##### Table of Contents



________________________________________________________________________________


UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549





Form 10-Q


(Mark One)


|  |  |                                                                                                                                                                     
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|þ |  | Quarterly report pursuant to Section 13 or 15(d) of the
    Securities
    Exchange Act of 1934
    For the quarterly period ended June 30, 2006                    
|  |  | or                                                                                                                                                                  
|o |  | Transition Report Pursuant to Section 13 or 15(d) of the
    Securities
    Exchange Act of 1934
    For the transition period
    from             to             .

Commission File Number: 0-21213


LCC International, Inc.




|                                                                   |  |                                        
|------------------------------------------------------------------ |  | ---------------------------------------
|Delaware                                                           |  | 54-1807038                             
|(State or Other Jurisdiction of
    Incorporation or Organization) |  | (I.R.S. Employer Identification Number)
|                                                                  
|7925 Jones Branch Drive, McLean, VA                                |  | 22102                                  
|(Address of Principal Executive Offices)                           |  | (Zip Code)                             

Registrants telephone number, including area code:
(703) 873-2000


Not Applicable







þ o


12b-2 þ o


12b-2 o þ






o o
















---



##### 










LCC International, Inc. and Subsidiaries


Quarterly Report on
Form 10-Q


For the quarter ended June 30, 2006


INDEX


|         |  |                                                                                                                            |  |        |    | 
|-------- |  | -------------------------------------------------------------------------------------------------------------------------- |  | ------ | -- | 
|         |  |                                                                                                                            |  | Page   |   
|         |  |                                                                                                                            |  | Number |   
|         |  |                                                                                                                            |  |        |   
|PART I:  |  | FINANCIAL INFORMATION                                                                                                      |  |        |    | 
|ITEM 1:  |  | FINANCIAL STATEMENTS                                                                                                       |  |        | 3  | 
|         |  | Consolidated statements of operations for
    the three months and six months ended June 30, 2005 and
    2006 (unaudited) |  |        | 3  | 
|         |  | Consolidated balance sheets as of
    December 31, 2005 and June 30, 2006 (unaudited)                                      |  |        | 4  | 
|         |  | Consolidated statements of cash flows for
    the six months ended June 30, 2005 and 2006 (unaudited)                      |  |        | 5  | 
|         |  | Notes to consolidated financial
    statements                                                                             |  |        | 6  | 
|ITEM 2:  |  | MANAGEMENTS DISCUSSION AND ANALYSIS
    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                  |  |        | 18 | 
|ITEM 3:  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES
    ABOUT MARKET RISK                                                             |  |        | 29 | 
|ITEM 4:  |  | CONTROLS AND PROCEDURES                                                                                                    |  |        | 30 | 
|PART II: |  | OTHER INFORMATION                                                                                                          |  |        | 32 | 
|ITEM 1:  |  | Legal proceedings                                                                                                          |  |        | 32 | 
|ITEM 1A: |  | Risk Factors                                                                                                               |  |        | 32 | 
|ITEM 2:  |  | Unregistered sales of Equity Securities and
    Use of Proceeds                                                            |  |        | 32 | 
|ITEM 3:  |  | Defaults upon senior securities                                                                                            |  |        | 32 | 
|ITEM 4:  |  | Submission of matters to a vote of security
    holders                                                                    |  |        | 32 | 
|ITEM 5:  |  | Other information                                                                                                          |  |        | 33 | 
|ITEM 6:  |  | Exhibits                                                                                                                   |  |        | 33 | 
|EX-11   
|EX-31.1 
|EX-31.2 
|EX-32.1 
|EX-32.2 



2



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##### Table of Contents






PART I: FINANCIAL INFORMATION





Item 1: Financial Statements


LCC International, Inc. and Subsidiaries





Consolidated Statements of Operations


(In thousands, except per share data)


(Unaudited)


|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |        |        |   |        |        |        |  
|------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | -------------- | ------ | ------ | ---------------- | - | ------ | ----- | ------ | - | ------- | ------ | ------ | - | ------ | ------ | ------ | -
|                                                                                |                                                                                   | Three Months   |        |        | Six Months Ended |  
|                                                                                |                                                                                   | Ended June 30, |        |        | June 30,         |  
|                                                                                |                                                                                   |                |        |        |                  |  
|                                                                                |                                                                                   | 2005           |        |        | 2006             |   |        | 2005  |        |   | 2006    |       
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|REVENUES                                                                        |                                                                                   | $              | 36,085 |        |                  | $ | 34,566 |       |        | $ | 68,224  |        |        | $ | 70,897 |       
|COST OF REVENUES (exclusive of depreciation shown separately
    below)         |                                                                                   |                | 28,817 |        |                  |   | 25,741 |       |        |   | 53,166  |        |        |   | 53,460 |       
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|GROSS PROFIT                                                                    |                                                                                   |                | 7,268  |        |                  |   | 8,825  |       |        |   | 15,058  |        |        |   | 17,437 |       
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|OPERATING EXPENSE:                                                              |                                                                                   |                |        |        |                  |   |        |       |        |   |         |        |        |   |        |       
|                                                                                | Sales and marketing                                                               |                |        | 2,022  |                  |   |        | 1,715 |        |   |         | 4,233  |        |   |        | 3,775  |       
|                                                                                | General and administrative                                                        |                |        | 7,281  |                  |   |        | 6,138 |        |   |         | 14,645 |        |   |        | 12,375 |       
|                                                                                | Restructuring charge                                                              |                |        | 759    |                  |   |        | 108   |        |   |         | 759    |        |   |        | 108    |       
|                                                                                | Depreciation and amortization                                                     |                |        | 698    |                  |   |        | 715   |        |   |         | 1,394  |        |   |        | 1,384  |       
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|                                                                                |                                                                                   |                | 10,760 |        |                  |   | 8,676  |       |        |   | 21,031  |        |        |   | 17,642 |       
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|OPERATING INCOME (LOSS)                                                         |                                                                                   |                | (3,492 | )      |                  |   | 149    |       |        |   | (5,973  | )      |        |   | (205   | )     
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|OTHER INCOME (EXPENSE):                                                         |                                                                                   |                |        |        |                  |   |        |       |        |   |         |        |        |   |        |       
|                                                                                | Interest income                                                                   |                |        | 35     |                  |   |        | 35    |        |   |         | 75     |        |   |        | 62     |       
|                                                                                | Interest expense                                                                  |                |        | (45    | )                |   |        | (219  | )      |   |         | (127   | )      |   |        | (405   | )     
|                                                                                | Other                                                                             |                |        | (12    | )                |   |        | 374   |        |   |         | (480   | )      |   |        | 314    |       
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|                                                                                |                                                                                   |                | (22    | )      |                  |   | 190    |       |        |   | (532    | )      |        |   | (29    | )     
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                    |                                                                                   |                | (3,514 | )      |                  |   | 339    |       |        |   | (6,505  | )      |        |   | (234   | )     
|PROVISION FOR INCOME TAXES                                                      |                                                                                   |                | 796    |        |                  |   | 888    |       |        |   | 1,677   |        |        |   | 1,868  |       
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|LOSS FROM CONTINUING OPERATIONS                                                 |                                                                                   |                | (4,310 | )      |                  |   | (549   | )     |        |   | (8,182  | )      |        |   | (2,102 | )     
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|DISCONTINUED OPERATIONS:                                                        |                                                                                   |                |        |        |                  |   |        |       |        |   |         |        |        |   |        |       
|                                                                                | Loss from discontinued operations (net of applicable taxes of
    zero)           |                |        | (3,830 | )                |   |        | (295  | )      |   |         | (3,680 | )      |   |        | (902   | )     
|                                                                                | Gain on disposal of discontinued operations (net of applicable
    taxes of zero) |                |        |       |                  |   |        | 922   |        |   |         |       |        |   |        | 922    |       
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|INCOME (LOSS) FROM DISCONTINUED OPERATIONS                                      |                                                                                   |                | (3,830 | )      |                  |   | 627    |       |        |   | (3,680  | )      |        |   | 20     |       
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|NET INCOME (LOSS)                                                               |                                                                                   | $              | (8,140 | )      |                  | $ | 78     |       |        | $ | (11,862 | )      |        | $ | (2,082 | )     
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|NET INCOME (LOSS) PER SHARE:                                                    |                                                                                   |                |        |        |                  |   |        |       |        |   |         |        |        |   |        |       
|                                                                                | Continuing operations                                                             |                |        |        |                  |   |        |       |        |   |         |        |        |   |        |        |       
|                                                                                |                                                                                   | Basic          |        | $      | (0.17            | ) |        | $     | (0.02  | ) |         | $      | (0.33  | ) |        | $      | (0.08  | )
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|                                                                                |                                                                                   | Diluted        |        | $      | (0.17            | ) |        | $     | (0.02  | ) |         | $      | (0.33  | ) |        | $      | (0.08  | )
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|                                                                                | Discontinued operations                                                           |                |        |        |                  |   |        |       |        |   |         |        |        |   |        |        |       
|                                                                                |                                                                                   | Basic          |        | $      | (0.16            | ) |        | $     | 0.02   |   |         | $      | (0.15  | ) |        | $      |       |  
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|                                                                                |                                                                                   | Diluted        |        | $      | (0.16            | ) |        | $     | 0.02   |   |         | $      | (0.15  | ) |        | $      |       |  
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|                                                                                | Net Income (loss) per share                                                       |                |        |        |                  |   |        |       |        |   |         |        |        |   |        |        |       
|                                                                                |                                                                                   | Basic          |        | $      | (0.33            | ) |        | $     |       |   |         | $      | (0.48  | ) |        | $      | (0.08  | )
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|                                                                                |                                                                                   | Diluted        |        | $      | (0.33            | ) |        | $     |       |   |         | $      | (0.48  | ) |        | $      | (0.08  | )
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|WEIGHTED AVERAGE SHARES USED IN CALCULATION OF NET INCOME
    (LOSS) PER SHARE: |                                                                                   |                |        |        |                  |   |        |       |        |   |         |        |        |   |        |       
|                                                                                |                                                                                   | Basic          |        |        | 24,425           |   |        |       | 24,849 |   |         |        | 24,461 |   |        |        | 24,780 |  
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       
|                                                                                |                                                                                   | Diluted        |        |        | 24,425           |   |        |       | 25,261 |   |         |        | 24,461 |   |        |        | 24,780 |  
|                                                                                |                                                                                   |                |        |        |                  |   |        |       |        |   |         |       



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LCC International, Inc. and Subsidiaries





Consolidated Balance Sheets


(In thousands, except per share data)


|                                                                                      |                                                                                                                                                                                                      |                                            |         |             |          |  |         |        |         | 
|------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------- | -------- |  | ------- | ------ | ------- | 
|                                                                                      |                                                                                                                                                                                                      | December 31,                               |         |             | June 30, | 
|                                                                                      |                                                                                                                                                                                                      | 2005                                       |         |             | 2006     | 
|                                                                                      |                                                                                                                                                                                                      |                                            |         |             |          | 
|                                                                                      |                                                                                                                                                                                                      |                                            |         | (Unaudited) |         
|ASSETS:                                                                               |                                                                                                                                                                                                      |                                            |         |             |          |  |         |       
|Current assets:                                                                       |                                                                                                                                                                                                      |                                            |         |             |          |  |         |       
|                                                                                      | Cash and cash equivalents                                                                                                                                                                            |                                            | $       | 14,196      |          |  | $       | 8,189  |        
|                                                                                      | Restricted cash                                                                                                                                                                                      |                                            |         | 1,141       |          |  |         | 4,005  |        
|                                                                                      | Receivables, net of allowance for doubtful accounts of $317 and
    $200 at December 31, 2005 and June 30, 2006,
    respectively:                                                                   |                                            |         |             |          |  |         |        |        
|                                                                                      |                                                                                                                                                                                                      | Trade accounts receivable                  |         |             | 47,448   |  |         |        | 47,515  | 
|                                                                                      |                                                                                                                                                                                                      | Unbilled receivables                       |         |             | 35,791   |  |         |        | 22,937  | 
|                                                                                      |                                                                                                                                                                                                      | Due from related parties and affiliates    |         |             | 15       |  |         |        | 42      | 
|                                                                                      |                                                                                                                                                                                                      | Due from disposal of business              |         |             |         |  |         |        | 9,835   | 
|                                                                                      | Prepaid expenses and other current assets                                                                                                                                                            |                                            |         | 1,998       |          |  |         | 2,233  |        
|                                                                                      | Prepaid tax receivable and prepaid taxes                                                                                                                                                             |                                            |         | 1,195       |          |  |         | 1,194  |        
|                                                                                      |                                                                                                                                                                                                      |                                            |         |             |          | 
|                                                                                      |                                                                                                                                                                                                      | Total current assets                       |         |             | 101,784  |  |         |        | 95,950  | 
|Property and equipment, net                                                           |                                                                                                                                                                                                      |                                            | 3,642   |             |          |  | 2,826   |       
|Deferred income taxes, net                                                            |                                                                                                                                                                                                      |                                            | 1,171   |             |          |  | 1,171   |       
|Goodwill                                                                              |                                                                                                                                                                                                      |                                            | 11,014  |             |          |  | 11,586  |       
|Other intangibles  net                                                               |                                                                                                                                                                                                      |                                            | 312     |             |          |  | 175     |       
|Other assets                                                                          |                                                                                                                                                                                                      |                                            | 1,030   |             |          |  | 938     |       
|                                                                                      |                                                                                                                                                                                                      |                                            |         |             |          | 
|                                                                                      |                                                                                                                                                                                                      | Total assets                               |         | $           | 118,953  |  |         | $      | 112,646 | 
|                                                                                      |                                                                                                                                                                                                      |                                            |         |             |          | 
|LIABILITIES AND SHAREHOLDERS EQUITY:                                                
|Current liabilities:                                                                  |                                                                                                                                                                                                      |                                            |         |             |          |  |         |       
|                                                                                      | Line of credit                                                                                                                                                                                       |                                            | $       | 2,975       |          |  | $       | 2,345  |        
|                                                                                      | Note payable                                                                                                                                                                                         |                                            |         |            |          |  |         | 3,159  |        
|                                                                                      | Accounts payable                                                                                                                                                                                     |                                            |         | 27,876      |          |  |         | 24,091 |        
|                                                                                      | Accrued expenses                                                                                                                                                                                     |                                            |         | 22,480      |          |  |         | 18,714 |        
|                                                                                      | Accrued employee compensation and benefits                                                                                                                                                           |                                            |         | 5,390       |          |  |         | 4,847  |        
|                                                                                      | Deferred revenue                                                                                                                                                                                     |                                            |         | 1,142       |          |  |         | 828    |        
|                                                                                      | Income taxes payable                                                                                                                                                                                 |                                            |         | 2,891       |          |  |         | 2,407  |        
|                                                                                      | Accrued restructuring current                                                                                                                                                                        |                                            |         | 1,072       |          |  |         | 1,209  |        
|                                                                                      | Other current liabilities                                                                                                                                                                            |                                            |         | 188         |          |  |         | 215    |        
|                                                                                      |                                                                                                                                                                                                      |                                            |         |             |          | 
|                                                                                      |                                                                                                                                                                                                      | Total current liabilities                  |         |             | 64,014   |  |         |        | 57,815  | 
|                                                                                      | Accrued restructuring non-current                                                                                                                                                                    |                                            |         | 492         |          |  |         | 147    |        
|                                                                                      | Other liabilities                                                                                                                                                                                    |                                            |         | 696         |          |  |         | 277    |        
|                                                                                      |                                                                                                                                                                                                      |                                            |         |             |          | 
|                                                                                      |                                                                                                                                                                                                      | Total liabilities                          |         |             | 65,202   |  |         |        | 58,239  | 
|                                                                                      |                                                                                                                                                                                                      |                                            |         |             |          | 
|Shareholders equity:                                                                 |                                                                                                                                                                                                      |                                            |         |             |          |  |         |       
|Preferred stock:                                                                      |                                                                                                                                                                                                      |                                            |         |             |          |  |         |       
|                                                                                      | 10,000 shares authorized; 0 shares issued and
    outstanding                                                                                                                                        |                                            |         |            |          |  |         |       |        
|Class A common stock, $0.01 par value:                                                |                                                                                                                                                                                                      |                                            |         |             |          |  |         |       
|                                                                                      | 70,000 shares authorized; 20,485 shares issued and
    20,326 shares outstanding and 20,795 shares issued and
    20,636 shares outstanding at December 31, 2005 and
    June 30, 2006, respectively |                                            |         | 205         |          |  |         | 208    |        
|Class B common stock, $0.01 par value:                                                |                                                                                                                                                                                                      |                                            |         |             |          |  |         |       
|                                                                                      | 20,000 shares authorized; 4,428 shares and
    4,426 shares issued and outstanding at December 31,
    2005 and June 30, 2006, respectively                                                          |                                            |         | 44          |          |  |         | 44     |        
|Paid-in capital                                                                       |                                                                                                                                                                                                      |                                            | 108,902 |             |          |  | 110,357 |       
|Accumulated deficit                                                                   |                                                                                                                                                                                                      |                                            | (55,440 | )           |          |  | (57,522 | )     
|                                                                                      |                                                                                                                                                                                                      |                                            |         |             |          | 
|                                                                                      | Subtotal                                                                                                                                                                                             |                                            |         | 53,711      |          |  |         | 53,087 |        
|Accumulated other comprehensive income  foreign
    currency translation adjustments |                                                                                                                                                                                                      |                                            | 922     |             |          |  | 2,202   |       
|Treasury stock (159 shares)                                                           |                                                                                                                                                                                                      |                                            | (882    | )           |          |  | (882    | )     
|                                                                                      |                                                                                                                                                                                                      |                                            |         |             |          | 
|                                                                                      |                                                                                                                                                                                                      | Total shareholders equity                 |         |             | 53,751   |  |         |        | 54,407  | 
|                                                                                      |                                                                                                                                                                                                      |                                            |         |             |          | 
|                                                                                      |                                                                                                                                                                                                      | Total liabilities and shareholders equity |         | $           | 118,953  |  |         | $      | 112,646 | 
|                                                                                      |                                                                                                                                                                                                      |                                            |         |             |          | 



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LCC International, Inc. and Subsidiaries





Consolidated Statements of Cash Flows


(In thousands)


(Unaudited)


|                                                   |                                                                                 |                                  |                                                 |                                          |      |       |        |         |   |       |        |  
|-------------------------------------------------- | ------------------------------------------------------------------------------- | -------------------------------- | ----------------------------------------------- | ---------------------------------------- | ---- | ----- | ------ | ------- | - | ----- | ------ | -
|                                                   |                                                                                 | Six Months Ended                 |                                                
|                                                   |                                                                                 | June 30,                         |                                                
|                                                   |                                                                                 |                                  |                                                
|                                                   |                                                                                 | 2005                             |                                                 |                                          | 2006 |      
|                                                   |                                                                                 |                                  |                                                 |                                          |      |      
|Cash flows from operating activities:              |                                                                                 |                                  |                                                 |                                          |      |       |        |        
|                                                   | Net Loss                                                                        |                                  | $                                               | (11,862                                  | )    |       | $      | (2,082  | )
|                                                   | Adjustments to reconcile net loss to net cash used in operating
    activities: |                                  |                                                 |                                          |      |       |        |         |  
|                                                   |                                                                                 |                                  | Depreciation and amortization                   |                                          |      | 1,442 |        |         |   | 1,452 |       
|                                                   |                                                                                 |                                  | Provision for (recovery of) doubtful accounts   |                                          |      | 139   |        |         |   | (19   | )     
|                                                   |                                                                                 |                                  | Loss on equity method investment                |                                          |      | 168   |        |         |   |      |       
|                                                   |                                                                                 |                                  | Non-cash compensation                           |                                          |      | 27    |        |         |   | 939   |       
|                                                   |                                                                                 |                                  | Restructuring charge                            |                                          |      | 759   |        |         |   | 108   |       
|                                                   |                                                                                 |                                  | Gain on disposal of Network Deployment business |                                          |      |      |        |         |   | (922  | )     
|                                                   |                                                                                 |                                  | Changes in operating assets and liabilities:    |                                          |      |       |        |         |   |       |       
|                                                   |                                                                                 |                                  |                                                 | Trade, unbilled, and other receivables   |      |       | 2,564  |         |   |       | 3,143  |  
|                                                   |                                                                                 |                                  |                                                 | Accounts payable and accrued expenses    |      |       | (163   | )       |   |       | (8,206 | )
|                                                   |                                                                                 |                                  |                                                 | Other current assets and liabilities     |      |       | 1      |         |   |       | (1,413 | )
|                                                   |                                                                                 |                                  |                                                 | Other non-current assets and liabilities |      |       | (1,221 | )       |   |       | 294    |  
|                                                   |                                                                                 |                                  |                                                 |                                          |      |      
|Net cash used in operating activities              |                                                                                 |                                  | (8,146                                          | )                                        |      |       | (6,706 | )      
|                                                   |                                                                                 |                                  |                                                 |                                          |      |      
|Cash flows from investing activities:              |                                                                                 |                                  |                                                 |                                          |      |       |        |        
|                                                   | Purchases of property and equipment                                             |                                  |                                                 | (928                                     | )    |       |        | (465    | )
|                                                   | Proceeds from disposals of property and equipment                               |                                  |                                                 | 3                                        |      |       |        |        |  
|                                                   | Proceeds from sale of Network Deployment business                               |                                  |                                                 |                                         |      |       |        | 985     |  
|                                                   | Investments                                                                     |                                  |                                                 | (125                                     | )    |       |        |        |  
|                                                   |                                                                                 |                                  |                                                 |                                          |      |      
|Net cash provided (used) in investing activities   |                                                                                 |                                  | (1,050                                          | )                                        |      |       | 520    |        
|                                                   |                                                                                 |                                  |                                                 |                                          |      |      
|Cash flows from financing activities:              |                                                                                 |                                  |                                                 |                                          |      |       |        |        
|                                                   | Borrowings on line of credit                                                    |                                  |                                                 | 2,243                                    |      |       |        | 13,971  |  
|                                                   | Payments on line of credit                                                      |                                  |                                                 | (2,411                                   | )    |       |        | (14,622 | )
|                                                   | Borrowings on note payable                                                      |                                  |                                                 |                                         |      |       |        | 3,159   |  
|                                                   | Proceeds from issuance of common stock, net                                     |                                  |                                                 | 61                                       |      |       |        |        |  
|                                                   | Proceeds from exercise of options                                               |                                  |                                                 | 371                                      |      |       |        | 535     |  
|                                                   | Increase in restricted cash                                                     |                                  |                                                 | 48                                       |      |       |        | (2,864  | )
|                                                   |                                                                                 |                                  |                                                 |                                          |      |      
|Net cash provided by financing activities          |                                                                                 |                                  | 312                                             |                                          |      |       | 179    |        
|                                                   |                                                                                 |                                  |                                                 |                                          |      |      
|Net decrease in cash and cash equivalents          |                                                                                 |                                  | (8,884                                          | )                                        |      |       | (6,007 | )      
|Cash and cash equivalents at beginning of period   |                                                                                 |                                  | 21,930                                          |                                          |      |       | 14,196 |        
|                                                   |                                                                                 |                                  |                                                 |                                          |      |      
|Cash and cash equivalents at end of period         |                                                                                 | $                                | 13,046                                          |                                          |      | $     | 8,189  |        
|                                                   |                                                                                 |                                  |                                                 |                                          |      |      
|Supplemental disclosures of cash flow information: |                                                                                 |                                  |                                                 |                                          |      |       |        |        
|                                                   |                                                                                 | Cash paid during the period for: |                                                 |                                          |      |       |        |         |   |      
|                                                   |                                                                                 |                                  | Income taxes                                    |                                          | $    | 1,301 |        |         | $ | 1,968 |       
|                                                   |                                                                                 |                                  | Interest                                        |                                          |      | 16    |        |         |   | 363   |       



5



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LCC International, Inc. and Subsidiaries





Notes to Consolidated Financial Statements


(Unaudited)




|    |                          
|--- | -------------------------
|(1) | Description of Operations



end-to




|    |                      
|--- | ---------------------
|(2) | Basis of Presentation



10-K


Accounting for Uncertainty in Income
Taxes Accounting for Income
Taxes.




|    |                                         
|--- | ----------------------------------------
|(3) | Sale of U.S. Network Deployment Business



6



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7



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|                      |  |                    |        |   |               |   |       |  
|--------------------- |  | ------------------ | ------ | - | ------------- | - | ----- | -
|                      |  | Three Months Ended |       
|                      |  |                    |       
|                      |  | June 30, 2005      |        |   | June 30, 2006 |  
|                      |  |                    |        |   |               |  
|                      |  | (in thousands)     |       
|Revenue               |  | $                  | 6,612  |   |               | $ | 7,737 |  
|Gross margin          |  | $                  | (3,609 | ) |               | $ | 60    |  
|Pretax operating loss |  | $                  | (3,830 | ) |               | $ | (295  | )

|                      |  |                  |        |   |               |   |        |  
|--------------------- |  | ---------------- | ------ | - | ------------- | - | ------ | -
|                      |  | Six Months Ended |       
|                      |  |                  |       
|                      |  | June 30, 2005    |        |   | June 30, 2006 |  
|                      |  |                  |        |   |               |  
|                      |  | (in thousands)   |       
|Revenue               |  | $                | 19,882 |   |               | $ | 12,599 |  
|Gross margin (loss)   |  | $                | (3,267 | ) |               | $ | (187   | )
|Pretax operating loss |  | $                | (3,680 | ) |               | $ | (902   | )



|                           |  |               |       | 
|-------------------------- |  | ------------- | ----- | 
|                           |  | As of         |      
|                           |  | June 30, 2006 |      
|                           |  |               |      
|Billed accounts receivable |  | $             | 4,026 | 
|Accounts payable           |  | $             | 5,144 | 
|Accrued expenses           |  | $             | 2,533 | 



|    |                         
|--- | ------------------------
|(4) | Share-Based Compensation







8



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##### Table of Contents







Service Based Awards




|                             |  |           |       |  
|---------------------------- |  | --------- | ----- | -
|                             |  | Number of |      
|                             |  | Shares    |      
|                             |  |           |      
|Balance at December 31, 2005 |  |           | 2,966 |  
|Exercised                    |  |           | (154  | )
|Cancelled                    |  |           | (387  | )
|                             |  |           |      
|Balance at March 31, 2006    |  |           | 2,425 |  
|Granted                      |  |           | 60    |  
|Exercised                    |  |           | (75   | )
|Cancelled                    |  |           | (265  | )
|                             |  |           |      
|Balance at June 30, 2006     |  |           | 2,145 |  









|            |  |           |       |          |          |          |           |              |  |  |                 |  |  |   |     | 
|----------- |  | --------- | ----- | -------- | -------- | -------- | --------- | ------------ |  |  | --------------- |  |  | - | --- | 
|            |  |           |       |          |          | Weighted |           |              | 
|            |  |           |       | Weighted |          |          | Average   |              |  | 
|            |  |           |       | Average  |          |          | Remaining |              |  | 
|            |  | Number of |       |          | Exercise |          |           | Contractual  |  |  | Average         | 
|            |  | Shares    |       |          | Price    |          |           | Term (Years) |  |  | Intrinsic Value | 
|            |  |           |       |          |          |          |           |              |  |  |                 | 
|Outstanding |  |           | 2,145 |          |          | $        | 5.43      |              |  |  | 5.96            |  |  | $ | 820 | 
|Exercisable |  |           | 1,754 |          |          | $        | 5.57      |              |  |  | 5.44            |  |  | $ | 770 | 

9



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|                        |  |               |             |  |               |  |             | 
|----------------------- |  | ------------- | ----------- |  | ------------- |  | ----------- | 
|                        |  | Three Months  |             |  | Three Months  | 
|                        |  | Ended         |             |  | Ended         | 
|                        |  | June 30, 2005 |             |  | June 30, 2006 | 
|                        |  |               |             |  |               | 
|Expected dividend yield |  |               | 0%          |  |               |  | 0%          | 
|Risk-free interest rate |  |               | 4.25%       |  |               |  | 5.65%       | 
|Expected life           |  |               | 3 - 7 years |  |               |  | 3 - 7 years | 
|Volatility              |  |               | 40% - 59%   |  |               |  | 75%         | 



|                                                                                                    |                                                 |               |        |       |               |   |         |       |  
|--------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ------------- | ------ | ----- | ------------- | - | ------- | ----- | -
|                                                                                                    |                                                 | Three Months  |        |       | Six Months    |  
|                                                                                                    |                                                 | Ended         |        |       | Ended         |  
|                                                                                                    |                                                 | June 30, 2005 |        |       | June 30, 2005 |  
|                                                                                                    |                                                 |               |        |       |               |  
|Loss from continuing operations as reported                                                         |                                                 | $             | (4,310 | )     |               | $ | (8,182  | )    
|Deduct total stock-based employee compensation expense
    determined under fair value based method |                                                 |               | (279   | )     |               |   | (675    | )    
|                                                                                                    |                                                 |               |        |       |               |  
|Pro forma net loss from continuing operations                                                       |                                                 | $             | (4,589 | )     |               | $ | (8,857  | )    
|                                                                                                    |                                                 |               |        |       |               |  
|Loss from discontinued operations as reported                                                       |                                                 | $             | (3,830 | )     |               | $ | (3,680  | )    
|Deduct total stock-based employee compensation expense
    determined under fair value based method |                                                 |               | (13    | )     |               |   | (34     | )    
|                                                                                                    |                                                 |               |        |       |               |  
|Pro forma net loss from discontinued operations                                                     |                                                 | $             | (3,843 | )     |               | $ | (3,714  | )    
|                                                                                                    |                                                 |               |        |       |               |  
|Loss from operations as reported                                                                    |                                                 | $             | (8,140 | )     |               | $ | (11,862 | )    
|Deduct total stock-based employee compensation expense
    determined under fair value based method |                                                 |               | (292   | )     |               |   | (709    | )    
|                                                                                                    |                                                 |               |        |       |               |  
|Pro forma net loss                                                                                  |                                                 | $             | (8,432 | )     |               | $ | (12,571 | )    
|                                                                                                    |                                                 |               |        |       |               |  
|Net loss per share as reported:                                                                     |                                                 |               |        |       |               |   |         |      
|                                                                                                    | Continuing: basic and diluted                   |               | $      | (0.17 | )             |   | $       | (0.33 | )
|                                                                                                    |                                                 |               |        |       |               |  
|                                                                                                    | Discontinued: basic and diluted                 |               | $      | (0.16 | )             |   | $       | (0.15 | )
|                                                                                                    |                                                 |               |        |       |               |  
|                                                                                                    | Net loss per share: basic and diluted           |               | $      | (0.33 | )             |   | $       | (0.48 | )
|                                                                                                    |                                                 |               |        |       |               |  
|Pro forma:                                                                                          |                                                 |               |        |       |               |   |         |      
|                                                                                                    | Continuing: basic and diluted                   |               | $      | (0.19 | )             |   | $       | (0.36 | )
|                                                                                                    |                                                 |               |        |       |               |  
|                                                                                                    | Discontinued: basic and diluted                 |               | $      | (0.16 | )             |   | $       | (0.15 | )
|                                                                                                    |                                                 |               |        |       |               |  
|                                                                                                    | Pro forma net loss per share: basic and diluted |               | $      | (0.35 | )             |   | $       | (0.51 | )
|                                                                                                    |                                                 |               |        |       |               |  



10



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Market Based Awards




|                             |         |           |       |     | 
|---------------------------- | ------- | --------- | ----- | --- | 
|                             |         | Number of |      
|                             |         | Shares    |      
|                             |         |           |      
|Balance at December 31, 2005 |         |           | 1,000 |    
|                             | Granted |           |       | 400 | 
|                             |         |           |      
|Balance at March 31, 2006    |         |           | 1,400 |    
|                             | Granted |           |       | 575 | 
|                             |         |           |      
|Balance at June 30, 2006     |         |           | 1,975 |    







Restricted Stock Awards






|                                |  |        |       |               |       |   |      | 
|------------------------------- |  | ------ | ----- | ------------- | ----- | - | ---- | 
|                                |  |        |       | Weighted      |      
|                                |  |        |       | Average Grant |      
|                                |  |        |       | Date Fair     |      
|                                |  | Shares |       |               | Value |  
|                                |  |        |       |               |       |  
|Non vested at December 31, 2005 |  |        | 1,068 |               |       | $ | 3.03 | 
|Granted                         |  |        | 45    |               |       |   | 3.17 | 
|Forfeited                       |  |        | (78   | )             |       |   | 3.54 | 
|                                |  |        |       |               |       |  
|Non vested at March 31, 2006    |  |        | 1,035 |               |       |   | 3.00 | 
|Granted                         |  |        | 995   |               |       |   | 3.76 | 
|Vested                          |  |        | (145  | )             |       |   | 3.62 | 
|Forfeited                       |  |        | (15   | )             |       |   | 3.62 | 
|                                |  |        |       |               |       |  
|Non vested at June 30, 2006     |  |        | 1,870 |               |       | $ | 3.35 | 

11



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|    |                                  
|--- | ---------------------------------
|(5) | Other Comprehensive Income (Loss)



|                                                                         |  |                    |        |   |                  |   |     |      |  |   |         |   |  |   |        |  
|------------------------------------------------------------------------ |  | ------------------ | ------ | - | ---------------- | - | --- | ---- |  | - | ------- | - |  | - | ------ | -
|                                                                         |  | Three Months Ended |        |   | Six Months Ended |  
|                                                                         |  | June 30,           |        |   | June 30,         |  
|                                                                         |  |                    |        |   |                  |  
|                                                                         |  | 2005               |        |   | 2006             |   |     | 2005 |  |   | 2006    |  
|                                                                         |  |                    |        |   |                  |   |     |      |  |   |         |  
|Net income (loss)                                                        |  | $                  | (8,140 | ) |                  | $ | 78  |      |  | $ | (11,862 | ) |  | $ | (2,082 | )
|                                                                         |  |                    |        |   |                  |   |     |      |  |   |         |  
|Other comprehensive income (loss), before tax                            |  |                    | (1,144 | ) |                  |   | 852 |      |  |   | (2,046  | ) |  |   | 1,280  |  
|Income tax provision related to items of comprehensive income
    (loss) |  |                    |       |   |                  |   |    |      |  |   |        |   |  |   |       |  
|                                                                         |  |                    |        |   |                  |   |     |      |  |   |         |  
|Other comprehensive income (loss), net of tax                            |  |                    | (1,144 | ) |                  |   | 852 |      |  |   | (2,046  | ) |  |   | 1,280  |  
|                                                                         |  |                    |        |   |                  |   |     |      |  |   |         |  
|Comprehensive income (loss)                                              |  | $                  | (9,284 | ) |                  | $ | 930 |      |  | $ | (13,908 | ) |  | $ | (802   | )
|                                                                         |  |                    |        |   |                  |   |     |      |  |   |         |  



|    |                           
|--- | --------------------------
|(6) | Related Party Transactions

ten-to








12



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|    |                     
|--- | --------------------
|(7) | Restructuring Charge











13



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|                                                   |                                                          |                |       |      |            |   |        |        |   |   |        |        |  
|-------------------------------------------------- | -------------------------------------------------------- | -------------- | ----- | ---- | ---------- | - | ------ | ------ | - | - | ------ | ------ | -
|                                                   |                                                          | Severance      |       |      | Facilities |   |        | Total  |  
|                                                   |                                                          |                |       |      |            |   |        |        |  
|                                                   |                                                          | (in thousands) |      
|Restructuring charge                               |                                                          | $              | 1,030 |      |            | $ | 12,492 |        |   | $ | 13,522 |       
|Reclassification of deferred rent                  |                                                          |                |      |      |            |   | 639    |        |   |   | 639    |       
|                                                   |                                                          |                |       |      |            |   |        |        |  
|                                                   |                                                          |                | 1,030 |      |            |   | 13,131 |        |   |   | 14,161 |       
|Charges against the provision:                     |                                                          |                |       |      |            |   |        |        |   |   |        |       
|                                                   | Payments for excess office space, net of sublease income |                |       |     |            |   |        | (2,152 | ) |   |        | (2,152 | )
|                                                   | Severance and associated costs paid                      |                |       | (878 | )          |   |        |       |   |   |        | (878   | )
|                                                   | Leasehold improvements and other assets written-off      |                |       |     |            |   |        | (1,461 | ) |   |        | (1,461 | )
|                                                   | Other                                                    |                |       |     |            |   |        | 53     |   |   |        | 53     |  
|                                                   |                                                          |                |       |      |            |   |        |        |  
|Restructuring payable as of December 31, 2002      |                                                          | $              | 152   |      |            | $ | 9,571  |        |   | $ | 9,723  |       
|                                                   |                                                          |                |       |      |            |   |        |        |  
|Reversal of excess severance                       |                                                          |                | (152  | )    |            |   |       |        |   |   | (152   | )     
|Reversal for reoccupied space                      |                                                          |                |      |      |            |   | (385   | )      |   |   | (385   | )     
|Additional charge for reduction of sublease income |                                                          |                |      |      |            |   | 535    |        |   |   | 535    |       
|                                                   |                                                          |                |       |      |            |   |        |        |  
|                                                   | Restructuring charge (recovery)                          |                |       | (152 | )          |   |        | 150    |   |   |        | (2     | )
|Charges against the provision:                     |                                                          |                |       |      |            |   |        |        |   |   |        |       
|                                                   | Payments for excess office space, net of sublease income |                |       |     |            |   |        | (2,971 | ) |   |        | (2,971 | )
|                                                   | Leasehold improvements and other assets written-off      |                |       |     |            |   |        | (564   | ) |   |        | (564   | )
|                                                   | Other                                                    |                |       |     |            |   |        | 149    |   |   |        | 149    |  
|                                                   |                                                          |                |       |      |            |   |        |        |  
|Restructuring payable as of December 31, 2003      |                                                          | $              |      |      |            | $ | 6,335  |        |   | $ | 6,335  |       
|                                                   |                                                          |                |       |      |            |   |        |        |  
|Reversal for reoccupied space                      |                                                          |                |      |      |            |   | (1,166 | )      |   |   | (1,166 | )     
|Charges against the provision:                     |                                                          |                |       |      |            |   |        |        |   |   |        |       
|                                                   | Payments for excess office space, net of sublease income |                |       |     |            |   |        | (2,131 | ) |   |        | (2,131 | )
|                                                   | Leasehold improvements and other assets written-off      |                |       |     |            |   |        | (214   | ) |   |        | (214   | )
|                                                   | Other                                                    |                |       |     |            |   |        | 77     |   |   |        | 77     |  
|                                                   |                                                          |                |       |      |            |   |        |        |  
|Restructuring payable as of December 31, 2004      |                                                          | $              |      |      |            | $ | 2,901  |        |   | $ | 2,901  |       
|                                                   |                                                          |                |       |      |            |   |        |        |  
|Restructuring charge                               |                                                          |                | 752   |      |            |   | 176    |        |   |   | 928    |       
|Reversal for reoccupied space                      |                                                          |                |      |      |            |   | (330   | )      |   |   | (330   | )     
|                                                   |                                                          |                |       |      |            |   |        |        |  
|                                                   | Restructuring charge (recovery)                          |                |       | 752  |            |   |        | (154   | ) |   |        | 598    |  
|Charges against the provision:                     |                                                          |                |       |      |            |   |        |        |   |   |        |       
|                                                   | Payments for excess office space, net of sublease income |                |       |     |            |   |        | (960   | ) |   |        | (960   | )
|                                                   | Severance and associated costs paid                      |                |       | (730 | )          |   |        |       |   |   |        | (730   | )
|                                                   | Leasehold improvements and other assets written-off      |                |       |     |            |   |        | (37    | ) |   |        | (37    | )
|                                                   | Other                                                    |                |       |     |            |   |        | (208   | ) |   |        | (208   | )
|                                                   |                                                          |                |       |      |            |   |        |        |  
|Restructuring payable as of December 31, 2005      |                                                          | $              | 22    |      |            | $ | 1,542  |        |   | $ | 1,564  |       
|                                                   |                                                          |                |       |      |            |   |        |        |  
|Restructuring charge                               |                                                          |                |      |      |            |   | 108    |        |   |   | 108    |       
|Charges against the provision:                     |                                                          |                |       |      |            |   |        |        |   |   |        |       
|                                                   | Payments for excess office space, net of sublease income |                |       |     |            |   |        | (307   | ) |   |        | (307   | )
|                                                   | Severance and associated costs paid                      |                |       | (20  | )          |   |        |       |   |   |        | (20    | )
|                                                   | Other                                                    |                |       |     |            |   |        | 11     |   |   |        | 11     |  
|                                                   |                                                          |                |       |      |            |   |        |        |  
|Restructuring payable as of June 30, 2006          |                                                          | $              | 2     |      |            | $ | 1,354  |        |   | $ | 1,356  |       
|                                                   |                                                          |                |       |      |            |   |        |        |  

14



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|                              |  |              |       |  |          |   |       | 
|----------------------------- |  | ------------ | ----- |  | -------- | - | ----- | 
|                              |  | December 31, |       |  | June 30, |  
|                              |  | 2005         |       |  | 2006     |  
|                              |  |              |       |  |          |  
|Accrued restructuring current |  | $            | 1,072 |  |          | $ | 1,209 | 
|Accrued restructuring         |  |              | 492   |  |          |   | 147   | 
|                              |  |              |       |  |          |  
|Accrued restructuring total   |  | $            | 1,564 |  |          | $ | 1,356 | 
|                              |  |              |       |  |          |  



|    |               
|--- | --------------
|(8) | Line of Credit











15



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|    |                                       
|--- | --------------------------------------
|(9) | Commitments and Contingent Liabilities





|     |                  
|---- | -----------------
|(10) | Segment Reporting

Disclosures about Segments of an
Enterprise and Related Information








|                            |                         |                |        |        |        |  |        |               |       |  |        |        |        |      |        |        |        |  |        |        |        |  |         |        |        | 
|--------------------------- | ----------------------- | -------------- | ------ | ------ | ------ |  | ------ | ------------- | ----- |  | ------ | ------ | ------ | ---- | ------ | ------ | ------ |  | ------ | ------ | ------ |  | ------- | ------ | ------ | 
|                            |                         | Americas       |        |        | EMEA   |  |        | Segment Total |      
|                            |                         |                |        |        |        |  |        |               |      
|                            |                         | 2005           |        |        | 2006   |  |        | 2005          |       |  | 2006   |        |        | 2005 |        |        | 2006   | 
|                            |                         |                |        |        |        |  |        |               |       |  |        |        |        |      |        |        |        | 
|Three Months Ended June 30, |                         |                |        |        |        |  |        |               |       |  |        |        |        |      |        |        |        |  |        |        |        |  |         |       
|Revenues:                   |                         |                |        |        |        |  |        |               |       |  |        |        |        |      |        |        |        |  |        |        |        |  |         |       
|                            | From external customers |                | $      | 10,664 |        |  | $      | 9,292         |       |  | $      | 25,001 |        |      | $      | 25,274 |        |  | $      | 35,665 |        |  | $       | 34,566 |       
|                            | Inter-segment revenues  |                |        |       |        |  |        |              |       |  |        |       |        |      |        |       |        |  |        |       |        |  |         |       |       
|                            |                         |                |        |        |        |  |        |               |       |  |        |        |        |      |        |        |        | 
|                            |                         | Total revenues |        | $      | 10,664 |  |        | $             | 9,292 |  |        | $      | 25,001 |      |        | $      | 25,274 |  |        | $      | 35,665 |  |         | $      | 34,566 | 
|                            |                         |                |        |        |        |  |        |               |       |  |        |        |        |      |        |        |        | 
|Income (loss) before taxes  |                         |                | (2,036 | )      |        |  | (399   | )             |       |  | 1,477  |        |        |      | 3,069  |        |        |  | (559   | )      |        |  | 2,670   |       
|Total assets                |                         |                | 35,371 |        |        |  | 27,144 |               |       |  | 59,830 |        |        |      | 75,178 |        |        |  | 95,201 |        |        |  | 102,322 |       

16



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|                           |                         |                |        |        |        |  |      |               |        |  |       |        |        |      |       |        |        |  |      |        |        |  |       |        |        | 
|-------------------------- | ----------------------- | -------------- | ------ | ------ | ------ |  | ---- | ------------- | ------ |  | ----- | ------ | ------ | ---- | ----- | ------ | ------ |  | ---- | ------ | ------ |  | ----- | ------ | ------ | 
|                           |                         | Americas       |        |        | EMEA   |  |      | Segment Total |       
|                           |                         |                |        |        |        |  |      |               |       
|                           |                         | 2005           |        |        | 2006   |  |      | 2005          |        |  | 2006  |        |        | 2005 |       |        | 2006   | 
|                           |                         |                |        |        |        |  |      |               |        |  |       |        |        |      |       |        |        | 
|Six Months Ended June 30,  |                         |                |        |        |        |  |      |               |        |  |       |        |        |      |       |        |        |  |      |        |        |  |       |       
|Revenues:                  |                         |                |        |        |        |  |      |               |        |  |       |        |        |      |       |        |        |  |      |        |        |  |       |       
|                           | From external customers |                | $      | 19,625 |        |  | $    | 18,564        |        |  | $     | 47,362 |        |      | $     | 52,333 |        |  | $    | 66,987 |        |  | $     | 70,897 |       
|                           | Inter-segment revenues  |                |        |       |        |  |      |              |        |  |       |       |        |      |       |       |        |  |      |       |        |  |       |       |       
|                           |                         |                |        |        |        |  |      |               |        |  |       |        |        |      |       |        |        | 
|                           |                         | Total revenues |        | $      | 19,625 |  |      | $             | 18,564 |  |       | $      | 47,362 |      |       | $      | 52,333 |  |      | $      | 66,987 |  |       | $      | 70,897 | 
|                           |                         |                |        |        |        |  |      |               |        |  |       |        |        |      |       |        |        | 
|Income (loss) before taxes |                         |                | (2,631 | )      |        |  | (305 | )             |        |  | 2,200 |        |        |      | 5,256 |        |        |  | (431 | )      |        |  | 4,951 |       



|                                 |                                                 |                            |        |        |                  |   |        |        |   |   |         |        |       |   |         |         |       | 
|-------------------------------- | ----------------------------------------------- | -------------------------- | ------ | ------ | ---------------- | - | ------ | ------ | - | - | ------- | ------ | ----- | - | ------- | ------- | ----- | 
|                                 |                                                 | Three Months Ended         |        |        | Six Months Ended |  
|                                 |                                                 | June 30,                   |        |        | June 30,         |  
|                                 |                                                 |                            |        |        |                  |  
|                                 |                                                 | 2005                       |        |        | 2006             |   |        | 2005   |   |   | 2006    |       
|                                 |                                                 |                            |        |        |                  |   |        |        |   |   |         |       
|Revenues:                        |                                                 |                            |        |        |                  |   |        |        |   |   |         |        |       |   |         |        
|                                 | Revenues for reportable segments                |                            | $      | 35,665 |                  |   | $      | 34,566 |   |   | $       | 66,987 |       |   | $       | 70,897  |      
|                                 | Revenues for non-reportable segments            |                            |        | 420    |                  |   |        |       |   |   |         | 1,237  |       |   |         |        |      
|                                 |                                                 |                            |        |        |                  |   |        |        |   |   |         |       
|Total consolidated revenues      |                                                 | $                          | 36,085 |        |                  | $ | 34,566 |        |   | $ | 68,224  |        |       | $ | 70,897  |        
|                                 |                                                 |                            |        |        |                  |   |        |        |   |   |         |       
|Income (loss) before taxes:      |                                                 |                            |        |        |                  |   |        |        |   |   |         |        |       |   |         |        
|                                 | For reportable segments                         |                            | $      | (559   | )                |   | $      | 2,670  |   |   | $       | (431   | )     |   | $       | 4,951   |      
|                                 | For non-reportable segments                     |                            |        | (2,955 | )                |   |        | (2,331 | ) |   |         | (6,074 | )     |   |         | (5,185  | )    
|                                 |                                                 |                            |        |        |                  |   |        |        |   |   |         |       
|Total income (loss) before taxes |                                                 | $                          | (3,514 | )      |                  | $ | 339    |        |   | $ | (6,505  | )      |       | $ | (234    | )      
|                                 |                                                 |                            |        |        |                  |   |        |        |   |   |         |       
|Assets:                          |                                                 |                            |        |        |                  |   |        |        |   |   |         |        |       |   |         |        
|                                 | Assets for reportable segments                  |                            |        |        |                  |   |        |        |   |   | $       | 95,201 |       |   | $       | 102,322 |      
|                                 | Assets not attributable to reportable segments: |                            |        |        |                  |   |        |        |   |   |         |        |       |   |         |         |      
|                                 |                                                 | Cash and cash equivalents  |        |        |                  |   |        |        |   |   |         |        | 7,264 |   |         |         | 6,263 | 
|                                 |                                                 | Restricted cash            |        |        |                  |   |        |        |   |   |         |        | 233   |   |         |         | 37    | 
|                                 |                                                 | Receivables                |        |        |                  |   |        |        |   |   |         |        | 1,119 |   |         |         | 589   | 
|                                 |                                                 | Deferred and prepaid taxes |        |        |                  |   |        |        |   |   |         |        | 1,831 |   |         |         | 2,365 | 
|                                 |                                                 | Property and equipment     |        |        |                  |   |        |        |   |   |         |        | 660   |   |         |         | 529   | 
|                                 |                                                 | Investments                |        |        |                  |   |        |        |   |   |         |        | 623   |   |         |         |      | 
|                                 |                                                 | Prepaid and other          |        |        |                  |   |        |        |   |   |         |        | 376   |   |         |         | 541   | 
|                                 |                                                 |                            |        |        |                  |   |        |        |   |   |         |       
|                                 |                                                 |                            |        |        |                  |   |        |        |   |   | 12,106  |        |       |   | 10,324  |        
|                                 |                                                 |                            |        |        |                  |   |        |        |   |   |         |       
|Total consolidated assets        |                                                 |                            |        |        |                  |   |        |        |   | $ | 107,307 |        |       | $ | 112,646 |        
|                                 |                                                 |                            |        |        |                  |   |        |        |   |   |         |       



|     |            
|---- | -----------
|(11) | Receivables





|     |                  
|---- | -----------------
|(12) | Reclassifications



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Item 2: Managements Discussion and Analysis of
Financial Condition and Results of Operations


10-Q


10-K


Overview


end-to end-to


18



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| |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Americas:               |  | Until June 30, 2006 the Americas region provided the full
    range of service offerings to wireless operators and equipment
    vendors through a network of project offices in North America
    and South America. As of June 30, 2006 we no longer provide
    network deployment services in the U.S. For the six months
    ended June 30, 2006, Americas generated approximately 26.2%
    of our total revenue. See also Sale of U.S. Network
    Deployment Business in the Notes to the Consolidated Financial
    Statements..
| |  | EMEA:                   |  | Based in London, the Europe, Middle East and Africa region is
    responsible for operations in the U.K., Italy, Netherlands,
    Algeria, Germany, Spain, Greece, Pakistan, Saudi Arabia and the
    Middle East. EMEA provides the full range of service offerings
    throughout its region and has recently established a marketing
    office in Dubai. For the six months ended June 30, 2006,
    EMEA generated approximately 73.8% of our total revenue.                                                                        
| |  | Nonreportable segments: |  | In 2005 this was primarily comprised of our operations in Asia
    which we ceased in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                              

percentage-of










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Trends That Have Affected or May Affect Results of Operations
and Financial Condition






| |   |                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | project related revenues derived from a limited set of customers
    in each market where we do business;                                               
|
| |  | the acceleration or the delay associated with the introduction
    of new technologies and services by our customers;                                   
|
| |  | the management and the services composition of our fixed price
    contracts;                                                                           
|
| |  | the impact of the percentage of subcontracted work (versus self
    performed work) on our large programs and the associated margin
    degradation; and
|
| |  | increases or decreases of spending by wireless service providers
    in the areas of network design, deployment and optimization.                       









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Results of Continuing Operations




Revenues, Cost of Revenues and Gross Margins


|                  |                         |                             |        |        |                           |  |      |                |   |   |                |        |  |                |      |      |                |   |        |                |  |  |                |      |   |   |        |        |  |  |      |      |  
|----------------- | ----------------------- | --------------------------- | ------ | ------ | ------------------------- |  | ---- | -------------- | - | - | -------------- | ------ |  | -------------- | ---- | ---- | -------------- | - | ------ | -------------- |  |  | -------------- | ---- | - | - | ------ | ------ |  |  | ---- | ---- | -
|                  |                         | Three Months Ended June 30, |        |        | Six Months Ended June 30, | 
|                  |                         |                             |        |        |                           | 
|                  |                         | 2005                        |        |        | 2006                      |  |      | 2005           |   |   | 2006           |       
|                  |                         |                             |        |        |                           |  |      |                |   |   |                |       
|                  |                         | (in thousands)              |        |        | (% of revenue)            |  |      | (in thousands) |   |   | (% of revenue) |        |  | (in thousands) |      |      | (% of revenue) |   |        | (in thousands) |  |  | (% of revenue) |     
|Revenues:         |                         |                             |        |        |                           |  |      |                |   |   |                |        |  |                |      |      |                |   |        |                |  |  |                |      |   |   |        |        |  |  |      |     
|                  | Americas                |                             | $      | 10,664 |                           |  |      |                |   |   | $              | 9,292  |  |                |      |      |                |   | $      | 19,625         |  |  |                |      |   |   | $      | 18,564 |  |  |      |      |  
|                  | EMEA                    |                             |        | 25,001 |                           |  |      |                |   |   |                | 25,274 |  |                |      |      |                |   |        | 47,362         |  |  |                |      |   |   |        | 52,333 |  |  |      |      |  
|                  | Non-reportable segments |                             |        | 420    |                           |  |      |                |   |   |                |       |  |                |      |      |                |   |        | 1,237          |  |  |                |      |   |   |        |       |  |  |      |      |  
|                  |                         |                             |        |        |                           |  |      |                |   |   |                |        |  |                |      |      |                |   |        |                |  |  |                |     
|                  |                         | $                           | 36,085 |        |                           |  |      |                |   | $ | 34,566         |        |  |                |      |      |                | $ | 68,224 |                |  |  |                |      |   | $ | 70,897 |        |  |  |      |     
|                  |                         |                             |        |        |                           |  |      |                |   |   |                |        |  |                |      |      |                |   |        |                |  |  |                |     
|Cost of revenues: |                         |                             |        |        |                           |  |      |                |   |   |                |        |  |                |      |      |                |   |        |                |  |  |                |      |   |   |        |        |  |  |      |     
|                  | Americas                |                             | $      | 9,515  |                           |  |      | 89.2           | % |   | $              | 7,614  |  |                |      | 81.9 | %              |   | $      | 16,667         |  |  |                | 84.9 | % |   | $      | 15,020 |  |  |      | 80.9 | %
|                  | EMEA                    |                             |        | 18,976 |                           |  |      | 75.9           |   |   |                | 18,127 |  |                |      | 71.7 |                |   |        | 35,658         |  |  |                | 75.3 |   |   |        | 38,440 |  |  |      | 73.5 |  
|                  | Non-reportable segments |                             |        | 326    |                           |  |      | 77.6           |   |   |                |       |  |                |      |     |                |   |        | 841            |  |  |                | 68.0 |   |   |        |       |  |  |      |     |  
|                  |                         |                             |        |        |                           |  |      |                |   |   |                |        |  |                |      |      |                |   |        |                |  |  |                |     
|                  |                         | $                           | 28,817 |        |                           |  | 79.9 | %              |   | $ | 25,741         |        |  |                | 74.5 | %    |                | $ | 53,166 |                |  |  | 77.9           | %    |   | $ | 53,460 |        |  |  | 75.4 | %   
|                  |                         |                             |        |        |                           |  |      |                |   |   |                |        |  |                |      |      |                |   |        |                |  |  |                |     
|Gross margins:    |                         |                             |        |        |                           |  |      |                |   |   |                |        |  |                |      |      |                |   |        |                |  |  |                |      |   |   |        |        |  |  |      |     
|                  | Americas                |                             | $      | 1,149  |                           |  |      | 10.8           | % |   | $              | 1,678  |  |                |      | 18.1 | %              |   | $      | 2,958          |  |  |                | 15.1 | % |   | $      | 3,544  |  |  |      | 19.1 | %
|                  | EMEA                    |                             |        | 6,025  |                           |  |      | 24.1           |   |   |                | 7,147  |  |                |      | 28.3 |                |   |        | 11,704         |  |  |                | 24.7 |   |   |        | 13,893 |  |  |      | 26.5 |  
|                  | Non-reportable segments |                             |        | 94     |                           |  |      | 22.4           |   |   |                |       |  |                |      | 0.0  |                |   |        | 396            |  |  |                | 32.0 |   |   |        |       |  |  |      |     |  
|                  |                         |                             |        |        |                           |  |      |                |   |   |                |        |  |                |      |      |                |   |        |                |  |  |                |     
|                  |                         | $                           | 7,268  |        |                           |  | 20.1 | %              |   | $ | 8,825          |        |  |                | 25.5 | %    |                | $ | 15,058 |                |  |  | 22.1           | %    |   | $ | 17,437 |        |  |  | 24.6 | %   
|                  |                         |                             |        |        |                           |  |      |                |   |   |                |        |  |                |      |      |                |   |        |                |  |  |                |     

Americas








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EMEA






Non-reportable segments




Operating Expense


|                              |                        |                    |       |       |                  |  |       |       |  |  |        |       |  |  |        |       |  
|----------------------------- | ---------------------- | ------------------ | ----- | ----- | ---------------- |  | ----- | ----- |  |  | ------ | ----- |  |  | ------ | ----- | -
|                              |                        | Three Months Ended |       |       | Six-Months Ended | 
|                              |                        | June 30,           |       |       | June 30,         | 
|                              |                        |                    |       |       |                  | 
|                              |                        | 2005               |       |       | 2006             |  |       | 2005  |  |  | 2006   |      
|                              |                        |                    |       |       |                  |  |       |       |  |  |        |      
|                              |                        | (in thousands)     |       |       | (in thousands)   | 
|Sales and marketing           |                        |                    |       |       |                  |  |       |       |  |  |        |       |  |  |        |      
|                              | Americas               |                    | $     | 720   |                  |  | $     | 692   |  |  | $      | 1,217 |  |  | $      | 1,282 |  
|                              | EMEA                   |                    |       | 1,211 |                  |  |       | 952   |  |  |        | 2,787 |  |  |        | 2,418 |  
|                              | Nonreportable segments |                    |       | 91    |                  |  |       | 71    |  |  |        | 229   |  |  |        | 75    |  
|                              |                        |                    |       |       |                  |  |       |       |  |  |        |      
|                              |                        |                    | 2,022 |       |                  |  | 1,715 |       |  |  | 4,233  |       |  |  | 3,775  |      
|Bad debt expense (recovery)   |                        |                    |       |       |                  |  |       |       |  |  |        |       |  |  |        |      
|                              | Americas               |                    |       | 60    |                  |  |       |      |  |  |        | 60    |  |  |        | 22    |  
|                              | EMEA                   |                    |       | (10   | )                |  |       |      |  |  |        | 4     |  |  |        | (41   | )
|                              | Nonreportable segments |                    |       | 75    |                  |  |       |      |  |  |        | 75    |  |  |        |      |  
|                              |                        |                    |       |       |                  |  |       |       |  |  |        |      
|                              |                        |                    | 125   |       |                  |  |      |       |  |  | 139    |       |  |  | (19    | )    
|General and administrative    |                        |                    |       |       |                  |  |       |       |  |  |        |       |  |  |        |      
|                              | Americas               |                    |       | 1,650 |                  |  |       | 1,251 |  |  |        | 3,462 |  |  |        | 2,258 |  
|                              | EMEA                   |                    |       | 2,882 |                  |  |       | 2,644 |  |  |        | 5,627 |  |  |        | 5,212 |  
|                              | Nonreportable segments |                    |       | 2,624 |                  |  |       | 2,243 |  |  |        | 5,417 |  |  |        | 4,924 |  
|                              |                        |                    |       |       |                  |  |       |       |  |  |        |      
|                              |                        |                    | 7,156 |       |                  |  | 6,138 |       |  |  | 14,506 |       |  |  | 12,394 |      
|Restructuring charge          |                        |                    |       |       |                  |  |       |       |  |  |        |       |  |  |        |      
|                              | Americas               |                    |       | 641   |                  |  |       |      |  |  |        | 641   |  |  |        |      |  
|                              | EMEA                   |                    |       |      |                  |  |       | 31    |  |  |        |      |  |  |        | 31    |  
|                              | Nonreportable segments |                    |       | 118   |                  |  |       | 77    |  |  |        | 118   |  |  |        | 77    |  
|                              |                        |                    |       |       |                  |  |       |       |  |  |        |      
|                              |                        |                    | 759   |       |                  |  | 108   |       |  |  | 759    |       |  |  | 108    |      
|Depreciation and amortization |                        |                    |       |       |                  |  |       |       |  |  |        |       |  |  |        |      
|                              | Americas               |                    |       | 121   |                  |  |       | 159   |  |  |        | 222   |  |  |        | 320   |  
|                              | EMEA                   |                    |       | 488   |                  |  |       | 446   |  |  |        | 992   |  |  |        | 881   |  
|                              | Nonreportable segments |                    |       | 89    |                  |  |       | 110   |  |  |        | 180   |  |  |        | 183   |  
|                              |                        |                    |       |       |                  |  |       |       |  |  |        |      
|                              |                        |                    | 698   |       |                  |  | 715   |       |  |  | 1,394  |       |  |  | 1,384  |      

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|      |                        |                    |        |       |                  |   |       |       |  |   |        |       |  |   |        |       | 
|----- | ---------------------- | ------------------ | ------ | ----- | ---------------- | - | ----- | ----- |  | - | ------ | ----- |  | - | ------ | ----- | 
|      |                        | Three Months Ended |        |       | Six-Months Ended |  
|      |                        | June 30,           |        |       | June 30,         |  
|      |                        |                    |        |       |                  |  
|      |                        | 2005               |        |       | 2006             |   |       | 2005  |  |   | 2006   |      
|      |                        |                    |        |       |                  |   |       |       |  |   |        |      
|      |                        | (in thousands)     |        |       | (in thousands)   |  
|Total |                        |                    |        |       |                  |   |       |       |  |   |        |       |  |   |        |      
|      | Americas               |                    |        | 3,192 |                  |   |       | 2,102 |  |   |        | 5,602 |  |   |        | 3,882 | 
|      | EMEA                   |                    |        | 4,571 |                  |   |       | 4,073 |  |   |        | 9,410 |  |   |        | 8,501 | 
|      | Nonreportable segments |                    |        | 2,997 |                  |   |       | 2,470 |  |   |        | 6,019 |  |   |        | 5,228 | 
|      |                        |                    |        |       |                  |   |       |       |  |   |        |      
|      |                        | $                  | 10,760 |       |                  | $ | 8,645 |       |  | $ | 21,031 |       |  | $ | 17,611 |      
|      |                        |                    |        |       |                  |   |       |       |  |   |        |      







Other Income and Expense


|                                 |                        |                    |      |      |                  |  |      |      |   |  |      |      |   |  |      |      |  
|-------------------------------- | ---------------------- | ------------------ | ---- | ---- | ---------------- |  | ---- | ---- | - |  | ---- | ---- | - |  | ---- | ---- | -
|                                 |                        | Three Months Ended |      |      | Six Months Ended | 
|                                 |                        | June 30,           |      |      | June 30,         | 
|                                 |                        |                    |      |      |                  | 
|                                 |                        | 2005               |      |      | 2006             |  |      | 2005 |   |  | 2006 |     
|                                 |                        |                    |      |      |                  |  |      |      |   |  |      |     
|                                 |                        | (in thousands)     |      |      | (in thousands)   | 
|Interest income:                 |                        |                    |      |      |                  |  |      |      |   |  |      |      |   |  |      |     
|                                 | Americas               |                    | $    | 10   |                  |  | $    | 11   |   |  | $    | 19   |   |  | $    | 24   |  
|                                 | EMEA                   |                    |      | 5    |                  |  |      | 19   |   |  |      | 11   |   |  |      | 25   |  
|                                 | Nonreportable segments |                    |      | 20   |                  |  |      | 5    |   |  |      | 45   |   |  |      | 13   |  
|                                 |                        |                    |      |      |                  |  |      |      |   |  |      |     
|                                 |                        |                    | 35   |      |                  |  | 35   |      |   |  | 75   |      |   |  | 62   |     
|Interest expense:                |                        |                    |      |      |                  |  |      |      |   |  |      |      |   |  |      |     
|                                 | Americas               |                    |      | (2   | )                |  |      |     |   |  |      | (3   | ) |  |      |     |  
|                                 | EMEA                   |                    |      | (35  | )                |  |      |     |   |  |      | (105 | ) |  |      |     |  
|                                 | Nonreportable segments |                    |      | (8   | )                |  |      | (219 | ) |  |      | (19  | ) |  |      | (405 | )
|                                 |                        |                    |      |      |                  |  |      |      |   |  |      |     
|                                 |                        |                    | (45  | )    |                  |  | (219 | )    |   |  | (127 | )    |   |  | (405 | )   
|Other:                           |                        |                    |      |      |                  |  |      |      |   |  |      |      |   |  |      |     
|Gain (loss) on equity investment |                        |                    |      |      |                  |  |      |      |   |  |      |      |   |  |      |     
|                                 | Americas               |                    |      |     |                  |  |      |     |   |  |      |     |   |  |      |     |  
|                                 | EMEA                   |                    |      | (103 | )                |  |      |     |   |  |      | (103 | ) |  |      |     |  
|                                 | Nonreportable segments |                    |      | (12  | )                |  |      |     |   |  |      | (39  | ) |  |      |     |  
|                                 |                        |                    |      |      |                  |  |      |      |   |  |      |     
|                                 |                        |                    | (115 | )    |                  |  |     |      |   |  | (142 | )    |   |  |     |     

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|                              |                        |                    |     |     |                  |   |     |      |  |   |      |      |   |   |     |      |  
|----------------------------- | ---------------------- | ------------------ | --- | --- | ---------------- | - | --- | ---- |  | - | ---- | ---- | - | - | --- | ---- | -
|                              |                        | Three Months Ended |     |     | Six Months Ended |  
|                              |                        | June 30,           |     |     | June 30,         |  
|                              |                        |                    |     |     |                  |  
|                              |                        | 2005               |     |     | 2006             |   |     | 2005 |  |   | 2006 |     
|                              |                        |                    |     |     |                  |   |     |      |  |   |      |     
|                              |                        | (in thousands)     |     |     | (in thousands)   |  
|All else                      |                        |                    |     |     |                  |   |     |      |  |   |      |      |   |   |     |     
|                              | Americas               |                    |     | (1  | )                |   |     | 14   |  |   |      | (3   | ) |   |     | 9    |  
|                              | EMEA                   |                    |     | 156 |                  |   |     | 7    |  |   |      | 103  |   |   |     | (130 | )
|                              | Nonreportable segments |                    |     | (52 | )                |   |     | 353  |  |   |      | (438 | ) |   |     | 435  |  
|                              |                        |                    |     |     |                  |   |     |      |  |   |      |     
|                              |                        |                    | 103 |     |                  |   | 374 |      |  |   | (338 | )    |   |   | 314 |     
|Total other                   |                        |                    |     |     |                  |   |     |      |  |   |      |      |   |   |     |     
|                              | Americas               |                    |     | (1  | )                |   |     | 14   |  |   |      | (3   | ) |   |     | 9    |  
|                              | EMEA                   |                    |     | 53  |                  |   |     | 7    |  |   |      |     |   |   |     | (130 | )
|                              | Nonreportable segments |                    |     | (64 | )                |   |     | 353  |  |   |      | (477 | ) |   |     | 435  |  
|                              |                        |                    |     |     |                  |   |     |      |  |   |      |     
|                              |                        |                    | (12 | )   |                  |   | 374 |      |  |   | (480 | )    |   |   | 314 |     
|Total other income (expense): |                        |                    |     |     |                  |   |     |      |  |   |      |      |   |   |     |     
|                              | Americas               |                    |     | 7   |                  |   |     | 25   |  |   |      | 13   |   |   |     | 33   |  
|                              | EMEA                   |                    |     | 23  |                  |   |     | 26   |  |   |      | (94  | ) |   |     | (105 | )
|                              | Nonreportable segments |                    |     | (52 | )                |   |     | 139  |  |   |      | (451 | ) |   |     | 43   |  
|                              |                        |                    |     |     |                  |   |     |      |  |   |      |     
|                              |                        | $                  | (22 | )   |                  | $ | 190 |      |  | $ | (532 | )    |   | $ | (29 | )   
|                              |                        |                    |     |     |                  |   |     |      |  |   |      |     





Income (Loss) Before Taxes


|                            |                        |                    |        |        |                  |   |     |        |   |   |        |        |   |   |      |        |  
|--------------------------- | ---------------------- | ------------------ | ------ | ------ | ---------------- | - | --- | ------ | - | - | ------ | ------ | - | - | ---- | ------ | -
|                            |                        | Three Months Ended |        |        | Six Months Ended |  
|                            |                        | June 30,           |        |        | June 30,         |  
|                            |                        |                    |        |        |                  |  
|                            |                        | 2005               |        |        | 2006             |   |     | 2005   |   |   | 2006   |       
|                            |                        |                    |        |        |                  |   |     |        |   |   |        |       
|                            |                        | (in thousands)     |        |        | (in thousands)   |  
|Segment Income Before Taxes |                        |                    |        |        |                  |   |     |        |   |   |        |        |   |   |      |       
|                            | Americas               |                    | $      | (2,036 | )                |   | $   | (399   | ) |   | $      | (2,631 | ) |   | $    | (305   | )
|                            | EMEA                   |                    |        | 1,477  |                  |   |     | 3,069  |   |   |        | 2,200  |   |   |      | 5,256  |  
|                            | Nonreportable segments |                    |        | (2,955 | )                |   |     | (2,331 | ) |   |        | (6,074 | ) |   |      | (5,185 | )
|                            |                        |                    |        |        |                  |   |     |        |   |   |        |       
|                            |                        | $                  | (3,514 | )      |                  | $ | 339 |        |   | $ | (6,505 | )      |   | $ | (234 | )     
|                            |                        |                    |        |        |                  |   |     |        |   |   |        |       

Tax Expense




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Net Loss






Liquidity and Capital Resources




Sources
and Uses of Cash


|                                          |                                           |                  |        |        |               |   |        |        |  
|----------------------------------------- | ----------------------------------------- | ---------------- | ------ | ------ | ------------- | - | ------ | ------ | -
|                                          |                                           | Six Months Ended |       
|                                          |                                           |                  |       
|                                          |                                           | June 30, 2005    |        |        | June 30, 2006 |  
|                                          |                                           |                  |        |        |               |  
|                                          |                                           | (in thousands)   |       
|Net cash used in operating activities     |                                           | $                | (8,146 | )      |               | $ | (6,706 | )     
|Net cash used in investing activities     |                                           |                  | (1,050 | )      |               |   | 520    |       
|Net cash provided by financing activities |                                           |                  | 312    |        |               |   | 179    |       
|                                          |                                           |                  |        |        |               |  
|                                          | Net decrease in cash and cash equivalents |                  | $      | (8,884 | )             |   | $      | (6,007 | )
|                                          |                                           |                  |        |        |               |  







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Cash
Requirements


|                                |                                       |                   |        |        |               |   |        |        | 
|------------------------------- | ------------------------------------- | ----------------- | ------ | ------ | ------------- | - | ------ | ------ | 
|                                |                                       | December 31, 2005 |        |        | June 30, 2006 |  
|                                |                                       |                   |        |        |               |  
|                                |                                       | (in thousands)    |       
|Cash and cash equivalents       |                                       | $                 | 14,196 |        |               | $ | 8,189  |       
|Restricted cash                 |                                       |                   | 1,141  |        |               |   | 4,005  |       
|                                |                                       |                   |        |        |               |  
|                                | Total cash and short-term investments |                   | $      | 15,337 |               |   | $      | 12,194 | 
|                                |                                       |                   |        |        |               |  
|Line of credit and note payable |                                       | $                 | 2,975  |        |               | $ | 5,504  |       
|                                |                                       |                   |        |        |               |  
|Working capital                 |                                       | $                 | 37,770 |        |               | $ | 38,135 |       
|                                |                                       |                   |        |        |               |  



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Critical Accounting Policies






| |   |                                 
| | - | --------------------------------
| |  | revenue recognition;            
|
| |  | allowance for doubtful accounts;
|
| |  | accounting for income taxes;    
|
| |  | restructuring charge; and       
|
| |  | share-based compensation        

Revenue recognition


percentage-of percentage-of


Allowance for doubtful
accounts




Accounting for income taxes




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Restructuring Charge




Share-Based Compensation






Related Party Transactions







Item 3: Quantitative and Qualitative Disclosures
about Market Risk






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non-U.S.









Item 4. Controls and Procedures




|    |                                   
|--- | ----------------------------------
|(a) | Disclosure Controls and Procedures



10-K. 10-K




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|    |                                            
|--- | -------------------------------------------
|(b) | Changes in Control Over Financial Reporting

13a-15(f) 15d-15(f).




| |   |                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | pertain to the maintenance of records that, in reasonable
    detail, accurately and fairly reflect the transactions and
    dispositions of the assets of the company;                                                                                                                                                                                        
|
| |  | provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that receipts and expenditures of the company are being made
    only in accordance with authorizations of management and
    directors of the company; and
|
| |  | provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use, or disposition of
    the companys assets that could have a material effect on
    the financial statements.                                                                                                                                      



10-K, percentage-of




| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Each project manager must complete and sign a checklist and
    questionnaire monthly on which the project manager attests that
    he or she has reviewed the calculation and concurs with it.
|
| |  | The VP Finance for the Americas or designated representative and
    the project managers must review the calculation with the chief
    financial officer.                                    
|
| |  | It is a requirement any person serving as VP Finance or
    designated representative must have a strong accounting
    background.                                                            



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PART II: OTHER INFORMATION





Item 1: Legal Proceedings









Item 1A: Risk Factors


10-K





Item 2: Unregistered Sales of Equity Securities and
Use of Proceeds







Item 3: Defaults Upon Senior Securities







Item 4: Submission of Matters to a Vote of Security
Holders




Proposal 1


|                 |  |         |      |  |              |  |             |             |  |        |              |    |  |  |    |   
|---------------- |  | ------- | ---- |  | ------------ |  | ----------- | ----------- |  | ------ | ------------ | -- |  |  | -- | --
|                 |  | Term    |      |  |              |  | Votes       |             |  | Broker |             
|Elected Director |  | Expires |      |  | Votes For(1) |  |             | Withheld(1) |  |        | Non-Votes(1) |   
|                 |  |         |      |  |              |  |             |             |  |        |              |   
|Julie A. Dobson  |  |         | 2007 |  |              |  | 16,932,850( | A)          |  |        | 713,743(     | A) |  |  | 0( | A)
|                 |  |         |      |  |              |  | 44,275,770( | B)          |  |        | 0(           | B) |  |  | 0( | B)
|Dean Douglas     |  |         | 2007 |  |              |  | 16,820,868( | A)          |  |        | 825,725(     | A) |  |  | 0( | A)
|                 |  |         |      |  |              |  | 44,275,770( | B)          |  |        | 0(           | B) |  |  | 0( | B)
|Mark Ein         |  |         | 2007 |  |              |  | 16,807,850( | A)          |  |        | 839,073(     | A) |  |  | 0( | A)
|                 |  |         |      |  |              |  | 44,275,770( | B)          |  |        | 0(           | B) |  |  | 0( | B)
|Richard Lombardi |  |         | 2007 |  |              |  | 17,575,634( | A)          |  |        | 70,959(      | A) |  |  | 0( | A)
|                 |  |         |      |  |              |  | 44,275,770( | B)          |  |        | 0(           | B) |  |  | 0( | B)
|Susan Ness       |  |         | 2007 |  |              |  | 16,807,520( | A)          |  |        | 769,130(     | A) |  |  | 0( | A)
|                 |  |         |      |  |              |  | 44,275,770( | B)          |  |        | 0(           | B) |  |  | 0( | B)

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|                 |  |         |      |  |              |  |             |             |  |        |              |    |  |  |    |   
|---------------- |  | ------- | ---- |  | ------------ |  | ----------- | ----------- |  | ------ | ------------ | -- |  |  | -- | --
|                 |  | Term    |      |  |              |  | Votes       |             |  | Broker |             
|Elected Director |  | Expires |      |  | Votes For(1) |  |             | Withheld(1) |  |        | Non-Votes(1) |   
|                 |  |         |      |  |              |  |             |             |  |        |              |   
|Neera Singh      |  |         | 2007 |  |              |  | 16,694,788( | A)          |  |        | 951,805(     | A) |  |  | 0( | A)
|                 |  |         |      |  |              |  | 44,275,770( | B)          |  |        | 0(           | B) |  |  | 0( | B)
|Rajendra Singh   |  |         | 2007 |  |              |  | 16,694,928( | A)          |  |        | 951,665(     | A) |  |  | 0( | A)
|                 |  |         |      |  |              |  | 44,275,770( | B)          |  |        | 0(           | B) |  |  | 0( | B)

Proposal 2


|             |             |       |            |  |         |               |  |        |              |    |  |  |    |   
|------------ | ----------- | ----- | ---------- |  | ------- | ------------- |  | ------ | ------------ | -- |  |  | -- | --
|             |             | Votes |            |  | Votes   |               |  | Broker |             
|Votes For(1) |             |       | Against(1) |  |         | Abstaining(1) |  |        | Non-Votes(1) |   
|             |             |       |            |  |         |               |  |        |              |   
|             | 16,807,850( | A)    |            |  | 343,803 |               |  |        | 10,641(      | A) |  |  | 0( | A)
|             | 44,275,770( | B)    |            |  |         |               |  |        | 0(           | B) |  |  | 0( | B)



|          |                                                                                                                                                                                                                                                                                                                                                                       
|--------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note (1): | The shareholders are entitled to vote as a single class, with
    each share of the Companys Class A Common Stock
    having one vote and each share of the Companys
    Class B Common Stock having ten votes. (A) shows votes
    represented by the Companys Class A Common Stock and
    (B) shows votes represented by the Companys
    Class B Common Stock.




Item 5: Other Information







Item 6: Exhibits and Reports on
Form 8-K






| |        |                                                                                                                                                                                   
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 11    | Calculation of Net Loss Per Share.                                                                                                                                                
|
| | 31.1  | Certification of Chief Executive Officer pursuant to Exchange
    Act
    Rules 13a-14(a)/15d-14(a),
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.
|
| | 31.2  | Certification of Chief Financial Officer pursuant to Exchange
    Act
    Rules 13a-14(a)/15d-14(a),
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.
|
| | 32.1  | Certification of Chief Executive Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                        
|
| | 32.2  | Certification of Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                        

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Signature






| |                                      
| | -------------------------------------
| | /s/ Louis Salamone Jr.               
| |                                      
| | Louis Salamone Jr.                   
| | Senior Vice President,               
| | Chief Financial Officer and Treasurer



34