x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

Delaware

13-3818604

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

4810 Eastgate Mall

San Diego, CA 92121

(858) 228-2000

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Yes

x

No

o

Page
No.

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Balance Sheets as of December 31, 2001 and September 30, 2002 (unaudited)

3

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2001 and 2002 (unaudited)

4

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2002 (unaudited)

5

Notes to Consolidated Financial Statements (unaudited)

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

25

Item 4.

Controls and Procedures

25

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

26

Item 6.

Exhibits and Reports on Form 8-K

27

December 31,
2001

September 30,
2002

(Audited)

(Unaudited)

Assets

Current assets:

Cash and cash equivalents

$

61.1

$

83.0

Accounts receivable (net of allowance for doubtful accounts of $18.3 and $13.0 as of December 31, 2001 and September 30, 2002, respectively)

94.4

71.3

Accounts receivable – related party

0.3

0.2

Income taxes receivable

3.2

3.1

Prepaid expenses

4.5

1.3

Employee loans and advances

1.5

0.1

Other current assets

9.3

6.4

Total current assets

174.3

165.4

Property and equipment, net

19.0

14.3

Goodwill, net

54.4

41.6

Other intangibles, net

8.6

—  

Deferred tax assets, net

10.0

—  

Investments in unconsolidated affiliates

8.4

8.3

Employee loans and advances

0.7

0.5

Other assets

0.5

0.2

Total assets

$

275.9

$

230.3

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

13.2

$

11.2

Accrued expenses

15.3

16.1

Accounts payable - related party

2.2

1.2

Billings in excess of costs and profits

1.6

7.9

Line of credit payable

33.0

—  

Note payable

0.2

—  

Accrued unused office space

—  

1.8

Capital lease obligations

4.5

2.8

Total current liabilities

70.0

41.0

Capital lease obligations - net of current portion

4.0

0.9

Note payable - net of current portion

0.4

—  

Deferred tax liabilities, net

—  

1.6

Accrued unused office space – net of current portion

1.3

8.4

Other liabilities

2.2

0.9

Total liabilities

77.9

52.8

Minority interest in subsidiary

0.2

0.2

Stockholders’ equity:

Preferred stock, 5,000,000 shares authorized

Series A Convertible Preferred Stock, $.001 par value, 63,637 shares issued and outstanding at December 31, 2001 and September 30, 2002 (liquidation preference $35.0)

—  

—  

Series B Convertible Preferred Stock, $.001 par value, 0 and 90,000 shares outstanding at December 31, 2001 and September 30, 2002, respectively (liquidation preference $45.0)

—  

—  

Common stock, $.001 par value, 195,000,000 shares authorized; 47,184,000 and 48,169,921 shares issued and outstanding at December 31, 2001 and September 30, 2002, respectively

—  

—  

Additional paid-in capital

215.1

264.5

Accumulated deficit

(17.1

)

(84.1

)

Accumulated other comprehensive loss

(0.2

)

(3.1

)

Total stockholders’ equity

197.8

177.3

Total liabilities and stockholders’ equity

$

275.9

$

230.3

Three months ended
September 30,

Nine months ended
September 30,

2001

2002

2001

2002

Revenues

$

54.8

$

49.1

$

162.2

$

136.0

Cost of revenues

37.0

37.2

108.6

101.4

Gross profit

17.8

11.9

53.6

34.6

Selling, general and administrative expenses

15.9

8.6

86.5

64.7

Depreciation and amortization

5.6

1.7

16.5

6.0

Asset impairment charges

—  

—  

12.9

21.1

Operating income (loss)

(3.7

)

1.6

(62.3

)

(57.2

)

Other income (expense):

Interest income (expense), net

(0.9

)

0.3

(2.6

)

(1.0

)

Foreign currency exchange gain (loss)

0.6

0.6

(1.5

)

1.5

Other

0.1

—  

(0.7

)

(0.2

)

Other income (expense), net

(0.2

)

0.9

(4.8

)

0.3

Income (loss) before income taxes

(3.9

)

2.5

(67.1

)

(56.9

)

Provision (benefit) for income taxes

(1.0

)

—  

(17.4

)

10.1

Net income (loss)

$

(2.9

)

$

2.5

$

(49.7

)

$

(67.0

)

Net income (loss) per common share:

Basic

$

(0.06

)

$

0.05

$

(1.09

)

$

(1.40

)

Diluted

$

(0.06

)

$

0.04

$

(1.09

)

$

(1.40

)

Weighted average common shares outstanding:

Basic

46.4

48.1

45.4

48.0

Diluted

46.4

65.4

45.4

48.0

Nine months ended September  30,

2001

2002

Net cash provided by operating activities

$

0.4

$

18.4

Investing activities – capital expenditures

(4.3

)

(3.0

)

Financing activities:

Proceeds from issuance of Series B Convertible Preferred Stock, net of issuance costs

—  

44.9

Proceeds from issuance of common stock

5.2

2.1

Repayment of notes payable

(1.6