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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended January 1, 2011
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from   to
 Commission File Number: 001-34006
 THE MANAGEMENT NETWORK GROUP, INC.
 (Exact name of registrant as specified in its charter)
 DELAWARE(State or other jurisdiction of 
incorporation or organization)
    
    48-1129619(I.R.S. Employer
identification number)
 7300 COLLEGE BOULEVARD,
SUITE 302, OVERLAND PARK, KANSAS 66210  (Address of principal executive offices) (Zip Code)
 REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE:
(913) 345-9315

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCOMMON STOCK, $.005 PAR VALUE PER SHARE
    
    The NASDAQ STOCK MARKET, LLC
 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE.
 o þ
 o þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE




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THE MANAGEMENT NETWORK GROUP, INC.
 FORM 10-K
 TABLE OF CONTENTS
 PagePART ICautionary Statement Regarding Forward-Looking Information
    
    
    3Item 1.
    
    Business
    
    
    4Item 1A.
    
    Risk Factors
    
    
    10Item 1B.
    
    Unresolved Staff Comments
    
    
    10Item 2.
    
    Properties
    
    
    10Item 3.
    
    Legal Proceedings
    
    
    10Item 4.
    
    Reserved
    
    
    10PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
    
    
    10Item 6.
    
    Selected Financial Data
    
    
    11Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 8.
    
    Consolidated Financial Statements
    
    
    22Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    43Item 9A.
    
    Controls and Procedures
    
    
    43Item 9B.
    
    Other Information
    
    
    43PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    44Item 11.
    
    Executive Compensation
    
    
    44Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    44Item 13.
    
    Certain Relationships, and Related Transactions and Director Independence
    
    
    44Item 14.
    
    Principal Accountant Fees and Services
    
    
    44PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    45EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1
 
  2




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PART I
 
 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
   
    
    conditions in the industry sectors that we serve, including the economic conditions in such industry sectors, that can result in
slowing client decisions on proposals and project opportunities along with scope reduction of existing projects;
    
    the financial condition and business strategies of our customers in the converging communications, media and entertainment
industry and the investment banking and private equity firms investing in that industry;
    
    overall economic and business conditions, including the current economic slowdown;
    
    the level of demand for our services;
    
    the potential continuation or recurrence of recent losses from operations, negative cash flow and reductions in our cash reserves;
    
    our ability to retain the limited number of large clients that constitute a major portion of our revenues;
    
    fluctuations in our quarterly operating results;
    
    our ability to reduce our cost structure to align with reduced demand and to control costs under fixed fee contracts, which make
up a substantial portion of our business;
    
    our ability to compete in intensively competitive markets, including our ability to address actions by competitors that could
render our services less competitive, such as increasing price competition in recent years, which may cause our revenues, gross
profits and income to decline;
    
    our ability to address the challenges of conducting business in foreign countries, including risks of unfavorable foreign
currency exchange rates or fluctuations and changes in local laws;
    
    the possibility of further impairments of goodwill if our financial performance does not meet or exceed our projections used to
value the assets or if there is a further decline in our stock price;
    
    the possibility of further write-downs in the value of our auction rate securities due to future fluctuations in interest rates,
counter-party credit ratings and liquidity in the secondary market for these securities;
    
    our ability to successfully integrate acquisitions and to successfully locate new acquisition candidates;
    
    our level of cash and non-cash expenditures;
    
    technological advances and competitive factors in the markets in which we compete;
    
    the possibility of the cancellation of key client contracts, which may be cancelled on short notice;
 3




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
    
    the ability to successfully launch new product and market initiatives;
    
    the ability to retain key management and consulting personnel, particularly given the performance
of our stock and the impact of a low stock price on the value of share-based compensation;
    
    the possible reclassification of our independent contractors as full-time employees by the taxing
and/or labor and employment authorities of competent jurisdiction;
    
    the possibility of professional liability claims;
    
    the loss of key intellectual property;
    
    our ability to satisfy the continued listing requirements of the NASDAQ Stock Market; and
    
    the possibility that our ability to utilize tax net operating loss carryforwards to offset future
taxable income will be limited if we are deemed to have an ownership change as defined by Section
382 of the Internal Revenue Code.
  
 ITEM 1.
    
    BUSINESS
  GENERAL
      4




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®
    MARKET OVERVIEW
    BUSINESS STRATEGY
  5




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- Develop and evolve offerings, solutions and thought leadership
  - Continue to build the TMNG Global brand
  - Focused and effective recruitment and retention
    - Enhancing our global presence
  - Increase penetration within top revenue-generating clients
  SERVICES
  - Strategy and Business Case Development
  6




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- Knowledge Management
  - Revenue and Cost Management
  ® ®
 - Program Management
  - Business and Operations Process Redesign and Reengineering
  - Corporate Investment Services
  - Technical Consultancy & Software Development
  ® ® ®
 - Marketing
  7




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COMPETITION
     RISKS RELATED TO CURRENT ECONOMIC CONDITIONS AND TECHNOLOGY
  EMPLOYEES
   8




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BUSINESS SEGMENTS
 Segment Reporting
  MAJOR CUSTOMERS
   FOREIGN MARKETS
  INTELLECTUAL PROPERTY
  SEASONALITY
  WEBSITE ACCESS TO INFORMATION
  9




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ITEM 1A.
    
    RISK FACTORS
  
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
  Location
    
    Sq. Feet
    
    
    Lease ExpirationMcLean, Virginia
    
    
    4,881
    
    
    July 2019Boston, Massachusetts
    
    
    11,763
    
    
    April 2016Somerset, New Jersey
    
    
    2,910
    
    
    February 2014London, England
    
    
    11,825
    
    
    November 2015
  
 ITEM 3.
    
    LEGAL PROCEEDINGS
  
 ITEM 4.
    
    RESERVED
 
 PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
  High
    
    
    LowFirst quarter, fiscal year 2010
    
    $
    2.90
    
    
    $
    1.65Second quarter, fiscal year 2010
    
    $
    3.40
    
    
    $
    2.03Third quarter, fiscal year 2010
    
    $
    2.95
    
    
    $
    2.15Fourth quarter, fiscal year 2010
    
    $
    3.00
    
    
    $
    2.07
 High
    
    
    LowFirst quarter, fiscal year 2009
    
    $
    3.00
    
    
    $
    0.80Second quarter, fiscal year 2009
    
    $
    2.80
    
    
    $
    1.10Third quarter, fiscal year 2009
    
    $
    7.25
    
    
    $
    1.05Fourth quarter, fiscal year 2009
    
    $
    3.50
    
    
    $
    1.75
   10




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ITEM 6.
    
    SELECTED FINANCIAL DATA
  
 ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   OVERVIEW
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CRITICAL ACCOUNTING POLICIES
   
    
    Marketable Securities;
    
    Impairment of Goodwill and Long-lived Assets;
    
    Revenue Recognition;
    
    Share-based Compensation Expense;
    
    Accounting for Income Taxes; and
    
    Research and Development and Capitalized Software Costs.
 Marketable Securities Investments-Debt
and Equity Securities. Fair Value Measurements and Disclosures.
    Derivatives and Hedging.
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Financial Instruments
     Impairment of Goodwill and Long-lived Assets Intangibles-Goodwill and Other
  
    
    Anticipated future cash flows and terminal value for each
reporting unit The income approach to determining fair
value relies on the timing and estimates of future cash
flows, including an estimate of terminal value. The
projections use managements estimates of economic and
market conditions over the projected period including
growth rates in revenues and estimates of expected changes
in operating margins, tax rates, depreciation,
amortization, capital expenditures and working capital. Our
projections of future cash flows are subject to change as
actual results are achieved that differ from those
anticipated. Because management frequently updates its
projections, we would expect to identify on a timely basis
any significant differences between actual results and
recent estimates.
    
    Selection of an appropriate discount rate The income
approach requires the selection of an appropriate discount
rate, which is based on a weighted average cost of capital
analysis. The discount rate is affected by changes in
short-term interest rates and long-term yield as well as
variances in the typical capital structure of marketplace
participants. The discount rate is determined based on
assumptions that would be used by marketplace participants,
and for that reason, the capital structure of selected
marketplace participants was used in the weighted average
cost of capital analysis. Given the current volatile
economic conditions, it is possible that the discount rate
will fluctuate in the near term.
  14




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Property, Plant and Equipment
 Revenue Recognition Revenue Recognition  Construction-Type and
Production-Type Contracts
   Revenue Recognition  Multiple-Element Arrangements
  Share-based Compensation Expense Compensation-Stock Compensation.
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Income Taxes 
   Research and Development and Capitalized Software Costs Software  Costs of Software to Be Sold, Leased, or
Marketed
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RECENT ACCOUNTING PRONOUNCEMENTS
 Revenue Recognition
(Topic 605)  Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issue
Task Force Software (Topic 985)  Certain Revenue Arrangements
That Include Software Elements
 Fair Value Measures and Disclosures
 Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses
 IntangiblesGoodwill and Other: When to Perform
Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts
 RESULTS OF OPERATIONS
 FISCAL 2010 COMPARED TO FISCAL 2009
 REVENUES
  North America Segment
 EMEA Segment
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COST OF SERVICES
  OPERATING EXPENSES
    OTHER INCOME AND EXPENSES
  INCOME TAXES
 Income Taxes
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NET LOSS
  STATEMENT REGARDING NON-GAAP FINANCIAL MEASUREMENT
  RECONCILIATION OF GAAP NET LOSS TO NON-GAAP ADJUSTED NET INCOME
(unaudited)
(in thousands, except per share data)
 Fifty-Two
    
    
    Fifty-TwoWeeks Ended
    
    
    Weeks EndedJanuary 1, 
2011
    
    
    January 2, 
2010(In thousands, except per share data)Reconciliation of GAAP net loss to non-GAAP adjusted net income:GAAP net loss
    
    $
    (2,193
    )
    
    $
    (3,242
    )Realized gain on marketable securities
    
    
    (6
    )
    
    
    (224
    )Depreciation and amortization
    
    
    2,769
    
    
    
    3,379Non-cash share based compensation expense
    
    
    305
    
    
    
    858Tax effect of applicable non-GAAP adjustments
    
    
    128
    
    
    
    (82
    )Adjustments to GAAP net loss
    
    
    3,196
    
    
    
    3,931Non-GAAP adjusted net income
    
    $
    1,003
    
    
    $
    689Reconciliation of GAAP net loss per diluted common share to non-GAAP adjusted
net income per diluted common share:GAAP net loss per diluted common share
    
    $
    (0.31
    )
    
    $
    (0.46
    )Realized gain on marketable securities
    
    
    (0.00
    )
    
    
    (0.03
    )Depreciation and amortization
    
    
    0.39
    
    
    
    0.48Non-cash share based compensation expense
    
    
    0.04
    
    
    
    0.12Tax effect of applicable non-GAAP adjustments
    
    
    0.02
    
    
    
    (0.01
    )Adjustments to GAAP net loss per diluted common share
    
    
    0.45
    
    
    
    0.56Non-GAAP adjusted net income per diluted common share
    
    $
    0.14
    
    
    $
    0.10Weighted average shares used in calculation of diluted net loss per common share
    
    
    7,049
    
    
    
    6,986
 LIQUIDITY AND CAPITAL RESOURCES
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FINANCIAL COMMITMENTS AND OFF BALANCE SHEET ARRANGEMENTS
    TRANSACTIONS WITH RELATED PARTIES
   
 ITEM 7A.
    
    QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
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ITEM 8.
    
    CONSOLIDATED FINANCIAL STATEMENTS
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    /s/     DELOITTE & TOUCHE LLP 
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THE MANAGEMENT NETWORK GROUP, INC.
 CONSOLIDATED BALANCE SHEETS
 January 1,
    
    
    January 2,2011
    
    
    2010(In thousands, exceptshare data)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    6,786
    
    
    $
    6,301Short-term investments
    
    
    
    
    
    
    5,444Receivables:Accounts receivable
    
    
    11,511
    
    
    
    11,991Accounts receivable  unbilled
    
    
    5,220
    
    
    
    4,17416,731
    
    
    
    16,165Less: Allowance for doubtful accounts
    
    
    (200
    )
    
    
    (357
    )Net receivables
    
    
    16,531
    
    
    
    15,808Prepaid and other current assets
    
    
    1,173
    
    
    
    1,206Total current assets
    
    
    24,490
    
    
    
    28,759NONCURRENT ASSETS:Property and equipment, net
    
    
    1,983
    
    
    
    1,955Goodwill
    
    
    7,993
    
    
    
    7,772Identifiable intangible assets, net
    
    
    496
    
    
    
    2,516Non-current investments
    
    
    5,926
    
    
    
    6,852Other assets
    
    
    207
    
    
    
    397Total Assets
    
    $
    41,095
    
    
    $
    48,251LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Trade accounts payable
    
    $
    995
    
    
    $
    1,118Current borrowings
    
    
    
    
    
    
    2,800Accrued payroll, bonuses and related expenses
    
    
    5,087
    
    
    
    5,354Other accrued liabilities
    
    
    1,299
    
    
    
    1,433Deferred revenue
    
    
    860
    
    
    
    1,023Unfavorable and other contractual obligations
    
    
    154
    
    
    
    706Total current liabilities
    
    
    8,395
    
    
    
    12,434NONCURRENT LIABILITIES:Deferred income tax liabilities
    
    
    246
    
    
    
    118Unfavorable and other contractual obligations
    
    
    450
    
    
    
    546Other noncurrent liabilities
    
    
    287
    
    
    
    1,119Total noncurrent liabilities
    
    
    983
    
    
    
    1,783Commitments and contingencies (Note 14)STOCKHOLDERS EQUITY:Common stock:Voting  $.005 par value, 20,000,000 shares authorized; 7,513,330 (including 440,000 treasury
shares) and 7,468,310 (including 440,000 treasury shares) shares issued as of January 1, 2011
and January 2, 2010, respectively; 7,073,330 and 7,028,310 shares outstanding as of January 1,
2011 and January 2, 2010, respectively
    
    
    38
    
    
    
    37Preferred stock  $.001 par value, 10,000,000 shares authorized; no shares issued or outstandingAdditional paid-in capital
    
    
    177,075
    
    
    
    176,680Accumulated deficit
    
    
    (137,141
    )
    
    
    (134,948
    )Treasury stock, at cost
    
    
    (3,545
    )
    
    
    (3,545
    )Accumulated other comprehensive income Foreign currency translation adjustment
    
    
    (4,386
    )
    
    
    (3,792
    )Loss on investments
    
    
    (324
    )
    
    
    (398
    )Total stockholders equity
    
    
    31,717
    
    
    
    34,034Total Liabilities and Stockholders Equity
    
    $
    41,095
    
    
    $
    48,251
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THE MANAGEMENT NETWORK GROUP, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 Fifty-Two
    
    
    Fifty-TwoWeeks Ended
    
    
    Weeks EndedJanuary 1,
    
    
    January 2,2011
    
    
    2010(In thousands, except per sharedata)Revenues
    
    $
    67,243
    
    
    $
    64,953Cost of services (includes non-cash share-based compensation expense
of $95 and $260 for the 2010 and 2009 fiscal years, respectively)
    
    
    41,849
    
    
    
    38,036Gross Profit
    
    
    25,394
    
    
    
    26,917Operating Expenses:Selling, general and administrative (includes non-cash share-based
compensation expense of $210 and $598 for the 2010 and 2009 fiscal
years, respectively)
    
    
    27,108
    
    
    
    28,497Intangible asset amortization
    
    
    1,392
    
    
    
    1,975Total operating expenses
    
    
    28,500
    
    
    
    30,472Loss from operations
    
    
    (3,106
    )
    
    
    (3,555
    )Interest income
    
    
    193
    
    
    
    259Interest expense
    
    
    (16
    )
    
    
    (55
    )Other income, net
    
    
    26
    
    
    
    335Total other income
    
    
    203
    
    
    
    539Loss before income taxes
    
    
    (2,903
    )
    
    
    (3,016
    )Income tax benefit (provision)
    
    
    710
    
    
    
    (226
    )Net loss
    
    
    (2,193
    )
    
    
    (3,242
    )Other comprehensive loss:Foreign currency translation adjustment
    
    
    (594
    )
    
    
    1,943Unrealized gain on marketable securities
    
    
    74
    
    
    
    718Comprehensive loss
    
    $
    (2,713
    )
    
    $
    (581
    )Net loss per common shareBasic and diluted
    
    $
    (0.31
    )
    
    $
    (0.46
    )Weighted average shares used in calculation of net loss per share:Basic and Diluted
    
    
    7,049
    
    
    
    6,986
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THE MANAGEMENT NETWORK GROUP, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Fiscal Year EndedJanuary 1,
    
    
    January 2,2011
    
    
    2010(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (2,193
    )
    
    $
    (3,242
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    2,769
    
    
    
    3,379Share-based compensation
    
    
    305
    
    
    
    858Deferred tax expense
    
    
    128
    
    
    
    145Realized gain on marketable securities
    
    
    (6
    )
    
    
    (224
    )Other
    
    
    (63
    )Other changes in operating assets and liabilities:Accounts receivable
    
    
    193
    
    
    
    (3,291
    )Accounts receivable  unbilled
    
    
    (1,147
    )
    
    
    601Prepaid and other assets
    
    
    206
    
    
    
    398Trade accounts payable
    
    
    (87
    )
    
    
    (74
    )Income tax liabilities
    
    
    (856
    )
    
    
    (73
    )Deferred revenue
    
    
    (129
    )
    
    
    494Accrued liabilities
    
    
    (265
    )
    
    
    1,448Net cash (used in) provided by operating activities
    
    
    (1,145
    )
    
    
    419CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from maturities/sales of marketable securities
    
    
    6,450
    
    
    
    2,050Acquisition of businesses
    
    
    (344
    )
    
    
    (3,054
    )Acquisition of property and equipment
    
    
    (888
    )
    
    
    (618
    )Net cash provided by (used in) investing activities
    
    
    5,218
    
    
    
    (1,622
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings on line of credit
    
    
    880
    
    
    
    3,400Payments on line of credit
    
    
    (3,680
    )
    
    
    (2,085
    )Payments made on unfavorable and other contractual obligations
    
    
    (713
    )
    
    
    (681
    )Issuance of common stock through employee stock purchase plan
    
    
    38
    
    
    
    27Net cash (used in) provided by financing activities
    
    
    (3,475
    )
    
    
    661Effect of exchange rate on cash and cash equivalents
    
    
    (113
    )
    
    
    887Net increase in cash and cash equivalents
    
    
    485
    
    
    
    345Cash and cash equivalents, beginning of period
    
    
    6,301
    
    
    
    5,956Cash and cash equivalents, end of period
    
    $
    6,786
    
    
    $
    6,301Supplemental disclosure of cash flow information:Cash paid during period for interest
    
    $
    16
    
    
    
    55Net cash (refunded) paid during period for income taxes
    
    $
    (77
    )
    
    $
    156Accrued property and equipment additions
    
    $
    278
    
    
    $
    325Supplemental disclosure of non-cash investing and financing transactionsAcquisition of business: Common stock
    
    $
    53
    
    
    $
    104
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THE MANAGEMENT NETWORK GROUP, INC.
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated$.005 Par
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    OtherVoting
    
    
    Paid In
    
    
    Accumulated
    
    
    Treasury
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    Income
    
    
    Total(In thousands, except per share data)Balance, January 3, 2009
    
    
    7,393,025
    
    
    $
    37
    
    
    $
    175,691
    
    
    $
    (131,706
    )
    
    $
    (3,545
    )
    
    $
    (6,851
    )
    
    $
    33,626Shares issued for employee stock purchase plan
    
    
    19,027
    
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27Share-based compensation
    
    
    
    
    
    
    
    
    
    
    858
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    858Common stock issued for acquisitions
    
    
    56,325
    
    
    
    
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104Other comprehensive income  Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,943
    
    
    
    1,943Other comprehensive income  Loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    718
    
    
    
    718One-for-five reverse stock split
    
    
    (67
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,242
    )
    
    
    
    
    
    
    
    
    
    
    (3,242
    )Balance, January 2, 2010
    
    
    7,468,310
    
    
    $
    37
    
    
    $
    176,680
    
    
    $
    (134,948
    )
    
    $
    (3,545
    )
    
    $
    (4,190
    )
    
    $
    34,034Shares issued for employee stock purchase plan
    
    
    25,280
    
    
    
    1
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38Share-based compensation
    
    
    
    
    
    
    
    
    
    
    305
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    305Common stock issued for acquisitions
    
    
    19,740
    
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53Other comprehensive income  Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (594
    )
    
    
    (594
    )Other comprehensive income  Loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74
    
    
    
    74Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,193
    )
    
    
    
    
    
    
    
    
    
    
    (2,193
    )Balance, January 1, 2011
    
    
    7,513,330
    
    
    $
    38
    
    
    $
    177,075
    
    
    $
    (137,141
    )
    
    $
    (3,545
    )
    
    $
    (4,710
    )
    
    $
    31,717
  26




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##### Table of Contents



THE MANAGEMENT NETWORK GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Operations 
 Principles of Consolidation 
 Name of Subsidiary/Acquisition
    
    Date Formed/AcquiredTMNG Europe Ltd. (TMNG Europe)
    
    March 19, 1997The Management Network Group Canada Ltd. (TMNG Canada)
    
    May 14, 1998TMNG.com, Inc.
    
    June 18, 1999TMNG Marketing, LLC (TMNG Marketing, Inc. merged into
TMNG Marketing, LLC on January 2, 2010).
    
    September 5, 2000TMNG Technologies, Inc.
    
    August 27, 2001Cambridge Strategic Management Group, Inc. (CSMG)
    
    March 6, 2002Cambridge Adventis Ltd.
    
    March 17, 2006Cartesian Ltd. (Cartesian)
    
    January 2, 2007RVA Consulting, LLC (RVA)
    
    August 3, 2007TWG Consulting, Inc. (TWG)
    
    October 5, 2007
 Fiscal Year 
 Reverse Stock Split
 Revenue Recognition Revenue Recognition 
Construction-Type and Production-Type Contracts
   27




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##### Table of Contents



THE MANAGEMENT NETWORK GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Revenue Recognition  Multiple-Element
Arrangements
  Cash and Cash Equivalents 
 Marketable Securities  Investments  Debt and Equity Securities. Fair Value Measurements and Disclosures.
 Fair Value Measurement 
  Level 1:
 Level 2:
 Level 3:
  Property and Equipment 
 Research and Development and Capitalized Software Costs  Software  Costs of Software to Be Sold, Leased, or
Marketed
 28




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##### Table of Contents



THE MANAGEMENT NETWORK GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Goodwill Intangibles-Goodwill and Other.
  
    
    Anticipated future cash flows and terminal value for each reporting unit
The income approach to determining fair value relies on the timing and estimates of future
cash flows, including an estimate of terminal value. The projections use managements
estimates of economic and market conditions over the projected period including growth
rates in revenues and estimates of expected changes in operating margins, tax rates,
depreciation, amortization, capital expenditures and working capital. Projections of future
cash flows are subject to change as actual results are achieved that differ from those
anticipated. Because management frequently updates its projections, it would expect to
identify on a timely basis any significant differences between actual results and recent
estimates. The Company is not expecting actual results to vary significantly from
estimates.
    
    Selection of an appropriate discount rate The income approach requires the
selection of an appropriate discount rate, which is based on a weighted average cost of
capital analysis. The discount rate is affected by changes in short-term interest rates and
long-term yield as well as variances in the typical capital structure of marketplace
participants. The discount rate is determined based on assumptions that would be used by
marketplace participants, and for that reason, the capital structure of selected
marketplace participants was used in the weighted average cost of capital analysis.
 Intangible Assets
 Property, Plant and Equipment
 Income Taxes 
 Use of Estimates 
 Foreign Currency Transactions and Translation 
 29




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##### Table of Contents



THE MANAGEMENT NETWORK GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Derivative Financial Instruments Fair Value Measurement and Disclosures
 Share-Based Compensation  Compensation-Stock Compensation
 Loss Per Share 
 Earnings per Share
 Recent Accounting Pronouncements Revenue Recognition (Topic 605)  Multiple-Deliverable Revenue Arrangements, a
consensus of the FASB Emerging Issue Task Force Software (Topic
985)  Certain Revenue Arrangements That Include Software Elements
 Fair Value Measures and Disclosures
 Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses
 IntangiblesGoodwill and Other: When to Perform
Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts
 30




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##### Table of Contents



THE MANAGEMENT NETWORK GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  2. AUCTION RATE SECURITIES
  Fair Value atJanuary 1,Unrealized

    
    
    2011Issuer
    
    Cost Basis
    
    
    Losses
    
    
    (Noncurrent)(In thousands)Available-for-Sale SecuritiesEducation Funding Capital Education Loan Backed Notes
    
    $
    6,250
    
    
    $
    (324
    )
    
    $
    5,926
  Fair Value atRealized
    
    
    
    
    
    January 2,Issuer
    
    
    
    
    Gains
    
    
    Unrealized
    
    
    2010Cost Basis

    
    
    (Losses)

    
    
    Losses

    
    
    Current
    
    
    Noncurrent(In thousands)Trading SecuritiesKentucky Higher Education Loan Revenue
    
    $
    1,900
    
    
    $
    (118
    )
    
    
    
    
    
    $
    1,782Missouri Higher Education Loan Revenue
    
    
    1,800
    
    
    
    (112
    )
    
    
    
    
    
    
    1,688Utah State Board of Regents Revenue Bonds
    
    
    1,400
    
    
    
    (87
    )
    
    
    
    
    
    
    1,313Kentucky Higher Education Loan Revenue
    
    
    400
    
    
    
    (25
    )
    
    
    
    
    
    
    3755,500
    
    
    
    (342
    )
    
    
    
    
    
    
    5,158Available-for-Sale SecuritiesEducation Funding Capital Education Loan Backed Notes
    
    
    6,250
    
    
    
    
    
    
    $
    (389
    )
    
    
    
    
    
    $
    5,861Brazos Student Finance Corporation Student Loan
Asset Backed Notes
    
    
    1,000
    
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    9917,250
    
    
    
    
    
    
    
    (398
    )
    
    
    
    
    
    
    6,852ARS Rights
    
    
    
    
    
    
    286
    
    
    
    
    
    
    
    286$
    12,750
    
    
    $
    (56
    )
    
    $
    (398
    )
    
    $
    5,444
    
    
    $
    6,852
    31




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##### Table of Contents



THE MANAGEMENT NETWORK GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Derivatives and Hedging.
 Investments-Debt and Equity Securities.
       For the Fiscal
    
    
    For the FiscalYear Ended
    
    
    Year EndedJanuary 1,
    
    
    January 2,2011
    
    
    2010Fair value at beginning of period
    
    $
    12,296
    
    
    $
    13,404Total unrealized and realized gains
(losses) included in Other income in
the Consolidated Statements of
Operations and Comprehensive Loss
    
    
    6
    
    
    
    224Total unrealized gains (losses)
included in Other comprehensive
income (loss) in the Consolidated
Statements of Operations and
Comprehensive Loss
    
    
    74
    
    
    
    718Sales
    
    
    (6,450
    )
    
    
    (2,050
    )Fair value at end of period
    
    $
    5,926
    
    
    $
    12,296
  32




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##### Table of Contents



THE MANAGEMENT NETWORK GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 3. LINE OF CREDIT AGREEMENTS
   4. BUSINESS COMBINATIONS
 RVA Consulting, LLC
  Cash paid at closing
    
    $
    6,625Transaction costs
    
    
    247Contingent cash consideration earned
    
    
    3,617Contingent stock consideration earned (based on June 30, 2008 measurement date)
    
    
    921Contingent stock consideration earned (based on June 30, 2009 measurement date)
    
    
    104Contingent stock consideration earned (based on June 30, 2010 measurement date)
    
    
    53Aggregate potential consideration
    
    $
    11,567
  5. GOODWILL AND OTHER INTANGIBLE ASSETS
  NorthAmerica
    
    
    EMEA
    
    
    TotalBalance as of January 2, 2010
    
    $
    3,550
    
    
    $
    4,222
    
    
    $
    7,7722010 RVA goodwill from contingent consideration earned
    
    
    397
    
    
    
    
    
    
    
    397Changes in foreign currency exchange rates
    
    
    
    
    
    
    (176
    )
    
    
    ( 176
    )Balance as of January 1, 2011
    
    $
    3,947
    
    
    $
    4,046
    
    
    $
    7,993
 33




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##### Table of Contents



THE MANAGEMENT NETWORK GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  As of 
January 1,
    
    
    As of 
January 2,
    
    
    As of 
January 3,2011
    
    
    2010
    
    
    2009Gross balance of goodwill (including foreign currency adjustments)
    
    $
    67,549
    
    
    $
    67,641
    
    
    $
    66,109Accumulated goodwill impairment losses (including foreign currency adjustments)
    
    
    (59,556
    )
    
    
    (59,869
    )
    
    
    (59,869
    )Net balance of goodwill
    
    $
    7,993
    
    
    $
    7,772
    
    
    $
    6,240
  January 1, 2011
    
    
    January 2, 2010Accumulated
    
    
    
    
    
    
    AccumulatedCost
    
    
    Amortization
    
    
    Cost
    
    
    AmortizationCustomer relationships
    
    $
    5,261
    
    
    $
    (4,765
    )
    
    $
    5,342
    
    
    $
    (3,511
    )Acquired software
    
    
    2,326
    
    
    
    (2,326
    )
    
    
    2,427
    
    
    
    (1,820
    )Employment agreements
    
    
    1,950
    
    
    
    (1,950
    )
    
    
    2,018
    
    
    
    (1,940
    )Total
    
    $
    9,537
    
    
    $
    (9,041
    )
    
    $
    9,787
    
    
    $
    (7,271
    )
 Intangible amortization expense for the fiscal years ended January 1, 2011 and January 2, 2010
was $1,973,000 and $2,563,000, respectively, including $581,000 and $587,000 reported in cost of
services for the fiscal years 2010 and 2009, respectively.Future intangible amortization expense is estimated to be $496,000 in fiscal year 2011 with none
included in cost of services.The Company evaluates goodwill for impairment on an annual basis on
the last day of the first fiscal month of the fourth quarter and whenever events or circumstances
indicate that these assets may be impaired. The Company performs its impairment testing for
goodwill in accordance with FASB ASC 350 Intangibles-Goodwill and Other. Based on an analysis of
the present value of future cash flows, management determined that there was no impairment of
goodwill during fiscal years 2010 and 2009.The Company reviews long-lived assets and certain identifiable intangibles to be held and used for
impairment whenever events or changes in circumstances indicate that the carrying amount of these
assets might not be recoverable in accordance with the provisions of FASB ASC 360, Property, Plant
and Equipment and FASB ASC 350, Intangibles-Goodwill and Other. Based on an analysis of future
cash flows, management determined that there was no impairment of long-lived or intangible assets
during fiscal years 2010 and 2009.
 6. SHARE-BASED COMPENSATION
  Fiscal Year 2009Risk-free interest rate
    

    2.1%Expected life
    
    6.3 yearsExpected volatility factor
    

    61%Expected dividend rate
    

    0%
    34




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##### Table of Contents



THE MANAGEMENT NETWORK GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   1998 EQUITY INCENTIVE PLAN
  Stock Options
    WeightedWeighted

    
    
    AverageAverage

    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at January 2, 2010
    
    
    763,547
    
    
    $
    17.57Forfeited/cancelled
    
    
    (122,454
    )
    
    $
    51.03Outstanding at January 1, 2011
    
    
    641,093
    
    
    $
    11.18
    
    
    5.1 years
    
    $
    9,000Options vested and expected to be vested at January 1, 2011
    
    
    617,174
    
    
    $
    11.22
    
    
    5.0 years
    
    $
    7,000Options exercisable at January 1, 2011
    
    
    579,501
    
    
    $
    11.32
    
    
    4.9 years
    
    $
    2,000
  Nonvested Stock
  35




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##### Table of Contents



THE MANAGEMENT NETWORK GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Weighted 
AverageGrant DateShares
    
    
    Fair ValueOutstanding at January 2, 2010
    
    
    1,250
    
    
    $
    10.95Vested
    
    
    (875
    )
    
    $
    10.82Outstanding at January 1, 2011
    
    
    375
    
    
    $
    11.25
  2000 SUPPLEMENTAL STOCK PLAN
   WeightedWeighted

    
    
    AverageAverage

    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at January 2, 2010
    
    
    274,612
    
    
    $
    11.74Forfeited/cancelled
    
    
    (27,175
    )
    
    $
    11.72Outstanding at January 1, 2011
    
    
    247,437
    
    
    $
    11.74
    
    
    5.0 years
    
    $
    1,000Options vested and expected to be vested at January 1, 2011
    
    
    226,482
    
    
    $
    11.90
    
    
    5.0 years
    
    $
    1,000Options exercisable at January 1, 2011
    
    
    191,387
    
    
    $
    12.28
    
    
    4.7 years
  EMPLOYEE STOCK PURCHASE PLAN
  7. BUSINESS SEGMENTS, MAJOR CUSTOMERS AND SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
  Segment Reporting
 36




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##### Table of Contents



THE MANAGEMENT NETWORK GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    North 
America
    
    
    EMEA
    
    
    Not Allocated 
to Segments
    
    
    TotalAs of and for the fiscal year ended January 1, 2011:Revenues
    
    $
    51,220
    
    
    $
    16,023
    
    
    
    
    
    
    $
    67,243Income (loss) from operations
    
    
    12,185
    
    
    
    3,043
    
    
    $
    (18,334
    )
    
    
    (3,106
    )Interest income
    
    
    
    
    
    
    
    
    
    
    193
    
    
    
    193Interest expense
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    (16
    )Income (loss) before income tax provision
    
    
    12,185
    
    
    
    3,043
    
    
    
    (18,131
    )
    
    
    (2,903
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    2,769
    
    
    
    2,769Total assets
    
    $
    11,124
    
    
    $
    5,406
    
    
    $
    24,565
    
    
    $
    41,095As of and for the fiscal year ended January 2, 2010:Revenues
    
    $
    46,994
    
    
    $
    17,959
    
    
    
    
    
    
    $
    64,953Income (loss) from operations
    
    
    12,865
    
    
    
    3,974
    
    
    $
    (20,394
    )
    
    
    (3,555
    )Interest income
    
    
    
    
    
    
    
    
    
    
    259
    
    
    
    259Interest expense
    
    
    
    
    
    
    
    
    
    
    (55
    )
    
    
    (55
    )Income (loss) before income tax provision
    
    
    12,865
    
    
    
    3,974
    
    
    
    (19,855
    )
    
    
    (3,016
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    3,379
    
    
    
    3,379Total assets
    
    $
    9,466
    
    
    $
    6,342
    
    
    $
    32,443
    
    
    $
    48,251
   Revenue
    
    
    Loss Before Income Tax 
ProvisionFiscal Year 
2010
    
    
    Fiscal Year 
2009
    
    
    Fiscal Year 
2010
    
    
    Fiscal Year 
2009United States
    
    $
    49,902
    
    
    $
    46,206
    
    
    $
    (2,154
    )
    
    $
    (2,145
    )International:United Kingdom
    
    
    16,348
    
    
    
    16,727
    
    
    
    (706
    )
    
    
    (777
    )Other
    
    
    993
    
    
    
    2,020
    
    
    
    (43
    )
    
    
    (94
    )Total
    
    $
    67,243
    
    
    $
    64,953
    
    
    $
    (2,903
    )
    
    $
    (3,016
    )
 37




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##### Table of Contents



THE MANAGEMENT NETWORK GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  RevenuesFiscal Year 2010
    
    
    Fiscal Year 2009North
 America
    
    
    EMEA
    
    
    North 
America
    
    
    EMEACustomer A
    
    
    
    
    
    $
    6,840
    
    
    
    
    
    
    $
    7,418Customer B
    
    $
    17,304
    
    
    
    
    
    
    $
    22,789Customer C
    
    $
    9,953
    
    
    
    
    
    
    $
    8,935Customer D
    
    $
    6,502
    
    
    
    
    
    
    $
    6,612Customer E
    
    $
    6,946
    
    
    $
    754
    
    
    $
    1,116
    
    
    $
    977
 Accounts ReceivableJanuary 1, 
2011
    
    
    January 2, 
2010Customer A
    
    $
    2,429
    
    
    $
    3,244Customer B
    
    $
    2,948
    
    
    $
    4,333Customer C
    
    $
    1,832
    
    
    $
    1,290Customer D
    
    $
    694
    
    
    $
    1,640Customer E
    
    $
    4,241
    
    
    $
    361
   8. PROPERTY AND EQUIPMENT
 January 1, 
2011
    
    
    January 2, 
2010(In thousands)Furniture and fixtures
    
    $
    1,550
    
    
    $
    1,450Software and computer equipment
    
    
    4,156
    
    
    
    3,784Leasehold improvements
    
    
    1,270
    
    
    
    1,1996,976
    
    
    
    6,433Less: Accumulated depreciation and amortization
    
    
    4,993
    
    
    
    4,478$
    1,983
    
    
    $
    1,955
  38




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##### Table of Contents



THE MANAGEMENT NETWORK GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 9. INCOME TAXES
  Fiscal 
Year 
2010
    
    
    Fiscal 
Year
 2009FederalCurrent tax (expense) benefit
    
    $
    
    
    
    $
    (32
    )Deferred tax (expense) benefit, net
    
    
    (111
    )
    
    
    (103
    )(111
    )
    
    
    (135
    )StateCurrent tax (expense) benefit
    
    
    35
    
    
    
    (34
    )Deferred tax (expense) benefit, net
    
    
    (17
    )
    
    
    (15
    )18
    
    
    
    (49
    )ForeignCurrent tax (expense) benefit
    
    
    803
    
    
    
    (15
    )Deferred tax (expense) benefit, net
    
    
    
    
    
    
    (27
    )803
    
    
    
    (42
    )Total
    
    $
    710
    
    
    $
    (226
    )
   Fiscal Year 2010
    
    
    Fiscal Year 2009Amount
    
    
    %
    
    
    Amount
    
    
    %Computed expected federal income tax benefit
    
    $
    1,016
    
    
    
    35.0
    
    
    $
    1,056
    
    
    
    35.0State income tax (expense) benefit, net of federal benefit
    
    
    (10
    )
    
    
    (0.3
    )
    
    
    (44
    )
    
    
    (1.4
    )Rate differential on foreign operations
    
    
    (263
    )
    
    
    (9.1
    )
    
    
    (243
    )
    
    
    (8.1
    )Reversal of reserve for uncertain income tax positions, net of interest
    
    
    753
    
    
    
    26.0Forfeited vested stock options
    
    
    (168
    )
    
    
    (5.8
    )
    
    
    (883
    )
    
    
    (29.3
    )Adjustment to estimated tax loss carryforward
    
    
    (76
    )
    
    
    (2.6
    )
    
    
    (985
    )
    
    
    (32.7
    )Other
    
    
    (163
    )
    
    
    (5.6
    )
    
    
    4
    
    
    
    0.1Change in valuation allowance
    
    
    (379
    )
    
    
    (13.1
    )
    
    
    869
    
    
    
    28.9Total
    
    $
    710
    
    
    
    24.5
    
    
    $
    (226
    )
    
    
    (7.5
    )
 39




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##### Table of Contents



THE MANAGEMENT NETWORK GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Fiscal 
Year 
2010
    
    
    Fiscal 
Year
 2009Goodwill and intangible assets
    
    $
    (1,211
    )
    
    $
    (1,931
    )Share-based compensation expense
    
    
    (75
    )
    
    
    (761
    )Valuation allowance
    
    
    (379
    )
    
    
    869Net operating loss carryforward
    
    
    2,109
    
    
    
    (275
    )Undistributed foreign earnings
    
    
    
    
    
    
    1,185Foreign tax credit carryforward
    
    
    
    
    
    
    750Other
    
    
    (572
    )
    
    
    18Total
    
    $
    (128
    )
    
    $
    (145
    )
  January 1, 
2011
    
    
    January 2, 
2010Current deferred tax assets (liabilities):Unfavorable liabilities
    
    $
    25
    
    
    $
    286Other
    
    
    130
    
    
    
    132Valuation allowance
    
    
    (155
    )
    
    
    (418
    )Current deferred tax asset
    
    $
    0
    
    
    $
    0Non-current deferred tax assets (liabilities):Goodwill and intangible assets
    
    $
    10,347
    
    
    $
    11,541Share-based compensation expense
    
    
    2,031
    
    
    
    2,126Net operating loss carryforward
    
    
    19,417
    
    
    
    17,343Auction rate securities
    
    
    85
    
    
    
    182Other
    
    
    384
    
    
    
    678Foreign tax credit carryforward
    
    
    1,067
    
    
    
    1,067Valuation allowance
    
    
    (33,577
    )
    
    
    (33,055
    )Non-current deferred tax liabilities
    
    $
    (246
    )
    
    $
    (118
    )
  Amount
    
    
    Year$
    1,640
    
    
    
    20155,602
    
    
    
    20239,094
    
    
    
    20247,432
    
    
    
    20259,854
    
    
    
    20265,152
    
    
    
    20271,637
    
    
    
    20283,240
    
    
    
    2030Total
    
    $
    43,651
  40




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##### Table of Contents



THE MANAGEMENT NETWORK GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     January 1, 
2011
    
    
    January 2, 
2010(In thousands)Gross unrecognized tax benefits at beginning of year
    
    $
    730
    
    
    $
    690Gross increases in tax positions for current year
    
    
    
    
    
    
    40Gross decreases in tax positions taken in prior periods
    
    
    (622
    )Gross unrecognized tax benefits at end of year
    
    $
    108
    
    
    $
    730
   10. LEASE COMMITMENTS
   Fiscal Year
    
    OperatingLeases2011
    
    $
    1,3952012
    
    
    1,3612013
    
    
    1,4592014
    
    
    1,2712015 and thereafter
    
    
    1,990Total minimum lease payments
    
    
    7,476Future minimum rentals to be received under non-cancellable subleases
    
    
    (210
    )Minimum lease payments net of amounts to be received under subleases
    
    $
    7,266
 41




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##### Table of Contents



THE MANAGEMENT NETWORK GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  January 1, 
2011
    
    
    January 2,
 2010Current unfavorable lease obligations
    
    $
    61
    
    
    $
    706Non-current unfavorable lease obligations
    
    
    
    
    
    
    61$
    61
    
    
    $
    767
  11. LOAN TO OFFICER
  12. LETTER OF CREDIT
  13. RELATED PARTY TRANSACTIONS
   14. COMMITMENTS AND CONTINGENCIES
    42




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##### Table of Contents



THE MANAGEMENT NETWORK GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 15. EMPLOYEE BENEFIT PLAN
  16. SUBSEQUENT EVENTS
 Borrowing on Citigroup Line of Credit
  Return of Collateral on Letter of Credit
  
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedure
   Managements Report on Internal Control over Financial Reporting
 Internal Control  Integrated Framework,
  Changes in Internal Control over Financial Reporting
  
 ITEM 9B.
    
    OTHER INFORMATION
  43




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##### Table of Contents



PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  EQUITY COMPENSATION PLAN INFORMATION
 (c)(a)
    
    
    
    
    
    
    Number of SecuritiesNumber of
    
    
    (b)
    
    
    Remaining AvailableSecurities to be Issued
    
    
    Weighted Average
    
    
    for Future IssuanceUpon Exercise of
    
    
    Exercise Price of
    
    
    Under Equity CompensationOutstanding Options,
    
    
    Outstanding Options,
    
    
    Plans (Excluding SecuritiesWarrants and Rights
    
    
    Warrants and Rights
    
    
    Reflected in Column (a))(1)PLANS APPROVED BY SECURITY 
HOLDERS(1) 1998 Equity Incentive Plan
    
    
    641,093
    
    
    $
    11.18
    
    
    
    1,047,603PLANS NOT APPROVED BY SECURITY 
HOLDERS 2000 Supplemental Stock Plan
    
    
    247,437
    
    
    $
    11.74
    
    
    
    
 
 (1)
    
    The amounts in the table do not include up to 46,631 shares that may be purchased under the 1999 Employee Stock Purchase Plan or
375 shares subject to outstanding unvested restricted stock awards.  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
  44




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##### Table of Contents



PART IV
 
 ITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES
     45




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##### Table of Contents



SIGNATURES
  THE MANAGEMENT NETWORK GROUP, INC.By:
    /s/  RICHARD P. NESPOLARICHARD P. NESPOLACHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER  POWER OF ATTORNEY
   Signature
    
    Title
    
    Date/s/ RICHARD P. NESPOLA

Richard P. Nespola
    
    Chairman of the Board and Chief Executive
Officer (Principal executive officer)
    
    March 31, 2011/s/ DONALD E. KLUMB

Donald E. Klumb
    
    Chief Financial Officer and Treasurer
(Principal financial officer and principal
accounting officer)
    
    March 31, 2011/s/ MICKY K. WOO

Micky K. Woo
    
    Director
    
    March 31, 2011/s/ ANDREW LIPMAN

Andrew Lipman
    
    Director
    
    March 31, 2011/s/ ROBERT J. CURREY

Robert J. Currey
    
    Director
    
    March 31, 2011/s/ ROY A. WILKENS

Roy A. Wilkens
    
    Director
    
    March 31, 2011/s/ A. REZA JAFARI

A. Reza Jafari
    
    Director
    
    March 31, 2011
 46




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##### Table of Contents



INDEX TO EXHIBITS
  ExhibitNumber
    
    Description of Document3.1
    
    Amended and Restated Certificate of
Incorporation, filed as Exhibit 3.1 to the
Companys Form 8-K filed with the Securities and
Exchange Commission on February 5, 2010, is
incorporated herein by reference as Exhibit 3.1.3.2
    
    Amended and Restated Certificate of Designations
of Series A Junior Participating Preferred
Stock, as filed with the Secretary of State of
Delaware on July 19, 2010 filed as Exhibit 3.1
to the Companys Current Report on Form 8-K
dated July 19, 2010 filed with the Securities
and Exchange Commission, is hereby incorporated
by reference as Exhibit 3.2.3.3
    
    Amended and Restated By-laws, filed as
Exhibit 3.2 to the Companys Form 8-K filed with
the Securities and Exchange Commission on March
16, 2011, is incorporated herein by reference as
Exhibit 3.3.4.1
    
    Specimen Common Stock Certificate, filed as
Exhibit 4.1 to the Registration Statement on
Form S-1 originally filed September 20, 1999
(Registration No. 333-87383), as amended (the
1999 S-1 Registration Statement), is
incorporated herein by reference as Exhibit 4.1.4.2
    
    Registration Rights Agreement, dated
February 12, 1998, among the Company and certain
holders of the Companys common stock (the
Registration Rights Agreement), filed as
Exhibit 10.1 to the 1999 S-1 Registration
Statement, is incorporated herein by reference
as Exhibit 4.2.4.3
    
    Amended and Restated Rights Agreement, dated as
of July 19, 2010, by and between the Company and
Computershare Trust Company N.A., filed as
Exhibit 4.1 to the Companys Current Report on
Form 8-K dated July 19, 2010 filed with the
Securities and Exchange Commission, is
incorporated herein by reference as Exhibit 4.3.4.4
    
    Form of Rights Certificate, filed as Exhibit B
to the Amended and Restated Rights Agreement
filed as Exhibit 4.1 to the Companys Current
Report on Form 8-K dated July 19, 2010, filed
with the Securities and Exchange Commission, is
incorporated herein by reference as Exhibit 4.4.10.1
    
    Registration Rights Agreement. (See Exhibit 4.2).10.2
    
    Form of Indemnification Agreement between the
Company and each of its Directors and Officers,
filed as Exhibit 10.2 to the 1999 S-1
Registration Statement, is incorporated herein
by reference as Exhibit 10.2.(1)10.3
    
    Amended and Restated 1998 Equity Incentive Plan,
as amended and restated on June 8, 2009, filed
as Appendix A to the definitive proxy statement
of the Company filed with the Securities and
Exchange Commission on April 21, 2010, and the
Form of Agreements thereunder, filed in
Exhibit 10.3 to the 1999 S-1 Registration
Statement, are incorporated herein by reference
as Exhibit 10.3.(1)10.4
    
    1999 Employee Stock Purchase Plan filed as
Appendix A to the definitive proxy statement of
the Company filed with the Securities and
Exchange Commission on May 4, 2009,and the Form
of Agreements thereunder, filed in Exhibit 10.4
to the 1999 S-1 Registration Statement, are
incorporated herein by reference as
Exhibit 10.4.(1)10.5
    
    2000 Supplemental Stock Plan and Form of
Agreements thereunder, filed as Exhibit 10.16 to
the Companys Form 10-K for the fiscal year
ended December 30, 2000, is incorporated herein
by reference as Exhibit 10.5.(1)10.6
    
    Employment Agreement between the Company and
Richard Nespola, dated January 5, 2004, filed as
Exhibit 10.19 to the Companys Form 10-K for the
fiscal year ended January 3, 2004, is
incorporated herein by reference as
Exhibit 10.6.(1)10.7
    
    Sublease between Best Doctors, Inc. and
Cambridge Strategic Management Group Inc.
(formerly TMNG Strategy, Inc.), dated
December 30, 2004, filed as Exhibit 10.21 to the
Companys Form 10-K for the fiscal year ended
January 1, 2005, is incorporated herein by
reference as Exhibit 10.7.10.8
    
    Asset Purchase Agreement, dated April 2, 2006,
among Wilbass Limited, Adventis Limited, and
Adventis Corporation, filed as Exhibit 10 to the
Companys Form 10-Q for the quarter ended
April 1, 2006, is incorporated herein by
reference as Exhibit 10.8.**
 47




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##### Table of Contents



ExhibitNumber
    
    Description of Document10.9
    
    Share Purchase Agreement, dated December 22,
2006, between the Company and Janos Sivo, Alan
Strong, William Hill and James Baker, regarding
the acquisition of the outstanding common stock
of Cartesian Limited, filed as Exhibit 10.1 to
the Companys Form 10-Q for the quarter ended
September 30, 2006, is incorporated herein by
reference as Exhibit 10.9.10.10
    
    Third Amended Lease Agreement between NewTower
Trust Company Multi-Employer Property Trust and
the Company, dated August 30, 2005, filed as
Exhibit 10.10 to the Companys Form 10-K for
the fiscal year ended December 30, 2006, is
incorporated herein by reference as
Exhibit 10.10.10 .11
    
    Third Additional Space Commencement Date
Agreement between NewTower Trust Company
Multi-Employer Property Trust and the Company,
dated February 28, 2006, filed as Exhibit 10.11
to the Companys Form 10-K for the fiscal year
ended December 30, 2006, is incorporated herein
by reference as Exhibit 10.11.10.12
    
    Membership Interest Purchase Agreement, dated
July 30, 2007, between the Company and RVA
Consulting, LLC, RVA Holdings, LLC, Mark
Markowitz, Dawn Saitta, and Dale Reynolds,
regarding the acquisition of all outstanding
membership interests in RVA Consulting, LLC,
filed as Exhibit 10.1 to the Companys
Form 10-Q for the quarter ended June 30, 2007,
is incorporated herein by reference as
Exhibit 10.12.**10.13
    
    Stock Purchase Agreement, dated October 5,
2007, between the Company and TWG Consulting,
Inc. and Marilyn Breitenstein, regarding the
acquisition of the outstanding common stock of
TWG Consulting, Inc., filed as Exhibit 2.1 to
the Companys Form 10-Q for the quarter ended
September 29, 2007, is incorporated herein by
reference as Exhibit 10.13.10.14
    
    Transition Services Agreement among RVA
Consulting, LLC, a subsidiary of the Company,
and Publicis Selling Solutions, Inc, filed as
Exhibit 10.1 to the Companys Form 10-Q for the
quarter ended September 29, 2007, is
incorporated herein by reference as
Exhibit 10.14.10.15
    
    Lease Agreement between Cartesian Limited and
Sun Life Assurance Company of Canada (U.K.)
Limited, dated November 23, 2000, filed as
Exhibit 10.1 to the Companys Form 10-Q for the
quarter ended March 31, 2007, is incorporated
herein by reference as Exhibit 10.15.10.16
    
    Fourth Amendment to Lease between NewTower
Trust Company Multi-Employer Property Trust and
the Company, dated July 10, 2007, filed as
Exhibit 10.16 to the Companys Form 10-K for
the fiscal year ended December 27, 2007, is
incorporated herein by reference as
Exhibit 10.16.10.17
    
    Employment Agreement dated April 8, 2008
between The Management Network Group, Inc. and
Donald E. Klumb, filed as Exhibit 10.1 to the
Companys Current Report on Form 8-K filed with
the Securities and Exchange Commission on
April 11, 2008, is incorporated herein by
reference as Exhibit 10.17.(1)10.18
    
    Fifth Amendment to Lease between NewTower
Trust Company Multi-Employer Property Trust and
the Company, dated May 19, 2008, filed as
Exhibit 10.1 to the Companys Form 10-Q for the
quarter ended June 28, 2008, is incorporated
herein by reference as Exhibit 10.18.10.19
    
    Stock Purchase Agreement by and among the
Company, Potomac Capital International Ltd.,
Potomac Capital Partners LP, Pleiades
Investment Partners-R LP, Potomac Capital
Management LLC, Potomac Capital Management,
Inc. and Paul J. Solit dated June 11, 2008
filed as Exhibit 10.1 to the Companys Form 8-K
filed with the Securities and Exchange
Commission on June 12, 2008, is incorporated
herein by reference as Exhibit 10.19.10.20
    
    Stock Purchase Agreement by and among Riley
Investment Partners Master Fund, L.P., Riley
Investment Management, LLC., and Bryant R.
Riley dated June 12, 2008 filed as Exhibit 10.2
to the Companys Form 8-K dated June 12, 2008,
filed with the Securities and Exchange
Commission, 2008, is incorporated herein by
reference as Exhibit 10.20.
 48




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##### Table of Contents



ExhibitNumber
    
    Description of Document10.21
    
    Standstill Agreement by and among the Company, Potomac Capital International Ltd., Potomac Capital
Partners LP, Pleiades Investment Partners-R LP, Potomac Capital Management LLC, Potomac Capital
Management, Inc. and Paul J. Solit dated June 11, 2008 filed as Exhibit 10.3 to the Companys Form 8-K
dated June 12, 2008, filed with the Securities and Exchange Commission, is incorporated herein by
reference as Exhibit 10.21.10.22
    
    Standstill Agreement by and among Riley Investment Partners Master Fund, L.P., Riley Investment
Management, LLC., and Bryant R. Riley dated June 12, 2008 filed as Exhibit 10.4 to the Companys
Form 8-K dated June 12, 2008, filed with the Securities and Exchange Commission, 2008, is incorporated
herein by reference as Exhibit 10.22.10.23
    
    Offering Letter Relating to the Auction Rate Securities Settlement with The Management Network Group,
Inc. dated as of October 8, 2008, issued by UBS Financial Services Inc.; Acceptance Form filed as
Exhibit 99.1 to the Companys Form 8-K dated November 19, 2008, filed with the Securities and Exchange
Commission, is incorporated herein by reference as Exhibit 10.23.10.24
    
    Credit Line Account Application and Agreement for Organizations and Businesses dated as of
November 13, 2008, between The Management Network Group, Inc. and UBS Bank USA filed as Exhibit 99.2
to the Companys Form 8-K dated November 19, 2008, filed with the Securities and Exchange Commission,
is incorporated herein by reference as Exhibit 10.24.10.25
    
    Addendum to Credit Line Account Application and Agreement dated as of November 13, 2008, between The
Management Network Group, Inc. and UBS Bank USA filed as Exhibit 99.3 to the Companys Form 8-K dated
November 19, 2008, filed with the Securities and Exchange Commission, is incorporated herein by
reference as Exhibit 10.25.10.26
    
    Important Notice on Interest Rates and Payments dated as of November 13, 2008, between The Management
Network Group, Inc. and UBS Bank USA filed as Exhibit 99.4 to the Companys Form 8-K dated
November 19, 2008, filed with the Securities and Exchange Commission, is incorporated herein by
reference as Exhibit 10.26.10.27
    
    The Management Network Group, Inc. 2010 Executive Incentive Compensation Plan, filed as Exhibit 10.1
to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on
April 6, 2010, is incorporated herein by reference as Exhibit 10.27.(1)10.28
    
    The Management Network Group, Inc. 2011 Equity Incentive Compensation Plan filed as Exhibit 10.1 to
the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on March
16, 2011, is incorporated herein by reference as Exhibit 10.28.(1).10.29
    
    Lease between Two Financial Center, LLC and the Company, dated August 16, 2010, filed as Exhibit 10.1
to the Companys Form 10-Q for the quarter ended October 2, 2010, is incorporated herein by reference
as Exhibit 10.29.10.30
    
    Deed of Variation of the lease between EPO (Norman) Limited, EPO (Norman 2) Limited and the Company,
dated September 30, 2010, filed as Exhibit 10.2 to the Companys Form 10-Q for the quarter ended
October 2, 2010, is incorporated herein by reference as Exhibit 10.30.21.1
    
    List of subsidiaries of the Company, prepared pursuant to Item 601(b)(21) of Regulation S-K is
attached to this Form 10-K as Exhibit 21.1.23.1
    
    Consent of independent registered public accounting firm is attached to this Form 10-K as Exhibit 23.1.24.1
    
    Power of attorney (see signature page).31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is
attached to this Form 10-K as Exhibit 31.1.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is
attached to this Form 10-K as Exhibit 31.2.32.1
    
    Certifications furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are attached to
this Form 10-K as Exhibit 32.1.
 
 (1)
    
    Management contracts and compensatory plans and arrangements required to be filed as Exhibits pursuant to Item 15 of this report.**
    
    Portions of this document have been redacted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934,
as amended. Redacted portions are indicated with the notation [***]. 49