UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                                   (MARK ONE)

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                        COMMISSION FILE NUMBER: 000-27617

                       THE MANAGEMENT NETWORK GROUP, INC.

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
               DELAWARE                                  48-1129619
     (STATE OR OTHER JURISDICTION OF                  (I.R.S. EMPLOYER
      INCORPORATION OR ORGANIZATION)               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 REGISTERED
     -------------------            -----------------------------------------
COMMON STOCK (.001 PAR VALUE)                  NASDAQ NATIONAL MARKET

        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE.

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act. YES [ ] NO [X]

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act. YES [ ] NO [X]

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 [X] NO [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K 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. [X]

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the  Exchange  Act.  Large
Accelerated Filer [ ] Accelerated Filer [ ] Non-accelerated Filer [X]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES [ ] NO [X]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant,  as of July 2, 2005 was approximately $37.2 million. As of March 28,
2005 the Registrant had 35,790,286  shares of common stock, par value $0.001 per
share (the Common Stock), issued and outstanding.


<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE

The  information  required  to be provided in Part III (Items 10, 11, 12, 13 and
14) of this Annual Report on Form 10-K is hereby  incorporated by reference from
our definitive  2006 proxy statement which will be filed with the Securities and
Exchange Commission within 120 days of the end of our fiscal year ended December
31, 2005.

                       THE MANAGEMENT NETWORK GROUP, INC.

                                    FORM 10-K



                                TABLE OF CONTENTS

                                                                        PAGE
                                                                        ----
                                     PART I

Item 1.   Business....................................................     3
Item 1A.  Risk Factors................................................     8
Item 2.   Property....................................................    14
Item 3.   Legal Proceedings...........................................    14
Item 4.   Submission of Matters to a Vote of Security Holders.........    15

                                     PART II

Item 5.   Market for Registrant's Common Equity, Related
          Stockholder Matters and Issuer Purchases of Equity
          Securities .................................................    15
Item 6.   Selected Consolidated Financial Data........................    16
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................    18
Item 7A.  Quantitative and Qualitative Disclosures About Market
          Risk........................................................    24
Item 8.   Consolidated Financial Statements...........................    25
Item 9.   Changes in and Disagreements With Accountants on Accounting
          and Financial Disclosure....................................    46
Item 9A.  Controls and Procedures ....................................    46
Item 9B.  Other Information ..........................................    46

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant..........    46
Item 11.  Executive Compensation......................................    46
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management and Related Stockholder Matters .................    46
Item 13.  Certain Relationships and Related Transactions..............    46
Item 14.  Principal Accountant Fees and Services .....................    46

                                    PART IV

Item 15.  Exhibits and Financial Statement Schedules .................    46








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<PAGE>






                                     PART I

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
With the exception of historical information,  this report on Form 10-K contains
forward-looking  statements  as defined  in the  Private  Securities  Litigation
Reform  Act of 1995  and  identified  by such  words  as  "will  be,"  "intend,"
"continue," "believe," "may," "expect," "hope," "anticipate," "goal," "forecast"
or other comparable terms. Our actual financial condition, results of operations
or business may vary materially from those contemplated by such  forward-looking
statements  and  involve  various  risks and  uncertainties,  including  but not
limited to those discussed in Item 1A, "Risk  Factors."  Investors are cautioned
not to place undue reliance on any forward-looking statements.

WEBSITE ACCESS TO EXCHANGE ACTS REPORTS
Our internet website address is  www.tmng.com.  We make available free of charge
through  our  website  all of our  filings  with  the  Securities  and  Exchange
Commission (SEC),  including our annual reports on Form 10-K,  quarterly reports
on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed
or furnished  pursuant to Section  13(a) or 15(d) of the Exchange Act as soon as
reasonably  practicable  after we  electronically  file such  material  with, or
furnish it to the SEC. The charters of our audit,  nominating  and  compensation
committees  and our Code of Business  Conduct are also  available on our website
and in print to any shareholder who requests them.

ITEM 1. BUSINESS

When used in this report,  the terms  "TMNG," "we," "us," "our" or the "Company"
refer to The Management Network Group, Inc. and its subsidiaries.

GENERAL

TMNG, a Delaware corporation,  founded in 1990, is a leader in consulting to the
communications  industry.  We have built a fully  integrated suite of consulting
offerings including strategy, management, marketing, operational, and technology
consulting services (see "Services" in Item 1). Our clientele includes a variety
of  businesses  whose  products,  services  and  interests  are  focused  on the
evolution of the  communications  industry,  including  wireless and traditional
wireline  communications  service  providers,  as well as technology  companies,
media and entertainment  companies,  and financial services firms that invest in
the communications  industry.  Our clients are located principally in the United
States,  however,  the Company also provides services to customers in Europe and
other  foreign  countries.  We believe we are unique in our ability to provide a
comprehensive  business  solution  to  the  communications  industry,  including
strategy  consulting  and  business  planning,  product/service  definition  and
launch,  customer  acquisition  and retention,  business  model  transformation,
technical  support and process  modeling for business  support systems (BSS) and
operations support systems (OSS). We have consulting  experience with almost all
major  aspects of managing a global  communications  company.  In  addition,  we
provide marketing  consulting  services to clients outside of the communications
industry, primarily in the Eastern region of the United States (Mid-Atlantic).

We  capitalize  on our industry  expertise by  developing  and enhancing new and
existing proprietary  toolsets that enable us to provide strategic,  management,
marketing,  operational, and technology support to our clients. Our toolsets are
consulting  guidelines,  processes  and  benchmarks  created  and updated by our
consultants  based on their experience over many consulting  engagements.  These
toolsets assist clients to improve  productivity,  gain  competitive  advantage,
reduce time to market and market entry risk, and increase  revenues and profits.
Our services are provided by teams comprised of senior  professionals  recruited
from prestigious  university campuses  complemented by teams of consultants from
the communications industry averaging 15 years of experience.

We have provided a unique  technology  agnostic and vendor  neutral  position to
make  unbiased  evaluations  and  recommendations  that are based on a  thorough
knowledge of each solution and each client's situation.  Therefore,  we are able
to  capitalize  on  extensive   experience   across   complex   multi-technology
communications  systems  environments  to provide  what we believe  are the most
sound and practical recommendations to our clients.

Over the last  six  years,  the  Company  has  transformed  from a  provider  of
primarily  management  and  operational  consulting  services to a provider of a
fully  integrated  suite of offerings to the  communications  marketplace.  This
transformation  has been  accomplished  through  increasing  the  breadth of our
employee work base, by hiring  consultants of increasingly  diverse  backgrounds
with various technical competencies, and implementing an acquisition strategy to
acquire  consulting  companies  whose offerings  complemented,  and expanded the
offerings we historically  provided.  We believe these actions have expanded key
client  relationships,  have uniquely positioned us in the market to effectively
serve  today's  needs of  large  global  communication  service  providers,  and
provided an expansion of our key direct distribution channel elements.

Recently, with the market dynamics changing (see "Market Overview" in Item 1) we
have been focusing on the opportunity to expand our offerings  through  indirect
channel  partners.  We believe  partnering  will better enable us to serve large
clients in what has become a shrinking and consolidating marketplace. We provide
our partners  with  contacts,  strategic  business  analysis,  business  process
outsourcing  (BPO)  solutions,  and depth of knowledge and experience in serving
the  industry.  The  partnerships  bring us  technology  solutions  and  systems
integration  capabilities  which  enable our  partners  and us to  provide  more
comprehensive  client offerings and solutions to effectively  compete with other
global consultancies.


                                       3
<PAGE>

During fiscal year 2005, we made strategic  investments  designed to position us
in  three  key  ways--growing  our core  management  consulting  offerings  with
emphasis in Internet Protocol (IP) and wireless  solutions;  maintaining a solid
base of carrier  relations  and  expanding  into the cable,  media,  and content
arenas;  and launching  managed  services with partners that  facilitate  Mobile
Virtual Network Operators (MVNO), IP transformation or convergence of offerings.

During fiscal year 2005, we launched our own  non-commercial  MVNO, TMNG Mobile,
the first such  service  launch by a  professional  services  company.  This has
positioned us to demonstrate to potential market entrants, that we can, with our
partners, deliver an end-to-end solution. Through our strategy business group we
are  expanding  engagements  with high profile  clients,  and  providing  market
assessments and business case development services.  For those MVNOs electing to
move forward, we have developed  differentiated  consulting capabilities to help
the MVNO build its  back-office  facilities or to leverage,  via TMNG Global and
partners, a Mobile Virtual Network Enablement (MVNE) solution.

Another  key  achievement  during  fiscal year 2005 was the  development  of our
managed  services  capability to support IP  transformation.  This capability is
designed to support enterprises across multiple industries as they migrate their
legacy communication network architectures to IP platforms. TMNG believes it has
unique expertise, in particular, in helping enterprises understand,  protect and
migrate  valuable  customer data and processes to new technology  platforms.  To
further the visibility of our services,  we signed in 2005 a five-year exclusive
economic  relationship with S3 Matching Technologies Inc. (S3), through which we
have jointly designed  solutions for IP network migration for both communication
service providers and global  outsourcing  firms. These solutions marry industry
know-how with proven  technology and are capable of doing so under an outsourced
framework.  We  have  already  developed  and  validated  our  proprietary  data
management  optimization (DMO) solution. DMO addresses one of the critical first
steps in the  migration  from  legacy to IP  environments,  as it  provides  the
intelligence  surrounding databases of network elements and enables accurate and
efficient migration to IP.

Finally,  in 2005 we began to design a  management  and  operational  consulting
offering in support of media and communications  convergence.  We are working in
partnership with network service platform provider, Personeta Inc., to develop a
compelling offering for small-to-mid-sized carriers. These are carriers who need
to support  convergence of offerings to enterprise  clients,  utilizing existing
legacy and IP, both wire line and wireless networks,  in a cost-effective manner
as an alternative to massive  capital-intensive  network investment.  This is an
initiative  that we and our  partner  began  implementing  in late 2005 and will
continue to be a key area of focus during fiscal year 2006.

As these and other  industry  trends  develop,  TMNG expects to utilize its long
history  of  engagement  experience  with  clients  to  continue  modifying  its
toolsets, develop new methodologies, and expand selectively its base of employee
consultants to support and extend its thought leadership and capabilities in the
communications industry.

MARKET OVERVIEW

TMNG serves a global  communications  marketplace that is just now emerging from
an  approximately  four-year  period  of  retrenchment  and  restructuring.  The
macroeconomic  forces that drove this environment  destabilized the industry and
depressed the market for outside  consulting  services,  including  ours.  These
circumstances  resulted  in a continued  substantial  decline in our revenue and
profits during fiscal years 2001,  2002 and 2003.  That trend leveled off during
fiscal  year 2004 and  improved  during  fiscal  year  2005 (see Item 1A,  "Risk
Factors" and Item 7, "Management's Discussion and Analysis").

Today, the global communications  industry is in the midst of what we believe to
be  revolutionary   change.  The  complements  of  regulatory   decisions,   new
technologies and industry  consolidation  have begun to stimulate new investment
in the sector. What we believe the future of the global communications  industry
will look like is  beginning to take shape.  A  convergence  of voice,  data and
video or content based  communications  is occurring.  This is bringing both new
competitors  to the market,  such as Yahoo!  and Google,  and  consolidation  of
existing industry competitors.  In addition, cable communications companies that
historically offered video services are now positioning  themselves as providers
of voice and other data and content services.

Wireline,   wireless   and   cable   companies   alike   have   their   eye   on
convergence--where   any  type  of  content  or  application  can  be  delivered
seamlessly across fixed or mobile networks.  For traditional  telecom companies,
convergence will ultimately come in the form of IP Multimedia  Subsystems (IMS).
IMS is  expected  to have  profound  influence  on the  communications  industry
through the emergence of new business  models.  IMS will allow network owners to
derive value from their networks while simultaneously  opening their networks to
third parties to develop and offer their own  customized  and enhanced  services
and  applications.  IMS and  convergence are costly and  complicated;  while the
evolution is underway it will not occur without challenges.

The convergence of content providers and wireless  distribution  channels (i.e.,
carriers)  has also opened new  segments  of the market  through the MVNO model.
MVNOs  are  mobile  operators  that do not own their own  wireless  spectrum  or
network infrastructure.  Instead, MVNOs contract with existing wireless carriers
to purchase  wholesale  access to wireless  networks.  We believe the MVNO model
will move the market for wireless  services from a  voice-focused  market to one
focused   on   value-added   non-voice   services   extending   into  media  and
entertainment.  Players like ESPN and Disney aim to transform  the way consumers
view their  wireless  services.  We expect this  transformation  of the wireless
market to occur  rapidly  and present  numerous  challenges  to the  traditional
carriers and MVNOs, alike.

We expect these profound  changes to increase  demand for  consulting  services,
with  increased  focus on  convergence  and  wireless  and IP  based  offerings,
outsourced  BPO  service  opportunities,  and the need for  existing  management
consultancies  to  provide  solutions  to  these  new  communications   industry
challenges.  As discussed in Item 1,  "Business - General," we have  invested to
enable us to provide such services.

It has been our experience that because the expertise  needed by  communications
companies  to  address  the  market's  needs is  typically  outside


                                       4
<PAGE>

their core competencies,  they must ultimately either recruit and employ experts
or  retain   outside   specialists.   Additionally,   the   convergence  of  the
communications,   media  and  technology   industries  has  brought  forth  many
non-communications  companies  who we believe do not possess the  experience  or
skill sets needed to execute new business  plans. We believe due to the range of
expertise  required  and the  time  associated  with  hiring  and  training  new
personnel,  bringing expertise  in-house is often not a viable option.  Although
demand  for  consulting  services  has been down in  recent  years,  we  believe
customers will need to contract with consultative firms or outsource some of the
expertise   required  to  adapt  to  new  environments  and  capitalize  on  new
technologies  now  emerging.  When  retaining  outside  specialists,  we believe
communications  companies need experts that fully understand the  communications
industry and can provide  timely and  unbiased  advice and  recommendations.  We
intend to continue responding to that anticipated need.

BUSINESS STRATEGY

Our objective is to establish  ourselves as the consulting  company of choice to
the converging communications,  media and entertainment industry, which includes
the service  providers and technology  companies that serve the industry,  media
and entertainment  companies,  and the financial services and investment banking
firms that  invest in the  sector.  The  following  are key  strategies  we have
adopted to pursue this objective.

- Develop and evolve existing offerings/solutions and thought leadership

We plan to  continue  expanding  our  end-to-end  solutions  offerings,  both by
organic  expansion  and/or  through   acquisitions.   Expanding  our  consulting
solutions  involves  bundling or buying the  capabilities  that  support  change
elements  in  the  adoption  of  IP  and  wireless  technology  and  support  of
convergence of communications with media and content, with emphasis on wireless.
We plan to  continue  extending  our  product  offerings  to the  communications
industry.  We believe  wireline and  wireless  providers  will be  strategically
focused on the following key initiatives,  with priority  depending upon present
position and state of the company:  bundling or convergence  of services  (i.e.,
wireline,  wireless,  high-speed data and video);  continued  consolidation  and
aggressive  reduction of costs;  reassessment  of core  competencies in order to
leverage strengths and exit weak areas; and migration to new  technologies--next
generation  wireless and IP. Our  solutions  will assist  clients in  redefining
competitive  position,  launching  new  products  and  services  and  generating
revenues through  integrated  offerings.  Such offerings will also be focused on
increasing clients' efficiencies in these transformations. We will also evaluate
expanding our offerings to include managed services,  with partners  surrounding
these initiatives.

- Continue to build the TMNG brand

We  plan  to  continue  building  and  communicating  the  TMNG  brand,  further
positioning ourselves as the consultancy of choice for the global communications
industry.  In late 2005,  TMNG was  rebranded to TMNG Global,  with our strategy
group rebranded to Cambridge  Strategic  Management Group (CSMG).  These changes
were made to better  represent the end-to-end  capabilities we offer through our
strategic consulting, management consulting and managed services practices. When
acquired,  the  CSMG  name  was a  powerful  brand.  We  made  the  decision  to
reintroduce  this brand to capitalize  on that value and provide the  separation
between our strategy and management consulting  practices,  providing a level of
independence and neutrality  desired by clients.  Direct  marketing  efforts and
other marketing  initiatives are underway to continue building awareness of TMNG
and  communicating  our key  strengths,  including  our  uniquely  high level of
experienced  consultants,  focus  on  the  global  telecommunications  industry,
integrated  end-to-end  solution and  commitment to bringing  clients a positive
return on their investment.

- Focused and effective retention and recruitment

We plan to further  enhance our business  model to accommodate  the  anticipated
types of  consulting  services  as a result of  revolutionary  change  occurring
within the  communications  sector.  One key  element of the  business  model we
believe  will be required  is the  attraction  and  retention  of high  quality,
experienced   consultants.   In  what  we  believe  is  a  rebounding   economic
environment,  our two primary  challenges in the  recruitment  of new consulting
personnel  are the  ability to recruit  talented  personnel  with the skill sets
necessary to capitalize on an industry undergoing  revolutionary  change and the
ability  to  execute  such   recruitment   with  an   appropriate   compensation
arrangement.  The market for skilled  consultants has become more competitive in
the current industry environment.

We reinvigorate existing skill sets of our consultants with proprietary toolsets
that provide methodologies they use to augment their experience and help analyze
and solve  clients'  problems.  We  utilize  a  network  of eRooms to serve as a
knowledge base, enabling  consultant  collaboration on engagements and providing
support  information  and updates of TMNG current  toolsets and releases of next
generation  tools.  Finally,  we  continue  to manage  our  flexible  and unique
employee and  independent  subject  matter  expert  model to maximize  skill set
offerings, while minimizing the effect of unbillable consultant time.

- Enhancing our global presence

We plan to  further  enhance  our  presence  globally  to deliver  services  and
solution  capabilities to client companies located around the world.  Especially
in Western  Europe,  we believe the  competitive  market  expertise  of our U.S.
consultants can be a key factor for foreign companies facing the business issues
associated with deregulation and competition.


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<PAGE>


- Leveraging knowledge and skills through partner channels

We are also focusing on managed service  offerings and partnerships  with select
global  technology,  outsourcing and system integration firms as a complement to
our consultancy offerings. We believe this will be a fast growing market segment
which should allow us to leverage our  intellectual  capital  while teaming with
technology  partners  to bring  BPO and  managed  services  offerings  to select
clients.   We  believe  we  are  uniquely  positioned  to  capitalize  on  these
anticipated market opportunities,  particularly because of our vendor neutrality
and proprietary productivity toolsets.

SERVICES

We provide a full  range of  strategic,  marketing,  operations  and  technology
consulting services to the communications industry. Services provided include:

- Strategy and Business Case Development

We   provide   comprehensive    strategic   analysis   to   service   providers,
media/entertainment  companies,  equipment manufacturers and financial investors
in the communications  industry.  Our approach combines rigorous qualitative and
quantitative  analyses  with  a  detailed   understanding  of  industry  trends,
technologies,  and developments.  We provide clients with specific  solutions to
their key strategic  issues  relating to their existing  business as well as new
product  and  service   opportunities.   Our  services   include  business  case
development,  data and  content  strategies,  marketing  spending  optimization,
service and brand  diversification,  enterprise and small  business  strategies,
technology commercialization and operational strategies.

- Product Development and Management

We offer global  communications  service  providers  the benefit of our hands-on
experience  developing  and  launching  new  products  and  services for some of
today's  industry  leaders.  Our product  development  approach  includes market
assessments,   product/service  definition,  business  requirements  definition,
project management,  testing and release. We also help communications clients by
evaluating  the  profitability  of existing  product and  service  offerings  to
identify opportunities to consolidate, de-emphasize or decommission offerings to
improve clients' overall profitability.

- Customer Acquisition and Retention

We have  developed and  implemented  acquisition  and retention  strategies  for
clients in the communications industry. We have consultants skilled in the areas
of target market segmentation, campaign management and sales-process management.
Our strategies  take into account the needs and preferences of the target market
and include a mix of marketing  communications,  partner programs,  e-marketing,
direct sales, telemarketing, direct response and loyalty and retention programs.

- Revenue and Cost Management

We are dedicated to helping clients uncover and recover missed  opportunities at
every stage along the revenue  life cycle and reduce the costs  associated  with
managing business functions. Our approach to revenue and cost management centers
around   operational    assessment,    process    improvement,    organizational
restructuring,   and  continuous  improvement.  Our  consultants  utilize  their
industry  expertise and our proprietary TMNG QBC(R) (Quality Business  Controls)
toolset to deliver quantifiable benefits to clients.

- Business and Operations Process Redesign and Reengineering

We  provide  clients  with  efficient,   integrated   business  and  operational
processes,  supporting technology systems and web-centric  interfaces across all
OSS/BSS applications.  We take clients from the point of customer acquisition to
provisioning all the way through to billing, collections and accounts receivable
management  to cash and profits in the bank.  We have  modified our  traditional
toolsets,  recruited consultants with relevant expertise and initiated marketing
efforts  in  the   burgeoning   areas  of  the   wireless   enterprise   and  IP
transformation.  We  believe  that as these two market  phenomena  evolve we are
well-positioned  to bring business and technical  solutions to existing  clients
and prospective clients alike.

- Corporate Investment Services

We provide a wide range of services  to  investment  banking and private  equity
firms in  connection  with  investments  and  mergers  and  acquisitions  in the
communications  industry.  Services  include  evaluation of management teams and
business  plans,  identification  of strengths and weakness of the company,  and
analyses of the company's  financial models,  systems,  products and operational
and  business  processes.  Post-investment  support  is  also  provided  to help
customers  in the  optimization  of their  investment  through  our  Operational
Performance   Appraisal  (OPA(TM))  tool.  OPA(TM)  features  an  assessment  of
communications   companies'  revenue  assurance,   network  inventory,   network
operations,  order management and  provisioning,  disaster recovery planning and
e-commerce operations and products. The OPA(TM) seeks to help companies optimize
asset utilization,  including network assets and inventory. In addition, OPA(TM)
seeks to maximize  revenue and minimize  associated  costs and  determine if the
provider's customers are being served effectively.


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<PAGE>

- TMNG Resources

TMNG Resources, a business unit of TMNG Marketing,  focuses on providing subject
matter experts  utilizing a staff  augmentation  model. As the telecom  industry
starts to rebound,  we believe  service  providers may, at least  initially,  be
hesitant to make  permanent  hiring  decisions  and will seek  temporary  expert
staff.  We believe TMNG Resources is uniquely  positioned to fill the recruiting
needs of our clients.

COMPETITION

The market for  communications  consulting  services  is highly  fragmented  and
changing  rapidly.   We  face  competition  from  major  business  and  strategy
consulting firms, large systems  integration and major global outsourcing firms,
offshore development firms from the Asian markets,  equipment and software firms
that have added service offerings, and customers' internal resources.  Recently,
there has been a  significant  increase  in demand for firms that can bundle BPO
with  systems  and  technical  integration.  Many of our  competitors  are large
organizations  that  provide a broad  range of  services  to  companies  in many
industries,  including the  communications  industry.  Many of these competitors
have  significantly  greater  financial,  technical and marketing  resources and
greater name recognition than we do. We believe we have a competitive  advantage
due to our single focus on the  communications  industry,  and the comprehensive
offerings  we  provide  to our  customers.  We also  believe  the  complementary
experience  and  expertise  of  our   professionals   represents  a  competitive
advantage.  With the  communications  industry  experiencing  consolidation  and
convergence with media and entertainment,  we believe our principal  competitive
factor is our continual focus on the converging  communications industry and the
ability to develop and deliver  solutions  that enhance client revenue and asset
utilization and provide return on investment. Our biggest competitor is normally
the customer's internal resources. As a result, the most significant competitive
advantage becomes long-lived  relationships with key client executives that have
developed over time from consistency in responsiveness  to their needs,  quality
and reliability of consultants and deliverables,  and an appropriate price/value
formula.

We have faced, and expect to continue to face,  additional  competition from new
entrants into the communications  consulting  markets.  We have also experienced
increased  price  competition,  particularly  from large Asian  firms  providing
technical  support and outsourcing and other large firms that have the financial
resources to aggressively price engagements that they have a particular interest
in obtaining.  Increased  competition  could result in further price reductions,
fewer  client  projects,  underutilization  of  consultants,  reduced  operating
margins, and loss of market share.

EMPLOYEES

Our  ability to recruit  and retain  experienced,  highly  qualified  and highly
motivated  personnel  has  contributed  greatly to our  performance  and will be
critical in the future.  We offer a flexible  recruiting model that enhances our
ability  to attract  consultants  and to  effectively  manage  utilization.  Our
consultants  may  work  as  full  time  employees  or as  contingent  employees.
Contingent employees receive company-paid medical insurance,  vacation and other
employee benefits, but instead of receiving a regular salary, they are only paid
for time spent  working  on  consulting  projects  for  customers  or working on
internal projects.  Generally,  we will offer contingent employment to personnel
who  are  frequently  utilized  on  consulting   projects,   and  have  a  skill
set/offering  that is in high  demand.  We also  have  relationships  with  many
independent contracting firms to assist in delivery of consulting solutions. Our
current base of independent firms has specialized expertise in discrete areas of
communications,  and we  typically  deploy  these  firms only when their  unique
expertise/offering is required.

During fiscal year 2005, we utilized approximately 289 consultants, representing
a combination of employee  consultants  and  independent  contracting  firms. Of
these,  74 were  employee  consultants  and  approximately  215 were  working on
engagements  for us  primarily  through  independent  subcontracting  firms.  In
addition to the consultants, we have an administrative staff of approximately 26
employees in the  accounting  and finance,  marketing,  recruiting,  information
technology, human resources and administrative areas.

BUSINESS SEGMENTS

Based on an  analysis of the  criteria  in  Statement  of  Financial  Accounting
Standards (SFAS) No. 131 "Disclosure about Segments of an Enterprise and Related
Information,"  we have four  operating  segments,  which are  aggregated  in one
reportable segment,  the Management  Consulting Services segment. The Management
Consulting  Services segment includes business strategy and planning,  marketing
and customer relationship management,  billing system support,  operating system
support,   revenue  assurance,   corporate  investment  services,   and  network
management.

MAJOR CUSTOMERS

Since our inception,  we have provided  services to more than 1,000 domestic and
international  customers,  primarily  communication  service providers and large
technology  and  applications  firms  serving the  communications  industry  and
private  equity firms that invest in the sector.  Most recently we have added to
our base of customers with media and  entertainment  clients looking to leverage
communications infrastructure to deliver offerings to the market. We depend on a
small number of key customers for a significant portion of revenues.  For fiscal
year 2005, revenues from two significant  customers each accounted for more than
10% of our revenues, and in the aggregate accounted for 41.4% of revenues.  Also
during fiscal year 2005, our top ten customers accounted for approximately 70.9%
of total revenue.  We generally provide discounted pricing for large projects on
fixed commitments with long-term customers. Because our clients typically engage
services on a project basis,  their needs for services vary  substantially  from
period to period.  We continue to  concentrate  on large  wireline  and wireless
global communications  companies headquartered  principally in North America and
Western Europe,  emerging MVNOs,  large  outsourcing  firms as partners and most
recently media and entertainment clients. We seek to offer broad and diversified
services to these customers.  We anticipate


                                       7
<PAGE>

that  operating  results  will  continue  to  depend  on  volume  services  to a
relatively  small  number of  communication  service  providers  and  technology
vendors. We anticipate  increased market demand for bundled business process and
technical  outsourcing  which we and our partners have formalized  agreements to
provide.

INTELLECTUAL PROPERTY

Our success is dependent, in part, upon proprietary processes and methodologies.
We rely upon a  combination  of copyright,  trade  secret,  and trademark law to
protect our intellectual property. Additionally,  employees and consultants sign
non-disclosure agreements to assist us in protecting our intellectual property.

We have not applied for patent protection for the proprietary methodologies used
by  our  consultants.  We  do  not  currently  anticipate  applying  for  patent
protection for these toolsets and methodologies.

SEASONALITY

In the past, we have experienced seasonal  fluctuations in revenue in the fourth
quarter  due  primarily  to the fewer  number of  business  days  because of the
holiday  periods  occurring  in that  quarter.  We may  continue  to  experience
fluctuations in revenue in the fourth quarter and may experience fluctuations in
summer months and other vacation periods.

FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS

For information about foreign and domestic operations, see Item 8, "Consolidated
Financial   Statements,"   Note  4  "Major   Customers  and  Significant   Group
Concentrations of Credit Risk."

ITEM 1A.  RISK FACTORS

Our business, operating results, financial condition and stock price are subject
to numerous risks,  uncertainties,  and contingencies,  many of which are beyond
our control.  The following important factors,  among others, could cause actual
results  to  differ  materially  from  those   contemplated  in  forward-looking
statements  made in this annual  report on Form 10-K or  presented  elsewhere by
management from time to time. Investors are urged to consider these risk factors
when evaluating an investment in TMNG.

RISK THAT MAY IMPACT OUR FINANCIAL PERFORMANCE

Factors  outside of our control  could cause  companies to delay new product and
new business  initiatives and to seek to control expenses by reducing the use of
outside   consultants.   The   communications   industry   is  in  a  period  of
consolidation,   which  could   reduce  our  client   base,   eliminate   future
opportunities  or create  conflicts  of  interest  among  clients.  As a result,
current  industry  conditions  may  continue  to harm  our  business,  financial
condition, results of operations, liquidity and ability to make acquisitions and
raise  investment   capital.   Future  client  financial   difficulties   and/or
bankruptcies  could require us to write-off  receivables  that are in excess bad
debt  reserves,  which would harm our  results of  operations  in future  fiscal
periods.

OUR  BUSINESS  IS  COMPLETELY   DEPENDENT  ON   CONDITIONS  IN  THE   CONVERGING
COMMUNICATIONS, MEDIA AND ENTERTAINMENT INDUSTRY

We focus almost exclusively on customers in the converging communications, media
and  entertainment  industry  and  investment  banking and private  equity firms
investing in that industry. We experienced  significant growth in demand for our
services  throughout  the  1990s.  Between  2000 and  2004,  the  communications
industry  experienced a number of adverse  conditions,  including  bankruptcies,
layoffs,  consolidation  and contraction,  declining market values,  and in some
cases financial scandals.  These macro economic conditions substantially reduced
the demand for our  services  and caused our  revenues to decline,  resulting in
operating losses, negative cash flow and a decline in our stock price. If we are
not  able  to  capitalize  on  the   opportunity   created  by  the   converging
communications  industry, we may continue to incur operating losses and negative
cash flow, which may eventually adversely affect our liquidity.

WE ARE DEPENDENT ON A LIMITED  NUMBER OF LARGE  CUSTOMERS FOR A MAJOR PORTION OF
OUR  REVENUES,  AND THE  LOSS OF A MAJOR  CUSTOMER  COULD  SUBSTANTIALLY  REDUCE
REVENUES AND HARM OUR BUSINESS AND LIQUIDITY

We derive a substantial portion of our revenues from a relatively limited number
of clients (see Item 1, "Business-Major Customers"). This results in part from a
conscious  strategy  to market  our  services  to the  largest  and most  stable
companies in the industry, but our concentration of revenues with a small number
of clients does expose us to risk. Our revenues and financial condition could be
impaired if a major client stopped using our services.  The services required by
any one client may be  affected by industry  consolidation  or adverse  industry
conditions,  technological  developments,  economic  slowdown  or  the  client's
internal  strategy  or  budget  constraints.  As a  result,  the  volume of work
performed for specific clients varies from period to period,  and a major client
in one period may not use our services in a subsequent period.


                                       8
<PAGE>


OUR REVENUES AND OPERATING RESULTS MAY FLUCTUATE  SIGNIFICANTLY FROM QUARTER-TO-
QUARTER,  AND FLUCTUATIONS IN OUR OPERATING  RESULTS COULD CAUSE OUR STOCK PRICE
TO DECLINE

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

- the beginning and ending of significant contracts during a quarter;

- the size and scope of assignments;

- the potential loss of key clients;

- the form of customer contracts changing primarily from time and materials to
  fixed price or contingent fee, based on project results;

- consultant turnover, utilization rates and billing rates;

- the loss of key consultants, which could cause clients to end their
  relationships with us;

- the ability of clients to terminate engagements without penalty;

- fluctuations in demand for our services resulting from budget cuts, project
  delays, industry consolidations or downturns or similar events;

- clients' decisions to divert resources to other projects, which may limit
  clients' resources that would otherwise be allocated to services we could
  provide;

- reductions in the prices of services offered by our competitors;

- developments in the communications market and economic conditions;

- seasonality during the summer, vacation and holiday periods;

- fluctuations in the value of foreign currencies versus the U.S. dollar; and

- global economic and political conditions and related risks, including acts of
  terrorism.

Because a  significant  portion of our  non-consultant  expenses are  relatively
fixed,  a  variation  in the number of client  assignments  or the timing of the
initiation  or the  completion  of  client  assignments  may  cause  significant
variations  in  operating  results from  quarter-to-quarter  and could result in
continuing  losses.  To the extent the addition of  consultant  employees is not
followed by corresponding  increases in revenues,  additional  expenses would be
incurred  that  would  not be  matched  by  corresponding  revenues.  Therefore,
profitability  would decline and we could potentially  experience further losses
and our stock price would likely decline.

THERE  CAN BE NO  ASSURANCE  OUR  INVESTMENT  IN NEW  OFFERINGS  WILL  YIELD THE
INTENDED RESULTS

As  discussed  in  Item  1 -  "Business-General"  and  Item  7  -  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Executive  Financial  Overview"  and  "Operating  Expenses," we have invested in
proprietary toolsets designed to enable us to capitalize on industry convergence
and the migration to wireless and IP platforms. We believe these investments had
a positive impact on our 2005 revenues and will  positively  affect our revenues
and  profitability  in 2006,  but  they  did  adversely  impact  our  short-term
profitability  in 2005. There can be no assurance these  investments,  or others
like them,  will continue to produce  increased  revenues or enable us to become
profitable and cash flow positive in 2006 or future years.

A SIGNIFICANT  PORTION OF OUR BUSINESS IS  REPRESENTED  BY FIXED FEE  CONTRACTS,
WHICH EXPOSE US TO ADDITIONAL RISKS

Fixed fee contracts  entail  subjective  judgments  and estimates  about revenue
recognition  and are  subject to  uncertainties  and  contingencies.  For a more
complete  discussion of our  accounting for revenue  recognition,  see "Critical
Accounting  Policies" included in Item 7, "Management's  Discussion and Analysis
of Financial Condition and Results of Operations." Fixed fee contracts expose us
to the  risk  that  our cost of  performing  the  contract  may be  higher  than
expected, reducing or eliminating our profit margin from the contract.

WE HAVE MADE SEVERAL  ACQUISITIONS AND MAY CONTINUE TO MAKE ACQUISITIONS,  WHICH
ENTAIL RISKS THAT COULD HARM OUR FINANCIAL PERFORMANCE OR STOCK PRICE

As  part of our  business  strategy,  we have  made  and  may  continue  to make
acquisitions.  Any future acquisition would be accompanied by the risks commonly
encountered in acquisitions. These risks include:


                                       9
<PAGE>

- the difficulty associated with assimilating the personnel and operations of
  acquired companies;

- the potential disruption of our existing business;

- further reductions in our cash reserves;

- adverse effects on our financial statements, including write-offs and
  assumption of liabilities of acquired businesses; and

- paying too much for an acquired company.

If  we  make  acquisitions  and  any  of  these  problems   materialize,   these
acquisitions could negatively affect our operations, profitability and financial
condition.

ANY FUTURE DECREASE IN REVENUES OF ACQUIRED  BUSINESSES MAY RESULT IN ADDITIONAL
ASSET IMPAIRMENTS AND ADVERSELY AFFECT OUR PROFITABLITY

We have made and may continue to make  acquisitions.  As a result,  goodwill and
intangible assets constitute a significant balance of the assets reported on our
balance  sheet.  We have, in the past,  been required to write down goodwill and
intangible assets on our financial  statements as a result of declining revenues
and  earnings of the  businesses  we acquire.  We may continue to be required to
take asset  impairment  charges in the future.  Our earnings  and  profitability
would be adversely affected by any further asset impairments.

WE HAVE REDUCED CONSULTANT HEADCOUNT WHICH COULD ADVERSELY AFFECT OUR ABILITY TO
OBTAIN AND PERFORM CONSULTING ENGAGEMENTS

Following the economic downturn of the first part of this decade, we undertook a
series of  cost-cutting  measures to better align our  operating  costs with the
reduced  demand  for  communications  consulting  services.  As  part  of  these
cost-cutting  measures, we have reduced our employee consultant headcount.  More
recently  we have  begun to expand  the  skill  sets of our  consultant  base by
replacing existing  consultants with professionals  better suited to support our
next  generation  offerings.  Because the  talents and skills of our  consulting
resources  are  limited  in  comparison  to  much  larger  firms,  we  may  lose
opportunities  to  obtain  future  consulting  engagements  or  have  difficulty
performing engagements we do obtain, any of which could harm our business.

THE  MARKET  IN WHICH WE  OPERATE  IS  INTENSELY  COMPETITIVE,  AND  ACTIONS  BY
COMPETITORS  COULD RENDER OUR SERVICES LESS  COMPETITIVE,  CAUSING  REVENUES AND
INCOME TO DECLINE

The market for  consulting  services to  communications  companies  is intensely
competitive,  highly fragmented and subject to rapid change. Competitors include
strategy and management consulting firms and major global outsourcing firms like
IBM,   Electronic  Data  Systems   Corporation   (EDS)  and  Computer   Sciences
Corporation,  which have become more significant competitors recently due to the
outsourcing  of  business  support  systems  and  operating  support  systems by
communications  companies.  We  are  also  subject  to  competition  from  large
technical firms from the Asian markets, like Infosys Technologies, Ltd. that can
provide significant cost advantages.  Some of these competitors have also formed
strategic  alliances with  communications  and technology  companies serving the
industry.  We also compete  with  internal  resources  of our clients.  Although
non-exhaustive, a partial list of our competitors includes:

- Accenture;

- Booz-Allen & Hamilton;

- Cap Gemini;

- DiamondCluster International, Inc.;

- IBM;

- EDS;

- Computer Sciences Corporation;

- Infosys Technologies, Ltd.; and

- McKinsey & Company.

Many information  technology-consulting firms also maintain significant practice
groups devoted to the  communications  industry.  Many of these companies have a
national and international  presence and may have greater personnel,  financial,
technical  and  marketing  resources  than we do. We may not be able to  compete
successfully with our existing competitors or with any new competitors.


                                       10
<PAGE>

We also believe our ability to compete depends on a number of factors outside of
our control, including:

- the prices at which others offer competitive services, including aggressive
  price competition and discounting on individual engagements which may become
  increasingly prevalent in the current industry environment;

- the ability and willingness of our competitors to finance customers' projects
  on favorable terms;

- the ability of our competitors to undertake more extensive marketing campaigns
  than we can;

- the extent, if any, to which our competitors develop proprietary tools that
  improve their ability to compete with us;

- the ability of our customers to perform the services themselves; and

- the extent of our competitors' responsiveness to customer needs.

We may not be able to compete  effectively on these or other factors.  If we are
unable to compete effectively,  our market position,  and therefore our revenues
and profitability, would decline.

WE MUST  CONTINUALLY  ENHANCE  OUR  SERVICES TO MEET THE  CHANGING  NEEDS OF THE
CONVERENCE OF COMMUNICATIONS  CUSTOMERS WITH MEDIA AND ENTERTAINMENT,  OR WE MAY
LOSE FUTURE BUSINESS TO OUR COMPETITORS

Our future success will depend upon our ability to enhance existing services and
to  introduce  new services to meet the  requirements  of customers in a rapidly
developing  and  evolving   market,   particularly  in  the  areas  of  wireless
communications and  next-generation  technologies  supporting the convergence of
communications,  media and content.  Present or future  services may not satisfy
the  needs of the  communications  market.  If we are  unable to  anticipate  or
respond  adequately  to customer  needs,  we may lose business and our financial
performance will suffer.

IF WE ARE NOT ABLE TO EFFECTIVELY  RECRUIT AND RETAIN  MANAGEMENT AND CONSULTING
PERSONNEL  THAT PROVIDE US WITH NEW TALENT SETS ENABLING THE  IMPLEMENTATION  OF
NEW STRATEGIC OFFERINGS IN A RAPIDLY CHANGING MARKET, OUR FINANCIAL  PERFORMANCE
MAY BE NEGATIVELY IMPACTED

Our ability to adapt to changing market conditions will depend on our ability to
recruit and retain talented personnel,  which cannot be assured. We may face two
critical challenges in the recruitment of new management personnel. The first is
the  ability  to  recruit  talented  management  personnel  with the skill  sets
necessary to capitalize on an industry undergoing  revolutionary change, and the
second  is  the  ability  to  execute  such   recruitment  with  an  appropriate
compensation  arrangement.  If we are unable to recruit and retain the people we
need to perform our consulting  engagements in a rapidly  changing  environment,
our business may suffer.

We must attract new consultants to implement our strategic  plans. The number of
potential  consultants  that meet our hiring criteria is relatively  small,  and
there is significant  competition for these consultants from direct  competitors
and others in the communications industry. Competition for these consultants may
result  in  significant  increases  in our  costs  to  attract  and  retain  the
consultants, which could reduce margins and profitability.  In addition, we will
need to attract consultants in international  locations,  principally Europe, to
support  our  international  strategic  plans.  We have  limited  experience  in
recruiting  internationally,  and may not be able  to do so.  Any  inability  to
recruit new consultants or retain existing  consultants could impair our ability
to service existing  engagements or undertake new engagements.  If we are unable
to attract and retain quality consultants,  our revenues and profitability would
decline.

OUR  ENGAGEMENTS  WITH CLIENTS MAY NOT BE PROFITABLE OR MAY BE TERMINATED BY OUR
CLIENTS ON SHORT NOTICE

Unexpected costs, delays or failure to achieve anticipated cost reductions could
make our contracts unprofitable. We have many types of contracts, including time
and materials  contracts,  fixed-price  contracts and  contingent fee contracts.
When making  proposals  for  engagements,  we estimate  the costs and timing for
completing the projects. These estimates reflect our best judgment regarding our
costs, as well as the efficiencies of our  methodologies and professionals as we
plan to deploy them on our projects.  Any increased or unexpected costs,  delays
or  failures to achieve  anticipated  cost  reductions  in  connection  with the
performance of these engagements, including delays caused by factors outside our
control, could make these contracts less profitable or unprofitable, which would
have an adverse effect on our profit margin.

Under  many  of our  contracts,  the  payment  of  some  or all of our  fees  is
conditioned upon our performance. We are increasingly moving away from contracts
that are priced solely on a time and materials  basis and toward  contracts that
also include  incentives  related to factors such as benefits  produced.  During
fiscal year 2005, we estimate that approximately 28.1% of our contracts had some
fixed-price, incentive-based or other pricing terms that conditioned some or all
of our fees on our ability to deliver these defined goals.  The trend to include
greater incentives in our contracts may increase the variability in revenues and
margins earned on such  contracts,  and may expose us to greater risk of loss on
the  contracts if we do not perform  successfully.  Additionally,  the estimates
required  for  revenue  recognition  on  these  contracts  expose  us to risk of
misstatement of financial results if our estimates prove to be inaccurate.


                                       11
<PAGE>

A majority of our  contracts  can be terminated by our clients with short notice
and  without  significant   penalty.  Our  clients  typically  retain  us  on  a
non-exclusive,  engagement-by-engagement  basis,  rather  than  under  exclusive
long-term contracts.  A majority of our consulting  engagements are less than 12
months in duration.  The advance notice of termination required for contracts of
shorter  duration and lower revenues is typically 30 days.  Longer-term,  larger
and more  complex  contracts  generally  require  a  longer  notice  period  for
termination  and may  include  an  early  termination  charge  to be paid to us.
Additionally,  large client projects involve multiple engagements or stages, and
there is a risk that a client may choose not to retain us for additional  stages
of a  project  or  that  a  client  will  cancel  or  delay  additional  planned
engagements.  These  terminations,  cancellations  or delays  could  result from
factors  unrelated  to our work  product or the  project,  such as  business  or
financial conditions of the client,  changes in client strategies or the economy
in general.  When contracts are terminated,  we lose the associated revenues and
we  may  not  be  able  to  eliminate  associated  costs  in  a  timely  manner.
Consequently,  our  profit  margins  in  subsequent  periods  may be lower  than
expected.


OUR  PROFITABLITY  WILL  SUFFER IF WE ARE NOT ABLE TO  MAINTAIN  OUR PRICING AND
UTILIZATION RATES AND CONTROL COSTS

Our  profitability  is largely a function of the rates we are able to obtain for
our services and the utilization rate, or chargeability,  of our  professionals.
If we do not maintain  pricing for our services and an  appropriate  utilization
rate  for  our  professionals   without   corresponding  cost  reductions,   our
profitability  will  suffer.  We are under  increasing  price  competition  from
competitors, which could adversely affect our profitability.

IF  INTERNATIONAL  BUSINESS VOLUMES  INCREASE,  WE MAY BE EXPOSED TO A NUMBER OF
BUSINESS  AND  ECONOMIC  RISKS,  WHICH COULD  RESULT IN  INCREASED  EXPENSES AND
DECLINING PROFITABILITY

If our  international  business  volumes  increase,  we will  face a  number  of
business and economic risks, including:

- unfavorable foreign currency exchange rates or fluctuations;

- difficulties in staffing and managing foreign operations;

- seasonal reductions in business activity;

- competition from local and foreign-based consulting companies;

- ability to protect our intellectual property;

- unexpected changes in trading policies and regulatory requirements;

- legal uncertainties inherent in transnational operations such as export and
  import regulations, tariffs and other trade barriers;

- the impact of foreign laws, regulations and trade customs;

- U.S. and foreign taxation issues;

- operational issues such as longer customer payment cycles and greater
  difficulties in collecting accounts receivable;

- language and cultural differences;

- changes in foreign communications markets;

- increased cost of marketing and servicing international clients;

- potential limits on our ability to repatriate foreign profits;

- general political and economic trends, including the potential impact of
  terrorist attack or international hostilities; and

- expropriations of assets, including bank accounts, intellectual property and
  physical assets by foreign governments.

In addition,  we may not be able to  successfully  execute our business  plan in
foreign markets. If we are unable to achieve anticipated levels of revenues from
international operations, our overall revenues and profitability may decline.

WE ARE  DEPENDENT ON A LIMITED  NUMBER OF KEY  PERSONNEL,  AND THE LOSS OF THESE
INDIVIDUALS COULD HARM OUR COMPETITIVE POSITION AND FINANCIAL PERFORMANCE

Our business  consists  primarily of the delivery of professional  services and,
accordingly,   our  success  depends  upon  the  efforts,  abilities,   business
generation  capabilities and project execution of our executive officers and key
consultants.  Our success is also  dependent upon the


                                       12
<PAGE>

managerial,  operational,  marketing, and administrative skills of our executive
officers,  particularly  Richard Nespola,  TMNG's Chairman,  President and Chief
Executive Officer.  The loss of any executive officer or key consultant or group
of  consultants,  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 revenues, which could harm our financial performance.

IF WE FAIL TO PERFORM EFFECTIVELY ON PROJECT  ENGAGEMENTS,  OUR REPUTATION,  AND
THEREFORE OUR COMPETITIVE POSITION AND FINANCIAL PERFORMANCE, COULD BE HARMED

Many of our engagements come from existing clients or from referrals by existing
clients.  Therefore,  our growth is  dependent on our  reputation  and on client
satisfaction.  The failure to perform services that meet a client's expectations
may damage our reputation and harm our ability to attract new business.

IF WE FAIL TO DEVELOP AND MAINTAIN  LONG-TERM  RELATIONSHIPS WITH OUR CUSTOMERS,
OUR SUCCESS WOULD BE JEOPARDIZED

A substantial majority of our business is derived from repeat customers.  Future
success  depends to a  significant  extent on our  ability to develop  long-term
relationships with successful  communications providers who will give us new and
repeat business. Inability to build long-term customer relations would result in
declines in our revenues and  profitability.  This may  increasingly be the case
with any further consolidation or contraction in the industry.

WE CLASSIFY A LARGE NUMBER OF SUBCONTRACTORS AS INDEPENDENT  CONTRACTORS FOR TAX
AND EMPLOYMENT LAW PURPOSES. IF THESE FIRMS OR PERSONNEL WERE TO BE RECLASSIFIED
AS EMPLOYEES,  WE COULD BE SUBJECT TO BACK TAXES, INTEREST,  PENALTIES AND OTHER
LEGAL CLAIMS

We provide a significant  percentage of consulting  services through independent
contractors  and,  therefore,  do not pay Federal or state  employment  taxes or
withhold  income  taxes for such  persons.  We  generally  do not include  these
independent  contractors in our benefit plans.  In the future,  the IRS or state
authorities may challenge the status of consultants as independent  contractors.
Independent  contractors may also initiate proceedings to seek  reclassification
as  employees  under  state law.  In either  case,  if persons  engaged by us as
independent  contractors  are determined to be employees by the IRS or any state
taxation  department,  we would be required to pay applicable  federal and state
employment taxes and withhold income taxes with respect to such contractors, and
could become liable for amounts required to be paid or withheld in prior periods
along with interest and penalties.  In addition, we could be required to include
such contractors in benefit plans retroactively and going forward.

WE COULD BE SUBJECT TO CLAIMS FOR PROFESSIONAL  LIABILITY,  WHICH COULD HARM OUR
FINANCIAL PERFORMANCE

As a provider of professional  services, we face the risk of liability claims. A
liability  claim  brought  against  us could harm our  business.  We may also be
subject to claims by clients for the actions of our  consultants  and  employees
arising from damages to clients' business or otherwise,  or clients may demand a
reduction in fees because of dissatisfaction with our services.

OUR INABILITY TO PROTECT OUR  INTELLECTUAL  PROPERTY COULD HARM OUR  COMPETITIVE
POSITION AND FINANCIAL PERFORMANCE

Despite  our efforts to protect  proprietary  rights  from  unauthorized  use or
disclosure,  parties, including former employees or consultants,  may attempt to
disclose,  obtain or use our solutions or technologies.  The steps we have taken
may not prevent  misappropriation of our intellectual property,  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
our proprietary information could make our solutions and methodologies available
to others and harm our competitive position.

RISK THAT COULD AFFECT OUR STOCK PRICE

THE MARKET PRICE OF OUR COMMON STOCK IS VOLATILE,  AND INVESTORS MAY  EXPERIENCE
INVESTMENT LOSSES

The market price of our common stock is volatile and has declined  significantly
from its initial  public  offering  price.  Our stock  price  could  continue to
decline or fluctuate in response to a variety of factors, including:

- variations in quarterly operating results;

- announcements of technological innovations that render talent outdated;

- future trends in the communications industry;

- acquisitions or strategic alliances by us or others in the industry;


                                       13
<PAGE>

- failure to achieve financial analysts' or other estimates of results of
  operations for any fiscal period;

- the relatively small public float and relatively low volume at which our stock
  trades;

- changes in estimates of performance or recommendations by financial analysts;

- any further reduction in our revenues or continued losses during 2006 and
  future years; and

- continuing adverse market conditions in the communications industry and the
  economy as a whole.

In addition,  the stock market itself  experiences  significant price and volume
fluctuations.  These fluctuations  particularly  affect the market prices of the
securities of many technology and communications  companies.  These broad market
fluctuations could continue to harm the market price of our common stock. If the
market price of our common stock falls below $1.00 per share for a period of 180
consecutive  calendar  days,  we may risk being  delisted  from the NASDAQ Stock
Market on which our stock  trades.  The  recent  decline in our  overall  market
capitalization  may also  discourage  analysts and investors  from following us.
Additionally, due to the limited public float of our common stock, investors may
find their investment illiquid, and suffer losses.

PRINCIPAL  STOCKHOLDERS,  EXECUTIVE  OFFICERS  AND  DIRECTORS  HAVE  SUBSTANTIAL
CONTROL OVER OUR VOTING STOCK

Executive officers,  directors and stockholders owning more than five percent of
our  outstanding  common  stock (and  their  affiliates)  own a majority  of our
outstanding  common stock. If all such persons acted  together,  they would have
the ability to control all matters  submitted to the  stockholders  for approval
(including  the election and removal of directors and any merger,  consolidation
or sale of all or substantially all of our assets) and to control our management
and affairs.  Concentration of ownership of our common stock may have the effect
of  delaying,  deferring or  preventing a change in control,  impeding a merger,
consolidation,   takeover  or  other  business   combination   involving  us  or
discouraging  a  potential  acquirer  from  making a tender  offer or  otherwise
attempting  to obtain  control of us, any of which  could be  beneficial  to our
shareholders.

WE MAY SEEK TO RAISE ADDITIONAL FUNDS,  WHICH MAY BE DILUTIVE TO STOCKHOLDERS OR
IMPOSE OPERATIONAL RESTRICTIONS

Although  we have not been  required to obtain new debt or equity  financing  to
support our operations or complete acquisitions, we may decide or be required to
raise new  capital for these or other  purposes  in the future.  There can be no
assurances  any such capital would be available to us on acceptable  terms.  Any
additional equity financing,  if available,  may be dilutive to our stockholders
and debt financing, if available,  may involve restrictive covenants,  which may
limit our operating  flexibility  with respect to certain business  matters.  If
additional  funds are raised  through  the  issuance of equity  securities,  our
stockholders  may experience  dilution in the voting power or net book value per
share of our  stock,  and any  additional  equity  securities  may have  rights,
preferences and privileges senior to those of the holders of our common stock.

ANTI-TAKEOVER  PROVISIONS  AND OUR RIGHT TO ISSUE  PREFERRED  STOCK COULD MAKE A
THIRD PARTY ACQUISITION DIFFICULT

Our  certificate  of  incorporation,  bylaws,  and  anti-takeover  provisions of
Delaware law could make it more  difficult for a third party to acquire  control
of our Company.  In addition,  our bylaws provide for a classified  board,  with
board members serving  staggered  three-year  terms. The Delaware  anti-takeover
provisions  and  the  existence  of a  classified  board,  in  addition  to  our
relatively small public float, could make it more difficult for a third party to
acquire  us,  even  if  such  transaction  were  in  the  best  interest  of our
shareholders.

ITEM 2. PROPERTY

Our principal  executive  offices are located in a 4,705 square foot facility in
Overland  Park,  Kansas.  This  facility  houses our  executive,  corporate  and
administrative  offices and is under a lease,  which  expires in August 2010. In
addition to the executive offices, we also lease a 7,575 square foot facility in
McLean,  Virginia,  which lease  expires in June 2009,  and a 10,344 square foot
facility in Boston,  Massachusetts,  which lease expires in 2011. The Boston and
McLean locations are primarily utilized by management and consulting personnel.

In the fourth  quarter of fiscal  year 2004,  the Company  made the  decision to
consolidate office space. In connection with this decision, a sublease agreement
for 11,366 square feet of unutilized  office space in Boston,  Massachusetts was
entered into with a third party  through the end of the  original  lease term in
2011.

ITEM 3. LEGAL PROCEEDINGS

We are  involved in legal  proceedings  and  litigation  arising in the ordinary
course of business.  In addition,  customer bankruptcies could result in a claim
on collected balances for professional services near the bankruptcy filing date.
While resolution of legal proceedings,  claims and litigation may have an impact
on our financial  results for the period in which they are resolved,  we believe
that the ultimate  disposition of these matters will not have a material adverse
effect upon our  consolidated  results of  operations,  cash flows or  financial
position.


                                       14
<PAGE>

In June 1998, the bankruptcy trustee of a former client,  Communications Network
Corporation,  sued TMNG for a total of $320,000 in the U.S.  Bankruptcy Court in
New York seeking recovery of $160,000 alleging an improper payment of consulting
fees paid by the former  client  during the  period  from July 1, 1996,  when an
involuntary  bankruptcy  proceeding  was  initiated  against the former  client,
through August 6, 1996,  when the former client agreed to an order for relief in
the bankruptcy  proceeding,  and $160,000 in consulting  fees paid by the former
client after August 6, 1996.  The  bankruptcy  trustee also sued us for at least
$1.85 million for breach of contract, breach of fiduciary duties and negligence.
In March 2006, we reached a settlement  agreement  with the  bankruptcy  trustee
whereby we agreed to pay the trustee  $255,000 in  exchange  for being  released
from all potential liability under the suits discussed above.

Additionally,  as of  December  31, 2005 the  Company  has  outstanding  demands
aggregating  approximately  $1.0 million by the  bankruptcy  trustees of several
former  clients  in  connection  with  collected  balances  near the  customers'
respective  bankruptcy filing dates.  Although we do not believe we received any
preference  payments from these former clients and plan to vigorously defend our
position,  we have  established  reserves of $727,000 as of December  31,  2005,
which we believe are adequate.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of 2005.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S  COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

Our Common Stock is quoted on the NASDAQ Stock Market under the symbol TMNG. The
high and low closing  price per share for the Common  Stock for the fiscal years
ended December 31, 2005 and January 1, 2005 by quarter were as follows:

                                            High           Low
First quarter, fiscal year 2005            $ 2.57        $ 2.20
Second quarter, fiscal year 2005           $ 2.52        $ 1.83
Third quarter, fiscal year 2005            $ 2.59        $ 2.06
Fourth quarter, fiscal year 2005           $ 2.78        $ 2.24

                                            High           Low
First quarter, fiscal year 2004            $ 5.50        $ 3.19
Second quarter, fiscal year 2004           $ 3.75        $ 1.77
Third quarter, fiscal year 2004            $ 2.45        $ 1.62
Fourth quarter, fiscal year 2004           $ 2.40        $ 1.92



The above  information  reflects  inter-dealer  prices,  without retail mark-up,
markdown or commissions and may not necessarily represent actual transactions.

As of March 28, 2006 the closing  price of our Common Stock was $2.24 per share.
At such date, there were approximately 84 holders of record of our Common Stock.

Holders of Common Stock are entitled to receive ratably such dividends,  if any,
as may be declared by the Board of Directors out of funds legally available.  To
date, we have not paid any cash  dividends on our Common Stock and do not expect
to declare or pay any cash or other dividends in the foreseeable future.

EQUITY COMPENSATION PLAN INFORMATION

<TABLE>
<CAPTION>
<S>                                           <C>                         <C>                       <C>

                                                        (a)                                                     (c)
                                                     NUMBER OF                                        NUMBER OF SECURITIES
                                              SECURITIES TO BE ISSUED                                 REMAINING AVAILABLE
                                                 UPON EXERCISE OF                (b)                   FOR FUTURE ISSUANCE
                                               OUTSTANDING OPTIONS         WEIGHTED AVERAGE         UNDER EQUITY COMPENSATION
                                              OR VESTING OF RESTRICTED     EXERCISE PRICE OF        PLANS (EXCLUDING SECURITIES
                                                       STOCK              OUTSTANDING OPTIONS        REFLECTED IN COLUMN (a))
APPROVED BY SECURITY HOLDERS
- 1998 Equity Incentive Plan - Stock Options         5,052,405               $    4.51                      2,589,985
- 1998 Equity Incentive Plan - Restricted Stock        895,000                    n/a                         305,000
PLANS NOT APPROVED BY SECURITY HOLDERS
- 2000 Supplemental Stock Plan                         957,040               $    4.63                      2,831,087
                                                     ---------                                              ---------
TOTAL                                                6,904,445                                              5,726,072
                                                     =========                                              =========

</TABLE>

For an  additional  discussion  of our equity  compensation  plans,  see Item 8,
"Consolidated  Financial  Statements," Note 9 "Stock Option Plan and Stock-Based
Compensation."


                                       15
<PAGE>


ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated  financial data presented below have been derived from
our consolidated  financial statements.  The data presented below should be read
in conjunction with Item 7,  "Management's  Discussion and Analysis of Financial
Condition  and  Results  of  Operations,"   Item  8,   "Consolidated   Financial
Statements"  and  Notes  thereto  and  other  financial   information  appearing
elsewhere in this annual report on Form 10-K.



<TABLE>
<CAPTION>
<S>                                                        <C>             <C>            <C>           <C>            <C>

                                                                                      FISCAL YEAR ENDED
                                                           -------------------------------------------------------------------------
                                                            December 31,   January 1,     January 3,    December 28,   December 29,
                                                               2005           2005           2004           2002           2001
                                                             --------       --------       --------       --------       --------
                                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:

Revenues ............................................         $30,378        $23,704        $23,245       $ 33,057       $ 54,236
Cost of services:
  Direct cost of services (exclusive of amortization
    shown below)                                               14,834         12,319         11,927         16,111         27,338
  Equity related charges (benefits)..................             100            205            (57)           721          2,322
                                                             --------       --------       --------       --------       --------
          Total cost of services (exclusive of
           amortization shown below).................          14,934         12,524         11,870         16,832         29,660
                                                             --------       --------       --------       --------       --------
                                                               15,444         11,180         11,375         16,225         24,576

Operating expenses:
  Selling, general and administrative................          18,462         16,037         19,359         23,811         16,727
  Legal settlement ..................................              95         (1,294)
  Real estate restructuring .........................              75          1,545
  Goodwill and intangible asset impairment ..........                                        19,484         25,165
  Goodwill and intangibles amortization .............             336            992          2,343          2,887          1,996
  Equity related charges ............................             618            958            142            353            843
                                                             --------       --------       --------       --------       --------
          Total operating expenses ..................          19,586         18,238         41,328         52,216         19,566
                                                             --------       --------       --------       --------       --------
                                                               (4,142)        (7,058)       (29,953)       (35,991)         5,010

Other income (expense):
  Interest income ...................................           1,632            718            624            996          2,433
  Other, net ........................................             126            (30)           (51)           (37)           (22)
                                                             --------       --------       --------       --------       --------
          Total other income (expense) ..............           1,758            688            573            959          2,411

Income (loss) from continuing operations before
 income tax (provision) benefit and cumulative
 effect of a change in accounting principle .........          (2,384)        (6,370)       (29,380)       (35,032)         7,421
Income tax (provision) benefit ......................             (36)           (49)       (12,978)        12,389         (2,141)
                                                             --------       --------       --------       --------       --------
Income (loss) from continuing operations before
 cumulative effect of a change in accounting
 principle ..........................................          (2,420)        (6,419)       (42,358)       (22,643)         5,280
Cumulative effect of a change in accounting
 principle, net of taxes ............................                                                       (1,140)
                                                             --------       --------       --------       --------       --------
Income (loss) from continuing operations.............          (2,420)        (6,419)       (42,358)       (23,783)         5,280

Discontinued operations:
  Net income (loss) from discontinued operations.....                         (2,276)            34            380            328
                                                             --------       --------       --------       --------       --------
Net income (loss) ...................................         $(2,420)       $(8,695)      $(42,324)      $(23,403)      $  5,608
                                                             ========       ========       ========       ========       ========
Net income (loss) from continuing operations before
 cumulative effect of a change in accounting
 principle per common share
  Basic .............................................         $ (0.07)       $ (0.18)      $  (1.26)      $  (0.69)      $   0.18
                                                             ========       ========       ========       ========       ========
  Diluted ...........................................         $ (0.07)       $ (0.18)      $  (1.26)      $  (0.69)      $   0.17
                                                             ========       ========       ========       ========       ========
Cumulative effect of a change in accounting
 principle per common share
  Basic and Diluted .................................                                                     $  (0.03)
                                                             ========       ========       ========       ========       ========
Net income (loss) from discontinued operations per
 common share
  Basic and Diluted .................................                        $ (0.07)                     $   0.01       $   0.01
                                                             ========       ========       ========       ========       ========
Net income (loss) per common share
  Basic .............................................         $ (0.07)       $ (0.25)      $  (1.26)      $  (0.71)      $   0.19
                                                             ========       ========       ========       ========       ========
  Diluted ...........................................         $ (0.07)       $ (0.25)      $  (1.26)      $  (0.71)      $   0.18
                                                             ========       ========       ========       ========       ========
Weighted average common shares outstanding
  Basic .............................................          35,175         34,619         33,545         32,734         29,736
                                                             ========       ========       ========       ========       ========
  Diluted ...........................................          35,175         34,619         33,545         32,734         30,774
                                                             ========       ========       ========       ========       ========

</TABLE>


                                       16
<PAGE>


<TABLE>
<CAPTION>
<S>                                                         <C>            <C>          <C>             <C>            <C>

                                                            December 31,   January 1,     January 3,    December 28,   December 29,
                                                               2005           2005           2004           2002           2001
                                                             --------       --------       --------       --------       --------
                                                                                        (IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:

Net working capital ...............................         $  52,497      $  55,121       $ 57,231       $ 63,478       $ 94,569
Total assets ......................................         $  73,549      $  75,353       $ 81,582       $125,459       $129,042
Total capital lease obligations ...................         $       4      $     200       $    493       $    885       $    338
Total stockholders' equity  .......................         $  66,048      $  66,747       $ 73,369       $115,726       $123,992

</TABLE>

On September 5, 2001, we completed our acquisition of Tri-Com Computer  Services
Inc.,  a Maryland  corporation.  The  acquisition,  recorded  under the purchase
method  of  accounting,  included  the  purchase  of all  outstanding  shares of
Tri-Com,  which resulted in a total purchase price of approximately $5.2 million
for the equity and assumption of  liabilities.  Consideration  consisted of $1.8
million cash and 490,417  shares of our common stock valued at $3.0 million.  We
incurred direct costs of  approximately  $180,000 related to the acquisition and
recorded  this  amount as an  increase  to  purchase  price.  In addition to the
above-mentioned  costs,  we  recorded  approximately  $216,000 as an increase to
purchase  price in connection  with the exchange of our stock options for vested
stock appreciation rights held by Tri-Com employees at the time of acquisition.

On March 6, 2002, we completed our acquisition of CSMG, a Delaware  corporation.
The  acquisition  resulted  in a total  purchase  price of  approximately  $46.5
million  consisting  of $33.0  million cash and $13.5  million in common  stock.
Additionally,   we  incurred  direct  costs  of  $2.3  million  related  to  the
acquisition and recorded this amount as an increase to purchase price.



                                       17
<PAGE>


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following  discussion  should be read in conjunction  with our  Consolidated
Financial  Statements  and Notes thereto  included in this Annual Report on Form
10-K. The  forward-looking  statements included in this discussion and elsewhere
in this  Form  10-K  involve  risks  and  uncertainties,  including  anticipated
financial performance,  business prospects, industry trends, shareholder returns
and other  matters,  which reflect  management's  best judgment based on factors
currently known.  Actual results and experience could differ materially from the
anticipated  results and other  expectations  expressed  in our  forward-looking
statements  and  should  be  read  in  conjunction   with  the  disclosures  and
information  contained  in the  sections  of this report  entitled  "Disclosures
Regarding Forward-Looking Statements" and in Item 1A, " Risk Factors."

EXECUTIVE FINANCIAL OVERVIEW

Included in Item 1, "Business" and Item 1A, "Risk  Factors",  is discussion that
includes a general overview of our Business, Market Overview, Business Strategy,
Competition  and Risk  Factors.  The  purpose of this  executive  overview is to
complement the qualitative discussion of the Business from Item 1.

As  previously  noted,  the  communications  industry  experienced a significant
economic recession from 2001 through 2004. We are a consultancy to the industry,
and as a result  experienced  a  significant  reduction in  consulting  business
during that period  primarily due to the recession.  We experienced  significant
revenue  declines  and/or  net losses  from 2001 to 2004 (see Item 6,  "Selected
Consolidated  Financial  Data").  During  this period we  maintained  relatively
consistent  gross  margins  through   innovative  pricing  and  high  consultant
utilization levels.

Beginning in late 2004 and  continuing  through  fiscal year 2005,  we have seen
significant  changes in the industry  resulting from  consolidation,  technology
transformation and the convergence of telecommunication, media and entertainment
sectors.   During  2005,   our  revenues   increased  28%  compared  with  2004.
Additionally,  gross margins improved to nearly 51% in 2005 compared with 47% in
2004. We believe these improved  operating results and margins are reflective of
our efforts to  identify,  adapt to and  capitalize  on these  change  elements,
combined with growth of wireless and IP  initiatives  within the  communications
sector.

As a result  of a  combination  of  significantly  lower  operating  results  of
reporting  units  during  fiscal  year 2003,  the  resignation  of  certain  key
personnel and revised and reduced financial projections,  our operating expenses
include  goodwill and  intangible  impairment  losses of $19.5 million in fiscal
year 2003. In fiscal year 2004, we recorded a goodwill  impairment  loss of $2.2
million in connection  with the  discontinuation  of our hardware  business.  In
fiscal years 2005, 2004, and 2003, we also recorded  valuation  reserves of $0.9
million,  $2.6 million,  and $24.0  million,  respectively,  in connection  with
deferred  income  tax  assets,   which  were  generated  primarily  by  goodwill
impairment and current operating losses.

Selling,  general and administrative costs were $18.5 million, $16.0 million and
$19.4 million in fiscal years 2005,  2004 and 2003,  respectively.  The increase
from fiscal year 2004 to fiscal year 2005, primarily reflects  non-capitalizable
research & development  (R&D)  investments in intellectual  property,  including
proprietary   toolsets  and   methodologies  to  support  new  wireless  and  IP
consultative  offerings  as well as increases  in variable  selling  expenses to
support the increase in revenues.  Although these  investments have impacted our
short-term profitability, we believe they will better enable us to capitalize on
the industry convergence and migration toward wireless and IP platforms.  We are
also  focusing our marketing  efforts on growth  markets  surrounding  large and
sustainable  clients to  maintain a portfolio  of  business  that is high credit
quality, thus reducing bad debt risks.

Our R&D investments have been partially offset by comprehensive cost containment
efforts  which  have  assisted  us in  maintaining  strong  levels  of cash  and
short-term investments. Our short-term investments consist of money market funds
and  investment-grade  auction  rate  securities.   Returns  on  our  short-term
investments  have  increased  over  recent  periods  as a result  of  increasing
interest rates.

OPERATIONAL OVERVIEW

We report our financial data on a 52/53-week  fiscal year. Fiscal years 2005 and
2004 had 52 weeks.  Fiscal  year 2003 was a 53 week  fiscal  year.  For  further
discussion  of  our  fiscal  year  end  see  Item  8,  "Consolidated   Financial
Statements,"  Note  1  "Organization  and  Summary  of  Significant   Accounting
Policies," contained herein.

Revenues  typically  consist of consulting  fees for  professional  services and
related expense reimbursements. Our consulting services are typically contracted
on a time and materials basis, a time and materials basis not to exceed contract
price, a fixed fee basis, or contingent fee basis.  Revenues on contracts with a
not to exceed  contract  price or a fixed cost  contract are recorded  under the
percentage of completion method, utilizing estimates of project completion under
both of these types of  contracts.  Larger fixed price  contracts  have recently
begun to represent a more  significant  component  of our revenue mix.  Contract
revenues  on  contingent  fee  contracts  are  deferred  until  the  revenue  is
realizable and earned.

Generally a client relationship begins with a short-term  engagement utilizing a
few consultants.  Our sales strategy focuses on building long-term relationships
with  both  new and  existing  clients  to gain  additional  engagements  within
existing accounts and referrals for new clients.  Strategic alliances with other
companies are also used to sell services. We anticipate that we will continue to
pursue these  marketing  strategies  in the future.  Because we are a consulting
company, we experience  fluctuations in revenues derived from clients during the
course of a project  lifecycle.  As a result,  the volume of work  performed for
specific clients varies from period to period and a major client from one period
may


                                       18
<PAGE>

not use our  services  or the same  volume of  services  in another  period.  In
addition,  clients generally may end their engagements with little or no penalty
or notice. If a client engagement ends earlier than expected,  we must re-deploy
professional  service  personnel  as any  resulting  unbillable  time could harm
margins.

Cost of services  consists  primarily of  compensation  for  consultants who are
employees  and  amortization  of equity  related  non-cash  charges  incurred in
connection with  pre-initial  public  offering  grants of equity  securities and
restricted  stock  awards  primarily  to  consultants,  as well as fees  paid to
independent  contractor   organizations  and  related  expense   reimbursements.
Employee compensation includes certain unbillable time, training, vacation time,
benefits and payroll taxes. Annual gross margins have ranged from 48.9% to 50.8%
during the period from 2003 to 2005. Gross margins are primarily impacted by the
type of  consulting  services  provided;  the  size  of  service  contracts  and
negotiated  volume  discounts;  changes  in our  pricing  policies  and those of
competitors;  utilization  rates of consultants and  independent  subject matter
experts; and employee and independent contractor  organization costs, which tend
to be higher in a competitive labor market.

Operating expenses include selling,  general and administrative,  equity related
charges,  intangible  asset  amortization,  and  goodwill and  intangible  asset
impairments, litigation settlements and real estate restructuring charges. Sales
and marketing  expenses consist primarily of personnel  salaries,  bonuses,  and
related costs for direct client sales efforts and marketing  staff. We primarily
use a  relationship  sales  model  in  which  partners,  principals  and  senior
consultants generate revenues. In addition, sales and marketing expenses include
costs associated with marketing collateral, product development, trade shows and
advertising.  General and  administrative  expenses  consist mainly of costs for
accounting,   recruiting  and  staffing,   information  technology,   personnel,
insurance, rent, and outside professional services incurred in the normal course
of business. The equity related charges consist of non-cash amortization charges
incurred  in  connection  with  pre-initial  public  offering  grants  of equity
securities  and  restricted  stock awards,  primarily to principals  and certain
senior executives.  Impairment relates to the write down of goodwill  calculated
in accordance with the provisions of SFAS No. 142,  "Accounting for Goodwill and
Intangible Assets" and write down of other intangibles  calculated in accordance
with the provisions of SFAS No. 144,  "Accounting for the Impairment on Disposal
of Long Lived  Assets."  Such  impairments  occur when the carrying  amount of a
long-lived  asset (asset group) is not  recoverable  and exceeds its fair value.
That  assessment  is based on the carrying  amount of the asset (asset group) at
the date it is tested for recoverability, whether in use or under development.

CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are summarized in Note 1 to the consolidated
financial statements included in Item 8 "Consolidated  Financial  Statements" of
this report.

While the selection and  application of any  accounting  policy may involve some
level of subjective judgments and estimates, we believe the following accounting
policies  are  the  most  critical  to our  consolidated  financial  statements,
potentially  involve  the  most  subjective  judgments  in their  selection  and
application,  and  are  the  most  susceptible  to  uncertainties  and  changing
conditions:

- Allowance for Doubtful Accounts;
- Impairment of Goodwill and Long-lived Intangible Assets;
- Revenue Recognition; and
- Deferred Income Tax Assets.

Allowances for Doubtful Accounts - Substantially all of our receivables are owed
by companies in the  communications  industry.  We typically  bill customers for
services  after all or a portion of the services have been performed and require
customers  to pay within 30 days.  We attempt  to control  credit  risk by being
diligent  in  credit  approvals,  limiting  the  amount of  credit  extended  to
customers and monitoring  customers' payment record and credit status as work is
being performed for them.

We recorded  bad debt expense in the amounts of $399,000 and $575,000 for fiscal
years 2004 and 2003,  respectively.  We recorded a credit to bad debt expense of
$59,000  in  fiscal  year  2005  as  recoveries   offset  our  estimate  of  new
uncollectible  accounts.  Our allowance for doubtful  accounts totaled $296,000,
$396,000  and  $652,000  at  the  end of  fiscal  years  2005,  2004  and  2003,
respectively.  The  calculation  of these amounts is based on judgment about the
anticipated  default  rate  on  receivables  owed  to us as of  the  end  of the
reporting period.  That judgment was based on uncollected  account experience in
prior years and our ongoing evaluation of the credit status of our customers and
the communications industry in general.

We have attempted to mitigate credit risk by concentrating our marketing efforts
on the largest and most stable companies in the  communications  industry and by
tightly  controlling  the  amount of credit  provided  to  customers.  If we are
unsuccessful  in these  efforts,  or if our  customers  file for  bankruptcy  or
experience  financial  difficulties,  it is  possible  that  the  allowance  for
doubtful  accounts will be insufficient and we will have a greater bad debt loss
than the amount reserved, which would adversely affect our financial performance
and cash flow.

Impairment  of Goodwill and  Long-lived  Intangible  Assets - Goodwill and other
long-lived  intangible  assets  arising from our  acquisitions  are subjected to
periodic  review for impairment.  SFAS No. 142 requires an annual  evaluation at
the  reporting  unit  level  of the fair  value of  goodwill  and  compares  the
calculated  fair  value of the  reporting  unit to its book  value to  determine
whether an impairment has been deemed to occur.  Any impairment  charge would be
based  on the  most  recent  estimates  of the  recoverability  of the  recorded
goodwill.  If the remaining book value assigned to goodwill in an acquisition is
higher  than  the  estimated  fair  value  of the  reporting  unit,  there  is a
requirement to write down these assets. The determination of fair value requires
management to make  assumptions  about future cash flows and  discounted  rates.
These  assumptions  require  significant  judgment and estimations  about future
events and are thus  subject to  significant  uncertainty.  If actual


                                       19
<PAGE>

cash  flows  turn out to be less  than  projected,  we may be  required  to take
further write-downs,  which could increase the variability and volatility of our
future results.

Effective  March 4,  2004,  management  and the Board of  Directors  elected  to
discontinue our hardware business. We concluded this segment of the business did
not align well with our strategic focus. We incurred goodwill impairment charges
of $2.2  million  in the first  quarter  of fiscal  year  2004,  related  to the
discontinuation of the hardware  business,  in accordance with the provisions of
SFAS No. 142.

Due to a combination of significantly lower operating results of reporting units
during  fiscal year 2003,  the  resignation  of key  personnel,  and revised and
reduced financial  projections,  we recorded a goodwill impairment loss of $15.8
million in 2003,  in  accordance  with the  provisions  of SFAS No. 142.  For an
additional  discussion see Item 8, "Consolidated  Financial  Statements," Note 2
"Goodwill and Other Intangible Assets."

In accordance with SFAS No. 144, we use our best estimates based upon reasonable
and  supportable   assumptions  and  projections,   reviews  for  impairment  of
long-lived  assets  and  certain  identifiable  intangibles  to be held and used
whenever events or changes in circumstances indicate that the carrying amount of
our assets  might not be  recoverable.  During  fiscal  year 2003 we  identified
certain events, including a significant decrease in revenue from customers whose
relationships  were valued in purchase  accounting.  We performed an  impairment
test, and determined that the carrying value of customer  relationships exceeded
its fair market value and recorded an aggregate impairment loss of $3.7 million.
Fair  value was  based on an  analysis  of  projected  future  cash  flows.  The
impairment loss has been reflected as a component of Loss from Operations in the
Statement of Operations and Comprehensive Loss.

Revenue  Recognition--We  recognize revenue from time and material  contracts in
the  period  in which  our  services  are  performed.  In  addition  to time and
materials  contracts,  our other types of contracts  include time and  materials
contracts not to exceed contract price, fixed fee contracts,  and contingent fee
contracts.

We recognize  revenues on time and materials  contracts  not to exceed  contract
price  and fixed  fee  contracts  using the  percentage  of  completion  method.
Percentage of  completion  accounting  involves  calculating  the  percentage of
services  provided during the reporting period compared with the total estimated
services to be provided  over the duration of the contract.  For all  contracts,
estimates of total contract revenues and costs are continuously monitored during
the term of the  contract,  and  recorded  revenues  and  costs are  subject  to
revisions as the contract  progresses.  Such  revisions may result in a material
increase or decrease in revenues and income and are  reflected in the  financial
statements in the periods in which they are first identified.

We also enter into fixed fee  contracts in which  revenue is based upon delivery
of services or solutions,  and  contingent  fee  contracts,  in which revenue is
subject to achievement of savings or other agreed upon results, rather than time
spent. Due to the nature of contingent fee contracts, we recognize costs as they
are incurred on the project and defer revenue  recognition  until the revenue is
realizable and earned as agreed to by our clients.  Although these contracts can
be very  rewarding,  the  profitability  of these  contracts is dependent on our
ability to deliver  results for our  clients  and control the cost of  providing
these   services.   Both  of  these  types  of  contracts  are  typically   more
results-oriented  and are  subject  to  greater  risk  associated  with  revenue
recognition  and  overall  project   profitability  than  traditional  time  and
materials contracts.

Deferred Income Tax Assets - We have generated  substantial  deferred income tax
assets primarily from the accelerated financial statement write-off of goodwill,
the charge to  compensation  expense  taken for stock  options and net operating
loss carryforwards. For us to realize the income tax benefit of these assets, we
must generate  sufficient  taxable income in future periods when such deductions
are allowed for income tax purposes. In some cases where deferred taxes were the
result of  compensation  expense  recognized  on stock  options,  our ability to
realize the income tax benefit of these  assets is also  dependent  on our share
price increasing to a point where these options will be exercised.  In assessing
whether a valuation  allowance is needed in connection  with our deferred income
tax  assets,  we have  evaluated  our  ability to carry back tax losses to prior
years that  reported  taxable  income,  and our ability to  generate  sufficient
taxable income in future  periods to utilize the benefit of the deferred  income
tax assets.  Such  projections  of future  taxable  income  require  significant
subjective  judgments and  estimates by us. As of December 31, 2005,  cumulative
valuation  allowances in the amount of $27.5 million were recorded in connection
with the deferred income tax assets. We continue to evaluate the  recoverability
of the recorded deferred income tax asset balances. If we continue to report net
operating  losses for  financial  reporting in future years,  no additional  tax
benefit  would be  recognized  for those  losses,  since we would be required to
increase our valuation allowance to offset such amounts.


RECENT ACCOUNTING PRONOUNCEMENT

In December  2004, the FASB issued SFAS No. 123R which replaces SFAS No. 123 and
supersedes  APB No. 25. SFAS No. 123R  requires  compensation  costs  related to
share-based  payment  transactions to be recognized in the financial  statements
based on the fair value on the grant date of the equity or liability instruments
issued.  Compensation  cost will be recognized  over the period that an employee
provides  service for that award,  resulting in a decrease in net  earnings.  We
will adopt the  provisions  of this  Statement,  as amended,  using the modified
prospective  method  beginning in fiscal year 2006.  Compensation  costs will be
recognized for awards that are issued beginning in 2006 and for awards that have
been  granted  prior to  December  31, 2005 but have yet to reach the end of the
requisite  service  period.  The  amount of expense  to be  recognized  over the
remaining  service period as of December 31, 2005 is approximately  $3.0 million
to $3.5  million.  We will begin  expensing  these costs over the shorter of the
vesting  period or the  period  from the date of grant to the date the  employee
becomes  eligible for retirement.  Based on currently  outstanding  options,  we
expect to record a total expense of  approximately  $2.0 million to $2.4 million
during fiscal year 2006.


                                       20
<PAGE>


RESULTS OF OPERATIONS

On March 4, 2004,  management and the Board of Directors  elected to discontinue
our  hardware   business.   The   Consolidated   Statements  of  Operations  and
Comprehensive  Loss have been  adjusted for fiscal years 2004 and 2003 to report
the  income  (loss)  from  discontinued  operations,  net of tax.  For a further
discussion see Item 1, "Notes to Consolidated  Condensed Financial  Statements,"
Note 3, "Discontinued Operations."


FISCAL 2005 COMPARED TO FISCAL 2004

                                    REVENUES

Revenues  increased  28.2% to $30.4  million  for  fiscal  year 2005 from  $23.7
million for fiscal year 2004. The increase in revenue in 2005 is attributable to
an  increased   penetration   of  consulting   services  to  our  top  5  client
relationships,  with  emphasis in growth areas of wireless and IP. During fiscal
year 2005,  we  provided  services  on 231  customer  projects,  compared to 197
projects performed in fiscal year 2004. Average revenue per project was $132,000
in fiscal year 2005  compared to $120,000 in fiscal year 2004.  The  increase in
average  revenue per project was  primarily  attributable  to a small  number of
large engagements in the mix in fiscal year 2005. Our international revenue base
decreased to 3.9% of our  revenues  for fiscal year 2005,  from 22.3% for fiscal
year 2004, due primarily to the completion of multiple large projects in Western
Europe at the end of fiscal year 2004, combined with an increase in our domestic
project and revenue base.

Revenues   recognized  in  connection   with  fixed  price  and  contingent  fee
engagements  totaled $8.5 million and $9.6 million in fiscal year 2005 and 2004,
respectively,  representing 28.1% and 40.5% of total revenue in fiscal year 2005
and 2004, respectively.  The mix of contract engagement types will vary by year,
depending on the type of engagement.

                                COST OF SERVICES

Direct  costs of  services  increased  to $14.8  million  for  fiscal  year 2005
compared to $12.3 million for fiscal year 2004. As a percentage of revenues, our
gross  margin  based on direct cost of  services  was 51.2% for fiscal year 2005
compared  to 48.0% for  fiscal  year  2004.  The  increase  in gross  margin was
primarily  attributable  to a shift in the mix of services to more  strategy and
management  consultancy  engagements  which  typically yield higher margins than
staffing engagements, coupled with better utilization levels.

Non-cash  equity related charges were $100,000 and $205,000 for fiscal year 2005
and 2004,  respectively.  The charges  primarily  relate to awards of restricted
stock to select  executives and key  consultants  which are being amortized on a
graded vesting schedule over a period of two years from the date of grant.

                               OPERATING EXPENSES

In total,  operating expenses increased by 7.4% to $19.6 million for fiscal year
2005,  from $18.2  million  for fiscal  year 2004.  Operating  expenses  include
selling,  general  and  administrative  costs,  legal  settlement,  real  estate
restructuring,  equity related charges,  and intangible asset amortization.  The
major  components  of the  increase are  discussed by category in the  following
paragraphs.

The increase in operating  expenses  includes  $2.4 million  related to selling,
general and  administrative  expense  increases in fiscal year 2005  compared to
fiscal year 2004.  The  increase is primarily  related to  increased  R&D in our
initiative to develop our MVNE offerings and toolsets for IP  transformations in
fiscal  year 2005 and  increases  in  variable  selling  expenses to support the
increase in revenues.

In fiscal year 2005 we recorded a charge of $95,000 to settle a preference claim
legal dispute with the  bankruptcy  trustee of a former  client.  In fiscal year
2004  we  entered  into  a  mediated  settlement  agreement  to  settle  pending
litigation  with a customer  regarding  a take or pay  contract.  As part of the
settlement,  we received a $2 million  payment to settle all claims and disputes
in the  litigation.  This payment was  recorded as a $1.3  million  reduction of
operating expenses and $0.7 million reduction of existing  receivables.  We made
the decision to  consolidate  office space  resulting in a charge to earnings of
$1.5 million in 2004 and an additional expense of $75,000 in fiscal year 2005.

Non-cash  equity related  charges were $0.6 million in fiscal year 2005 compared
to $1.0 million for fiscal year 2004. The charges  primarily relate to the award
of restricted  stock issued to select  executives and key  employees,  which are
being amortized on a grading vesting  schedule over periods of two to four years
from the date of grant.  The decrease in equity related charges is the result of
reversals of previously  recognized  compensation expense related to forfeitures
of restricted stock.

Intangible asset amortization was $0.3 million in fiscal year 2005,  compared to
$1.0 million in fiscal year 2004. The decrease in intangible asset  amortization
was due to certain intangible assets becoming fully amortized during fiscal year
2004 and early fiscal year 2005.

                            OTHER INCOME AND EXPENSES

Interest  income was $1.6  million and $0.7  million  for fiscal  years 2005 and
2004,  respectively,  and  represented  interest  earned on  invested  balances.
Interest income  increased during fiscal year 2005 due primarily to increases in
interest rates from 2004 to 2005. We primarily  invest in money market funds and
investment-grade  auction  rate  securities  as part of our  overall  investment
policy.


                                       21
<PAGE>


                                  INCOME TAXES

For fiscal years 2005 and 2004 we have fully  reserved  our deferred  income tax
benefits  generated by our pre-tax  losses from  continuing  operations  of $2.4
million and $6.4  million,  respectively.  The fiscal years 2005 and 2004 income
tax  provisions  of $36,000 and  $49,000,  respectively,  relate to state income
taxes.  In fiscal years 2005 and 2004, we recorded  valuation  allowances in the
amount of $0.9 million and $2.6 million,  respectively,  against deferred income
tax assets.  The valuation  allowance was  calculated  utilizing the guidance of
SFAS No. 109  "Accounting  for Income Taxes" which requires an estimation of the
recoverability of the recorded deferred income tax asset balances.


FISCAL 2004 COMPARED TO FISCAL 2003

                                    REVENUES

Revenues increased 2.0% to $23.7 million for fiscal year 2004 from $23.2 million
for fiscal year 2003. Included in revenues for fiscal year 2003 was $0.7 million
related  to a customer  take or pay  contract,  representing  the  shortfall  in
consulting  services  utilized by a customer in connection  with annual  minimum
usage  requirements.  The  increase  in  revenue in 2004 is  attributable  to an
increase in engagements in the wireless segment of the telecom  industry,  along
with a slight increase in the average size of projects. During fiscal year 2004,
we  provided  services  on 197  customer  projects,  compared  to  196  projects
performed  in fiscal year 2003.  Average  revenue  per  project was  $120,000 in
fiscal year 2004 compared to $119,000 in fiscal year 2003. International revenue
base  increased to 22.3% of our  revenues  for fiscal year 2004,  from 10.0% for
fiscal year 2003,  due primarily to a significant  increase in project  activity
with select large  global  wireline  and  wireless  carriers  located in Western
Europe and  Australia.  Revenues  recognized  in  connection  with  fixed  price
engagements  totaled $9.6 million and $6.4 million in fiscal year 2004 and 2003,
respectively,  representing 40.5% and 27.4% of total revenue in fiscal year 2004
and 2003, respectively.

Effective  March 4,  2004,  management  and the Board of  Directors  elected  to
discontinue our hardware business  (previously reported as the separate business
segment "All  Other").  Operating  results of the  hardware  business for fiscal
years 2004 and 2003 have been included as a component of discontinued operations
in the Consolidated  Statements of Operations and  Comprehensive  Loss contained
herein.

                                COST OF SERVICES

Direct  costs of  services  increased  to $12.3  million  for  fiscal  year 2004
compared to $11.9 million for fiscal year 2003. As a percentage of revenues, our
gross  margin  based on direct cost of  services  was 48.0% for fiscal year 2004
compared  to 48.7% for fiscal  year  2003.  Included  in fiscal  year 2003 gross
margin is the $0.7 million of revenue  from the take or pay  contract  discussed
above.  Gross margin percentage is attributable to the mix of services,  pricing
of our projects and efficiency of delivery.

Non-cash  equity related charges were $205,000 for fiscal year 2004. The charges
relate to the award of  restricted  stock  issued to select  executives  and key
employees  during  the  fourth  quarter  of fiscal  year  2003,  which are being
amortized on a graded vesting  schedule over a period of two years from the date
of grant.  The non-cash  equity related benefit of $57,000 for fiscal year 2003,
was primarily  related to the  cancellation  and  forfeiture  of unvested  stock
options by employees.

                               OPERATING EXPENSES

In total, operating expenses decreased by 55.9% to $18.2 million for fiscal year
2004,  from $41.3  million  for fiscal  year 2003.  Operating  expenses  include
selling,  general  and  administrative  costs,  legal  settlement,  real  estate
restructuring, equity related charges, goodwill and intangible asset impairment,
and  intangible  asset  amortization.  The major  components of the decrease are
discussed by category in the following paragraphs.

The decrease in operating  expenses  includes  $3.3 million  related to selling,
general and  administrative  expense  reductions in fiscal year 2004 compared to
fiscal year 2003.  Approximately  $1.5 million of the reductions were associated
with reductions in personnel levels and improvement in our utilization rates, as
part of our ongoing  effort to  properly  size the  business to a lower  revenue
base. In fiscal year 2004 we incurred severance charges of $0.1 million compared
to $0.4 million in fiscal year 2003 related to involuntary employee turnover. We
also reduced  outside  professional  service fees by $0.6 million in fiscal year
2004 from  fiscal  year 2003.  Additionally,  throughout  fiscal  year 2004,  we
implemented   a  number  of  cost   reductions   within  sales  and   marketing,
communications,  insurance,  and other  administrative  costs.  We  continue  to
examine  cost-reduction   measures  to  enhance  our  profitability  and  manage
operating expenses to better align them with the size of the business.

We recorded a goodwill and intangible asset  impairment  charge of $19.5 million
in fiscal  year  2003.  The  goodwill  impairment  charge is  attributable  to a
combination  of the  resignation of key executive  personnel  during fiscal year
2003 and lower than expected  operating results of reporting units during fiscal
year 2003,  both of which  adversely  affected  future  projections of operating
results  utilized in the  impairment  analysis.  The write down of goodwill  and
customer  relationships was calculated in accordance with the provisions of SFAS
No. 142 and SFAS No. 144, respectively.

In fiscal year 2004 we entered  into a mediated  settlement  agreement to settle
pending  litigation with a customer regarding the take or pay contract discussed
in "Revenues" above. As part of the settlement, we received a $2 million payment
to settle all claims and disputes in the  litigation.  This payment was recorded
as a $1.3 million reduction of operating  expenses and $0.7 million reduction of
existing  receivables.  Also during  fiscal year 2004,  we made the  decision to
consolidate office space resulting in a charge to earnings of $1.5 million.


                                       22
<PAGE>

Non-cash  equity related  charges were $1.0 million in fiscal year 2004 compared
to $0.1 million for fiscal year 2003. The fiscal year 2004 charges relate to the
award of restricted  stock issued to select  executives and key employees during
the fourth  quarter of fiscal year 2003,  which are being  amortized on a graded
vesting schedule over a period of two years from the date of grant.

                            OTHER INCOME AND EXPENSES

Interest  income was $0.7  million and $0.6  million  for fiscal  years 2004 and
2003,  respectively,  and represented  interest earned on invested cash and cash
equivalent balances and short-term investments. Interest income increased during
fiscal year 2004 due to investing cash reserves at slightly higher interest rate
returns in 2004 compared to 2003. We primarily  invest in money market funds and
investment-grade  auction  rate  securities  as part of our  overall  investment
policy.

                                  INCOME TAXES

For fiscal year 2004 we have fully  reserved  our  deferred  income tax benefits
generated by our pre-tax losses of $6.4 million from continuing operations.  The
fiscal year 2004 income tax provision of $49,000  relates to state income taxes.
In fiscal year 2003,  we recorded a valuation  allowance  in the amount of $24.0
million against  deferred  income tax assets,  offsetting the income tax benefit
from current year  operating  losses and resulting in a net income tax provision
of $13.0 million.  The valuation allowance was calculated utilizing the guidance
of SFAS No. 109,  "Accounting  for Income Taxes" which requires an estimation of
the recoverability of the recorded deferred income tax asset balances.


SUMMARY OF QUARTERLY RESULTS OF OPERATIONS -- UNAUDITED

<TABLE>
<CAPTION>
<S>                                                   <C>           <C>          <C>           <C>

                                                             (In thousands, except per share data)


                                                                          QUARTER ENDED
                                                      ----------------------------------------------------
                                                      APRIL 2,       JULY 2,     OCTOBER 1,    DECEMBER 31,
                                                        2005          2005          2005           2005
                                                      --------      --------      --------       --------
Revenues .......................................      $  7,067      $  9,017      $  8,057       $  6,237
                                                      ========      ========      ========       ========
Gross profit ...................................      $  3,638      $  4,464      $  4,199       $  3,143
                                                      ========      ========      ========       ========

Net income (loss)...............................      $   (608)     $     30      $     24       $ (1,866)
                                                      ========      ========      ========       ========

Basic and diluted net
  income (loss) per common share ...............      $  (0.02)     $   0.00      $   0.00       $  (0.05)
                                                      ========      ========      ========       ========


                                                                          QUARTER ENDED
                                                      ----------------------------------------------------
                                                      APRIL 3,       JULY 3,     OCTOBER 2,     JANUARY 1,
                                                        2004          2004          2004           2005
                                                      --------      --------      --------       --------
Revenues .......................................      $  5,779      $  5,184      $  6,546       $  6,195
                                                      ========      ========      ========       ========
Gross profit ...................................      $  2,812      $  2,393      $  3,054       $  2,921
                                                      ========      ========      ========       ========
Net loss from discontinued operation............      $ (2,276)
                                                      ========      ========      ========       ========

Net loss........................................      $ (4,251)     $ (2,117)     $ (1,119)      $ (1,208)
                                                      ========      ========      ========       ========

Basic and diluted net loss from discontinued
 operation per common share ....................      $  (0.07)
                                                      ========      ========      ========       ========


Basic and diluted net loss per common share ....      $  (0.13)     $  (0.06)     $  (0.03)      $  (0.03)
                                                      ========      ========      ========       ========

</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating  activities  was $0.8 million,  $0.7 million and $0.9
million for fiscal years 2005,  2004,  and 2003,  respectively.  We used cash in
operating  activities  for fiscal  years 2005,  2004 and 2003  primarily  due to
operating losses. These losses were substantially offset


                                       23
<PAGE>

by effective  management of working capital and operating assets and liabilities
and a favorable legal settlement during fiscal year 2004.

Net cash  provided by (used in)  investing  activities  was $0.6  million,  $2.6
million and ($2.0 million) for fiscal year 2005,  2004, and 2003,  respectively.
This  includes net proceeds  (net  purchases)  from sales and  reinvestments  of
auction rate  securities  of $2.6  million,  $2.8 million and ($1.9  million) in
fiscal years 2005,  2004, and 2003,  respectively.  In fiscal year 2005 net cash
provided by investing  activities was reduced by a $1.5 million  investment in a
five-year  exclusive marketing license with S3 Matching  Technologies.  Net cash
provided by (used in) investing activities also includes  acquisitions of office
equipment,  software and computer  equipment of $0.5  million,  $0.2 million and
$0.1 million in fiscal years 2005, 2004, and 2003, respectively.

Net cash provided by financing activities was $482,000, $22,000, and $94,000 for
fiscal years 2005, 2004, and 2003, respectively,  which related to proceeds from
the exercise of employee  stock  options as well as common stock issued by us as
part of our employee stock purchase  program,  partially offset by payments made
on long-term obligations.

FINANCIAL COMMITMENTS

As of December 31,  2005,  we have the  following  contractual  obligations  and
commercial commitments by year (amounts in millions):


<TABLE>
<CAPTION>
<S>                        <C>     <C>      <C>      <C>      <C>        <C>       <C>

                           2006    2007     2008     2009     2010       2011      Total
                           ----    ----     ----     ----     ----     -------     -----
Operating leases           $1.9    $1.9     $1.9     $1.8     $1.6       $0.1      $9.2
                           ----    ----     ----     ----     ----       ----      -----
Total                      $1.9    $1.9     $1.9     $1.8     $1.6       $0.1      $9.2
                           ====    ====     ====     ====     ====       ====      =====

</TABLE>


We have met our cash requirements  with a combination of operating  revenues and
the use of our cash reserves.

At  December  31,  2005,  we had  approximately  $49.7  million  in  cash,  cash
equivalents,  and short-term investments. We believe we have sufficient cash and
short-term   investments  to  meet  anticipated  cash  requirements,   including
anticipated capital expenditures,  consideration for possible acquisitions,  and
any  future  operating  losses  that may be  incurred,  for at least the next 12
months.  Should our cash and short-term  investments prove insufficient we might
need to  obtain  new debt or equity  financing  to  support  our  operations  or
complete  acquisitions.  We have  established  a flexible  model that provides a
lower fixed cost  structure  than most  consulting  firms,  enabling us to scale
operating cost  structures more quickly based on market  conditions.  Our strong
cash position and absence of long-term  debt have enabled us to weather  adverse
conditions  in the  telecommunications  industry  and  to  make  investments  in
intellectual  property we believe are enabling us to  capitalize  on the current
recovery and transformation of the industry; however, if the industry and demand
for our  consulting  services  do not  continue  to rebound  and we  continue to
experience negative cash flow, we could experience  liquidity challenges at some
future point.

TRANSACTIONS WITH RELATED PARTIES

During  fiscal year 2004, we made payments of $55,000 to a legal firm in which a
member of our Board of Directors  owns an equity  interest.  Such  payments were
made in connection  with matters  arising in the normal course of business.  Our
Board of  Directors  has  affirmatively  determined  that such  payments  do not
constitute  a material  relationship  between the  director  and the Company and
concluded  the  director  is  independent  as defined  by the  NASDAQ  corporate
governance rules.

As of December  31,  2005,  there is one  remaining  line of credit  between the
Company and its Chief Financial Officer, Richard P. Nespola, which originated in
fiscal year 2001. Aggregate borrowings outstanding against the line of credit at
December  31, 2005 and  January 1, 2005  totaled  $300,000  and are due in 2011.
These amounts are included in other assets in the non-current  assets section of
the balance sheet.  In accordance  with the loan  provisions,  the interest rate
charged on the loans is equal to the Applicable Federal Rate (AFR), as announced
by the  Internal  Revenue  Service,  for  short-term  obligations  (with  annual
compounding)  in effect for the month in which the advance is made,  until fully
paid.  Pursuant to the  Sarbanes-Oxley  Act, no further loan agreements or draws
against  the line may be made by the  Company to, or arranged by the Company for
its  executive  officers.  Interest  payments  on this  loan are  current  as of
December 31, 2005.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not invest  excess  funds in  derivative  financial  instruments  or other
market  rate  sensitive  instruments  for the  purpose of  managing  our foreign
currency  exchange rate risk. We invest excess funds in short-term  investments,
including  auction  rate  securities,  the yield of which is exposed to interest
rate market risk.  Auction rate securities are classified as  available-for-sale
and reported on the balance sheet at fair value,  which equals market value,  as
the rate on such securities resets generally every 28 to 35 days.  Consequently,
interest rate movements do not materially  affect the balance sheet valuation of
the fixed income  investments.  Changes in the overall  level of interest  rates
affect our interest income generated from investments.

We do not have  material  exposure to market  related  risks.  Foreign  currency
exchange rate risk may become  material  given U.S.  dollar to foreign  currency
exchange rate changes and  significant  increases in  international  engagements
denominated in the local currency of our clients.


                                       24
<PAGE>


ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS OF

The Management Network Group, Inc.
Overland Park, Kansas

We have audited the accompanying  consolidated  balance sheets of The Management
Network Group, Inc. and subsidiaries (the "Company") as of December 31, 2005 and
January  1, 2005 and the  related  consolidated  statements  of  operations  and
comprehensive  loss,  stockholders'  equity and cash flows for the fiscal  years
ended  December  31,  2005,  January 1, 2005 and January 3, 2004 (52, 52, and 53
weeks,  respectively).  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 the standards of the Public  Company
Accounting Oversight Board (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.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audits included consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances  but not for the  purpose  of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   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,  such consolidated  financial  statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2005
and January 1, 2005,  and the results of its  operations  and its cash flows for
the fiscal years ended December 31, 2005, January 1, 2005 and January 3, 2004 in
conformity with accounting principles generally accepted in the United States of
America.





                           /S/ DELOITTE & TOUCHE LLP

                              KANSAS CITY, MISSOURI


                                 March 29, 2006







                                       25
<PAGE>


                       THE MANAGEMENT NETWORK GROUP, INC.

                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                                     ASSETS



<TABLE>
<CAPTION>
<S>                                                                         <C>               <C>


                                                                            December 31,      January 1,
                                                                                2005             2005
                                                                            ------------     ------------
CURRENT ASSETS:
 Cash and cash equivalents ..........................................        $  10,951        $  10,882
 Short-term investments .............................................           38,700           41,300
 Receivables:
    Accounts receivable .............................................            3,886            4,663
    Accounts receivable -- unbilled .................................            2,559            1,911
                                                                             ---------        ---------
                                                                                 6,445            6,574
    Less: Allowance for doubtful accounts ...........................             (296)            (396)
                                                                             ---------        ---------
                                                                                 6,149            6,178
Refundable income taxes .............................................              117              769
Prepaid and other assets ............................................            1,262            1,176
                                                                             ---------        ---------
         Total current assets .......................................           57,179           60,305
                                                                             ---------        ---------
Property and equipment, net .........................................              900              896
Goodwill.............................................................           13,365           13,365
Intangible assets, net...............................................            1,651              487
Other assets ........................................................              454              300
                                                                              --------         --------
Total Assets ........................................................        $  73,549        $  75,353
                                                                             =========        =========
CURRENT LIABILITIES:
 Trade accounts payable .............................................        $   1,025        $     845
 Accrued payroll, bonuses and related expenses ......................            1,136            1,040
 Other accrued liabilities ..........................................            1,893            2,574
 Unfavorable and capital lease obligations ..........................              628              725
                                                                             ---------        ---------
         Total current liabilities ..................................            4,682            5,184
                                                                             ---------        ---------
Unfavorable and capital lease obligations ...........................            2,819            3,422
STOCKHOLDERS' EQUITY:
 Common stock:
    Voting -- $.001 par value, 100,000,000 shares authorized;
    35,705,520 and 34,750,562 shares issued and outstanding on
    January 1, 2005, and December 31, 2005, respectively ............               36               35
 Preferred stock -- $.001 par value, 10,000,000 shares
    authorized; no shares issued or outstanding
 Additional paid-in capital .........................................          159,586          157,857
 Accumulated deficit.................................................          (93,305)         (90,885)
 Accumulated other comprehensive income --
  Foreign currency translation adjustment ...........................              147              352
 Unearned compensation ..............................................             (416)            (612)
                                                                             ---------        ---------
         Total stockholders' equity .................................           66,048           66,747
                                                                             ---------        ---------
Total Liabilities and Stockholders' Equity ..........................        $  73,549        $  75,353
                                                                             =========        =========

</TABLE>

See notes to consolidated financial statements.


                                       26
<PAGE>


                       THE MANAGEMENT NETWORK GROUP, INC.

          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
<S>                                                          <C>            <C>             <C>

                                                                         FISCAL YEAR ENDED
                                                             ------------------------------------------
                                                             December 31    January 1,      January 3,
                                                                2005           2005            2004
                                                             -----------   -----------     -----------
Revenues.................................................      $ 30,378       $ 23,704       $ 23,245
Cost of services:
 Direct cost of services (exclusive of amortization
  shown below)...........................................        14,834         12,319         11,927
 Equity related charges (benefits).......................           100            205            (57)
                                                               --------       --------       --------
         Total cost of services (exclusive of
          amortization shown below) .....................        14,934         12,524         11,870
                                                               --------       --------       --------
                                                                 15,444         11,180         11,375
Operating expenses:
 Selling, general and administrative.....................        18,462         16,037         19,359
 Legal settlement .......................................            95         (1,294)
 Real estate restructuring ..............................            75          1,545
 Goodwill and intangible asset impairment ...............                                      19,484
 Intangible asset amortization ..................                   336            992          2,343
 Equity related charges .................................           618            958            142
                                                               --------       --------       --------
         Total operating expenses .......................        19,586         18,238         41,328
                                                               --------       --------       --------
                                                                 (4,142)        (7,058)       (29,953)
Other income (expense):
 Interest income ........................................         1,632            718            624
 Other, net .............................................           126            (30)           (51)
                                                               --------       --------       --------
         Total other income .............................         1,758            688            573
                                                               --------       --------       --------
Loss from continuing operations before income tax
 provision  .............................................        (2,384)        (6,370)       (29,380)
Income tax provision ....................................           (36)           (49)       (12,978)
                                                               --------       --------       --------
Loss from continuing operations .........................        (2,420)        (6,419)       (42,358)

Discontinued operations:
 Net income (loss) from discontinued operations
  (including a charge for impairment of goodwill of
  $2,163 in fiscal year 2004 and income tax provision
  of $53 for fiscal 2003)................................                       (2,276)            34
                                                               --------       --------       --------
Net loss ................................................        (2,420)        (8,695)       (42,324)

Other comprehensive income (loss) -
 Foreign currency translation adjustment.................          (205)           176             63
                                                               --------       --------       --------
Comprehensive loss ......................................      $ (2,625)      $ (8,519)      $(42,261)
                                                               ========       ========       ========
Loss from continuing operations per common share
 Basic and diluted ......................................      $  (0.07)      $  (0.18)      $  (1.26)
                                                               ========       ========       ========
Net income (loss) from discontinued operations per
 common share
 Basic and diluted ......................................                     $  (0.07)
                                                               ========       ========       ========
Net loss per common share
 Basic and diluted.......................................      $  (0.07)      $  (0.25)      $  (1.26)
                                                               ========       ========       ========
 Shares used in calculation of loss from continuing
 operations, net income (loss) from discontinued
 operations, and net loss per common share
 Basic and diluted ......................................        35,175         34,619         33,545
                                                               ========       ========       ========

</TABLE>

See notes to consolidated financial statements.


                                       27
<PAGE>

                       THE MANAGEMENT NETWORK GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
<S>                                                               <C>             <C>           <C>

                                                                               FISCAL YEAR ENDED
                                                                  -----------------------------------------
                                                                  December 31,     January 1,    January 3,
                                                                      2005           2005           2004
                                                                  ------------  ------------   ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss .................................................      $  (2,420)      $ (8,695)     $ (42,324)
  Adjust for
     (Income) loss from discontinued operations (includes
       non-cash goodwill impairment charge of $2,163 in
       fiscal year 2004)                                                             2,276            (34)
                                                                   --------       --------       --------
  Loss from continuing operations                                    (2,420)        (6,419)       (42,358)
  Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
    Goodwill and intangible asset impairment ...............                                       19,484
    Real estate restructuring charge .......................                         1,545
    Depreciation and amortization ..........................            822          1,672          3,197
    Equity related charges .................................            718          1,163             85
    Deferred income taxes ..................................                                       14,066
    Bad debt expense ......................................             (59)           399            575
    Loss on retirement of assets ...........................                            39
    Income tax benefit realized upon exercise/
     forfeiture of stock options ...........................                                           45
    Other changes in operating assets and liabilities:
      Accounts receivable ..................................            736             61           (173)
      Accounts receivable -- unbilled ......................           (648)           229          2,092
      Refundable income taxes ..............................            652          1,437          2,720
      Prepaid and other assets .............................           (239)          (364)         1,113
      Trade accounts payable ...............................            180            211           (535)
      Accrued liabilities ..................................           (559)          (563)        (1,286)
                                                                   --------       --------       --------
         Net cash used in operating activities from
         continuing operations .............................           (817)          (590)          (975)
                                                                   --------       --------       --------
         Net cash used in operating activities                         (817)          (703)          (941)
                                                                   --------       --------       --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of short-term investments.......................         (9,300)        (6,850)        (9,150)
  Proceeds from maturities/sales of short-term investments .         11,900          9,600          7,300
  Investment in S3 license .................................         (1,500)
  Acquisition of property and equipment, net................           (491)          (188)          (127)
                                                                   --------       --------       --------
         Net cash provided by (used in) investing activities            609          2,562         (1,977)
                                                                   --------       --------       --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Issuance of common stock through employee
    stock purchase plan ....................................            158            131             70
  Payments made on lease obligations .......................           (726)          (710)          (392)
  Exercise of stock options.................................          1,050            601            416
                                                                   --------       --------       --------
         Net cash provided by financing activities                      482             22             94
                                                                   --------       --------       --------
Effect of exchange rate on cash and cash equivalents .......           (205)           176             63
                                                                   --------       --------       --------
Net increase (decrease) in cash and cash equivalents .......             69          2,057         (2,761)
Cash and cash equivalents, beginning of period .............         10,882          8,825         11,586
                                                                   --------       --------       --------
Cash and cash equivalents, end of period ...................       $ 10,951       $ 10,882       $  8,825
                                                                   ========       ========       ========
Supplemental disclosure of cash flow information:
  Cash paid during period for interest .....................       $      3       $     30       $     51
                                                                   ========       ========       ========
  Cash paid during period for taxes ........................       $     36       $     49       $    493
                                                                   ========       ========       ========

</TABLE>

See notes to consolidated financial statements.


                                       28
<PAGE>


                       THE MANAGEMENT NETWORK GROUP, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                        (In thousands, except share data)


<TABLE>
<CAPTION>
<S>                                                          <C>            <C>       <C>         <C>

                                                                 COMMON STOCK
                                                                  $.001 PAR
                                                                    VOTING            ADDITIONAL
                                                             ---------------------     PAID-IN    ACCUMULATED
                                                                SHARES      AMOUNT     CAPITAL      DEFICIT
                                                             ------------   ------    ----------   ---------
Balance, December 28, 2002                                     33,347,228      $33      $155,509    $(39,866)
Option grants                                                                                189
Exercise of options                                               245,304                    416
Cancellation of options                                                                     (294)
Stock surrender                                                    (8,702)                   (12)
Employee stock purchase plan                                       67,238                     70
Stock compensation
Restricted stock grant                                            720,000        1         2,069
Other comprehensive income -
    Foreign currency translation adjustment
Reduction of tax benefit due to exercise/forfeiture
 of stock options                                                                           (655)
Net loss                                                                                             (42,324)
                                                             ------------   ------    ----------   ---------
Balance, January 3, 2004                                       34,371,068       34       157,292     (82,190)
Exercise of options                                               338,165        1           601
Employee stock purchase plan                                       98,529                    131
Stock compensation
Restricted stock grant                                             15,000                     30
Restricted stock cancellation                                     (77,000)                  (212)
Stock bonus                                                         4,800                     15
Other comprehensive income -
    Foreign currency translation adjustment
Net loss                                                                                              (8,695)
                                                             ------------   ------    ----------   ---------
Balance, January 1, 2005                                       34,750,562       35       157,857     (90,885)
Exercise of options                                               602,329        1         1,049
Employee stock purchase plan                                      115,629                    158
Stock compensation
Restricted stock grant                                            300,000                    695
Restricted stock cancellation                                     (63,000)                  (173)
Other comprehensive income -
    Foreign currency translation adjustment
Net loss                                                                                              (2,420)
                                                             ------------   ------    ----------   ---------
Balance, December 31, 2005                                     35,705,520   $   36    $  159,586   $ (93,305)
                                                             ============   ======    ==========   =========

</TABLE>


                                       29
<PAGE>




<TABLE>
<CAPTION>
<S>                                                              <C>                 <C>               <C>

                                                                  ACCUMULATED
                                                                     OTHER
                                                                 COMPREHENSIVE         UNEARNED
                                                                     INCOME          COMPENSATION        TOTAL
                                                                 -------------       --------------    ---------
Balance, December 28, 2002                                              $113                 $(63)     $115,726
Option grants                                                                                (189)
Exercise of options                                                                                         416
Cancellation of options                                                                       294
Stock surrender                                                                                             (12)
Employee stock purchase plan                                                                                 70
Stock compensation                                                                             85            85
Restricted stock grant                                                                     (2,070)
Other comprehensive income -
    Foreign currency translation adjustment                               63                                 63
Reduction of tax benefit due to exercise/forfeiture
  of stock options                                                                                         (655)
Net loss                                                                                                (42,324)
                                                                 -------------       --------------     ---------
Balance, January 3, 2004                                                 176               (1,943)       73,369
Exercise of options                                                                                         602
Employee stock purchase plan                                                                                131
Stock compensation                                                                          1,149         1,149
Restricted stock grant                                                                        (30)
Restricted stock cancellation                                                                 212
Stock bonus                                                                                                  15
Other comprehensive income -
    Foreign currency translation adjustment                              176                                176
Net loss                                                                                                 (8,695)
                                                                 -------------       --------------     ---------
Balance, January 1, 2005                                                 352                 (612)       66,747
Exercise of options                                                                                       1,050
Employee stock purchase plan                                                                                158
Stock compensation                                                                            718           718
Restricted stock grant                                                                       (695)
Restricted stock cancellation                                                                 173
Other comprehensive income -
    Foreign currency translation adjustment                             (205)                              (205)
Net loss                                                                                                 (2,420)
                                                                 -------------       --------------     ---------
Balance, December 31, 2005                                       $         147       $         (416)    $  66,048
                                                                 =============       ==============     =========

</TABLE>

See notes to consolidated financial statements.


                                       30
<PAGE>


                       THE MANAGEMENT NETWORK GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of  Operations  - The  Management  Network  Group,  Inc.  ("TMNG"  or the
"Company") was founded in 1990 as a management  consulting firm  specializing in
providing consulting services to the converging  communications industry and the
financial  services firms that support it. A majority of the Company's  revenues
are from  customers in the United  States,  however,  the Company also  provides
services to customers in Europe and other foreign  countries.  TMNG's  corporate
offices are located in Overland Park, Kansas.

Principles of Consolidation - The consolidated  statements  include the accounts
of TMNG and its wholly-owned  subsidiaries,  The Management Network Group Europe
Ltd.  (TMNG-Europe),  formed on March 19, 1997, based in the United Kingdom; The
Management  Network  Group  Canada Ltd.  (TMNG-Canada),  formed on May 14, 1998,
based in Toronto,  Canada;  TMNG.com, Inc., formed in June 1999; TMNG Marketing,
Inc.,  acquired on  September  5, 2000;  TMNG  Technologies,  Inc.,  acquired on
September  5, 2001;  and TMNG  Strategy,  Inc.,  acquired on March 6, 2002.  All
significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.

Fiscal Year - The Company reports its operating  results on a 52/53-week  fiscal
year basis.  The fiscal year end is  determined as the Saturday  ending  nearest
December  31. The fiscal  years  ended  December  31,  2005 and  January 1, 2005
reported 52 weeks of  operating  results  and  consisted  of four equal  13-week
quarters.  The fiscal year ended  January 3, 2004 reported 53 weeks of operating
results and consisted of three  13-week  quarters and one 14-week  quarter.  The
fiscal years ended  December  31, 2005,  January 1, 2005 and January 3, 2004 are
referred to herein as fiscal year 2005, 2004 and 2003, respectively. TMNG Europe
and TMNG Canada maintain year-end dates of December 31.

Revenue  Recognition - The Company  accounts for revenue and costs in connection
with  client  service  engagements  under a time and  materials  contract in the
period in which the service is performed.  The Company generally records revenue
in  connection  with fixed price  contracts  under a  percentage  of  completion
method.  This method of accounting results in the ratable recognition of revenue
in proportion to the related costs over the client service engagement. Estimates
are prepared to monitor and assess the Company's progress on the engagement from
the initial phase of the project to completion, and these estimates are utilized
in recognizing  revenue in the Company's  financial  statements.  If the current
estimates of total  contract  revenues and contract  costs  indicate a loss, the
Company records a provision for the entire loss on the contract. The Company has
no such loss contracts as of the end of fiscal years 2005 and 2004. Revenues and
related costs of smaller fixed price  contracts  are generally  recognized  upon
contract  completion under the completed  contract method, and generally involve
immaterial amounts and are of a short duration.

On a more limited  basis,  the Company also enters into gain sharing  contracts,
where the  Company's  revenue is determined on a  success-based  revenue  model.
Revenues generated on such contracts result from financial success recognized by
the client  utilizing agreed upon contract  measures and milestones  between the
two parties.  Due to the contingent nature of these gain-sharing  projects,  the
Company  recognizes  costs as they are  incurred  on the  project and defers the
revenue recognition until the revenue is realizable and earned.

Cash and Cash Equivalents - Cash and cash  equivalents  include cash on hand and
short-term  investments  with  original  maturities of three months or less when
purchased.

Short-Term   Investments   -   Short-term   investments,    which   consist   of
investment-grade auction rate securities, are classified as "available for sale"
under the provisions of Statement of Financial  Accounting  Standards (SFAS) No.
115,  "Accounting  for  Certain  Investments  in Debt  and  Equity  Securities."
Accordingly,  the short-term  investments  are reported at fair value,  with any
related  unrealized  gains  and  losses  included  as a  separate  component  of
stockholders'  equity, net of applicable taxes, when applicable.  Realized gains
and losses and interest and dividends are included in interest income within the
Consolidated  Statements  of Operations  and  Comprehensive  Loss.  Auction rate
securities  generally  reset every 28 to 35 days;  consequently,  interest  rate
movements  do not  materially  affect  the fair value of these  investments.  At
December 31, 2005 and January 1, 2005 there were no  unrealized  gains or losses
on short-term investments.

Fair  Value of  Financial  Instruments  - The fair  value of  current  financial
instruments  approximates  the carrying  value because of the short  maturity of
these instruments.

Property  and  Equipment  -  Property  and  equipment  are  stated  at cost less
accumulated  depreciation and amortization.  Maintenance and repairs are charged
to expense as incurred.  Depreciation is based on the estimated  useful lives of
the assets and is computed using the  straight-line  method,  and capital leases
are amortized on a straight-line  basis over the life of the lease.  Asset lives
range  from  three  to  seven  years  for  computers  and  equipment.  Leasehold
improvements  are capitalized and amortized over the life of the lease or useful
life of the asset, whichever is shorter.

Research and  Development  Costs -  Expenditures  relating to development of new
offerings and services are expensed as incurred.  Research and development costs
(exclusive of associated sales and marketing related costs) were $1.0 million in
fiscal year 2005,  no research  and  development  costs were  incurred in fiscal
years 2004 and 2003.

Goodwill - The Company  accounts for goodwill in accordance  with the provisions
of SFAS No. 142,  "Accounting  for Goodwill  and  Intangible  Assets."  Goodwill
represents  the  excess of  purchase  price  over the fair  value of net  assets
acquired  in  business  combinations  accounted  for as


                                       31
<PAGE>

purchases.  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
determines  impairment by comparing the net assets of each reporting unit to its
respective  fair value.  In the event a reporting  unit's carrying value exceeds
its fair value,  an indication  exists that the  reporting  unit goodwill may be
impaired.  In this situation,  the Company must determine the implied fair value
of  goodwill  by  assigning  the  reporting  unit's fair value to each asset and
liability of the reporting  unit.  The excess of the fair value of the reporting
unit over the amounts assigned to its assets and liabilities is the implied fair
value of goodwill.  An impairment loss is measured by the difference between the
goodwill carrying value and the implied fair value.

Intangible  Assets -  Intangible  assets  are  stated at cost  less  accumulated
amortization,  and represent  customer  relationships and employment  agreements
acquired in the acquisition of Cambridge  Strategic  Management Group (CSMG) and
Tri-Com Computer  Services,  Inc.  (Tri-Com),  and an investment in an exclusive
marketing  license  with S3  Matching  Technologies.  Amortization  is  based on
estimated  useful  lives  of 3 to 62  months,  depending  on the  nature  of the
intangible asset, and is recognized on a straight-line basis.

In connection  with SFAS No. 144  "Accounting  for the Impairment or Disposal of
Long-lived  Assets" the Company uses its best estimate,  based on reasonable and
supportable assumptions and projections, to review certain long-lived assets and
identifiable   intangibles   for  impairment   whenever  events  or  changes  in
circumstances  indicate  that the  carrying  amount of these assets might not be
recoverable.

Income Taxes - The Company  recognizes a liability or asset for the deferred tax
consequences  of  temporary  differences  between  the tax  basis of  assets  or
liabilities and their reported amounts in the financial statements.  A valuation
allowance is provided when, in the opinion of management, it is more likely than
not that some portion or all of a deferred tax asset will not be realized.

Use of Estimates - The  preparation of financial  statements in conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
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.

Foreign Currency Transactions and Translation - TMNG-Europe and TMNG-Canada both
conduct  business  primarily  denominated in their  respective  local  currency.
Assets and liabilities  have been  translated to U.S.  dollars at the period-end
exchange rate. Revenue and expenses have been translated at exchange rates which
approximate the average of the rates prevailing during each period.  Translation
adjustments are reported as a separate component of other  comprehensive  income
in the consolidated  statements of stockholders' equity. Realized and unrealized
exchange gains and losses included in results of operations  were  insignificant
for all periods presented.

Stock-Based  Compensation - The Company utilizes an intrinsic value  methodology
in  accounting   for  stock  based   compensation   for  employees  and  certain
non-employee   directors  in  accordance   with  the  provisions  of  Accounting
Principles  Board  (APB)  Opinion  No.  25,  "Accounting  for  Stock  Issued  to
Employees"   and  related   Interpretations,   and  accounts   for   stock-based
compensation for non-employees  utilizing a fair value methodology in accordance
with SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS
No. 148, "Accounting for Stock-Based  Compensation - Transition and Disclosure."
For an additional discussion of the Company's stock-based  compensation see Note
9 "Stock Option Plan and Stock Based Compensation." If compensation cost for the
Company's APB No. 25 grants,  restricted  stock grants,  and the employee  stock
purchase plan had been determined  under SFAS No. 123, based upon the fair value
at the grant date,  consistent with the Black-Scholes  pricing methodology,  the
Company's net loss for fiscal years 2005,  2004 and 2003 would have increased by
$1.7 million, $2.8 million and $1.1 million,  respectively.  For purposes of pro
forma  disclosures  required under the provisions of SFAS No. 123, as amended by
SFAS No.  148,  the  estimated  fair value of options and  restricted  stock are
amortized to pro forma  expense over the vesting  period.  The  following  table
contains  pro  forma  information  for  fiscal  years  2005,  2004  and 2003 (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
<S>                                                <C>           <C>           <C>

                                                    FISCAL        FISCAL        FISCAL
                                                     YEAR          YEAR          YEAR
                                                     2005          2004          2003
                                                   --------      --------      --------
Net loss, as reported:                             $ (2,420)     $ (8,695)     $(42,324)
  Add: Stock-based employee compensation
   expense included in reported net loss,
   net of related tax effects                           718         1,163            85

  Deduct:  Total stock-based compensation
   expense determined under fair value
   based method for all awards, net of related       (2,415)       (3,988)       (1,213)
   tax effects
                                                   --------      --------      --------
Pro forma net loss                                 $ (4,117)     $(11,520)     $(43,452)
                                                   ========      ========      ========
Loss per share
  Basic and diluted, as reported                   $  (0.07)     $  (0.25)     $  (1.26)
                                                   ========      ========      ========
  Basic and diluted, pro forma                     $  (0.12)     $  (0.33)     $  (1.30)
                                                   ========      ========      ========

</TABLE>


                                       32
<PAGE>


Earnings (Loss) Per Share - The Company  calculates and presents earnings (loss)
per share using a dual  presentation  of basic and diluted  earnings  (loss) per
share. Basic earnings (loss) per share is computed by dividing net income (loss)
by the weighted  average  number of common  shares  outstanding  for the period.
Diluted  earnings per share  reflects the  potential  dilution of  securities by
adding  common  stock  options and  unvested  restricted  stock in the  weighted
average  number of common  shares  outstanding  for a period,  if  dilutive.  In
accordance  with the  provisions  of SFAS No. 128,  "Earnings  Per  Share",  the
Company  has not  included  the  effect of common  stock  options  and  unvested
restricted  stock for fiscal years 2005, 2004 and 2003 as the Company reported a
loss from  continuing  operations  for those periods.  Had the Company  reported
income from  continuing  operations  in fiscal  years 2005,  2004 and 2003,  the
treasury  stock  method of  calculating  common  stock  equivalents  would  have
resulted in  approximately  426,000,  822,000 and  772,000  additional  dilutive
shares, respectively.


Recent  Accounting  Pronouncements  - In December 2004, the FASB issued SFAS No.
123R which  replaces  SFAS No. 123 and  supersedes  APB No.  25.  SFAS No.  123R
requires  compensation costs related to share-based  payment  transactions to be
recognized in the financial statements based on the fair value on the grant date
of the  equity  or  liability  instruments  issued.  Compensation  cost  will be
recognized  over the period  that an employee  provides  service for that award,
resulting in a decrease in net earnings.  The Company will adopt the  provisions
of this Statement,  as amended,  using the modified prospective method beginning
in fiscal year 2006.  Compensation  costs will be recognized for awards that are
issued beginning in 2006 and for awards that have been granted prior to December
31,  2005 but have yet to reach the end of the  requisite  service  period.  The
amount of expense  to be  recognized  over the  remaining  service  period as of
December 31, 2005 is  approximately  $3.0 million to $3.5  million.  The Company
will begin  expensing  these costs over the shorter of the vesting period or the
period  from the date of grant to the date the  employee  becomes  eligible  for
retirement.  Based on  currently  outstanding  options,  the Company  expects to
record a total  expense of  approximately  $2.0 million to $2.4  million  during
fiscal year 2006.


2.   GOODWILL AND OTHER INTANGIBLE ASSETS

During the second quarter of fiscal year 2003, the Company  performed an interim
goodwill  impairment  test due to  significantly  lower than expected  operating
results of the CSMG reporting unit and the  resignation of a key CSMG executive.
Based on an analysis of projected future cash flows and utilizing the assistance
of an outside valuation firm, the Company  determined that the carrying value of
goodwill  acquired in the CSMG  acquisition  exceeded  the fair market value and
recorded an  impairment  loss related to the  Management  Consulting  Segment of
approximately  $15.8  million in the second  quarter  of fiscal  year 2003.  The
Company  subsequently  performed its annual impairment test in October 2003, and
each year thereafter,  and concluded there was no additional goodwill impairment
as the  calculated  fair  values of its  reporting  units were higher than their
respective  carrying values. The goodwill impairment loss related to fiscal year
2003 has been reflected as a component of Loss from  Operations in the Statement
of Operations and Comprehensive Loss for that year.

In the first  quarter of fiscal  year 2004 the Company  recorded a $2.2  million
goodwill  impairment loss related to the discontinuation of the hardware segment
and has reflected this amount in the Statement of Operations  and  Comprehensive
Loss as a component of discontinued operations.

The changes in the  carrying  amount of  goodwill  as of  December  31, 2005 and
January 1, 2005 are as follows (amounts in thousands):

<TABLE>
<CAPTION>
<S>                                         <C>                      <C>           <C>

                                            Management Consulting    All Other
                                                   Segment            Segment       Total
                                            ---------------------    ---------     --------
Balance as of January 3, 2004                     $ 13,365            $  2,163     $ 15,528

2004 impairment loss on
  discontinued operations                                               (2,163)      (2,163)
                                                  --------           ---------     --------
Balance as of January 1, 2005 and
  December 31, 2005                               $ 13,365                         $ 13,365
                                                  ========           =========     ========

</TABLE>

Included in intangible assets, net are the following (amounts in thousands):


                             December 31, 2005         January 1, 2005
                            -------------------     ---------------------
                                   Accumulated                Accumulated
                            Cost   Amortization      Cost    Amortization
                            ----   ------------      ----    ------------
Customer relationships     $1,908    $(1,709)        $1,908     $(1,538)
Employment agreements       3,200     (3,200)         3,200      (3,083)
S3 license agreement        1,500        (48)
                          -------    -------        -------     -------
Total                      $6,608    $(4,957)        $5,108     $(4,621)
                          =======    =======        =======     =======


                                       33
<PAGE>

During fiscal year 2003, in accordance  with the provisions of SFAS No. 144, the
Company  determined that the carrying value of customer  relationships  exceeded
its fair market value and recorded an impairment  loss related to the Management
Consulting  Segment and All Other Segment of approximately $3.4 million and $0.3
million,  respectively. The impairment losses have been reflected as a component
of Loss from  Operations in the Statement of Operations and  Comprehensive  Loss
for fiscal year 2003.

During  fiscal  year  2005,  the  Company  entered  into a  five-year  exclusive
marketing  license with S3 Matching  Technologies  Inc. to resell their products
and solutions.  The $1.5 million cost of this license has been capitalized as an
intangible  asset and is being amortized over the 62 month life of the agreement
on a straight-line basis.

Intangible assets amortization  expense for fiscal years 2005, 2004 and 2003 was
$0.3  million,   $1.0  million  and  $2.3  million,   respectively.   Intangible
amortization  expense is  estimated to be  approximately  $0.5 million in fiscal
year 2006 and $0.3 million in fiscal years 2007 through 2010.

3.   DISCONTINUED OPERATIONS

On March 4, 2004,  management and the Board of Directors  elected to discontinue
the hardware segment of the Company.  The Company concluded that this segment of
the business did not align well with the strategic focus of the Company. Charges
related to the  discontinuation  of the hardware  business  were $2.2 million in
fiscal year 2004 and relate  primarily  to  goodwill  impairment  and  severance
charges.  These charges are reported as a component of discontinued  operations.
The  hardware   segment's   results  of  operations   have  been  classified  as
discontinued operations and prior periods have been restated.

Revenue and income (loss) from  discontinued  operations are as follows (amounts
in thousands):

                                         Fiscal        Fiscal
                                          Year          Year
                                          2004          2003
                                        --------      --------
        Revenue                         $     13      $    231

        Goodwill impairment
         and severance charge           $ (2,213)
        Operating income (loss)         $    (63)     $     87
        Income tax provision                          $     53
                                        --------      --------
        Income (loss) from
          discontinued operations       $ (2,276)     $     34
                                        ========      ========

4.   MAJOR CUSTOMERS AND SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK

The Company  identifies its segments  based on the way management  organizes the
Company  to  assess  performance  and make  operating  decisions  regarding  the
allocation  of  resources.  In  accordance  with the  criteria  in SFAS No.  131
"Disclosure  about  Segments  of an  Enterprise  and Related  Information,"  the
Company has  concluded it has four  operating  segments:  Operations,  Strategy,
Marketing and International, which are aggregated in one reportable segment, the
Management Consulting Services segment.  Management Consulting Services includes
business strategy and planning,  marketing and customer relationship management,
billing system support,  operating system support, revenue assurance,  corporate
investment services, and network management.  The Company intends to continue to
measure and report its activities using our current segment structure.  However,
as the services  provided by the Company  evolve,  management  will  continue to
evaluate its segment reporting structure.

Major  customers in terms of  significance to TMNG's revenues (i.e. in excess of
10% of revenues) for fiscal years 2005,  2004 and 2003, and accounts  receivable
as of  December  31,  2005 and  January  1, 2005  were as  follows  (amounts  in
thousands):

<TABLE>
<CAPTION>
<S>                       <C>           <C>            <C>         <C>             <C>

                                        REVENUES                       ACCOUNTS RECEIVABLE
                          ------------------------------------     ---------------------------
                           FISCAL        FISCAL        FISCAL
                            YEAR          YEAR          YEAR       December 31,    January 1,
                            2005          2004          2003          2005            2005
                          --------       ------        ------      ------------   ------------
Customer A .........      $ 6,098                                      $  709
Customer B .........                     $2,894        $3,238                         $  438
Customer C .........      $ 6,469        $3,305        $2,692          $1,149         $  906

</TABLE>

Revenues  from  the  Company's  ten most  significant  customers  accounted  for
approximately 71%, 67% and 67% of revenues for fiscal years 2005, 2004 and 2003,
respectively.

Substantially  all of TMNG's  receivables  are  obligations  of companies in the
communications,  media and entertainment industries.  The


                                       34
<PAGE>

Company generally does not require  collateral or other security on its accounts
receivable.  The credit risk on these  accounts  is  controlled  through  credit
approvals,  limits and  monitoring  procedures.  The  Company  records  bad debt
expense based on judgment about the anticipated default rate on receivables owed
to TMNG at the end of the  reporting  period.  That  judgment  is  based  on the
Company's  uncollected  account  experience  in  prior  years  and  the  ongoing
evaluation  of the  credit  status of TMNG's  customers  and the  communications
industry  in  general.  The  changes in the  Company's  allowance  for  doubtful
accounts are as follows (amounts in thousands):



                                   FISCAL       FISCAL        FISCAL
                                    YEAR         YEAR          YEAR
                                    2005         2004          2003
                                  -------      --------      --------
        Beginning balance         $   396           652           471
        Bad debt expense (benefit)    (59)          399           575
        Account write-offs            (41)         (655)         (394)
                                  -------      --------      --------
        Ending balance            $   296      $    396      $    652
                                  =======      ========      ========

Revenues earned in the United States and  internationally  based on the location
where the services are performed are as follows (amounts in thousands):

<TABLE>
<CAPTION>
<S>                             <C>           <C>           <C>             <C>           <C>           <C>

                                                                           LOSS FROM CONTINUING OPERATIONS BEFORE
                                             REVENUE                          INCOME TAX (PROVISIONS) BENEFIT
                               ------------------------------------        --------------------------------------
                                  FY            FY            FY              FY            FY            FY
                                 2005          2004          2003            2005          2004          2003
                                --------      --------      --------        --------      --------      --------
    United States ........      $ 29,179      $ 18,427      $ 20,915        $ (2,290)     $ (4,952)     $(26,473)
    International:
      The Netherlands ....            40           891           964              (3)         (239)       (1,203)
      Canada .............                         245            95                           (66)         (119)
      Belize .............                         173           704                           (46)         (879)
      Portugal  ..........                       1,124           451                          (302)         (562)
      Great Britain ......         1,153         2,296                           (90)         (617)
      Australia ..........                         386                                        (104)
      Other ..............             6           162           116              (1)          (44)         (144)
                                --------      --------      --------        --------      --------      --------
            Total ......        $ 30,378      $ 23,704      $ 23,245        $ (2,384)     $ (6,370)     $(29,380)
                                ========      ========      ========        ========      ========      ========

</TABLE>

No significant long-lived assets are deployed outside the United States.

5.   PROPERTY AND EQUIPMENT

                                                     December 31,   January 1,
                                                         2005          2005
                                                     ------------  ------------
                                                               (000'S)
Furniture and fixtures.............................     $  660        $  823
Software and computer equipment....................      2,140         2,777
Leasehold improvements.............................        774           479
                                                        ------        ------
                                                         3,574         4,079
Less: Accumulated depreciation and amortization....      2,674         3,183
                                                        ------        ------
                                                        $  900        $  896
                                                        ======        ======

Depreciation   and   amortization   expense  on  property  and   equipment   was
approximately  $486,000,  $680,000 and $854,000 for fiscal years 2005,  2004 and
2003, respectively.



                                       35
<PAGE>


6.   INCOME TAXES

For fiscal  years  2005,  2004 and 2003,  the income  tax  provision  (benefit),
exclusive of the tax associated with the discontinued operations consists of the
following (amounts in thousands):



                                          FISCAL         FISCAL         FISCAL
                                           YEAR           YEAR           YEAR
                                           2005           2004           2003
                                         --------       --------       --------
Federal
  Current ............................                                 $   (992)
  Deferred tax benefit ...............   $   (714)       $(1,992)        (8,698)
  Change in valuation allowance.......        714          1,992         20,999
                                         --------       --------       --------
                                                0              0         11,309
State
  Current ............................         36             49
  Deferred tax benefit ...............       (213)          (700)        (1,244)
  Change in valuation allowance ......        213            700          3,000
                                         --------       --------       --------
                                               36             49          1,756
Foreign
  Current ............................                                      (87)
  Deferred tax expense ...............         14             99
  Change in valuation allowance ......        (14)           (99)
                                         --------       --------       --------
                                                0              0            (87)
                                         --------       --------       --------
Total ................................   $     36       $     49       $ 12,978
                                         ========       ========       ========

The  Company  has fully  reserved  its  deferred  tax  assets  with a  valuation
allowance as of December 31, 2005 and January 1, 2005,  in  accordance  with the
provisions of SFAS No. 109  "Accounting  for Income  Taxes."  Realization of the
deferred  tax  asset is  dependent  on  generating  sufficient  income in future
periods.  In  evaluating  the ability to recover its  deferred  tax assets,  the
Company  considers  all positive and negative  evidence  including the Company's
past operating  results,  the existence of cumulative  losses in the most recent
fiscal year and the Company's  forecast of future income. In determining  future
income, the Company is responsible for assumptions utilized including the amount
of state, federal and international  operating income, the reversal of temporary
differences  and  the  implementation  of  feasible  and  prudent  tax  planning
strategies.  These assumptions require significant  judgment about the forecasts
of future income and are consistent  with the plans and estimates the Company is
using to manage the underlying business.

In  the  fourth  quarter  of  fiscal  year  2003,  the  Company  reassessed  all
significant  estimates  and judgments  made in connection  with its SFAS No. 109
analysis.  In  performing  the  updated  analysis  of the  realizability  of its
deferred tax assets, the Company considered  continuing market uncertainties and
concluded  that an increase to the  valuation  allowance for deferred tax assets
was required.  Accordingly,  based upon the Company's best estimate, the Company
recorded a non-cash  charge in the fourth  quarter of fiscal  year 2003 of $18.0
million to increase the  valuation  allowance and fully reserve for all deferred
tax assets.

The following is a reconciliation between the provision for income taxes and the
amounts  computed  based on loss from  continuing  operations  at the  statutory
federal income tax rate (amounts in thousands):



<TABLE>
<CAPTION>
<S>                                          <C>         <C>       <C>         <C>       <C>         <C>

                                                FISCAL YEAR          FISCAL YEAR            FISCAL YEAR
                                                    2005                 2004                   2003
                                             -----------------     -----------------     -----------------
                                              AMOUNT       %        AMOUNT       %        AMOUNT       %
                                             --------     ----     --------     ----     --------     ----
Computed expected federal income
 tax benefit ..........................      $   (835)   (35.0)    $ (2,229)   (35.0)    $(10,282)   (35.0)
State income tax expense, net of
 federal benefit ......................          (115)    (4.8)        (298)    (4.7)      (1,252)    (4.3)
Goodwill impairment....................                                                       217      0.7
Other .................................            73      3.0          (17)    (0.2)         316      1.1
Valuation allowance ...................           913     38.3        2,593     40.7       23,979     82.0
                                             --------     ----     --------     ----     --------     ----
          Total .......................      $     36      1.5     $     49      0.8     $ 12,978     44.5
                                             ========     ====     ========     ====     ========     ====

</TABLE>


                                       36
<PAGE>

Items giving rise to the  provision for deferred  income taxes  (benefit) are as
follows (amounts in thousands):


<TABLE>
<CAPTION>
<S>                                                   <C>            <C>            <C>

                                                       FISCAL         FISCAL         FISCAL
                                                        YEAR           YEAR           YEAR
                                                        2005           2004           2003
                                                      --------       --------       --------
Goodwill .......................................      $  1,349       $  1,402       $ (4,961)
Bad debt reserve ...............................            22            100            (97)
Stock compensation expense .....................           497           (196)            45
Intangible assets ..............................           113           (156)        (1,831)
Valuation allowance ............................           913          2,593         23,999
Net operating loss carryforward ................        (2,993)        (3,318)        (3,212)
Unfavorable lease liability                                206           (359)           166
Other ..........................................          (107)           (66)             2
                                                      --------       --------       --------
          Total ................................      $      0       $      0       $ 14,111
                                                      ========       ========       ========

</TABLE>

The significant components of deferred income tax assets and the related balance
sheet  classifications,  as of December 31, 2005, January 1, 2005 and January 3,
2004 are as follows (amounts in thousands):

<TABLE>
<CAPTION>
<S>                                              <C>            <C>           <C>

                                                 DECEMBER 31,   JANUARY 1,    JANUARY 3,
                                                     2005          2005         2004
                                                 ------------  -----------  -----------
Current deferred tax assets:
  Accounts receivable .......................    $      118           140    $     240
  Accrued expenses ..........................           118           147          296
  Unfavorable lease liability ...............           239           212
  Valuation allowance........................          (475)         (499)        (536)
                                                 ----------     ---------    ---------
          Current deferred tax asset ........    $        0     $       0    $       0
                                                 ==========     =========    =========


Non-current deferred tax assets:
  Goodwill ..................................    $   10,530        11,879    $  13,281
  Stock compensation expense ................         1,838         2,335        2,193
  Unfavorable lease liability........... ....         1,096         1,329        1,017
  Net operating loss carryforward ...........        10,301         7,308        3,944
  Intangible assets..........................         2,584         2,696        2,540
  Reserves ..................................           395           365          415
  Other .....................................           271           173           73
  Valuation allowance .......................       (27,015)      (26,085)     (23,463)
                                                 ----------     ---------    ---------
          Non-current deferred tax asset ....    $        0     $       0    $       0
                                                 ==========     =========    =========

</TABLE>

The net  operating  loss  carryforward  as of December  31, 2005 is scheduled to
expire as follows (amounts in thousands):


                         Amount            Year
                        $ 1,831            2016
                          5,602            2023
                         10,970            2024
                          7,206            2025
                        -------
        Total           $25,609
                        =======


                                       37
<PAGE>

7.   REAL ESTATE RESTRUCTURING

In the fourth  quarter of fiscal  year 2004,  the Company  made the  decision to
consolidate office space. In connection with this decision, a sublease agreement
for  unutilized  space was entered into with a third party for the  remainder of
the original  lease term.  Due to current  market  conditions,  the terms of the
sublease  require payments by the sublessee which are less than the payments the
Company  must make to the  original  lessor.  In  accordance  with SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal  Activities," the Company
recognized a charge of $1.3 million for the present value of the total remaining
lease payments less amounts to be received  under the sublease.  The decision to
consolidate space also resulted in charges of $163,000 relating to impairment of
fixed  assets/leasehold  improvements and $122,000 for brokerage  commissions in
connection with the sublease.  The restructuring charge of $1.5 million has been
reflected as a component of Loss from  Operations in the Statement of Operations
and Comprehensive  Loss in the year ended January 1, 2005.  Additional  expenses
totaling $75,000  associated with the space  consolidation  were incurred in the
year ended December 31, 2005.

8.   LEASE COMMITMENTS

The Company leases office facilities,  computer equipment, office furniture, and
an automobile  under various  operating leases expiring at various dates through
May 2011.

Following is a summary of future minimum  payments under  operating  leases that
have  initial or remaining  noncancellable  lease terms in excess of one year at
December 31, 2005 (amounts in thousands):

                                                     OPERATING
          FISCAL YEAR                                 LEASES
          ---------------------------------------   -----------

          2006                                       $   1,887
          2007                                           1,886
          2008                                           1,891
          2009                                           1,793
          2010                                           1,640
          Thereafter                                       131
                                                     ---------
          Total minimum lease payments                   9,219
          Future minimum rentals to be received
           under noncancellable subleases               (1,444)
                                                     ---------
          Minimum lease payments net of amounts
           to be received under subleases            $   7,775
                                                     =========

Operating  lease  minimum  payments  include  the  off-market  portion  of lease
payments  recorded through purchase  accounting in connection with the Company's
acquisition  of CSMG  and  continuing  lease  commitments  associated  with  the
consolidation  of office space. As of December 31, 2005 and January 1, 2005, the
unamortized  balance of these unfavorable lease liabilities was $3.3 million and
$3.9 million, respectively.

At  December  31,  2005 and  January  1, 2005,  future  minimum  payments  under
capitalized leases were $4,000 and $16,000,  respectively.  All existing capital
leases expire during fiscal year 2006.  Assets recorded under capital leases are
included in property and equipment as follows (amounts in thousands):

                                              December 31,    January 1,
                                                  2005           2005
                                              -----------    -----------
     Furniture and fixtures                   $                      156
     Software and computer equipment                  476    $       505
                                              -----------    -----------
                                                      476            661
     Less: Accumulated depreciation                  (472)          (534)
                                              -----------    -----------
                                              $         4    $       127
                                              ===========    ===========


Total rental expense was approximately  $946,000,  $1,852,000 and $1,911,000 for
fiscal years 2005, 2004 and 2003, respectively.

9.   STOCK OPTION PLAN AND STOCK BASED COMPENSATION

The  Company's  1998  Equity  Incentive  Plan (the 1998  Plan) is a  shareholder
approved plan,  which  provides for the granting of incentive  stock options and
nonqualified  stock options to  employees,  and  nonqualified  stock options and
restricted  shares to  employees,  directors  and


                                       38
<PAGE>

consultants.  The Company has  7,642,390  shares of the  Company's  common stock
authorized  for issuance as stock options under the 1998 Plan.  Incentive  stock
options are  granted at an exercise  price of not less than fair value per share
of the  common  stock  on the  date of  grant  as  determined  by the  Board  of
Directors.  Vesting  and  exercise  provisions  are  determined  by the Board of
Directors. As of December 31, 2005, all options granted under the 1998 Plan were
non-qualified  stock  options.  Options  granted  under the 1998 Plan  generally
become  exercisable  over a three to four year period  beginning  on the date of
grant. Options granted under the 1998 Plan have a maximum term of ten years.

A summary of the status of the  Company's  1998 Plan as of  December  31,  2005,
January 1, 2005 and January 3, 2004 and changes during the years ending on those
dates is presented below:

EXERCISE PRICE EQUALS FAIR MARKET VALUE AT GRANT DATE:


<TABLE>
<CAPTION>
<S>                                <C>            <C>               <C>                <C>          <C>           <C>

                                            DECEMBER 31,                     JANUARY 1,                       JANUARY 3,
                                                2005                            2005                             2004
                                   -------------------------------  ----------------------------    ------------------------------
                                                  WEIGHTED AVERAGE              WEIGHTED AVERAGE                  WEIGHTED AVERAGE
                                     SHARES        EXERCISE PRICE     SHARES     EXERCISE PRICE       SHARES       EXERCISE PRICE

Outstanding at beginning of year    3,902,196          $ 5.54       4,233,696          $5.57        3,143,459          $ 8.72
Granted                             1,761,000          $ 2.45         405,500          $2.38        1,967,500          $ 2.07
Exercised                            (540,205)         $ 1.73        (258,831)         $1.57         (116,221)         $ 1.43
Forfeited/cancelled                  (560,711)         $ 6.21        (478,169)         $5.27         (761,042)         $10.17
                                    ---------                       ---------                       ---------
Outstanding at end of year          4,562,280          $ 4.72       3,902,196          $5.54        4,233,696          $ 5.57
                                    =========                       =========                       =========

Options exercisable at year-end     2,322,761          $ 6.97       2,331,710          $7.66        1,661,916          $ 9.15
                                    =========                       =========                       =========
Weighted average fair value of
 options granted during the year                       $ 1.58                          $1.76                           $ 1.60

</TABLE>


The  following  table  summarizes  information  about market value stock options
outstanding as of December 31, 2005:

<TABLE>
<CAPTION>
<S>                     <C>                <C>                <C>                     <C>              <C>

                                                              WEIGHTED AVERAGE
                                              WEIGHTED            REMAINING                               WEIGHTED
    RANGE OF              NUMBER              AVERAGE            CONTRACTUAL             NUMBER            AVERAGE
EXERCISE PRICES         OUTSTANDING        EXERCISE PRICE           LIFE              EXERCISABLE      EXERCISE PRICE
----------------     -----------------     --------------     ----------------      -----------------   --------------
$ 0.00 to $ 2.00           655,268             $ 1.63               7.12                478,426           $ 1.58
$ 2.01 to $ 3.00         2,618,333             $ 2.40               9.05                568,656           $ 2.30
$ 3.01 to $ 4.00           250,279             $ 3.89               5.59                237,279           $ 3.91
$ 4.01 to $ 5.00           375,000             $ 4.82               5.52                375,000           $ 4.82
$ 5.01 to $10.00           204,000             $ 6.75               5.39                204,000           $ 6.75
$10.01 to $20.00           129,500             $15.12               4.62                129,500           $15.12
$20.01 to $35.00           329,900             $24.41               4.23                329,900           $24.41
                         ---------                                                    ---------
   TOTAL                 4,562,280             $ 4.72                                 2,322,761           $ 6.97
                         =========                                                    =========

</TABLE>

EXERCISE PRICE LESS THAN FAIR MARKET VALUE AT GRANT DATE:

<TABLE>
<CAPTION>
<S>                                   <C>            <C>               <C>         <C>                <C>            <C>

                                            DECEMBER 31,                        JANUARY 1,                     JANUARY 3,
                                                2005                               2005                           2004
                                    -----------------------------    ------------------------------    --------------------------
                                                 WEIGHTED AVERAGE                  WEIGHTED AVERAGE              WEIGHTED AVERAGE
                                      SHARES      EXERCISE PRICE       SHARES      EXERCISE PRICE      SHARES     EXERCISE PRICE
Outstanding at beginning of year      553,189        $  2.44           629,919        $  2.51          768,336       $  2.38
Granted                                                                                                 50,000       $  2.31
Exercised                             (52,209)       $  1.88           (34,167)       $  1.94          (84,667)      $  1.90
Forfeited/cancelled                   (10,855)       $  1.84           (42,563)       $  3.90         (103,750)      $  2.00
                                     ---------                       ---------                         -------
Outstanding at end of year            490,125        $  2.51           553,189        $  2.44          629,919       $  2.51
                                     =========                       =========                         =======

Options exercisable at year-end       473,458        $  2.52           519,855        $  2.45          579,919       $  2.52
                                     =========                       =========                         =======
Weighted average fair value of
 options granted during the year                                                                                     $  2.69

</TABLE>

The  following  table  summarizes  information  about below  market  value stock
options outstanding at December 31, 2005:

<TABLE>
<CAPTION>
<S>                   <C>             <C>                <C>                  <C>              <C>

                                         WEIGHTED         REMAINING                              WEIGHTED
    RANGE OF            NUMBER           AVERAGE         CONTRACTUAL            NUMBER            AVERAGE
 EXERCISE PRICES      OUTSTANDING     EXERCISE PRICE         LIFE             EXERCISABLE      EXERCISE PRICE
 ---------------   ----------------   --------------   ----------------    -----------------   --------------
$ 0.00 to $ 2.00          360,125              $1.88             3.42                 360,125            $1.88
$ 2.01 to $ 3.00           50,000              $2.31             7.96                  33,333            $2.31
$ 3.01 to $ 4.00           50,000              $4.00             3.87                  50,000            $4.00
$ 4.01 to $ 5.00
$ 5.01 to $10.00           30,000              $8.00             3.81                  30,000            $8.00
$10.01 to $20.00
$20.01 to $35.00
                         ---------                                                   ---------
   TOTAL                  490,125              $2.51                                  473,458            $2.52
                         =========                                                   =========

</TABLE>


                                       39
<PAGE>

The Company has 305,000  shares of the  Company's  common stock  authorized  for
issuance as restricted shares under the 1998 Plan for key management  personnel.
The shares are subject to  restriction  based upon a two year  vesting  schedule
where 30% of the shares vest on the first  anniversary of the grant date and the
remaining 70% of the shares vest on the second anniversary.

A summary of the status of the restricted  shares granted under the 1998 Plan as
of December 31, 2005, January 1, 2005 and January 3, 2004 and changes during the
years ending on those dates is presented below:

RESTRICTED STOCK:

<TABLE>
<CAPTION>
<S>                                           <C>                              <C>                              <C>

                                              DECEMBER 31,                     JANUARY 1,                       JANUARY 3,
                                                  2005                           2005                              2004
                                   -------------------------------  ----------------------------    ------------------------------

                                                 SHARES                          SHARES                           SHARES
Outstanding at beginning of year                 658,000                        720,000
Granted                                          300,000                         15,000                           720,000
Forfeited/cancelled                              (63,000)                       (77,000)
                                                --------                       --------                          --------
Outstanding at end of year                       895,000                        658,000                           720,000
                                                ========                       ========                          ========

Weighted average fair value of
 Shares granted during the year                  $  2.32                        $  2.01                            $2.87

</TABLE>

The Company has 3,788,127  shares of the Company's  common stock  authorized for
issuance  under the 2000  Supplemental  Stock  Plan (the  2000  Plan).  The plan
provides  the  Company's  common stock for the  granting of  nonqualified  stock
options to employees  and is not subject to  shareholder  approval.  Vesting and
exercise  provisions are determined by the Board of Directors.  Options  granted
under the plan become exercisable over a period of up to four years beginning on
the date of grant and have a maximum term of ten years.

A summary of the status of the  Company's  2000 Plan as of  December  31,  2005,
January 1, 2005 and  January 3, 2004,  and  changes  during the years  ending on
those dates is presented below:

EXERCISE PRICE EQUALS FAIR MARKET VALUE AT GRANT DATE:

<TABLE>
<CAPTION>
<S>                                  <C>               <C>          <C>         <C>                <C>          <C>

                                              DECEMBER 31,                    JANUARY 1,                     JANUARY 3,
                                                  2005                           2005                           2004
                                     ----------------------------   ----------------------------   -----------------------------
                                                 WEIGHTED AVERAGE               WEIGHTED AVERAGE                WEIGHTED AVERAGE
                                       SHARES     EXERCISE PRICE      SHARES     EXERCISE PRICE      SHARES      EXERCISE PRICE
Outstanding at beginning of year     1,053,564         $4.71        1,175,160        $4.78          2,212,226         $4.62
Granted                                182,500         $2.45          117,500        $2.54             10,000         $1.77
Exercised                               (9,915)        $2.11          (45,167)       $3.04            (44,416)        $1.85
Forfeited/cancelled                   (269,109)        $3.55         (193,929)       $4.23         (1,002,650)        $4.53
                                     ---------                      ---------                      ----------
Outstanding at end of year             957,040         $4.63        1,053,564        $4.71          1,175,160         $4.78
                                     =========                      =========                      ==========

Options exercisable at year-end        672,225         $5.44          635,630        $5.60            527,545         $5.62
                                     =========                      =========                      ==========
Weighted average fair value of
 options granted during the year                       $1.62                         $2.38                            $1.37

</TABLE>


                                       40
<PAGE>


The following table summarizes  information  about stock options  outstanding at
December 31, 2005:

<TABLE>
<CAPTION>
<S>                       <C>               <C>                <C>                       <C>              <C>

                                                               WEIGHTED AVERAGE
                                               WEIGHTED           REMAINING                                  WEIGHTED
    RANGE OF                NUMBER             AVERAGE           CONTRACTUAL               NUMBER             AVERAGE
 EXERCISE PRICES          OUTSTANDING       EXERCISE PRICE          LIFE                 EXERCISABLE      EXERCISE PRICE
----------------       -----------------    --------------     ----------------       -----------------   --------------
$ 0.00 to $ 2.00           71,000              $ 1.88               7.40                    40,166            $ 1.86
$ 2.01 to $ 3.00          204,834              $ 2.45               9.62
$ 3.01 to $ 4.00          456,706              $ 3.72               5.60                   415,893            $ 3.78
$ 4.01 to $ 5.00           11,000              $ 4.96               6.73                     7,666            $ 4.98
$ 5.01 to $10.00          160,000              $ 5.88               5.81                   155,000            $ 5.86
$10.01 to $20.00            3,500              $13.68               4.83                     3,500            $13.68
$20.01 to $35.00           50,000              $21.00               4.68                    50,000            $21.00
                         ---------                                                        ---------
   TOTAL                  957,040              $ 4.63                                      672,225            $ 5.44
                         =========                                                        =========

</TABLE>

EXERCISE PRICE LESS THAN FAIR MARKET VALUE AT GRANT DATE:



<TABLE>
<CAPTION>
<S>                                        <C>      <C>                   <C>       <C>

                                                  JANUARY 1,                     JANUARY 3,
                                                     2005                           2004
                                          --------------------------      --------------------------
                                                    WEIGHTED AVERAGE                WEIGHTED AVERAGE
                                           SHARES     EXERCISE PRICE       SHARES     EXERCISE PRICE
Outstanding at beginning of year            8,125          $5.50           23,537          $5.50
Forfeited/cancelled                        (8,125)         $5.50          (15,412)         $5.50
                                           ------                          ------
Outstanding at end of year                      0                           8,125          $5.50
                                           ======                          ======

Options exercisable at year-end                 0                           8,125          $5.50
                                           ======                          ======

</TABLE>

At December 31, 2005, the Company had a total of 6,009,445  outstanding  options
to acquire shares with a weighted average exercise price of $4.52 and a weighted
average  remaining  contractual  life of 7.18 years. Of these options  3,468,444
were  exercisable at December 31, 2005 with a weighted average exercise price of
$6.08.

The  Company  follows  APB  Opinion  No. 25 to account  for the  employee  stock
purchase  plan  and for  employee  and  certain  non-employee  directors'  stock
options.  In connection  with stock option grants made in fiscal year 2003,  the
Company recorded unearned  compensation of approximately  $58,000,  representing
the difference between the exercise price and the fair value of the common stock
on the dates such stock options were granted.  Such amounts are being  amortized
by charges to  operations  on a graded  vesting  method  over the  corresponding
vesting period of each respective  option,  generally  three to four years.  All
option grants in 2005 and 2004 were issued with the exercise price of the option
equal to the market price of the Company's stock as of the grant date.

The Company  also  follows APB  Opinion No. 25 to account for  restricted  stock
grants made to key management  personnel.  In connection with  restricted  stock
granted during fiscal years 2005,  2004 and 2003 the Company  recorded  unearned
compensation of approximately $695,000,  $30,000, and $2,070,000,  respectively,
representing  the fair  value of the  common  stock on the date such  restricted
stock grants were made. The  compensation  cost associated with restricted stock
is being amortized by charges to operations on a graded vesting  schedule over a
period of two years from the date of grant for the fiscal  year 2003  grants and
four years from the date of grant for the fiscal year 2005 grants.

The Company recognizes compensation cost over the vesting periods. These options
and restricted  shares have resulted in equity related  charges to operations of
approximately  $0.7  million,  $1.2  million,  and $0.1 million for fiscal years
2005,  2004 and 2003,  respectively.  These expenses have been  allocated  among
various expense categories.

During fiscal year 2000,  the Company  initiated an employee stock purchase plan
for all eligible employees. Under the plan, shares of the Company's common stock
may be purchased  at six-month  intervals at 85% of the lower of the fair market
value  on the  first  day of the  enrollment  period  or on the last day of each
six-month  period.  Employees may purchase  shares  through a payroll  deduction
program having a value not exceeding 15% of their gross  compensation  during an
offering period.  During fiscal years 2005, 2004 and 2003, 116,000,  99,000, and
67,000 shares were purchased under the plan, respectively. At December 31, 2005,
739,000  shares were reserved for future  issuance.  The employee stock purchase
plan is classified as a non-compensatory plan under APB No. 25.

The  Company  follows APB  Opinion  No. 25 to account  for its stock  plans.  In
accordance with SFAS No. 123 the Company also calculates the pro forma impact of
applying the fair value provisions of that standard. Those pro forma disclosures
have been  included in Note 1. The fair value of each option grant was estimated
using the following assumptions:


                                       41
<PAGE>


<TABLE>
<CAPTION>
<S>                                <C>                 <C>                 <C>

                                   FISCAL YEAR 2005    FISCAL YEAR 2004    FISCAL YEAR 2003
                                   ----------------    -----------------   ----------------
Expected volatility factor.....           83%                 91%                104%
Risk-free interest rate........      3.58% - 4.55%       3.00% - 4.10%       1.04% - 3.44%
Expected life of options.......        5 years              5 years             5 years
Expected life of stock issued
 under employee stock purchase
 plan..........................    0.5 - 2.0 years      0.5 - 2.0 years     0.5 - 2.0 years
Expected dividend rate.........           0%                  0%                  0%

</TABLE>

10.  LOANS TO OFFICERS

As of December 31, 2005,  there is one  outstanding  line of credit  between the
Company and its Chief Executive Officer, Richard P. Nespola, which originated in
fiscal year 2001. Aggregate borrowings outstanding against the line of credit at
December  31, 2005 and  January 1, 2005  totaled  $300,000  and are due in 2011.
These amounts are included in other assets in the non-current  assets section of
the balance sheet.  In accordance  with the loan  provisions,  the interest rate
charged on the loans is equal to the Applicable Federal Rate (AFR), as announced
by the  Internal  Revenue  Service,  for  short-term  obligations  (with  annual
compounding)  in effect for the month in which the advance is made,  until fully
paid.  Pursuant to the  Sarbanes-Oxley  Act, no further loan agreements or draws
against  the line may be made by the  Company to, or arranged by the Company for
its  executive  officers.  Interest  payments  on this  loan are  current  as of
December 31, 2005.

11.  LETTER OF CREDIT

In March 2002, the Company  entered into a $1.0 million standby letter of credit
(LOC)  facility  with a  financial  institution  in  connection  with  the  CSMG
acquisition. The LOC was required as part of the assignment of the leased office
space from the seller to the Company. The Company originally  collateralized the
LOC with a $1.0 million cash  deposit  with  reductions  in this amount based on
passage of time.  As of December  31, 2005 and for the  remainder of the term of
the LOC, the collateral  amount is $273,000.  The collateral  deposited for this
LOC is included in "Cash and Cash  Equivalents"  on the  Company's  consolidated
condensed balance sheet as of December 31, 2005 and January 1, 2005. The Company
would be required to perform  under the agreement in the event it was to default
on balances due and owing the landlord on the leased office space. An obligation
has not been recorded in connection  with the LOC on the Company's  consolidated
condensed balance sheet as of December 31, 2005 and January 1, 2005.

12.  RELATED PARTY TRANSACTIONS

During fiscal year 2004, the Company made payments of $55,000 to a legal firm in
which a member of the Board of Directors owns an equity interest.  Such payments
were made in  connection  with matters  arising in the normal course of business
and were within the limitations set forth by NASDAQ rules.

13.  SIGNIFICANT CUSTOMER CONTRACT SETTLEMENT

On December 10, 1999, the Company entered into a consulting  services  agreement
with a significant customer under which the customer committed to $22 million of
consulting  fees over a three-year  period  commencing  January 1, 2000.  During
fiscal year 2002 the agreement was extended for two additional  years beyond the
original term of the agreement, in exchange for an expanded preferred contractor
relationship and immediate commitment to a significant  consulting  arrangement.
The agreement  provided for minimum annual usage requirements in connection with
consulting  services performed under the agreement,  and as of January 3, 2004 a
shortfall in minimum annual usage requirements of consulting  services under the
agreement  was deemed to have  occurred.  The  shortfall was not remedied by the
customer during the first quarter of 2004,  resulting in the customer's  default
on the contract.

On March 4, 2004,  the Company filed suit against the customer for breach of the
consulting agreement,  seeking damages of approximately $5.7 million against the
customer.  The customer  responded to the suit on March 26, 2004 with its answer
and two  counterclaims,  neither of which  sought  money  damages.  The customer
requested a declaration  that the Company first  breached the agreement and that
the customer was therefore not liable for any damages. Additionally,  during the
first  quarter of fiscal  year 2004 the  customer  informed  the  Company of its
decision to cancel the consulting agreement.

On August 25, 2004 the Company entered into a mediated  settlement  agreement to
settle the pending  litigation  with the customer.  Pursuant to the terms of the
settlement agreement, each party was dismissed from any liability for the claims
made  against it and the  customer  agreed to make a  settlement  payment to the
Company in the amount of $2  million to settle all claims and  disputes  arising
under the consulting services agreement. The Company has no obligation to render
further services to the customer.  At October 11, 2004, the Company received the
$2 million  settlement  from the customer and the parties  dismissed one another
from  liability.  This payment was recorded in the fourth quarter of fiscal year
2004 as a $1.3  million  reduction of operating  expenses,  in the  Consolidated
Statement of Operations  and  Comprehensive  Loss and $0.7 million  reduction of
existing receivables.


                                       42
<PAGE>


14.  CONTINGENCIES

In June 1998, the bankruptcy trustee of a former client,  Communications Network
Corporation,  sued TMNG for a total of $320,000 in the U.S.  Bankruptcy Court in
New York seeking recovery of $160,000 alleging an improper payment of consulting
fees paid by the former  client  during the  period  from July 1, 1996,  when an
involuntary  bankruptcy  proceeding  was  initiated  against the former  client,
through August 6, 1996,  when the former client agreed to an order for relief in
the bankruptcy  proceeding,  and $160,000 in consulting  fees paid by the former
client after August 6, 1996. The bankruptcy  trustee also sued TMNG for at least
$1.85 million for breach of contract, breach of fiduciary duties and negligence.
In March 2006,  the Company  reached a settlement  agreement with the bankruptcy
trustee  whereby the Company agreed to pay the trustee  $255,000 in exchange for
being released from all potential liability under the suits discussed above. The
Company has  recognized  a charge of $95,000 in fiscal year 2005 to fully accrue
for this liability.

Additionally,  as of  December  31, 2005 the  Company  had  outstanding  demands
aggregating  approximately  $1.0 million by the  bankruptcy  trustees of several
former  clients  in  connection  with  collected  balances  near the  customers'
respective  bankruptcy  filing  dates.  Although the Company does not believe it
received  any  preference  payments  from  these  former  clients  and  plans to
vigorously defend its position, the Company has established reserves of $727,000
as of December  31, 2005 and January 1, 2005,  which it believes are adequate in
the event of loss or settlement on remaining outstanding claims.

The Company  may become  involved in various  legal and  administrative  actions
arising in the normal course of business. These could include actions brought by
taxing authorities  challenging the employment status of consultants utilized by
the  Company.  In  addition,   future  customer  bankruptcies  could  result  in
additional  claims on collected  balances  for  professional  services  near the
bankruptcy filing date. While the resolution of any of such actions,  claims, or
the matters  described above may have an impact on the financial results for the
period in which they occur, the Company  believes that the ultimate  disposition
of these matters will not have a material  adverse effect upon its  consolidated
results of operations, cash flows or financial position.

The Company establishes reserves for potential tax liabilities when, despite the
belief that tax return  positions  are fully  supported,  certain  positions are
likely  to be  challenged  and not be fully  sustained.  Such tax  reserves  are
analyzed  on a  quarterly  basis and  adjusted  based upon  changes in facts and
circumstances,  such as the progress of federal and state  audits,  case law and
emerging  legislation.  The Company's  effective tax rate includes the impact of
such tax reserves and changes to these  reserves as  considered  appropriate  by
management.  The Company  establishes  the reserves based upon its assessment of
exposure  associated with possible future  assessments  that may result from the
examination of federal,  state, or international tax returns. These tax reserves
were  $649,000 at December 31, 2005 and December 31, 2005.  Management  believes
that it has established  adequate reserves in the event of loss or settlement of
any potential tax liabilities.





                                       43
<PAGE>


15.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

In  management's   opinion,   the  interim  financial  data  below  reflect  all
adjustments  necessary  to  fairly  state the  results  of the  interim  periods
presented.  Adjustments are of a normal  recurring  nature  necessary for a fair
presentation of the information for the periods presented. Results of any one or
more quarters are not  necessarily  indicative  of annual  results or continuing
trends.


<TABLE>
<CAPTION>
<S>                                               <C>            <C>          <C>            <C>

                                                               (AMOUNTS IN THOUSANDS)
                                                                 2005 QUARTERS ENDED
                                                  --------------------------------------------------------
                                                  April 2,       July 2,      October 1,     December 31,
                                                  -------       --------     ----------       ----------
Revenues ...................................      $  7,067       $  9,017     $    8,057      $    6,237
Cost of Services:
  Direct cost of services (exclusive of
   amortization shown below)........... ....         3,394          4,519          3,846           3,075
  Equity related charges....................            35             34             12              19
                                                  --------       --------       --------        --------
          Total cost of services (exclusive
           of amortization shown below......         3,429          4,553          3,858           3,094
                                                  --------       --------       --------        --------
                                                     3,638          4,464          4,199           3,143
Operating Expenses:
  Selling, general and administrative.......         4,147          4,662          4,484           5,169
  Legal settlement .........................                                                          95
  Real estate restructuring.................            75
  Intangible asset amortization ............           160             43             42              91
  Equity related charges....................           188            200             60             170
                                                  --------       --------       --------        --------
          Total operating expenses..........         4,570          4,905          4,586           5,525
                                                  --------       --------       --------        --------

                                                      (932)          (441)          (387)         (2,382)
Other Income:

  Interest income...........................           324            379            424             505
  Other, net................................            15             95                             16
                                                  --------       --------       --------        --------
          Total other income................           339            474            424             521
                                                  --------       --------       --------        --------
Income (loss) from continuing operations
  before income tax provision ..............          (593)            33             37          (1,861)

Income tax provision .......................           (15)            (3)           (13)             (5)
                                                  --------       --------       --------        --------
Net income (loss) ..........................          (608)            30             24          (1,866)

Other comprehensive item -
  Foreign currency translation adjustment...           (70)          (121)            26             (40)
                                                  --------       --------       --------        --------
Comprehensive income (loss) ................      $   (678)      $    (91)      $     50        $ (1,906)
                                                  ========       ========       ========        ========
Net income (loss) per common share
 Basic and diluted                                $  (0.02)      $   0.00       $   0.00        $  (0.05)
                                                  ========       ========       ========        ========
Shares used in calculation of net income
 (loss) per common share
  Basic ....................................        34,977         35,104         35,156          35,476
                                                  ========       ========       ========        ========
  Diluted  ..................................        34,977         35,461         35,525          35,476
                                                  ========       ========       ========        ========

</TABLE>


                                       44
<PAGE>


<TABLE>
<CAPTION>
<S>                                               <C>            <C>          <C>             <C>

                                                               (AMOUNTS IN THOUSANDS)
                                                                 2004 QUARTERS ENDED
                                                  --------------------------------------------------------
                                                  April 3,        July 3,     October 2,      January 1,
                                                  -------        --------     ----------      ----------
Revenues ...................................      $  5,779       $  5,184     $    6,546      $    6,195
Cost of Services:
  Direct cost of services (exclusive of
   amortiztion shown below).................         2,913          2,739          3,441           3,226
  Equity related charges....................            54             52             51              48
                                                  --------       --------       --------        --------
          Total cost of services (exclusive
           of amortization shown below).....         2,967          2,791          3,492           3,274
                                                  --------       --------       --------        --------
                                                     2,812          2,393          3,054           2,921
Operating Expenses:
  Selling, general and administrative.......         4,278          4,179          3,860           3,720
  Legal settlement..........................                                                      (1,294)
  Real estate restructuring.................                                                       1,545
  Intangible asset amortization ............           339            218            218             217
  Equity related charges....................           283            232            261             182
                                                  --------       --------       --------        --------
          Total operating expenses..........         4,900          4,629          4,339           4,370
                                                  --------       --------       --------        --------

                                                    (2,088)        (2,236)        (1,285)         (1,449)
Other Income:

  Interest income...........................           136            145            189             248
  Other, net................................            (9)            (6)           (10)             (5)
                                                  --------       --------       --------        --------
          Total other income................           127            139            179             243
                                                  --------       --------       --------        --------
Loss from continuing operations before
  income tax (provision) benefit ...........        (1,961)        (2,097)        (1,106)         (1,206)

Income tax (provision) benefit .............           (14)           (20)           (13)             (2)
                                                  --------       --------       --------        --------
Loss from continuing operations  ...........        (1,975)        (2,117)        (1,119)         (1,208)

Discontinued operations:
 Net income (loss) from discontinued operations
    (including charge for impairment of goodwill
    of $2,163 for the first quarter ended April 3,
    2004)                                           (2,276)
                                                  --------       --------       --------        --------
Net loss ..................................         (4,251)        (2,117)        (1,119)         (1,208)

Other comprehensive item -
  Foreign currency translation adjustment...           (15)            11             (1)            181
                                                  --------       --------       --------        --------
Comprehensive Loss ................               $ (4,266)      $ (2,106)      $ (1,120)       $ (1,027)
                                                  ========       ========       ========        ========
Loss from continuing operations
 per common share
 Basic and Diluted ........................       $  (0.06)      $  (0.06)      $  (0.03)       $  (0.03)
                                                  ========       ========       ========        ========

Loss from discontinued operations
 per common share
 Basic and Diluted.........................       $  (0.07)
                                                  ========       ========       ========        ========
Loss per common share
 Basic and diluted                                $  (0.13)      $  (0.06)      $  (0.03)       $  (0.03)
                                                  ========       ========       ========        ========
Basic and diluted weighted average shares
  outstanding............................           34,503         34,625         34,631          34,716
                                                  ========       ========       ========        ========

</TABLE>



See Note 13  "Significant  Customer  Contract" for  discussion of fourth quarter
2004 legal settlement.

See  Note  7  "Real  Estate   Restructuring"   for  discussion  of  real  estate
restructuring charges.


                                       45
<PAGE>


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

A review and evaluation was performed by the Company's management, including the
Company's Chief Executive  Officer (the "CEO") and Chief Financial  Officer (the
"CFO"),  of the  effectiveness  of the design  and  operation  of the  Company's
disclosure  controls and  procedures as of the end of the period covered by this
annual  report.  Based  upon that  review and  evaluation,  the CEO and CFO have
concluded that the Company's disclosure controls and procedures, as designed and
implemented,  were  effective.  There  have been no  significant  changes in the
Company's internal controls or in other factors that could significantly  affect
the Company's  internal  controls  subsequent  to the date of their  evaluation.
There were no significant  material weaknesses  identified in the course of such
review and evaluation,  and accordingly,  the Company  implemented no corrective
measures.

ITEM 9B. OTHER INFORMATION

None
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Company's  definitive Proxy Statement for its Annual Meeting of Shareholders
to be held on or about June 22, 2006 (the "Proxy Statement") contains, under the
captions  "Election of  Directors,"  "Officers"  and "Section  16(a)  Beneficial
Ownership Reporting Compliance" the information required by Item 10 of this Form
10-K, which information is incorporated herein by this reference.

ITEM 11. EXECUTIVE COMPENSATION

The Proxy  Statement  contains  under the captions  "Election of Directors"  and
"Executive Compensation," the information required by Item 11 of this Form 10-K,
which information is incorporated herein by this reference.

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The Proxy Statement  contains under the caption  "Security  Ownership of Certain
Beneficial  Owners and Management and Related  Stockholder  Matters" and "Equity
Compensation Plan Information" the information  required by Item 12 of this Form
10-K, which information is incorporated herein by this reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Proxy  Statement  contains  under the  caption  "Certain  Relationships  and
Transactions  with Related Persons" the information  required by Item 13 of this
Form 10-K, which information is incorporated herein by this reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The Proxy Statement  contains under the caption  "Ratification of Appointment of
Independent  Registered Public Accounting Firm" the information required by Item
14 of  this  Form  10-K,  which  information  is  incorporated  herein  by  this
reference.

                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The  following  documents  are filed as part of this  Annual  Report on Form
10-K:

(1) The  response  to this  portion of Item 15 is set forth in Item 8 of Part II
hereof.

(2)  Schedules  for  which  provision  is  made  in  the  applicable  accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.

(3) Exhibits

See accompanying Index to Exhibits. The Company will furnish to any stockholder,
upon written request,  any exhibit listed in the accompanying  Index to Exhibits
upon  payment  by such  stockholder  of the  Company's  reasonable  expenses  in
furnishing any such exhibit.


                                       46
<PAGE>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this  Report on Form 10-K to be
signed on its behalf by the undersigned,  thereunto duly authorized, in the City
of Overland Park, State of Kansas, on the 30th day of March 2006.

                       THE MANAGEMENT NETWORK GROUP, INC.


                           BY: /S/ RICHARD P. NESPOLA
                      ------------------------------------
                               RICHARD P. NESPOLA
                             CHAIRMAN OF THE BOARD,
                               PRESIDENT AND CHIEF
                                EXECUTIVE OFFICER

                                POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE  PRESENTS,  that each person whose  signature  appears
below   hereby   constitutes   and   appoints   Richard   P.   Nespola   as  his
attorney-in-fact, with full power of substitution, for him or her in any and all
capacities,  to sign any and all  amendments to this Report on Form 10-K, and to
file  the  same,  with  exhibits  thereto  and  other  documents  in  connection
therewith,  with the Securities and Exchange  Commission,  hereby  ratifying and
confirming  our signatures as they may be signed by our said attorney to any and
all amendments to said Report.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
on Form 10-K has been signed by the following  persons in the  capacities and on
the dates indicated:


            SIGNATURE                        TITLE                   DATE
            ---------                        -----                   ----
    /s/ RICHARD P. NESPOLA          Chairman of the Board,      March 30, 2006
-------------------------------      President and Chief
        Richard P. Nespola            Executive Officer
                                    (Principal executive
                                            officer)

    /s/ DONALD E. KLUMB          Chief Financial Officer and    March 30, 2006
-------------------------------       Treasurer (Principal
        Donald E. Klumb               financial officer and
                                      principal accounting
                                            officer)

    /s/ MICKY K. WOO                       Director             March 30, 2006
-------------------------------
        Micky K. Woo

    /s/ GRANT G. BEHRMAN                   Director             March 30, 2006
-------------------------------
        Grant G. Behrman

    /s/ WILLIAM M. MATTHES                 Director             March 30, 2006
-------------------------------
        William M. Matthes

   /s/  Robert J. Currey                    Director            March 30, 2006
-------------------------------
        Robert J. Currey

    /s/ ANDREW LIPMAN                      Director             March 30, 2006
-------------------------------
        Andrew Lipman

    /s/ ROY A. WILKENS                     Director             March 30, 2006
-------------------------------
        Roy A. Wilkens


                                       47
<PAGE>

    /s/ FRANK SISKOWSKI                    Director             March 30, 2006
-------------------------------
        Frank Siskowski

                                INDEX TO EXHIBITS

The following is a list of exhibits filed as part of this report.

           EXHIBIT
           NUMBER                DESCRIPTION OF DOCUMENT
           -------               -----------------------

             3.1*   Certificate of Incorporation of the registrant

             3.2*   By-laws of the Registrant

             4.1*   Specimen Common Stock Certificate

            10.1*   Registration  Rights  Agreement  dated January 7, 1998 among
                    the registrant and certain investors

            10.2*   Form of Indemnification Agreement between the registrant and
                    each of its Directors and Officers

            10.3*   1998 Equity Incentive Plan and form of agreements thereunder

            10.4*   1999  Employee  Stock  Purchase  Plan and form of agreements
                    thereunder

            10.5*   Consulting  Services  Agreement  between the  registrant and
                    Williams Communications Group, Inc. dated November 5, 1997

            10.6*   Credit Agreement,  including revolving credit notes and term
                    notes,  dated  February  12, 1998 among the  registrant  and
                    certain guarantors, lenders and agents

            10.7*   Lease between Lighton Plaza L.L.C.  and the registrant dated
                    April 23, 1998

            10.8*   Noncompetition  Agreement between the registrant and certain
                    parties dated February 12, 1998.

            10.9*   Employment  Agreement  between  the  registrant  and Richard
                    Nespola dated February 12, 1998.

            10.10*  Employment  Agreement  between the  registrant and Micky Woo
                    dated February 12, 1998.

            10.12*  Employment Agreement between the registrant and Donald Klumb
                    dated September 9, 1999

            10.13*  Amended Lease Agreement between Lighton Plaza L.L.C. and the
                    registrant dated December 21, 2000

            10.16*  2000   Supplemental   Stock  Plan  and  form  of  agreements
                    thereunder

            10.19*  Employment  Agreement  between  the  registrant  and Richard
                    Nespola dated January 5, 2004

            10.20*  Employment Agreement between the registrant and Donald Klumb
                    dated December 19, 2003


                                       48
<PAGE>

            10.21*  Sublease  between  Best  Doctors  and the  registrant  dated
                    December 30, 2004

            21.1    List of subsidiaries of TMNG, Inc.

            23.1    Consent of Independent Registered Public Accounting Firm.

            24.1    Power of attorney (see signature page)

            31.1    Certification of Chief Executive Officer pursuant to Section
                    302 of the Sarbanes - Oxley Act

            31.2    Certification of Chief Financial Officer pursuant to Section
                    302 of the Sarbanes - Oxley Act


            32.1    Certifications  furnished  pursuant  to  Section  906 of the
                    Sarbanes - Oxley Act

* Previously filed



                                       49