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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to
Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 29, 2002
--------------------------------------------
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number:
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 No.)
7300 COLLEGE BLVD., SUITE 302, OVERLAND PARK, KS 66210
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
913-345-9315
------------
Registrant's telephone number, including area code
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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of August 7, 2002 TMNG had outstanding 33,297,456 shares of common stock.
THE MANAGEMENT NETWORK GROUP, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION:
ITEM 1. Consolidated Condensed Financial Statements:
Consolidated Condensed Balance Sheets - June
29, 2002 (unaudited) and December 29, 2001 ................ 3
Consolidated Condensed Statements of Income (Loss) and
Comprehensive Income (Loss) (unaudited) - Thirteen Weeks
ended June 29, 2002 and June 30, 2001, and Twenty-six Weeks
Ended June 29, 2002 and June 30, 2001 ..................... 4
Consolidated Condensed Statements of Cash Flows
(unaudited) - Twenty-six Weeks ended June 29,
2002 and June 30, 2001 .................................... 5
Notes to Consolidated Condensed Financial
Statements .................................................. 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 11
ITEM 3. Quantitative and Qualitative Disclosures about
Market Risk ................................................. 14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ........................................... 14
ITEM 4. Submission to a Vote of Securities Holders .................. 14
ITEM 6. Exhibits and Reports on Form 8-K ............................ 14
Signatures .......................................................... 14
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THE MANAGEMENT NETWORK GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share data)
(unaudited)
December 29, June 29,
2001 2002
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 86,396 $ 54,383
Receivables:
Accounts receivable 8,518 8,489
Accounts receivable - unbilled 2,962 4,211
--------- ---------
11,480 12,700
Less: Allowance for doubtful accounts (517) (751)
--------- ---------
10,963 11,949
Refundable and deferred income taxes 365 3,119
Other assets 1,706 1,850
--------- ---------
Total current assets 99,430 71,301
--------- ---------
Property and equipment, net 1,686 2,858
Goodwill, net 22,147 61,119
Intangibles, net 1,191 4,104
Deferred tax asset 4,080 5,603
Other assets 508 422
--------- ---------
Total assets $ 129,042 $ 145,407
========= =========
CURRENT LIABILITIES:
Trade accounts payable $ 210 $ 680
Accrued payroll, bonuses and related expenses 1,393 3,381
Other accrued liabilities 3,258 3,151
--------- ---------
Total current liabilities 4,861 7,212
Unfavorable lease liability 3,323
Capital lease obligations 100 656
Other liabilities 89 37
STOCKHOLDERS' EQUITY
Common Stock: 30 33
Voting - $.001 par value, 100,000,000 shares authorized; 30,204,919 and
33,279,123 issued and outstanding on December 29, 2001 and June 29, 2002,
respectively
Additional paid-in capital 141,451 155,663
Accumulated deficit (16,463) (21,090)
Accumulated other comprehensive income -
Foreign currency translation adjustment 17 (1)
Unearned compensation (1,043) (426)
--------- ---------
Total stockholders' equity 123,992 134,179
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 129,042 $ 145,407
========= =========
See notes to consolidated condensed financial statements.
THE MANAGEMENT NETWORK GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
(unaudited)
For the thirteen For the twenty-six
weeks ended weeks ended
-------------------------------- -------------------------------
June 30, 2001 June 29, 2002 June 30, 2001 June 29, 2002
------------- ------------- ------------- -------------
REVENUES $ 13,691 $ 9,927 $ 32,025 $ 17,195
COST OF SERVICES:
Direct cost of services 6,892 4,264 16,436 7,938
Equity related charges 707 177 1,120 672
-------- -------- -------- --------
Total cost of services 7,599 4,441 17,556 8,610
-------- -------- -------- --------
GROSS PROFIT 6,092 5,486 14,469 8,585
OPERATING EXPENSES:
Selling, general and
administrative 3,970 7,768 8,815 13,467
Goodwill and intangibles amortization 467 728 933 1,120
Equity related charges 261 117 459 280
-------- -------- -------- --------
Total operating expenses 4,698 8,613 10,207 14,867
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS 1,394 (3,127) 4,262 (6,282)
OTHER INCOME
Interest income 692 212 1,412 522
Other, net (3) (4) (17) (15)
-------- -------- -------- --------
Total other income 689 208 1,395 507
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX (PROVISION)
BENEFIT AND CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE 2,083 (2,919) 5,657 (5,775)
INCOME TAX (PROVISION) BENEFIT (655) 1,097 (1,893) 2,288
-------- -------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE 1,428 (1,822) 3,764 (3,487)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE, NET OF TAX BENEFIT
OF $760 (1,140)
-------- -------- -------- --------
NET INCOME (LOSS) 1,428 (1,822) 3,764 (4,627)
OTHER COMPREHENSIVE INCOME (LOSS) -
Foreign currency translation adjustment (3) 15 (48) (18)
-------- -------- -------- --------
COMPREHENSIVE INCOME (LOSS) $ 1,425 $ (1,807) $ 3,716 $ (4,645)
======== ======== ======== ========
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE PER
COMMON SHARE
Basic $ 0.05 $ (0.05) $ 0.13 $ (0.11)
======== ======== ======== ========
Diluted $ 0.05 $ (0.05) $ 0.12 $ (0.11)
======== ======== ======== ========
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE PER COMMON SHARE
Basic $ (0.03)
========
Diluted $ (0.03)
========
NET INCOME (LOSS) PER COMMON SHARE
Basic $ 0.05 $ (0.05) $ 0.13 $ (0.14)
======== ======== ======== ========
Diluted $ 0.05 $ (0.05) $ 0.12 $ (0.14)
======== ======== ======== ========
SHARES USED IN CALCULATION OF INCOME (LOSS)
BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE AND NET INCOME (LOSS)
PER COMMON SHARE
Basic 29,560 33,259 29,525 32,152
======== ======== ======== ========
Diluted 30,491 34,041 30,456 33,062
======== ======== ======== ========
See notes to consolidated condensed financial statements.
THE MANAGEMENT NETWORK GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
For the twenty-six weeks ended
------------------------------
June 30, June 29,
2001 2002
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,764 $ (4,627)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Cumulative change in accounting principle 1,140
Depreciation and amortization 1,182 1,570
Equity related charges 1,579 952
Income tax benefit realized upon exercise of
stock options 17 17
(Benefit) provision for deferred income taxes (206) 317
Loss on retirement of assets 140
Other changes in operating assets
and liabilities, net of business acquisitions
Accounts receivable 6,081 1,949
Accounts receivable - unbilled 2,664 (346)
Other assets 161 681
Trade accounts payable (21) 446
Accrued liabilities (2,424) (2,017)
Unfavorable lease liability 196
-------- --------
Net cash provided by operating activities 12,797 418
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired (32,332)
Acquisition of property and equipment (454) (213)
Loans to officers, net (100)
-------- --------
Net cash used in investing activities (454) (32,645)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made on long-term obligations (151)
Exercise of options 158 276
Issuance of common stock, net of expenses 107
-------- --------
Net cash provided by financing activities 158 232
-------- --------
Effect of exchange rate on cash and
cash equivalents (48) (18)
-------- --------
Net increase (decrease) in cash and cash equivalents 12,453 (32,013)
Cash and cash equivalents, beginning of period 70,583 86,396
-------- --------
Cash and cash equivalents, end of period $ 83,036 $ 54,383
======== ========
Supplemental disclosure of cash flow information:
Cash paid during period for interest $ $ 41
======== ========
Cash paid during period for taxes $ 1,411 $ 132
======== ========
Supplemental disclosure of non-cash investing
and financing transactions --
Fair value of assets acquired $ 53,953
Liabilities incurred or assumed $ (7,490)
Common stock issued $ 13,480
See notes to consolidated condensed financial statements.
THE MANAGEMENT NETWORK GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Reporting
The accompanying consolidated condensed financial statements of The Management
Network Group, Inc. ("TMNG," or the "Company") as of June 29, 2002, and for the
thirteen and twenty-six weeks ended June 29, 2002 and June 30, 2001, are
unaudited and reflect all normal recurring adjustments which are, in the opinion
of management, necessary for the fair presentation of the Company's consolidated
condensed financial position, results of operations, and cash flows as of these
dates and for the periods presented. The consolidated condensed financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information.
Consequently, these statements do not include all the disclosures normally
required by accounting principles generally accepted in the United States of
America for annual financial statements nor those normally made in the Company's
Annual Report on Form 10-K. Accordingly, reference should be made to the
Company's Annual Report on Form 10-K for additional disclosures, including a
summary of the Company's accounting policies, which have not changed.
2. Earnings 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
(loss) per share reflects the potential dilution of securities by adding common
stock options in the weighted average number of common shares outstanding for a
period, if dilutive.
The reconciliation of weighted average common shares outstanding included in the
computation of basic and diluted net income (loss) per common share for the
periods indicated is as follows (amounts in thousands):
FOR THE THIRTEEN WEEKS ENDED FOR THE TWENTY-SIX WEEKS ENDED
---------------------------- ------------------------------
JUNE 30, JUNE 29, JUNE 30, JUNE 29,
2001 2002 2001 2002
-------- -------- -------- --------
Weighted average common shares
outstanding for basic earnings
per share 29,560 33,259 29,525 32,152
Effect of stock options 931 782 931 910
------ ------ ------ ------
Weighted average shares of common
stock outstanding for diluted
earnings per share 30,491 34,041 30,456 33,062
====== ====== ====== ======
3. Business Combinations
On March 6, 2002, TMNG announced the purchase of the business and primary assets
of Cambridge Strategic Management Group, Inc. ("CSMG") of Boston, Massachusetts.
CSMG provides high-end advisory services to global communication service and
equipment providers and investment firms that provide capital to the industry.
CSMG's range of business strategy services include analyses of industry and
competitive environments; product and distribution strategies; finance,
including business case development, modeling, cost analysis and benchmarking;
and due diligence and risk assessment.
The acquisition, recorded under the purchase method of accounting, resulted in a
total purchase price of approximately $46.5 million. Consideration consisted of
$33.0 million cash and 2,892,800 shares of TMNG Common Stock valued at
approximately $13.5 million. Share consideration was calculated in accordance
with the Asset Purchase Agreement at a fixed price of $4.66 per share. All
shares are restricted from trading for one year from the closing. An escrow was
established as part of the transaction, consisting of 566,502 shares and $4.0
million of cash (collectively, the "Escrowed Property"). The Escrowed Property
is subject to certain claims as set forth in the Asset Purchase Agreement and is
scheduled to be distributed to the Seller pro rata in four installments over a
24 month period. On the date of announcement of the acquisition, the closing
pricing of TMNG's Common Stock was $4.56 per share.
The transaction was structured as a taxable transaction for Federal income tax
purposes, and included $5.4 million in cash consideration to the Seller
representing a sharing of tax benefits and costs. The purchase price also
included $5.2 million representing the working capital purchased from CSMG.
The initial purchase price will be subject to refinement based on the
finalization of the balances of the working capital items and income tax sharing
at the date of close, and the finalization of direct acquisition costs incurred
in the transaction. The operating results of CSMG have been included in the
Consolidated Condensed Statements of Income (Loss) and Comprehensive Income
(Loss) from the date of the purchase.
The following table summarizes the estimated fair value of the assets acquired
and liabilities assumed as of the date of acquisition. The
allocation of the purchase price is based on preliminary estimates and is
subject to further refinement, however, adjustments, if any, are not expected to
be material. The preliminary allocation of the purchase price to identifiable
intangible assets was determined by an independent price appraisal.
AT MARCH 6, 2002
(AMOUNTS IN THOUSANDS)
Current assets $ 6,081
Property, plant and equipment 1,548
Employment agreements 3,200
Customer backlog 420
Company tradename 350
Deferred taxes (non-current) 1,501
Goodwill 40,853
-------
Total assets acquired 53,953
Current liabilities 3,506
Noncurrent liabilities 3,984
-------
Total liabilities assumed 7,490
-------
Net assets acquired $46,463
=======
Of the $420,000 assigned to the customer backlog, no residual value has been
identified with this asset. The customer backlog had an estimated useful life of
3 months and was amortized on a straight-line basis. As of June 29, 2002,
customer backlog was fully amortized by TMNG.
Of the $350,000 assigned to the company tradename, no residual value has been
identified with this asset. The company tradename has an estimated useful life
of 24 months and is amortized on a straight-line basis.
Of the $3,200,000 assigned to the employment agreements, no residual value has
been identified with this asset. The employment agreements have a weighted
average useful life of approximately 32 months and are amortized on a
straight-line basis.
As part of the acquisition of CSMG, the Company assumed liabilities of
approximately $899,000 related to capital leases.
The following reflects pro forma combined results of the Company and CSMG as if
the acquisition had occurred as of December 30, 2001 and December 31, 2000. In
management's opinion, this pro forma information does not necessarily reflect
the actual results that would have occurred nor is it necessarily indicative of
future results of operations of the combined entities.
----------------------------------------------------------------
FOR THE THIRTEEN WEEKS ENDED FOR THE TWENTY-SIX WEEKS ENDED
----------------------------------------------------------------
(in thousands, except per share amounts) JUNE 30, JUNE 29, JUNE 30, JUNE 29,
2001 2002 2001 2002
---------- ---------- ---------- ----------
Total revenues $ 19,209 $ 9,927 $ 45,116 $ 19,422
Income (loss) before cumulative effect of
accounting changes $ 1,349 $ (1,822) $ 4,494 $ (3,718)
Net income (loss) $ 1,349 $ (1,822) $ 4,494 $ (4,858)
Basic income (loss) before cumulative effect
of accounting changes per common share $ 0.04 $ (0.05) $ 0.14 $ (0.11)
Diluted income (loss) before cumulative
effect of accounting changes per common share $ 0.04 $ (0.05) $ 0.13 $ (0.11)
Basic net income (loss) per common share $ 0.04 $ (0.05) $ 0.14 $ (0.15)
Diluted net income (loss) per common share $ 0.04 $ (0.05) $ 0.13 $ (0.15)
4. Severance
During the thirteen weeks ended June 29, 2002, the Company recorded
approximately $1,879,000 of severance expense in connection with the termination
of various employees. For the twenty-six weeks ended June 29, 2002, the Company
recorded severance expense of approximately
$1,933,000 and had paid approximately $155,000. These charges are included in
the selling, general and administrative section of the accompanying Consolidated
Condensed Statement of Income (Loss) and Comprehensive Income (Loss).
5. Equity Related Charges
During the thirteen weeks ended June 29, 2002, the Company granted approximately
1,376,000 stock options to employees at a weighted average exercise price of
$2.98 and recorded net compensation expense related to all stock options of
$102,000. Equity related charges to cost of services associated with a warrant
totaled $192,000. During the twenty-six weeks ended June 29, 2002, the Company
granted approximately 1,439,000 stock options to employees at a weighted average
exercise price of $3.14 and recorded net compensation expense related to all
stock options of $329,000. During the same period, the Company recorded equity
related charges to cost of services associated with the warrant of $623,000.
6. 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 has also sued TMNG for at least $1.85 million for breach
of contract, breach of fiduciary duties and negligence. Although assurance
cannot be given as to the ultimate outcome of this proceeding, TMNG believes
that it has meritorious defenses to the claims made by the bankruptcy trustee,
including particularly the claims for breach of contract, breach of fiduciary
duty and negligence, and that the ultimate resolution of this matter will not
materially harm our business.
The Company has and may become involved in various legal and administrative
actions arising in the normal course of business. These could include actions
raised by taxing authorities challenging the employment status of consultants
utilized by the Company. In addition, customer bankruptcies could result in a
claim on collected balances for professional services near the bankruptcy filing
date. While the resolution of any of such actions, claims, or the matter
described above may have an impact on the financial results for the period in
which it is resolved, 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.
7. Loans to Officers
During the third quarter of fiscal year 2001, three executive officers of the
Company received stock options at fair market value in lieu of receiving their
cash base compensation, which subsequently resumed in the first quarter of
fiscal year 2002. To assist in meeting the cash flow needs of the officers who
reduced their compensation, the Company provided lines of credit, collateralized
by Company common stock held by such officers. The maximum available borrowings
under the loan agreements between the three officers and the Company are
$1,300,000 in total. Borrowings against the line of credit at June 29, 2002
totaled $300,000. 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.
8. Business Segments
The Company has identified its segments based on the way management organizes
the Company to assess performance and make operating decisions regarding the
allocation of resources.
Based on the criteria of Statement of Financial Accounting Standards ("SFAS")
No. 131, "Disclosure about Segments of an Enterprise and Related Information,"
the Company has two segments, only one of which is separately reportable: The
Management Consulting Services segment, and All Other. Management Consulting
Services includes business strategy and planning, marketing and customer
relationship management, operating system support, revenue assurance, corporate
investment services, networks, and business model transformation. All Other
consists of computer hardware commission and rebates received in connection with
the procurement of hardware for third parties. Management evaluates performance
based upon operating earnings before interest income (expense), foreign currency
transaction gains (losses), extraordinary items, if any, and income taxes
excluding equity related charges and goodwill and intangibles amortization.
Management also evaluates trade accounts receivable as part of its overall
assessment of the segments' performance. There are no intersegment sales.
Summarized financial information concerning the Company's reportable segments is
shown in the following table (amounts in thousands):
--------------------------------------------------------------------------
Management All Not Assigned
Consulting Services Other to Segments Total
------------------- ---------- ------------ ---------
For the thirteen weeks ended June 30, 2001:
Net sales to external customers $ 13,691 $ 13,691
Income from operations $ 2,829 $ (1,435) $ 1,394
Total assets $ 16,715 $ 105,740 $ 122,455
For the thirteen weeks ended June 29, 2002:
Net sales to external customers $ 9,528 $ 399 $ 9,927
Income (loss) from operations $ (2,409) $ 304 $ (1,022) $ (3,127)
Total assets $ 12,415 $ 132,992 $ 145,407
For the twenty-six weeks ended June 30, 2001:
Net sales to external customers $ 32,025 $ 32,025
Income (loss) from operations $ 6,774 $ (2,512) $ 4,262
Total assets $ 16,715 $ 105,740 $ 122,455
For the twenty-six weeks ended June 29, 2002
Net sales to external customers $ 16,602 $ 593 $ 17,195
Income from operations $ (4,522) $ 312 $ (2,072) $ (6,282)
Total assets $ 12,415 $ 132,992 $ 145,407
Segment assets include both billed and unbilled trade accounts receivable, net
of allowances, and certain other assets. Assets not assigned to segments include
cash and cash equivalents, property and equipment, goodwill and intangible
assets and deferred tax assets.
Reconciling information between reportable segments and the Company's totals is
shown in the following table (amounts in thousands):
-------------------------------------------------------------------
FOR THE THIRTEEN WEEKS ENDED FOR THE TWENTY-SIX WEEKS ENDED
-------------------------------------------------------------------
JUNE 30, 2001 JUNE 29, 2002 JUNE 30, 2001 JUNE 29, 2002
------------- ------------- ------------- -------------
Total operating earnings (losses) for
reportable segments $ 2,829 $ (2,105) $ 6,774 $ (4,210)
Equity related charges (968) (294) (1,579) (952)
Goodwill and intangibles amortization (467) (728) ( 933) (1,120)
------- -------- ------- -------
Income (loss) from operations $ 1,394 $ (3,127) $ 4,262 $ (6,282)
======= ======== ======= ========
9. Goodwill and Other Intangibles
Effective for the start of fiscal year 2002, the Company adopted certain
provisions of Statement of Financial Accounting Standards ("SFAS") No. 142
"Accounting for Goodwill and Intangible Assets". In accordance with certain
provisions of the Statement, goodwill has not been amortized in fiscal year
2002. This Statement requires that goodwill be evaluated on an annual basis, or
more frequently if necessary. This Statement also requires a transitional
impairment test within six months of the date of adoption. The Company
determines fair value using the present value method of measurement of future
cash flows. The present value method includes the estimation of a cash flow
stream, applying a discount rate. The Company's best estimate of future cash
flows is determined using its internal budgets as the basis. The discount rate
used is commensurate with the risks involved, including the nature of the
business, the time value of money, expectations about the amount or timing of
future cash flows, and factors affecting liquidity. Upon the adoption of SFAS
No. 142, the Company recorded a preliminary goodwill impairment loss related to
the Management Consulting Segment of approximately $1.9 million and has
reflected this amount as a cumulative change in accounting principle, net of tax
benefit, in the Statement of Income (Loss) and Comprehensive Income (Loss). The
recorded amount for goodwill impairment is preliminary and subject to revision,
which is not expected to be material, based on the final valuation of the
reporting unit in connection with the second step of the transitional goodwill
impairment test.
Included in intangible assets and other assets on the Company's consolidated
condensed balance sheet as of the end of the second quarter, June 29, 2002, and
as of the latest fiscal year end, December 29, 2001, are the following
intangible assets (amounts in thousands):
December 29, 2001 June 29, 2002
------------------------ ------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
------- ------------ ------- ------------
Goodwill $24,633 $(2,486) $63,605 $(2,486)
======= ======= ======= =======
Intangibles with
finite lives $ 1,503 $ (131) $ 5,473 $(1,251)
======= ======= ======= =======
Intangible amortization expense for the thirteen and twenty-six weeks ended June
29, 2002 was $0.7 million and $1.1 million, respectively. Intangible
amortization expense is estimated to be approximately $2.0 million for fiscal
year 2002. Estimated intangible amortization expense for each of the subsequent
three years beginning in 2003 is expected to range from approximately $1.8
million to $0.3 million.
The changes in the carrying amount of goodwill as of June 29, 2002 are as
follows (amounts in thousands):
Management Consulting All Other
Segment Segment Total
--------------------- --------- -------
Balance as of December 30, 2001 $ 19,156 $ 2,991 $22,147
Goodwill acquired during fiscal year 2002 40,872 40,872
Impairment loss (1,900) (1,900)
-------- -------- -------
Balance as of June 29, 2002 $ 58,128 $ 2,991 $61,119
======== ======== =======
The following pro forma information reconciles the net income and earnings per
share reported for the thirteen and twenty-six weeks ended June 30, 2001 to
adjusted net income and earnings per share which reflect the adoption of SFAS
No. 142 and compares the adjusted information to the current year results
(amounts in thousands, except per share data):
-------------------------------------------------------------------
FOR THE THIRTEEN WEEKS ENDED FOR THE TWENTY-SIX WEEKS ENDED
-------------------------------------------------------------------
JUNE 30, 2001 JUNE 29, 2002 JUNE 30, 2001 JUNE 29, 2002
------------- ------------- ------------- -------------
Reported income (loss) before cumulative
effect of change in accounting
principle $ 1,428 $(1,822) $ 3,764 $(3,487)
Cumulative effect of change in accounting
principle (1,140)
------- ------- ------- -------
Reported net income (loss) 1,428 (1,822) 3,764 (4,627)
Goodwill amortization, net of tax 280 560
------- ------- ------- -------
Net income (loss), as adjusted $ 1,708 $(1,822) $ 4,324 $(4,627)
======= ======= ======= =======
Basic income (loss) per share before
cumulative effect of change in accounting
principle $ 0.05 $ (0.05) $ 0.13 $ (0.11)
Cumulative effect of change in accounting
principle (0.03)
------- ------- ------- -------
Reported net income (loss) per share 0.05 (0.05) 0.13 (0.14)
Add back: Goodwill amortization 0.01 0.02
------- ------- ------- -------
Basic income (loss) per share, as adjusted $ 0.06 $ (0.05) $ 0.15 $ (0.14)
======= ======= ======= =======
Diluted income (loss) per share before
cumulative effect of change in accounting
principle $ 0.05 $ (0.05) $ 0.12 $ (0.11)
Cumulative effect of change in accounting
principle (0.03)
------- ------- ------- -------
Reported net income (loss) per share 0.05 (0.05) 0.12 (0.14)
Add back: Goodwill amortization 0.01 0.02
------- ------- ------- -------
Diluted income (loss) per share, as adjusted $ 0.06 $ (0.05) $ 0.14 $ (0.14)
======= ======= ======= =======
10. Significant Customer Contract
On December 10, 1999, the Company entered into a consulting services agreement
with a significant customer under which such customer committed to $22 million
of consulting fees over a three-year period commencing January 1, 2000. Due to
financial difficulties experienced by the customer in fiscal year 2001 and
continuing into fiscal year 2002, the agreement was extended in April 2002 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. As of June 29, 2002, $15.0 million of
consulting fees had been recognized in connection with the agreement from the
commencement date.
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 CSMG to the Company. The LOC was collateralized by the Company with a
$1.0 million cash deposit to the above financial institution. This amount is
included in "Cash and Cash
Equivalents" on the Company's consolidated condensed balance sheet as of June
29, 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In addition to historical information, this quarterly report contains
forward-looking statements. Certain risks and uncertainties could cause actual
results to differ materially from those reflected in such forward-looking
statements. Factors that might cause a difference include, but are not limited
to, those discussed in the sections entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business - Risk
Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 2001. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's opinions only as of the
date of this report. We undertake no obligation to revise, or publicly release
the results of any revision to, these forward-looking statements. Readers should
carefully review the risk factors described in our annual report and in other
documents that we file from time to time with the Securities and Exchange
Commission.
The following should be read in connection with Management's Discussion and
Analysis of Financial Condition and Results of Operations and Critical
Accounting Policies as presented in the Company's Annual Report on Form 10-K for
the fiscal year ended December 29, 2001.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED JUNE 29, 2002 COMPARED TO THIRTEEN WEEKS ENDED JUNE 30,
2001
REVENUES
Revenues decreased 27.5% to $9.9 million for the thirteen weeks ended June 29,
2002 from $13.7 million for the thirteen weeks ended June 30, 2001. The decrease
in revenues was due primarily to a deferral or reduction of management
consulting demand by the communications and technology industry resulting
primarily from adverse macroeconomic events in this sector during 2001 and 2002,
including reductions in capital funding, business failures, and industry
restructurings and reorganizations. Additionally, our international revenue base
decreased to 7.0% of our revenues for the thirteen weeks ended June 29, 2002,
from 10.2% for the corresponding period in fiscal year 2001, due primarily to
the additional domestic revenue generated by our recently acquired subsidiaries,
Cambridge Strategic Management Group, Inc. ("CSMG") in March 2002, and TMNG
Technologies, Inc. ("TMNG Technologies") in September 2001, and the decline in
services provided to international customers related to similar adverse
macroeconomic events in those markets. CSMG revenues represented 42.8% of
consolidated revenues for the thirteen weeks ended June 29, 2002. Non-consulting
revenues recognized by TMNG Technologies represented 4.0% of consolidated
revenues for the thirteen weeks ended June 29, 2002, and related to commissions
received on hardware sales.
COSTS OF SERVICES
Direct costs of services decreased 38.1% to $4.3 million for the thirteen weeks
ended June 29, 2002 compared to $6.9 million for the thirteen weeks ended June
30, 2001, and was attributable primarily to the decrease in consulting
engagements and corresponding reductions in consulting personnel costs. As a
percentage of revenues, our gross margin based on direct cost of services was
57.0% for the thirteen weeks ended June 29, 2002 compared to 49.7% for the
thirteen weeks ended June 30, 2001. The increase in gross margin was primarily
attributable to higher margins associated with the strategy offerings provided
during the thirteen weeks ended June 29, 2002, compared to the corresponding
period in fiscal year 2001.
Non-cash stock based compensation charges were $177,000 and $707,000 for the
thirteen weeks ended June 29, 2002 and June 30, 2001, respectively. Of the
$177,000 compensation charges related to the thirteen weeks ended June 29, 2002,
$146,000 was recorded in connection with pre-initial public offering grants of
stock options to employees and non-employee consultants, offset by a $161,000
credit representing a reversal of previously recognized expense attributable to
the forfeiture and cancellation of stock options during the thirteen weeks ended
June 29, 2002, and $192,000 was recorded in connection with a warrant issued
during the fourth quarter of 1999. The primary reasons for the net decrease in
non-cash stock based compensation charges for the thirteen weeks ended June 29,
2002 compared to the same period in fiscal year 2001 was the reduction in
amortization charges related to the pre-initial public offering grants of stock
options in the amount of $184,000, increased forfeitures and cancellations of
stock options during the thirteen weeks ended June 29, 2002 in the amount of
$108,000, and the reduction in amortization expense recognized on the warrant in
the amount of $237,000 as the warrant was fully amortized during the second
quarter of fiscal year 2002. These net charges increased costs of services as a
percentage of revenue by 1.8% and 5.2% for the thirteen weeks ended June 29,
2002 and June 30, 2001, respectively.
OPERATING EXPENSES
In total, operating expenses increased to $8.6 million for the thirteen weeks
ended June 29, 2002, or 83.3% from $4.7 million for the corresponding period in
fiscal year 2001. The major components of this $3.9 million increase in
operating expenses was a $1.9 million one-time charge related to severance costs
incurred by the Company as part of its overall cost-reduction initiatives, and
the general and administrative costs associated with our CSMG and TMNG
administrative expenses increased to 78.3% compared to 29.0% for the thirteen
weeks ended June 29, 2002 and June 30, 2001, respectively. This percentage
increase was primarily attributable to the decreased revenues. Beginning in
fiscal year 2001 and continuing into fiscal year 2002, management began
implementing a number of cost reduction initiatives including the reduction of
sales and marketing staff, minimization of consultant recruitment, and a
reduction in the Company's accounting staff. Management believes these
initiatives will provide for better management of general and administrative
costs in the future. Amortization expense increased by $261,000 for the thirteen
weeks ended June 29, 2002 compared to the same period in fiscal year 2001, due
primarily to the amortization of specifically identified intangibles acquired in
the CSMG and TMNG Technologies acquisitions, offset by the Company no longer
recording amortization expense on goodwill in accordance with SFAS No. 142
"Accounting for Goodwill and Intangible Assets."
Non-cash stock based compensation charges of $117,000 and $261,000 for the
thirteen weeks ended June 29, 2002 and June 30, 2001, respectively, were
recorded in connection with stock options granted to our partners, principals
and certain senior executives and non-employee directors. These charges
increased operating expenses as a percentage of revenue by 1.2% and 1.9% for the
thirteen weeks ended June 29, 2002 and June 30, 2001, respectively. The $144,000
decrease in non-cash stock based compensation charges for fiscal year 2002
compared to fiscal year 2001 was a result of the reduction in the amortization
of the deferred compensation charges recorded in connection with pre-initial
public offering grants of non-qualified stock options.
OTHER INCOME AND EXPENSES
Interest income was $212,000 and $692,000 for the thirteen weeks ended June 29,
2002 and June 30, 2001, respectively, and represented interest earned on
invested balances. Interest income decreased during the thirteen weeks ended
June 29, 2002 due to lower invested balances and lower interest rates from the
second quarter of fiscal year 2001 to the second quarter of fiscal year 2002. We
invest in short-term, high-grade investment instruments as part of our overall
investment policy.
INCOME TAXES
Income tax benefit for the thirteen weeks ended June 29, 2002 as a percentage of
pretax loss was 37.6% compared to a provision of 31.4% of pretax income for the
thirteen weeks ended June 30, 2001. The increase in the income tax expense
(benefit) as a percentage of pre-tax income (loss) was due primarily to the
shift away from short-term investments in federally exempt income securities.
TWENTY-SIX WEEKS ENDED JUNE 29, 2002 COMPARED TO TWENTY-SIX WEEKS ENDED JUNE 30,
2001
REVENUES
Revenues decreased 46.3% to $17.2 million for the twenty-six weeks ended June
29, 2002 from $32.0 million for the twenty-six weeks ended June 30, 2001. The
decrease in revenues was due primarily to a deferral or reduction of management
consulting demand by the communications and technology industry resulting
primarily from adverse macroeconomic events in this sector during 2001 and 2002,
including reductions in capital funding, business failures, and industry
restructurings and reorganizations. Additionally, our international revenue base
decreased to 6.4% of our revenues for the twenty-six weeks ended June 29, 2002,
down from 13.9% for the twenty-six weeks ended June 30, 2001, due primarily to
the additional domestic revenue generated by our recently acquired subsidiaries,
CSMG and TMNG Technologies and the decline in services provided to international
customers related to similar adverse macroeconomic events in those markets. CSMG
revenues represented 33.4% of consolidated revenues for the twenty-six weeks
ended June 29, 2002. Non-consulting revenues recognized by TMNG Technologies
represented 3.4% of consolidated revenues for the twenty-six weeks ended June
29, 2002, and related to commissions received on hardware sales.
COST OF SERVICES
Direct costs of services decreased 51.7% to $7.9 million for the twenty-six
weeks ended June 29, 2002 compared to $16.4 million for the twenty-six weeks
ended June 30, 2001, and was attributable primarily to the decrease in
consulting engagements and corresponding reductions in consulting personnel
costs. As a percentage of revenues, our gross margin based on direct cost of
services was 53.8% for the twenty-six weeks ended June 29, 2002 compared to
48.7% for the twenty-six weeks ended June 30, 2001. The increase in gross margin
was primarily attributable to higher margins associated with the strategy
offerings provided during the twenty-six weeks ended June 29, 2002 compared to
the corresponding period in fiscal year 2001.
Non-cash stock based compensation charges were $672,000 and $1,120,000 for the
twenty-six weeks ended June 29, 2002 and June 30, 2001, respectively. Of the
$672,000 compensation charges related to the twenty-six weeks ended June 29,
2002, $266,000 was recorded in connection with pre-initial public offering
grants of stock options to employees and non-employee consultants, offset by a
$217,000 credit representing a reversal of previously recognized expense
attributable to the forfeiture and cancellation of stock options during fiscal
year 2002, and $623,000 was recorded in connection with a warrant issued during
the fourth quarter of 1999. The primary reasons for the net decrease in non-cash
stock based compensation charges for the twenty-six weeks ended June 29, 2002
compared to the same period in fiscal year 2001 was the reduction in
amortization charges related to the pre-initial public offering grants of stock
options in the amount of $486,000, decreased forfeitures and cancellations of
stock options as an offset to expense in the first twenty-six weeks of fiscal
year 2002 in the amount of $275,000, and the reduction in amortization expense
recognized on the warrant in the amount of $237,000 as the warrant was fully
amortized during the second quarter of fiscal year 2002. These net charges
increased costs of services as a percentage of revenue by 3.9% and 3.5% for the
twenty-six weeks ended June 29, 2002 and June 30, 2001, respectively.
OPERATING EXPENSES
In total, operating expenses increased to $14.9 million for the twenty-six weeks
ended June 29, 2002, or 45.7% from $10.2 million for the twenty-six weeks ended
June 30, 2001. The major components of this $4.7 million increase in operating
expenses was a $1.9 million one-time charge related to severance costs incurred
by the Company as part of its overall cost-reduction initiatives, an $855,000
increase in selling, general and administrative expenses related to the closing
of our Lanham office into our Bethesda location in the first quarter of fiscal
year 2002, and the additional general and administrative costs associated with
our CSMG and TMNG Technologies acquisitions. As a percentage of revenues,
selling, general and administrative expenses increased to 78.3% compared to
27.5% for the twenty-six weeks ended June 29, 2002 and June 30, 2001,
respectively. This percentage increase was primarily attributable to the
decreased revenues. Beginning in fiscal year 2001 and continuing into fiscal
year 2002, management began implementing a number of cost reduction initiatives
including the reduction of sales and marketing staff, minimization of consultant
recruitment, and a reduction in the Company's accounting staff. Management
believes these initiatives will provide for better management of general and
administrative costs in the future. Amortization expense increased by $187,000
in the twenty-six weeks ended June 29, 2002 compared to the same period in
fiscal 2001, due primarily to the amortization of specifically identified
intangibles acquired in the CSMG and TMNG Technologies acquisitions, offset by
the Company no longer recording amortization expense on goodwill in accordance
with SFAS No. 142 "Accounting for Goodwill and Intangible Assets."
Non-cash stock based compensation charges of $280,000 and $459,000 for the
twenty-six weeks ended June 29, 2002 and June 30, 2001, respectively, were
recorded in connection with stock options granted to our partners, principals
and certain senior executives and non-employee directors. These charges
increased operating expenses as a percentage of revenue by 1.6% and 1.4% for the
twenty-six weeks ended June 29, 2002 and June 30, 2001, respectively. The
$179,000 decrease in non-cash stock based compensation charges for the
twenty-six weeks ended June 29, 2002 compared to June 30, 2001 was a result of
the reduction in the amortization of the deferred compensation charges recorded
in connection with pre-initial public offering grants of non-qualified stock
options.
OTHER INCOME AND EXPENSES
Interest income was $522,000 and $1,412,000 for the twenty-six weeks ended June
29, 2002 and June 30, 2001, respectively, and represented interest earned on
invested balances. Interest income decreased during the twenty-six weeks ended
June 29, 2002 due to lower invested balances and lower interest rates from
fiscal year 2001 to fiscal year 2002. We invest in short-term, high-grade
investment instruments as part of our overall investment policy.
INCOME TAXES
Income tax benefit for the twenty-six weeks ended June 29, 2002 as a percentage
of pretax loss was 39.6% compared to a provision of 33.5% of pretax income for
the twenty-six weeks ended June 30, 2001. The increase in the income tax expense
(benefit) as a percentage of pre-tax income (loss) was due primarily to a shift
away from short-term investments in federally exempt income securities.
CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE
A cumulative change in accounting principle in the amount of $1.9 million was
recorded in the twenty-six weeks ended June 29, 2002 in connection with the
Company's preliminary estimate of goodwill impairment. The impairment was
calculated in accordance with the provisions of SFAS No. 142 "Accounting for
Goodwill and Intangible Assets" and has been reported on the Company's Statement
of Income (Loss) and Comprehensive Income (Loss), net of tax benefit in the
amount of $1.1 million.
LIQUIDITY AND CAPITAL RESOURCES
At June 29, 2002, we had approximately $54.4 million in cash and cash
equivalents. We believe the cash on hand will be sufficient to meet anticipated
cash requirements, including anticipated capital expenditures, consideration for
possible acquisitions, and to support operations, if necessary, for at least the
next 12 months. The Company has established a flexible model that provides a
lower fixed cost structure than most consulting firms, enabling TMNG to scale
operating cost structures more quickly based on market conditions.
Net cash provided by operating activities was $418,000 and $12.8 million for the
twenty-six weeks ended June 29, 2002 and June 30, 2001, respectively. The
Company generated positive cash flow from its operating activities in the first
half of fiscal 2002, primarily due to the reduction in accounts receivable
balances, after giving impact to the CSMG acquisition, reflecting more focused
billing and collection activities.
Net cash used in investing activities was $32.6 million and $454,000 for the
twenty-six weeks ended June 29, 2002 and June 30, 2001, respectively. Cash used
for acquisitions in the twenty-six weeks ended June 29, 2002 was $32.3 million,
and related to the CSMG acquisition closed by the Company on March 6, 2002.
Capital expenditures of $213,000 and $454,000 for the twenty-six weeks ended
June 29, 2002 and June 30, 2001, respectively, relate to the capitalization of
leasehold improvements, computer equipment and software by the Company.
Additionally, during fiscal 2002 the Company increased its loans to officers by
$100,000, resulting in an aggregate borrowing of $300,000 by officers as of June
29, 2002. The maximum available borrowings under the loan agreements between the
three officers and the Company are $1,300,000 in total.
Net cash provided by financing activities was $232,000 and $158,000 for the
twenty-six weeks ended June 29, 2002 and June 30, 2001, respectively. Cash
provided by financing activities in fiscal 2002 related to proceeds from the
exercise of stock options and the purchase of stock under the Company's employee
stock purchase plan, partially offset from payments made by the Company on the
current portion of its capital lease obligations and current portion of
outstanding debt. Net cash provided by financing activities was $158,000 for the
twenty-six weeks ended June 30, 2001, and related to proceeds from the exercise
of employee stock options.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not invest excess funds in derivative financial instruments or
other market rate sensitive instruments for the purpose of managing its foreign
currency exchange rate risk. The Company invests excess funds in short-term
investments, the yield of which is exposed to interest rate market risk.
The Company does 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 the Company's clients.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
TMNG has not been subject to any material new litigation or claims against the
Company since the time of TMNG's 10-K filing, dated March 29, 2002. For a
summary of litigation in which TMNG is currently involved, refer to TMNG's 10-K,
as filed with the Securities and Exchange Commission on March 29, 2002.
ITEM 4. SUBMISSION TO A VOTE OF SECURITY HOLDERS
TMNG HELD AN ANNUAL MEETING OF STOCKHOLDERS ON JUNE 5, 2002.
1. The stockholders approved the election of three directors. The votes cast for
each nominee were as follows:
FOR WITHHELD
Grant G. Behrman 31,810,397 210,778
Richard P. Nespola 30,211,676 1,809,499
Stephen B. Brodeur 30,211,401 1,809,774
2. The stockholders approved the 2002 TMNG Senior Executive Bonus Plan by a vote
of 29,620,074 shares in favor of the plan; 1,439,585 shares against the plan;
14,597 shares abstaining and 946,919 shares delivered not voted.
3. The stockholders ratified the appointment of Deloitte & Touche LLP as
independent auditor for the Company for the 2002 fiscal year by a vote of
31,872,325 shares in favor of the appointment; 148,650 shares against the
appointment and 200 shares abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification of Principal Executive Officers Pursuant to 18 U.S.C.
Section 1350
(b) Reports on Form 8-K
The Company filed a Form 8-K on March 21, 2002 with the Securities and Exchange
Commission disclosing the acquisition of Cambridge Strategic Management Group,
Inc. On May 10, 2002 an amendment to this filing was submitted to the Securities
and Exchange Commission. The amendment included pro forma consolidated
statements of income and comprehensive income for the year ended December 29,
2001 as well as a pro forma consolidated balance sheet dated December 29, 2001.
Additionally, the amendment reported CSMG's 2001 financial statements,
footnotes, and independent auditors' report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RICHARD P. NESPOLA President, Chief Executive August 13, 2002
---------------------- Officer and Director
Richard P. Nespola (Principal executive officer)
/s/ DONALD E. KLUMB Chief Financial Officer and August 13, 2002
---------------------- Treasurer
Donald E. Klumb (Principal financial officer
and principal accounting
officer)
*By: /s/ DONALD E. KLUMB
- -----------------------------
Donald E. Klumb
Attorney-in-Fact
Exhibit 99.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERS
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Quarterly Report on Form 10-Q of The
Management Network Group, Inc. for the quarter ended June 29, 2002, I, Richard
P. Nespola, President and Chief Executive Officer of The Management Network
Group, Inc. and I, Donald E. Klumb, Chief Financial Officer and Treasurer of The
Management Network Group, Inc., hereby certify pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to
the best of my knowledge and belief, that:
(1) such Quarterly Report on Form 10-Q of The Management Network
Group for the quarter ended June 29, 2002, fully complies with
the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) the information contained in such Quarterly Report on Form 10-Q
of The Management Network Group, Inc. for the quarter ended June
29, 2002, fairly presents, in all material respects, the
financial condition and results of operations of The Management
Network Group, Inc.
Dated: August 13, 2002 By: /s/ RICHARD P. NESPOLA
----------------------------
President, Chief Executive Officer
/s/ DONALD E. KLUMB
----------------------------
Chief Financial Officer and Treasurer