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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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

For the quarterly period ended September 30, 2007

or



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

For the transition period from  to

Commission File Number: 000-50781



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HILL INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 20-0953973                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|303 Lippincott Centre, Marlton, NJ       |  | 08053     
|(Address of principal executive offices) |  | (Zip Code)

Registrants telephone number, including area code: (856) 810-6200



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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, and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer
and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ̈Accelerated Filer ̈Non-Accelerated Filer  x

Indicate by check mark whether the registrant is a
shell company as defined in Rule 12b-2 of the Exchange Act.    Yes ̈No  x

There were 28,594,836 shares of the Registrants Common Stock outstanding at November 2, 2007.



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##### Table of Contents

HILL INTERNATIONAL, INC. AND SUBSIDIARIES

Index to Form 10-Q



|           |  |                                                                                                                                       |  |   
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I     |  | FINANCIAL INFORMATION                                                                                                                 |  |   
|           |  |                                                                                                                                      
|Item 1     |  | Financial Statements                                                                                                                  |  |   
|           |  |                                                                                                                                      
|           |  | Consolidated Balance Sheets at September 30, 2007 (unaudited) and December 30, 2006                                                   |  | 3 
|           |  |                                                                                                                                      
|           |  | Consolidated Statements of Earnings for the three- and nine-month periods ended September 30, 2007 and September 30, 2006 (unaudited) |  | 4 
|           |  |                                                                                                                                      
|           |  | Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and September 30, 2006 (unaudited)                 |  | 5 
|           |  |                                                                                                                                      
|           |  | Notes to Consolidated Financial Statements                                                                                            |  | 6 
|           |  |                                                                                                                                      
|Item 2     |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                 |  | 21
|           |  |                                                                                                                                      
|Item 3     |  | Quantitative and Qualitative Disclosures About Market Risk                                                                            |  | 35
|           |  |                                                                                                                                      
|Item 4     |  | Controls and Procedures                                                                                                               |  | 35
|           |  |                                                                                                                                      
|PART II    |  | OTHER INFORMATION                                                                                                                     |  |   
|           |  |                                                                                                                                      
|Item 1     |  | Legal Proceedings                                                                                                                     |  | 37
|           |  |                                                                                                                                      
|Item 1A    |  | Risk Factors                                                                                                                          |  | 38
|           |  |                                                                                                                                      
|Item 2     |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                           |  | 38
|           |  |                                                                                                                                      
|Item 3     |  | Defaults Upon Senior Securities                                                                                                       |  | 38
|           |  |                                                                                                                                      
|Item 4     |  | Submission of Matters to a Vote of Security Holders                                                                                   |  | 38
|           |  |                                                                                                                                      
|Item 5     |  | Other Information                                                                                                                     |  | 38
|           |  |                                                                                                                                      
|Item 6     |  | Exhibits                                                                                                                              |  | 39
|           | 
|Signatures |  | 40                                                                                                                                   



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##### Table of Contents

PART 1FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)



|                                                                                                                                                         |  |               |         |   |              |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ------------ | - | ------- | -
|                                                                                                                                                         |  | September 30, |         |   | December 30, |  
|                                                                                                                                                         |  | 2007          |         |   | 2006         |  
|                                                                                                                                                         |  | (Unaudited)   |         |   |              |  
|Assets                                                                                                                                                   |  |               |         |   |              |   |         |  
|Cash and cash equivalents                                                                                                                                |  | $             | 13,198  |   |              | $ | 11,219  |  
|Cash - restricted                                                                                                                                        |  |               | 2,739   |   |              |   | 6,548   |  
|Accounts receivable, less allowance for doubtful accounts of $4,659 and $3,373                                                                           |  |               | 77,902  |   |              |   | 61,159  |  
|Accounts receivable - affiliates                                                                                                                         |  |               | 2,055   |   |              |   | 691     |  
|Prepaid expenses and other current assets                                                                                                                |  |               | 5,269   |   |              |   | 3,575   |  
|Deferred income taxes                                                                                                                                    |  |               | 152     |   |              |   | 152     |  
|                                                                                                                                                         |  |               |         |   |              |   |         |  
|Total current assets                                                                                                                                     |  |               | 101,315 |   |              |   | 83,344  |  
|Property and equipment, net                                                                                                                              |  |               | 6,145   |   |              |   | 5,515   |  
|Cash - restricted                                                                                                                                        |  |               | 2,389   |   |              |   | 3,738   |  
|Retainage receivable, less allowance for doubtful accounts of $38 and $30                                                                                |  |               | 802     |   |              |   | 830     |  
|Intangibles, net                                                                                                                                         |  |               | 10,760  |   |              |   | 8,076   |  
|Goodwill                                                                                                                                                 |  |               | 21,743  |   |              |   | 16,072  |  
|Investment in affiliate                                                                                                                                  |  |               | 1,788   |   |              |   | 786     |  
|Other assets                                                                                                                                             |  |               | 712     |   |              |   | 632     |  
|                                                                                                                                                         |  |               |         |   |              |   |         |  
|Total assets                                                                                                                                             |  | $             | 145,654 |   |              | $ | 118,993 |  
|                                                                                                                                                         |  |               |         |   |              |   |         |  
|                                                                                                                                                         |  |              
|Liabilities and Stockholders Equity                                                                                                                     |  |               |         |   |              |   |         |  
|Due to bank                                                                                                                                              |  | $             | 998     |   |              | $ | 618     |  
|Current maturities of notes payable                                                                                                                      |  |               | 978     |   |              |   | 854     |  
|Current maturities of capital lease obligations                                                                                                          |  |               | 175     |   |              |   | 226     |  
|Accounts payable and accrued expenses                                                                                                                    |  |               | 42,069  |   |              |   | 38,721  |  
|Income taxes payable                                                                                                                                     |  |               | 3,927   |   |              |   | 3,189   |  
|Other current liabilities                                                                                                                                |  |               | 9,424   |   |              |   | 7,227   |  
|                                                                                                                                                         |  |               |         |   |              |   |         |  
|Total current liabilities                                                                                                                                |  |               | 57,571  |   |              |   | 50,835  |  
|Notes payable, net of current maturities                                                                                                                 |  |               | 6,184   |   |              |   | 9,421   |  
|Capital lease obligations, net of current maturities                                                                                                     |  |               | 35      |   |              |   | 168     |  
|Retainage payable                                                                                                                                        |  |               | 844     |   |              |   | 529     |  
|Deferred income taxes                                                                                                                                    |  |               | 1,165   |   |              |   | 1,197   |  
|Deferred revenue                                                                                                                                         |  |               | 12,038  |   |              |   | 5,701   |  
|Other liabilities                                                                                                                                        |  |               | 5,732   |   |              |   | 4,820   |  
|                                                                                                                                                         |  |               |         |   |              |   |         |  
|Total liabilities                                                                                                                                        |  |               | 83,569  |   |              |   | 72,671  |  
|                                                                                                                                                         |  |               |         |   |              |   |         |  
|Minority interest                                                                                                                                        |  |               | 185     |   |              |   | 286     |  
|                                                                                                                                                         |  |               |         |   |              |   |         |  
|Commitments and contingencies                                                                                                                            |  |               |         |   |              |   |         |  
|                                                                                                                                                         |  |              
|Stockholders equity:                                                                                                                                    |  |               |         |   |              |   |         |  
|Preferred stock, $.0001 par value; 1,000,000 shares authorized, none issued                                                                              |  |               |        |   |              |   |        |  
|Common stock, $.0001 par value; 75,000,000 shares authorized, 26,336,372 shares and 22,830,000 shares issued at September 30, 2007 and
December 30, 2006 |  |               | 3       |   |              |   | 2       |  
|Additional paid-in capital                                                                                                                               |  |               | 44,469  |   |              |   | 38,058  |  
|Retained earnings                                                                                                                                        |  |               | 23,229  |   |              |   | 14,162  |  
|Accumulated other comprehensive income                                                                                                                   |  |               | 876     |   |              |   | 491     |  
|                                                                                                                                                         |  |               |         |   |              |   |         |  
|                                                                                                                                                         |  |               | 68,577  |   |              |   | 52,713  |  
|                                                                                                                                                         |  |              
|Less treasury stock of 599,282 shares at September 30, 2007 and 529,742 shares at December 31, 2006, at cost                                             |  |               | (3,327  | ) |              |   | (2,812  | )
|Less stock held in escrow of 451,665 shares                                                                                                              |  |               | (3,350  | ) |              |   | (3,865  | )
|                                                                                                                                                         |  |               |         |   |              |   |         |  
|Total stockholders equity                                                                                                                               |  |               | 61,900  |   |              |   | 46,036  |  
|                                                                                                                                                         |  |               |         |   |              |   |         |  
|Total liabilities and stockholders equity                                                                                                               |  | $             | 145,654 |   |              | $ | 118,993 |  
|                                                                                                                                                         |  |               |         |   |              |   |         |  

See accompanying notes to consolidated financial statements.



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HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)



|                                                   |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |         |  
|-------------------------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------ | ----------------- |  | - | ----------------- | - |  | - | ------- | -
|                                                   |  | Three Months Ended |        |   | Nine Months Ended |  
|                                                   |  | September 30,2007  |        |   | September 30,2006 |   |        | September 30,2007 |  |   | September 30,2006 |  
|Revenue                                            |  | $                  | 72,177 |   |                   | $ | 49,866 |                   |  | $ | 204,052           |   |  | $ | 130,156 |  
|Reimbursable expenses                              |  |                    | 20,713 |   |                   |   | 15,837 |                   |  |   | 59,602            |   |  |   | 42,778  |  
|                                                   |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |         |  
|Revenue, less reimbursable expenses                |  |                    | 51,464 |   |                   |   | 34,029 |                   |  |   | 144,450           |   |  |   | 87,378  |  
|                                                   |  |                    |        |  
|Direct expenses                                    |  |                    | 26,867 |   |                   |   | 18,774 |                   |  |   | 76,386            |   |  |   | 48,611  |  
|                                                   |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |         |  
|Gross profit                                       |  |                    | 24,597 |   |                   |   | 15,255 |                   |  |   | 68,064            |   |  |   | 38,767  |  
|Selling, general and administrative expenses       |  |                    | 20,335 |   |                   |   | 11,892 |                   |  |   | 56,875            |   |  |   | 31,317  |  
|Equity in earnings of affiliates                   |  |                    | (875   | ) |                   |   | (331   | )                 |  |   | (1,430            | ) |  |   | (533    | )
|                                                   |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |         |  
|Operating profit                                   |  |                    | 5,137  |   |                   |   | 3,694  |                   |  |   | 12,619            |   |  |   | 7,983   |  
|Minority interest in income of subsidiaries        |  |                    | 61     |   |                   |   | 13     |                   |  |   | 176               |   |  |   | 13      |  
|Interest expense (income), net                     |  |                    | 217    |   |                   |   | (36    | )                 |  |   | 717               |   |  |   | 345     |  
|                                                   |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |         |  
|Income before provision for income taxes           |  |                    | 4,859  |   |                   |   | 3,717  |                   |  |   | 11,726            |   |  |   | 7,625   |  
|Provision for income taxes                         |  |                    | 1,059  |   |                   |   | 806    |                   |  |   | 2,659             |   |  |   | 1,735   |  
|                                                   |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |         |  
|Net income                                         |  | $                  | 3,800  |   |                   | $ | 2,911  |                   |  | $ | 9,067             |   |  | $ | 5,890   |  
|                                                   |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |         |  
|Basic earnings per common share                    |  | $                  | 0.15   |   |                   | $ | 0.13   |                   |  | $ | 0.36              |   |  | $ | 0.38    |  
|                                                   |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |         |  
|Basic weighted average common shares outstanding   |  |                    | 25,259 |   |                   |   | 22,284 |                   |  |   | 24,849            |   |  |   | 15,504  |  
|                                                   |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |         |  
|Diluted earnings per common share                  |  | $                  | 0.13   |   |                   | $ | 0.12   |                   |  | $ | 0.31              |   |  | $ | 0.35    |  
|                                                   |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |         |  
|Diluted weighted average common shares outstanding |  |                    | 29,602 |   |                   |   | 23,513 |                   |  |   | 29,202            |   |  |   | 16,931  |  
|                                                   |  |                    |        |   |                   |   |        |                   |  |   |                   |   |  |   |         |  

See accompanying notes to consolidated financial statements.



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HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                            |  |                   |         |   |               |   |         |  
|------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ------------- | - | ------- | -
|                                                                                            |  | Nine Months Ended |        
|                                                                                            |  | September 30,     |         |   | September 30, |  
|                                                                                            |  | 2007              |         |   | 2006          |  
|Cash flows from operating activities:                                                       |  |                   |         |   |               |   |         |  
|Net income                                                                                  |  | $                 | 9,067   |   |               | $ | 5,890   |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                   |         |   |               |   |         |  
|Depreciation and amortization                                                               |  |                   | 2,869   |   |               |   | 1,032   |  
|Equity in earnings of affiliates                                                            |  |                   | (1,430  | ) |               |   | (533    | )
|Minority interest in income of subsidiaries                                                 |  |                   | 123     |   |               |   | 13      |  
|Provision for bad debts                                                                     |  |                   | 1,497   |   |               |   | 840     |  
|Deferred tax provision                                                                      |  |                   | (33     | ) |               |   | (833    | )
|Stock based compensation                                                                    |  |                   | 318     |   |               |   | 59      |  
|Tax benefit from stock plan                                                                 |  |                   |        |   |               |   | 957     |  
|Stock issued to Board of Directors                                                          |  |                   | 70      |   |               |   | 77      |  
|Changes in operating assets and liabilities, net of acquisitions:                           |  |                   |         |   |               |   |         |  
|Accounts receivable                                                                         |  |                   | (14,283 | ) |               |   | (20,304 | )
|Accounts receivable - affiliates                                                            |  |                   | (1,364  | ) |               |   | 158     |  
|Prepaid expenses and other current assets                                                   |  |                   | (1,455  | ) |               |   | (605    | )
|Retainage receivable                                                                        |  |                   | 28      |   |               |   | 160     |  
|Other assets                                                                                |  |                   | (58     | ) |               |   | (152    | )
|Accounts payable and accrued expenses                                                       |  |                   | 1,791   |   |               |   | 3,730   |  
|Income taxes payable                                                                        |  |                   | 723     |   |               |   | 744     |  
|Deferred revenue                                                                            |  |                   | 6,017   |   |               |   |        |  
|Other current liabilities                                                                   |  |                   | 2,214   |   |               |   | (3,301  | )
|Retainage payable                                                                           |  |                   | 315     |   |               |   | 2,576   |  
|Other liabilities                                                                           |  |                   | (304    | ) |               |   | (41     | )
|                                                                                            |  |                   |         |   |               |   |         |  
|Net cash flows provided by (used in) operating activities                                   |  |                   | 6,105   |   |               |   | (9,533  | )
|                                                                                            |  |                   |         |   |               |   |         |  
|Cash flows from investing activities:                                                       |  |                   |         |   |               |   |         |  
|Purchase of businesses, net of cash acquired                                                |  |                   | (8,552  | ) |               |   | (10,444 | )
|Contributions to affiliate                                                                  |  |                   | (6      | ) |               |   |        |  
|Distributions from affiliate                                                                |  |                   | 528     |   |               |   | 269     |  
|Restricted cash                                                                             |  |                   | 3,350   |   |               |   | (3,350  | )
|Purchase of minority interest in Knowles                                                    |  |                   | (62     | ) |               |   |        |  
|Payments for purchase of property and equipment                                             |  |                   | (2,318  | ) |               |   | (1,411  | )
|                                                                                            |  |                   |         |   |               |   |         |  
|Net cash flows used in investing activities                                                 |  |                   | (7,060  | ) |               |   | (14,936 | )
|                                                                                            |  |                   |         |   |               |   |         |  
|Cash flows from financing activities:                                                       |  |                   |         |   |               |   |         |  
|Due to bank                                                                                 |  |                   | 380     |   |               |   | (176    | )
|Proceeds from long-term debt                                                                |  |                   |        |   |               |   | 2,801   |  
|Payments on notes payable                                                                   |  |                   | (878    | ) |               |   | (12,757 | )
|Net proceeds (payments) on revolving loan borrowings                                        |  |                   | (2,811  | ) |               |   | 1,174   |  
|Dividends paid to subsidiaries minority stockholders                                       |  |                   | (166    | ) |               |   |        |  
|Advances to stockholder                                                                     |  |                   |        |   |               |   | (183    | )
|Repayments from stockholders                                                                |  |                   |        |   |               |   | 1,008   |  
|Proceeds from issuance of common stock in merger, net of acquisition costs of $2,417        |  |                   |        |   |               |   | 34,095  |  
|Proceeds from exercise of common stock warrants                                             |  |                   | 5,882   |   |               |   |        |  
|Payments on capital lease obligations                                                       |  |                   | (199    | ) |               |   | (166    | )
|                                                                                            |  |                   |         |   |               |   |         |  
|Net cash flow provided by financing activities                                              |  |                   | 2,208   |   |               |   | 25,796  |  
|                                                                                            |  |                   |         |   |               |   |         |  
|Effect of exchange rate changes on cash                                                     |  |                   | 726     |   |               |   | (143    | )
|                                                                                            |  |                   |         |   |               |   |         |  
|Net increase in cash and cash equivalents                                                   |  |                   | 1,979   |   |               |   | 1,184   |  
|Cash and cash equivalents  beginning of period                                             |  |                   | 11,219  |   |               |   | 2,716   |  
|                                                                                            |  |                   |         |   |               |   |         |  
|Cash and cash equivalents  end of period                                                   |  | $                 | 13,198  |   |               | $ | 3,900   |  
|                                                                                            |  |                   |         |   |               |   |         |  

See accompanying notes to consolidated financial statements.



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HILL INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 1The Company

The Company was incorporated in Delaware in 2004 under the name Arpeggio Acquisition Corporation (Arpeggio), as a specified purpose
acquisition corporation. On June 28, 2006, Arpeggio merged with Hill International, Inc. (old Hill), a Delaware corporation, and Arpeggio was the surviving entity of the merger. Following the merger, Arpeggio changed its name to
Hill International, Inc. (Hill or the Company). The merger was accounted for as a reverse acquisition. Under this method of accounting, Arpeggio was treated as the acquired company for financial reporting
purposes. Accordingly, the merger was treated as the equivalent of old Hill issuing stock for the net monetary assets of Arpeggio, accompanied by a recapitalization. The historical consolidated financial statements relate to the business of old Hill
and its consolidated subsidiaries.

Note 2Basis of Presentation

The accompanying unaudited interim Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States and the interim financial statement rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, these
statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Consolidated Financial Statements. The consolidated financial statements should be read in conjunction with the
Consolidated Financial Statements and accompanying notes included in the Companys Annual Report on Form 10-K for the year ended December 30, 2006.

The consolidated financial statements include our financial statements and those of our majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The interim operating results are not necessarily indicative of the results for a full year.

Commencing in
2007, we changed our financial reporting periods to coincide with the end of each calendar quarter. Prior to 2007, we utilized a 52-53 week fiscal year ending on the Saturday closest to December 31. The difference resulting from this change in
reporting periods for the three- and nine-month periods ended September 30, 2007 is not significant.

Note 3Acquisition

On May 10, 2007, the Company acquired all of the common stock of KJM & Associates, Ltd. (KJM). KJM provides project management and project
controls services primarily for the transportation and education markets. KJM is headquartered in Bellevue, Washington and provides the Companys Project Management Group with new and expanded geographic coverage in Washington, Oregon,
California, Arizona, Texas and New York.

The Company paid $9,350,000 consisting of $8,350,000 in cash plus 136,593 shares of restricted common stock of
the Company (the Restricted Shares) initially valued at $1,000,000. The Restricted Shares were valued based on the average closing price of the Companys common stock for the 10 trading days prior to the closing



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date. The Restricted Shares will be held in escrow for one year as security for any indemnification obligations of KJMs selling stockholder. Since the
Restricted Shares are subject to forfeiture, they will not be considered outstanding for accounting purposes until the end of the contingency period, at which time the fair value of those shares actually distributed will be accounted for as
additional purchase consideration.

For its fiscal year ended December 31, 2006, KJMs unaudited financial results included total revenues of
$16,400,000, net revenues of $14,400,000, gross profit of $7,300,000, and operating profit of $1,300,000. As of April 30, 2007, KJM had unaudited stockholders equity of $2,700,000 and total backlog estimated at $21,000,000. The results of
operations and cash flows for the three- and nine-month periods ended September 30, 2007 were not material. KJM was fully integrated into Hill on September 1, 2007.

The acquisition was accounted for under the purchase method of accounting, effective as of May 1, 2007, and accordingly, the results of operations and cash flows of KJM have been included in the accompanying
Consolidated Financial Statements for the period subsequent to the effective date. At September 30, 2007, the total purchase price, including acquisition expenses of $202,000, but excluding the Restricted Shares, which constitute contingent
consideration, was $8,552,000. The following table summarizes the allocation of the purchase price based on the fair value of the assets acquired and liabilities assumed as of the acquisition date:



|                            |  |   |        |  
|--------------------------- |  | - | ------ | -
|Current assets              |  | $ | 4,109  |  
|Furniture and equipment     |  |   | 224    |  
|Other assets                |  |   | 111    |  
|Acquired intangibles        |  |   | 3,345  |  
|Goodwill                    |  |   | 2,516  |  
|                            |  |   |        |  
|Total assets acquired       |  |   | 10,305 |  
|Current liabilities assumed |  |   | (1,726 | )
|Long term liabilities       |  |   | (27    | )
|                            |  |   |        |  
|Net assets acquired         |  | $ | 8,552  |  
|                            |  |   |        |  

Note 4Comprehensive Income

The following table summarizes the Companys comprehensive income for the fiscal periods ended September 30, 2007 and September 30, 2006:



|                                                    |  |                    |       |                    |                   |       |                    |  |                   |       |  |   |       |  
|--------------------------------------------------- |  | ------------------ | ----- | ------------------ | ----------------- | ----- | ------------------ |  | ----------------- | ----- |  | - | ----- | -
|                                                    |  | Three months ended |       |                    | Nine months ended |      
|(in thousands)                                      |  | September 30, 2007 |       | September 30, 2006 |                   |       | September 30, 2007 |  | September 30,2006 |      
|Net income                                          |  | $                  | 3,800 |                    | $                 | 2,911 |                    |  | $                 | 9,067 |  | $ | 5,890 |  
|Foreign currency translation adjustment, net of tax |  |                    | 235   |                    |                   | (104  | )                  |  |                   | 385   |  |   | (143  | )
|                                                    |  |                    |       |                    |                   |       |                    |  |                   |       |  |   |       |  
|Comprehensive income                                |  | $                  | 4,035 |                    | $                 | 2,807 |                    |  | $                 | 9,452 |  | $ | 5,747 |  
|                                                    |  |                    |       |                    |                   |       |                    |  |                   |       |  |   |       |  



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##### Table of Contents

Note 5Accounts Receivable

The components of accounts receivable are as follows:



|                                |  |                    |        |   |                   |   |        |  
|------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------ | -
|(in thousands)                  |  | September 30, 2007 |        |   | December 30, 2006 |  
|Billed                          |  | $                  | 63,128 |   |                   | $ | 50,076 |  
|Retainage, current portion      |  |                    | 4,794  |   |                   |   | 3,754  |  
|Unbilled                        |  |                    | 14,639 |   |                   |   | 10,702 |  
|                                |  |                    |        |   |                   |   |        |  
|                                |  |                    | 82,561 |   |                   |   | 64,532 |  
|Allowance for doubtful accounts |  |                    | (4,659 | ) |                   |   | (3,373 | )
|                                |  |                    |        |   |                   |   |        |  
|                                |  | $                  | 77,902 |   |                   | $ | 61,159 |  
|                                |  |                    |        |   |                   |   |        |  

Note 6Intangible Assets

The following table summarizes the Companys cost in excess of net assets acquired as of September 30, 2007 and December 30, 2006:



|                                                |  |                      |        |                         |   |                     |  |                         |        |  |   |      
|----------------------------------------------- |  | -------------------- | ------ | ----------------------- | - | ------------------- |  | ----------------------- | ------ |  | - | -----
|                                                |  | September 30, 2007   |        | December 30, 2006      
|(in thousands)                                  |  | Gross CarryingAmount |        | AccumulatedAmortization |   | GrossCarryingAmount |  | AccumulatedAmortization
|Acquired contract rights                        |  | $                    | 2,505  |                         | $ | 2,224               |  | $                       | 2,139  |  | $ | 2,139
|Customer relationships acquired in acquisitions |  |                      | 11,085 |                         |   | 1,038               |  |                         | 7,918  |  |   | 286  
|Trade names acquired in acquisitions            |  |                      | 628    |                         |   | 211                 |  |                         | 500    |  |   | 56   
|Covenant not to compete                         |  |                      | 17     |                         |   | 2                   |  |                         |       |  |   |     
|                                                |  |                      |        |                         |   |                     |  |                         |        |  |   |      
|Total                                           |  | $                    | 14,235 |                         | $ | 3,475               |  | $                       | 10,557 |  | $ | 2,481
|                                                |  |                      |        |                         |   |                     |  |                         |        |  |   |      
|Intangible assets less amortization, net        |  | $                    | 10,760 |                         |   |                     |  | $                       | 8,076  |  |   |      
|                                                |  |                      |        |                         |   |                     |  |                         |        |  |   |      

Amortization expense related to intangible assets totaled $475,000 and $38,000 for the three months ended
September 30, 2007 and September 30, 2006, respectively, and totaled $958,000 and $146,000 for the nine months ended September 30, 2007 and September 30, 2006. Estimated amortization expense based on our present intangible assets
for the next five years is as follows:



|                          |  |                                |      
|------------------------- |  | ------------------------------ | -----
|Year ending December 31,  |  | Estimated amortization expense
|                          |  | (in thousands)                
|2007 (remaining 3 months) |  | $                              | 376  
|2008                      |  |                                | 1,484
|2009                      |  |                                | 1,242
|2010                      |  |                                | 1,097
|2011                      |  |                                | 1,079



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##### Table of Contents

Note 7Goodwill

In accordance with Statement of Financial Accounting Standards(SFAS) No. 142,Goodwill and Other Intangible Assets, the Company performs its annual goodwill impairment testing, by reportable segment, in the third
quarter, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Application of the goodwill impairment test requires significant judgments including estimation of future cash flows, which is dependent on
internal forecasts, estimation of the long-term rate of growth for the businesses, the useful life over which cash flows will occur, and determination of the Companys weighted average cost of capital. Changes in these estimates and assumptions
could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. The Company performed its annual impairment test effective July 1, 2007 and noted no impairment for either of its
reporting units.

The following table summarizes the changes in the Companys carrying value of goodwill during 2007 (in thousands):



|                    |  |                            |        |           |   |                        |  |                             |     |  |   |       
|------------------- |  | -------------------------- | ------ | --------- | - | ---------------------- |  | --------------------------- | --- |  | - | ------
|Segment             |  | Balance atDecember 30,2006 |        | Additions |   | TranslationAdjustments |  | Balance atSeptember 30,2007
|Project Management  |  | $                          |       |           | $ | 2,516                  |  | $                           |    |  | $ | 2,516 
|Construction Claims |  |                            | 16,072 |           |   | 2,525                  |  |                             | 630 |  |   | 19,227
|                    |  |                            |        |           |   |                        |  |                             |     |  |   |       
|Total               |  | $                          | 16,072 |           | $ | 5,041                  |  | $                           | 630 |  | $ | 21,743
|                    |  |                            |        |           |   |                        |  |                             |     |  |   |       



9



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##### Table of Contents

Note 8Accounts Payable and Accrued Expenses

Below are the components of accounts payable and accrued expenses at September 30, 2007 and December 30, 2006:



|                                    |  |                   |        |                  |   |       
|----------------------------------- |  | ----------------- | ------ | ---------------- | - | ------
|(in thousands)                      |  | September 30,2007 |        | December 30,2006
|Accounts payable                    |  | $                 | 14,033 |                  | $ | 14,769
|Accrued payroll                     |  |                   | 12,913 |                  |   | 9,295 
|Accrued subcontractor fees          |  |                   | 5,250  |                  |   | 3,132 
|Accrued legal and professional cost |  |                   | 4,529  |                  |   | 4,726 
|Other accrued expenses              |  |                   | 5,344  |                  |   | 6,799 
|                                    |  |                   |        |                  |   |       
|                                    |  | $                 | 42,069 |                  | $ | 38,721
|                                    |  |                   |        |                  |   |       

Note 9Deferred Revenue

In certain instances the Company may collect advance payments from clients for future services. As the services are performed these advance payments are recognized as revenue. Deferred revenue is classified as current
or long term based on the anticipated life of the project. The following table summarizes deferred revenue as of September 30, 2007 and December 30, 2006:



|                                                                                    |  |                   |        |                  |   |      
|----------------------------------------------------------------------------------- |  | ----------------- | ------ | ---------------- | - | -----
|                                                                                    |  | September 30,2007 |        | December 30,2006
|Current (included in the consolidated balance sheet in Other current liabilities) |  | $                 | 2,326  |                  | $ | 2,646
|Non-current                                                                         |  |                   | 12,038 |                  |   | 5,701
|                                                                                    |  |                   |        |                  |   |      
|Total                                                                               |  | $                 | 14,364 |                  | $ | 8,347
|                                                                                    |  |                   |        |                  |   |      



10



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##### Table of Contents

Note 10Notes Payable

Outstanding debt obligations are as follows:



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                   |       |                  |   |       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----- | ---------------- | - | ------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | September 30,2007 |       | December 30,2006
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | (in thousands)   
|Revolving credit loan payable to LaSalle Bank N.A. (LaSalle) up to $25,000,000(1), with
interest rates of 0.25 plus LaSalles prime rate of 8.00% (or 8.25%) at September 30, 2007 and 8.25% (or 8.50%) at December 30, 2006 and 2.25% plus LIBOR of 4.61% (or 6.86%) at September 30, 2007 and 5.35% (or 7.60%) at
December 30, 2006. The weighted average interest rate for all borrowings at September 30, 2007 and December 30, 2006 was 7.27% and 8.08%, respectively. The loan is collateralized by all domestic assets of the Company and a pledge
of 66.67% of the outstanding capital stock of certain subsidiaries; the Company is also subject to certain financial covenants.(2)See Note
20. |  | $                 | 5,588 |                  | $ | 8,398 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                  
|Revolving credit loan payable to Egnatia Bank up to 1,000,000 Euros ($1,422,000 at September 30, 2007), with interest rates at September 30, 2007 and December 30, 2006 of 2.5%
plus the Egnatia Bank prime base rate of 7.0% (or 9.5%) at September 30, 2007 and December 30, 2006, respectively, collateralized by certain assets of the Company.                                                                                                                                                                                                                                                                                                                                                        |  |                   | 184   |                  |   | 171   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                  
|Note payable for Pickavance acquisition with an original issue discount of $231,000 at an imputed interest rate of 8% maturing February 1, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                   | 1,198 |                  |   | 1,421 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                  
|Note payable for the purchase of the minority interest of a certain Knowles subsidiary with simple interest payable at 8% per annum with a maturity date of January 30,
2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                   | 90    |                  |   |      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                  
|Various other notes payable with interest rates ranging from 7.01% to 7.8%, expiring through March 2008 collateralized by the related financed equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                   | 102   |                  |   | 285   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                   |       |                  |   |       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                   | 7,162 |                  |   | 10,275
|Less current maturities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                   | 978   |                  |   | 854   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                   |       |                  |   |       
|Notes payable, net of current maturities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | $                 | 6,184 |                  | $ | 9,421 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                   |       |                  |   |       

---

|(1) | At September 30, 2007, the Company had $7,429,000 in outstanding letters of credit which reduce availability under the revolving credit facility.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | At September 30, 2007, the Company was in compliance with all the financial covenants.
|--- | --------------------------------------------------------------------------------------



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##### Table of Contents

Note 11Supplemental Cash Flow Information

On March 24, 2006, options to purchase 482,767 shares of old Hills common stock with an exercise price of $0.37 per share and options to purchase 48,277 shares of old Hills common stock with an
exercise price of $0.53 per share were exercised on a cashless basis when the fair market value was $5.47 resulting in old Hill issuing 493,465 shares of its common stock prior to the merger with Arpeggio.

On April 9, 2007, the Company issued 2,300,000 shares of its common stock in connection with the earn-out provision of the merger agreement with Arpeggio.

On August 9, 2007, the Company issued 30,000 shares of its common stock to non-employee members of the Board of Directors as partial compensation for
services. The shares had a fair market value of $210,000 on the date of grant and the Company is recognizing expense ratably as services are rendered over a one year period.

In connection with the finalization of the fair values of assets acquired and liabilities assumed in the Knowles acquisition, the Company provided for additional accrued liabilities and other liabilities amounting to
$2,101,000 and $1,214,000, respectively, which resulted in a corresponding increase of $3,315,000 in goodwill in the claims consulting segment.

In
connection with the acquisition of the minority interest of a Knowles subsidiary, the Company issued a note payable amounting to $90,000 which increased goodwill in the claims consulting segment.

The following table provides additional cash flow information:



|                  |  |                    |       |                    |   |    
|----------------- |  | ------------------ | ----- | ------------------ | - | ---
|                  |  | Nine months ended 
|In thousands      |  | September 30, 2007 |       | September 30, 2006
|Interest paid     |  | $                  | 902   |                    | $ | 513
|                  |  |                    |       |                    |   |    
|Income taxes paid |  | $                  | 1,327 |                    | $ | 303
|                  |  |                    |       |                    |   |    

Note 12Equity in Earnings of Affiliates

Stanley Baker Hill, LLC

Equity in earnings of affiliates reflects ownership by the Company of 33.33% of the
members equity of Stanley Baker Hill, LLC (SBH). SBH is a joint venture formed in February 2004 between Stanley Consultants, Inc., Michael Baker, Jr. Inc., and Hill.

SBH has a contract for an indefinite delivery and indefinite quantity for construction management and general architect-engineer services for facilities in Iraq with the U.S. Army Corps of Engineers.

At September 30, 2007 and December 30, 2006, the Company reported receivables totaling $2,055,000 and $691,000, respectively, from SBH for work performed by
the Company as a subcontractor to SBH. Such amounts were payable in accordance with the subcontract agreement between the Company and SBH.

Revenue from
SBH pursuant to such subcontract agreement for the three-month periods ended September 30, 2007 and September 30, 2006 was $4,788,000 and $1,255,000, respectively and for the nine-month periods ended September 30, 2007 and
September 30, 2006 was $7,925,000 and $2,600,000, respectively.



12



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##### Table of Contents

Note 13Earnings per Share

Basic earnings per common share and diluted earnings per common share are presented in accordance with SFAS No. 128, Earnings per Share. Basic earnings per common share has been computed using the
weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share incorporates the incremental shares issuable upon the assumed exercise of stock options, warrants and unit purchase options, if
dilutive. Dilutive shares were 4,342,072 shares and 1,228,709 shares for the three-month periods ended September 30, 2007 and September 30, 2006, respectively, and were 4,353,138 shares and 1,427,551 shares for the nine-month periods
ended September 30, 2007 and September 1, 2006, respectively. Certain stock options and warrants were excluded from the 2007 calculations of diluted earnings per common share because their effect was antidilutive. The total
number of such shares excluded from diluted earnings per common share was 825,978 shares and 25,000 shares for the three-month periods ended September 30, 2007 and September 30, 2006, respectively, and 1,532,436 shares and 13,600,000
shares for the nine-month periods ended September 30, 2007 and September 30, 2006, respectively. The 2,300,000 common shares, which were issued in April 2007 in connection with the 2006 earn-out provision of the merger agreement with
Arpeggio, have been included, effective January 1, 2007, in both the basic and diluted weighted average shares for the three- and nine-month periods ended September 30, 2007.

Note 14Share-Based Compensation

At September 30, 2007, the Company had 865,000 options outstanding with a
weighted average exercise price of $7.60. During the nine months ended September 30, 2007, the Company granted 905,000 options, which vest over a five-year period, with a weighted average exercise price of $7.66 and a contractual life of seven
years. The aggregate fair value of the options was $2,725,000 calculated using the Black-Scholes valuation model. The weighted average assumptions used to calculate the fair value were: expected life  five years; volatility  37.1% and
risk free interest rate  4.47%. During 2007, options for 65,000 shares with a weighted average exercise price of $7.60 were forfeited.

The Company
recognized share-based compensation expense in selling, general and administrative expenses in the Consolidated Statement of Earnings totaling $155,000 for the three-month period ended September 30, 2007 and $318,000 for the nine-month period
ended September 30, 2007.

On February 28, 2007, the Board of Directors approved for future issuance 340,000 shares of restricted common stock to
certain of its employees. Such shares will be issued at the fair market value on the date of grant and will vest over a period of five years from the date of grant. Upon issuance, the Company will record compensation expense ratably over five years.

Note 15Warrants and Units

At September 30,
2007, the Company had 12,423,628 Redeemable Common Stock Purchase Warrants (the Warrants) issued and outstanding. Each Warrant entitles the holder to purchase from the Company one share of common stock at an exercise price of $5.00
commencing on June 28, 2006 (the completion of the Hill and Arpeggio merger) and expiring on June 23, 2008 (four years from the effective date of Arpeggios Initial Public Offering). The Warrants are redeemable at a price of $.01 per
Warrant upon 30 days notice after the Warrants become exercisable, only in the event that the last sale price of the common stock is at least $8.50 per share for any 20 trading days within a 30 trading day period, ending on the third day prior to
the date on which notice of redemption is given. On October 23, 2007, the Company notified the warrant holders of its intention to redeem the warrants on November 23, 2007. During the nine-months ended September 30, 2007, holders
exercised 1,176,372 warrants and the Company received proceeds of $5,881,860. See Note 20.



13



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##### Table of Contents

In connection with its Initial Public Offering, Arpeggio issued an option for $100 to the representative of the
underwriters to purchase 300,000 Units at an exercise price of $9.90 per Unit, although the Units may be exercised on a cashless basis. Each Unit consists of one share of the Companys common stock and warrants to purchase two shares of the
Companys common stock at an exercise price of $6.25 per share. The option expires in June 2009. See Note 20.

Note 16Income Taxes

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxesan interpretation of FASB Statement No. 109 (FIN 48), which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. The Company adopted the provisions
of FIN 48 on December 31, 2006, the first day of our fiscal year. As a result of the implementation of FIN 48, the Company has analyzed filing positions in all of the federal, state and foreign filing jurisdictions where it is required to file
income tax returns, as well as all open years in those jurisdictions. In this regard, an uncertain tax position represents the Companys expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax
return, that has not been reflected in measuring income tax expense for financial reporting purposes. As a result of this review, the Company concluded that at this time there are no uncertain tax positions which would require a cumulative effect
adjustment to retained earnings.

The Company files income tax returns in the U.S. federal jurisdiction and in various states and foreign jurisdictions. As
a result of its acquisition of Knowles, the Company has an ongoing audit with Inland Revenue for two Knowles affiliates for the years ended in 2000 through 2005. The Company generally is no longer subject to U.S. federal, state or foreign
examinations by tax authorities for tax years prior to 2004.

The Companys policy is to record income tax related interest and penalties in income
tax expense. At September 30, 2007, the Company had accrued $2.3 million for potential interest and penalties related to uncertain tax positions.

Note 17Business Segment Information

The Companys business segments reflect how executive management makes resource decisions
and assesses its performance. The Company bases these decisions on the type of services provided (Project Management and Construction Claims services) and secondarily by their geography (Americas, Europe, the Middle East and Asia/Pacific).

The Project Management business segment provides extensive construction and project management services to construction owners worldwide. Such services
include program management, project management, construction management, project management oversight, staff augmentation, management consulting, and estimating and cost management services.

The Construction Claims business segment provides such services as claims consulting, litigation support, expert witness testimony, cost and damages assessment, delay
and disruption analysis, lender advisory, and adjudication services to clients worldwide.

The Company evaluates the performance of its segments primarily
on operating profit before corporate overhead allocations and income taxes.



14



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##### Table of Contents

The following tables reflect the required disclosures for the Companys reportable segments for the three- and
nine-month periods ended September 30, 2007 and September 30, 2006 (in thousands):

Three Months Ended:

Revenue:



|                    |  |                    |        |                   |   |       
|------------------- |  | ------------------ | ------ | ----------------- | - | ------
|                    |  | Three months ended
|                    |  | September 30,2007  |        | September 30,2006
|Project Management  |  | $                  | 51,748 |                   | $ | 40,457
|Construction Claims |  |                    | 20,429 |                   |   | 9,409 
|                    |  |                    |        |                   |   |       
|Total               |  | $                  | 72,177 |                   | $ | 49,866
|                    |  |                    |        |                   |   |       

Operating Profit:



|                                                           |  |                    |        |   |                   |   |        |  
|---------------------------------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------ | -
|                                                           |  | Three months ended |       
|                                                           |  | September 30,2007  |        |   | September 30,2006 |  
|Project Management before equity in earnings of affiliates |  | $                  | 6,286  |   |                   | $ | 4,531  |  
|Equity in earnings of affiliates                           |  |                    | 875    |   |                   |   | 331    |  
|                                                           |  |                    |        |   |                   |   |        |  
|                                                           |  |                    | 7,161  |   |                   |   | 4,862  |  
|Construction Claims                                        |  |                    | 1,773  |   |                   |   | 702    |  
|Corporate Expenses                                         |  |                    | (3,797 | ) |                   |   | (1,870 | )
|                                                           |  |                    |        |   |                   |   |        |  
|Total                                                      |  | $                  | 5,137  |   |                   | $ | 3,694  |  
|                                                           |  |                    |        |   |                   |   |        |  

Depreciation and Amortization Expense:



|                    |  |                    |       |                   |   |    
|------------------- |  | ------------------ | ----- | ----------------- | - | ---
|                    |  | Three months ended
|                    |  | September 30,2007  |       | September 30,2006
|Project Management  |  | $                  | 407   |                   | $ | 156
|Construction Claims |  |                    | 915   |                   |   | 192
|                    |  |                    |       |                   |   |    
|Subtotal segments   |  |                    | 1,322 |                   |   | 348
|Corporate           |  |                    | 93    |                   |   | 62 
|                    |  |                    |       |                   |   |    
|Total               |  | $                  | 1,415 |                   | $ | 410
|                    |  |                    |       |                   |   |    



15



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##### Table of Contents

Revenue by Geographic Region:



|               |  |                    |        |                   |   |       
|-------------- |  | ------------------ | ------ | ----------------- | - | ------
|               |  | Three months ended
|               |  | September 30,2007  |        | September 30,2006
|Americas       |  | $                  | 36,214 |                   | $ | 23,415
|Europe         |  |                    | 17,028 |                   |   | 11,307
|Middle East    |  |                    | 16,763 |                   |   | 15,144
|Asia / Pacific |  |                    | 2,172  |                   |   |      
|               |  |                    |        |                   |   |       
|Total          |  | $                  | 72,177 |                   | $ | 49,866
|               |  |                    |        |                   |   |       

Revenue by Client Type:



|                                  |  |                    |        |                   |   |       
|--------------------------------- |  | ------------------ | ------ | ----------------- | - | ------
|                                  |  | Three months ended
|                                  |  | September 30,2007  |        | September 30,2006
|U.S. federal government           |  | $                  | 13,898 |                   | $ | 4,394 
|State, local and quasi-government |  |                    | 19,692 |                   |   | 14,321
|Foreign government                |  |                    | 8,674  |                   |   | 8,547 
|Private sector                    |  |                    | 29,913 |                   |   | 22,604
|                                  |  |                    |        |                   |   |       
|Total                             |  | $                  | 72,177 |                   | $ | 49,866
|                                  |  |                    |        |                   |   |       

Nine Months Ended:

Revenue:



|                    |  |                   |         |                   |   |        
|------------------- |  | ----------------- | ------- | ----------------- | - | -------
|                    |  | Nine months ended
|                    |  | September 30,2007 |         | September 30,2006
|Project Management  |  | $                 | 144,123 |                   | $ | 111,317
|Construction Claims |  |                   | 59,929  |                   |   | 18,839 
|                    |  |                   |         |                   |   |        
|Total               |  | $                 | 204,052 |                   | $ | 130,156
|                    |  |                   |         |                   |   |        



16



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##### Table of Contents

Operating Profit:



|                                                           |  |                   |         |   |                   |   |        |  
|---------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------ | -
|                                                           |  | Nine months ended |        
|                                                           |  | September 30,2007 |         |   | September 30,2006 |  
|Project Management before equity in earnings of affiliates |  | $                 | 16,076  |   |                   | $ | 12,385 |  
|Equity in earnings of affiliates                           |  |                   | 1,430   |   |                   |   | 533    |  
|                                                           |  |                   |         |   |                   |   |        |  
|                                                           |  |                   | 17,506  |   |                   |   | 12,918 |  
|Construction Claims                                        |  |                   | 5,649   |   |                   |   | 1,881  |  
|Corporate Expenses                                         |  |                   | (10,536 | ) |                   |   | (6,816 | )
|                                                           |  |                   |         |   |                   |   |        |  
|Total                                                      |  | $                 | 12,619  |   |                   | $ | 7,983  |  
|                                                           |  |                   |         |   |                   |   |        |  

Depreciation and Amortization Expense:



|                    |  |                   |       |                   |   |      
|------------------- |  | ----------------- | ----- | ----------------- | - | -----
|                    |  | Nine months ended
|                    |  | September 30,2007 |       | September 30,2006
|Project Management  |  | $                 | 696   |                   | $ | 504  
|Construction Claims |  |                   | 1,937 |                   |   | 357  
|                    |  |                   |       |                   |   |      
|Subtotal segments   |  |                   | 2,633 |                   |   | 861  
|Corporate           |  |                   | 236   |                   |   | 171  
|                    |  |                   |       |                   |   |      
|Total               |  | $                 | 2,869 |                   | $ | 1,032
|                    |  |                   |       |                   |   |      

Revenue by Geographic Region:



|               |  |                   |         |                   |   |        
|-------------- |  | ----------------- | ------- | ----------------- | - | -------
|               |  | Nine months ended
|               |  | September 30,2007 |         | September 30,2006
|Americas       |  | $                 | 96,789  |                   | $ | 65,945 
|Europe         |  |                   | 51,213  |                   |   | 22,105 
|Middle East    |  |                   | 50,220  |                   |   | 42,106 
|Asia / Pacific |  |                   | 5,830   |                   |   |       
|               |  |                   |         |                   |   |        
|Total          |  | $                 | 204,052 |                   | $ | 130,156
|               |  |                   |         |                   |   |        



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Revenue By Client Type:



|                                                           |  |                   |         |                   |   |        
|---------------------------------------------------------- |  | ----------------- | ------- | ----------------- | - | -------
|                                                           |  | Nine months ended
|                                                           |  | September 30,2007 |         | September 30,2006
|U.S. federal government                                    |  | $                 | 23,454  |                   | $ | 12,499 
|State, local and quasi-government                          |  |                   | 62,646  |                   |   | 41,305 
|Foreign government                                         |  |                   | 27,847  |                   |   | 21,343 
|Private sector                                             |  |                   | 90,105  |                   |   | 55,009 
|                                                           |  |                   |         |                   |   |        
|Total                                                      |  | $                 | 204,052 |                   | $ | 130,156
|                                                           |  |                   |         |                   |   |        
|                                                           |  |                  
|Total Assets by Geographic Region:                         |  |                   |         |                   |   |        
|                                                           |  |                  
|                                                           |  | September 30,2007 |         | December 30,2006 
|Americas                                                   |  | $                 | 51,804  |                   | $ | 38,109 
|Europe                                                     |  |                   | 61,546  |                   |   | 53,609 
|Middle East                                                |  |                   | 28,990  |                   |   | 24,133 
|Asia / Pacific                                             |  |                   | 3,314   |                   |   | 3,142  
|                                                           |  |                   |         |                   |   |        
|Total                                                      |  | $                 | 145,654 |                   | $ | 118,993
|                                                           |  |                   |         |                   |   |        
|                                                           |  |                  
|Property, Plant and Equipment, Net by Geographic Location: |  |                   |         |                   |   |        
|                                                           |  |                  
|                                                           |  | September 30,2007 |         | December 30,2006 
|Americas                                                   |  | $                 | 3,207   |                   | $ | 1,911  
|Europe                                                     |  |                   | 1,622   |                   |   | 2,264  
|Middle East                                                |  |                   | 1,084   |                   |   | 1,100  
|Asia / Pacific                                             |  |                   | 232     |                   |   | 240    
|                                                           |  |                   |         |                   |   |        
|Total                                                      |  | $                 | 6,145   |                   | $ | 5,515  
|                                                           |  |                   |         |                   |   |        

Note 18Concentrations

The Company had one client, the City of New York, that accounted for 12% of total revenue for the three months ended September 30, 2007, and two clients, the City of New York and Nakheel Corporation, that
collectively accounted for 28% of total revenue for the three months ended September 30, 2006 and one client, Nakheel Corporation, that accounted for 14% of RLRE for the three months ended September 30, 2006.

The Company had one client, the City of New York, that accounted for 16% of total revenue and one client, Nakheel Corporation, that accounted for 10% of RLRE for the
nine months ended September 30, 2007, and two clients, the City of New York and Nakheel Corporation, that collectively accounted for 31% of total revenue and one client, Nakheel Corporation that accounted for 16% of RLRE for the nine months
ended September 30, 2006.

None of the Companys clients accounted for 10% or more of accounts receivable as of September 30, 2007. One
client, the City of New York, accounted for 10% of accounts receivable as of December 30, 2006.



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The Company has several contracts with U.S. federal government agencies that account for 19% and 9% of total revenue
during the three-month period ended September 30, 2007 and September 30, 2006, respectively, and 12% and 10% of total revenue during nine-month period ended September 30, 2007 and September 30, 2006, respectively.

Note 19Commitments and Contingencies

Litigation

On September 23, 1996, William Hughes General Contractors, Inc. (Hughes) filed a complaint in the Superior Court of New Jersey, Law
Division, Gloucester County, against the Monroe Township Board of Education, the Company and other parties, alleging breach of contract and other causes of action in connection with its performance of a construction project for Monroe Township,
seeking in excess of $3,500,000 in damages. Monroe Township, which had terminated Hughes from the construction project prior to the commencement of the litigation on the basis of Hughes performance, made a cross claim against the Company and
other parties for contribution and indemnification. Monroe Township is seeking approximately $89,000 in damages from the Company, in addition to an indemnification for Hughes claims. In relation to the Hughes claims, a claim was made against
the Company by Fidelity and Deposit Company of Maryland (F&D). F&D is claiming damages in the range of $425,000 to $470,000. The F&D claim is being defended by the New Jersey Professional Liability Insurance Guarantee
Association (NJPLIGA) and losses are covered up to $300,000. The Company believes that the claims of Hughes, Monroe Township and F&D are without merit.

On September 22, 1999, Wartsila NSD North America, Inc. filed a complaint against the Company in the United States District Court for the District of New Jersey. Wartsila alleged negligence, breach of contract
and fraud against the Company in connection with plaintiffs hiring of a former Company employee and sought damages in excess of $7,300,000. A jury verdict was rendered on March 6, 2006. The jury found that the Company was negligent and
breached the contract with plaintiff but that the Company did not commit fraud. The jury awarded damages of approximately $2,000,000. The Company filed a Motion to Mold the Verdict and to Enter Judgment consistent with the parties contract
which contains a limitation of liability clause which limits the Companys liability, absent fraud, to direct damages. In connection with the Arpeggio and Hill merger described in Note 1, stockholders of old Hill had escrowed a total of
1,450,000 shares of the Companys stock to satisfy non-tax indemnification claims by the Company arising out of this and certain other matters (see below). Liability in this matter, if any, will ultimately be satisfied from such escrowed shares
under the terms of an escrow agreement. On June 28, 2006 the Court denied the Companys motion and the Company subsequently filed a Notice of Appeal on July 26, 2006 with the Third Circuit Court of Appeals. The Company has posted a
letter of credit securing the judgment plus pre- and post-judgment interest in the amount of $3,350,000 as of September 30, 2007. At December 30, 2006, a previously posted letter of credit was secured by cash collateral which was included
in cash-restricted on the Companys Consolidated Balance Sheet. The Company also recorded an accrued liability in the amount of $3,350,000 which is included in Accrued liabilities on the Companys Consolidated
Balance Sheet at September 30, 2007 and December 30, 2006. From the shares held in escrow, 451,665 shares representing $3,350,000 have been allocated at September 30, 2007 for satisfaction of the judgment and will be placed in
treasury stock in the event the judgment is ultimately paid.

On May 28, 2004, Sims Group, Inc. (Sims) filed a Demand for Arbitration with
the American Arbitration Association alleging breach of contract against the Company. The plaintiff was a subcontractor to the Company and sought the alleged contract balance owed of $1,300,000. The Company filed a counterclaim on July 2, 2004
alleging fraud and breach of contract. This matter was arbitrated during April 2006 and an arbitration award was issued on June 28, 2006 awarding Sims $1,250,000 plus costs of $33,000. The Company had accrued a liability of $772,000 related to
this matter prior to September 30, 2005. In connection with the Arpeggio and Hill merger described in Note 1 to the Consolidated Financial Statements, stockholders of old Hill had escrowed 1,450,000 shares of the Companys stock to satisfy
non-tax indemnification claims by the Company arising out of this and certain other matters. Liability in this matter in excess of amounts accrued as of



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September 30, 2005 was to be satisfied from such escrowed shares. In October 2006, the Company made a payment of approximately $1,300,000 to claimant to
satisfy this matter in full. From the shares held in escrow, 69,540 shares representing $515,777 were released to the Company on July 16, 2007 for satisfaction of the judgment amount in excess of the amount accrued and have been placed in
treasury.

On May 23, 2007 Hill filed a Demand for Arbitration with the American Arbitration Association alleging breach of contract, breach of the
covenant of good faith and fair dealing, unjust enrichment and/or fraudulent inducement against Bachmann Springs Holdings, LLC and Thomas Bachmann (hereinafter, collectively Bachmann). Hill was hired by Bachmann to provide professional
support services and is demanding payment of invoices in the amount of $634,904. On October 17, 2007, Bachmann filed a counterclaim with the American Arbitration Association alleging fraud and breach of contract and seeking damages in the
amount of $8,600,000. The Company believes that Bachmanns counterclaim is without merit.

General Litigation

From time to time, the Company is a defendant or plaintiff in various legal actions which arise in the normal course of business. As such the Company is required to
assess the likelihood of any adverse outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of the provision required for these commitments and contingencies, if any, which would be charged to
earnings, is made after careful analysis of each matter. The provision may change in the future due to new developments or changes in circumstances. Changes in the provision could increase or decrease the Companys earnings in the period the
changes are made. In the opinion of management, after consultation with legal counsel, the ultimate resolution of these matters will not have a material adverse effect on the Companys financial condition or results of operations.

Note 20Subsequent Events

Notes Payable

On October 15, 2007, the Company amended its credit facility with LaSalle Bank N.A. increasing the secured revolving credit facility from $25,000,000 to
$35,000,000; increasing the letter of credit subfacility from $10,000,000 to $20,000,000; extending the term of the facility by one year to January 1, 2011; and increasing the amount of the minimum net worth that the Company covenants to
maintain from $35,000,000 to $45,000,000.

Warrants

From October 1, 2007 through November 2, 2007, the Company received proceeds amounting to $13,246,780 upon the exercise of warrants to purchase 2,649,356 shares of its common stock at an exercise price of $5.00 per share.

Representatives Units

On October 22, 2007,
holders exercised on a cashless basis 288,000 unit purchase options and the underlying warrants resulting in the issuance of 208,390 shares of the Companys common stock. These options were part of 300,000 unit purchase options that were
granted to the representatives of the underwriters in connection with the initial public offering of Arpeggio in June 2004. There remain outstanding 12,000 unit purchase options.



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

We make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We use forward-looking words such as may, expect, anticipate,
contemplate, believe, estimate, intends, and continue or similar words. You should read statements that contain these words carefully because they discuss future expectations, contain
projections of future results of operations or financial condition or state other forward-looking information However, there may be events in the future that we are not able to predict accurately or over which we have no control.
Examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by us in such forward-looking statements include those described in Part I, Item 1A Risk Factors of our
2006 Form 10-K. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of hereof. All forward-looking statements included herein attributable to us are expressly qualified in their entirety
by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, we undertake no obligations to update these forward-looking statements.

We were incorporated in Delaware in 2004, under the name Arpeggio Acquisition Corporation (Arpeggio), as a specified purpose acquisition
corporation. On June 28, 2006, we merged with Hill International, Inc. (old Hill), a Delaware corporation, and Arpeggio was the surviving entity of the merger. Old Hill was founded in 1976 by our current Chairman and Chief Executive
Officer, Irvin E. Richter. Following the merger, we changed our name to Hill International, Inc. In this report, the terms Company, we, or Hill mean Hill International, Inc. and its consolidated subsidiaries. All
historical statements relate to the business of old Hill and its consolidated subsidiaries.

We provide fee-based services to clients
worldwide, but primarily in the United States, Europe, the Middle East and Asia/Pacific. Our clients include the United States and other national governments and their agencies, state and local governments and their agencies and the private sector.
Hill is organized into two key operating segments: the Project Management Group and the Construction Claims Group.

Our Project Management
Group provides fee-based or agency construction management services to our clients leveraging our construction expertise to identify potential trouble, difficulties and sources of delay on a construction project before they develop into
costly problems. Our Construction Claims Group, advises clients in order to assist them in preventing or resolving claims and disputes based upon schedule delays, cost overruns and other problems on major construction projects worldwide.

We believe we are a world leader in both the project management and construction claims consulting businesses. We are a global company with over 1,500
employees operating out of nearly 70 offices in more than 25 countries.

We derive our revenues from fees for professional services. As a
service company we are labor intensive rather than capital intensive. Our revenue is driven by our ability to attract and retain qualified and productive employees, identify business opportunities, secure new and renew existing client contracts,
provide outstanding services to our clients and execute projects successfully. Our income from operations is derived from our ability to generate revenue and collect cash under our contracts in excess of direct labor and other direct costs of
executing the projects, subcontractors and other reimbursable costs and selling, general and administrative costs.

We believe there are
high barriers to entry for new competitors, particularly in the project management sector. We compete for business based on reputation and past experience, including client requirements for substantial similar project and claims experience of the
firm. We have developed significant long-standing relationships which bring us repeat business and would be very difficult to replicate. We have an excellent reputation for developing and rewarding employees, which allows us to attract and retain
superior professionals.



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Critical Accounting Policies

The Companys interim financial statements were prepared in accordance with generally accepted accounting principles, which require management to make subjective decisions, assessments and estimates about the
effect of matters that are inherently uncertain. As the number of variables and assumptions affecting the judgment increases, such judgments become even more subjective. While management believes its assumptions are reasonable and appropriate,
actual results may be materially different than estimated. The critical accounting estimates and assumptions identified in the Companys 2006 Annual Report on Form 10-K filed March 30, 2007 with the Securities and Exchange Commission have
not materially changed.

Commencing in 2007, we changed our reporting periods to coincide with the end of each calendar quarter. Prior to
2007, we utilized a 52-53 week fiscal year ending on the Saturday closest to December 31. The difference resulting from this change in reporting periods for the three- and nine-month periods ended September 30, 2007 is not significant.

Three Months Ended September 30, 2007 Compared to

Three Months Ended September 30, 2006

Results of Operations

Revenue



|                    |  |                    |        |   |                   |   |   |        |        |  |       |   |  |   |        |  |       |  
|------------------- |  | ------------------ | ------ | - | ----------------- | - | - | ------ | ------ |  | ----- | - |  | - | ------ |  | ----- | -
|                    |  | Three months ended |       
|                    |  | September 30,2007  |        |   | September 30,2006 |   |   | Change |       
|(in thousands)      |  | $                  |        | % |                   |   | $ |        | %      |  |       | $ |  | % |       
|Project Management  |  | $                  | 51,748 |   | 71.7              | % |   | $      | 40,457 |  | 81.1  | % |  | $ | 11,291 |  | 27.9  | %
|Construction Claims |  |                    | 20,429 |   | 28.3              | % |   |        | 9,409  |  | 18.9  | % |  |   | 11,020 |  | 117.1 | %
|                    |  |                    |        |   |                   |   |   |        |        |  |       |   |  |   |        |  |       |  
|Total               |  | $                  | 72,177 |   | 100.0             | % |   | $      | 49,866 |  | 100.0 | % |  | $ | 22,311 |  | 44.7  | %
|                    |  |                    |        |   |                   |   |   |        |        |  |       |   |  |   |        |  |       |  

The increase in project management revenue consists of a $10,900,000 increase in domestic project
management revenue and a $391,000 increase in foreign project management revenue. The increase in domestic project management revenue was primarily due to a $4,041,000 increase in our New York City office where several projects began during 2006 and
2007. Of this increase, $2,643,000 was for use of subcontractors. We use subcontractors for a variety of reasons, including providing at-risk construction services on contracts where such work is required by a client (generally known as
CM/Build contracts) since we do not provide such services. The New York City office projects are principally CM/Build contracts which require more subcontracting work. An increase in revenue of $3,532,000 for the Iraq projects and
$3,924,000 in revenue for KJM & Associates, Ltd. (KJM) (acquired effective May 1, 2007) also contributed to the increase in domestic project management revenue. The increase in foreign project management revenue was due to
a $779,000 increase generated in the Middle East and a $388,000 decrease generated in Europe. Middle East revenues continue to increase in the United Arab Emirates as well as an expansion into Saudi Arabia. In Europe, the decrease primarily
consisted of lower use of sub-consultants which was offset by lower reimbursable expenses.



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The increase in construction claims revenue is due to a $10,599,000 increase in foreign construction
claims revenue and an increase of $421,000 in domestic construction claims revenue. The increase in foreign construction claims revenue consists of $7,746,000 generated in Europe and Asia/Pacific, primarily as a result of the acquisition of Knowles
in August 2006, a $2,013,000 increase in our London office (excluding Knowles) and an increase of $840,000 in the Middle East, primarily due to the Knowles acquisition. The Knowles operations in the U.S. and Middle East were consolidated into Hill
effective January 1, 2007, and the integration of the other Knowles operations is now substantially complete. The increase in domestic claims revenue of $421,000 is principally attributable to an increase of $967,000 in our New Jersey office
and an increase of $214,000 in our Washington DC office. In addition, the West Cost offices (San Francisco and Los Angeles) had a decrease of $807,000 due to the wind down of two large claim assignments.

Reimbursable Expenses



|                    |  |                    |        |   |                   |   |   |        |        |  |       |   |  |   |       |  |       |  
|------------------- |  | ------------------ | ------ | - | ----------------- | - | - | ------ | ------ |  | ----- | - |  | - | ----- |  | ----- | -
|                    |  | Three months ended |       
|                    |  | September 30,2007  |        |   | September 30,2006 |   |   | Change |       
|( in thousands)     |  | $                  |        | % |                   |   | $ |        | %      |  |       | $ |  | % |      
|Project Management  |  | $                  | 16,722 |   | 80.7              | % |   | $      | 14,893 |  | 94.0  | % |  | $ | 1,829 |  | 12.3  | %
|Construction Claims |  |                    | 3,991  |   | 19.3              | % |   |        | 944    |  | 6.0   | % |  |   | 3,047 |  | 322.8 | %
|                    |  |                    |        |   |                   |   |   |        |        |  |       |   |  |   |       |  |       |  
|Total               |  | $                  | 20,713 |   | 100.0             | % |   | $      | 15,837 |  | 100.0 | % |  | $ | 4,876 |  | 30.8  | %
|                    |  |                    |        |   |                   |   |   |        |        |  |       |   |  |   |       |  |       |  

Reimbursable expenses consist of amounts paid to subcontractors and other third parties and travel and other job
related expenses that are contractually reimbursable from clients. The increase in project management reimbursable expense was primarily due to a $2,643,000 increase in reimbursable subcontractors fees in our New York City office, partially
offset by lower use of subcontractors overseas, as described above. The amount and timing of reimbursable expenses is dependent on the work performed, however we believe that the amount of reimbursable expenses in 2007 is indicative of the amount of
expenditures relative to revenues that we would expect in future periods. The increase in construction claims reimbursable expenses is due to the expansion of our business in Europe and Asia/Pacific in the amount of $1,896,000 primarily due to
Knowles and an increase of $1,058,000 in our London office (excluding Knowles).

Revenue Less Reimbursable Expenses



|                    |  |                    |        |   |                   |   |   |        |        |  |       |   |  |   |        |  |      |  
|------------------- |  | ------------------ | ------ | - | ----------------- | - | - | ------ | ------ |  | ----- | - |  | - | ------ |  | ---- | -
|                    |  | Three months ended |       
|                    |  | September 30,2007  |        |   | September 30,2006 |   |   | Change |       
|(in thousands)      |  | $                  |        | % |                   |   | $ |        | %      |  |       | $ |  | % |       
|Project Management  |  | $                  | 35,026 |   | 68.1              | % |   | $      | 25,564 |  | 75.1  | % |  | $ | 9,462  |  | 37.0 | %
|Construction Claims |  |                    | 16,438 |   | 31.9              | % |   |        | 8,465  |  | 24.9  | % |  |   | 7,973  |  | 94.2 | %
|                    |  |                    |        |   |                   |   |   |        |        |  |       |   |  |   |        |  |      |  
|Total               |  | $                  | 51,464 |   | 100.0             | % |   | $      | 34,029 |  | 100.0 | % |  | $ | 17,435 |  | 51.2 | %
|                    |  |                    |        |   |                   |   |   |        |        |  |       |   |  |   |        |  |      |  

Project management RLRE increased at a greater rate than project management revenues because reimbursable expenses
did not increase proportionately with revenues. Construction claims RLRE grew in Europe and Asia/Pacific in the amount of $5,849,000 primarily due to the acquisition of Knowles. Claims RLRE growth did not keep pace with the increase in revenue due
to the increased use of subcontractors and higher other reimbursable expenses related to the construction claims business in 2007.



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A significant trend in the distribution of our RLRE in recent years has been the increase of RLRE attributable to the
Middle East. Growth in our RLRE in the Middle East has been strong because there has been a significant increase in construction activity in a number of the countries in the Middle East (including the United Arab Emirates, Qatar, Kuwait, Bahrain,
Oman and Saudi Arabia) where we do business. Iraq reconstruction efforts funded by the United States government have led to additional work for us. The recent acquisition of KJM has provided our Project Management Group with new and expanded
geographic coverage and opportunities in the West and Southwest United States.

We measure the performance of many of our key operating metrics as a
percentage of RLRE, as we believe that this is a better measure of operating performance than total revenue. Throughout this discussion we have used RLRE as the denominator in many of our ratios.

Direct Expenses



|                    |  |                    |        |   |       |   |      |                   |   |   |      |        |  |        |      |  |      |   |  |   |       |  |      |  
|------------------- |  | ------------------ | ------ | - | ----- | - | ---- | ----------------- | - | - | ---- | ------ |  | ------ | ---- |  | ---- | - |  | - | ----- |  | ---- | -
|                    |  | Three months ended |       
|                    |  | September 30,2007  |        |   | % of  |   |      | September 30,2006 |   |   | % of |        |  | Change |     
|(in thousands)      |  | $                  |        | % |       |   | RLRE |                   |   | $ |      | %      |  |        | RLRE |  |      | $ |  | % |      
|Project Management  |  | $                  | 19,522 |   | 72.7  | % |      | 55.7              | % |   | $    | 14,736 |  | 78.5   | %    |  | 57.6 | % |  | $ | 4,786 |  | 32.5 | %
|Construction Claims |  |                    | 7,345  |   | 27.3  | % |      | 44.7              | % |   |      | 4,038  |  | 21.5   | %    |  | 47.7 | % |  |   | 3,307 |  | 81.9 | %
|                    |  |                    |        |   |       |   |      |                   |   |   |      |        |  |        |      |  |      |   |  |   |       |  |      |  
|Total               |  | $                  | 26,867 |   | 100.0 | % |      | 52.2              | % |   | $    | 18,774 |  | 100.0  | %    |  | 55.2 | % |  | $ | 8,093 |  | 43.1 | %
|                    |  |                    |        |   |       |   |      |                   |   |   |      |        |  |        |      |  |      |   |  |   |       |  |      |  

Direct expenses consist of labor expenses for time charged directly to contracts and non-reimbursable job related
travel and out-of-pocket expenses. The project management direct expense increase is principally due to an increase in direct labor of $4,748,000 required to produce the increase in RLRE.

The construction claims direct expense increase is primarily due to an increase in direct labor of $3,312,000 required to produce the increase in RLRE.

Gross Profit



|                    |  |                    |        |   |       |   |      |                   |   |   |      |        |  |        |      |  |      |   |  |   |       |  |       |  
|------------------- |  | ------------------ | ------ | - | ----- | - | ---- | ----------------- | - | - | ---- | ------ |  | ------ | ---- |  | ---- | - |  | - | ----- |  | ----- | -
|                    |  | Three months ended |       
|                    |  | September 30,2007  |        |   | % of  |   |      | September 30,2006 |   |   | % of |        |  | Change |     
|(in thousands)      |  | $                  |        | % |       |   | RLRE |                   |   | $ |      | %      |  |        | RLRE |  |      | $ |  | % |      
|Project Management  |  | $                  | 15,504 |   | 63.0  | % |      | 44.3              | % |   | $    | 10,828 |  | 71.0   | %    |  | 42.4 | % |  | $ | 4,676 |  | 43.2  | %
|Construction Claims |  |                    | 9,093  |   | 37.0  | % |      | 55.3              | % |   |      | 4,427  |  | 29.0   | %    |  | 52.3 | % |  |   | 4,666 |  | 105.4 | %
|                    |  |                    |        |   |       |   |      |                   |   |   |      |        |  |        |      |  |      |   |  |   |       |  |       |  
|Total               |  | $                  | 24,597 |   | 100.0 | % |      | 47.8              | % |   | $    | 15,255 |  | 100.0  | %    |  | 44.8 | % |  | $ | 9,342 |  | 61.2  | %
|                    |  |                    |        |   |       |   |      |                   |   |   |      |        |  |        |      |  |      |   |  |   |       |  |       |  

The increase in gross profit is the result of the increase in RLRE for both project management and construction
claims. The construction claims increase included $2,923,000 in Europe and Asia/Pacific primarily due to the Knowles acquisition. The increase in gross profit as a percentage of RLRE is due to the higher portion of the RLRE from construction claims
(principally due to the Knowles acquisition) which has significantly higher gross profit margins than project management.



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##### Table of Contents

Selling, General and Administrative (SG&A) Expenses



|               |  |                    |         |      |                    |   |   |        |        |  |      |   |  |   |       |  |      |  
|-------------- |  | ------------------ | ------- | ---- | ------------------ | - | - | ------ | ------ |  | ---- | - |  | - | ----- |  | ---- | -
|               |  | Three months ended |        
|               |  | September 30, 2007 |         |      | September 30, 2006 |   |   | Change |       
|               |  |                    |         | % of |                    |   |   |        | % of   |  |      |   |  |   |      
|(in thousands) |  | $                  |         | RLRE |                    |   | $ |        | RLRE   |  |      | $ |  | % |      
|SG&A Expenses  |  |                    | $20,335 |      | 39.5               | % |   | $      | 11,892 |  | 34.9 | % |  | $ | 8,443 |  | 71.0 | %
|               |  |                    |         |      |                    |   |   |        |        |  |      |   |  |   |       |  |      |  

SG&A increased as a percentage of RLRE which is partially attributable to increased costs associated with
becoming a publicly held company since June 28, 2006.

The increase in selling, general and administrative expenses is primarily attributable to the
following:



| |  |  | An increase of $2,511,000 due to the selling, general and administrative expenses of Knowles operations in Europe and Asia/Pacific, excluding amortization of
intangibles.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increase in unapplied and indirect labor expense of $3,108,000 due to increases in staff required to produce and support the increase in revenue as well as a
build-up of corporate headquarters staffing in connection with becoming a public company in late June 2006. This includes $1,142,000 for KJM which was acquired effective May 1, 2007.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increase of $202,000 in insurance expense due to the increase in work volume and offices overseas.
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | An increase in legal fees of $366,000 due primarily to a $300,000 insurance reimbursement on the Wartsila case received in 2006 which lowered our legal fees in that
period.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increase of $100,000 in outside accounting and consulting fees due to increased auditing and Sarbanes-Oxley compliance requirements.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increase of $415,000 in administrative travel expense related to corporate executive and business development travel in support of the Companys strategic
growth initiatives.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increase of $311,000 in rent expense due to expansion in Europe in support of revenue and staff growth and $217,000 increase due to KJM.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increase of $437,000 in amortization expense due primarily to $236,000 of increased amortization of intangibles acquired in the Knowles acquisition and $228,000
in the KJM acquisition.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Equity in Earnings of Affiliates

Our share of the earnings of an affiliate, Stanley Baker Hill, LLC (SBH), increased $544,000, from $331,000 in the three months ended September 30, 2006 to $875,000 in the three months ended
September 30, 2007. SBH is a joint venture between Stanley Consultants, Inc. (Stanley), Michael Baker, Jr., Inc. (Baker) and us. Stanley, Baker and we each own an equal one-third interest in SBH. SBH has a contract for
an indefinite delivery and indefinite quantity for construction management and general architect-engineer services for facilities in Iraq with the U.S. Army Corps of Engineers.



25



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##### Table of Contents

Operating Profit

Operating income was $5,137,000, which increased principally due to higher RLRE and gross profit, partially offset by higher direct and SG&A expenses.

Interest Expense, net

Net interest expense increased in the three months ended September 30, 2007 as compared to the three
months ended September 30, 2006, primarily due to increased borrowings for funds required for the acquisition of KJM.

Income Taxes

The provision for income taxes increased by $253,000 in the third quarter of 2007 over the comparable prior year period principally due to higher taxable
income.

The effective tax rates for the three months ended September 30, 2007 and September 30, 2006 were 21.8% and 21.7%, respectively, which
are lower than the statutory federal income tax rate of 34% principally due to the effect of lower foreign income tax rates.

Net Income

Our net income was $3,800,000, or $0.13 per diluted share, for the three months ended September 30, 2007 based upon 29,602,000 diluted shares
outstanding as compared to net income of $2,911,000, or $0.12 per diluted share, in the three months ended September 30, 2006 based upon 23,513,000 diluted shares outstanding. The diluted income per share for 2007 was unfavorably impacted by
additional shares and warrants outstanding due to the merger of Hill and Arpeggio in June 2006. Overall profitability improved by $889,000, or 30.5%, due to an increase in RLRE and an increase in gross profit as a percent of RLRE, partially offset
by higher direct, SG&A, interest and tax expenses.



26



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##### Table of Contents

Nine Months Ended September 30, 2007 Compared to

Nine Months Ended September 30, 2006

Results of Operations

Revenue



|                    |  |                    |         |   |                    |   |   |        |         |  |       |   |  |   |        |  |       |  
|------------------- |  | ------------------ | ------- | - | ------------------ | - | - | ------ | ------- |  | ----- | - |  | - | ------ |  | ----- | -
|                    |  | Nine months ended  |        
|                    |  | September 30, 2007 |         |   | September 30, 2006 |   |   | Change |        
|(in thousands)      |  | $                  |         | % |                    |   | $ |        | %       |  |       | $ |  | % |       
|Project Management  |  | $                  | 144,123 |   | 70.6               | % |   | $      | 111,317 |  | 85.5  | % |  | $ | 32,806 |  | 29.5  | %
|Construction Claims |  |                    | 59,929  |   | 29.4               | % |   |        | 18,839  |  | 14.5  | % |  |   | 41,090 |  | 218.1 | %
|                    |  |                    |         |   |                    |   |   |        |         |  |       |   |  |   |        |  |       |  
|Total               |  | $                  | 204,052 |   | 100.0              | % |   | $      | 130,156 |  | 100.0 | % |  | $ | 73,896 |  | 56.8  | %
|                    |  |                    |         |   |                    |   |   |        |         |  |       |   |  |   |        |  |       |  

The increase in project management revenue consists of a $23,866,000 increase in domestic project management
revenue and a $8,940,000 increase in foreign project management revenue. The increase in domestic project management revenue was primarily due to a $12,717,000 increase in our New York City office where several projects began during 2007 and the
second half of 2006. Of this increase, $8,183,000 was for use of subcontractors. We use subcontractors for a variety of reasons, including providing at-risk construction services on contracts where such work is required by a client (generally known
as CM/Build contracts) since we do not provide such services. The New York City office projects are principally CM/Build contracts which require more subcontracting work. An increase in revenue of $5,492,000 for the Iraq projects and
$7,047,000 in revenue for KJM (acquired effective May 1, 2007) also contributed to the increase in domestic project management revenue. The increase in foreign project management revenue was due to a $5,331,000 increase generated in the Middle
East and a $3,609,000 increase generated in Europe.

The increase in construction claims revenue is due to a $38,409,000 increase in
foreign construction claims revenue and an increase of $2,681,000 in domestic construction claims revenue. The increase in foreign construction claims revenue consists of $30,596,000 generated in Europe and Asia/Pacific, primarily as a result of the
acquisition of Knowles in August 2006, a $5,030,000 increase in our London office (excluding Knowles) and an increase of $2,783,000 in the Middle East, primarily due to the Knowles acquisition. The Knowles operations in the U.S. and Middle East were
consolidated into Hill effective January 1, 2007, and integration of the other Knowles operations is now substantially complete. The increase in domestic claims revenue of $2,681,000 is principally attributable to an increase of $2,459,000 in
our New Jersey office resulting from new contract awards.



27



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##### Table of Contents

Reimbursable Expenses



|                    |  |                   |        |   |                   |   |   |        |        |  |       |   |  |   |        |  |       |  
|------------------- |  | ----------------- | ------ | - | ----------------- | - | - | ------ | ------ |  | ----- | - |  | - | ------ |  | ----- | -
|                    |  | Nine months ended |       
|                    |  | September 30,2007 |        |   | September 30,2006 |   |   | Change |       
|( in thousands)     |  | $                 |        | % |                   |   | $ |        | %      |  |       | $ |  | % |       
|Project Management  |  | $                 | 49,121 |   | 82.4              | % |   | $      | 41,175 |  | 96.3  | % |  | $ | 7,946  |  | 19.3  | %
|Construction Claims |  |                   | 10,481 |   | 17.6              | % |   |        | 1,603  |  | 3.7   | % |  |   | 8,878  |  | 553.8 | %
|                    |  |                   |        |   |                   |   |   |        |        |  |       |   |  |   |        |  |       |  
|Total               |  | $                 | 59,602 |   | 100.0             | % |   | $      | 42,778 |  | 100.0 | % |  | $ | 16,824 |  | 39.3  | %
|                    |  |                   |        |   |                   |   |   |        |        |  |       |   |  |   |        |  |       |  

Reimbursable expenses consist of amounts paid to subcontractors and other third parties and travel and other job
related expenses that are contractually reimbursable from clients. The increase in project management reimbursable expense was primarily due to a $8,183,000 increase in reimbursable subcontractors fees in our New York City office, partially
offset by lower use of subcontractors overseas, as described above. The amount and timing of reimbursable expenses is dependent on the work performed, however we believe that the amount of reimbursable expenses in 2007 is indicative of the amount of
expenditures relative to revenues that we would expect in future periods. The increase in construction claims reimbursable expenses is due to the expansion of our business in Europe and Asia/Pacific in the amount of $6,240,000 primarily due to
Knowles and an increase of $2,156,000 in our London office.

Revenue Less Reimbursable Expenses



|                    |  |                    |         |   |                   |   |   |        |        |  |       |   |  |   |        |  |       |  
|------------------- |  | ------------------ | ------- | - | ----------------- | - | - | ------ | ------ |  | ----- | - |  | - | ------ |  | ----- | -
|                    |  | Nine months ended  |        
|                    |  | September 30, 2007 |         |   | September 30,2006 |   |   | Change |       
|(in thousands)      |  | $                  |         | % |                   |   | $ |        | %      |  |       | $ |  | % |       
|Project Management  |  | $                  | 95,002  |   | 65.8              | % |   | $      | 70,142 |  | 80.3  | % |  | $ | 24,860 |  | 35.4  | %
|Construction Claims |  |                    | 49,448  |   | 34.2              | % |   |        | 17,236 |  | 19.7  | % |  |   | 32,212 |  | 186.9 | %
|                    |  |                    |         |   |                   |   |   |        |        |  |       |   |  |   |        |  |       |  
|Total               |  | $                  | 144,450 |   | 100.0             | % |   | $      | 87,378 |  | 100.0 | % |  | $ | 57,072 |  | 65.3  | %
|                    |  |                    |         |   |                   |   |   |        |        |  |       |   |  |   |        |  |       |  

Project management RLRE increased at a greater rate than project management revenues because reimbursable
expenses, primarily attributable to the use of subcontractors, did not increase proportionately with revenues. Construction claims RLRE grew in Europe and Asia/Pacific in the amount of $24,356,000 primarily due to the acquisition of Knowles. Claims
RLRE growth did not keep pace with the increase in revenue due to the increased use of subcontractors and higher other reimbursable expenses related to the construction claims business in 2007.

A significant trend in the distribution of our RLRE in recent years has been the increase of RLRE attributable to the Middle East. Growth in our RLRE in the Middle East
has been strong because there has been a significant increase in construction activity in a number of the countries in the Middle East (including the United Arab Emirates, Qatar, Kuwait, Bahrain and Oman) where we do business. In addition, Iraq
reconstruction efforts funded by the United States government have led to additional contracts for us. The recent acquisition of KJM has provided our Project Management Group with new and expanded geographic coverage and opportunities in the West
and Southwest United States.



28



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##### Table of Contents

We measure the performance of many of our key operating metrics as a percentage of RLRE, as we believe that this is a
better measure of operating performance than total revenue. Throughout this discussion we have used RLRE as the denominator in many of our ratios.

Direct Expenses



|                    |  |                   |        |   |       |   |      |                   |   |   |      |        |  |        |      |  |      |   |  |   |        |  |       |  
|------------------- |  | ----------------- | ------ | - | ----- | - | ---- | ----------------- | - | - | ---- | ------ |  | ------ | ---- |  | ---- | - |  | - | ------ |  | ----- | -
|                    |  | Nine months ended |       
|                    |  | September 30,2007 |        |   | % of  |   |      | September 30,2006 |   |   | % of |        |  | Change |     
|(in thousands)      |  | $                 |        | % |       |   | RLRE |                   |   | $ |      | %      |  |        | RLRE |  |      | $ |  | % |       
|Project Management  |  | $                 | 54,115 |   | 70.8  | % |      | 57.0              | % |   | $    | 41,026 |  | 84.4   | %    |  | 58.5 | % |  | $ | 13,089 |  | 31.9  | %
|Construction Claims |  |                   | 22,271 |   | 29.2  | % |      | 45.0              | % |   |      | 7,585  |  | 15.6   | %    |  | 44.0 | % |  |   | 14,686 |  | 193.6 | %
|                    |  |                   |        |   |       |   |      |                   |   |   |      |        |  |        |      |  |      |   |  |   |        |  |       |  
|Total               |  | $                 | 76,386 |   | 100.0 | % |      | 52.9              | % |   | $    | 48,611 |  | 100.0  | %    |  | 55.6 | % |  | $ | 27,775 |  | 57.1  | %
|                    |  |                   |        |   |       |   |      |                   |   |   |      |        |  |        |      |  |      |   |  |   |        |  |       |  

Direct expenses consist of labor expenses for time charged directly to contracts and non-reimbursable job related
travel and out-of-pocket expenses. The project management direct expense increase is principally due to an increase in direct labor of $12,980,000 required to produce the increase in RLRE.

The construction claims direct expense increase is primarily due to an increase in direct labor of $14,700,000 required to produce the increase in RLRE. Direct expenses
as a percentage of RLRE decreased in the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006 due to the increase in construction claims RLRE as a percentage of total RLRE. The construction claims
business typically has less direct expenses as compared to the project management business.

Gross Profit



|                    |  |                   |        |   |       |   |      |                   |   |   |      |        |  |        |      |  |      |   |  |   |        |  |       |  
|------------------- |  | ----------------- | ------ | - | ----- | - | ---- | ----------------- | - | - | ---- | ------ |  | ------ | ---- |  | ---- | - |  | - | ------ |  | ----- | -
|                    |  | Nine months ended |       
|                    |  | September 30,2007 |        |   | % of  |   |      | September 30,2006 |   |   | % of |        |  | Change |     
|(in thousands)      |  | $                 |        | % |       |   | RLRE |                   |   | $ |      | %      |  |        | RLRE |  |      | $ |  | % |       
|Project Management  |  | $                 | 40,887 |   | 60.1  | % |      | 43.0              | % |   | $    | 29,116 |  | 75.1   | %    |  | 41.5 | % |  | $ | 11,771 |  | 40.4  | %
|Construction Claims |  |                   | 27,177 |   | 39.9  | % |      | 55.0              | % |   |      | 9,651  |  | 24.9   | %    |  | 56.0 | % |  |   | 17,526 |  | 181.6 | %
|                    |  |                   |        |   |       |   |      |                   |   |   |      |        |  |        |      |  |      |   |  |   |        |  |       |  
|Total               |  | $                 | 68,064 |   | 100.0 | % |      | 47.1              | % |   | $    | 38,767 |  | 100.0  | %    |  | 44.4 | % |  | $ | 29,297 |  | 75.6  | %
|                    |  |                   |        |   |       |   |      |                   |   |   |      |        |  |        |      |  |      |   |  |   |        |  |       |  

The increase in gross profit is the result of the increase in RLRE for both project management and construction
claims. The construction claims increase included $12,462,000 in Europe and Asia/Pacific primarily due to the Knowles acquisition. The increase in gross profit as a percentage of RLRE is due to the higher portion of the RLRE from construction claims
(principally due to the Knowles acquisition) which has significantly higher gross profit margins than project management.



29



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##### Table of Contents

Selling, General and Administrative (SG&A) Expenses



|               |  |                    |        |           |                    |   |   |        |           |  |      |   |  |   |        |  |      |  
|-------------- |  | ------------------ | ------ | --------- | ------------------ | - | - | ------ | --------- |  | ---- | - |  | - | ------ |  | ---- | -
|               |  | Nine months ended  |       
|               |  | September 30, 2007 |        |           | September 30, 2006 |   |   | Change |          
|(in thousands) |  | $                  |        | % of RLRE |                    |   | $ |        | % of RLRE |  |      | $ |  | % |       
|SG&A Expenses  |  | $                  | 56,875 |           | 39.4               | % |   | $      | 31,317    |  | 35.8 | % |  | $ | 25,558 |  | 81.6 | %
|               |  |                    |        |           |                    |   |   |        |           |  |      |   |  |   |        |  |      |  

The increase in SG&A is partially attributable to increased costs associated with becoming a publicly held
company since June 28, 2006.

The increase in selling, general and administrative expenses is primarily attributable to the following:



| |  |  | An increase of $10,537,000 due to the selling, general and administrative expenses of Knowles operations in Europe and Asia/Pacific, excluding amortization of
intangibles.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increase in unapplied and indirect labor expense of $8,388,000 due to increases in staff required to produce and support the increase in revenue as well as the
build-up of corporate staffing in connection with becoming a public company. This includes $1,935,000 for KJM which was acquired effective May 1, 2007.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increase of $984,000 in outside accounting and consulting fees due to increased auditing and Sarbanes-Oxley compliance requirements principally associated with
becoming a public company in June 2006.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increase of $621,000 in insurance expense due to the increase in work volume and offices overseas.
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | An increase of $695,000 in rent expense due to expansion in Europe in support of revenue and staff growth and $337,000 increase due to KJM.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increase of $796,000 in administrative travel expense related to corporate executive and business development travel in support of the Companys strategic
growth initiatives.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increase of $811,000 in amortization expense due primarily to $697,000 of amortization of increased intangibles acquired in the Knowles acquisition, $228,000 in
the KJM acquisition and a decrease of $114,000 for other intangibles which were fully amortized by the end of 2006.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An increase in telephone expense of $325,000 due to the increase in staffing and work volume.
| | - |  | ---------------------------------------------------------------------------------------------

Equity in Earnings of Affiliates

Our share of the earnings of
an affiliate, Stanley Baker Hill, LLC (SBH), increased $897,000 from $533,000 for the nine months ended September 30, 2006 to $1,430,000 for the nine months ended September 30, 2007.

SBH is a joint venture between Stanley Consultants, Inc. (Stanley), Michael Baker, Jr., Inc. (Baker) and us. Stanley, Baker and we each own an
equal one-third interest in SBH. SBH has a contract for an indefinite delivery and indefinite quantity for construction management and general architect-engineer services for facilities in Iraq with the U.S. Army Corps of Engineers.



30



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##### Table of Contents

Operating Profit

Operating income was $12,619,000, which increased principally due to higher RLRE and gross profit, partially offset by higher direct and SG&A expenses.

Interest Expense, net

Net interest expense increased $372,000 as compared to the nine months ended
September 30, 2006, primarily due to increased borrowings for the KJM acquisition.

Income Taxes

The provision for income taxes increased by $924,000 for the nine months ended September 30, 2007 over the comparable prior year period principally due to a higher
taxable income in 2007.

The effective tax rates for the nine months ended September 30, 2007 and September 30, 2006 were 22.7% and 22.8%,
respectively which are lower than the statutory federal income tax rate of 34% principally due to the effect of lower foreign income tax rates.

Net
Income

Our net income was $9,067,000, or $0.31 per diluted share, for the nine months ended September 30, 2007 based upon 29,202,000 diluted
shares outstanding as compared to net income of $5,890,000, or $0.35 per diluted share, for the nine months ended September 30, 2006 based upon 16,931,000 diluted shares outstanding. The diluted income per share for 2007 was unfavorably
impacted by additional shares and warrants outstanding due to the merger of Hill and Arpeggio in late June 2006. Overall profitability improved by $3,177,000, or 53.9%, due to an increase in RLRE and an increase in gross profit as a percent
of RLRE, partially offset by higher direct, SG&A, interest and tax expenses.

Liquidity and Capital Resources

Historically, we have funded our business activities with cash flow from operations and borrowings under credit facilities.

Credit Facilities

On December 18, 2006, we entered into
a loan and security agreement with LaSalle Bank N.A. (LaSalle), which provides for up to $25,000,000 to be made available to us on a revolving basis (the Credit Facility). The Credit Facility provides for a letter of credit
sub-facility of $10,000,000. On October 15, 2007, the Credit Facility was amended to increase availability under the loan to $35,000,000 and to increase the sub-facility to $20,000,000. The Credit Facility is secured by all of our domestic
assets, including, without limitation, our accounts receivable, equipment, securities, financial assets and the proceeds of the foregoing, as well as by a pledge of 66.67% of the outstanding capital stock of the following subsidiaries: Hill
International S.A., Hill International (UK) Ltd., Hill International (Middle East) Ltd. and James R. Knowles (Holdings) Ltd.

The amended Credit Facility
is for a term extending until January 1, 2011. The Credit Facility provides for LIBOR loans and prime rate loans, payable at margins above either LaSalles prime rate or LIBOR based on the Companys ratio of total debt to EBITDA
ranging from 0 to 50 basis points above prime or 150 to 262.50 basis points above LIBOR. At September 30, 2007, the applicable margins were zero basis points above LaSalles prime rate and 150 basis points above LIBOR. The Credit Facility
contains covenants with respect to our minimum net worth, total debt to EBITDA ratios, fixed charge coverage ratios and billed accounts receivable to total debt ratios, as well as other financial covenants and certain restrictions on the incurrence
of debt, on the making of investments, on the payment of dividends, on transactions with affiliates and other affirmative and negative covenants and events of default customary for facilities of its type. At September 30, 2007, the Company was
in compliance with all of the financial covenants.



31



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##### Table of Contents

We currently have two additional credit facilities with international financial institutions as follows:



| |  |  | A credit facility with a bank in the Middle East for 5,000,000 AED (approximately $1,400,000 at September 30, 2007) collateralized by certain overseas
receivables. The interest rate on that facility is the Emirates Inter-Bank Offer Rate (EIBOR), which at September 30, 2007 was 5.26%, plus 2.0%. At September 30, 2007, there were no outstanding borrowings under this facility.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A credit facility with a European bank for 1,000,000 Euros (approximately $1,348,000 at September 30, 2007) secured by receivables from one specific project.
The interest rate on this facility is bank prime, which at September 30, 2007 was 7.0%, plus 2.5%. At September 30, 2007, we had borrowings of approximately $175,000 under this facility.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Additional Capital Requirements

The $8,350,000 cash component
of the purchase consideration for KJM & Associates, Ltd. was provided from our revolving credit facility in May 2007.

Due to our recent
accelerated growth, we may experience lags between our receipt of fees from our clients and our payment of our costs. In order to continue our growth, and in light of the cash obligations described above, we have entered into a credit agreement that
allows for borrowings up to $35,000,000 with LaSalle Bank N.A. However we may seek additional debt financing beyond this amount.

Sources of
Additional Capital

After providing for $7,659,000 in letters of credit, we had $27,154,000 available for borrowing under our revolving credit
facility with LaSalle Bank N.A. at October 31, 2007.

At September 30, 2007, we had warrants outstanding to purchase 12,423,628 shares of our
common stock at an exercise price of $5.00 per share. All of the warrants expire on June 23, 2008. During the nine months ended September 30, 2007, holders exercised 1,176,372 warrants and the Company received proceeds of $5,881,860. From
October 1, 2007 through November 2, 2007, the Company received proceeds amounting to $13,246,780 upon the exercise of warrants to purchase 2,649,356 shares of its common stock at an exercise price of $5.00 per share. The Warrants are
redeemable at a price of $0.01 per Warrant upon 30 days notice after the Warrants become exercisable, only in the event that the last sale price of the common stock is at least $8.50 per share for any 20 trading days within a 30 trading day period,
ending on the third day prior to the date on which notice of redemption is given. On October 23, 2007, the Company notified the warrant holders of its intention to redeem the warrants on November 23, 2007.

At September 30, 2007, the Company had an outstanding option to sell 300,000 units for a price of $9.90 per unit. Each such unit consists of one share of our common
stock and two warrants to purchase shares of our common stock at $6.25 each. On October 22, 2007, the holders exercised on a cashless basis 288,000 units and the underlying warrants resulting in the issuance of 208,390 shares of our common
stock.

If all the outstanding warrants were to be exercised, we would receive additional cash proceeds of $49,443,490, less expenses and any amounts paid
to a solicitation agent.

We cannot provide any assurance that we will find other sources of financing, or that any of the outstanding warrants or options
will be exercised.

Cash Flow Activity during the Nine Months Ended September 30, 2007

For the nine months ended September 30, 2007, our cash increased by $1,979,000 to $13,198,000. Cash provided by operations was $6,105,000, cash used in investing
activities was $7,060,000 and cash provided by financing activities was $2,208,000. We also experienced an increase in cash of $726,000 from the effect of foreign currency exchange rate fluctuations.



32



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##### Table of Contents

Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2007 was $6,105,000. Cash provided by operations is attributable to net income of $9,067,000 for the period adjusted by non-cash items included in net
income and working capital changes such as:



| |  |  | depreciation and amortization of $2,869,000;
| | - |  | --------------------------------------------



| |  |  | bad debt expense of $1,497,000;
| | - |  | -------------------------------



| |  |  | equity in earnings of affiliates of $1,430,000;
| | - |  | -----------------------------------------------



| |  |  | a deferred tax provision of $33,000; and
| | - |  | ----------------------------------------



| |  |  | stock-based compensation expense, including shares issued to certain Board members, of $388,000;
| | - |  | ------------------------------------------------------------------------------------------------

Working capital changes which increased cash provided from operations included the following:



| |  |  | increases in accounts payable and accrued expenses of $1,791,000, principally relating to increases in operating expenses due to our growth;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an increase in deferred revenue of $6,017,000 primarily due to the timing of advanced payments on projects in Europe; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | an increase in other current liabilities of $2,214,000 primarily due to the growth of business and the timing of payments relating to contracts.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Working capital changes which decreased cash provided from operations included the following:
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | an increase in accounts receivable of $14,283,000 due to increased revenue;
| | - |  | ---------------------------------------------------------------------------



| |  |  | an increase in accounts receivable - affiliates of $1,364,000 due to the timing of collections from SBH; and
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | an increase in prepaid expenses and other current assets of $1,455,000.
| | - |  | -----------------------------------------------------------------------

Investing Activities

Net cash used in investing activities was $7,060,000. We paid $8,350,000, excluding
acquisition expenses, in connection with the acquisition of KJM which provided our Project Management Group with new and expanded geographic coverage and opportunities in the West and Southwest United States. We spent approximately $2,318,000 to
purchase computers, office equipment, software and furniture and fixtures. We received $528,000 as distribution from affiliates. We also received $3,350,000 previously held as collateral for a letter of credit in connection with a legal judgment
against the Company.

Financing Activities

Net
cash provided by financing activities was $2,208,000. Due to bank increased $380,000 due to the timing of certain payments which were disbursed but not immediately funded by the bank. We made net payments on our Credit Facility of $2,811,000. We
also made payments on capital leases of $199,000 and other bank borrowings of $878,000. When some of our subsidiaries paid dividends, approximately $166,000 was distributed to the minority stockholders. We also received $5,882,000 from the exercise
of warrants.



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Recent Accounting Pronouncements

FASB Interpretation No. 157

In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We do
not expect the adoption of SFAS No. 157 to have a material impact on our financial statements.

In January 2007, the FASB issued SFAS No. 159,
The Fair Value Options for Financial Assets and Financial Liabilities. SFAS No. 159 provides a Fair Value Option under which a company may irrevocably elect fair value as the initial and subsequent measurement attribute
for certain financial assets and liabilities. This Fair Value Option will be available on a contract-by-contract basis with changes in fair value recognized in earnings as those changes occur. The effective date for SFAS No. 159 is
the beginning of each reporting entitys first fiscal year end that begins after November 15, 2007. We do not expect the adoption of SFAS No. 159 to have a material impact on our financial statements.

Quarterly Fluctuations

Our operating results vary from period to
period as a result of the timing of projects and the growth of our business. We do not believe that our business is seasonal.

Backlog

We believe a strong indicator of our future performance is our backlog of uncompleted projects under contract or awarded. The schedule below represents our backlog as
of September 30, 2007. Our backlog represents managements estimate of the amount of contracts and awards in hand that we expect to result in future revenue less reimbursable expenses (RLRE). Project management backlog is
evaluated by management, on a project-by-project basis and is reported for each period shown based upon the binding nature of the underlying contract, commitment or letter of intent, and other factors, including the economic, financial and
regulatory viability of the project and the likelihood of the contract being extended, renewed or cancelled. Construction claims backlog is based largely on managements estimates of future revenue based on known construction claims assignments
and historical results for new work. Because a significant number of construction claims may be awarded and completed within the same period, our actual construction claims revenue has historically exceeded backlog by a significant amount.

Our backlog is largely a reflection of the broader economic trends being experienced by our clients and is important to us in anticipating our operational
needs. Backlog is not a measure defined in generally accepted accounting principles, and our methodology for determining backlog may not be comparable to the methodology used by other companies in determining their backlog.

At September 30, 2007, our backlog was approximately $380,000,000 compared to approximately $294,000,000 at June 30, 2007. We estimate that approximately
$179,000,000, or 47%, of the backlog at September 30, 2007 will be recognized during the twelve months subsequent to September 30, 2007.

The
schedule below includes backlog under two categories: (1) contracts for which work authorizations have been or are expected to be received on a time and material basis, fixed-price basis and not-to-exceed projects that are well defined and
(2) contracts awarded to the company where some or all of the work has not yet been authorized. As of September 30, 2007, approximately $310,000,000 or 81%, of our backlog was in category (1) and approximately $70,000,000 or 18%, of
our backlog was in category (2). We generally do not track and therefore have not disclosed whether the public sector contracts included in our backlog are fully funded, incrementally funded, or unfunded.



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Included in category (2) of our backlog is the maximum amount of all indefinite delivery/indefinite quantity
(ID/IQ), or task order, contracts, or a lesser amount if we do not reasonably expect to be issued task orders for the maximum amount of such contracts. Also included in category (2) of our backlog is the amount of anticipated
revenues in option years beyond the base term of our contracts if we reasonably expect our clients to exercise such option years Although backlog reflects business that we consider to be firm, cancellations or scope adjustments may occur. Further,
substantially all of our contracts with our clients may be terminated at will, in which case the client would only be obligated to us for services provided through the termination date. The impact of terminations and modifications on our realization
of revenues from our backlog has not been significant. Furthermore, reductions of our backlog as a result of contract terminations and modifications may be more than offset by additions to the backlog.

We adjust backlog to reflect project cancellations, deferrals and revisions in scope and cost (both upward and downward) known at the reporting date; however, future
contract modifications or cancellations may increase or reduce backlog and future revenues.



|                         |  |               |         |   |                  |   |   |   |         |  |       |  
|------------------------ |  | ------------- | ------- | - | ---------------- | - | - | - | ------- |  | ----- | -
|                         |  | Total Backlog |         |   | 12 Month Backlog |  
|In thousands             |  | $             |         | % |                  |   | $ |   | %       | 
|As of September 30, 2007 |  |               |         |   |                  |   |   |   |         |  |       |  
|Project Management       |  | $             | 349,000 |   | 91.8             | % |   | $ | 156,000 |  | 86.7  | %
|Construction Claims      |  |               | 31,000  |   | 8.2              | % |   |   | 23,000  |  | 13.3  | %
|                         |  |               |         |   |                  |   |   |   |         |  |       |  
|Total                    |  | $             | 380,000 |   | 100.0            | % |   | $ | 179,000 |  | 100.0 | %
|                         |  |               |         |   |                  |   |   |   |         |  |       |  
|                         |  |               |         |  
|As of June 30, 2007      |  |               |         |   |                  |   |   |   |         |  |       |  
|Project Management       |  | $             | 263,000 |   | 89.5             | % |   | $ | 130,000 |  | 86.7  | %
|Construction Claims      |  |               | 31,000  |   | 10.5             | % |   |   | 20,000  |  | 13.3  | %
|                         |  |               |         |   |                  |   |   |   |         |  |       |  
|Total                    |  | $             | 294,000 |   | 100.0            | % |   | $ | 150,000 |  | 100.0 | %
|                         |  |               |         |   |                  |   |   |   |         |  |       |  
|                         |  |               |         |  
|As of December 31, 2006: |  |               |         |   |                  |   |   |   |         |  |       |  
|Project Management       |  | $             | 211,000 |   | 85.4             | % |   | $ | 103,000 |  | 79.8  | %
|Construction Claims      |  |               | 36,000  |   | 14.6             | % |   |   | 26,000  |  | 20.2  | %
|                         |  |               |         |   |                  |   |   |   |         |  |       |  
|Total                    |  | $             | 247,000 |   | 100.0            | % |   | $ | 129,000 |  | 100.0 | %
|                         |  |               |         |   |                  |   |   |   |         |  |       |  



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Refer
to the Companys Annual Report on Form 10-K for the year ended December 30, 2006 for a complete discussion of the Companys market risk. There have been no material changes to the market risk information included in the Companys
Annual Report on Form 10-K for the fiscal year ended December 30, 2006.



|Item 4. | Controls and Procedures
|------- | -----------------------

An evaluation was performed under the
supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period
covered by this quarterly report. Based on that



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evaluation, our management, including our chief executive officer and chief financial officer, concluded that, as of September 30, 2007, our disclosure
controls and procedures were effective. During the third quarter ended September 30, 2007, there were no changes in our internal control over financial reporting that materially affected, or were reasonably likely to materially affect, our
internal control over financial reporting.



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Part IIOther Information



|Item 1. | Legal Proceedings
|------- | -----------------

Litigation

On September 23, 1996, William Hughes General Contractors, Inc. (Hughes) filed a complaint in the Superior Court of New Jersey, Law Division, Gloucester
County, against the Monroe Township Board of Education, the Company and other parties, alleging breach of contract and other causes of action in connection with its performance of a construction project for Monroe Township, seeking in excess of
$3,500,000 in damages. Monroe Township, which had terminated Hughes from the construction project prior to the commencement of the litigation on the basis of Hughes performance, made a cross claim against the Company and other parties for
contribution and indemnification. Monroe Township is seeking approximately $89,000 in damages from the Company, in addition to an indemnification for Hughes claims. In relation to the Hughes claims, a claim was made against the Company by
Fidelity and Deposit Company of Maryland (F&D). F&D is claiming damages in the range of $425,000 to $470,000. The F&D claim is being defended by the New Jersey Professional Liability Insurance Guarantee Association
(NJPLIGA) and losses are covered up to $300,000. The Company believes that the claims of Hughes, Monroe Township and F&D are without merit.

On September 22, 1999, Wartsila NSD North America, Inc. filed a complaint against the Company in the United States District Court for the District of New Jersey. Wartsila alleged negligence, breach of contract and fraud against the
Company in connection with plaintiffs hiring of a former Company employee and sought damages in excess of $7,300,000. A jury verdict was rendered on March 6, 2006. The jury found that the Company was negligent and breached the contract
with plaintiff but that the Company did not commit fraud. The jury awarded damages of approximately $2,000,000. The Company filed a Motion to Mold the Verdict and to Enter Judgment consistent with the parties contract which contains a
limitation of liability clause which limits the Companys liability, absent fraud, to direct damages. In connection with the Arpeggio and Hill merger, stockholders of the pre-merger Hill International, Inc. have escrowed a total of 1,450,000
shares of the Companys stock to satisfy non-tax indemnification claims by the Company arising out of this and certain other matters (see below). Liability in this matter, if any, will ultimately be satisfied from such escrowed shares under the
terms of an escrow agreement. Following the satisfaction of its indemnification claims arising out of this matter, the Company intends to maintain any such shares as treasury stock. On June 28, 2006 the Court denied the Companys motion
and the Company subsequently filed a Notice of Appeal on July 26, 2006 with the Third Circuit Court of Appeals. The Company has posted a letter of credit securing the judgment plus pre- and post-judgment interest in the amount of $3,350,000 as
of September 30, 2007. At December 30, 2006, a previously posted letter of credit was secured by cash collateral and included in cash-restricted on the Companys Consolidated Balance Sheet. The Company also recorded a
corresponding accrued liability in the amount of $3,350,000 included in Accrued liabilities on the Companys Consolidated Balance Sheet as of September 30, 2007 and December 30, 2006. From the shares held in escrow,
451,665 shares representing $3,350,000 have been allocated at September 30, 2007 to the Company for satisfaction of the judgment and will be placed in treasury stock in the event the judgment is ultimately paid.

On May 28, 2004, Sims Group, Inc. (Sims) filed a Demand for Arbitration with the American Arbitration Association alleging breach of contract against
the Company. The plaintiff was a subcontractor to the Company and sought the alleged contract balance owed of $1,300,000. The Company filed a counterclaim on July 2, 2004 alleging fraud and breach of contract. This matter was arbitrated during
April 2006 and an arbitration award was issued on June 28, 2006 awarding Sims $1,250,000 plus costs of $33,000. The Company had accrued a



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liability of $772,000 related to this matter prior to September 30, 2005. In connection with the Arpeggio and Hill merger described in Note 1 to the
Consolidated Financial Statements, stockholders of the pre-merger Hill International, Inc. have escrowed 1,450,000 shares of the Companys stock to satisfy non-tax indemnification claims by the Company arising out of this and certain other
matters. Liability in this matter in excess of amounts accrued as of September 30, 2005 will be satisfied from such escrowed shares. In October 2006, the Company made a payment of approximately $1,300,000 to claimant to satisfy this matter in
full. From the shares held in escrow, 69,540 shares representing $515,777 have been released to the Company on July 16, 2007 for satisfaction of the judgment amount in excess of the amount accrued and have been placed in treasury.

On May 23, 2007 Hill filed a Demand for Arbitration with the American Arbitration Association alleging breach of contract, breach of the covenant of good faith
and fair dealing, unjust enrichment and/or fraudulent inducement against Bachmann Springs Holdings, LLC and Thomas Bachmann (hereinafter, collectively Bachmann). Hill was hired by Bachmann to provide professional support services and is
demanding payment of invoices in the amount of $634,904. On October 17, 2007, Bachmann filed a counterclaim with the American Arbitration Association alleging fraud and breach of contract and seeking damages in the amount of $8,600,000. The
Company believes that Bachmanns counterclaim is without merit.

General Litigation

From time to time, the Company is a defendant or plaintiff in various legal actions which arise in the normal course of business. As such the Company is required to
assess the likelihood of any adverse outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of the provision required for these commitments and contingencies, if any, which would be charged to
earnings, is made after careful analysis of each matter. The provision may change in the future due to new developments or changes in circumstances. Changes in the provision could increase or decrease the Companys earnings in the period the
changes are made. In the opinion of management, after consultation with legal counsel, the ultimate resolution of these matters will not have a material adverse effect on the Companys financial condition or results of operations.



|Item 1A. | Risk Factors
|-------- | ------------

There has been no material changes pertaining to risk
factors discussed in the Companys Annual Report on Form 10-K for the fiscal year ended December 30, 2006.



|Item 2. | Unregistered Sales of Equity Securities and Use of Funds
|------- | --------------------------------------------------------

None.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



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

None



|Item 5. | Other Information
|------- | -----------------

On November 12, 2007, in response to new
NASDAQ listing requirements that mandate that all NASDAQ listed companies become eligible to participate in the Direct Registration System for their outstanding securities, the Board of Directors adopted a resolution which amends Article
V, Section 1, of the Bylaws, to provide that shares of stock of the Company may be issued and held in either certificated or uncertificated form.



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A copy of the Amended and Restated Bylaws of the Company, reflecting the amendments adopted by the Board on
November 12, 2007, is attached hereto as Exhibit 3.2.



|Item 6. | Exhibits
|------- | --------



|3.2 | Amended and Restated Bylaws of Hill International, Inc.
|--- | -------------------------------------------------------



|31.1 | Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | ------------------------------------------------------------------------------------------------



|31.2 | Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | ------------------------------------------------------------------------------------------------



|32.1 | Certification of Irvin E. Richter, Chief Executive Officer of Hill International, Inc., pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|32.2 | Certification of John Fanelli III, Chief Financial Officer of Hill International, Inc., pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Signatures

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



|                         |  |  |  |                          |  |                                                               
|------------------------ |  |  |  | ------------------------ |  | --------------------------------------------------------------
|                         |  |  |  | Hill International, Inc.
|Dated: November 13, 2007 |  |  |  |                          |  |                                                               
|                         |  |  | 
|                         |  |  |  | By:                      |  | /s/ Irvin E. Richter                                          
|                         |  |  |  |                          |  | Irvin E. Richter                                              
|                         |  |  |  |                          |  | Chairman and Chief Executive Officer (Duly Authorized
Officer)
|                         |  |  | 
|Dated: November 13, 2007 |  |  |  |                          |  |                                                               
|                         |  |  | 
|                         |  |  |  | By:                      |  | /s/ John Fanelli III                                          
|                         |  |  |  |                          |  | John Fanelli III                                              
|                         |  |  |  |                          |  | Senior Vice President and Chief Financial Officer             



40