Use these links to rapidly review the documentTABLE OF CONTENTS INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



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,
2003.
|------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------
|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

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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

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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 March 23, 2004, the aggregate market value of the voting stock held by non-affiliates of the registrant was $4,729,819, based on the OTC
Bulletin Board closing price of $1.55.

As
of March 23, 2004, there were 9,655,662 shares of the registrant's common stock outstanding.



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TABLE OF CONTENTS



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

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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.

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

2

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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.

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,

3

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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.

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/

4

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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
Delco
Delphi
Detroit Diesel
GM
GM DELCO
GM/Warranty
Meritor
Osram
Pep Boys
Robert Bosch
Saab
Siemens Apparel ManufacturerBrandix
Esquel Group
Lanka Equities
Tristate Holdings Banking, Financial Services, InsuranceDG Bank
Forethought Insurance
Olivetti
Sun Life Financial 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 HealthcareCentura
Mallinckrodt GovernmentFAA
CACI
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
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5

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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, 2003: |  |               |        |        |   |              |   |           |        |      
|Revenue                       |  | $             | 27,110 |        | $ | 132          |   | $         | 3,165  |      
|Gross profit (loss)           |  | $             | 14,752 |        | $ | (74          | ) | $         | 109    |      
|Total assets                  |  | $             | 5,961  |        | $ | 301          |   | $         | 1,084  |      
|Long-lived assets             |  | $             | 1,114  |        | $ | 36           |   | $         | 14     |      
|Year ended December 31, 2002: |  |               |        |        |   |              |   |           |        |      
|Revenue                       |  | $             | 14,331 |        | $ | 14,548       |   | $         | 4,347  |      
|Gross profit (loss)           |  | $             | 8,986  |        | $ | 4,405        |   | $         | (2,028 | )    
|Total assets (restated)       |  | $             | 6,228  |        | $ | 3,959        |   | $         | 1,392  |      
|Long-lived assets (restated)  |  | $             | 1,646  |        | $ | 162          |   | $         | 187    |      
|Year ended December 31, 2001: |  |               |        |        |   |              |   |           |        |      
|Revenue                       |  | $             | 13,054 |        | $ | 33,912       |   | $         | 12,479 |      
|Gross profit (loss)           |  | $             | 9,871  |        | $ | 9,968        |   | $         | (1,387 | )    
|Total assets (restated)       |  | $             | 7,733  |        | $ | 6,944        |   | $         | 3,442  |      
|Long-lived assets (restated)  |  | $             | 2,124  |        | $ | 857          |   | $         | 266    |      

In
2003, two clients, CACI and the United States Navy, accounted for 39% and 32% of the Company's revenue, respectively.

In
2002, two clients, Robert Bosch and CACI accounted for 39% and 28% of the Company's total revenue, respectively.

In
2001, three clients, Robert Bosch, Adam Opel and Acton Burnell, accounted for 39%, 11% and 10% of the Company's total revenue, 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 2003, 2002, and 2001, approximately 1%, 22% and 25%, 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.

6

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Typically,
government agencies for whom a company performs consulting services can only sign 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
$28.4 and $42.0 million at December 31, 2003, and 2002, respectively, of which approximately $16.8 million is expected to be realized within fiscal 2004.

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.

7

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Employees

At March 23, 2004, the Company had a total of 94 employees, consisting of 52 full-time Resultants, 13 part-time Resultants and 29
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 SecuritiesSchedule 14A

Definitive Proxy Statement


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 6,000 square feet and subleases approximately 3,000 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. The Company also
leases space for its offices in Zug, Switzerland, Singapore, Shanghai and Hong Kong. The Company believes these facilities are adequate for its current needs.

ITEM 3.Legal Proceedings.

During the third quarter of 2003, the Company became aware of past circumstances involving a former employee that management believed would result in future
litigation or settlement costs. As such, the Company recorded a $150,000 contingent liability related to the matter. On December 17, 2003, the Company entered into a settlement agreement with
its former employee resulting in $121,160 payable to the former employee in two installments, due December 17, 2003 in the amount of $21,160 and January 5, 2004 in the amount of
$100,000. The Company has made both installment payments. In addition to the settlement payments as part of the settlement agreement, the Company and the former employee entered into a consulting
agreement whereby the Company will pay its former employee $84,640, payable in five equal monthly installments of $16,928 beginning January of 2004 and continuing through May of 2004. The
Company's former employee will provide a report related to the financial strength and other conditions of the Asian marketplace as performance under the consulting agreement.

8

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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.

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

No matters were submitted to a vote of stockholders, through the solicitation of proxies or otherwise, during the quarter ended December 31, 2003.

PART II

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

Market for Registrant's Common Equity

The Company's common stock is 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. The prices reported in the following table
reflect inter-dealer prices without retail mark-up, mark-down or commissions.

Quarter Ended

High

LowDecember 31, 2003

$
1.50

$
0.74September 30, 2003

$
1.01

$
0.60June 30, 2003

$
0.80

$
0.45March 31, 2003

$
0.70

$
0.34December 31, 2002

$
0.46

$
0.13September 30, 2002

$
0.52

$
0.05June 30, 2002

$
1.65

$
0.30March 31, 2002

$
2.99

$
1.48


Holders of Record

As of March 23, 2004 there were approximately 176 holders of record of the Company's common stock.

Dividends

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

9

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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:                                |                                                  |                         |       
|Revenue                                                      |                                                  | $                       | 30,407
|Operating expenses                                           |                                                  |                         | 29,202
|                                                             |                                                  |                         |       
|Operating income (loss)                                      |                                                  |                         | 1,205 
|Other income (expense), net                                  |                                                  |                         | (625  
|                                                             |                                                  |                         |       
|Income (loss) from continuing operations before income taxes |                                                  |                         | 580   
|Income tax expense (benefit)                                 |                                                  |                         | (132  
|                                                             |                                                  |                         |       
|Income (loss) from continuing operations                     |                                                  |                         | 712   
|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                                          |                         |       

---

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

10

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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 transactions in these regions are denominated
using the United States dollar. However, some of the Company's transactions are in the local currency of the country; 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. 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. Fixed fees are recognized as they become billable per the terms of the contracts, which generally represent effort
expended to date on a contract on a percentage of completion bases.

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 $4.2 million, which
were used to offset United States taxable income in 2003. Additionally the Company has unused foreign tax credit carryovers of $0.8 million, which begin to expire in 2005. In Asia, the Company
has approximately $13.6 million of net operating loss carryovers,

11

---

which
currently do not have any statutory expiration date. In Europe, the Company has $1.7 million of net operating loss carryovers. Due to the uncertainty of the Company's ability to utilize
its net deferred tax assets, the Company has provided a valuation allowance of $4.5 million. If the Company generates United States and foreign 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 foreign tax credit carryover will be realized.

Results of Operations

Percentage Of Revenue
For Year Ended December 31,2003

2002

2001(Restated)

(Restated)Revenue

100.0
%
100.0
%
100.0
%Cost of sales

51.4
%
65.8
%
69.0
%Gross profit

48.6
%
34.2
%
31.0
%Selling, general and administrative

44.6
%
52.4
%
43.3
%Restructuring charges



3.9
%
Litigation settlements





4.9
%Operating income (loss)

4.0
%
(22.1
)%
(17.2
)%Interest income (expense), net

(2.1
)%
(2.5
)%
0.1
%Other income, (loss), net



0.1
%
Income (loss) before income taxes

1.9
%
(24.5
)%
(17.1
)%Income taxes (benefit)

(0.4
)%
(1.3
)%
10.0
%Net Income (loss)

2.3
%
(23.2
)%
(27.1
)%


2003 Compared to 2002

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 expense incurred be classified in the income statement as revenue. The Company has presented revenue in two components: consulting revenue before reimbursements
and reimbursements. Reimbursements reclassified to revenue for the years ended December 31, 2003, 2002 and 2001 were $0.6 million, $1.5 million and $7.7 million,
respectively. In addition, cost of sales has also been presented in two components: cost of sales before reimbursable expenses and reimbursable expenses.

Revenue
decreased $2.8 million, or 8% to $30.4 million in 2003, from $33.2 million in 2002. Fixed fee revenue was $29.4 million, or 97% of revenue in 2003,
compared to $24.3 million, or 73% in 2002. Incentive fee revenue was $0.4 million, or 1% of revenue in 2003, compared to $7.4 million, or 22% of revenue in 2002. Reimbursements
were $0.6 million, or 2% of revenue in 2003, compared to $1.5 million, or 5% of revenue in 2002.

The
significant decrease in incentive fee revenue relates to the completion of major incentive based contracts in 2002, which were not replaced with similar incentive type contract
arrangements in 2003.

North
America region revenue increased $12.8 million, or 90%, to $27.1 million in 2003, from $14.3 million in 2002. $11.0 million of the increase, or 86%, was
attributable to United States government contracts. The remaining $1.8 million, or 14%, was from commercial clients in the United States and Canada.

12

---

Europe
region revenue decreased $14.4 million, or 99%, to $0.1 million in 2003, from $14.5 million in 2002. The decrease is primarily attributable to the significant
decline in the European economy, which adversely affected the Company's ability to secure contracts. In 2002 the completion of a significant contract that produced revenue of $13.0 million was
not replaced with contracts of a similar magnitude in 2003. In addition, the Company's German subsidiary, which was placed in insolvency during 2002, reflected a $1.3 million decrease in
revenue when compared to 2002.

Asia/Pacific
region revenue decreased $1.1 million, or 26%, to $3.2 million in 2003, from $4.3 million in 2002. The decrease is attributable to the 2002 completion
of a program that contributed $2.4 million to revenue in 2002, offset by $1.3 million in new programs signed in 2003.

Gross Profit

Despite decreased revenues, gross profit for 2003 increased to $14.8 million and 49% of revenue, from $11.4 million and 34% of revenue in 2002. The
improvement in gross profit is primarily attributable to direct labor cost reductions achieved as a result of salary reductions and the unpaid furlough of inactive employees not assigned to programs.
In addition, travel and telecommunications costs were reduced.

Selling, General and Administrative

Selling, general and administrative expense decreased $3.8 million, or 22%, to $13.6 million from $17.4 million in 2002. The decrease is
comprised of $1.4 million reduction in selling and administrative compensation and related expenses such as travel and telecommunications, $1.5 million reduction in
outside professional services such as legal, accounting, and business development consulting, $0.6 million reduction in leases of office equipment and office space, and $0.3 million in
other cost reductions.

Restructuring

In 2002 the Company incurred restructuring charges of $1.3 million related to the petition for insolvency of its German subsidiary. The Company has yet to
be informed as to the determination of the assets related to its former German subsidiary by the insolvency court. Please see theRestructuring
discussion under the caption "2002 Compared to 2001" in this section.

Income Taxes

The Company's effective tax benefit rate for 2003 was 23%, compared to an effective tax benefit rate of 5% in 2002. The change in the Company's effective tax rate
is primarily related to the reversal of an accrual related to foreign taxes.

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 expense for income offset by net operating loss carryforwards previously subject to valuation
reserve.

13

---

2002 Compared to 2001

Revenue

Revenue decreased $26.2 million, or 44%, to $33.2 million in 2002, from $59.4 million in 2001. Fixed fee revenue was $24.3 million, or
73% of revenue in 2002, compared to $36.8 million, or 62% in 2001. Incentive fee revenue was $7.4 million, or 22% of revenue in 2002, compared to $14.9 million, or 25% in 2001.
Reimbursements were $1.5 million, or 5% of revenue in 2002, compared to $7.7 million, or 13% of revenue in 2001.

North
America region revenue increased $1.3 million, or 10%, to $14.3 million in 2002, from $13.0 million in 2001. The increase relates primarily to the signing of
several United States government contracts in 2002.

Europe
region revenue decreased $19.4 million, or 57%, to $14.5 million in 2002, from $33.9 million in 2001. The decrease is primarily attributable to the completion
of a significant contract, which produced revenue of $23.3 million in 2001, compared to $13.0 million in 2002. In addition, the Company's German subsidiary, which was placed in
insolvency during 2002, reflected a $7.8 million decrease in revenue when compared to 2001.

Asia/Pacific
region net revenue decreased $8.2 million, or 66%, to $4.3 million in 2002, from $12.5 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, or 34% of revenue, from $18.5 million, or 31% of revenue in 2001. The decrease in gross profit
dollars is attributable to the $26.2 million revenue decrease related to the adverse economic climate the Company's potential and existing clients faced during 2002. The improvement in gross
profit percentage was achieved primarily through the Company reducing its direct labor cost by placing active employees not assigned to programs on furlough status. This increased employee utilization
combined with travel savings resulted in a $19.1 million reduction in cost of sales.

Selling, General and Administrative

Selling, general and administrative expense decreased $8.3 million, or 32% to $17.4 million in 2002, from $25.7 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. In addition, 2001 contained $0.5 million of leasehold improvement write-downs
related to a loss on a contract of subleased office space, which did not recur in 2002.

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, was recorded in 2002. In February of 2003, the Company filed a proof of claim with the insolvency court, and in September 2003 was notified that further review by
the insolvency court was postponed to 2004. The Company has yet to be informed as to the determination of the

14

---

assets
related to its former German subsidiary by the insolvency court. 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 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 14 to the Company's consolidated financial statements.

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.

Income Taxes

The Company's effective tax benefit rate for 2002 was 5% compared to an effective tax rate of (59)% 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.

15

---

Quarterly Results

The following table sets forth certain unaudited operating results for each of the four quarters in the two years ended December 31, 2003. 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. Periods prior to December 31, 2003 were restated to reflect the proper depreciation expense related to the Company's prior period
adjustment due to a loss recognized on the subleasing of office space in 2001.

|                          |         | 2003
For the Three Months Ended |       | 2002
For the Three Months Ended |  
|------------------------- | ------- | ------------------------------- | ----- | ------------------------------- | -
|
|
|
|Revenue                   |         | $                               | 7,742 |                                 | $
|Gross profit              |         |                                 | 3,536 |                                 |  
|Operating income (loss)   |         |                                 | 123   | (b)                             |  
|Net income (loss)         |         |                                 | (63   | )(b)                            |  
|Earnings (loss) per share |         |                                 |       |                                 |  
|                          | Basic   |                                 | $     | (0.01                           | )
|                          | Diluted |                                 | $     | (0.01                           | )
|Weighted average shares   |         |                                 |       |                                 |  
|                          | Basic   |                                 |       | 9,556                           |  
|                          | Diluted |                                 |       | 9,556                           |  
|Stock Price(a)            |         |                                 |       |                                 |  
|                          | High    |                                 | $     | 0.70                            |  
|                          | Low     |                                 | $     | 0.34                            |  
|                          | Close   |                                 | $     | 0.60                            |  

---

Liquidity and Capital Resources

Cash provided by operating activities was $4.2 million in 2003, compared to $4.7 million of cash used in operating activities in 2002. The increase
in 2003 is primarily attributable to net income in 2003 and improved collection of trade accounts receivable.

Net
cash used in investing activities decreased to $0.1 million in 2003, from $0.3 million in 2002. The decrease is a result of lower capital expenditures in 2003. Capital
expenditures in 2003 consisted of computer hardware and software upgrades, whereas 2002 capital expenditures consisted of costs related to website design and leasehold improvements.

16

---

Net
cash used in financing activities was $4.5 million in 2003, compared to net cash provided by financing activities of $3.6 million in 2002. The increase in cash used in
financing activities is a result of using cash generated from operations to pay down term and revolving debt balances by $4.5 million in 2003. During 2002, the Company raised
$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
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 March 23, 2004, 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 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. The
Company was required to make a $1.0 million term note payment prior to April 15, 2003, with which the Company has complied. Additional term note payments of $1.2 million were made
during the remainder of 2003. On February 2, 2004, the credit facility was revised to extend the maturity date to February 28, 2005. With this revision, a $200,000 term note payment was
due
February 28, 2004, which was made, and monthly payments of $100,000 are required beginning March 31, 2004 and continuing until maturity. Term note payments equal to 25% of cash flows
provided by operating activities on year-to-date cumulative basis are payable quarterly. The minimum term note reduction under this new agreement is $1.4 million. An
amendment fee of $100,000, to be accrued in five $20,000 monthly installments beginning August 1, 2004, was added, payable on December 31, 2004 pending replacement of the
Company's senior lender prior to December 31, 2004 in which case would result in a pro rated portion of the amendment fee becoming due. At December 31, 2003, the Company was in violation
of certain debt covenants under the credit facility, which were waived by the senior lender.

$5.8 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 $5.8 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

17

---

receivable
outstanding less than 90 days. The revolving line of credit bears interest at prime plus 2%. The $2.8 million term note bears interest at prime plus 4%.

All
prior financial covenants were replaced with new financial covenants per the February 2, 2004 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
quarterly beginning March 31, 2004. 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, 2003, the $1.2 million outstanding under the term note is classified as a current liability, due to the repayment required and $1.6 million is
classified as long-term debt due to its maturity date of February 28, 2005. The Company had no outstanding borrowings on its $3.0 million revolving line of credit at
December 31, 2003.

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. During 2003, the Company's cost control strategies improved
gross margins and significantly reduced selling, general and administrative expenses. These cost control strategies were the primary reason the Company was able to produce cash flow from operations of
$4.2 million. This cash generation was used to pay down term debt by $2.2 million and revolving debt by $2.3 million. The Company has also completed renegotiation of its
$5.8 million credit facility and $1.4 million of subordinated notes. These renegotiations extended the maturity date until February 28, 2005 for the $5.8 million credit
facility, April 1, 2005 for the $1.0 million subordinated note and June 1, 2005 for the $0.4 million subordinated note.

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. 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. 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.

Off-Balance Sheet Arrangements

At December 31, 2003 the Company had no obligations that would qualify to be disclosed as off-balance sheet arrangements.

18

---

Contractual Obligations

The Company has contractual obligations with various creditors for the purpose of providing working capital and financing specific assets. The Company also
contracts with certain former executives and an employee in consulting arrangements designed to facilitate business development. The amounts of the Company's contractual obligations at
December 31, 2003, as well as the maturity of these commitments are as follows:(amounts in thousands)

|                            |  | Total |       | Less than 1 year |   | 1-3 years |  | 3-5 years
|--------------------------- |  | ----- | ----- | ---------------- | - | --------- |  | ---------
|Contractual Obligations     |  |       |       |                  |   |           |  |          
|Long-term debt obligations  |  | $     | 4,200 |                  | $ | 1,200     |  | $        
|Capital lease obligations   |  |       | 18    |                  |   | 6         |  |          
|Operating lease obligations |  |       | 4,251 |                  |   | 1,447     |  |          
|Purchase obligations        |  |       | 943   |                  |   | 871       |  |          
|                            |  |       |       |                  |   |           |  |          
|Total                       |  | $     | 9,412 |                  | $ | 3,524     |  | $        
|                            |  |       |       |                  |   |           |  |          

Long-term debt obligations:At December 31, 2003 the Company maintained a $5.8 million credit
facility with its senior lender. This facility is comprised of $3.0 million revolving line of credit and a $2.8 million term note. Both the term note and revolving line of credit mature
on February 28, 2005. At December 31, 2003 the Company had $2.8 million outstanding on its term note and no borrowings on its revolving line of credit. The Company also has
subordinated debt of $1.4 million in the form of two subordinated notes. One subordinated note, valued at $1.0 million is due April 1, 2005. The second subordinated note is valued
at $0.4 million and matures June 1, 2005. Both subordinated notes are with the Company's Chairman of the Board.

Capital lease obligations:Capital lease obligations relate to two copy machines used in the Company's Hong Kong office.

Operating lease obligations:Operating lease obligations consist of office rental commitments for the Company's offices in
Irving, Texas, Troy, Michigan, Hong Kong and Singapore. Also included are the Company's subleased office space located in Reston, Virginia and Troy, Michigan. Various equipment leases for copiers,
postage meters and laptop computers are maintained under operating leases. The Company leases one automobile for use in its Europe region.

Purchase obligations:Consulting agreements with the Company's former CEO, former President of its Asia/Pacific region and a
former employee are included under this category. The consulting agreements require the above-mentioned former employees to assist the Company with business development activities by performing duties
such as maintaining prior business relationships and assisting in the development of new business prospects.

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, 2003. 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

19

---

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.

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.

20

---

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

International
operations create special risks, including:



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

21

---

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.

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.

22

---

"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:



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 $2.8 million term portion.
Since January 1, 1993, the prime rate has fluctuated between 9.5% and 4%. Based on the volatility of the prime rate in recent years, a five-percentage point increase in interest
rates would have resulted in an additional $302,000 of additional interest expense in 2003. The Company had borrowings on its revolving line of credit from time to time during 2003, with no borrowings
outstanding at December 31, 2003. Through March 23, 2004, the Company had no additional borrowings or repayments on its revolving line of credit.

Due
to the Company's foreign operations in Europe and Asia, the Company is exposed to transaction adjustments with respect to foreign currency. The Company's functional currency is 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 $3,000 and $58,000 for the years ended December 31, 2003 and 2002, respectively. At December 31, 2003,
the effect of a 10% increase in foreign exchange rates would have resulted in a $39,000 foreign currency exchange loss on the Company's non United States denominated assets and a $22,000 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, 2003, would have been a $17,000 foreign
currency exchange loss. The Company believes that operating under United States dollar functional currency, 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.

23

---



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.

ITEM 9A. Controls and Procedures.

Based on the evaluation of the Company's disclosure controls and procedures as of the end of the period covered by this annual report, James T. Taylor, the
President, Chief Executive Officer and Chief Financial Officer, has concluded that, in his judgment, the Company's disclosure controls and procedures are designed to ensure that material information
relating to the Company, including the Company's subsidiaries, is accumulated and communicated to the Company's management, including its principal executive and financial officers of the Company or
its subsidiaries, to allow timely decisions regarding required disclosure. 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.

There
were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies and material weaknesses.

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 for its 2004 Annual Meeting of Stockholders, which will be filed within 120 days of December 31, 2003.

ITEM 11. Executive Compensation.

The discussion under "Executive Compensation" in the Company's Proxy Statement for its 2004 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 2004 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, 2003.

24

---

EQUITY COMPENSATION PLAN INFORMATION

|                                                           |  | (a)             |  | (b)   |  | (c)    
|---------------------------------------------------------- |  | --------------- |  | ----- |  | -------
|
|Equity compensation plans approved by security holders     |  | 2,545,058(1)(2) |  | $2.62 |  | 204,087
|Equity compensation plans not approved by security holders |  | N/A             |  | N/A   |  | N/A    
|                                                           |  |                 |  |       |  |        
|Total                                                      |  | 2,545,058       |  | $2.62 |  | 204,087

---

ITEM 13. Certain Relationships and Related Transactions.

The discussion under "Certain Transactions" in the Company's Proxy Statement for its 2004 Annual Meeting is incorporated herein by reference.

ITEM 14. Principal Accounting Fees and Services.

The discussion under "Principal Accounting Fees and Services" in the Company's Proxy Statement for its 2004 Annual Meeting is incorporated herein by reference.

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).                                                                                                  
|               |  |                                                                                                                                                                                                                                                                                                  

25

---

|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).                                               
|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).                                                                                         
|     |  |                                                                                                                                                                                                                                                    

26

---

|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 10.11 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, (filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated
herein by reference).                                              
|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).                     
|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).                             
|      |  |                                                                                                                                                                                                                                                                             

27

---

|10.21  |  | Employment Agreement between the Company and John R. Hamann dated December 21, 2002, (filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and
incorporated herein by reference).                                                            
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.22  |  | Employment Agreement between the Company and James T. Taylor dated December 21, 2002, (filed as Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and
incorporated herein by reference).                                                           
|10.23  |  | First Amendment to Second Amended and Restated Revolving Credit Loan Agreement dated April 15, 2003 between Comerica Bank-Texas and the Company, (filed as Exhibit 10.23 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
|*10.24 |  | Consulting Agreement between the Company and John R. Hamann dated December 31, 2003.                                                                                                                                                                                                            
|*10.25 |  | Consulting Agreement by and between the Company, Asian Consulting Resources, Ltd. and G. Toby Marion dated February 19, 2004.                                                                                                                                                                   
|*10.26 |  | Severance Agreement between the Company and G. Toby Marion dated February 19, 2004.                                                                                                                                                                                                             
|*10.27 |  | Appreciation Rights Agreement between the Company and James T. Taylor dated December 13, 2003.                                                                                                                                                                                                  
|*10.28 |  | Appreciation Rights Agreement between the Company and John R. Hamann dated December 12, 2003.                                                                                                                                                                                                   
|*10.29 |  | Consulting Agreement between the Company and John T. Chain, Jr. dated February 5, 2004.                                                                                                                                                                                                         
|*10.30 |  | Employment Agreement between the Company and Jimmy C. Houlditch dated August 12, 2003.                                                                                                                                                                                                          
|*10.31 |  | Second Amendment to Second Amended and Restated Revolving Credit Loan Agreement dated February 2, 2004 between Comerica Bank and the Company.                                                                                                                                                   
|*14.1  |  | Code of Ethics.                                                                                                                                                                                                                                                                                 
|*21    |  | Subsidiaries of the Company.                                                                                                                                                                                                                                                                    
|*23    |  | Consent of Hein & Associates LLP.                                                                                                                                                                                                                                                               
|*23.1  |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                                                                                   
|24     |  | Power of Attorney (set forth on the signature page of this Form 10-K).                                                                                                                                                                                                                          
|*31.1  |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                         
|*32.1  |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                        

---

|Date of Filing   |  | Subject                                                                                                                                                                                                                            
|---------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|October 29, 2003 |  | Thomas Group, Inc. Third Quarter Earnings Release dated October 29, 2003 (such press release is not incorporated by reference herein or deemed "filed" within the meaning of Section 18 of the Securities Act
of 1933, as amended).

---

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 March 30, 2004.

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

POWER OF ATTORNEY

Each individual whose signature appears below constitutes and appoints James T. Taylor 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/JAMES T. TAYLORJames T. Taylor       |  | Chief Executive Officer, President, and Chief Financial Officer |  | March 30, 2004
|/s/JOHN T. CHAIN, JR.John T. Chain, Jr. |  | Chairman of the Board                                           |  | March 30, 2004
|/s/RICHARD A. FREYTAGRichard A. Freytag |  | Director                                                        |  | March 30, 2004
|/s/CHARLES M. HARPERCharles M. Harper   |  | Director                                                        |  | March 30, 2004
|/s/DAVID B. MATHISDavid B. Mathis       |  | Director                                                        |  | March 30, 2004

29

---



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, 2003
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:



|Reports of Independent Auditors                                                                                      
|---------------------------------------------------------------------------------------------------------------------
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                                         
|Consolidated Statements of Operations for the fiscal years ended December 31, 2003, 2002 and 2001                    
|Consolidated Statements of Stockholders' Equity (Deficit) for the fiscal years ended December 31, 2003, 2002 and 2001
|Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2003, 2002 and 2001                    
|Notes to Consolidated Financial Statements                                                                           

F-1

---



INDEPENDENT AUDITOR'S REPORT

Board
of Directors and Stockholders
Thomas Group, Inc

We
have audited the accompanying consolidated balance sheet of Thomas Group, Inc. as of December 31, 2003, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the year ended December 31, 2003. 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 audit.

We
conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides 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, 2003, and the consolidated results of their operations and their cash flows for the year ended December 31, 2003, in conformity with accounting principles generally accepted
in the United States of America.

HEIN & ASSOCIATES LLPDallas, Texas
February 23, 2004

F-2

---

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.

As
described in Note 1(b), the Company has restated its financial statements for each of the two years in the period ended December 31, 2002, for the correction of an error
involving the overstatement of leasehold improvements.

ERNST &
YOUNG, LLP

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

F-3

---



THOMAS GROUP, INC. CONSOLIDATED BALANCE SHEETS

|                                               |                                                                                                                                                                                 | December 31,                         |      
|---------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | -----
|
|
|ASSETS                                         |                                                                                                                                                                                
|Current Assets                                 |                                                                                                                                                                                 |                                      |      
|                                               | Cash and cash equivalents                                                                                                                                                       |                                      | $    
|                                               | Trade accounts receivable, net of allowances of $45 at December 31, 2003 and 2002, respectively                                                                                 |                                      |      
|                                               | Unbilled receivables                                                                                                                                                            |                                      |      
|                                               | Other current assets                                                                                                                                                            |                                      |      
|                                               |                                                                                                                                                                                 |                                      |      
|                                               |                                                                                                                                                                                 | Total Current Assets                 |      
|                                               |                                                                                                                                                                                 |                                      |      
|Property and equipment, net                    |                                                                                                                                                                                 |                                      | 1,101
|Other assets                                   |                                                                                                                                                                                 |                                      | 157  
|                                               |                                                                                                                                                                                 |                                      |      
|                                               |                                                                                                                                                                                 | $                                    | 7,440
|                                               |                                                                                                                                                                                 |                                      |      
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |                                                                                                                                                                                
|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                                 |                                                                                                                                                                                 |                                      | 1,600
|Other long-term obligations                    |                                                                                                                                                                                 |                                      | 80   
|                                               |                                                                                                                                                                                 |                                      |      
|                                               |                                                                                                                                                                                 | Total Liabilities                    |      
|                                               |                                                                                                                                                                                 |                                      |      
|Commitments and Contingencies (Notes 9 and 11) |                                                                                                                                                                                 |                                      |      
|Stockholders' Equity (Deficit)                 |                                                                                                                                                                                 |                                      |      
|                                               | Common stock, $.01 par value; 25,000,000 shares authorized; 12,109,538 shares issued and 9,555,662 and 9,556,139 shares outstanding at December 31, 2003 and 2002, respectively |                                      | $    
|                                               | Additional paid-in capital                                                                                                                                                      |                                      |      
|                                               | Accumulated deficit                                                                                                                                                             |                                      |      
|                                               | Accumulated other comprehensive loss                                                                                                                                            |                                      |      
|                                               | Treasury stock, 2,553,876 and 2,553,399 shares at December 31, 2003 and 2002, respectively, at cost                                                                             |                                      |      
|                                               |                                                                                                                                                                                 |                                      |      
|                                               |                                                                                                                                                                                 | Total Stockholders' Equity (Deficit) |      
|                                               |                                                                                                                                                                                 |                                      |      
|                                               |                                                                                                                                                                                 | $                                    | 7,440
|                                               |                                                                                                                                                                                 |                                      |      

See
accompanying notes to consolidated financial statements.

F-4

---

THOMAS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                  |  | Year Ended December 31, |           
|------------------------------------------------- |  | ----------------------- | ----------
|
|
|Consulting revenue before reimbursements          |  | $                       | 29,851    
|Reimbursements                                    |  |                         | 556       
|                                                  |  |                         |           
|Total revenue                                     |  |                         | 30,407    
|                                                  |  |                         |           
|Cost of sales before reimbursable expenses        |  |                         | 15,064    
|Reimbursable expenses                             |  |                         | 556       
|                                                  |  |                         |           
|Total cost of sales                               |  |                         | 15,620    
|                                                  |  |                         |           
|Gross profit                                      |  |                         | 14,787    
|Selling, general and administrative               |  |                         | 13,582    
|Restructuring charges                             |  |                         |          
|Litigation settlements                            |  |                         |          
|                                                  |  |                         |           
|Operating income (loss)                           |  |                         | 1,205     
|Interest income (expense), net                    |  |                         | (625      
|Other income, net                                 |  |                         |          
|                                                  |  |                         |           
|Income (loss) from operations before income taxes |  |                         | 580       
|Income taxes (benefit)                            |  |                         | (132      
|                                                  |  |                         |           
|Net income (loss)                                 |  | $                       | 712       
|                                                  |  |                         |           
|Earnings (loss) per common share:                 |  |                         |           
|Basic and diluted                                 |  | $                       | 0.07      
|Weighted average shares:                          |  |                         |           
|Basic                                             |  |                         | 9,555,662 
|Diluted                                           |  |                         | 10,169,575

See
accompanying notes to consolidated financial statements.

F-5

---



THOMAS GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

|                                                                       |                                                                  | Common
Stock |     | Additional
Paid-In-
Capital |   | Retained
Earnings
(Accumulated
Deficit)
(Restated) |   | Accumulated
Other
Comprehensive
Income (Loss) |        | Treasury
Stock |   | Total  |    
|---------------------------------------------------------------------- | ---------------------------------------------------------------- | ------------ | --- | --------------------------- | - | -------------------------------------------------- | - | --------------------------------------------- | ------ | -------------- | - | ------ | ---
|
|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 (Restated)                            |              |     |                            |   |                                                    |  |                                               |        | (16,135        | ) |        |   
|                                                                       |                                                                  |              |     |                             |   |                                                    |   |                                               |        |                |   |        |    
|Balance as of December 31, 2001 (Restated)                             |                                                                  |              | 67  |                             |   | 24,433                                             |   |                                               | 4,209  |                |   | (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                                                         |              |     |                            |   |                                                    |  |                                               |        | (7,718         | ) |        |   
|                                                                       |                                                                  |              |     |                             |   |                                                    |   |                                               |        |                |   |        |    
|Total comprehensive loss (Restated)                                    |                                                                  |              |     |                             |   |                                                    |   |                                               |        |                |   |        |    
|Balance as of December 31, 2002 (Restated)                             |                                                                  |              | 121 |                             |   | 26,638                                             |   |                                               | (3,509 | )              |   | (793   | )  
|                                                                       |                                                                  |              |     |                             |   |                                                    |   |                                               |        |                |   |        |    
|Discounted common stock options under employee stock option plans      |                                                                  |              |    |                             |   | (42                                                | ) |                                               |       |                |   |       |    
|Reclass compensation expense for stock options canceled in prior years |                                                                  |              |    |                             |   | (534                                               | ) |                                               | 534    |                |   |       |    
|Comprehensive income:                                                  |                                                                  |              |     |                             |   |                                                    |   |                                               |        |                |   |        |    
|                                                                       | Foreign currency translation adjustment reclassified to net loss |              |     |                            |   |                                                    |  |                                               |        |               |   |        | 7  
|                                                                       | Net Income                                                       |              |     |                            |   |                                                    |  |                                               |        | 712            |   |        |   
|                                                                       |                                                                  |              |     |                             |   |                                                    |   |                                               |        |                |   |        |    
|Total Comprehensive Income                                             |                                                                  |              |     |                             |   |                                                    |   |                                               |        |                |   |        |    
|Balance as of December 31, 2003                                        |                                                                  | $            | 121 |                             | $ | 26,062                                             |   | $                                             | (2,263 | )              | $ | (786   | )  
|                                                                       |                                                                  |              |     |                             |   |                                                    |   |                                               |        |                |   |        |    

See
accompanying notes to consolidated financial statements.

F-6

---

THOMAS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                    |                                                                                                                           | Year Ended December 31,                     |                                                             
|--------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------------------------------------------------------------
|
|Cash Flows from Operating Activities:               |                                                                                                                           |                                             |                                                             
|Income (loss) from continuing operations            |                                                                                                                           | $                                           | 712                                                         
|                                                    | Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities: |                                             |                                                             
|                                                    |                                                                                                                           | Depreciation                                |                                                             
|                                                    |                                                                                                                           | Amortization                                |                                                             
|                                                    |                                                                                                                           | Loss on disposal of assets                  |                                                             
|                                                    |                                                                                                                           | Impairment of subleased assets              |                                                             
|                                                    |                                                                                                                           | Bad debt                                    |                                                             
|                                                    |                                                                                                                           | Other                                       |                                                             
|                                                    |                                                                                                                           | Deferred taxes                              |                                                             
|                                                    |                                                                                                                           | Cancellation of stock options granted       |                                                             
|                                                    |                                                                                                                           | Loss from restructuring activities          |                                                             
|                                                    |                                                                                                                           | Change in operating assets and liabilities: |                                                             
|                                                    |                                                                                                                           |                                             | Decrease trade accounts receivable                          
|                                                    |                                                                                                                           |                                             | (Increase) decrease unbilled receivables                    
|                                                    |                                                                                                                           |                                             | Decrease other assets                                       
|                                                    |                                                                                                                           |                                             | Increase (decrease) accounts payable and accrued liabilities
|                                                    |                                                                                                                           |                                             | Increase (decrease) income taxes payable                    
|                                                    |                                                                                                                           |                                             |                                                             
|Net cash provided by (used in) operating activities |                                                                                                                           |                                             | 4,243                                                       
|                                                    |                                                                                                                           |                                             |                                                             
|Cash Flows From Investing Activities:               |                                                                                                                           |                                             |                                                             
|Proceeds from sale of assets                        |                                                                                                                           |                                             |                                                            
|Capital expenditures                                |                                                                                                                           |                                             | (125                                                        
|                                                    |                                                                                                                           |                                             |                                                             
|Net cash used in investing activities               |                                                                                                                           |                                             | (125                                                        
|Cash Flows From Financing Activities:               |                                                                                                                           |                                             |                                                             
|Issuance of subordinated convertible debt           |                                                                                                                           |                                             |                                                            
|Purchase of treasury stock                          |                                                                                                                           |                                             |                                                            
|Proceeds from exercise of stock options             |                                                                                                                           |                                             |                                                            
|Issuance (repayment) of related party indebtedness  |                                                                                                                           |                                             | (71                                                         
|Repayments of debt and other long-term obligations  |                                                                                                                           |                                             | (2,201                                                      
|Net advances (repayments)line of credit            |                                                                                                                           |                                             | (2,251                                                      
|                                                    |                                                                                                                           |                                             |                                                             
|Net cash provided by (used in) financing activities |                                                                                                                           |                                             | (4,523                                                      
|Effect of exchange rate changes on cash             |                                                                                                                           |                                             | (3                                                          
|                                                    |                                                                                                                           |                                             |                                                             
|Net cash used in operations                         |                                                                                                                           |                                             | (408                                                        
|                                                    |                                                                                                                           |                                             |                                                             
|Cash and cash equivalents                           |                                                                                                                           |                                             |                                                             
|                                                    | Beginning of year                                                                                                         |                                             |                                                             
|                                                    |                                                                                                                           |                                             |                                                             
|                                                    | End of year                                                                                                               |                                             | $                                                           
|                                                    |                                                                                                                           |                                             |                                                             

See
accompanying notes to consolidated financial statements.

F-7

---



THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

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)Prior Period AdjustmentDuring 2001, the Company recognized a loss on a contract related to the subleasing of
its Reston, Virginia office space. This office space included leasehold improvements, the carrying value of which was overlooked in calculating the loss on the sublease transaction.

To
correct this situation the Company has restated the financial statements related to fiscal years ended 2002 and 2001.

Restatement
of 2001 financial statements resulted in an increase to accumulated deficit and a decrease to property and equipment totaling $503,000 as of December 31, 2001. Basic
and diluted loss per share increased $0.12 to $3.87 from $3.75 per share.

Restatement
of 2002 financial statements resulted in an increase to accumulated deficit and a decrease to property and equipment totaling $419,000 as of December 31, 2002.
Selling, general and administrative expense decreased by $84,000 with a corresponding decrease to net loss due to the reversal of depreciation expense related to these leasehold improvements. Basic
and diluted loss per share decreased $0.02 to $1.39 from $1.41 per share.

The
table below outlines the major line item adjustments related to the restatement of fiscal years ended 2002 and 2001.

2002

2001As
Restated

Previously
Reported

As
Restated

Previously
ReportedIn thousands, except per share dataProperty equipment, net

$
1,879

$
2,298

$
2,999

$
3,502Retained earnings (accumulated deficit)

$
(3,509
)
$
(3,090
)
$
4,209

$
4,712Total stockholders' equity (deficit)

$
(2
)
$
417

$
4,888

$
5,391Total assets

$
11,692

$
12,111

$
21,252

$
21,755Selling, general and administrative

$
17,400

$
17,484

$
25,723

$
25,220Net loss

$
(7,718
)
$
(7,802
)
$
(16,135
)
$
(15,632
)Loss per common share:Basic and diluted

$
(1.39
)
$
(1.41
)
$
(3.87
)
$
(3.75
)


(c)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 2003
presentation.

(d)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.

F-8

---

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, 2003Basic earnings per share

$
712

9,556

$
0.07Effect of dilutive securities:Options and warrants




614


Diluted earnings per share

$
712

10,170

$
0.07Year Ended December 31, 2002Basic loss per share (restated)

$
(7,718
)
5,539

$
(1.39
)Effect of dilutive securities:Options and warrants







Diluted loss per share (restated)

$
(7,718
)
5,539

$
(1.39
)Year Ended December 31, 2001Basic loss per share (restated)

$
(16,135
)
4,165

$
(3.87
)Effect of dilutive securities:Options and warrants







Diluted loss per share (restated)

$
(16,135
)
4,165

$
(3.87
)


Total
stock options and warrants outstanding in 2003, 2002 and 2001 that are not included in the diluted earnings per share computation due to the antidilutive effects are approximately
1,931,000, 2,532,000 and 1,038,000, respectively. Such options and warrants are excluded due to the Company incurring a net loss in 2002 and 2001 and due to exercise prices exceeding the average
market value of the Company's common stock in 2003.

(e)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.

(f)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. 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. 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 was being accreted to interest expense over the life of the debt. Interest expense of

F-9

---

$99,000
and $185,000 was recorded related to these warrants in 2003 and 2002, respectively. As of December 31, 2003, the discount has been fully accreted.

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 price of $9.125 per share, the market price on the date of re-pricing. On October 28, 2003, the remaining 50,000 warrants expired.

(g)AdvertisingThe Company expenses the costs of advertising as incurred. Advertising expense was
$0.2 million, $0.3 million and $0.8 million for the years ended December 31, 2003, 2002, and 2001 respectively.

(h)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.

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


(i)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 in 2003 and 2002, respectively. Unamortized software development costs were $0.2 and $0.4 million at December 31, 2003 and 2002, respectively. Estimated
aggregate amortization expense is $0.2 million for the year ending December 31, 2004 and $15,000 for the year ending December 31, 2005.

(j)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.

(k)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.

(l)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.

(m)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.

F-10

---

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

(o)Accounts Receivable and Allowance for Doubtful AccountsThe Company records trade receivables related to
billings to its clients for consulting services. Trade receivables normally have terms of 30 to 60 days. The Company has no interest provision for trade accounts receivable that are past due.
Trade accounts receivable are considered past due when the amount due is still uncollected at the time the terms per the trade receivable have expired. 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 in 2002. For the years ended
December 31, 2003 and 2001 there were no receivables written off against the allowance.

(p)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, 2003, two clients, CACI and the United States Navy, accounted for
$2.2 million or 63% of the Company's total trade accounts receivable of $3.5 million.

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.

(q)Foreign Currency TranslationThe Company's reporting and functional currency is 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. Monetary assets such as cash,
accounts receivable and most liabilities are remeasured at the period end exchange rate. All other assets, liabilities and stockholders' equity are remeasured based on the historical rates that
existed at the time of the transaction. The resulting remeasurement adjustment is recorded as foreign exchange gain or loss in the statement of operations. Revenue and expense transactions are
remeasured at the average exchange rate for the period. 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.

Prior
to the change of the Company's reporting and functional currency to the United States dollar, all adjustments resulting from the translation of foreign currency financial
statements were recorded and reported as a separate component of stockholders' equity titled "Accumulated other comprehensive loss". At December 31, 2003 the accumulation of prior years'
translation adjustments of approximately $714,000 included in accumulated other comprehensive loss primarily relates to the Company's operations in Europe. Should the Company discontinue the
operations of its European subsidiary, such amount would be reclassified from stockholders' equity and recorded as a non-cash charge to operations.

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

(s)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.

(t)Stock Appreciation RightsEffective April 8, 2003 the Company entered into two Appreciation Rights
Agreements with John R. Hamann, former CEO of the Company, and James T. Taylor. Mr. Hamann's agreement granted him 170,317 appreciation rights ("SAR's") at a price of $0.42 per

F-11

---

SAR.
The SAR's are exercisable full or in part immediately upon grant and entitle Mr. Hamann to a cash payment equal to the fair market value, as defined in the agreement, of a share of common
stock of the Company over $0.42 per share. Mr. Hamann's SAR's expire the earlier of (a) three months following the date upon Mr. Hamann ceases to be an employee of the Company
other than by reason of death, retirement or disability as each term is defined in the Company's 1997 Stock Option Plan (b) if Mr. Hamann ceases to be an employee due to death,
retirement or disability, the dates set forth in Article 9 of the 1997 Stock Option Plan or (c) the expiration date of January 12, 2005. Mr. Taylor's agreement granted him
99,351 SAR's at a price of $0.42 per SAR. The SAR's are exercisable full or in part immediately upon grant and entitle Mr. Taylor to a cash payment equal to the fair market value, as defined in
the agreement, of a share of common stock of the Company over $0.42 per share. Mr. Taylor's SAR's expire the earlier of (a) three months following the date upon Mr. Taylor ceases
to be an employee of the Company other than by reason of death, retirement or disability as each term is defined in the Company's 1997 Stock Option Plan or (b) if Mr. Taylor ceases to be
an employee due to death, retirement or disability, the dates set forth in Article 9 of the 1997 Stock Option Plan. At December 31, 2003 the total amount of SAR's expense related to the
aforementioned SAR's agreements was $251,000.

(u)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,
2003, there have been no significant grants to non-employees.

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 2003,
2002, and 2001.

Year Ended December 31,2003

2002

2001Dividend Yield

0%

0%

0%Expected Volatility

85%

65%

65%Risk free interest rate

3%

6%

6%Expected life (years)

5

5

5


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

F-12

---

(loss)
and earnings (loss) per share would have been reduced to the pro forma amounts indicated below:

Year Ended December 31,2003

2002

2001(Restated)

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

$
712

$
(7,718
)
$
(16,135
)Add: Stock-based employee compensation expense related to stock options recorded





6


69Add: Stock-based compensation expense related to SARS


251





Deduct: Total stock-based compensation adjusted for stock option cancellations


(42
)

(117
)

(73
)Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards


(295
)

(339
)

(342
)Adjusted net income (loss)

$
626

$
(8,168
)
$
(16,481
)Earnings (loss) per shareAs reportedBasic

$
0.07

$
(1.39
)
$
(3.87
)Diluted

$
0.07

$
(1.39
)
$
(3.87
)As adjustedBasic

$
0.07

$
(1.47
)
$
(3.96
)Diluted

$
0.06

$
(1.47
)
$
(3.96
)


(v)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

$5.8 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 $5.8 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 $2.8 million term note bears interest at prime plus 4%. On February 2, 2004, the credit facility was revised to extend
the maturity date to February 28, 2005. With this revision, a $200,000 term note payment was due February 28, 2004, which was made, and monthly term note payments of $100,000 are
required beginning March 31, 2004 and continuing until maturity. Term note payments equal to 25% of cash flows provided by operating activities on year-to-date
cumulative basis are payable quarterly. The minimum term note reduction under this new agreement is $1.4 million. An amendment fee of $100,000, to be accrued in five $20,000 monthly
installments beginning August 1, 2004, was added, payable on December 31, 2004 pending replacement of the Company's senior lender prior to December 31, 2004 in which case would
result in a pro rated portion of the amendment fee becoming due. All prior financial covenants were replaced with new financial covenants per the February 2, 2004 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 quarterly beginning March 31, 2004. At December 31, 2003, the Company was in violation of certain debt covenants under the credit facility which were
waived by the

F-13

---

senior
lender. 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, 2003, $1.2 million outstanding under the term note is classified as a current liability, due to the repayment required and $1.6 million is classified
as long-term debt due to its maturity date of February 28, 2005. The Company had no outstanding borrowings on its $3.0 million revolving line of credit at December 31,
2003.

The
Company utilized the credit line during 2003 to meet working capital requirements. Total interest expense was $48,000, $157,000, and $161,000 at an annual rate of 3.99%, 5.75% and
4.09% for 2003, 2002, and 2001 respectively. The Company incurred commitment fees on the unused portion of the credit facility, totaling $3,000 and $51,000 for 2002 and 2001 respectively, at an
interest rate of 0.375%. The commitment fee was eliminated during 2002 by the senior lender; therefore, there were no commitment fees paid on the unused portion of the credit facility in 2003. Total
interest expense on this term loan was $336,000 in 2003.

Total
interest expense for 2003 was $632,000, comprised of $384,000 related to bank debt, $144,000 for related party debt, $99,000 related to warrants and $5,000 to other parties.

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.

Total
interest expense for 2001 was $171,000, 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. During 2003, the Company's cost control strategies improved
gross margins and significantly reduced selling, general and administrative expenses. These cost control strategies were the primary reason the Company was able to produce cash flow from operations of
$4.2 million. This cash generation was used to pay down term debt by $2.2 million and revolving debt by $2.3 million. The Company has also completed renegotiation of its $5.8 million credit facility
and $1.4 million of subordinated notes. These renegotiations extended the maturity date until February 28, 2005 for the $5.8 million credit facility, April 1, 2005 for the $1.0 million
subordinated note and June 1, 2005 for the $0.4 million subordinated note. 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 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. The Company's performance will also be affected by prevailing
economic conditions. Many of these factors are beyond the Company's control. 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.

F-14

---

Note 3Other Assets

December 31,2003

2002In thousands of dollarsAccounts receivable, employees

$
127

$
330Prepaid expenses


224


296Current receivables


31


36Income tax receivable


105


220Investment in Texas Stadium Suite


94


113581


995Less current portion


(424
)

(766
)$
157

$
229


Note 4Property And Equipment

December 31,2003

2002(Restated)

(Restated)In thousands of dollarsEquipment

$
4,045

$
3,979Furniture and fixtures


1,550


1,838Leasehold improvements


2,007


2,110Computer software


677


629Equipment under capital leases


29


29Automobiles


19


19$
8,327

$
8,604Less accumulated depreciation and amortization


(7,226
)

(6,725
)$
1,101

$
1,879


Note 5Other Long-Term Obligations

December 31,2003

2002In thousands of dollarsCapital lease

$
18

$
20Deferred rent


68


686


26Less current portion


(6
)

(6
)$
80

$
20


F-15

---

Note 6Accounts Payable And Accrued Liabilities

December 31,2003

2002In thousands of dollarsAccounts payable trade

$
464

$
519Accrued payroll and bonuses


574


684Accrued severance


137


78Accrued restructuring


22


100Accrued employee benefits


328


128Other accrued liabilities


807


1,005$
2,332

$
2,514


Accrued
severance in 2003 relates to a former employee of the Company's operations in Asia.

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

At
December 31, 2003 and 2002 accrued restructuring relates to accrued legal costs associated with the Company's 2002 filing for insolvency of its German subsidiary.

Note 7Income Taxes

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

Year Ended December 31,2003

2002
(Restated)

2001
(Restated)In thousands of dollarsDomestic sources

$
4,529

$
(2,821
)
$
(9,848
)Foreign sources


(3,949
)

(5,335
)

(328
)$
580

$
(8,156
)
$
(10,176
)


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 31,2003

2002

2001In thousands of dollarsIncome taxes (benefit) at statutory rate

$
197

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


30


(31
)

366Increase (decrease) in valuation allowance





(836
)

3,339Operating losses and tax credits generated but not benefited








3,929Foreign income subject to current United States taxation





866


1,458Utilization of federal net operating losses, less benefit received


(1,445
)

1,305


Unbenefited losses of foreign subsidiary


1,261


699


858Effect of United States and foreign minimum taxes


84





Reversal of prior year estimates


(296
)




Other (primarily permanent differences)


37


360


(702
)$
(132
)
$
(438
)
$
5,959


F-16

---

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

Year Ended December 31,2003

2002

2001In thousands of dollarsCurrent tax expense (benefit):Federal

$
86

$
(923
)
$
328State


70


(46
)

243Foreign


(288
)

531


2,049(132
)

(438
)

2,620Deferred tax expense:Federal








3,066State








273





3,339$
(132
)
$
(438
)
$
5,959


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

December 31,2003

2002In thousands of dollarsDeferred tax assets:Net operating loss carryforward

$
3,073

$
3,754Foreign tax credit carryforward


848


2,762Allowance for doubtful accounts


17


17Restructuring expenses





53Accrued expenses


347


325Fixed assets


7


Minimum tax credit carryforward


157


169Charitable contribution carryforward


58


584,507


7,138Valuation allowance


(4,507
)

(7,101
)Total deferred tax assets





37Deferred tax liabilities:Fixed assets





(37
)Total deferred tax liabilities





(37
)Net deferred tax asset

$


$



At
December 31, 2003, the Company has approximately $1.2 million of state net operating loss carryovers, which expire at various times. The Company also has approximately
$13.6 million of Asian net operating loss carryovers, which currently do not have any statutory expiration date and $1.7 million of European net operating loss carryovers. In addition,
the Company has approximately $0.8 million of United States foreign tax credit carryovers that begin to expire in 2005 and approximately $157,000 of United States minimum tax credits, which may
be carried forward indefinitely.

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.

F-17

---

Note 8Employee 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. Matching contribution expense was $50,000 for 2003 and
$0.5 million for 2001. The Company did not make a matching contribution in 2002.

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.

Note 9Commitments 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.

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
$1.4 million for 2003, $2.0 million for 2002, and $2.6 million for 2001.

Minimum
lease payments required under non-cancelable operating lease arrangements subsequent to December 31, 2003, are as follows:

Operating LeasesIn thousands of dollars2004

$
1,4472005


1,3512006


1,0872007


366Total minimum lease payments


4,251Sublease arrangements


(1,779
)Net minimum lease payments

$
2,472


F-18

---

Note 10Segment 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, 2003: |  |               |        |        |   |              |   |           |        |      
|Revenue                       |  | $             | 27,110 |        | $ | 132          |   | $         | 3,165  |      
|Gross profit (loss)           |  | $             | 14,752 |        | $ | (74          | ) | $         | 109    |      
|Total assets                  |  | $             | 5,961  |        | $ | 301          |   | $         | 1,084  |      
|Long-lived assets             |  | $             | 1,114  |        | $ | 36           |   | $         | 14     |      
|Year ended December 31, 2002: |  |               |        |        |   |              |   |           |        |      
|Revenue                       |  | $             | 14,331 |        | $ | 14,548       |   | $         | 4,347  |      
|Gross profit (loss)           |  | $             | 8,986  |        | $ | 4,405        |   | $         | (2,028 | )    
|Total assets (restated)       |  | $             | 6,228  |        | $ | 3,959        |   | $         | 1,392  |      
|Long-lived assets (restated)  |  | $             | 1,646  |        | $ | 162          |   | $         | 187    |      
|Year ended December 31, 2001: |  |               |        |        |   |              |   |           |        |      
|Revenue                       |  | $             | 13,054 |        | $ | 33,912       |   | $         | 12,479 |      
|Gross profit (loss)           |  | $             | 9,871  |        | $ | 9,968        |   | $         | (1,387 | )    
|Total assets (restated)       |  | $             | 7,733  |        | $ | 6,944        |   | $         | 3,442  |      
|Long-lived assets (restated)  |  | $             | 2,124  |        | $ | 857          |   | $         | 266    |      

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, 2003.

|                              |                               | United
States |   | % of
Total |  | Europe |   | % of
Total |       
|----------------------------- | ----------------------------- | ------------- | - | ---------- |  | ------ | - | ---------- | ------
|
|Year Ended December 31, 2003: |                               |               |   |            |  |        |   |            |       
|                              | CACI                          |               | $ | 11,848     |  | 39     | % | $          |      
|                              | US Navy                       |               | $ | 9,693      |  | 32     | % | $          |      
|Year Ended December 31, 2002: |                               |               |   |            |  |        |   |            |       
|                              | CACI (formerly Acton Burnell) |               | $ | 9,439      |  | 28     | % | $          |      
|                              | Robert Bosch                  |               | $ |           |  |       |   | $          | 13,047
|Year Ended December 31, 2001: |                               |               |   |            |  |        |   |            |       
|                              | Robert Bosch                  |               | $ |           |  |       |   | $          | 23,256
|                              | Adam Opel                     |               | $ |           |  |       |   | $          | 6,676 
|                              | Acton Burnell                 |               | $ | 5,967      |  | 10     | % | $          |      

Note 11Related Party Transactions

The Company issued two promissory notes to its current Chairman of the Board, General John T. Chain, Jr. 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      |  | 4/1/05                             |  | Oct 1/Apr 1                        |  | Prime + 6%    |  | $                | 1,000,000 |                              
|General John T. Chain, Jr. |  | 5/31/02    |  | 5/28/02     |  | 6/1/05                             |  | Dec 1/Jun 1                        |  | Prime + 6%    |  | $                | 400,000   |                              

Effective July 1, 2003, the Company entered into a consulting agreement with its Chairman, General John T. Chain, Jr. The Company will pay
Mr. Chain $100,000 annually, in quarterly

F-19

---

installments,
in return for his services with regards to sales, marketing and financial strategies. The agreement expires June 30, 2005.

On
December 17, 2003, the Company entered into a consulting agreement with a former employee to provide services with regards to the Asian marketplace. The Company will pay a
total of $84,640, payable in five equal monthly installments of $16,928 starting January 2, 2004 and ending May 3, 2004.

Effective
April 8, 2003 the Company entered into an Appreciation Rights Agreements with John R. Hamann, former CEO of the Company. Mr. Hamann's agreement granted him
170,317 appreciation rights ("SAR's") at a price of $0.42 per SAR. The SAR's are exercisable full or in part immediately upon grant and entitle Mr. Hamann to a cash payment equal to the fair
market value, as defined in the agreement, of a share of common stock of the Company over $0.42 per share. Mr. Hamann's SAR's expire the earlier of (a) three months following the date
upon Mr. Hamann ceases to be an employee of the Company other than by reason of death, retirement or disability as each term is defined in the Company's 1997 Stock Option Plan (b) if
Mr. Hamann ceases to be an employee due to death, retirement or disability, the dates set forth in Article 9 of the 1997 Stock Option Plan or (c) the expiration date of
January 12, 2005.

On
December 31, 2003, the Company entered into a consulting agreement with its former Chief Executive Officer, John R. Hamann. Effective January 13, 2004, the Company
agreed to pay a total of $450,000 to Mr. Hamann in return for his services as an advisor to the Chairman of the Board and seeking out new business for the Company. Monthly payments of $37,500
are required until expiration of this agreement on January 12, 2005. In addition, the Company will pay Mr. Hamann a commission of five percent of the value on any new U.S. commercial
business for the Company for clients identified by Mr. Hamann prior to January 13, 2005 and which leads to business under contract prior to July 13, 2005. Non-compete
and other covenants were re-affirmed and carried into the consulting agreement. The Company intends to monitor Mr. Hamann's progress under the consulting agreement on a regular
basis.

A
family member of John R. Hamann, the Company's former Chief Executive Officer, performed, on a contract basis, marketing services during 2003, 2002 and 2001. Fees and expenses related
to these services were $30,000 in 2003, $92,000 in 2002 and $187,000 in 2001.

On
March 29, 2002, the Company issued a promissory note in the original amount of $92,000 to its then Chief Executive Officer, John R. Hamann. Although this note was subordinated
to the Company's senior lender, it was repaid to Mr. Hamann in full on April 17, 2003, including unpaid interest, with the permission of the senior lender.

On
February 19, 2004, the Company entered into a consulting agreement with its former Asia region president, Mr. G. Toby Marion. Effective May 1, 2004, the Company
agreed to pay $408,750, payable in nine installments of $43,750 per month beginning May 31, 2004 and one installment of $15,000 payable in January 2005. Mr. Marion will consult
and advise the Company on doing business in Asia. This agreement expires January 31, 2005. Non-compete and other covenants were re-affirmed and carried into the
consulting agreement. The Company intends to monitor Mr. Marion's progress under the consulting agreement on a regular basis.

F-20

---

Note 12Common Stock And Stock Options

A summary of the status of the Company's stock options to employees as of December 31, 2003, 2002, and 2001 and changes in the years then ended is
presented below.

|                                                          |           | 2003      |         | 2002 |      | 2001
|--------------------------------------------------------- | --------- | --------- | ------- | ---- | ---- | ----
|
|Outstanding at beginning of year                          |           | 1,214,788 |         | $    | 5.41 |     
|                                                          | Granted   |           | 100,000 |      |      | 0.40
|                                                          | Exercised |           |        |      |      |    
|                                                          | Forfeited |           | (36,971 | )    |      | 8.57
|                                                          |           |           |         |      |      |     
|Outstanding at end of year                                |           | 1,277,817 |         |      | 4.93 |     
|                                                          |           |           |         |      |      |     
|Options exercisable at year-end                           |           | 915,966   |         | $    | 5.44 |     
|Weighted average grant-date fair value of options granted |           |           |         | $    | 0.18 |     

The
following table summarizes information about stock options outstanding at December 31, 2003.

|  |       |        |           | Options Outstanding |      |  |   |      
|- | ----- | ------ | --------- | ------------------- | ---- |  | - | -----
|
|
|
|$ | 0.37  | -7.94  | 950,545   |                     | 4.14 |  | $ | 3.23 
|  | 8.00  | -9.78  | 265,633   |                     | 4.44 |  |   | 9.25 
|  | 10.09 | -13.50 | 48,275    |                     | 4.51 |  |   | 11.41
|  | 14.25 | -19.13 | 13,364    |                     | 2.61 |  |   | 16.48
|  |       |        |           |                     |      |  |   |      
|$ | 0.37  | -19.13 | 1,277,817 |                     | 4.20 |  | $ | 4.93 
|  |       |        |           |                     |      |  |   |      

Note 13Supplemental Disclosure Of Cash Flow Information

Year Ended December 31,2003

2002

2001In thousands of dollarsInterest paid

$
625

$
522

$
198Income taxes paid

$
291

$
1,079

$
1,676


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

Note 14Restructuring

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

F-21

---

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 for the year ended December 31, 2002 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 liabilities of the German subsidiary are
included as part of the 2002 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-22

---