocation of sewer
and water pipelines and utility lines and for rainfall run-off management. They
also include surveying services for establishment of proper rights of way for
these facilities. Engineers develop street, major arterial and highway designs
in cooperation with federal, state and local agencies to improve transportation
networks. Highly experienced transportation planners, engineers, and designers
provide the entire spectrum of resources necessary to effectively engineer and
design state-of-the-art transportation infrastructure.

Water Resources.Water resource services encompass the study and analysis
of rainfall, water collection and distribution, use of water for cleanliness,
nourishment and irrigation and the treatment and disposal of used or
contaminated water. Due to the multiple demands for municipal, environmental
and agricultural uses, water is a limited resource in the western United
States. As populations continue to grow and higher standards are placed on
protecting the environment without sacrificing the supply and quality of water,
water districts, public agencies, agricultural users and municipalities are
faced with the challenge of managing their water supplies more efficiently.

Protecting communities from natural disasters such as flood and mudflows,
cleaning natural waterways, eliminating pollution from storm runoff flowing
into the ocean and protecting and enhancing natural riparian resources are some
of the missions of public water-managing agencies. Private developers also
address these issues as part of their land development.

Communications

Communications projects include the development, expansion and
construction of wireless and land-based data and

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communications systems. The infrastructure for these systems includes
wireless transmission base stations, switching centers, cable systems, fiber
optic networks and microwave link networks. With the rapid growth of the
communications services industry, the demand for communications infrastructure
has expanded dramatically.

Service providers and developers of communications infrastructure
generally hire outside experts to meet their design, site acquisition and lease
arrangement, land planning, civil engineering, purchasing and construction
management needs.

Industrial/Energy

The industrial/energy industry consists of manufacturing facilities,
processing facilities, power generation and distribution, and
production/refining methods and systems. Power plants, machines, assembly
lines, factories and refineries require mechanical, electrical and process
engineering services to enable utilization of new processes and to improve
efficiency and reliability of their production effort. Comprehensive
engineering services that are required include:



| |  |  | the design or redesign of electrical, heating, ventilation and air conditioning systems;                       
| | - |  | ---------------------------------------------------------------------------------------------------------------
|
| |  |  | mechanical equipment design;                                                                                   
|
| |  |  | equipment selection and purchasing;                                                                            
|
| |  |  | the 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.                                                                                          

Projects that utilize mechanical, electrical and process engineering and consulting services include:



| |  |  | Energy/Power Generation and Management: power plants, 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 and Consumer Product Facilities: automotive
assembly, household products, packaging facilities and paper products;                 

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| |  |  | beverage manufacturing facilities;                                       
| | - |  | -------------------------------------------------------------------------
|
| |  |  | Educational Facilities: school and university buildings and campuses; and
|
| |  |  | Public Facilities/Utilities: commercial and medical buildings.           

We believe there is a continued trend in the manufacturing and assembly
industries toward automation and increased efficiency. As these industries
grow, so does their need for engineering, design and consulting services to
automate and increase the efficiency of new and existing facilities.

The Keith Companies Advantage

The engineering and consulting services industries are highly fragmented,
ranging from a large number of relatively small local firms to large,
multi-national firms. Management believes that in most of the areas in which we
are located, we are among the leading engineering and consulting services firms
serving our primary industries. We believe that we can further enhance our
position in the industries which we serve for the following reasons:

Reputation

We have a reputation for providing high quality services, which is
strengthened due to the personal relationships developed between our staff and
representatives of clients and agencies. We have been awarded many projects
either due to our expertise in working with an agency or project type or
because a particular client desires to work with, and can count on, specific
project managers. In addition, we have received numerous awards for technical
excellence including:



| |  |  | Award of Excellence  Honor Award from the City of Rancho Cucamonga, California for design excellence                                                  
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Engineering Project Achievement Award from the Orange County Engineering Council                                                                       
|
| |  |  | Project Achievement Award from the American Society of Civil Engineers  Orange County Branch                                                          
|
| |  |  | Outstanding Environmental Analysis Document  2001 Large Jurisdiction
Award from the Association of Environmental Professionals  Inland
Empire Chapter
|
| |  |  | Outstanding Environmental Analysis Document Award from the Association of Environmental Professionals                                                  
|
| |  |  | Award of Excellence from the California Council of Civil Engineers and Land Surveyors;                                                                 
|
| |  |  | Certificate of Recognition from the County of San Bernardino Board of Supervisors;                                                                     
|
| |  |  | Letter of Appreciation from the State of California Department of General Services;                                                                    
|
| |  |  | Project of the Year from the Orange County Branch of the American Society of Civil Engineers;                                                          
|
| |  |  | Outstanding Environmental Analysis Document from the Association of Environmental Professionals; and                                                   

Industry and Professional Experience

We believe that our senior management has the proven ability to execute
our business plan and capitalize on new opportunities. In less than five years,
management has successfully closed eight acquisitions, enabling us to diversify
both our revenue base and our geographic scope. This is a crucial point as
acquisitions continue to be a key component of our business plan. In most of
the acquisitions, we have retained the management teams of the acquired
companies and provided the financial and management controls to promote
sustainable growth. This enables the acquired management team to run their
business as they know best. In addition, the entire management team, from
project manager to senior executive manager, is particularly adept at the
relationship side of the business that plays a critical role in the world of
engineering and consulting services.

We recognize that our employees are our most valuable resource for
providing continuing quality service and for obtaining new work. During
employee selection and as part of the acquisition criteria, we require that the
personnel which we add to our

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team have significant experience in the industries that we serve. We
supplement this industry experience by providing in-house continuing education
seminars, design forums and training programs.

Full Service Approach

We provide a full complement of engineering and consulting services. Since
many consulting and engineering services firms specialize in only one or a few
services, a project owner may often be required to engage several engineering
and/or consulting firms during the various phases of a project. The phases
range from identifying and evaluating whether to acquire a parcel of land to
designing, engineering and managing the construction of the finished project.
In many cases, we provide monitoring and maintenance services on projects, even
after construction is complete. We believe that clients realize significant
cost and time savings and maintain consistent quality by concentrating their
engineering and consulting services in as few firms as practicable.

Cross-Marketing

Due to our reputation within our industries and due to our varied
technical expertise, we have frequently increased the scope of services
provided to a client from an initial engagement, such as land planning, to
include other services, such as mapping and surveying. When we expand into new
geographic regions, we have successfully cross-sold between our divisions and
offices and intend to continue to cross-sell the services we offer.

Because our professionals provide many of the preliminary services for
planning, civil engineering and surveying and mapping projects, we are
frequently asked to provide additional services as a project progresses. In
performing the preliminary services during the initial phases of a project, we
obtain background information and data relating to the project that may be
inefficient and costly for another firm to compile. Consequently, we are often
more knowledgeable about a project, and are able to provide additional services
more efficiently. As a result, we are often engaged to perform additional
engineering and consulting services as the project progresses.

Effective Organizational Structure

We believe that our organizational structure allows us to compete
effectively with small-and mid-sized local firms as well as with large
regional, national and international firms. Our organizational structure
combines the efficiencies associated with centralization and the flexibility of
decentralization. When appropriate, our primary administrative functions are
centralized in our corporate headquarters in Costa Mesa, California allowing us
to reduce duplicative functions and personnel at our divisional offices. We
believe that this centralization allows the management at our divisional
offices the freedom to focus on identifying new business opportunities and
overseeing the services they provide, and also allows our project managers the
flexibility to focus on being responsive to client needs. Since our divisions
are managed by technical professionals with excellent client relationships and
industry reputations, we promote decentralization of those aspects of our
business which involve technical and client relationships.

Business Strategy

Our objective is to strengthen our position as a leading provider of
engineering and consulting services while growing our geographic presence and
enhancing the services we offer. To achieve this objective, we have developed a
strategy with the following key elements:



| |  |  | 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 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 entire
cross section of services we provide to all clients, 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 contract opportunities for us. We believe that our
existing relationships between our clients and employees is our greatest
business development asset.

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| |  |  | Expand Services in the Public Works/Infrastructure, Communications,
and Industrial/Energy Industries.To diminish our susceptibility to the
economic cycles affecting any particular industry, we intend to continue
expanding our work in the public works/infrastructure, communications
and industrial/energy industries. Much of our technical expertise,
including CAD technicians, certain engineering specialists and
administrative support, 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 Thompson-Hysell;
Crosby, Mead, Benton & Associates; Hook & Associates Engineering, Inc.;
Pacific Engineering Corporation; Universal Energy, Inc.; and most
recently ALNM Group Inc. has 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 through acquisitions 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
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 recently the Midwest.                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | Expand and Enhance Technical Capabilities.We intend to build upon
our reputation as a quality provider of engineering and consulting
services as we 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

We intend to continue to pursue acquisitions that complement our business
strategy and enhance our range of services, geographic presence and/or client
base. We believe that strategic acquisitions will enable us to more efficiently
serve the diverse technical and geographic needs of, and secure additional
business from, national and international clients.

In general, the key criteria we consider when evaluating potential
acquisitions include services offered, reputation, corporate culture, price,
profitability and geographic location.

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The following table sets forth information regarding our eight
acquisitions since December 1997:

|               |  |                                        |  |                                       |  |                                                                          
|-------------- |  | -------------------------------------- |  | ------------------------------------- |  | -------------------------------------------------------------------------
|Acquisition    |  |                                        |  | Primary                               |  |                                                                          
|Date           |  | Company Acquired                       |  | Markets Served                        |  | Services Offered                                                         
|               |  |                                        |  |                                       |  |                                                                          
|December 1997  |  | ESI, Engineering
Services Incorporated |  | Northern California                   |  | Industrial/energy services                                               
|August 1998    |  | John M. Tettemer and
Associates, Ltd.  |  | Southern California                   |  | Water resources engineering and
services                                 
|July 1999      |  | Thompson-Hysell, Inc.                  |  | Northern and Central
California; Utah |  | Water resources and other
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; Colorado; Wyoming            |  | Land development,
transportation, and
communications services            
|September 2001 |  | Pacific Engineering
Corporation        |  | Oregon; Washington                    |  | Industrial/energy services                                               
|November 2001  |  | Universal Energy, Inc.                 |  | National, International               |  | Power Plant testing, start-up,
operations                                
|March 2002     |  | ALNM Group, Inc.                       |  | Michigan                              |  | Environmental, water resources,
and other engineering services           

Consideration for the companies we have acquired has included cash, shares
of our common stock, promissory notes, or a combination of these forms of
consideration. The consideration is sometimes subject to earn-out or adjustment
provisions. Additionally, in connection with these acquisitions, we have
entered into noncompetition agreements with principals or key employees of an
acquired company.

Services Provided

We provide a broad range of services, including civil engineering,
surveying and mapping, planning, environmental, archaeological, construction
management, site acquisition, water resource engineering, and other services
needed by the industrial, process and manufacturing industry, including
instrumentation and control systems engineering, fire protection engineering,
electrical engineering, mechanical engineering, chemical process engineering,
start-up and testing, and operations.

Civil Engineering Services

General civil engineering is often referred to as everything designed
from the ground down because most of the constructed improvements involved lie
on the surface of, or below the ground. Our civil engineering services include,
project feasibility and due diligence analysis; development cost projections;
access and circulation analysis; infrastructure design and analysis; pro forma
cost studies; project management; construction documents; tentative mapping;
flood plain studies; sewer, water and drainage design; street and highway
design; site and subdivision design; and grading design.

Surveying and Mapping Services

Surveying and mapping services include, among other things, the
establishment of boundaries for preliminary engineering, construction layout,
as-built surveys and the identification of features of a parcel of land that
directly affect a projects design. It is common for our surveying and mapping
teams to be the first in and the last out for a construction project. We
provide surveying and mapping services through teams of skilled professionals
that utilize sophisticated technology, including global positioning systems
that utilize satellite technology to survey and navigate land, geographic
information systems, and field-to-office digital and electronic data capture to
produce information that will serve as the foundation for a variety of planning
and engineering analysis and design endeavors. We believe that we were among
the first engineering and surveying consultants to utilize global positioning
systems with geographic information systems to perform precise ground surveys.

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Planning Services

Planning services include both physical planning and policy planning.
Physical planning is graphical and includes conceptual drawings, sketches and
layouts of communities and identifies land uses and residential and commercial
neighborhoods. The resulting plan often becomes the basis for the preparation
of engineering plans. To complement a physical plan, policy planning entails
the preparation of supporting text and documents that establish procedures,
requirements and guidelines for visual appearance or detailed permitting
approvals under which the physical plan may be implemented.

Our planning services are designed to assist clients with maximizing the
potential uses of real estate and other limited resources. We provide plans
that take into account government regulations, effective and creative use of
land assets, and the expectations and needs of the community.

Environmental Services

Our environmental services include biology, permit processing,
environmental document preparation and mitigation monitoring. We assist clients
with the complex federal, state, and local permitting process enabling them to
successfully implement private and public projects. Our environmental staff
offers the technical proficiency to provide one-stop preparation of
environmental documents that conform to current regulatory requirements.

Our staff is experienced with the preparation of complex and challenging
environmental planning documents such as Environmental Impact Reports,
Environmental Impact Statements, initial studies and environmental assessments.
Our experience includes the preparation of documents that comply with the
California Environmental Quality Act (CEQA) and the National Environmental
Policy Act. Our environmental staff has been instrumental in developing permit
strategy consensus among federal agencies such as the Army Corps of Engineers,
U.S. Fish and Wildlife, the Environmental Protection Agency and the State of
California.

Archaeological Services

We perform archaeological studies that range from site review and records
analysis to a discussion of measures to protect sensitive or valuable
archaeological resources. Further, we conduct field sampling and testing to
establish or verify findings of a site review, and previously documented
information to determine both the quantity and quality of archaeological
materials for a given site. Many environmental impact analyses require
protection of significant archaeological resources that may exist on a
property, such as native American community settings, artifacts, and burial
sites.

We have provided monitoring of construction activities on numerous
projects and have also completed complex archaeological excavations in
coordination with state and federal agencies and native American
representatives.

Construction Management Services

Construction management services are an efficient bundling of some of
the other services that we provide. During construction management assignments,
we direct development and construction tasks, including the preparation of cost
projections, entitlement and feasibility analysis, professional consultant
selection and supervision, contractor bidding and construction supervision. We
provide these services in discrete components or as a comprehensive package for
private development, public works and communications clients.

Site Acquisition Services

Site acquisition services include the selection of prospective properties
that fit defined criteria, identifying and overcoming restrictions against the
intended use of properties, negotiating agreements for the acquisition and
implementing the acquisition and final use of properties. We provide site
acquisition services to assist clients with obtaining the most appropriate real
estate for their particular needs or to assist them in assessing the quality
and reliability of existing equipment and facilities in the energy industry.
For example, a property intended for the development of multi-family housing
will have characteristics which vary greatly from that of a property intended
for the siting of a heavy industrial facility.

Water Resources Engineering Services

Our water resources engineering services consist of financial planning,
feasibility studies, storm water management, demand forecasting, hydraulic
analysis and water flow studies to develop system master plans in addition to
designing conventional systems of pipes, channels and dams.

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Instrumentation/Control Systems Integration Engineering Services. Our
professionals integrate equipment selection, maintenance requirements and spare
parts inventory by designing, selecting and reviewing mechanical, piping and
electrical layouts, and operating maintenance, training, start-up and emergency
procedures during the design of contemporary processes or the automation of
outdated manufacturing processes. These services are essential to creating an
efficient operating facility.

Our engineers designed control systems for major assembly lines for a
large automotive manufacturing facility. One system, the passenger Paint Line
Monitoring System, monitors equipment alarms signaling problems on the
assembling line. This system tracks 51 separate processors throughout multiple
networks for a total of approximately 12,000 data points.

Another system that we were responsible for was the RF Automatic Vehicle
Identification system which tracks vehicle/carrier movement throughout the
painting assembly line by reading RF tags affixed to the carrier. RF tags store
vehicle information including make, model and color, which is transmitted to
the processing equipment systems to ensure that the proper operations are
performed automatically on each vehicle, such as paint color and trim detail.
This information is then automatically transmitted to the historical database
on the paint shop server.

Fire Protection Engineering Services.We provide fire protection
engineering services in connection with both new construction and the
renovation or modification of existing facilities to assist clients in defining
and providing an acceptable level of fire safety in a cost-effective manner.

Electrical Engineering Services.These services include the design of
electrical power systems for buildings, manufacturing plants and miscellaneous
facilities; design of lighting systems; and selection of other equipment that
delivers or uses electrical power. We are currently engaged in the design of
peak power usage generating stations (peaker projects). These stations augment
the power grid in times of high energy usage and have the benefit of being
relatively small-scale, efficient to construct and suitable in more densely
improved areas. We are also providing cogeneration and backup emergency power
supply designs for university campuses and multiple building commercial
facilities.

Mechanical Engineering Services.These services are required to design
energy systems, HVAC systems, plumbing systems, water distribution systems and
fire protection systems for facilities and buildings. We are currently
providing mechanical engineering and construction management services for a
major aerospace company. The project involves a large satellite testing
facility encompassing multiple buildings for which we are designing mechanical
systems and facilities, including, new boiler, chilled water, compressed air
and HVAC systems as well as large, proprietary space system equipment. Design
and construction are ongoing and we have a full staff of construction
management personnel on-site to oversee the installation and start-up of these
new mechanical systems.

Chemical/Process Engineering Services.Our chemical/process engineers
design systems for a variety of manufacturing and industrial facilities and
processes. These services are necessary for the design of chemical/processing
operations in businesses like food and beverage, pharmaceutical, chemical and
petroleum.

Start-Up Testing, Operation and Maintenance.As plants, whether they are
power generation or wastewater treatment, are constructed they require a
significant amount of testing during the construction process to insure that
various functions are performing as designed and expected. This work includes
testing the system processes, electrical equipment, instrument calibration, and
numerous other tests to insure that the plant will function when it becomes
operational. It then needs to be started, monitored, and the permanent staff
for the plant must be trained to operate and manage it. We provide these
various plant services including testing, start up, and training in addition to
being able to provide the manpower along with our intimate understanding of the
background of a plant to operate, manage or maintain a plant during its full
operational stage after construction.

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Business Development and Marketing

Our business development and marketing activities consist of identifying
target markets, developing strategies for pursuing these targets and supporting
marketing activities company-wide by coordinating corporate promotional and
professional activities. We use a client service value-added approach to our
business development and marketing efforts by employing a variety of techniques
to obtain contracts with new clients, repeat business with existing clients,
and to maintain a positive reputation.

Additionally, our business development and marketing efforts assist our
management and clients in assuring quality performance and client satisfaction.
To accomplish this, we provide our clients with referrals for project partners
and financing sources, assist with legislative matters and monitor in-house
performance. Finally, we identify new projects and clients in each of the
markets in which we are active. This is achieved through the use of many
resources including: geographic information systems and aerial maps, project
and contact databases, the Internet and lead tracking publications. We pursue
the companies, agencies, projects and markets that we believe have financial
strength, long-term growth potential and established reputations.

Our growing list of services provides us with the opportunity to
cross-market and sell additional services to our clients. We intend to further
promote our broad service capabilities and continue to take advantage of our
ability to increase our revenue by cross-selling services to existing clients
and to build new client relationships.

One of the keys to being successful in cross-marketing our services is to
ensure that all of our managers understand the complete capabilities of our
company, including our full range of services and the geographic locations and
industries in which we offer and provide our services. We give formal
presentations to our staff to educate them on our full capabilities and to
encourage them to identify cross-marketing opportunities. In addition, we have
implemented a formal cross-marketing program. We have produced various tools to
highlight pertinent information on each of the companys divisions. These are
available to all managers in each division as part of an approach geared to
facilitate easy lead sharing between divisions and to maximize the
effectiveness of our cross-marketing efforts. We promote successful
cross-selling efforts and have been awarded numerous new contracts as a direct
result of this effort.

Our business development staff has also been trained to identify and
pursue opportunities that result from cross-selling. They report all such
opportunities to the corporate office where proposals and contracts are
monitored. For example, our ESI division (industrial/energy) was awarded a
contract for engineering services for multiple power plants. Through our
cross-marketing efforts, we were able to expand the contracts to include
planning, civil engineering and surveying and mapping services for the benefit
of both the client and us. Likewise, one of our business development managers
in Southern California provided a lead to our Thompson-Hysell division in
Central California which resulted in a contract for that office to provide
planning and civil engineering services for a large golf course and residential
community.

One of our most effective methods of developing client relationships and
winning new contracts has been our Executive Land Search Program. In our map
rooms, we have computerized geographic information systems maps, aerial maps
and city and county maps. We use these maps along with corresponding database
information to identify and track a multitude of existing and potential
projects. We meet with existing and prospective clients and refer available
projects to them.

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Clients

Our primary private sector clients consist of real estate developers,
builders, communications providers, major manufacturers and energy providers.
Our public sector clients include water and school districts, metropolitan
planning organizations, transportation authorities and local, state and federal
agencies. The following is a partial list of some of our clients:

|                                  |  |                                                   
|--------------------------------- |  | --------------------------------------------------
|Real Estate                       |  | Public Works/Infrastructure                       
|                                  |  |                                                   
|Centex Homes                      |  | City of Rancho Mirage                             
|D.R. Horton                       |  | Coachella Valley Water District                   
|Lennar Homes                      |  | Central Utah Water Conservancy District           
|Pulte Home Corporation/Del Webb   |  | Orange County Transportation Authority            
|ProLogis                          |  | Arizona Department of Transportation              
|Shea Homes                        |  | Metropolitan Water District of Southern California
|The Irvine Company                |  |                                                   
|Thomas & Mack Development Company |  |                                                   

|                                                              |  |                                              
|------------------------------------------------------------- |  | ---------------------------------------------
|Industrial/Energy                                             |  | Communications                               
|                                                              |  |                                              
|California Energy Commission                                  |  | Mountain Union Telecom                       
|E&J Gallo Winery                                              |  | Sprint Spectrum, L.P.                        
|Kellogg Co.                                                   |  | Whalen & Company                             
|PG&E National Energy Group                                    |  | ATI                                          
|New United Motors Manufacturing, Inc.
  (NUMMI  GM & Toyota) |  | Delta Aviation Services, L.P.
Scientech, Inc.

No individual client accounted for more than 10% of our net revenue in
1999, 2000 and 2001.

Backlog

At December 31, 2001, our gross revenue backlog was approximately $42
million as compared to $29 million at December 31, 2000. Our backlog represents
an estimate of the remaining future gross revenue from existing signed
contracts, and contracts which have been awarded with a defined scope of work
and contract value and on which we have begun work with oral client approval.
We do not believe that backlog is fully indicative of the amount of potential
future revenue that we may achieve because of the short-term nature of the
contracts under which we generally provide our services compared to the
long-term nature of the projects.

Competition

The market for our services is highly competitive. We compete with a
variety of firms ranging from small, local firms to national and international
firms that are much larger than we are. We perform engineering and consulting
services for a broad spectrum of markets including energy, residential,
commercial, recreational, public works, communications and industrial, process
and manufacturing. We believe that our competitive advantages include our
multiple industries and services, reputation, organizational structure and
business strategy. We believe that the principal factors in the engineering and
consulting services selection criteria include:



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

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Employees

As of March 1, 2002, we had approximately 850 employees. Believing that
our success depends significantly upon attracting and retaining talented,
innovative and experienced professionals, we are comprised of highly skilled
personnel with significant industry experience and strong client relationships.
We employ licensed civil engineers, mechanical engineers, electrical engineers,
land surveyors, landscape architects, certified planners, information
technology specialists, power plant personnel, geodesists and doctoral
archaeologists, among others.

Our field survey employees in our Southern California offices are covered
by a Master Labor Agreement between the International Union of Operating
Engineers Local Union No. 12 and the Southern California Association of Civil
Engineers and Land Surveyors. The agreement applies to civil engineering and
land surveying work, including global positioning system surveys, and covers
our employees in Imperial, Inyo, Kern, Los Angeles, Mono, Orange, Riverside,
San Bernardino, San Diego, San Luis Obispo, Santa Barbara and Ventura counties.
Our field survey employees in our Northern California offices are covered by a
Master Agreement between the Bay Counties Civil and Land Surveyors Association
and Operating Engineers Local Union No. 3. Our other employees are not
represented by any labor union. We have never experienced a work stoppage from
union actions. We believe that our relationship with our employees is good.

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ITEM 2. PROPERTIES

We occupy offices and facilities in various locations in California,
Nevada, Utah, Arizona, Colorado, Wyoming, Oregon, Texas and Michigan. Our
corporate headquarters are located in Costa Mesa, California and consist of
approximately 60,000 square feet of space. Our corporate headquarter lease,
which consists of separate leases for the two floors that we occupy, extends
until October 2003. We also maintain offices in the California cities of Walnut
Creek, Moreno Valley, Modesto, Palm Desert, Encino, Carlsbad and Thousand Oaks.
Outside of California, we have offices in each of the following locations: Las
Vegas, Nevada; Salt Lake City, Utah; Phoenix, Arizona; Denver, Colorado;
Cheyenne, Wyoming; Nasau Bay, Texas; Portland, Oregon and Ann Arbor, Michigan.
We believe that our existing office space is adequate to meet our current and
foreseeable future requirements.




ITEM 3. LEGAL PROCEEDINGS

In March 2000, Clayton Engineering filed a claim against The Irvine
Company, which was subsequently settled, alleging that The Irvine Company
failed to pay Clayton Engineering for the removal of 30,000 cubic yards of dirt
in the Peters Wash located in Irvine, California. JMTA had provided
engineering design services for The Irvine Company in connection with this
project. JMTA was our wholly-owned subsidiary at the time the claim by Clayton
was filed and was subsequently merged with and into the Company in December
2000. Clayton Engineering made the allegation that plans prepared by JMTA were
inaccurate as to the elevation of the bottom of the Peters Wash. Consequently,
during January of 2001, The Irvine Company filed an equitable indemnity
cross-complaint against JMTA in the Superior Court of California, in the County
of Orange. We settled this dispute in November 2001 and the lawsuit was
dismissed. The settlement amount was partially covered by insurance and is not
considered to be material to the overall financial condition, liquidity, or
results of operations of the Company.

The Company is also involved in various claims and legal actions arising
in the ordinary course of business. In the opinion of management and the
Companys legal counsel, the ultimate disposition of these matters should not
have a material adverse effect on the Companys financial position, liquidity
or results of operations.




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

No matters were submitted to a vote of security holders during the quarter
ended December 31, 2001.

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PART II




ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is traded on the Nasdaq National Market under the symbol
TKCI. The following table sets forth the low and high closing sale prices per
share of our common stock for each calendar quarter indicated as reported on
the Nasdaq National Market.

|                              |  |     |       |      |  |   |       | 
|----------------------------- |  | --- | ----- | ---- |  | - | ----- | 
|                              |  | Low |       | High
|                              |  |     |       |     
|Year Ended December 31, 2000: |  |     |       |      |  |   |       | 
|First Quarter                 |  | $   | 3.88  |      |  | $ | 5.56  | 
|Second Quarter                |  |     | 3.19  |      |  |   | 4.88  | 
|Third Quarter                 |  |     | 3.94  |      |  |   | 5.63  | 
|Fourth Quarter                |  |     | 4.94  |      |  |   | 8.56  | 
|Year Ended December 31, 2001: |  |     |       |      |  |   |       | 
|First Quarter                 |  | $   | 8.94  |      |  | $ | 25.63 | 
|Second Quarter                |  |     | 15.55 |      |  |   | 23.30 | 
|Third Quarter                 |  |     | 8.23  |      |  |   | 21.00 | 
|Fourth Quarter                |  |     | 7.60  |      |  |   | 10.55 | 

At March 15,
2002, there were approximately 57 holders of record and approximately
3,075 beneficial holders of our outstanding shares of common stock and
the last reported sale price of our common stock on the Nasdaq National
Market was $11.60 per share.

We have not declared or paid any cash dividends on our capital stock and
do not anticipate paying cash dividends on our common stock in the foreseeable
future. In addition, our credit agreement with our bank restricts the payment
of dividends without the banks consent.

Recent Issuances of Unregistered Securities

In connection with our acquisition of Crosby, Mead, Benton & Associates
(CMB) in October 2000, the purchase agreement provided for the issuance of
$1,000,000 in unregistered shares of our common stock to the former
shareholders of that company which is payable in two equal installments in
October 2001 and in October 2002, subject to certain adjustments as stated in
the agreement. We have issued $188,000 related to the first installment, which
resulted in the issuance of 35,905 shares of our common stock in October 2001.
We are currently in the process of finalizing any further purchase price
adjustments to determine whether any additional shares would be required to be
issued related to the first installment. These shares were, and are expected to
be, issued in transactions exempt from the registration requirements of the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.

In connection with the acquisition of Hook Associates Engineering, Inc.
(Hook), the purchase agreement provided for the issuance of $1,200,000 in
unregistered shares of our common stock to the former shareholders of that
company. The common stock of the Company is to be issued in two installments;
34,188 shares were issued in February 2001 with a value of $500,000, with the
remaining $700,000 to be issued in April 2002. The issuance of the $700,000 of
common stock is subject to certain adjustments as stated in the agreement.
These shares were, and are expected to be, issued in transactions exempt from
the registration requirements of the Securities Act of 1933, as amended,
pursuant to Section 4(2) thereof.

In connection with our acquisition of Universal Energy, Inc. (UEI) in
November 2001, the former shareholders will be eligible for additional
consideration, which may affect the purchase price as a result of an earn-out
provision. As part of this earn-out, which is based on certain profitability
targets for 2002, 2003, and 2004, we may be obligated to issue additional
shares of our common stock to be determined under the earn-out provision of the
agreement. If issued, these shares will be issued in three installments in May
2003, May 2004 and May 2005. These shares are expected to be issued in
transactions exempt from the registration requirements of the Securities Act of
1933, as amended, pursuant to Section 4(2) thereof.

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ITEM 6. SELECTED FINANCIAL DATA

The selected financial data includes both consolidated and combined financial
statement data for the periods presented. All financial statement data is
referred to as consolidated.

The historical statements of income data for the years ended December 31, 1999,
2000 and 2001, and the historical balance sheet data as of December 31, 2000
and 2001, have been derived from our historical audited consolidated financial
statements which are included elsewhere in this annual report on Form 10-K. The
historical statements of income data for the years ended December 31, 1997 and
1998, and the historical balance sheet data as of December 31, 1997, 1998 and
1999, have been derived from our audited historical consolidated financial
statements which are not included in this Annual Report on Form 10-K.

The pro forma statements of income data for the years ended December 31, 1997
and 1998 are unaudited and reflect pro forma adjustments for provisions for
federal and state income taxes at an assumed annual effective income tax rate
of approximately 42.0%. The pro forma statements of income data for the years
ended December 31, 1999, 2000 and 2001, represent historical amounts at the
actual annual effective income tax rates of 42.1%, 40.4% and 38.8%,
respectively, and are shown for comparative purposes only.

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The following information should be read in conjunction with our
consolidated financial statements and the related notes and our Managements
Discussion and Analysis of Financial Condition and Results of Operations which
are included elsewhere in this Annual Report on Form 10-K.

|                                         |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |           |        |  |   |           |        |  |   |           |        | 
|---------------------------------------- | ---------------------------------------------------------------------- | -------------------------------------------------- | - | ------------------------------------------------- | ------ | ---- | - | --------- | ------ | ---- | - | --------- | ------ |  | - | --------- | ------ |  | - | --------- | ------ | 
|                                         |                                                                        |                                                    |   | Years Ended December 31,                         
|                                         |                                                                        |                                                    |   |                                                  
|                                         |                                                                        |                                                    |   | (dollars in thousands, except for per share data)
|                                         |                                                                        |                                                    |   | 1997                                              |        | 1998 |   | 1999      |        | 2000 |   | 2001     
|                                         |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |          
|Historical Statements of Income Data(1): |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                         | Gross revenue                                                          |                                                    | $ | 22,585                                            |        |      | $ | 34,021    |        |      | $ | 43,084    |        |  | $ | 57,835    |        |  | $ | 77,066    |       
|                                         |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                         |                                                                        | Net revenue                                        |   |                                                   | 18,592 |      |   |           | 29,182 |      |   |           | 39,636 |  |   |           | 53,381 |  |   |           | 69,455 | 
|                                         | Costs of revenue                                                       |                                                    |   | 11,871                                            |        |      |   | 19,287    |        |      |   | 26,987    |        |  |   | 34,362    |        |  |   | 45,438    |       
|                                         |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                         |                                                                        | Gross profit                                       |   |                                                   | 6,721  |      |   |           | 9,895  |      |   |           | 12,649 |  |   |           | 19,019 |  |   |           | 24,017 | 
|                                         | Selling, general and administrative expenses                           |                                                    |   | 4,485                                             |        |      |   | 5,858     |        |      |   | 8,343     |        |  |   | 10,834    |        |  |   | 14,690    |       
|                                         |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                         |                                                                        | Income from operations                             |   |                                                   | 2,236  |      |   |           | 4,037  |      |   |           | 4,306  |  |   |           | 8,185  |  |   |           | 9,327  | 
|                                         | Interest income                                                        |                                                    |   | (3                                                | )      |      |   | (4        | )      |      |   | (13       | )      |  |   | (31       | )      |  |   | (552      | )     
|                                         | Interest expense                                                       |                                                    |   | 852                                               |        |      |   | 967       |        |      |   | 807       |        |  |   | 341       |        |  |   | 270       |       
|                                         | Other expenses (income), net                                           |                                                    |   | 86                                                |        |      |   | 70        |        |      |   | 29        |        |  |   | (44       | )      |  |   | 53        |       
|                                         |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                         |                                                                        | Income before provision (benefit) for income taxes |   |                                                   | 1,301  |      |   |           | 3,004  |      |   |           | 3,483  |  |   |           | 7,919  |  |   |           | 9,556  | 
|                                         | Provision (benefit) for income taxes(1)                                |                                                    |   | (1,397                                            | )      |      |   | 1,350     |        |      |   | 1,466     |        |  |   | 3,199     |        |  |   | 3,707     |       
|                                         |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                         |                                                                        | Net income                                         |   |                                                   | 2,698  |      |   |           | 1,654  |      |   |           | 2,017  |  |   |           | 4,720  |  |   |           | 5,849  | 
|                                         | Reversal (accretion) of redeemable securities to redemption
value, net |                                                    |   |                                                  |        |      |   | (230      | )      |      |   | 230       |        |  |   |          |        |  |   |          |       
|                                         |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                         |                                                                        | Net income available to common shareholders        |   | $                                                 | 2,698  |      |   | $         | 1,424  |      |   | $         | 2,247  |  |   | $         | 4,720  |  |   | $         | 5,849  | 
|                                         |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                         | Earnings per sharediluted                                             |                                                    | $ | 0.87                                              |        |      | $ | 0.39      |        |      | $ | 0.50      |        |  | $ | 0.89      |        |  | $ | 0.82      |       
|                                         |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                         | Weighted average shares outstandingdiluted                            |                                                    |   | 3,104,588                                         |        |      |   | 3,635,474 |        |      |   | 4,515,033 |        |  |   | 5,299,679 |        |  |   | 7,092,505 |       
|                                         |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                         | EBITDA(2)                                                              |                                                    | $ | 2,521                                             |        |      | $ | 4,562     |        |      | $ | 5,314     |        |  | $ | 9,787     |        |  | $ | 11,623    |       
|                                         |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|Pro Forma Statements of Income Data:     |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                         | Historical income before provision for income taxes                    |                                                    | $ | 1,301                                             |        |      | $ | 3,004     |        |      | $ | 3,483     |        |  | $ | 7,919     |        |  | $ | 9,556     |       
|                                         | Pro forma provision for income taxes                                   |                                                    |   | 546                                               |        |      |   | 1,262     |        |      |   | 1,466     |        |  |   | 3,199     |        |  |   | 3,707     |       
|                                         |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                         | Pro forma net income                                                   |                                                    |   | 755                                               |        |      |   | 1,742     |        |      |   | 2,017     |        |  |   | 4,720     |        |  |   | 5,849     |       
|                                         | Reversal (accretion) of redeemable securities to redemption
value, net |                                                    |   |                                                  |        |      |   | (230      | )      |      |   | 230       |        |  |   |          |        |  |   |          |       
|                                         |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                         | Pro forma net income available to common shareholders                  |                                                    | $ | 755                                               |        |      | $ | 1,512     |        |      | $ | 2,247     |        |  | $ | 4,720     |        |  | $ | 5,849     |       
|                                         |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                         | Pro forma earnings per share datadiluted                              |                                                    | $ | 0.24                                              |        |      | $ | 0.42      |        |      | $ | 0.50      |        |  | $ | 0.89      |        |  | $ | 0.82      |       
|                                         |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          
|                                         | Weighted average number of shares
outstandingdiluted                  |                                                    |   | 3,104,588                                         |        |      |   | 3,635,474 |        |      |   | 4,515,033 |        |  |   | 5,299,679 |        |  |   | 7,092,505 |       
|                                         |                                                                        |                                                    |   |                                                   |        |      |   |           |        |      |   |           |        |  |   |           |        |  |   |          

|                               |                                      |  |                    |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|------------------------------ | ------------------------------------ |  | ------------------ | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                               |                                      |  | As of December 31,
|                               |                                      |  |                   
|                               |                                      |  | 1997               |        | 1998 |  | 1999 |        | 2000 |  | 2001
|                               |                                      |  |                    |        |      |  |      |        |      |  |     
|Historical Balance Sheet Data: |                                      |  |                    |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |       
|                               | Working capital                      |  | $                  | 2,016  |      |  | $    | 5,180  |      |  | $    | 7,213  |  |  | $ | 7,343  |  |  | $ | 38,781 | 
|                               | Total assets                         |  |                    | 11,733 |      |  |      | 14,530 |      |  |      | 23,661 |  |  |   | 33,312 |  |  |   | 71,492 | 
|                               | Total debt                           |  |                    | 8,087  |      |  |      | 9,667  |      |  |      | 4,835  |  |  |   | 5,745  |  |  |   | 1,912  | 
|                               | Total shareholders equity (deficit) |  |                    | (1,725 | )    |  |      | (301   | )    |  |      | 12,836 |  |  |   | 18,239 |  |  |   | 53,733 | 



---

|(1) |  | Prior to August 1, 1998, Keith Engineering, which is included in TKCIs
consolidated financial statements, elected to be taxed as an S
corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | EBITDA refers to income before provision (benefit) for income taxes plus
interest expense, depreciation and amortization expense less interest
income. Because all companies do not calculate EBITDA or similarly titled
financial measures in the same manner, other companies disclosures of
EBITDA may not be comparable with EBITDA as used here. EBITDA should not
be considered as an alternative to net income or loss (as an indicator of
operating performance) or as an alternative to cash flow (as a measure of
liquidity or ability to service debt obligations) and is not a measure of
performance or financial condition under accounting principles generally
accepted in the United States of America. EBITDA is intended to provide
additional information for evaluating the ability of an entity to meet its
financial obligations.

17



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##### Table of Contents






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

The following discussion should be read in conjunction with the
consolidated financial statements of TKCI and its subsidiaries and the related
notes and the other financial information included elsewhere in this Annual
Report on Form 10-K. This discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of any
number of factors, including those set forth under Risk Factors and under other
captions contained elsewhere in this Annual Report on Form 10-K.

Overview

Revenue

We derive most of our revenue from professional service activities. The
majority of these activities are billed under various types of contracts with
our clients, including fixed price and time-and-materials contracts. Most of
our time-and-material contracts have not-to-exceed provisions. For contracts
with either a fixed price or a not-to-exceed provision, revenue is recognized
under the percentage of completion method of accounting based on the proportion
of actual direct contract costs incurred to total estimated direct contract
costs at completion. We believe that costs incurred are the best available
measure of progress towards completion on these contracts. In the course of
providing services, we sometimes subcontract for various services. These costs
are included in billings to clients and are included in our gross revenue.
Because subcontractor services can change significantly from project to
project, changes in gross revenue may not be indicative of business trends.
Accordingly, we also report net revenue, which is gross revenue less
reimbursable subcontractor costs. Our revenue is generated from a large number
of relatively small contracts.

Costs of Revenue

Costs of revenue include labor, non-reimbursable subcontractor costs,
materials and various direct and indirect overhead costs including rent,
utilities and depreciation. Direct labor employees work predominantly at our
offices and at the clients job sites. The number of direct labor employees
assigned to a contract will vary according to the size, complexity, duration
and demands of the project. Contract terminations, completions and scheduling
delays may result in periods when direct labor employees are not fully
utilized. As we continue to grow, we anticipate that we will continue to add
professional and administrative staff to support our growth. These
professionals are in great demand and are likely to remain a limited resource
for the foreseeable future. The significant competition for employees with the
skills we require creates wage pressures on professional compensation. We
attempt to increase our billing rates to customers to compensate for wage
increases; however, there can be a lag before wage increases can be
incorporated into our existing contracts. Some expenses, primarily long-term
leases, are fixed and cannot be adjusted in reaction to an economic downturn.

Selling, General and Administrative Expenses

Selling, general and administrative expenses primarily consist of
corporate costs related to finance and accounting, information technology,
business development and marketing, contract proposal, executive salaries,
provisions for doubtful accounts, amortization of goodwill and other indirect
overhead costs.

Critical Accounting Policies

Management is required to make a number of assumptions and estimates that
directly impact the consolidated financial statements and related disclosures.
Those assumptions and estimates form the basis for certain of our accounting
policies described in Note 2 to the Consolidated Financial Statements. The
accounting policies that are most important to the portrayal of the Companys
financial condition and results of operations, and require managements most
difficult, subjective or complex judgements, are considered to be critical
accounting policies. Because of the uncertainties inherent in making
assumptions and estimates regarding unknown future outcomes, future events may
result in significant differences between our estimates and actual results.
Management believes that each of our assumptions and estimates are appropriate
in the circumstances, and represent the most likely future outcome. We believe
our critical accounting policies relate to estimates of costs to complete and
revenue recognition on our contracts and the collectibility of our contracts
and trade receivables. See Significant Estimates Used in Preparing Our
Consolidated Financial Statements.

Significant Estimates Used in Preparing Our Consolidated Financial
Statements

18



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##### Table of Contents



Revenue and Cost Recognition on Contracts. We use estimates in
recognizing revenue related to our contracts with fixed price or a
not-to-exceed provision. For such contracts, revenue is recognized under the
percentage of completion method of accounting based on the proportion of actual
direct contract costs incurred to total estimated direct contract costs. We
believe that costs incurred are the best available measure of progress towards
completion on these contracts. Estimating the total estimated contract cost is
a subjective process and requires the use of our best estimates based upon the
current information known by us at that point in time. Our estimation of total
estimated contract cost has a direct impact on the revenue recognized by us. If
our current estimate of total contract costs turn out to be higher than our
previous estimates of total contract cost, then we would have over recognized
revenue for that period. Conversely, if our current estimate of total contract
costs turn out to be lower than our previous estimates of total contract costs,
we would have under recognized revenue for that period. In both cases, a job
to date adjustment will be made to true-up revenue as a change in estimate
applied prospectively.

Provision for Doubtful Accounts.We use estimates in arriving at our
allowance for doubtful accounts related to our contracts and trade receivables.
These estimates are based on our best assessment as to the collectibility of
the related receivable balance. Future collections of receivables that are
different from our current estimates will effect results of operations in
future periods.

Key Events



| |  |  | In July 1999, we acquired substantially all of the assets and
assumed substantially all of the liabilities of Thompson-Hysell, Inc.
(Thompson-Hysell).                                                                                                                                                                                                                                                                                               
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In July 1999, we completed an initial public offering of 1,500,000
shares of our common stock, resulting in net proceeds of approximately
$11,015,000.                                                                                                                                                                                                                                                                                                 
|
| |  |  | In October 2000, we acquired Crosby, Mead, Benton & Associates
which provides engineering and design services for master planned
communities in Southern California.                                                                                                                                                                                                                                                                                   
|
| |  |  | In January 2001, we acquired substantially all of the assets and
assumed substantially all of the liabilities of Hook & Associates
Engineering, Inc. (Hook), an engineering and consulting services firm
with offices located in Phoenix, Arizona, Denver, Colorado and
Cheyenne, Wyoming, providing a full range of services to clients in an
array of industries including real estate development, public
works/infrastructure and communications.
|
| |  |  | In May 2001, we completed a secondary offering of an aggregate of
2.3 million shares of common stock (including an over-allotment of
300,000 shares), of which 1.9 million shares were sold by the Company
and 400,000 shares were sold by selling shareholders. The public
offering price was $16.00 per share, which resulted in net proceeds of
approximately $27.9 million.                                                                        
|
| |  |  | In September 2001, we acquired substantially all of the assets and
assumed substantially all of the liabilities of Pacific Engineering
Corporation (PEC), an Oregon based engineering and design services
firm specializing in the fields of power transmission and distribution,
hydroelectric energy facilities, communication, and other utility
infrastructure services.                                                                         
|
| |  |  | In November 2001, we acquired Texas based Universal Energy, Inc.
(UEI) and its wholly owned subsidiary Amerex International, Inc.,
which provide start-up management, technical support, facility
acquisition analysis, operations and maintenance, and manpower
augmentation to the power industry.                                                                                                                                                 
|
| |  |  | In March 2002, we acquired Michigan based ALNM Group, Inc. (ALNM)
which specializes in government services with expertise in
environmental, civil, mechanical, electrical engineering, and
surveying.                                                                                                                                                                                                                                                

Impact of Our Industry Diversification Strategy

To reduce our susceptibility to economic cycles affecting the real estate
development industry, we intend to continue expanding our work in the public
works/infrastructure, and the industrial/energy industries. We believe that
among other business initiatives, our acquisition strategy will play a
significant role in contributing to this objective. The acquisitions of PEC
and UEI during 2001, ALNM in March 2002 and anticipated future acquisitions,
all of which are expected to primarily provide engineering services outside of
the real estate development arena, should have a significant impact to our
future mix of net revenue. Due to these acquisitions, we anticipate that our
margins may be affected by the decreased business concentration from the real
estate development industry which has historically yielded higher margins than
services provided to the public works/infrastructure and industrial/energy
industries.

19



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##### Table of Contents



Results of Operations

The following table sets forth supplemental consolidated operating results
for each of the periods presented as a percentage of net revenue.

|                                                           |                                             |  |                          |       |      |  |       |       |   |  |       |       |  
|---------------------------------------------------------- | ------------------------------------------- |  | ------------------------ | ----- | ---- |  | ----- | ----- | - |  | ----- | ----- | -
|                                                           |                                             |  | Years Ended December 31,
|                                                           |                                             |  |                         
|                                                           |                                             |  | 1999                     |       | 2000 |  | 2001 
|                                                           |                                             |  |                          |       |      |  |      
|Gross revenue                                              |                                             |  | 108.7                    | %     |      |  | 108.3 | %     |   |  | 111.0 | %    
|Subcontractor costs                                        |                                             |  | 8.7                      |       |      |  | 8.3   |       |   |  | 11.0  |      
|                                                           |                                             |  |                          |       |      |  |       |       |   |  |       |      
|                                                           | Net revenue                                 |  |                          | 100.0 |      |  |       | 100.0 |   |  |       | 100.0 |  
|Costs of revenue                                           |                                             |  | 68.1                     |       |      |  | 64.4  |       |   |  | 65.4  |      
|                                                           |                                             |  |                          |       |      |  |       |       |   |  |       |      
|                                                           | Gross profit                                |  |                          | 31.9  |      |  |       | 35.6  |   |  |       | 34.6  |  
|Selling, general and administrative expenses               |                                             |  | 21.0                     |       |      |  | 20.3  |       |   |  | 21.2  |      
|                                                           |                                             |  |                          |       |      |  |       |       |   |  |       |      
|                                                           | Income from operations                      |  |                          | 10.9  |      |  |       | 15.3  |   |  |       | 13.4  |  
|Interest income                                            |                                             |  |                         |       |      |  | (0.1  | )     |   |  | (0.8  | )    
|Interest expense                                           |                                             |  | 2.0                      |       |      |  | 0.7   |       |   |  | 0.3   |      
|Other expenses (income)                                    |                                             |  | 0.1                      |       |      |  | (0.1  | )     |   |  | 0.1   |      
|                                                           |                                             |  |                          |       |      |  |       |       |   |  |       |      
|                                                           | Income before provision for income taxes    |  |                          | 8.8   |      |  |       | 14.8  |   |  |       | 13.8  |  
|Provision for income taxes                                 |                                             |  | 3.7                      |       |      |  | 6.0   |       |   |  | 5.4   |      
|                                                           |                                             |  |                          |       |      |  |       |       |   |  |       |      
|Net income                                                 |                                             |  | 5.1                      |       |      |  | 8.8   |       |   |  | 8.4   |      
|Reversal of redeemable securities to
redemption value, net |                                             |  | 0.6                      |       |      |  |      |       |   |  |      |      
|                                                           |                                             |  |                          |       |      |  |       |       |   |  |       |      
|                                                           | Net income available to common shareholders |  |                          | 5.7   | %    |  |       | 8.8   | % |  |       | 8.4   | %
|                                                           |                                             |  |                          |       |      |  |       |       |   |  |       |      

Years Ended December 31, 2001 and December 31, 2000

Net Revenue. Net revenue during 2001 was $69.5 million compared to $53.4
million during 2000, an increase of $16.1 million, or 30.1%. The net revenue
growth for 2001 compared to 2000 is primarily attributable to acquisitions.
The acquisitions of CMB, which closed in the fourth quarter of 2000, and Hook,
PEC, and UEI, all of which closed in 2001, contributed $12.8 million (excludes
CMB results for the fourth quarter of 2001) to net revenue during 2001 compared
to 2000. Excluding the net revenue from acquisitions, net revenue increased
$3.3 million or 6.2%. The remaining net revenue growth was primarily due to (i)
growth in the Companys civil engineering services resulting from the strong
demand for real estate in Southern California and Nevada, and (ii) the
contribution of net revenue from two new divisions. The first of the two new
divisions is a civil engineering office located in Ventura County, California,
which commenced operations during the fourth quarter of 2000, while the second,
which is dedicated to servicing the communication industry and is located in
San Diego, California, commenced operations during the first quarter of 2001.
These new divisions contributed approximately $800,000 to the Companys net
revenue during 2001. The above mentioned increases in net revenue during 2001
were partially offset by lower net revenue at one of the Companys Northern
California offices resulting from decreased activity on several large projects
with high profit margins. Subcontractor costs, as a percentage of net revenue,
increased to 11.0% during 2001 compared to 8.3% during 2000, resulting largely
from an increase in subcontractor costs related to several large contracts in
our industrial/energy segment.

Gross Profit. Gross profit during 2001 was $24.0 million compared to
$19.0 million during 2000, an increase of $5.0 million, or 26.3%. The increase
in gross profit was primarily attributable to acquisitions, which added gross
profit of $4.3 million during 2001 as compared to the prior year. As a
percentage of net revenue, gross profit decreased to 34.6% during 2001 from
35.6% during 2000. The percentage decrease was primarily related to lower
margins related to the Hook acquisition. Excluding the effect of lower margins
realized from Hook, gross profit remained consistent with that of the prior
year.

Costs of revenue during 2001 was $45.4 million compared to $34.4 million
during 2000, an increase of $11.0 million, or 32.2%. The increase is primarily
attributable to increased expenses associated with the growth in our total
employee base, which grew from 540 in 2000 to 715 in 2001; coupled with an
increase in facilities expense. Such increases primarily resulted from
acquisitions.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses during 2001 were $14.7 million compared to $10.8
million during 2000, an increase of $3.9 million, or 35.6%. This increase was
primarily related to acquisitions, goodwill amortization, and higher overall
corporate costs. As a percentage of net revenue, selling, general and
administrative expenses increased to 21.2% during 2001 from 20.3% during 2000.
The percentage increase was primarily related to higher administrative costs,
additional contract proposal time, goodwill amortization (see Effect of Recent
Accounting Pronouncements for discussion on the treatment of goodwill), and
certain one time corporate costs including higher legal services and settlement
costs, all of which was partially offset by a lower provision for doubtful
accounts.

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##### Table of Contents



Interest Income.Interest income during 2001 was $552,000 compared to
$31,000 during 2000, an increase of $521,000. The increase in interest income
resulted from interest earned on securities purchased with a portion of the net
proceeds generated from the Companys May 2001 secondary offering.

Interest Expense. Interest expense during 2001 was $270,000 compared to
$341,000 during 2000, a decrease of $71,000, or 20.8%. The decrease in
interest expense was primarily due to the repayment of a $2.4 million
acquisition note in April 2001, and the repayment of the outstanding balance on
our line of credit in May 2001. This decrease was partially offset by
increased interest expense related to a $1.3 million note issued in connection
with the Hook acquisition in January 2001.

Income Taxes. The provision for income taxes during 2001 was $3.7 million
compared to $3.2 million during 2000, an increase of $500,000, or 15.9%. This
increase in provision for income taxes resulted primarily from a higher taxable
income base, mitigated by a lower effective income tax rate during 2001. Our
effective income tax rate was approximately 38.8% during 2001 compared to 40.4%
during 2000.

Years Ended December 31, 2000 and December 31, 1999

Net Revenue.Net revenue for 2000 was $53.4 million compared to $39.6
million for 1999, an increase of $13.8 million, or 34.8%. Net revenue growth
for 2000 compared to 1999 resulted primarily from our acquisitions of
Thompson-Hysell in July 1999 and Crosby, Mead, Benton & Associates in October
2000, which contributed $7.1 million to net revenue for 2000 compared to 1999
(excluding Thompson-Hysell results for the third and fourth quarters of 2000);
growth in our surveying and mapping services, resulting primarily from the
strong demand for housing in California and Nevada; and from growth in our
industrial/energy segment, partially as a result of the need to design and
construct backup and new power generation systems needed by individual power
users and power providers. Subcontractor costs, as a percentage of net revenue,
declined slightly to 8.3% for 2000 compared to 8.7% for 1999, resulting largely
from a reduction in subcontractor services for several large contracts in our
real estate development, public works/infrastructure and communications
segment.

Gross Profit.Gross profit for 2000 was $19.0 million compared to $12.6
million for 1999, an increase of $6.4 million, or 50.4%. As a percentage of net
revenue, gross profit increased to 35.6% for 2000 compared to 31.9% for 1999.
The increase in gross profit and gross profit percentage for 2000 compared to
1999, resulted primarily from higher net revenue and profit margins generated
through our acquisition of Thompson-Hysell, improved profit margins in our
industrial/energy segment, improved utilization of our professionals and an
increased focus on contracts with higher profit margins. These gross profit
increases were partially offset by an increase in the employer matching
contribution of our 401(k) plan in 2000. In addition, gross profit margins in
1999 were negatively impacted by operating results on two large projects,
resulting in a less favorable comparison with the 2000 gross profit margin
which was not similarly impacted.

Costs of revenue for 2000 was $34.4 million compared to $27.0 million for
1999, an increase of $7.4 million, or 27.3%. Costs of revenue increases
resulted primarily from increased expenses associated with the growth in our
total employee base from 473 in 1999 to 540 in 2000, an increase of 67, or
14.2%.

Selling, General and Administrative Expenses.Selling, general and
administrative expenses for 2000 were $10.8 million compared to $8.3 million
for 1999, an increase of $2.5 million, or 29.9%. As a percentage of net
revenue, selling, general and administrative expenses decreased to 20.3% for
2000 from 21.0% for 1999. The increases in selling, general and administrative
expenses resulted primarily from our acquisitions of Thompson-Hysell in July
1999 and Crosby, Mead, Benton & Associates in October 2000, including the
amortization of goodwill; employee recruiting costs; and a full year of other
costs associated with operating as a public company. The percentage decrease
was due principally to economies of scale associated with our acquisitions,
which has resulted in lower administrative costs in comparison to revenue
generated.

Interest Expense.Interest expense for 2000 was $341,000 compared to
$807,000 for 1999, a decrease of $466,000, or 57.7%. As a percentage of net
revenue, interest expense was 0.7% for 2000 compared to 2.0% for 1999. The
percentage decrease resulted largely from the repayment of our previous line of
credit and various related party notes payable with a portion of our net
proceeds from our initial public offering in July 1999 and the repayment of
certain capital leases in 2000.

Income Taxes.The provision for income taxes for 2000 was $3.2 million
compared to $1.5 million in 1999, an increase of $1.7 million, or 118%. This
increase in income tax expense was due primarily to a higher taxable income
base, mitigated by a lower effective income tax rate during 2000. Our effective
income tax rate was approximately 40.4% for 2000 compared to 42.1% for 1999.

21



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##### Table of Contents



Liquidity and Capital Resources

Cash and cash equivalents combined with securities held-to-maturity
totaled $23.7 million as of December 31, 2001, compared to $1.0 million as of
December 31, 2000. Working capital as of December 31, 2001 was $38.8 million
compared to $7.3 million as of December 31, 2000, an increase of $31.5 million,
resulting primarily from net proceeds of approximately $27.9 million received
in connection with our May 2001 secondary offering and an increase in current
assets resulting from acquisitions during the year. Our debt to equity ratio
(excluding the effect of issuable common stock) as of December 31, 2001
improved to 0.04 to 1 compared to 0.31 to 1 at December 31, 2000 primarily as a
result of the secondary offering, the repayment of the outstanding balance on
our line of credit balance and repayment of a $2.4 million acquisition note.
Net cash provided by operating activities increased $4.8 million, or 160%, to
$7.8 million during 2001 compared to $3.0 million during 2000. The increase in
net cash provided by operating activities was a result of higher income before
the effects of depreciation and amortization, tax benefit from the exercise of
stock options, a decrease in contract and trade receivables, and an increase in
accounts payable and accrued liabilities, offset by an increase in costs and
estimated earnings in excess of billings and a decrease in billings in excess
of costs and estimated earnings. The 2001 cash generated from operating
activities was primarily used to make principal payments on debt and capital
leases, fund capital expenditures, and partially fund our acquisition of UEI in
November 2001, PEC in September 2001, and Hook in January 2001. Capital
expenditures during 2001 were $1.6 million compared to $1.3 million during
2000. We expect our capital expenditures in fiscal 2002 to range between $1.8
million to $2.5 million taking into account capital expenditures related to
ALNM , our March 2002 acquisition, but excluding capital expenditures related
to any future acquisitions should they occur.

In September 2001, we entered into a $10.0 million unsecured line of
credit agreement consisting of three components: (i) an acquisition component,
(ii) an equipment and vehicle financing component, and (iii) a working capital
component. The line provides up to a maximum of $5.0 million to finance
acquisitions, up to a maximum of $3.0 million to finance equipment and vehicle
purchases, and up to a maximum of $10.0 million less the aggregate outstanding
principal balance of the acquisition and equipment and vehicle components for
working capital. The line bears interest at either a range of 0.25% below prime
to prime, or a range of 1.25% to 1.75% over LIBOR depending on the Companys
ability to meet certain financial covenants. The equipment and vehicle
financing components mature in September 2002, while the acquisition and
working capital components mature in June 2003. There were no amounts
outstanding under this line of credit agreement as of December 31, 2001.

Net proceeds of approximately $27.9 million from our secondary offering in
May 2001 were partially used to repay our debt, for general corporate purposes,
including working capital, and aid in acquiring PEC, UEI, and ALNM. The
remaining balance of the net proceeds has been invested in highly liquid
investment grade short-term debt securities and is partially ear-marked to fund
future acquisitions.

The Company does not hold any derivative financial instruments for trading
purposes or otherwise. Furthermore, we have not engaged in energy or commodity
trading activities and do not anticipate doing so in the future, nor do we have
any transactions involving unconsolidated entities or special purpose entities.

The following summarizes our contractual obligations as of December 31,
2001, and the effect such obligations are expected to have on liquidity and
cash flows in the future.

|                                   |  |                        |            |      |  |      |           |      |  |      |                     |  |  |   |           |  |  |   |           |  |  |   |         | 
|---------------------------------- |  | ---------------------- | ---------- | ---- |  | ---- | --------- | ---- |  | ---- | ------------------- |  |  | - | --------- |  |  | - | --------- |  |  | - | ------- | 
|                                   |  | Payments Due By Period
|                                   |  |                       
|                                   |  | Total                  |            | 2002 |  | 2003 |           | 2004 |  | 2005 | 2006 and thereafter
|                                   |  |                        |            |      |  |      |           |      |  |      |                    
|Total debt                         |  | $                      | 1,669,000  |      |  | $    | 285,000   |      |  | $    | 1,371,000           |  |  | $ | 13,000    |  |  | $ |          |  |  | $ |        | 
|Capital lease obligations          |  |                        | 243,000    |      |  |      | 174,000   |      |  |      | 53,000              |  |  |   | 7,000     |  |  |   | 8,000     |  |  |   | 1,000   | 
|Operating leases                   |  |                        | 10,631,000 |      |  |      | 3,363,000 |      |  |      | 3,031,000           |  |  |   | 1,793,000 |  |  |   | 1,529,000 |  |  |   | 915,000 | 
|                                   |  |                        |            |      |  |      |           |      |  |      |                     |  |  |   |           |  |  |   |           |  |  |   |         | 
|Total contractual cash
obligations |  | $                      | 12,543,000 |      |  | $    | 3,822,000 |      |  | $    | 4,455,000           |  |  | $ | 1,813,000 |  |  | $ | 1,537,000 |  |  | $ | 916,000 | 
|                                   |  |                        |            |      |  |      |           |      |  |      |                     |  |  |   |           |  |  |   |           |  |  |   |         | 

Our primary sources of liquidity during 2002 are expected to be our
existing cash and securities balances, cash generated from operations, and
availability under our credit facility. Based upon our current cash and
securities position and our $10 million unsecured line of credit, we expect to
have sufficient cash resources to fund our anticipated operations, planned
capital expenditures, anticipated acquisitions, and debt reductions for the
next 12 months. We anticipate meeting our long-term liquidity requirements
through a combination of cash generated from operations, use of our unsecured
line of credit and accessing the capital markets should conditions be
favorable.

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We have not entered into any material related party transactions during
2001.

Effect of Recent Accounting Pronouncements

In October 2001, the Financial Accounting Standard Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144
supersedes Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
and requires (i) the recognition and measurement of the impairment of
long-lived assets to be held and used and (ii) the measurement of long-lived
assets to be disposed of by sale. SFAS 144 is effective for fiscal years
beginning after December 15, 2001. The Company has not yet completed its
analysis of the effect this standard will have on the Companys financial
condition, results of operations or cash flows.

In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets which is effective January 1, 2002. This statement requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment. Goodwill acquired in a
business combination consummated after June 30, 2001 shall not be amortized,
but rather reviewed for impairment until the date this statement is applied in
its entirety. For business combinations consummated prior to June 30, 2001, the
Company is required to amortize the related goodwill up through December 31,
2001. The Company recorded goodwill amortization expense of approximately
$432,000 during 2001.The Company has not yet completed its analysis of the
effect this standard will have on the Companys financial condition, results of
operations or cash flow

In July 2001, the FASB issued SFAS No. 141, Business Combinations which
was effective upon issuance. This statement requires that the purchase method
of accounting be used for all business combinations initiated after June 30,
2001. The adoption of this standard did not have a material effect on the
Companys financial condition, results of operations or cash flows.

Inflation

Although our operations can be influenced by general economic trends, we
do not believe that inflation had a significant impact on our results of
operations for the periods presented. Due to the short-term nature of most of
our contracts, if costs of revenue increase, we will attempt to pass these
increases to our clients.

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##### Table of Contents



RISK FACTORS

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.

Risks Related To Our Industries

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

We estimate that during 2001, approximately 80% of our services were
rendered in connection with commercial and residential real estate development
projects. Reduced demand in the real estate market would likely decrease the
demand for our services. A decrease in the demand for our services could result
in cash flow difficulties and operating losses for our company.

The real estate market and, therefore, our business, may be impacted by a
number of factors, which may include:



| |  |  | 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 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

We derive our revenue almost exclusively from services performed by our
professionals. We may not be able to attract and retain the desired number of
professionals over the short or long-term. There is significant competition for
professionals with the skills necessary for the provision of our services from
major and boutique consulting, engineering, research and other professional
service firms. Our inability to attract and retain qualified professionals
could impede our ability to secure and complete engagements which would reduce
our revenue and could also limit our ability to expand our service offerings in
the future.

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

Our employees might leave our company and become competitors of ours. If
this happens, we may lose some of our existing clients that have formed
relationships with our former employees. In addition, we may lose future
clients to a former employee as a new competitor. In either event, we would
lose clients and revenue.

Terrorism and the uncertainty of war may have a material adverse effect on our
operating results

Terrorist attacks, such as the attacks that occurred in New York and
Washington, D.C. on September 11, 2001, the response by the United States
initiated on October 7, 2001 and other acts of violence or war may affect the
market on which our common stock will trade, the markets in which we operate
and our operations and profitability. Further terrorist attacks against the
United States or United States businesses may occur. The potential near-term
and long-term effect these attacks may have for our customers, the market for
our common stock, the markets for our services and the United States economy
are uncertain. The consequences of any terrorist attacks, or any armed
conflicts which may result, are unpredictable, and we may not be able to
foresee events that could have an adverse effect on our markets or our
business.

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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

We estimate that during 2001, 77% of our net revenue was derived from
services rendered in California. Poor economic conditions in California may
significantly reduce the demand for our services and decrease our revenue and
profits. From 1991 to 1996, our business was negatively impacted during the
real estate market downturn in Southern California, and we experienced cash
flow difficulties and substantial operating losses.

If we are unable to effectively manage our growth, we could incur unforeseen
costs or delays and our reputation and reliability in the marketplace could be
damaged

We have grown rapidly and intend to pursue further growth, through
acquisitions and otherwise, as part of our business strategy but we may not be
able to manage our growth effectively and efficiently. Our inability to manage
our growth effectively and efficiently could cause us to incur unforeseen
costs, time delays or otherwise adversely impact our business. Our rapid growth
has presented and will continue to present numerous administrative and
operational challenges, including the management of an expanding array of
engineering and consulting services, the assimilation of financial reporting
systems, increased pressure on our senior management and increased demand on
our systems and internal controls.

If we are unable to successfully implement our acquisition strategy, current
expectations of our growth or operating results may not be met

Our growth strategy includes the strategic acquisition of companies that
expand our service offerings and geographic presence, including acquisitions
that may be larger than our historic acquisitions. If we are unsuccessful in
implementing our acquisition strategy, we could fail to achieve the revenue and
profitability growth that we currently expect. We may not be successful in
implementing our acquisition strategy for a number of reasons, including the
following:



| |  |  | As the engineering industry consolidates, suitable acquisition
candidates are expected to become more difficult to locate and may only
be available at an increased price or under terms that are less
favorable than are presently available;         
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We may not be able to locate 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 as 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 and subsequent integration of an acquired company may
require a significant amount of managements time diverting their
attention from our existing operations and clients, which could result
in the loss of key employees or clients.

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

We expect to perform services under contracts that may limit our
profitability. Under fixed-price contracts we perform services at a stipulated
price. Under time-and-materials contracts with not-to-exceed provisions, we are
reimbursed for the number of labor hours expended at an established hourly rate
plus the cost of materials incurred, however, there is a stated maximum dollar
amount for the services to be provided under the contract. In both of these
types of contracts, we agree to provide our services based on our estimate of
the costs a particular project will involve. Our estimates are not always
accurate. Underestimation of costs for these types of contracts may cause us to
incur losses or result in a project not being as profitable as we expected. We
may fail to estimate costs accurately for a number of reasons, including:

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| |  |  | problems with new technologies;                                                      
| | - |  | -------------------------------------------------------------------------------------
|
| |  |  | delays beyond our control; and                                                       
|
| |  |  | changes in the costs of goods and services that may occur during the contract period.

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

We do not have an employment agreement with, or maintain key man life
insurance on Aram H. Keith, our chief executive officer. If we lose the
services of Mr. Keith, we may be less likely to secure or complete contracts
and to attract and retain additional employees. The efforts, abilities,
business generation capabilities and name recognition of Mr. Keith are
important to our success in those activities.

Our services may expose us to professional liability in excess of our current
insurance coverage

We are exposed to potential liabilities to clients for errors or omissions
in the services we perform. Such liabilities could exceed our current insurance
coverage and the fees we derive from those services. We cannot always predict
the magnitude of these potential liabilities but due to the large size of the
projects on which we typically provide services, claims could be millions of
dollars. A partially or completely uninsured claim, if successful and of
significant magnitude, could result in substantial losses.

We currently maintain general liability insurance, umbrella and
professional liability insurance. Claims may be made against us which exceed
the limits of these policies, in which case we would be liable to pay these
claims from our assets. These policies are claims made policies and only
claims made during the term of the policy are covered. If we terminate our
policies and do not obtain retroactive coverage, we would be uninsured for
claims made after termination even if these claims are based on events or acts
that occurred during the term of the policy. Our insurance policies typically
have various exceptions to the claims covered and also require us to assume
some costs of the claim even though a portion of the claim may be covered,
resulting in potential liability to us. Further, our expansion into new
services or geographic areas could result in our failure to obtain coverage for
these services or areas, or the coverage being offered at a higher cost than
our current coverage.

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

We often contract with outside companies to perform designated portions of
the services we perform for our clients. If we are unable to engage
subcontractors, our ability to perform under some of our contracts may be
impeded and the quality of our service may decline. As a consequence, we may
lose projects, revenue and clients. In 2001, subcontractor costs accounted for
approximately 11% of our net revenue.

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 following factors could cause the market price of our common stock to
decrease, perhaps substantially:



| |  |  | the failure of our quarterly operating results to meet expectations;                                                                            
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | adverse developments in the financial markets, the real estate market, the engineering and consulting services market and the
worldwide economy;
|
| |  |  | interest rates;                                                                                                                                 
|
| |  |  | our failure to meet securities analysts expectations;                                                                                          
|
| |  |  | changes in accounting principles;                                                                                                               
|
| |  |  | sales of common stock by existing shareholders or holders of options;                                                                           
|
| |  |  | announcements of key developments by our competitors; and                                                                                       

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| |  |  | the reaction of markets and securities analysts to announcements and developments involving our company.
| | - |  | --------------------------------------------------------------------------------------------------------

In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future, be the target of similar litigation.
Securities litigation could result in substantial costs and divert managements
attention and resources.

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

Our executive officers and directors, in the aggregate, hold approximately
23% of our outstanding common stock. These shareholders, if they act together,
can have significant influence over most matters requiring approval by our
shareholders, including the election of directors and the approval of mergers
or other business combination transactions.

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

Our business strategy is to expand into new markets and enhance our
position in existing markets through the acquisition of complementary
businesses. In order to successfully complete targeted acquisitions or to fund
our other activities, we may issue additional equity securities that could
dilute your stock ownership. We may also incur additional debt if we acquire
another company, and this could negatively impact our results of operations.

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

Our amended and restated articles of incorporation provide us with the
ability to issue blank check preferred stock without consulting our
shareholders. As a result, our board of directors may frustrate a takeover
attempt by issuing shares to a friendly shareholder or acquiror, implementing a
poison pill or otherwise due to features of newly issued preferred stock.

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

We currently have approximately 7.3 million shares of common stock
outstanding. Sales of a substantial number of shares of our common stock in the
public market, or the perception that these sales could occur, could adversely
affect the market price for our common stock. Certain shareholders hold large
amounts of shares which they are able to sell in the public market. Significant
resales of these shares could cause the market price of our common stock to
decline regardless of the performance of our business. These sales also might
make it difficult for us to sell equity securities in the future at a time and
at a price that we deem appropriate.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate changes primarily as a result of our
securities held-to-maturity, line of credit, and long-term debt, which are used
to maintain liquidity and to fund capital expenditures and our expansion. The
Company intends to hold all of its securities until maturity, and therefore,
should not bear any interest rate risk due to early disposition. Due to the
relatively immaterial levels of our current borrowings, our earnings and cash
flows should not be materially impacted by changes in interest rates.
Promissory notes delivered in connection with our acquisitions have generally
been at fixed rates. Our bank line of credit is based on variable interest
rates and is therefore affected by changes in market rates. We do not enter
into derivative or interest rate hedging transactions.

The table below presents the principal amounts of securities
held-to-maturity, debt (excluding capital lease obligations of $243,000 and
notes payable of $1,300,000 and $189,000), weighted average interest rates,
fair values and other items required by year of expected maturity to evaluate
the expected cash flows and sensitivity to interest rate changes as of December
31, 2001.

|                                          |  |      |            |      |  |      |        |      |  |       |        |          |  |  |   |  |  |   |            |   |  |      |            |  
|----------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ------ | ---- |  | ----- | ------ | -------- |  |  | - |  |  | - | ---------- | - |  | ---- | ---------- | -
|                                          |  |      |            |      |  |      |        |      |  |       |        |          |  |  |   |  |  |   |            |   |  | Fair
|                                          |  | 2002 |            | 2003 |  | 2004 |        | 2005 |  | Total |        | Value(1)
|                                          |  |      |            |      |  |      |        |      |  |       |        |         
|Securities held-to-maturity (non-trading) |  | $    | 11,521,000 |      |  |      |       |      |  |       |       |          |  |  |  |  |  | $ | 11,521,000 |   |  | $    | 11,549,000 |  
|Weighted average interest rate(2)         |  |      | 2.99       | %    |  |      |       |      |  |       |       |          |  |  |  |  |  |   | 2.99       | % |  |      | 2.99       | %
|Fixed rate debt(3)                        |  | $    | 97,000     |      |  | $    | 70,000 |      |  | $     | 13,000 |          |  |  |  |  |  | $ | 180,000    |   |  | $    | 180,000    |  
|Weighted average interest rate            |  |      | 7.33       | %    |  |      | 7.13   | %    |  |       | 6.27   | %        |  |  |  |  |  |   | 7.17       | % |  |      | 7.17       | %



---

|(1) |  | The fair value of fixed rate debt was determined based on current rates
offered for debt instruments with similar risks and maturities, while the
fair value for securities held-to-maturity was based on the quoted market
price of such securities as of December 31, 2001.       
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Approximately 44% of the Companys securities held-to-maturity are
invested in federally tax-exempt bonds. The weighted average interest
rate shown above is a combination of pre-tax interest rate for taxable
securities and an after tax interest rate for tax-exempt securities.
|   
|   
|   
|   
|(3) |  | Fixed rate debt excludes an acquisition note payable with a carrying
amount of $1,300,000 and other notes payable of $189,000 due to the nature
of these financings.                                                                                                                

As the table incorporates only those exposures that existed as of December
31, 2001, it does not consider those exposures or positions which could arise
after that date. Moreover, because firm commitments are not presented in the
table above, the information presented in the table has limited predictive
value. As a result, our ultimate realized gain or loss with respect to interest
rate fluctuations will depend on those exposures or positions that arise during
the period and interest rates.

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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

|                                                                                                               |  |      |    | 
|-------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                               |  | Page
|                                                                                                               |  |     
|Independent Auditors Report                                                                                   |  |      | 30 | 
|Consolidated Balance Sheets as of December 31, 2000 and 2001                                                   |  |      | 31 | 
|Consolidated Statements of Income for the years ended December 31, 1999, 2000 and 2001                         |  |      | 32 | 
|Consolidated Statements of Shareholders Equity (Deficit) for the years ended December 31, 1999, 2000
and 2001 |  |      | 33 | 
|Consolidated Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001                     |  |      | 34 | 
|Notes to Consolidated Financial Statements                                                                     |  |      | 35 | 

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Independent Auditors Report

The Board of Directors and Shareholders
The Keith Companies, Inc.:

We have audited the accompanying consolidated balance sheets of The Keith
Companies, Inc. and subsidiaries as of December 31, 2000 and 2001, and the
related consolidated statements of income, shareholders equity (deficit), and
cash flows for each of the years in the three-year period ended December 31,
2001. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Keith
Companies, Inc. and subsidiaries as of December 31, 2000 and 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.

KPMG LLP

Orange County, California
  February 8, 2002, except as to Note 17,
    which is as of March 1, 2002

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

|                                                                                                               |                                                                                                                                                                      |                                            |           |              |            |      |            |            |            | 
|-------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ------------ | ---------- | ---- | ---------- | ---------- | ---------- | 
|                                                                                                               |                                                                                                                                                                      |                                            |           | December 31,
|                                                                                                               |                                                                                                                                                                      |                                            |           |             
|                                                                                                               |                                                                                                                                                                      |                                            |           | 2000         |            | 2001
|                                                                                                               |                                                                                                                                                                      |                                            |           |              |            |     
|Assets                                                                                                         |                                                                                                                                                                      |                                            |           |              |            |      |            |           
|Current assets:                                                                                                |                                                                                                                                                                      |                                            |           |              |            |      |            |           
|                                                                                                               | Cash and cash equivalents                                                                                                                                            |                                            | $         | 1,043,000    |            |      | $          | 12,212,000 |           
|                                                                                                               | Securities held-to-maturity                                                                                                                                          |                                            |           |             |            |      |            | 11,521,000 |           
|                                                                                                               | Contracts and trade receivables, net of allowance for doubtful accounts of
$1,166,000 and $951,000 at December 31, 2000 and 2001, respectively                       |                                            |           | 12,089,000   |            |      |            | 18,618,000 |           
|                                                                                                               | Costs and estimated earnings in excess of billings                                                                                                                   |                                            |           | 6,334,000    |            |      |            | 8,270,000  |           
|                                                                                                               | Prepaid expenses and other currents assets                                                                                                                           |                                            |           | 766,000      |            |      |            | 1,458,000  |           
|                                                                                                               |                                                                                                                                                                      |                                            |           |              |            |      |            |           
|                                                                                                               |                                                                                                                                                                      | Total current assets                       |           |              | 20,232,000 |      |            |            | 52,079,000 | 
|Equipment and leasehold improvements, net                                                                      |                                                                                                                                                                      |                                            | 4,713,000 |              |            |      | 4,921,000  |           
|Goodwill, net of accumulated amortization of $329,000 and $761,000 at
December 31, 2000 and 2001, respectively |                                                                                                                                                                      |                                            | 8,128,000 |              |            |      | 14,252,000 |           
|Other assets                                                                                                   |                                                                                                                                                                      |                                            | 239,000   |              |            |      | 240,000    |           
|                                                                                                               |                                                                                                                                                                      |                                            |           |              |            |      |            |           
|                                                                                                               |                                                                                                                                                                      | Total assets                               |           | $            | 33,312,000 |      |            | $          | 71,492,000 | 
|                                                                                                               |                                                                                                                                                                      |                                            |           |              |            |      |            |           
|Liabilities and Shareholders Equity                                                                           |                                                                                                                                                                      |                                            |           |              |            |      |            |           
|Current liabilities:                                                                                           |                                                                                                                                                                      |                                            |           |              |            |      |            |           
|                                                                                                               | Line of credit                                                                                                                                                       |                                            | $         | 2,025,000    |            |      | $          |           |           
|                                                                                                               | Current portion of long-term debt and capital lease obligations                                                                                                      |                                            |           | 3,359,000    |            |      |            | 459,000    |           
|                                                                                                               | Trade accounts payable                                                                                                                                               |                                            |           | 1,689,000    |            |      |            | 2,376,000  |           
|                                                                                                               | Accrued employee compensation                                                                                                                                        |                                            |           | 2,467,000    |            |      |            | 3,091,000  |           
|                                                                                                               | Current portion of deferred tax liabilities                                                                                                                          |                                            |           | 1,541,000    |            |      |            | 2,028,000  |           
|                                                                                                               | Other accrued liabilities                                                                                                                                            |                                            |           | 807,000      |            |      |            | 2,961,000  |           
|                                                                                                               | Billings in excess of costs and estimated earnings                                                                                                                   |                                            |           | 1,001,000    |            |      |            | 2,383,000  |           
|                                                                                                               |                                                                                                                                                                      |                                            |           |              |            |      |            |           
|                                                                                                               |                                                                                                                                                                      | Total current liabilities                  |           |              | 12,889,000 |      |            |            | 13,298,000 | 
|Long-term debt, line of credit and capital lease obligations, less current portion                             |                                                                                                                                                                      |                                            | 361,000   |              |            |      | 1,453,000  |           
|Issuable common stock                                                                                          |                                                                                                                                                                      |                                            | 1,000,000 |              |            |      | 1,512,000  |           
|Deferred tax liabilities                                                                                       |                                                                                                                                                                      |                                            | 719,000   |              |            |      | 1,271,000  |           
|Accrued rent                                                                                                   |                                                                                                                                                                      |                                            | 104,000   |              |            |      | 225,000    |           
|                                                                                                               |                                                                                                                                                                      |                                            |           |              |            |      |            |           
|                                                                                                               |                                                                                                                                                                      | Total liabilities                          |           |              | 15,073,000 |      |            |            | 17,759,000 | 
|                                                                                                               |                                                                                                                                                                      |                                            |           |              |            |      |            |           
|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 in 2000 and 2001; issued
and outstanding 5,115,882 and 7,309,684 shares in 2000 and 2001, respectively |                                            |           | 5,000        |            |      |            | 7,000      |           
|                                                                                                               | Additional paid in capital                                                                                                                                           |                                            |           | 12,453,000   |            |      |            | 42,096,000 |           
|                                                                                                               | Retained earnings                                                                                                                                                    |                                            |           | 5,781,000    |            |      |            | 11,630,000 |           
|                                                                                                               |                                                                                                                                                                      |                                            |           |              |            |      |            |           
|                                                                                                               |                                                                                                                                                                      | Total shareholders equity                 |           |              | 18,239,000 |      |            |            | 53,733,000 | 
|                                                                                                               |                                                                                                                                                                      |                                            |           |              |            |      |            |           
|Commitments and contingencies (Notes 4, 7, 9, 16, and 17)                                                      |                                                                                                                                                                      |                                            |           |              |            |      |            |           
|                                                                                                               |                                                                                                                                                                      | Total liabilities and shareholders equity |           | $            | 33,312,000 |      |            | $          | 71,492,000 | 
|                                                                                                               |                                                                                                                                                                      |                                            |           |              |            |      |            |           

See accompanying notes to consolidated financial statements.

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income

|                                                           |                                             |   |                          |            |      |   |            |            |  |   |            |            | 
|---------------------------------------------------------- | ------------------------------------------- | - | ------------------------ | ---------- | ---- | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                                                           |                                             |   | Years ended December 31,
|                                                           |                                             |   |                         
|                                                           |                                             |   | 1999                     |            | 2000 |   | 2001      
|                                                           |                                             |   |                          |            |      |   |           
|Gross revenue                                              |                                             | $ | 43,084,000               |            |      | $ | 57,835,000 |            |  | $ | 77,066,000 |           
|Subcontractor costs                                        |                                             |   | 3,448,000                |            |      |   | 4,454,000  |            |  |   | 7,611,000  |           
|                                                           |                                             |   |                          |            |      |   |            |            |  |   |            |           
|                                                           | Net revenue                                 |   |                          | 39,636,000 |      |   |            | 53,381,000 |  |   |            | 69,455,000 | 
|Costs of revenue                                           |                                             |   | 26,987,000               |            |      |   | 34,362,000 |            |  |   | 45,438,000 |           
|                                                           |                                             |   |                          |            |      |   |            |            |  |   |            |           
|                                                           | Gross profit                                |   |                          | 12,649,000 |      |   |            | 19,019,000 |  |   |            | 24,017,000 | 
|Selling, general and administrative expenses               |                                             |   | 8,343,000                |            |      |   | 10,834,000 |            |  |   | 14,690,000 |           
|                                                           |                                             |   |                          |            |      |   |            |            |  |   |            |           
|                                                           | Income from operations                      |   |                          | 4,306,000  |      |   |            | 8,185,000  |  |   |            | 9,327,000  | 
|Interest income                                            |                                             |   | (13,000                  | )          |      |   | (31,000    | )          |  |   | (552,000   | )         
|Interest expense                                           |                                             |   | 807,000                  |            |      |   | 341,000    |            |  |   | 270,000    |           
|Other expenses (income), net                               |                                             |   | 29,000                   |            |      |   | (44,000    | )          |  |   | 53,000     |           
|                                                           |                                             |   |                          |            |      |   |            |            |  |   |            |           
|                                                           | Income before provision for income taxes    |   |                          | 3,483,000  |      |   |            | 7,919,000  |  |   |            | 9,556,000  | 
|Provision for income taxes                                 |                                             |   | 1,466,000                |            |      |   | 3,199,000  |            |  |   | 3,707,000  |           
|                                                           |                                             |   |                          |            |      |   |            |            |  |   |            |           
|                                                           | Net income                                  |   |                          | 2,017,000  |      |   |            | 4,720,000  |  |   |            | 5,849,000  | 
|Reversal of redeemable securities to redemption
value, net |                                             |   | 230,000                  |            |      |   |           |            |  |   |           |           
|                                                           |                                             |   |                          |            |      |   |            |            |  |   |            |           
|                                                           | Net income available to common shareholders |   | $                        | 2,247,000  |      |   | $          | 4,720,000  |  |   | $          | 5,849,000  | 
|                                                           |                                             |   |                          |            |      |   |            |            |  |   |            |           
|Earnings per share data:                                   |                                             |   |                          |            |      |   |            |            |  |   |            |           
|                                                           | Basic                                       |   | $                        | 0.53       |      |   | $          | 0.95       |  |   | $          | 0.89       | 
|                                                           |                                             |   |                          |            |      |   |            |            |  |   |            |           
|                                                           | Diluted                                     |   | $                        | 0.50       |      |   | $          | 0.89       |  |   | $          | 0.82       | 
|                                                           |                                             |   |                          |            |      |   |            |            |  |   |            |           
|Weighted average number of shares outstanding:             |                                             |   |                          |            |      |   |            |            |  |   |            |           
|                                                           | Basic                                       |   |                          | 4,211,318  |      |   |            | 4,983,692  |  |   |            | 6,604,367  | 
|                                                           |                                             |   |                          |            |      |   |            |            |  |   |            |           
|                                                           | Diluted                                     |   |                          | 4,515,033  |      |   |            | 5,299,679  |  |   |            | 7,092,505  | 
|                                                           |                                             |   |                          |            |      |   |            |            |  |   |            |           

See accompanying notes to consolidated financial statements.

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders Equity (Deficit)

|                                                                        |  |             |           |        |  |         |       |              |  |            |            |          |  |          |            |   |  |   |            |  
|----------------------------------------------------------------------- |  | ----------- | --------- | ------ |  | ------- | ----- | ------------ |  | ---------- | ---------- | -------- |  | -------- | ---------- | - |  | - | ---------- | -
|                                                                        |  |             |           |        |  |         |       |              |  |            |            |          |  | Retained |            |   |  |  
|                                                                        |  |             |           |        |  |         |       |              |  | Additional |            | Earnings |  |          |            |  
|                                                                        |  | Shares      |           | Common |  | Paid-In |       | (Accumulated |  |            |            |         
|                                                                        |  | Outstanding |           | Stock  |  | Capital |       | Deficit)     |  | Total     
|                                                                        |  |             |           |        |  |         |       |              |  |           
|Balance at December 31, 1998                                            |  |             | 3,485,634 |        |  | $       | 3,000 |              |  | $          | 652,000    |          |  | $        | (956,000   | ) |  | $ | (301,000   | )
|Issuance of common stock                                                |  |             | 1,584,590 |        |  |         | 2,000 |              |  |            | 11,435,000 |          |  |          |           |   |  |   | 11,437,000 |  
|Net income                                                              |  |             |          |        |  |         |      |              |  |            |           |          |  |          | 2,017,000  |   |  |   | 2,017,000  |  
|Repurchase of common stock                                              |  |             | (97,600   | )      |  |         |      |              |  |            | (547,000   | )        |  |          |           |   |  |   | (547,000   | )
|Reversal of accretion on redeemable
securities to redemption value,
net |  |             |          |        |  |         |      |              |  |            | 230,000    |          |  |          |           |   |  |   | 230,000    |  
|                                                                        |  |             |           |        |  |         |       |              |  |            |            |          |  |          |            |   |  |   |            |  
|Balance at December 31, 1999                                            |  |             | 4,972,624 |        |  |         | 5,000 |              |  |            | 11,770,000 |          |  |          | 1,061,000  |   |  |   | 12,836,000 |  
|Issuance of common stock                                                |  |             | 170,258   |        |  |         |      |              |  |            | 819,000    |          |  |          |           |   |  |   | 819,000    |  
|Net income                                                              |  |             |          |        |  |         |      |              |  |            |           |          |  |          | 4,720,000  |   |  |   | 4,720,000  |  
|Repurchase of common stock                                              |  |             | (27,000   | )      |  |         |      |              |  |            | (136,000   | )        |  |          |           |   |  |   | (136,000   | )
|                                                                        |  |             |           |        |  |         |       |              |  |            |            |          |  |          |            |   |  |   |            |  
|Balance at December 31, 2000                                            |  |             | 5,115,882 |        |  |         | 5,000 |              |  |            | 12,453,000 |          |  |          | 5,781,000  |   |  |   | 18,239,000 |  
|Issuance of common stock                                                |  |             | 1,970,093 |        |  |         | 2,000 |              |  |            | 28,601,000 |          |  |          |           |   |  |   | 28,603,000 |  
|Stock options exercised                                                 |  |             | 278,709   |        |  |         |      |              |  |            | 596,000    |          |  |          |           |   |  |   | 596,000    |  
|Tax benefit from exercise of
stock options                              |  |             |          |        |  |         |      |              |  |            | 879,000    |          |  |          |           |   |  |   | 879,000    |  
|Net income                                                              |  |             |          |        |  |         |      |              |  |            |           |          |  |          | 5,849,000  |   |  |   | 5,849,000  |  
|Repurchase of common stock                                              |  |             | (55,000   | )      |  |         |      |              |  |            | (433,000   | )        |  |          |           |   |  |   | (433,000   | )
|                                                                        |  |             |           |        |  |         |       |              |  |            |            |          |  |          |            |   |  |   |            |  
|Balance at December 31, 2001                                            |  |             | 7,309,684 |        |  | $       | 7,000 |              |  | $          | 42,096,000 |          |  | $        | 11,630,000 |   |  | $ | 53,733,000 |  
|                                                                        |  |             |           |        |  |         |       |              |  |            |            |          |  |          |            |   |  |   |            |  

See accompanying notes to consolidated financial statements.

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

|                                                                                  |                                                                                               |                                                    |                                                     |            |                          |            |           |            |            |            |           |             |            |             |  
|--------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------- | --------------------------------------------------- | ---------- | ------------------------ | ---------- | --------- | ---------- | ---------- | ---------- | --------- | ----------- | ---------- | ----------- | -
|                                                                                  |                                                                                               |                                                    |                                                     |            | Years ended December 31,
|                                                                                  |                                                                                               |                                                    |                                                     |            |                         
|                                                                                  |                                                                                               |                                                    |                                                     |            | 1999                     |            | 2000      |            | 2001      
|                                                                                  |                                                                                               |                                                    |                                                     |            |                          |            |           |            |           
|Cash flows from operating activities:                                             |                                                                                               |                                                    |                                                     |            |                          |            |           |            |            |            |           |            
|Net income                                                                        |                                                                                               | $                                                  | 2,017,000                                           |            |                          | $          | 4,720,000 |            |            | $          | 5,849,000 |            
|Adjustments to reconcile net income to net cash provided by
operating activities: |                                                                                               |                                                    |                                                     |            |                          |            |           |            |            |            |           |            
|                                                                                  | Depreciation and amortization                                                                 |                                                    |                                                     | 1,037,000  |                          |            |           | 1,558,000  |            |            |           | 2,349,000   |           
|                                                                                  | Loss on sale of equipment                                                                     |                                                    |                                                     | 6,000      |                          |            |           | 37,000     |            |            |           | 23,000      |           
|                                                                                  | Tax benefit from exercise of stock options                                                    |                                                    |                                                     |           |                          |            |           |           |            |            |           | 879,000     |           
|                                                                                  | Changes in operating assets and liabilities, net of effects from
acquisitions:                |                                                    |                                                     |            |                          |            |           |            |            |            |           |             |           
|                                                                                  |                                                                                               | Contracts and trade receivables, net               |                                                     |            | 659,000                  |            |           |            | (2,271,000 | )          |           |             | 659,000    |            
|                                                                                  |                                                                                               | Costs and estimated earnings in excess of billings |                                                     |            | (1,254,000               | )          |           |            | (1,297,000 | )          |           |             | (1,807,000 | )          
|                                                                                  |                                                                                               | Prepaid expenses and other current assets          |                                                     |            | (169,000                 | )          |           |            | (73,000    | )          |           |             | (366,000   | )          
|                                                                                  |                                                                                               | Deferred tax assets                                |                                                     |            | 270,000                  |            |           |            |           |            |           |             |           |            
|                                                                                  |                                                                                               | Trade accounts payable and accrued liabilities     |                                                     |            | 308,000                  |            |           |            | (540,000   | )          |           |             | 277,000    |            
|                                                                                  |                                                                                               | Accrued liabilities to related parties             |                                                     |            | (185,000                 | )          |           |            |           |            |           |             |           |            
|                                                                                  |                                                                                               | Billings in excess of costs and estimated earnings |                                                     |            | (33,000                  | )          |           |            | 249,000    |            |           |             | (341,000   | )          
|                                                                                  |                                                                                               | Deferred tax liabilities                           |                                                     |            | 818,000                  |            |           |            | 629,000    |            |           |             | 306,000    |            
|                                                                                  |                                                                                               |                                                    |                                                     |            |                          |            |           |            |            |            |           |            
|                                                                                  |                                                                                               |                                                    | Net cash provided by operating activities           |            |                          | 3,474,000  |           |            |            | 3,012,000  |           |             |            | 7,828,000   |  
|                                                                                  |                                                                                               |                                                    |                                                     |            |                          |            |           |            |            |            |           |            
|Cash flows from investing activities:                                             |                                                                                               |                                                    |                                                     |            |                          |            |           |            |            |            |           |            
|                                                                                  | Net cash expended for acquisitions                                                            |                                                    |                                                     | (4,636,000 | )                        |            |           | (1,383,000 | )          |            |           | (5,834,000  | )         
|                                                                                  | Additions to equipment and leasehold improvements                                             |                                                    |                                                     | (1,225,000 | )                        |            |           | (1,341,000 | )          |            |           | (1,575,000  | )         
|                                                                                  | Purchase of securities held-to-maturity                                                       |                                                    |                                                     |           |                          |            |           |           |            |            |           | (11,521,000 | )         
|                                                                                  | Proceeds from sales of equipment                                                              |                                                    |                                                     | 12,000     |                          |            |           | 3,000      |            |            |           | 15,000      |           
|                                                                                  |                                                                                               |                                                    |                                                     |            |                          |            |           |            |            |            |           |            
|                                                                                  |                                                                                               |                                                    | Net cash used in investing activities               |            |                          | (5,849,000 | )         |            |            | (2,721,000 | )         |             |            | (18,915,000 | )
|                                                                                  |                                                                                               |                                                    |                                                     |            |                          |            |           |            |            |            |           |            
|Cash flows from financing activities:                                             |                                                                                               |                                                    |                                                     |            |                          |            |           |            |            |            |           |            
|                                                                                  | Proceeds (payments) from line of credit, net                                                  |                                                    |                                                     | (3,730,000 | )                        |            |           | 651,000    |            |            |           | (2,294,000  | )         
|                                                                                  | Principal payments on long-term debt and capital lease
obligations, including current portion |                                                    |                                                     | (1,171,000 | )                        |            |           | (1,520,000 | )          |            |           | (3,528,000  | )         
|                                                                                  | Payments on notes payable to related parties                                                  |                                                    |                                                     | (2,401,000 | )                        |            |           |           |            |            |           |            |           
|                                                                                  | Repurchase of common stock                                                                    |                                                    |                                                     | (547,000   | )                        |            |           | (136,000   | )          |            |           | (433,000    | )         
|                                                                                  | Net proceeds from stock offering                                                              |                                                    |                                                     | 11,306,000 |                          |            |           |           |            |            |           | 27,915,000  |           
|                                                                                  | Proceeds from exercise of stock options                                                       |                                                    |                                                     | 30,000     |                          |            |           | 188,000    |            |            |           | 596,000     |           
|                                                                                  |                                                                                               |                                                    |                                                     |            |                          |            |           |            |            |            |           |            
|                                                                                  |                                                                                               |                                                    | Net cash provided by (used in) financing activities |            |                          | 3,487,000  |           |            |            | (817,000   | )         |             |            | 22,256,000  |  
|                                                                                  |                                                                                               |                                                    |                                                     |            |                          |            |           |            |            |            |           |            
|                                                                                  | Net increase (decrease) in cash and cash equivalents                                          |                                                    |                                                     | 1,112,000  |                          |            |           | (526,000   | )          |            |           | 11,169,000  |           
|                                                                                  | Cash and cash equivalents, beginning of year                                                  |                                                    |                                                     | 457,000    |                          |            |           | 1,569,000  |            |            |           | 1,043,000   |           
|                                                                                  |                                                                                               |                                                    |                                                     |            |                          |            |           |            |            |            |           |            
|                                                                                  | Cash and cash equivalents, end of year                                                        |                                                    | $                                                   | 1,569,000  |                          |            | $         | 1,043,000  |            |            | $         | 12,212,000  |           
|                                                                                  |                                                                                               |                                                    |                                                     |            |                          |            |           |            |            |            |           |            

See supplemental cash flow information at Note 14.

See accompanying notes to consolidated financial statements.

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
Years ended December 31, 1999, 2000 and 2001

(1) Organization and Basis of Presentation

The Keith Companies, Inc. (TKCI), was incorporated in the state of
California in 1986, while Keith Engineering, Inc. (KEI), which was merged
with and into TKCI in 1998, was incorporated in the state of California in
1983. TKCI is a full service engineering and consulting services firm providing
professional services on a wide range of projects pursuant to short- and
long-term construction type contracts to the real estate development, public
works/infrastructure, communications, and the industrial/energy industries.
These services are rendered principally in California, Nevada, Utah, Arizona,
Colorado, Wyoming, Oregon, and Texas. References to TKCI or the Company
mean the Company and all of its wholly-owned subsidiaries.

The Company provides a full range of services from initial site
acquisition studies through construction support services to clients operating
in a variety of market sectors. The Company benefits from a diverse public and
private client base including real estate developers, residential and
commercial builders, architects, cities, counties, water districts, state and
federal agencies, land owners, commercial retailers, energy providers and
various manufacturers. The Companys professional staff provides a
comprehensive menu of services that are needed to effectively manage, engineer
and design infrastructure and state-of-the-art facilities.

(2) Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America. All
material intercompany transactions and balances have been eliminated in
consolidation.

Cash and Cash Equivalents

Cash equivalents are comprised of highly liquid debt instruments with
maturities of three months or less when purchased. The Company invests its
excess cash in a money market mutual fund, which consists of a portfolio of
short-term money market instruments. The Companys excess cash is managed by
two financial institutions and, therefore, may be subject to certain
concentration of credit risks.

Securities Held-To-Maturity

The Company accounts for its securities held-to-maturity (Securities)
under the provisions of Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities (SFAS No.
115). Under SFAS No. 115, the Company is required to classify its Securities
in one of three categories: trading, available-for-sale, or held-to-maturity.
Trading securities are bought and held principally for the purpose of selling
them in the near term. Held-to-maturity securities are those securities for
which the Company has the intent and ability to hold until maturity. All other
securities not included in trading or held-to-maturity categories are
classified as available-for-sale. The Company has the ability and intent to
hold all of its Securities until maturity and therefore, has classified its
Securities as held-to-maturity. Accordingly, the Securities are stated at
amortized cost. The Companys Securities are invested in highly liquid
investment grade short-term debt securities.

Revenue and Cost Recognition on Contracts

The Company enters into fixed fee contracts and contracts that provide for
fees on a time-and-materials basis, most of which have not-to-exceed
provisions. Contracts typically vary in length between six months and three
years. However, many contracts are for small increments of work, which can be
completed in less than six months. Revenue is recognized on the percentage of
completion method of accounting based on the proportion of actual direct
contract costs incurred to total estimated direct contract costs. Management
considers costs incurred to be the best available measure of progress on the
contracts.

In the course of providing its services, the Company sometimes
subcontracts for various services like landscape architecture, architecture,
geotechnical engineering, structural engineering, traffic engineering, and
aerial photography. These costs are included in the billings to the clients and
are included in the Companys gross revenue. Because subcontractor services can
change significantly from project to project, changes in gross revenue may not
be indicative of business trends. Accordingly, the
35Table of Contents

THE KEITH COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
Years ended December 31, 1999, 2000 and 2001

Company also reports net revenue, which is gross revenue less
subcontractor costs.

Costs of revenue include labor, non-reimbursable subcontractor costs,
materials and various direct and indirect overhead costs including rent,
utilities and depreciation. General and administrative costs are charged to
expense as incurred. Provisions for estimated losses on uncompleted contracts
are made in the period in which the losses are determined. Changes in job
performance, job conditions and estimated profitability, including final
contract settlements, may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. Additional
revenue resulting from requests for additional work due to changes in the scope
of engineering services to be rendered, are included in revenue when
realization is probable and can be estimated with reasonable certainty.

Costs and estimated earnings in excess of billings represents revenue
recognized in excess of amounts billed on the respective uncompleted
engineering contracts. Billings in excess of costs and estimated earnings
represents amounts billed in excess of revenue recognized on the respective
uncompleted contracts.

At December 31, 2000 and 2001, the Company had no significant amounts
included in contracts and trade receivables or trade accounts payable
representing amounts retained pending contract or subcontractor completion.

Equipment and Leasehold Improvements

Equipment and leasehold improvements are stated at cost or, in the case of
capital leased assets, the lesser of the present value of future minimum lease
payments or fair value. Depreciation is provided on a straight-line basis over
the estimated useful lives of the assets, as follows:

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

When assets are sold or otherwise retired, the related cost and
accumulated depreciation are removed from the accounts and the resulting gain
or loss is included in other expenses (income), net in the accompanying
consolidated statements of income.

Income Taxes

The Company accounts for income taxes under the asset and liability method
in accordance with Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes, which requires recognition of deferred tax
assets and liabilities for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax
credit carry forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.

Goodwill

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets,
the Company did not amortize goodwill related to its acquisitions consummated
after June 30, 2001. For acquisitions made prior to June 30, 2001, the Company
amortized the related goodwill, which represents the excess of purchase price
over fair value of net assets acquired, on a straight-line basis over the
expected periods to be benefited, generally 25 years. When events and
circumstances indicate, the Company reassesses the appropriateness of both the
carrying value and remaining life. Such reassessments, under SFAS No. 121 and
APB Opinion No. 17, are computed using forecasted cash flows on an undiscounted
basis and other factors.

Amortization expense related to goodwill totaled $99,000, $220,000 and
$432,000 for the years ended December 31, 1999, 2000 and 2001, respectively.

Stock Options

The Company accounts for its stock options in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. The Company has
not recorded any

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
Years ended December 31, 1999, 2000 and 2001

compensation expense related to the grant of options. SFAS No. 123,
Accounting for Stock Based Compensation, permits entities to recognize the
fair value of all stock-based awards on the date of grant as expense over the
vesting period. Alternatively, SFAS No. 123 allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net income
disclosures for employee stock option grants made in 1995 and future years as
if the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.

Stock Split

On April 23, 1999, the board of directors authorized a 2.70-for-1 reverse
split of TKCIs common stock, effective April 26, 1999. All share amounts in
the accompanying consolidated financial statements (except for shares of
authorized common stock) have been restated to give effect to the stock split.

Par Value

On June 22, 1999, TKCI established a par value for its common and
preferred stock of $0.001 per share. Prior to this date, the Companys common
and preferred stock had no par value. All amounts in the accompanying
consolidated financial statements have been restated to give effect to the
$0.001 per share par value.

Earnings Per Share

Basic earnings per share (EPS) is computed by dividing net income available
to common shareholders during the period by the weighted average number of
common shares outstanding during each period. Diluted EPS is computed by
dividing net income available to common shareholders during the period by the
weighted average number of shares that would have been outstanding assuming the
issuance of common shares for all dilutive potential common shares outstanding
during the reporting period, net of shares assumed to be repurchased using the
treasury stock method.

The following is a reconciliation of the denominator for the basic EPS
computation to the denominator of the diluted EPS computation. Net income
available to common shareholders is used in the basic and diluted EPS
calculations as the assumed impact of the redeemable securities would be
anti-dilutive.

|                                                                                                                           |  |                          |           |      |  |      |           |  |  |  |           | 
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                                                                                                           |  | Years Ended December 31,
|                                                                                                                           |  |                         
|                                                                                                                           |  | 1999                     |           | 2000 |  | 2001
|                                                                                                                           |  |                          |           |      |  |     
|Weighted average shares used for the basic EPS computation                                                                 |  |                          | 4,211,318 |      |  |      | 4,983,692 |  |  |  | 6,604,367 | 
|Incremental shares from the assumed exercise of dilutive stock
options and stock warrants and contingently issuable shares |  |                          | 303,715   |      |  |      | 315,987   |  |  |  | 488,138   | 
|                                                                                                                           |  |                          |           |      |  |      |           |  |  |  |           | 
|Weighted average shares used for the diluted EPS computation                                                               |  |                          | 4,515,033 |      |  |      | 5,299,679 |  |  |  | 7,092,505 | 
|                                                                                                                           |  |                          |           |      |  |      |           |  |  |  |           | 

In conjunction with certain acquisitions, the Company agreed to pay
consideration consisting of shares of its common stock (see Note 4). As a
result, the Company estimated and included 55,562, 138,219 and 169,989 weighted
average contingently issuable and issuable shares in its weighted average
shares used for the diluted EPS computation for the years ended December 31,
1999, 2000 and 2001, respectively.

There were 211,233, 475,248 and 84,959 anti-dilutive weighted potential
common shares excluded from the above calculation in 1999, 2000 and 2001,
respectively.

Use of Estimates in the Preparation of Consolidated Financial Statements

The preparation of these consolidated financial statements, in conformity
with accounting principles generally accepted in the United States of America,
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
amounts of revenue and expenses reported during the periods. Actual results may
differ from the estimates and assumptions used in preparing these consolidated
financial statements.

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
Years ended December 31, 1999, 2000 and 2001

The accounting policies that are most important to the portrayal of the
Companys financial condition and results of operations, and require
managements most difficult, subjective or complex judgements, are considered
to be critical accounting policies. Because of the uncertainties inherent in
making assumptions and estimates regarding unknown future outcomes, future
events may result in significant differences between our estimates and actual
results. Management believes that each of our assumptions and estimates are
appropriate in the circumstances, and represent the most likely future outcome.
We believe our critical accounting policies relate to estimates of costs to
complete and revenue recognition on our contracts and the collectibility of our
contracts and trade receivables.

Risks and Uncertainties

As of December 31, 2001, approximately 8% of the Companys work force is
covered by collective bargaining agreements that expire during 2002.

Reclassifications

Certain 1999 and 2000 balances have been reclassified to conform to the
presentation used in 2001.

(3) Initial Public Offering and Secondary Offering of Common Stock

Initial Public Offering.On July 15, 1999, the Company completed an
initial public offering of 1.5 million shares of its common stock. The public
offering price was $9.00 per share, which resulted in proceeds to the Company,
net of underwriting fees and offering expenses, of approximately $11.3 million.
The Companys common stock is traded on the NASDAQ National Market under the
symbol TKCI.

The Company primarily used proceeds of the initial public offering to
repay related party notes payable and accrued interest of $2,647,000, to repay
notes payable and accrued interest of $251,000, to repay the previous bank line
of credit of $4,731,000 and to acquire substantially all of the assets of and
assume substantially all of the liabilities of Thompson-Hysell.

Secondary Offering.In May 2001, the Company completed a secondary
offering of an aggregate of 2.3 million shares of common stock (including an
over-allotment of 300,000 shares), of which 1.9 million shares were sold by the
Company and 400,000 shares were sold by selling shareholders. The public
offering price was $16.00 per share, which resulted in proceeds to the Company,
net of underwriting fees and offering expenses, of approximately $27.9 million.

The Company used a portion of the net proceeds from the secondary offering
to repay debt, for general corporate purposes, including working capital and to
aid in completing acquisitions. The remaining balance of the net proceeds has
been invested in highly liquid investment grade short-term debt securities held
to maturity.

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
Years ended December 31, 1999, 2000 and 2001

(4) Acquisitions

Universal Energy, Inc.

On November 30, 2001, the Company acquired all the outstanding shares of
common stock of Universal Energy, Inc. (UEI) and its wholly owned subsidiary
Amerex International, Inc. for an estimated purchase price of $3,500,000. The
results of UEIs operations have been included in the consolidated financial
statements since December 2001. UEI, based in Texas, provides start-up
management, technical support, facility acquisition analysis, operations and
maintenance, and manpower augmentation to the power industry. This acquisition
is expected to increase TKCIs geographic coverage and to expand TKCIs package
of services it can offer to clients in the power and energy industries. The
purchase price consisted of $3,000,000 in cash and $500,000 in pre-acquisition
contingency holdbacks. In addition, the former shareholders may be eligible for
additional consideration which may effect the purchase price as a result of an
earn-out provision. Under the earn-out provision, the former shareholders may
be eligible to receive future cash and stock payments based on certain
profitability targets during 2002, 2003, and 2004. These payments would occur
in May 2003, May 2004, and May 2005, assuming the profitability targets are
reached.

In accordance with SFAS No. 141, this acquisition was accounted for using
the purchase method of accounting. Therefore, the Company recorded goodwill of
$2,038,000, which represents the excess of the purchase price over the fair
value of the net tangible and intangible assets acquired and liabilities
assumed.

The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of the acquisition:

Universal Energy, Inc.
        As of November 30, 2001
(Unaudited)

|
|
|
|
|
|
|
|
|
|
|
|

Pacific Engineering Corporation

On September 28, 2001, the Company acquired substantially all of the
assets and assumed substantially all of the liabilities of Pacific Engineering
Corporation (PEC) for an estimated purchase price of $2,331,000. The results
of PECs operations have been included in the consolidated financial statements
since October 2001. PEC is an Oregon based engineering and design services firm
specializing in the fields of power transmission and distribution,
hydroelectric energy facilities, communication and other utility infrastructure
services. The acquisition is expected to further diversify TKCI
geographically, as well as increase TKCIs service offerings through a new
expertise in power transmission and hydroelectric power. The purchase price
consisted of $1,975,000 in cash, $250,000 in pre-acquisition contingency
holdbacks, and an estimated $106,000 to be paid related to an income tax
reimbursement to the seller.

In accordance with SFAS No. 141, this acquisition was accounted for using
the purchase method of accounting. Therefore, the Company recorded goodwill of
$1,757,000, which represents the excess of the purchase price over the fair
value of the net tangible and intangible assets acquired and liabilities
assumed.

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
Years ended December 31, 1999, 2000 and 2001

The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of the acquisition.

Pacific Engineering Corporation
As of September 30, 2001
(Unaudited)

|                                     |  |   |           |  
|------------------------------------ |  | - | --------- | -
|Currents assets                      |  | $ | 674,000   |  
|Equipment and leasehold improvements |  |   | 19,000    |  
|Goodwill                             |  |   | 1,757,000 |  
|                                     |  |   |           |  
|Total assets acquired                |  |   | 2,450,000 |  
|Current liabilities                  |  |   | (119,000  | )
|                                     |  |   |           |  
|Net assets acquired                  |  | $ | 2,331,000 |  
|                                     |  |   |           |  

Hook Associates Engineering, Inc.

On January 31, 2001, the Company acquired substantially all of the assets
and assumed substantially all of the liabilities of Hook Associates
Engineering, Inc. (Hook) for an estimated purchase price of $4,430,000. The
results of Hooks operations have been included in the consolidated financial
statements since February 2001. The purchase price consisted of $1,530,000 in
cash, $1,200,000 of issuable common stock of the Company, a subordinated
promissory note in the original amount of $1,300,000 and an estimated $400,000
to be paid in cash related to an income tax reimbursement to the seller. The
common stock of the Company is to be issued in two installments; 34,188 shares
were issued in February 2001 with a value of $500,000, with the remaining
$700,000 to be issued in 2002. The issuance of the $700,000 of common stock and
the amount of the subordinated promissory note are subject to certain
adjustments.

This acquisition was accounted for using the purchase method of
accounting. Accordingly, the Company recorded goodwill of $2,716,000, which
represents the excess of the purchase price over the fair value of the net
tangible and identifiable intangible assets acquired and liabilities assumed.
Such amount was amortized over a period of 25 years through December 31, 2001.

Crosby Mead Benton & Associates

On October 13, 2000, TKCI acquired all of the outstanding shares of common
stock of Crosby, Mead, Benton & Associates (CMB). The results of CMBs
operations have been included in the consolidated financial statements since
October 2001. The purchase price was $2,455,000, consisting of cash of
$1,216,000, $239,000 of other acquisition related costs and two installments of
$500,000 each in shares of common stock issuable in October 2001 and in October
2002 subject to certain adjustments as stated in the agreement. The Company has
issued $188,000 of its common stock related to the first installment which
resulted in the issuance of 35,905 shares. The Company is currently in the
process of finalizing any further purchase price adjustments to determine
whether any additional shares would be required to be issued related to the
first installment.

This acquisition was accounted for using the purchase method of
accounting. Accordingly, the Company recorded goodwill of $2,040,000, which
represents the excess of the purchase price over the fair value of the net
tangible and identifiable intangible assets acquired and liabilities assumed.
Such amount was amortized over a period of 25 years through December 31, 2001.

Thompson-Hysell, Inc.

In conjunction with its initial public offering, on July 15, 1999, the
Company acquired substantially all of the assets and assumed substantially all
of the liabilities of Thompson-Hysell. The results of Thompson-Hysells
operations have been included in the consolidated financial statements since
July 1999. The Company paid cash in the amount of $4,636,000, which consisted
of $4,310,000 to Thompson-Hysell and $326,000 of other acquisition related
costs. In addition, contingent consideration consisted of (i) shares of common
stock with a value at the initial public offering equal to $1,333,000, and (ii)
a promissory note in the original principal amount of $1,333,000, payable in
2001. The issuance of common stock and the principal balance of the promissory
note were contingent upon earnings for the years ended December 31, 1998, 1999
and 2000. In October 2000, the

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
Years ended December 31, 1999, 2000 and 2001

Company issued 120,157 shares of its common stock valued at $631,000 based
on the attainment of 1999 earnings and increased goodwill by this amount. In
December 2000, the Company increased goodwill and the principal balance on the
promissory note by $1,039,000 based on the attainment of 2000 earnings before
interest and taxes, as defined. The acquisition was accounted for using the
purchase method of accounting. Goodwill, which represents the excess of the
purchase price over the fair value of the net tangible and identifiable
intangible assets acquired and liabilities assumed, in the amount of $5,846,000
was amortized over a period of 25 years through December 31, 2001.

The following unaudited pro forma data presents information as if the
acquisition of Thompson-Hysell had occurred on January 1, 1999. The pro forma
data is provided for informational purposes only and is based on historical
information. The pro forma data does not necessarily reflect the actual results
of operations that would have occurred had Thompson-Hysell and TKCI comprised a
single entity during the periods presented, nor is it necessarily indicative of
future results of operations of the combined entities.

|                                                      |  |                               |            | 
|----------------------------------------------------- |  | ----------------------------- | ---------- | 
|                                                      |  | Pro forma for the year ending
|                                                      |  | December 31, 1999            
|                                                      |  |                              
|Net revenue                                           |  | $                             | 45,020,000 | 
|Pro forma net income available to common shareholders |  | $                             | 2,840,000  | 
|                                                      |  |                               |            | 
|Basic earnings per share                              |  | $                             | 0.67       | 
|                                                      |  |                               |            | 

(5) Equipment and Leasehold Improvements

Equipment and leasehold improvements at December 31, 2000 and 2001 consist
of the following:

|                                          |                                           |   |            |           |      |   |            |           | 
|----------------------------------------- | ----------------------------------------- | - | ---------- | --------- | ---- | - | ---------- | --------- | 
|                                          |                                           |   | 2000       |           | 2001
|                                          |                                           |   |            |           |     
|Equipment                                 |                                           | $ | 9,361,000  |           |      | $ | 11,331,000 |          
|Leasehold improvements                    |                                           |   | 438,000    |           |      |   | 481,000    |          
|Accumulated depreciation and amortization |                                           |   | (5,086,000 | )         |      |   | (6,891,000 | )        
|                                          |                                           |   |            |           |      |   |            |          
|                                          | Equipment and leasehold improvements, net |   | $          | 4,713,000 |      |   | $          | 4,921,000 | 
|                                          |                                           |   |            |           |      |   |            |          

At December 31, 2000 and 2001, the cost of computer equipment, vehicles
and office furniture and fixtures recorded under capital leases, net of the
related accumulated amortization, were $1,036,000 and $416,000, respectively.

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
Years ended December 31, 1999, 2000 and 2001

(6) Indebtedness

Line of Credit, Long-Term Debt and Capital Lease Obligations

|                                          |  |              |            |      |  |   |           |  
|----------------------------------------- |  | ------------ | ---------- | ---- |  | - | --------- | -
|                                          |  | December 31,
|                                          |  |             
|                                          |  | 2000         |            | 2001
|                                          |  |              |            |     
|Line of credit (see (a) below)            |  | $            | 2,025,000  |      |  | $ |          |  
|Notes payable (see (b) and (c) below)     |  |              | 2,372,000  |      |  |   | 1,300,000 |  
|Capital lease obligations (see (d) below) |  |              | 634,000    |      |  |   | 243,000   |  
|Other (see (d) below)                     |  |              | 714,000    |      |  |   | 369,000   |  
|                                          |  |              |            |      |  |   |           |  
|                                          |  |              | 5,745,000  |      |  |   | 1,912,000 |  
|Less current portion                      |  |              | (5,384,000 | )    |  |   | (459,000  | )
|                                          |  |              |            |      |  |   |           |  
|                                          |  | $            | 361,000    |      |  | $ | 1,453,000 |  
|                                          |  |              |            |      |  |   |           |  

(a)  In September 1999, the Company obtained a line of credit agreement
from a bank to fund working capital needs and the acquisitions of equipment.
The line of credit was collateralized by a first-priority security interest in
all accounts receivable and other rights to payment, general intangibles and
equipment. A portion of the proceeds from the Companys secondary offering in
May 2001 were used to repay the outstanding principal balance.

In September 2001, the Company entered into a new $10.0 million unsecured
line of credit agreement consisting of three components: (i) an acquisition
component, (ii) an equipment and auto financing component, and (iii) a working
capital component. The line provides up to a maximum of $5.0 million to
finance acquisitions, up to a maximum of $3.0 million to finance equipment and
vehicle purchases and up to a maximum of $10.0 million less the aggregate
outstanding principal balance of the acquisition and equipment and vehicle
components for working capital. The line bears interest at either a range of
0.25% below prime to prime, or a range of 1.25% to 1.75% over LIBOR depending
on the Companys ability to meet certain financial covenants. The equipment
and vehicle financing components mature in September 2002, while the
acquisition and working capital components mature in June 2003. There were no
amounts outstanding under this line of credit agreement as of December 31,
2001.

(b)  A $2.4 million unsecured promissory note, bearing an interest rate of
10%, was executed in conjunction with the Asset Purchase Agreement dated April
9, 1999 between the Company and Thompson-Hysell related to the acquisition of
substantially all of the assets and the assumption of substantially all of the
liabilities of Thompson-Hysell (see Note 4). This note was repaid in full
during 2001.

(c)  A $1.3 million unsecured promissory note, bearing an interest rate of
8%, was executed in conjunction with the Asset Purchase Agreement dated January
31, 2001 between the Company and Hook related to the acquisition of
substantially all of the assets and the assumption of substantially all of the
liabilities of Hook (see Note 4). This note requires quarterly interest
payments with the entire principal balance due in April 2003.

(d)  Capital lease obligations and certain notes payable are secured by
certain assets of the Company.

Future annual principal maturities of indebtedness as of December 31, 2001
are as follows:

|                          |  |   |           | 
|------------------------- |  | - | --------- | 
|Years ending December 31: |  |   |           | 
|                          |  |   |           | 
|2002                      |  | $ | 459,000   | 
|2003                      |  |   | 1,424,000 | 
|2004                      |  |   | 20,000    | 
|2005                      |  |   | 8,000     | 
|2006                      |  |   | 1,000     | 
|                          |  |   |           | 
|                          |  | $ | 1,912,000 | 
|                          |  |   |           | 

(7) Leases

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
Years ended December 31, 1999, 2000 and 2001

The Company leases equipment and vehicles under capital lease agreements
that expire at various dates through 2006. The Company also has several
noncancelable operating leases, primarily for office facilities, that expire
through 2008. These leases generally contain renewal options for periods
ranging from one to five years and require the Company to pay costs, including
common area maintenance and insurance charges. Rental expense for operating
leases during 1999, 2000 and 2001 totaled $2,216,000, $2,409,000 and
$3,109,000, respectively.

Certain facilities have been sublet under month-to-month subleases that
provide for reimbursement of various common area maintenance charges. Rental
expense has been reduced for sublease income of $22,000, $11,000 and $9,000 for
the years ended December 31, 1999, 2000 and 2001, respectively. Future minimum
lease payments as of December 31, 2001 are as follows:

|                                       |            |   |            |           |         |   |          |         | 
|-------------------------------------- | ---------- | - | ---------- | --------- | ------- | - | -------- | ------- | 
|                                       |            |   | Operating  |           | Capital
|                                       |            |   | Leases     |           | Leases 
|                                       |            |   |            |           |        
|Years ending December 31:              |            |   |            |           |         |   |          |        
|                                       | 2002       |   | $          | 3,363,000 |         |   | $        | 188,000 | 
|                                       | 2003       |   |            | 3,031,000 |         |   |          | 58,000  | 
|                                       | 2004       |   |            | 1,793,000 |         |   |          | 9,000   | 
|                                       | 2005       |   |            | 1,529,000 |         |   |          | 6,000   | 
|                                       | 2006       |   |            | 663,000   |         |   |          | 1,000   | 
|                                       | Thereafter |   |            | 252,000   |         |   |          |        | 
|                                       |            |   |            |           |         |   |          |        
|Total future minimum lease payments    |            | $ | 10,631,000 |           |         |   | 262,000  |        
|                                       |            |   |            |           |         |   |          |        
|Less amounts representing interest     |            |   |            |           |         |   | (19,000  | )      
|                                       |            |   |            |           |         |   |          |        
|Total obligations under capital leases |            |   |            |           |         |   | 243,000  |        
|Less current portion                   |            |   |            |           |         |   | (174,000 | )      
|                                       |            |   |            |           |         |   |          |        
|Long-term capital lease obligations    |            |   |            |           |         | $ | 69,000   |        
|                                       |            |   |            |           |         |   |          |        

(8) Redeemable Securities and Stock Indemnification Rights

In connection with the acquisition of ESI in December 1997, TKCI issued to
the sellers 74,074 shares of common stock, redeemable at the discretion of any
seller at a price of $6.75 per share, if the Company did not complete an
initial public offering by October 31, 1999. This right of the sellers expired
November 15, 1999. The redeemable common stock was valued at $2.70 per share on
the date of the acquisition of ESI. The difference between the redemption value
of $6.75 per share and the initial valuation of $2.70 per share was accreted
over the period from the acquisition, December 30, 1997, through the date of
the initial public offering, July 15, 1999, through charges to additional
paid-in capital.

In connection with the acquisition of ESI, TKCI also issued to the sellers
stock options to purchase 44,444 shares of common stock with redemption
provisions. The redemption provisions provided that in the event that the
underlying shares did not have a fair market value of at least $8.10 per share
at some time during the period between the date of the Companys initial public
offering and October 1, 2002, the holders were entitled to receive $5.40 in
cash for each unexercised vested option (or $8.10 for each share of common
stock issued upon exercise of a stock option). The $5.40 redemption value was
accreted over the period from the acquisition, December 30, 1997 through the
date of the initial public offering, July 15, 1999, through charges to
additional paid-in capital.

As a result of the Companys completion of its initial public offering at
$9.00 per share in July 1999, the redeemable securities were no longer
redeemable and, accordingly, $353,000 of accumulated accretion on redeemable
securities was reclassified to common stock and additional paid-in capital.

Subsequent to the acquisition of ESI, TKCI agreed to indemnify certain
holders of 40,000 shares of common stock issued in connection with the
acquisition of ESI against a market decline in TKCIs common stock after the
initial public offering of TKCIs common stock. The excess of the guarantee
price over the market value of the 40,000 shares of common stock of $100,000 on
November 11, 1999 was paid and is recorded as a component of other expenses in
the accompanying consolidated statement of income for the year ended December
31, 1999.

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##### Table of Contents



(9) Common Stock and Stock Plans

Stock Option Plans

In 1994, TKCI adopted a stock option plan (the Plan) under which common
stock of TKCI was available for grant. The number of authorized options to be
granted under the Plan was amended from 1,111,111 in 1999 to 1,600,000 in 2001.
Stock options have been granted with an exercise price equal to or greater than
the stocks estimated fair market value at the date of grant. All stock options
issued in connection with the Plan have ten-year terms that vest and become
exercisable ratably each year for a period of up to five years from the grant
date.

In September 2000, the Company made an offer to option holders which gave
them a one-time election to have the Company cancel their options as of
September 30, 2000 and to receive new options covering the same number of
shares at an option exercise price equal to market value on a date six months
and one day later. Prior to the expiration of the six month and one day period,
the Securities and Exchange Commission stated its position regarding the
regulatory treatment of such offers. Based on that position and consultation
with legal counsel, the Company concluded that the attempt by the Company to
cancel the options was ineffective and the participants continue to hold their
original options.

At December 31, 2001, there were 571,611 options available for grant under
the Plan. The following represents assumptions used to estimate fair value of
options granted as determined using the Black-Scholes option pricing model:

|                                                                     |  |                          |      |      |  |      |      |   |  |   |      |  
|-------------------------------------------------------------------- |  | ------------------------ | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                                                     |  | Years ended December 31,
|                                                                     |  |                         
|                                                                     |  | 1999                     |      | 2000 |  | 2001
|                                                                     |  |                          |      |      |  |     
|Weighted average stock price per share of
common stock at grant date |  | $                        | 5.60 |      |  | $    | 5.50 |   |  | $ | 7.69 |  
|Weighted average exercise price per option granted                   |  | $                        | 5.60 |      |  | $    | 5.50 |   |  | $ | 7.69 |  
|Expected volatility                                                  |  |                          | 29.4 | %    |  |      | 51.5 | % |  |   | 76.2 | %
|Risk-free interest rate                                              |  |                          | 6.5  | %    |  |      | 5.0  | % |  |   | 4.2  | %
|Option term (years)                                                  |  |                          | 10   |      |  |      | 10   |   |  |   | 10   |  
|Stock dividend yield                                                 |  |                          | 0.0  | %    |  |      | 0.0  | % |  |   | 0.0  | %

In accounting for its Plan, the Company elected the pro forma disclosure
option under SFAS No. 123. Accordingly, no compensation cost has been
recognized for its stock options in the consolidated financial statements. Had
the Company determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, the Companys net income would
have been adjusted to the pro forma amount indicated below:

|                          |             |  |                          |           |      |  |      |           |  |  |   |           | 
|------------------------- | ----------- |  | ------------------------ | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                          |             |  | Years ended December 31,
|                          |             |  |                         
|                          |             |  | 1999                     |           | 2000 |  | 2001
|                          |             |  |                          |           |      |  |     
|Net income:               |             |  |                          |           |      |  |      |           |  |  |   |          
|                          | As reported |  | $                        | 2,247,000 |      |  | $    | 4,720,000 |  |  | $ | 5,849,000 | 
|                          | Pro forma   |  | $                        | 2,077,000 |      |  | $    | 4,481,000 |  |  | $ | 5,496,000 | 
|Basic earnings per share: |             |  |                          |           |      |  |      |           |  |  |   |          
|                          | As reported |  | $                        | 0.53      |      |  | $    | 0.95      |  |  | $ | 0.89      | 
|                          | Pro forma   |  | $                        | 0.49      |      |  | $    | 0.90      |  |  | $ | 0.83      | 

Pro forma net income reflects only options granted after January 1, 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options
vesting period of five years and compensation cost for options granted prior to
January 1, 1995 is not considered.

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
Years ended December 31, 1999, 2000 and 2001

Stock option activity during the periods indicated is as follows:

|                             |           |  |                    |                  |   |  |   |       | 
|---------------------------- | --------- |  | ------------------ | ---------------- | - |  | - | ----- | 
|                             |           |  | Number of shares   | Weighted-average
|                             |           |  | underlying options | exercise price  
|                             |           |  |                    |                 
|Balance at December 31, 1998 |           |  | 485,556            |                  |   |  |   |      
|                             | Granted   |  |                    | 317,414          |   |  | $ | 8.91  | 
|                             | Exercised |  |                    | (10,523          | ) |  | $ | 2.83  | 
|                             | Forfeited |  |                    | (26,165          | ) |  | $ | 6.95  | 
|                             |           |  |                    |                  |   |  |   |      
|Balance at December 31, 1999 |           |  | 766,282            |                  |   |  |   |      
|                             | Granted   |  |                    | 178,150          |   |  | $ | 4.95  | 
|                             | Exercised |  |                    | (30,095          | ) |  | $ | 3.09  | 
|                             | Forfeited |  |                    | (41,878          | ) |  | $ | 6.69  | 
|                             |           |  |                    |                  |   |  |   |      
|Balance at December 31, 2000 |           |  | 872,459            |                  |   |  |   |      
|                             | Granted   |  |                    | 181,650          |   |  | $ | 14.03 | 
|                             | Exercised |  |                    | (189,959         | ) |  | $ | 3.13  | 
|                             | Forfeited |  |                    | (66,338          | ) |  | $ | 9.42  | 
|                             |           |  |                    |                  |   |  |   |      
|Balance at December 31, 2001 |           |  | 797,812            |                  |   |  |   |      
|                             |           |  |                    |                  |   |  |   |      

The weighted average remaining contractual life and weighted average
exercise price of options outstanding and of options exercisable as of December
31, 2001, were as follows:

|                |  |             |         |                  |  |          |      |             |  |          |       |  |  |  |         |  |  |   |      | 
|--------------- |  | ----------- | ------- | ---------------- |  | -------- | ---- | ----------- |  | -------- | ----- |  |  |  | ------- |  |  | - | ---- | 
|                |  | Outstanding |         | Exercisable     
|                |  |             |         |                 
|                |  | Number of   |         | Weighted         |  |          |      |             |  |          |       |  |  |  |         | 
|                |  | shares      |         | average          |  | Weighted |      | Shares      |  | Weighted
|                |  | underlying  |         | remaining        |  | average  |      | underlying  |  | average 
|Range of        |  | options     |         | contractual life |  | exercise |      | options     |  | exercise
|Exercise Prices |  | outstanding |         | (years)          |  | price    |      | exercisable |  | price   
|                |  |             |         |                  |  |          |      |             |  |         
|$2.70 to $4.82  |  |             | 304,799 |                  |  |          | 6.10 |             |  | $        | 3.48  |  |  |  | 156,811 |  |  | $ | 2.85 | 
|$5.00 to $9.00  |  |             | 330,113 |                  |  |          | 7.84 |             |  | $        | 8.26  |  |  |  | 121,117 |  |  | $ | 8.36 | 
|$9.33 to $23.30 |  |             | 162,900 |                  |  |          | 8.76 |             |  | $        | 14.40 |  |  |  | 18,400  |  |  | $ | 9.90 | 
|                |  |             |         |                  |  |          |      |             |  |          |       |  |  |  |         |  |  |   |      | 
|                |  |             | 797,812 |                  |  |          |      |             |  |          |       |  |  |  | 296,328 |  |  |   |      | 
|                |  |             |         |                  |  |          |      |             |  |          |       |  |  |  |         |  |  |   |      | 

At December 31, 1999, 2000 and 2001, the number of shares of common stock
subject to exercisable options were 284,806, 363,810 and 296,328, respectively,
and the weighted-average exercise prices of those options were $3.26, $4.22 and
$5.54, respectively.

In connection with acquisitions, TKCI reserved for grant options to
purchase 229,630 shares of its common stock to employees of the acquired
companies under the Plan. As of December 31, 2001, options to purchase 180,530
shares of common stock reserved for grant have been granted subject to the
Plan.

Stock Warrants

The Company issued stock warrants to purchase 150,000 shares of the
Companys common stock in connection with the acquisitions of Thompson-Hysell,
JMTA and ESI. Warrants were generally granted with an exercise price equal to
or greater than the underlying stocks estimated fair market value at the date
of grant, vested immediately and were exercisable at any time until the
expiration date. During 1999, 66,667 warrants were issued with an exercise
price less than the stocks estimated fair market value at the date of grant.
The $150,000 difference between the fair market value of the stock at the date
of grant and the exercise price was included as a component of the purchase
price of Thompson-Hysell (see Note 4). All warrants have been exercised as of
December 31, 2001.

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
Years ended December 31, 1999, 2000 and 2001

(10) Employee Benefit Plans

The Company has two defined contribution 401(k) plans, which commenced in
1980 and 1988, covering a majority of its employees. These plans are designed
to be tax deferred in accordance with the provisions of Section 401(k) of the
Internal Revenue Code. Employees may contribute from 1% to 20%, subject to
limitations, of compensation on a tax-deferred basis through a salary reduction
arrangement. In 1998, the Company implemented a discretionary employer matching
contribution program, with a five-year vesting schedule, whereby the Company
matched 50% of the first 1% of employee contributions for the year. Effective
January 1, 1999, the Company increased the employer contribution percentage to
50% of the first 6% of employee contributions, not to exceed $1,500 per
employee per year. Effective January 1, 2000, the Company increased the
employer contribution percentage to 100% of the first 3%, plus 50% of the next
2% of employee contributions, vesting immediately. During 1999, 2000 and 2001,
the Company incurred $336,000, $851,000 and $1,020,000, respectively, related
to its 401(k) plans, which represented the Companys entire obligations under
the employer matching contribution program for the years ended December 31,
1999, 2000 and 2001.

(11) Income Taxes

Income tax expense consists of the following:

|          |         |          |   |                          |           |      |   |           |           |  |   |           |           | 
|--------- | ------- | -------- | - | ------------------------ | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|          |         |          |   | Years ended December 31,
|          |         |          |   |                         
|          |         |          |   | 1999                     |           | 2000 |   | 2001     
|          |         |          |   |                          |           |      |   |          
|Current:  |         |          |   |                          |           |      |   |           |           |  |   |          
|          | Federal |          | $ | 260,000                  |           |      | $ | 2,036,000 |           |  | $ | 2,701,000 |          
|          | State   |          |   | 118,000                  |           |      |   | 534,000   |           |  |   | 700,000   |          
|          |         |          |   |                          |           |      |   |           |           |  |   |          
|          |         | Subtotal |   |                          | 378,000   |      |   |           | 2,570,000 |  |   |           | 3,401,000 | 
|          |         |          |   |                          |           |      |   |           |           |  |   |          
|Deferred: |         |          |   |                          |           |      |   |           |           |  |   |          
|          | Federal |          |   | 999,000                  |           |      |   | 514,000   |           |  |   | 267,000   |          
|          | State   |          |   | 89,000                   |           |      |   | 115,000   |           |  |   | 39,000    |          
|          |         |          |   |                          |           |      |   |           |           |  |   |          
|          |         | Subtotal |   |                          | 1,088,000 |      |   |           | 629,000   |  |   |           | 306,000   | 
|          |         |          |   |                          |           |      |   |           |           |  |   |          
|          |         | Total    |   | $                        | 1,466,000 |      |   | $         | 3,199,000 |  |   | $         | 3,707,000 | 
|          |         |          |   |                          |           |      |   |           |           |  |   |          

A reconciliation of income tax at the federal statutory rate of 34% to the
Companys provision for income taxes is as follows:

|                                                            |  |                          |           |      |  |      |           |  |  |   |           |  
|----------------------------------------------------------- |  | ------------------------ | --------- | ---- |  | ---- | --------- |  |  | - | --------- | -
|                                                            |  | Years ended December 31,
|                                                            |  |                         
|                                                            |  | 1999                     |           | 2000 |  | 2001
|                                                            |  |                          |           |      |  |     
|Computed expected federal income tax expense              |  | $                        | 1,184,000 |      |  | $    | 2,692,000 |  |  | $ | 3,249,000 |  
|State income tax expense, net of federal
income tax benefit |  |                          | 167,000   |      |  |      | 451,000   |  |  |   | 488,000   |  
|Change in federal deferred tax valuation allowance          |  |                          | (35,000   | )    |  |      |          |  |  |   |          |  
|Other                                                       |  |                          | 150,000   |      |  |      | 56,000    |  |  |   | (30,000   | )
|                                                            |  |                          |           |      |  |      |           |  |  |   |           |  
|                                                            |  | $                        | 1,466,000 |      |  | $    | 3,199,000 |  |  | $ | 3,707,000 |  
|                                                            |  |                          |           |      |  |      |           |  |  |   |           |  

Current income tax expense does not reflect an $879,000 tax benefit
related to the exercise of employee stock options during 2001, which was
recorded to additional paid-in capital in the accompanying consolidated
statements of stockholders equity.

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
Years ended December 31, 1999, 2000 and 2001

The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities are as follows:

|                          |                                                    |                                |   |              |           |      |   |           |           | 
|------------------------- | -------------------------------------------------- | ------------------------------ | - | ------------ | --------- | ---- | - | --------- | --------- | 
|                          |                                                    |                                |   | December 31,
|                          |                                                    |                                |   |             
|                          |                                                    |                                |   | 2000         |           | 2001
|                          |                                                    |                                |   |              |           |     
|Deferred tax assets:      |                                                    |                                |   |              |           |      |   |          
|                          | Accrued liabilities and employee compensation      |                                | $ | 289,000      |           |      | $ | 333,000   |          
|                          | Billings in excess of costs and estimated earnings |                                |   | 392,000      |           |      |   | 523,000   |          
|                          | Allowance for doubtful accounts                    |                                |   | 617,000      |           |      |   | 471,000   |          
|                          | Other                                              |                                |   | 249,000      |           |      |   | 287,000   |          
|                          |                                                    |                                |   |              |           |      |   |          
|                          |                                                    | Total deferred tax assets      |   |              | 1,547,000 |      |   |           | 1,614,000 | 
|                          |                                                    |                                |   |              |           |      |   |          
|Deferred tax liabilities: |                                                    |                                |   |              |           |      |   |          
|                          | Equipment and improvements, net                    |                                |   | 284,000      |           |      |   | 360,000   |          
|                          | Section 481, change from cash to accrual           |                                |   | 622,000      |           |      |   | 965,000   |          
|                          | Costs and estimated earnings in excess of billings |                                |   | 2,643,000    |           |      |   | 2,934,000 |          
|                          | Goodwill amortization                              |                                |   | 66,000       |           |      |   | 205,000   |          
|                          | Prepaid expenses                                   |                                |   | 112,000      |           |      |   | 162,000   |          
|                          | Other                                              |                                |   | 80,000       |           |      |   | 287,000   |          
|                          |                                                    |                                |   |              |           |      |   |          
|                          |                                                    | Total deferred tax liabilities |   |              | 3,807,000 |      |   |           | 4,913,000 | 
|                          |                                                    |                                |   |              |           |      |   |          
|                          |                                                    | Net deferred tax liabilities   |   | $            | 2,260,000 |      |   | $         | 3,299,000 | 
|                          |                                                    |                                |   |              |           |      |   |          

The net change in the valuation allowance was a decrease of $62,000 in
1999, with no further increases or decreases in subsequent years. The Company
considers recording a valuation allowance in accordance with the provisions of
SFAS No. 109 to reflect the estimated amount of deferred tax assets which may
not be realized. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment, and believes it is more likely than not the Company
will realize the benefits of its deferred tax assets.

As of December 31, 2001, the Company had no federal or state net operating
loss carryforwards available to offset future taxable income.

(12) Segment and Related Information

The Company evaluates performance and makes resource allocation decisions
based on the overall type of services provided to customers. For financial
reporting purposes, the Company has grouped its operations into two reportable
segments: Real Estate Development, Public Works/Infrastructure and
Communications (REPWIC) and Industrial/Energy (IE). The REPWIC segment
includes engineering and consulting services for the development of both
private projects, such as residential communities, commercial and industrial
properties and recreational projects; public works/infrastructure projects,
such as transportation and water/sewage facilities; and site acquisition and
construction management services for wireless communications. The IE segment
provides the technical expertise and management required to design and test
manufacturing facilities and processes and to facilitate the construction of
alternate electrical power systems that supplement public power supply and
large scale power consumers.

The acquisition of Crosby, Mead, Benton & Associates in October 2000 and
Hook in January 2001 are reported as part of the Companys REPWIC reporting
segment, while the acquisition of PEC in September 2001 and UEI in November
2001 are reported as part of the Companys IE reporting segment.

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
Years ended December 31, 1999, 2000 and 2001

The following tables set forth information regarding the Companys
operating segments as of and for the years ended December 31, 1999, 2000 and
2001:

|                       |  |                              |            |    |  |       |           |              |  |           |            |   |  |   |            | 
|---------------------- |  | ---------------------------- | ---------- | -- |  | ----- | --------- | ------------ |  | --------- | ---------- | - |  | - | ---------- | 
|                       |  | Year ended December 31, 1999
|                       |  |                             
|                       |  |                              |            |    |  |       |           |              |  | Corporate |            |   |  |  
|                       |  | REPWIC                       |            | IE |  | Costs |           | Consolidated
|                       |  |                              |            |    |  |       |           |             
|Net revenue            |  | $                            | 36,009,000 |    |  | $     | 3,627,000 |              |  | $         |           |   |  | $ | 39,636,000 | 
|Income from operations |  | $                            | 7,877,000  |    |  | $     | 172,000   |              |  | $         | (3,743,000 | ) |  | $ | 4,306,000  | 
|Identifiable assets    |  | $                            | 22,497,000 |    |  | $     | 1,164,000 |              |  | $         |           |   |  | $ | 23,661,000 | 

|                       |  |                              |            |    |  |       |           |              |  |           |            |   |  |   |            | 
|---------------------- |  | ---------------------------- | ---------- | -- |  | ----- | --------- | ------------ |  | --------- | ---------- | - |  | - | ---------- | 
|                       |  | Year ended December 31, 2000
|                       |  |                             
|                       |  |                              |            |    |  |       |           |              |  | Corporate |            |   |  |  
|                       |  | REPWIC                       |            | IE |  | Costs |           | Consolidated
|                       |  |                              |            |    |  |       |           |             
|Net revenue            |  | $                            | 48,939,000 |    |  | $     | 4,442,000 |              |  | $         |           |   |  | $ | 53,381,000 | 
|Income from operations |  | $                            | 12,433,000 |    |  | $     | 733,000   |              |  | $         | (4,981,000 | ) |  | $ | 8,185,000  | 
|Identifiable assets    |  | $                            | 31,294,000 |    |  | $     | 2,018,000 |              |  | $         |           |   |  | $ | 33,312,000 | 

|                       |  |                              |            |    |  |       |           |              |  |           |            |   |  |   |            | 
|---------------------- |  | ---------------------------- | ---------- | -- |  | ----- | --------- | ------------ |  | --------- | ---------- | - |  | - | ---------- | 
|                       |  | Year ended December 31, 2001
|                       |  |                             
|                       |  |                              |            |    |  |       |           |              |  | Corporate |            |   |  |  
|                       |  | REPWIC                       |            | IE |  | Costs |           | Consolidated
|                       |  |                              |            |    |  |       |           |             
|Net revenue            |  | $                            | 62,680,000 |    |  | $     | 6,775,000 |              |  | $         |           |   |  | $ | 69,455,000 | 
|Income from operations |  | $                            | 14,484,000 |    |  | $     | 1,271,000 |              |  | $         | (6,428,000 | ) |  | $ | 9,327,000  | 
|Identifiable assets    |  | $                            | 62,789,000 |    |  | $     | 8,703,000 |              |  | $         |           |   |  | $ | 71,492,000 | 

Business Concentrations

In 1999, 2000 and 2001, the Company had no customers which represented
greater than 10% of consolidated net revenue. No customers represented greater
than 10% of net contract and trade receivables at December 31, 2000 and 2001.

(13) Fair Value of Financial Instruments

The carrying amounts of the Companys financial instruments reported in
the accompanying consolidated balance sheets for cash and cash equivalents,
securities held-to-maturity, contracts and trade receivables, line of credit,
trade accounts payable, accrued employee compensation, and other accrued
liabilities approximate their fair values due to the short-term nature of these
instruments.

At December 31, 2000 and 2001, notes payable with carrying amounts of
$714,000 and $180,000, respectively, approximate fair value, determined using
estimates for similar debt instruments (see Note 6). At December 31, 2000 and
2001, the fair value of notes payable with carrying amounts of $2,372,000 and
$1,489,000 were not determinable due to the nature of these financings (see
Note 6).

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
Years ended December 31, 1999, 2000 and 2001

(14) Supplemental Cash Flow Information

|                                                  |                                             |                                                                                                          |   |                          |          |      |   |           |           |  |   |           |         | 
|------------------------------------------------- | ------------------------------------------- | -------------------------------------------------------------------------------------------------------- | - | ------------------------ | -------- | ---- | - | --------- | --------- |  | - | --------- | ------- | 
|                                                  |                                             |                                                                                                          |   | Years ended December 31,
|                                                  |                                             |                                                                                                          |   |                         
|                                                  |                                             |                                                                                                          |   | 1999                     |          | 2000 |   | 2001     
|                                                  |                                             |                                                                                                          |   |                          |          |      |   |          
|Supplemental disclosure of cash flow information: |                                             |                                                                                                          |   |                          |          |      |   |           |           |  |   |          
|                                                  | Cash paid during the year for interest      |                                                                                                          | $ | 975,000                  |          |      | $ | 377,000   |           |  | $ | 275,000   |        
|                                                  |                                             |                                                                                                          |   |                          |          |      |   |           |           |  |   |          
|                                                  | Cash paid during the year for income taxes  |                                                                                                          | $ | 124,000                  |          |      | $ | 2,602,000 |           |  | $ | 1,661,000 |        
|                                                  |                                             |                                                                                                          |   |                          |          |      |   |           |           |  |   |          
|                                                  | Noncash financing and investing activities: |                                                                                                          |   |                          |          |      |   |           |           |  |   |           |        
|                                                  |                                             | Capital lease obligations recorded in connection with equipment
acquisitions                             |   | $                        | 258,000  |      |   | $         |          |  |   | $         |        | 
|                                                  |                                             |                                                                                                          |   |                          |          |      |   |           |           |  |   |          
|                                                  |                                             | Purchase price adjustment to goodwill and notes payable                                                  |   | $                        | 60,000   |      |   | $         | 1,039,000 |  |   | $         |        | 
|                                                  |                                             |                                                                                                          |   |                          |          |      |   |           |           |  |   |          
|                                                  |                                             | Purchase price adjustment to equipment and leasehold improvements
and additional paid-in capital         |   | $                        | 42,000   |      |   | $         |          |  |   | $         |        | 
|                                                  |                                             |                                                                                                          |   |                          |          |      |   |           |           |  |   |          
|                                                  |                                             | Purchase price adjustment to goodwill, common stock and additional
paid-in-capital                       |   | $                        |         |      |   | $         | 631,000   |  |   | $         |        | 
|                                                  |                                             |                                                                                                          |   |                          |          |      |   |           |           |  |   |          
|                                                  |                                             | Purchase price adjustment to goodwill, other receivables, trade accounts
payable and accrued liabilities |   | $                        |         |      |   | $         |          |  |   | $         | 5,000   | 
|                                                  |                                             |                                                                                                          |   |                          |          |      |   |           |           |  |   |          
|                                                  |                                             | Reversal of redeemable securities to redemption value, net                                               |   | $                        | (230,000 | )    |   | $         |          |  |   | $         |        | 
|                                                  |                                             |                                                                                                          |   |                          |          |      |   |           |           |  |   |          
|                                                  |                                             | Issuable common stock issued                                                                             |   | $                        |         |      |   | $         |          |  |   | $         | 688,000 | 
|                                                  |                                             |                                                                                                          |   |                          |          |      |   |           |           |  |   |          
|                                                  |                                             | Transfer of leasehold improvements to prepaid expenses and other
current assets                          |   | $                        |         |      |   | $         |          |  |   | $         | 159,000 | 
|                                                  |                                             |                                                                                                          |   |                          |          |      |   |           |           |  |   |          
|                                                  |                                             | Accrued deferred offering costs                                                                          |   | $                        |         |      |   | $         |          |  |   | $         | 285,000 | 
|                                                  |                                             |                                                                                                          |   |                          |          |      |   |           |           |  |   |          
|                                                  |                                             | Transfer of deferred offering costs to additional paid in capital                                        |   | $                        |         |      |   | $         |          |  |   | $         | 285,000 | 
|                                                  |                                             |                                                                                                          |   |                          |          |      |   |           |           |  |   |          
|                                                  |                                             | Increase to prepaids and accrued expenses                                                                |   | $                        |         |      |   | $         |          |  |   | $         | 106,000 | 
|                                                  |                                             |                                                                                                          |   |                          |          |      |   |           |           |  |   |          
|                                                  |                                             | Insurance financing                                                                                      |   | $                        | 174,000  |      |   | $         | 163,000   |  |   | $         |        | 
|                                                  |                                             |                                                                                                          |   |                          |          |      |   |           |           |  |   |          

The acquisition of Thompson-Hysell in 1999, CMB in 2000 and Hook, PEC and
UEI in 2001 resulted in the following increases:

|                                                         |  |      |            |      |  |      |            |   |  |   |            |  
|-------------------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                                         |  | 1999 |            | 2000 |  | 2001
|                                                         |  |      |            |      |  |     
|Contracts and trade receivables                          |  | $    | (2,253,000 | )    |  | $    | (2,642,000 | ) |  | $ | (7,187,000 | )
|Costs and estimated earnings in excess of billings       |  |      |           |      |  |      |           |   |  |   | (129,000   | )
|Other receivables and prepaid expenses                   |  |      | (1,000     | )    |  |      | (33,000    | ) |  |   | (34,000    | )
|Goodwill                                                 |  |      | (4,216,000 | )    |  |      | (2,000,000 | ) |  |   | (6,479,000 | )
|Equipment and improvements                               |  |      | (1,105,000 | )    |  |      | (214,000   | ) |  |   | (745,000   | )
|Other assets                                             |  |      | (5,000     | )    |  |      | (71,000    | ) |  |   | (116,000   | )
|Line of credit                                           |  |      |           |      |  |      | 74,000     |   |  |   | 269,000    |  
|Billings in excess of costs and estimated earnings       |  |      | 150,000    |      |  |      | 200,000    |   |  |   | 1,723,000  |  
|Long-term debt, including current portion                |  |      | 2,446,000  |      |  |      | 503,000    |   |  |   | 1,720,000  |  
|Accounts payable, accrued expenses and other liabilities |  |      | 198,000    |      |  |      | 1,335,000  |   |  |   | 3,210,000  |  
|Deferred tax liabilities                                 |  |      |           |      |  |      | 465,000    |   |  |   | 734,000    |  
|Issuable common stock                                    |  |      |           |      |  |      | 1,000,000  |   |  |   | 1,200,000  |  
|Common stock                                             |  |      | 150,000    |      |  |      |           |   |  |   |           |  
|                                                         |  |      |            |      |  |      |            |   |  |   |            |  
|Net cash expended for acquisitions                       |  | $    | (4,636,000 | )    |  | $    | (1,383,000 | ) |  | $ | (5,834,000 | )
|                                                         |  |      |            |      |  |      |            |   |  |   |            |  

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
Years ended December 31, 1999, 2000 and 2001

(15) Valuation and Qualifying Accounts

For the years ending December 31, 1999, 2000 and 2001, the following is
supplementary information regarding valuation and qualifying accounts:

|                                 |      |  |              |           |                |  |            |          |           |  |                |         |  |  |   |           | 
|-------------------------------- | ---- |  | ------------ | --------- | -------------- |  | ---------- | -------- | --------- |  | -------------- | ------- |  |  | - | --------- | 
|                                 |      |  | Balance at   |           | Provisions for |  |            |          |           |  |                |         | 
|                                 |      |  | beginning of |           | doubtful       |  |            |          |           |  | Balance at end
|                                 |      |  | period       |           | accounts       |  | Deductions |          | of period
|                                 |      |  |              |           |                |  |            |          |          
|Allowance for doubtful accounts: |      |  |              |           |                |  |            |          |           |  |                |         |  |  |   |          
|                                 | 1999 |  | $            | 364,000   |                |  | $          | 614,000  |           |  | $              | 366,000 |  |  | $ | 612,000   | 
|                                 | 2000 |  | $            | 612,000   |                |  | $          | 671,000  |           |  | $              | 117,000 |  |  | $ | 1,166,000 | 
|                                 | 2001 |  | $            | 1,166,000 |                |  | $          | (112,000 | )         |  | $              | 103,000 |  |  | $ | 951,000   | 

(16) Commitments and Contingencies

In March 2000, Clayton Engineering filed a claim against The Irvine
Company, which was subsequently settled, alleging that The Irvine Company
failed to pay Clayton Engineering for the removal of 30,000 cubic yards of dirt
in the Peters Wash located in Irvine, California. JMTA had provided
engineering design services for The Irvine Company in connection with this
project. JMTA was our wholly-owned subsidiary at the time the claim by Clayton
was filed and was subsequently merged with and into the Company in December
2000. Clayton Engineering made the allegation that plans prepared by JMTA were
inaccurate as to the elevation of the bottom of the Peters Wash. Consequently,
during January of 2001, The Irvine Company filed an equitable indemnity
cross-complaint against JMTA in the Superior Court of California, in the County
of Orange. We settled this dispute in November 2001 and the lawsuit was
dismissed. The settlement amount was partially covered by insurance and is not
considered to be material to the overall financial condition, liquidity or
results of operations of the Company.

The Company is also involved in various claims and legal actions arising
in the ordinary course of business. In the opinion of management and the
Companys legal counsel, the ultimate disposition of these matters should not
have a material adverse effect on the Companys financial position, liquidity
or results of operations.

(17) Subsequent Event

In March 2002, we acquired Michigan based ALNM Group, Inc. which
specializes in government services with expertise in environmental, civil,
mechanical, electrical engineering, planning, and surveying. This acquisition
is expected to expand our geographic coverage and enhance our services in the
public works/infrastructure arena.

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THE KEITH COMPANIES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
Years ended December 31, 1999, 2000 and 2001

(18) Supplementary Financial Information (Unaudited)

The following is unaudited supplementary financial information for 2000
and 2001:

|                        |  |                             |            |          |  |               |            |              |  |   |            |  |  |   |            | 
|----------------------- |  | --------------------------- | ---------- | -------- |  | ------------- | ---------- | ------------ |  | - | ---------- |  |  | - | ---------- | 
|                        |  | For the quarters ended 2000
|                        |  |                            
|                        |  | March 31,                   |            | June 30, |  | September 30, |            | December 31,
|                        |  |                             |            |          |  |               |            |             
|Net revenue             |  | $                           | 12,419,000 |          |  | $             | 12,681,000 |              |  | $ | 13,638,000 |  |  | $ | 14,643,000 | 
|Gross profit            |  |                             | 4,037,000  |          |  |               | 4,374,000  |              |  |   | 5,190,000  |  |  |   | 5,418,000  | 
|Income from operations  |  |                             | 1,387,000  |          |  |               | 1,888,000  |              |  |   | 2,434,000  |  |  |   | 2,476,000  | 
|Net income              |  |                             | 762,000    |          |  |               | 1,067,000  |              |  |   | 1,488,000  |  |  |   | 1,403,000  | 
|Basic earning per share |  | $                           | 0.15       |          |  | $             | 0.22       |              |  | $ | 0.30       |  |  | $ | 0.28       | 

|                         |  |                             |            |          |  |               |            |              |  |   |            |  |  |   |            | 
|------------------------ |  | --------------------------- | ---------- | -------- |  | ------------- | ---------- | ------------ |  | - | ---------- |  |  | - | ---------- | 
|                         |  | For the quarters ended 2001
|                         |  |                            
|                         |  | March 31,                   |            | June 30, |  | September 30, |            | December 31,
|                         |  |                             |            |          |  |               |            |             
|Net revenue              |  | $                           | 16,622,000 |          |  | $             | 17,717,000 |              |  | $ | 17,473,000 |  |  | $ | 17,643,000 | 
|Gross profit             |  |                             | 5,725,000  |          |  |               | 6,361,000  |              |  |   | 6,241,000  |  |  |   | 5,690,000  | 
|Income from operations   |  |                             | 2,441,000  |          |  |               | 2,584,000  |              |  |   | 2,627,000  |  |  |   | 1,675,000  | 
|Net income               |  |                             | 1,374,000  |          |  |               | 1,587,000  |              |  |   | 1,688,000  |  |  |   | 1,200,000  | 
|Basic earnings per share |  | $                           | 0.26       |          |  | $             | 0.24       |              |  | $ | 0.23       |  |  | $ | 0.16       | 

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

We have had no disagreements on accounting or financial disclosure matters
with our independent auditors.




PART III

The information required by Items 10 through 13 of this report is set
forth in the sections entitled Directors and Executive Officers, Executive
Compensation, Security Ownership of Certain Beneficial Owners and
Management, and Certain Relationships and Related Transactions in our Proxy
Statement for our 2002 Annual Meeting of Shareholders. Such information is
incorporated in this report and made a part hereof by reference.




PART IV




ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  The following documents are filed as part of this report:



| | (1) |  | Consolidated Financial Statements.                                                                                                                                                                            
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The following Consolidated Financial Statements and the Independent Auditors Report are
on pages 30 through 51 hereof;                                                                                       
|
| |     |  | Independent Auditors Reports.                                                                                                                                                                                
|
| |     |  | Consolidated Balance Sheets as of December 31, 2000 and 2001                                                                                                                                                  
|
| |     |  | Consolidated Statements of Income for the years ended December 31, 1999, 2000 and 2001                                                                                                                        
|
| |     |  | Consolidated Statements of Shareholders Equity (Deficit) for the years ended December
31, 1999, 2000 and 2001                                                                                                
|
| |     |  | Consolidated Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001                                                                                                                    
|
| |     |  | Notes to Consolidated Financial Statements                                                                                                                                                                    
|
| | (2) |  | 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.

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| | (3) |  | 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)                                                                                                              
|10.17   |  | 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)
|10.18   |  | 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)   
|10.19   |  | 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)                                     
|10.20   |  | 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)                                  
|21.0    |  | List of Subsidiaries*                                                                                                                                                                                                                                                                                    
|23.1    |  | Consent of Independent Auditors*                                                                                                                                                                                                                                                                         



---

|* | Filed herewith.
|- | ---------------

(b)  Reports on Form 8-K.

On December 3, 2001, we filed a Current Report on Form 8-K relating to the
announcement of the acquisition of all of the outstanding shares of common
stock of Universal Energy, Inc.

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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. KeithChief Executive Officer

March 28, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following on behalf of The Keith Companies,
Inc. and in the capacities and on the date indicated.

|                                               |  |                                                                                              |  |               
|---------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | --------------
|Signature                                      |  | Title                                                                                        |  | Date          
|                                               |  |                                                                                              |  |               
|                                              
|/s/ ARAM H. KEITHAram H. Keith                 |  | Chief Executive Officer, Chairman
of the Board and Director(Principal Executive Officer)     |  | March 28, 2002
|                                              
|/s/ ERIC C. NIELSENEric C. Nielsen             |  | President, Chief Operating
Officer, and Director                                             |  | March 28, 2002
|                                              
|/s/ GARY C. CAMPANAROGary C. Campanaro         |  | Chief Financial Officer, Secretary and
Director (Principal Financial and
Accounting Officer) |  | March 28, 2002
|                                              
|/s/ WALTER W. CRUTTENDENWalter W. Cruttenden   |  | Director                                                                                     |  | March 28, 2002
|                                              
|/s/ GEORGE DEUKMEJIANGeorge Deukmejian         |  | Director                                                                                     |  | March 28, 2002
|                                              
|/s/ CHRISTINE DIEMER IGERChristine Diemer Iger |  | Director                                                                                     |  | March 28, 2002
|                                              
|/s/ EDWARD R. MULLEREdward R. Muller           |  | Director                                                                                     |  | March 28, 2002

54