UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 6, 2002
Commission File Number:
THE MANAGEMENT NETWORK GROUP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 48-1129619
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed
since last report.)
This Form 8-K/A amends Registrant's previously filed Current Report on Form 8-K
dated March 21, 2002
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
The Management Network Group, Inc., (the "Company" or "TMNG") a Delaware
corporation, hereby amends its Current Report on Form 8-K previously filed with
the Securities and Exchange Commission on March 21, 2002, relating to the
Company's acquisition of Cambridge Strategic Management Group, Inc. ("CSMG") of
Boston, Massachusetts. The purpose of this amendment is to provide the financial
statements and pro forma financial information required by Item 7.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
See Exhibit 99.1 for the Audited Financial Statements for Cambridge Strategic
Management Group, Inc. for The Year Ended December 31, 2001 and Independent
Auditors' Report.
(b) PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED).
The following unaudited pro forma condensed combined financial statements,
including the notes thereto, are qualified in their entirety by reference to,
and should be read in conjunction with, the consolidated historical financial
statements and notes thereto for the fiscal year ended December 29, 2001 of TMNG
included in TMNG's Annual Report on Form 10-K for that year, and the historical
consolidated financial statements and notes thereto of CSMG for the year ended
December 31, 2001, included as Exhibit 99.1 hereto.
The following unaudited pro forma condensed combined financial statements give
effect to the Company's agreement to pay, in exchange for the business and
primary net assets of CSMG, an amount equal to $46.5 million as the initial
purchase price, payable in 2,892,800 newly-issued and unregistered shares of
common stock representing $13.5 million, calculated in accordance with the
provisions of the Asset Purchase Agreement at a fixed price of $4.66 per share,
and $33.0 million cash consideration. This acquisition was recorded under the
purchase method of accounting. Accordingly, the assets acquired and liabilities
assumed have been recorded at their estimated fair values, which are preliminary
and subject to revision which is not expected to be material, based on ongoing
analysis. The unaudited pro forma condensed combined statement of operations
gives effect to the acquisition, assuming that the acquisition had occurred as
of December 31, 2000, the first day of fiscal 2001 for TMNG. The unaudited pro
forma condensed combined balance sheet as of December 29, 2001 gives effect to
the acquisition transaction as if it had occurred on that date.
The unaudited pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial position
that would have occurred if the acquisition had been consummated at the
respective assumed dates presented, nor is it necessarily indicative of future
operating results or financial position.
THE MANAGEMENT NETWORK GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 29, 2001
(in thousands)
Pro forma Pro forma
TMNG CSMG Adjustments Combined
----------- ----------- ----------- -----------
Current Assets:
Cash and cash equivalents ..................... $ 86,396 $ 1,838 $ (32,983)(1) $ 55,251
Accounts receivable, net ...................... 10,963 3,870 (178)(2) 14,655
Other assets .................................. 2,071 135 98 (4,5) 2,304
----------- ----------- ----------- -----------
Total current assets ....................... 99,430 5,843 (33,063) 72,210
Property and equipment, net .................... 1,686 2,019 (405)(2) 3,300
Deferred tax asset ............................. 4,080 1,519 (8) 5,599
Intangibles, net ............................... 1,191 4,008 (3) 5,199
Goodwill ....................................... 22,147 40,919 (6) 63,066
Other assets ................................... 508 54 562
----------- ----------- ----------- -----------
Total Assets ............................... $ 129,042 $ 7,916 $ 12,978 $ 149,936
=========== =========== =========== ===========
Current Liabilities:
Trade accounts payable ......................... $ 210 $ 54 $ 264
Accrued payroll, bonuses and related expenses .. 1,393 471 1,864
Other accrued liabilities ...................... 3,258 955 $ 1,816 (2,4,7) 6,029
----------- ----------- ----------- -----------
Total current liabilities .................. 4,861 1,480 1,816 8,157
Noncurrent Liabilities .......................... 189 781 3,337 (2,7) 4,307
Stockholders' Equity
Common Stock ................................... 30 3 (9) 33
Additional paid-in capital ..................... 141,451 162 13,315 (10) 154,928
(Accumulated deficit) Retained earnings ........ (16,463) 5,493 (5,493)(11) (16,463)
Accumulated other comprehensive income -
Foreign currency translation adjustment ....... 17 17
Unearned compensation .......................... (1,043) (1,043)
----------- ----------- ----------- -----------
Total stockholders' equity ................. 123,992 5,655 7,825 137,472
----------- ----------- ----------- -----------
Total Liabilities and Stockholders' Equity ...... $ 129,042 $ 7,916 $ 12,978 $ 149,936
=========== =========== =========== ===========
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.
THE MANAGEMENT NETWORK GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET AS OF DECEMBER 29, 2001
1. BASIS OF PRESENTATION
On March 6, 2002, The Management Network Group, Inc. agreed to pay, in exchange
for the business and primary assets of CSMG, an amount equal to $46.5 million as
the initial purchase price, payable in 2,892,800 newly-issued and unregistered
shares of common stock representing $13.5 million, calculated in accordance with
the provisions of the Asset Purchase Agreement at a fixed price of $4.66 per
share, and $33.0 million cash consideration. The transaction was structured as a
taxable transaction for Federal income tax purposes, and included $5.4 million
in cash consideration to the seller representing a sharing of tax consequence.
The purchase price also included $5.2 million representing the working capital
purchased from CSMG. Working capital includes cash and trade accounts receivable
offset by trade accounts payable and certain accruals. The transaction has been
accounted for as a purchase with the majority of the purchase price being
allocated to goodwill. The balance sheet presented for TMNG is as of December
29, 2001, its fiscal year-end. The balance sheet presented for CSMG is as of
December 31, 2001, its fiscal year-end. The condensed combined balance sheet is
assumed to be as of December 29, 2001, as the difference between the year-end
dates is not deemed material.
The preliminary allocation of the purchase price is summarized below (in
thousands):
Fair value of net assets acquired $ 3,778
Intangible assets, other than goodwill 4,008
Goodwill 38,677
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Purchase price $ 46,463
==========
The fair value of the net assets acquired was based on preliminary estimates and
is subject to further refinement. The purchase price is subject to further
refinement based on finalization of working capital and income tax items
associated with the final financial statements on March 6, 2002, and the
finalization of direct incremental costs incurred in the acquisition.
2. PRO FORMA ADJUSTMENTS (in thousands)
(1) To reflect the adjustment to cash for purchase price in the amount of
$32,983.
(2) Purchase accounting adjustment to reflect the elimination of assets and
liabilities not acquired or assumed in the acquisition. Total net assets
excluded from the acquisition were approximately $40 and are listed in the
following table.
Assets
Receivables $ 178
Property & equipment, net 405
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583
Liabilities
Accrued income taxes 319
Other accrued liabilities 182
Noncurrent liabilities 42
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543
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Net assets excluded from the acquisition $ 40
==========
(3) Purchase accounting adjustment to reflect the estimated fair value of
intangible assets acquired, consisting of customer backlog in the amount of
$458, a tradename in the amount of $350, and employment agreements in the amount
of $3,200. The intangible assets are recorded based upon an independent
appraisal.
(4) Purchase accounting adjustment to reflect the total estimated acquisition
costs of $2,242 incurred on March 6, 2002. Included in other current assets were
prepaid acquisition costs in the amount of $343, of which $52 of acquisition
costs was paid prior to December 29, 2001 and $291 was accrued as of December
29, 2001. The remaining accrual in the amount of $1,899 is shown as a pro forma
adjustment to other accrued liabilities.
(5) Purchase accounting adjustment to reflect the amount of $441 due from the
CSMG shareholder in connection with the purchase price adjusted for the final
working capital and tax sharing expense amounts as of December 29, 2001.
(6) Purchase accounting adjustment to reflect goodwill on purchase in amount
equal to excess of the preliminary purchase price over the preliminary
allocation of the fair value of the net primary assets acquired in the amount of
$38,677, and $2,242 of acquisition costs incurred during the acquisition.
(7) Purchase accounting adjustment to reflect an unfavorable operating lease
obligation of $3,797 associated with the assumed operating lease as a result of
fair valuing the lease to the market rate at the date of the acquisition. The
current and noncurrent amounts are $418 and $3,379, respectively.
(8) Purchase accounting adjustment to reflect a deferred tax asset of $1,519 as
a result of the recognition of the unfavorable One Boston Place operating lease
commitment.
(9) Purchase accounting adjustment to reflect the par value of TMNG stock
consideration to the CSMG shareholder.
(10) Purchase accounting adjustment to reflect the fair value of stock
consideration of $13,477 to the CSMG shareholder as part of the purchase price.
This amount is offset by the elimination of CSMG additional paid-in capital.
(11) Purchase accounting adjustment to reflect elimination of CSMG retained
earnings.
THE MANAGEMENT NETWORK GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 29, 2001
(in thousands, except per share amounts)
Pro forma Pro forma
TMNG CSMG Adjustments Combined
----------- ----------- ----------- -----------
Revenues ................................. $ 54,832 $ 21,303 $ 76,135
Cost of Services:
Direct cost of services ................. 27,347 10,916 38,263
Equity related charges .................. 2,322 2,322
----------- ----------- ----------- -----------
Total cost of services ............... 29,669 10,916 40,585
----------- ----------- ----------- -----------
Gross Profit ............................. 25,163 10,387 35,550
Operating Expenses:
Selling, general and administrative ..... 16,767 9,044 $ (2,148)(1,2,3,4) 23,663
Restructuring charges ................... 1,360 1,360
Equity related charges .................. 843 843
Goodwill and intangibles, amortization .. 1,996 1,883 (5) 3,879
----------- ----------- ----------- -----------
Total operating expenses ............. 19,606 10,404 (265) 29,745
----------- ----------- ----------- -----------
Income (Loss) from Operations ............ 5,557 (17) 265 5,805
Other Income (Expense):
Interest income ........................ 2,433 158 (578)(6) 2,013
Interest expense ....................... (14) (55) 10 (7) (59)
Other, net ............................. (8) (3) (11)
----------- ----------- ----------- -----------
Total other expense .................. 2,411 100 (568) 1,943
----------- ----------- ----------- -----------
Income Before Provision for Income
Taxes .................................. 7,968 83 (303) 7,748
Provision for Income Taxes ............... (2,360) (76) 94 (8) (2,342)
----------- ----------- ----------- -----------
Net Income ............................... $ 5,608 $ 7 $ (209) $ 5,406
=========== =========== =========== ===========
Net Income Per Common Share:
Basic ................................. $ 0.19 $ 0.17
=========== =========== =========== ===========
Diluted ............................... $ 0.18 $ 0.16
=========== =========== =========== ===========
Shares Used in Calculation of Net Income
Per Common Share
Basic ................................. 29,736 2,893 (9) 32,629
=========== =========== =========== ===========
Diluted ............................... 30,774 2,893 (9) 33,667
=========== =========== =========== ===========
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.
THE MANAGEMENT NETWORK GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 29, 2001
1. PRO FORMA ADJUSTMENTS (in thousands)
(1) Purchase accounting adjustment to reflect the reduction in the amount of
$780 in rent expense as a result of TMNG not assuming the previous operating
lease of One Boston Place and entering into a new lease for approximately 55% of
the CSMG previously leased property at One Boston Place, the current office
location of CSMG at the date of the acquisition. Additionally, to reflect the
exclusion of rent expense associated with the former office location of CSMG
that was not assumed in the acquisition, as of the date CSMG consolidated into
its existing
location offset by the exclusion of subrental income. The net reduction in rent
expense related to the former office space for the period reported is $76.
(2) Purchase accounting adjustment to reflect the reduction in rent expense in
the amount of $348 associated with the amortization of the unfavorable operating
lease liability established as a result of fair valuing the One Boston Place
lease based on market price. The liability is amortized on a straight-line basis
over the life of the lease.
(3) Purchase accounting adjustment to reflect the uncollectible receivable due
from an affiliate, Cambridge Strategic Management Group Limited, in the amount
of $843. This amount was not assumed in the transaction and was written off as a
result of the planned dissolution of the affiliated entity in CSMG's historical
2001 Statement of Operations.
(4) Purchase accounting adjustment to reflect the reduction in depreciation
expense for equipment not acquired and the fair value adjustment of assets
acquired. The total adjustment to depreciation expense is $101.
(5) Purchase accounting adjustment to reflect the straight-line amortization of
identified intangible assets acquired. The intangible assets are recorded based
upon an independent appraisal. The amortization period of the customer backlog
is three months. The amortization periods of the tradename and employment
agreements range from two to three years. In accordance with the provisions of
FASB Statement No. 142, the goodwill resulting from the acquisition of CSMG has
not been amortized.
(6) Purchase accounting adjustment to reflect the reduction of interest income
associated with the cash consideration of the acquisition.
(7) Purchase accounting adjustment to reflect the adjustment to interest expense
associated with a note payable excluded from the acquisition.
(8) Purchase accounting adjustment to reflect the pro forma effect of the tax
provision at the statutory federal and state tax rate of 40% for the current
year and the statutory rate adjustment applied to the cumulative deferred tax
liability. Prior to the transaction, CSMG was a Sub Chapter S entity for federal
tax purposes.
(9) Purchase accounting adjustment to reflect adjustment to shares used in
calculation of basic and diluted earnings per share for stock consideration
(2,893 shares) to the CSMG shareholder as part of acquisition.
(c) EXHIBITS
The following Exhibits are filed as part of this report:
99.1 Audited Financial Statements for Cambridge Strategic Management Group, Inc.
for The Year Ended December 31, 2001 and Independent Auditors' Report.
99.2 Amended and Restated Office Lease, One Boston Place between BRE/One Boston,
L.L.C. and Cambridge Strategic Management Group, Inc.
99.3 Consent of Vocatura, Spagnuolo & Company, P.C.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE MANAGEMENT NETWORK GROUP, INC.
a Delaware corporation
Dated: May 10, 2002 By: /s/ Donald E. Klumb
----------------------------------------
Donald E. Klumb
Executive Vice President and Chief
Financial Officer
EXHIBIT INDEX
99.1 Audited Financial Statements for Cambridge Strategic Management Group, Inc.
for The Year Ended December 31, 2001 and Independent Auditors' Report.
99.2 Amended and Restated Office Lease, One Boston Place between BRE/One Boston,
L.L.C. and Cambridge Strategic Management Group, Inc.
99.3 Consent of Vocatura, Spagnuolo & Company, P.C.