Use these links to rapidly review the documentTABLE OF CONTENTS FORM 10-K.ITEM 15(a)(1) Thomas Group, Inc. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|ý                                                                        | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934[Fee Required]FOR THE YEAR ENDED DECEMBER 31, 2002.                          
|------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|OR                                                                      
|o                                                                        | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934[No Fee Required]FOR THE TRANSITION PERIOD
FROM                        TO
|Commission file number 0-22010                                          
|                                                                        
|THOMAS GROUP, INC.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of incorporation or organization)                          |  | 72-0843540(I.R.S. Employer Identification No.)
|----------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|5221 North O'Connor Boulevard,
Suite 500, Irving, Texas(Address of principal executive offices) |  | 75039-3714(Zip Code)                          
|(972) 869-3400(Registrant's telephone number, including area code)                              |  |                                               
|Securities registered pursuant to Section 12(b) of the Act:                                    
|Title of each class                                                                             |  | Name of each exchange on which registered     
|Common stock, par value $.01 per share                                                          |  | OTC Bulletin Board                            
|Securities registered pursuant to Section 12(g) of the Act: Rights to purchase common stock    
|                                                                                               

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 ý/No o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 126-2 of the
Act). Yes o/No ý

As
of April 10, 2003, the aggregate market value of the voting stock held by non-affiliates of the registrant was $1,836,271, based on the OTC Bulletin Board closing
price of $0.53.

As
of April 10, 2003, there were 9,556,139 shares of the registrant's common stock outstanding.

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TABLE OF CONTENTS



|                                           |  |                                                                                       |  | Page
|------------------------------------------ |  | ------------------------------------------------------------------------------------- |  | ----
|PART I                                     |  |                                                                                       |  |     
|Item 1.                                    |  | Business                                                                              |  | 1   
|Item 2.                                    |  | Properties                                                                            |  | 8   
|Item 3.                                    |  | Legal Proceedings                                                                     |  | 8   
|Item 4.                                    |  | Submission of Matters to a Vote of Security Holders                                   |  | 9   
|PART II                                    |  |                                                                                       |  |     
|Item 5.                                    |  | Market for Registrant's Common Equity and Related Stockholder Matters                 |  | 10  
|Item 6.                                    |  | Selected Financial Data                                                               |  | 11  
|Item 7.                                    |  | Management's Discussion and Analysis of Financial Condition and Results Of Operations |  | 12  
|Item 7A.                                   |  | Quantitative and Qualitative Disclosure About Market Risk                             |  | 24  
|Item 8.                                    |  | Financial Statements and Supplementary Data                                           |  | 24  
|Item 9.                                    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 24  
|PART III                                   |  |                                                                                       |  |     
|Item 10.                                   |  | Directors and Executive Officers of the Company                                       |  | 24  
|Item 11.                                   |  | Executive Compensation                                                                |  | 25  
|Item 12.                                   |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 25  
|Item 13.                                   |  | Certain Relationships and Related Transactions                                        |  | 25  
|Item 14.                                   |  | Controls and Procedures                                                               |  | 25  
|PART IV                                    |  |                                                                                       |  |     
|Item 15.                                   |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 26  
|                                           |  | Signatures                                                                            |  | 29  
|                                           |  | Certifications                                                                        |  | 30  
|Index to Consolidated Financial Statements |  | F-1                                                                                  

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PART I

ITEM 1.Business.

General

Thomas Group, Inc. (the "Company"), a Delaware corporation, established in 1978, is an international, professional services firm focusing on improving
operations, competitiveness and financial performance of major corporate clients through process improvement and strategically aligning operations with technology. Recognized as a leading specialist
in operations consulting, the Company creates and implements custom improvement strategies for sustained performance improvement. The Company's clients are typically large companies, many of whom are
included in the Fortune or Global 1000.

The
Company's products are based on three fundamental principles: a metrics-driven process, attaining and sustaining significant results for clients and program implementation by
consultants with senior management experience in industry.

Since
1978, the Company has been developing and improving its Process Value Management ("PVM") methodology for achieving operational excellence. PVM is based on the Company's Total Cycle
Time ("TCT") methods and supplements TCT with numerous process improvement tools the Company has developed over the last 25 years. PVM continues to contribute to the measurable operational
improvement of hundreds of companies.

During
the Company's first ten years, it originated many of the fast-process methods that transform the processes, procedures and people within clients' organizations to
create smooth, efficient and seamless operations. These methods quickly became standard operations for the electronics and semiconductor
industries. Soon afterwards, they were being applied to general manufacturing, heavy industry and product inventory. In the late 1980s, in response to numerous client requests, the Company applied the
fast-process tools and methods to non-manufacturing processes such as product development, sales, marketing and the strategic alignment of resources. The application of
fast-process tools across the entire enterprise led to major process and productivity gains in "white collar" areas that had been ignored for years in the manufacturing plant, again
delivering substantial gains for its clients. Today, the Company is involved with new tools, both proprietary and non-proprietary, to drive higher results. The Company is working to help
link all of a corporation's strategic processes, not only across its internal functions, but also across entities and geographies.

Statement of Business

The Company's business is helping its clients improve their bottom-line results using the Company's senior executives who work
side-by-side with clients to remove barriers, increase productivity, change culture, and focus on quickly satisfying customer needs. This has been the primary focus of the
Company since our beginning in 1978.

Process Value Management

The Company's PVM approach is based on its 25 years of experience with process improvement tools and methodologies that drive financial
bottom-line results. The Company uses PVM to help an enterprise determine strategic business processes, assess their linkages and efficiencies, and prescribe short and
long-term enhancement programs that optimize customer satisfaction and shareholder value. The Company's staff of business professionals who apply PVM methodology are referred to by the
Company as "Resultants." An initial client assignment might typically address one or more of these key processes that are dragging down performance. A long-term relationship might involve
an implementation team of Resultants working with the corporation over a number of years to achieve a total transformation to the "Process Managed Enterprise."

1

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Experience
has taught us that:



Total Cycle Time

The Company's initial offering, TCT, centers on reducing cycle times and increasing first pass yield (quality), therefore improving overall productivity. Using
the Company's methods, business process cycle timesthe time from the beginning to the end of any business activitycan normally be reduced by up to 50%, whether the process is
engineering, manufacturing or sales.

For
example, in a manufacturing setting, it might take 30 days from the time an order is received until the order is shipped. The Company first determines the baseline time of
that processthe time currently expended doing the work. Based on the Company's best practices, a multiplier is used to move from baseline to "entitlement"how fast the process
should run with current resources. The Company's Resultants then work with client management to reduce the current rate to the entitlement by mapping the process, eliminating unnecessary steps, and
removing process and cultural barriers.

The
key to TCT's success is the Resultants' ability to identify the right metrics to drive the business and the critical processes of the business. Many companies only look at results measures, such as
return on net assets. The problem with results measures is that by the time their value is known, it is too late in the
process to employ corrective measures. However, when predictivedriver measuressuch as cycle time and first pass yield are used, clients can determine
the trajectory of their business and make adjustments as needed.

The
Company uses a "cockpit chart" approach to capture the key measurements for a business and to ensure that the focus is on the appropriate processes that will drive results. Cockpit
charts contain a balanced combination of results and driver measurements. In addition, these top-level measurements are hierarchical and represent the roll-up of the key
processes.

TCT
remains a core of the Company's PVM methodology.

TTMOPTTMIZE

New product development is a particularly complex challenge for most enterprises. It requires not only coordinated participation from resources across the
organization but also the successful blending of the creative and operational aspects of the development process. Additionally, there is a constant juggling act as multiple new product programs of
differing length, cost, risk, complexity and resource requirements begin and end. Finally, there is the critical element of time: being second to market with a breakthrough innovation is too late, and
in any event there can be no return on investment of any development activity until that new product enters the marketplace.

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As
is in all activities of the Process Managed Enterprise, time is of the essence. In the case of new product development, the management challenge is two dimensional: one dimension is
managing the new product development process in terms of time, quality and cost, what the Company calls time to market ("TTM"); the other is assessing these programs in a portfolio context to maximize
resource utilization and portfolio returns.

The
Company's solution to the TTM issue is to couple the Company's existing PVM process approach and measurements with a new, proprietary database tool that can be applied across new
product development activities. This combination, called OPTTMIZE, improves new product project tracking, shortens new product introduction times, and quantifies new product portfolio performance.

OPTTMIZE
brings a new level of visibility, particularly in the area of time to market and constrained resources, with both data and tools that link process improvement to improved
resource utilization, higher returns on investment, and reduced time to market.

Supply Chain Process Value

Supply chain management ("SCM") has matured over the last decade. A milestone in the maturity of SCM, driven by the need for value control in today's competitive
global environment, is the leading-edge concept that the demand side management within a supply chain has as much impact on value and cash management as does supply side management.

This
is an excellent example of recognizing the interconnectivity of processes and supports the need to shift from a functional to a process view of SCM. Thomas Group's own Supply Chain
Process Value ("SCPV") offering within its overarching PVM approach, balances demand side management and supply side management while optimizing responsiveness, quality and value.

The
Company has helped hundreds of clients make a successful transition from functional organizations to efficient SCPV cross-functional teams. Using this PVM architecture, the Company
analyzes the client's operations and supply chain network, then applies tools such as TCT and OPUS (described below) to drive down inventory levels, reduce delivery time and improve order accuracy.
Ideally, this process links back into the client's suppliers and customers and drives additional benefits.

Inventory Optimization ("OPUS")

Many enterprises are learning that reducing high inventory is as much a process challenge as a technological one. Specifically, long cycle time processes require
high inventories, so reducing inventories without cycle time reductions necessarily creates stock outs and unpredictable service levels. Furthermore, unpredictable customer demand and supplier
performance introduces supply chain risk that is similarly managed through higher inventory levels.

To
comprehensively optimize inventory (maximize availability, remove waste, increase controls and improve customer satisfaction while minimizing investment) requires an understanding of
how these key factors interact in both time and risk to impact inventory at the part number level.

The
Company's approach to inventory optimization simultaneously addresses these risk and time variables through process management activities that are guided by a software tool called
OPUS. OPUS optimizes inventory across six independent risk and time variables, allowing inventory parameters to be set by part number.

This
process approach, supported by the OPUS decision support tool, delivers inventory optimization in a relatively short amount of time.

3

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Summary

Over the years, the Company has become a leader in implementing process improvement strategies that make companies faster and improve their competitiveness and
financial performance. This ability to link and align a client organization's strategy, technology, people and processes offers a powerful and unique benefit to client companies faced with integrating
their operations, internally and externally, throughout the value chain. The Company's strategic plan is to continually add value to its core PVM product offering and to expand its marketing reach
through partnerships with industry leaders.

Competitive Strategy

The Company's strategy is to maintain and enhance its position in the development and implementation of its PVM methodology. The Company's strategy includes the
following key elements, many of which differentiate it from traditional providers of consulting services.

Emphasize Results. The Company may enter into incentive fee contracts, which make a portion of its revenue from a particular program
contingent upon certain measurable results. The Company offers incentive fee contracts in cases where the client prefers that the Company share the risks to achieve entitled results or for clients who
prefer to work on a gain-sharing basis. The Company's competitors generally charge fees based on time expended, regardless of results. Thus, the Company's willingness to enter into
incentive fee contracts demonstrates the Company's confidence that its programs will positively enhance the businesses of its clients and furthermore provides significant competitive differentiation
and advantage.

Target Large Clients and Multiple Program Opportunities. The Company has focused its marketing efforts on companies with annual revenues
greater than $400 million, preferably where sequential program opportunities exist. The Company believes larger clients provide greater revenue opportunities because such clients are likely to
realize greater economic benefit from the Company's services and will be more likely to engage the Company in follow-on programs.

Focus on Results Implementation and Continuous Improvement. By applying PVM throughout the client's complete business or business unit and
by working in close cooperation with the client's management, the Company believes it can more effectively drive operational performance improvements and their associated financial benefits. The
Company stresses hands-on implementation of process improvements and focuses on implementation of prioritized changes that improve the client's business culture and processes. In addition
to implementing change through its PVM plan, an essential element of a PVM program is "leaving behind" with the client the knowledge and skills needed for the client to continue to sustain continuous
improvement. In contrast, traditional consulting firms often provide subject expertise in the form of written assessments or reports that focus on discrete functions or an isolated segment of a
business.

Experienced Professional Staff. The Company employs professionals with extensive business management experience, often 20 years or
more. Traditional consulting firms often hire recent business school graduates with expertise in a particular subject matter, rather than expertise in business management. The use of seasoned
professionals significantly improves the ability of the Company to effectively implement its PVM methodologies and creates a significant competitive difference and advantage for the Company.

Program Focus. The Company focuses primarily on cultural and business process barriers rather than on subject matter barriers and
functional units. The Company believes reductions in cultural and business process barriers have a greater impact on improving a client's performance.

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Clients

The Company's clients are typically large, well-established manufacturing, project and service companies, or distinct business units of such
companies, in the North America, Europe, and Asia/Pacific regions. Many of the Company's clients are Fortune or Global 1000 companies. The Company has worked for over 250 clients, including the
following:

|AerospaceAerostructures
Bombardier
Delta Air Lines
Gulfstream
ITT Cannon
LSG Sky Chefs
Lufthansa Cargo
Lufthansa Technik
McDonnell Douglass
TRW AutomotiveAdam Opel
Audi
Brilliance China Automotive
Delco
Delphi
Detroit Diesel
GM
GM DELCO
GM/Warranty
Meritor
Osram
Robert Bosch
Saab
Siemens Apparel ManufacturerEsquel Group
Mast Lanka
Tristate Holdings Banking, Financial Services,
InsuranceDG Bank
Forethought Insurance
Olivetti ChemicalHeraeus
Shipley Consumer ProductsGivaudan
HengAn
Hillenbrand
Kodak
Polaroid
Rand McNally
Robert Bosch
Rubbermaid |  | DistributionProSource
W.W. Grainger ElectronicsABB
Berg
EDS
Euclid-Hitachi
Flat Panel Display
GTE Control Devices
Gemplus
Johnson Electric
Motorola
Osram
Philips
Texas Instruments
Western Digital
Yuasa Exide Batteries HealthcareMallinckrodt GovernmentFAA
CACI (formerly Acton Burnell)
United States Army
United States Navy Manufacturing/IndustrialBreguet
Dover
Emerson
Kimberly Clark
L.E.K.VIAD
Leeds & Northrup
Moore
Pawnee Industries
Pinnacle-lvey
Radium
Robert Bosch
Siemens
Stewart and Stevenson
Teledyne
Thrall
Xerox |  | Mechancial EngineeringABB
Alstom Power
Dresser Waukesha
Dresser-Rand
GEA
Hilti
Schindler Medical Equipment SuppliesBoston Scientific
Siemens Medical
GE Medical Specialty RetailTuesday Morning SemiconductorAlcatel Mietec
AMI Microsystems
ASM Lithography
AT&T Semiconductor
Cypress Semiconductor
Fairchild Semiconductor
Ford Microelectronics
Hewlett Packard
Hyundai
IBM
LG Semiconductor
NCR
National Semiconductor
Matra MHS
Motorola
Philips Semiconductor
Rockwell
Signetics
ST Microelectronics
Taiwan Semiconductor
Trilogy TelecommunicationsAllen Telecom UtilitiesPECO
Siemens
Southern Indiana Gas & Electric
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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There can be no assurance that the Company will perform services for any of its previous clients in the future. In order to maintain and increase
its revenues, the Company will need to add new clients or expand existing client relationships to include additional divisions or business units of such clients.

The
Company operates in one industry segment, but conducts its business primarily in three geographic areas: North America, Europe and Asia/Pacific. Information regarding these areas
follows:

|                                         |  | North America |        | Europe |   | Asia/Pacific |  | Corporate |        | Total
|---------------------------------------- |  | ------------- | ------ | ------ | - | ------------ |  | --------- | ------ | -----
|
|Year ended December 31, 2002:            |  |               |        |        |   |              |  |           |        |      
|Consulting revenue before reimbursements |  | $             | 13,965 |        | $ | 13,475       |  | $         | 4,230  |      
|Gross profit (loss)                      |  | $             | 8,986  |        | $ | 4,405        |  | $         | (2,028 | )    
|Long-lived assets                        |  | $             | 2,065  |        | $ | 162          |  | $         | 187    |      
|Year ended December 31, 2001:            |  |               |        |        |   |              |  |           |        |      
|Consulting revenue before reimbursements |  | $             | 12,314 |        | $ | 28,680       |  | $         | 10,676 |      
|Gross profit (loss)                      |  | $             | 9,871  |        | $ | 9,968        |  | $         | (1,387 | )    
|Long-lived assets                        |  | $             | 2,627  |        | $ | 857          |  | $         | 266    |      
|Year ended December 31, 2000:            |  |               |        |        |   |              |  |           |        |      
|Consulting revenue before reimbursements |  | $             | 30,171 |        | $ | 29,040       |  | $         | 8,487  |      
|Gross Profit                             |  | $             | 17,381 |        | $ | 13,366       |  | $         | 496    |      
|Long-lived assets                        |  | $             | 2,909  |        | $ | 1,071        |  | $         | 17     |      

In
2002, two clients, Robert Bosch and CACI (formerly Acton Burnell), accounted for 38% and 30% of the Company's total consulting revenue before reimbursements, respectively.

In
2001, three clients, Robert Bosch, Adam Opel and Acton Burnell, accounted for 37%, 11% and 11% of the Company's total consulting revenue before reimbursements, respectively.

In
2000, three clients, Robert Bosch, General Motors and Boston Scientific, accounted for 29%, 16% and 14% of the Company's total consulting revenue before reimbursements, respectively.

Contractual Arrangements

The Company performs PVM services for clients pursuant to contracts, generally with terms of three months to one year, or targeted process improvement programs
that could last from three to six months. Clients compensate the Company for its services in the form of fixed fees or a combination of fixed and incentive fees (based on client improvements
achieved). The Company's fee structure is based on a client's size, the complexity and geographic deployment of a client's business, the level of improvement opportunity available to a client and
certain other factors.

Fixed
fees are recognized proportionately as revenue over the term of the contract as performance measures are achieved. Incentive (performance-oriented) revenue is recognized in the
period for which performance improvement is being measured and is based on agreed-upon formulas relating to improvements in customer-specific measures. Factors such as a client's
commitment to TCT, general business and economic cycles and a client's product position in the marketplace will affect the performance of the Company's clients, thus affecting the Company's revenue
from incentive fee compensation. In 2002, 2001, and 2000, approximately 23%, 29% and 8%, respectively, of the Company's revenue was attributable to incentive fees.

The
Company includes in its business under commitment (backlog) signed client contracts and United States government commitments with terms generally ranging from three months to one
year. United States government commitments consist of funds that are designated for the Company in the United States government budget, and can only be removed by an act of the United States Congress.
Typically, government agencies for whom a company performs consulting services can only sign

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contracts for a one-year term even though the program is a budgeted expenditure for several years. The Company considers the United States government commitments to be equivalent to a signed
commercial contract. Therefore, these programs are included in backlog. Business under commitment was $42.0 million at December 31, 2002, of which approximately $17.8 million is
expected to be realized within fiscal 2003.

Competition

Traditional consulting firms provide services similar in some respects to the services provided by the Company. Providers of such services include A.T.
Kearney, Inc., Boston Consulting Group, McKinsey & Co., as well as several small firms that primarily focus on time-based management services. Many of the Company's
competitors have greater personnel, financial, technical and marketing resources than the Company, and there can be no assurance the Company will be able to compete successfully with its existing
competitors or with any new competitors.

The
Company believes the competitive factors most important to its business are the unique quality of its PVM methodology, the quality and character of its professional staff, its
willingness to be compensated on an incentive basis, its reputation for achieving targeted results and its dedication to implementation of programs that deliver results. The Company believes that no
significant competitors offer their clients the opportunity to base fees on the results achieved or emphasize hands-on implementation to the same extent as the Company.

The
Company believes its most significant "competitor" is the propensity for potential clients to "self-medicate" by attempting to implement changes in their businesses
themselves in the belief they will achieve results comparable to those resulting from the Company's services without the assistance of outside professionals. The Company believes these attempts to
self-medicate result in limited success.
However, such attempts may substantially lengthen the Company's sales cycle and may, therefore, limit its business opportunities.

Because
the PVM methodology or related shorter term products are not capable of being patented, there can be no assurance the Company will not be subject to competition from others using
substantially similar methodologies. However, the Company believes its base of knowledge, experience and clients provides it with a competitive advantage.

Intellectual Property

The Company has secured federal registration for the service marks Total Cycle Time® and TCT®. These registrations expire from
May 2005 to August 2012. The Company has filed an application for federal service mark registration for several other marks important to its business. The Company has also made
appropriate filings in several European countries to secure protection of its marks in those countries. The Company considers each of these service marks to be significant to its business.

The
Company's proprietary methodologies have been developed over 25 years at great expense, have required considerable effort on the part of skilled professionals, are not
generally known and are considered trade secrets. In some circumstances, the Company grants clients a limited license to make internal use of certain of the Company's proprietary methodologies
following completion of a program. The Company maintains its trade secrets in strict confidence and as part of its standard engagement.

The
Company has entered into nondisclosure and noncompete agreements with its current and former employees. There can be no assurance that such agreements will deter any employee of the
Company from disclosing confidential information to third parties or from using such information to compete with the Company in the future.

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Employees

At April 10, 2003, the Company had a total of 126 employees, consisting of 64 full-time Resultants, 21 part-time Resultants and 41 sales
and administrative employees. The Company's employees are not represented by a labor union and are not subject to any collective bargaining agreement. The Company considers its employee relations to
be good.

Securities and Exchange Commission

The Company is required to file reports with the Securities and Exchange Commission "SEC" pursuant to Section 13 or 15(d) of The Securities and Exchange
Act of 1934. The Company routinely files certain reports to the SEC. These forms include:

Form 10-K

Annual ReportForm 10-Q

Quarterly ReportForm 8-K

Current ReportsForm 4

Statement of Beneficial Ownership of SecuritiesForm 5

Annual Statement of Beneficial Ownership of Securities


The
public may read and copy any materials filed to the SEC by the Company at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Company's filings to the SEC are submitted electronically and
can be accessed via the SEC's website at (http://www.sec.gov).

Company Website

Information about the Company can be obtained by accessing the Company's website at (http://www.thomasgroup.com).

ITEM 2.Properties.

The Company leases approximately 17,000 square feet of office space at its principal executive office in Irving, Texas, under a lease that expires in
July 2006. The Company also leases approximately 9,000 square feet of office space in Troy, Michigan, under leases that expire in December 2006. The Company sub-leases
approximately 12,000 square feet of office space in Reston, Virginia, under a lease that
expires in October 2007. In Hong Kong, the Company maintains approximately 3,700 square feet of office space, under a lease that expires in September 2004. The Company also leases space
for its offices in Zug, Switzerland, Singapore and Shanghai. The Company believes these facilities are adequate for its current needs.

ITEM 3.Legal Proceedings.

The Company has become subject to various claims and other legal matters, such as collection matters initiated by the Company, in the course of conducting its
business. The Company believes that neither such claims and legal matters nor the cost of prosecuting and/or defending such claims and legal matters will have a material adverse effect on the
Company's consolidated results of operations, financial condition or cash flows. No material claims are currently pending; however, no assurances can be given that future claims, if any, may not be
material.

8

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

The Company held its 2002 Annual Meeting of Stockholders on November 11, 2002. The matters described below were voted on at the Annual Meeting, and the
votes cast with respect to each matter and with respect to the election of directors for each nominee were as indicated.



Name

For

WithheldJohn R. Hamann

3,109,099

239,431General John T. Chain, Jr.

3,110,899

237,631Richard A. Freytag

3,111,099

237,431James Dykes

3,111,001

237,529David Mathis

3,110,999

237,531




FOR:

1,383,309AGAINST:

479,003ABSTAIN:

357BROKER NON-VOTES:

1,485,861




FOR:

1,370,629AGAINST:

488,683ABSTAIN:

3,357BROKER NON-VOTES:

1,485,861




FOR:

1,619,662AGAINST:

238,750ABSTAIN:

4,257BROKER NON-VOTES:

1,485,861


9

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PART II

ITEM 5.Market for Registrant's Common Equity and Related Stockholder Matters.

Market for Registrant's Common Equity

On August 28, 2002 the Company received a determination from a NASDAQ Listing Qualifications Panel effectively delisting the Company's common stock from
trading on the NASDAQ National Market. Prior to August 29, 2002 the Company's common stock was traded on the NASDAQ National Market under the symbol TGIS. Since August 29, 2002, the
Company's common stock has been traded on the OTC Bulletin Board under the symbol TGIS.OB. The stock prices set forth below represent the highest and lowest sales prices per share of the Company's
common stock as reported by the OTC Bulletin Board and the NASDAQ National Market. The prices reported in the following table reflect inter-dealer prices without retail mark-up,
mark-down or commissions.

Quarter Ended

High

LowMarch 31, 2001

$
7.75

$
4.00June 30, 2001

$
5.98

$
4.90September 30, 2001

$
5.25

$
3.00December 31, 2001

$
3.90

$
1.53March 31, 2002

$
2.99

$
1.48June 30, 2002

$
1.65

$
0.30September 30, 2002

$
0.52

$
0.05December 31, 2002

$
0.46

$
0.13


Holders of Record

As of March 17, 2003 there were approximately 133 holders of record of the Company's common stock.

Dividends

The Company's current credit facility prohibits the payment of cash dividends.

10

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ITEM 6.Selected Financial Data.

The following table sets forth selected historical financial information of the Company. This historical financial information has been derived from the audited
financial statements of the Company. This information should be read in conjunction with, and is qualified by, the consolidated financial statements and notes thereto included in this and previous
Annual Reports on Form 10-K.

|                                                             |                                                  | Year ended December 31, |       
|------------------------------------------------------------ | ------------------------------------------------ | ----------------------- | ------
|
|Statement of Operations Data:                                |                                                  |                         |       
|Consulting revenue before reimbursements                     |                                                  | $                       | 31,670
|Operating expenses                                           |                                                  |                         | 39,091
|                                                             |                                                  |                         |       
|Operating income (loss)                                      |                                                  |                         | (7,421
|Other income (expense), net                                  |                                                  |                         | (819  
|                                                             |                                                  |                         |       
|Income (loss) from continuing operations before income taxes |                                                  |                         | (8,240
|Income tax expense (benefit)                                 |                                                  |                         | (438) 
|                                                             |                                                  |                         |       
|Income (loss) from continuing operations                     |                                                  |                         | (7,802
|Discontinued operations:                                     |                                                  |                         |       
|                                                             | Income (loss) from operations, net of income tax |                         |       
|                                                             | Loss on disposal, net of income tax              |                         |       
|                                                             |                                                  |                         |       
|                                                             | Net income (loss)                                |                         | $     
|                                                             |                                                  |                         |       
|Earnings (loss) per share:                                   |                                                  |                         |       
|Basic                                                        |                                                  |                         |       
|                                                             | Income (loss) from continuing operations         |                         | $     
|                                                             | Income (loss) from discontinued operations       |                         |       
|                                                             |                                                  |                         |       
|                                                             | Net income (loss)                                |                         | $     
|                                                             |                                                  |                         |       
|Diluted                                                      |                                                  |                         |       
|                                                             | Income (loss) from continuing operations         |                         | $     
|                                                             | Income (loss) from discontinued operations       |                         |       
|                                                             |                                                  |                         |       
|                                                             | Net income (loss)                                |                         | $     
|                                                             |                                                  |                         |       
|Weighted Average Shares                                      |                                                  |                         |       
|                                                             | Basic                                            |                         |       
|                                                             | Diluted                                          |                         |       

---

11

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|                                                    |  | Year ended December 31
|--------------------------------------------------- |  | ----------------------
|
|Balance Sheet Data                                  |  |                       
|Working capital                                     |  | $                     
|Total assets                                        |  | $                     
|Long-term obligations, including current maturities |  | $                     
|Total stockholders' equity                          |  | $                     

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the Company's Consolidated Financial Statements and the notes thereto and the other information
included in Item 15(a)(1) and (2) of this Annual Report on Form 10-K.

Overview

The Company derives the majority of its revenue from monthly fixed and incentive fees for the implementation of PVM and other business improvement programs.
Incentive fees are tied to improvements in a variety of client performance measures typically involving response time, asset utilization and productivity. Due to the Company's use of incentive fee
contracts, variations in revenue levels may cause fluctuations in quarterly results. Factors such as a client's commitment to a PVM
program, general economic and industry conditions and other issues could affect a client's business performance, thereby affecting the Company's incentive fee revenue and quarterly earnings. Quarterly
revenue and earnings of the Company may also be impacted by the size of individual contracts relative to the annual revenues of the Company.

In
addition to its domestic operations, the Company has operations and contracts in its Europe and Asia/Pacific regions. The majority of contracts in these regions have been denominated
using the United States dollar. However, some of the Company's contracts are in the local currency of the client; therefore, the Company is exposed to currency fluctuation risks. See Item
7A."Quantitative and Qualitative Disclosure About Market Risk."

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and
assumptions that affect the amounts reported in the accompanying financial statements and related footnotes. Management bases its estimates and assumptions on historical experience, observance of
industry trends and various other sources of information and factors. Actual results could differ from these estimates. Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and potentially could result in materially different results under different assumptions and conditions.

Revenue Recognition

Revenue is recognized when realizable and earned generally as services are provided over the life of the contract. Incentive fee revenue is recognized in the
period in which the related improvements are achieved. Fixed fees are recognized as they become billable per the terms of the contracts, which generally represents effort expended to date on a
contract on a percentage of completion basis. In order to mitigate the risk of disputes arising over the achievement of performance improvements, which drive incentive fees, the Company obtains
customer agreement to these achievements prior to recognizing revenue.

12

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Contracts
consisting of multiple elements result in revenue being allocated to each element based on the relative fair value of each individual element using vendor specific objective
evidence. Revenue is recognized on each element as the criteria for revenue recognition are met for that particular element.

Deferred Taxes

For United States federal tax purposes, at December 31, 2002, the Company had net operating loss carryovers of approximately $3.6 million, which
begin to expire in 2021 and unused foreign tax credit carryovers of $2.8 million, which begin to expire in 2003. In Asia, the Company has approximately $11.8 million of net operating
loss carryovers, which currently do not have any statutory expiration date. Due to the uncertainty of the Company's ability to utilize its net deferred tax assets, the Company has provided a valuation
allowance of $7.1 million. If the Company generates United States taxable income in future periods, reversal of the valuation allowance could have a significant positive impact on net income in
the period that it becomes more likely than not that the net operating loss carryover will be realized. Utilization of net operating loss carryforwards in the future may be limited if changes in the
Company's stock ownership create a change of control as provided in Section 382 of the Internal Revenue Code of 1986, as amended.

Unless
otherwise stated, the discussion that follows pertains to continuing operations only.

Percentage Of Revenue
For Year Ended December 31,2002

2001

2000Consulting revenue before reimbursements

100.0
%
100.0
%
100.0
%Cost of sales before reimbursable expenses

64.1
%
64.3
%
53.8
%Gross profit

35.9
%
35.7
%
46.2
%Selling, general and administrative

55.2
%
48.8
%
38.8
%Restructuring charges

4.1
%


Litigation settlements



5.7
%
1.0
%Operating income (loss)

(23.4
)%
(18.8
)%
6.4
%Other income, (loss), net

(2.6
)%
0.1
%
0.3
%Income (loss) from continuing operations before income taxes

(26.0
)%
(18.7
)%
6.7
%Income taxes (benefit)

(1.4
)%
11.5
%
2.7
%Income (loss) from continuing operations

(24.6
)%
(30.2
)%
4.0
%


Results of Operations

2002 Compared to 2001

Revenue

During the first quarter of 2002, the Company adopted a Financial Accounting Standards Board Staff announcement that requires certain reimbursements received for
out-of-pocket expenses incurred be classified in the income statement as revenue. The Company has presented revenue in two components: consulting revenue before reimbursements
or "net revenue" and reimbursements. Reimbursements reclassified to revenue for the years ended December 31, 2002, 2001, and 2000 were $1.6 million, $7.8 million and
$9.3 million, respectively. In addition, cost of sales has also been presented in two components: cost of sales before reimbursable expenses or "net cost of sales" and reimbursable expenses.

13

---

Net
revenue decreased $20.0 million, or 39%, to $31.7 million in 2002, from $51.7 million in 2001. Fixed fee revenue was $24.3 million, or 77% of revenue in
2002, compared to $36.8 million, or 71% in 2001. Incentive fee revenue was $7.4 million, or 23% of revenue in 2002, compared to $14.9 million, or 29% in 2001.

North
America region net revenue increased $1.7 million, or 14%, to $14.0 million in 2002, from $12.3 million in 2001. The increase relates primarily to several
United States government contracts signed in 2002.

Europe
region net revenue decreased $15.2 million, or 53%, to $13.5 million in 2002, from $28.7 million in 2001. The decrease is primarily attributable to the
completion of a significant contract, which produced revenue of $19.2 million, in 2001, compared to $12.1 million in 2002. In addition, the Company's German subsidiary, which was placed
in insolvency during 2002, reflected a $6.8 million decrease in revenue when compared to 2001.

Asia/Pacific
region net revenue decreased $6.5 million, or 61%, to $4.2 million in 2002, from $10.7 million in 2001. The decrease is attributable to the 2001
completion of several contracts that were not replaced in 2002 with contracts of a similar magnitude.

Gross Profit

Gross profit for 2002 decreased to $11.4 million and 36% of net revenue, from $18.5 million and 36% of net revenue in 2001. The primary reason for
the decrease in gross profit was decreased net revenue of $20.0 million related to the adverse economic climate the Company's potential and existing clients faced during 2002. The impact of
this revenue decrease offset the efficiencies gained by a reduction in net cost of sales of $12.9 million. The reduction in net cost of sales was achieved primarily through the Company reducing
its direct labor cost by placing active employees not assigned to programs on furlough status.

Selling, General and Administrative

Selling, general and administrative expense decreased $7.7 million, or 31% to $17.5 million in 2002, from $25.2 million in 2001. The decrease
is comprised of a $4.3 million reduction in personnel expense, $1.4 million reduction in facilities and equipment, and $3.0 million in travel, telecommunications and other costs,
offset by a $1.0 million increase in selling costs. The selling costs included personnel and travel cost.

Restructuring

On June 3, 2002, the Company filed a petition with the German government for insolvency of its German subsidiary, giving the insolvency court control of
the subsidiary's assets. This action was taken in response to declining revenue and cash flows from the operations of its German subsidiary during 2001 and continuing through 2002. All existing German
contracts were completed in the second quarter of 2002, and the German subsidiary had no significant future prospects. On September 1, 2002, the German insolvency court appointed an official
receiver for the Company's German subsidiary to take control of the subsidiary and liquidate its assets. The restructuring charge of $1.3 million, of which $1.1 million is
non-cash, has been recorded since the second quarter of 2002. In February of 2003, the Company filed a proof of claim with the insolvency court. The Company anticipates that it will be
several months before any resolution is determined with regard to assets of the Company's former German subsidiary. The Company continues serving the European market through its operations in
Switzerland.

The
loss from liquidation of the German subsidiary is presented in the consolidated statements of operations and consolidated statements of cash flows under the caption "Restructuring
charges" and

14

---

"Loss from restructuring activities", respectively. The restructuring loss of $1.3 million consists of $0.5 million of unrealized foreign currency losses, previously classified under
the caption "Accumulated other comprehensive loss" on the Company's consolidated balance sheet. See Note 3 to the Company's consolidated financial statements.

Income Taxes

The Company's effective tax benefit rate for 2002 was 5% compared to an effective tax rate of (62)% in 2001. The change in the Company's effective tax rate
reflects utilization of federal net operating losses of $1.3 million, in 2002 and an increase in the valuation allowance of $3.3 million in 2001.

At
December 31, 2001, the Company determined, based primarily on its recent history of operating losses in the United States, that it could no longer consider the recovery of its
net deferred tax assets as more likely than not. Accordingly, the Company's net deferred tax assets were reduced by a valuation allowance adjustment. While a valuation allowance is currently required
for the Company's net deferred tax assets, the assets remain available for use in the future to offset future income tax liabilities should sufficient amounts of United States and foreign income be
generated in the carryforward period.

Consistent
with the Company's position at December 31, 2001, the Company recorded no tax benefits for operating losses generated in 2002. However, during 2002, Congress passed a
law to allow
companies the opportunity to carryback net operating losses five years versus the previous two-year carryback provision. This change allowed the Company to file for tax refunds for the
years 1996 and 1997 for which the related benefit and receivable of approximately $798,000 and $125,000 was recorded in the first and second quarters of 2002, respectively. The Company realized an
additional $46,000 of state tax refunds during 2002. The Company also recorded income tax expense on the profits of its foreign operations of $531,000 in 2002. Utilization of net operating loss
carryforwards in the future may be limited if changes in the Company's stock ownership create a change in control as provided in Section 382 of the Internal Revenue Code of 1986, as amended.

2001 Compared to 2000

Revenue

Net revenue decreased $16.0 million, or 24%, to $51.7 million in 2001, from $67.7 million in 2000. Fixed fee revenue was
$36.8 million, or 71% of revenue in 2001, compared to $62.0 million, or 92% in 2000. Incentive fee revenue was $14.9 million, or 29% of revenue in 2001, compared to
$5.7 million, or 8% in 2000.

North
America region net revenue decreased $17.9 million, or 59%, to $12.3 million in 2001, from $30.2 million in 2000. The decrease relates to three major
contracts, operating primarily in 2000, which accounted for net revenue of $16.3 million. Due to the general economic downturn, the Company was unable to replace this revenue with contracts of
a similar magnitude during 2001.

Europe
region net revenue decreased $0.3 million, or 1%, to $28.7 million in 2001, from $29.0 million in 2000. The decrease is attributable to revenue from a
significant client, which produced revenue of $19.2 million in 2001 compared to $19.8 million in 2000.

Asia/Pacific
region net revenue increased $2.2 million, or 26%, to $10.7 million in 2001, from $8.5 million in 2000. The increase reflects revenue on new contracts
in 2001 exceeding revenue on completed contracts during 2000 by $0.8 million. The growth in the Asia/Pacific region also reflects a $1.4 million revenue increase when comparing existing
contracts from 2001 to 2000.

15

---

Gross Profit

Gross profit for 2001 decreased to $18.5 million and 36% of net revenue, from $31.2 million and 46% of net revenue in 2000. The primary reason for
the decrease in gross profit margin was decreased net revenue of $16.0 million related to the adverse economic climate the Company's potential and existing clients faced during 2001. This
economic downturn forced potential and existing clients to delay and/or cancel programs. The impact of this revenue decrease on gross profit offset the efficiencies gained related to a
$3.2 million decrease in net cost of sales. The decrease in net cost of sales relates primarily to lower personnel cost due to staff reductions. The decrease in net cost of sales was negatively
impacted by increased severance cost of $1.0 million as a result of these staff reductions.

Selling, General and Administrative

Selling, general and administrative expense decreased 4% to $25.2 million in 2001, from $26.2 million 2000. The decrease in selling, general and
administrative relates to a $1.2 million reduction in personnel expense resulting from staff reductions during 2001, lower bad debt expense of $0.5 million and a decrease in depreciation
expense of $0.4 million. These cost decreases were offset by increased incentive compensation expense of $1.1 million related to the Company's incentive plan, which was paid in the first
two quarters of 2001.

Litigation Settlements

On March 16, 2001, the Company received notice of a claim from Balanced Scorecard Collaborative, Inc. ("BSCol"), to mediate/arbitrate a dispute
regarding BSCol's claim for unpaid fees under the parties' March 2000 agreement. The matter was not settled during an April 26, 2001 mediation, and consequently was resolved by a
proceeding before a neutral arbitration panel in Dallas, Texas, during the week of September 17, 2001, pursuant to an arbitration provision in the parties' agreement. On October 5, 2001,
the Company received an adverse ruling from the arbitration panel. The decision of the arbitration panel awarded BSCol $2.4 million. The total cost of the litigation of $2.9 million,
including legal fees of $0.5 million, is presented separately as litigation settlement in the Company's consolidated statements of operations.

During
2000, the Company was party to an arbitration proceeding with Overhead Door Corporation, a former client, to collect unpaid fees. The Company received an adverse ruling from the
arbitration panel. The total cost to the Company, including legal fees, was $0.7 million and is presented separately as litigation settlement in the Company's consolidated statements of
operations.

Income Taxes

The Company's effective tax rate for 2001 was (62)% compared to 40% in 2000. The significant change in the Company's effective tax rate reflects adjustments to
the valuation allowance on the Company's net deferred tax assets. At December 31, 2001, the Company determined, based primarily on its recent history of operating losses in the United States,
that it could no longer consider the recovery of its net deferred tax assets as more likely than not. Accordingly, the Company's net deferred tax assets at the beginning of 2001 were reduced by a
valuation allowance adjustment of $3.3 million. In addition, net operating loss and tax credit carryforwards generated in 2001 were also reduced by a valuation allowance such that no benefit
for those carryforwards was recognized in 2001. While a valuation allowance is currently required for the Company's net deferred tax assets, the assets remain available for use in the future to offset
future income tax liabilities should sufficient amounts of United States and foreign income be generated in the carryforward periods.

16

---

Discontinued Operations

During the second quarter of 2000, the Company recorded a $0.1 million after tax gain from discontinued operations for reimbursement of legal fees in
connection with prior litigation.

Quarterly Results

The following table sets forth certain unaudited operating results for each of the four quarters in the two years ended December 31, 2002. This information
has been prepared on the same basis as the audited financial statements and, in the opinion of the Company, includes all adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the information for the periods presented.

|                                                     |         | 2002
For the Three Months Ended |         | 2001
For the Three Months Ended |  
|---------------------------------------------------- | ------- | ------------------------------- | ------- | ------------------------------- | -
|
|
|Consulting revenue before reimbursements             |         | $                               | 8,288   |                                 | $
|Gross profit                                         |         |                                 | 1,460   |                                 |  
|Operating income (loss)                              |         |                                 | (4,302  | )                               |  
|Income (loss) from continuing operations             |         |                                 | (3,826) | (b)                             |  
|Earnings (loss) per share from continuing operations |         |                                 |         |                                 |  
|                                                     | Basic   |                                 | $       | (0.92                           | )
|                                                     | Diluted |                                 | $       | (0.92                           | )
|Weighted average shares                              |         |                                 |         |                                 |  
|                                                     | Basic   |                                 |         | 4,169                           |  
|                                                     | Diluted |                                 |         | 4,169                           |  
|Stock Price(a)                                       |         |                                 |         |                                 |  
|                                                     | High    |                                 | $       | 2.99                            |  
|                                                     | Low     |                                 | $       | 1.48                            |  
|                                                     | Close   |                                 | $       | 1.68                            |  

---

Liquidity and Capital Resources

Cash used in operating activities was $4.7 million in 2002, compared to $7.8 million in 2001. The decreased use of cash in 2002 is primarily
attributable to a much smaller net operating loss in 2002.

Net
cash used in investing activities decreased to $0.3 million in 2002, from $1.1 million in 2001. The decrease is a result of lower capital expenditures in 2002. Capital
expenditures in 2002 consisted of costs related to website design and leasehold improvements.

17

---

Net
cash provided by financing activities was $3.6 million in 2002, compared to $5.8 million in 2001. The decrease in cash provided by financing activities reflects the
reduction in the Company's bank credit facility by the Company's senior lender, from $15.0 million to $2.5 million during 2002. This line of credit reduction resulted in a
$6.0 million reduction in net borrowings on the line of credit in 2002. This line
of credit reduction was partially offset by $2.0 million of subordinated convertible debt and $1.5 million of subordinated debt from members of the Company's Board of Directors and a
stockholder in 2002.

During
2002, the Company's ability to raise $1.5 million of subordinated debt and $2.0 million of subordinated convertible debt was a key factor in providing sufficient
liquidity to maintain operations. The Company reached agreements with its current Chairman of the Board, General John T. Chain, Jr. and with Edward P. Evans, an existing stockholder of the Company, to
infuse $1.0 million each, in the form of Subordinated Convertible Notes bearing interest at 6% annually. Upon stockholder approval at the Company's Annual Meeting of Stockholders held
November 11, 2002, the principal and unpaid interest of $11,500 on the notes were converted to 5,364,002 shares of common stock of the Company at a conversion price of $0.375 per share. After
conversion of the notes and related interest, General Chain and Mr. Evans hold approximately 29% and 33% of the Company's outstanding common stock, respectively.

Pursuant
to the agreements with General Chain and Mr. Evans, each received warrants for 434,899 shares of the Company's common stock. If General Chain or Mr. Evans exercise
their warrant, each could own an additional 3.0% of the common stock (based on the fully diluted ownership of the Company as of December 31, 2002), or approximately 32% and 36%, respectively,
of the Company's outstanding common stock. General Chain and Mr. Evans have similar Board designation rights and identical registration rights under the terms of the agreements.

The
Company has a rights plan in place, pursuant to which, if certain persons acquire more than 15% of the outstanding common stock of the Company, the Company's stockholders may
exercise a "right" to purchase additional shares of common stock. If the 15% threshold is crossed, the rights are triggered and each stockholder may purchase $200 in value of common stock for $100.
The effect of the rights plan is to give the Company's Board of Directors the opportunity to negotiate with potential third party acquirers in the event that an attempt is made to take over the
Company.

Because
the issuance of common stock to General Chain and Mr. Evans under the warrants or under the Subordinated Convertible Notes would trigger the rights, the Company's Board of
Directors approved amendments to the Rights Agreement governing the rights plan. These amendments exempted the transactions with General Chain and Mr. Evans from the rights plan. These
amendments were adopted by the Company's Board of Directors on September 13, 2002 and October 12, 2002 for the transactions with General Chain and Mr. Evans, respectively.

In
January and October of 1999, the Company announced two stock repurchase plans for up to 250,000 and 500,000 shares, respectively. In August of 2000, the Company announced an
additional stock repurchase plan of up to 750,000 shares. During 1999, the Company purchased 289,150 shares at an average price of $8.41 per share. During 2000, the Company purchased 596,300 shares at
an average price of $7.96 per share. During 2001, the Company purchased 109,100 shares at an average price of $5.11 per share. During 2002, and through April 10, 2003, the Company had purchased
no additional shares of treasury stock.

The
Company has traditionally used cash flow from operations, periodically supplemented by borrowings under a bank line of credit, as its primary source of liquidity, when transferring
funds among the Company's foreign subsidiaries was not efficient. Beginning in 2001, the Company experienced a significant decline in revenue related to the downturn in the economy. The economic
downturn and subsequent revenue decline caused the Company not to be in compliance with certain covenants related to its then existing $15.0 million revolving credit facility. As a result, the
Company's

18

---

lender, in January of 2002, reduced the maximum allowable borrowings to $10.0 million, secured by the Company's assets. On March 29, 2002, the lender restructured the Company's credit
facility to maximum allowable borrowings of $7.5 million, consisting of a $2.5 million revolving line of credit and a $5.0 million term note. On November 29, 2002, the
credit facility was increased to $8.0 million, consisting of a $3.0 million revolving line of credit and a $5.0 million term note. The terms of the November 29, 2002
amended credit facility extended the maturity date on both the term and revolving notes to September 1, 2003. Term note installment payments and a $150,000 amendment fee, related to the
March 29, 2002 amendment, were deferred until the September 1, 2003 maturity date. Pursuant to the amended credit facility, the senior lender received, as an amendment fee, a warrant to
purchase 397,443 shares of the Company's common stock at an exercise price of $0.30 per share. The warrant expires November 26, 2007. On April 15, 2003, the Company and its senior lender
amended the credit facility to extend the maturity date on both the term and revolving notes and payment of the $150,000 amendment fee to February 2, 2004. In addition, the April 15,
2003 amended credit facility waived all financial covenants through March 31, 2003, certain of which covenants had been breached as of and prior to that date. In addition, the Company was
required to make a $1.0 million term note payment prior to April 15, 2003, with which the Company has complied.

$8.0 Million Credit Facility

All United States assets of the Company and 100% of the outstanding capital voting stock of each foreign subsidiary secure the entire $8.0 million credit
facility. The $3.0 million revolving line of credit is subject to a borrowing base of 75% applied to the Company's United States trade accounts receivable outstanding less than 90 days.
The revolving line of credit bears interest at prime plus 2%. The $5.0 million term note bears interest at prime plus 4%.

All
prior financial covenants were replaced with new financial covenants per the April 15, 2003 amended credit facility, which if breached, could result in acceleration of amounts
owed under the amended credit facility. The revised financial covenants require the Company to (1) maintain certain levels of tangible net worth, debt to tangible net worth ratio, minimum
levels of EBITDA, (2) to avoid two consecutive quarters that generate operating losses, and (3) restrict annual capital expenditures to $300,000. The covenants are tested monthly
beginning April 30, 2003. Although retained earnings is not restricted by this amended credit facility, the declaration or payment of dividends is prohibited by the agreement.

At
December 31, 2002, the $2.3 million outstanding under the revolving line of credit is classified as a current liability, while the $5.0 million term note is
classified as $1.0 million of short-term debt due to
the repayment required and made on April 15, 2003 and $4.0 million of long-term debt due to its maturity date of February 2, 2004.

The Company's Liquidity Plan

Recent operating results and the restructuring of the Company's credit facility give rise to concerns about the Company's ability to generate cash flow from
operations sufficient to make scheduled debt payments as they become due and to remain in compliance with its restrictive loan covenants. Since March of 2002, the Company has been able to raise
$1.5 million of subordinated debt from members of the Board of Directors and $2.0 million of subordinated convertible debt, subsequently converted to common stock, from a member of its
Board of Directors and a stockholder.

The
Company's need to raise additional equity or debt financing and the Company's ability to generate cash flow from operations sufficient to make scheduled payments on its debts as they
become due will depend on its future performance and the Company's ability to successfully implement business and growth strategies. Since the first quarter of 2001, the Company has implemented cost
saving measures including staff reductions, downsizing and subleasing of facilities and has taken greater

19

---

control over alliances with strategic business partners. The Company will take additional cost savings measures such as those taken recently, if necessary, to enhance its liquidity position. The
Company's performance will also be affected by prevailing economic conditions. Many of these factors are beyond the Company's control. The recent conflict in Iraq, involving the United States
military, could have an adverse effect on the Company's liquidity due to the high concentration of United States government contracts, which could result in delays in program operations. If future
cash flows and capital resources are insufficient to meet the Company's debt obligations and commitments, the Company may be forced to reduce or delay activities and capital expenditures, obtain
additional equity capital or restructure or refinance its debt. In the event that the Company is unable to do so, the Company may be left without sufficient liquidity and it may not be able to meet
its debt service requirements. In such a case, an event of default would occur under the credit facility and could result in all of the Company's indebtedness becoming immediately due and payable. As
a result, the Company's senior lender would be able to foreclose on the Company's assets.

Inflation

Although the operations of the Company are influenced by general economic conditions, the Company does not believe inflation had a material effect on the results
of operations during the year ended December 31, 2002. However, there can be no assurance the Company's business will not be affected by inflation in the future.

Risk Factors

The Company's revenue and operating results may fluctuate significantly from quarter to quarter, and fluctuations in operating results could cause its stock price to
decline.

The
Company's revenue and operating results may vary significantly from quarter-to-quarter due to a number of factors. In future quarters, operating results may
be below the expectations of public market analysis or investors, and the price of its common stock may decline. Factors that could cause quarterly fluctuations include:



Because
a significant portion of expenses are relatively fixed, a variation in the number of client engagements or the timing of the initiation or the completion of client engagements
may cause significant variations in operating results from quarter-to-quarter and could result in losses.

20

---

The market in which the Company competes is intensely competitive and actions by competitors could render its services less competitive, causing revenue and income to
decline.

The
ability to compete depends on a number of factors outside of the Company's control, including:



The
Company may not be able to compete effectively on these or other factors. If the Company is unable to compete effectively, market position, and therefore revenue and profitability,
would decline.

The Company must continually enhance its services to meet the changing needs of its customers or face the possibility of losing future business to
competitors.

Future
success will depend upon the Company's ability to enhance existing services and to introduce new services to meet the requirements of customers in a rapidly developing and
evolving market.
Present or future services may not satisfy the needs of the market. If the Company is unable to anticipate or respond adequately to its customers' needs, lost business may result and financial
performance will suffer.

International business exposes the Company to various foreign statutory requirements, which could interfere with our business or operations and could result in increased
expenses and declining profitability.

International
operations create special risks, including:



21

---



The Company is dependent on a limited number of key personnel, and the loss of these individuals could harm its competitive position and financial
performance.

The
Company's business consists primarily of the delivery of professional services and, accordingly, its success depends upon the efforts, abilities, business generation capabilities and
project execution of its executive officers and Resultants. The Company's success is also dependent upon the managerial, operational and administrative skills of its executive officers. The loss of
any executive officer or key Resultant or group of Resultants, or the failure of these individuals to generate business or otherwise perform at or above historical levels could result in a loss of
customers or revenue, and could therefore harm the Company's financial performance.

If the Company fails to perform effectively on project engagements, its reputation, and therefore its competitive position and financial performance, could be
harmed.

Many
of the Company's engagements come from existing clients or from referrals by existing clients. Therefore, growth is dependent on the Company's reputation and on client satisfaction.
The failure to perform services that meet a client's expectations may damage the Company's reputation and harm its ability to attract new business. Damage to the Company's reputation arising from
client dissatisfaction could therefore harm financial performance.

Inability to protect intellectual property could harm the Company's competitive position and financial performance.

Despite
efforts to protect proprietary rights from unauthorized use or disclosure, parties, including former employees or consultants, may attempt to disclose, obtain or use the
Company's solutions or technologies. The steps the Company has taken may not prevent misappropriation of solutions or technologies, particularly in foreign countries where laws or law enforcement
practices may not protect proprietary rights as fully as in the United States. Unauthorized disclosure of proprietary information could make the Company's solutions and methodologies available to
others and harm its competitive position.

The Company's restructured credit facility could have an adverse effect on the Company's financial health.

The
restructured credit facility may:



The
ability to make payments on and to refinance the Company's debt will depend on financial and operating performance, which may fluctuate significantly from quarter to quarter and is
subject to prevailing economic conditions and to financial, business and other factors beyond the Company's control.

There
can be no assurance that the Company's business will generate sufficient cash flow from operations or that future borrowings will be available to it under the restructured credit
facility in an amount sufficient to enable it to pay debt or to fund other liquidity needs. The Company may need to refinance all or a portion of its debt on or before maturity. The Company can give
no assurance that it will be able to refinance any of its debt on commercially reasonable terms or at all.

22

---

The terms of the Company's debt contain a number of restrictive covenants, which restrict its flexibility and which, if breached, could result in acceleration of amounts
owed.

The
restructured credit facility contains covenants that limit the Company's flexibility. These covenants could materially and adversely affect the ability to finance future operations
or capital needs or to
engage in other business activities that may be in the best interest of the Company. The covenants limit the ability to, among other things:



The
restructured credit facility also contains covenants concerning the maintenance of minimum levels of tangible net worth, adhere to minimum ratios of debt to tangible net worth, reach
minimum levels of EBITDA, avoid consecutive fiscal quarters that generate operating losses and restrict annual capital expenditures to $300,000. The Company's ability to comply with these covenants
may be affected by events beyond the Company's control, and it cannot be sure that it will be able to comply. A breach of any of these covenants could result in a default under the credit facility
and, potentially, an acceleration of the obligation to repay the amounts owed.

"Safe Harbor" Statement Under The Private Securities Litigation Reform Act:

With the exception of historical information, the matters discussed in this report are "forward looking statements" as that term is defined in Section 21E
of the Securities Exchange Act of 1934.

While
the Company believes its strategic plan is on target and the business outlook remains strong, several important factors have been identified, including the risk factors set forth
herein, which could cause actual results to differ materially from those predicted. By way of example:



23

---



ITEM 7A.Quantitative and Qualitative Disclosure About Market Risk

The Company invests cash balances in excess of operating requirements in short-term securities, generally with maturities of 90 days or less.
The Company's credit agreement provides for borrowings which bear interest of prime plus 2%, on the $3.0 million revolving portion and prime plus 4% on the $5.0 million term portion.
Since January 1, 1993, the prime rate has fluctuated between 9.5% and 4.25%. Based on the volatility of the prime rate in recent years, a 5 percentage point increase in interest rates would
have resulted in an additional $395,000 of additional interest expense in 2002. The Company had borrowings on its credit facility from time to time during 2002, with an outstanding balance of
$2.3 million at December 31, 2002. Through April 10, 2003, the Company had additional borrowings of $4.1 million and repayments of $5.6 million. As of
April 10, 2002, the Company had $0.8 million of outstanding borrowings on this credit facility.

Due
to the Company's foreign operations in Europe and Asia, the Company is exposed to transaction adjustments with respect to foreign currency. On January 1, 2001, the Company
elected to change the
functional currency of its foreign subsidiaries to the United States dollar. Under United States dollar functional currency, the financial statements of foreign subsidiaries are remeasured from the
recording currency to the United States dollar. The resulting remeasurement adjustment is recorded as foreign exchange gain or loss in the statement of operations. There is no translation adjustment
to the separate component of stockholders' equity or adjustment to comprehensive income. The Company incurred foreign exchange losses of $58,000 and $31,000 for the years ended December 31,
2002 and 2001, respectively. At December 31, 2002, the effect of a 10% increase in foreign exchange rates would have resulted in a $125,000 foreign currency exchange loss on the Company's non
United States denominated assets and a $114,000 foreign exchange gain on the Company's non United States denominated liabilities. As such, the net effect of a 10% increase in the Company's foreign
exchange rates, at December 31, 2002, would have been an $11,000 foreign currency exchange loss. The Company believes that changing the functional currency of its foreign subsidiaries to the
United States dollar combined with transacting business in countries with traditionally stable currencies mitigates the effect of any near-term foreign currency transaction adjustments on
the Company's financial position, results of operations and cash flows.

The
Company has not engaged in foreign currency hedging transactions nor does the Company have any derivative financial instruments. However, going forward, the Company will assess the
need to enter into hedging transactions to limit its risk due to fluctuations in exchange rates.

ITEM 8.Financial Statements and Supplementary Data

See Index to Consolidated Financial Statements on page F-1. Supplementary quarterly financial information for the Company is included in Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of Operations."

ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

PART III

ITEM 10.Directors and Executive Officers of the Registrant.

The information relating to the Company's directors and nominees for election as directors, and the information relating to executive officers of the Company, is
incorporated herein by reference from the Company's Proxy Statement (herein so called) for its 2003 Annual Meeting of Stockholders, which will be filed within 120 days of December 31,
2002.

24

---

ITEM 11.Executive Compensation.

The discussion under "Executive Compensation" in the Company's Proxy Statement for its 2003 Annual Meeting is incorporated herein by reference.

ITEM 12.Security Ownership of Certain Beneficial Owners and Management.

The discussion under "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement for its 2003 Annual Meeting is incorporated
herein by reference.

The
following table provides information related to the number of shares to be issued upon exercise of all outstanding options, warrants and rights and the number of shares available for
future issuance under the Company's equity compensation plans at December 31, 2002.

EQUITY COMPENSATION PLAN INFORMATION

|                                                           |  | (a)       |        | (b) |      | (c)
|---------------------------------------------------------- |  | --------- | ------ | --- | ---- | ---
|
|Equity compensation plans approved by security holders     |  | 2,335,697 | (1)(2) | $   | 3.17 |    
|Equity compensation plans not approved by security holders |  | N/A       |        |     | N/A  |    
|                                                           |  |           |        |     |      |    
|Total                                                      |  | 2,335,697 |        | $   | 3.17 |    

---

ITEM 13.Certain Relationships and Related Transactions.

The discussion under "Certain Transactions" in the Company's Proxy Statement for its 2003 Annual Meeting is incorporated herein by reference.

ITEM 14.Controls and Procedures

It is the conclusion of the registrant's principal executive officer and principal financial officer that the registrant's disclosure controls (as defined in
Exchange Act rules 13a-14 and 15d-14), based on their evaluation of these controls and procedures as of a date within 90 days of the filing of this annual report,
are effective in timely alerting them to the material information relating to the Company required to be included in its periodic findings with the Securities and Exchange Commission. Management
necessarily applied its judgment in assessing the costs and benefits of such controls and procedures which, by their nature, can provide only reasonable assurance regarding management's control
objectives. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed
in achieving its stated goals under all potential future conditions, regardless of how remote.

25

---

PART IV

ITEM 15.Exhibits, Financial Statement Schedules, and Reports on Form 8-K.



|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                      
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Amended and Restated Certificate of Incorporation of the Company filed August 13, 1993, with the State of Delaware Office of the Secretary of State (filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994 and incorporated herein by reference).
|3.2            |  | Amended and Restated By-Laws (filed as Exhibit 3.5 to the Company's 1993 Form S-1 (File no. 33-64492) and incorporated herein by reference).                                                                                                                                                     
|3.3            |  | Amended and Restated By-Laws dated May 30, 2001 (filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 and incorporated herein by reference).                                                                                                  
|4.1            |  | Specimen Certificate evidencing Common Stock (filed as Exhibit 4.1 to the Company's 1993 Form S-1 (file No. 33-64492) and incorporated herein by reference).                                                                                                                                     
|4.2            |  | Form of Warrant Certificate for the Purchase of Shares (SRG & Associates, Ltd.) (filed as Exhibit 4.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by
reference).                                                                    
|4.3            |  | Form of Warrant Certificate for the Purchase of Shares (Lyon Securities, Inc.) (filed as Exhibit 4.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by
reference).                                                                     
|4.4            |  | Rights Agreement dated July 9, 1998 (filed as Exhibit 4 to the company's Report on Form 8-K dated July 16, 1998 and incorporated herein by reference).                                                                                                                                           
|4.5            |  | Amendment No. 1 to Rights Agreement dated March 1, 1999 (filed as Exhibit 4.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference).                                                                                            
|4.6            |  | Amendment No. 2 to Rights Agreement dated August 12, 1999 (filed as Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the quarter dated June 30, 1999 and incorporated herein by reference).                                                                                        
|4.7            |  | Warrant to Purchase Common Stock, dated September 20, 2002, issued to John T. Chain, Jr. (filed as Exhibit 99.3 to the Company's Form 8-K dated October 3, 2002 and incorporated herein by reference).                                                                                           
|4.8            |  | Registration Rights Agreement, dated September 20, 2002, by and between the Company and John T. Chain, Jr. (filed as Exhibit 99.4 to the Company's Form 8-K dated October 3, 2002 and incorporated herein by
reference).                                                                         
|4.9            |  | First Amendment to Rights Agreement, dated September 13, 2002, between the Company and Computershare Trust Company, as rights agent (filed as Exhibit 99.7 to the Company's Form 8-K dated October 3, 2002 and incorporated
herein by reference).                                                
|4.10           |  | Warrant to Purchase Common Stock, dated October 17, 2002, issued to Edward P. Evans (filed as Exhibit 99.3 to the Company's Form 8-K/A dated October 22, 2002 and incorporated herein by reference).                                                                                             

26

---

|4.11   |  | Registration Rights Agreement, dated October 17, 2002, by and between the Company and Edward P. Evans (filed as Exhibit 99.4 to the Company's Form 8-K/A dated October 22, 2002 and incorporated herein by
reference).                                                      
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.12   |  | Second Amendment to Rights Agreement, dated October 17, 2002, between the Company and Computershare Trust Company, as rights agent (filed as Exhibit 99.7 to the Company's Form 8-K/A dated October 22, 2002 and incorporated
herein by reference).                         
|4.13   |  | Amended and Restated Warrant, dated October 17, 2002, issued to John T. Chain, Jr. (filed as Exhibit 99.9 to the Company's Form 8-K/A dated October 22, 2002 and incorporated herein by reference).                                                                         
|10.1   |  | Amended and Restated 1988 Stock Option Plan 9 (filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference).                                                                                
|10.2   |  | Amended and Restated 1992 Stock Option Plan (filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference).                                                                                  
|10.3   |  | Amended and Restated 1997 Stock Option Plan (filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference).                                                                                  
|10.4   |  | 401(k) Plan (filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference).                                                                                                                  
|10.5   |  | First Amended and Restated Revolving Credit Loan Agreement dated December 4, 1996 between Comerica Bank-Texas and the Company (filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended December
31, 1998 and incorporated herein by reference).
|10.6   |  | Non-Employee Director Retainer Fee Plan (filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference).                                                                                     
|10.7   |  | Amendment No. 1 to Revolving Loan Agreement, dated April 1, 1999 between Comerica Bank-Texas and the Company (filed as Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and
incorporated herein by reference).              
|10.8   |  | Employment Agreement between the Company and John R. Hamann dated January 12, 2001 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 and incorporated herein by
reference).                                        
|10.9   |  | Third Amendment to First Amended and Restated Revolving Credit loan Agreement, dated March 29, 2002 between Comerica Bank-Texas and the Company (filed as Exhibit 10.8 to the Company's Form 8-K dated April 18, 2002 and
incorporated herein by reference).                
|10.10  |  | Promissory Note between John T. Chain, Jr. and the Company dated March 29, 2002, (filed as Exhibit 10.9 to the company's Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by
reference).                                             
|10.11  |  | Promissory Note between John R. Hamann and the Company dated March 29, 2002, (filed as Exhibit 10.10 to the company's Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by
reference).                                                
|*10.12 |  | Promissory Note between John T. Chain. Jr. and the Company dated May 31, 2002.                                                                                                                                                                                              
|10.13  |  | Note and Warrant Purchase Agreement, dated September 20, 2002, by and between the Company and General Chain (filed as Exhibit 99.1 to the Company's Form 8-K dated October 3, 2002 and incorporated herein by
reference).                                                   
|10.14  |  | 6% Subordinated Convertible Promissory Note, dated September 20, 2002, issued to John T. Chain, Jr. in the principal amount of $1,000,000 (filed as Exhibit 99.2 to the Company's Form 8-K dated October 3, 2002 and
incorporated herein by reference).                     

27

---

|10.15  |  | Subordination Agreement, dated September 20, 2002, by and among the Company, John T. Chain, Jr. and Comerica Bank-Texas (filed as Exhibit 99.5 to the Company's Form 8-K dated October 3, 2002 and incorporated herein by
reference).                                
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16  |  | Amended and Restated Note and Warrant Purchase Agreement, dated October 17, 2002, by and between the Company, Edward P. Evans and John T. Chain, Jr. (filed as Exhibit 99.1 to the Company's Form 8-K/A dated October 22,
2002 and incorporated herein by reference).
|10.17  |  | 6% Subordinated Convertible Promissory Note, dated October 17, 2002, issued to Edward P. Evans in the principal amount of $1,000,000 (filed as Exhibit 99.2 to the Company's Form 8-K/A dated October 22, 2002 and
incorporated herein by reference).                
|10.18  |  | Subordination Agreement, dated October 17, 2002, by and among the Company, Edward P. Evans and Comerica Bank-Texas (filed as Exhibit 99.5 to the Company's Form 8-K/A dated October 22, 2002 and incorporated herein by
reference).                                  
|10.19  |  | Waiver and Consent Agreement, dated October 17, 2002, by and among Edward P. Evans, John T. Chain, Jr. and the Company (filed as Exhibit 99.8 to the Company's Form 8-K/A dated October 22, 2002 and incorporated herein by
reference).                              
|10.20  |  | Second Amended and Restated Revolving Credit loan Agreement dated November 26, 2002 between Comerica Bank-Texas and the Company (filed as Exhibit 10.9 to the Company's Form 8-K dated December 27, 2002 and incorporated
herein by reference).                      
|*10.21 |  | Employment Agreement between the Company and John R. Hamann dated December 21, 2002.                                                                                                                                                                                 
|*10.22 |  | Employment Agreement between the Company and James T. Taylor dated December 21, 2002.                                                                                                                                                                                
|*10.23 |  | First Amendment to Second Amended and Restated Revolving Credit Loan Agreement dated April 15, 2003 between Comerica Bank-Texas and the Company.                                                                                                                     
|*21    |  | Subsidiaries of the Company                                                                                                                                                                                                                                          
|*23.1  |  | Consent of Ernst & Young LLP                                                                                                                                                                                                                                         
|24     |  | Power of Attorney (set forth on the signature page of this Form 10-K).                                                                                                                                                                                               
|*99.1  |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                             
|*99.2  |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                             

---

|Date of Filing    |  | Subject                                                                                                                                                                                
|----------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|October 3, 2002   |  | Documents outlining the agreements between General John T. Chain, Jr. and the Company.                                                                                                 
|October 23, 2002  |  | Amendments to documents outlining the agreements between General John T. Chain, Jr. and the Company and documents outlining the agreements between Mr. Edward P. Evans and the Company.
|December 27, 2002 |  | Amended and Restated Revolving Credit Loan Agreement between Comerica Bank-Texas and the Company.                                                                                      

---

28

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irving, State of Texas, on April 15, 2003.

| |  | THOMAS GROUP, INC.
| |  | ------------------
| |  | By:               

POWER OF ATTORNEY

Each individual whose signature appears below constitutes and appoints John R. Hamann such person's true and lawful attorneys-in-fact and
agents with full power of substitution and resubstitution, for such person and in such person's name, place, and stead, in any and all capacities, to sign any and all amendments to this
Form 10-K and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Form 10-K has been signed by the following persons on behalf of
the Registrant in the capacities and on the dates indicated.

|Signature                               |  | Capacity                                             |  | Date          
|--------------------------------------- |  | ---------------------------------------------------- |  | --------------
|                                        |  |                                                      |  |               
|/s/JOHN R. HAMANNJohn R. Hamann         |  | Chief Executive Officer, President, and Director     |  | April 15, 2003
|/s/JAMES T. TAYLORJames T. Taylor       |  | Executive Vice President and Chief Financial Officer |  | April 15, 2003
|/s/JOHN T. CHAIN, JR.John T. Chain, Jr. |  | Chairman of the Board                                |  | April 15, 2003
|/s/JAMES E. DYKESJames E. Dykes         |  | Director                                             |  | April 15, 2003
|/s/RICHARD A. FREYTAGRichard A. Freytag |  | Director                                             |  | April 15, 2003
|/s/CHARLES M. HARPERCharles M. Harper   |  | Director                                             |  | April 15, 2003
|/s/DAVID B. MATHISDavid B. Mathis       |  | Director                                             |  | April 15, 2003

29

---



CERTIFICATIONS

I,
John R. Hamann, certify that:

1.    I
have reviewed this annual report on Form 10-K of Thomas Group, Inc.;

2.    Based
on my knowledge, this annual 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 annual report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):



6.    The
registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:
April 15, 2003

/s/
John R. Hamann
John R. Hamann
President and Chief Executive Officer

30

---

CERTIFICATIONS

I,
James T. Taylor, certify that:

1.    I
have reviewed this annual report on Form 10-K of Thomas Group, Inc.;

2.    Based
on my knowledge, this annual 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 annual report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):



6.    The
registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:
April 15, 2003

/s/
James T. Taylor
James T. Taylor
Executive Vice President and Chief Financial Officer

31

---

ANNUAL REPORT ON FORM 10-K
ITEM 8, and 15(a)(1) and (c)
LIST OF FINANCIAL STATEMENTS
CERTAIN EXHIBITS
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2002
THOMAS GROUP, INC.
DALLAS, TEXAS

---

FORM 10-K.ITEM 15(a)(1)  Thomas Group, Inc.        INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The following consolidated financial statements of Thomas Group, Inc. are included in response to Item 8:

|Report of Independent Auditors                                                                             
|-----------------------------------------------------------------------------------------------------------
|Consolidated Balance Sheets as of December 31, 2002 and 2001                                               
|Consolidated Statements of Operations for the fiscal years ended December 31, 2002, 2001 and 2000          
|Consolidated Statements of Stockholders' Equity for the fiscal years ended December 31, 2002, 2001 and 2000
|Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2002, 2001 and 2000          
|Notes to Consolidated Financial Statements                                                                 

F-1

---



REPORT OF INDEPENDENT AUDITORS

Board
of Directors and Stockholders
Thomas Group, Inc.

We
have audited the accompanying consolidated balance sheets of Thomas Group, Inc. as of December 31, 2002 and 2001, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Thomas Group, Inc. at
December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States.

ERNST &
YOUNG LLP

Dallas,
Texas
March 7, 2003, except for Note 2 
as to which the date is April 15, 2003

F-2

---



THOMAS GROUP, INC.        CONSOLIDATED BALANCE SHEETS

|                                     |                                                                                                                                                                                               | December 31,               |       
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------
|
|
|ASSETS                               |                                                                                                                                                                                              
|Current Assets                       |                                                                                                                                                                                               |                            |       
|                                     | Cash and cash equivalents                                                                                                                                                                     |                            | $     
|                                     | Trade accounts receivable, net of allowances of $45 and $640 at December 31, 2002 and 2001, respectively                                                                                      |                            |       
|                                     | Unbilled receivables                                                                                                                                                                          |                            |       
|                                     | Other assets                                                                                                                                                                                  |                            |       
|                                     |                                                                                                                                                                                               |                            |       
|                                     |                                                                                                                                                                                               | Total Current Assets       |       
|                                     |                                                                                                                                                                                               |                            |       
|Property and equipment, net          |                                                                                                                                                                                               |                            | 2,298 
|Other assets                         |                                                                                                                                                                                               |                            | 229   
|                                     |                                                                                                                                                                                               |                            |       
|                                     |                                                                                                                                                                                               | $                          | 12,111
|                                     |                                                                                                                                                                                               |                            |       
|LIABILITIES AND STOCKHOLDERS' EQUITY |                                                                                                                                                                                              
|Current Liabilities                  |                                                                                                                                                                                               |                            |       
|                                     | Accounts payable and accrued liabilities                                                                                                                                                      |                            | $     
|                                     | Income taxes payable                                                                                                                                                                          |                            |       
|                                     | Revolving line of credit                                                                                                                                                                      |                            |       
|                                     | Current portion of long-term debt                                                                                                                                                             |                            |       
|                                     | Current maturities of indebtedness to related parties                                                                                                                                         |                            |       
|                                     | Current maturities of other long-term obligations                                                                                                                                             |                            |       
|                                     |                                                                                                                                                                                               |                            |       
|                                     |                                                                                                                                                                                               | Total Current Liabilities  |       
|                                     |                                                                                                                                                                                               |                            |       
|Indebtedness to related parties      |                                                                                                                                                                                               |                            | 1,400 
|Long-term debt                       |                                                                                                                                                                                               |                            | 3,901 
|Other long-term obligations          |                                                                                                                                                                                               |                            | 20    
|                                     |                                                                                                                                                                                               |                            |       
|                                     |                                                                                                                                                                                               | Total Liabilities          |       
|                                     |                                                                                                                                                                                               |                            |       
|Commitments and Contingencies        |                                                                                                                                                                                               |                            |       
|Stockholders' Equity                 |                                                                                                                                                                                               |                            |       
|                                     | Common stock, $.01 par value; 25,000,000 shares authorized; 12,109,538 and 6,705,333 shares issued and 9,556,139 and 4,151,934 shares outstanding at December 31, 2002 and 2001, respectively |                            | $     
|                                     | Additional paid-in capital                                                                                                                                                                    |                            |       
|                                     | Retained earnings (accumulated deficit)                                                                                                                                                       |                            |       
|                                     | Accumulated other comprehensive loss                                                                                                                                                          |                            |       
|                                     | Treasury stock, 2,553,399 shares at December 31, 2002 and 2001, respectively, at cost                                                                                                         |                            |       
|                                     |                                                                                                                                                                                               |                            |       
|                                     |                                                                                                                                                                                               | Total Stockholders' Equity |       
|                                     |                                                                                                                                                                                               |                            |       
|                                     |                                                                                                                                                                                               | $                          | 12,111
|                                     |                                                                                                                                                                                               |                            |       

See
accompanying notes to consolidated financial statements.

F-3

---

THOMAS GROUP, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                             |  | Year Ended December 31,
|------------------------------------------------------------ |  | -----------------------
|
|
|Consulting revenue before reimbursements                     |  | $                      
|Reimbursements                                               |  |                        
|                                                             |  |                        
|Total revenue                                                |  |                        
|                                                             |  |                        
|Cost of sales before reimbursable expenses                   |  |                        
|Reimbursable expenses                                        |  |                        
|                                                             |  |                        
|Total cost of sales                                          |  |                        
|                                                             |  |                        
|Gross profit                                                 |  |                        
|Selling, general and administrative                          |  |                        
|Restructuring charges                                        |  |                        
|Litigation settlements                                       |  |                        
|                                                             |  |                        
|Operating income (loss)                                      |  |                        
|Other income (loss), net                                     |  |                        
|                                                             |  |                        
|Income (loss) from continuing operations before income taxes |  |                        
|Income taxes (benefit)                                       |  |                        
|                                                             |  |                        
|Income (loss) from continuing operations                     |  |                        
|Discontinued Operations:                                     |  |                        
|Gain from operations, net of income tax of $100              |  |                        
|                                                             |  |                        
|Net income (loss)                                            |  | $                      
|                                                             |  |                        
|Earnings (loss) per common share:                            |  |                        
|Basic:                                                       |  |                        
|Income (loss) from continuing operations                     |  | $                      
|Gain from discontinued operations                            |  |                        
|                                                             |  |                        
|Net income (loss)                                            |  | $                      
|                                                             |  |                        
|Diluted:                                                     |  |                        
|Income (loss) from continuing operations                     |  | $                      
|Gain from discontinued operations                            |  |                        
|                                                             |  |                        
|Net income (loss)                                            |  | $                      
|                                                             |  |                        
|Weighted average shares:                                     |  |                        
|Basic                                                        |  |                        
|Diluted                                                      |  |                        

See
accompanying notes to consolidated financial statements.

F-4

---



THOMAS GROUP, INC.        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

|                                                                      |                                                                  | Common
Stock               |     | Additional
Paid-In-
Capital |   | Retained
Earnings
(Accumulated
Deficit) |   | Accumulated
Other
Comprehensive
Income (Loss) |        | Treasury
Stock |   | Total  |     
|--------------------------------------------------------------------- | ---------------------------------------------------------------- | -------------------------- | --- | --------------------------- | - | --------------------------------------- | - | --------------------------------------------- | ------ | -------------- | - | ------ | ----
|
|Balance as of January 1, 2000                                         |                                                                  | $                          | 66  |                             | $ | 23,658                                  |   | $                                             | 17,468 |                | $ | (1,182 | )   
|Issuance of 56,203 shares of common stock                             |                                                                  |                            | 1   |                             |   | 549                                     |   |                                               |       |                |   |       |     
|Purchase of 569,300 shares of common stock                            |                                                                  |                            |    |                             |   |                                        |   |                                               |       |                |   |       |     
|Discounted common stock options under employee stock option plans     |                                                                  |                            |    |                             |   | 58                                      |   |                                               |       |                |   |       |     
|Comprehensive income:                                                 |                                                                  |                            |     |                             |   |                                         |   |                                               |        |                |   |        |     
|                                                                      | Foreign currency translation adjustment                          |                            |     |                            |   |                                         |  |                                               |        |               |   |        | (180
|                                                                      | Net income                                                       |                            |     |                            |   |                                         |  |                                               |        | 2,876          |   |        |    
|                                                                      |                                                                  |                            |     |                             |   |                                         |   |                                               |        |                |   |        |     
|                                                                      |                                                                  | Total comprehensive income |     |                             |   |                                         |   |                                               |        |                |   |        |     
|Balance as of December 31, 2000                                       |                                                                  |                            | 67  |                             | $ | 24,265                                  |   |                                               | 20,344 |                |   | (1,362 | )   
|                                                                      |                                                                  |                            |     |                             |   |                                         |   |                                               |        |                |   |        |     
|Issuance of 46,066 shares of common stock                             |                                                                  |                            |    |                             |   | 172                                     |   |                                               |       |                |   |       |     
|Purchase of 109,100 shares of common stock                            |                                                                  |                            |    |                             |   |                                        |   |                                               |       |                |   |       |     
|Discounted common stock options under employee stock option plans     |                                                                  |                            |    |                             |   | (4                                      | ) |                                               |       |                |   |       |     
|                                                                      | Net and comprehensive loss                                       |                            |     |                            |   |                                         |  |                                               |        | (15,632        | ) |        |    
|                                                                      |                                                                  |                            |     |                             |   |                                         |   |                                               |        |                |   |        |     
|Balance as of December 31, 2001                                       |                                                                  | $                          | 67  |                             | $ | 24,433                                  |   | $                                             | 4,712  |                | $ | (1,362 | )   
|                                                                      |                                                                  |                            |     |                             |   |                                         |   |                                               |        |                |   |        |     
|Issuance of 5,404,205 shares of common stock upon conversion of notes |                                                                  |                            | 54  |                             |   | 2,033                                   |   |                                               |       |                |   |       |     
|Discounted common stock options under employee stock option plans     |                                                                  |                            |    |                             |   | (111                                    | ) |                                               |       |                |   |       |     
|Warrants issued for 1,267,241 shares of common stock                  |                                                                  |                            |    |                             |   | 283                                     |   |                                               |       |                |   |       |     
|Comprehensive loss:                                                   |                                                                  |                            |     |                             |   |                                         |   |                                               |        |                |   |        |     
|                                                                      | Foreign currency translation adjustment reclassified to net loss |                            |     |                            |   |                                         |  |                                               |        |               |   |        | 569 
|                                                                      | Net loss                                                         |                            |     |                            |   |                                         |  |                                               |        | (7,802         | ) |        |    
|                                                                      |                                                                  |                            |     |                             |   |                                         |   |                                               |        |                |   |        |     
|Total comprehensive loss                                              |                                                                  |                            |     |                             |   |                                         |   |                                               |        |                |   |        |     
|Balance as of December 31, 2002                                       |                                                                  | $                          | 121 |                             | $ | 26,638                                  |   | $                                             | (3,090 | )              | $ | (793   | )   
|                                                                      |                                                                  |                            |     |                             |   |                                         |   |                                               |        |                |   |        |     

See accompanying notes to consolidated financial statements.

F-5

---

THOMAS GROUP, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                    |                                                                                                                           | Year Ended December 31,                            |                                                             
|--------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ------------------------------------------------------------
|
|Cash Flows from Operating Activities:               |                                                                                                                           |                                                    |                                                             
|Income (loss) from continuing operations            |                                                                                                                           | $                                                  | (7,802                                                      
|                                                    | Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities: |                                                    |                                                             
|                                                    |                                                                                                                           | Depreciation                                       |                                                             
|                                                    |                                                                                                                           | Amortization                                       |                                                             
|                                                    |                                                                                                                           | Loss on sale of assets                             |                                                             
|                                                    |                                                                                                                           | Bad debt                                           |                                                             
|                                                    |                                                                                                                           | Other                                              |                                                             
|                                                    |                                                                                                                           | Deferred taxes                                     |                                                             
|                                                    |                                                                                                                           | Amortization (cancellation) of stock option grants |                                                             
|                                                    |                                                                                                                           | Loss from restructuring activities                 |                                                             
|                                                    |                                                                                                                           | Change in operating assets and liabilities:        |                                                             
|                                                    |                                                                                                                           |                                                    | Decrease trade accounts receivable                          
|                                                    |                                                                                                                           |                                                    | (Increase) decrease unbilled receivables                    
|                                                    |                                                                                                                           |                                                    | (Increase) decrease other assets                            
|                                                    |                                                                                                                           |                                                    | Increase (decrease) accounts payable and accrued liabilities
|                                                    |                                                                                                                           |                                                    | Decrease advance payments                                   
|                                                    |                                                                                                                           |                                                    | Increase (decrease) income taxes payable                    
|                                                    |                                                                                                                           |                                                    |                                                             
|Net cash provided by (used in) operating activities |                                                                                                                           |                                                    | (4,718                                                      
|                                                    |                                                                                                                           |                                                    |                                                             
|Cash Flows From Investing Activities:               |                                                                                                                           |                                                    |                                                             
|Proceeds from sale of assets                        |                                                                                                                           |                                                    | 49                                                          
|Capital expenditures                                |                                                                                                                           |                                                    | (371                                                        
|                                                    |                                                                                                                           |                                                    |                                                             
|Net cash used in investing activities               |                                                                                                                           |                                                    | (322                                                        
|Cash Flows From Financing Activities:               |                                                                                                                           |                                                    |                                                             
|Issuance of subordinated convertible debt           |                                                                                                                           |                                                    | 2,000                                                       
|Purchase of treasury stock                          |                                                                                                                           |                                                    |                                                            
|Proceeds from exercise of stock options             |                                                                                                                           |                                                    |                                                            
|Issuance of related party indebtedness              |                                                                                                                           |                                                    | 1,471                                                       
|Repayments of other long-term obligations           |                                                                                                                           |                                                    | (11                                                         
|Net advancesline of credit                         |                                                                                                                           |                                                    | 105                                                         
|                                                    |                                                                                                                           |                                                    |                                                             
|Net cash provided by (used in) financing activities |                                                                                                                           |                                                    | 3,565                                                       
|Effect of exchange rate changes on cash             |                                                                                                                           |                                                    | (14                                                         
|                                                    |                                                                                                                           |                                                    |                                                             
|Net cash used in continuing operations              |                                                                                                                           |                                                    | (1,489                                                      
|                                                    |                                                                                                                           |                                                    |                                                             
|Discontinued Operations:                            |                                                                                                                           |                                                    |                                                             
|                                                    | Net cash provided by operating activities                                                                                 |                                                    |                                                             
|Cash and cash equivalents                           |                                                                                                                           |                                                    |                                                             
|                                                    | Beginning of year                                                                                                         |                                                    |                                                             
|                                                    |                                                                                                                           |                                                    |                                                             
|                                                    | End of year                                                                                                               |                                                    | $                                                           
|                                                    |                                                                                                                           |                                                    |                                                             

See accompanying notes to consolidated financial statements.

F-6

---



THOMAS GROUP, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        DECEMBER 31, 2002

Note 1Summary Of Significant Accounting Policies

(a)The CompanyThomas Group, Inc. (the "Company") was incorporated under the laws of the State of Delaware in
June 1978 and provides management services designed to improve the competitiveness and profitability of its clients. The Company's specific methodology in its core product is known as PVM and
focuses on reducing the time spent on revenue-producing, product development and administrative processes, resulting in operational and financial improvements.

(b)Basis Of PresentationThe accompanying consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated. Certain amounts from prior years have been reclassified to conform to the 2002 presentation.

(c)Earnings Per ShareEarnings (loss) per common share is presented in accordance with the provisions of the Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), which requires the presentation of "basic" and "diluted" earnings per share. Basic earnings (loss) per share is
based on the weighted average shares outstanding. Diluted earnings per share includes the effect of dilutive securities such as stock options and warrants.

The
following table reconciles basic earnings per share to diluted earnings per share under the provisions of SFAS 128.

Income (Loss)
(Numerator)

Shares
(Denominator)

Per Share
AmountIn thousands, except per share dataYear Ended December 31, 2002Basic loss per share

$
(7,802
)
5,539

$
(1.41
)Effect of dilutive securities:Options and warrants







Diluted loss per share

$
(7,802
)
5,539

$
(1.41
)Year Ended December 31, 2001Basic loss per share

$
(15,632
)
4,165

$
(3.75
)Effect of dilutive securities:Options and warrants







Diluted loss per share

$
(15,632
)
4,165

$
(3.75
)Year Ended December 31, 2000Basic earnings per share

$
2,876

4,602

$
0.62Effect of dilutive securities:Options and warrants




32


Diluted earnings per share

$
2,876

4,634

$
0.62


Total
stock options and warrants outstanding in 2002, 2001 and 2000 that are not included in the diluted earnings per share computation due to the antidilutive effects are approximately
2,336,000, 1,038,000 and 885,000, respectively. Such options and warrants are excluded due to the Company

F-7

---

incurring a net loss per share in that year or due to exercise prices exceeding the average market value of the Company's common stock in the applicable period.

(d) Management's Estimates And AssumptionsThe presentation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company reviews
all significant estimates affecting the financial statements on a recurring basis and records the effect of any necessary adjustments prior to their issuance.

(e) WarrantsDuring 2002, the Company executed a Warrant Purchase Agreement exercisable for 434,899 shares of common stock to
the Chairman of its Board of Directors in consideration for a note in the amount of $1.0 million. The warrants were issued with an exercise price of $0.30 per share and expire on
September 20, 2007. These warrants were valued at $0.30 based on the Black Scholes model. In addition, a Warrant Purchase Agreement exercisable for 434,899 shares of common stock was granted to
a stockholder in consideration for a note in the amount of $1.0 million. The warrants were issued with an exercise price of $0.30 per share and expire on October 17, 2007. These warrants
were valued at $0.30 based on the Black Scholes model. In addition, a Warrant Purchase Agreement exercisable for 397,443 shares of common stock was granted to the Company's senior lender in
consideration for amending its credit facility. The warrants were issued with an exercise price of $0.30 and expire November 26, 2007. These warrants were valued at $0.37 based on the Black
Scholes model.

The
fair value of the warrants issued, in 2002, was $284,000 and was initially recorded as a reduction, or "discount", of the related debt and a corresponding increase in additional paid
in capital. The discount is being accreted to interest expense over the life of the debt. During 2002, $185,000 was charged to interest expense. At December 31, 2002, $99,000 is still recorded
as a reduction of long-term debt to be accreted over the remaining life of the debt.

During
1997, the Company issued 225,000 warrants to purchase common stock to a financial advisor of the Company. During 1998, 175,000 warrants expired. The remaining 50,000 warrants were
re-priced at the exercise of $9.125 per share, the market price on the date of re-pricing and extended the expiration date to October 28, 2003.

(f)AdvertisingThe Company expenses the costs of advertising as incurred. Advertising expense was $0.3 million,
$0.8 million and $1.9 million for the years ended December 31, 2002, 2001, and 2000, respectively.

(g) Property And EquipmentProperty and equipment are stated at cost less accumulated depreciation. The Company records
impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated
by those assets are less than the carrying amounts of those assets.

F-8

---

Depreciation is calculated on an accelerated declining balance or straight-line basis over the estimated useful lives of the various assets as follows:

Furniture and fixtures

5-7 YearsEquipment

3-7 YearsLeasehold improvements

2-10 YearsComputer software

3 Years


(h)Capitalized Software Development CostsThe Company capitalized $0.3 million during 2002 and 2001, respectively, of
certain software development costs once technological feasibility was achieved. Capitalization of software development costs ceased when the product was available for sale. Software development costs
incurred prior to achieving technological feasibility were charged to selling, general and administrative expense. Amortization of previously capitalized software development costs were
$0.2 million and $17,000 in 2002 and 2001, respectively. Unamortized software development costs were $0.4 million at December 31, 2002 and 2001, respectively. Estimated aggregate
amortization expense is $0.2 million annually for the years ending December 31, 2003 and 2004, respectively.

(i)RevenueBusiness Improvement Program contracts specify fixed fees, or fixed fees plus incentives based on improvements
achieved. Incentive (performance-oriented) revenue is recognized in the period for which performance improvement is being measured and is based on agreed-upon formulas relating to
improvements in customer-specific measures. Improvements are measured at time intervals specified in each contract. Fixed fees are recognized when earned, generally as services are provided over the
life of the contract.

(j)Unbilled ReceivablesFixed fees are recognized when earned, generally as services are provided over the life of the
contract. Although fixed fee recognition generally coincides with billings, as an
accommodation to its clients the Company may structure fee billings to increase in the latter stages of a program. In such instances, revenue recognition as services are provided results in unbilled
receivables.

(k) Advance PaymentsThe Company occasionally receives advance payments of a portion of its fees. Advance payments are
deferred upon receipt and recorded as revenue when earned.

(l)Income TaxesDeferred income taxes are provided for temporary differences between the financial statement and income tax
basis of assets and liabilities. Provisions are made for estimated domestic and foreign income taxes, less available tax credits and deductions, which may be incurred on the remittance of the
Company's share of foreign subsidiaries' undistributed earnings.

(m) Cash And Cash EquivalentsCash equivalents consist of highly liquid investments with original maturities of three months
or less.

(n)Concentration Of Credit RiskThe Company provides its services primarily to a diverse group of large,
well-established companies and does not require collateral on receivable balances. At December 31, 2002, three clients, CACI (formerly Acton Burnell), Robert Bosch and the United
States Navy, accounted for $4.8 million, or 74% of the Company's total trade accounts receivable of $6.5 million. An allowance for doubtful accounts is provided when necessary and is
evaluated periodically on a client-by-client basis. Receivables written off against the allowance totaled $0.2 million, $0 and $1.1 million for the years ended
December 31, 2002, 2001, and 2000, respectively.

F-9

---

The
Company is currently operating in Europe and Asia where potential economic turmoil may result in significant fluctuations in the value of certain foreign currencies versus the United
States dollar. The Company may experience difficulties expanding its operations or may encounter other collection issues if economic conditions should change.

(o) Foreign Currency TranslationOn January 1, 2001, the Company elected to change the functional currency of its
foreign subsidiaries to the United States dollar. This change resulted from the Company's increased presence in the Europe and Asia/Pacific regions as well as increased United States dollar
denominated contracts in these regions. Due to this growth, the Company's contracts are serviced primarily by United States employees. Under United States dollar functional currency, the financial
statements of foreign subsidiaries are remeasured from the recording currency to the United States dollar. The resulting remeasurement adjustment is recorded as foreign exchange gain or loss in the
statement of operations. There is no translation adjustment to the separate component of stockholders' equity or adjustment to comprehensive income. The effect of the change in functional currency had
no material impact on results of operations. The accumulation of prior years' translation adjustments remains on the balance sheet as a separate component of stockholders' equity until part, or
all, of the respective entities are disposed. During 2000, the financial statements were prepared using the local currency as the functional currency. All balance sheet accounts of foreign
subsidiaries were translated at the current exchange rate as of the end of the accounting period. The resulting translation adjustment was recorded as a separate component of stockholders' equity.
Income statement items were translated at average currency exchange rates.

(p) Comprehensive IncomeComprehensive income includes all changes in equity except those resulting from investments by
stockholders and distributions to stockholders.

(q)Stockholder Rights PlanOn July 9, 1998, the Company announced the adoption of a Stockholder Rights Plan, intended
to protect the Company from unfair or coercive takeover attempts. The grant of the rights was made to stockholders of record as of July 20, 1998. Periodically, the Stockholder Rights Plan is
amended to exempt certain transactions from triggering the rights. During 2002, the Stockholder Rights Plan was amended, on two separate occasions, regarding the conversion of two $1.0 million
subordinated notes to common stock.

(r)Stock Options And WarrantsThe Company accounts for its stock-based compensation plans in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations. The Company accounts for stock-based compensation for
non-employees under the fair value method prescribed by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Through December 31,
2002, there have been no significant grants to non-employees.

Effective
July 1, 2000, the Company adopted Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation" ("FIN 44"), an interpretation of APB
25, which requires changes to previous practice regarding the accounting for certain stock compensation arrangements. FIN 44 does not change APB 25's intrinsic value method, under which compensation
expense is generally not recognized for stock option grants to employees if the exercise price of the Company's stock option grants equals or exceeds the fair market value of the underlying stock on
the date of grant, but it has narrowed its application. Adoption of FIN 44 did not have a significant effect on the Company's results of operations for the year ended December 31, 2002.

F-10

---

The
Company grants incentive and non-qualified stock options and has reserved 3,550,000 shares of common stock for issuance under its stock option plans. Options to purchase
shares of the Company's common stock have been granted to directors, officers and employees. The majority of the options granted become exercisable at the rate of 20% per year, and generally expire
ten years after the date of grant.

The
Company adopted the disclosure provisions of Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock Based Compensation." This
statement requires the Company to provide pro forma information regarding net income and net income per share as if compensation cost for the Company's stock options had been determined in accordance
with the fair value method. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2002,
2001, and 2000: dividend yield of 0%; expected volatility of 65%; risk free interest rate of 6%; and expected life of five years. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date consistent with the provisions of SFAS No. 123, the Company's net income (loss) and earnings (loss) per share would have been reduced to the
pro forma amounts indicated below:

Year Ended December 31,2002

2001

2000In thousands of dollarsNet income (loss), as reported

$
(7,802
)
$
(15,632
)
$
2,876Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards


(144
)

(328
)

(493
)Adjusted net income (loss)

$
(7,946
)
$
(15,960
)
$
2,383Earnings (loss) per shareAs reportedBasic

$
(1.41
)
$
(3.75
)
$
0.62Diluted

$
(1.41
)
$
(3.75
)
$
0.62As adjustedBasic

$
(1.43
)
$
(3.83
)
$
0.52Diluted

$
(1.43
)
$
(3.83
)
$
0.51


(s)Fair Market Value Of Financial InstrumentsThe Company's financial instruments include notes payable. The carrying value
of these notes approximates market value because the borrowing rate is similar to other financial instruments with similar terms.

Note 2Financing Agreement and Liquidity

The Company has traditionally used cash flow from operations, periodically supplemented by borrowings under a bank line of credit, as its primary source of
liquidity, when transferring funds among the Company's foreign subsidiaries was not efficient. Beginning in 2001, the Company experienced a significant decline in revenue related to the downturn in
the economy. The economic downturn and subsequent revenue decline caused the Company not to be in compliance with certain covenants related to its then existing $15.0 million revolving credit
facility. As a result, the Company's

F-11

---

lender, in January of 2002, reduced the maximum allowable borrowings to $10.0 million, secured by the Company's assets. On March 29, 2002, the lender restructured the Company's credit
facility to maximum allowable borrowings of $7.5 million, consisting of a $2.5 million revolving line of credit and a $5.0 million term note. On November 29, 2002, the
credit facility was increased to $8.0 million, consisting of a $3.0 million revolving line of credit and a $5.0 million term note. The terms of the November 29, 2002
amended credit facility extended the maturity date on both the term and revolving notes to September 1, 2003. Term note installment payments and a $150,000 amendment fee, related to the
March 29, 2002 amendment, were deferred until the September 1, 2003 maturity date. Pursuant to the amended credit facility, the senior lender received, as an amendment fee, a warrant to
purchase 397,443 shares of the Company's common stock at an exercise price of $0.30 per share. The warrant expires November 26, 2007. On April 15, 2003, the Company and its senior lender
amended the credit facility to extend the maturity date on both the term and revolving notes and payment of the $150,000 amendment fee to February 2, 2004. In addition, the April 15,
2003 amended credit facility waived all financial covenants through March 31, 2003, certain of which covenants had been breached as of and prior to that date. In addition, the Company was
required to make a $1.0 million term note payment prior to April 15, 2003, with which the Company has complied.

$8.0 Million Credit Facility

All United States assets of the Company and 100% of the outstanding capital voting stock of each foreign subsidiary secure the entire $8.0 million credit
facility. The $3.0 million revolving line of credit is subject to a borrowing base of 75% applied to the Company's United States trade accounts receivable outstanding less than 90 days.
The revolving line of credit bears interest at prime plus 2%. The $5.0 million term note bears interest at prime plus 4%.

All
prior financial covenants were replaced with new financial covenants per the April 15, 2003 amended credit facility, which if breached, could result in acceleration of amounts
owed under the amended credit facility. The revised financial covenants require the Company to (1) maintain certain levels of tangible net worth, debt to tangible net worth ratio, minimum
levels of EBITDA, (2) to avoid two consecutive quarters that generate operating losses, and (3) restrict annual capital expenditures to $300,000. The covenants are tested monthly
beginning April 30, 2003. Although retained earnings is not restricted by this amended credit facility, the declaration or payment of dividends is prohibited by the agreement.

At
December 31, 2002, the $2.3 million outstanding under the revolving line of credit is classified as a current liability, while the $5.0 million term note is
classified as $1.0 million of short-term debt due to the repayment required and made on April 15, 2003 and $4.0 million of long-term debt due to its maturity date of
February 2, 2004.

The
Company utilized the credit line during 2002 to meet working capital requirements. Total interest expense was $157,000, $161,000 and $208,000 at an annual rate of 5.75% 4.09% and
11.97% for 2002, 2001 and 2000 respectively. The Company incurred commitment fees on the unused portion of the credit facility, totaling $3,000, $51,000 and $66,000 for 2002, 2001 and 2000
respectively, at an interest rate of 0.375%. Total interest expense on this term loan was $334,000 in 2002.

Total
interest expense for 2002 was $845,000, comprised of $491,000 related to bank debt, $116,000 for related party debt, $185,000 related to the issuance of warrants and $53,000 to
other parties.

F-12

---

Total
interest expense for 2001 was $171,000, related to bank debt.

Total
interest expense for 2000 was $215,000, related to bank debt.

The Company's Liquidity Plan

Recent operating results and the restructuring of the Company's credit facility give rise to concerns about the Company's ability to generate cash flow from
operations sufficient to make scheduled debt payments as they become due and to remain in compliance with its restrictive loan covenants. Since March of 2002, the Company has been able to raise
$1.5 million of subordinated debt from members of
the Board of Directors and $2.0 million of subordinated convertible debt, subsequently converted to common stock, from a member of its Board of Directors and a stockholder.

The
Company's need to raise additional equity or debt financing and the Company's ability to generate cash flow from operations sufficient to make scheduled payments on its debts as they
become due will depend on its future performance and the Company's ability to successfully implement business and growth strategies. Since the first quarter of 2001, the Company has implemented cost
saving measures including staff reductions, downsizing and subleasing of facilities and has taken greater control over alliances with strategic business partners. The Company will take additional cost
savings measures such as those taken recently, if necessary, to enhance its liquidity position. The Company's performance will also be affected by prevailing economic conditions. Many of these factors
are beyond the Company's control. The recent conflict in Iraq, involving the United States military, could have an adverse effect on the Company's liquidity due to the high concentration of United
States government contracts, which could result in delays in program operations. If future cash flows and capital resources are insufficient to meet the Company's debt obligations and commitments, the
Company may be forced to reduce or delay activities and capital expenditures, obtain additional equity capital or restructure or refinance its debt. In the event that the Company is unable to do so,
the Company may be left without sufficient liquidity and it may not be able to meet its debt service requirements. In such a case, an event of default would occur under the credit facility and could
result in all of the Company's indebtedness becoming immediately due and payable. As a result, the Company's senior lender would be able to foreclose on the Company's assets.

Note 3Restructuring.

On June 3, 2002, the Company filed a petition with the German government for insolvency of its German subsidiary, giving the insolvency court control of
the subsidiary's assets. This action was taken in response to declining revenue and cash flows from the operations of its German subsidiary during 2001 and continuing through 2002. All existing German
contracts were completed in the second quarter of 2002, and the German subsidiary had no significant future prospects. On September 1, 2002, the German insolvency court appointed an official
receiver for the Company's German subsidiary. The Company continues serving the European market through its operations in Switzerland.

The
loss from liquidation of the German subsidiary is presented in the consolidated statements of operations and consolidated statements of cash flows under the caption "Restructuring
charges" and "Loss from restructuring activities", respectively. The carrying amounts of the following assets and

F-13

---

liabilities of the German subsidiary are included as part of the restructuring charge:(amounts in thousands)

Cash

Non-cash

TotalCash and cash equivalents

$
84



84Trade accounts receivable




404

404Other assets




152

152Property and equipment, net




336

336Accounts payable and accrued liabilities


84

(329
)
(245
)Accumulated other comprehensive loss(a)




569

569Loss from restructuring activities

$
168

1,132

1,300


---

The
Company has recorded no estimates for future expenses related to the insolvency petition and believes that any such expenses incurred would not have a material adverse effect on the
consolidated results of operations, financial condition or cash flows of the Company.

Results
of operations of the German subsidiary for the year ended December 31, 2002 and 2001 were:(amounts in thousands)

2002

2001Net revenue

$
1,201

$
7,951Net cost of sales


1,063


4,503Gross profit


138


3,448Selling, general and administrative


1,046


2,671Operating income (loss)

$
(908
)
$
777


Cash
flows of the German subsidiary for the year ended December 31, 2002 and 2001 were:(amounts in thousands)

2002

2001Cash provided by (used in) operating activities

$
(51
)
$
216Cash provided by (used in) investing activities


10


(64
)Cash used in financing activities





(307
)Effect of exchange rate changes on cash


(81
)

(22
)Cash used in continuing operations

$
(122
)
$
(177
)


F-14

---

Note 4Discontinued Operations

In
1998, the Company announced its plans to dispose of its Information Technologies business segment. The sale of the Company's Information Technologies assets closed on
August 31, 1998. No proceeds were received at the time of the transaction, but the agreement included earn-outs that could have been earned over the next five years. In exchange,
the Company was relieved of the liabilities related to extended service contracts. On September 30, 2001, the buyer of the Information Technologies segment sold those assets acquired, which
contractually voided the Company's ability to earn amounts from the agreement's earn-out provisions. As such, the Company received no earn-outs from this agreement.

During
the third quarter of 1999, the Company recorded a $2.0 million after tax charge to discontinued operations as a result of the settlement of a lawsuit related to the
Company's Information Technologies business segment. In December 1999, the Company recognized a $0.3 million after tax charge to discontinued operations due to additional legal costs.

During
the second quarter of 2000, the Company recognized an after tax gain of $0.1 million from discontinued operations as a result of reimbursement of legal fees in connection
with prior litigation.

Note 5Other Assets

December 31,2002

2001In thousands of dollarsAccounts receivable, employee

$
330

$
307Deferred compensation plan assets (Note 10)





3,001Prepaid expenses


296


656Current receivables


36


1,436Income tax receivable


220


254Investment in Texas Stadium Suite


113


132Other





6995


5,792Less current portion


(766
)

(2,411
)$
229

$
3,381


F-15

---

Note 6Property And Equipment

December 31,2002

2001In thousands of dollarsEquipment

$
3,979

$
4,070Furniture and fixtures


1,838


3,378Leasehold improvements


2,704


2,645Computer software


629


369Equipment under capital leases


29


29Construction in process





237Automobiles


19


200$
9,198


10,928Less accumulated depreciation and amortization


(6,900
)

(7,426
)$
2,298

$
3,502


Note 7Other Long-Term Obligations

December 31,2002

2001In thousands of dollarsCapital lease

$
20

$
27Deferred compensation plan liability (Note 10)





3,001Deferred rent


6


6126


3,089Less current portion


(6
)

(5
)$
20

$
3,084


Note 8Accounts Payable And Accrued Liabilities

December 31,2002

2001In thousands of dollarsAccounts payable trade

$
519

$
1,164Accrued payroll and bonuses


684


1,129Accrued severance


78


960Accrued restructuring


100


203Accrued employee benefits


128


133Other accrued liabilities


1,005


1,499$
2,514

$
5,088


F-16

---

Annual
severance in 2002, relates to staff reductions affecting four employees of the Company's operations in Switzerland.

Accrued
severance in 2001, relates to four staff reduction actions affecting 65 employees (primarily resultants) which resulted in severance charges of $2.3 million of which
$1.0 million remained accrued at December 31, 2001 and was paid in the first and second quarters of 2002.

At
December 31, 2002 accrued restructuring relates to accrued legal costs associated with the Company's 2002 filing for insolvency of its German subsidiary. At December 31,
2001, accrued restructuring relates to accrued costs associated with leased office space in Germany that was vacated in connection with the Company's 1998 restructuring. This liability was reversed
during 2002 and included as part of the restructuring charge created by the filing for insolvency of the Company's German subsidiary.

Note 9Income Taxes

The domestic and foreign source components of income (loss) before taxes are as follows:

Year Ended December 31,2002

2001

2000In thousands of dollarsDomestic sources

$
(2,905
)
$
(9,345
)
$
(2,404
)Foreign sources


(5,335
)

(328
)

6,949(8,240
)

(9,673
)

4,545Discontinued operations








249$
(8,240
)
$
(9,673
)
$
4,794


The
reconciliation of income tax from continuing operations computed at the United States federal statutory tax rate to the Company's effective income tax rate is as follows:

Year Ended December 31,2002

2001

2000In thousands of dollarsIncome taxes (benefit) at statutory rate

$
(2,801
)
$
(3,289
)
$
1,545Effect on taxes resulting from:State taxes


(31
)

366


255Increase (decrease) in valuation allowance


(836
)

3,339


174Operating losses and tax credits generated but not benefited





3,929


Foreign income subject to current United States taxation


866


1,458


622Utilization of federal net operating losses, less benefit received


1,305





Unbenefited losses of foreign subsidiary


699


858


Other (primarily permanent differences)


360


(702
)

(778
)$
(438
)
$
5,959

$
1,818


F-17

---

Federal,
state and foreign income tax expense (benefit) consists of the following:

Year Ended December 31,2002

2001

2000In thousands of dollarsCurrent tax expense (benefit):Federal

$
(923
)
$
328

$
36State


(46
)

243


34Foreign


531


2,049


533(438
)

2,620


603Deferred tax expense:Federal





3,066


958State





273


357


3,339


1,315$
(438
)
$
5,959

$
1,918


Income
tax expense (benefit) is included in the consolidated financial statements as follows:

Year Ended December 31,2002

2001

2000In thousands of dollarsContinuing operations

$
(438
)
$
5,959

$
1,818Discontinued operations








100$
(438
)
$
5,959

$
1,918


F-18

---

Significant
components of the Company's net deferred tax assets (liabilities) for federal and state income taxes are as follows:

December 31,2002

2001In thousands of dollarsDeferred tax assets:Net operating loss carryforward

$
3,754

$
2,964Foreign tax credit carryforward


2,762


3,383Allowance for doubtful accounts


17


166Restructuring expenses


53


17Accrued expenses


325


409Deferred compensation





956Minimum tax credit carryforward


169


169Charitable contribution carryforward


58


517,138


8,115Valuation allowance


(7,101
)

(7,938
)Total deferred tax assets


37


177Deferred tax liabilities:Unremitted earnings of foreign subsidiaries





(146
)Fixed assets


(37
)

(31
)Total deferred tax liabilities


(37
)

(177
)Net deferred tax asset

$


$



At
December 31, 2002, the Company has approximately $3.6 million of federal net operating loss carryovers, which begin to expire in 2021 and approximately
$5.5 million of state net operating loss carryovers, which expire at various times. The Company also has approximately $11.8 million of Asian net operating loss carryovers which
currently do not have any statutory expiration date. In addition, the Company has approximately $2.8 million of United States foreign tax credit carryovers that begin to expire in 2003 and
approximately $169,000 of United States minimum tax credits, which may be carried forward indefinitely.

At
December 31, 2001, the Company determined, based primarily on its recent history of operating losses in the United States, that it could no longer consider the recovery of its
net deferred tax assets as more likely than not. Accordingly, the Company's net deferred tax assets at the beginning of 2001 were reduced by a valuation allowance adjustment of $3.3 million.
The Company reviewed the recovery probability at December 31, 2002, and determined that the recovery of its net deferred tax assets remained questionable. While a valuation allowance is
currently required for the Company's net deferred tax assets, the assets remain available for use in the future to offset future income tax liabilities, should sufficient amounts of United States and
foreign income be generated in the carryforward periods. Utilization of net operating loss carryforwards in the future may be limited if changes in the Company's stock ownership create a change in
control as provided in Section 382 of the Internal Revenue Code of 1986, as amended.

F-19

---

Note 10Employee Benefit Plans

The Company sponsors a 401(k) retirement plan. The Company, at its discretion, matches a portion of the participants' contribution. Participants are vested in the
Company's matching contribution after five years of full-time service and may join the plan January 1 and July 1. The Company did not make a matching contribution in 2002.
Matching contribution expense was $0.5 million for 2001 and $0.4 million for 2000, respectively.

In
1994, the Company established a non-qualified deferred compensation plan. In May of 2002, the plan was terminated and the participants' entire fund balances were
distributed to them, net of required federal taxes. The federal taxes were remitted directly to the Internal Revenue Service on behalf of the employees. Participation was limited to officers and key
employees. Assets and accrued liabilities of the plan were $3.0 million at December 31, 2001 and were recorded in the non-current other assets and other
long-term obligations sections of the consolidated balance sheets. Amounts previously deferred under the plan were deposited in a trust that qualified as a grantor trust under the Internal
Revenue Code of 1986, as amended. The Company's obligations under the deferred compensation plan were unsecured general obligations of the Company and rank equally with other unsecured general
creditors of the Company. Assets of the deferred compensation plan were invested in various mutual funds as directed by the plan participants. Adjustments to the fair value of the mutual fund
investments, which were classified as trading, were recorded in operating expenses.

Note 11Commitments and Contingencies

On March 16, 2001, the Company received notice of a claim from Balanced Scorecard Collaborative, Inc. ("BSCol"), to mediate/arbitrate a dispute
regarding BSCol's claim for unpaid fees under the parties' March 2000 agreement. The matter was not settled during an April 26 mediation, and consequently was resolved by a proceeding
before a neutral arbitration panel in Dallas, Texas, during the week of September 17, 2001, pursuant to an arbitration provision in the parties' agreement. On October 5, 2001, the
Company received an adverse ruling from the arbitration panel. The decision of the arbitration panel awarded BSCol $2.4 million. The total cost of the litigation of $2.9 million,
including legal fees of $0.5 million, is presented separately as litigation settlements in the Company's consolidated statements of operations.

During
2000, the Company was party to an arbitration proceeding with Overhead Door Corporation, a former client, to collect unpaid fees. The Company received an adverse ruling from the
arbitration panel. The total cost to the Company, including legal fees, was $0.7 million and is presented separately as litigation settlements in the Company's consolidated statements of
operations.

The
Company has become subject to various other claims and other legal matters, such as collection matters initiated by the Company, in the course of conducting its business. The Company
believes that neither such claims and other legal matters nor the cost of prosecuting and/or defending such claims and other legal matters will have a material adverse effect on the Company's
consolidated results of operations, financial condition or cash flows.

The
Company leases office space, vehicles and various types of office equipment under non-cancelable operating leases. Rent expense related to operating leases totaled
$2.0 million for 2002, $2.6 million for 2001 and $1.8 million for 2000.

F-20

---

Minimum
lease payments required under non-cancelable operating lease arrangements subsequent to December 31, 2002, are as follows:

Operating Leases
In thousands of dollars2003

$
1,5172004


1,2282005


1,0382006


8642007


310Thereafter


Total minimum lease payments


4,957Sublease arrangements


(1,731
)Net minimum lease payments

$
3,226


Note 12Segment Data And Sales To Major Customers

The
Company operates in one industry segment, but conducts its business primarily in three geographic areas: North America, Europe and Asia/Pacific. Information regarding these areas
follows:

|                              |  | North America |        | Europe |   | Asia/Pacific |  | Corporate |        | Total
|----------------------------- |  | ------------- | ------ | ------ | - | ------------ |  | --------- | ------ | -----
|
|Year ended December 31, 2002: |  |               |        |        |   |              |  |           |        |      
|Revenue                       |  | $             | 13,965 |        | $ | 13,475       |  | $         | 4,230  |      
|Gross profit (loss)           |  | $             | 8,986  |        | $ | 4,405        |  | $         | (2,028 | )    
|Long-lived assets             |  | $             | 2,065  |        | $ | 162          |  | $         | 187    |      
|Year ended December 31, 2001: |  |               |        |        |   |              |  |           |        |      
|Revenue                       |  | $             | 12,314 |        | $ | 28,680       |  | $         | 10,676 |      
|Gross profit (loss)           |  | $             | 9,871  |        | $ | 9,968        |  | $         | (1,387 | )    
|Long-lived assets             |  | $             | 2,627  |        | $ | 857          |  | $         | 266    |      
|Year ended December 31, 2000: |  |               |        |        |   |              |  |           |        |      
|Revenue                       |  | $             | 30,171 |        | $ | 29,040       |  | $         | 8,487  |      
|Gross profit                  |  | $             | 17,381 |        | $ | 13,366       |  | $         | 496    |      
|Long-lived assets             |  | $             | 2,909  |        | $ | 1,071        |  | $         | 17     |      

F-21

---

The
following table indicates those clients whose revenues were in excess of 10% of consolidated revenues in any of the three years ended December 31, 2002.

|                              |                               |  |   | % of  |  |    |   | % of |       
|----------------------------- | ----------------------------- |  | - | ----- |  | -- | - | ---- | ------
|
|
|
|Year Ended December 31, 2002: |                               |  |   |       |  |    |   |      |       
|                              | CACI (formerly Acton Burnell) |  | $ | 9,439 |  | 30 | % | $    |      
|                              | Robert Bosch                  |  | $ |      |  |   |   | $    | 12,116
|Year Ended December 31, 2001: |                               |  |   |       |  |    |   |      |       
|                              | Robert Bosch                  |  | $ |      |  |   |   | $    | 19,244
|                              | Adam Opel                     |  | $ |      |  |   |   | $    | 5,779 
|                              | Acton Burnell                 |  | $ | 5,586 |  | 11 | % | $    |      
|Year Ended December 31, 2000: |                               |  |   |       |  |    |   |      |       
|                              | Robert Bosch                  |  | $ |      |  |   |   | $    | 19,602
|                              | General Motors                |  | $ | 5,248 |  | 8  | % | $    | 5,346 
|                              | Boston Scientific             |  | $ | 9,750 |  | 14 | % | $    |      

The
majority of foreign revenue was earned in Germany and Switzerland for all of the years presented.

Note 13Related Party Transactions

The Company issued three promissory notes; two to its current Chairman of the Board, General John T. Chain, Jr., and one to its Chief Executive Officer, John R.
Hamann. The notes are subordinated to the Company's senior lender and their terms are summarized as follows:

|Name                       |  | Issue
Date |  | Date
Funded |  | Principal &
Interest
Maturity Date |  | Semi-Annual
Interest Accrual
Dates |  | Interest
Rate |   | Principal
Amount |           | Current Year
Interest Expense
|-------------------------- |  | ---------- |  | ----------- |  | ---------------------------------- |  | ---------------------------------- |  | ------------- | - | ---------------- | --------- | -----------------------------
|General John T. Chain, Jr. |  | 3/29/02    |  | 4/4/02      |  | 4/1/04                             |  | Oct 1/Apr 1                        |  | Prime + 6     | % | $                | 1,000,000 |                              
|John R. Hamann             |  | 3/29/02    |  | 3/29/02     |  | 4/1/04                             |  | Oct 1/Apr 1                        |  | Prime + 6     | % | $                | 92,000    |                              
|General John T. Chain, Jr. |  | 5/31/02    |  | 5/28/02     |  | 6/1/04                             |  | Dec 1/Jun 1                        |  | Prime + 6     | % | $                | 400,000   |                              

On September 20, 2002, the Company issued a $1.0 million subordinated convertible note to its current Chairman of the Board, General
John T. Chain, Jr. On November 11, 2002, the note was converted into 2,691,112 shares of the Company's common stock at $0.375 per share upon approval from stockholders at the Company's annual
meeting. In addition, as consideration for the note, General Chain received a warrant to purchase 434,899 shares of the Company's common stock. The warrant included board designation,
anti-dilution and registration rights. The Company's stockholder rights plan was amended on September 13, 2002 to exempt the transaction with General Chain from the rights plan.
After conversion of the note, General Chain owned 29% of the Company's outstanding stock.

A
family member of the Company's CEO performed, on a contract basis, marketing services during 2002 and 2001. Fees and expenses related to these services were $92,000 in 2002 and
$187,000 in 2001.

F-22

---

Note 14Common Stock And Stock Options

A summary of the status of the Company's stock options to employees as of December 31, 2002, 2001 and 2000 and changes in the years then ended is presented
below.

|                                                          |           | 2002      |          | 2001 |      | 2000
|--------------------------------------------------------- | --------- | --------- | -------- | ---- | ---- | ----
|
|Outstanding at beginning of year                          |           | 988,424   |          | $    | 8.58 |     
|                                                          | Granted   |           | 496,364  |      |      | 2.00
|                                                          | Exercised |           | (250     | )    |      | 1.13
|                                                          | Forfeited |           | (466,082 | )    |      | 6.24
|                                                          |           |           |          |      |      |     
|Outstanding at end of year                                |           | 1,018,456 |          | $    | 6.45 |     
|                                                          |           |           |          |      |      |     
|Options exercisable at year-end                           |           | 550,252   |          | $    | 8.47 |     
|Weighted average grant-date fair value of options granted |           |           |          | $    | 2.01 |     

The
following table summarizes information about stock options outstanding at December 31, 2002.

|  |             |  |           | Options Outstanding |      |  |   |      
|- | ----------- |  | --------- | ------------------- | ---- |  | - | -----
|
|
|
|
|$ | 0.50-7.94   |  | 666,717   |                     | 7.69 |  | $ | 4.67 
|  | 8.00-9.94   |  | 289,100   |                     | 5.23 |  |   | 9.22 
|  | 10.09-13.75 |  | 48,975    |                     | 5.48 |  |   | 11.43
|  | 14.25-19.13 |  | 13,664    |                     | 3.61 |  |   | 16.46
|  |             |  |           |                     |      |  |   |      
|$ | 0.50-19.13  |  | 1,018,456 |                     | 6.83 |  | $ | 6.45 
|  |             |  |           |                     |      |  |   |      

Note 15Supplemental Disclosure Of Cash Flow Information

Year Ended December 31,2002

2001

2000In thousands of dollarsInterest paid

$
522

$
198

$
215Income taxes paid

$
1,079

$
1,676

$
1,602


During
2002, a non-cash conversion of $2.0 million of subordinated convertible notes were converted from debt to stockholders' equity.

F-23

---

THOMAS GROUP, INC.        CORPORATE INFORMATION

|International Headquarters
5221 North O'Connor Boulevard
Suite 500
Irving, Texas 75039-3714
Telephone: (972) 869-3400
Fax: (972) 401-4220
Detroit Office
201 W. Big Beaver Road
Suite 201
Troy, Michigan 48084
Telephone: (248) 528-5110
Fax: (248) 528-3271 |  | Hong Kong
Thomas Group Hong Kong Limited
Suite 2801, Tower 6
The Gateway
Harbour City, 9 Canton Road
Tsimshatsui, Kowloon, Hong Kong
Telephone: + 852 2175 4800
Fax: + 852 2175 4808
Switzerland
Thomas Group (Schweiz) GmbH
Baarerstrasse 135
CH-6301 Zug
Switzerland
Phone: +41 (0) 41 763 5623
Fax: +41 (0) 41 763 5624
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Form 10-K and Other Financial Information Requests

A
copy of the Annual Report on Form 10-K as filed with the Securities and Exchange Commission and other financial information is available without charge upon written request to
Investor Relations, Thomas Group, Inc., 5221 N. O'Connor Boulevard, Suite 500, Irving, Texas 75039-3714.

Annual Meeting

The
Annual Meeting of Stockholders will be held on June 12, 2003 at 9:00 a.m. Central Time in the Company's offices, 5221 N. O'Connor Boulevard, Suite 500, Irving, Texas
75039-3714.

Stock Market Information and Related Stockholder Matters

The
Company's Common Stock trades on the OTC Bulletin Board under the symbol TGIS.OB. At March 17, 2003, the Company had approximately 133 holders of record of its Common Stock. The Company has
paid no cash dividends and the Company intends to retain future earnings in order to provide funds for use in the operation and expansion of the business.

---

Directors and Executive Officers

|John R. Hamann
Chief Executive Officer and
President
James T. Taylor
Executive Vice President and
Chief Financial Officer
Jim Houlditch
President, North America Region
Toby Marion
President, Asian/Pacific Region
John T. Chain, Jr.
Chairman
Retired Executive Vice President
Burlington Northern Railroad
James E. Dykes
Director
Retired Executive Vice President
Corporate Development
Thomas Group, Inc. |  | Richard A. Freytag
Director
Retired President and Chief Executive Officer
Citicorp Banking Corporation
Charles M. Harper
Director
Retired Chairman and Chief Executive Officer
RJR Nabisco
David B. Mathis
Director
Chairman and Chief Executive Officer
Kemper Insurance Companies Corporate InformationTransfer AgentComputershare
12039 West Alameda Parkway
Lakewood, CO 80228 AuditorErnst & Young LLP
2121 San Jacinto Street
Suite 1500
Dallas, TX 75201
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---