UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Commission File Number 1-13783

Integrated Electrical Services, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (713) 860-1500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x  No o

The number of shares outstanding as of May 7, 2008 of the issuer’s common stock was 15,203,878 (includes 12,838 shares reserved for issuance upon exchange of previously issued shares pursuant to the issuer’s Plan of Reorganization approved by the United States Bankruptcy Court for the Northern District of Texas, Dallas Division which became effective on May 12, 2006).

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

INDEX

2

DEFINITIONS

In this quarterly report on Form 10-Q, the words “IES”, the “Company”, “we”, “our”, “ours”, and “us” refer to Integrated Electrical Services, Inc. and our subsidiaries, except as otherwise specified herein.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q includes certain statements that may be deemed “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, all of which are based upon various estimates and assumptions that we believe to be reasonable as of the date hereof. These statements involve risks and uncertainties that could cause our actual future outcomes to differ materially from those set forth in such statements. Such risks and uncertainties include, but are not limited to:

·                       potential difficulty in fulfilling the covenant terms of our credit facilities;

·                       limitations on the availability of sufficient credit or cash flow to fund our working capital needs;

·                       increased cost of surety bonds affecting margins on work and the ability to obtain additional bonding;

·                       fluctuations in operating activity due to downturns in levels of construction, seasonality, and differing regional economic conditions;

·                       difficulty addressing the material weakness identified by us and our independent auditors;

·                       general economic and capital markets conditions, including changes in interest rates that affect the cost of construction financing and mortgages, and the availability of such capital to our customers;

·                       inaccurate estimates used when entering into fixed-priced contracts;

·                       potential errors when estimating revenue and progress to date on percentage of completion contracts;

·                       difficulty in managing the operation of existing entities;

·                       fluctuations in the cost of commodities used in our business, in particular copper, aluminum, steel, gasoline and certain plastics;

·                       competition in the construction industry, both from third parties and former employees, which could result in the loss of one or more customers;

·                       fluctuations in financial results due to assumptions made regarding future events used to value our stock options and performance-based stock awards;

·                       increase in cost of, or limitations on availability of, qualified labor, especially electricians and construction supervisors;

·                       accidents resulting from the physical hazards associated with our work and potential for vehicle accidents;

·                       loss of key personnel or transition of new senior management;

·                       challenges integrating new types of work or new processes into divisions;

·                       uncertainties inherent to estimating future operating results and our ability to generate revenues, operating income, or cash flow;

·                       difficulty incorporating new accounting, control and operating procedures;

·                       disagreements with taxing authorities with regard to tax positions we have adopted;

3

·                           unexpected liabilities or losses associated with warranties from our continuing or discontinued operations or other liabilities attributable to the retention of the legal structure or retained liabilities of business units where we have sold substantially all of the assets;

·                           the residual effect with customers and vendors from our reorganization leading to less work or less favorable delivery or credit terms;

·                       reduced productivity, either at the corporate office or operating level;

·                       difficulty in transferring all our electrical and construction licenses after our recent consolidation of subsidiaries;

·                       growth in latent defect litigation in the residential market in California and the expansion into other states where we provide residential electrical work for new home builders, and

·                       the possibility that our restructuring program will not be successfully executed.

You should understand that the foregoing, as well as other risk factors discussed in our annual report on Form 10-K for the year ended September 30, 2007, could cause future outcomes to differ materially from those expressed in such forward-looking statements. We undertake no obligation to publicly update or revise information concerning our restructuring efforts, borrowing availability, or cash position or any forward-looking statements to reflect events or circumstances that may arise after the date of this report. Forward-looking statements are provided in this Form 10-Q pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of the estimates, assumptions, uncertainties, and risks described herein.

General information about us can be found at www.ies-co.com under “Investor Relations.” Our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the Securities and Exchange Commission. You may also contact our Investor Relations department, and they will provide you with a copy.

4

ITEM 1.  FINANCIAL STATEMENTS

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE INFORMATION)

The accompanying Notes to condensed consolidated financial statements are an integral part of these financial statements.

5

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)

The accompanying Notes to condensed consolidated financial statements are an integral part of these financial statements.

6

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)

The accompanying Notes to condensed consolidated financial statements are an integral part of these financial statements.

7

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

Non-cash investing activities:  During the six months ended March 31, 2008, we financed $3.2 million of prepaid insurance through an account payable to the insurance provider, we paid a $2.1 million account payable for property and equipment that was purchased and accrued during the year ended September 30, 2007, and we recorded a $0.4 million accrued liability for the purchase of property and equipment that was unpaid as of March 31, 2008.

The accompanying Notes to condensed consolidated finance statements are an integral part of these financial statements.

8

INTEGRATED ELECTRICAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(UNAUDITED)

1.  BUSINESS

Integrated Electrical Services, Inc. (the “Company” or “IES”), a Delaware corporation, was founded in June 1997 to create a leading national provider of electrical contracting services, focusing primarily on the commercial, industrial, residential, low voltage and service and maintenance markets.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary to present fairly the financial position as of, and the results of operations for, the periods presented.  All adjustments are considered to be normal and recurring. Interim period results are not necessarily indicative of results of operations or cash flows for the full year.  During interim periods, we follow the same accounting policies disclosed in our Annual Report on Form 10-K for the year ended September 30, 2007 with the exception of the adoption of Financial Accounting Standards Board (“FASB”) Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB 109” as described in the paragraph that follows. Please refer to the Notes of our 2007 Form 10-K when reviewing interim financial results.

On October 1, 2007, we adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement 109” (“FIN 48”).  FIN 48 created a single model to address accounting for uncertain income tax positions and established a minimum recognition threshold a tax position must meet before being recognized in the financial statements.

The evaluation of a tax position under FIN 48 is a two-step process. The first step is the recognition process to determine if it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authority, based on the technical merits of the position. The second step is a measurement process whereby a tax position that meets the more likely than not recognition threshold is calculated to determine the amount of benefit/expense to recognize in the financial statements. The tax position is measured at the largest amount of benefit/expense that is more likely than not of being realized upon ultimate settlement.

As the result of the adoption of FIN 48 and recognition of the cumulative effect of the adoption of the new accounting principal, we recorded an $8.2 million decrease in contingent tax liabilities.  The reduction of the contingent tax liabilities resulted in a $7.8 million decrease in goodwill as prescribed by Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (“SOP 90-7”) and a $0.4 million increase in retained earnings.  Upon the adoption of FIN 48, the total liability for unrecognized tax benefits was $6.2 million, excluding accrued interest and penalties, which are discussed below.  The liabilities for unrecognized tax benefits are a component of “Other non-current liabilities” in our consolidated balance sheet.  The reversal of the liabilities for unrecognized tax benefits would result in a $6.1 million adjustment that would first go to reduce goodwill, then intangible assets and then additional paid-in capital as prescribed by SOP 90-7.  The remaining $0.1 million would result in a decrease in the provision for income tax expense.

We recognize interest and penalties related to unrecognized tax benefits as part of the provision for income taxes.  Upon the adoption of FIN 48, we had approximately $0.4 million in accrued interest and penalties included in liabilities for unrecognized tax benefits.  The accrued interest and penalties are a component of “Other non-current liabilities” in our consolidated balance sheet.  The reversal of the accrued interest and penalties would result in a $0.2 million adjustment that would first go to reduce goodwill, then intangible assets and then additional paid-in capital as prescribed by SOP 90-7.  The remaining $0.2 million would result in a decrease in the provision for income tax expense.

We are currently not under federal audit by the Internal Revenue Service.  The tax years ended September 30, 2004 and forward are subject to audit as well as tax years prior to September 30, 2004 to the extent of unutilized net operating losses generated in those years.  Currently, one of our subsidiaries is under a state audit for the tax years ended September 30, 2002 and 2003.

9

We anticipate that approximately $0.3 million of liabilities for unrecognized tax benefits, including accrued interest, may be reversed in the next twelve months.  This reversal is predominately due to the expiration of the statues of limitation for unrecognized tax benefits and the settlement of a state audit.

RECLASSIFICATIONS

Certain prior period balances have been reclassified to conform to current year presentation, including the income statement item (gain) loss on sale of assets which was previously included in other (income) expense.

USE OF ESTIMATES AND ASSUMPTIONS

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are primarily used in our revenue recognition for construction in progress billings.  Other estimates consist of allowances for doubtful accounts receivable, inventory obsolescence reserves, fair value assumptions in analyzing goodwill and long-lived asset impairments and adjustments from fresh-start accounting, realizability of deferred tax assets, self-insured claims liabilities, and future forfeiture rates and projected earnings used to measure stock-based compensation awards.

SEASONALITY AND QUARTERLY FLUCTUATIONS

Our results of operations are seasonal, depending on weather trends, with higher revenues typically generated during spring and summer months and lower revenues typically generated during fall and winter months. In addition, the construction industry has historically been highly cyclical. Our volume of business may be adversely affected by declines in construction projects resulting from adverse regional or national economic conditions. Quarterly results may also be materially affected by the timing of new construction projects. Accordingly, operating results for any fiscal period are not necessarily indicative of results that may be achieved for any subsequent fiscal period.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 enhances the guidance for using fair value to measure assets and liabilities. In addition, SFAS 157 expands information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on earnings.  This statement applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, but it does not expand the use of fair value in any new circumstances.

SFAS 157 was originally to be effective for fiscal years beginning after November 15, 2007.  However, on February 12, 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”) that amends SFAS 157 to delay the effective date for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually) to fiscal years beginning after November 15, 2008.  We currently do not have any assets that are measured at fair value; We are currently evaluating the potential impact, if any, SFAS 157 will have on our financial results for our fiscal year beginning on October 1, 2009.  We believe we will likely be required to provide additional disclosures in future financial statements beginning after the effective date of the new standard.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”) which allows companies to choose to measure certain financial instruments and other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the potential impact, if any, SFAS 159 will have on our financial results for our fiscal year beginning on October 1, 2008; however, as we do not intend to elect fair value for any of our assets and liabilities, there should be no impact.

In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”) which changes the accounting for acquisitions. SFAS 141(R) eliminates the step acquisition model, changes the recognition of contingent consideration from being recognized when it is probable to being recognized at the time of acquisition, forbids the capitalization of transaction costs, and changes when restructuring charges related to acquisitions can be recognized. The standard is effective for fiscal years beginning on or after December 15, 2008 and will only impact the accounting for acquisitions that are made after adoption.

10

STOCK-BASED COMPENSATION

Stock-based compensation consists of expenses related to employee stock option awards, restricted stock grants and performance-based restricted stock grants (see Note 6).  We have adopted SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”) to record our stock-based compensation awards.  SFAS 123(R) revises SFAS No. 123, “Accounting for Stock-Based Compensation” and focuses on accounting for share-based payments made to employees as compensation.   We recognize stock-based compensation expense in a pro-rata manner based on the value of stock-based payment awards that are expected to vest, reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates.  We used the modified prospective application method at the time SFAS 123(R) was adopted.

SFAS 123(R) does not require a specific valuation model to measure the value of stock options, and either a binomial or the Black-Scholes model may be used. We used a binomial option pricing model to measure the fair value of stock options awarded in our 2007 and 2008 fiscal years. We believe the binomial pricing model is a more precise measure of the value of our stock options; however, the difference in the values between the two methods was not material for the options we granted.

The assumptions used in the binomial pricing model calculation for the six months ended March 31, 2008 and 2007 are disclosed in the following table:

(1) We did not award any stock options during the six month period ended March 31, 2007.

(2) We do not pay dividends on our common stock.

(3) The forfeiture rate is assumed to be zero based on the limited number of employees who have been awarded stock options.

2. STRATEGIC ACTIONS

Restructuring Program

We are restructuring our operations from our previous geographic structure into three major lines of business: Industrial, Commercial and Residential.  This operational restructuring is part of our long-term strategic plan to reduce our cost structure, reposition our business to better serve our customers, strengthen financial controls and, as a result, position us to implement a market-based growth strategy in the future.  The operational restructuring plan has consolidated administrative support functions, eliminating redundant functions that were previously performed at our 27 business units. We expect to incur pre-tax restructuring charges, including severance benefits and consulting charges, of approximately $5.0 million to $10.0 million over the course of the restructuring process, which will be substantially complete by September 30, 2008.

The first component of our restructuring program was initiated in June 2007.  Under this portion of the planned restructuring, 5 of our business units were integrated under the IES Industrial division, and the support and administrative functions of those businesses were combined at an operating location in Houston, Texas.  In connection with this realignment, we approved a transition and severance benefits program for 12 employees who were separated from the Company on or before February 29, 2008 through the elimination of redundant positions.  During the six months ended March 31, 2008, we have recognized approximately $0.2 million in severance charges for the value of cash compensation and payroll taxes that will be paid out through August 2008 in the form of salary continuation.  Since the inception of this program, we have recorded $0.4 million in severance charges at our Industrial segment.  These charges have been included in the caption restructuring charges in the consolidated statement of operations, and we have a remaining liability of $0.1 million included in accounts payable and accrued expenses.

The second component of our restructuring program was initiated in September 2007.  Under this portion of the restructuring, 17 of our business units were integrated under the IES Commercial division, and the support and administrative functions of those businesses were combined at an operating location in Tempe, Arizona.  In connection with this realignment, we approved a transition

11

and severance benefits plan for approximately 100 employees who have been or will be separated through the elimination of redundant positions. The affected employees will continue to work for the Company for up to six months. During the six months ended March 31, 2008, we recognized approximately $1.4 million in severance charges for cash compensation and payroll taxes that will be paid out through December 2008 in the form of salary continuation.  Since the inception of this program, we have recorded $1.5 million in severance charges at our Commercial segment. These charges have been included in the caption restructuring charges in the consolidated statement of operations, and we have a remaining liability of $0.8 million included in accounts payable and accrued expenses.  We expect to recognize an additional $0.1 million in severance liabilities for the value of cash compensation for Commercial employees who have already been included in the transition and severance program, which we expect to incur in our 2008 fiscal year.  We also expect to incur approximately $1.0 million in severance charges for Commercial employees who have yet to be included in the transition and severance program.  These charges would be recorded over the next six months.

The third component of our restructuring program was also initiated in September 2007.  Under this portion of the restructuring, 5 of our business units were integrated under the IES Residential division during our 2008 fiscal year, and the support and administrative functions of those businesses has been combined at an operating location near Houston, Texas.  In connection with this realignment, we approved a transition and severance benefits plan for approximately 20 employees who have been separated through the elimination of redundant positions.  During the six months ended March 31, 2008, we recognized approximately $0.2 million in severance liabilities for cash compensation and payroll taxes. These charges have been included in the caption restructuring charges in the consolidated statement of operations, and we have a remaining liability of $0.1 million included in accounts payable and accrued expenses.  During the remaining six months of our 2008 fiscal year, we expect to recognize less than $15,000 in severance liabilities for the value of cash compensation for employees who have already been included in the Residential transition and severance program.

In addition to the severance costs described above, we incurred charges of approximately $0.8 million and $1.5 million, respectively, for consulting services associated with our restructuring program during the three months and six months ended March 31, 2008.  We also wrote off $0.1 million in the current quarter of leasehold improvements at a location we closed.  Since we began the program in June 2007, we have recorded a total of $4.2 million of restructuring charges.

The following table summarizes the activities related to our restructuring activities by component (in thousands):

Exit or Disposal Activities

In March 2006, based on the recommendation of our Board of Directors, we committed to an exit plan with respect to certain underperforming subsidiaries in our Commercial and Industrial segments. The exit plan committed to a shut-down or consolidation of the operations of these subsidiaries or the sale or other disposition of the subsidiaries, whichever came sooner.  In our assessment of the estimated net realizable value of the accounts receivable at these subsidiaries, we increased our general allowance for doubtful accounts having considered various factors including the risk of collection and the age of the receivables.

In June 2007, we shut down our Mid-States Electric operating company, located in Jackson, Tennessee.  Mid-States’ operating equipment was either transferred to other IES companies or sold to third parties. All project work was completed prior to the subsidiary being closed, and legacy projects were completed by other IES companies. Mid-States’ assets, liabilities and operating results for both the current and prior periods have been reclassified to discontinued operations.  Mid-States was part of our Commercial segment prior to being classified as discontinued.

Remaining net working capital related to these subsidiaries was $0.8 million and $4.3 million at March 31, 2008 and September 30, 2007, respectively. As a result of inherent uncertainty in the exit plan and the monetization of these subsidiaries’ working capital, we could experience additional losses of working capital. At March 31, 2008, we believe we have recorded adequate reserves to reflect the net realizable value of the working capital; however, subsequent events may impact our ability to collect these receivables.

12

The exit plan is substantially complete for the subsidiaries that we selected to exit in March 2006, and the operations of these subsidiaries substantially ceased as of September 30, 2006. Mid-States’ operations were shut down as of June 30, 2007.  We have included the results of operations related to these subsidiaries in discontinued operations for the three months and six months ended March 31, 2008, and all prior periods presented have been reclassified accordingly.

Summarized financial data for all discontinued operations are outlined below (in thousands):

3. DEBT AND LIQUIDITY

Debt consists of the following (in thousands):

Future payments on debt at March 31, 2008 are as follows (in thousands):

For the three months ended March 31, 2008 and 2007, we incurred interest expense of $1.9 million and $2.5 million, respectively.  This included amortization of deferred financing charges of $0.7 million and $0.3 million.  For the six months ended March 31, 2008

13

and 2007, we incurred interest expense of $6.2 million and $5.1 million, respectively.   This included deferred financing changes of $1.4 million and $0.5 million, and a prepayment penalty of $2.1 million during December 2007.

The Revolving Credit Facility

On the date we emerged from bankruptcy, May 12, 2006, we entered into an agreement (the “Loan and Security Agreement”) for a revolving credit facility (the “Revolving Credit Facility”) with Bank of America and certain other lenders.  On May 9, 2008 we renegotiated the terms of our Revolving Credit Facility and entered into an amended agreement with the same financial institutions.  The terms of the amended agreement are described later in this section.

As of, and for the six month period ended March 31, 2008, the Revolving Credit Facility provided access to revolving borrowings in the aggregate amount of up to $80.0 million, with a $72.0 million sub-limit for letters of credit, for the purpose of refinancing the debtor-in-possession credit facility and to provide letters of credit and financing subsequent to confirmation of the reorganization plan. At March 31, 2008, we had $35.7 million available under the Revolving Credit Facility and $37.7 million in letters of credit issued against the Revolving Credit Facility.  We have remaining availability under the Revolving Credit Facility of $34.3 million for letters of credit.

As of, and for the six month period ended March 31, 2008, loans under the Revolving Credit Facility bore interest at LIBOR plus 3.5% or the base rate plus 1.5% on the terms set in the credit agreement. In addition, we were charged monthly in arrears (1) an unused line fee of either 0.5% or 0.375%, depending on the utilization of the credit line, (2) a letter of credit fee equal to the applicable per annum LIBOR margin times the amount of all outstanding letters of credit, and (3) certain other fees and charges as specified in the revolving credit agreement.

The Revolving Credit Facility is guaranteed by our subsidiaries and secured by first priority liens on substantially all of our and our subsidiaries’ existing and future acquired assets, exclusive of collateral provided to sureties. The Revolving Credit Facility contains customary affirmative, negative and financial covenants that were modified in conjunction with its renewal and amendment on May 9, 2008. The financial covenants are described below in the section titled “Financial Covenants”. The Revolving Credit Facility also restricts us from paying cash dividends and places limitations on our ability to repurchase our common stock.

On December 12, 2007, we entered into an amendment to the Loan and Security Agreement.  The amendment allowed for the exclusion from the calculation of fixed charges, in determining the fixed charge coverage ratio, of certain capital investments made in September 2007 by us as part of our transformation program to implement operational improvements.  The amendment also permitted us to pay off our existing term loan and enter into a new subordinated note agreement for a reduced principal amount.  This transaction is more fully described later in this Note.  Finally, the amendment allowed us to implement a stock repurchase program for up to one million shares of our common stock over the following 24 months (see Note 6).  We incurred a $0.5 million charge from Bank of America as a result of this amendment that was capitalized as a deferred financing fee.

On May 9, 2008 we renegotiated the terms of our Revolving Credit Facility, extending the maturity date to May 12, 2010, reducing the facility size to $60.0 million, and eliminating the restricted cash requirement. Interest on the loans under the amended Revolving Credit Facility will be calculated at LIBOR plus 3.0% or the lender’s prime rate (the “Base Rate”) plus 1.0% through September 30, 2008.  Thereafter, interest is based on our total liquidity, as defined in the Loan and Security Agreement, at LIBOR or the Base Rate, as shown in the following table.

The letter of credit fee under the revised agreement will be 3.25% through September 30, 2008, after which the letter of credit fee will be based on the same factor as loans outstanding.

In addition, we will be charged monthly in arrears (1) an unused line fee of either 0.5% or 0.375%, depending on the utilization of the credit line, and (2) certain other fees and charges as specified in the revolving credit agreement.  Finally, the Revolving Credit Facility is subject to a prepayment fee of 0.5% until May 2009 and 0.25% until May 2010.

14

The Eton Park / Flagg Street Term Loan

Immediately preceding our emergence from bankruptcy, we had $51.9 million in senior convertible notes (the “Senior Convertible Notes”). On the date we emerged from bankruptcy, May 12, 2006, we entered into a $53.0 million senior secured term loan (the “Eton Park Term Loan”) with Eton Park Fund L.P. and its affiliate and Flagg Street Partners LP and certain of its affiliates to refinance the Senior Convertible Notes.  On December 12, 2007, we repaid the Eton Park Term Loan using cash on hand and the proceeds from a new senior subordinated note.  Along with a prepayment penalty of $2.1 million that was included in interest expense and accrued interest of $1.0 million, the payoff amount was $48.7 million.  Finally, we wrote off previously unamortized debt issuance costs of $0.3 million on the Eton Park Term Loan.

The Eton Park Term Loan bore interest at 10.75% per annum, subject to adjustment as set forth in the loan agreement governing the Eton Park Term Loan, and was to mature on May 12, 2013. Interest was payable in cash, quarterly in arrears, provided that, at our sole discretion, until the third anniversary of the closing date, we had the option to direct that interest be paid by capitalizing the interest as additional loans under the Eton Park Term Loan. We capitalized interest as additional loans of $1.7 million and $3.5 million, respectively, during the three months and six months ended March 31, 2007. We did not capitalize any interest expense during the period from October 1, 2007 to December 12, 2007, the date the Eton Park Term Loan was repaid. Through the life of the Eton Park Term Loan, we capitalized interest as additional loans of $7.6 million. The Eton Park Term Loan was guaranteed by our subsidiaries and was secured by substantially the same collateral as the Revolving Credit Facility, and was second in priority to the liens securing the Revolving Credit Facility.  The interest rate on the Eton Park Term Loan was adjusted at the end of each quarter based on our performance for the period from January 1, 2006 through the end of the quarter.  Based on this criterion, the adjusted interest rate on the Eton Park Term Loan was as follows:

Our weighted average interest rate under the Eton Park Term Loan was 10.75% for the period from October 1, 2007 to December 12, 2007.

The Tontine Capital Partners Term Loan

On December 12, 2007, we entered into a $25.0 million senior subordinated loan agreement (the “Tontine Term Loan”) with Tontine Capital Partners, L.P., a related party.  The proceeds of the subordinated note (the “Note”), together with cash on hand, were used to fund the repayment of the Eton Park Term Loan (discussed in the preceding section).

The Note bears interest at 11.0% per annum and is due on May 15, 2013.  Interest is payable quarterly, beginning on December 31, 2007, in cash or in-kind at our option. Any interest paid in-kind will bear interest at the same rate (11.0%) as the Note.  The Note may be repaid at any time prior to the maturity date by us at par plus accrued interest without penalty.  The Note is subordinated to our existing Revolving Credit Facility. The Note is an unsecured obligation of the Company and its subsidiary borrowers. The Note contains no financial covenants or restrictions on dividends or distributions to stockholders.

Financial Covenants

The financial covenants for the Revolving Credit Facility in effect on March 31, 2008 are described in the table that follows.  As discussed above, on December 12, 2007, we entered into an amendment to the Loan and Security Agreement.  In determining the fixed charge coverage ratio, the amendment allowed for the exclusion from the calculation of fixed charges of certain capital investments we made in September 2007 as part of our transformation program to implement operational improvements.  As of March 31, 2008, we are in compliance with all of the amended financial covenants under the Revolving Credit Facility, which are shown in the following table:

15

As of September 30, 2007, we were also in compliance with all of our amended financial covenants under the Revolving Credit Facility.

As noted above, we entered into an amendment to the agreement governing our Revolving Credit Facility on May 9, 2008 which also modified the financial covenants.  The revised covenants are indicated below.

4. EARNINGS PER SHARE

In conjunction with the reorganization plan, effective May 12, 2006, our common stock underwent a reverse split which converted 17.0928 shares of old common stock into the right to receive one share of new common stock. In accordance with FASB Statement No. 128, “Earnings per Share,” the computations of basic and diluted earnings per share have been adjusted retroactively for all periods presented to reflect that change in capital structure.

Our restricted shares granted under the 2006 Equity Incentive Plan participate in any dividends declared on our common stock.  Accordingly, the restricted shares are considered participating securities under the two-class method as required by Emerging Issues Task Force Issue No. 03-6, “Participating Securities and the Two-class method under FASB Statement No. 128.”  The two-class method is an earnings allocation formula that determines earnings for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. Under the two-class method, net income is reduced by the amount of dividends declared in the current period for each class of stock and by the contractual amounts of dividends that must be paid for the current period. The remaining earnings are then allocated to common stock and participating securities to the extent that each security may share in earnings as if all of the earnings for the period had been distributed. Diluted earnings per share is calculated using the treasury stock and “if converted” methods for potential common stock.  Basic earnings per share is calculated as income (loss) available to common stockholders divided by the weighted average number of common shares outstanding during the period. If the effect is dilutive, participating securities are included in the computation of basic earnings per share. Our participating securities do not have a contractual obligation to share in the losses in any given period. As a result, these participating securities will not be allocated any losses in the periods of net losses, but will be allocated income in the periods of net income using the two-class method.

The tables that follow reconcile the components of the basic and diluted earnings per share for the three months and six months ended March 31, 2008 and 2007 (in thousands, except per share and per share data):

16

5. OPERATING SEGMENTS

In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” certain information is disclosed based on the way management organizes financial information for making operating decisions and assessing performance.

We manage and measure performance of our business in three distinct operating segments; commercial, industrial, and residential.  We also have a corporate segment that provides general and administrative services to our operating segments. The commercial

17

segment provides electrical and communications contracting, design, installation, renovation, engineering and maintenance and replacement services in facilities such as office buildings, high-rise apartments and condominiums, theaters, restaurants, hotels, hospitals and critical-care facilities, school districts, light manufacturing and processing facilities, military installations, airports, outside plant, network enterprises and switch network customers. The industrial segment provides electrical contracting, design, installation, renovation and engineering and maintenance and replacement services in facilities such as manufacturing and distribution centers, water treatment facilities, refineries, petrochemical and power plants, and alternative energy facilities.  In addition to these services, our industrial segment also assembles modular power distribution centers.  The residential segment consists of electrical contracting, installation, replacement and renovation services in single-family, condominium, townhouse and low-rise multifamily housing units. Corporate includes expenses associated with our home office.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies, see Note 5 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended September 30, 2007. We evaluate performance based on income from operations of the respective business units prior to home office expenses. Management allocates costs between segments for selling, general and administrative expenses, goodwill impairment, depreciation expense, capital expenditures and total assets.  In our previous financial statements we managed and measured our performance in two operating segments; commercial and industrial, and residential.  On October 1, 2007, in conjunction with our restructuring program described in Note 2, we began to utilize the three segment approach that we have described above.  Accordingly, we have restated our prior year segment results to be consistent with the current year presentation.

Segment information for continuing operations for the three months and six months ended March 31, 2008 and 2007 is as follows (in thousands):