10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 29, 2007

or

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. Yes þ     No o

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 Filer o     Large Accelerated Filer o     Non- Accelerated Filer þ

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

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

As of November 9, 2007, TMNG had outstanding 36,086,633 shares of common stock.

THE MANAGEMENT NETWORK GROUP, INC.
INDEX

		PAGE
PART I. FINANCIAL INFORMATION:
ITEM 1.	Condensed Consolidated Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets — September 29, 2007		3
	and December 30, 2006
	Condensed Consolidated Statements of Operations and		4
	Comprehensive Income (Loss) — Thirteen and Thirty-nine weeks ended September 29, 2007
	and September 30, 2006
	Condensed Consolidated Statements of Cash Flows		5
	— Thirty-nine weeks ended September 29, 2007 and September 30, 2006
	Notes to Condensed Consolidated Financial Statements		6
ITEM 2.	Management’s Discussion and Analysis of		15
	Financial Condition and Results of Operations
ITEM 3.	Quantitative and Qualitative Disclosures About		24
	Market Risk
ITEM 4.	Controls and Procedures		24
ITEM 4T.	Controls and Procedures		24
PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings		24
ITEM 1A.	Risk Factors		25
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		25
ITEM 3.	Defaults Upon Senior Securities		25
ITEM 4.	Submission of Matters to a Vote of Security Holders		25
ITEM 5.	Other Information		25
ITEM 6.	Exhibits		25
Signatures			26
Exhibits			27
Stock Purchase Agreement
Transition Services Agreement
Section 302 Certifications
Section 906 Certifications

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE MANAGEMENT NETWORK GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

(unaudited)

	September 29,			December 30,
	2007			2006
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	11,147		$	11,133
Short-term investments		17,525			27,200
Receivables:
Accounts receivable		14,671			5,063
Accounts receivable — unbilled		6,784			3,654
		21,455			8,717
Less: Allowance for doubtful accounts		(609	)		(378	)
		20,846			8,339
Prepaid and other current assets		2,266			2,257
Total current assets		51,784			48,929
Property and equipment, net		1,714			846
Goodwill		13,365			13,365
Licenses and identifiable intangible assets, net		12,696			1,189
Other assets		928			967
Total Assets	$	80,487		$	65,296
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade accounts payable	$	2,259		$	1,446
Accrued payroll, bonuses and related expenses		6,378			1,965
Other accrued liabilities		2,429			1,986
Income tax liabilities		1,461			271
Deferred revenue		5,327			33
Accrued contingent consideration		1,260
Unfavorable and other contractual obligations		1,956			649
Total current liabilities		21,070			6,350
NONCURRENT LIABILITIES:
Deferred income tax liabilities		1,860
Unfavorable and other contractual obligations		2,099			2,189
Other noncurrent liabilities		516
Total noncurrent liabilities		4,475			2,189
Commitments and contingencies (Note 9)
Total stockholders’ equity		54,942			56,757
Total Liabilities and Stockholders’ Equity	$	80,487		$	65,296

See notes to unaudited condensed consolidated financial statements.

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THE MANAGEMENT NETWORK GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)

(unaudited)

	Thirteen Weeks Ended						Thirty-nine Weeks Ended
	September 29,			September 30,			September 29,			September 30,
	2007			2006			2007			2006
Revenues	$	20,814		$	8,691		$	51,047		$	25,395
Cost of services (includes net non-cash share-based compensation expense of $191 and $142 for the thirteen weeks ended September 29, 2007 and September 30, 2006, respectively, and $124 and $513 for the thirty-nine weeks ended September 29, 2007 and September 30, 2006, respectively)		10,514			4,687			27,308			13,129
Gross Profit		10,300			4,004			23,739			12,266
Operating Expenses:
Selling, general and administrative (includes net non-cash share-based compensation expense of $577 and $808 for the thirteen weeks ended September 29, 2007 and September 30, 2006, respectively, and $588 and $2,159 for the thirty-nine weeks ended September 29, 2007 and September 30, 2006, respectively)		8,944			7,455			22,778			20,578
Special Committee investigation (a)		103						2,451
Intangible asset amortization		1,057			215			2,149			566
Legal settlements					(62	)					(31	)
Total operating expenses		10,104			7,608			27,378			21,113
Income (loss) from operations		196			(3,604	)		(3,639	)		(8,847	)
Other income (loss):
Interest income		387			528			1,185			1,609
Other, net		452						452			(1	)
Total other income		839			528			1,637			1,608
Income (loss) before income tax provision		1,035			(3,076	)		(2,002	)		(7,239	)
Income tax provision		(531	)		(5	)		(815	)		(39	)
Net income (loss)		504			(3,081	)		(2,817	)		(7,278	)
Other comprehensive item — Foreign currency translation adjustment		121			(23	)		309			27
Comprehensive income (loss)	$	625		$	(3,104	)	$	(2,508	)	$	(7,251	)
Income (loss) per common share
Basic and diluted	$	0.01		$	(0.09	)	$	(0.08	)	$	(0.20	)
Weighted average shares used in calculation of net income (loss) per common share
Basic		35,808			35,764			35,763			35,713
Diluted		36,140			35,764			35,763			35,713

(a) For a summary of the Special Committee investigation, refer to Note 2 of the Consolidated Financial Statements included in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission on May 14, 2007.

See notes to unaudited condensed consolidated financial statements.

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THE MANAGEMENT NETWORK GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

(unaudited)

	For the Thirty-nine Weeks Ended
	September 29,			September 30,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,817	)	$	(7,278	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		3,059			885
Share-based compensation		712			2,672
Deferred income taxes		(655	)
Bad debt expense		380			211
Other changes in operating assets and liabilities:
Accounts receivable		(2,191	)		(1,450	)
Accounts receivable — unbilled		(1,554	)		(1,360	)
Prepaid and other assets		665			(970	)
Trade accounts payable		191			(448	)
Income tax liabilities		667
Accrued liabilities		2,650			1,010
Net cash provided by (used in) operating activities		1,107			(6,728	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments					(9,200	)
Proceeds from maturities and sales of short-term investments		9,675			16,800
Acquisition of businesses, net of cash acquired		(9,943	)		(1,509	)
Acquisition of property and equipment		(300	)		(517	)
Net cash (used in) provided by investing activities		(568	)		5,574
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made on long-term obligations		(783	)		(444	)
Proceeds from exercise of stock options		162			297
Repurchase of common stock					(241	)
Issuance of common stock through employee stock purchase plan		36			74
Net cash used in financing activities		(585	)		(314	)
Effect of exchange rate on cash and cash equivalents		60			27
Net increase (decrease) in cash and cash equivalents		14			(1,441	)
Cash and cash equivalents, beginning of period		11,133			10,951
Cash and cash equivalents, end of period	$	11,147		$	9,510
Supplemental disclosure of cash flow information:
Cash paid during period for interest				$	1
Cash paid during period for income taxes, net of refunds	$	752		$	11
Accrued property and equipment additions	$	55		$	10

See notes to unaudited condensed consolidated financial statements.

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THE MANAGEMENT NETWORK GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Reporting

The condensed consolidated financial statements and accompanying notes of The Management Network Group, Inc. (“TMNG,” “TMNG Global,” “we,” “us,” “our,” or the “Company”) as of September 29, 2007, and for the thirteen and thirty-nine weeks ended September 29, 2007 and September 30, 2006 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”) and pursuant to the rules and regulations of the Securities and Exchange Commission 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 (“2006 Form 10-K”) for additional disclosures, including a summary of the Company’s accounting policies. The Condensed Consolidated Balance Sheet as of December 30, 2006 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.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The results of operations for the thirteen and thirty-nine weeks ended September 29, 2007 are not necessarily indicative of the results to be expected for the full year ending December 29, 2007. Certain amounts in prior years have been reclassified to conform to current period presentation.

Principles of Consolidation — The consolidated statements include the accounts of TMNG and its wholly-owned subsidiaries. On August 3, 2007, the Company acquired all of the outstanding membership interests of RVA Consulting, LLC (“RVA”), a New Jersey based consulting firm specializing in the communications industry. The results of RVA are included in the results of operations subsequent to the date of acquisition. On January 2, 2007, the Company acquired one-hundred percent of the outstanding common stock of Cartesian Limited (“Cartesian”), a United Kingdom-based software engineering and consulting firm. The results of Cartesian are included in the results of operations subsequent to the date of acquisition. A wholly-owned subsidiary, Cambridge Adventis Ltd., was formed in March 2006. On April 3, 2006, Cambridge Adventis Ltd. acquired the business and primary assets of Adventis Ltd., the international operations of Adventis Corporation, a global consulting firm specializing in telecom, technology and digital media. The results of Cambridge Adventis Ltd. are included in the results of operations subsequent to the date of formation.

Revenue Recognition — The Company recognizes revenue from time and materials consulting contracts in the period in which its services are performed. In addition to time and materials contracts, the Company’s other types of contracts may include time and materials contracts not to exceed contract price, fixed fee contracts, and contingent fee contracts. The Company recognizes revenues on milestone or deliverables-based fixed fee contracts and time and materials contracts not to exceed contract price using the percentage of completion method prescribed by AICPA Statement of Position (“SOP”) No. 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” For fixed fee contracts where services are not based on providing deliverables or achieving milestones, the Company recognizes revenue on a straight-line basis over the period during which such services are expected to be performed.

As a result of the Cartesian acquisition, the Company now develops, installs and supports customer software in addition to its traditional consulting services. The Company recognizes revenue in connection with its software sales agreements utilizing the SOP No. 81-1 percentage of completion method. These agreements include software right-to-use licenses (“RTU’s”) and related customization and implementation services. Due to the long-term nature of the software implementation and the extensive software customization based on customer specific requirements normally experienced by the Company, both the RTU and implementation services are treated as a single element for revenue recognition purposes.

The SOP No. 81-1 percentage-of-completion methodology involves recognizing revenue using the percentage of services completed, on a current cumulative cost to total cost basis, using a reasonably consistent profit margin over the period. Due to the longer term nature of these projects, developing the estimates of costs often requires significant judgment. Factors that must be considered in estimating the progress of work completed and ultimate cost of the projects include, but are not limited to, the availability of labor and labor productivity, the nature and complexity of the work to be performed, and the impact of delayed performance. If changes occur in delivery, productivity or other factors used in developing the estimates of costs or revenues, the Company revises its cost and revenue estimates, which may result in increases or decreases in revenues and costs, and such revisions are reflected in income in the period in which the facts that give rise to that revision become known.

In addition to the professional services related to the customization and implementation of its software, the Company also provides post-contract support (“PCS”) services, including technical support and maintenance services. For those contracts that include PCS service arrangements which are not essential to the functionality of the software solution, the Company separates the SOP No. 81-1 software services and PCS services utilizing the multiple-element arrangement model prescribed by Emerging Issues Task Force (“EITF”) No. 00-21, “Revenue

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Arrangements with Multiple Deliverables.” EITF No. 00-21 addresses the accounting treatment for an arrangement to provide the delivery or performance of multiple products and/or services where the delivery of a product or system or performance of services may occur at different points in time or over different periods of time. The Company utilizes EITF No. 00-21 to separate the PCS service elements and allocate total contract consideration to the contract elements based on the relative fair value of those elements. Revenues from PCS services are recognized ratably on a straight-line basis over the term of the support and maintenance agreement.

The Company may also 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, the Company recognizes costs as they are incurred on the project and defers revenue recognition until the revenue is realizable and earned as agreed to by its clients. Although these contracts can be very rewarding, the profitability of these contracts is dependent on the Company’s ability to deliver results for its clients and control the cost of providing these services. 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. Revenues and costs associated with contingent fee contracts were $786,000 and $236,000, respectively, for the thirteen and thirty-nine weeks ended September 29, 2007 and were not material for the thirteen and thirty-nine weeks ended September 30, 2006.

Deferred Revenue — In connection with some fixed price contracts, the Company receives payments from customers that exceed recognized revenues. The Company records the excess of receipts from customers over recognized revenue as deferred revenue. Deferred revenue is classified as a current liability to the extent it is expected to be earned within twelve months from the date of the balance sheet.

Research and Development and Capitalized Software Costs - Software development costs are accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.” Capitalization of software development costs for products to be sold to third parties begins upon the establishment of technological feasibility and ceases when the product is available for general release. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized software development costs require considerable judgment by management concerning certain external factors including, but not limited to, the date technological feasibility is reached, anticipated future gross revenue, estimated economic life and changes in software and hardware technologies. The Company capitalizes development costs incurred during the period between the establishment of technological feasibility and the release of the final product to customers if such costs are material. During the thirteen and thirty-nine weeks ended September 29, 2007, $229,000 and $680,000, respectively, of these costs were expensed as incurred. No software development costs were capitalized during the thirteen and thirty-nine weeks ended September 29, 2007. No software development costs were incurred in the thirteen and thirty-nine weeks ended September 30, 2006.

The Company also incurs research and development costs associated with development of new offerings and services. These product development costs are expensed as incurred. Research and development costs associated with product development were $281,000 in the thirty-nine weeks ended September 30, 2006. No product development costs were incurred in the thirteen weeks ended September 30, 2006 and the thirteen and thirty-nine weeks ended September 29, 2007.

Recent Accounting Pronouncements — In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. The statement applies whenever other statements require or permit assets or liabilities to be measured at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of this adoption on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities.” This statement permits entities to choose to measure many financial instruments and certain other items at fair value. If the fair value option is elected, unrealized gains and losses will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of this adoption on its consolidated financial statements.

2. Business Combinations

RVA Consulting, LLC

On August 3, 2007, the Company acquired all of the outstanding membership interests of RVA pursuant to a Membership Interest Purchase Agreement with the members of RVA. The transaction was valued at a purchase price of approximately $6.6 million in cash, potential additional consideration of $0.4 million for working capital true-ups and potential earn-out consideration based upon performance of RVA after the closing date of up to approximately $2.8 million in cash and approximately 1.0 million shares of TMNG common stock valued at $2.4 million based on the share price at the date of close. The Company incurred approximately $0.2 million in transaction costs related to the acquisition. In addition, approximately $0.2 million of future purchase consideration is contingent on the continued employment of one of the selling members and is being expensed over the employee’s expected service period of three months. TMNG assumed all liabilities of RVA, subject to certain indemnities on the part of the selling members. Certain of the selling members continue to be employed by and participate in the management of RVA after the closing date pursuant to written employment agreements. RVA will be presented as a component of the Management Consulting Services segment.

The measurement of the respective assets and liabilities recognized in connection with the acquisition has been made in accordance with the provisions of SFAS No. 141, “Business Combinations.” The fair value of the net assets acquired in the RVA acquisition exceeded the total consideration paid by the Company, resulting in negative goodwill of $0.9 million. Because the acquisition involves contingent consideration,

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the Company is required to recognize additional purchase consideration equal to the lesser of the negative goodwill or the maximum amount of contingent consideration of $5.2 million. The negative goodwill is included in the total purchase price and reflected as a current liability based on the anticipated resolution of the contingent feature. If and when contingent payments are earned, the Company will apply the payments against these contingent liabilities. Any contingent payments in excess of the initial accrued contingent consideration will be recorded as goodwill. To the extent contingent payments are not made, the Company will reduce the basis of certain acquired assets and any remaining negative goodwill will be charged to the results of operations as an extraordinary gain. None of the earn-out consideration was earned during the thirteen and thirty-nine weeks ended September 29, 2007.

The aggregate purchase price of $7.7 million consisted of the following (in thousands):

Cash (including transaction costs)	$	6,826
Accrued contingent consideration		878
Total purchase price	$	7,704

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of the date of acquisition. The allocation of the purchase price is based on preliminary estimates and is subject to further refinement. The preliminary allocation of the purchase price assigned to identifiable intangible assets was determined with the assistance of an independent appraisal firm.

At August 3, 2007
(Amounts in Thousands)

Acquired cash	$	5,642
Other current assets		3,191
Furniture, fixtures and equipment		369
Customer relationships		3,400
Employment agreements		400
Customer backlog		2,100
Total assets acquired		15,102
Deferred revenue		4,575
Other current liabilities assumed		2,429
Noncurrent liabilities assumed		394
Total liabilities assumed		7,398
Net assets acquired	$	7,704

The following table summarizes the estimated useful life for the identifiable intangible assets. No residual values have been identified with these assets and each are amortized on a straight-line basis. Customer relationships are amortized over a shortened estimated useful life to ensure that the recognition of the costs better corresponds to their anticipated contribution to cash flows.

	Estimated
	useful life
Identifiable Intangible Asset	(in months)
Customer relationships		48
Employment agreements		36
Customer backlog		12

The transaction was structured as an asset acquisition for income tax purposes, therefore any goodwill resulting from contingent consideration and specifically identifiable intangible assets recorded in the transaction will be deductible for income tax purposes. Net deferred income tax assets recorded in connection with the preliminary purchase price allocation have been fully reserved with valuation allowances due to uncertainty about the realization of these benefits.

Cartesian Limited

On January 2, 2007, the Company acquired one-hundred percent of the outstanding common stock of Cartesian for a total purchase price of approximately $6.5 million, plus up to approximately $9.2 million in potential future earn-out consideration based upon the performance of Cartesian after the closing date. An additional $0.5 million in transaction costs were capitalized as part of the purchase price. The selling shareholders continue to be employed by and manage Cartesian after the closing date pursuant to written employment agreements. Any future

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purchase consideration is not contingent on the continued employment of the selling shareholders. TMNG assumed all liabilities of Cartesian, subject to certain tax indemnities on the part of the selling shareholders.

The measurement of the respective assets and liabilities recognized in connection with the acquisition has been made in accordance with the provisions of SFAS No. 141, “Business Combinations.” The fair value of the net assets acquired in the Cartesian acquisition exceeded the total consideration paid by the Company, resulting in negative goodwill of $3.8 million. Because the acquisition involves contingent consideration, the Company is required to recognize additional purchase consideration equal to the lesser of the negative goodwill or the maximum amount of contingent consideration of $9.2 million. The negative goodwill is included in the total purchase price and reflected as a current liability based on the anticipated resolution of the contingent feature. If and when contingent payments are earned, the Company will apply the payments against these contingent liabilities. Any contingent payments in excess of the initial accrued contingent consideration will be recorded as goodwill. To the extent contingent payments are not made, the Company will reduce the basis of certain acquired assets and any remaining negative goodwill will be charged to the results of operations as an extraordinary gain. Earn-out consideration of $1.5 million and $3.5 million was earned and paid during the thirteen and thirty-nine weeks ended September 29, 2007, respectively. The payment of the earn-out consideration reduced the liability for accrued contingent consideration. Potential earn-out payments in excess of amounts already paid total $5.7 million at September 29, 2007.

The aggregate purchase price of $10.9 million consisted of the following (in thousands):

Cash	$	7,030
Accrued contingent consideration		3,824
Total purchase price	$	10,854

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of the date of acquisition. The allocation of the purchase price is based on preliminary estimates and is subject to further refinement. The preliminary allocation of the purchase price assigned to identifiable intangible assets was determined with the assistance of an independent appraisal firm.

At January 2, 2007
(Amounts in Thousands)

Acquired cash	$	1,787
Other current assets		6,192
Property, plant and equipment		533
Customer relationships		2,368
Acquired software		2,961
Employment agreements		1,974
Customer backlog		395
Tradename		395
Total assets acquired		16,605
Current liabilities assumed		3,332
Deferred income tax liabilities recognized		2,419
Total liabilities assumed and recognized		5,751
Net assets acquired	$	10,854

The following table summarizes the estimated useful life for the identifiable intangible assets. No residual values have been identified with these assets and each are amortized on a straight-line basis. Customer relationships are amortized over a shortened estimated useful life to ensure that the recognition of the costs better corresponds to their anticipated contribution to cash flows.

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	Estimated
	useful life
Identifiable Intangible Asset	(in months)
Customer relationships		48
Acquired software		48
Employment agreements		36
Customer backlog		12
Tradename		24

The transaction was structured as a stock acquisition, therefore any goodwill resulting from contingent consideration and specifically identifiable intangible assets recorded in the transaction will not be deductible for income tax purposes.

Adventis Limited

On April 3, 2006, TMNG acquired the business and primary assets of Adventis Ltd., the international operations of Adventis Corporation, a Delaware corporation and the parent of Adventis Ltd., a global consulting firm specializing in the interrelated sectors of telecom, technology and digital media. The acquired operations of Adventis Ltd. consisted of 27 consultants located in London, Berlin, and Shanghai with revenues from clients in Europe and Asia. The transaction was valued at a purchase price of approximately $1.93 million, with approximately $1.5 million paid in cash at closing, plus the assumption of approximately $432,000 in net working capital deficiency, which included $269,000 in professional fees and other costs related directly to the acquisition. During the fourth quarter of fiscal year 2006, the Company recognized a $2.1 million charge for the impairment of the carrying amount of Adventis Ltd. The impairment charge was the result of lower than expected operating results coupled with a reduction in the size and scope of operations which impacted the Company’s assessment of future cash flows of the Adventis business. The impairment charge reduced the net carrying amount of Adventis intangible assets to zero.

Pro Forma Combined Results

The operating results of Adventis, Cartesian and RVA have been included in the Condensed Consolidated Statements of Operations and Comprehensive Loss subsequent to the respective dates of the purchase. The following reflects pro forma combined results of the Company (including Adventis, Cartesian and RVA) as if the acquisitions had occurred as of January 1, 2006. In management’s opinion, this pro forma information does not necessarily reflect the actual results that would have occurred had the acquisitions been completed as of January 1, 2006 nor is it necessarily indicative of future consolidated results of operations of the Company.

	Unaudited
	For the Thirteen Weeks Ended					For the Thirty-nine Weeks Ended
	September 29, 2007		September 30, 2006			September 29, 2007		September 30, 2006
Total revenues	$	23,553	$	17,307		$	67,983	$	42,400
Net income (loss)	$	1,943	$	(505	)	$	5,229	$	(4,611	)
Basic and diluted net income (loss) per common share	$	0.05	$	(0.01	)	$	0.15	$	(0.13	)

3. 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 two reportable segments beginning in the first quarter of fiscal 2007, the Management Consulting Services segment and the Software Solutions segment. The Management Consulting Services segment is comprised of four operating segments (Operations, Strategy, Marketing and International) which are aggregated into one reportable segment. Management Consulting Services includes consulting services related to business strategy and planning, marketing and customer relationship management, billing system support, operating system support, revenue assurance, corporate investment services, and business model transformation. Software Solutions is a single reportable operating segment that provides custom developed software, consulting and technical services. These services range from developing initial business and system requirements, to software development, software configuration and implementation, and post-contract customer support. The Company began reporting the Software Solutions segment as a result of the acquisition of Cartesian on January 2, 2007.

Management evaluates segment performance based upon income (loss) from operations, excluding share-based compensation (benefits), depreciation and intangibles amortization. Inter-segment sales were approximately $0.3 million and $0.6 million in the thirteen and thirty-nine weeks ended September 29, 2007, respectively. The Company had one reporting segment during the thirteen and thirty-nine weeks ended September 30, 2006, the Management Consulting Services segment. In addition, in its administrative division, entitled “Not Allocated to

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Segments,” the Company accounts for non-operating activity and the costs of providing corporate and other administrative services to the segment.

Summarized financial information concerning the Company’s reportable segments is shown in the following table (amounts in thousands):

	Management				Not
	Consulting		Software		Allocated to
	Services		Solutions		Segments			Total
As of and for the thirty-nine weeks ended September 29, 2007:
Revenues	$	33,354	$	17,693				$	51,047
Income (loss) from operations		11,658		5,495	$	(20,792	)		(3,639	)
Total assets	$	14,493	$	6,353	$	59,604		$	80,450
For the thirteen weeks ended September 29, 2007:
Revenues	$	14,057	$	6,757				$	20,814
Income (loss) from operations		5,473		2,453	$	(7,730	)		196
As of and for the thirty-nine weeks ended September 30, 2006:
Revenues	$	25,395						$	25,395
Income (loss) from operations		7,731			$	(16,578	)		(8,847	)
Total assets	$	9,752			$	61,291		$	71,043
For the thirteen weeks ended September 30, 2006:
Revenues	$	8,691						$	8,691
Income (loss) from operations		1,899			$	(5,503	)		(3,604	)

Segment assets, regularly reviewed by management as part of its overall assessment of the segments’ performance, include both billed and unbilled trade accounts receivable, net of allowances, and certain other assets. Assets not assigned to segments include cash and cash equivalents, property and equipment, goodwill and intangible assets and deferred tax assets, excluding deferred tax assets recognized on accounts receivable reserves, which are assigned to their respective segment.

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				For the Thirty-nine Weeks Ended
	September 29,		September 30,		September 29,		September 30,
	2007		2006		2007		2006
United States	$	12,102	$	6,331	$	27,023	$	20,254
International:
United Kingdom		8,300		1,185		22,139		3,137
Germany		25		925		714		1,392
Japan				178		220		430
Ireland		107				301
Spain		186				207
Other		94		72		443		182
Total	$	20,814	$	8,691	$	51,047	$	25,395

4. Goodwill and Other Identifiable Intangible Assets

There were no changes in the carrying amounts of goodwill during the thirteen weeks and thirty-nine weeks ended September 29, 2007.

Included in the Company’s consolidated balance sheets as of September 29, 2007 (reflecting the acquisitions of Cartesian on January 2, 2007 and RVA on August 3, 2007) and December 30, 2006, are the following identifiable intangible assets (amounts in thousands):

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	September 29, 2007					December 30, 2006
			Accumulated					Accumulated
	Cost		Amortization			Cost		Amortization
Acquired software	$	3,062	$	(574	)
Customer relationships		5,849		(601	)	$	1,908	$	(1,879	)
Employment agreements		2,441		(532	)
Customer backlog		2,508		(656	)
Tradename		408		(153	)
S3 license agreement		1,500		(556	)		1,500		(340	)
	$	15,768	$	(3,072	)	$	3,408	$	(2,219	)

The customer relationships of $1.9 million as of December 30, 2006 were fully amortized during the thirteen weeks ended March 31, 2007.

Intangible amortization expense for the thirteen weeks ended September 29, 2007 and September 30, 2006 was $1,246,000 and $215,000, respectively, including $189,000 reported in cost of services for the thirteen weeks ended September 29, 2007. Intangible amortization expense for the thirty-nine weeks ended September 29, 2007 and September 30, 2006 was $2,707,000 and $566,000, respectively, including $558,000 reported in cost of services for the thirty-nine weeks ended September 29, 2007. Future intangible amortization expense is estimated to be approximately as follows (in thousands):

			Estimated
			intangible
	Total estimated		amortization to
	intangible		be included in
Future Period	amortization		cost of services
Remainder of fiscal year 2007	$	1,511	$	191
Fiscal year 2008		4,761		765
Fiscal years 2009 — 2011		6,424		1,531

5. Share-Based Compensation

The Company issues stock option awards and nonvested share awards under its share-based compensation plans. The key provisions of the Company’s share-based compensation plans are described in Note 5 of the Company’s consolidated financial statements included in the 2006 Form 10-K.

The Company did not recognize any income tax benefit for share-based compensation arrangements for the thirty-nine weeks ended September 29, 2007 and September 30, 2006. In addition, no costs related to share-based compensation expense were capitalized during the thirty-nine weeks ended September 29, 2007 and September 30, 2006. During the first quarter of 2007, the Company revised its estimate of options that are expected to be forfeited prior to vesting. As a result of this change in estimate, pre-tax share-based compensation expense was reduced by $968,000.

1998 Equity Incentive Plan

Stock Options

A summary of the option activity under the Company’s 1998 Equity Incentive Plan, as amended and restated (the “1998 Plan”), as of September 29, 2007 and changes during the thirty-nine weeks then ended is presented below:

				Weighted Average
	Shares			Exercise Price
Outstanding at December 30, 2006		5,465,594		$	3.78
Granted		1,771,500		$	2.14
Exercised		(95,906	)	$	1.69
Forfeited/cancelled		(2,677,372	)	$	3.16
Outstanding at September 29, 2007		4,463,816		$	3.55
Options vested and expected to vest at September 29, 2007		3,698,382		$	3.83
Options exercisable at September 29, 2007		2,061,518		$	5.14
Weighted average fair value of options granted during the period				$	1.39

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Nonvested Shares

A summary of the status of nonvested shares granted under the 1998 Plan as of September 29, 2007 and changes during the thirty-nine weeks then ended is presented below:

				Weighted Average
				Grant Date
	Shares			Fair Value
Outstanding at December 30, 2006		221,750		$	2.30
Granted		12,500		$	2.29
Vested		(46,250	)	$	2.23
Forfeited/Cancelled		(70,000	)	$	2.48
Outstanding at September 29, 2007		118,000		$	2.23

2000 Supplemental Stock Plan

A summary of the option activity under the Company’s 2000 Supplemental Stock Plan as of September 29, 2007 and changes during the thirty-nine weeks then ended is presented below:

				Weighted Average
	Shares			Exercise Price
Outstanding at December 30, 2006		1,121,972		$	4.02
Granted		795,000		$	2.30
Forfeited/cancelled		(593,570	)	$	4.90
Outstanding at September 29 , 2007		1,323,402		$	2.59
Options vested and expected to vest at September 29, 2007		1,022,754		$	2.69
Options exercisable at September 29, 2007		347,311		$	3.47
Weighted average fair value of options granted during the period				$	1.39

6. 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. The weighted average number of common shares outstanding excludes treasury shares purchased by the Company. 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 128, “Earnings per Share,” the Company uses the treasury stock method for calculating the dilutive effect of employee stock options and nonvested shares. These instruments will have a dilutive effect under the treasury stock method only when the respective period’s average market value of the underlying Company common stock exceeds the actual proceeds. In applying the treasury stock method, assumed proceeds include the amount, if any, the employee must pay upon exercise, the amount of compensation cost for future services that the Company has not yet recognized, and the amount of tax benefits, if any, that would be credited to additional paid-in capital assuming exercise of the options and the vesting of nonvested shares. The Company has not included the effect of stock options in the calculation of diluted loss per share for the thirty-nine weeks ended September 29, 2007 or for the thirteen and thirty-nine weeks ended September 30, 2006 as the Company reported a net loss for these periods and the effect would have been anti-dilutive. During the thirteen weeks ended September 29, 2007, the calculation of diluted earnings per share excludes the impact of 5,613,390 options under the treasury stock method because the impact of these stock options would have been anti-dilutive.

7. Income Taxes

In the thirteen and thirty-nine weeks ended September 29, 2007 and September 30, 2006, the Company recorded income tax provisions of $531,000, $815,000, $5,000 and $39,000, respectively. The tax provisions in the thirteen and thirty-nine weeks ended September 29, 2007 are primarily related to international income taxes due to the profitability of the Company’s United Kingdom operations. The tax provisions in the thirteen and thirty-nine weeks ended September 30, 2006 are primarily related to state income taxes. During both periods, the Company recorded full valuation allowances against income tax benefits related to domestic operations 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. As of September 29, 2007, the Company has recorded $32.0 million of valuation allowances attributable to its net deferred tax assets.

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The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109,” (“FIN 48”) effective January 1, 2007. FIN 48 prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the taxing authority. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.

FIN 48 requires that the cumulative effect of the change in accounting principle be recorded as an adjustment to opening accumulated deficit. As a result of the implementation of FIN 48, the Company recognized a cumulative effect adjustment of $223,000 as an increase to beginning accumulated deficit. In addition, the Company identified approximately $271,000 in liabilities for unrecognized tax benefits which were previously reserved. The liability for uncertain tax positions was $516,000 as of September 29, 2007 and is included in “Other noncurrent liabilities” on the condensed consolidated balance sheet. The adoption of FIN 48 did not have a material effect on the Company’s results of operations, financial condition or cash flows during the thirty-nine weeks ended September 29, 2007. However, FIN 48 may add volatility to the Company’s effective tax rate and, therefore, the expected income tax expense in future periods.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties as a component of the income tax provision. As of September 29, 2007 and December 31, 2006, the total amount of accrued income tax-related interest and penalties included in the Condensed Consolidated Balance Sheet was $161,000 and $139,000, respectively. As of September 29, 2007, the Company believes there are no positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2002. As of September 29, 2007, the Company has one examination in process by the Internal Revenue Service related to employment and stock option matters.

8. Loans to Officers

As of September 29, 2007, 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 September 29, 2007 and December 30, 2006 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 September 29, 2007.

9. Commitments and Contingencies

As of March 31, 2007, 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. One of these demands originated through the acquisition of Tri-Com in 2001, resulting in a contingent purchase price to the seller. Although the Company did not believe preferential payments had been received from this former client, the Company had reserves of $727,000 to cover any liability resulting from the remaining outstanding claims and the contingent purchase price. In May 2007, the Company reached a settlement agreement with the bankruptcy trustee whereby the Company agreed to pay $565,000 in exchange for being released from all potential liability under the demands discussed above. A small gain was recognized in fiscal year 2006 as a result of this subsequent event. The Company is currently working to finalize settlement for the contingent purchase price component of the Tri-Com acquisition.

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 the matters described above will not have a material adverse effect upon its consolidated results of operations, cash flows or financial position.

On September 26, 2007, the independent members of the Company’s Board of Directors (the “Board”) upon the recommendation of the Compensation Committee of the Board approved a senior executive incentive compensation plan for fiscal year 2007 (the “Plan”). The Plan establishes a cash bonus pool (the “Pool”) for the Company’s executive management, including its principal executive officer, president and chief operating officer, principal financial officer, and other executives, as recommended by the principal executive officer, if the Company meets or exceeds an earnings target for fiscal year 2007. The calculation of the earnings target excludes non-cash charges and benefits and the impact of certain items that are generally not expected to be on-going in nature. The amount available for payment from the Pool (“Payout Amount”) begins at $812,500 if the Company achieves the earnings target. If the earnings target is exceeded, the Payout Amount increases in

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accordance with a graduated descending scale ranging from 12.5% to 7.5% of the earnings in excess of the target, provided that the Payout Amount is not to exceed $2,000,000. The distribution of the Payout Amount, if any, among the Company’s eligible executive management will be determined by the Compensation Committee of the Board and/or independent directors at a later date. During the thirteen weeks ended September 29, 2007, the Company made the determination that it was probable the minimum earnings threshold under the Plan would be met and accrued $600,000 related this senior executive incentive compensation plan.

10. Subsequent Event

On October 5, 2007, the Company acquired all of the outstanding shares of stock of TWG Consulting, Inc. (“TWG”), a privately-held management consulting firm. Prior to the acquisition, TMNG did not have any material relationship with TWG. Under the purchase agreement, TMNG agreed to acquire TWG for a total cash purchase price of $1.7 million, including approximately $1.3 million paid for TWG’s working capital. In the event TWG achieves certain performance targets, total consideration under the agreement could increase to $4.6 million, including possible contingent consideration of $1.3 million in cash and approximately 0.7 million shares of TMNG common stock valued at $1.6 million based on the share price at the date of close.

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

Cautionary Statement Regarding Forward-Looking Statements. In addition to historical information, this quarterly report contains forward-looking statements. Forward-looking statements include, but are not limited to, statements of plans and objectives, statements of future economic performance or financial projections, statements of assumptions underlying such statements, and statements of the Company’s or management’s intentions, hopes, beliefs, expectations or predictions of the future. Forward-looking statements can often be identified by the use of forward-looking terminology, such as “believes,” “expects,” “may,” “should,” “could,” “intends,” “plans,” “estimates” or “anticipates,” variations thereof or similar expressions. 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 in subsequent quarterly repots on Form 10-Q. 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.

EXECUTIVE FINANCIAL OVERVIEW

TMNG is a leading provider of professional services to the converging communications, media and entertainment industries and the capital formation firms that support them. We offer a fully integrated suite of consulting offerings including strategy, management, marketing, operational, and technology consulting services. With our 2007 acquisition of Cartesian, we further extended our offerings to include software applications. We have consulting experience with almost all major aspects of managing a global communications company. Our portfolio of solutions includes proprietary methodologies and toolsets, deep industry experience, and hands-on operational expertise. These solutions assist clients in tackling complex business problems.

The convergence of communications with media and entertainment and the consolidation of large telecommunications carriers have required us to focus our strategy on building a global presence, continuing to expand our offerings and strengthening our position within the large carriers and media and entertainment companies. We have demonstrated recent success on building a global presence through both organic growth and acquisitions. Organically, our revenues have grown 12.8% for the thirty-nine weeks ended September 29, 2007 compared to the same period in 2006. Our international revenues in the thirty-nine weeks ended September 29, 2007 represents 47.1% of our total revenue, up from 20.2% in the same period of 2006 as a result of strategic acquisitions as well as organic growth. The recent announcements of our acquisitions of RVA and TWG, supports our carrier positioning strategy and adds several new practices to our portfolio. RVA provides telecom systems integration and transformational consulting for leading, Tier-one U.S. carriers. RVA has historically been very successful in building relationships with key carriers as the industry has consolidated in recent years. RVA will also complement the technical capabilities that Cartesian has brought to TMNG. TWG’s strength lies in organizational design and development and further capabilities to support our Web 2.0 initiative and extension to corporate intranets.

Our revenues of $20.8 million and $51.0 million for the thirteen and thirty-nine weeks ended September 29, 2007, respectively, increased 139.5% and 101.0%, respectively, compared with the same periods in 2006. The results for the thirteen and thirty-nine weeks ended June 30, 2007 include the acquisitions of Adventis on April 3, 2006, Cartesian on January 2, 2007 and RVA on August 3, 2007, from the respective dates of acquisition. The details of these acquisitions are outlined in Item 1, Note 2, “Business Combinations,” to the condensed consolidated financial statements. These acquisitions combined with our investment in targeting the cable industry have re-positioned the Company to better serve consolidating telecommunications carriers and the converging global media and entertainment companies. With the acquisition of Cartesian, we have added a reporting segment, the Software Solutions segment, to our Management Consulting Services segment. The Software Solutions segment includes revenues from Cartesian’s widely deployed modular software suite, called Ascertain ^TM , which features

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advanced revenue assurance and data integrity tools that support fixed, wireless, ISP, data and content environments. Our acquisitions, organic growth and recruitment efforts are helping us build what we believe is a more sustainable revenue model and expanding our global presence. We continue to focus our efforts on identifying, adapting to and capitalizing on the changing dynamics prevalent in the converging communications industry, as well as providing our wireless and IP services within the communications sector.

Gross margins were 46.5% in the thirty-nine weeks ended September 29, 2007 compared with 48.3% in the same period of 2006. The decrease in gross margins reflects a combination of factors, including a higher mix of larger and longer-term projects with discounted pricing from Management Consulting Services, combined with new revenue from our Software Solutions segment in the first three quarters of 2007, a lower level of higher margin strategy consulting revenue as compared to the first three quarters of 2006 and amortization of intangible assets acquired with Cartesian, partially offset by lower share-based compensation expense. Our Software Solutions segment gross margins are expected to be comparable to our Management Consulting segment gross margins over time.

Management has focused on aligning operating costs with operating segment revenues. As a percentage of revenues we have reduced selling, general and administrative costs to approximately 43.0% in the thirteen weeks ended September 29, 2007 from 85.8% in the same period of 2006. Selling general and administrative expense in the first three quarters of 2007 include approximately $5.4 million of incremental expense associated with the operations of Adventis, Cartesian and RVA. We continue to leverage integration of our recent acquisitions and evaluate selling, general and administrative cost reduction opportunities to drive earnings. There were significant non-recurring operating expenses related to the Special Committee investigation of our past stock option granting practices and related accounting amounting to approximately $2.5 million in the thirty-nine weeks ended September 29, 2007.

From a cash flow perspective, cash flows provided by operating activities were $1.1 million during the thirty-nine weeks ended September 29, 2007. Net cash flows used in operating activities were $6.7 million during the thirty-nine weeks ended September 29, 2006. The improvement in cash flow from operating activities during the thirty-nine weeks ended September 29, 2007 as compared with the 2006 period primarily related to improvements in operating results and positive cash flow from net working capital changes. This increase in cash flows was achieved notwithstanding cash used to fund the stock option review of $2.5 million. We used $9.9 million in net cash to fund the acquisitions of Cartesian and RVA, mostly offset by $9.7 million in proceeds from sales of short-term investments.

OPERATIONAL OVERVIEW

The Company has two reporting segments, the Management Consulting Services segment and the Software Solutions segment. Revenues in the Management Consulting Services segment typically consist of management consulting fees for professional services and related expense reimbursements. Revenues in the Software Solutions segment typically consist of management consulting fees for professional, technical and integration services, fees for software licensing, support and maintenance and related expense reimbursements.

Our Management Consulting Services segment provides consulting services that cover almost all major aspects of managing a global communications company, including strategy, management, marketing, operational, and technology consulting services. In addition, we provide marketing consulting services to clients outside of the communications industry. Professional services within this segment 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 from time and materials contracts are recognized in the period in which our services are performed. Revenues on contracts with a not to exceed contract price or a fixed cost contract which are milestone or deliverables-based are recorded under the percentage of completion method utilizing estimates of project completion. For fixed fee contracts where services are not based on providing deliverables or achieving milestones, the Company recognizes revenue on a straight-line basis over the period during which such services are expected to be performed. Contract revenues on contingent fee contracts are deferred until the revenue is realizable and earned. Revenues and costs associated with contingent fee contracts were $786,000 and $236,000, respectively, for the thirteen and thirty-nine weeks ended September 29, 2007 and were not material for the thirteen and thirty-nine weeks ended September 30, 2006.

Our Software Solutions typically involve custom developed software for clients, leveraging the supply of licensed modules from our Ascertain ^TM software suite. Management consulting and technical services are an integrated component of software solutions, ranging from developing initial business and systems requirements, to software development, software configuration and implementation, and post contract customer support. Revenues for Software Solutions contracts are typically structured as fixed fee contracts or with a not to exceed contract price and are recorded under the percentage of completion method, utilizing estimates of project completion. On a limited basis, software contracts are structured with a contingent fee component. Revenues and costs associated with contingent fee contracts were not material during the thirteen and thirty-nine weeks ended September 29, 2007.

Generally a client relationship begins with a short-term consulting engagement utilizing the services of a few consultants or piloting a software solution. 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. The type and volume of work performed for specific clients may vary 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 non-billable time could harm earnings.

Cost of services primarily consists of compensation for consultants who are employees, amortization of share-based compensation for stock options and nonvested stock, amortization of certain intangible assets, as well as fees paid to independent subject matter expert organizations

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and related expense reimbursements. Employee compensation includes certain non-billable time, training, vacation time, benefits and payroll taxes. Gross profit margins are primarily impacted by the type of consulting and support services provided; the size of service contracts and negotiated discounts; license fees; changes in our pricing policies and those of competitors; utilization rates of consultants and independent subject matter experts; and employee and independent subject matter expert costs, which tend to be higher in a competitive labor market.

Operating expenses include selling, general and administrative expenses and intangible asset amortization. In addition, during the thirteen and thirty-nine weeks ended September 29, 2007 operating expenses included expenses related to the Special Committee investigation of our past stock option granting practices and related accounting. Sales and marketing expenses are included in selling, general and administrative expense and 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 vice presidents, 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 equity awards to certain employees and our board of directors.

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 condensed 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;

• Accounting for Income Taxes; and

• Research and Development and Capitalized Software Costs.

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 records and credit status as work is being performed for them.

We recorded bad debt expense of $90,000 and $380,000 for the thirteen and thirty-nine weeks ended September 29, 2007, respectively, and $84,000 and $211,000, respectively, for the thirteen and thirty-nine weeks ended September 30, 2006. Our allowance for doubtful accounts totaled $609,000 and $378,000 as of September 29, 2007 and December 30, 2006, 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 is 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 seven organizations over the last six years. A significant component of the value of these acquired businesses has been allocated to intangible assets. Statement of Financial Accounting Standard (“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 and 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 tradenames. 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

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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 discount 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.

In accordance with SFAS No. 144, we use our best estimates based upon reasonable and supportable assumptions and projections, to review for impairment of long-lived assets and certain identifiable intangibles to be held and used whenever events or changes in circumstances indicate that the carrying amount of our assets might not be recoverable.

Revenue Recognition —We recognize revenue from time and materials consulting contracts in the period in which our services are performed. In addition to time and materials contracts, our other types of contracts may include time and materials contracts not to exceed contract price, fixed fee contracts, and contingent fee contracts. We recognize revenues on milestone or deliverables-based fixed fee contracts and time and materials contracts not to exceed contract price using the percentage of completion method prescribed by AICPA Statement of Position (“SOP”) No. 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” For fixed fee contracts where services are not based on providing deliverables or achieving milestones, the Company recognizes revenue on a straight-line basis over the period during which such services are expected to be performed.

As a result of the Cartesian acquisition, we now develop, install and support customer software in addition to our traditional consulting services. We recognize revenue in connection with our software sales agreements utilizing the percentage of completion method prescribed by SOP No. 81-1. These agreements include software right-to-use licenses (“RTU’s”) and related customization and implementation services. Due to the long-term nature of the software implementation and the extensive software customization based on customer specific requirements normally experienced by the Company, both the RTU and implementation services are treated as a single element for revenue recognition purposes.

The SOP No. 81-1 percentage-of-completion methodology involves recognizing revenue using the percentage of services completed, on a current cumulative cost to total cost basis, using a reasonably consistent profit margin over the period. Due to the longer term nature of these projects, developing the estimates of costs often requires significant judgment. Factors that must be considered in estimating the progress of work completed and ultimate cost of the projects include, but are not limited to, the availability of labor and labor productivity, the nature and complexity of the work to be performed, and the impact of delayed performance. If changes occur in delivery, productivity or other factors used in developing the estimates of costs or revenues, we revise our cost and revenue estimates, which may result in increases or decreases in revenues and costs, and such revisions are reflected in income in the period in which the facts that give rise to that revision become known.

In addition to the professional services related to the customization and implementation of its software, the Company also provides post-contract support (“PCS”) services, including technical support and maintenance services. For those contracts that include PCS service arrangements which are not essential to the functionality of the software solution, we separate the SOP No. 81-1 software services and PCS services utilizing the multiple-element arrangement model prescribed by Emerging Issues Task Force (“EITF”) No. 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF No. 00-21 addresses the accounting treatment for an arrangement to provide the delivery or performance of multiple products and/or services where the delivery of a product or system or performance of services may occur at different points in time or over different periods of time. The Company utilizes EITF No. 00-21 to separate the PCS service elements and allocate total contract consideration to the contract elements based on the relative fair value of those elements. Revenues from PCS services are recognized ratably on a straight-line basis over the term of the support and maintenance agreement.

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. 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. Revenues and costs associated with contingent fee contracts were $786,000 and $236,000, respectively, for the thirteen and thirty-nine weeks ended September 29, 2007 and not material for the thirteen and thirty-nine weeks ended September 30, 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 at a discount 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, “Share-based Payments.” 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 and thirty-nine weeks ended September 29, 2007, we used a weighted-average expected stock-price volatility of 62% and 64%, respectively. 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

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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.

In addition, under SFAS No. 123R we are required to net estimated forfeitures against compensation expense. This requires us to estimate the number of awards that will be forfeited prior to vesting. If actual forfeitures in future periods are different than our initial estimate, the compensation expense that we ultimately record under SFAS No. 123R may differ significantly from what was originally estimated. The estimated forfeiture rate for unvested options outstanding as of September 29, 2007 is 30%.

Accounting for Income Taxes - Accounting for income taxes requires significant estimates and judgments on the part of management. Such estimates and judgments include, but are not limited to, the effective tax rate anticipated to apply to tax differences that are expected to reverse in the future, the sufficiency of taxable income in future periods to realize the benefits of net deferred tax assets and net operating losses currently recorded and the likelihood that tax positions taken in tax returns will be sustained on audit.

We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes” and Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). As required by SFAS No. 109, we record deferred tax assets or liabilities based on differences between financial reporting and tax bases of assets and liabilities using currently enacted rates that will be in effect when the differences are expected to reverse. SFAS No. 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. As of September 29, 2007, cumulative valuation allowances in the amount of $32.0 million were recorded in connection with the net deferred income tax assets. As required by FIN 48, we have performed a comprehensive review of our portfolio of uncertain tax positions in accordance with recognition standards established by the Interpretation. Pursuant to FIN 48, an uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. As of September 29, 2007, we have recorded a liability of approximately $516,000 for unrecognized tax benefits.

We have generated substantial deferred income tax assets related to our domestic operations primarily from the accelerated financial statement write-off of goodwill, the charge to compensation expense taken for stock options and net operating losses. 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 generate sufficient taxable income in future periods to utilize the benefit of the deferred income tax assets. We continue to evaluate the recoverability of the recorded deferred income tax asset balances. If we continue to report domestic 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.

International operations have become a significant part of our business. As part of the process of preparing our financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. The judgments and estimates used are subject to challenge by domestic and foreign taxing authorities. It is possible that such authorities could challenge those judgments and estimates and draw conclusions that would cause us to incur liabilities in excess of those currently recorded. We use an estimate of our annual effective tax rate at each interim period based upon the facts and circumstances available at that time, while the actual annual effective tax rate is calculated at year-end. Changes in the geographical mix or estimated amount of annual pre-tax income could impact our overall effective tax rate.

Research and Development and Capitalized Software Costs - Software development costs are accounted for in accordance with SFAS No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.” Capitalization of software development costs for products to be sold to third parties begins upon the establishment of technological feasibility and ceases when the product is available for general release. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized software development costs require considerable judgment by management concerning certain external factors including, but not limited to, technological feasibility, anticipated future gross revenue, estimated economic life and changes in software and hardware technologies. We capitalize development costs incurred during the period between the establishment of technological feasibility and the release of the final product to customers if such costs are material. During the thirteen and thirty-nine weeks ended September 29, 2007, no software development costs were capitalized and $229,000 and $680,000, respectively, of these costs were expensed as incurred. No software development costs were incurred in the thirteen and thirty-nine weeks ended September 30, 2006.

The Company also incurs research and development costs associated with development of new offerings and services. These product development costs are expensed as incurred. Research and development costs associated with product development were $281,000 in the thirteen and thirty-nine weeks ended September 30, 2006. No product development costs were incurred in the thirteen and thirty-nine weeks ended September 29, 2007.

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RESULTS OF OPERATIONS

THIRTEEN WEEKS ENDED SEPTEMBER 29, 2007 COMPARED TO THIRTEEN WEEKS ENDED SEPTEMBER 30, 2006

REVENUES

Revenues increased 139.5% to $20.8 million for the thirteen weeks ended September 29, 2007 from $8.7 million for the thirteen weeks ended September 30, 2006. The increase in revenue is primarily due to the acquisitions of Cartesian in January 2007 and RVA in August 2007, which contributed $6.8 million and $3.7 million, respectively, in revenue during the third quarter of 2007. Organic revenue was up 18.8% in the third quarter of 2007 as compared to the same period of 2006, due largely to $0.8 million of contractual commissions primarily related to the sale of a managed services client, as well as growth of our cable practice. As discussed in the Executive Financial Overview, with the acquisition of Cartesian we have added a reporting segment, the Software Solutions segment, in addition to our traditional Management Consulting Services segment.

Management Consulting Services Segment — Management Consulting Services segment revenues increased 61.7% to $14.0 million for the third quarter of 2007 from $8.7 million for the same period of 2006. The acquisition of RVA accounted for $3.7 million of the increase and organic revenues added $1.6 million or 18.8% growth to this segment. During the thirteen weeks ended September 29, 2007, this segment provided services on 108 customer projects, compared to 100 projects performed in the thirteen weeks ended September 30, 2006. Average revenue per project was $130,000 in the thirteen weeks ended September 29, 2007 compared to $87,000 in the thirteen weeks ended September 30, 2006. The increase in average revenue per project is primarily attributable to an increase in the number of large projects due to the acquisition of RVA. Our international revenue base of this segment decreased to 13.9% of revenues for the thirteen weeks ended September 29, 2007, from 27.2% for the thirteen weeks ended September 30, 2006, due primarily and an overall increase in the mix of project activity domestically, driven by the acquisition of RVA and a decrease in strategy engagements internationally during the period.

Revenues recognized in connection with fixed price and contingent fee engagements totaled $7.3 million and $3.6 million, representing 52.1% and 41.5% of total revenues of the segment, for the thirteen weeks ended September 29, 2007 and September 30, 2006, respectively. This increase is primarily due to the acquisition of RVA, partially offset by the mix of our organic business shifting to more time and material projects in the third quarter of 2007 as compared to the same period of 2006.

Software Services Segment — The Software Services Segment began operations in the first quarter of 2007. Revenues of $6.8 million were generated for the thirteen weeks ended September 29, 2007. All revenues were generated internationally. During the thirteen weeks ended September 29, 2007, this segment provided services on 72 customer projects. Average software and services revenue per project was approximately $88,000. In addition, revenues from post-contract support services were approximately $448,000.

COSTS OF SERVICES

As a percentage of revenues, our gross margin was 49.5% for the thirteen weeks ended September 29, 2007, compared to 46.1% for the thirteen weeks ended September 30, 2006. The increase in gross margin in the third quarter of 2007 as compared to the same period of 2006 is primarily due to the acquisition of RVA, which has a large base of higher margin projects. Our Software Solutions segment gross margins were 50.8% in the third quarter of 2007, which included an allocation of intangible asset amortization of $189,000.

OPERATING EXPENSES

Operating expenses increased to $10.1 million for the thirteen weeks ended September 29, 2007, from $7.6 million for the thirteen weeks ended September 30, 2006. Operating expenses for the period included selling, general and administrative costs (inclusive of share-based compensation), Special Committee stock option investigation charges, and intangible asset amortization. For the thirteen weeks ended September 29, 2007, operating expenses included Special Committee charges of approximately $103,000 related the investigation of our past stock option granting practices and related accounting. These costs primarily consisted of professional services for legal, accounting and tax guidance.

Selling, general and administrative expense increased to $8.9 million in the thirteen weeks ended September 29, 2007, compared to $7.5 million for the thirteen weeks ended September 30, 2006. As a percentage of revenues, our selling, general and administrative expense was 43.0% for the thirteen weeks ended September 29, 2007, compared to 85.8% for the thirteen weeks ended September 30, 2006. For the thirteen weeks ended September 29, 2007, we had expense reductions in the organic business of $0.4 million, or 5.9%, as compared to the same period in 2006, partially offset by $1.9 million in incremental expense due to the acquired Cartesian and RVA businesses. Included in the organic business expense reduction is share-based compensation expense of $0.6 million in the thirteen weeks ended September 29, 2007, compared to expense of $0.8 million in the thirteen weeks ended September 30, 2006. Included in selling general and administrative expenses for the thirteen weeks ended September 29, 2007 is $0.6 million related to a senior executive incentive compensation plan approved by our Board of Directors. We continue to evaluate cost reductions through the integration of our acquisitions and alignment of costs to revenues for each operating segment.

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Intangible asset amortization was $1,057,000 and $215,000 for the thirteen weeks ended September 29, 2007 and September 30, 2006, respectively. The increase in amortization expense was due to the addition of identifiable intangible assets as part of the Cartesian and RVA acquisitions.

OTHER INCOME AND EXPENSES

Interest income was $387,000 and $528,000 for the thirteen weeks ended September 29, 2007 and September 30, 2006, respectively, and represented interest earned on invested balances. Interest income decreased for the thirteen weeks ended September 29, 2007 as compared to the thirteen weeks ended September 30, 2006 due to reductions in invested balances attributable to cash utilized for acquisitions and operating losses in fiscal years 2006 and 2007. We primarily invest in money market funds and investment-grade auction rate securities as part of our overall investment policy. During the thirteen weeks ended September 29, 2007, we recorded other income in the amount of $452,000 related to the settlement of foreign withholding tax disputes.

INCOME TAXES

In the thirteen weeks ended September 29, 2007 and September 30, 2006, we recorded an income tax provision of $531,000 and $5,000, respectively. The income tax provision in the third quarter of 2007 is primarily due to the profitability of our United Kingdom operations. The income tax provision in the third quarter of 2006 is primarily due to state income taxes. For the thirteen weeks ended September 29, 2007 and September 30, 2006, we recorded no income tax benefit related to our domestic 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 net deferred income tax asset balances and record valuation allowances against assets generated due to domestic losses. If we continue to report domestic, federal 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.

NET INCOME

We had net income of $0.5 million for the thirteen weeks ended September 29, 2007 compared to net loss of $3.1 million for the thirteen weeks ended September 30, 2006. Net income was primarily attributable to improvements in revenues and operating results through continued cost management and the accretive acquisitions of Cartesian and RVA.

THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 2007 COMPARED TO THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 2006

REVENUES

Revenues increased 101.0% to $51.0 million for the thirty-nine weeks ended September 29, 2007 from $25.4 million for the thirty-nine weeks ended September 30, 2006. The increase in revenues is due primarily to acquisitions. The thirty-nine weeks ended September 29, 2007 included $22.4 million in incremental revenue related to our acquired Adventis, Cartesian and RVA businesses. Organic revenues increased 12.8% in the thirty-nine weeks ended September 29, 2007 as compared to the same period of 2006, due largely to $0.8 million of contractual commissions primarily related to the sale of a managed services client, as well as growth of our cable practice. As discussed in the Executive Financial Overview, with the acquisition of Cartesian we have added a reporting segment, the Software Solutions segment, in addition to our traditional Management Consulting Services segment.

Management Consulting Services Segment - Management Consulting Services segment revenues increased $7.9 million, or 31.3% to $33.3 million, for the thirty-nine weeks ended September 29, 2007 as compared to the same period of 2006. This increase is primarily due to expansion globally, the acquisition of RVA and significant growth in projects sold to cable clients. During the thirty-nine weeks ended September 29, 2007, this segment provided services on 202 customer projects, compared to 178 projects performed in the thirty-nine weeks ended September 30, 2006. Average revenue per project was $165,000 in the thirty-nine weeks ended September 29, 2007 compared to $143,000 in the thirty-nine weeks ended September 30, 2006. The increase in average revenue per project is primarily attributable to an increase in the number of large projects due to the acquisition of RVA. Our international revenue base of this segment decreased slightly to 19.0% of revenues for the thirty-nine weeks ended September 29, 2007, from 20.2% for the thirty-nine weeks ended September 30, 2006, due primarily to the acquisition of RVA, which operates solely in the United States, partially offset by large projects in Western Europe.

Revenues recognized in connection with fixed price and contingent fee engagements totaled $15.3 million and $11.3 million, representing 45.9% and 44.5% of total revenues of the segment, for the thirty-nine weeks ended September 29, 2007 and September 30, 2006, respectively. This increase is primarily due to the acquisition of RVA, partially offset by the mix of our organic business shifting to more time and material projects in the 2007 period as compared to the same period of 2006.

Software Services Segment - The Software Services Segment began operations in the first quarter of 2007. Revenues of $17.7 million were generated for the thirty-nine weeks ended September 29, 2007. All revenues were generated internationally. During the thirty-nine weeks ended September 29, 2007, this segment provided services on 110 customer projects. Average software and services revenue per project was approximately $149,000. In addition, revenues from post-contract support services were approximately $1,341,000.

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COSTS OF SERVICES

As a percentage of revenues, our gross margin was 46.5% for the thirty-nine weeks ended September 29, 2007, compared to 48.3% for the thirty-nine weeks ended September 30, 2006. The decrease in gross margin in the thirty-nine weeks ended September 29, 2007 as compared to the same period of 2006 was attributable to a combination of factors, including a higher mix of larger and longer-term projects with discounted pricing from the Management Consulting Services segment, revenues from our new Software Solutions segment in the third quarter of 2007, a lower mix of higher margin strategy consulting revenue and amortization of intangible assets acquired with Cartesian, offset by the acquisition of RVA. Our Software Solutions segment gross margins were 46.0% in the thirty-nine weeks ended September 29, 2007, which include an allocation of intangible asset amortization of $558,000. Offsetting lower fee margins were reductions in share-based compensation of $0.4 million related to revisions in assumed forfeiture rates during 2007.

OPERATING EXPENSES

Operating expenses increased to $27.4 million for the thirty-nine weeks ended September 29, 2007, from $21.1 million for the thirty-nine weeks ended September 30, 2006. Operating expenses included selling, general and administrative costs (inclusive of share-based compensation), Special Committee stock option investigation charges, and intangible asset amortization. For the thirty-nine weeks ended September 29, 2007, operating expenses included Special Committee charges of approximately $2.5 million related the investigation of our past stock option granting practices and related accounting. These costs primarily consisted of professional services for legal, accounting and tax guidance and the cost of the special committee’s outside counsel and forensic accountants.

Selling, general and administrative expense increased to $22.8 million in the thirty-nine weeks ended September 29, 2007, compared to $20.6 million for the thirty-nine weeks ended September 30, 2006. As a percentage of revenue, our selling, general and administrative expense was 44.6% for the thirty-nine weeks ended September 29, 2007, compared to 81.0% for the thirty-nine weeks ended September 30, 2006. For the thirty-nine weeks ended September 29, 2007, we had expense reductions in the organic business of $3.2 million, or 15.4%, as compared to the same period in 2006, offset by $5.4 million in incremental expense due to the acquired Adventis, Cartesian and RVA businesses. Organic business expense reduction included a $1.6 million reduction in share-based compensation in the thirty-nine weeks ended September 29, 2007 compared to the same period in 2006. Included in selling general and administrative expenses for the thirty-nine weeks ended September 29, 2007 is $0.6 million related to a senior executive incentive compensation plan approved by our Board of Directors. We continue to evaluate cost reductions through the integration of our acquisitions and alignment of costs to revenues for each operating segment.

Intangible asset amortization was $2,149,000 and $566,000 for the thirty-nine weeks ended September 29, 2007 and September 30, 2006, respectively. The increase in amortization expense was due to the addition of certain intangible assets as part of the Cartesian and RVA acquisitions.

OTHER INCOME AND EXPENSES

Interest income was $1,185,000 and $1,609,000 for the thirty-nine weeks ended September 29, 2007 and September 30, 2006, respectively, and represented interest earned on invested balances. Interest income decreased for the thirty-nine weeks ended September 29, 2007 as compared to the thirty-nine weeks ended September 30, 2006 due to reductions in invested balances attributable to cash utilized for acquisitions and operating losses in fiscal years 2006 and 2007. We primarily invest in money market funds and investment-grade auction rate securities as part of our overall investment policy. During the thirty-nine weeks ended September 29, 2007, we recorded other income in the amount of $452,000 related to the settlement of foreign withholding tax disputes.

INCOME TAXES

In the thirty-nine weeks ended September 29, 2007 and September 30, 2006, we recorded an income tax provision of $815,000 and $39,000, respectively, related primarily to international income taxes due to the profitability of our United Kingdom operations. For the thirty-nine weeks ended September 29, 2007 and September 30, 2006, we recorded no income tax benefit related to our domestic 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 net deferred income tax asset balances and record valuation allowances against assets generated due to domestic losses. If we continue to report domestic, federal 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.

NET LOSS

Net loss decreased 61.3% to $2.8 million for the thirty-nine weeks ended September 29, 2007 from $7.3 million for the thirty-nine weeks ended September 30, 2006. The decrease was primarily attributable to improvements in operating results and reductions in share-based compensation expense of $2.0 million, partially offset by $2.5 million of costs related to the Special Committee investigation of our past stock option practices and an increase in amortization expense due to the addition of certain intangible assets as part of the Cartesian and RVA acquisitions.

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LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $1.1 million for the thirty-nine weeks ended September 29, 2007. Net cash used in operating activities was $6.7 million for the thirty-nine weeks ended September 29, 2006. The improvement in cash flow from operating activities during the thirty-nine weeks ended September 29, 2007 as compared with the 2006 period primarily related to improvements in organic operating results, accretive acquisitions and positive cash flow from net working capital changes, offset by the use of cash for the Special Committee investigation of $2.5 million.

Net cash used in investing activities was $0.6 million for the thirty-nine weeks ended September 29, 2007. Net cash provided by investing activities was $5.6 million for the thirty-nine weeks ended September 30, 2006. Cash used in investing activities during the thirty-nine weeks ended September 29, 2007 included $9.9 million for the acquisitions of Cartesian and RVA. In the thirty-nine weeks ended September 30, 2006 cash provided by investing included the use of $1.5 million for the acquisition of Adventis. Investing activities include proceeds from sales and reinvestments of short-term investments of $9.7 million and $7.6 million in the thirty-nine weeks ended September 29, 2007 and September 30, 2006, respectively. Cash used in investing activities also included $0.3 million and $0.5 million for the thirty-nine weeks ended September 29, 2007 and September 30, 2006, respectively, related to the purchase of office equipment, software and computer equipment.

Net cash used in financing activities was $585,000 for the thirty-nine weeks ended September 29, 2007, primarily related to payments on long-term obligations, partially offset by proceeds received from the exercise of employee stock options and issuance of shares pursuant to the employee stock purchase plan. Net cash used in financing activities was $314,000 for the thirty-nine weeks ended September 30, 2006, and was the result of payments made on long-term obligations and repurchases of common stock under our stock repurchase program, partially offset by the exercise of employee stock options and issuance of shares pursuant to the employee stock purchase plan.

At September 29, 2007, we had approximately $28.7 million in cash, cash equivalents, and short-term investments and $30.7 million in net working capital. We used $9.9 million to fund the acquisitions of Cartesian and RVA during the thirty-nine weeks ended September 29, 2007. 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 or our investments in Cartesian and RVA do not perform as expected and we continue to experience negative cash flow, we could experience liquidity challenges at some future point.

FINANCIAL COMMITMENTS

For discussion of our contractual obligations, see the discussions of future commitments under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Item 7 in our Form 10-K for the fiscal year ended December 30, 2006 and Item 2 in our Form 10-Q for the quarterly period ended June 30, 2007. With the exception of the obligations previously discussed in our Form 10-Q for the quarterly period ended June 30, 2007 and the items noted below, there have been no significant changes with respect to our contractual obligations since December 30, 2006.

On September 26, 2007, the independent members of our Board of Directors (the “Board”) upon the recommendation of the Compensation Committee of the Board approved a senior executive incentive compensation plan for fiscal year 2007 (the “Plan”). The Plan establishes a cash bonus pool (the “Pool”) for our executive management, including our principal executive officer, president and chief operating officer, principal financial officer, and other executives, as recommended by the principal executive officer, if we meet or exceed an earnings target for fiscal year 2007. The calculation of the earnings target excludes non-cash charges and benefits and the impact of certain items that are generally not expected to be on-going in nature. The amount available for payment from the Pool (“Payout Amount”) begins at $812,500 if we achieve the earnings target. If the earnings target is exceeded, the Payout Amount increases in accordance with a graduated descending scale ranging from 12.5% to 7.5% of the earnings in excess of the target, provided that the Payout Amount is not to exceed $2,000,000. The distribution of the Payout Amount, if any, among our eligible executive management will be determined by the Compensation Committee of the Board and/or independent directors at a later date. During the thirteen weeks ended September 29, 2007, we made the determination that it was probable the minimum earnings threshold under the Plan would be met. As a result, we expect to make minimum payments in the amount of $812,500 related to this senior executive incentive compensation plan.

On October 5, 2007, the Company entered into a Stock Purchase Agreement (the “Agreement”) with Marilyn Breitenstein (“Seller”) and TWG Consulting, Inc. (“TWG”) to acquire from Seller all of the outstanding shares of stock of TWG, a privately-held management consulting firm. Under the Agreement, TMNG agreed to acquire the entire ownership interest in TWG for a total cash purchase price of $1.7 million, including approximately $1.3 million paid for TWG’s working capital. In the event TWG achieves certain performance targets, total consideration under the Agreement could increase to $4.6 million, including possible contingent consideration of $1.3 million in cash and approximately 0.7 million shares of TMNG common stock valued at $1.6 million based on the share price at the date of close.

-23-

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 approximates 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. Given the increase in our foreign operations, foreign currency exchange rate risk has become more significant. Our foreign currency exposure is primarily concentrated in the United Kingdom and Continental Europe. We believe the countries in which we transact business and own assets are politically stable. We face currency translation exposures related to translating the results of our worldwide operations into U.S. dollars because of exchange rate fluctuations during the reporting period. We also face transactional currency exposures relating to transactions denominated in currencies other than the functional currency of the unit conducting the transactions. We monitor our foreign currency positions based on our business strategy and foreign exchange markets and adjust foreign currency holdings to maximize economic returns.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures and Changes in Internal Control Over Financial Reporting

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. We have established a Disclosure Committee, consisting of certain members of management, to assist in this evaluation. The Disclosure Committee meets on a regular quarterly basis, and as needed.

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 quarterly report. Based upon this evaluation, the Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as of September 29, 2007.

There was no change in internal control over financial reporting during the fiscal quarter ended September 29, 2007, that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

ITEM 4T. CONTROLS AND PROCEDURES

Not applicable.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We have not been subject to any material new litigation since filing on May 14, 2007 of our Annual Report on Form 10-K for the year ended December 30, 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 9 of the Condensed Consolidated Financial Statements included elsewhere in this report.

As previously disclosed, we provided a copy of the Special Committee report on our historical stock option practices to the Securities and Exchange Commission.

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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 as filed with the Securities and Exchange Commission on May 14, 2007. There has been no material change in the Risk Factors previously disclosed in our Annual Report on Form 10-K.

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 2.1	Stock Purchase Agreement dated October 5, 2007 among the Company and Marilyn Breitenstein and TWG Consulting, Inc.
Exhibit 10.1	Transition Services Agreement among RVA Consulting, LLC, a subsidiary of the Company, and Publicis Selling Solutions, Inc.
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.

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SIGNATURES

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

The Management Network Group, Inc. 

(Registrant) 

Date November 13, 2007	By	/s/ Richard P. Nespola
		(Signature)
		Richard P. Nespola Chairman and Chief Executive Officer (Principal executive officer)

Date November 13, 2007	By	/s/ Donald E. Klumb
		(Signature)
		Donald E. Klumb Chief Financial Officer and Treasurer (Principal financial officer and principal accounting officer)

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EXHIBIT INDEX

Exhibit No.	Description of Exhibit
Exhibit 2.1	Stock Purchase Agreement dated October 5, 2007 among the Company and Marilyn Breitenstein and TWG Consulting, Inc.
Exhibit 10.1	Transition Services Agreement among RVA Consulting, LLC, a subsidiary of the Company, and Publicis Selling Solutions, Inc.
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.

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EX-2.1

Exhibit 2.1

Final

STOCK PURCHASE AGREEMENT

AMONG

THE MANAGEMENT NETWORK GROUP, INC.

AND

TWG CONSULTING, INC.

AND

MARILYN BREITENSTEIN

DATED OCTOBER 5, 2007

TABLE OF CONTENTS

1.	DEFINITIONS		1
2.	SALE AND TRANSFER OF SHARES; CLOSING		9
	2.1	Shares	9
	2.2	Purchase Price	9
	2.3	Closing	10
	2.4	Closing Obligations	10
	2.5	Adjustment Amount	10
	2.6	Calculation of Contingent Stock Consideration	11
	2.7	Calculation of Contingent Cash Consideration	13
	2.8	Calculation of Revenue and EBITDA	15
	2.9	Dispute Resolution	15
3.	REPRESENTATIONS AND WARRANTIES OF SELLER		16
	3.1	Organization and Good Standing	16
	3.2	Authority; No Conflict	17
	3.3	Capitalization	18
	3.4	Financial Statements	18
	3.5	Books and Records	19
	3.6	Title to Properties; Encumbrances	19
	3.7	Condition and Sufficiency of Assets	19
	3.8	Accounts Receivable	20
	3.9	Intentionally Omitted	20
	3.10	No Undisclosed Liabilities	20
	3.11	Taxes	20
	3.12	No Material Adverse Change	22

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	3.13	Employee Benefits	22
	3.14	Compliance with Legal Requirements; Governmental Authorizations	27
	3.15	Legal Proceedings; Orders	28
	3.16	Absence of Certain Changes and Events	29
	3.17	Contracts; No Defaults	30
	3.18	Insurance	33
	3.19	Environmental Matters	35
	3.20	Employees	35
	3.21	Labor Relations; Compliance	36
	3.22	Intellectual Property	36
	3.23	Certain Payments	41
	3.24	Disclosure	41
	3.25	Relationships with Related Persons	42
	3.26	Brokers or Finders	42
	3.27	No Other Representations or Warranties	42
4.	REPRESENTATIONS AND WARRANTIES OF BUYER		42
	4.1	Organization and Good Standing	42
	4.2	Authority; No Conflict	42
	4.3	Investment Intent	43
	4.4	Certain Proceedings	43
	4.5	Brokers or Finders	44
5.	COVENANTS PRIOR TO CLOSING DATE		44
	5.1	Access and Investigation	44
	5.2	Operation of the Businesses of the Acquired Companies	44
	5.3	Negative Covenant	44

ii

	5.4	Required Approvals	44
	5.5	Notification	45
	5.6	Payment of Indebtedness by Related Persons	45
	5.7	No Negotiation	45
	5.8	Commercially Reasonable Efforts	45
	5.9	Approvals of Governmental Bodies	45
	5.10	Commercially Reasonable Efforts	45
6.	POST CLOSING COVENANTS		45
	6.1	Maintenance of Books During Earn-Out Term	45
	6.2	Required Consent During Earn-Out Term	46
	6.3	Valid Issuance of Contingent Shares	46
	6.4	Restricted Stock	46
	6.5	Tax Cooperation	47
7.	CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE		48
	7.1	Accuracy of Representations	48
	7.2	Seller’s Performance	48
	7.3	Consents	48
	7.4	Additional Documents	49
	7.5	No Proceedings	49
	7.6	No Claim Regarding Stock Ownership or Sale Proceeds	49
	7.7	No Prohibition	49
	7.8	No Material Adverse Effect	49
8.	CONDITIONS PRECEDENT TO SELLER’S OBLIGATION TO CLOSE		50
	8.1	Accuracy of Representations	50
	8.2	Buyer’s Performance	50

iii

	8.3	Additional Documents	50
	8.4	No Injunction	50
9.	TERMINATION		51
	9.1	Termination Events	51
	9.2	Effect of Termination	51
10.	INDEMNIFICATION; REMEDIES		52
	10.1	Right to Indemnification Not Affected by Knowledge	52
	10.2	Survival	52
	10.3	Indemnification and Payment of Damages by Seller	52
	10.4	Intentionally Omitted	53
	10.5	Indemnification and Payment of Damages by Buyer	53
	10.6	Time Limitations	53
	10.7	Limitations on Amount — Seller	54
	10.8	Limitations on Amount — Buyer	54
	10.9	Right of Set-off	54
	10.10	Procedure for Indemnification — Third Party Claims	54
	10.11	Procedure for Indemnification — Other Claims	56
	10.12	Other Terms of Indemnification	56
11.	GENERAL PROVISIONS		56
	11.1	Expenses	56
	11.2	Public Announcements	57
	11.3	Confidentiality	57
	11.4	Notices	57
	11.5	Jurisdiction; Service of Process	58
	11.6	Further Assurances	58

iv

11.7	Waiver	58
11.8	Entire Agreement and Modification	59
11.9	Disclosure Letter	59
11.10	Assignments, Successors, and No Third-Party Rights	59
11.11	Severability	59
11.12	Section Headings, Construction	59
11.13	Time of Essence	59
11.14	Governing Law	59
11.15	Counterparts	60

v

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (“Agreement”) is made as of October 5, 2007, by The Management Network Group, Inc., a Delaware corporation (“Buyer”), TWG Consulting, Inc., a Kansas corporation (the “Company”) and Marilyn Breitenstein, an individual resident of the State of Kansas (“Seller”).

RECITALS

Seller desires to sell, and Buyer desires to purchase, all of the issued and outstanding shares (the “Shares”) of capital stock of the Company, for the consideration and on the terms set forth in this Agreement.

AGREEMENT

The parties, intending to be legally bound, agree as follows:

1. DEFINITIONS.

For purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1:

“Adjusted Current Cash Consideration” — shall mean the Current Cash Consideration less the Adjustment Amount.

“Adjustment Amount” — as defined in Section 2.5.

“Applicable Contract” — any Contract (a) under which the Company has or may acquire any rights, (b) under which the Company has or may become subject to any obligation or liability, or (c) by which the Company or any of the assets owned or used by it is or may become bound.

“Balance Sheet” — as defined in Section 3.4.

“Base Year” — the twelve (12) month period ending on the last day of the month preceding the month in which the Closing Date occurs.

“Base Year EBITDA” — Eight Hundred Fifty Thousand Dollars ($850,000).

“Base Year Revenue” — Four Million Four Hundred Thousand Dollars ($4,400,000).

“Breach” — a “Breach” of a representation, warranty, covenant, obligation, or other provision of this Agreement or any certificate delivered pursuant to this Agreement will be deemed to have occurred if there is or has been any inaccuracy in or breach of, or any failure to perform or comply with, such representation, warranty, covenant, obligation, or other provision, and the term “Breach” means any such inaccuracy, breach, failure, claim, occurrence, or circumstance.

“Buyer” — as defined in the first paragraph of this Agreement.

“Closing” — as defined in Section 2.3.

1

“Closing Date” — the date and time as of which the Closing actually takes place.

“Company” — as defined in the Recitals of this Agreement.

“Consent” — any approval, consent, ratification, waiver, or other authorization (including any Governmental Authorization).

“Consequential Damages” shall mean Damages arising out of any interruption of business, loss of profits, loss of use of facilities, claims of customers, loss of goodwill or other indirect, special or consequential Damages.

“Contemplated Transactions” — all of the transactions contemplated by this Agreement, including:

     (a) the sale of the Shares by Seller to Buyer;

     (b) the execution, delivery, and performance of the Employment Agreements, and the Noncompetition Agreement;

     (c) the performance by Buyer and Seller of their respective covenants and obligations under this Agreement; and

     (d) Buyer’s acquisition and ownership of the Shares and exercise of control over the Company.

“Contingent Cash Consideration” — as defined in Section 2.2.3.

“Contingent Stock Consideration” — as defined in Section 2.2.2.

“Contingent Shares” — as defined in Section 2.2.4.

“Contract” — any agreement, contract, obligation, promise, or undertaking (whether written or oral and whether express or implied) that is legally binding.

“Copyright” shall mean collectively the Owned Copyrights and the Licensed Copyrights as defined in Section 3.22.3.

“Current Cash Consideration” — as defined in Section 2.2.1.

“Damages” — as defined in Section 10.3.

“Disclosure Letter” — the disclosure letter delivered by Seller to Buyer as of the execution and delivery of this Agreement.

“Earn-Out Period” — as defined in Section 2.7.3.

“Earn-Out Year” — shall mean each of the three (3) twelve (12) month periods measured from (i) the day immediately following the end of the Base Year, (ii) and the first annual anniversary of such date, and (iii) the second annual anniversary of such date.

2

“EBITDA” — as defined in Section 2.8.

“Employment Agreements” — shall mean collectively, the Seller Employment Agreement and the Key Employee Employment Agreements, as defined in Section 2.4.1(b) and 7.4.1.

“Encumbrance” — any charge, claim, condition, equitable interest, lien, option, pledge, security interest, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership.

“Environment” — soil, land surface or subsurface strata, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins, and wetlands), groundwaters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental medium or natural resource.

“Environmental, Health, and Safety Liabilities” — any cost, damages, expense, liability, obligation, or other responsibility arising from or under Environmental Law and consisting of or relating to:

     (a) any environmental matters or conditions (including on-site or off-site contamination and regulation of chemical substances or products);

     (b) fines, penalties, judgments, awards, settlements, legal or administrative proceedings, damages, losses, claims, demands and response, investigative, remedial, or inspection costs and expenses arising under Environmental Law;

     (c) financial responsibility under Environmental Law for cleanup costs or corrective action, including any investigation, cleanup, removal, containment, or other remediation or response actions (“Cleanup”) required by applicable Environmental Law (whether or not such Cleanup has been required or requested by any Governmental Body or any other Person) and for any natural resource damages; or

     (d) any other compliance, corrective, investigative, or remedial measures required under Environmental Law.

The terms “removal,” “remedial,” and “response action,” include the types of activities covered by the United States Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq., as amended (“CERCLA”).

“Environmental Law” — any Legal Requirement that requires or relates to:

     (a) advising appropriate authorities, employees, and the public of intended or actual releases of pollutants or hazardous substances or materials, violations of discharge limits, or other prohibitions and of the commencements of activities, such as resource extraction or construction, that could have significant impact on the Environment;

     (b) preventing or reducing to acceptable levels the release of pollutants or hazardous substances or materials into the Environment;

3

     (c) reducing the quantities, preventing the release, or minimizing the hazardous characteristics of wastes that are generated;

     (d) assuring that products are designed, formulated, packaged, and used so that they do not present unreasonable risks to human health or the Environment when used or disposed of;

     (e) protecting resources, species, or ecological amenities;

     (f) reducing to acceptable levels the risks inherent in the transportation of hazardous substances, pollutants, oil, or other potentially harmful substances;

     (g) cleaning up pollutants that have been released, preventing the threat of release, or paying the costs of such clean up or prevention; or

     (h) making responsible parties pay private parties, or groups of them, for damages done to their health or the Environment, or permitting self-appointed representatives of the public interest to recover for injuries done to public assets.

“ERISA” — the Employee Retirement Income Security Act of 1974, as amended, or any successor law, and regulations and rules issued pursuant to that Act or any successor law.

“Facilities” — any real property, leaseholds, or other interests in real property currently or formerly owned or operated by Company and any buildings, plants, structures, or equipment (including motor vehicles) currently or formerly owned or operated by Company.

“GAAP” — generally accepted United States accounting principles, applied on a basis consistent with the basis on which the Balance Sheet and all the other financial statements referred to in Section 3.4 were prepared.

“Governmental Authorization” — any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement.

“Governmental Body” — any:

     (a) nation, state, county, city, town, village, district, or other jurisdiction of any nature;

     (b) federal, state, local, municipal, foreign, or other government;

     (c) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal);

     (d) multi-national organization or body; or

4

     (e) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature.

“Hazardous Activity” — the distribution, generation, handling, importing, management, manufacturing, processing, production, refinement, Release, storage, transfer, transportation, treatment, or use (including any withdrawal or other use of groundwater) of Hazardous Materials in, on, under, about, or from the Facilities or any part thereof into the Environment, and any other act, business, operation, or thing that increases the danger, or risk of danger, or poses an unreasonable risk of harm to persons or property on or off the Facilities, or that may affect the value of the Facilities or the Acquired Companies.

“Hazardous Materials” — any waste or other substance that is listed, defined, designated, or classified as, or otherwise determined to be, hazardous, radioactive, or toxic or a pollutant or a contaminant under or pursuant to any Environmental Law, including any admixture or solution thereof, and specifically including petroleum and all derivatives thereof or synthetic substitutes therefor and asbestos or asbestos-containing materials.

“Indemnified Persons” — as defined in Section 10.3.

“Intellectual Property Rights” — means intellectual property rights arising from or in respect of Marks, Copyrights, Software, Patents and Trade Secrets, whether protected, created or arising under the laws of the United States, any state therein or any other jurisdiction.

“Interim Balance Sheet” — as defined in Section 3.4.

“IRC” — the Internal Revenue Code of 1986, as amended, or any successor law, and regulations issued by the IRS pursuant to the Internal Revenue Code or any successor law.

“IRS” — the United States Internal Revenue Service or any successor agency, and, to the extent relevant, the United States Department of the Treasury.

“Key Employees” — shall mean collectively Renee Shelton and Clint Pruett, and individually each may be referred as a “Key Employee.”

“Knowledge” — Seller and/or the Company will be deemed to have “Knowledge” of a particular fact or other matter if Marilyn A. Breitenstein is actually aware of such fact or other matter or could be expected to discover or become aware of such fact or other matter in the course of a reasonably comprehensive investigation concerning the existence of such fact or other matter. Buyer will be deemed to have “Knowledge” of a particular fact of other matter if Rich Nespola is actually aware of such fact or other matter or could be expected to discover or become aware of such fact or other matter in the course of a reasonably comprehensive investigation concerning the existence of such fact or other matter.

“Legal Requirement” — any federal, state, local, municipal, foreign, international, multinational, or other administrative order, constitution, law, ordinance, regulation, statute, or treaty.

5

“Marks” — means registered and unregistered trademarks and service marks and logos (including any Internet domain names, fictional names and the name “TWG Consulting, Inc.”), and applications therefor.

“Net Working Capital” — shall mean (i) the sum of the Company’s cash, plus cash equivalents, plus Accounts Receivables less than 90 days from invoice date (provided that two Sprint invoices totaling $52,000 shall be included as less than 90 days from invoice date per agreement of the parties); plus prepaid expenses, plus notes receivable, MINUS (ii) the sum of the Company’s current payables, plus all Company debt plus the outstanding balance of all capital leases of the Company (other than with respect to vehicles), plus all other liabilities of the Company that would be required to be stated on a balance sheet of the Company as of the Closing Date.

“Noncompetition Agreement” — as defined in Section 2.4.1(c).

“Order” — any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator.

“Ordinary Course of Business” — an action taken by a Person will be deemed to have been taken in the “Ordinary Course of Business” only if:

     (a) such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person;

     (b) such action is not required to be authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority); and

     (c) such action is similar in nature and magnitude to actions customarily taken, without any authorization by the board of directors (or by any Person or group of Persons exercising similar authority), in the ordinary course of the normal day-to-day operations of other Persons that are in the same line of business as such Person.

“Organizational Documents” — the articles or certificate of incorporation and the bylaws of a corporation and any amendment to any of the foregoing.

“Patents” — means patents, patent rights and all applications therefor, including any and all continuation, divisional, continuation-in-part, or reissue patent applications or patents issuing thereon.

“Person” — any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Body.

“Plan” — as defined in Section 3.13.

6

“Proceeding” — any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator.

“Related Person” — with respect to a particular individual:

     (a) each other member of such individual’s Family;

     (b) any Person that is directly or indirectly controlled by such individual or one or more members of such individual’s Family;

     (c) any Person in which such individual or members of such individual’s Family hold (individually or in the aggregate) a Material Interest; and

     (d) any Person with respect to which such individual or one or more members of such individual’s Family serves as a director, officer, partner, executor, or trustee (or in a similar capacity).

With respect to a specified Person other than an individual:

     (a) any Person that directly or indirectly controls, is directly or indirectly controlled by, or is directly or indirectly under common control with such specified Person;

     (b) any Person that holds a Material Interest in such specified Person;

     (c) each Person that serves as a director, officer, partner, executor, or trustee of such specified Person (or in a similar capacity);

     (d) any Person in which such specified Person holds a Material Interest;

     (e) any Person with respect to which such specified Person serves as a general partner or a trustee (or in a similar capacity); and

     (f) any Related Person of any individual described in clause (b) or (c).

For purposes of this definition, (a) the “Family” of an individual includes (i) the individual, (ii) the individual’s spouse and former spouses, if any, (iii) any other natural person who is related to the individual or the individual’s spouse within the second degree, and (iv) any other natural person who resides with such individual, and (b) “Material Interest” means direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting securities or other voting interests representing at least 25% of the outstanding voting power of a Person or equity securities or other equity interests representing at least 25% of the outstanding equity securities or equity interests in a Person.

“Release” — any spilling, leaking, emitting, discharging, depositing, escaping, leaching, dumping, or other releasing into the Environment, whether intentional or unintentional.

7

“Representative” — with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors.

“Revenue” — as defined in Section 2.8.

“Securities Act” — the Securities Act of 1933, as amended, or any successor law, and regulations and rules issued pursuant to that Act or any successor law.

“Seller” — as defined in the first paragraph of this Agreement.

“Shares” — as defined in the Recitals of this Agreement.

“Software” — means any and all (i) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code, (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (iii) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, and (iv) all documentation, including user manuals and training manuals, relating to any of the foregoing, in each case developed or licensed by the Company, or used in or necessary for the conduct of its business, specifically excluding those items prepared for customers in the operation of the Company’s business for which the customer contractually has vested title and excluding generally available computer programs produced by others which are used by the Company “as is” or without modification.

“Survival Periods” — shall mean collectively the Three Year Survival Period, the Tax Claims Survival Period, and the General Claims Survival Period as defined in Section 10.2; and Survival Period shall mean any of the foregoing.

“Subsidiary” — with respect to any Person (the “Owner”), any corporation or other Person of which securities or other interests having the power to elect a majority of that corporation’s or other Person’s board of directors or similar governing body, or otherwise having the power to direct the business and policies of that corporation or other Person (other than securities or other interests having such power only upon the happening of a contingency that has not occurred) are held by the Owner or one or more of its Subsidiaries; when used without reference to a particular Person, “Subsidiary” means a Subsidiary of the Company.

“Tax” — any tax (including any income tax, capital gains tax, value-added tax, sales tax, property tax, gift tax, or estate tax), levy, assessment, tariff, duty (including any customs duty), deficiency, or other fee, and any related charge or amount (including any fine, penalty, interest, or addition to tax), imposed, assessed, or collected by or under the authority of any Governmental Body or payable pursuant to any tax-sharing agreement or any other Contract relating to the sharing or payment of any such tax, levy, assessment, tariff, duty, deficiency, or fee.

“Tax Return” — any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment,

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collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax.

“Threat of Release” — a substantial likelihood of a Release that may require action in order to prevent or mitigate damage to the Environment that may result from such Release.

“Threatened” — a claim, Proceeding, dispute, action, or other matter will be deemed to have been “Threatened” if any demand or statement has been made (orally or in writing) or any notice has been given (orally or in writing) that would lead a prudent Person to conclude that such a claim, Proceeding, dispute, action, or other matter is likely to be asserted, commenced, taken, or otherwise pursued in the immediate future.

“Trade Secrets” — means know-how, inventions, discoveries, concepts, ideas, methods, processes, designs, formulae, technical data, drawings, specifications, data bases and other proprietary and confidential information, including customer lists, in each case to the extent not Marks or Patents.

“Transition Bonus Arrangement” — means those certain payments to the Key Employees immediately prior to Closing in an aggregate amount not to exceed $60,000.00.

“Vesting Period” — as defined in Section 2.6.3.

2. SALE AND TRANSFER OF SHARES; CLOSING.

     2.1 Shares. Subject to the terms and conditions of this Agreement, at the Closing, Seller will sell and transfer the Shares to Buyer, and Buyer will purchase the Shares from Seller.

     2.2 Purchase Price. The purchase price (the “Purchase Price”) for the Shares will be the sum of the (i) Current Cash Consideration, (ii) the Contingent Cash Consideration, and (iii) the Contingent Stock Consideration.

2.2.1	Current Cash Consideration. For purposes of this Agreement “Current Cash Consideration” shall mean $1,690,000.00 minus the Adjustment Amount, if any.
2.2.2	Contingent Stock Consideration. For purposes of this Agreement “Contingent Stock Consideration” shall mean that portion of the Contingent Shares which shall vest in accordance with Section 2.6.
2.2.3	Contingent Cash Consideration. For purposes of this Agreement “Contingent Cash Consideration” shall mean that portion of $1,250,000 which is earned pursuant to Section 2.7.
2.2.4	Contingent Shares. For purposes of this Agreement, “Contingent Shares” shall mean the number of shares of the Buyer’s common stock calculated by dividing $1,500,000 by the volume weighted average stock price for the Buyer’s common stock as reported on the NASDAQ for the twenty (20) trading days immediately preceding the Closing Date.

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     2.3 Closing. The purchase and sale (the “Closing”) provided for in this Agreement will take place at the offices of Buyer’s counsel at 120 W. 12th Street, Suite 1600, Kansas City, Missouri 64105, at 10:00 a.m. (local time) on the later of (i) October 1, 2007 or (ii) at such other time and place as the parties may agree.

     2.4 Closing Obligations. At the Closing:

2.4.1 Seller’s Deliveries. Seller will deliver to Buyer:

(a)	certificates representing the Shares, duly endorsed (or accompanied by duly executed stock powers) for transfer to Buyer;
(b)	the employment agreement in the form of Exhibit 2.4.1(b), executed by Seller (the “Seller Employment Agreement”); and
(c)	noncompetition agreement in the form of Exhibit 2.4.1(c), executed by Seller (the “Seller Noncompetition Agreement”).

2.4.2 Buyer’s Deliveries. Buyer will deliver to Seller:

(a)	by bank cashier’s or certified check payable to the order of, or by wire transfer to accounts specified by, the Seller, $1,540,000, as a partial payment of the Current Cash Consideration; and
(b)	the Seller Employment Agreement executed by Buyer.

     2.5 Adjustment Amount. The Adjustment Amount will be equal to the amount, if any, by which the Company’s Net Working Capital on the Closing Date is less than One Million Two Hundred Forty Thousand Dollars ($1,240,000). Within one hundred and eighty (180) days following the last day of the month in which the Closing occurs, Buyer shall calculate the Company’s Net Working Capital as of the Closing Date, the Adjustment Amount and the amount of the Current Cash Consideration, and provide the Seller with an accounting of such calculation (the “Current Cash Consideration Accounting”). Seller shall have fifteen (15) days following receipt of such Current Cash Consideration Accounting in which to object to the calculations contained therein by delivering written notice of such objection to the Buyer, which written notice will specify in detail the basis of such objection. During such fifteen (15) day period, Buyer shall make available to Seller all of Buyer’s books and records reasonably requested by Seller in order to confirm the Current Cash Consideration Accounting. The time periods contemplated herein shall be extended to the extent there is a delay in the availability of such books and records. If the Buyer and Seller are unable to resolve such dispute within fifteen (15) days of Buyer’s receipt of such notice, the dispute shall be submitted to the dispute resolution procedure set forth in Section 2.9 which both parties expressly agree shall be the sole method of resolving the dispute and both parties shall be bound by the results of such procedure. If the Seller does not timely object to the calculations in the Current Cash Consideration Accounting or notifies the Buyer in writing that Seller accepts such calculations, then the calculations in the Current Cash Consideration Accounting shall be deemed final. Buyer shall, within two (2) business days following the Current Cash Consideration Accounting becoming final, pay to Seller (in the same manner as contemplated in Section 2.4.2(a)) an amount equal to the amount

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by which the cash paid to Seller pursuant to Section 2.4.2(a) is less than the Adjusted Current Cash Consideration. In the event the amount of Adjusted Current Cash Consideration is less than the amount paid to Seller pursuant to Section 2.4.2(a), Seller shall pay such difference to Buyer (in the same manner as contemplated in Section 2.4.2(a)) within two (2) business days following the Current Cash Consideration Accounting becoming final.

     2.6 Calculation of Contingent Stock Consideration. The amount of Contingent Stock Consideration which shall be payable to the Seller shall be calculated based on the Company’s performance in the three Earn Out Years following the Closing Date.

2.6.1 First Earn Out Year. Seller shall vest one-third of the Contingent Shares in the event the Company’s Revenue and EBITDA for the first Earn Out Year following the Closing Date shall equal or exceed both 90% of Base Year Revenue and 90% of Base Year EBITDA, respectively.

2.6.2	Second Earn Out Year. Seller shall vest one-third of the Contingent Shares in the event the Company’s Revenue and EBITDA for the second Earn Out Year following the Closing Date shall equal or exceed both (i) the Base Year Revenue, and (ii) the Base Year EBITDA, respectively.
2.6.3	Third Earn Out Year. Seller shall vest one-third of the Contingent Shares in the event the Company’s Revenue and EBITDA for the third Earn Out Year following the Closing Date shall equal or exceed both (i) the Base Year Revenue, and (ii) the Base Year EBITDA, respectively. Each measurement period set forth in Section 2.6.1, 2.6.2 and 2.6.3 shall be referred to as a “Vesting Period”.
2.6.4	Carry Overs.

(a)	Vesting of Contingent Shares shall be calculated for each Vesting Period independently. In no instance shall the carry forward of any remaining negative EBITDA prevent the vesting of Contingent Cash Consideration pursuant to 2.6.1, 2.6.2, or 2.6.3.
(b)	In the event the Company exceeds the vesting requirements (either Revenue or EBITDA, or both) in any Vesting Period, such excess amount may be carried either forward or backward (or both, in part), at the election of Seller, to satisfy the vesting requirements for a prior or future Vesting Period. If such excess amount, when added to the results of the prior or future Vesting Period (as the case may be) cause the Company to meet the vesting requirements for such prior or future Vesting Period, then the Contingent Shares applicable to such Vesting Period shall vest.
(c)	Notwithstanding anything herein to the contrary: (i) if the EBITDA for the first Earn Out Year is a negative dollar amount, then such negative dollar amount shall be carried forward and (A) applied against any excess EBITDA in the second Earn Out Year,

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and (B) any remaining negative EBITDA carry forward shall be set off, on a dollar-for-dollar basis, against the value of any Contingent Shares (based on the original per share valuation) otherwise vested pursuant to 2.6.2 above for the second Earn Out Year; and (ii) if the EBITDA for the second Earn Out Year is a negative dollar amount, then such negative dollar amount shall be carried forward along with the remaining negative EBITDA from the first Earn Out Year, if any, and (A) applied against any excess EBITDA in the third Earn Out Year, and (B) any remaining negative EBITDA carry forward shall be set off, on a dollar-for-dollar basis, against the value of any Contingent Shares (based on the original per share valuation) otherwise vested pursuant to 2.6.3 above for the third Earn Out Year.

2.6.5 Delivery of Vested Contingent Shares. Within ten (10) days following the date the Vesting Requirement Accounting for each Vesting Period becomes final as set forth below, Buyer shall deliver, or cause to be delivered, to the Seller a share certificate for the number of shares vested on such Determination Date. The certificate shall be issued as follows: Marilyn A. Breitenstein, Trustee or any Successor Trustee, under the First Amended and Restated Marilyn A. Breitenstein Trust Dated August 17, 2006, as may be amended (“Seller’s Trust”).

2.6.6 Determination of Satisfaction. Within ninety (90) days following the end of each Earn Out Year (the “Determination Date”), the Buyer shall cause the Revenue and EBITDA for the immediately preceding Vesting Period to be calculated. On or before the Determination Date, the Buyer shall deliver to Seller a written calculation (the “Vesting Requirement Accounting”) of whether the vesting requirements for the applicable Vesting Period have been satisfied, as well as the amount, if any, of (i) the negative EBITDA for such Vesting Period, or (ii) the excess Revenue or EBITDA available after satisfaction of such vesting requirements for any prior or future Vesting Period and whether the application of such excess satisfies the vesting requirements for such other Vesting Period. Seller shall have fifteen (15) days following receipt of such Vesting Requirement Accounting in which to object to the calculations contained therein by delivering written notice of such objection to the Buyer, which written notice will specify in detail the basis of such objection. During such fifteen (15) day period, Buyer shall make available to Seller all of Buyer’s books and records reasonably requested by Seller in order to confirm the Vesting Requirement Accounting. The time periods contemplated herein shall be extended to the extent there is a delay in the availability of such books and records. If the Buyer and Seller are unable to resolve such dispute within fifteen (15) days of Buyer’s receipt of such notice, the dispute shall be submitted to the dispute resolution procedure set forth in Section 2.9 which both parties expressly agree shall be the sole method of resolving the dispute and both parties shall be bound by the results of such

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procedure. If the Seller does not timely object to the calculation of the Vesting Requirement Accounting, or notifies the Buyer in writing that Seller accepts such calculations, the calculations in the Vesting Requirement Accounting shall be deemed final.

     2.7 Calculation of Contingent Cash Consideration. The amount of Contingent Cash Consideration which shall be payable to the Seller shall be calculated based on the Company’s performance in the three Earn Out Years following the Closing Date.

2.7.1	First Earn Out Year. Seller shall earn Four Hundred Sixteen Thousand Six Hundred Sixty Seven and no/100 Dollars ($416,667.00) of the Contingent Cash Consideration in the event the Company’s Revenue and EBITDA for the first Earn Out Year following the Closing Date shall equal or exceed the Base Year Revenue and the Base Year EBITDA, respectively.
2.7.2	Second Earn Out Year. Seller shall earn Four Hundred Sixteen Thousand Six Hundred Sixty Seven and no/100 Dollars ($416,667.00) of the Contingent Cash Consideration in the event the Company’s Revenue and EBITDA for the second Earn Out Year following the Closing Date shall equal or exceed both (i) 115% of the Base Year Revenue, and (ii) 115% of the Base Year EBITDA, respectively.
2.7.3	Third Earn Out Year. Seller shall earn Four Hundred Sixteen Thousand Six Hundred Sixty Seven and no/100 Dollars ($416,666.00) of the Contingent Cash Consideration in the event the Company’s Revenue and EBITDA for the third Earn Out Year following the Closing Date shall equal or exceed both (i) 130% of the Base Year Revenue, and (ii) 130% of the Base Year EBITDA, respectively. Each measurement period set forth in Sections 2.7.1, 2.7.2 and 2.7.3 shall be referred to as an “Earn Out Period”.

2.7.4 Carry Overs.

(a)

Contingent Cash Consideration earned shall be calculated for each Earn Out Period independently. In no instance shall the carry forward of any remaining negative EBITDA prevent the vesting of Contingent Cash Consideration pursuant to 2.7.1, 2.7.2, or 2.7.3.

(b)

In the event the Company exceeds the earn-out requirements (either Revenue or EBITDA, or both) in any Earn Out Period, such excess amount may be carried either forward or backward (or both, in part), at the election of Seller, to satisfy the earn-out requirements for a prior or future Earn Out Period. If such excess amount, when added to the results of such prior or future Earn Out Period (as the case may be), cause the Company to satisfy the earn-out requirements for such prior or future Earn Out Period, then the

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Contingent Cash Consideration applicable to such Earn Out Period shall be deemed earned.

(c) Notwithstanding anything herein to the contrary: (i) if the EBITDA for the first Earn Out Year is a negative dollar amount, then such negative dollar amount shall be carried forward and (A) applied against any excess EBITDA in the second Earn Out Year, and (B) any remaining negative EBITDA carry forward shall be set off, on a dollar-for-dollar basis, against any Contingent Cash Consideration otherwise vested pursuant to 2.7.2 above for the second Earn Out Year; and (ii) if the EBITDA for the second Earn Out Year is a negative dollar amount, then such negative dollar amount shall be carried forward along with the remaining negative EBITDA from the first Earn Out Year, if any, and (A) applied against any excess EBITDA in the third Earn Out Year, and (B) any remaining negative EBITDA carry forward shall be set off, on a dollar-for-dollar basis, against any Contingent Cash Consideration otherwise vested pursuant to 2.7.3 above for the third Earn Out Year.

2.7.5

Delivery of Earned Contingent Cash Consideration. Within ten (10) days following the date the Earn-Out Accounting for each Earn Out Period becomes final as set forth below, Buyer shall deliver to Seller’s Trust by check or wire transfer the amount of all Contingent Cash Consideration earned as of such Determination Date.

2.7.6

Determination of Satisfaction. Prior to the Determination Date following the end of each Earn Out Year, the Buyer shall cause the Revenue and EBITDA for the immediately preceding Earn Out Period to be calculated. On or before the Determination Date, the Buyer shall deliver to Seller a written calculation (the “Earn-Out Accounting”) of whether the earn-out requirements for the prior Earn Out Period have been satisfied, as well as the amount, if any, of the excess Revenue or EBITDA available after satisfaction of such earn-out requirements for any prior or future Earn Out Period and whether the application of such excess satisfies the earn-out requirements for such other Earn Out Period. Seller shall have fifteen (15) days following receipt of such Earn-Out Accounting in which to object to the calculations contained therein by delivering written notice of such objection to the Buyer, which written notice will specify in detail the basis of such objection. During such fifteen (15) day period, Buyer shall make available to Seller all of Buyer’s books and records reasonably requested by Seller in order to confirm the Earn-Out Accounting. The time periods contemplated herein shall be extended to the extent there is a delay in the availability of such books and records. If the Buyer and Seller are unable to resolve such dispute within fifteen (15) days of Buyer’s receipt of such notice, the dispute shall be submitted to the dispute resolution procedure set forth in Section 2.9 which both parties

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expressly agree shall be the sole method of resolving the dispute and both parties shall be bound by the results of such procedure. If the Seller does not timely object to the calculation of the Earn-Out Accounting or notifies the Buyer in writing that Seller accepts such calculations, the calculations in the Earn-Out Accounting shall be deemed final.

     2.8 Calculation of Revenue and EBITDA. For purposes of this Agreement:

2.8.1	Revenue. “Revenue” for the Company shall be calculated consistent with the Company’s historic practices as if the Company were a separate entity during each period of calculation. For the avoidance of doubt, revenues derived from the services of Company employees and contractors shall be included in Revenue, regardless of whether such services are billed under the Company’s service agreements or the service agreements of Buyer (or its Affiliates).
2.8.2	EBITDA. “EBITDA” for the Company shall be calculated in accordance with GAAP, as if the Company were a separate entity during each period of calculation, but shall not include (i) corporate or overhead allocations from the Buyer (except in those instances where such services are provided by Buyer or an affiliate and then only in amounts consistent Company’s historic costs), (ii) any payments of the Purchase Price (iii) any payments under the Transition Bonus Arrangement, and (iv) any charge for equity-based compensation.
2.8.3	Periodic Calculation. Post Closing the Buyer shall use commercially reasonable efforts to provide Seller monthly interim estimates of the status of Company Revenues and EBITDA during each Earn Out Year.

     2.9 Dispute Resolution. Any dispute relating to or arising from Sections 2.5, 2.6, 2.7 and/or 2.8 of this Agreement shall be resolved by submitting the dispute to a nationally recognized accounting firm which has not provided services to either Seller or Company or Buyer during the twenty-four (24) months immediately preceding the submission of the dispute (the “CPA”). A dispute shall be deemed “submitted” to the dispute resolution procedure when, following the fifteen (15) day period during which Buyer and Seller were to attempt to resolve such dispute pursuant to Section 2.5, 2.6 or 2.7, either Buyer or Seller delivers to the other party a written notice that the dispute remains unresolved and identifying an eligible person to serve as the CPA. If the Buyer and Seller cannot agree on the identity of the CPA within two (2) days of submitting the dispute to the dispute resolution procedure, the CPA shall be selected at random from two (2) eligible accounting firms, one identified by Seller and one identified by Buyer. Once the CPA is identified, the following procedure shall be followed:

2.9.1 Within ten (10) days of selecting the CPA, the Buyer shall submit to both CPA and the Seller the Current Cash Consideration Accounting, the Vesting Requirement Accounting or the Earn-Out Accounting, as the case may be, which is the subject of the dispute.

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2.9.2	The Seller shall, within ten (10) days of selecting the CPA, submit to both CPA and the Buyer, the Seller’s written objections to such accounting, including the Seller’s calculation of the Current Cash Consideration, the Contingent Shares or the Contingent Cash Consideration, as the case may be.
2.9.3	Within ten (10) days of the CPA’s receipt of the last of the submissions from the Seller and the Buyer, the CPA shall notify both Seller and Buyer in writing of which of the two submissions (one from the Seller and one from the Buyer) the CPA determines to be most accurate and that submission shall be binding on both parties and the determination of the applicable Current Cash Consideration Accounting, Vesting Requirement Accounting or Earn-Out Accounting shall be deemed final. The CPA shall not be allowed to calculate an amount different than either the Seller’s submission or the Buyer’s submission.
2.9.4	Neither Buyer nor Seller shall contest the determination of the CPA and such determination shall be deemed binding on both parties and shall have the same force and effect as a determination of an arbitrator. Any court having jurisdiction over the matter may enter judgment on the determination of the CPA, however, no such judgment shall be required for a payment of Current Cash Consideration or Contingent Cash Consideration or delivery of Contingent Shares and both parties shall comply with the decision of the CPA without the entry of such judgment and/or without the institution of any proceeding to confirm, interpret or correct the award, and shall, upon receipt of a decision of the CPA ordering such payment or delivery, consider the applicable Current Cash Consideration Accounting, Vesting Requirement Accounting or Earn-Out Accounting, final.
2.9.5	The cost of the CPA shall be borne by the party whose submission is not selected and each party shall bear their own expenses.

3. REPRESENTATIONS AND WARRANTIES OF SELLER.

Seller represents and warrants to Buyer as follows:

     3.1 Organization and Good Standing.

3.1.1 Name, Address, Capitalization. Part 3.1 of the Disclosure Letter contains a complete and accurate list for Company of its name, its jurisdiction of incorporation, other jurisdictions in which it is authorized to do business, and its capitalization (including the identity of each stockholder and the number of shares held by each). Company is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation, with full corporate power and authority to conduct its business as it is now being conducted, to own or

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	use the properties and assets that it purports to own or use, and to perform all its obligations under Applicable Contracts. Company is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification, except where the failure to be qualified or in good standing would not have a material adverse effect on the business, operations, properties, prospects, assets or condition of Company.
3.1.2	Organizational Documents. Seller has made available to Buyer copies of the Organizational Documents of Company, as currently in effect.
3.1.3	Subsidiaries. The Company has no Subsidiaries and owns no equity securities of any other Person.

     3.2 Authority; No Conflict.

3.2.1

Authority. This Agreement constitutes the legal, valid, and binding obligation of Seller, enforceable against Seller in accordance with its terms. Upon the execution and delivery by Seller of the Seller Employment Agreement, and the Noncompetition Agreement (collectively, the “Seller’s Closing Documents”), the Seller’s Closing Documents will constitute the legal, valid, and binding obligations of Seller, enforceable against Seller in accordance with their respective terms. Seller has the absolute and unrestricted right, power, authority, and capacity to execute and deliver this Agreement and the Seller’s Closing Documents to which it is a party, and to perform Seller’s obligations under this Agreement and the Seller’s Closing Documents.

3.2.2

Conflicts. Except as set forth in Part 3.2.2 of the Disclosure Letter, neither the execution and delivery of this Agreement nor the consummation or performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time):

(a)	contravene, conflict with, or result in a violation of (i) any provision of the Organizational Documents of the Company, or (ii) any resolution adopted by the board of directors or the stockholders of Company;
(b)	contravene, conflict with, or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which Company or Seller, or any of the assets owned or used by Company, may be subject;
(c)	contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Body the right

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	to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization that is held by Company or that otherwise relates to the business of, or any of the assets owned or used by, Company;
(d)	cause Buyer or Company to become subject to, or to become liable for the payment of, any Tax;

(e)	contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Applicable Contract; or
(f)	result in the imposition or creation of any Encumbrance upon or with respect to any of the assets owned or used by Company.

3.2.3	No Notice. Except as set forth in Part 3.2.3 of the Disclosure Letter, neither Seller nor Company is or will be required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions.
3.2.4	Own Account. Seller is acquiring the Contingent Shares for Seller’s own account and not with a view to their distribution within the meaning of Section 2(11) of the Securities Act. Seller is an “accredited investor” as such term is defined in Rule 501(a) under the Securities Act.

     3.3 Capitalization. The authorized equity securities of the Company consist of 100,000 shares of common stock, par value $1.00 per share, of which 2,500 shares are issued and outstanding and constitute the Shares. Seller is and will be on the Closing Date, the record and beneficial owner and holder of the Shares, free and clear of all Encumbrances. No legend or other reference to any purported Encumbrance appears upon any certificate representing equity securities of Company. All of the outstanding equity securities of Company have been duly authorized and validly issued and are fully paid and nonassessable. There are no Contracts relating to the issuance, sale, or transfer of any equity securities or other securities of Company. None of the outstanding equity securities or other securities of Company was issued in violation of the Securities Act or any other Legal Requirement. Company does not own, and has no Contract to acquire, any equity securities or other securities of any Person or any direct or indirect equity or ownership interest in any other business.

     3.4 Financial Statements. Seller has delivered to Buyer: (i) unaudited balance sheets of the Company as at December 31 in each of the years 2003 through 2005, and the related unaudited statements of income, changes in stockholders’ equity, and cash flow for each of the fiscal years then ended, (ii) an unaudited balance sheet of the Company as at December 31, 2006 (the “Balance Sheet”), and the related unaudited statements of income, changes in stockholders’ equity, and cash flow for the fiscal year then ended, and (iii) an unaudited balance sheet of the

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Company as at July 31, 2007 (the “Interim Balance Sheet”) and the related unaudited statements of income, changes in stockholders’ equity, and cash flow for the months then ended. Except as set forth in Part 3.4 of the Disclosure Letter, such financial statements fairly present in all material respects the financial condition and the results of operations, changes in stockholders’ equity, and cash flow of the Company as at the respective dates of and for the periods referred to in such financial statements, all in accordance with GAAP (except for the absence of notes to the financial statements), subject, in the case of interim financial statements, to normal recurring year-end adjustments (the effect of which will not, individually or in the aggregate, be materially adverse) and the absence of notes. The financial statements referred to in this Section 3.4 reflect the consistent application of such accounting principles throughout the periods involved. No financial statements of any Person other than the Company are required by GAAP to be included in the consolidated financial statements of the Company.

     3.5 Books and Records. The books of account, minute books, stock record books, and other records of the Company, all of which have been made available to Buyer, are complete and correct and have been maintained in accordance with sound business practices and the system of internal controls described in Part 3.5 of the Disclosure Letter. The minute books of the Company contain accurate and complete records of all meetings held of, and corporate action taken by, the stockholders, the Board of Directors, and committees of the Board of Directors of the Company, and no meeting of such stockholders, Board of Directors, or committee has been held for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of those books and records will be in the possession of the Company.

     3.6 Title to Properties; Encumbrances. Part 3.6 of the Disclosure Letter contains a complete and accurate list of all real property, leaseholds, or other interests therein owned by Company. Company owns no real property and has never owned real property. The Company owns all the properties and assets (whether real, personal, or mixed and whether tangible or intangible) that it purports to own located in the facilities operated by the Company or reflected as owned in the books and records of the Company, including all of the properties and assets reflected in the Balance Sheet and the Interim Balance Sheet (except for assets held under capitalized leases disclosed in Part 3.6 of the Disclosure Letter and personal property sold since the date of the Balance Sheet and the Interim Balance Sheet, as the case may be, in the Ordinary Course of Business), and all of the properties and assets purchased or otherwise acquired by the Company since the date of the Balance Sheet (except for personal property acquired and sold since the date of the Balance Sheet in the Ordinary Course of Business and consistent with past practice). All material properties and assets reflected in the Balance Sheet and the Interim Balance Sheet are free and clear of all Encumbrances, except, with respect to all such properties and assets, (i) mortgages or security interests shown on the Balance Sheet or the Interim Balance Sheet as securing specified liabilities or obligations, with respect to which no default (or event that, with notice or lapse of time or both, would constitute a default) exists, (ii) liens for current taxes not yet due, and (iii) for those Encumbrances disclosed in Part 3.6 of the Disclosure Letter.

     3.7 Condition and Sufficiency of Assets. The property and equipment of the Company are in good operating condition and repair, and are adequate for the uses to which they are being put, and none of such property or equipment is in need of maintenance or repairs, except in each case for ordinary, routine maintenance and repairs that are not material in nature or cost. The property and equipment of the Company are sufficient for the continued conduct of the

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Company’s business after the Closing in substantially the same manner as conducted prior to the Closing.

     3.8 Accounts Receivable. All accounts receivable of the Company that are reflected on the Balance Sheet or the Interim Balance Sheet or on the accounting records of the Company as of the Closing Date (collectively, the “Accounts Receivable”) represent or will represent valid obligations arising from sales actually made or services actually performed in the Ordinary Course of Business. Unless paid prior to the Closing Date, the Accounts Receivable are or will be as of the Closing Date current and collectible net of the respective reserves shown on the Balance Sheet or the Interim Balance Sheet or on the accounting records of the Company as of the Closing Date (which reserves are adequate and calculated consistent with past practice and, in the case of the reserve as of the Closing Date, will not represent a greater percentage of the Accounts Receivable as of the Closing Date than the reserve reflected in the Interim Balance Sheet represented of the Accounts Receivable reflected therein and will not represent a material adverse change in the composition of such Accounts Receivable in terms of aging). Subject to such reserves, each of the Accounts Receivable either has been or will be collected in full, without any set-off, within ninety days after the day on which it first becomes due and payable; provided, however, that, if any Account Receivable is collected after such ninety-day period, then Seller shall be deemed to have satisfied this Section 3.8 with respect thereto (and any indemnification for such prior breach shall be reversed by the parties). There is no contest, claim, or right of set-off, other than returns in the Ordinary Course of Business, under any Contract with any obligor of an Accounts Receivable relating to the amount or validity of such Accounts Receivable. Part 3.8 of the Disclosure Letter contains a complete and accurate list of all Accounts Receivable as of the date of the Interim Balance Sheet, which list sets forth the aging of such Accounts Receivable.

     3.9 Intentionally Omitted.

     3.10 No Undisclosed Liabilities. Except as set forth in Part 3.10 of the Disclosure Letter, the Company has no liabilities or obligations of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise) except for liabilities or obligations reflected or reserved against in the Balance Sheet or the Interim Balance Sheet and current liabilities incurred in the Ordinary Course of Business since the respective dates thereof.

     3.11 Taxes.

3.11.1 Filings. The Company has filed or caused to be filed (on a timely basis since December 31, 2002) all Tax Returns that are or were required to be filed by or with respect to the Company, either separately or as a member of a group of corporations, pursuant to applicable Legal Requirements. Seller has made available to Buyer copies of, and Part 3.11.1 of the Disclosure Letter contains a complete and accurate list of, all such Tax Returns filed since December 31, 2002. The Company has paid, or made provision for the payment of, all Taxes that have or may have become due pursuant to those Tax Returns or otherwise, or pursuant to any assessment received by Seller or Company, except such Taxes, if any, as are listed in Part 3.11.1 of the Disclosure Letter and are being contested in good faith

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and as to which adequate reserves (determined in accordance with GAAP) have been provided in the Balance Sheet and the Interim Balance Sheet.

3.11.2	Audits. The United States federal and state income Tax Returns of Company subject to such Taxes have been audited by the IRS or relevant state tax authorities or are closed by the applicable statute of limitations for all taxable years through December 31, 2002. Part 3.11.2 of the Disclosure Letter contains a complete and accurate list of all audits of all such Tax Returns, including a reasonably detailed description of the nature and outcome of each audit. All deficiencies proposed as a result of such audits have been paid, reserved against, settled, or, as described in Part 3.11.2 of the Disclosure Letter, are being contested in good faith by appropriate proceedings. Part 3.11.2 of the Disclosure Letter describes all adjustments to the United States federal income Tax Returns filed by Company or any group of corporations including Company for all taxable years since December 31, 2002, and the resulting deficiencies proposed by the IRS. Except as described in Part 3.11.2 of the Disclosure Letter, neither Seller nor Company has given or been requested to give waivers or extensions (or is or would be subject to a waiver or extension given by any other Person) of any statute of limitations relating to the payment of Taxes of Company or for which Company may be liable.
3.11.3	Tax Reserves. The charges, accruals, and reserves with respect to Taxes on the respective books of Company are adequate (determined in accordance with GAAP) and are at least equal to Company’s liability for Taxes. There exists no proposed tax assessment against Company except as disclosed in the Balance Sheet or in Part 3.11.3 of the Disclosure Letter. No consent to the application of Section 341(2) of the IRC has been filed with respect to any property or assets held, acquired, or to be acquired by Company. All Taxes that Company is or was required by Legal Requirements to withhold or collect have been duly withheld or collected and, to the extent required, have been paid to the proper Governmental Body or other Person.
3.11.4	Accuracy. All Tax Returns filed by Company are true, correct, and complete. No Tax Returns have been filed with Company and any other entity on a consolidated basis and Company has not had and does not have any relationship with another entity which would allow or require filing Tax Returns on a consolidated basis. There is no tax sharing agreement that will require any payment by Company after the date of this Agreement. During the consistency period (as defined in Section 338(h)(4) of the IRC with respect to the sale of the Shares to Buyer), neither Company nor target affiliate (as defined in Section 338(h)(6) of the IRC with respect to the sale of the Shares to Buyer) has sold or will sell any property or assets to Buyer or to any member of the affiliated group (as defined in Section 338(h)(5) of the

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IRC) that includes Buyer. Part 3.11.4 of the Disclosure Letter lists all such target affiliates.

3.11.5 S Corporation. Company is an “S” Corporation and has been an S Corporation since October 25, 1992.

     3.12 No Material Adverse Change. Since the date of the Balance Sheet through the date of this Agreement, there has not been any material adverse change in the business, operations, properties, prospects, assets, or condition of Company, and, to Seller’s Knowledge, no event has occurred or circumstance exists that may result in such a material adverse change.

     3.13 Employee Benefits.

3.13.1 Definitions. As used in this Section 3.13 and Section 3.20, the following terms have the meanings set forth below.

“Company Other Benefit Obligation” means an Other Benefit Obligation owed, adopted, or followed by Company or an ERISA Affiliate.

“Company Plan” means all Plans of which Company or an ERISA Affiliate is or was a Plan Sponsor, or to which Company or an ERISA Affiliate otherwise contributes or has contributed, or in which Company or an ERISA Affiliate otherwise participates or has participated. All references to Plans are to Company Plans unless the context requires otherwise.

“Company VEBA” means a VEBA whose members include employees of Company or any ERISA Affiliate.

“ERISA Affiliate” means any other Person that, together with the Company, would be treated as a single employer under IRC § 414.

“Multi-Employer Plan” has the meaning given in ERISA § 3(37)(A).

“Other Benefit Obligations” means all obligations, arrangements, or customary practices, whether or not legally enforceable, to provide benefits, other than salary, as compensation for services rendered, to present or former directors, employees, or agents, other than obligations, arrangements, and practices that are Plans. Other Benefit Obligations include consulting agreements under which the compensation paid does not depend upon the amount of service rendered, sabbatical policies, severance payment policies, and fringe benefits within the meaning of IRC § 132.

“PBGC” means the Pension Benefit Guaranty Corporation, or any successor thereto.

“Pension Plan” has the meaning given in ERISA § 3(2)(A).

“Plan” has the meaning given in ERISA § 3(3).

“Plan Sponsor” has the meaning given in ERISA § 3(16)(B).

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“Qualified Plan” means any Plan that meets or purports to meet the requirements of IRC § 401(a).

“Title IV Plans” means all Pension Plans that are subject to Title IV of ERISA, 29 U.S.C. § 1301 et seq., other than Multi-Employer Plans.

“VEBA” means a voluntary employees’ beneficiary association under IRC § 501(c)(9).

“Welfare Plan” has the meaning given in ERISA § 3(1).

3.13.2 List of Plans.

(a)	Part 3.13.2(a) of the Disclosure Letter contains a complete and accurate list of all Company Plans and Company Other Benefit Obligations.
(b)	The Company does not sponsor, maintain, contribute, and is not a party to, nor has it ever sponsored, maintained, contributed or been a party to, or is in default under or has any accrued obligations under (i) defined benefit Pension Plan, (ii) a Title IV Plan, (iii) a Multi-Employer Plan or (iv) a VEBA.
(c)	The Company does not have an ERISA Affiliate.
(d)	Part 3.13.2(d) of the Disclosure Letter sets forth a calculation of the liability of the Company for post-retirement benefits other than pensions, made in accordance with Financial Accounting Statement 106 of the Financial Accounting Standards Board, regardless of whether any Acquired Company is required by this Statement to disclose such information.
(e)	Intentionally Omitted.
(f)	Part 3.13.2(e) of the Disclosure Letter sets forth the financial cost of all obligations owed under any Company Plan or Company Other Benefit Obligation that is not subject to the disclosure and reporting requirements of ERISA.

3.13.3 Copies of Documents. Seller has made available to Buyer:

(a) all documents that set forth the terms of each Company Plan, and Company Other Benefit Obligation, and of any related trust, including (i) all plan descriptions and summary plan descriptions of Company Plans for which Seller or the Company is required to prepare, file, and distribute plan descriptions and summary plan descriptions, and (ii) all summaries and descriptions furnished to participants and beneficiaries regarding Company Plans and

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Company Other Benefit Obligations for which a plan description or summary plan description is not required;

(b)	all personnel, payroll, and employment manuals and policies;
(c)	a written description of any Company Plan or Company Other Benefit Obligation that is not otherwise in writing;
(d)	all registration statements filed with respect to any Company Plan;
(e)	all insurance policies purchased by or to provide benefits under any Company Plan;
(f)	all contracts with third party administrators, actuaries, investment managers, consultants, and other independent contractors that relate to any Company Plan or Company Other Benefit Obligation;
(g)	all reports submitted within the two years preceding the date of this Agreement by third party administrators, actuaries, investment managers, consultants, or other independent contractors with respect to any Company Plan or Company Other Benefit Obligation;
(h)	all notifications to employees of their rights under ERISA § 601 et seq. and IRC § 4980B;
(i)	the Form 5500 filed in each of the most recent three plan years with respect to each Company Plan, including all schedules thereto and the opinions of independent accountants;
(j)	all notices that were given by Company or any ERISA Affiliate or any Company Plan to the IRS, the PBGC, or any participant or beneficiary, pursuant to statute, within the two years preceding the date of this Agreement, including notices that are expressly mentioned elsewhere in this Section 3.13;
(k)	all notices that were given by the IRS, the PBGC, or the Department of Labor to Company, any ERISA Affiliate or any Company Plan within the two years preceding the date of this Agreement;
(l)	with respect to Qualified Plans and VEBAs, the most recent determination letter for each Plan of the Company that is a Qualified Plan; and

3.13.4 Compliance With Plans. To Seller’s Knowledge and except as set forth in Part 3.13.4 of the Disclosure Letter:

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(a)	The Company has performed all of its obligations under all Company Plans and Company Other Benefit Obligations. The Company has made appropriate entries in its financial records and statements for all obligations and liabilities under such Plans and Company Other Benefit Obligations that have accrued but are not due.
(b)	No statement, either written or oral, has been made by Company to any Person with regard to any Plan or Company Other Benefit Obligation that was not in accordance with the Plan or Company Other Benefit Obligation and that could have an adverse economic consequence to Company or to Buyer.
(c)	The Company, with respect to all Company Plans and Company Other Benefits Obligations, is, and each Company Plan and Company Other Benefit Obligation is, in full compliance with ERISA, the IRC, and other applicable Laws including the provisions of such Laws expressly mentioned in this Section 3.13.

(i)	No transaction prohibited by ERISA § 406 and no “prohibited transaction” under IRC § 4975(c) have occurred with respect to any Company Plan.
(ii)	Neither Seller nor Company has any liability to the IRS with respect to any Plan, including any liability imposed by Chapter 43 of the IRC.
(iii)	Neither Seller nor Company has any liability to the PBGC with respect to any Plan or has any liability under ERISA § 502 or § 4071.
(iv)	All filings required by ERISA and the IRC as to each Plan have been timely filed, and all notices and disclosures to participants required by either ERISA or the IRC have been timely provided.
(v)	All contributions and payments made or accrued with respect to all Company Plans and Company Other Benefit Obligations are deductible under IRC § 162 or § 404.
(vi)	No amount, or any asset of any Company Plan, is subject to tax as unrelated business taxable income.

(d) Each Company Plan can be terminated within thirty days, without payment of any additional contribution or amount and without the vesting or acceleration of any benefits promised by such Plan, except full vesting will be required of all qualified retirement plan benefits in accordance with ERISA and the IRC.

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(e)	No event has occurred or circumstance exists that could result in a material increase in premium costs of Company Plans and Company Other Benefit Obligations that are insured, or a material increase in benefit costs of such Plans and Obligations that are self-insured.
(f)	Other than claims for benefits submitted by participants or beneficiaries, no claim against, or legal proceeding involving, any Company Plan or Company Other Benefit Obligation is pending or, to Seller’s Knowledge, is Threatened.
(g)	No Company Plan is a stock bonus plan within the meaning of IRC § 401(a).
(h)	Each Qualified Plan of Company is qualified in form and operation under IRC § 401(a); each trust for each such Qualified Plan is exempt from federal income tax under IRC § 501(a). No event has occurred or circumstance exists that will or could give rise to disqualification or loss of tax-exempt status of any such Plan or trust.
(i)	No Company Plan is subject to Title IV of ERISA.
(j)	Company has not ceased operations at any facility.
(k)	Company has not filed a notice of intent to terminate any Plan nor has Company adopted any amendment to treat a Plan as terminated.
(l)	Company has never established, maintained, or contributed to or otherwise participated in, or had an obligation to maintain, contribute to, or otherwise participate in, any Multi-Employer Plan.
(m)	Except to the extent required under ERISA § 601 et seq. and IRC § 4980B, Company provides no health or welfare benefits for any retired or former employee or is obligated to provide health or welfare benefits to any active employee following such employee’s retirement or other termination of service.
(n)	Company has the right to modify and terminate benefits to retirees (other than pensions) with respect to both retired and active employees.
(o)	Seller and Company have complied with the provisions of ERISA § 601 et seq. and IRC § 4980B.

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(p)	No payment that is owed or may become due to any director, officer, employee, or agent of Company will be non-deductible to the Company or subject to tax under IRC § 280G or § 4999; nor will Company be required to “gross up” or otherwise compensate any such person because of the imposition of any excise tax on a payment to such person.
(q)	The consummation of the Contemplated Transactions will not result in the payment, vesting, or acceleration of any benefit.
(r)	Neither Company nor any ERISA Affiliate has ever established, maintained, contributed to or otherwise participated in, or had an obligation to maintain, contribute to or otherwise participate in any defined benefit Plan.

     3.14 Compliance with Legal Requirements; Governmental Authorizations.

3.14.1 Compliance. Except as set forth in Part 3.14.1 of the Disclosure Letter:

(a)	Company is, and at all times since December 31, 2002 has been, in full compliance with each Legal Requirement that is or was applicable to it or to the conduct or operation of its business or the ownership or use of any of its assets;
(b)	to Seller’s Knowledge, no event has occurred or circumstance exists that (with or without notice or lapse of time) (i) may constitute or result in a violation by Company of, or a failure on the part of Company to comply with, any Legal Requirement, or (ii) may give rise to any obligation on the part of Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature; and
(c)	Company has not received, at any time since December 31, 2002, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding (i) any actual, alleged, possible, or potential violation of, or failure to comply with, any Legal Requirement, or (ii) any actual, alleged, possible, or potential obligation on the part of Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature.

3.14.2 List of Authorizations. Part 3.14.2 of the Disclosure Letter contains a complete and accurate list of each Governmental Authorization that is held by Company or that otherwise relates to the business of, or to any of the assets owned or used by, Company. Each Governmental Authorization listed or required to be listed in Part 3.14.2 of the Disclosure Letter is valid and in full force and effect. Except as set forth in Part 3.14.2 of the Disclosure Letter:

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(a)	Company is, and at all times since December 31, 2002 has been, in full compliance with all of the terms and requirements of each Governmental Authorization identified or required to be identified in Part 3.14.2 of the Disclosure Letter;
(b)	no event has occurred or circumstance exists that may (with or without notice or lapse of time) (i) constitute or result directly or indirectly in a violation of or a failure to comply with any term or requirement of any Governmental Authorization listed or required to be listed in Part 3.14.2 of the Disclosure Letter, or (ii) result directly or indirectly in the revocation, withdrawal, suspension, cancellation, or termination of, or any modification to, any Governmental Authorization listed or required to be listed in Part 3.14.2 of the Disclosure Letter;
(c)	Company has not received, at any time since December 31, 2002, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding (i) any actual, alleged, possible, or potential violation of or failure to comply with any term or requirement of any Governmental Authorization, or (ii) any actual, proposed, possible, or potential revocation, withdrawal, suspension, cancellation, termination of, or modification to any Governmental Authorization; and
(d)	all applications required to have been filed for the renewal of the Governmental Authorizations listed or required to be listed in Part 3.14.2 of the Disclosure Letter have been duly filed on a timely basis with the appropriate Governmental Bodies, and all other filings required to have been made with respect to such Governmental Authorizations have been duly made on a timely basis with the appropriate Governmental Bodies.

3.14.3 All Authorizations Necessary. The Governmental Authorizations listed in Part 3.14.2 of the Disclosure Letter collectively constitute all of the Governmental Authorizations necessary to permit the Company to lawfully conduct and operate its business in the manner it currently conducts and operates such business and to permit the Company to own and use its assets in the manner in which it currently owns and uses such assets.

     3.15 Legal Proceedings; Orders.

3.15.1 Proceedings. There is no pending Proceeding that has been commenced by or against Company or that otherwise relates to or may affect the business of, or any of the assets owned or used by, Company. To the Knowledge of Seller, (i) no such Proceeding has been Threatened, and

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(ii) no event has occurred or circumstance exists that may give rise to or serve as a basis for the commencement of any such Proceeding.

3.15.2 Orders. Except as set forth in Part 3.15.2 of the Disclosure Letter:

(a)	there is no Order to which the Company, or any of the assets owned or used by Company, is subject;
(b)	Seller is not subject to any Order that relates to the business of, or any of the assets owned or used by, Company; and
(c)	to Seller’s Knowledge, no officer, director, agent, or employee of Company is subject to any Order that prohibits such officer, director, agent, or employee from engaging in or continuing any conduct, activity, or practice relating to the business of Company.

3.15.3 Compliance. Except as set forth in Part 3.15.3 of the Disclosure Letter:

(a)	Company is, and at all times since December 31, 2002 has been, in full compliance with all of the terms and requirements of each Order to which it, or any of the assets owned or used by it, is or has been subject;
(b)	to Seller’s Knowledge, no event has occurred or circumstance exists that may constitute or result in (with or without notice or lapse of time) a violation of or failure to comply with any term or requirement of any Order to which Company, or any of the assets owned or used by Company, is subject; and
(c)	Company has not received, at any time since December 31, 2002, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding any actual, alleged, possible, or potential violation of, or failure to comply with, any term or requirement of any Order to which Company, or any of the assets owned or used by Company, is or has been subject.

     3.16 Absence of Certain Changes and Events. Except as set forth in Part 3.16 of the Disclosure Letter, since the date of the Balance Sheet, the Company has conducted its business only in the Ordinary Course of Business and there has not been any:

3.16.1 Capital. Change in Company’s authorized or issued capital stock; grant of any stock option or right to purchase shares of capital stock of Company; issuance of any security convertible into such capital stock; grant of any registration rights; purchase, redemption, retirement, or other acquisition by Company of any shares of any such capital stock; or declaration or payment of any dividend or other distribution or payment in respect of shares of capital stock;

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3.16.2	Organizational Documents. Amendment to the Organizational Documents of Company;
3.16.3	Compensation. Payment or increase by Company of any bonuses, salaries, or other compensation to any stockholder, director, officer, or (except in the Ordinary Course of Business) employee or entry into any employment, severance, or similar Contract with any director, officer, or employee, other than pursuant to the Transition Bonus Arrangement;
3.16.4	Benefits. Adoption of, or increase in the payments to or benefits under, any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for or with any employees of Company;
3.16.5	Damage. Damage to or destruction or loss of any asset or property of Company, whether or not covered by insurance, materially and adversely affecting the properties, assets, business, financial condition, or prospects of the Company, taken as a whole;
3.16.6	Contracts. Entry into, termination of, or receipt of notice of termination of (i) any license, distributorship, dealer, sales representative, joint venture, credit, or similar agreement, or (ii) any Contract or transaction involving a total remaining commitment by or to Company of at least $50,000;
3.16.7	Disposition of Assets. Sale (other than sales of inventory in the Ordinary Course of Business), lease, or other disposition of any asset or property of Company or mortgage, pledge, or imposition of any lien or other encumbrance on any material asset or property of Company, including the sale, lease, or other disposition of any of the Intellectual Property Rights;
3.16.8	Cancellation of Rights. Cancellation or waiver of any claims or rights with a value to Company in excess of $50,000;
3.16.9	Accounting methods. Material change in the accounting methods used by Company; or
3.16.10	Agreements. Agreement, whether oral or written, by Company to do any of the foregoing.
3.16.11	Dividends. Payment of any dividends or distributions to any shareholder of the Company, other than as necessary for the payment of Taxes.

     3.17 Contracts; No Defaults.

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3.17.1 List of Contracts. Part 3.17.1 of the Disclosure Letter contains a complete and accurate list, and Seller has made available to Buyer true and complete copies, of:

(a)	each Applicable Contract that involves performance of services or delivery of goods or materials by Company of an amount or value in excess of $50,000;
(b)	each Applicable Contract that involves performance of services or delivery of goods or materials to Company of an amount or value in excess of $50,000;
(c)	each Applicable Contract that was not entered into in the Ordinary Course of Business and that involves expenditures or receipts of Company in excess of $50,000;
(d)	each lease, rental or occupancy agreement, license, installment and conditional sale agreement, and other Applicable Contract affecting the ownership of, leasing of, title to, use of, or any leasehold or other interest in, any real or personal property (except personal property leases and installment and conditional sales agreements having a value per item or aggregate payments of less than $50,000 and with terms of less than one year);
(e)	each licensing agreement or other Applicable Contract with respect to patents, trademarks, copyrights, or other intellectual property, including agreements with current or former employees, consultants, or contractors regarding the appropriation or the non-disclosure of any of the Intellectual Property Rights;
(f)	each collective bargaining agreement and other Applicable Contract to or with any labor union or other employee representative of a group of employees;
(g)	each joint venture, partnership, and other Applicable Contract (however named) involving a sharing of profits, losses, costs, or liabilities by Company with any other Person;
(h)	each Applicable Contract containing covenants that in any way purport to restrict the business activity of Company or any affiliate of Company or limit the freedom of Company or any affiliate of Company to engage in any line of business or to compete with any Person;
(i)	each Applicable Contract providing for payments to or by any Person based on sales, purchases, or profits, other than direct payments for goods;

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(j)	each power of attorney that is currently effective and outstanding;
(k)	each Applicable Contract entered into that contains or provides for an express undertaking by Company to be responsible for consequential damages;
(l)	each Applicable Contract for capital expenditures in excess of $50,000;
(m)	each written warranty, guaranty, and or other similar undertaking with respect to contractual performance extended by Company other than in the Ordinary Course of Business; and
(n)	each amendment, supplement, and modification (whether oral or written) in respect of any of the foregoing.

3.17.2 No Rights of Seller or Restrictions. Except as set forth in Part 3.17.2 of the Disclosure Letter:

(a)

Seller (and Related Persons of Seller) have not or may not acquire any rights under, and Seller has not or may not become subject to any obligation or liability under, any Contract that relates to the business of, or any of the assets owned or used by, Company; and

(b)

to the Knowledge of Seller, no officer, director, agent, employee, consultant, or contractor of Company is bound by any Contract that purports to limit the ability of such officer, director, agent, employee, consultant, or contractor to (i) engage in or continue any conduct, activity, or practice relating to the business of Company, or (ii) assign to Company or to any other Person any rights to any invention, improvement, or discovery.

3.17.3

Enforceable. Except as set forth in Part 3.17.3 of the Disclosure Letter, each Contract identified or required to be identified in Part 3.17.1 of the Disclosure Letter is in full force and effect and is valid and enforceable in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally or the availability of equitable remedies.

3.17.4

Compliance With Contracts. Except for contractual requirements to carry errors and omissions insurance and as otherwise set forth in Part 3.17.4 of the Disclosure Letter:

(a) Company is, and at all times since December 31, 2002 has been, in full compliance with all applicable terms and requirements of each Contract under which Company has or had any obligation or liability or by which Company or any of the assets owned or used by Company is or was bound;

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(b)	to the Knowledge of Seller, each other Person that has or had any obligation or liability under any Contract under which Company has or had any rights is, and at all times since December 31, 2002 has been, in full compliance with all applicable terms and requirements of such Contract;
(c)	no event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with, or result in a violation or breach by Company of, or give another Person, or, to the Knowledge of Seller, the Company, the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Applicable Contract; and
(d)	Company has not given to or received from any other Person, at any time since December 31, 2002, any notice or other communication (whether oral or written) regarding any actual, alleged, possible, or potential violation or breach of, or default under, any Contract.

3.17.5

Renegotiation. There are no renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate any material amounts paid or payable to Company under current or completed Contracts with any Person and no such Person has made written demand for such renegotiation.

3.17.6

Ordinary Course Contracts. The Contracts relating to the provision of services by the Company have been entered into in the Ordinary Course of Business and have been entered into without the commission of any act alone or in concert with any other Person, or any consideration having been paid or promised, that is or would be in violation of any Legal Requirement. Except as set forth in Part 3.17.6 of the Disclosure Letter, the Company has not entered into any Contract to sell, design or manufacture products by the Company.

     3.18 Insurance.

3.18.1 Delivery of Copies. Seller has made available to Buyer:

(a)	true and complete copies of all policies of insurance to which Company is a party or under which Company, or any director of Company, is or has been covered at any time within the three years preceding the date of this Agreement; and
(b)	true and complete copies of all pending applications for policies of insurance.

3.18.2 Description of Certain Arrangements. Part 3.18.2 of the Disclosure Letter describes:

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(a)	any self-insurance arrangement by or affecting Company, including any reserves established thereunder;
(b)	any contract or arrangement, other than a policy of insurance, for the transfer or sharing of any risk by Company; and
(c)	all obligations of the Company to third parties with respect to insurance (including such obligations under leases and service agreements) and identifies the policy under which such coverage is provided.

3.18.3 Claims Experience. Part 3.18.3 of the Disclosure Letter sets forth, by year, for the current policy year and each of the three preceding policy years:

(a)	a summary of the loss experience under each policy;
(b)	a statement describing each claim under an insurance policy for an amount in excess of $25,000, which sets forth:

(i)	the name of the claimant;
(ii)	a description of the policy by insurer, type of insurance, and period of coverage; and
(iii)	the amount and a brief description of the claim; and

(c) a statement describing the loss experience for all claims that were self-insured, including the number and aggregate cost of such claims.

3.18.4 Status of Policies. Except as set forth on Part 3.18.4 of the Disclosure Letter:

(a) All policies to which Company is a party or that provide coverage to either Seller, Company, or any director or officer of Company:

(i)	are valid, outstanding, and enforceable;
(ii)	are sufficient for compliance with all Legal Requirements and Contracts to which Company is a party or by which Company is bound; and
(iii)	do not provide for any retrospective premium adjustment or other experienced-based liability on the part of Company.

(b) Neither Seller nor Company has received (i) any refusal of coverage or any notice that a defense will be afforded with

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reservation of rights, or (ii) any notice of cancellation or any other indication that any insurance policy is no longer in full force or effect or will not be renewed or that the issuer of any policy is not willing or able to perform its obligations thereunder.

(c)	The Company has paid all current premiums due, and has otherwise performed all of its current obligations, under each policy to which Company is a party or that provides coverage to Company or any director thereof.
(d)	The Company has given notice to the insurer of all claims that may be insured thereby.

     3.19 Environmental Matters. Except as set forth in Part 3.19 of the Disclosure Letter:

3.19.1

Compliance With Environmental Laws. To Seller’s Knowledge, Company is, and at all times has been, in full compliance with, and has not been and is not in violation of or liable under, any Environmental Law.

3.19.2

Environmental Reports. Seller has made available to Buyer true and complete copies and results of any reports, studies, analyses, tests, or monitoring possessed or initiated by Seller or Company pertaining to Hazardous Materials or Hazardous Activities in, on, or under the Facilities, or concerning compliance by Seller, Company, or any other Person for whose conduct they are or may be held responsible, with Environmental Laws.

     3.20 Employees. Part 3.20 of the Disclosure Letter contains a complete and accurate list of the following information for each independent contractor, employee or director of the Company, including each employee or independent contractor on leave of absence or layoff status: employer; name; job title; status (employee, independent contractor, director); current compensation paid or payable and any change in compensation since December 31, 2005; vacation accrued; and service credited for purposes of vesting and eligibility to participate under any Company Plan or Company Other Benefit Obligations.

3.20.1 Proprietary Rights Agreements. Except as set forth in Part 3.20.1 of the Disclosure Letter, to Seller’s Knowledge, no independent contractor, employee or director of Company is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, noncompetition, or proprietary rights agreement, between such independent contractor, employee or director and any other Person (“Proprietary Rights Agreement”) that in any way adversely affects or will affect (i) the performance of his duties as an independent contractor, employee or director of the Company, or (ii) the ability of Company to conduct its business, including any Proprietary Rights Agreement with Seller or Company by any such independent contractor, employee or

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director. To Seller’s Knowledge, no director, officer, independent contractor, or other key employee of Company intends to terminate his employment or relationship with Company.

3.20.2 Retired Employees. Part 3.20 of the Disclosure Letter also contains a complete and accurate list of the following information for each retired independent contractor, employee or director of the Company, or their dependents, receiving benefits or scheduled to receive benefits in the future: name, pension benefit, pension option election, retiree medical insurance coverage, retiree life insurance coverage, and other benefits.

     3.21 Labor Relations; Compliance. Since December 31, 2002, Company has not been and is not a party to any collective bargaining or other labor Contract. Since December 31, 2005, there has not been, there is not presently pending or existing, and to Seller’s Knowledge there is not Threatened, (i) any strike, slowdown, picketing, work stoppage, or employee grievance process, (ii) any Proceeding against or affecting Company relating to the alleged violation of any Legal Requirement pertaining to labor relations or employment matters, including any charge or complaint filed by an employee or union with the National Labor Relations Board, the Equal Employment Opportunity Commission, or any comparable Governmental Body, (iii) organizational activity, or other labor or employment dispute against or affecting the Company or its premises, or (iv) any application for certification of a collective bargaining agent. To Seller’s Knowledge, no event has occurred or circumstance exists that could provide the basis for any work stoppage or other labor dispute. There is no lockout of any employees by Company, and no such action is contemplated by Company. Company has complied in all material respects with all Legal Requirements relating to employment, equal employment opportunity, nondiscrimination, non-harassment, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, occupational safety and health, and plant closing. Company is not liable for the payment of any compensation, damages, taxes, fines, penalties, or other amounts, however designated, for failure to comply with any of the foregoing Legal Requirements.

     3.22 Intellectual Property.

3.22.1	Marks. All Marks that are owned or used by the Company or used or exercised in the conduct of the Business are set forth on Part 3.22.1 of the Disclosure Letter.
3.22.2	Owned Patents. The Company does not own any right, title or interest in any Patents. To the Knowledge of Seller, except as may be set forth on Part 3.22.2 of the Disclosure Letter:

(a) there is no Patent or Patent application issued to or filed by any other Person, which Patent or Patent application is potentially interfering with the Company’s business; and

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(b) none of the process or know-how or other technology used or practiced by the Company in the business infringes or is alleged to infringe any Patent or any other Intellectual Property Right of any other Person.

3.22.3 Owned Copyrights. Except as may be set forth on Part 3.22.3 of the Disclosure Letter:

(a)	the Company is the owner of all right, title and interest in and to each of the copyrights used by the Company in its business other than the Licensed Copyrights (collectively, the “Owned Copyrights”, which are listed in Part 3.22.3(a) of the Disclosure Letter, free and clear of any and all liens, encumbrances, covenants, conditions and restrictions or other adverse claims or interests of any kind or nature (subject to written licenses granted in the ordinary course of business), and the Company has not received any written notice or claim (nor does Seller have any Knowledge of any oral notices or claim) challenging the Company’s complete and exclusive ownership of all Owned Copyrights or claiming that any other Person has any claim of legal or beneficial ownership with respect thereto;
(b)	Part 3.22.3 of the Disclosure Letter contains a complete and accurate list of all agreements or arrangements pertaining to copyrights used in the Company’s business which are not exclusively owned by the Company (the “Licensed Copyrights”).
(c)	the Company has not received any written notice or claim (nor does Seller have any Knowledge of any oral notice or claim) challenging or questioning the validity or enforceability of any of the Owned Copyrights or indicating an intention on the part of any Person to bring a claim that any Owned Copyright is invalid, is unenforceable or has been misused and, to the Seller’s Knowledge, no Owned Copyright otherwise has been challenged or threatened in any way;
(d)	the Company has taken all reasonable steps to protect the Company’s rights in and to the Owned Copyrights, in accordance with standard industry practice;
(e)	the Company has not granted to any Person any right, license or permission to exercise any rights under any of the Owned Copyrights;
(f)	to Seller’s Knowledge no other Person has infringed or is infringing in any material respect in regards to any of the Owned Copyrights; and

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(g) to Seller’s Knowledge none of the subject matter of any Owned Copyrights nor any other work of authorship fixed in a tangible medium that is copied, modified, displayed or distributed in connection with the conduct by the Company of its business infringes, violates or conflicts with, or is alleged to infringe, violate or conflict with, any copyright or any other Intellectual Property Right or other industrial property right of any other Person.

3.22.4 Trade Secrets. The Company has taken the precautions described in Part 3.22.4 of the Disclosure Letter to protect the secrecy, confidentiality and value of all of its material Trade Secrets (“Company Trade Secrets”). Except as may be set forth in Part 3.22.4 of the Disclosure Letter:

(a)	the Company has the unrestricted right to use all of the Company Trade Secrets and none of the Company Trade Secrets is subject to any liens, encumbrances, covenants, conditions and restrictions or other adverse claims or interests of any kind or nature (subject to written licenses granted in the ordinary course of business), and the Company has not received any written notice or claim (nor does Seller have any Knowledge of any oral notice or claim) challenging the Company’s absolute and unrestricted right to use all of the Company Trade Secrets or claiming that any other Person has any claim of any kind with respect thereto;
(b)	to the Seller’s Knowledge, none of the Company Trade Secrets has been misappropriated from another Person, or is alleged to have been, misappropriated from, any other Person and none of the Company Trade Secrets infringes, violates or conflicts with, or is alleged to infringe, violate or conflict with, any patent, trade secret or any other Intellectual Property Right or other industrial property rights of any third party;
(c)	except under appropriate confidentiality obligations that, to the Knowledge of the Seller, have been fully observed and performed, there has been no disclosure by the Company of Company Trade Secrets.

3.22.5 Software. Part 3.22.5 of the Disclosure Letter sets forth a complete and accurate list of all of the Software (excluding licensed software that is contained in standard desktop applications available through consumer retail stores). The Company does not own any Software and all Software listed in Part 3.22.5 of the Disclosure Letter is not exclusively owned by the Company (the “Licensed Software”) (excluding licensed software that is contained in standard desktop applications available through consumer retail stores). Except as may be set forth in Part 3.22.5 of the Disclosure Letter:

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(a)

the Company has lawfully acquired the right to use the Licensed Software, as it is used in the conduct of its business as presently conducted, and has not exercised any rights in respect of any Licensed Software, including without limitation, any reproduction, distribution or derivative work rights, outside the scope of any license expressly granted by the Person from which the right to use such Licensed Software was obtained; and

(b)

except as provided in the Licensed Software, no royalties, fees, honoraria or other payments are payable by the Company to any Person by reason of the ownership, use, sale, licensing, distribution or other exploitation of any Software or any Intellectual Property Right.

3.22.6

Performance of Existing Software Products. Except as may be set forth in Part 3.22.6 of the Disclosure Letter, all Software products that have been used by the Company in connection with the performance of data processing or other services for any of its customers perform in all material respects free of significant bugs or programming errors.

3.22.7

Agreements in Respect of Licensed Technology. Part 3.22.7 of the Disclosure Letter contains a complete and accurate specific list of all agreements and arrangements pertaining to the Licensed Software (excluding licensed software that is contained in standard desktop applications and available through commercial distributors or in consumer retail stores) (collectively, “Licensed Software Agreements”) and, except as set forth in Part 3.22.7 of the Disclosure Letter, the Company has no other agreements and arrangements pertaining to any other technology used or practiced by the Company as to which a Person other than the Company owns the applicable Intellectual Property Rights. Part 3.22.7 of the Disclosure Letter sets forth a complete and accurate list of all royalty obligations of the Company under any Licensed Software Agreements. Except as may be set forth in Part 3.22.7 of the Disclosure Letter:

(a)	all Licensed Software Agreements are in full force and effect, and the Company is not in material breach thereof, nor does Seller have Knowledge of any claim or information to the contrary;
(b)	all Licensed Software Agreements will be maintained by the Company in full force and effect through the Closing;
(c)	to Seller’s Knowledge there are no outstanding and no Threatened disputes or disagreements involving the Company with respect to any Licensed Software Agreement;

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(d)	the rights licensed under each Licensed Software Agreement shall be exercisable by the Company on and after the Closing to the same extent as prior to the Closing;
(e)	the Licensed Software Agreements together expressly confer on the Company valid and enforceable rights under or in respect of all of the Intellectual Property Rights that are not owned exclusively by Company and that are used or practiced in the Company’s business (collectively, the “Licensed Intellectual Property”); and
(f)	neither the execution and delivery of this Agreement, nor the consummation of the Contemplated Transactions, will conflict with or result in a breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the impairment of any rights under, any Licensed Software Agreement.

3.22.8

Sufficiency of Owned and Licensed Intellectual Property. Except as set forth in Part 3.22.8 of the Disclosure Letter, the Marks, Owned Copyrights, Trade Secrets, and Licensed Intellectual Property, including without limitation the foregoing to the extent they apply to any Licensed Software, constitute all of the Intellectual Property Rights in the Company’s possession or control necessary for the conduct of the business as presently conducted and constitute all of the Intellectual Property Rights necessary to operate such business after the Closing in substantially the same manner as the business heretofore has been operated by the Company.

3.22.9

Rights of Third Parties. Except as may be set forth in Part 3.22.9 of the Disclosure Letter, the Company is not, nor has been during the three-year period prior to the date hereof, a party to any action or proceeding, and there is not pending or, to the Seller’s Knowledge during the one-year period prior to date hereof Threatened, any action or proceeding that involves or involved a claim of infringement, misappropriation or other wrongful use or exploitation, either (i) by the Company against any other Person or (ii) by any Person against the Company, of any Intellectual Property Right used or exploited by the Company in the conduct of its business, nor, to the Knowledge of the Seller, is there any reasonable basis therefor. To the Seller’s Knowledge, except as may be set forth in Part 3.22.9 of the Disclosure Letter, no Intellectual Property Right is subject to any outstanding order, judgment, decree, stipulation or agreement restricting the use thereof by the Company (subject to written licenses granted in the ordinary course of business). Except as may be set forth in Part 3.22.9 of the Disclosure Letter, the Company has the exclusive right to bring actions against any Person that is infringing the Company’s Intellectual Property Rights other than Licensed Intellectual Property.

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3.22.10

Employee Rights. To Seller’s Knowledge, at no time during the conception of or reduction of any of the Company’s Intellectual Property Rights to practice was any developer, inventor or other contributor to such Intellectual Property Rights operating under any grants from any governmental entity or agency or private source, performing research sponsored by any governmental entity or agency or private source or subject to any employment agreement or invention assignment or nondisclosure agreement or other obligation with any third party that could adversely affect the Company’s rights in such Intellectual Property Rights.

3.22.11

Sufficiency of Software. To the Seller’s Knowledge, the Software used by the Company is free of any disabling codes or instructions (a “Disabling Code”), and any virus or other intentionally created, undocumented contaminant (a “Contaminant”), that may, or may be used to, access, modify, delete, damage or disable the Systems or that may result in damage thereto.

     3.23 Certain Payments. Neither Company nor, in each case to Seller’s Knowledge, any director, officer, agent, or employee of Company, or any other Person associated with or acting for or on behalf of Company, has directly or indirectly (i) made any contribution, material gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of form, whether in money, property, or services (A) to obtain favorable treatment in securing business, (B) to pay for favorable treatment for business secured, (C) to obtain special concessions or for special concessions already obtained, for or in respect of Company or any affiliate of Company, or (D) in violation of any Legal Requirement, (ii) established or maintained any fund or asset that has not been recorded in the books and records of the Company.

     3.24 Disclosure.

3.24.1

Complete and Accurate. To Seller’s Knowledge, (a) no representation or warranty of Seller in this Agreement and no statement in the Disclosure Letter omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances in which they were made, not misleading, and (b) no notice given pursuant to Section 5.5 will contain any untrue statement or omit to state a material fact necessary to make the statements therein or in this Agreement, in light of the circumstances in which they were made, not misleading.

3.24.2

Other Facts. There is no fact known to Seller that has specific application to Seller or Company (other than general economic or industry conditions) and that materially adversely affects or, as far as Seller can reasonably foresee, materially threatens, the assets, business, prospects,

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financial condition, or results of operations of the Company that has not been set forth in this Agreement or the Disclosure Letter.

     3.25 Relationships with Related Persons. Except as set forth in Part 3.25 of the Disclosure Letter:

3.25.1	Neither Seller nor any Related Person of Seller or of Company has, or since December 31, 2004 has had, any interest in any property (whether real, personal, or mixed and whether tangible or intangible), used in or pertaining to the Company’s businesses.
3.25.2	Neither Seller nor any Related Person of Seller or of Company has owned (of record or as a beneficial owner) an equity interest or any other financial or profit interest in, a Person that has (i) had business dealings or a material financial interest in any transaction with Company other than business dealings or transactions conducted in the Ordinary Course of Business with the Company at substantially prevailing market prices and on substantially prevailing market terms and which is disclosed in Part 3.25 of the Disclosure Letter, or (ii) engaged in competition with Company with respect to any line of the products or services of Company (a “Competing Business”) in any market presently served by Company, except for less than one percent of the outstanding capital stock of any Competing Business that is publicly traded on any recognized exchange or in the over-the-counter market.
3.25.3	Neither Seller nor any Related Person of Seller or of Company is a party to any Contract with, or has any claim or right against, Company.

     3.26 Brokers or Finders. Except as set forth in Part 3.26 of the Disclosure Letter, Seller and Seller’s agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this Agreement.

     3.27 No Other Representations or Warranties. Except as otherwise specifically set forth in this Agreement, Seller makes no express or implied representation or warranty regarding Company, the assets of Company or the condition or operation thereof.

4. REPRESENTATIONS AND WARRANTIES OF BUYER.

Buyer represents and warrants to Seller as follows:

     4.1 Organization and Good Standing. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware.

     4.2 Authority; No Conflict.

4.2.1 Authority. This Agreement constitutes the legal, valid, and binding obligation of Buyer, enforceable against Buyer in accordance with its

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terms. Upon the execution and delivery by Buyer of the Seller Employment Agreement, (collectively, the “Buyer’s Closing Documents”), the Buyer’s Closing Documents will constitute the legal, valid, and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms. Buyer has the absolute and unrestricted right, power, and authority to execute and deliver this Agreement and the Buyer’s Closing Documents and to perform its obligations under this Agreement and the Buyer’s Closing Documents.

4.2.2

Conflict. Neither the execution and delivery of this Agreement by Buyer nor the consummation or performance of any of the Contemplated Transactions will directly or indirectly (with or without notice or lapse of time):

(a)	contravene, conflict with, or result in a violation of (i) any provision of the Organizational Documents of Buyer, or (ii) any resolution adopted by the Board of Directors or the stockholders;
(b)	contravene, conflict with, or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which Buyer, or any of the assets owned or used by Buyer may be subject;
(c)	contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization that is held by Buyer or that otherwise relates to the business of, or any of the assets owned or used by, Buyer; or
(d)	contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Contract.

Buyer is not and will not be required to obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions.

     4.3 Investment Intent. Buyer is acquiring the Shares for its own account and not with a view to their distribution within the meaning of Section 2(11) of the Securities Act.

     4.4 Certain Proceedings. There is no pending Proceeding that has been commenced against Buyer and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions. To Buyer’s Knowledge, no such Proceeding has been Threatened.

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     4.5 Brokers or Finders. Buyer and its officers and agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this Agreement and will indemnify and hold Seller harmless from any such payment alleged to be due by or through Buyer as a result of the action of Buyer or its officers or agents.

5. COVENANTS PRIOR TO CLOSING DATE.

     5.1 Access and Investigation. Between the date of this Agreement and the Closing Date, Seller will, and will cause the Company and its Representatives to, (i) afford Buyer and its Representatives and prospective lenders and their Representatives (collectively, “Buyer’s Advisors”) full and free access to the Company’s personnel, properties (including subsurface testing), contracts, books and records, and other documents and data, (ii) furnish Buyer and Buyer’s Advisors with copies of all such contracts, books and records, and other existing documents and data as Buyer may reasonably request, and (iii) furnish Buyer and Buyer’s Advisors with such additional financial, operating, and other data and information as Buyer may reasonably request.

     5.2 Operation of the Businesses of the Acquired Companies. Between the date hereof and the Closing Date, Seller will, and will cause the Company to:

5.2.1	conduct the business of Company only in the Ordinary Course of Business;
5.2.2	use their commercially reasonable efforts to preserve intact the current business organization of Company, keep available the services of the current officers, employees, and agents of Company, and maintain the relations and good will with suppliers, customers, landlords, creditors, employees, agents, and others having business relationships with Company;
5.2.3	confer with Buyer concerning operational matters of a material nature; and
5.2.4	otherwise report periodically to Buyer concerning the status of the business, operations, and finances of Company.

     5.3 Negative Covenant. Except as otherwise expressly permitted by this Agreement, between the date hereof and the Closing Date, Seller will not, and will cause the Company not to, without the prior consent of Buyer, take any affirmative action, or fail to take any reasonable action within their or its control, as a result of which any of the changes or events listed in Section 3.16 will occur.

     5.4 Required Approvals. Prior to Closing, Seller will, and will cause the Company to, make all filings required by Legal Requirements to be made by them in order to consummate the Contemplated Transactions. Prior to Closing, Seller will, and will cause the Company to cooperate with Buyer with respect to all filings that Buyer elects to make or is required by Legal Requirements to make in connection with the Contemplated Transactions.

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     5.5 Notification. Between the date of this Agreement and the Closing Date, Seller will promptly notify Buyer in writing if Seller or Company becomes aware of any fact or condition that causes or constitutes a Breach of any of Seller’s representations and warranties as of the date of this Agreement, or if Seller or Company becomes aware of the occurrence after the date of this Agreement of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a Breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. Should any such fact or condition require any change in the Disclosure Letter, Seller will promptly deliver to Buyer a supplement to the Disclosure Letter specifying such change. During the same period, Seller will promptly notify Buyer of the occurrence of any Breach of any covenant of Seller in this Section 5 or of the occurrence of any event that may make the satisfaction of the conditions in Section 7 impossible or unlikely.

     5.6 Payment of Indebtedness by Related Persons. Except as expressly provided in this Agreement, Seller will cause all indebtedness owed to Company by Seller or any Related Person of Seller to be paid in full prior to Closing.

     5.7 No Negotiation. Until such time, if any, as this Agreement is terminated pursuant to Section 9, Seller will not, and will cause Company and each of their Representatives not to, directly or indirectly solicit, initiate, or encourage any inquiries or proposals from, discuss or negotiate with, provide any non-public information to, or consider the merits of any unsolicited inquiries or proposals from, any Person (other than Buyer) relating to any transaction involving the sale of the business or assets (other than in the Ordinary Course of Business) of Company, or any of the capital stock of Company, or any merger, consolidation, business combination, or similar transaction involving Company.

     5.8 Commercially Reasonable Efforts. Between the date hereof and the Closing Date, Seller will use its commercially reasonable efforts to cause the conditions in Sections 7 and 8 to be satisfied.

     5.9 Approvals of Governmental Bodies. As promptly as practicable after the date of this Agreement, Buyer will, and will cause each of its Related Persons to, make all filings required by Legal Requirements to be made by them to consummate the Contemplated Transactions. Prior to the Closing Date, Buyer will, and will cause each Related Person to, (i) cooperate with Seller with respect to all filings that Seller is required by Legal Requirements to make in connection with the Contemplated Transactions, and (ii) cooperate with Seller in obtaining all consents identified in Part 3.2 of the Disclosure Letter; provided that this Agreement will not require Buyer to dispose of or make any change in any portion of its business or to incur any other burden to obtain a Governmental Authorization.

     5.10 Commercially Reasonable Efforts. Prior to Closing, Buyer will use its commercially reasonable efforts to cause the conditions in Sections 7 and 8 to be satisfied.

6. POST CLOSING COVENANTS.

     6.1 Maintenance of Books During Earn-Out Term. During the period beginning on the Closing Date and ending on the last day of the Third Earn Out Year, Buyer shall maintain

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true, complete and correct separate financial books and records of the results of operations, assets and liabilities of the business of the Company in sufficient detail so as to permit the accurate calculation of the Purchase Price.

     6.2 Required Consent During Earn-Out Term. So long as the current business of the Company continues to generate Revenues and EBITDA not materially less than the Base Year Revenue and Base Year EBITDA, and management of Buyer does not in good faith anticipate that a material decline in such metrics is imminent, then Buyer shall not require undue changes in the management or operation of the Company’s business without the consent (which consent shall not be unreasonably withheld or delayed) of Seller so long as she is an employee of the Company and, if she is not, then the current management of the Company, for the Three Earn Out Years.

     6.3 Valid Issuance of Contingent Shares. The Contingent Shares to be issued pursuant to this Agreement will be, when issued, duly authorized, validly issued, fully paid and non-assessable.

     6.4 Restricted Stock(a) Buyer covenants and agrees that the Contingent Shares will be unregistered shares of common stock of the Buyer, that upon receipt by Seller’s Trust, shall be freely and immediately saleable (without restriction or limitation) pursuant to Rule 144 under the Securities Act or otherwise (unless Rule 144 is amended hereafter to make any restriction or limitation applicable to such shares). Except as set forth on Schedule 6.4 no insider trading policy of Buyer is currently applicable to the sale of Contingent Shares by Seller’s Trust, and unless required by a change in the applicable securities laws or the interpretation thereof, Buyer shall not amend such insider trading policy to materially adversely affect the ability of the Seller’s Trust to sell the Contingent Shares for four (4) years following the Closing.

     (b) Without limiting the covenants of Buyer set forth in subsection (a) above, Seller covenants and agrees that (i) the Contingent Shares have not been and are not being registered under the Securities Act or any applicable state securities laws and, consequently, the Contingent Shares may not be transferred unless the resale of the Shares is exempt from such registration under the Securities Act and any applicable state securities laws, (ii) any sale of the Contingent Shares made in reliance on Rule 144 under the Securities Act may be made only in accordance with the terms of Rule 144 and, if Rule 144 is not applicable, any resale of the Contingent Shares may require compliance with some other exemption under the Securities Act or the rules and regulations of the Securities and Exchange Commission thereunder and (iii) neither the Buyer nor any other person is under any obligation to register the resale of the Contingent Shares under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.

     (c) The Seller understands the certificates representing the Contingent Shares will bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Contingent Shares):

     THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SHARES MAY

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NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD, PLEDGED, HYPOTHECATED OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. THE COMPANY SHALL BE ENTITLED TO REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

     (d) Seller further covenants and agrees that:

          (i) The Seller has such knowledge and experience in financial and business matters as is necessary in order to evaluate the merits and risks of an investment in the Contingent Shares.

          (ii) The Seller understands that the Contingent Shares are being offered and sold to the Seller in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws, including Section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder and that the Buyer is relying upon the truth and accuracy of, and the Seller’s compliance with, the representations, warranties, agreements and acknowledgments of the Seller set forth herein in order to determine the availability of such exemptions and the eligibility of the Seller to acquire the Contingent Shares.

          (iii) The Seller has had the opportunity to review all of the Buyer’s reports filed with the Securities and Exchange Commission. The Seller has been afforded the opportunity to ask questions and receive answers concerning the terms and conditions of the offering of the Contingent Shares and to obtain any additional information which the Buyer possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy of the information contained in the reports filed by the Buyer with the Securities and Exchange Commission.

          (iv) Other than the information contained in the Buyer’s reports filed with the Securities and Exchange Commission and Buyer’s representations and warranties in this Agreement, the Seller is not relying on any other information, oral or written, that Seller may have received relating to the Buyer or the Contingent Shares.

     6.5 Tax Cooperation. Buyer and Seller shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax returns relating to the operations of Company, and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Buyer and Seller agree (i) to retain all books and records with respect to Tax matters pertinent to Company relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations

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(and, to the extent notified by Buyer or Seller, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (ii) to give the other party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other party so requests, Buyer or Seller, or the Company, as the case may be, shall allow the other party to take possession of such books and records. Both Seller and Buyer acknowledge that the Company’s S election and status will terminate as of the Closing and the Company will elect a short tax year ending on the Closing Date.

     6.6 Qualified Plan. The Company coincident with the Closing Date will terminate the plan and cause the trust thereunder to be liquidated and the net assets distributed per its terms and within an administratively feasible time after a letter of determination is obtained from the IRS.

7. CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE.

Buyer’s obligation to purchase the Shares and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part):

     7.1 Accuracy of Representations. All of Seller’s representations and warranties in this Agreement that are qualified as to materiality (considered collectively), and each of these representations and warranties (considered individually), must have been accurate in all respects as of the date of this Agreement, and must be accurate in all respects as of the Closing Date as if made on the Closing Date, without giving effect to any supplement to the Disclosure Letter. All of Seller’s representations and warranties in this Agreement that are not qualified as to materiality (considered collectively), and each of these representations and warranties (considered individually), must have been accurate in all material respects as of the date of this Agreement, and must be accurate in all material respects as of the Closing Date as if made on the Closing Date, without giving effect to any supplement to the Disclosure Letter.

     7.2 Seller’s Performance.

7.2.1	Perform Obligations. All of the covenants and obligations that Seller is required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually), must have been duly performed and complied with in all material respects.
7.2.2	Delivery of Documents. Each document required to be delivered pursuant to Section 2.4 must have been delivered, and each of the other covenants and obligations in Sections 5.4 and 5.8 must have been performed and complied with in all respects.

     7.3 Consents. Each of the Consents identified in Part 3.2 of the Disclosure Letter, must have been obtained and must be in full force and effect.

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     7.4 Additional Documents. Each of the following documents must have been delivered to Buyer:

7.4.1	Employment Agreements between the Company and each Key Employee in the form of Exhibit 7.4.1 executed by each such Key Employee (collectively, the “Key Employee Employment Agreements”);
7.4.2	If the Closing Date occur after the execution and delivery of this Agreement, a certificate executed by Seller representing and warranting to Buyer that each of Seller’s representations and warranties in this Agreement was accurate in all respects as of the date of this Agreement and is accurate in all respects as of the Closing Date as if made on the Closing Date (giving full effect to any supplements to the Disclosure Letter that were delivered by Seller to Buyer prior to the Closing Date in accordance with Section 5.5); and
7.4.3	Other Documents. Such other documents as Buyer may reasonably request for the purpose of (i) enabling its counsel to provide the opinion referred to in Section 8.3.1, (ii) evidencing the accuracy of any of Seller’s representations and warranties, (iii) evidencing the performance by Seller of, or the compliance by Seller with, any covenant or obligation required to be performed or complied with by Seller, (iv) evidencing the satisfaction of any condition referred to in this Section 7, or (v) otherwise facilitating the consummation or performance of any of the Contemplated Transactions.

     7.5 No Proceedings. Since the date of this Agreement, there must not have been commenced or Threatened against Buyer, or against any Person affiliated with Buyer, any Proceeding (i) involving any challenge to, or seeking damages or other relief in connection with, any of the Contemplated Transactions, or (ii) that may have the effect of preventing, delaying, making illegal, or otherwise interfering with any of the Contemplated Transactions.

     7.6 No Claim Regarding Stock Ownership or Sale Proceeds. There must not have been made or Threatened by any Person any claim asserting that such Person (i) is the holder or the beneficial owner of, or has the right to acquire or to obtain beneficial ownership of, any stock of, or any other voting, equity, or ownership interest in, the Company, or (ii) is entitled to all or any portion of the Purchase Price payable for the Shares.

     7.7 No Prohibition. Neither the consummation nor the performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time), materially contravene, or conflict with, or result in a material violation of, or cause Buyer or any Person affiliated with Buyer to suffer any material adverse consequence under, (i) any applicable Legal Requirement or Order, or (ii) any Legal Requirement or Order that has been published, introduced, or otherwise formally proposed by or before any Governmental Body.

     7.8 No Material Adverse Effect. Since the date of this Agreement, there shall be no change, effect or occurrence that has, or is reasonably likely to have individually or in the

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aggregate, a material adverse impact on the business, operations, results of operations or condition (financial or otherwise) on the Company or the assets of the Company.

8. CONDITIONS PRECEDENT TO SELLER’S OBLIGATION TO CLOSE.

Seller’s obligation to sell the Shares and to take the other actions required to be taken by Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Seller, in whole or in part):

     8.1 Accuracy of Representations. All of Buyer’s representations and warranties in this Agreement (considered collectively), and each of these representations and warranties (considered individually), must have been accurate in all material respects as of the date of this Agreement and must be accurate in all material respects as of the Closing Date as if made on the Closing Date.

     8.2 Buyer’s Performance.

8.2.1	Perform Obligations. All of the covenants and obligations that Buyer is required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually), must have been performed and complied with in all material respects.
8.2.2	Delivery of Documents. Buyer must have delivered each of the documents required to be delivered by Buyer pursuant to Section 2.4 and the current portion of the Purchase Price.

     8.3 Consents. Each of the Consents identified in Part 3.2 of the Disclosure Letter, must have been obtained and must be in full force and effect.

     8.4 Additional Documents. The following documents must have been delivered to Seller:

8.4.1	The Key Employee Employment Agreements;
8.4.2	If the Closing Date occur after the execution and delivery of this Agreement, a certificate executed by Buyer to the effect that, except as otherwise stated in such certificate, each of Buyer’s representations and warranties in this Agreement was accurate in all respects as of the date of this Agreement and is accurate in all respects as of the Closing Date as if made on the Closing Date; and
8.4.3	Other Documents. Such other documents as Seller may reasonably request for the purpose of (i) enabling their counsel to provide the opinion referred to in Section 7.4.1, (ii) evidencing the accuracy of any representation or warranty of Buyer, (iii) evidencing the performance by Buyer of, or the compliance by Buyer with, any covenant or obligation required to be performed or complied with by Buyer, (iv) evidencing the

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satisfaction of any condition referred to in this Section 8, or (v) otherwise facilitating the consummation of any of the Contemplated Transactions.

     8.5 No Injunction. There must not be in effect any Legal Requirement or any injunction or other Order that (i) prohibits the sale of the Shares by Seller to Buyer, and (ii) has been adopted or issued, or has otherwise become effective, since the date of this Agreement.

9. TERMINATION.

     9.1 Termination Events. This Agreement may, by notice given prior to or at the Closing, be terminated:

9.1.1	Breach. By either Buyer or Seller if a material Breach of any provision of this Agreement has been committed by the other party and such Breach has not been waived;
9.1.2	Failure of Condition.

(a)	by Buyer if any of the conditions in Section 7 has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Buyer to comply with its obligations under this Agreement) and Buyer has not waived such condition on or before the Closing Date; or
(b)	by Seller, if any of the conditions in Section 8 has not been satisfied of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Seller to comply with its obligations under this Agreement) and Seller has not waived such condition on or before the Closing Date;

9.1.3	Mutual Consent. By mutual consent of Buyer and Seller; or
9.1.4	Time. By either Buyer or Seller if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before October 31, 2007, or such later date as the parties may agree upon.

     9.2 Effect of Termination. Each party’s right of termination under Section 9.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 9.1, all further obligations of the parties under this Agreement will terminate, except that the obligations in Sections 11.1 and 11.3 will survive; provided, however, that if this Agreement is terminated by a party because of the Breach of the Agreement by the other party or because one or more of the conditions to the terminating party’s obligations under this Agreement is not satisfied as a result of the other party’s failure to comply with its obligations under this Agreement, the terminating party’s right to pursue all legal remedies will survive such termination unimpaired.

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10. INDEMNIFICATION; REMEDIES.

     10.1 Right to Indemnification Not Affected by Knowledge. Except with respect to matters disclosed by Seller to Buyer in a supplement to the Disclosure Letter pursuant to Section 5.5: (a) the right to indemnification, payment of Damages or other remedy based on such representations, warranties, covenants, and obligations will not be affected by any investigation conducted with respect to, or any Knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant, or obligation; and (b) the waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification, payment of Damages, or other remedy based on such representations, warranties, covenants, and obligations.

     10.2 Survival. All representations, warranties, covenants, and obligations in this Agreement, the Disclosure Letter, the supplements to the Disclosure Letter and the certificate delivered pursuant to Section 2 .4.1(f) will survive the Closing Date for the following periods:

10.2.1	Tax Claims. The representations and warranties of Seller contained in Section 3.11 and any corresponding Part of the Disclosure Letter or any supplement thereto or any certificate delivered in connection with the Agreement (the “Tax Claims”) shall survive until the expiration of the last statute of limitations with respect to such Tax Claims (the “Tax Claims Survival Period”).
10.2.2	Three Year Claims. The representations and warranties contained in Sections 3.1, 3.2, 3.3, 3.4, 3.10 and 3.19 and any corresponding Parts of the Disclosure Letter or any supplement thereto or any certificate delivered in connection with the Agreement (collectively, the “Three Year Claims”) shall survive for a period of three (3) years following the Closing Date (the “Three Year Survival Period”).
10.2.3	Intentionally Omitted.
10.2.4	General Claims. All other representations and warranties contained in this Agreement, the Disclosure Letter and any supplements to such Disclosure Letter and any certificates delivered pursuant to this Agreement, including those of Buyer (“General Claims”) shall survive for two (2) years following the Closing Date (the “General Claims Survival Period”).

     10.3 Indemnification and Payment of Damages by Seller. Seller will indemnify and hold harmless Buyer, the Company, and their respective Representatives, stockholders, controlling persons, and affiliates (collectively, the “Indemnified Persons”) for, and will pay to the Indemnified Persons the amount of, any loss, liability, claim, damage (including Consequential Damages), or expense (including costs of investigation and defense and

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reasonable attorneys’ fees), or diminution of value whether or not involving a third-party claim (collectively, “Damages”), arising, directly or indirectly, from or in connection with:

10.3.1	Breach. Any untruth, inaccuracy, error in or misstatement of any representation or warranty made by Seller in this Agreement (after giving effect to any supplement to the Disclosure Letter), the Disclosure Letter, the supplements to the Disclosure Letter, or any other certificate delivered by Seller pursuant to this Agreement;
10.3.2	Covenant. Any Breach by Seller of any covenant or obligation of Seller in this Agreement; or
10.3.3	Service. Any services provided by Company prior to the Closing Date;
10.3.4	Brokerage Fee. Any claim by any Person for brokerage or finder’s fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by any such Person with either Seller or Company (or any Person acting on their behalf) in connection with any of the Contemplated Transactions.

     10.4 Intentionally Omitted.

     10.5 Indemnification and Payment of Damages by Buyer. Buyer will indemnify and hold harmless Seller for, and will pay to Seller the amount of any Damages arising, directly or indirectly, from or in connection with (i) any Breach of any representation or warranty made by Buyer in this Agreement or in any certificate delivered by Buyer pursuant to this Agreement, (ii) any Breach by Buyer of any covenant or obligation of Buyer in this Agreement, (iii) any claim by any Person for brokerage or finder’s fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by such Person with Buyer (or any Person acting on its behalf) in connection with any of the Contemplated Transactions, or (iv) any action taken by Buyer or its Affiliates (or any action that a reasonable parent company would have taken, but Buyer or an Affiliate failed to take) during the Earn Out Period that has the consequence of diminishing or limiting Seller’s ability to achieve the earn out requirements contemplated by Sections 2.6 and 2.7, except for such actions that are expressly permitted by Section 6.2.

     10.6 Time Limitations. If the Closing occurs, Seller will have no liability for indemnification with respect to any representation or warranty, or covenant or obligation to be performed and complied with prior to the Closing Date, unless Buyer notifies Seller of a claim specifying the factual basis of that claim in reasonable detail to the extent then known by Buyer prior to the expiration of the applicable Survival Period. If the Closing occurs, Buyer will have no liability for indemnification with respect to any representation or warranty, or covenant or obligation to be performed and complied with prior to the Closing Date, unless Seller notifies Buyer of a claim specifying the factual basis of that claim in reasonable detail to the extent then known by Seller, prior to the expiration of the General Claims Survival Period.

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     10.7 Limitations on Amount — Seller. Notwithstanding anything to the contrary contained in this Agreement, except with respect to claims based on fraud or willful misrepresentation or misconduct:

10.7.1 Any indemnification of Indemnified Persons by Seller shall be limited to an aggregate amount equal to the total Purchase Price received by Seller. Seller will have no liability for indemnification under this Agreement (i) with respect to Three Year Claims or General Claims until the total of all Damages with respect to such matters exceeds $50,000, and then only for the amount by which such Damages exceed $50,000, and (ii) with respect to Tax Claims, until the total of all Damages with respect to such matters exceeds $10,000, and then only for the amount by which such Damages exceed $10,000.

     10.8 Limitations on Amount — Buyer. Buyer will have no liability for indemnification with respect to General Claims until the total of all Damages with respect to such matters exceeds $50,000, and then only for the amount by which such Damages exceed $50,000.

     10.9 Right of Set-off. To the extent that any amounts are owing from Seller to Buyer under this Section 10, Buyer may set off such amounts against amounts owed to Seller in the form of Contingent Shares or Contingent Cash Consideration; provided, however, that Buyer shall give Seller ten business days prior notice (the “Set-Off Notice”) of any such set-off specifying in reasonable detail the basis therefor (the “Proposed Set-Off”); provided, further, that if Seller disputes the Proposed Set-Off in a writing to Buyer (the “Dispute Notice”) within ten business days of receipt of the Set-Off Notice, then such dispute shall be settled by a final decision of a court of competent jurisdiction, binding arbitration or mutual agreement of the parties; provided, further, that the substantially prevailing party (as determined by such court or arbitrator) will be entitled to an award of attorneys’ fees and costs, and all costs of arbitration, if applicable, which will be paid by the losing party, and the court or arbitrator will be authorized to make such determinations. Pending resolution of such dispute, Buyer may withhold delivery of such Contingent Cash Consideration or Contingent Shares. Neither the exercise of nor the failure to exercise such right of set-off will constitute an election of remedies or limit Buyer in any manner in the enforcement of any other remedies that may be available to it.

     10.10 Procedure for Indemnification — Third Party Claims.

10.10.1 Notice of Claim. Promptly after receipt by an indemnified party under Section 10.2, 10.5, or (to the extent provided in the last sentence of Section 10.4) Section 10.4 of notice of the commencement of any Proceeding against it, such indemnified party will, if a claim is to be made against an indemnifying party under such Section, give notice to the indemnifying party of the commencement of such claim, but the failure to notify the indemnifying party will not relieve the indemnifying party of any liability that it may have to any indemnified party, except to the extent that the indemnifying party demonstrates that the defense of such action is prejudiced by the indemnified party’s failure to give such notice.

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10.10.2

Defense. If any Proceeding referred to in Section 10.10.1 is brought against an indemnified party and it gives notice to the indemnifying party of the commencement of such Proceeding, the indemnifying party will, unless the claim is a Tax Claim, be entitled to participate in such Proceeding and, to the extent that it wishes (unless (i) the indemnifying party is also a party to such Proceeding and the indemnified party determines in good faith that joint representation would be inappropriate, or (ii) the indemnifying party fails to provide reasonable assurance to the indemnified party of its financial capacity to defend such Proceeding and provide indemnification with respect to such Proceeding), to assume the defense of such Proceeding with counsel satisfactory to the indemnified party and, after notice from the indemnifying party to the indemnified party of its election to assume the defense of such Proceeding, the indemnifying party will not, as long as it diligently conducts such defense, be liable to the indemnified party under this Section 10 for any fees of other counsel or any other expenses with respect to the defense of such Proceeding, in each case subsequently incurred by the indemnified party in connection with the defense of such Proceeding, other than reasonable costs of investigation. If the indemnifying party assumes the defense of a Proceeding, (i) it will be conclusively established for purposes of this Agreement that the claims made in that Proceeding are within the scope of and subject to indemnification; (ii) no compromise or settlement of such claims may be effected by the indemnifying party without the indemnified party’s consent unless (A) there is no finding or admission of any violation of Legal Requirements or any violation of the rights of any Person and no effect on any other claims that may be made against the indemnified party, and (B) the sole relief provided is monetary damages that are paid in full by the indemnifying party; and (iii) the indemnifying party will have no liability with respect to any compromise or settlement of such claims effected without its consent. If notice is given to an indemnifying party of the commencement of any Proceeding and the indemnifying party does not, within ten days after the indemnified party’s notice is given, give notice to the indemnified party of its election to assume the defense of such Proceeding, the indemnifying party will be bound by any determination made in such Proceeding or any compromise or settlement effected by the indemnified party.

10.10.3

Defenses by Indemnified Party. Notwithstanding the foregoing, if an indemnified party determines in good faith that there is a reasonable probability that a Proceeding may adversely affect it or its affiliates other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the indemnified party may, by notice to the indemnifying party, assume the exclusive right to defend, compromise, or settle such Proceeding, but the indemnifying party will not be bound by any determination of a Proceeding so defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld).

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10.10.4 Jurisdiction. Seller hereby consents to the non-exclusive jurisdiction of any court in which a Proceeding is brought against any Indemnified Person for purposes of any claim that an Indemnified Person may have under this Agreement with respect to such Proceeding or the matters alleged therein, and agree that process may be served on Seller with respect to such a claim anywhere in the world.

     10.11 Procedure for Indemnification — Other Claims. A claim for indemnification for any matter not involving a third-party claim may be asserted by written notice to the party from whom indemnification is sought.

     10.12 Other Terms of Indemnification.

10.12.1	To the extent that Seller’s breach of a representation or warranty set forth in Section 3 is remedied (in full or in part) by a decrease in Purchase Price pursuant to Sections 2.5, 2.6 and 2.7, Buyer shall not be entitled to indemnity under this Section 10 for such decrease, if such indemnity would result in a double recovery to Buyer of its damages (the concept of recovery to include decreases in Purchase Price pursuant to Sections 2.5, 2.6 or 2.7).
10.12.2	If the Closing occurs, the indemnification provided in this Section 10 (and the set off provided in Section 10.9) will be the sole and exclusive legal remedy for any inaccuracy of any representation or warranty, or the breach or default of or under any covenant or agreement, made by any party in this Agreement, the Disclosure Letter, the supplements to the Disclosure Letter or any certificate delivered by Seller pursuant hereto, and no party may seek any other legal remedy (whether under federal or state securities laws or otherwise) that might otherwise be available to such party; provided, however, that nothing in this Section 10 will preclude any party from seeking any legal remedy available to such party for any such inaccuracy, breach or default that constitutes fraud on the part of any other party, or any equitable remedies.
10.12.3	Neither party shall have any obligation to indemnify any Indemnified Party for any Damages that are: (A) caused, contributed to or exacerbated by the actions or failure to act of any Indemnified Party; (B) recovered or recoverable by the Indemnified Party from any other Person (including insurers); or (C) offset by tax savings realized on account of such Damages by the Indemnified Party or any of its Related Persons.

11. GENERAL PROVISIONS.

     11.1 Expenses. Except as otherwise expressly provided in this Agreement, each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the Contemplated Transactions, including all fees and expenses of agents, representatives, counsel, and accountants provided however, that the

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Company may reimburse Seller for and/or incur such expenses in connection with this Agreement and the Contemplated Transactions to the extent that the aggregate amount of such expenses does not exceed $75,000 and the Company’s Net Working Capital at Closing, following deduction of such expenses, is not less than $1,240,000. Except as provided above, Seller will cause the Company not to incur any out-of-pocket expenses in connection with this Agreement. In the event of termination of this Agreement, the obligation of each party to pay its own expenses will be subject to any rights of such party arising from a breach of this Agreement by another party.

     11.2 Public Announcements. Any public announcement or similar publicity with respect to this Agreement or the Contemplated Transactions will be issued, if at all, at such time and in such manner as the parties mutually agree, provided that Buyer may make such disclosure as it deems in good faith is required by applicable securities laws without the agreement of Seller. Unless consented to by Buyer in advance or required by Legal Requirements, prior to the Closing, Seller shall, and shall cause the Company to, keep this Agreement strictly confidential and may not make any disclosure of this Agreement to any Person. Seller and Buyer will consult with each other concerning the means by which the Company’s employees, customers, and suppliers and others having dealings with the Company will be informed of the Contemplated Transactions, and Buyer will have the right to be present for any such communication.

     11.3 Confidentiality. Between the date of this Agreement and the Closing Date, Buyer and Seller will maintain in confidence, and will cause the directors, officers, employees, agents, and advisors of Buyer and the Company to maintain in confidence, and not use to the detriment of another party or Company any written, oral, or other information obtained in confidence from another party or Company in connection with this Agreement or the Contemplated Transactions, unless (i) such information is already known to such party or to others not bound by a duty of confidentiality or such information becomes publicly available through no fault of such party, (ii) the use of such information is necessary or appropriate in making any filing or obtaining any consent or approval required for the consummation of the Contemplated Transactions, or (iii) the furnishing or use of such information is required by or necessary or appropriate in connection with legal proceedings.

If the Contemplated Transactions are not consummated, each party will return or destroy as much of such written information as the other party may reasonably request.

     11.4 Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (i) delivered by hand, (ii) sent by telecopier (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (iii) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other parties):

Seller:
	Marilyn Breitenstein
	14718 W. 71st Terrace

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	Shawnee, KS 66216
	Facsimile No.:
with a copy to:
	Polsinelli Shalton Flanigan Suelthaus P.C.
	700 W. 47th Street, Suite 1000
	Kansas City, Missouri 64112-1802
	Attention: William W. Mahood
	Facsimile No.: 816-753-1536
Buyer:
	The Management Network Group, Inc.
	7300 College Boulevard, Suite 302
	Overland Park, Kansas 66210
	Attention: Donald E. Klumb
	Facsimile No.: 913-451-1845
with a copy to:
	Shughart Thomson & Kilroy, P.C.
	120 W. 12th Street, Suite 1600
	Kansas City, Missouri 64105
	Attention: Jacob W. Bayer, Jr.
	Facsimile No.: 816-374-0509

     11.5 Jurisdiction; Service of Process. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the parties in the courts of the State of Kansas, County of Johnson, or, if it has or can acquire jurisdiction, in the United States District Court for the District of Kansas, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world.

     11.6 Further Assurances. The parties agree (i) to furnish upon request to each other such further information, (ii) to execute and deliver to each other such other documents, and (iii) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement.

     11.7 Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (i) no claim or right arising out of this Agreement or the documents referred to in

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this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (ii no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (iii) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.

     11.8 Entire Agreement and Modification. This Agreement supersedes all prior agreements between the parties with respect to its subject matter (including the Letter of Intent between Buyer and Seller dated August 10, 2007) and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the party to be charged with the amendment.

     11.9 Disclosure Letter.

11.9.1 Format. The disclosures in the Disclosure Letter, and those in any Supplement thereto, will be deemed to apply to each Section of the Agreement to which its relevance is readily apparent.

     11.10 Assignments, Successors, and No Third-Party Rights. Neither party may assign any of its rights under this Agreement without the prior consent of the other parties, except that Buyer may assign any of its rights under this Agreement to any Subsidiary of Buyer. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns.

     11.11 Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

     11.12 Section Headings, Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to “Section” or “Sections” refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word “including” does not limit the preceding words or terms.

     11.13 Time of Essence. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.

     11.14 Governing Law. This Agreement will be governed by the laws of the State of Kansas without regard to conflicts of laws principles.

59

     11.15 Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.

[The remainder of this page is intentionally left blank.]

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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above.

Buyer:		Seller:
THE MANAGEMENT NETWORK GROUP, INC.
By:
	Jason Wade, as attorney for Richard P. Nespola, Chief Executive Officer of Buyer, pursuant to a Power of Attorney dated October 3, 2007	Marilyn Breitenstein

Exhibit 2.4.2(b)
Form of Seller’s Employment Agreement

2

Exhibit 2.4.1(c)
Form of Non-competition Agreement

3

Exhibit 7.4.1
Form of Employment Agreements for Key Employees

4

Schedule 6.4
Buyer’s Insider Trading Policy

5

Seller’s Disclosure Letter

6

Omitted Schedules and Exhibits

The following exhibits and schedules to the Stock Purchase Agreement have been omitted in accordance with Item 601(b)(2) of
Regulation S-K:

• Exhibit 2.4.2(b) — Seller Employment Agreement.

• Exhibit 2.4.1(c) — Seller Noncompetition Agreement.

• Exhibit 7.4.1 — Key Employee Employment Agreements.

• Exhibit 6.4 — Buyer’s Insider Trading Policy

• Disclosure Letter delivered by Seller to Buyer containing information required by and exceptions relating to the representations and warranties of Seller in the Stock Purchase Agreement.

The Management Network Group, Inc. will furnish supplementally a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request; provided that The Management Network Group, Inc. may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or exhibit so furnished (or for specified portions thereof).

EX-10.1

Exhibit 10.1

TRANSITION SERVICES AGREEMENT

THIS TRANSITION SERVICES AGREEMENT (this “Agreement”), by and between Pharmagistics (“Pharmagistics”), a division of PUBLICIS SELLING SOLUTIONS, INC., a New Jersey corporation (“PSS”) with offices located at 309 Pierce Street, Somerset, New Jersey and RVA CONSULTING, LLC, a New Jersey limited liability company with offices located at 1600 Cottontail Lane, Somerset, New Jersey (“RVA”)

WITNESSETH

     WHEREAS, PSS purchased the assets relating to the Pharmagistics business pursuant to that certain Asset Purchase Agreement dated February 23, 2007 by and among Healthcare Logistics LLC, William C. Pollock, Jr; Suzanne Pollock, Anandale Investments LLC, Thomas Pollock, Robert George and Pharmagistics LLC (Pharmagistics LLC and Healthcare Logistics LLC, collectively, “Seller”), as amended by that certain First Amendment to Asset Purchase Agreement dated as of June 15, 2007 (the Asset Purchase Agreement and the First Amendment to Asset Purchase Agreement, collectively, the “Purchase Agreement”);

     WHEREAS, on December 31, 2006 Seller owned a 70% interest in RVA;

     WHEREAS, on January 1, 2007, Seller sold the 70% interest in RVA to RVA Holdings, LLC, a New Jersey limited liability company with offices located at 5 Cold Hill Road South, Mendham, NJ 07945-0210;

     WHEREAS, Section 7.7 of the Purchase Agreement requires Pharmagistics to provide office space and certain services to RVA during the two-year period commencing January 1, 2007 and ending December 31, 2008 (the “Transition Period”); and

     WHEREAS, the parties wish to set forth their agreements with respect to their respective rights and obligations during the Transition Period;

     NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. USE OF OFFICE SPACE

     During the Transition Period RVA shall have the right to use the 9,000 square feet of office space, the additional conference room and the reception area in the building located at 1600 Cottontail Lane, Somerset, New Jersey that RVA used for the conduct of the RVA business immediately prior to the commencement of the Transition Period (the “Office Space”). Use of the Office Space includes common area maintenance, cleaning and security to be provided by the landlord, general supplies, utilities, including electricity, heat and air conditioning; and use of telephones and fax machines.

2. TRANSITION SERVICES

2.1	IT Services. During the Transition Period Pharmagistics shall provide RVA up to 120 hours of IT support per month in 2007 and up to 60 hours of IT support per month in 2008. RVA shall also have the right to use Pharmagistics computer infrastructure during the Transition Period (the “IT Services”). The IT services shall include phone system support, hardware purchase orders, user set-up and maintenance, help desk support, printer support, including ink cartridges; VPN support, server and network support and maintenance, including e-mail, Blackberry, laptops and desktops; firewall and data line support and maintenance; data back-up services and software updates and support (collectively, the “IT Services”).
2.2	HR Services. During the Transition Period Pharmagistics shall provide RVA up to 120 hours of HR support per month in 2007 and up to 60 hours of HR support per month in 2008. The HR services shall include benefits administration, including maintaining records of medical, dental and disability insurance coverage and 401(k) plan participation; processing new enrollees, changes and terminations; distribution of mandatory benefit plan related material to all eligible employees; Workers Compensation and general liability insurance, including maintaining records of coverage and ensuring proper level of coverage to meet client-specific and state requirements; employee relations, including conducting exit interviews and process-related communications such as COBRA coverage notification, benefit termination information and final pay calculation; maintaining personnel files, human relations communications, including offer letters, new-hire packets, promotion and adjustment letters, performance improvement letters, termination letters and policy-related information; background investigation, including conducting thorough seven-year background investigation for all field employees and ensuring that all client requirements are satisfied; ensuring that all new hires satisfy drug screening requirements; assist with the development of job descriptions for internal corporate employees, assist in developing recruitment plan and website use, ensure that all new hires are eligible for employment in the United States; new hire orientation including review of employee/employer information, benefit plans and other personnel matters and ensure that all new hires return new hire documentation relating to payroll, benefits and policies; policy development and administration including development of company policies and procedures and ensuring consistent, unbiased implementation of policies and procedures; and legal compliance and support, including ensuring compliance with federal and state legislation pertaining to personnel matters, monitoring practices and procedures to ensure compliance with employment laws and regulations, EEOC compliance and minority business compliance (collectively, the “HR Services”).
2.3	Accounting Services. During the first three months of the Transition Period Pharmagistics shall provide RVA accounting services intended to enable RVA to develop independent accounting capability (the “Accounting Services”).

3. FEE FOR SERVICES; INVOICING.

3.1	Monthly Service Fee. During 2007 RVA shall pay Pharmagistics a monthly fee (the “Transition Services Fee”) in the amount of $200,000 for the use of the Office Space and the IT Services, the HR Services and the Accounting Services (collectively, the “Services”). During 2008 RVA shall pay Pharmagistics a monthly fee in the amount of $100,000 for the use of the Office Space and the Services.
3.2	Fee for Additional Service. In the event that during any month RVA requests, and Pharmagistics provides, Services for a number of hours greater than the hours set forth in Section 2, RVA shall pay for such excess Services at the hourly rate of $100.00 for excess IT Services, $125.00 for excess HR Services and $120.00 for excess Accounting Services (“Excess Services Fees”).
3.3	Invoicing. Pharmagistics shall invoice RVA monthly in arrears for the Transition Services Fee and any Excess Services Fees incurred by RVA during the immediately preceding month. Such invoices shall be payable no later than thirty (30) days after the invoice date.

4. NO WARRANTIES.

     RVA acknowledges and agrees that Pharmagistics has not made any representations, warranties, or agreements as to any matter concerning the Office Space or the Services. RVA occupied the Office Space and used the Services prior to the execution of the Purchase Agreement, and accordingly, RVA represents and warrants to Pharmagistics that RVA has made its own independent inspection and investigation of the Office Space and the Services, and is accepting the Office Space and Services in “AS-IS”, “WHERE-IS” condition, with all faults. RVA intends to rely solely on its own inspection and investigation of the Office Space and the Services. Any information or documents delivered by Pharmagistics to RVA are delivered without warranty or representation with respect to accuracy, completeness, or fitness for any particular use. Accordingly, RVA hereby releases Pharmagistics and its affiliates, and any officers, directors, and representatives of Pharmagistics and its affiliates from, and waives any and all causes of action or claims against any such Persons for any and all liability attributable to any representation, warranty, covenant or agreement with respect to the Office Space or the Services.

5. INDEMNIFICATION.

5.1 Mutual Indemnification. Each party (the “Indemnifying Party”) agrees to indemnify, defend and hold harmless the other party and its affiliates, directors, officers and employees (the “Indemnified Party”) from and against any and all losses, claims, damages, expenses or liabilities (including reasonable attorney’s fees) (collectively “Losses”) that the Indemnified Party may incur as a result of

	any claim, suit or proceeding against the Indemnified Party that results or arises from (i) any property damage to the Office Space, (ii) any error or omission caused by the gross negligence or intentional misconduct of the Indemnifying Party, or (iii) the Indemnifying Party’s breach of its obligations hereunder; provided, however, that the Indemnifying Party shall not be obligated to indemnify, defend or hold harmless the Indemnified Party against any Losses to the extent such Losses are caused (a) by the gross negligence or willful misconduct of the Indemnified Party, or the Indemnified Party’s breach of its obligations hereunder.
5.2	Indemnification Procedure. If there arises any claim for which an Indemnified Party may seek indemnification under this Section 5, such Indemnified Party shall promptly inform the Indemnifying Party of any such claim The Indemnified Party may, at its option and expense, have its own counsel participate in any proceeding under the direction and control of the Indemnifying Party and shall cooperate with the Indemnifying Party and its insurer in the disposition of any such matters.
5.3	Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR DIRECT, INDIRECT, PUNITIVE, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY LOST REVENUES OR PROFITS, EVEN IF SUCH PARTY HAS BEEN SPECIFICALLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

6. FORCE MAJEURE.

     Neither party shall be liable or deemed in default under this Agreement for any delay or failure to perform (other than the failure to make any required payment when due) resulting from any cause beyond that party’s reasonable control.

7. TERMINATION.

     If one party commits a material breach of its obligations under this Agreement (including a payment default), the other party may terminate this Agreement upon written notice to the other party if the breaching party fails to cure such breach within 30 days of written notice thereof.

8. NOTICE.

     Any notice given by a party to the other party under this Agreement shall be in writing and shall be given (a) by personal delivery, with receipt acknowledged, or (b) by prepaid certified or registered mail, return receipt requested, or (c) by prepaid recognized next business day delivery service, to the following address:

If to Pharmagistics:

Pharmagistics
309 Pierce Street

Somerset, New Jersey
Attn: Robert George

With copies to:

Publicis Selling Solutions, Inc.
2000 Lenox Drive, Suite 100
Lawrenceville, NJ 08648
Attn: Karen Kelly

Re:Sources Legal
35 West Wacker Drive
Chicago, IL 60601
Attn: Sondra J. Thorson

If to RVA:
RVA Holdings LLC
c/o Maffei Masiello & Co.
Post Office Box 210
Cold Hill Road South
Mendham, NJ 07945-0210

9. MISCELLANEOUS.

9.1	This Agreement (i) constitutes the entire agreement between the parties relating to its subject matter and merges and supersedes and terminates all prior written and oral agreements, and all contemporaneous oral agreements, between the parties relating to its subject matter, and (ii) may not be amended except by a writing signed by the party against which such amendment is sought to be enforced.
9.2	This Agreement may not be assigned or transferred by either party without the prior written consent of the other party.
9.3	This Agreement (i) shall be governed by, and construed in accordance with, the laws of the State of New Jersey, without regard to conflict of laws principles applied in the State of New Jersey, and (ii) shall be binding upon, and inure to the benefit of, the parties and their respective successors and permitted assigns.
9.4	In the event that any provision of this Agreement is finally held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions of this Agreement shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable provision had not been included.
9.5	The headings of the Sections of this Agreement are for convenience of reference only, are not part of this Agreement and shall not be used in its interpretation.

9.6	No failure or delay on the part of either party in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or exercise of any, other right, power or remedy under this Agreement. No waiver of any provision of this Agreement shall be effective unless such waiver shall be in writing and signed by the party giving such waiver. The remedies provided in this Agreement are cumulative and not exclusive of any other remedies provided by law.
9.7	This Agreement may be executed in two or more counterparts, all of which taken together shall constitute one instrument.
9.8	Signatures delivered via facsimile or electronically as a pdf copy shall be effective as original signatures.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written.

PUBLICIS SELLING SOLUTIONS, INC. on behalf of its Pharmagistics Division		RVA CONSULTING, LLC By: RVA HOLDINGS, INC.
By:		By:
	Michael Iafolla		Name:
	President		Title:

EX-31

EXHIBIT 31

CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Richard P. Nespola, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Management Network Group, Inc.;

2. Based on my knowledge, this 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 such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation: and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2007

By:	/s/ Richard P. Nespola
	Chairman and Chief Executive Officer

I, Donald E. Klumb, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Management Network Group, Inc.;

2. Based on my knowledge, this 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 such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation: and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2007

By:	/s/ Donald E. Klumb
	Chief Financial Officer and Treasurer

EX-32

EXHIBIT 32

CERTIFICATIONS FURNISHED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002

In connection with this quarterly report on Form 10-Q for the fiscal quarter ended September 29, 2007 of The Management Network Group, Inc. (the “Company”), I, Richard P. Nespola, Chairman, President and Chief Executive Officer of the registrant certify that:

1. this quarterly report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in this quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 13, 2007

By:	/s/ Richard P. Nespola
	Chairman and Chief Executive Officer

In connection with this quarterly report on Form 10-Q for the fiscal quarter ended September 29, 2007 of The Management Network Group, Inc. (the “Company”), I, Donald E. Klumb, Chief Financial Officer and Treasurer of the registrant certify that:

1. this quarterly report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in this quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 13, 2007

By:	/s/ Donald E. Klumb
	Chief Financial Officer and Treasurer