10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2005
Commission file number 0–19433

Technology Solutions Company

Incorporated in the State of Delaware
I.R.S. Employer Identification No. 36-3584201

205 North Michigan Avenue
Suite 1500
Chicago, Illinois 60601
(312) 228-4500

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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined by Exchange Act Rule 12b-2). Yes o No þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of November 9, 2005 there were outstanding 2,354,356 shares of TSC Common Stock, par value $.01.

TECHNOLOGY SOLUTIONS COMPANY
Index to Form 10-Q

	Page
	Number
Part I
FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of  September 30, 2005 and December 31, 2004		3
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2005 and 2004		4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2004		5
Notes to Consolidated Financial Statements		6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		26
ITEM 4. CONTROLS AND PROCEDURES		26
Part II
OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		27
ITEM 6. EXHIBITS		28
SIGNATURE		29
Restated Certificate of Incorporation
Certification
Certification
Certification
Certification

Note: As discussed in Note 10 to the consolidated financial statements, a one-for-twenty reverse stock split of all of the Company’s issued Common Stock became effective on October 25, 2005. The share and per share amounts contained in this Quarterly Report on Form 10-Q do not reflect the reverse stock split for amounts dated prior to October 25, 2005.

Page 2

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

TECHNOLOGY SOLUTIONS COMPANY

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

	September 30,			December 31,
	2005			2004
	(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	20,951		$	30,032
Receivables, less allowance for doubtful receivables of $72 and $73		7,840			6,182
Other current assets		945			708
Total current assets		29,736			36,922
COMPUTERS, FURNITURE AND EQUIPMENT, NET		332			509
GOODWILL		7,298			7,884
INTANGIBLE ASSETS, NET		1,232			2,090
LONG-TERM RECEIVABLES AND OTHER		3,614			5,679
Total assets	$	42,212		$	53,084
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1,054		$	960
Line of credit		—			649
Accrued compensation and related costs		3,665			4,987
Restructuring accruals		589			696
Other current liabilities		2,743			3,998
Total current liabilities		8,051			11,290
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par value; shares authorized — 10,000,000; none issued		—			—
Common stock, $.01 par value; shares authorized — 100,000,000; shares issued — 50,533,970; shares outstanding 47,092,548 and 46,851,460		505			505
Capital in excess of par value		127,378			127,583
Stock based compensation		89			—
Accumulated deficit		(89,167	)		(81,282	)
Treasury stock, at cost, 3,441,422 and 3,682,510 shares		(4,875	)		(5,217	)
Accumulated other comprehensive income:
Cumulative translation adjustment		231			205
Total stockholders’ equity		34,161			41,794
Total liabilities and stockholders’ equity	$	42,212		$	53,084

The accompanying Notes to Consolidated Financial Statements are an integral part of this financial information.

Page 3

TECHNOLOGY SOLUTIONS COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
	(unaudited)						(unaudited)
REVENUES:
Revenues before reimbursements	$	9,347		$	7,741		$	28,341		$	24,043
Reimbursements		1,213			1,071			3,762			3,220
		10,560			8,812			32,103			27,263
COSTS AND EXPENSES:
Project personnel		5,487			4,992			18,516			15,713
Other project expenses		1,706			1,442			6,103			4,172
Reimbursable expenses		1,213			1,071			3,762			3,220
Bad debt expense		—			—			—			12
Management and administrative support		3,224			3,948			11,818			10,735
Intangible asset amortization		253			—			765			—
Goodwill and intangible asset impairment		—			—			679			—
Restructuring and other charges (credits)		—			—			1,674			(579	)
Gain on litigation settlement		—			—			(2,722	)		—
Incentive compensation		—			233			—			789
		11,883			11,686			40,595			34,062
OPERATING LOSS		(1,323	)		(2,874	)		(8,492	)		(6,799	)
OTHER INCOME:
Net investment income		247			279			607			594
LOSS BEFORE INCOME TAXES		(1,076	)		(2,595	)		(7,885	)		(6,205	)
INCOME TAX PROVISION		—			—			—			—
NET LOSS	$	(1,076	)	$	(2,595	)	$	(7,885	)	$	(6,205	)
BASIC NET LOSS PER COMMON SHARE	$	(0.02	)	$	(0.06	)	$	(0.17	)	$	(0.15	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING		47,023			40,875			46,936			40,851
DILUTED NET LOSS PER COMMON SHARE	$	(0.02	)	$	(0.06	)	$	(0.17	)	$	(0.15	)
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING		47,023			40,875			46,936			40,851

The accompanying Notes to Consolidated Financial Statements are an integral part of this financial information.

Page 4

TECHNOLOGY SOLUTIONS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

	For the
	Nine Months Ended
	September 30,
	2005			2004
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(7,885	)	$	(6,205	)
Restructuring and other charges (credits)		1,674			(579	)
Goodwill and intangible asset impairment		679			—
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization		1,087			313
Provision for receivable valuation allowances and reserves for possible losses		—			12
Non-cash stock compensation		89			—
Changes in assets and liabilities:
Receivables		(1,658	)		(231	)
Sales of trading securities related to deferred compensation plan		—			6,712
Other current assets		(284	)		(562	)
Accounts payable		102			312
Accrued compensation and related costs		(1,315	)		1,363
Deferred compensation liability		—			(6,712	)
Restructuring accruals		(1,674	)		(981	)
Other current liabilities		(1,196	)		(500	)
Other assets		2,068			11
Net cash used in operating activities		(8,313	)		(7,047	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(208	)		(422	)
Net cash used in investing activities		(208	)		(422	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit		(649	)		—
Proceeds from exercise of stock options		9			1
Proceeds from employee stock purchase plan		128			103
Purchase of Company stock for treasury		—			(76	)
Net cash (used in) provided by financing activities		(512	)		28
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(48	)		(61	)
DECREASE IN CASH AND CASH EQUIVALENTS		(9,081	)		(7,502	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		30,032			41,104
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	20,951		$	33,602

The accompanying Notes to Consolidated Financial Statements are an integral part of this financial information.

Page 5

TECHNOLOGY SOLUTIONS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited)
(In thousands, except share and per share data)

NOTE 1 — BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Technology Solutions Company and its subsidiaries (“TSC” or the “Company”). The consolidated balance sheet as of September 30, 2005, the consolidated statements of operations for the three and nine months ended September 30, 2005 and 2004 and the consolidated statements of cash flows for the nine months ended September 30, 2005 and 2004 have been prepared by the Company without audit. In the opinion of management, these financial statements include all adjustments necessary to present fairly the financial position, results of operations and cash flows as of September 30, 2005 and for all periods presented. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The Company believes that the disclosures included are adequate and provide a fair presentation of interim period results. Interim financial statements are not necessarily indicative of financial position or operating results for an entire year. It is suggested that these interim financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 filed with the United States Securities and Exchange Commission (“SEC”) on March 24, 2005.

NOTE 2 — THE COMPANY

Technology Solutions Company (“TSC”) is a leading consulting firm delivering specialized technology-enabled business solutions. The Company’s specialization is applying knowledge, derived from the intersection of industry expertise with technology and process capabilities, to business issues and problems. TSC serves the manufacturing, healthcare, consumer & retail and financial services industries with targeted solutions in enterprise applications, customer relationship management (“CRM”) and business technology. Since 1988 TSC has delivered information technology (“IT”) strategy, planning and implementation solutions to Fortune 1000 companies throughout North America. TSC’s clients are primarily located throughout the United States.

NOTE 3 — NEW ACCOUNTING STANDARDS

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment.” SFAS No. 123R is a revision to SFAS No. 123. SFAS No. 123R will, with certain exceptions, require entities that grant stock options and shares to employees to recognize the fair value of those options and shares as compensation cost over the service (vesting) period in their financial statements. The measurements of that cost will be based on the fair value of the equity or liability instruments issued. In April 2005, the Securities and Exchange Commission (“SEC”) issued Release No. 33-8568 which amended the compliance date of SFAS No. 123R to be effective beginning with the first interim or annual reporting period of the first fiscal year beginning on or after June 15, 2005. SFAS No. 123R will be effective for the Company starting with the quarter ending March 31, 2006. While the Company is currently evaluating the impact of the adoption of SFAS No. 123R,

Page 6

TECHNOLOGY SOLUTIONS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited)
(Continued)

the Company believes the impact will be material to its results of operations as shown in its current disclosure under SFAS No. 123 (see Note 4).

NOTE 4 — STOCK OPTIONS

The Company accounts for stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Compensation costs for employee stock options are measured as the excess, if any, of the quoted market price of the Company’s common stock at the date of grant over the amount an employee must pay to acquire the stock. For options issued during the three and nine months ended September 30, 2005 and 2004, no stock-based compensation is reflected in net loss in the accompanying consolidated statements of operations, as all such options had an exercise price equal to the market value of the underlying common stock on the date of grant. Stock based compensation of $89 was recorded during the three months ended March 31, 2005 relating to an option grant that took place within a six month period prior to a cancellation.

The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based compensation.

	For the Three Months						For the Nine Months Ended
	Ended September 30,						September 30,
	2005			2004			2005			2004
Net loss:
As reported	$	(1,076	)	$	(2,595	)	$	(7,885	)	$	(6,205	)
Less: Stock-based compensation expense determined under fair value method for all awards, net of related taxes (as applicable)		(348	)		(479	)		(852	)		(1,422	)
Pro forma	$	(1,424	)	$	(3,074	)	$	(8,737	)	$	(7,627	)
Basic net loss per common share:
As reported	$	(0.02	)	$	(0.06	)	$	(0.17	)	$	(0.15	)
Pro forma	$	(0.03	)	$	(0.08	)	$	(0.19	)	$	(0.19	)
Diluted net loss per common share:
As reported	$	(0.02	)	$	(0.06	)	$	(0.17	)	$	(0.15	)
Pro forma	$	(0.03	)	$	(0.08	)	$	(0.19	)	$	(0.19	)

As of September 30, 2005 and 2004, options to purchase 9,012,322 and 11,385,032 shares of common stock were outstanding, respectively, and options to purchase an additional 4,607,575 and 1,637,688 shares of common stock were available for grant, respectively, under the Technology Solutions Company 1996 Stock Incentive Plan.

Page 7

TECHNOLOGY SOLUTIONS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited)
(Continued)

NOTE 5 — CAPITAL STOCK

The Company has a stock repurchase program, which allows for share repurchases of up to 11,525,327 shares of outstanding Company common stock (the “Repurchase Program”). During the nine months ended September 30, 2005, the Company did not purchase any shares. During the nine months ended September 30, 2004, the Company purchased 75,500 shares for $76. The Company has repurchased an aggregate of 6,838,127 shares since the inception of the Repurchase Program in September 2000. As of September 30, 2005, there were 4,687,200 shares available to be purchased under the Repurchase Program.

The timing and size of any future stock repurchases are subject to market conditions, stock prices, cash position and other cash requirements.

NOTE 6 — LOSS PER COMMON SHARE

The Company discloses basic and diluted loss per share in the consolidated statements of operations under the provisions of SFAS No. 128, “Earnings Per Share.” Diluted loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during each period presented, plus the dilutive effect of common equivalent shares arising from the assumed exercise of stock options using the treasury stock method. Common equivalent shares of 40,393 and 494,743 for the three and nine months ended September 30, 2005 and common equivalent shares of 721,301 and 921,749 for the three and nine month ended September 30, 2004 were not included in the diluted loss per share calculation as they were antidilutive. Basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during each period presented.

Reconciliation of basic and diluted loss per share for the three months ended:

	September 30, 2005								September 30, 2004
						Per								Per
	Net			Shares		Common			Net			Shares		Common
	Loss			(In Thousands)		Share			Loss			(In Thousands)		Share
Basic loss per share	$	(1,076	)		47,023	$	(0.02	)	$	(2,595	)		40,875	$	(0.06	)
Effect of stock options		—			—					—			—
Diluted loss per share	$	(1,076	)		47,023	$	(0.02	)	$	(2,595	)		40,875	$	(0.06	)

Page 8

TECHNOLOGY SOLUTIONS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited)
(Continued)

Reconciliation of basic and diluted loss per share for the nine months ended:

	September 30, 2005								September 30, 2004
						Per								Per
	Net			Shares		Common			Net			Shares		Common
	Loss			(In Thousands)		Share			Loss			(In Thousands)		Share
Basic loss per share	$	(7,885	)		46,936	$	(0.17	)	$	(6,205	)		40,851	$	(0.15	)
Effect of stock options		—			—					—			—
Diluted loss per share	$	(7,885	)		46,936	$	(0.17	)	$	(6,205	)		40,851	$	(0.15	)

NOTE 7 — COMPREHENSIVE (LOSS) INCOME

The Company’s comprehensive (loss) income was as follows:

	For the Three Months						For the Nine Months Ended
	Ended September 30,						September 30,
	2005			2004			2005			2004
Net loss	$	(1,076	)	$	(2,595	)	$	(7,885	)	$	(6,205	)
Other comprehensive income (loss):
Translation adjustment		7			1			26			(8	)
Other comprehensive income (loss)		7			1			26			(8	)
Total comprehensive loss	$	(1,069	)	$	(2,594	)	$	(7,859	)	$	(6,213	)

NOTE 8 — GOODWILL AND INTANGIBLE ASSETS, NET

     The changes in the carrying amount of goodwill for the nine months ended September 30, 2005, were as follows:

Balance as of December 31, 2004	$	7,884
Impairment loss		(586	)
Balance as of September 30, 2005	$	7,298

The changes in the carrying amount of net intangible assets for the nine months ended September 30, 2005, were as follows:

Balance as of December 31, 2004	$	2,090
Amortization		(765	)
Impairment loss		(93	)
Balance as of September 30, 2005	$	1,232

     The Company’s goodwill and intangible assets are reviewed at least annually for impairment or if an event occurs or if circumstances change that may reduce the fair value of the acquisition

Page 9

TECHNOLOGY SOLUTIONS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited)
(Continued)

below its book value in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” The company recorded a $679 impairment charge during the three months ended June 30, 2005 related to the goodwill and an intangible asset resulting from the October 2004 acquisition of the assets of Proceed North America LLC. This impairment arose as a result of the Company’s strategic realignment (as discussed in Note 9) and the termination of a business agreement.

NOTE 9 — OTHER EVENTS

In the second quarter of 2005, the Company recorded $1,687 in restructuring and other charges as a result of a strategic realignment and the related cost reductions. This charge consisted of severance costs of professional personnel, office closures and other costs. As of September 30, 2005, there was an accrual balance of $589. The Company expects to utilize the balance by 2007. The following table provides the components of this charge.

Restructuring and Other			Cash(1)		Non-cash		Balance as of
Charges - 2005	Charge		Payments		Usage		Sept. 30, 2005
Severance costs (23 employees)	$	1,173	$	878	$	—	$	295
Office closures		511		175		45		291
Other costs		3		—		—		3
Total	$	1,687	$	1,053	$	45	$	589

⁽¹⁾ Net cash payments totaling $1,053 were made during the nine months ended September 30, 2005.

In the second quarter of 2003, the Company recorded $5,211 in restructuring and other charges as a result of organizational changes announced in June 2003. These charges consisted of the severance costs of professional personnel and executives, and office reductions as well as professional fees incurred in connection with terminated negotiations with a party that had expressed interest in acquiring the Company. During the three months ended June 30, 2005, this charge was reduced by $13 to $4,932 and during the three months ended March 31, 2004 it was reduced by $266 as the Company was able to favorably terminate one of its office leases. During the three months ended September 30, 2005, the Company made the final payment on its remaining contractual lease obligation. Accordingly, no further payments are due on this charge. The following table provides the components of this charge.

Restructuring and Other				Cash(2)		Non-cash		Balance as of
Charges – 2003	Charge			Payments		Usage		Sept. 30, 2005
Severance costs (approximately 30 employees)	$	3,917		$	3,860	$	33	$	24
Office reductions		921			592		64		265
Professional fees		373			383		—		(10	)
Total original charge		5,211			4,835		97		279
2004 adjustment		(266	)		—		—		(266	)
2005 adjustment		(13	)		—		—		(13	)
Total	$	4,932		$	4,835	$	97	$	—

⁽²⁾ Net cash payments totaling $621 were made during the nine months ended September 30, 2005.

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TECHNOLOGY SOLUTIONS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Unaudited)
(Continued)

In 2000, the Company recorded a pre-tax charge of $4,701 for the closure of its Latin American operations. Subsequently in 2000, the Company collected $400 of accounts receivable previously written-off and, as a result, the cumulative charge was reduced to $4,301. This charge was further reduced by $181 to $4,120 during the three months ended March 31, 2004 as the Company completed the closure of its Latin American operations and, accordingly, no further payments are due. The following table provides the components of this charge.

				Cash			Non-cash		Balance as of
Latin America Charge – 2000	Charge			Payments			Usage		Sept. 30, 2005
Severance costs (approximately 40 employees)	$	1,785		$	1,574		$	—	$	211
Other costs		—			30			—		(30	)
Asset write-offs		2,916			—			2,916		—
Total original charge		4,701			1,604			2,916		181
Accounts receivable collections – 2000		(400	)		(400	)		—		—
2004 adjustment		(181	)		—			—		(181	)
Total	$	4,120		$	1,204		$	2,916	$	—

In 1999, the Company recorded $6,967 in restructuring and other charges associated with lease terminations, former executive severance costs, CourseNet Systems, Inc. acquisition costs and asset write-offs. The Company determined that a portion of the lease terminations became unnecessary due to changes in office usage and the actual costs for these lease terminations would be less than previously anticipated and, as a result, the cumulative charge was reduced by $2,036 to $4,931 during 2000, 2001 and 2002 and by $132 to $4,799 during the quarter ended March 31, 2004. During the quarter ended June 30, 2004, the Company made the final payment on its remaining contractual lease obligation. Accordingly, no further payments are due on this charge. The following table provides the components of this charge.

Restructuring and Other				Cash		Non-cash		Balance as of
Charges – 1999	Charge			Payments		Usage		Sept. 30, 2005
Lease terminations	$	3,011		$	725	$	35	$	2,251
Former executive severance costs		1,814			1,747		150		(83	)
CourseNet Systems, Inc. acquisition costs		1,300			—		1,300		—
Asset write-offs		842			—		842		—
Total original charge		6,967			2,472		2,327		2,168
2000 adjustment		(404	)		—		—		(404	)
2001 adjustment		(1,488	)		—		—		(1,488	)
2002 adjustment		(144	)		—		—		(144	)
2004 adjustment		(132	)		—		—		(132	)
Total	$	4,799		$	2,472	$	2,327	$	—

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TECHNOLOGY SOLUTIONS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)

(Continued)

NOTE 10 — SUBSEQUENT EVENTS

On October 14, 2005, the Company announced the filing of an amendment to its Restated Certificate of Incorporation to effect a (i) one-for-twenty reverse stock split (the “Reverse Stock Split”) of all of the Company’s issued common stock, par value $0.01 per share (“Common Stock”), and (ii) decrease in the number of authorized shares of the Company’s Common Stock from one hundred million shares to twenty million shares. Prior to the filing, the amendment was approved by the Company’s shareholders at a special meeting and by the Company’s Board of Directors. The Reverse Stock Split became effective at 12:01 a.m. (EST) on October 25, 2005 and the Company’s Common Stock began trading on a post-split basis at the market open on the same day.

The Reverse Stock Split affected all holders of the Company’s Common Stock uniformly and did not affect any stockholder’s percentage ownership interest in the Company, except to the extent that the Reverse Stock Split resulted in any holder of the Company’s Common Stock receiving cash in lieu of fractional shares. As no scrip or fractional certificates of the Common Stock will be issued in connection with the Reverse Stock Split, stockholders who otherwise would have been entitled to receive a fractional share because they held a number of shares of the Common Stock not evenly divisible by twenty are entitled, upon surrender of certificate(s) representing those shares, to a cash payment in lieu of any fraction. The cash payment was determined by multiplying the fraction by the per share closing price of the Common Stock on the Nasdaq National Market on the first day for which trading of the Common Stock was reported following the Reverse Stock Split. The ownership of a fractional interest did not give the holder any voting, dividend or other rights except to receive the cash payment just described. The Reverse Stock Split also affected stock options, warrants and securities reserved for issuance pursuant to the Company’s current equity plans. Following the Reverse Stock Split, the number of shares of Common Stock outstanding decreased to 2.35 million from 47.1 million as of October 25, 2005.

Page 12

TECHNOLOGY SOLUTIONS COMPANY

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

OVERVIEW

During 2004 we acquired two businesses in separate transactions, Zamba Corporation (“Zamba”) and Proceed North America (“Proceed”). On December 31, 2004 we completed the acquisition of Zamba, which gives us a stronger position in the customer relationship management market. Under the terms of the transaction, Zamba stockholders received 0.15 shares of our Common Stock for each share of Zamba Common Stock effective December 31, 2004. On October 5, 2004, we entered into an asset purchase agreement with Proceed North America LLC under which we acquired Proceed’s business. Proceed is an implementation partner for SAP^® Packaged Services.

The results of our operations are affected by general economic conditions as well as the level of economic activity and changes in the industries that we serve. While the general economy and the information technology (“IT”) consulting services market may be improving, there is no assurance that improving conditions will result in an increase in our future revenues given the fundamental changes in the IT service industry as described below. In addition, increases in demand for our services generally tend to lag behind economic cycles. Accordingly, any benefit to our business of any economic recovery may take longer to realize.

During the quarter ended June 30, 2005, we implemented a strategic realignment to improve our business and reduce costs. This resulted in a special charge to earnings of $1.7 million and an impairment to goodwill related to Proceed. The actions include a realignment of service offerings within the industry and competency consulting groups, selective headcount reductions and office closings. We are concentrating on three key competencies – enterprise application services, customer relationship management and business technology – and remain focused on growth in our key areas – manufacturing, healthcare, consumer & retail and financial services. We expect quarterly revenues in the fourth quarter of 2005 to be approximately $8.9 million to $9.9 million. We incurred operating losses during the first three quarters of 2005 and each quarter in 2004. We expect to incur an operating loss for the full year 2005 as we continue our efforts to transform and rebuild our business.

We believe the information technology services industry continues to undergo fundamental changes, resulting in increasing competitive pressure. These changes include competition from application software firms as they continue to enhance services and implementation capabilities to increase their revenue; offshore application development and system consulting and support firms which typically have much lower labor costs and billing rates; and the proliferation of Enterprise Resource Planning (“ERP”) expertise within the IT departments of organizations, reducing the need to engage outside consulting services. The availability of offshore technical expertise has and will continue to have an impact on the IT consulting market. However, we believe the demand for “high end” value added technically and functionally competent innovative consultants will increase over time. The complexity of corporate IT functions is not diminishing.

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OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

Our business is also driven by the pace of technological change, our ability to differentiate ourselves from our competitors through specialty services that address targeted industry and business concerns, and the type and level of spending by our clients in the areas in which we provide services. Many factors can result in a deferral, reduction or cancellation of services requested by our prospective or current clients including budget constraints, economic conditions and perceived project progress, success or value. The economic uncertainties of recent years have led many corporations to reassess their IT goals and budgets. This, combined with the lack of significant new technology to stimulate spending, dampened demand for our services. However, we believe that many companies have old systems and technology and “real time” business decision making capabilities will fuel growth in many of our markets.

During periods of decreased demand, companies try to minimize costs and negotiate lower prices for our services. Our ability to successfully identify and prepare for these changes is a key driver of our performance. Therefore, our strategy is to try to anticipate these trends and identify cost-management initiatives that will allow us to manage costs relative to expected revenues as well as identifying opportunities to increase revenues. Although we remain committed to spending our funds wisely, there is a point at which further cost cutting can be counter-productive.

Project personnel costs constitute the majority of our operating costs. Since project personnel costs are primarily driven by the cost of billable personnel, mainly compensation and benefits, maintaining these costs at a reasonable and predictable percentage of revenue is critical to our financial performance. Project personnel costs as a percentage of revenues are driven by utilization and average hourly billing rates. Utilization represents the percentage of time our billable professionals spend on billable work. It is our strategy to try to match our project personnel supply with demand. At times this requires us to reduce headcount and reassign employees to other active projects when they are no longer needed on a particular project. However, because of the mix of skills needed and project duration, implementation of this strategy may be delayed at times. Accordingly, any decline in revenues without a corresponding and timely reduction in staffing, or a staffing increase that is not accompanied by a corresponding increase in revenues, would have an adverse effect on our business, operating results and financial condition, which could be material.

REVENUES

For presentation purposes, we show two components of revenues: 1) revenues before reimbursements, which consist of revenue for performing consulting services; and 2) reimbursements, consisting of reimbursements we receive from clients for out-of-pocket expenses incurred. We believe revenues before reimbursements is a more meaningful representation of our economic activity since it excludes pass-through, zero-margin expense reimbursements.

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

COSTS AND EXPENSES

Project Personnel

Project personnel costs consist primarily of professional salaries and benefits.

Other Project Expenses

Other project expenses consist of the cost for subcontractors hired for use on our client projects and billed to our clients; employee termination costs; and nonreimbursable expenses incurred for client projects and business development. Nonreimbursable expenses include recruiting fees, certain selling expenses and personnel training.

Reimbursable Expenses

Reimbursable expenses represent project related and other out-of-pocket expenses that are reimbursable by the client. An equivalent amount is included in revenues under the caption “Reimbursements.”

Bad Debt Expense

We maintain an allowance for doubtful receivables resulting from the failure of our customers to make required payments. We also analyze our notes receivable, which are included in Long-Term Receivables and Other on our Consolidated Balance Sheet.

Management and Administrative Support

Management and administrative support costs consist of client officer costs and infrastructure costs. Client officer costs include client officer salaries and travel, marketing costs and recruiting costs. Client officers are a critical component in our client relationship-selling model. Each of our clients has at least one client officer assigned to them. The client officers are responsible for delivery excellence, client relationship and satisfaction, revenues, utilization, project margins, days sales outstanding and human capital, including recruiting and career development. In addition, each client officer is also a billable consulting resource. Infrastructure costs include costs related to our senior corporate management and board of directors; accounting; financial reporting; finance; tax; legal; treasury; human resources; employee benefits; marketing; public and investor relations; office operations; staffing of our project personnel; recruiting; training; internal communications; internal technology applications; management of new business opportunities; planning; quality assurance; and risk management.

Intangible asset amortization

Our acquired intangible assets, which consist of amounts related to customer relationships, backlog, agreements not to compete and other business agreements, with definitive lives are amortized over their estimated useful lives. In addition, we evaluate the intangible assets with definite lives to determine whether adjustment to these amounts or estimated useful lives are required based on current events and circumstances.

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

Incentive Compensation

Incentive compensation, if any, is accrued at a set percentage of base salary, which varies by level of employee, and is adjusted to reflect the amounts needed for active employees and for performance against targets, goals and objectives. Payments of incentive compensation, if any, are performance based and are determined by both objective (financial-based) and subjective measures. These objectives include both quarterly and full fiscal year parameters.

CRITICAL ACCOUNTING POLICIES AND 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. Management bases its estimates on historical experience and other assumptions, which it believes are reasonable. If actual amounts are ultimately different from these estimates, the revisions are included in the Company’s results of operations for the period in which the actual amounts become known.

Accounting policies are considered critical when they require management to make assumptions about matters that are highly uncertain at the time the estimate is made and when different estimates than management reasonably could have used have a material impact on the presentation of the Company’s financial condition, changes in financial condition or results of operations.

Revenue Recognition

We derive our revenues from a full range of IT/business consulting services. Our services are contracted on either a time and materials basis or a fixed price basis. For our time and materials contracts, we recognize revenue as work is performed, primarily based on hourly billing rates. For our fixed price contracts, we recognize revenues using the percentage-of-completion method, which is based on the percentage of work performed in the period compared to the total estimated work to be performed over the entire contract. Revenues are subject to revision as the contract progresses to completion. Any revisions in the estimate are charged to operations in the period in which the facts that give rise to the revision become known. Contracts are performed in phases. Losses on contracts, if any, are reserved in full when determined. Contract losses are determined by the amount by which the estimated cost of the contract exceeds the estimated total revenues that will be generated by the contract. Extended support revenues are recognized as services are rendered.

Allowance for Doubtful Receivables

An allowance for doubtful receivables is maintained for potential credit losses. When evaluating the adequacy of our allowance for doubtful receivables, management specifically analyzes accounts receivable on a client by client basis, including customer credit worthiness and current

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

economic trends, and records any necessary bad debt expense based on the best estimate of the facts known to date. Should the facts regarding the collectability of receivables change, the resulting change in the allowance would be charged or credited to income in the period such determination is made. Such a change could materially impact our financial position and results of operations.

Accounting for Income Taxes

We use an asset and liability approach to financial accounting and reporting for income taxes. Deferred income taxes are provided using currently enacted tax rates when tax laws and financial accounting standards differ with respect to the amount of income for a year and the basis of assets and liabilities. Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have generated certain deferred tax assets as a result of operating losses and temporary differences between book and tax accounting, as well as tax benefits resulting from the exercise of employee stock options that were recorded as additional paid-in capital in the period of exercise. Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes,” requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. During 2003, we recorded a full valuation allowance against our deferred tax assets. If the realization of our deferred tax assets in future periods is considered more likely than not, an adjustment to our deferred tax asset would increase net income in the period such determination is made. The amount of deferred tax assets considered realizable is based on significant estimates. Changes in these estimates could materially affect our financial condition and results of operations in future periods.

Valuation of Stock Options and Warrants

We account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Compensation costs for employee stock options are measured as the excess, if any, of the quoted market price of the Company’s common stock at the date of grant over the amount an employee must pay to acquire the stock.

In connection with our acquisition of Zamba at the end of 2004, we used the Black-Scholes option-pricing model for the valuation of the options and warrants issued in connection with this acquisition. The Black-Scholes option-pricing model requires assumptions as to the expected lives of the options and warrants, expected volatility of our stock price and risk-free interest rates. As we have not paid and do not anticipate paying dividends, the dividend yield is assumed to be zero.

Goodwill and Intangible Assets

We account for Goodwill and Intangible Assets in accordance with SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” Under SFAS No. 142, goodwill and intangibles that are deemed to have indefinite lives are no longer amortized

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

but, instead, are to be reviewed at least annually for impairment. Intangible assets with definitive lives continue to be amortized over their estimated useful lives.

SFAS No. 142 requires that goodwill be evaluated for impairment annually or if an event occurs or if circumstances change that may reduce the fair value of the acquisition below its book value. The impairment test is conducted (based on the revenues derived from the acquired entity) utilizing a “fair value” methodology. We evaluate the fair value of our acquisitions utilizing various valuation techniques including discounted cash flow analysis. This implied fair value is compared to the carrying amount of the goodwill for the individual acquisition. If the fair value is less, we would then recognize an impairment loss. In addition, we evaluate the intangible assets with definite lives to determine whether adjustment to these amounts or estimated useful lives are required based on current events and circumstances.

Restructuring and Other Charges

When industry and market conditions dictate, we realign our business and record accruals for restructuring and other charges as necessary. These charges mainly relate to severance costs, office reductions and closures, asset write-offs and other costs. The office space reductions, office closures and associated contractual lease obligations are based in part on assumptions and estimates of the timing and amount of sublease rentals. To the extent estimates of the success of our sublease efforts change in the future, adjustments increasing or decreasing the related accruals will be recognized. The severance costs represent amounts for identified employees and the asset write-offs are determined when the charge is made. The severance costs and asset write-offs are not subject to a significant revision.

THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 2004

Revenues

Consolidated net revenues were $10.6 million for the three months ended September 30, 2005, an increase of 20 percent from the same period in the prior year. Revenues before reimbursements increased 21 percent to $9.3 million from $7.7 million. This increase was mainly due to the acquisition of Zamba on December 31, 2004 as well as new work generated by the client officers hired during the past year.

During the three months ended September 30, 2005, one client accounted for more than 10 percent of revenues before reimbursements (Electro-Motive Diesel, Inc. – 25 percent). During the three months ended September 30, 2004, two clients accounted for more than 10 percent of revenues before reimbursements (United Water Inc. – 14 percent and Caterpillar Inc. – 11 percent). We added 9 new clients and 38 new projects during the three months ended September 30, 2005 compared to 22 new clients and 37 new projects during the same period in the prior year. In total we performed work for 61 clients and 99 projects at new and existing clients during the three months ended September 30, 2005 compared to 64 clients and 87 projects during the

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

same period in the prior year. While the number of new clients declined quarter over quarter, the total number of clients and projects remained relatively consistent year over year.

Costs and Expenses

Project personnel costs were $5.5 million for the three months ended September 30, 2005, an increase of 10 percent from the same period in the prior year. This increase was due to an increase in professional headcount as a result of the acquisition of Zamba, partially offset by the effects of the restructuring announced in the second quarter of this year. Professional domestic headcount increased to 152 as of September 30, 2005 compared to 137 as of September 30, 2004. Project personnel costs as a percentage of revenues before reimbursements decreased to 59 percent for the three months ended September 30, 2005 compared to 64 percent for the same period in the prior year due to improved utilization as well as a slight increase in the average hourly billing rates. Utilization increased to 68 percent from 62 percent and average hourly billing rates increased by one percent to $148.

Other project expenses were $1.7 million for the three months ended September 30, 2005, an increase of 18 percent from the same period in the prior year. This increase was the result of an increase in various costs such as non-billable travel and subcontractor costs. Other project expenses as a percentage of revenues before reimbursements decreased slightly to 18 percent for the three months ended September 30, 2005 from 19 percent from the same period in the prior year.

There was no bad debt expense for the three months ended September 30, 2005 and 2004.

Management and administrative support costs decreased to $3.2 million for the three months ended September 30, 2005 from $3.9 million for the same period in the prior year. This decrease mainly resulted from a decrease in termination pay of $0.5 million and a decrease in various other costs of $0.2 million such as occupancy costs and hiring expenses.

Intangible asset amortization was $0.3 million for the three months ended September 30, 2005 due to the acquisitions of Zamba and Proceed.

No incentive compensation was recorded during the three months ended September 30, 2005 as we did not meet our quarterly objective. Incentive compensation expense was $0.2 million for the three months ended September 30, 2004. We do not expect to accrue incentive compensation during the fourth quarter of 2005.

Operating Loss

Consolidated operating loss was $1.3 million for the three months ended September 30, 2005 compared to $2.9 million for the same period in the prior year. The improvement in the loss mainly resulted from the increase in revenues.

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TECHNOLOGY SOLUTIONS COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

Other Income

Other income for the three months ended September 30, 2005 was $0.2 million compared to $0.3 million for the same period in the prior year. This decrease was due to a lower cash and cash equivalent balance, offset by an increase in interest rates year over year. Our cash and cash equivalents were primarily invested in overnight money market type accounts. Average interest rates were approximately 3.35 percent for the three months ended September 30, 2005 compared to approximately 1.26 percent during the same period in the prior year.

Income Tax Provision
We did not recognize an income tax benefit for the three months ended September 30, 2005 or 2004 since we recorded a full valuation allowance against our deferred taxes in 2003.

Shares Outstanding

Weighted average number of common shares outstanding and weighted average number of common and common equivalent shares outstanding increased to 47,023,000 for the three months ended September 30, 2005 from 40,875,000 during the same period in the prior year mainly due to 5,838,182 shares issued as a result of the Zamba acquisition in 2004, as well as shares issued under our employee stock purchase plan and stock option plans.

NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 2004

Revenues

Consolidated net revenues were $32.1 million for the nine months ended September 30, 2005, an increase of 18 percent from the same period in the prior year. Revenues before reimbursements increased 18 percent to $28.3 million from $24.0 million. This increase was mainly due to the acquisition of Zamba on December 31, 2004.

Costs and Expenses

Project personnel costs were $18.5 million for the nine months ended September 30, 2005, an increase of 18 percent from the same period in the prior year. This increase was due to an increase in professional headcount as a result of the acquisition of Zamba. Project personnel costs as a percentage of revenues before reimbursements remained unchanged at 65 percent for the nine months ended September 30, 2005 and 2004. Average hourly billing rates increased slightly to $149 from $147 while utilization decreased slightly to 64 percent from 65 percent.

Other project expenses were $6.1 million for the nine months ended September 30, 2005, an increase of 46 percent from the same period in the prior year. This increase was the result of additional subcontractor costs of $1.1 million, due to the increased use of subcontractors for certain specialized skills; an increase in non-billable travel costs of $0.3 million as a result of increased headcount; and an increase in various other costs of $0.5 million such as hiring and severance costs. Other project expenses as a percentage of revenues before reimbursements

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TECHNOLOGY SOLUTIONS COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

increased to 22 percent for the nine months ended September 30, 2005 from 17 percent from the same period in the prior year mainly due to the increase in subcontractor costs.

There was no bad debt expense for the nine months ended September 30, 2005 compared to $12 thousand in the same period in the prior year.

Management and administrative support costs increased to $11.8 million for the nine months ended September 30, 2005 from $10.7 million for the same period in the prior year. This increase mainly resulted from an increase in labor costs due to additional client officers added during the second half of 2004 as well as the acquisition of Zamba.

Intangible asset amortization was $0.8 million for the nine months ended September 30, 2005 due to the acquisitions of Zamba and Proceed.

We recorded a goodwill and intangible asset impairment loss of $0.7 million during the nine months ended September 30, 2005 related to the Proceed acquisition due to our strategic realignment and the termination of a business agreement.

During the nine months ended September 30, 2005, we recorded $1.7 million in restructuring and other charges as a result of a strategic realignment and the related cost reductions. This charge consisted of the severance costs of professional personnel, office closures and other costs. As of September 30, 2005, there was an accrual balance of $0.6 million. We expect to utilize the balance by 2007. The following table provides the components of this charge.

Restructuring and Other			Cash(1)		Non-cash		Balance as of
Charges - 2005 (in thousands)	Charge		Payments		Usage		Sept. 30, 2005
Severance costs (23 employees)	$	1,173	$	878	$	—	$	295
Office closures		511		175		45		291
Other costs		3		—		—		3
Total	$	1,687	$	1,053	$	45	$	589

⁽¹⁾ Paid during the nine months ended September 30, 2005.

During the nine months ended September 30, 2004, we reversed restructuring and other charges of $0.6 million. This amount consisted of $0.3 million related to certain lease terminations recorded during the quarter ended June 30, 2003; $0.2 million related to the closure of our Latin American operations recorded in 2000; and $0.1 million related to certain lease terminations recorded in 1999.

During the nine months ended September 30, 2005, we settled a contractual dispute that has been pending since 1992. In connection with the settlement and after paying our legal expenses, we received $4.7 million in cash which exceeded by $2.7 million our long-term receivable of $2.0 million related to this matter. As a result of this settlement, we reported a one-time gain in the amount of $2.7 million during the nine months ended September 30, 2005.

No incentive compensation was recorded during the nine months ended September 30, 2005 as we did not meet our quarterly objective. Incentive compensation expense was $0.8 million for

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

the nine months ended September 30, 2004. We do not expect to accrue incentive compensation during the fourth quarter of 2005.

Operating Loss

Consolidated operating loss was $8.5 million for the nine months ended September 30, 2005 compared to $6.8 million for the same period in the prior year. Our operating loss for the nine months ended September 30, 2005 included restructuring and other charges of $1.7 million, goodwill and intangible asset impairment of $0.7 million and the litigation settlement of $2.7 million. Our operating loss for the nine months ended September 30, 2004 included restructuring and other credits of $0.6 million. Excluding these charges and credits, the operating loss was $8.9 million for the nine month ended September 30, 2005 compared to $7.4 million in the same period in the prior year. The increase in the loss, excluding the charges and credits, mainly resulted from the increased headcount from the Zamba acquisition and additional client officers hired during the second half of 2004 and increased use of subcontractors, partially offset by an increase in revenues.

Other Income

Other income for the nine months ended September 30, 2005 was $0.6 million, a slight increase from the same period in the prior year. This increase was a result of increased interest rates year over year despite our lower cash and cash equivalent balance. Our cash and cash equivalents were primarily invested in overnight money market type accounts. Average interest rates were approximately 2.90 percent for the nine months ended September 30, 2005 compared to approximately 1.02 percent during the same period in the prior year.

Income Tax Provision

We did not recognize an income tax benefit for the nine months ended September 30, 2005 or 2004 since we recorded a full valuation allowance against our deferred taxes in 2003.

Shares Outstanding

Weighted average number of common shares outstanding and weighted average number of common and common equivalent shares outstanding increased to 46,936,000 for the nine months ended September 30, 2005 from 40,851,000 for the same period in the prior year mainly due to 5,838,182 shares issued as a result of the Zamba acquisition in 2004, as well as shares issued under our employee stock purchase plan and stock option plans.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was $8.3 million and $7.0 million for the nine months ended September 30, 2005 and 2004, respectively. Net cash used in operating activities for the nine months ended September 30, 2005 primarily resulted from the loss for the period, an increase in receivables and payments relating to the acquisitions of Zamba and Proceed. The acquisition payments resulted in a decrease in other current liabilities. Partially offsetting these amounts was

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

$4.7 million in cash received from the litigation settlement. This resulted in a one-time gain of $2.7 million as shown in the statement of operations and a decrease in other assets of $2.0 million.

Days sales outstanding increased by 6 days to 67 days at September 30, 2005 as compared to 61 days at September 30, 2004, due to receivables from larger clients who have a longer payment terms with their suppliers.

Estimated future cash commitments include various office facilities, property and office equipment under operating leases and other costs that expire at various dates; severance costs relating to restructuring and other charges; committed computer system costs; and an annual commitment for telecommunications. The Company has no guarantees of third party debt or any other off-balance sheet commitments as of September 30, 2005. A summary of our contractual obligations at September 30, 2005 is as follows:

	Payments Due By Period (In thousands)
	Fourth
	Quarter
	2005		2006		2007		2008		Total
Operating leases (net of restructuring and other charges)	$	240	$	687	$	332	$	8	$	1,267
Cash outlay for restructuring and Other charges		273		288		28		—		589
Purchase obligations (net of restructuring and other charges)		164		39		10		—		213
Total	$	677	$	1,014	$	370	$	8	$	2,069

Net cash used in investing activities was $0.2 million during the nine months ended September 30, 2005 for hardware and software purchases. We currently have no material commitments for capital expenditures.

Net cash used in financing activities was $0.5 million for the nine months ended September 30, 2005 as the line of credit, which was recorded as part of our acquisition of Zamba on December 31, 2004, was paid in full. Partially offsetting this amount were proceeds from the exercise of stock options and our employee stock purchase plan.

Our cash and cash equivalents at September 30, 2005 were $21.0 million. Depending on revenues and cash collections, we expect our cash and cash equivalent balance at December 31, 2005 to be approximately $19.0 million to $20.0 million. Our investment policy is to maintain most of our cash and cash equivalents in highly liquid, large money market type funds. This policy exposes us to short-term interest rate fluctuations. We expect to experience continued operating losses until revenues increase sufficiently to cover operating costs. Until such time as we are able to generate positive cash flow, our primary sources of liquidity are our existing cash

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OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

and cash equivalents. If we are not successful in increasing revenues and eliminating negative cash flows, it could become necessary to raise additional capital to offset losses from operations. There can be no assurance that we will be able to obtain any financing or that, if we were to be successful in finding financing, it would be on favorable terms.

Operating results and liquidity, including our ability to raise additional capital if necessary, may be materially and adversely affected by continued low demand for the Company’s services. In addition, a number of other factors are set forth below under “Assumptions Underlying Certain Forward-Looking Statements and Factors that May Affect Future Results.”

NEW ACCOUNTING STANDARDS

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share-Based Payment.” SFAS No. 123R is a revision to SFAS No. 123. SFAS No. 123R will, with certain exceptions, require entities that grant stock options and shares to employees to recognize the fair value of those options and shares as compensation cost over the service (vesting) period in their financial statements. The measurements of that cost will be based on the fair value of the equity or liability instruments issued. In April 2005, the SEC issued Release No. 33-8568 which amended the compliance date of SFAS No. 123R to be effective beginning with the first interim or annual reporting period of the first fiscal year beginning on or after June 15, 2005. SFAS No. 123R will be effective for us starting with the quarter ended March 31, 2006. While we are currently evaluating the impact of the adoption of SFAS No. 123R, we believe the impact will be material to our results of operations as shown in our current disclosure under SFAS No. 123.

ASSUMPTIONS UNDERLYING CERTAIN FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS

This Form 10-Q contains or may contain certain forward-looking statements concerning our financial position, results of operations, cash flows, business strategy, budgets, projected costs and plans and objectives of management for future operations as well as other statements. Forward-looking statements may be preceded by, followed by or include the words “may,” “will,” “should,” “could,” would,” “potential,” “possible,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “hope,” “project,” and other similar expressions. These forward-looking statements involve significant risks and uncertainties. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, readers are cautioned that no assurance can be given that such expectations will prove correct and that actual results and developments may differ materially from those conveyed in such forward-looking statements. We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements. Factors which could cause our actual financial and other results to differ materially from any results that we might project, forecast, estimate or budget in the forward-

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OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

looking statements in this Form 10-Q include, but are not limited to, our ability to successfully introduce new service offerings, our ability to manage the pace of technological change including our ability to refine and add to our service offerings to adapt to technological changes, our ability to manage the current downturn in our business and in our industry and changes in the economy, our ability to manage our current decreased revenue levels, our ability to attract new business and increase revenues, our ability to attract and retain employees, the limited level of options available for grants to attract new employees and to retain existing employees, our ability to accommodate a changing business environment, general business and economic conditions in our operating regions, market conditions and competitive factors, our dependence on a limited number of clients and the potential loss of significant clients, our ability to continue to attract new clients and sell additional work to existing clients, and our ability to manage costs and headcount relative to expected revenues all as more fully described herein and in our Annual Report on Form 10-K for the year ended December 31, 2004 under Management’s Discussion and Analysis of Financial Condition and Results of Operations “Assumptions Underlying Certain Forward-Looking Statements and Factors that May Affect Future Results” and elsewhere from time to time in our other SEC reports. Forward-looking statements are not guarantees of performance. Forward-looking statements speak only as of the date on which they are made and, except as may be otherwise required by law, we do not undertake any obligation to update any forward-looking statement to reflect subsequent events or circumstances. If we do update or correct one or more forward-looking statements, readers, investors and others should not conclude that we will make additional updates or corrections with respect thereto or with respect to other forward-looking statements. The outcomes expressed or implied in these forward-looking statements could be affected by many important factors. Actual results may vary materially.

Page 25

TECHNOLOGY SOLUTIONS COMPANY

PART I. FINANCIAL INFORMATION
(Continued)

ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

TSC is exposed to interest rate fluctuations. Changes in interest rates affect interest income and expense on cash and cash equivalents. The Company’s cash and cash equivalents are primarily invested in overnight money market type accounts. Average interest rates were approximately 2.90 percent during the nine months ended September 30, 2005 compared to 1.02 percent during the same period in the prior year and approximately 3.35 percent during the three months ended September 30, 2005 compared to 1.26 percent during the same period in the prior year. Based on the cash and cash equivalents balances as of September 30, 2005 and 2004, a hypothetical 1.00 percent increase in interest rates would have resulted in approximately $0.1 million in additional net investment income during each of the quarters ended September 30, 2005 and 2004, approximately $0.2 million for the nine months ended September 30, 2005 and approximately $0.3 million for the nine months ended September 30, 2004.

The financial statements of the Company’s non-U.S. subsidiaries are remeasured into U.S. dollars using the local currency as the functional currency. The market risk associated with the foreign currency exchange rates is not material in relation to the Company’s consolidated financial position, results of operations or cash flows. The Company does not have any significant accounts payable, account receivable or commitments in a currency other than that of the reporting unit’s functional currency. The Company does not utilize derivative financial instruments to manage the exposure in non-U.S. operations.

ITEM 4—CONTROLS AND PROCEDURES

The management of the Company, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in providing reasonable assurance that all material information relating to the Company that is required to be included in the reports that the Company files with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. There have been no changes in the Company’s internal controls over financial reporting that were identified during the evaluation that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Page 26

TECHNOLOGY SOLUTIONS COMPANY

PART II. OTHER INFORMATION

ITEM 2—UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company has a stock repurchase program, which allows for share repurchases of up to 11,525,327 shares of outstanding Company common stock (the “Repurchase Program”). The Repurchase Program was approved by the Board of Directors during September 2000 (3,000,000 shares), August 2001 (2,000,000 shares), April 2002 (3,930,327 shares) and February 2003 (2,595,000 shares). During the nine months ended September 30, 2005, the Company did not purchase any shares. The Company has repurchased an aggregate of 6,838,127 shares since the inception of the Repurchase Program in September 2000. All repurchases were made in the open market, subject to market conditions and trading restrictions. As of September 30, 2005, there were 4,687,200 shares available to be purchased under the Repurchase Program. The timing and size of any future stock repurchases are subject to market conditions, stock prices, cash position and other cash requirements.

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

The Company held a special meeting of stockholders on October 14, 2005. Represented at the special meeting, either in person or by proxy, were 44,569,160 voting shares. The proposal was to approve an amendment to the Company’s Restated Certificate of Incorporation. The amendment provided for (i) a reverse stock split to be accomplished through a reclassification and combination of the outstanding shares of TSC’s common stock into a lesser number of shares, at a ratio of one-for-twenty, and (ii) a reduction in the number of authorized shares of TSC’s common stock from 100 million to 20 million. The amendment was approved by the Company’s stockholders. The voting results were as follows:

Votes For	Votes Against	Votes Abstained
43,074,970	1,274,273	219,917

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TECHNOLOGY SOLUTIONS COMPANY

PART II. OTHER INFORMATION — (Continued)

ITEM 6—EXHIBITS

     (a) Exhibits

Exhibit #	Description of Document
3.1*	Restated Certificate of Incorporation of Technology Solutions Company, as amended.
3.2	By-Laws of Technology Solutions Company, as amended, filed as Exhibit 3.2 to TSC’s Current Report on Form 8-K dated October 14, 2005, file no. 0-19433, is hereby incorporated by reference.
31.1*	CEO Certification
31.2*	CFO Certification
32.1*	Certification of Michael R. Gorsage Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
32.2*	Certification of Sandor Grosz Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

All other items in Part II are either not applicable to the Company during the quarter ended September 30, 2005, the answer is negative, or a response has been previously reported and an additional report of the information is not required, pursuant to the instructions to Part II.

* Filed herewith

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SIGNATURE

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.

	TECHNOLOGY SOLUTIONS COMPANY
Date: November 14, 2005	By:	/s/ SANDOR GROSZ
		Sandor Grosz
		Chief Financial Officer

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EX-3.1

EXHIBIT 3.1

RESTATED CERTIFICATE OF INCORPORATION
OF
TECHNOLOGY SOLUTIONS COMPANY

Pursuant to Section 245 of the
General Corporation Law of the State of Delaware

          TECHNOLOGY SOLUTIONS COMPANY, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”), DOES HEREBY CERTIFY:

          1. The name of the Corporation is Technology Solutions Company. The Corporation was originally incorporated under the name Technology Solution Company.

          2. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of Delaware on May 27, 1988. The original Certificate of Incorporation has heretofore been amended and supplemented.

          3. This Restated Certificate of Incorporation restates and integrates, but does not further amend, the Certificate of Incorporation as heretofore in effect, and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation. This Restated Certificate of Incorporation has been adopted by the Board of Directors of the Corporation in the manner prescribed by Section 245 of the General Corporation Law of the State of Delaware, and is as follows:

          FIRST: The name of the Corporation is Technology Solutions Company.

          SECOND: The address of the Corporation’s registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the Corporation’s registered agent at such address is The Corporation Trust Company.

          THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

          FOURTH: The total number of shares of all classes which the Corporation shall have authority to issue equals 110,000,000, itemized by classes, par value of shares, and series, if any, within a class as follows:

(a) 10,000,000 preferred shares, par value $.01 per share (the “Preferred Stock”), to be issued in series.

(b) 100,000,000 common shares, par value $.01 per share (the “Common Stock”).

The powers, preferences and rights, and the qualifications, limitations or restrictions of the Common Stock relative to the Preferred Stock are as set forth in Articles FIFTH through EIGHTH.

          FIFTH: A. The Preferred Stock may be issued from time to time in one or more series and with such designation for each such series as shall be stated and expressed in the resolution or resolutions providing for the issue of each such series adopted by the Board of Directors. The Board of Directors in any such resolution or resolutions is expressly authorized to state and express for each such series:

(i)	The voting powers, if any, of the holders of stock of such series;
(ii)	The rate per annum and the times and conditions at which the holders of stock of such series shall be entitled to receive dividends, and whether such dividends shall be cumulative or non-cumulative and if cumulative the terms upon which such dividends shall be cumulative;
(iii)	The price or prices and the time or times at and the manner in which the stock of such series shall be redeemable;
(iv)	The right to which the holders of the shares of stock of such series shall be entitled upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation;
(v)	The terms, if any, upon which shares of stock of such series shall be convertible into, or exchangeable for, shares of stock of any other class or classes or of any other series of the same or any other class or classes, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; and
(vi)	Any other designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof so far as they are not inconsistent with the provisions of this Restated Certificate of Incorporation and to the full extent now or hereafter permitted by the laws of Delaware.

          B. All shares of the Preferred Stock of any one series shall be identical to each other in all respects, except that shares of any one series at different times may differ as to the dates from which dividends thereon, if cumulative, shall be cumulative.

          C. Series A Junior Participating Preferred Stock

          Section 1 Designation and Amount The shares of such series shall be designated as “Series A Junior Participating Preferred Stock” and the number of shares constituting such series shall be 1,000,000.

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          Section 2 Dividends and Distributions

          (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first business day of January, April, July and October in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $.01 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time after October 29, 1998 (the “Rights Declaration Date”) (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

          (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided, however, that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior to and superior to the shares of Series A Preferred Stock with respect to dividends, a dividend of $.01 per share on the Series A Preferred Stock shall nevertheless by payable on such subsequent Quarterly Dividend Payment Date.

          (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date.

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Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof.

          Section 3 Voting Rights

          The holders of shares of Series A Preferred Stock shall have the following voting rights:

          (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

          (B) Except as otherwise provided herein or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote collectively as one class on all matters submitted to a vote of stockholders of the Corporation.

          (C) (i) If at any time dividends on any Series A Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a “default period”) which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including holders of the Series A Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) Directors.

          (ii) During any default period, such voting right of the holders of Series A Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that such voting right shall not be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting rights. At any meeting at which the holders of Preferred Stock shall

4

exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or, if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Preferred Stock.

          (iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the Chairman of the Board, the President, a Vice President or the Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him or her at his or her last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 10 days and not later than 50 days after such order or request, or in default of the calling of such meeting within 50 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no such special meeting shall be called during the period within 50 days immediately preceding the date fixed for the next annual meeting of the stockholders.

          (iv) In any default period, the holders of Common Stock, and, if applicable, other classes of capital stock of the Corporation, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of capital stock which elected the Director whose office shall have become vacant. References in this paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors appointed by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence.

5

          (v) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in the certificate of incorporation or by-laws irrespective of any increase made pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law or in the certificate of incorporation or by-laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors.

          (D) Except as set forth herein, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.

          Section 4 Certain Restrictions

          (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not:

          (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of capital stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock;

          (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

          (iii) redeem or purchase or otherwise acquire for consideration shares of any capital stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any capital stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or

          (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of capital stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual

6

dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

          (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.

          Section 5 Reacquired Shares

          Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein.

          Section 6 Liquidation, Dissolution or Winding Up

          (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of capital stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the “Series A Liquidation Preference”). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the “Common Adjustment”) equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in subparagraph (C) below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the “Adjustment Number”). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Preferred Stock and Common Stock, respectively, and the payment of liquidation preferences of all other shares of capital stock which rank prior to or on a parity with Series A Preferred Stock, holders of Series A Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively.

          (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, which rank on a parity with the Series A Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are

7

not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock.

          (C) In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

          Section 7 Consolidation, Merger, etc

          In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of capital stock, securities, cash and/or any other property (payable in kind), as the case may be, for which or into which each share of Common Stock is exchanged or changed. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

          Section 8 No Redemption

          The shares of Series A Preferred Stock shall not be redeemable.

          Section 9 Ranking

          The Series A Preferred Stock shall rank junior to all other series of the Corporation’s Preferred Stock as to the payment of dividends and the distribution of assets, whether or not upon the dissolution, liquidation or winding up of the Corporation, unless the terms of any such series shall provide otherwise.

          Section 10 Amendment

          This Restated Certificate of Incorporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority of the outstanding shares of Series A Preferred Stock, voting separately as a class.

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          Section 11 Fractional Shares

          Series A Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder’s fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Preferred Stock.

          SIXTH: Each share of Common Stock shall entitle the holder thereof to one vote, in person, by proxy or by written consent, at any and all meetings of the stockholders of the Corporation on all propositions before such meetings.

          SEVENTH: Subject to the rights of the holders of Preferred Stock, if any, the holders of Common Stock shall be entitled to dividends when and as the same shall be declared by the Board of Directors of the Corporation and as may be permitted by law.

          EIGHTH: In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (sometimes referred to herein as liquidation), after payment or provision for payment of the debts and other liabilities of the Corporation and the preferential amounts to which the holders of any outstanding Preferred Stock now or hereafter authorized shall be entitled upon liquidation, the holders of Common Stock shall be entitled to share ratably in the remaining assets of the Corporation.

          NINTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the By-Laws of the Corporation, subject to any specific limitation on such power provided by any By-Laws adopted by the stockholders.

          TENTH: Elections of directors need not be by written ballot unless the By-Laws of the Corporation so provide.

          ELEVENTH: The Corporation is to have perpetual existence.

          TWELFTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon the stockholders herein are granted subject to this reservation.

          THIRTEENTH: A. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. Any repeal or modification of this Section A by the stockholders of the Corporation shall not

9

adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.

          (B) (1) Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she or a person of whom he or she is the legal representative is or was a director, officer or employee of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that except as provided in paragraph (2) of this Section B with respect to proceedings seeking to enforce rights to indemnification, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section B shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that if the General Corporation Law of the State of Delaware requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section B or otherwise.

          (2) If a claim under paragraph (1) of this Section B is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be

10

on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

          (3) The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section B shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-Law, agreement, vote of stockholders or disinterested directors or otherwise.

          (4) The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware.

          (5) The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and rights to be paid by the Corporation the expenses incurred in defending any proceeding in advance of its final disposition, to any agent of the Corporation to the fullest extent of the provisions of this Section B with respect to the indemnification and advancement of expenses of directors, officers and employees of the Corporation.

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          IN WITNESS WHEREOF, said TECHNOLOGY SOLUTIONS COMPANY has caused this certificate to be signed by John T. Kohler, its President and Chief Executive Officer, and attested to by Paul R. Peterson, its Secretary and General Counsel, this 16th day of December, 1998.

TECHNOLOGY SOLUTIONS COMPANY
By:	/s/ John T. Kohler
	John T. Kohler
	President and Chief Executive Officer

(Corporate Seal)

Attest:

/s/ Paul R. Peterson

Paul R. Peterson

Secretary and General Counsel

12

CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
TECHNOLOGY SOLUTIONS COMPANY

          TECHNOLOGY SOLUTIONS COMPANY, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”), DOES HEREBY CERTIFY THAT:

          1. At a duly called meeting of the Board of Directors of the Corporation held on August 11, 2005, resolutions were duly adopted setting forth a proposed amendment to the Restated Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and directing the Corporation’s officers to submit said amendment to the stockholders of the Corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows:

“FOURTH: The total number of shares of all classes which the Corporation shall have authority to issue equals 30,000,000, itemized by class, par value of shares and series, if any, within a class as follows:

(a) 10,000,000 preferred shares, $0.01 par value (the “Preferred Stock”), to be issued in series; and

(b) 20,000,000 common shares, $0.01 par value (the “Common Stock”).

The powers, preferences and rights, and the qualifications, limitations or restrictions of the Common Stock relative to the Preferred Stock are as set forth in Articles FIFTH through EIGHTH.

Upon this Certificate of Amendment to the Restated Certificate of Incorporation of the Company becoming effective pursuant to the General Corporation Law of the State of Delaware (the “Effective Time”), each twenty shares of the Company’s common stock, $0.01 par value (“Old Common Stock”), issued and outstanding or held by the Company in its treasury immediately prior to the Effective Time, will be automatically reclassified as and combined into (the “Reclassification”) one share of common stock, $0.01 par value, of the Company (“New Common Stock”) with cash being paid, without interest, in lieu of any fractional share of New Common Stock that would otherwise be issued. Each stock certificate that, immediately prior to the Effective Time, represented shares of Old Common Stock (a “Certificate”) will from and after the Effective Time represent, (a) automatically and without the necessity of surrendering the same for exchange, the number of shares of New Common Stock, rounded down to the nearest whole number, determined by dividing the number of shares of Old Common Stock represented by such Certificate immediately prior to the Effective Time by twenty and (b) the right to receive, upon surrender thereof to Mellon Investor Services LLC for exchange, a cash payment, without interest, in lieu of any fraction of a share of New Common Stock that would have

been represented by such Certificate if fractional shares of New Common Stock had been issued in the Reclassification, in an amount, rounded down to the nearest cent, determined by multiplying such fraction by the per share closing price of a share of New Common Stock on the Nasdaq National Market on the first day for which trading in shares of New Common Stock is reported.”

          2. At a duly called special meeting of the stockholders of the Corporation held on October 14, 2005, a majority of the outstanding shares of the Corporation’s common stock entitled to vote thereon were voted in favor of said amendment.

          3. At a duly called meeting of the Board of Directors of the Corporation held on October 14, 2005, resolutions were duly adopted declaring that said amendment continued to be advisable and in the best interests of the Corporation and authorizing the execution and filing of this certificate.

          4. Said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

          5. Said amendment is to become effective at 12:01 a.m., Eastern Time, on October 25, 2005.

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          IN WITNESS WHEREOF, TECHNOLOGY SOLUTIONS COMPANY has caused this certificate to be signed by Philip J. Downey, its Vice President — General Counsel & Corporate Secretary, this 14th day of October, 2005.

TECHNOL	OGY SOLUTIONS COMPANY
By:	/s/ Philip J. Downey
	Philip J. Downey
	Vice President — General Counsel &
	Corporate Secretary

(Corporate Seal)

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EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Michael R. Gorsage, the Chief Executive Officer of Technology Solutions Company, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Technology Solutions Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c.	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2005	By:	/s/ MICHAEL R. GORSAGE
		Michael R. Gorsage
		Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Sandor Grosz, the Chief Financial Officer of Technology Solutions Company, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Technology Solutions Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c.	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2005	By:	/s/ SANDOR GROSZ Sandor Grosz
		Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Form of Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the
United States Code

I, Michael R. Gorsage, the Chief Executive Officer of Technology Solutions Company, certify that:

(i)	The Form 10-Q for the quarter ended September 30, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(ii)	The information contained in the Form 10-Q for the quarter ended September 30, 2005 fairly presents, in all material respects, the financial condition and results of operations of Technology Solutions Company.

Date: November 14, 2005	By:	/s/ MICHAEL R. GORSAGE
		Michael R. Gorsage
		Chief Executive Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act has been provided to Technology Solutions Company and will be retained by Technology Solutions Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

Form of Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the
United States Code

I, Sandor Grosz, the Chief Financial Officer of Technology Solutions Company, certify that:

(i)	The Form 10-Q for the quarter ended September 30, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(ii)	The information contained in the Form 10-Q for the quarter ended September 30, 2005 fairly presents, in all material respects, the financial condition and results of operations of Technology Solutions Company.

Date: November 14, 2005	By:	/s/ SANDOR GROSZ
		Sandor Grosz
		Chief Financial Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act has been provided to Technology Solutions Company and will be retained by Technology Solutions Company and furnished to the Securities and Exchange Commission or its staff upon request.