Cartesian 10Q/A 2006 Q1 Quarterly report (amended)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1


þ		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended April 1, 2006


o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number: 0-27617

THE MANAGEMENT NETWORK GROUP, INC.

(Exact name of registrant as specified in its charter)


DELAWARE		48-1129619

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7300 COLLEGE BLVD., SUITE 302, OVERLAND PARK, KS 66210

(Address of principal executive offices) (Zip Code)

913-345-9315

Registrant’s telephone number, including area code

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. Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Accelerated Filero Large Accelerated Filero Non- Accelerated Filerþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

As of May 10, 2007, TMNG had outstanding 35,798,920 shares of common stock.

EXPLANATORY NOTE

In this Quarterly Report on Form 10-Q/A for the interim period ended April 1, 2006 (the “Form 10-Q/A”), The Management Network Group, Inc. (“TMNG” or the “Company”) is restating its condensed consolidated balance sheets as of April 1, 2006 and December 31, 2005, and the related condensed consolidated statements of operations and comprehensive loss and condensed consolidated statements of cash flows for the thirteen weeks ended April 1, 2006 and April 2, 2005 for the effects of errors in accounting for share-based compensation.

On November 13, 2006, the Company announced that following an initial internal review of its stock option practices the Company’s Board of Directors had appointed a Special Committee of outside directors (the “Special Committee”) to conduct a full investigation of the Company’s past stock option granting practices and related accounting (the “Independent Investigation”). The Company also announced that in light of the Special Committee’s review the Company would not be in a position to file the September 30, 2006 Form 10-Q on the due date therefor. On January 19, 2007, the Company announced that management and the Audit Committee of the Board of Directors had reached a preliminary conclusion that incorrect measurement dates were used for financial accounting purposes for certain stock option grants and nonvested stock awards and that the Company may need to restate its historical financial statements. Accordingly, management of the Company concluded, and the Audit Committee of the Company’s Board of Directors agreed, that the Company’s financial statements and the related reports or interim reviews of the Company’s independent registered public accounting firm and all earnings press releases and similar communications issued by the Company relating to the periods 1999 through 2005 and the first and second quarters of 2006 should no longer be relied upon. On April 4, 2007, the Company announced the completion of the Independent Investigation. The key results of the Independent Investigation are discussed below.

As a result of the internal review and the Independent Investigation, management has concluded, and the Audit Committee of the Board of Directors concurs, that incorrect measurement dates were used for financial accounting purposes for a majority of stock option grants and nonvested stock awards made in prior periods. Therefore, the Company is restating previously filed financial statements to record additional non-cash share-based compensation expense and the related tax effects. These adjustments had an impact on the statement of operations, after tax, of $0.4 million and $1.3 million in fiscal years 2005 and 2004, respectively, and $0.1 million for both the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. In addition, we recorded an increase of $7.0 million, after tax, in accumulated deficit as of January 3, 2004 to reflect the cumulative effect of the error.

The Company has filed its Annual Report on Form 10-K for the year ended December 30, 2006 with the Securities and Exchange Commission (the “2006 Form 10-K”) previous to the filing of this Form 10-Q/A. In its 2006 Form 10-K, the Company has restated its consolidated balance sheet as of December 31, 2005 and the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for the fiscal years ended December 31, 2005 and January 1, 2005, as well as each of the interim periods in those fiscal years presented as supplemental information. The Company has also filed an amended Quarterly Report on Form 10-Q/A for the second quarter of fiscal year 2006 concurrently with the filing of this Form 10-Q/A. The Company does not intend to amend any other previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q affected by the restatement; accordingly, such reports and the related reports of our independent registered public accounting firm should no longer be relied upon.

Special Committee’s Independent Investigation

The Special Committee together with its independent counsel and forensic accountants reviewed the facts and circumstances surrounding all stock option grants and nonvested stock awards made by the Company between November 1, 1999 (prior to the date of the Company’s initial public offering) and October 2, 2006 (the “review period”). The Board of Directors did not place any limitations on the scope of the Special Committee’s review. The Special Committee and its advisors were given complete access to all electronic and other documents maintained by the Company and its employees and received full cooperation from management. The Special Committee’s investigative team searched more than one million physical and electronic documents, reviewed more than 270,000 physical and electronic documents, and interviewed more than 20 current and former directors, officers, employees, and advisors.

The Special Committee’s investigation identified a large number of grants for which grant dates were intentionally selected in order to obtain favorable exercise prices. The grant dates for these grants were selected to reflect the Company’s stock price at a date prior to the actual grant date or measurement date. The vast majority of these options that were retroactively priced were granted to non-management employees. The Special Committee found that there was a widespread misconception among personnel responsible for making, processing and approving grants that the Company’s practices were proper, and that there was also widespread unawareness of the accounting consequences of the Company’s practices.

The Special Committee made several recommendations to the Board of Directors for improvements in the Company’s stock option process, corporate governance practices, disclosure controls and procedures and internal controls. As discussed below, the Board of Directors has adopted each of these recommendations, and the Company has implemented or is in the process of implementing each of these recommendations, and the identified weaknesses in the stock option granting process have been remediated.

The Special Committee found no evidence of intent to defraud, fraudulent misconduct or intentional filing of misleading financial statements or other public disclosures. The Special Committee also found that incorrect dating of stock options did not result in any direct financial gain to

any current executive officer or director. None of the current executive officers or directors who received stock options that were incorrectly dated (seven grants in total during the seven year period reviewed) exercised those stock options. All seven incorrectly dated stock option grants made to current executive officers or directors have been voluntarily surrendered and cancelled. The Special Committee did not recommend the termination or resignation of any member of management or the Board of Directors.

Measurement Date Analysis

The Independent Investigation involved an analysis of the measurement dates for all 856 stock option grants and nonvested stock awards made during the review period. These grants were made on 195 unique dates. The period reviewed began before the date of the Company’s initial public offering on November 23, 1999 and covered all stock option grants and nonvested stock awards made through the date that the Board of Directors suspended stock option grants pending completion of the investigation.

The grants during the relevant period were organized into categories based on grant type and process by which the grant was finalized. A total of 16 major categories, and a number of subcategories, were established for the 856 grants made during the review period. The Special Committee analyzed the evidence related to each category of grant including, but not limited to, electronic and physical documents, document metadata, and witness interviews. Based on the relevant facts and circumstances, the Special Committee through its advisors, and the Company, applied the relevant generally accepted accounting principles together with guidance publicly issued by the Securities and Exchange Commission (“SEC”) to determine the proper measurement date for every grant within each category. If the measurement date was not the originally assigned and recorded grant date, accounting adjustments were made as required, resulting in stock-based compensation expense and related tax effects.

Most stock option grants, other than those made to executive officers and directors, were made by management under an apparent or de facto delegation of such authority by the Board of Directors. Although reports with respect to stock option grants were provided to the Board of Directors from time to time, the Company has concluded that the recipients and terms of most grants generally were fixed for accounting purposes before these reports were provided to the Board. Thus, the Company has concluded that the measurement dates for these grants generally occurred when management’s process for allocating and issuing these grants was completed rather than the date the Board of Directors became aware of the grant.

Additional Information

All information in this Form 10-Q/A is as of April 1, 2006 and does not reflect events occurring after the date of the original filing, other than the restatement. For the convenience of the reader, this Form 10-Q/A sets forth the original filing in its entirety, as amended and modified to reflect the restatement. The following sections of this Form 10-Q/A were amended to reflect the conclusions of the Special Committee and the restatement:

Part I — Item 1 — Condensed Consolidated Financial Statements;
Part I — Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations;
Part I — Item 4 — Controls and Procedures;
Part II — Item 1A — Risk Factors;

This Form 10-Q/A should be read in conjunction with our periodic filings made with the SEC subsequent to the date of the original filing, including any amendments to those filings, as well as all Current Reports filed on Form 8-K subsequent to the date of the original filing. In addition, in accordance with applicable rules and regulations promulgated by the SEC, this Form 10-Q/A includes updated certifications from our Chief Executive Officer and Chief Financial Officer as Exhibits 31 and 32.

See Note 2, “Restatement of Condensed Consolidated Financial Statements,” in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q/A for a further discussion of this matter.

THE MANAGEMENT NETWORK GROUP, INC.
INDEX


	PAGE
PART I. FINANCIAL INFORMATION:
ITEM 1. Condensed Consolidated Financial Statements (unaudited):

Condensed Consolidated Balance Sheets — April 1, 2006 (as restated) and December 31, 2005 (as restated)		5

Condensed Consolidated Statements of Operations and Comprehensive Loss — Thirteen weeks ended April 1, 2006 (as restated) and April 2, 2005 (as restated)		6

Condensed Consolidated Statements of Cash Flows — Thirteen weeks ended April 1, 2006 (as restated) and April 2, 2005 (as restated)		7

Notes to Condensed Consolidated Financial Statements		8

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		24

ITEM 4. Controls and Procedures		24

ITEM 4(T). Controls and Procedures		26

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings		26

ITEM 1A. Risk Factors		26

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		27

ITEM 3. Defaults Upon Senior Securities		27

ITEM 4. Submission of Matters to a Vote of Security Holders		27

ITEM 5. Other Information		27

ITEM 6. Exhibits		28

Signatures		29

Exhibits

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE MANAGEMENT NETWORK GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

(unaudited)


	April 1,			December 31,
	2006			2005
	As			As
	Restated (1)			Restated (1)
CURRENT ASSETS:
Cash and cash equivalents	$	15,243		$	10,951
Short-term investments		33,200			38,700
Receivables:
Accounts receivable		4,276			3,886
Accounts receivable — unbilled		2,861			2,559

		7,137			6,445
Less: Allowance for doubtful accounts		(294	)		(296	)

		6,843			6,149
Refundable income taxes		112			117
Prepaid and other assets		1,177			1,262

Total current assets		56,575			57,179

Property and equipment, net		948			900
Goodwill		13,365			13,365
Identifiable intangible assets, net		1,536			1,651
Other assets		452			454

Total Assets	$	72,876		$	73,549


CURRENT LIABILITIES:
Trade accounts payable	$	578		$	1,025
Accrued payroll, bonuses and related expenses		1,760			1,136
Other accrued liabilities		1,896			1,893
Unfavorable and capital lease obligations		623			628

Total current liabilities		4,857			4,682

Unfavorable and capital lease obligations		2,675			2,819

STOCKHOLDERS’ EQUITY
Common Stock:		36			36
Voting — $.001 par value, 100,000,000 shares authorized; 35,790,286 and 35,705,520 issued and outstanding on April 1, 2006 and December 31, 2005, respectively
Preferred Stock — $.001 par value, 10,000,000 shares authorized, no shares issued or outstanding
Additional paid-in capital		168,736			168,338
Accumulated deficit		(103,579	)		(101,951	)
Accumulated other comprehensive income — Foreign currency translation adjustment		151			147
Unearned compensation					(522	)

Total stockholders’ equity		65,344			66,048

Total Liabilities and Stockholders’ Equity	$	72,876		$	73,549


(1)		See Note 2, “Restatement of Condensed Consolidated Financial Statements,” in Notes to Condensed Consolidated Financial Statements.

See notes to condensed consolidated financial statements.

THE MANAGEMENT NETWORK GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
(In thousands, except per share data)

(unaudited)


	For the Thirteen Weeks Ended
	April 1,			April 2,
	2006			2005
	As			As
	Restated (1)			Restated (1)
Revenues	$	7,163		$	7,067

Cost of services (includes non-cash share-based compensation expense of $201 and $94 for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively)		3,552			3,488

Gross Profit		3,611			3,579

Operating Expenses:
Selling, general and administrative (includes non-cash share-based compensation expense of $567 and $270 for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively)		5,638			4,417
Real estate restructuring					75
Intangible asset amortization		115			160

Total operating expenses		5,753			4,652

Loss from operations		(2,142	)		(1,073	)
Other Income:
Interest income		535			324
Other, net					15

Total other income		535			339

Loss before income tax provision		(1,607	)		(734	)
Income tax provision		(21	)		(15	)

Net loss		(1,628	)		(749	)


Other comprehensive item - Foreign currency translation adjustment		4			(70	)

Comprehensive loss	$	(1,624	)	$	(819	)

Loss per common share
Basic and diluted	$	(0.05	)	$	(0.02	)

Weighted average shares used in calculation of net loss per common share
Basic and diluted		35,625			34,977


(1)		See Note 2, “Restatement of Condensed Consolidated Financial Statements,” in Notes to Condensed Consolidated Financial Statements.

See notes to condensed consolidated financial statements.

THE MANAGEMENT NETWORK GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

(unaudited)


	For the Thirteen Weeks Ended
	April 1,			April 2,
	2006			2005
	As			As
	Restated (1)			Restated (1)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,628	)	$	(749	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		214			282
Share-based compensation		768			364
Other changes in operating assets and liabilities:
Accounts receivable		(392	)		1,066
Accounts receivable — unbilled		(302	)		(2,018	)
Refundable income taxes		5			590
Prepaid and other assets		87			67
Trade accounts payable		(447	)		(291	)
Accrued liabilities		625			59

Net cash used in operating activities		(1,070	)		(630	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments		(800	)
Proceeds from maturities and sales of short-term investments		6,300			2,750
Acquisition of property and equipment		(147	)		(86	)


Net cash provided by investing activities		5,353			2,664


CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made on long-term obligations		(147	)		(263	)
Proceeds from exercise of stock options		152			158


Net cash provided by (used in) financing activities		5			(105	)


Effect of exchange rate on cash and cash equivalents		4			(70	)


Net increase in cash and cash equivalents		4,292			1,859
Cash and cash equivalents, beginning of period		10,951			10,882

Cash and cash equivalents, end of period	$	15,243		$	12,741


Supplemental disclosure of cash flow information:
Cash paid during period for interest				$	1

Cash paid during period for taxes, net of refunds	$	16		$	15

Accrued property and equipment additions				$	169


(1)		See Note 2, “Restatement of Condensed Consolidated Financial Statements,” in Notes to Condensed Consolidated Financial Statements.

See notes to condensed consolidated financial statements.

THE MANAGEMENT NETWORK GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. Basis of Reporting and Significant Accounting Policies

The accompanying condensed consolidated financial statements of The Management Network Group, Inc. (“TMNG” or the “Company”) as of April 1, 2006 and for the thirteen weeks ended April 1, 2006 and April 2, 2005, are unaudited and reflect all normal recurring adjustments which are, in the opinion of management, necessary for the fair presentation of the Company’s condensed consolidated financial position, results of operations, and cash flows as of these dates and for the periods presented. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information. Consequently, these statements do not include all the disclosures normally required by US GAAP for annual financial statements nor those normally made in the Company’s Annual Report on Form 10-K. Accordingly, reference should be made to the Company’s annual consolidated financial statements and notes thereto for the fiscal year ended December 30, 2006, included in the 2006 Annual Report on Form 10-K filed previously to this amended Form 10-Q/A with the Securities and Exchange Commission (“SEC”) for additional disclosures, including a summary of the Company’s accounting policies. The Condensed Consolidated Balance Sheet as of December 31, 2005 has been derived from the audited Consolidated Balance Sheet at that date but does not include all of the information and footnotes required by US GAAP for complete financial statements.

Research and Development Costs — Expenditures relating to development of new offerings and services are expensed as incurred. Research and development costs (exclusive of associated sales and marketing related costs) were $180,000 and $115,000 in the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively.

Share-Based Compensation — Effective January 1, 2006, the Company adopted SFAS No. 123R, “Share-Based Payment,” which revised Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-based Compensation”. SFAS No. 123R requires all share-based payment transactions with employees, including grants of employee stock options, to be recognized as compensation expense over the requisite service period based on their relative fair values.

Prior to the adoption of SFAS No. 123R, share-based compensation expense related to employee stock options was not recognized in the statement of operations if the exercise price was at least equal to the market value of the common stock on the grant date, in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” The Company applied the disclosure provisions of SFAS No. 123 as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure,” as if the fair-value-based method had been applied in measuring compensation expense.

The Company elected to use the Modified Prospective Application method for implementing SFAS No. 123(R). The modified prospective transition method requires that share-based compensation expense be recorded for all new and unvested stock options, nonvested stock, and employee stock purchase plan shares that are ultimately expected to vest as the requisite service is rendered beginning on January 1, 2006, the first day of the Company’s fiscal year 2006. Share-based compensation expense for awards granted prior to adoption of SFAS No. 123R is based on the grant-date fair-value as determined under the pro forma provisions of SFAS No. 123. See Note 3 for a full discussion of the Company’s share-based compensation arrangements.

We restated our consolidated financial statements as a result of improper dating of historical stock option grants and nonvested stock awards. Our selection of the methodology to determine the most likely measurement dates of stock option grants involved judgment and careful evaluation of all available relevant facts and circumstances for each historical grant. We believe we have used the most appropriate methodology.

The methodology used in determining the most likely accounting measurement dates for stock option grants is summarized below. The measurement date is the first date on which the number of shares that a recipient is entitled to receive and the option price are known with finality. In general, the hierarchy for determining the measurement date was as follows:

(1) The date of Board of Directors (or Compensation Committee) approval of the number of shares and the exercise price for grants where there was no evidence of subsequent changes to the grant list or exercise price and where apparent prior notification of the principal terms of the grants had not been given to the recipient.

(2) The date of management approval of the number of shares and the exercise price for grants where there was clear evidence that the terms of the grants had been determined with finality by management and where the grants were not subject to subsequent Board of Directors approval and there was no evidence of subsequent changes to the grant list or exercise price.

(3) The date of communication of the principal terms of the grant to the recipients where it was not apparent that the terms had previously been determined with finality by either the Board of Directors or management and there was no clear indication that the terms had been determined by management with finality prior to such date.

(4) The date of satisfaction of a condition precedent to the grant (such as commencement of employment, execution of an employment agreement, closing a transaction, etc.) where the principal terms of a grant had been determined with finality, either by number or formula, prior to the occurrence of the condition precedent.

(5) The date of notification to the Company’s human resources department that a grant had been made where there was no clear evidence of the date the recipient was notified of the principal terms of the grant (e.g., where the recipient was notified by phone or in person) or the date that management had determined the terms with finality and where the terms had not previously been determined by the Board of Directors.

With respect to any grants made by the Company on a group basis, the Company reviewed evidence of any changes to the individual grant recipients or amount of shares granted after that date and evaluated whether any such changes should delay the accounting measurement date on an individual grant basis or for the entire list. Factors considered in evaluating whether it would be appropriate to delay the measurement date until the list was final included the number and frequency of any changes as well as the reason for any changes and if the changes were to correct administrative errors.

In applying the methodology, the Company revised the accounting measurement dates for many grants which resulted in exercise prices that were less than the fair market value of the stock on the revised accounting measurement dates.

The aforementioned methodology for determining the accounting measurement date was used to determine the most likely measurement date based on the available information. Many measurement date conclusions are dependent on the facts and circumstances of each stock option grant and involved the application of judgment.

Restatement – The Notes to Condensed Consolidated Financial Statements have been revised, as appropriate, for the effects of the restatement described in Note 2.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29.” SFAS No. 153 was issued primarily to improve the comparability of accounting for exchanges of nonmonetary assets with the International Accounting Standards Board. SFAS No. 153 requires that exchanges of nonmonetary assets be measured based on the fair value of the assets exchanged. APB Opinion No. 29 included some exceptions to measuring exchanges at fair value. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005, though early adoption is encouraged. The adoption of SFAS No. 153 is not expected to have a material impact on the Company’s consolidated financial statements.

In May 2005, FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” which will require entities that voluntarily make a change in accounting principle to apply that change retrospectively to prior periods’ financial statements, unless this would be impracticable. SFAS No. 154 supersedes APB Opinion No. 20, “Accounting Changes,” which previously required that most voluntary changes in accounting principle be recognized by including in the current period’s net income the cumulative effect of changing to the new accounting principle. SFAS No. 154 also makes a distinction between “retrospective application” of an accounting principle and the “restatement” of financial statements to reflect the correction of an error. SFAS No. 154 applies to accounting changes and error corrections that are made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 is not expected to have a material impact on the Company’s consolidated financial statements.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of SFAS No. 133 and 140.” This statement simplifies accounting for certain hybrid financial instruments, eliminates the interim guidance in Statement 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interest in Securitized Financial Assets, and eliminates a restriction of the passive derivative instruments that a qualifying special-purpose entity may hold. The statement is effective for fiscal years beginning after September 15, 2006. The adoption of SFAS No. 155 is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2006, the Emerging Issues Task Force (“EITF”) issued EITF Issue 06-3, “How Sales Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement.” A consensus was reached that entities may adopt a policy of presenting sales taxes in the income statement on either a gross or net basis. If taxes are significant, an entity should disclose its policy of presenting taxes and the amounts of taxes. The guidance is effective for periods beginning after December 15, 2006. The Company presents sales net of sales taxes. This issue will not have an impact on the Company’s consolidated financial statements.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140.” This statement requires all separately recognized servicing rights to be initially measured at fair value, if practicable. SFAS No. 156 is effective January 1, 2007. The adoption of SFAS No. 156 is not expected to have a material impact on the Company’s consolidated financial statements.

2. Restatement of Condensed Consolidated Financial Statements

	•		the originally assigned and recorded grant dates for 582 of the 856 grants made during the review period were not the proper measurement dates;

	•		these grants constituted approximately 8,479,129 stock options and shares of nonvested stock (57% of the total of the stock options and shares of nonvested stock) granted during the review period;

	•		the cumulative effect of misdated options and nonvested stock (after taxes and net of forfeitures) was $8.7 million as of April 1, 2006, including an impact on the statement of operations, after tax, of $0.4 million and $1.3 million in fiscal years 2005 and 2004, respectively, and $0.1 million for both the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively;

	•		approximately 94% of the misdated grants, in terms of both number of grants and number of options and shares of nonvested stock, were made prior to 2004;

	•		there was no evidence of intent to defraud, fraudulent misconduct or intentional filing of misleading financial statements or other public disclosures;

	•		no improperly dated options received by executive officers or directors were exercised (these were limited to seven grants which were voluntarily surrendered and cancelled in April 2007);

	•		incorrect dating of stock options did not result in any direct financial gain to current executive officers or directors; and

	•		major contributing factors to the Company’s stock option-related errors included: (i) accounting controls and procedures were inadequate to ensure the accurate reporting of expenses related to stock option grants and nonvested stock awards; (ii) inadequate communication between the Board, management, accounting personnel, and non-accounting personnel; (iii) inadequate training of both accounting and non-accounting personnel; (iv) non-accounting staff were not provided sufficient guidance with respect to the proper recording of grant dates; (v) accounting staff were not provided sufficient information with respect to the actual grant dates or measurement dates of stock options; (vi) accounting staff placed undue reliance on the information recorded by the Company’s non-accounting staff in the Company’s stock plan management and reporting software, and (vii) many of the grants, other than grants to executive officers and directors, were made by management without Board of Director approval of the specific terms of each individual grant.

As a result of the internal review and the Independent Investigation, management has concluded, and the Audit Committee of the Board of Directors concurs, that incorrect measurement dates were used for financial accounting purposes for a majority of stock option grants and nonvested stock awards made in prior periods. As a result, the Company has restated its condensed consolidated balance sheets as of December 31, 2005, and April 1, 2006, and its condensed consolidated statements of operations and comprehensive loss and the related condensed consolidated statements of cash flows for the thirteen weeks ended April 2, 2005 and April 1, 2006.

The Company is restating previously issued financial statements to record additional non-cash share-based compensation expense and the related tax effects. These adjustments had an impact on the statement of operations, after tax, of $0.4 million and $1.3 million in fiscal years 2005 and 2004, respectively. In addition, we recorded an increase of $7.0 million, after tax, in accumulated deficit as of January 3, 2004 to reflect the cumulative effect of the error. The following table presents the adjustments by year (in thousands):


	Share-Based Compensation
	Adjustments									As previously		As restated, net of
	Pre-tax			Tax effect			Net of tax			reported, net of tax		tax
1998	$	46		$	(19	)	$	27		$	157	$	184
1999		(30	)		12			(18	)		2,602		2,584
2000		2,617			(1,045	)		1,572			2,556		4,128
2001		3,263			(1,292	)		1,971			853		2,824
2002		2,110			(843	)		1,267			269		1,536
2003		199			2,001			2,200			2,337		4,537

Sub-total, 1998-2003								7,019
2004		1,275						1,275			1,163		2,438
2005		352						352			718		1,070
First Quarter 2006		65						65			703		768

Total	$	9,897		$	(1,186	)	$	8,711

The following table presents the adjustments by quarter for fiscal year 2005 through the thirteen weeks ended April 2, 2005 (in thousands):

Share-Based Compensation

Adjustments

As previously

As restated, net of

Pre-tax

Tax effect

Net of tax

reported, net of tax

tax

First Quarter 2005

141

223

364

The following table presents the effects of the share-based compensation and related tax adjustments made to the Company’s previously reported condensed consolidated statements of operations for the thirteen weeks ended April 1, 2006 and April 2, 2005 (in thousands, except per share amounts):


	Thirteen Weeks Ended April 1, 2006									Thirteen Weeks Ended April 2, 2005
	As						As			As						As
	Reported			Adjustments			Restated			Reported			Adjustments			Restated
Cost of services	$	3,544		$	8		$	3,552		$	3,429		$	59		$	3,488
Gross profit		3,619			(8	)		3,611			3,638			(59	)		3,579
Selling, general and administrative		5,581			57			5,638			4,335			82			4,417
Total operating expenses		5,696			57			5,753			4,570			82			4,652
Loss from operations		(2,077	)		(65	)		(2,142	)		(932	)		(141	)		(1,073	)
Loss from operations before income tax provision		(1,542	)		(65	)		(1,607	)		(593	)		(141	)		(734	)

Net loss		(1,563	)		(65	)		(1,628	)		(608	)		(141	)		(749	)

Comprehensive loss	$	(1,559	)	$	(65	)	$	(1,624	)	$	(678	)	$	(141	)	$	(819	)
Net loss per common share:
Basic and diluted	$	(0.04	)	$	(0.01	)	$	(0.05	)	$	(0.02	)				$	(0.02	)

The following table presents the effects of the share-based compensation and related tax adjustments made to the Company’s previously reported condensed consolidated balance sheet as of April 1, 2006 and December 31, 2005 (in thousands):


	April 1, 2006									December 31, 2005
	As						As			As						As
	Reported			Adjustments			Restated			Reported			Adjustments			Restated
Additional paid-in capital	$	160,025		$	8,711		$	168,736		$	159,586		$	8,752		$	168,338
Accumulated deficit		(94,868	)		(8,711	)		(103,579	)		(93,305	)		(8,646	)		(101,951	)
Unearned compensation											(416	)		(106	)		(522	)

The following table presents the effects of the share-based compensation and related tax adjustments made to the Company’s previously reported condensed consolidated statement of cash flows for the thirteen weeks ended April 1, 2006 and April 2, 2005 (in thousands):


	Thirteen Weeks Ended April 1, 2006									Thirteen Weeks Ended April 2, 2005
	As						As			As						As
	Reported			Adjustments			Restated			Reported			Adjustments			Restated
Net loss	$	(1,563	)	$	(65	)	$	(1,628	)	$	(608	)	$	(141	)	$	(749	)
Share-based compensation		703			65			768			223			141			364

3. Share-Based Compensation

See Note 2 for a full discussion of the restatement of the Company’s previously filed consolidated financial statements as a result of the Independent Investigation into the Company’s past stock option and nonvested stock granting practices and related accounting.

In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment.” SFAS No. 123R is a revision of SFAS No. 123, “Accounting for Stock-based Compensation,” and supersedes Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. SFAS No. 123R focuses primarily on accounting for transactions in which an entity obtains employee and non-employee services in exchange for share-based payment transactions. SFAS No. 123R establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all companies to apply a fair-value-based measurement method in accounting for generally all share-based payment transactions with employees and non-employees.

On January 1, 2006, the Company adopted SFAS No. 123R using the modified prospective transition method. Accordingly, prior period amounts have not been restated; however, the balance presented as unearned compensation on nonvested shares (restricted stock) within stockholders’ equity has been reclassified to additional paid-in capital as of January 1, 2006. Additionally, amounts previously classified as “equity related charges” on the condensed consolidated statements of operations and comprehensive loss have been reclassified to cost of services or selling, general and administrative expense, as appropriate. SFAS No. 123R requires the netting of estimated forfeitures against compensation expense. The adoption of the policy to net estimated forfeitures was immaterial, therefore no cumulative effect change in accounting has been reported. Compensation expense is based on the calculated fair value of the awards and is expensed over the service period (generally the vesting period). Prior to the adoption of SFAS No. 123R, the Company utilized the intrinsic value methodology in accounting for stock-based compensation for employees and non-employee directors in accordance with the provisions of APB No. 25 and related Interpretations.

Under the modified prospective transition method, compensation cost associated with stock options and nonvested shares for the thirteen weeks ended April 1, 2006 includes: (a) compensation cost for awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and (b) compensation cost for awards granted subsequent to January 1, 2006, based on the grant date fair value under SFAS No. 123R.

Prior to Adoption of SFAS No. 123R

During the thirteen weeks ended April 2, 2005, the Company recognized compensation expense of $364,000 related to share-based awards. The Company did not recognize a tax benefit nor did it capitalize any costs related to share-based compensation expense in fiscal year 2005.

During the thirteen weeks ended April 2, 2005, the Company granted 175,000 shares of nonvested stock to key management personnel. These awards had an aggregate fair value on the date of grant of $392,000. The compensation cost associated with such grants is being amortized through charges to operations on a graded vesting schedule over four years. In addition, during the thirteen weeks ended April 2, 2005, the Company granted options to purchase 205,000 shares of the Company’s common stock to employees at a weighted average exercise price of $2.36 per share. The compensation cost associated with such grants is being amortized through charges to operations on a graded vesting schedule over periods ranging from three to four years.

The following table summarizes the pro forma effect of stock-based compensation on net loss and net loss per share for the thirteen weeks ended April 2, 2005 (in thousands, except per share amounts):

THIRTEEN
WEEKS ENDED
APRIL 2, 2005


Net loss, as reported:	$	(749	)
Add: stock-based employee compensation expense included in reported net loss		364
Deduct: Total stock-based compensation expense determined under fair value based method for all awards		(565	)

Pro forma net loss	$	(950	)

Loss per share
Basic and diluted, as reported	$	(0.02	)

Basic and diluted, pro forma	$	(0.03	)

Subsequent to Adoption of SFAS No. 123R

The Company estimates the fair value of our stock options and stock issued under the Employee Stock Purchase Plan using the Black-Scholes-Merton option pricing model. Groups of employees or non-employee directors that have similar historical and expected exercise behavior are considered separately for valuation purposes. The table below shows the weighted average of the assumptions used in estimating the fair value of stock options granted during the thirteen weeks ended April 1, 2006 and April 2, 2005:


	THIRTEEN		THIRTEEN
	WEEKS ENDED		WEEKS ENDED
	APRIL 1, 2006		APRIL 2, 2005
Risk-free interest rate		4.46% - 4.83%		3.58% - 3.99%
Expected life	6 years		5 years
Expected volatility factor		83%		90%
Expected dividend rate		0%		0%

The risk-free interest rate is based on the U.S. Treasury yield at the time of grant for a term equal to the expected life of the stock option; prior to the adoption of SFAS No. 123R, the expected life is based on historical and expected exercise behavior; subsequent to the adoption of SFAS No. 123R, the expected life was determined using the simplified method of estimating the life as allowed under Staff Accounting Bulletin No. 107, “Share-Based Payment”; and the expected volatility is based on the historical volatility of our stock price for a period of time equal to the expected life of the stock option.

Nearly all of the Company’s stock based compensation arrangements utilize graded vesting schedules where a portion of the grant vests annually over a period of two to four years. The Company has a policy of recognizing compensation expense for awards with graded vesting over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. This policy has the effect of accelerating the recognition of expense when compared to a straight-line amortization methodology.

As of April 1, 2006, the Company has three share-based compensation plans, which are described below. The compensation cost that has been charged against income for those plans under SFAS No. 123R was $768,000 for the thirteen weeks ended April 1, 2006. As of April 1, 2006, unrecognized compensation cost, net of estimated forfeitures, related to the unvested portion of all share-based compensation arrangements was approximately $3.8 million and is expected to be recognized over a weighted-average period of approximately 11 months. The Company has historically issued and expects to continue to issue new shares to satisfy stock option exercises, vesting of nonvested shares or purchases of shares under the Employee Stock Purchase Plan.

1998 EQUITY INCENTIVE PLAN

Stock Options

The Company’s 1998 Equity Incentive Plan (the “1998 Plan”) is a shareholder approved plan, which provides for the granting of incentive stock options, nonqualified stock options and nonvested shares to employees, non-management directors and consultants. As of April 1, 2006, the Company has 3,530,362 shares of the Company’s common stock available to grant as stock options under the 1998 Plan. Under the 1998 Plan, incentive stock options are required to be granted at an exercise price of not less than market value per share of the common stock on the date of grant as determined by the Board of Directors. Vesting and exercise provisions are determined by the Board of Directors. Between 1999 and 2006, however, the vesting and exercise provisions of most stock option grants, other than those made to executive officers and directors, were

determined by management under an apparent orde factodelegation of such authority by the Board of Directors. Although the 1998 Plan does not expressly authorize such delegation, the Board of Directors has determined that these will be recognized as valid option grants.

As of April 1, 2006, all options granted under the 1998 Plan were non-qualified stock options. Options granted under the 1998 Plan generally become exercisable over a three to four year period beginning on the date of grant. Options granted under the 1998 Plan have a maximum term of ten years.

A summary of the option activity of the Company’s 1998 Plan as of April 1, 2006 and changes during the thirteen weeks then ended is presented below:


						WEIGHTED AVERAGE
				WEIGHTED AVERAGE		REMAINING	AGGREGATE
	SHARES			EXERCISE PRICE		CONTRACTUAL TERM	INTRINSIC VALUE
Outstanding at December 31, 2005		5,052,405		$	4.50
Granted		652,000		$	2.46
Exercised		(84,766	)	$	1.78
Forfeited/cancelled		(92,377	)	$	6.11

Outstanding at April 1, 2006		5,527,262		$	4.28	7.4 years	$	469,000


Options vested and expected to be vested at April 1, 2006		5,279,252		$	4.36	7.3 years	$	462,000


Options exercisable at April 1, 2006		2,730,077		$	6.19	5.5 years	$	388,000

Weighted average fair value of options granted during the period				$	1.83

The total intrinsic value of options exercised during the thirteen weeks ended April 1, 2006 was $68,000. As of April 1, 2006, unrecognized compensation cost, net of estimated forfeitures, related to the unvested portion of stock options issued under the 1998 Plan was approximately $3.0 million and is expected to be recognized over a weighted-average period of approximately 11 months.

Nonvested Shares

As of April 1, 2006, the Company has 1,055,000 shares of the Company’s common stock available for grant as nonvested shares under the 1998 Plan for key management personnel. The shares are subject to restriction based upon a two to four year vesting schedule. The fair value of nonvested share awards is determined based on the closing trading price of our common stock on the grant date.

A summary of the status of nonvested shares granted under the 1998 Plan as of April 1, 2006 and changes during the thirteen weeks then ended is presented below:


				WEIGHTED AVERAGE
				GRANT DATE
	SHARES			FAIR VALUE
Outstanding at December 31, 2005		310,500		$	2.31
Vested		(43,750	)	$	2.24

Outstanding at April 1, 2006		266,750		$	2.32

As of April 1, 2006, there was $330,000 of total unrecognized compensation cost related to nonvested shares granted under the 1998 Plan. The cost is expected to be recognized over a weighted average period of 20 months. The total fair value of shares vested during the thirteen weeks ended April 1, 2006 was $118,000.

2000 SUPPLEMENTAL STOCK PLAN

As of April 1, 2006, the Company has 2,721,087 shares of the Company’s common stock available to grant as stock options under the 2000 Supplemental Stock Plan (the “2000 Plan”). The 2000 Plan provides the Company’s common stock for the granting of nonqualified stock options to employees and is not subject to shareholder approval. Vesting and exercise provisions are determined by the Board of Directors. Options granted under the plan generally become exercisable over a period of up to four years beginning on the date of grant and have a maximum term of ten years.

A summary of the option activity of the Company’s 2000 Plan as of April 1, 2006 and changes during the thirteen weeks then ended is presented below:


						WEIGHTED AVERAGE
				WEIGHTED AVERAGE		REMAINING	AGGREGATE
	SHARES			EXERCISE PRICE		CONTRACTUAL TERM	INTRINSIC VALUE
Outstanding at December 31, 2005		957,040		$	4.63
Granted		132,500		$	2.48
Forfeited/cancelled		(22,500	)	$	3.50

Outstanding at April 1, 2006		1,067,040		$	4.39	6.8 years	$	26,000


Options vested and expected to be vested at April 1, 2006		1,033,756		$	4.45	6.8 years	$	24,000


Options exercisable at April 1, 2006		683,891		$	5.45	5.5 years	$	15,000


Weighted average fair value of options granted during the period				$	1.82

As of April 1, 2006, unrecognized compensation cost, net of estimated forfeitures, related to the unvested portion of stock options issued under the 2000 Plan was $432,000 and is expected to be recognized over a weighted-average period of approximately 10 months.

EMPLOYEE STOCK PURCHASE PLAN

Under the Employee Stock Purchase Plan (ESPP), shares of the Company’s common stock may be purchased at six-month intervals at 85% of the lower of the fair market value on the first day of the enrollment period or on the last day of each six-month period. Employees may purchase shares through a payroll deduction program having a value not exceeding 15% of their gross compensation during an offering period. In the thirteen weeks ended April 1, 2006, we recognized net expense of $23,000 under SFAS No. 123R associated with purchases under the ESPP.

4. Earnings (Loss) Per Share

The Company calculates and presents earnings (loss) per share using a dual presentation of basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed in the same manner except the weighted average number of shares is increased for dilutive securities. In accordance with the provisions of SFAS No. 128 “Earnings Per Share”, the Company has not included the effect of stock options in the calculation of diluted loss per share for the thirteen weeks ended April 1, 2006 and April 2, 2005, as the Company reported a loss from continuing operations for these periods and the effect would have been anti-dilutive.

5. Business Segments

The Company identifies its segments based on the way management organizes the Company to assess performance and make operating decisions regarding the allocation of resources. In accordance with the criteria in SFAS No. 131 “Disclosure about Segments of an Enterprise and Related Information,” the Company has concluded it has four operating segments: Operations, Strategy, Marketing and International; which are aggregated in one reportable segment, the Management Consulting Services segment. Management Consulting Services includes business strategy and planning, marketing and customer relationship management, billing system support, operating system support, revenue assurance, corporate investment services, and business model transformation. The company intends to continue to measure and report its activities using our current segment structure. However, as the services provided by the Company evolve, management will continue to evaluate its segment reporting structure.

In accordance with the provisions of SFAS No 131, revenues earned in the United States and internationally based on the location where the services are performed are shown in the following table (amounts in thousands):


	FOR THE THIRTEEN WEEKS ENDED
	APRIL 1, 2006		APRIL 2, 2005
United States	$	6,945	$	6,608
International:
The Netherlands				39
United Kingdom		218		345
Other				75

Total	$	7,163	$	7,067

6. Other Identifiable Intangible Assets

Included in the Company’s consolidated balance sheets as of April 1, 2006 and December 31, 2005, are the following identifiable intangible assets (amounts in thousands):


	April 1, 2006					December 31, 2005
			Accumulated					Accumulated
	Cost		Amortization			Cost		Amortization
Customer relationships	$	1,908	$	(1,751	)	$	1,908	$	(1,709	)
Employee agreements							3,200		(3,200	)
S3 license agreement		1,500		(121	)		1,500		(48	)

Total	$	3,408	$	(1,872	)	$	6,608	$	(4,957	)

Intangible amortization expense for the thirteen weeks ended April 1, 2006 and April 2, 2005 was $115,000 and $160,000, respectively. Intangible amortization expense is estimated to be approximately $346,000 for the remainder of fiscal year 2006, $319,000 in fiscal year 2007 and $290,000 each in fiscal years 2008 through 2010.

7. Income Taxes

In the thirteen weeks ended April 1, 2006 and April 2, 2005, the Company generated income tax benefits of $500,000 and $280,000, respectively. The Company recorded full valuation allowances against these income tax benefits in accordance with provisions of SFAS No. 109 “Accounting for income tax”, which requires an estimation of the recoverability of the recorded income tax asset balances. In addition, the Company reported income tax provision of $21,000 and $15,000 for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively, related to state tax expense. As of April 1, 2006, the Company has recorded $29.2 million of valuation allowances in connection with its net deferred tax assets.

8. Real Estate Restructuring

In the fourth quarter of fiscal year 2004, the Company made the decision to consolidate office space. In connection with this decision, a sublease agreement for unutilized space was entered into with a third party for the remainder of the original lease term. In accordance with SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities,” the decision to consolidate office space resulted in a charge of $75,000 related to the buyout of an office equipment lease in the thirteen weeks ended April 2, 2005. The restructuring charge has been reflected as a component of Loss from Operations in the Statement of Operations and Comprehensive Loss.

9. Loans to Officers

As of April 1, 2006, there is one outstanding line of credit between the Company and its Chief Executive Officer, Richard P. Nespola, which originated in fiscal year 2001. Aggregate borrowings outstanding against the line of credit at April 1, 2006 and December 31, 2005 totaled $300,000 and are due in 2011. These amounts are included in other assets in the non-current assets section of the balance sheet. In accordance with the loan provisions, the interest rate charged on the loans is equal to the Applicable Federal Rate (AFR), as announced by the Internal Revenue Service, for short-term obligations (with annual compounding) in effect for the month in which the advance is made, until fully paid. Pursuant to the Sarbanes-Oxley Act, no further loan agreements or draws against the line may be made by the Company to, or arranged by the Company for its executive officers. Interest payments on this loan are current as of April 1, 2006.

10. Contingencies

In June 1998, the bankruptcy trustee of a former client, Communications Network Corporation, sued TMNG for a total of $320,000 in the U.S. Bankruptcy Court in New York seeking recovery of $160,000 alleging an improper payment of consulting fees paid by the former client during the period from July 1, 1996, when an involuntary bankruptcy proceeding was initiated against the former client, through August 6, 1996, when the former client agreed to an order for relief in the bankruptcy proceeding, and $160,000 in consulting fees paid by the former client after August 6, 1996. The bankruptcy trustee also sued TMNG for at least $1.85 million for breach of contract, breach of fiduciary duties and negligence. In March 2006, the Company reached a settlement agreement with the bankruptcy trustee whereby the Company agreed to pay the trustee $255,000 in exchange for being released from all potential liability under the suits discussed above. This settlement was fully reserved for as of December 31, 2005.

Additionally, as of April 1, 2006 the Company had outstanding demands aggregating approximately $1.0 million by the bankruptcy trustees of several former clients in connection with collected balances near the customers’ respective bankruptcy filing dates. Although the Company does not believe it received any preference payments from these former clients and plans to vigorously defend its position, the Company has established reserves of $727,000 as of April 1, 2006 and December 31, 2005, which it believes are adequate in the event of loss or settlement on remaining outstanding claims.

The Company may become involved in various legal and administrative actions arising in the normal course of business. These could include actions brought by taxing authorities challenging the employment status of consultants utilized by the Company. In addition, future customer bankruptcies could result in additional claims on collected balances for professional services near the bankruptcy filing date. While the resolution of any of such actions, claims, or the matters described above may have an impact on the financial results for the period in which they occur, the Company believes that the ultimate disposition of these matters will not have a material adverse effect upon its consolidated results of operations, cash flows or financial position.

The Company establishes reserves for potential tax liabilities when, despite the belief that tax return positions are fully supported, certain positions are likely to be challenged and not be fully sustained. Such tax reserves are analyzed on a quarterly basis and adjusted based upon changes in facts and circumstances, such as the progress of federal and state audits, case law and emerging legislation. The Company’s effective tax rate includes the impact of such tax reserves and changes to these reserves as considered appropriate by management. The Company establishes the reserves based upon its assessment of exposure associated with possible future assessments that may result from the examination of federal, state, or international tax returns. These tax reserves were $649,000 at April 1, 2006 and December 31, 2005. Management believes that it has established adequate reserves in the event of loss or settlement of any potential tax liabilities.

11. Subsequent Event

On April 3, 2006, we entered into an Asset Purchase Agreement with Adventis Limited, a United Kingdom company (“Limited”) and Adventis Corporation, a Delaware corporation and the parent of Limited (together with Limited, “Adventis”), pursuant to which we have purchased all of the assets used in the operation of Adventis’ international consulting business outside North America. Adventis is a global consulting firm specializing in telecommunications, technology and digital media. The acquired international operations of Adventis consist of 27 consultants located in London and Berlin with revenues from clients in Europe and Asia. The transaction was valued at a purchase price of approximately $1.65 million, with approximately $1.5 million paid in cash at closing, plus the assumption of approximately $125,000 in net working capital deficiency. The acquisition closed on April 3, 2006.

Behrman Capital and its affiliates (collectively “Behrman”), an owner of 35% of TMNG’s outstanding common stock, also owns 61% of the outstanding common stock of Adventis Corporation. Grant G. Behrman and William M. Matthes, who serve on the Board of Directors, are the Co-Managing Partners of Behrman. Despite owning a majority of Adventis Corporation’s common stock, Behrman did not control Adventis at the time of this transaction. Adventis was under the control of its senior secured creditors as it underwent a sale of the business. In order to execute this purchase, TMNG formed a Special Committee of the Board of Directors to evaluate the acquisition. The Special Committee consisted of the four independent board members not part of TMNG management or affiliated with Behrman. Behrman received none of the proceeds of this transaction.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In addition to historical information, this quarterly report contains forward-looking statements. Certain risks and uncertainties could cause actual results to differ materially from those reflected in such forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed in the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 30, 2006, and “Risk Factors” in Item 1A of this Form 10-Q/A. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date of this report. We undertake no obligation to revise, or publicly release the results of any revision to, these forward-looking statements. Readers should carefully review the risk factors described in our annual report and in other documents that we file from time to time with the Securities and Exchange Commission.

The following should be read in connection with Management’s Discussion and Analysis of Financial Condition and Results of Operations as presented in our Annual Report on Form 10-K for the fiscal year ended December 30, 2006.

The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations has been revised for the effects of the restatement discussed below.

Special Committee Review of Stock Option Grant Practices and Restatement

On November 13, 2006, the Company announced that following an initial internal review of its stock option practices the Company’s Board of Directors had appointed a Special Committee of outside directors (the “Special Committee”) to conduct a full investigation of the Company’s past stock option granting practices and related accounting (the “Independent Investigation”). The Company also announced that in light of the Special Committee’s review the Company would not be in a position to file the September 30, 2006 Form 10-Q on the due date therefor. On January 19, 2007, the Company announced that management and the Audit Committee of the Board of Directors had reached a preliminary conclusion that incorrect measurement dates were used for financial accounting purposes for certain stock option grants and nonvested stock awards and that the Company may need to restate its historical financial statements. Accordingly, management of the Company concluded, and the Audit Committee of the Company’s Board of Directors agreed, that the Company’s financial statements and the related reports of the Company’s independent registered public accounting firm and all earnings press releases and similar communications issued by the Company

relating to the periods 1999 through 2005 and the first and second quarters of 2006 should no longer be relied upon. On April 4, 2007, the Company announced the completion of the Independent Investigation. The key findings of the Independent Investigation are as follows:

	•		the originally assigned and recorded grant dates for 582 of the 856 grants made during the review period were not the proper measurement dates;

	•		these grants constituted approximately 8,479,129 stock options and shares of nonvested stock (57% of the total of the stock options and shares of nonvested stock granted during the review period);

	•		the cumulative effect of misdated options and nonvested stock (after taxes and net of forfeitures) was $8.7 million as of April 1, 2006, including an impact on the statement of operations, after tax, of $0.4 million and $1.3 million in fiscal years 2005 and 2004, respectively, $0.1 million for both the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively;

	•		approximately 94% of the misdated grants, in terms of both number of grants and number of options and shares of nonvested stock, were made prior to 2004;

	•		there was no evidence of intent to defraud or fraudulent misconduct or intentional filing of misleading financial statements or other public disclosures;

	•		no improperly dated options received by executive officers or directors were exercised (these were limited to seven grants which were voluntarily surrendered and cancelled in April 2007);

	•		incorrect dating of stock options did not result in any direct financial gain to current executive officers or directors; and

	•		major contributing factors to the Company’s stock option-related errors included: (i) accounting controls and procedures that were inadequate to ensure the accurate reporting of expenses related to stock option grants and nonvested stock awards; (ii) inadequate communication between the Board, management, accounting personnel, and non-accounting personnel; (iii) inadequate training of both accounting and non-accounting personnel; (iv) non-accounting staff were not provided sufficient guidance with respect to the proper recording of grant dates; (v) accounting staff were not provided sufficient information with respect to the actual grant dates or measurement dates of stock options; (vi) accounting staff placed undue reliance on the information recorded by the Company’s non-accounting staff in the Company’s stock plan management and reporting software, and (vii) many of the grants, other than grants to executive officers and directors, were made by management without Board of Directors approval of the specific terms of each individual grant.

The methodology used in determining the specific accounting measurement dates for stock option grants is summarized below. The measurement date is the first date on which the number of shares that a recipient is entitled to receive and the option price are known with finality. In general, the hierarchy for determining the measurement date was as follows:

	(1)		The date of Board of Directors (or Compensation Committee) approval of the number of shares and the exercise price for grants where there were no evidence of subsequent changes to the grant list or exercise price and where apparent prior notification of the principal terms of the grants had not been given to the recipient.

	(2)		The date of management approval of the number of shares and the exercise price for grants where there was clear evidence that the terms of the grants had been determined with finality by management and where the grants were not subject to subsequent Board of Directors approval and there was no evidence of subsequent changes to the grant list or exercise price.

	(3)		The date of communication of the principal terms of the grant to the recipients where it was not apparent that the terms had previously been determined with finality by either the Board of Directors or management and there was no clear indication that the terms had been determined by management with finality prior to such date.

	(4)		The date of satisfaction of a condition precedent to the grant (such as commencement of employment, execution of an employment agreement, closing a transaction, etc.) where the principal terms of a grant had been determined with finality, either by number or formula, prior to the occurrence of the condition precedent.

(5)

The date of notification to the Company’s human resources department that a grant had been made where there was no clear evidence of the date the recipient was notified of the principal terms of the grant (e.g., where the recipient was notified by phone or in person) or the date that management had determined the terms with finality and where the terms had not previously been determined by the Board of Directors.

With respect to any grants made by the Company on a group basis, the Company reviewed any changes to the individual grant recipients or amount of shares granted after that date and evaluated whether any such changes should delay the accounting measurement date on an individual grant basis or for the entire list. Factors considered in evaluating whether it would be appropriate to delay the measurement date until the list was final included the number and frequency of any changes as well as the reason for any changes and if the changes were to correct administrative errors.

EXECUTIVE FINANCIAL OVERVIEW

As discussed in our Annual Report on Form 10-K for the fiscal year ended December 30, 2006, the communications industry experienced a significant economic recession from 2001 through 2004. We are a consultancy to the industry, and as a result experienced a significant reduction in consulting business primarily due to the recession. We experienced significant revenue declines and/or net losses from 2001 to 2004. During this period we maintained relatively consistent gross margins through innovative pricing and high consultant utilization levels.

Beginning in late 2004 and continuing through first quarter of 2006, we have seen significant changes in the industry resulting from consolidation, technology transformation and the convergence of the telecommunications, media and entertainment sectors. During the thirteen weeks ended April 1, 2006, our revenues increased 1.4% compared with the thirteen weeks ended April 2, 2005 and 15% compared to the thirteen weeks ended December 31, 2005. Gross margins were 50.4% in the first quarter of 2006 compared with 50.6% in the first quarter of 2005. On January 1, 2006, we adopted Statement of Financial Accounting Standard (“SFAS”) No. 123R which resulted in an increase in the recognition of compensation expense related to share-based awards. Expense related to share-based awards reduced gross margins for the quarter by 2.8%, offsetting improvements in gross margin due to a shift in the mix of business to more strategy consulting engagements. We continue to focus our efforts on identifying, adapting to and capitalizing on the change elements present in the converging communications industry, as well as emphasizing wireless and IP initiatives within the communications sector.

Selling, general and administrative costs in the thirteen weeks ended April 1, 2006 were up 27.6% as compared to the same period of 2005. The increase reflects additional share-based charges of $297,000 in the thirteen weeks ended April 1, 2006, due primarily to the adoption of SFAS No. 123R. In addition, we incurred increased recruiting and incentive compensation costs associated with growth in our CSMG business unit along with additional salaries, travel and entertainment expenses associated with investment in new clients and intellectual property. Although these costs have impacted our short-term profitability, we believe they will better enable us to capitalize on the industry convergence and migration toward wireless and IP platforms. We are also focusing our marketing efforts on growth markets surrounding large and sustainable clients to maintain a portfolio of business that is high credit quality, thus reducing bad debt risks.

It is important to note that subsequent to April 1, 2006, we finalized an asset purchase agreement with Adventis Limited, a United Kingdom company (“Limited”) and Adventis Corporation, a Delaware corporation and the parent of Limited (together with Limited, “Adventis”), pursuant to which we have purchased all of the assets used in the operation of Adventis’ international consulting business outside North America. Adventis is a global consulting firm specializing in telecommunications, technology and digital media. The acquired international operations of Adventis consist of 27 consultants located in London and Berlin with revenues from clients in Europe and Asia. The transaction was valued at a purchase price of approximately $1.65 million, with approximately $1.5 million paid in cash at closing, plus the assumption of approximately $125,000 in net working capital deficiency. The acquisition closed on April 3, 2006.

OPERATIONAL OVERVIEW

Revenues typically consist of consulting fees for professional services and related expense reimbursements. Our consulting services are typically contracted on a time and materials basis, a time and materials basis not to exceed contract price, a fixed fee basis, or contingent fee basis. Revenues on contracts with a not to exceed contract price or a fixed cost contract are recorded under the percentage of completion method, utilizing estimates of project completion under both of these types of contracts. Larger fixed price contracts have recently begun to represent a more significant component of our revenue mix. Contract revenues on contingent fee contracts are deferred until the revenue is realizable and earned.

Generally, a client relationship begins with a short-term engagement utilizing a few consultants. Our sales strategy focuses on building long-term relationships with both new and existing clients to gain additional engagements within existing accounts and referrals for new clients.

Strategic alliances with other companies are also used to sell services. We anticipate that we will continue to pursue these marketing strategies in the future. Because we are a consulting company, we experience fluctuations in revenues derived from clients during the course of a project lifecycle. As a result, the volume of work performed for specific clients varies from period to period and a major client from one period may not use our services or the same volume of services in another period. In addition, clients generally may end their engagements with little or no penalty or notice. If a client engagement ends earlier than expected, we must re-deploy professional service personnel as any resulting unbillable time could harm margins.

Cost of services consists primarily of compensation for consultants who are employees and share-based compensation charges for stock options and nonvested shares (restricted stock) primarily to consultants, as well as fees paid to independent contractor organizations and related expense reimbursements. Employee compensation includes certain non-billable time, training, vacation time, benefits and payroll taxes. Gross margins are primarily impacted by the type of consulting services provided; the size of service contracts and negotiated discounts; changes in our pricing policies and those of competitors; utilization rates of consultants and independent subject matter experts; and employee and independent contractor costs, which tend to be higher in a competitive labor market.

Operating expenses include selling, general and administrative, share-based compensation charges, intangible asset amortization, and real estate restructuring charges. Sales and marketing expenses consist primarily of personnel salaries, bonuses, and related costs for direct client sales efforts and marketing staff. We primarily use a relationship sales model in which partners, principals and senior consultants generate revenues. In addition, sales and marketing expenses include costs associated with marketing collateral, product development, trade shows and advertising. General and administrative expenses consist mainly of costs for accounting, recruiting and staffing, information technology, personnel, insurance, rent, and outside professional services incurred in the normal course of business. Included in selling, general and administrative expenses are share-based compensation charges incurred in connection with stock-based compensation awards.

CRITICAL ACCOUNTING POLICIES

While the selection and application of any accounting policy may involve some level of subjective judgments and estimates, we believe the following accounting policies are the most critical to our consolidated financial statements, potentially involve the most subjective judgments in their selection and application, and are the most susceptible to uncertainties and changing conditions:

	•		Allowance for Doubtful Accounts;

	•		Fair Value of Acquired Businesses;

	•		Impairment of Goodwill and Long-lived Intangible Assets;

	•		Revenue Recognition;

	•		Share-based Compensation Expense; and

	•		Deferred Income Tax Assets.

Allowances for Doubtful Accounts- Substantially all of our receivables are owed by companies in the communications industry. We typically bill customers for services after all or a portion of the services have been performed and require customers to pay within 30 days. We attempt to control credit risk by being diligent in credit approvals, limiting the amount of credit extended to customers and monitoring customers’ payment record and credit status as work is being performed for them.

We recorded no bad debt expense in the thirteen weeks ended April 1, 2006 and April 2, 2005, as no provision was necessary for our allowance for doubtful accounts to maintain a level appropriate with the anticipated default rate of the underlying accounts receivable balances. Our allowance for doubtful accounts totaled $294,000 and $296,000 as of April 1, 2006 and December 31, 2005, respectively. The calculation of these amounts is based on judgment about the anticipated default rate on receivables owed to us as of the end of the reporting period. That judgment was based on uncollected account experience in prior years and our ongoing evaluation of the credit status of our customers and the communications industry in general.

We have attempted to mitigate credit risk by concentrating our marketing efforts on the largest and most stable companies in the communications industry and by tightly controlling the amount of credit provided to customers. If we are unsuccessful in these efforts, or if our customers file for bankruptcy or experience financial difficulties, it is possible that the allowance for doubtful accounts will be insufficient and we will have a greater bad debt loss than the amount reserved, which would adversely affect our financial performance and cash flow.

Fair Value of Acquired Businesses- TMNG has acquired three professional service organizations over the last six years. A significant component of the value of these acquired businesses has been allocated to intangible assets. SFAS No. 141 “Business Combinations” requires acquired businesses to be recorded at fair value by the acquiring entity. SFAS No. 141 also requires that intangible assets that meet the legal or separable criterion be separately recognized on the financial statements at their fair value, and provides guidance on the types of intangible assets subject to recognition. Determining the fair value for these specifically identified intangible assets involves significant professional judgment, estimates and projections related to the valuation to be applied to intangible assets like customer lists, employment agreements and trade names. The subjective nature of management’s assumptions adds an increased risk associated with estimates surrounding the projected performance of the acquired entity. Additionally, as the Company amortizes the intangible assets over time, the purchase accounting allocation directly impacts the amortization expense the Company records on its financial statements.

Impairment of Goodwill and Long-lived Intangible Assets- Goodwill and other long-lived intangible assets arising from our acquisitions are subjected to periodic review for impairment. SFAS No. 142 “Goodwill and Other Intangible Assets” requires an annual evaluation at the reporting unit level of the fair value of goodwill and compares the calculated fair value of the reporting unit to its book value to determine whether impairment has been deemed to occur. Any impairment charge would be based on the most recent estimates of the recoverability of the recorded goodwill. If the remaining book value assigned to goodwill in an acquisition is higher than the estimated fair value of the reporting unit, there is a requirement to write down these assets. The determination of fair value requires management to make assumptions about future cash flows and discounted rates. These assumptions require significant judgment and estimations about future events and are thus subject to significant uncertainty. If actual cash flows turn out to be less than projected, we may be required to take further write-downs, which could increase the variability and volatility of our future results.

Revenue Recognition- We recognize revenue from time and material contracts in the period in which our services are performed. In addition to time and materials contracts, our other types of contracts include time and materials contracts not to exceed contract price, fixed fee contracts, and contingent fee contracts.

We recognize revenues on time and materials contracts not to exceed contract price and fixed fee contracts using the percentage of completion method. Percentage of completion accounting involves calculating the percentage of services provided during the reporting period compared with the total estimated services to be provided over the duration of the contract. For all contracts, estimates of total contract revenues and costs are continuously monitored during the term of the contract, and recorded revenues and costs are subject to revisions as the contract progresses. Such revisions may result in a material increase or decrease in revenues and income and are reflected in the financial statements in the periods in which they are first identified.

We also may enter into contingent fee contracts, in which revenue is subject to achievement of savings or other agreed upon results, rather than time spent. Due to the nature of contingent fee contracts, we recognize costs as they are incurred on the project and defer revenue recognition until the revenue is realizable and earned as agreed to by our clients. Although these contracts can be very rewarding, the profitability of these contracts is dependent on our ability to deliver results for our clients and control the cost of providing these services. Both of these types of contracts are typically more results-oriented and are subject to greater risk associated with revenue recognition and overall project profitability than traditional time and materials contracts. We did not enter into or deliver on any contingent fee contracts for the thirteen weeks ended April 1, 2006.

Share-based Compensation Expense- We grant stock options and non-vested stock to our employees and also provide employees the right to purchase our stock pursuant to an employee stock purchase plan. The benefits provided under these plans are share-based payment awards subject to the provisions of SFAS No. 123R. Under SFAS No. 123R, we are required to make significant estimates related to determining the value of our share-based compensation. Our expected stock-price volatility assumption is based on historical volatilities of the underlying stock which are obtained from public data sources. For stock option grants issued during the thirteen weeks ended April 1, 2006, we used an average expected stock-price volatility of 83%. The expected term of options granted is based on the simplified method in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 107 as our historical share option exercise experience does not provide a reasonable basis for estimation. As such, we used a weighted-average expected option life assumption of 6 years.

If factors change and we develop different assumptions in the application of SFAS No. 123R in future periods, the compensation expense that we record under SFAS No. 123R may differ significantly from what we have recorded in the current period. There is a high degree of subjectivity involved when using option pricing models to estimate share-based compensation under SFAS No. 123R. Changes in the subjective input assumptions can materially affect our estimates of fair values of our share-based compensation. Certain share-based payment awards, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, values may be realized from these instruments that are significantly in excess of the fair values originally estimated on the grant date and reported in our financial statements. Although the fair value of employee share-based awards is determined in accordance with SFAS No. 123R and SAB No. 107 using an option pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

We restated our consolidated financial statements as a result of improper dating of historical stock option grants and nonvested stock awards. Information regarding the restatement is set forth in Note 2, “Restatement of Condensed Consolidated Financial Statements,” in Notes to Condensed Consolidated Financial Statements in this Form 10-Q/A. Our selection of the methodology to determine the most likely measurement dates of stock option grants involved judgment and careful evaluation of all available relevant facts and circumstances for each historical grant. We believe we have used the most appropriate methodology.

Deferred Income Tax Assets- We have generated substantial deferred income tax assets primarily from the accelerated financial statement write-off of goodwill, the charge to compensation expense taken for stock options and net operating loss carry-forwards. For us to realize the income tax benefit of these assets, we must generate sufficient taxable income in future periods when such deductions are allowed for income tax purposes. In some cases where deferred taxes were the result of compensation expense recognized on stock options, our ability to realize the income tax benefit of these assets is also dependent on our share price increasing to a point where these options have intrinsic value at least equal to the grant date fair value and are exercised. In assessing whether a valuation allowance is needed in connection with our deferred income tax assets, we have evaluated our ability to carry back tax losses to prior years that reported taxable income, and our ability to generate sufficient taxable income in future periods to utilize the benefit of the deferred income tax assets. Such projections of future taxable income require significant subjective judgments and estimates by us. As of April 1, 2006, cumulative valuation allowances in the amount of $29.2 million were recorded in connection with the net deferred income tax assets. We continue to evaluate the recoverability of the recorded deferred income tax asset balances. If we continue to report net operating losses for financial reporting in future years, no additional tax benefit would be recognized for those losses, since we would be required to increase our valuation allowance to offset such amounts.

RESULTS OF OPERATIONS

THIRTEEN WEEKS ENDED APRIL 1, 2006 COMPARED TO THIRTEEN WEEKS ENDED APRIL 2,2005

As discussed above in Critical Accounting Policies, on January 1, 2006, the Company adopted SFAS No. 123R using the modified prospective transition method. SFAS No. 123R requires the Company to recognize compensation expense for all share-based awards made to employees and non-employee directors. Compensation expense is based on the calculated fair value of the awards as measured at the grant date using the Black-Scholes-Merton option pricing model and is expensed ratably over the service period of the awards (generally the vesting period). For periods prior to the adoption of SFAS No. 123R, the Company utilized the intrinsic value methodology in accounting for stock-based compensation for employees and non-employee directors in accordance with the provisions of Accounting Principles Board (APB) No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. As discussed in Note 2, “Restatement of Condensed Consolidated Financial Statements,” in Notes to Condensed Consolidated Financial Statements in this Form 10-Q/A, we did not correctly apply the provisions of APB No. 25 to share-based compensation awards granted during the period 1999 through 2006. Specifically, we did not maintain effective controls over the determination of the accounting measurement dates for the granting of stock option awards and nonvested stock awards. This material weakness led to the restatement of the Company’s previously issued financial statements.

REVENUES

Revenues increased 1.4% to $7.2 million for the thirteen weeks ended April 1, 2006 from $7.1 million for the thirteen weeks ended April 2, 2005. The increase in revenue is attributable to greater than 100 percent growth in our CSMG business unit, largely offset by the unexpected pullback of a major client project due to the client’s business restructuring which negatively impacted revenues by approximately $1 million. During the thirteen weeks ended April 1, 2006, the Company provided services on 83 customer projects, compared to 123 projects performed in the thirteen weeks ended April 2, 2005. Average revenue per project was $86,000 in the thirteen weeks ended April 1, 2006 compared to

$57,000 in the thirteen weeks ended April 2, 2005. The increase in average revenue per project was primarily attributable to a shift in the mix of business to larger higher rate strategy-related projects in the thirteen weeks ended April 1, 2006. Our international revenue base decreased to 3.0% of revenues for the thirteen weeks ended April 1, 2006, from 6.5% for the thirteen weeks ended April 2, 2005, due primarily to the completion of multiple large projects in Western Europe in the latter part of fiscal year 2005, combined with an increase in our domestic project and revenue base.

Revenues recognized in connection with fixed price and contingent fee engagements totaled $3.4 million and $3.2 million, representing 46.9% and 45.2% of total revenue, for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. This increase is due to the mix of our business shifting to more strategy and management consulting engagements which are more likely to be structured as fixed price or contingent fee engagements.

COSTS OF SERVICES

Costs of services increased 1.8% for the thirteen weeks ended April 1, 2006, compared to the thirteen weeks ended April 2, 2005. As a percentage of revenue, our gross margin was 50.4% for the thirteen weeks ended April 1, 2006, compared to 50.6% for the thirteen weeks ended April 2, 2005. Share-based compensation charges increased in the 2006 period as compared to the 2005 period, primarily due to the adoption of SFAS No. 123R effective January 1, 2006. Share-based compensation included in gross profit margin was $201,000 and $94,000 for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. Partially offsetting the additional share-based compensation were improvements in gross margin obtained by a shift in the mix of services to more strategy and management consulting engagements in relation to resourcing engagements.

OPERATING EXPENSES

In total, operating expenses increased by 23.7% to $5.8 million for the thirteen weeks ended April 1, 2006, from $4.7 million for the thirteen weeks ended April 2, 2005. Operating expenses include selling, general and administrative costs (inclusive of share-based compensation related charges), real estate restructuring charges and intangible asset amortization.

Selling, general and administrative expense increased to $5.6 million or 27.6% in the thirteen weeks ended April 1, 2006, compared to the thirteen weeks ended April 1, 2005. The increase is partially related to share-based compensation charges of $567,000 in the thirteen weeks ended April 1, 2006 compared to $270,000 for the thirteen weeks ended April 2, 2005. The increase in share-based compensation charges is primarily attributable to the adoption of SFAS No. 123R effective January 1, 2006. In addition we incurred increased recruiting and incentive compensation costs associated with growth in our CSMG business unit along with additional salaries, travel and entertainment expenses associated with our investment in new clients and intellectual property.

Intangible asset amortization was $115,000 and $160,000 for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. The decrease in amortization expense was due to certain intangible assets becoming fully amortized in early first quarter 2005.

OTHER INCOME AND EXPENSES

Interest income was $535,000 and $324,000 for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively, and represented interest earned on invested balances. Interest income increased for the thirteen weeks ended April 1, 2006 as compared to the thirteen weeks ended April 2, 2005 due to increases in interest rates from 2005 to 2006. We primarily invest in money market funds and investment-grade auction rate securities as part of our overall investment policy.

INCOME TAXES

In the thirteen weeks ended April 1, 2006 and April 2, 2005 we recorded no income tax benefit related to our pre-tax losses in accordance with the provisions of SFAS No. 109 “Accounting for Income Taxes” which requires an estimation of the recoverability of the recorded income tax asset balances. We continue to evaluate the recoverability of our recorded deferred income tax asset balances. If we continue to report net operating losses for financial reporting, no additional tax benefit would be recognized for those losses, since we would be required to increase our valuation allowance to offset such amounts. We reported an income tax provision of $21,000 and $15,000 for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively, related to state tax expense.

NET LOSS

Net loss increased 117% to $1.6 million for the thirteen weeks ended April 1, 2006, from $749,000 for the thirteen weeks ended April 2, 2005. The increase was primarily attributable to the impact of the adoption of SFAS No. 123R as well as increased selling, general and administrative expenses due to the strategic addition of consultants to support growth in our CSMG business unit.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was $1.1 million and $0.6 million for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. Cash used in operating activities for the thirteen weeks ended April 1, 2006 and April 2, 2005 primarily related to operating losses.

Net cash provided by investing activities was $5.4 million and $2.7 million for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. This includes net proceeds from sales and reinvestments of auction rate securities of $5.5 million and $2.8 million in the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. Cash used in investing activities also includes $147,000 and $86,000 for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively, related to the purchase of office equipment, software and computer equipment.

Net cash provided by financing activities was $5,000 in the thirteen weeks ended April 1, 2006, and related to proceeds received from the exercise of employee stock options, partially offset by payments made on long-term obligations. Net cash used in financing activities was $105,000 in the thirteen weeks ended April 2, 2005, and related to payments made by the Company on the current portion of capital lease obligations, partially offset by proceeds received from the exercise of stock options.

At April 1, 2006, we had approximately $48.4 million in cash, cash equivalents, and short-term investments. We believe we have sufficient cash and short-term investments to meet anticipated cash requirements, including anticipated capital expenditures, consideration for possible acquisitions, and any future operating losses that may be incurred, for at least the next 12 months. Should our cash and short-term investments prove insufficient we might need to obtain new debt or equity financing to support our operations or complete acquisitions. We have established a flexible model that provides a lower fixed cost structure than most consulting firms, enabling us to scale operating cost structures more quickly based on market conditions. Our strong cash position and absence of long-term debt have enabled us to weather adverse conditions in the telecommunications industry and to make investments in intellectual property we believe are enabling us to capitalize on the current recovery and transformation of the industry; however, if the industry and demand for our consulting services do not continue to rebound and we continue to experience negative cash flow, we could experience liquidity challenges at some future point.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not invest excess funds in derivative financial instruments or other market rate sensitive instruments for the purpose of managing our foreign currency exchange rate risk. We invest excess funds in short-term investments, including auction rate securities, the yield of which is exposed to interest rate market risk. Auction rate securities are classified as available-for-sale and reported on the balance sheet at fair value, which equals market value, as the rate on such securities resets generally every 28 to 35 days. Consequently, interest rate movements do not materially affect the balance sheet valuation of fixed income investments. Changes in the overall level of interest rates do affect our interest income generated from investments.

We do not have material exposure to market related risks. Foreign currency exchange rate risk may become material given U.S. dollar to foreign currency exchange rate changes and significant increases in international engagements denominated in the local currency of our clients.

ITEM 4. CONTROLS AND PROCEDURES

Special Committee Review into Stock Option Grant Practices and Restatement

	(i)		accounting controls and procedures that were inadequate to ensure the accurate reporting of expenses related to stock option grants and nonvested stock awards;

	(ii)		inadequate communication between the Board, management, accounting personnel, and non-accounting personnel;

	(iii)		inadequate training of both accounting and non-accounting personnel;

	(iv)		non-accounting staff were not provided sufficient guidance with respect to the proper recording of grant dates;

	(v)		accounting staff were not provided sufficient information with respect to the actual grant dates or measurement dates of stock options; and

(vi)

accounting staff placed undue reliance on the information recorded by the Company’s non-accounting staff in the Company’s stock plan management and reporting software.

Re-evaluation of Disclosure Controls and Procedures and Changes in Internal Control Over Financial Reporting

A review and evaluation was performed by our management, including our Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this amended quarterly report. This review and evaluation was performed prior to the preparation of this amended quarterly report and was separate from the previous review and evaluation described in the original quarterly report (the “Original Evaluation”). In making this evaluation, the CEO and CFO considered, among other matters, the results of the Independent Investigation. Based on that review and evaluation, the CEO and CFO have concluded that our disclosure controls and procedures at April 1, 2006 were not effective to provide reasonable assurance that information required to be disclosed in the reports we filed and submitted under the Exchange Act was recorded, processed, summarized and reported as and when required and that it was accumulated and communicated to our management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure due to the existence of a material weakness in internal controls over financial reporting. Specifically, the Company did not maintain effective controls over the determination of the accounting measurement dates for its granting of stock options awards and nonvested stock awards. This material weakness led to the restatement of the Company’s previously issued financial statements. In light of this material weakness and the matters discussed in this amended report with regard to the Independent Investigation, the Original Evaluation should no longer be relied upon.

In light of this conclusion, we have applied compensating procedures and processes as necessary to ensure the reliability of our financial reporting. Accordingly, management believes, based on its knowledge, that (i) this amended report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading with respect to the period covered by this amended report and (ii) the financial statements, and other financial information included in this amended report, fairly present in all material respects our financial condition, results of operations and cash flows as at, and for, the periods presented in this amended report.

Material Weakness in Internal Control Over Financial Reporting

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management identified the following material weakness in our internal control over financial reporting as of April 1, 2006.

We did not maintain adequate controls over our stock option and nonvested stock granting practices and procedures. This lack of controls permitted stock options and nonvested stock awards to be made with incorrect accounting measurement dates. Effective controls, including monitoring and adequate communication, were not maintained to ensure the accuracy of measurement dates, valuation and presentation of activity related to our stock option and nonvested stock granting practices and procedures. This control deficiency resulted in misstatement of our stock-based compensation expense, additional paid-in capital, unearned compensation and related disclosures that was not prevented or detected, and in the restatement of our previously filed annual and interim consolidated financial statements. Accordingly, management has determined this control deficiency constituted a material weakness.

Changes in Internal Control Over Financial Reporting

There were no significant changes in our internal control over financial reporting during the quarter ended April 1, 2006 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The Company has adopted the following remedial measures that were recommended by the Special Committee or management to address the issues leading to the incorrect determination of measurement dates:

	•		Board Issuance of Share-based Awards. In the future, all share-based awards will be granted only by the full Board of Directors in compliance with terms of the equity compensation plans and insider trading restrictions of the Company and the SEC.

	•		Human Resources Procedures. In the future, the human resources department may only process grant paperwork and record grants in the equity compensation database upon receiving approval of the grants through minutes of the Board of Directors provided by the Secretary of the Board.

	•		Stock Option Accounting Procedures. Each quarter, members of the accounting department must verify the validity and terms of each new grant by comparing the terms of the grant to minutes of the Board of Directors provided by the Secretary of the Board.

The Board also adopted a comprehensive array of process reforms designed to strengthen areas of corporate governance that were identified as deficient during the Independent Investigation. Some of these measures were undertaken independent of the formation of the Special Committee and the initiation of the Independent Investigation.

	•		Ensuring Adequacy of Internal Controls and Procedures. TMNG has hired a national consulting firm to assist the Company with the planning for and implementation of a program for compliance with Section 404 of the Sarbanes-Oxley Act and to help ensure that the Company has properly designed and tested internal control structure and procedures for financial reporting.

	•		Addition of Accounting Personnel, Combined with Enhanced Training. TMNG has hired additional accounting personnel to assist the Company with its accounting needs. Training for accounting and non-accounting personnel will be enhanced. Management and the Board will assess the need for additional personnel and/or training going forward.

	•		Hiring of Legal Staff. TMNG has hired a General Counsel and a paralegal to internally support SEC compliance and other matters.

	•		Responsibilities of Chief Financial Officer. The Chief Financial Officer’s duties and responsibilities that are not directly related to managing the financial affairs of the Company are being reassigned so that his primary responsibility going forward will be to manage the financial affairs of the Company and he will have very limited assignments and responsibilities outside of this role. The Chief Financial Officer’s performance in implementing new controls and procedures, ensuring compliance with Section 404 of the Sarbanes-Oxley Act, and performing his other responsibilities will be reassessed by the Special Committee and the Board of Directors.

	•		Reports to Special Committee on Implementation of Recommendations.Management has been directed to provide monthly reports to the Special Committee on the implementation of the corporate governance changes and other changes and actions mandated by the Board of Directors.

The statements contained in Exhibits 31 and 32 to this Form 10-Q/A should be considered in light of, and read together with, the information set forth in this Item 4.

ITEM 4(T). CONTROLS AND PROCEDURES

Not applicable.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We have not been subject to any material new litigation or claims during fiscal 2006. For a summary of litigation in which we are currently involved, refer to our annual report on Form 10-K for the year ended December 30, 2006, as filed with the Securities and Exchange Commission on May 14, 2007 and Note 12 of the Condensed Consolidated Financial Statements included elsewhere in this report.

In June 1998, the bankruptcy trustee of a former client, Communications Network Corporation, sued TMNG for a total of $320,000 in the U.S. Bankruptcy Court in New York seeking recovery of $160,000 alleging an improper payment of consulting fees paid by the former client during the period from July 1, 1996, when an involuntary bankruptcy proceeding was initiated against the former client, through August 6, 1996, when the former client agreed to an order for relief in the bankruptcy proceeding, and $160,000 in consulting fees paid by the former client after August 6, 1996. The bankruptcy trustee also sued us for at least $1.85 million for breach of contract, breach of fiduciary duties and negligence. In March 2006, we reached a settlement agreement with the bankruptcy trustee whereby we agreed to pay the trustee $255,000 in exchange for being released from all potential liability under the suits discussed above.

ITEM 1A. RISK FACTORS

For a full listing of TMNG’s Risk Factors, please refer to our Annual Report on Form 10-K for the year ended December 30, 2006 filed with the Securities and Exchange Commission on May 14, 2007.

RISKS RELATED TO OUR STOCK OPTION PRACTICES AND RELATED ACCOUNTING

The matters relating to the investigation by the Special Committee of the Board of Directors and the restatement of the Company’s condensed consolidated financial statements may result in litigation and governmental enforcement actions.

On November 13, 2006, we announced that following an initial internal review of our stock option practices our Board of Directors had appointed a Special Committee of outside directors (the “Special Committee”) to conduct a full investigation of our past stock option and nonvested stock granting practices and related accounting (the “Independent Investigation”). We also announced that in light of the Special Committee’s review we would not be in a position to file the September 30, 2006 Form 10-Q on the due date therefor. On January 19, 2007, we announced that management and the Audit Committee of the Board of Directors had reached a preliminary conclusion that incorrect measurement dates were used for financial accounting purposes for certain stock option grants and nonvested stock awards and that we may need to restate our historical financial statements. On April 4, 2007, we announced the completion of the Independent Investigation. See Note

2, “Restatement of Condensed Consolidated Financial Statements,” in the Notes to Condensed Consolidated Financial Statements in this Form 10-Q/A for a further discussion of this matter.

As a result of the internal review and the Independent Investigation, management has concluded, and the Audit Committee of the Board of Directors concurs, that we did not maintain adequate controls over our stock option and nonvested stock granting practices and procedures and that this failure resulted in the use of incorrect measurement dates for financial accounting purposes for a majority of stock option grants and nonvested stock awards made in prior periods. Effective controls, including monitoring and adequate communication, were not maintained to ensure the accuracy, correct valuation and proper presentation of activity related to our stock option and nonvested stock granting practices and procedures. The lack of effective controls resulted in misstatement of our stock-based compensation expense, additional paid-in capital, unearned compensation and related disclosures, that was not prevented or detected, and in the restatement of our previously filed annual and interim consolidated financial statements. The required adjustments increased net loss by $0.4 million and $1.3 million in fiscal years 2005 and 2004, respectively, and $0.1 million for both the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. The cumulative effect of the error on the statement of operations for fiscal years prior to 2004 was $7.0 million.

Between 1999 and 2006, most stock option grants, other than those made to executive officers and directors, were made by management under an apparent or de facto delegation of such authority by the Board of Directors. Our equity plans do not expressly authorize such delegation, and so it is not clear whether such delegation was permissible and in compliance with our equity plans. The Board of Directors, however, has determined that these will be recognized as valid option grants.

The effects of related accounting errors on previously issued financial statements are included in this Form 10-Q/A for the quarter ended April 1, 2006, in the amended Quarterly Report on Form 10-Q/A for the quarter ended July 1, 2006, in the Quarterly Report on From 10-Q for the quarter ended September 30, 2006, and in the Annual Report on Form 10-K for the year ended December 30, 2006, in accordance with applicable generally accepted accounting principles and SEC rules, regulations and guidance.

The internal review, the Independent Investigation, and related activities have diverted management’s attention from the Company’s business, resulted in the payment of substantial fees and expenses to outside counsel and accountants, and could in the future harm our business, financial condition, results of operations and cash flows. In addition, the Company’s past stock option granting practices and the restatement of prior financial statements have exposed the Company to greater risks associated with litigation, regulatory proceedings and government enforcement actions. While no litigation or formal enforcement proceedings have occurred as a result of these matters, we cannot assure that litigation or formal enforcement proceedings may not occur in the future.

In accordance with provisions in our Bylaws, the Delaware General Corporation Law and executive officer employment agreements, we will be obligated to indemnify our directors and officers against liability and expenses in connection with these matters, unless any of these persons do not meet the conditions for indemnification under these provisions. Fulfilling these obligations would increase our expenses and have an adverse effect on our cash reserves, results of operations and cash flows.

We have identified a material weakness in our disclosure controls and procedures and internal controls.

As a result of the internal review and Independent Investigation, we have identified a material weakness in our disclosure controls and procedures and internal control over financial reporting. We have applied compensating procedures and processes as necessary to ensure the reliability of our financial reporting and are evaluating and intend to adopt remedial measures designed to eliminate this weakness, but there can be no assurance these measures will be effective.

Planned improvements in our corporate governance, equity compensation practices and internal controls may not be effective.

We are conducting a comprehensive evaluation of our corporate governance, equity compensation practices and internal controls in an effort to improve the quality and transparency of our corporate governance, compensation practices, internal controls and financial reporting. We are committed to the highest standards in these areas, but there can be no assurance the improvements we adopt will be effective to prevent similar occurrences in the future. Our ability to implement improvements in these areas may be limited by our human and financial resources.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

(a) Exhibits

Exhibit 10. Asset Purchase Agreement, dated April 2, 2006, among Wilbass Limited, Adventis Limited, and Adventis Corporation, filed as Exhibit 10.1 to the Company’s originally filed Form 10-Q for the quarter ended April 1, 2006, is incorporated herein by reference as Exhibit 10.*

Exhibit 31. Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32. Certifications furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Portions of this document have been redacted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities and Exchange Act of 1934, as amended. Redacted portions are indicated with the notation [***].

SIGNATURES

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


SIGNATURE	TITLE	DATE
/s/ RICHARD P. NESPOLA	Chairman, President and Chief	May 15, 2007
Richard P. Nespola	Executive Officer (Principal executive officer)

/s/ DONALD E. KLUMB	Chief Financial Officer and Treasurer	May 15, 2007
Donald E. Klumb	(Principal financial officer and principal accounting officer)

Cartesian Inactive 10-Q/A2006 Q1 Quarterly report (amended)