Unassociated Document

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PART I. Financial Information

ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets		3
June 30, 2007 (unaudited) and December 31, 2006

Condensed Consolidated Statements of Operations		4
Six Months Ended June 30, 2007 and 2006 (unaudited)

Condensed Consolidated Statements of Operations		5
Three Months Ended June 30, 2007 and 2006 (unaudited)

Condensed Consolidated Statements of Cash Flows		6
Six Months Ended June 30, 2007 and 2006 (unaudited)

Notes to Condensed Consolidated Financial Statements (unaudited)		7

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

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk		33

ITEM 4. Controls and Procedures		34

PART II. Other Information

ITEM 6. Exhibits		34

Signatures		35

Index to Exhibits		36



	June 30, 2007			December 31, 2006
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	1,465		$	2,939
Accounts receivable, net		10,332			9,483
Deferred tax assets		371			311
Prepaid expenses and other current assets		1,017			657
Total current assets		13,185			13,390

Equipment, software development and leasehold improvements, at cost, less
accumulated depreciation and amortization of $13,160 at June 30, 2007
and $12,607 at December 31, 2006		1,971			2,228

Goodwill		21,322			21,322
Intangibles, net		1,952			2,137
Deferred financing fees, net		428			504
Other assets		728			585
	$	39,586		$	40,166
Liabilities and Shareholders’ Equity

Current liabilities:
Trade accounts payable	$	2,882		$	2,820
Accrued expenses and other		2,250			4,425
Unearned retainer income		6,011			4,351
Current maturities of notes payable		1,505			2,005
Uncertain tax positions		148			--
Total current liabilities		12,796			13,601

Notes payable		1,877			2,384
Deferred compensation and other liabilities		61			298
Uncertain tax positions		148			--
Total liabilities		14,882			16,283

Redeemable convertible preferred stock, $.0001 par value.
Authorized 2,000,000 shares; issued and outstanding
333,333 shares at June 30, 2007 and December 31, 2006,
and accrued dividends		702			674

Commitments and contingencies

Shareholders’ equity:
Common stock, $.0001 par value. Authorized 100,000,000 shares;
issued and outstanding 21,165,145 shares at June 30, 2007 and
20,925,134 shares at December 31, 2006		2			2
Capital in excess of par value		30,640			29,747
Comprehensive loss		(103	)		(111	)
Accumulated deficit		(6,537	)		(6,429	)
Total shareholders’ equity		24,002			23,209
	$	39,586		$	40,166


	2007			2006
				(See Note C)

Revenues	$	24,469		$	23,218

Operating expenses:
Direct costs		15,019			13,998
Selling, general and administrative expenses		9,427			8,300
Total operating expenses		24,446			22,298

Operating income		23			920

Other income		5			23
Equity loss on investment		(2	)		(20	)
Interest expense		(210	)		(311	)
(Loss) income before benefit (provision) for income taxes and
cumulative effect of accounting change		(184	)		612
Benefit (provision) for income taxes		103			(54	)
(Loss) income before cumulative effect of accounting change		(81	)		558
Cumulative effect of accounting change		--			96
Net (loss) income		(81	)		654
Less: Preferred dividends		(27	)		(20	)
(Loss) income attributable to common shareholders	$	(108	)	$	634

(Loss) earnings per common share - basic and diluted
(Loss) income before cumulative effect of accounting change	$	(0.01	)	$	0.02
Cumulative effect of accounting change		0.00			0.01
(Loss) earnings per share	$	(0.01	)	$	0.03

Weighted average number of common shares outstanding:
Basic and diluted		20,977,942			20,677,922

	2007			2006
				(See Note C)

Revenues	$	11,687		$	11,962

Operating expenses:
Direct costs		7,128			7,050
Selling, general and administrative expenses		4,671			4,326
Total operating expenses		11,799			11,376

Operating (loss) income		(112	)		586

Other income (expense)		3			(5	)
Equity loss on investment		(2	)		(6	)
Interest expense		(106	)		(164	)
(Loss) income before benefit (provision) for income taxes		(217	)		411
Benefit (provision) for income taxes		122			(36	)
Net (loss) income		(95	)		375
Less: Preferred dividends		(13	)		(10	)
(Loss) income attributable to common shareholders	$	(108	)	$	365



(Loss) earnings per common share - basic and diluted	$	(0.01	)	$	0.02

Weighted average number of common shares outstanding:
Basic and diluted		21,014,351			20,905,842

	2007			2006
				(See Note C)
Cash flows from operating activities:
Net (loss) income	$	(81	)	$	654
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization		758			795
Allowance for doubtful accounts		83			40
Deferred income taxes		--			54
Share-based payments		758			312
Non-cash interest		76			76
Other		--			(245	)

Changes in assets and liabilities:
Increase in accounts receivable		(932	)		(1,861	)
(Increase) decrease in prepaid expenses and other current assets		(298	)		20
(Increase) decrease in other assets		(97	)		8
Increase in unearned retainer income		1,660			1,443
Decrease in other liabilities		(32	)		(84	)
Decrease in accounts payable and accrued expenses		(1,135	)		(329	)

Net cash provided by operating activities		760			883
Cash flows from investing activities:
Capital expenditures		(281	)		(459	)
Purchase of Atlantic (payment of deferred consideration)		(750	)		(500	)
Purchase of Signia (payment of deferred consideration)		(280	)		(280	)
Purchase of investment		(55	)		--

Net cash used in investing activities		(1,366	)		(1,239	)
Cash flows from financing activities:
Principal borrowings under notes payable		500			1,500
Principal payments under notes payable		(1,507	)		(2,476	)
Payments under capital leases		(30	)		(46	)
Proceeds from exercise of warrants and options		169			--

Net cash used in financing activities		(868	)		(1,022	)

Net decrease in cash and cash equivalents		(1,474	)		(1,378	)

Cash and cash equivalents at beginning of period		2,939			2,697
Cash and cash equivalents at end of period	$	1,465		$	1,319

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid	$	121		$	351
Taxes paid	$	259		$	114

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary to present fairly the Company’s financial position at June 30, 2007, and the results of operations and cash flows for the six and three-month periods ended June 30, 2007 and 2006. All such adjustments are of a normal and recurring nature. Operating results for the six and three-month periods ended June 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2006 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

The Company’s subscription services are provided under two different types of subscription contracts - retainer contracts and deposit contracts. Retainer contracts, which are used primarily by On-Demand Business Research, charge customers fixed monthly subscription fees to access On-Demand Business Research services, and revenues are recognized ratably over the term of each subscription. Retainer fees are required to be paid in advance by customers on either a monthly, quarterly or annual basis, and all billed amounts relating to future periods are recorded as an unearned retainer income liability on the Company’s balance sheet. In the case of deposit contracts, which are used primarily by the Product Development Intelligence segment, a customer pays a fixed annual fee, which entitles it to access any of the Company’s service offerings throughout the contract period, up to the total amount of the annual deposit fee. Since deposit account customers can “spend” their contract fee at any time within the annual contract period, deposit account revenues are only recognized within the contract period as services are actually provided to customers, with any unused deposit amounts recognized as revenue in the final month of the contract. As with retainer fees, deposit contract fees are required to be paid in advance, primarily annually, and any billed amounts relating to future periods are recorded as unearned retainer income, a current liability on the Company’s balance sheet.

With regard to the Company’s non-subscription based services, including custom market research, in-depth consulting and outsourced information services, the Company recognizes revenues using the proportional performance model. These services typically include a series of surveys and deliverable reports in which the timing and frequency vary by contract. Progress on a contract can be tracked reliably, and customers are obligated to pay as services are performed. The Company recognizes revenue based on output measures or key milestones such as survey set up, survey mailings, survey returns and reporting. The Company measures its progress based on the level of completion of these output measures and recognizes the revenue related to output measures. Losses expected to be incurred, if any, on jobs in progress are charged to income as soon as such losses are known. Client projects are generally completed within a twelve-month period.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued revised Statement of Financial Accounting Standards (“SFAS”) No. 123, “Share-Based Payment” (“SFAS 123 (R)”), which the Company adopted on January 1, 2006. SFAS 123 (R) requires compensation costs related to share-based payment transactions to be recognized in the financial statements. Generally, compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the requisite service period, generally as the award vests. As a result of adopting SFAS 123(R), the Company recognized an after-tax gain of $96,000 ($96,000 pre-tax), with an impact on basic and diluted earnings per share of $0.01, as the cumulative effect of a change in accounting principle attributable to the requirement to estimate forfeitures at the grant date instead of recognizing them as incurred. The adoption of SFAS 123(R) did not otherwise have a material effect on the 2006 consolidated financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB No. 108”), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB No. 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB No. 108 requires companies to quantify misstatements using a Rollover and Iron Curtain approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is material, companies will record the effect as a cumulative effect adjustment to beginning of year retained earnings. The Company has historically used the Rollover Method. The provisions of SAB No. 108 were effective for the Company for the year ended December 31, 2006. In connection with the application of SAB No. 108, the Company recorded a $447,000 charge to retained earnings as of January 1, 2006 which relates to (i) a $300,000 overstatement of deferred tax assets that accumulated over several previous years and, (ii) a $147,000 understatement of accrued expenses related to travel costs. The deferred tax asset adjustment arose as the Company was preparing for the adoption of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” when the Company was analyzing the tax basis of its property, plant and equipment compared to related deferred tax assets on its balance sheet. This deferred tax asset issue arose over several previous fiscal years and the Company determined that the impact on any given fiscal year was not material.

	Increase (Decrease)
	Accrued expenses and other		Deferred tax assets			Retained earnings

Overstatement of deferred tax assets ⁽¹⁾	$	--	$	(300,000	)	$	(300,000	)
Understatement of accrued expenses ⁽²⁾		147,000		--			(147,000	)
	$	147,000	$	(300,000	)	$	(447,000	)

⁽¹⁾ The Company adjusted the tax basis of property, plant and equipment by reducing deferred tax assets as a result of an overstatement of these deferred tax assets that accumulated over several previous years. ⁽²⁾ The Company recorded travel expenses incurred in 2005 as an expense in 2006 when these expenses were paid. These expenses should have been recorded in 2005.

	Previously Reported		Adjustment			As Adjusted
For the six months ended June 30, 2006
Deferred tax assets	$	1,057,000	$	(300,000	)	$	757,000
Accrued expenses		2,148,000		(11,000	)		2,137,000
Shareholders’ equity		22,095,000		(290,000	)		21,805,000
Selling, general & administrative expenses		8,372,000		(72,000	)		8,300,000
Net income		588,000		66,000			654,000
Net income attributable to shareholders		568,000		66,000			634,000
Earnings per share		0.03		0.00			0.03

For the three months ended June 30, 2006
Deferred tax assets	$	1,057,000	$	(300,000	)	$	757,000
Accrued expenses		2,148,000		(11,000	)		2,137,000
Shareholders’ equity		22,095,000		(290,000	)		21,805,000
Selling, general & administrative expenses		4,337,000		(11,000	)		4,326,000
Net income		364,000		11,000			375,000
Net income attributable to shareholders		354,000		11,000			365,000
Earnings per share		0.02		0.00			0.02

In June 2006, FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainties in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109, “Accounting for Income Taxes.” This Interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. Under FIN 48, the tax effects of a position should be recognized only if it is “more-likely-than-not” to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting date. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted the provisions of FIN 48 as of January 1, 2007, but this did not have a material impact on the financial statements.

The FASB issued SFAS Statement No. 157 (“SFAS No. 157”), “Fair Value Measurements” in September 2006. This standard provides guidance on how to measure fair value where it is permitted or required under other accounting pronouncements. SFAS No. 157 also requires additional disclosures about fair value measurements. The Company will adopt SFAS No. 157 on January 1, 2008, and is currently assessing the impact of this standard.

In February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities”, providing companies with an option to report selected financial assets and liabilities at fair value. SFAS 159’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. Accounting principles generally accepted within the United States has required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of asset and liabilities. SFAS 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the Company’s choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of the adoption of SFAS 159 on its financial statements.

Basic earnings per common share is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per common share is computed by dividing net income attributable to common shareholders by a diluted weighted average number of common shares outstanding. Diluted earnings per common share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock, unless they are anti-dilutive.

Warrants to purchase 3,956,112 shares of common stock at prices ranging from $0.01 to $3.00 per share, and related weighted average price per share of $2.32, were outstanding during the six and three months ended June 30, 2007, and options, restricted stock and redeemable convertible preferred shares, including accrued preferred dividends, to purchase 3,959,809 shares of common stock at prices ranging from $0.01 to $3.6875 per share, and related weighted average prices per share of $1.00, were outstanding during the six and three months ended June 30, 2007, but were not included in the computation of diluted EPS because the Company recorded a net loss attributable to common shareholders of $108,000 for the six and three months ended June 30, 2007.

Warrants to purchase 4,975,515 shares of common stock at prices ranging from $0.01 to $3.00 per share, and related weighted average price per share of $2.12, were outstanding during the six and three months ended June 30, 2006, and options, restricted stock and redeemable convertible preferred shares, including accrued preferred dividends, to purchase 3,158,125 shares of common stock at prices ranging from $0.01 to $3.6875 per share, and related weighted average prices per share of $1.23, were outstanding during the six and three months ended June 30, 2006, but were not included in the computation of diluted EPS because the warrants, options, preferred shares and dividends were anti-dilutive pursuant to Statement of Financial Accounting Standards No. 128.

During the six and three months ended June 30, 2007, the Company recorded a comprehensive loss of $8,000 and comprehensive income of $34,000, respectively, and during the six and three months ended June 30, 2006 recorded a comprehensive loss of $9,000 and $23,000, respectively, related to the change in the market value of its investment in Scientigo common stock. As a result, the Company’s investment in Scientigo was $56,000 as of June 30, 2007.

As of June 30, 2007, $2,700,000 remains outstanding under the $4,500,000 Term Facility, and $500,000 remains outstanding under the $4,500,000 Revolving Facility. Accrued but unpaid interest related to the Term and Revolving Facilities was approximately $43,000 as of June 30, 2007. The Term Facility bears interest at LIBOR plus 3%, which was 8.36% at June 30, 2007 based on the three-month LIBOR contract in effect at that time. The Revolving Facility bears interest at LIBOR plus 2.75%, which was 8.09% at June 30, 2007 based on the two-month contract in effect at that time. Interest expense related to the Term Facility was $116,000 and $149,000 for the six months ended June 30, 2007 and 2006, respectively and $56,000 and $87,000 for the three months ended June 30, 2007 and 2006, respectively. Interest expense related to the Revolving Facility was $7,000 and $65,000 for the six months ended June 30, 2007 and 2006, respectively and $7,000 and $29,000 for the three months ended June 30, 2007 and 2006, respectively. The Company previously incurred $760,000 in closing and other transaction costs related to the Senior Secured Facilities, which are amortized to interest expense over the duration of the Term Facility. Amortization of deferred financing fees was $76,000 for the six months ended June 30, 2007 and 2006, and was $38,000 for the three months ended June 30, 2007 and 2006, and is included in interest expense.

The Credit Agreement contains certain restrictions on the conduct of the Company’s business, including, without limitation, restrictions on incurring debt, making certain restricted payments (any dividend or other distribution, whether in cash, securities or other property, with respect to any stock or stock equivalents of the Company or any subsidiary), disposing of certain assets, making investments; exceeding certain agreed upon capital expenditures; creating or suffering liens; completing certain mergers, consolidations and sales of assets, redeeming or prepaying other debt; and certain transactions with affiliates, subject in each case to any applicable exceptions or thresholds contained in the Credit Agreement. The Credit Agreement also contains financial covenants that require the Company to maintain certain leverage and fixed charge ratios and a minimum net worth.

The Company has a loan agreement with a vendor for the purchase of a customer relationship management system. The loan agreement is for $343,957 plus interest at a rate of 9% per annum, to be paid over a 36-month period, in monthly installments of $10,938, with the first payment due in January 2006. Interest expense related to this note was $9,000 and $14,000 for the six months ended June 30, 2007 and 2006, respectively, and $5,000 and $7,000 for the three months ended June 30, 2007 and 2006, respectively. As of June 30, 2007, the outstanding balance on this note was $182,000.

The $103,000 benefit for income taxes and $54,000 provision for income taxes for the six months ended June 30, 2007 and 2006, respectively, represent 56% and 9%, respectively, of the income (loss) before provision for income taxes. The $122,000 benefit for income taxes and $36,000 provision for income taxes for the three months ended June 30, 2007 and 2006, respectively, represent 56% and 9%, respectively, of the income (loss) before provision for income taxes. The difference between these rates and the statutory rate primarily relates to expenses that are not deductible for income tax purposes and reflects the utilization of $273,000 and $203,000 of net operating loss carryforwards during the six and three months ended June 30, 2006, respectively. The Company expects its 2007 annual effective tax rate to approximate 56%.

As a result of the implementation of FIN 48, the Company recognized a $16,000 increase in the liability for unrecognized tax benefits and a decrease to the January 1, 2007 balance of retained earnings. As of June 30, 2007 and after the impact of recognizing the increase in liability noted above, the Company’s unrecognized tax benefits totaled $305,000 of which $9,000 would favorably impact the Company’s effective tax rate, if recognized. The remaining $296,000 of liability for unrecognized tax benefits represents a reclassification from previously established deferred tax liabilities pursuant to the adoption of FIN 48. The Company’s tax returns for 2003-2005 remain open to examination by the Internal Revenue Service in their entirety and for all years with respect to the net operating losses deducted or to be deducted. They also remain open with respect to state taxing jurisdictions. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of January 1, 2007, the Company recorded a liability of approximately $5,000 for the payment of interest. The change to the uncertain tax positions or interest accruals for the six and three months ended June 30, 2007 was not material. The change in the unrecognized tax benefits within the next twelve months is not expected to be material to the financial statements.

The Company utilizes the Black-Scholes option-pricing model to measure the fair value of stock options granted to employees. Stock options granted have exercise prices equal to the market price of the Company’s common stock on the date of grant. The principal assumptions utilized in valuing options and our methodology for estimating such model inputs include: 1) risk-free interest rate - estimate is based on the yield of U.S. zero coupon securities with a maturity equal to the expected life of the options, 2) expected volatility - estimate is based on the historical volatility of our common stock for the five years preceding the award date and 3) expected option life - estimate is based on internal studies of historical experience and projected exercise behavior of employees and specific option characteristics, including the effect of employee terminations.

	Available for grant			Options Granted			Weighted average exercise price		Weighted average grant-date fair value
January 1, 2007		1,751,586			2,383,597		$	1.36	$	0.96
Granted		(5,000	)		5,000			1.08		0.58
Exercised		--			(1,244	)		0.80		0.47
Cancelled		38,256			(38,256	)		1.35		0.95
No longer available under the 1996 Plan		(13,256	)		--			--		--
June 30, 2007		1,771,586			2,349,097		$	1.36	$	0.96
Exercisable at June 30, 2007					2,053,423		$	1.31	$	0.93
Exercisable at June 30, 2006					1,845,252		$	1.25	$	0.89

	Available for grant			Options Granted			Weighted average exercise price		Weighted average grant-date fair value
January 1, 2006		1,052,316			2,385,151		$	1.38	$	0.98
Additional shares authorized under the Plan		1,250,000			--			--		--
Granted		--			--			--		--
Exercised		--			(1,190	)		0.87		0.50
Cancelled		37,260			(37,260	)		2.16		1.52
No longer available under the 1996 Plan		(792,740	)		--			--		--
June 30, 2006		1,546,836			2,346,701		$	1.37	$	0.98
Exercisable at June 30, 2006					1,845,252		$	1.25	$	0.89
Exercisable at June 30, 2005					1,675,735		$	1.21	$	0.85

	Outstanding								Exercisable
Range	Number of options		Weighted average exercise price		Aggregate intrinsic value at June 30, 2007		Remaining average contractual life in years		Number of options		Weighted average exercise price		Aggregate intrinsic value at June 30, 2007		Remaining average contractual life in years

$0.41 - $0.50		364,200	$	0.41	$	328,323		4.35		364,200	$	0.41	$	328,323		4.35
$0.63 - $0.83		220,950	$	0.79		115,426		3.87		220,950	$	0.79		115,426		3.87
$0.97 - $1.40		814,475	$	1.18		117,174		3.97		765,075	$	1.19		104,493		3.97
$1.42 - $1.84		527,500	$	1.58		--		4.77		363,248	$	1.59		--		4.77
$1.90 - $3.69		421,972	$	2.55		--		5.38		339,950	$	2.57		--		5.38

		2,349,097			$	560,923				2,053,423			$	548,242

During the six months ended June 30, 2007, 5,000 options to purchase shares of common stock were granted under the Company’s Stock Option Plan, with exercise prices ranging from $1.06 to $1.10, which represent the fair market value of such shares on the date of grant. There were no options to purchase shares of common stock granted under the Company’s Stock Option Plans during the six months ended June 30, 2006.

In January 2005, 100,000 shares of restricted stock, with a grant-date fair value of $1.12 per share, were granted to the Company’s Chief Executive Officer under the 2003 Incentive Plan. In January 2006, an additional 150,000 shares of restricted stock, with a grant-date fair value of $0.70 per share, were granted to the CEO under the 2003 Incentive Plan. In July 2006, an additional 48,528 shares of restricted stock, with a grant-date fair value of $1.49 per share, were granted to the CEO under the 2003 Incentive Plan. In January 2007, an additional 200,000 shares of restricted stock, with a grant-date fair value of $1.49 per share, were granted to the CEO under the 2003 Incentive Plan. These shares were calculated at fair value on the date of grant, and are being amortized over their respective vesting periods. Compensation expense related to these shares was $250,000 and $125,000 for the six and three months ended June 30, 2007, respectively, and was $71,000 and $36,000 for the six and three months ended June 30, 2006, respectively. As of June 30, 2007, there was $250,000 of total unrecognized compensation cost related to the nonvested portion of these awards. The above shares are only issued upon the request of the recipient. As of June 30, 2007, none of the above shares have been issued.

In January 2005, 25,000 shares of restricted stock, with a grant-date fair value of $1.12 per share, were granted to the Company’s Chief Financial Officer under the 2003 Incentive Plan. In January 2006, an additional 50,000 shares of restricted stock, with a grant-date fair value of $0.70 per share, were granted to the CFO under the 2003 Incentive Plan. In July 2006, an additional 16,415 shares of restricted stock, with a grant-date fair value of $1.49 per share, were granted to the CFO under the 2003 Incentive Plan. In January 2007, an additional 75,000 shares of restricted stock, with a grant-date fair value of $1.49 per share, were granted to the CFO under the 2003 Incentive Plan. These shares were calculated at fair value on the date of grant, and are being amortized over their respective vesting periods. Compensation expense related to these shares was $89,000 and $45,000 for the six and three months ended June 30, 2007, respectively, and was $22,000 and $11,000 for the six and three months ended June 30, 2006, respectively. As of June 30, 2007, there was $89,000 of total unrecognized compensation cost related to the nonvested portion of these awards. The above shares are only issued upon the request of the recipient. As of June 30, 2007, 10,943 shares have been issued.

During 2004, 100,000 shares of restricted stock, with a grant-date fair value of $2.55 per share, were granted to the Company’s Chief Operating Officer under the 2003 Incentive Plan. In July 2005, an additional 50,000 shares of restricted stock, with a grant-date fair value of $0.50 per share, were granted to the COO. In July 2006, an additional 206,203 shares of restricted stock, with a grant-date fair value of $1.49 per share, were granted to the COO under the 2003 Incentive Plan. These shares were calculated at fair value on the date of grant, and are being amortized over their respective vesting periods. Compensation expense related to these shares was $120,000 and $60,000 for the six and three months ended June 30, 2007, respectively, and was $48,000 and $24,000 for the six and three months ended June 30, 2006, respectively. As of June 30, 2007, there was $120,000 of total unrecognized compensation cost related to the nonvested portion of these awards. The above shares are only issued upon the request of the recipient. As of June 30, 2007, 150,000 shares have been issued.

In July 2006, a total of 142,008 shares of restricted stock, with a grant-date fair value of $1.49 per share, were granted to the members of the Company’s Board of Directors and to two of the Company’s Senior Managing Directors under the 2003 Incentive Plan. In March 2007, a total of 75,000 shares of restricted stock, with a grant-date fair value of $1.14 per share, were granted to the members of the Company’s Board of Directors under the 2003 Incentive Plan. In April 2007, 28,750 shares of restricted stock, with a grant-date fair value of $0.51 per share, were granted to one of the Company’s Managing Directors under the 2003 Incentive Plan. These shares were calculated at fair value on the date of grant. The shares granted to the members of the Company’s Board of Directors are being amortized over the service period of one year. Compensation expense related to these shares was $140,000 and $60,000 for the six and three months ended June 30, 2007, respectively. As of June 30, 2007, there was $60,000 of total unrecognized compensation cost related to the nonvested portion of these awards. The above shares are only issued upon the request of the recipient. As of June 30, 2007, 16,713 shares have been issued.

In August 2006, 10,000 shares of restricted stock, with a grant-date fair value of $1.45 per share, were granted to a member of the Company’s Board of Directors under the 2003 Incentive Plan. These shares were calculated at fair value on the date of grant, and are being amortized over the service period of one year. Compensation expense related to these shares was $8,000 and $4,000 for the six and three months ended June 30, 2007. As of June 30, 2007, there was $60,000 of total unrecognized compensation cost related to the nonvested portion of these awards. The above shares are only issued upon the request of the recipient. As of June 30, 2007, none of the above shares have been issued.

The Company manages its research and business advisory services in the following four business segments: On-Demand Business Research, Strategic Intelligence, Custom Market Research and Product Development Intelligence. References to “Corporate” and “Other” in our financial statements refer to the portion of assets and activities that are not allocated to a segment.

(in thousands)	Six Months Ended June 30,
	2007		2006 ⁽³⁾		$ Change			% Change
Revenues
On-Demand Business Research	$	7,191	$	7,400	$	(209	)		(2.82	%)
Strategic Intelligence		2,002		2,540		(538	)		(21.18	%)
Custom Market Research		9,959		8,364		1,595			19.07	%
Product Development Intelligence		5,317		4,914		403			8.20	%
Revenues	$	24,469	$	23,218	$	1,251			5.39	%

Operating income
On-Demand Business Research	$	41		$	723		$	(682	)	(94.33	%)
Strategic Intelligence		268			605			(337	)	(55.70	%)
Custom Market Research		2,195			1,040			1,155		111.06	%
Product Development Intelligence		633			668			(35	)	(5.24	%)
Total segment operating income		3,137			3,036			101		3.33	%
Corporate & other (1)		(3,114	)		(2,116	)		(998	)	(47.16	%)
Operating income	$	23		$	920		$	(897	)	(97.50	%)

(Loss) Income before income taxes ⁽²⁾
On-Demand Business Research	$	41		$	723		$	(682	)	(94.33	%)
Strategic Intelligence		268			610			(342	)	(56.07	%)
Custom Market Research		2,195			1,048			1,147		109.45	%
Product Development Intelligence		632			667			(35	)	(5.25	%)
Total segment income before income taxes		3,136			3,048			88		2.89	%
Corporate & other (1)		(3,320	)		(2,436	)		(884	)	(36.29	%)
(Loss) Income before income taxes	$	(184	)	$	612		$	(796	)	(130.07	%)

(1) Represents the effect of direct costs and selling, general, and administrative expenses not attributable to a single segment. (2) Excludes the impact of the cumulative effect of accounting change. (3) See Note C.

(in thousands)	Three Months Ended June 30,
	2007		2006 ⁽³⁾		$ Change			% Change
Revenues
On-Demand Business Research	$	3,657	$	3,620	$	37			1.02	%
Strategic Intelligence		1,017		1,305		(288	)		(22.07	%)
Custom Market Research		4,436		4,563		(127	)		(2.78	%)
Product Development Intelligence		2,577		2,474		103			4.16	%
Revenues	$	11,687	$	11,962	$	(275	)		(2.30	%)

Operating (Loss) income
On-Demand Business Research	$	127		$	324		$	(197	)	(60.80	%)
Strategic Intelligence		201			314			(113	)	(35.99	%)
Custom Market Research		863			772			91		11.79	%
Product Development Intelligence		290			279			11		3.94	%
Total segment operating income		1,481			1,689			(208	)	(12.31	%)
Corporate & other (1)		(1,593	)		(1,103	)		(490	)	(44.42	%)
Operating (Loss) income	$	(112	)	$	586		$	(698	)	(119.11	%)

(Loss) Income before income taxes ⁽²⁾
On-Demand Business Research	$	127		$	324		$	(197	)	(60.80	%)
Strategic Intelligence		202			314			(112	)	(35.67	%)
Custom Market Research		863			775			88		11.35	%
Product Development Intelligence		289			279			10		3.58	%
Total segment income before income taxes		1,481			1,692			(211	)	(12.47	%)
Corporate & other (1)		(1,698	)		(1,281	)		(417	)	(32.55	%)
(Loss) Income before income taxes	$	(217	)	$	411		$	(628	)	(152.80	%)

(1) Represents the effect of direct costs and selling, general, and administrative expenses not attributable to a single segment. (2) Excludes the impact of the cumulative effect of accounting change. (3) See Note C.

As of December 31, 2006, a balance of $53,000 remained accrued for charges under a severance plan approved by the Board of Directors. During the six months ended June 30, 2007, the Company accrued an additional charge of $141,000. Payments totaling $102,000 were made to six individuals during the six months ended June 30, 2007. The remaining balance of $92,000 will be paid through February 2008.

The Merger Agreement provides that Purchaser will commence a cash tender offer to acquire (i) all of the issued and outstanding shares of common stock, par value $0.0001 per share, of the Company (the “Common Shares”), at a price of $1.35 per Common Share, in cash and (ii) all of the issued and outstanding shares of Series A Preferred Stock, par value $0.0001 per share, of the Company (the “Preferred Shares” and, along with the Common Shares, the “Shares”), at a price equal to the liquidation preference of $1.50 per share plus accrued dividends thereon, in cash (the “Offer”).

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and in conjunction with our consolidated financial statements and notes thereto for the fiscal year ended December 31, 2006 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

Guideline is a single-source provider of customized business research and analysis. Through our end-to-end continuum of On-Demand Business Research, Custom Market Research, Strategic Intelligence and Product Development Intelligence, our research analysts create integrated solutions that enable clients to make informed decisions to address their critical business needs. We specialize in nearly all major industries, including healthcare and pharmaceuticals, financial services, advertising and professional services, industrial, consumer and retail, food and beverage, media and entertainment and chemicals. In many cases, we function as our customers’ primary information and business intelligence resource on an outsourced basis, especially among the growing universe of companies that have downsized their internal research staffs and information resources. In other cases, we serve as a reliable supplemental resource to customers’ internal capabilities.

(in thousands)	Six Months Ended June 30,
	2007			2006 ⁽¹⁾			$ Change			% Change
Revenues
On-Demand Business Research	$	7,191		$	7,400		$	(209	)		(2.82	%)
Strategic Intelligence		2,002			2,540			(538	)		(21.18	%)
Custom Market Research		9,959			8,364			1,595			19.07	%
Product Development Intelligence		5,317			4,914			403			8.20	%
Revenues	$	24,469		$	23,218		$	1,251			5.39	%

Direct costs
On-Demand Business Research	$	3,753		$	3,558		$	195			5.48	%
Strategic Intelligence		1,060			1,142			(82	)		(7.18	%)
Custom Market Research		6,744			6,217			527			8.48	%
Product Development Intelligence		3,462			3,081			381			12.37	%
Total direct costs	$	15,019		$	13,998		$	1,021			7.29	%

Selling, general and administrative expenses
On-Demand Business Research	$	3,518		$	3,225		$	293			9.09	%
Strategic Intelligence		718			835			(117	)		(14.01	%)
Custom Market Research		1,021			1,159			(138	)		(11.91	%)
Product Development Intelligence		1,370			1,274			96			7.54	%
Total segment selling, general and administrative expenses		6,627			6,493			134			2.06	%
Corporate & other		2,800			1,807			993			54.95	%
Total selling, general and administrative expenses	$	9,427		$	8,300		$	1,127			13.58	%

Operating income	$	23		$	920		$	(897	)		(97.50	%)

Interest expense	$	(210	)	$	(311	)	$	(101	)		(32.48	%)

Income tax benefit (provision)	$	103		$	(54	)	$	157			290.74	%

Net (loss) income	$	(81	)	$	654		$	(735	)		(112.39	%)

Net (loss) income attributable to common shareholders	$	(108	)	$	634		$	(742	)		(117.03	%)

(1) See Note C.

On-Demand Business Research revenues, which result from annual subscription contracts, decreased by $209,000, or 2.8%, from $7,400,000 for the six months ended June 30, 2006 to $7,191,000 for the six months ended June 30, 2007. Despite an increase in retainer subscription rates, the decrease was a result of 94 customer cancellations during the six months ended June 30, 2007 that were not sufficiently offset by the sale of 29 new customer accounts. In 2005, the Company changed to a strategy of retention of the retainer base, rather than one of actively selling new retainer subscriptions, and significantly reduced our direct sales force responsible for selling these subscriptions. There is also a perception among certain customers that they can satisfy their day-to-day research needs internally through the use of the internet. This has been partially offset by the introduction of new services catering to corporations and private capital firms, in addition to the re-structuring of existing retainer agreements, which have now begun to stabilize the decline in annual retainer base.

Strategic Intelligence revenues decreased by $538,000, or 21.2%, from $2,540,000 for the six months ended June 30, 2006 to $2,002,000 for the six months ended June 30, 2007. This decrease was primarily due to a lower volume of projects with this segment’s largest client. This one client accounted for 21.2% and 41.5% of the segment’s revenue for the six months ended June 30, 2007 and 2006, respectively.

Custom Market Research revenues increased by $1,595,000, or 19.1%, from $8,364,000 for the six months ended June 30, 2006 to $9,959,000 for the six months ended June 30, 2007. The increase was due to an increase in business volume from existing clients primarily in the pharmaceutical and legal sectors of approximately $794,000. In addition, revenue from the Company’s Custom Market Research business in Boston increased by approximately $801,000 due to a greater volume of projects from new and existing clients.

Product Development Intelligence revenues increased by $403,000, or 8.2%, from $4,914,000 for the six months ended June 30, 2006 to $5,317,000 for the six months ended June 30, 2007. This was primarily the result of a $266,000 increase in revenue for this segment’s project-based services, which include the Litigation Support business, which provides customers with access to subject-matter experts to support customer litigation activities, as well as in-depth consulting engagements, and a $137,000 increase in this segment’s subscription-based services.

Direct costs, which are those costs directly related to generating revenue, such as direct labor, expenses incurred on behalf of clients and the costs of electronic resources and databases, increased by $1,021,000, or 7.3%, from $13,998,000 for the six months ended June 30, 2006 to $15,019,000 for the six months ended June 30, 2007. Direct costs represented 61.4% and 60.3% of revenues for the six months ended June 30, 2007 and 2006, respectively. See below for more details regarding this increase.

On-Demand Business Research direct costs increased by $195,000 or 5.5%, from $3,558,000 for the six months ended June 30, 2006 to $3,753,000 for the six months ended June 30, 2007. This increase was primarily a result of an increase in external costs of sales related to fulfillment, including the cost paid to content providers, of $77,000 and an increase in direct labor including stock-based compensation expense of $73,000.

Strategic Intelligence direct costs decreased by $82,000 or 7.2%, from $1,142,000 for the six months ended June 30, 2006 to $1,060,000 for the six months ended June 30, 2007. This decrease was primarily a result of a decrease in direct labor including stock-based compensation expense of $93,000, partially offset by an increase in external costs of sales related to fulfillment, including the cost paid to content providers of $11,000.

Custom Market Research direct costs increased by $527,000 or 8.5%, from $6,217,000 for the six months ended June 30, 2006 to $6,744,000 for the six months ended June 30, 2007. This increase was primarily a result of an increase in external costs of sales related to fulfillment, including the cost paid to content providers of $501,000, and an increase in direct labor including stock-based compensation expense of $26,000.

Product Development Intelligence direct costs increased by $381,000 or 12.4%, from $3,081,000 for the six months ended June 30, 2006 to $3,462,000 for the six months ended June 30, 2007. This increase was primarily a result of an increase in direct labor including stock-based compensation expense of $365,000, partially offset by a decrease in external costs of sales related to fulfillment, including the cost paid to content providers of $16,000.

On-Demand Business Research SG&A expenses increased by $293,000 or 9.1%, from $3,225,000 for the six months ended June 30, 2006 to $3,518,000 for the six months ended June 30, 2007. This increase was primarily a result of an increase in severance and related expenses of $100,000 and an increase in allocated overhead expenses of $170,000. The increase in allocated overhead expenses was a result of increased costs related to strategic initiatives pursued during the six months ended June 30, 2007.

Strategic Intelligence SG&A expenses decreased by $117,000 or 14.0%, from $835,000 for the six months ended June 30, 2006 to $718,000 for the six months ended June 30, 2007. This decrease was primarily a result of a decrease in indirect labor including stock-based compensation expense of $132,000 and decreases in advertising and hiring fees, partially offset by an increase in travel expenses of $56,000, and an increase in professional fees of $10,000.

Product Development Intelligence SG&A expenses increased by $96,000 or 7.5%, from $1,274,000 for the six months ended June 30, 2006 to $1,370,000 for the six months ended June 30, 2007. This increase was primarily a result of an increase in indirect labor including stock-based compensation expense of $132,000 and an increase in bad debt expense of $24,000, partially offset by decreases in professional fees, travel expenses, maintenance and advertising.

SG&A expenses not allocated to a segment increased by $993,000 or 55.0%, from $1,807,000 for the six months ended June 30, 2006 to $2,800,000 for the six months ended June 30, 2007. This increase was due primarily to an increase in indirect labor including stock-based compensation expense of $807,000. The increase in indirect labor was primarily the result of an increase of $182,000 due to the establishment of a corporate-wide sales force and an increase of $438,000 in stock-based compensation expense as a result of grants of options and restricted stock to the Board of Directors and certain members of management. Non-labor SG&A expenses increased as a result of an increase in merger and acquisition related expenses of $228,000 and an increase in professional fees of $184,000, partially offset by decreases in public relations, insurance, maintenance and advertising and an increase in the amount of overhead allocated to the On-Demand Business Research segment.

Interest expense decreased by $101,000 from $311,000 for the six months ended June 30, 2006 to $210,000 for the six months ended June 30, 2007. This decrease is primarily the result of a reduced level of outstanding debt during the six months ended June 30, 2007 as compared with the six months ended June 30, 2006. See Note F. to the Condensed Consolidated Financial Statements, included elsewhere in this Form 10-Q, for more information regarding this credit facility.

The $103,000 benefit for income taxes and the $54,000 provision for income taxes for the six months ended June 30, 2007 and 2006, respectively, represent 56% and 9%, respectively, of the income (loss) before provision for income taxes. The difference between these rates and the statutory rate primarily relates to expenses that are not deductible for income tax purposes and reflects the utilization of $273,000 of federal net operating loss carryforwards during the six months ended June 30, 2006. The Company expects its 2007 annual effective tax rate to approximate 56%.

Net loss attributable to common shareholders for the six months ended June 30, 2007 was $108,000, as compared to net income attributable to common shareholders for the six months ended June 30, 2006 of $634,000. Included in net income in the first half of 2006 was the cumulative effect of accounting change of $96,000 in conjunction with the adoption of SFAS 123(R).

(in thousands)	Three Months Ended June 30,
	2007			2006 ⁽¹⁾			$ Change			% Change
Revenues
On-Demand Business Research	$	3,657		$	3,620		$	37			1.02	%
Strategic Intelligence		1,017			1,305			(288	)		(22.07	%)
Custom Market Research		4,436			4,563			(127	)		(2.78	%)
Product Development Intelligence		2,577			2,474			103			4.16	%
Revenues	$	11,687		$	11,962		$	(275	)		(2.30	%)

Direct costs
On-Demand Business Research	$	1,845		$	1,559		$	286			18.35	%
Strategic Intelligence		528			582			(54	)		(9.28	%)
Custom Market Research		3,054			3,292			(238	)		(7.23	%)
Product Development Intelligence		1,701			1,617			84			5.19	%
Total direct costs	$	7,128		$	7,050		$	78			1.11	%

Selling, general and administrative expenses
On-Demand Business Research	$	1,716		$	1,793		$	(77	)		(4.29	%)
Strategic Intelligence		321			426			(105	)		(24.65	%)
Custom Market Research		519			522			(3	)		(0.57	%)
Product Development Intelligence		682			639			43			6.73	%
Total segment selling, general and administrative expenses		3,238			3,380			(142	)		(4.20	%)
Corporate & other		1,433			946			487			51.48	%
Total selling, general and administrative expenses	$	4,671		$	4,326		$	345			7.98	%

Operating (loss) income	$	(112	)	$	586		$	(698	)		(119.11	%)

Interest expense	$	(106	)	$	(164	)	$	(58	)		(35.37	%)

Income tax benefit (provision)	$	122		$	(36	)	$	158			438.89	%

Net (loss) income	$	(95	)	$	375		$	(470	)		(125.33	%)

Net (loss) income attributable to common shareholders	$	(108	)	$	365		$	(473	)		(129.59	%)

(1) See Note C.

On-Demand Business Research revenues, which result from annual subscription contracts, increased by $37,000, or 1.0%, from $3,620,000 for the three months ended June 30, 2006 to $3,657,000 for the three months ended June 30, 2007. This increase was a result of fewer customer cancellations during the three months ended June 30, 2007 as compared with the three months ended June 30, 20006, coupled with increased retainer rates. Average monthly retainer rates increased by approximately 6.7% during the three months ended June 30, 2007.

Strategic Intelligence revenues decreased by $288,000, or 22.1%, from $1,305,000 for the three months ended June 30, 2006 to $1,017,000 for the three months ended June 30, 2007. This decrease was primarily due to a lower volume of projects with this segment’s largest client. This one client accounted for 17.5% and 54.7% of the segment’s revenue for the three months ended June 30, 2007 and 2006, respectively.

Custom Market Research revenues decreased by $127,000, or 2.8%, from $4,563,000 for the three months ended June 30, 2006 to $4,436,000 for the three months ended June 30, 2007. The decrease was primarily due to an decrease in business volume from existing clients primarily in the pharmaceutical and legal sectors of approximately $231,000. In addition, revenue from the Company’s Custom Market Research business in Boston increased by approximately $104,000 due to a greater volume of projects from new and existing clients.

Product Development Intelligence revenues increased by $103,000, or 4.2%, from $2,474,000 for the three months ended June 30, 2006 to $2,577,000 for the three months ended June 30, 2007. This was primarily the result of a $73,000 increase in revenue for this segment’s project-based services, which include the Litigation Support business, which provides customers with access to subject-matter experts to support customer litigation activities, as well as in-depth consulting engagements, and a $30,000 increase in this segment’s subscription-based services.

Direct costs, which are those costs directly related to generating revenue, such as direct labor, expenses incurred on behalf of clients and the costs of electronic resources and databases, increased by $78,000, or 1.1%, from $7,050,000 for the three months ended June 30, 2006 to $7,128,000 for the three months ended June 30, 2007. Direct costs represented 61.0% and 58.9% of revenues for the three months ended June 30, 2007 and 2006, respectively. See below for more details regarding this increase.

On-Demand Business Research direct costs increased by $286,000 or 18.4%, from $1,559,000 for the three months ended June 30, 2006 to $1,845,000 for the three months ended June 30, 2007. This increase was primarily a result of an increase in external costs of sales related to fulfillment, including the cost paid to content providers of $200,000, and an increase in direct labor including stock-based compensation expense of $83,000.

Strategic Intelligence direct costs decreased by $54,000 or 9.3%, from $582,000 for the three months ended June 30, 2006 to $528,000 for the three months ended June 30, 2007. This decrease was primarily a result of a decrease in direct labor expense of $48,000 and a decrease in external costs of sales related to fulfillment, including the cost paid to content providers of $9,000.

Custom Market Research direct costs decreased by $238,000 or 7.2%, from $3,292,000 for the three months ended June 30, 2006 to $3,054,000 for the three months ended June 30, 2007. This decrease was primarily a result of a decrease in external costs of sales related to fulfillment, including the cost paid to content providers of $200,000, and a decrease in direct labor including stock-based compensation expense of $35,000.

Product Development Intelligence direct costs increased by $84,000 or 5.2%, from $1,617,000 for the three months ended June 30, 2006 to $1,701,000 for the three months ended June 30, 2007. This increase was primarily a result of an increase in direct labor including stock-based compensation expense of $119,000, partially offset by a decrease in external costs of sales related to fulfillment, including the cost paid to content providers of $35,000.

On-Demand Business Research SG&A expenses decreased by $77,000 or 4.3%, from $1,793,000 for the three months ended June 30, 2006 to $1,716,000 for the three months ended June 30, 2007. This decrease was primarily a result of a decrease in allocated overhead expenses of $131,000, primarily due to a reduction in depreciation expense allocated to the segment, partially offset by an increase in severance and related expenses of $33,000 and an increase in bad debt expense of $19,000.

Product Development Intelligence SG&A expenses increased by $43,000 or 6.7%, from $639, 000 for the three months ended June 30, 2006 to $682,000 for the three months ended June 30, 2007. This increase was primarily a result of an increase in indirect labor including stock-based compensation expense of $75,000, partially offset by decreases in professional fees, travel expenses, maintenance and advertising.

SG&A expenses not allocated to a segment increased by $487,000 or 51.5%, from $946,000 for the three months ended June 30, 2006 to $1,433,000 for the three months ended June 30, 2007. This increase was due primarily to an increase in indirect labor including stock-based compensation expense of $295,000. The increase in indirect labor was primarily the result of an increase of $202,000 in stock-based compensation expense as a result of grants of options and restricted stock to the Board of Directors and certain members of management. Non-labor SG&A expenses increased as a result of an increase in merger and acquisition related expenses of $144,000 and an increase in professional fees of $103,000, partially offset by decreases in public relations, insurance, maintenance and advertising and an increase in the amount of overhead allocated to the On-Demand Business Research segment.

Interest expense decreased by $58,000 from $164,000 for the three months ended June 30, 2006 to $106,000 for the three months ended June 30, 2007. This decrease is primarily the result of a reduced level of outstanding debt during the three months ended June 30, 2007 as compared with the three months ended June 30, 2006. See Note F. to the Condensed Consolidated Financial Statements, included elsewhere in this Form 10-Q, for more information regarding this credit facility.

The $122,000 benefit for income taxes and the $36,000 provision for income taxes for the three months ended June 30, 2007 and 2006, respectively, represent 56% and 9%, respectively, of the income (loss) before provision for income taxes. The difference between these rates and the statutory rate primarily relates to expenses that are not deductible for income tax purposes and reflects the utilization of $203,000 of federal net operating loss carryforwards during the three months ended June 30, 2006. The Company expects its 2007 annual effective tax rate to approximate 56%.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued the revised Statement of Financial Accounting Standards (“SFAS”) No. 123, “Share-Based Payment” (“SFAS 123 (R)”), which the Company adopted on January 1, 2006. SFAS 123 (R) requires compensation costs related to share-based payment transactions to be recognized in the financial statements. Generally, compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the requisite service period, generally as the award vests. As a result of adopting SFAS 123(R), the Company recognized an after-tax gain of $96,000 ($96,000 pre-tax), with an impact on basic and diluted earnings per share of $0.01, as the cumulative effect of a change in accounting principle attributable to the requirement to estimate forfeitures at the grant date instead of recognizing them as incurred. The adoption of SFAS 123(R) did not otherwise have a material effect on the 2006 consolidated financial statements.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (“SAB No. 108”), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB No. 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB No. 108 requires companies to quantify misstatements using a Rollover and Iron Curtain approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is material, companies will record the effect as a cumulative effect adjustment to beginning of year retained earnings. The Company has historically used the Rollover Method. The provisions of SAB No. 108 were effective for the Company for the year ended December 31, 2006. In connection with the application of SAB No. 108, the Company recorded a $447,000 charge to retained earnings as of January 1, 2006 which relates to (i) a $300,000 overstatement of deferred tax assets that accumulated over several previous years and, (ii) a $147,000 understatement of accrued expenses related to travel costs. The deferred tax asset adjustment arose as the Company was preparing for the adoption of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109”, when the Company was analyzing the tax basis of its property, plant and equipment compared to related deferred tax assets on its balance sheet. This deferred tax asset issue arose over several previous fiscal years and the Company determined that the impact on any given fiscal year was not material.

	Increase (Decrease)
	Accrued expenses and other		Deferred tax assets			Retained earnings

Overstatement of deferred tax assets ⁽¹⁾	$	--	$	(300,000	)	$	(300,000	)
Understatement of accrued expenses ⁽²⁾		147,000		--			(147,000	)
	$	147,000	$	(300,000	)	$	(447,000	)

⁽¹⁾ The Company adjusted the tax basis of property, plant and equipment by reducing deferred tax assets as a result of an overstatement of these deferred tax assets that accumulated over several previous years. ⁽²⁾ The Company recorded travel expenses incurred in 2005 as an expense in 2006 when these expenses were paid. These expenses should have been recorded in 2005.

	Previously Reported		Adjustment			As Adjusted
For the six months ended June 30, 2006
Deferred tax assets	$	1,057,000	$	(300,000	)	$	757,000
Accrued expenses		2,148,000		(11,000	)		2,137,000
Shareholders’ equity		22,095,000		(290,000	)		21,805,000
Selling, general & administrative expenses		8,372,000		(72,000	)		8,300,000
Net income		588,000		66,000			654,000
Net income attributable to shareholders		568,000		66,000			634,000
Earnings per share		0.03		0.00			0.03

For the three months ended June 30, 2006
Deferred tax assets	$	1,057,000	$	(300,000	)	$	757,000
Accrued expenses		2,148,000		(11,000	)		2,137,000
Shareholders’ equity		22,095,000		(290,000	)		21,805,000
Selling, general & administrative expenses		4,337,000		(11,000	)		4,326,000
Net income		364,000		11,000			375,000
Net income attributable to shareholders		354,000		11,000			365,000
Earnings per share		0.02		0.00			0.02

Our management’s discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. Our preparation of our financial statements requires us to make estimates and judgments that affect reported amounts of assets, liabilities and revenues and expenses. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, allowances for doubtful accounts, useful lives of property, plant and equipment and intangible assets, goodwill, deferred tax asset valuation allowances, valuation of non-marketable equity securities, other investments, and other accrued expenses. We base our estimates on historical experience and on various other assumptions, which we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. We have identified the accounting policies below as critical to our business operations and the understanding of our results of operations.

Approximately 39% of the Company’s revenues for the six months ended June 30, 2007 were derived from subscription contracts with customers, including approximately 94% of the revenues of the On-Demand business segment and approximately 53% of the revenues of the Product Development Intelligence business segment. The remaining 61% of the Company’s revenues for the six months ended June 30, 2007 consisted of market research projects, in-depth research projects and outsourced information services.

Goodwill consists of the excess of the purchase price over the fair value of identifiable net assets of businesses acquired. The Company follows the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” under which goodwill is no longer amortized. Instead, goodwill is evaluated for impairment using a two-step process that is performed at least annually (July 1^st for goodwill related to our Guideline Research, Teltech, Atlantic and Signia businesses) and whenever events or circumstances indicate impairment may have occurred. The first step is a comparison of the fair value of an internal reporting unit with its carrying amount including goodwill. If the fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not considered impaired and the second step is unnecessary. If the carrying value of the reporting unit exceeds its fair value, a second test is performed to measure the amount of impairment by comparing the carrying amount of the goodwill to a determination of the implied value of the goodwill. If the carrying amount of the goodwill is greater than the implied value, an impairment loss is recognized for the difference. The implied value of the goodwill is determined as of the test date by performing a purchase price allocation as if the reporting unit had just been acquired, using currently estimated fair values of the individual assets and liabilities of the reporting unit, together with an estimate of the fair value of the reporting unit taken as a whole. The estimate of the fair value of the reporting unit is based upon information available regarding prices of similar groups of assets, or other valuation techniques including present value techniques based upon estimates of future cash flow.

Intangible Assets, including customer relationships, trademarks and other intangible assets are amortized over their estimated useful lives unless they are deemed to have indefinite useful lives. Upon the adoption of SFAS 142, intangible assets deemed to have indefinite useful lives, such as trade names, are not amortized and are subject to annual impairment tests (July 1^st for intangibles related to our Guideline Research, Teltech, Atlantic and Signia businesses). An impairment exists if the carrying value of the indefinite-lived intangible asset exceeds its fair value. For other intangible assets subject to amortization, an impairment is recognized if the carrying amount is not recoverable and the carrying amount exceeds the fair value of the intangible asset. Amortizable intangibles are tested for impairment if a triggering event occurs.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using currently enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We have tax loss carryforwards that have been recognized as assets on our balance sheet. These assets are subject to expiration from 2020 to 2023. Realization of the net deferred tax assets is dependent on future reversals of existing taxable temporary differences and adequate future taxable income, exclusive of reversing temporary differences and carryforwards.

Historically, our primary sources of liquidity and capital resources have been cash flow from retainer accounts (including prepaid retainer fees from clients) and borrowings. Cash balances were- $1,465,000 and $2,939,000 at June 30, 2007 and December 31, 2006, respectively. Our working capital surplus position (current assets less current liabilities) at June 30, 2007 was $389,000 as compared to a working capital deficit position of $(211,000) at December 31, 2006. Included in current liabilities is unearned retainer income of $6,011,000 as of June 30, 2007 and $4,351,000 as of December 31, 2006. Such amounts reflect amounts billed, but not yet earned.

Cash provided by operating activities was $760,000 and $883,000 during the six months ended June 30, 2007 and 2006, respectively. During 2007, the most significant items were a decrease in accounts payable and accrued expenses of $1,135,000, primarily due to the payment of the Two Year Deferred Consideration related to the acquisitions of Atlantic and Signia, an increase in accounts receivable of $932,000 and an increase in prepaid expenses and other current assets of $298,000, due primarily to the prepayment of real estate taxes related to the Company’s New York location and the prepayment for research resources, partially offset by an increase in unearned income of $1,660,000, depreciation and amortization of $758,000 and share-based payments of $758,000. During 2006, operating cash was provided primarily by net income of $654,000, an increase in unearned revenue of $1,443,000, depreciation and amortization of $795,000 and share-based payments of $312,000 partially offset by an increase in accounts receivable of $1,861,000, a decrease in accounts payable and accrued expenses of $329,000, primarily due to the payment of the One Year Deferred Consideration related to the acquisitions of Atlantic and Signia, and cash used for other general operating purposes. Receivables and unearned revenue in both periods increased as a result of increased profitability and the volume of projects that have commenced.

Cash used in investing activities was $(1,366,000) and $(1,239,000) in the six-month periods ended June 30, 2007 and 2006, respectively. In 2007 and 2006, the primary use of cash was for capital expenditures for computer hardware upgrades and leasehold improvements of $281,000, and $459,000, respectively. Also in 2007, the Company increased its investment in a minority interest by $55,000. Also in 2007 and 2006, the Company made payments of deferred consideration of $750,000 and $500,000, respectively, related to the acquisition of Atlantic and $280,000 and $280,000, respectively, related to the acquisition of Signia. During 2007 the Company expects to spend approximately $820,000 for capital items, which will relate primarily to computer hardware and software upgrades and for leasehold improvements.

Cash used in financing activities was $(868,000) and $(1,022,000) in the six-month periods ended June 30, 2007 and 2006, respectively. In 2007, the most significant item was the repayment of notes payable of $1,507,000, including the pay-down of $1,000,000 on the senior secured revolving credit facility (“Revolving Facility”), partially offset by additional borrowings under the Revolving Facility of $500,000 and proceeds from the exercise of warrants and options of $169,000. In 2006, the most significant item was the repayment of notes payable of $2,476,000, including the pay-down of $2,000,000 on the Revolving Facility, offset by additional borrowings under the Revolving Facility of $1,500,000.

As of June 30, 2007, $2,700,000 remains outstanding under the $4,500,000 Term Facility, and $500,000 remains outstanding under the Revolving Facility. Accrued but unpaid interest related to the Term and Revolving Facilities was approximately $43,000 as of June 30, 2007. The Term Facility bears interest at LIBOR plus 3%, which was 8.36% at June 30, 2007 based on the three-month LIBOR contract in effect at that time. The Revolving Facility bears interest at LIBOR plus 2.75%, which was 8.09% at June 30, 2007 based on the two-month contract in effect at that time. Interest expense related to the Term Facility was $116,000 and $149,000 for the six months ended June 30, 2007 and 2006, respectively and $56,000 and $87,000 for the three months ended June 30, 2007 and 2006, respectively. Interest expense related to the Revolving Facility was $7,000 and $65,000 for the six months ended June 30, 2007 and 2006, respectively and $7,000 and $29,000 for the three months ended June 30, 2007 and 2006, respectively. The Company previously incurred $760,000 in closing and other transaction costs related to the Senior Secured Facilities, which are amortized to interest expense over the duration of the Term Facility. Amortization of deferred financing fees was $76,000 for the six months ended June 30, 2007 and 2006, and was $38,000 for the three months ended June 30, 2007 and 2006, and is included in interest expense.

	As of June 30, 2007
	Total		Less than 1 year		1 - 3 years		3 - 5 years		After 5 years
Notes payable	$	3,382,000	$	1,505,000	$	1,877,000	$	--	$	--
Interest payable ⁽¹⁾		279,000		127,000		152,000		--		--
Non-cancelable operating lease commitments		7,319,000		1,355,000		2,657,000		2,283,000		1,024,000
Capital lease commitments		12,000		12,000		--		--		--
Salary commitments		390,000		390,000		--		--		--
	$	11,382,000	$	3,389,000	$	4,686,000	$	2,283,000	$	1,024,000

⁽¹⁾Interest payable on our Term and Revolving Facilities is based on variable rate interest contracts. Interest payable as shown in the table above is based on the current contracts in effect at June 30, 2007 (which were 8.36% for the Term Facility and 8.09% for the Revolving Facility). If interest rates were to increase by 1%, total interest payable would increase by $32,000 ($14,000 less than 1 year and $18,000 1-3 years). See Note F to the Condensed Consolidated Financial Statements for additional details regarding the interest rates related to the Company’s debt.

In this report, and from time to time, we may make or publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products and services, and similar matters. Such statements are necessary estimates reflecting management's best judgment based on current information. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Such statements are usually identified by the use of words or phrases such as “believes,” “anticipates,” “expects,” “estimates,” “planned,” “outlook,” and “goal.” Because forward-looking statements involve risks and uncertainties, our actual results could differ materially. In order to comply with the terms of the safe harbor, we note that a variety of risks and uncertainties could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in forward-looking statements. While it is impossible to identify all such factors, the risks and uncertainties that may affect the operations, performance and results of our business include the risks and uncertainties set forth in the section headed “Factors That Could Affect Our Future Results” of Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

The Company maintains the Term Facility and Revolving Facility, which are for non-trading purposes, and any future borrowings thereunder would increase our exposure to market risk. An immediate change of one percent in the interest rate would cause a change in interest expense of approximately $32,000 for the fiscal year ending December 31, 2007. The Term Facility bears interest at LIBOR plus 3%, which was 8.36% at June 30, 2007 based on the three-month LIBOR contract in effect at that time. The Revolving Facility bears interest at LIBOR plus 2.75%, which was 8.09% at June 30, 2007 based on the separate two-month LIBOR contract in effect at the time. Our objective in maintaining the Revolving Facility is the ability to obtain funding that provides flexibility regarding early repayment without penalties, and that has a lower overall cost as compared with fixed-rate borrowings. Management does not believe that the risk inherent in the variable-rate nature of the Term and Revolving Facilities would have a material adverse effect on the Company if interest rates accrued on such borrowings were to increase. However, no assurance can be given that such a risk will not have a material adverse effect on the Company.

There has been no material change in our assessment of our sensitivity to market risk as of June 30, 2007, as compared to the information included in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk”, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, as filed with the Securities and Exchange Commission on April 17, 2007.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the Company’s internal control over financial reporting to determine whether any changes occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there have been no such changes during the period covered by this report.

Exhibit		Description

*31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*32.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*32.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit		Description

*31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*32.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*32.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

New York	13-2670985
(State or other jurisdiction	(I.R.S. employer
of incorporation or organization)	identification no.)

	2007
Expected dividend yield		0	%
Risk-free interest rate		4.47% to 4.54	%
Volatility		62.10% to 66.38	%
Expected life		3 years to 5 years


	Guideline, Inc. (REGISTRANT)

Date: August 14, 2007	By:	/s/ David Walke
		David Walke
		Chief Executive Officer




Date: August 14, 2007		/s/ Peter Stone
		Peter Stone Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)