10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2011
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to

Commission File Number 0-22010

THOMAS GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	72-0843540
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5221 North O’Connor Boulevard, Suite 500
Irving, TX 75039-3714
(Address of principal executive offices, including zip code)

(972) 869-3400
(Registrant’s telephone number, including area code)

NONE

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” and “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

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

As of August 11, 2011, there were 2,226,553 shares of the registrant’s common stock outstanding.

THOMAS GROUP, INC.

	Page No.
PART I—FINANCIAL INFORMATION
Item 1—Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010	3
Condensed Consolidated Statements of Operations for the Three and Six Month Periods Ended June 30, 2011 and 2010	4
Condensed Consolidated Statements of Cash Flows for the Six Month Periods Ended June 30, 2011 and 2010	5
Notes to Condensed Consolidated Financial Statements	6
Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3—Quantitative and Qualitative Disclosures About Market Risk	19
Item 4—Controls and Procedures	19
PART II—OTHER INFORMATION
Item 1—Legal Proceedings	19
Item 1A—Risk Factors	20
Item 2—Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3—Defaults Upon Senior Securities	21
Item 4—Removed and Reserved	21
Item 5—Other Information	21
Item 6—Exhibits	22
Signatures	23

2

PART I.  FINANCIAL INFORMATION

ITEM 1—Financial Statements

THOMAS GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(Unaudited)

	June 30, 2011			December 31, 2010
ASSETS
Current Assets
Cash and cash equivalents	$	1,350		$	3,032
Trade accounts receivable, net of allowance of $42, each period	408			237
Unbilled receivables	58			57
Income tax receivable	99			108
Other current assets	211			287
Total Current Assets	2,126			3,721
Property and equipment, net of accumulated depreciation of $2,486 and $2,369 at June 30, 2011 and December 31, 2010, respectively	242			359
Other assets	—			31
	$	2,368		$	4,111
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued liabilities	$	218		$	272
Accrued wages and benefits	230			439
Income taxes payable	25			19
Note payable	10			39
Total Current Liabilities	483			769
Other long-term obligations	—			25
Total Liabilities	483			794
Commitments - Note 16
Stockholders’ Equity
Common stock, $.01 par value; 25,000,000 shares authorized; 2,768,708 and 2,768,708 shares issued and 2,226,553 and 2,211,553 shares outstanding at June 30, 2011 and December 31, 2010, respectively	27			27
Additional paid-in capital	26,605			27,109
Accumulated deficit	(5,707		)	(4,252		)
Treasury stock, 542,155 and 557,155 shares at June 30, 2011 and December 31, 2010, respectively, at cost	(19,040		)	(19,567		)
Total Stockholders’ Equity	1,885			3,317
	$	2,368		$	4,111

See accompanying notes to condensed consolidated financial statements.

3

THOMAS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Consulting revenue before reimbursements	$	594		$	873		$	1,325		$	2,393
Reimbursements	57			121			87			252
Total revenue	651			994			1,412			2,645
Cost of sales before reimbursable expenses	384			704			803			1,719
Reimbursable expenses	57			121			87			252
Total cost of sales	441			825			890			1,971
Gross profit	210			169			522			674
Selling, general and administrative	988			1,615			2,129			3,592
Operating loss	(778		)	(1,446		)	(1,607		)	(2,918		)
Interest income, net of expense	(1		)	(1		)	(1		)	(2		)
Other income	20			18			179			180
Loss from operations before income taxes	(759		)	(1,429		)	(1,429		)	(2,740		)
Income tax (expense) benefit	(7		)	(17		)	(25		)	(1,612		)
Net loss	$	(766	)	$	(1,446	)	(1,454		)	(4,352		)
Loss per share:
Basic:	$	(0.34	)	$	(0.68	)	$	(0.66	)	$	(2.07	)
Diluted:	$	(0.34	)	$	(0.68	)	$	(0.66	)	$	(2.07	)
Weighted average shares:
Basic	2,227			2,122			2,219			2,107
Diluted	2,227			2,122			2,219			2,107

See accompanying notes to condensed consolidated financial statements.

4

THOMAS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2011			2010
Cash Flows from Operating Activities:
Net loss	$	(1,454	)	$	(4,352	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation	117			132
Foreign currency translation loss	(3		)	9
Stock based compensation expense	22			298
Bad debt recovery	—			(5		)
Deferred taxes	—			1,582
Other	—			35
Change in operating assets and liabilities:
(Increase) decrease in trade accounts receivable	(171		)	230
(Increase) decrease in unbilled receivables	(1		)	289
Decrease in income tax receivable	9			2,477
Decrease in other assets	107			82
Decrease in accounts payable and accrued liabilities	(263		)	(478		)
Decrease in note payable	(29		)	(98		)
Decrease in other liabilities	(25		)	(34		)
Increase in income taxes payable	6			2
Net cash provided by (used in) operating activities	(1,685		)	169
Cash Flows From Financing Activities:
Purchase of stock	—			(18		)
Net cash used in financing activities	—			(18		)
Effect of exchange rate changes on cash	3			(35		)
Net change in cash	(1,682		)	116
Cash and cash equivalents
Beginning of period	3,032			5,004
End of period	$	1,350		$	5,120

See accompanying notes to condensed consolidated financial statements.

5

THOMAS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Basis of Presentation—The unaudited condensed consolidated financial statements of Thomas Group, Inc. (the “Company” or “we”) include all adjustments, which include only normal recurring adjustments, which are, in the opinion of management, necessary to present fairly our results of operations for the interim periods presented. The unaudited financial statements should be read in conjunction with the consolidated financial statements and notes thereto in our Form 10-K for the 2010 fiscal year, filed with the Securities and Exchange Commission. The results of operations for the three and six month periods ended June 30, 2011 are not necessarily indicative of the results of operations for the entire year ending December 31, 2011.

2.Liquidity— Our cash balance was $1.35 million at June 30, 2011. Our available liquidity is limited to our existing working capital and cash flow that we will be able to generate from operations in the balance of 2011. While we continue to believe we have opportunities for new business in the near term, we may not have sufficient liquidity to sustain our operations through June 30, 2012. If we fail to meet our revenue expectations in our forecast for the balance of 2011 and beyond, it is probable that our independent registered public accounting firm will include an explanatory paragraph with respect to our ability to continue as a going concern in its report on our financial statements for the year ending December 31, 2011. These factors may make it more difficult for us to sign new contracts with clients and to obtain necessary capital or credit, and may have other effects that further adversely affect our ability to return to profitability.

If we fail to meet our revenue expectations in our forecast for the balance of calendar year 2011 or we are unable to control our expenses as planned, we could be required to seek other sources of liquidity during 2011 or seek or implement alternative strategies, which may include selling or liquidating assets, ceasing operations or, if appropriate, filing for bankruptcy. We are very carefully monitoring our forecasts for new business and our liquidity, and our Board of Directors has discussed and will continue to evaluate our options in light of our current cash position in order to satisfy our debts and maximize value for our stockholders. There can be no assurance that existing cash will be sufficient, that we will have access to the capital or credit markets if needed or that any of our strategies can be implemented on satisfactory terms, on a timely basis or at all to provide additional liquidity or maintain our current position.

3.Reverse Stock Split and Voluntary Delisting from Nasdaq— Our Board of Directors and stockholders approved a 1-for-5 reverse split of our outstanding common stock that became effective at 6:01 pm ET, August 13, 2010. The new shares began trading on The Nasdaq Capital Market on August 16, 2010. As a result of the reverse stock split, every five shares of our issued and outstanding common stock, all treasury shares, and all unawarded or unvested shares under our approved stock plans were combined into one share. The reverse stock split did not change the number of authorized shares or par value of our common stock. All share and per share amounts have been adjusted to reflect the stock split for all periods presented.

To reduce reporting and other costs as well as the administrative burdens of our Nasdaq listing, we voluntarily delisted our common stock from The Nasdaq Capital Market effective June 16, 2011. Since that date our common stock has been quoted under the symbol “TGIS” on the OTC Pink tier operated by OTC Markets Group, a centralized electronic quotation service for over-the-counter securities.

4.Earnings Per Share— Basic loss per share is based on the number of weighted average shares outstanding. Diluted loss per share includes the effect of dilutive securities such as stock options, stock warrants, and restricted stock awards expected to vest. The following table reconciles basic loss per share to diluted loss per share under the provisions of ASC 260, Earnings Per Share.

6

THOMAS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	In thousands, except per share data						In thousands, except per share data
Numerator:
Net loss	$	(766	)	$	(1,464	)	$	(1,454	)	$	(4,352	)
Denominator:
Weighted average shares outstanding:
Basic	2,227			2,122			2,219			2,107
Effect of dilutive securities:
Common stock options	—			—			—			—
Restricted stock awards expected to vest	—			—			—			—
Diluted	2,227			2,122			2,219			2,107
Loss per share:
Basic	$	(0.34	)	$	(0.68	)	$	(0.66	)	$	(2.07	)
Diluted	$	(0.34	)	$	(0.68	)	$	(0.66	)	$	(2.07	)

Diluted loss per share is the same as basic loss per share for the three month and six month periods ended June 30, 2011 because the effect of outstanding options and unvested restricted stock during the periods would have been antidilutive due to the net loss.

There were no stock options and unvested restricted stock awards outstanding that are not included in the diluted loss per share computation due to the antidilutive effects for the three month period ended June 30, 2011, and 60,110 for the three month period ended June 30, 2010. There were no stock options and unvested restricted stock awards outstanding that are not included in the diluted loss per share computation due to the antidilutive effects for the six month period ended June 30, 2011, and 60,110 for the six month period ended June 30, 2010. As of June 30, 2011 there were no stock options or restricted stock awards outstanding.

5.Options and Restricted Stock Awards— On June 9, 2011, the Compensation and Corporate Governance Committee of our Board of Directors and Michael E. McGrath, our Executive Chairman, President and Chief Executive Officer, mutually agreed to cancel the restricted share award previously granted to Mr. McGrath on March 15, 2011. Under the award, Mr. McGrath was eligible to receive up to 60,000 restricted shares of our common stock, vesting in installments of 15,000 shares at the end of each calendar quarter of 2011 if he was employed by us on the last day of the quarter. Mr. McGrath previously received 15,000 shares pursuant to the award on March 31, 2011. Although Mr. McGrath continues to be employed by the Company, as a result of the cancellation of the award, Mr. McGrath will not receive the remaining 45,000 shares.

On June 9, 2011, we terminated the 2008 Omnibus Stock and Incentive Plan for Thomas Group, Inc. and the 2005 Omnibus Stock & Incentive Plan for Thomas Group, Inc., and we filed post-effective amendments to each of our outstanding registration statements on Form S-8 to deregister remaining but unsold shares of common stock under the compensation plans to which those registration statements relate.

As of  June 30, 2011, all existing options had expired and there were no options to purchase  shares of our common stock outstanding.

6.Significant Clients— We had three clients who each accounted for more than 10% of our revenue in the three month period ended June 30, 2011. Five other clients each accounted for more than 10% of our revenue in the three month periods ended June 30, 2010. We had three clients who each accounted for more than 10% of our revenue in the six month period ended June 30, 2011. Three other clients each accounted for more than 10% of our revenue in the six month period ended June 30, 2010.

7

THOMAS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Three Months Ended June 30,			Six Months Ended June 30,
	2011		2010	2011		2010
	Revenue ($ in thousands)			Revenue ($ in thousands)
Client A	$	268	—	$	503	—
Client B	$	153	—	$	311	—
Client C	$	111	—	$	111	—
Client D	$	—	51	$	359	203
Client E	$	—	264	$	—	292
Client F	$	—	210	$	—	671
Client G	$	—	155	$	—	155
Client H	$	—	104	$	—	199
Client I	$	—	100	$	—	100
Client J	$	—	—	$	—	332

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
	% of revenue				% of revenue
Client A	41	%	—		36	%	—
Client B	24	%	—		22	%	—
Client C	17	%	—		8	%	—
Client D	—		5	%	25	%	8	%
Client E	—		27	%	—		11	%
Client F	—		21	%	—		25	%
Client G	—		16	%	—		6	%
Client H	6	%	10	%	3	%	8	%
Client I	—		10	%	—		4	%
Client J	—		—		—		13	%

There were no other clients from whom revenue exceeded 10% of total revenue in the three and six month periods ended June 30, 2011 and 2010, respectively.

7.Concentration of Credit Risk— Financial instruments that potentially subject us to concentrations of credit risk consist primarily of trade receivables. We encounter a certain amount of credit risk as a result of a concentration of receivables among a few significant customers. The trade receivables (in dollars and as a percentage of accounts receivable) from such significant customers are set forth below:

	June 30, 2011				December 31, 2010
	$ thousands		% of AR		$ thousands		% of AR
Client A	$	179	40	%	$	—	0	%
Client B	$	111	25	%	$	—	0	%
Client C	$	42	9	%	$	130	47	%
Client D	$	—	0	%	$	141	51	%

8.Supplemental Disclosure of Cash Flow Information

	Six Months Ended June 30,
	2011		2010
	In thousands
Interest paid	$	1	$	2
Taxes paid	$	19	$	8

8

THOMAS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9.Geographical Data—We provide services within one industry segment and conduct our business primarily in North America and Europe with only occasional activities elsewhere. Information regarding these areas follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011		2010
	In thousands					In thousands
Revenue:
North America	$	590	$	994		$	1,351	$	2,313
Europe	61		—			61		332
Total revenue	$	651	$	994		$	1,412	$	2,645
Gross profit:
North America	$	198	$	170		$	510	$	572
Europe	12		(1		)	12		102
Total gross profit	$	210	$	169		$	522	$	674

10.Property and Equipment

	June 30, 2011			December 31, 2010
	In thousands of dollars
Equipment	$	864		$	864
Furniture and fixtures	541			541
Leasehold improvements	990			990
Computer software	333			333
	2,728			2,728
Less accumulated depreciation and amortization	(2,486		)	(2,369		)
	$	242		$	359

There were no investments in property and equipment during the six month period ended June 30, 2011.

11.Stockholders’ Equity

On March 15, 2011, an award entitling Michael E. McGrath, our Executive Chairman, President and Chief Executive Officer, to receive up to an aggregate of 60,000 shares of restricted stock was granted to Mr. McGrath with vesting of 15,000 shares at the end of each calendar quarter, contingent upon his being employed by us at the end of such calendar quarter. On March 31, 2011, the first 15,000 shares vested and were issued to Mr. McGrath. Although Mr. McGrath continues to be employed by us as of this date, on June 9, 2011, the Compensation and Corporate Governance Committee of our Board of Directors and Mr. McGrath mutually agreed to cancel the restricted share award. Mr. McGrath will not receive the remaining 45,000 restricted shares.

Options

A summary of the status of our stock options issued to employees for the six month period ended June 30, 2011 is presented below. As of June 30, 2011, there were no unvested stock options or remaining stock-based compensation costs related to outstanding stock options.

Common Option Shares	Shares		Weighted Average Exercise Price
Outstanding at January 1, 2011	110		$	14.19
Granted	—		—
Exercised	—		—
Expired	(110	)	$	14.19
Outstanding at June 30, 2011	—		$	—
Options exercisable at June 30, 2011	—		$	—
Weighted average life of outstanding options (years)			—

9

THOMAS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Restricted Stock

A summary of the restricted stock award activity for the six month period ended June 30, 2011 is presented below.

Restricted Stock	Shares
Outstanding award grants at January 1, 2011 (1)	—
Awards granted (2)	60,000
Awards cancelled	(45,000	)
Vested (1)	(15,000	)
Outstanding grants at June 30, 2011	—
Authorized awards to be granted in future years	—
Authorized awards at June 30, 2011 (2)	—

(1) Authorized awards are future rights to shares, usually subject to conditions. Grants are authorized awards for which there is a mutual understanding of the key terms and conditions applicable to the award. Vested shares are shares on which all restrictions have lapsed under the terms of the award and that have been issued to the holder and constitute outstanding common stock. A holder of vested shares has all rights, powers and privileges of a holder of unrestricted shares of our common stock.

(2) An authorized award of 60,000 shares consisting of fully restricted shares was approved and granted to Mr. McGrath on March 15, 2011. Of the 60,000 shares, 15,000 shares vested and were issued to Mr. McGrath on March 31, 2011. On June 9, 2011, the Compensation and Corporate Governance Committee of our Board of Directors and Mr. McGrath mutually agreed to cancel the award, and Mr. McGrath will not receive the remaining 45,000 restricted shares.

12.Income Taxes— We follow ASC 740, Income Taxes, which requires use of the asset and liability method of accounting for deferred income taxes and providing deferred income taxes for all significant temporary differences and ASC 740-10-25, Income Taxes — Recognition, which prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return.

Income tax expense of $0.03 million for the six month period ended June 30, 2011 reflected an effective tax rate of 2%, compared to income tax expense of $1.6 million, or an effective tax rate of 59%, for the six month period ended June 30, 2010.

In the first quarter of 2010, our cumulative losses began to exceed our cumulative earnings. Additionally, we are not currently profitable and we determined that as of March 31, 2010 it was no longer probable that we will recover our deferred tax asset. Thus, we established a valuation allowance to completely offset the deferred tax asset. The combined tax effect was to cause a deferred income tax expense for the first quarter of 2010 of $1.6 million. If we are able to return to sustained profitability, and when we can comply with all the requirements of ASC 740-10-25, we should be able to recover all or part of our deferred tax asset.

We had approximately $25,000 in state taxes payable at June 30, 2011.

During the second quarter of 2011, we received notice from the Internal Revenue Service (“IRS”) that it will audit our corporate tax returns for the year ending December 31, 2009. In response to a request from the IRS, in conjunction with this audit of our 2009 tax returns, we agreed to extend the deadline for assessments related to our tax returns for the year ending December 31, 2007. We do not anticipate any material impact on our financial statements as a result of this audit process.

13.Financing Agreement— As of June 30, 2011, we had a note payable of approximately $10,000 for insurance premiums for 2011.

14.Recently Issued Accounting Pronouncements— None.

15.Related Party Transactions— The Third Amendment to Michael McGrath’s employment contract which was effective March 1, 2011 provides that, in addition to his salary for the portion of his time devoted to his roles of Executive Chairman, President and Chief Executive Officer, he is to receive 50% of the revenue attributable to any time he personally spends providing consulting services to our clients. The Third Amendment provides that payments for these consulting services by Mr. McGrath are to

10

THOMAS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

be paid to Decisions Decisions, L.L.C., an entity which is owned by Mr. McGrath. For the quarter ended June 30, 2011, this expense  totaled $51,000, and for the six months ended June 30, 2011, this expense totaled $65,000.

This payment was in addition to the salary paid to Mr. McGrath for the portion of his time devoted to his roles of Executive Chairman, President and Chief Executive Officer.

16.Commitments— On March 3, 2011, the Compensation and Corporate Governance Committee of our Board of Directors adopted a retention pay program for certain of our officers and employees in order to help preserve the continuity of our operations and management. Under the retention pay program, each eligible employee will be entitled to receive a lump sum payment if we terminate his or her employment for any reason other than cause. The amount of the lump sum payment payable to an employee under the retention pay program will be based on the employee’s role and other facts, but it will not exceed an amount equal to six months of his or her annual base salary or annual minimum compensation (as applicable), at the time of termination. The payment will be in lieu of any cash severance payments otherwise payable under any other arrangement with the employee during the period of the retention pay program.

The retention pay program remains in effect through the end of 2012. At that time the program will expire and no payments under this program will be payable for any officer or employee whose employment is terminated after that date. As of June 30, 2011, the maximum payments under the retention pay program are approximately $526,000.

17.Other Income— Other income for the first half of 2011 of approximately $179,000 primarily resulting from  insurance reimbursements and the reversal of the prior accrual related to the lawsuit with Earle Steinberg, our former President and CEO. The lawsuit was settled in March 2011 for a total cost to us of approximately $110,000. The final settlement was paid in March  2011.  Other income also included rental income from subleased office space.

ITEM 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations

“Safe Harbor” Statement Under The Private Securities Litigation Reform Act:

Various sections contained or incorporated by reference in this Quarterly Report on Form 10-Q include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the context of the statement and generally arise when we are discussing our beliefs, estimates or expectations. Such statements may contain the words “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,” “could,” “should,” “may,” “will be,” “will likely continue,” “will likely result,” or words or phrases of similar meaning. These statements are not historical facts or guarantees of future performance but instead represent only our belief at the time the statements were made regarding future events. In particular, statements under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements, including but not limited to statements regarding our expectations regarding the sufficiency of our liquidity sources and the expected impact of legal proceedings with which we may become involved. All forward-looking statements are based largely on the expectations of management and are subject to a number of risks and uncertainties which may cause actual results and outcomes to differ materially from what we express or forecast in these forward-looking statements. In evaluating these statements, you should consider the risks and uncertainties discussed under Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as well as the following list of some but not all of the factors that could cause actual results or events to differ materially from anticipated results or events:

·the possibility that we may not generate cash flow from operations sufficient to enable us to meet our cash needs over time;

·difficulty in obtaining new consulting engagements that generate revenues sufficient to allow us to return to profitability;

·the use by the U.S. government of continuing resolutions for the first half of its fiscal year ending September 30, 2011, and its failure to pass a definitive budget for the remainder of the current fiscal year until April 2011, which has resulted in a contracting backlog within the government;

·uncertainties created by the ongoing debate as how to reduce the current U.S. government deficit and the U.S. government debt level;

11

·a prolonged weak economic recovery or further downturn;

·the possibility that we may not be able to retain key personnel or to attract necessary replacements to enable our recovery;

·an inability to attract, hire, develop, train and retain experienced consultants necessary to meet client needs;

·disruption in our relationships with customers;

·an inability to successfully sustain sufficient cost containment initiatives;

·the competitive environment of the industry in which we operate;

·the possibility that we will not receive no action relief from the Securities and Exchange Commission and will be required to continue to reporting under the Securities and Exchange Act of 1934 for the remainder of 2011 resulting in our continuing to incur costs of compliance;

·an inability, should we be required to seek other sources of liquidity during 2011 or seek or implement alternative strategies, to access to the capital or credit markets or implement our strategies on satisfactory terms and on a timely basis; and

·the probability of receiving a “going concern” opinion from our independent registered public accounting firm if our business does not improve during the balance of 2011.

These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report on Form 10-Q, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.

Current Market Conditions

The U.S. and worldwide economies are still undergoing unprecedented upheaval, turmoil and uncertainty due in part to the curtailment or reduction of credit available to both individuals and to businesses. It is difficult to predict the impact that these conditions will have on our operations. Even the experts are having difficulty agreeing upon the appropriate remedies for or the expected duration of this situation.

We are in the business of helping clients improve profitability and reduce costs. While we expect the current economic environment to make our recovery more difficult in some respects, we believe that successful companies will have to focus more efforts on reducing costs and improving profitability as achieving revenue growth and obtaining external funding become more challenging. We believe that the nature of our product and service offerings and the value proposition that we offer to our clients place us in a strong position to help those companies accelerate and magnify their internal efforts to reduce costs and improve profitability.

Prospective clients are more cautious in making commitments to new engagements and may delay the commencement of projects. This has made our efforts to grow our revenue more difficult than we had anticipated.

The uncertainty created by the lack of clear direction for resolving the budget issues for the U.S. government during its current fiscal year ending September 30, 2011, has resulted in delays to proposed contracts.  The backlog in the contracting process resulting from the series of continuing resolutions used to fund the operations during the first part of the current budget year has resulted in delays in the commencement of new projects resulting in lower revenue for our Government Business Unit.

Current discussions in Congress regarding potential reductions now and in the future in various U.S. government spending programs also add to the uncertainty as to which programs the U.S. Government may discontinue, continue with changes, or continue as is. While we believe that we can be of assistance in improving the cost effeteness of certain U.S. government operations, these uncertainties make obtaining contracts for our services more uncertain that in better economic times.

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Overview

We are a professional services firm that executes and implements process improvements and culture change management operations strategies to produce improved operational and financial performance for our clients globally. We are a Delaware corporation founded in 1978 and headquartered in Irving, Texas.

Through our proprietary Process Value Management™, or PVM™, methodology, our consultants refine processes throughout an organization to give our clients a competitive advantage that increases revenues, lowers costs, and generates cash. With our more than 30 years of change management experience, innovation, and knowledge leadership, we have demonstrated our ability to apply this methodology in hundreds of clients in both the private and the public sectors. We strive to provide measurable results for clients during our engagements, not just reports for actions to be implemented by the client following our departure from the client.

Process Value Management is our proprietary methodology to identify, prioritize, and quantify the amount and timing of cross-functional business improvement opportunities. The PVM approach and methodology is designed to help an organization increase overall effectiveness by focusing on performance drivers throughout the organization like speed (cycle time), quality (first pass yield), and productivity. The PVM approach and methodology is widely applicable to almost all types of enterprises, including government entities, military organizations, for-profit companies in many industries, and not-for-profit enterprises, to help drive sustainable improvements in operations and reduced costs.

For marketing purposes, we are organized into two business units, the Government Business Unit and the Commercial Business Unit.  Our practice leaders and principals are responsible for sales and marketing to prospective clients.

The Commercial Business Unit focuses on sales to industrial clients, such as to transportation firms and healthcare entities, including hospitals, medical practices and pharmaceutical firms.

The Government Business unit is focused on sales to U.S. government agencies, to all branches of the military, and to state and local government entities.

In the future we may create additional practices as we see potential market opportunities, or we may combine or eliminate practices in response to market conditions.

Through the years, we have developed a number of service offerings that employ the PVM approach and methodology to drive productivity improvements within multiple areas of our clients’ enterprises. We currently focus our marketing on specific solutions in;

·Operations, Improvement and Cost Reduction,

·Culture and Change Management,

·Business Decision Processes,

·Product and Service Innovation,

·Physician Practice Management (in healthcare), and

·Supply Chain Management.

Historically, most of our clients have been large, diversified commercial or government enterprises in North America, Europe, South America and Asia.  For several years prior to April 2008, the majority of our revenue was derived from engagements with the U.S. Navy, both directly and through an intermediary.

In 2010, we focused on diversifying our client base by delivering our solutions in North America, both to the U.S. government and to commercial entities. Beginning November 2010, we concentrated our sales focus on government related organizations, although we will continue to pursue commercial business on an opportunistic basis for the short term.

In 2011, we continue to focus on diversifying our client base by delivering our solutions in North America, both to the U.S. government and to commercial entities. We also may engage in some business in Europe, and perhaps elsewhere, on an opportunistic basis.

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While we believe our methodologies are applicable to any organization, we have developed a significant amount of subject matter expertise relevant to specific industries and governmental entities. Consequently, we can leverage our consultants’ prior executive experiences to obtain business and determine appropriate client project teams. Our goal is to diversify our business among our various practice areas. We are actively pursuing new business in each of these areas.

We perform services and provide solutions for clients pursuant to contracts that typically have terms of two weeks to one year or longer. We are compensated for our professional services and solutions in one or more of three ways:

·fixed fees,

·task-based fees, or

·incentive fees.

Our fee type and structure for each client engagement depends on a number of variables, including the size of the client, the complexity and geographic dispersion of its business, the extent of the opportunity for us to improve the client’s processes and other factors. Some of our contracts are cancellable with little notice. We do not report bookings or backlog because we believe the uncertainties associated with cancellable contracts, particularly in our commercial business, may render such information misleading.

The majority of our revenue is derived from fixed fee and task-based fee contracts.

Fixed fee revenue is recognized on the proportional performance model (which approximates the percentage completion method), based on direct labor hours expended and, when applicable, the completed performance model. In order to calculate the completion ratio on a given project, time and effort to date are divided by the total estimated time and effort for the entire project. This ratio is then multiplied by the total fixed fee to be earned on the project, resulting in the amount of revenue earned to date. A few of our fixed fee contracts, primarily assessments, are recognized using the completed contract performance model as these contracts are generally one to six weeks in duration and conclude with a presentation or agreed upon deliverable to the clients’ management. Revenues attributable to fixed fees were 92% of consolidated revenue for the three month period ended June 30, 2011, and 90% of consolidated revenue for the three month period ended June 30, 2010.  Revenues attributable to fixed fees were 68% of consolidated revenue for the six month period ended June 30, 2011, and 90% of consolidated revenue for the six month period ended June 30, 2010.

Task-based fees are recognized as revenue when the relevant task is completed, usually on a monthly basis. There was no task-based revenue in the second quarter of 2011. Task-based revenue was $0.4 million, or 25% of revenue, in the first half of 2011. There was no task-based revenue in the first half of 2010.

Incentive fees are tied to improvements in a variety of client performance measures typically involving cycle time, asset utilization and productivity. Incentive fee revenue is recognized in the period in which the related client improvements are achieved and we obtain the client’s acceptance. Our incentive fee agreements with our clients define in advance the performance improvement standards that will form the basis for the payment of incentive fees. In order to mitigate the risk of disputes arising over the achievement of performance improvements, which drive incentive fees, we obtain customer agreement to these achievements prior to recognizing revenue. Typically these contracts are for commercial customers and they provide for a base fee and an additional incentive fee earned according to a formula specified in the applicable contract. Incentive fees are affected by our clients’ business performance and prevailing economic conditions. We did not have any revenues attributable to incentive fees for the three or six month periods ended June 30, 2011, and June 30, 2010. As of June 30, 2011, we had no contracts that provided for incentive fees.

Reimbursement revenue represents repayment by our clients of our mutually agreed upon travel expenses as incurred. All billable travel expenses are submitted to and approved by the client. Revenues attributable to reimbursement were 9% of consolidated revenue for the three month period ended June 30, 2011, and 12% of consolidated revenue for the three month period ended June 30, 2010. Revenues attributable to reimbursement were 6% of consolidated revenue for the six month period ended June 30, 2011, and 10% of consolidated revenue for the six month period ended June 30, 2010. For some clients, the fixed fee or task-based fee is inclusive of travel. In these cases, the travel expense is included in cost of sales.

Consulting contracts typically are awarded by both government entities and private organizations on the basis of sole-source negotiations, that is, direct negotiation between the client and a single vendor such as Thomas Group, or on the basis of competitive bidding, generally in response to a Request for Proposal, or RFP. Whenever possible, we prefer to work under sole source contract arrangements since competitive bids can require extensive time, effort and cost to submit a qualified bid, and the outcome is unpredictable. In most competitive bid situations, we compete against far larger companies with far greater resources to devote to the

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proposal process. In some cases, we team with another company that has capabilities complementary to ours in order to increase the competitiveness of our bid. In some other cases, we use an intermediary who has the capability to respond more effectively in this process.

Contracts related to U.S. government engagements often are executed within the U.S. government’s budget cycle and may be fully funded for up to one year at a time. They may be renewed annually for successive one-year periods if the life of the engagement extends beyond one fiscal year. For our engagements with the U.S. government, we contract either directly with the government through our listing with the General Services Administration or we use an intermediary that acts as a prime contractor providing contracting and administrative services for the majority of our government programs.

Cost of sales represents the direct costs involved in providing services and solutions to our clients. The components include, but are not limited to, direct labor and benefit costs, support costs such as telecommunications and computer costs, travel costs and other costs incurred in providing services and solutions to our clients.

Selling, general and administrative expenses include the costs of all labor and other goods and services necessary for our selling and marketing efforts, human resource support, accounting and finance services, legal and other professional services, facilities and equipment, information technology and telecommunications support and services, and other corporate functions. Selling, general and administrative expenses also include depreciation and amortization on the fixed assets used to support these functions.

Critical Accounting Policies

General— The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and related notes. Management bases its estimates and assumptions on historical experience, observance of industry trends and various other sources of information and factors. Actual results could differ from these estimates. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially could result in materially different results under different assumptions and conditions.

Revenue Recognition— Revenue is recognized when realizable and earned generally as services and solutions are provided over the life of a contract. Fixed fee revenue is recognized using a proportional performance model (which approximates the percentage completion method), based on direct labor hours expended and, when applicable, the completed performance model. Task-based, or deliverable-based, fees are recognized when the relevant task or deliverable is completed. Incentive fee revenue is recognized in the period in which the related improvements are achieved. Our incentive fee agreements with our clients define in advance the performance improvement standards that will form the basis of our incentive fees earned. We do not recognize incentive fee revenue until the client has agreed that performance improvements have in fact been achieved.

Unbilled Receivables— Although fixed fee revenue recognition generally coincides with billings, as an accommodation to our clients, we may structure fee billings in a different pattern. In such instances, amounts collectible for services provided but not yet billed are represented in unbilled receivables.

Deferred Revenue— We occasionally receive advance payments of a portion of our fees. Advance payments are classified as deferred revenue upon receipt and recorded as revenue when earned.

Deferred Taxes— Income taxes are calculated using the asset and liability method required by ASC 740-10-25, Income Taxes. Deferred income taxes are recognized for the tax consequences resulting from timing differences by applying enacted statutory tax rates applicable to future years. These timing differences are associated with differences between the financial and the tax basis of existing assets and liabilities. Under ASC 740-10, a statutory change in tax rates will be recognized immediately in deferred taxes and income. Net deferred taxes are recorded both as a current deferred income tax asset and as other long-term liabilities based upon the classification of the related timing difference. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of a deferred tax asset will not be realized. All available evidence, both positive and negative, is considered when determining the need for a valuation allowance. Judgment is used in considering the relative impact of negative and positive evidence. The weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified. In accordance with ASC 740-10, evidence, such as operating results during the most recent three-year period, is given more weight than our expectations of future profitability, which are inherently uncertain.

In assessing the realizability of deferred tax assets, we considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. In the first quarter of 2010, our cumulative losses began to exceed our cumulative earnings. Our analyses of the positive and negative evidence indicate that it is more likely than not that all of the net deferred tax asset will not be realized, and a full valuation allowance is required. Additionally, we are not currently profitable and we determined as of

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March 31, 2010 it was no longer probable that we will recover our deferred tax asset. The combined tax effect was to cause an income tax expense for the first quarter of 2010 of $1.6 million. Until we can demonstrate that we have returned to profitability, we will not be able to book a deferred income tax asset resulting from losses incurred in each period.

At June 30, 2011, we increased our valuation allowance by $0.2 million to a total of $4.1 million, of which $58,000 is subject to the limitations of Section 382 of the Internal Revenue Code.

For the second quarter of 2011 we incurred income tax expense of $0.01 million compared to an income tax expense of $0.02 million in the same quarter of last year. For the first six months of 2011 we incurred income tax expense of $0.02 million compared to an income tax expense of $1.6 million in the same period of last year. For the six months ending June 30, 2011, we booked a net operating loss of $1.7 million which is available to carry forward. As of June 30, 2011, we had a $10.2 million net operating loss to carry forward, of which $2.8 million is subject to the limitations of Section 382 of the Internal Revenue Code.

We also follow the guidance under ASC 740-10-25, which prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Tax law is subject to varied interpretation, and whether a tax position will ultimately be sustained may be uncertain. Under ASC 740-10-25, tax positions are initially recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. ASC 740-10-25 also requires additional disclosures about unrecognized tax benefits associated with uncertain income tax positions and a reconciliation of the change in the unrecognized benefit. In addition, ASC 740-10-25 requires interest to be recognized on the full amount of deferred benefits for uncertain tax positions. An income tax penalty is recognized as expense when the tax position does not meet the minimum statutory threshold to avoid the imposition of a penalty. As of June 30, 2011, we did not have any liabilities or associated interest under ASC 740-10-25.

Stock Based Compensation— We account for stock based compensation arrangements in accordance with the provisions of ASC 718, Stock Compensation. ASC 718-30 requires us to measure all stock based compensation awards at the grant date using a fair value method and to record expense in the financial statements over the requisite service period of the award. We estimate the fair value of options using the Black-Scholes method, which considers a risk-free interest rate, volatility, expected life, forfeitures, and dividend rates. We use the U.S. 10-year Treasury Bond yield to estimate the risk-free interest rate; and, our estimate of volatility is based on our historical stock price for a period of at least or equal to the expected life of award. Our estimate of forfeitures considers the term of the awards granted and historical forfeiture experience and our estimate of the expected life of awards is based on the anticipated time the award is held. Prior to the voluntary delisting of our common stock, restricted stock awards were valued on the date of grant using the closing price of our common stock on The Nasdaq Capital Market on that date. Performance share awards were expensed over the applicable year(s) of service at the closing price on the Nasdaq Capital Market on the date when there was mutual understanding of the key terms and conditions affecting the performance award for the year(s). Since we delisted from The Nasdaq Capital Market, no restricted stock awards or performance share awards have been issued, and as of June 30, 2011 there were no outstanding stock options or stock awards.

Recently Issued Accounting Pronouncements— None

Results of Operations

The following table sets forth the percentages of revenue for the identified items in our consolidated statements of operations:

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	67.8	%	83.0	%	63.0	%	74.5	%
Gross profit	32.2	%	17.0	%	37.0	%	25.5	%
Selling, general and administrative	151.9	%	162.5	%	150.8	%	135.8	%
Operating income (loss)	(119.7	)%	(145.5	)%	(113.8	)%	(110.3	)%
Interest income (expense), net	(0.1	)%	(0.1	)%	(0.1	)%	(0.1	)%
Other income (expense)	3.1	%	1.8	%	12.6	%	6.8	%
Income (loss) before income taxes	(116.7	)%	(143.8	)%	(101.2	)%	(103.6	)%
Income taxes (expense) benefit	1.0	%	(1.7	)%	1.7	%	(60.9	)%
Net income (loss)	(117.7	)%	(145.5	)%	(103.0	)%	(164.5	)%

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Three Month Period Ended June 30, 2011 Compared to the Three Month Period Ended June 30, 2010

Revenue—In the second quarter of 2011, total revenues decreased $0.3 million, or 35%, to $0.7 million from $1.0 million in the second quarter of 2010. There was no task-based revenue in the second quarter of 2011 or 2010. Fixed fee revenue was $0.6 million, or 91% of revenue, in the second quarter of 2011, compared to $0.9 million, or 88% of revenue, in the second quarter of 2010.  Reimbursement revenues were $0.06 million, or 9% of revenue, in the second quarter of 2011, compared to $0.1 million, or 12.1% of revenue, in the second quarter of 2010. There was no incentive revenue in the second quarter of 2011 or 2010. As of June 30, 2011, we had no active incentive-based contracts.

North America region revenue decreased $0.4 million, or 41%, to $0.6 million in the second quarter of 2011, compared to $1.0 million in the second quarter of 2010. The decrease in North America revenues for the second quarter of 2011 compared to the second quarter of 2010 is due primarily to a decrease in our commercial business. The decrease in fixed fee revenue, which is associated with our commercial contracts, is due primarily to having a lower volume of commercial contracts, along with the contracts having a lower contract value for the three month period ended June 30, 2011 compared to the three month period ended June 30, 2010. Reimbursable revenues, which also are associated with our commercial contracts, decreased due to the decrease in commercial activity.

We had $0.06 million in revenue in the Europe region in the second quarter of 2011 compared to no revenue in the second quarter of 2010. Although we discontinued our Europe operations in 2006, we maintain a strategic relationship in Europe through which we may periodically obtain business.

Gross Profit—Gross profit margins were 32% of revenue, or $0.2 million, in the second quarter of 2011, compared to 17%, or $0.2 million, in the second quarter of 2010. Cost of sales consists of direct labor, travel, and other direct costs incurred by our consultants to provide services to our clients and to complete client related projects, including training. The increase in the quarterly gross margins is related to the variable cost model for staffing consulting projects, minimized bench costs, and the decreased use of outside consultants during the second quarter of 2011.

Selling, General and Administrative Expenses—SG&A costs for the second quarter of 2011 were $1.0 million, compared to $1.6 million in the second quarter of 2010. The $0.6 million decrease is related primarily to a $0.3 million decrease in payroll costs due to employee furloughs and the decline in the number of employees, a $0.1 million decrease in stock-based compensation expense, a $0.2 million decrease in sales commissions and employee bonus, and a $0.1 million decrease in other costs due to a decline in activity as compared to the same period in 2010.

Other Income—Other income for the second quarter of 2011 primarily included insurance premium refunds of excess estimated premiums previously paid and rental income from subleased office space.

Income Tax Expense (Benefit)—For the second quarter of 2011 we incurred income tax expense of $0.01 million compared to $0.02 million during the second quarter of 2010. In the second quarter of 2010, our cumulative losses began to exceed our cumulative earnings. Additionally, we are not currently profitable, and we determined as of the end of March 2010 it was no longer probable that we will recover our deferred tax asset. The combined tax effect resulted in an income tax expense of $1.6 million for the first quarter of 2010. The effect is to increase the net loss as well as the loss per share compared to prior quarters. If we are able to return to sustained profitability and when we can comply with all of the requirements of ASC 740-10-25, we should be able to recover all or part of our deferred tax asset.

In the second quarter of 2011, we received notice from the IRS that it will audit our corporate tax returns for the year ending December 31, 2009. In response to a request from the IRS, in conjunction with this audit of our 2009 tax returns, we agreed to extend the deadline for assessments related to our tax returns for the year ending December 31, 2007. We do not anticipate any material impact on our financial statements as a result of this audit process.

Six Month Period Ended June 30, 2011 Compared to the Six Month Period Ended June 30, 2010

Revenue—In the first half of 2011, total revenues decreased $1.2 million, or 47%, to $1.4 million from $2.6 million in the first half of 2010. Task-based revenue was $0.4 million, or 25% of revenue, in the first half of 2011. There was no task-based revenue in the first half of 2010. Fixed fee revenue was $1.0 million, or 68% of revenue, in the first half of 2011, compared to $2.4 million, or 91% of revenue, in the first half of 2010. Reimbursement revenues were $0.01 million, or 6% of revenue, in the first half of 2011, compared to $0.3 million, or 10% of revenue, in the first half of 2010. There was no incentive revenue in the first half of 2011 or 2010.  As of June 30, 2011, we had no active incentive-based contracts.

North America region revenue decreased $1.0 million, or 42%, to $1.4 million in the first half of 2011, compared to $2.3 million in the first half of 2010. The decrease in North America revenues for the first half of 2011 compared to the first half of

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2010 is due primarily to a decrease in our commercial business. The increase in task-based revenue, which is associated with our government contracts, is due primarily to new business generated from government contracts. The decrease in fixed fee revenue, which is associated with our commercial contracts, is due primarily to having a lower volume of commercial contracts, along with the contracts having a lower contract value for the six month period ended June 30, 2011 compared to the six month period ended June 30, 2010. Reimbursable revenues, which also are associated with our commercial contracts, decreased due to the decrease in commercial activity.

We had $0.06 million in revenue in the Europe region in the first half of 2011 compared to $0.3 million in revenue in the first half of 2010, due to completion of contracts. Although we discontinued our Europe operations in 2006, we maintain a strategic relationship in Europe through which we may periodically obtain business.

Gross Profit— Gross profit margins were 37% of revenue, or $0.5 million, in the first half of 2011, compared to 25%, or $0.7 million, in the first half of 2010. Cost of sales consists of direct labor, travel, and other direct costs incurred by our consultants to provide services to our clients and to complete client related projects, including training. The increase in the quarterly gross margins is related to the variable cost model for staffing consulting projects, minimized bench costs, and the decreased use of outside consultants during the first half of 2011.

Selling, General and Administrative Expenses— SG&A costs for the first half of 2011 were $2.1 million, compared to $3.6 million in the first half of 2010. The $1.5 million decrease is related primarily to a $0.8 million decrease in payroll costs due to employee furloughs and the decline in the number of employees, a $0.3 million decrease in stock-based compensation expense, a $0.1 million decrease in sales commissions and employee bonus, and a $0.4 million decrease in other costs due to a decline in activity as compared to the same period in 2010.

Other Income— Other income for the first half of 2011 included insurance reimbursements and the reversal of the prior accrual related to the lawsuit with Earle Steinberg, our former President and CEO. The lawsuit was settled in March 2011 for a total cost to us of approximately $110,000. The final settlement was paid in March 2011. Also included are insurance premium refunds of excess estimated premiums previously paid and rental income from subleased office space.

Income Tax Expense (Benefit)— For the first half of 2011 we incurred income tax expense of $0.02 million compared to $1.6 million during the first half of 2010. In the first half of 2010, our cumulative losses began to exceed our cumulative earnings. Additionally, we are not currently profitable, and we determined as of the end of March 2010 it was no longer probable that we will recover our deferred tax asset. The combined tax effect resulted in an income tax expense of $1.6 million for the first half of 2010. The effect is to increase the net loss as well as the loss per share compared to prior quarters. If we are able to return to sustained profitability and when we can comply with all of the requirements of ASC 740-10-25, we should be able to recover all or part of our deferred tax asset.

During the second quarter of 2011, we received notice from the IRS that it will audit our corporate tax returns for the year ending December 31, 2009. In response to a request from the IRS, in conjunction with this audit of our 2009 tax returns, we agreed to extend the deadline for assessments related to our tax returns for the year ending December 31, 2007. We do not anticipate any material impact on our financial statements as a result of this audit process.

Liquidity and Capital Resources

Cash and cash equivalents decreased by $1.7 million during the first half 2011 compared to an increase of $0.1 million during the first half of 2010. The major components of these changes are discussed below.

Cash Flows from Operating Activities— For the first half of 2011, net cash used in operating activities was $1.7 million compared to $0.2 million cash provided by operating activities for the first half of 2010. This decrease in net cash provided by operating activities is due primarily to a $2.5 million tax refund received during the first half of 2010 from prior years’ tax loss carrybacks which have not been available for 2011.

Cash Flows from Investing Activities— There were no investing activities for the first half of 2011 or 2010.

Cash Flows from Financing Activities— There was no cash used for financing activities for the first half of 2011 compared to $0.02 million related to the purchase of stock under our stock repurchase plan early in the first half of 2010.

Our Liquidity Plan— Our ability to generate cash from operations is determined primarily by our ability to generate substantial new revenue. Our ability to generate this required new revenue will be affected by prevailing economic conditions, among other factors. We have taken steps to reduce our costs in many areas, and we will continue to do so to the maximum extent we believe

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is prudent.

As of June 30, 2011, we have working capital of $1.6 million and a cash balance of $1.35 million. If we fail to meet our revenue expectations in our forecast for the balance of 2011 or we are unable to control our expenses as planned, we could be required to seek other sources of liquidity during 2011 or seek or implement alternative strategies. There can be no assurance that existing cash will be sufficient, that we will have access to the capital or credit markets if needed or that any of our strategies can be implemented on satisfactory terms, on a timely basis or at all to provide additional liquidity.  We are very carefully monitoring our liquidity.  If we cannot generate sufficient cash flow or otherwise maintain liquidity, we will need to make further revisions to our business plan or pursue strategic alternatives, sell or liquidate assets, cease operations or, if appropriate, file for bankruptcy.

Inflation— Although our operations are influenced by general economic conditions, we do not believe inflation had a material effect on the results of operations during the six month periods ended June 30, 2011 or 2010. However, there can be no assurance our business will not be affected by inflation in the future.

Commitments and Off-Balance Sheet Arrangements— On March 3, 2011, the Compensation and Corporate Governance Committee of our Board of Directors adopted a retention pay program for certain of our officers and employees in order to help preserve the continuity of our operations and management. Under the retention pay program, each eligible employee will be entitled to receive a lump sum payment if we terminate his or her employment for any reason other than cause. The amount of the lump sum payment payable to an employee under the retention pay program will be based on the employee’s role and other facts, but it will not exceed an amount equal to six months of his or her annual base salary or annual minimum compensation (as applicable), at the time of termination. The payment will be in lieu of any cash severance payments otherwise payable under any other arrangement with the employee during the period of the retention pay program.

The retention pay program remains in effect through the end of 2012. At that time the program will expire and no payments under this program will be payable for any officer or employee whose employment is terminated after that date. The maximum payments under the retention pay program are approximately $526,000.

As of June 30, 2011, we had no other material commitments for capital expenditures or any obligations that would qualify to be disclosed as off-balance sheet arrangements.

ITEM 3—Quantitative and Qualitative Disclosure About Market Risk

There have been no material changes in circumstances affecting our exposure to interest rate or foreign exchange rate risk since December 31, 2010.

ITEM 4—Controls and Procedures

Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this quarterly report, Michael McGrath, our Executive Chairman, President and Chief Executive Officer, and Frank Tilley, our Vice President and Chief Financial Officer, have concluded that, as of June 30, 2011, in their judgment, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us, including our subsidiaries, in the reports we file, or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Executive Chairman, President and Chief Executive Officer and Vice President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.

There were no changes in our internal controls over financial reporting during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II—OTHER INFORMATION

ITEM 1—Legal Proceedings

During the second quarter of 2011, we received notice from the IRS that it will audit our corporate tax returns for the year ending December 31, 2009. In response to a request from the IRS, in conjunction with this audit of our 2009 tax returns, we agreed to extend the deadline for assessments related to our tax returns for the year ending December 31, 2007. We do not anticipate any material impact on our financial statements as a result of this audit process.

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We may become subject to various claims and other legal matters, such as collection matters initiated by us in the ordinary course of conducting our business. We believe neither such claims and legal matters nor the cost of prosecuting and/or defending such claims and legal matters will have a material adverse effect on our consolidated results of operations, financial condition or cash flows. No material claims are currently pending; however, no assurances can be given that future claims, if any, will not be material.

ITEM 1A—Risk Factors

If our business does not improve during the balance of 2011 it is probable that we will receive a “going concern” opinion from our independent registered public accounting firm for the year ending December 31, 2011. This could materially and adversely affect our ability to sign contracts with new clients, further limiting our opportunity to return to profitability or to sustain our operations.

If we fail to meet our revenue expectations in our forecast for the balance of 2011 and beyond, it is probable that our independent registered accounting firm will include an explanatory paragraph with respect to our ability to continue as a going concern in its report on our financial statements for the year ending December 31, 2011. Such an opinion may make it more difficult for us to sign new contracts with clients and to obtain necessary capital or credit, and may have other effects that further adversely affect our ability to return to profitability.

Our current cash resources may not be sufficient to sustain our operations through June 30, 2012.  If we are unable to generate positive cash flows sufficient to fund our needs, our business, financial condition and results of operations could be materially and adversely affected.

While we continue to believe we have opportunities for new business in the near term, we are very carefully monitoring our liquidity, and our Board of Directors has discussed and will continue to evaluate our options in light of our current cash position and our forecasts for new business in order to satisfy our debts and maximize value for our stockholders.  If we are unable to meet our revenue goals or control our expenses as planned, however, we could be required to seek other sources of liquidity during 2011 or seek or implement alternative strategies.  Our ability to raise additional capital may be adversely impacted by the current economic environment, our current financial position, the delisting of our common stock and the other matters described in these risk factors that may affect the liquidity of our common stock.  We do not know whether additional capital will be available when needed, or that, if available, we will be able to obtain additional capital on terms favorable to us or our stockholders. If we cannot generate the required revenues to sustain operations or obtain additional capital on acceptable terms, we will need to make further revisions to our business plan, sell or liquidate assets, cease operations or, if appropriate, file for bankruptcy, any of which could cause our investors to suffer the loss of a significant portion or all of their investment in us.

We have voluntarily delisted our common stock from The Nasdaq Capital Market, and our common stock is now quoted on the OTC Pink tier. Quotation of our common stock on the OTC Pink tier may adversely affect the liquidity, trading market and price of our common stock and our ability to raise capital.

Currently, our common stock is quoted under the symbol “TGIS” on the OTC Pink tier operated by OTC Market Group, a centralized electronic quotation service for over-the-counter securities.  Many over-the-counter stocks trade less frequently and in smaller volumes than securities traded on the Nasdaq markets, which would likely have a material adverse effect on the liquidity of our common stock. There may be a limited market for our stock, trading in our stock may become more difficult and our share price could decrease even further. In addition, the trading of our common stock on over-the-counter markets will materially adversely affect our access to the capital markets and our ability to raise capital through alternative financing sources on terms acceptable to us or at all. Securities that trade over-the-counter are no longer eligible for margin loans, and a company trading over-the-counter cannot avail itself of federal preemption of state securities or “blue sky” laws, which adds substantial compliance costs to securities issuances, including those pursuant to employee option plans, stock purchase plans and private or public offerings of securities. There may also be other negative implications, including the potential loss of confidence by suppliers, customers and employees.

In addition, our common stock may become subject to penny stock rules. The SEC generally defines “penny stock” as an equity security that has a market price of less than $5.00 per share, subject to certain exceptions. We are not currently subject to the penny stock rules because our common stock qualifies for an exception to the SEC’s penny stock rules. However, if our financial position does not improve sufficiently in 2011, our common stock would become subject to the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell our common stock. If our common stock were considered penny stock, the ability of broker-dealers to sell our common stock and the ability of our stockholders to sell their shares in the secondary market would be limited and, as a result, the market liquidity for our common stock would be adversely affected. We cannot assure that trading in our securities will not be subject to these or other regulations in the future.

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We intend to deregister our stock under the Securities Exchange Act of 1934.  Deregistration may negatively affect the liquidity and trading prices of our common stock and result in less disclosure about our company.

Given the significant cost and resource demands of being a public company, we have decided to deregister our common stock under the Exchange Act and “go dark.” By going dark, our obligations to file reports with the SEC (including periodic reports, proxy statements, and tender offer statements) will cease.  We have been unable to obtain no-action relief from the SEC to allow us to deregister our common stock and end our reporting obligations under the Exchange Act in 2011.  As a result, we will not be eligible to deregister until after the end of the year and we will be required to continuing filing periodic reports with the SEC through 2011 as well as our Annual Report on Form 10-K for 2011.

Once we become eligible to deregister, we will file a Form 15 with the SEC and our obligation to file periodic reports will cease.  There may be a substantial decrease in the liquidity in our common stock even though stockholders may still continue to trade our common stock on the OTC Pink tier.  In addition, the market’s interpretation of our motivation for going dark could vary from cost savings, to negative changes in our prospects, to serving insider interests, all of which may affect the overall price and liquidity of our common stock and our ability to sign contracts with new clients or to raise capital on terms acceptable to us or at all.  In addition, companies with common stock quoted on the OTC Pink tier are not required to meet the reporting requirements set forth under the Exchange Act.  Although we plan to continue to provide limited financial information to allow for public trading of our common stock on the OTC Pink tier, there can no assurances that we will do so or that market makers will continue to make a market in our common stock.  As a result, investors may find it more difficult to dispose of or obtain accurate quotations as to the market value of our common stock, and the ability of our stockholders to sell our securities in the secondary market may be materially limited.

There have been no other material changes from the information previously reported under Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

ITEM 2—Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3—Defaults Upon Senior Securities

None.

ITEM 4— Removed and Reserved

ITEM 5—Other Information

None.

21

ITEM 6—Exhibits

Exhibits
*3.1	Amended and Restated Certificate of Incorporation of Thomas Group filed July 10, 1998, with the State of Delaware Office of the Secretary of State, as amended by Certificate of Amendment to Amended and Restated Certificate of Incorporation of Thomas Group, Inc. effective August 13, 2010.
*3.2	Amended and Restated By-Laws dated May 30, 2001, as amended by Amendment No. 1 dated March 25, 2009, and Amendment No. 2 dated as of June 1, 2011.
10.1	Cancellation of Restricted Share Award to Michael E. McGrath dated June 9, 2011 (filed as Exhibit 10.1 to our Current Report on Form 8-K filed June 14, 2011 and incorporated herein by reference).
* 31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934.
* 31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14 (a) and Rule 15d-14(a) under the Securities Exchange Act of 1934.
* 32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* 32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

*Filed herewith

22

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	THOMAS GROUP, INC. Registrant
August 12, 2011	/s/ Michael E. McGrath
Date	Michael E. McGrath
	Executive Chairman, President and CEO

23

Thomas Group, Inc.

Form 10-Q

Exhibit Index

Exhibits
*3.1	Amended and Restated Certificate of Incorporation of Thomas Group filed July 10, 1998, with the State of Delaware Office of the Secretary of State, as amended by Certificate of Amendment to Amended and Restated Certificate of Incorporation of Thomas Group, Inc. effective August 13, 2010.
*3.2	Amended and Restated By-Laws dated May 30, 2001, as amended by Amendment No. 1 dated March 25, 2009, and Amendment No. 2 dated as of June 1, 2011.
10.1	Cancellation of Restricted Share Award to Michael E. McGrath dated June 9, 2011 (filed as Exhibit 10.1 to our Current Report on Form 8-K filed June 14, 2011 and incorporated herein by reference).
* 31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934.
* 31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14 (a) and Rule 15d-14(a) under the Securities Exchange Act of 1934.
* 32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* 32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

*Filed herewith

24

EX-3.1

EXHIBIT 3.1

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
THOMAS GROUP, INC.
(As Amended by Certificate of Amendment dated August 11, 2010)

The undersigned, J. Thomas Williams, certifies that he is the President of Thomas Group, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), and does hereby further certify as follows:

(1)The name of the Corporation is Thomas Group, Inc.

(2)The name under which the Corporation was originally incorporated was “Thomas Group, Inc.” and the original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on June 12, 1978.

(3)This Amended and Restated Certificate of Incorporation was duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware.

(4)This Amended and Restated Certificate of Incorporation restates and integrates previous provisions and also amends the provisions of the Corporation’s Certificate of Incorporation.

(5)The text of the Amended and Restated Certificate of Incorporation of the Corporation, as amended hereby, is restated to read in its entirety, as follows:

First:  The name of the Corporation is Thomas Group, Inc.

Second:  The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street in the City of Wilmington, County of New Castle. The name of its 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 a Corporation may be organized under the General Corporation Law of the State of Delaware, as amended (the “DGCL”).

Fourth:  1.Authorized Shares. The total number of shares of stock which the Corporation shall have authority to issue is 26,200,000, consisting of:

(a)25,000,000 shares of Common Stock, par value $.01 per share (“Common Stock”); and

(b)1,200,000 shares of Class B Common Stock, par value $.01 per share (“Class B Stock”).

2.Provisions Relating to the Common Stock and Class B Stock.

(a)Except as otherwise required by law, and subject to any special voting rights which may be conferred upon any class or series of stock of the Corporation, each holder of Common Stock shall be entitled to one vote for each share of the Common Stock standing in such holder’s name on the records of the Corporation on each matter submitted to a vote of the stockholders. Except as required by law, the holders of the Class B Stock shall have no voting rights whatsoever.

1

(b)Subject to the rights of the holders of any class or series of stock of the Corporation, the holders of the Common Stock shall be entitled to receive when, as, and if declared by the Board of Directors of the Corporation, out of funds legally available therefor, dividends payable in cash, stock, or otherwise.

(c)Upon any liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, and after the holders of any class or series of stock of the Corporation having a preference over the Common Stock and Class B Stock with respect to distributions of assets upon any such liquidation, distribution or winding up, and any bonds, debentures, or other obligations of the Corporation shall have been paid in full the amounts to which they shall be entitled (if any), or a sum sufficient for such payment in full shall have been set aside, the remaining net assets of the Corporation shall be distributed pro rata to the holders of the Common Stock and Class B Stock, to the exclusion of the holders of shares of any other class or series of stock and any bonds, debentures, or other obligations of the Corporation.

3.Reverse Split.  Effective at 6:01 p.m., eastern time, on August 13, 2010 (the “Effective Time”), each five shares of Common Stock held of record as of the Effective Time or held in the Corporation’s treasury as of the Effective Time (collectively, the “Old Common Stock”) shall be automatically reclassified and converted, without further action on the part of the holder thereof, into one share of Common Stock.  No fractional share of Common Stock shall be issued to any holder of record of Old Common Stock upon such reclassification and conversion.  From and after the Effective Time, such holder shall have no further interest as a stockholder in respect of any such fractional share and, in lieu thereof, the aggregate of all fractional shares otherwise issuable to the holders of record of Old Common Stock shall be issued to Computershare, the transfer agent, as agent for the accounts of all holders of record of Old Common Stock otherwise entitled to have a fraction of a share issued to them.  The sale of all of the fractional interests will be effected by the transfer agent as soon as practicable after the Effective Time on the basis of the prevailing market prices of the Common Stock at the time of sale.  After such sale and upon the surrender of the stockholders’ stock certificates, the transfer agent will pay to such holders of record their pro rata share of the net proceeds derived from the sale of the fractional interests.

Each stock certificate that, immediately prior to the Effective Time, represented shares of Old Common Stock shall, from and after the Effective Time, automatically and without the necessity of presenting the same for exchange, represent that number of whole shares of Common Stock into which the shares of Old Common Stock represented by such certificate shall have been reclassified (as well as the right to receive cash in lieu of any fractional shares of Common Stock as set forth above); provided, however, that each holder of record of a certificate that represented shares of Old Common Stock shall be issued, upon surrender of such certificate, a new certificate or certificates representing the appropriate number of whole shares of Common Stock into which the shares of Old Common Stock represented by such certificate shall have been reclassified, as well as any cash in lieu of fractional shares of Common Stock to which such holder may be entitled pursuant to the immediately preceding paragraph.

Nothing contained in this Section 3 is intended to amend or modify Sections 1 or 2 of this Article Fourth.

Fifth:  Any action required or permitted to be taken by the stockholders of the Corporation (including without limitation the election of Directors) shall be effected at an annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.

Sixth:  In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized:

1.To make, alter or repeal the bylaws of the Corporation;

2.To authorize and cause to be executed mortgages and liens upon the real and personal property of the Corporation;

3.To set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created;

2

4.By a majority of the whole Board of Directors, to designate one or more committees, each committee to consist of one or more of the Directors of the Corporation. The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution or in the bylaws of the Corporation and permitted by law, shall have an may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it.  The bylaws may provide that in the absence or disqualification of any member of such committee or committees the member or members thereof present at any meeting and not disqualified from voting whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member; and

5.When and as authorized by the affirmative vote of the holders of a majority of the stock issued and outstanding having voting power given at a stockholders’ meeting duly called upon such notice as is required by statute, sell, lease or exchange all or substantially all of the property and assets of the Corporation, including its goodwill and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or property including securities of any other corporation or corporations, as the Board of Directors shall deem expedient and for the best interests of the Corporation.

Seventh:  No contract or transaction between the Corporation and one or more of its Directors, officers or stockholders or between the Corporation and any person (as used herein “person” means other corporation, partnership, association, firm, trust, joint venture, political subdivision or instrumentality) or other organization in which one or more of its directors, officers or stockholders are directors, officers, or stockholders, or have a financial interest, shall be void or voidable solely for this reason, or solely because the Director or officer is present at or participates in the meeting of the Board or committee which authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose; if: (i) the material facts as to his or her relationship or interest as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested Directors, even though the disinterested Directors be less than a quorum; or (ii) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof, or the stockholders. Common or interested Directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

Eighth:  1.Indemnification of Officers and Directors.  The Corporation shall indemnify any person who was, is, or is threatened to be made a party to a proceeding (as hereinafter defined) by reason of the fact that he or she (i) is or was a Director or officer of the Corporation or (ii) while a Director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise, to the fullest extent permitted under the DGCL, as the same exists or may hereafter be amended. Such right shall be a contract right and as such shall run to the benefit of any Director or officer who is elected and accepts the position of Director or officer of the Corporation or elects to continue to serve as a Director or officer of the Corporation or elects to continue to serve as a Director or officer of the Corporation while this Article 10 is in effect. Any repeal or amendment of this Article 10 shall be prospective only and shall not limit the rights of any such Director or officer in any of the foregoing capacities prior to any such repeal or amendment to this Article 10. Such right shall include the right to be paid by the Corporation expenses incurred in defending any such proceeding in advance of its final disposition to the maximum extent permitted under the DGCL, as the same exists or may hereafter be amended. If a claim for indemnification or advancement of expenses hereunder is not paid in full by the Corporation within sixty (60) 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 also be entitled to be paid the expenses of prosecuting such claim. It shall be a defense to any such action that such indemnification or advancement of costs of defense are not permitted under the DGCL, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders to have made its determination prior to the commencement of

3

such action that indemnification of, or advancement of costs of defense to, the claimant is permissible in the circumstances nor an actual determination by the Corporation (including its Board of Directors or any committee thereof, independent counsel, or stockholders) that such indemnification or advancement is not permissible. In the event of the death of any person having a right of indemnification under the foregoing provisions, such right shall inure to the benefit of his or her heirs, executors, administrators, and personal representatives. The rights conferred above shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, by law, resolution of stockholders or Directors, agreement, or otherwise.

2.Indemnification of Employees or Agents of the Corporation. The Corporation may additionally indemnify any employee or agent of the Corporation to the fullest extent permitted by law.

3.Judicial Proceedings.  As used herein, the term “proceeding” means any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, any appeal in such an action, suit or proceeding, and any inquiry or investigation that could lead to such an action, suit, or proceeding; provided, however, “proceeding” shall not include any proceeding, action or suit commenced by or on behalf of the person seeking indemnification or advancement of expenses unless such proceeding was approved in advance by the Corporation’s Board of Directors.

Ninth:  Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths (3/4) in value of the creditors or class of creditors, and/or the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.

Tenth:  Meetings of stockholders may be held within or without the State of Delaware, as the bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designed from time to time by the Board of Directors or in the bylaws of the Corporation. Elections of Directors need not be by written ballot unless the bylaws of the Corporation shall 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 Certificate of Incorporation, in the manner, now or hereafter prescribed herein or by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

Thirteenth:  No Director of the Corporation shall be 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 that involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which the Director derived an improper personal benefit. If the DGCL hereafter is amended to authorize the further elimination or limitation of the liability of Directors, then the liability of a Director of the Corporation, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended DGCL. Any repeal or modification of this Article by the stockholders of the Corporation shall be prospective only and shall not adversely affect any limitation on the personal liability of a Director of the Corporation existing at the time of such repeal or modification.

4

Fourteenth:  The Corporation expressly elects to be governed by Section 203 of the DGCL.

Fifteenth:  Notwithstanding any provisions of the Corporation’s bylaws to the contrary, the affirmative vote of the holders of at least two-thirds (2/3) of the outstanding shares of each class of capital stock of the Corporation then entitled to vote thereon shall be required to amend, alter or repeal, or adopt any provision inconsistent with, Article II, Section 3 of the Corporation’s bylaws; Article II, Section 10 of the Corporation’s bylaws; or Article III, Section 4 of the Corporation’s bylaws.

Sixteenth:  Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, the affirmative vote of the holders of at least two-thirds (2/3) of the outstanding shares of each class of capital stock of the Corporation then entitled to vote thereon shall be required to amend, alter or repeal, or adopt any provisions inconsistent with any one or more of Articles Fifth, Eighth, Twelfth, Thirteenth, Fourteenth, Fifteenth and Sixteenth of this Certificate of Incorporation.

IN WITNESS WHEREOF, Thomas Group, Inc. has caused its corporate seal to be hereunto affixed and this Amended and Restated Certificate of Incorporation to be signed by J. Thomas Williams, its President, and attested by Roger A. Crabb, its Secretary, on July 9, 1998.

THOMAS GROUP, INC.
By:	/s/ J. Thomas Williams
	J. Thomas Williams, President
ATTEST:
/s/ Roger A. Crabb
Roger A. Crabb, Secretary

5

EX-3.2

EXHIBIT 3.2

AMENDED AND RESTATED

BYLAWS OF

THOMAS GROUP, INC.

A Delaware Corporation

As Amended and Effective as of June 1, 2011

TABLE OF CONTENTS

ARTICLE I	OFFICES	1
Section 1.	Registered Office	1
Section 2.	Other Offices	1
ARTICLE II	MEETINGS OF STOCKHOLDERS	1
Section 1.	Place of Meetings	1
Section 2.	Annual Meetings	1
Section 3.	Special Meetings	1
Section 4.	Notice of Meetings and Adjourned Meetings	1
Section 5.	Quorum	1
Section 6.	Rules of Procedure Relating to Stockholder Meetings	2
Section 7.	Voting	2
Section 8.	Inspectors	3
Section 9.	New Business	3
Section 10.	Nominations for Director	3
Section 11.	Requests for Stockholder List and Corporation Records	4
ARTICLE III	DIRECTORS	4
Section 1.	Powers	4
Section 2.	Number of Directors; Term; Qualification	4
Section 3.	Election	4
Section 4.	Vacancies	4
Section 5.	Place of Meetings	5
Section 6.	Regular Meetings	5
Section 7.	Special Meetings	5
Section 8.	Notice of Meetings	5
Section 9.	Quorum and Manner Of Acting	5
Section 10.	Action By Consent; Participation By Telephone or Similar Equipment	5
Section 11.	Resignation; Removal	5
Section 12.	Compensation of Directors	6
ARTICLE IV	COMMITTEES OF THE BOARD	6
Section 1.	Designation, Powers and Name	6
Section 2.	Meetings; Minutes	6
Section 3.	Compensation	6
Section 4.	Action By Consent; Participation By Telephone or Similar Equipment	6
Section 5.	Changes in Committees; Resignations; Removals	7
ARTICLE V	OFFICERS	7
Section 1.	Officers	7
Section 2.	Election and Term Of Office	7
Section 3.	Removal and Resignation	7
Section 4.	Vacancies	7
Section 5.	Salaries	7
Section 6.	Chairman of the Board	7
Section 7.	Chief Executive Officer	7
Section 8.	President and Chief Operating Officer	8
Section 9.	Vice Presidents	8
Section 10.	Treasurer	8
Section 11.	Assistant Treasurer	8
Section 12.	Secretary	8
Section 13.	Assistant Secretaries	8
ARTICLE VI	CONTRACTS, CHECKS, LOANS, DEPOSITS, ETC.	9

i

Section 1.	Contracts	9
Section 2.	Checks, Etc.	9
Section 3.	Loans	9
Section 4.	Deposits	9
ARTICLE VII	CAPITAL STOCK	9
Section 1.	Stock Certificates	9
Section 2.	List Of Stockholders Entitled To Vote	10
Section 3.	Stock Ledger	10
Section 4.	Transfers of Capital Stock	10
Section 5.	Lost Certificates	10
Section 6.	Fixing of Record Date	10
Section 7.	Beneficial Owners	10
ARTICLE VIII	DIVIDENDS	11
Section 1.	Declaration	11
Section 2.	Reserve	11
ARTICLE IX	INDEMNIFICATION	11
Section 1.	Indemnification	11
Section 2.	Advancement Of Expenses	11
Section 3.	Non-Exclusivity	11
Section 4.	Insurance	11
Section 5.	Continuity	12
ARTICLE X	SEAL	12
ARTICLE XI	WAIVER OF NOTICE	12
ARTICLE XII	AMENDMENTS	12

ii

AMENDED AND RESTATED BYLAWS

OF

THOMAS GROUP, INC.

A Delaware Corporation

As Amended and Effective as of June 1, 2011

ARTICLE I
OFFICES

Section 1.               REGISTERED OFFICE.  The registered office of Thomas Group, Inc. (hereinafter called the “Corporation”) within the State of Delaware shall be located in the City of Wilmington, County of New Castle.

Section 2.               OTHER OFFICES.  The Corporation may also have an office or offices and keep the books and records of the Corporation, except as may otherwise be required by law, in such other place or places, within or without the State of Delaware, as the Board of Directors of the Corporation (hereinafter sometimes called the “Board”) may from time to time determine or the business of the Corporation may require.

ARTICLE II
MEETINGS OF STOCKHOLDERS

Section 1.               PLACE OF MEETINGS.  All meetings of stockholders of the Corporation shall be held at the office of the Corporation in the State of Delaware or at such other place, within or without the State of Delaware, as may from time to time be fixed by the Board or specified or fixed in the respective notices or waivers of notice thereof.

Section 2.               ANNUAL MEETINGS.  The annual meeting of stockholders of the Corporation for the election of Directors and for the transaction of such other business as may properly come before the meeting shall be held annually on such date and at such time as may be fixed by the Board.

Section 3.               SPECIAL MEETINGS.  Special meetings of stockholders, unless otherwise provided by law, may be called at any time only by (i) the Board pursuant to a resolution adopted by a majority of the then authorized number of Directors (as determined in accordance with Section 2 of Article III of these Bylaws), (ii) the Chairman of the Board, or (iii) the President.  Any such call must specify the matter or matters to be acted upon at such meeting and only such matter or matters shall be acted upon thereat.

Section 4.               NOTICE OF MEETINGS AND ADJOURNED MEETINGS.  Except as may otherwise be required by law, notice of each meeting of stockholders, annual or special, shall be in writing, shall state the purpose or purposes of the meeting, the place, date and hour of the meeting and, unless it is the annual meeting, shall indicate that the notice is being issued by or at the direction of the person or persons calling the meeting, and a copy thereof shall be delivered or sent by mail, not less than ten (10) or more than sixty (60) days before the date of said meeting, to each stockholder entitled to vote at such meeting.  If mailed, such notice shall be directed to the stockholder at his address as it appears on the stock record of the Corporation unless he shall have filed with the Secretary a written request that notices to him be mailed to some other address, in which case it shall be directed to him at such other address.  Notice of any adjourned meeting need not be given if the time and place to which the meeting shall be adjourned were announced at the meeting at which the adjournment was taken unless (i) the adjournment is for more than thirty (30) days, (ii) the Board shall fix a new record date for any adjourned meeting after the adjournment or (iii) these Bylaws otherwise require.

Section 5.               QUORUM.  At each meeting of stockholders of the Corporation, the holders of a majority of the shares of capital stock of the Corporation issued and outstanding and entitled to vote shall be present

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or represented by proxy to constitute a quorum for the transaction of business, except as may otherwise be provided by law or the Certificate of Incorporation.

If a quorum is present at a meeting of stockholders, the stockholders represented in person or by proxy at the meeting may conduct such business as may be properly brought before the meeting until it is finally adjourned, and the subsequent withdrawal from the meeting of any stockholder or the refusal of any stockholder represented in person or by proxy to vote shall not affect the presence of a quorum at the meeting, except as may otherwise be provided by law or the Certificate of Incorporation.

If, however, a quorum shall not be present or represented at any meeting of the stockholders, the chairman of the meeting or holders of majority of the shares represented in person or by proxy shall have the power to adjourn the meeting to another time, or to another time and place, without notice (subject, however, to the requirements of Section 4 of Article II of these Bylaws) other than announcement of adjournment at the meeting, and there may be successive adjournments for like cause and in like manner until the requisite amount of shares entitled to vote at such meeting shall be represented.  At such adjourned meeting at which the requisite amount of shares entitled to vote thereat shall be represented, any business may be transacted that might have been transacted at the original meeting so adjourned.

Section 6.               RULES OF PROCEDURE RELATING TO STOCKHOLDER MEETINGS.  All stockholder meetings, annual or special, shall be governed in accordance with the following rules:

(i)            Only stockholders of record or their proxies will be permitted to present motions from the floor at any meeting of stockholders.

(ii)           The chairman of the meeting shall preside over and conduct the meeting in a fair and reasonable manner, and all questions of procedure or conduct of the meeting shall be decided solely by the chairman of the meeting.  The chairman of the meeting shall have all power and authority vested in a presiding officer by law or practice to conduct an orderly meeting.  Among other things, the chairman of the meeting shall have the power to adjourn or recess the meeting, to silence or expel persons to insure the orderly conduct of the meeting, to declare motions or persons out of order, to prescribe rules of conduct and an agenda for the meeting, to impose reasonable time limits on questions and remarks by any stockholder, to limit the number of questions a stockholder may ask, to limit the nature of questions and comments to one subject matter at a time as dictated by any agenda for the meeting, to limit the number of speakers or persons addressing the chairman of the meeting or the meeting, to determine when the polls shall be closed, to limit the attendance at the meeting to stockholders of record, beneficial owners of stock who present letters from the record holders confirming their status as beneficial owners, and the proxies of such record and beneficial holders, and to limit the number of proxies a stockholder may name.

Section 7.               VOTING.  Except as otherwise provided in the Certificate of Incorporation, at each meeting of stockholders, every stockholder of the Corporation shall be entitled to one (1) vote for every share of capital stock standing in his name on the stock records of the Corporation (i) at the time fixed pursuant to Section 6 of Article VII of these Bylaws as the record date for the determination of stockholders entitled to vote at such meeting, or (ii) if no such record date shall have been fixed, then at the close of business on the date next preceding the day on which notice thereof shall be given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.  At each such meeting, every stockholder shall be entitled to vote in person, or by proxy appointed by an instrument in writing executed by such stockholder or by his duly authorized agent and bearing a date not more than three (3) years prior to the meeting in question, unless said instrument provides for a longer period during which it is to remain in force.

At all meetings of stockholders at which a quorum is present, all matters (except as otherwise provided in Section 3 of Article III of these Bylaws and except in cases where a larger vote is required by law, the Certificate of Incorporation or these Bylaws) shall be decided by a majority of the votes cast affirmatively or negatively at such meeting by the holders of shares present or represented by proxy and entitled to vote thereon.

At any meeting of stockholders, every stockholder having the right to vote may vote either in person or by a proxy executed in writing by the stockholder or by his duly authorized attorney-in-fact.  Each such proxy shall be

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filed with the Secretary of the Corporation before or at the time of the meeting.  No proxy shall be valid after three years from the date of its execution, unless otherwise provided in the proxy.  Each proxy shall be revocable unless expressly provided therein to be irrevocable and coupled with an interest sufficient in law to support an irrevocable power or unless otherwise made irrevocable by law.

Section 8.               INSPECTORS.  The Board of Directors shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and may designate one or more persons as alternate inspectors to replace any inspector who fails to act.  If any inspector appointed or designated by the Board shall be unwilling or unable to serve, or if the Board shall fail to appoint inspectors, the chairman of the meeting shall appoint the necessary inspector or inspectors.  The inspectors so appointed, before entering upon the discharge of their duties, shall be sworn faithfully to execute their duties with strict impartiality, and according to the best of their ability, and the oath so taken shall be subscribed by them.  Such inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting, the existence of a quorum, and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by such inspectors, (v) certify their determination of the number of shares represented at the meeting and their count of all votes and ballots and (vi) perform such further acts as are proper to conduct any election or vote with fairness to all stockholders.  On request of the chairman of the meeting, the inspectors shall make a report in writing of any challenge, question or matter determined by them and shall execute a certificate of any fact found by them.  An inspector need not be a stockholder of the Corporation, and any officer or Director of the Corporation may be an inspector on any question other than a vote for or against his election to any position with the Corporation or on any other question in which he may be directly interested.

Section 9.               NEW BUSINESS.  Any new business to be taken up at any annual meeting of stockholders shall be stated in writing and filed with the Secretary by the Board of Directors or other person or persons proposing such new business at least ninety (90) days before the date of the annual meeting, and all business so stated, proposed and filed shall be considered at the annual meeting, but no other proposal shall be acted upon at the annual meeting of stockholders.  Any stockholder may make any other proposal at the annual meeting, and the proposal may be discussed and considered, but unless stated in writing and filed with the Secretary at least ninety (90) days before the meeting such proposal shall be postponed for action at the next annual or special meeting of stockholders or at an adjournment of the meeting with respect to which such business was proposed.  This provision shall not prevent the consideration and approval or disapproval at the annual meeting of stockholders of reports of officers, Directors and committees of the Board of Directors, but in connection with such reports no new business shall be acted upon at such annual meeting unless stated and filed as herein provided.

Section 10.             NOMINATIONS FOR DIRECTOR.  Notwithstanding anything in these Bylaws to the contrary, only persons who are nominated in accordance with the procedures hereinafter set forth in this Section 10 shall be eligible for election as Directors of the Corporation in accordance with Section 3 of Article III of these Bylaws.

Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders only (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 10.  Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Secretary of the Corporation.  To be timely, a stockholder’s notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than thirty (30) days nor more than sixty (60) days prior to the meeting; provided, however that in the event that less than forty (40) days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made.  Any adjournment(s) or postponement(s) of the original meeting whereby the meeting will reconvene within thirty (30) days from the original date shall be deemed for purposes of notice to be a continuation of the original meeting and no nominations by a stockholder of persons to be elected Directors of the Corporation may be made at any such reconvened meeting other than pursuant to a notice that was timely for the meeting on the date originally scheduled.  Such stockholder’s notice shall set forth:  (i) as to each person whom the stockholder proposed to nominate for election or re-election as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for

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election of Directors, or as otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, or any successor regulation thereto (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (ii) as to the stockholder giving the notice (a) the name and address, as they appear on the Corporation’s books, of such stockholder, and (b) the class and number of shares of the Corporation which are beneficially owned by such stockholder.  At the request of the Board of Directors, any person nominated by the Board for election as a Director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder’s notice of nomination which pertains to the nominee.

The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by this Section 10, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.

Section 11.             REQUESTS FOR STOCKHOLDER LIST AND CORPORATION RECORDS.  Stockholders shall have those rights afforded under the General Corporation Law of the State of Delaware (the “DGCL”) to inspect for any proper purpose the Corporation’s stock ledger, list of stockholders and other books and records, and make copies or extracts therefrom.  Such request shall be in writing in compliance with Section 220 of the DGCL.  Information so requested shall be made available for inspecting, copying or extracting during usual business hours at the principal executive offices of the Corporation.  Alternative arrangements with respect to this Section 11 may be permitted in the discretion of the President of the Corporation or by vote of the Board of Directors.

ARTICLE III
DIRECTORS

Section 1.               POWERS.  The business of the Corporation shall be managed by or under the direction of the Board.  The Board may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by law or otherwise directed or required to be exercised or done by the stockholders.

Section 2.               NUMBER OF DIRECTORS; TERM; QUALIFICATION.  The number of Directors which shall constitute the whole Board of Directors shall be not less than one (1), and may be from time to time fixed and determined at a different number only by resolution of the Board of Directors.  No decrease in the number of Directors constituting the Board shall shorten the term of any incumbent Director.

Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, each Director shall hold office until the next annual meeting and until his successor is elected and qualified, or until his earlier death, resignation, disqualification or removal.  Directors need not be residents of the State of Delaware or stockholders of the Corporation.  Each director must have attained the age of majority.

Section 3.               ELECTION.  At each meeting of stockholders for the election of Directors at which a quorum is present, the persons receiving a plurality of the votes of the shares represented in person or by proxy and entitled to vote on the election of Directors shall be elected Directors.  All elections of Directors shall be by written ballot, unless otherwise provided in the Certificate of Incorporation.

Section 4.               VACANCIES.  Unless otherwise provided by law or by the Certificate of Incorporation, in the case of any increase in the number of Directors or any vacancy in the Board of Directors, such newly created directorship or vacancy may be filled by the affirmative vote of the majority of the remaining Directors then in office, although less than a quorum, or by a sole remaining Director.  Unless the Certificate of Incorporation or these Bylaws provide otherwise, when one or more Directors shall resign from the Board of Directors, effective at a future date, the majority of Directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective.  Any Director elected or chosen as provided herein shall serve for the remaining term of the directorship to which appointed and until his successor is elected and qualified or until his earlier death, resignation or removal.

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Section 5.               PLACE OF MEETINGS.  Meetings of the Board shall be held at the Corporation’s office in the State of Delaware or at such other place, within or without such State, as the Board may from time to time determine or as shall be specified or fixed in the notice or waiver of notice of any such meeting.

Section 6.               REGULAR MEETINGS.  Regular meetings of the Board shall be held on such days and at such times as the Board may from time to time determine.  Notice of regular meetings of the Board need not be given except as otherwise required by law or these Bylaws.

Section 7.               SPECIAL MEETINGS.  Special meetings of the Board may be called by the Chairman of the Board or the President and shall be called by the Secretary at the request of any two of the other Directors.

Section 8.               NOTICE OF MEETINGS.  Notice of each special meeting of the Board (and of each regular meeting for which notice shall be required), stating the time, place and purposes thereof, shall be mailed to each Director, addressed to him at his residence or usual place of business, or shall be sent to him by facsimile or electronic transmission (provided, with respect to electronic transmission, that the director has consented to receive the form of transmission at the address to which it is directed), or shall be given personally or by telephone, on twenty-four (24) hours notice, or such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances.  Notice of any such meeting need not be given to any Director, however, if waived by him before or after the other form of recorded communication, or if he shall be present at the meeting, except when he is present for the express purpose of objecting at the beginning of such meeting to the transaction of any business because the meeting is not lawfully called or convened.

Section 9.               QUORUM AND MANNER OF ACTING.  The presence of at least a majority of the authorized number of Directors shall be necessary and sufficient to constitute a quorum for the transaction of business at any meeting of the Board.  If a quorum shall not be present at any meeting of the Board, a majority of the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.  Except where a different vote is required by law, the act of a majority of the Directors present at any meeting at which a quorum shall be present shall be the act of the Board.

Section 10.             ACTION BY CONSENT; PARTICIPATION BY TELEPHONE OR SIMILAR EQUIPMENT.  Any action required or permitted to be taken by the Board may be taken without a meeting if all the Directors consent in writing to the adoption of a resolution authorizing the action, unless otherwise restricted by the Certificate of Incorporation or these Bylaws.  The resolution and the written consents thereto by the Directors shall be filed with the minutes of the proceedings of the Board.  Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any one or more Directors may participate in any meeting of the Board by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time.  Participation by such means shall constitute presence in person at a meeting of the Board.

Section 11.             RESIGNATION; REMOVAL.  Any Director may resign at any time by giving written notice to the Corporation, provided, however, that written notice to the Board, the Chairman of the Board, the President or the Secretary shall be deemed to constitute notice to the Corporation.  Such resignation shall take effect upon receipt of such notice or at any later time specified therein, and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective.

Any Director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of Directors; provided, however, that when the holders of any class or series are entitled by the Certificate of Incorporation to elect one (1) or more Directors, then, with respect to the removal without cause of a Director or Directors so elected, the required majority vote shall be of the holders of the outstanding shares of such class or series and not of the outstanding shares as a whole.

A Board member who ceases to be active in his or her principle business or profession, or experiences other change in circumstances that could diminish his or her effectiveness as a Board member, is expected to offer his or her resignation to the Board, which will determine whether such member should continue to serve as a director.

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Section 12.             COMPENSATION OF DIRECTORS.  The Board may, unless otherwise restricted by the Certificate of Incorporation or these Bylaws, provide for the payment to any of the Directors of a specified amount for services as a Director and/or member of a committee of the Board, or of a specified amount for attendance at each regular or special Board meeting or committee meeting, or of both, and all Directors shall be reimbursed for expenses of attendance at any such meeting; provided, however, that nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor.

ARTICLE IV
COMMITTEES OF THE BOARD

Section 1.               DESIGNATION, POWERS AND NAME.  The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, including, if they shall so determine, an Executive Committee, each such committee to consist of one or more of the directors of the Corporation.

Except to the extent restricted by law, the Certificate of Incorporation, or these Bylaws, each committee designated by the Board of Directors shall have and may exercise such of the powers of the Board in the management of the business and affairs of the Corporation as may be provided in such resolution or in these Bylaws; provided, however, that no such committee shall have the power or authority in reference to amending the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors pursuant to authority, if any, expressly vested in the Board by the provisions of the Certificate of Incorporation, (i) fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation, or (ii) fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation’s property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the Bylaws of the Corporation; and, provided further, that, unless the resolution establishing the committee, the Certificate of Incorporation or these Bylaws expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the DGCL.  The committee may authorize the seal of the Corporation to be affixed to all papers which may require it.  The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting.

Section 2.               MEETINGS; MINUTES.  Unless the Board of Directors shall otherwise provide, upon designation of any committee by the Board, such committee shall elect one of its members as chairman and may elect one of its members as vice chairman and shall adopt rules of proceeding providing for, among other things, the manner of calling committee meetings, giving notices thereof, quorum requirements for such meetings, and the methods of conducting the same.  Each committee of Directors shall keep regular minutes of its proceedings and report the same to the Board of Directors when required.

Section 3.               COMPENSATION.  Members of special or standing committees may be allowed compensation if the Board of Directors shall so determine pursuant to Section 12 of Article III of these Bylaws.

Section 4.               ACTION BY CONSENT; PARTICIPATION BY TELEPHONE OR SIMILAR EQUIPMENT.  Unless the Board of Directors, the Certificate of Incorporation or these Bylaws shall otherwise provide, any action required or permitted to be taken by any committee may be taken without a meeting if all members of the committee consent in writing to the adoption of a resolution authorizing the action.  The resolution and the written consents thereto by the members of the committee shall be filed with the minutes of the proceedings of the committee.  Unless the Board of Directors, the Certificate of Incorporation, or these Bylaws shall otherwise provide, any other or more members of any such committee may participate in any meeting of the committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.  Participation by such means shall constitute presence in person at a meeting of the committee.

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Section 5.               CHANGES IN COMMITTEES; RESIGNATIONS; REMOVALS.  The Board shall have power, by the affirmative vote of a majority of the authorized number of Directors, at any time to change the members of, to fill vacancies in, and to discharge any committee of the Board.  Any member of any such committee may resign at any time by giving notice to the Corporation, provided, however, that notice to the Board, the Chairman of the Board, the President, the chairman of such committee or the Secretary shall be deemed to constitute notice to the Corporation.  Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective.  Any member of any such committee may be removed at any time, with or without cause, by the affirmative vote of a majority of the authorized number of Directors at any meeting of the Board called for that purpose.

ARTICLE V
OFFICERS

Section 1.               OFFICERS.  The officers of the Corporation shall be a Chairman of the Board, a Chief Executive Officer, a President, a Chief Operating Officer, one or more Vice Presidents (any one or more of whom may be designated Executive Vice President or Senior Vice President), a Secretary and a Treasurer.  The Board of Directors may appoint such other officers and agents, including Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined by the Board.  Any two or more offices may be held by the same person.  The Chairman of the Board shall be elected from among the Directors.  With the foregoing exception, none of the other officers need be a Director, and none of the officers need be a stockholder of the Corporation unless otherwise required by the Certificate of Incorporation.

Section 2.               ELECTION AND TERM OF OFFICE.  The officers of the Corporation shall be elected annually by the Board of Directors at its first regular meeting held after the annual meeting of stockholders or as soon thereafter as conveniently practicable.  Each officer shall hold office until his successor shall have been elected or appointed and shall have been qualified or until his death or the effective date of his resignation or removal, or until he shall cease to be a Director in the case of the Chairman of the Board.

Section 3.               REMOVAL AND RESIGNATION.  Any officer or agent elected or appointed by the Board of Directors may be removed, with or without cause, by the affirmative vote of a majority of the Board of Directors whenever, in its judgment, the best interests of the Corporation shall be served thereby, but such removal shall be without prejudice to the contractual rights, if any, of the person so removed.  Election or appointment of an officer or agent shall not of itself create contract rights other than indemnification rights with respect to officers.  Any officer may resign at any time by giving written notice to the Corporation.  Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 4.               VACANCIES.  Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board of Directors and, in the case of any vacancy in an office other than the office of Chairman of the Board (if any) or President, by the President for the unexpired portion of the term.

Section 5.               SALARIES.  The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors or pursuant to its direction; and no officer shall be prevented from receiving such salary by reason of his also being a Director.

Section 6.               CHAIRMAN OF THE BOARD.  The Chairman of the Board (who may also hold the office of Chief Executive Officer or other offices) shall have such duties as the Board of Directors may prescribe.  The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors.  The Chairman of the Board may sign all certificates for shares of stock of the Corporation.  In the Chairman’s absence, such duties shall be attended to by the President or any Vice President.

Section 7.               CHIEF EXECUTIVE OFFICER.  Unless and to the extent that such powers and duties are expressly delegated to the Chairman of the Board or the President by the Board of Directors, the Chief Executive

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Officer shall be the Chief Executive Officer of the Corporation and, subject to the supervision of the Board of Directors, shall, together with the President, have general management and control of the business and property of the Corporation in the ordinary course of its business with all such powers with respect to such general management and control as may be reasonably incident to such responsibilities, including, but not limited to, the power to employ, discharge, or suspend employees and agents of the Corporation, and to fix the compensation of employees and agents.  The Chief Executive Officer may, without limitation, agree upon and execute all division and transfer orders, bonds, contracts, and other obligations in the name of the Corporation.

Section 8.               PRESIDENT AND CHIEF OPERATING OFFICER.  Unless and to the extent that such powers and duties are expressly delegated to the Chairman of the Board or the Chief Executive Officer by the Board of Directors, the President and Chief Operating Officer shall be an executive officer of the Corporation and, subject to the supervision of the Board of Directors, shall, together with the Chairman of the Board and the Chief Executive Officer have general management and control of the business and property of the Corporation in the ordinary course of its business with all such powers with respect to such general management and control as may be reasonably incident to such responsibilities, including, but not limited to, the power to employ, discharge, or suspend employees and agents of the Corporation, and to fix the compensation of employees and agents.  The President and Chief Operating Officer may, without limitation, agree upon and execute all division and transfer orders, bonds, contracts, and other obligations in the name of the Corporation.

Section 9.               VICE PRESIDENTS.  Each Vice President shall have such powers and duties as may be assigned to him by the Board of Directors, the Chairman of the Board, or the President and (in order of their seniority as determined by the Board of Directors or, in the absence of such determination, as determined by the length of time they have held the office of Vice President) shall exercise the powers of the President during that officer’s absence or inability to act.  As between the Corporation and third parties, any action taken by a Vice President in the performance of the duties of the President shall be conclusive evidence of the absence or inability to act of the President at the time such action was taken.

Section 10.             TREASURER.  The Treasurer shall have custody of the Corporation’s funds and securities, shall keep full and accurate account of receipts and disbursements, shall deposit all monies and valuable effects in the name and to the credit of the Corporation in such depository or depositories as may be designated by the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, or the President.

Section 11.             ASSISTANT TREASURER.  Each Assistant Treasurer shall have such powers and duties as may be assigned to him by the Board of Directors, the Chairman of the Board, or the President.  The Assistant Treasurers (in the order of their seniority as determined by the Board of Directors or, in the absence of such a determination, as determined by the length of time they have held the office of Assistant Treasurer) shall exercise the powers of the Treasurer during that officer’s absence or inability to act.

Section 12.             SECRETARY.  Except as otherwise provided in these Bylaws, the Secretary shall keep the minutes of all meetings of the Board of Directors and of the stockholders in books provided for that purpose, and he shall attend to the giving and service of all notices.  He may sign with the Chairman of the Board or the President, in the name of the Corporation, all contracts of the Corporation and affix the seal of the Corporation thereto.  He may sign with the Chairman of the Board or the President all certificates for shares of stock of the Corporation, and he shall have charge of the certificate books, transfer books, and stock papers as the Board of Directors may direct, all of which shall at all reasonable times be open to inspection by any director upon application at the office of the Corporation during business hours.  He shall in general perform all duties incident to the office of the Secretary, subject to the control of the Board of Directors, the Chairman of the Board, and the President.

Section 13.             ASSISTANT SECRETARIES.  Each Assistant Secretary shall have such powers and duties as may be assigned to him by the Board of Directors, the Chairman of the Board, or the President.  The Assistant Secretaries (in the order of their seniority as determined by the Board of Directors or, in the absence of such a determination, as determined by the length of time they have held the office of Assistant Secretary) shall exercise the powers of the Secretary during that officer’s absence or inability to act.

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ARTICLE VI
CONTRACTS, CHECKS, LOANS, DEPOSITS, ETC.

Section 1.               CONTRACTS.  The Board may authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation, to enter into any contract or to execute and deliver any instrument, which authorization may be general or confined to specific instances; and, unless so authorized by the Board, no agent or employee who is not an officer shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable pecuniarily for any purpose or for any amount.

Section 2.               CHECKS, ETC.  All checks, drafts, bills of exchange or other orders for the payment of money out of the funds of the Corporation, and all notes or other evidences of indebtedness of the Corporation, shall be signed in the name and on behalf of the Corporation in such manner as shall from time to time be authorized by the Board, which authorization may be general or confined to specific instances.

Section 3.               LOANS.  No loan shall be contracted on behalf of the Corporation, and no negotiable paper shall be issued in its name, unless authorized by the Board, which authorization may be general or confined to specific instances.  All bonds, debentures, notes and other obligations or evidences of indebtedness of the Corporation issued for such loans shall be made, executed and delivered as the Board shall authorize.

Section 4.               DEPOSITS.  All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositaries as may be selected by or in the manner designated by the Board.  The Board or its designees may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as may be deemed expedient.

ARTICLE VII
CAPITAL STOCK

Section 1.               STOCK CERTIFICATES.  Shares of capital stock of the Corporation may be certificated or uncertificated as determined by the Board.  In the event any shares are certificated, the certificates representing stock of the Corporation shall be in such form as shall be approved by the Board and shall be numbered and entered in the books of the Corporation as they are issued.  A certificate for shares of capital stock of the Corporation shall exhibit the holder’s name and number of shares and may be mechanically signed by (a) the Chairman of the Board or the President and (b) any of the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary (except that, when any such certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or any employee, the signatures of any such officers may be facsimiles, engraved or printed), which may be sealed with the seal of the Corporation (which seal may be a facsimile, engraved or printed), certifying the number of shares of capital stock of the Corporation owned by such stockholder.  In case any officer who has signed or whose facsimile signature has been placed upon any such certificate shall have ceased to be such officer before such certificate is issued, such certificate may be issued by the Corporation with the same effect as if he were such officer at the date of its issue.

If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof, and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of any certificate which the Corporation shall issue to represent such class or series of stock; provided that, except as otherwise stated in Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth on the face or back of any certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.  Within a reasonable time after the issuance or transfer of uncertificated stock, the Corporation shall send to the registered owner thereof (a) a written notice containing the information required to be set forth or stated on certificates pursuant to this paragraph or Sections 151, 156, 202(a) or 218(a) of the DGCL, or (b) with respect to this paragraph or Section 151 of the DGCL a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional

9

or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

Section 2.               LIST OF STOCKHOLDERS ENTITLED TO VOTE.  The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make or cause to have prepared or made, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder.  Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held.  The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present.

Section 3.               STOCK LEDGER.  The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 2 of this Article VII or the books and records of the Corporation, or to vote in person or by proxy at any meeting of stockholders.

Section 4.               TRANSFERS OF CAPITAL STOCK.  Shares of capital stock of the Corporation shall be transferable in the manner prescribed by applicable law and these Bylaws.  Transfers of shares of capital stock of the Corporation shall be made on the stock records of the Corporation, and in the case of certificated shares of stock, only by the person named in the certificate or by such person’s attorney lawfully constituted in writing and upon the surrender of the certificate therefor, properly endorsed for transfer or accompanied by a duly executed stock transfer power, and payment of all necessary transfer taxes; or, in the case of uncertificated shares of stock, upon receipt of proper transfer instructions from the registered holder of the shares or by such person’s attorney lawfully constituted in writing, and upon payment of all necessary transfer taxes and compliance with appropriate procedures for transferring shares in uncertificated form; provided, however, that such surrender and endorsement, compliance or payment of taxes shall not be required in any case in which the officers of the Corporation shall determine to waive such requirement.  With respect to certificated shares of stock, every certificate exchanged, returned or surrendered to the Corporation shall be marked “Canceled,” with the date of cancellation, by the Secretary or Assistant Secretary of the Corporation or the transfer agent thereof.  No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred.

Section 5.               LOST CERTIFICATES.  If the shares of capital stock of the Corporation have not become uncertificated, the Board may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed.  When authorizing such issue of a new certificate, the Board may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate.

Section 6.               FIXING OF RECORD DATE.  In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividends or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which record date shall (i) not precede the date upon which the resolution fixing the record date is adopted by the Board and (ii) not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action.  A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

Section 7.               BENEFICIAL OWNERS.  The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, and

10

shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.

ARTICLE VIII
DIVIDENDS

Section 1.               DECLARATION.  Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law.  Dividends may be paid in cash, in property or in shares of capital stock, subject to the provisions of the Certificate of Incorporation.

Section 2.               RESERVE.  Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the Corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created.

ARTICLE IX
INDEMNIFICATION

Section 1.               INDEMNIFICATION.  The Corporation shall indemnify to the full extent authorized or permitted by Section 145 of the DGCL any person (his heirs, executors and administrators) made, or threatened to be made, a party to any action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that he is or was a Director or officer of the Corporation or by reason of the fact that as such Director or officer at the request of the Corporation, is or was serving any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity.  The Corporation may indemnify to the full extent authorized or permitted by Section 145 of the DGCL any person (his heirs, executors and administrators) made, or threatened to be made, a party to any action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that he is or was an employee or agent of the Corporation or by reason of the fact that as such employee or agent, at the request of the Corporation, is or was serving any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity.  Nothing contained herein shall affect any rights to indemnification to which Directors, officers, employees and agents of the Corporation may be entitled by law.

Section 2.               ADVANCEMENT OF EXPENSES.  Expenses (including attorneys’ fees) incurred by an officer or Director of the Corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors upon receipt of an undertaking by or on behalf of such Director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article IX.  Such expenses incurred by employees and agents of the Corporation other than Directors and officers may be paid upon such terms and conditions, if any, as the Board of Directors deems appropriate.

Section 3.               NON-EXCLUSIVITY.  The indemnification and advancement of expenses provided for hereby shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested Directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.

Section 4.               INSURANCE.  The Corporation may purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article IX.

11

Section 5.               CONTINUITY.  The indemnification and advancement of expenses provided for in this Article IX shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a Director, officer, employee or agent of the Corporation and shall inure to the benefit of the heirs, executors and administrators of such a person.

ARTICLE X
SEAL

The seal of the Corporation shall be such as from time to time may be approved by the Board of Directors.

ARTICLE XI
WAIVER OF NOTICE

Whenever any notice is required by law, the Certificate of Incorporation or these Bylaws to be given to any Director, member of a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.  Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, Directors, or members of a committee of Directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws.

ARTICLE XII
AMENDMENTS

Subject to the Certificate of Incorporation and applicable law, these Bylaws or any of them may be amended or supplemented in any respect at any time, either (a) at any meeting of stockholders, provided that any amendment or supplement proposed to be acted upon at any such meeting shall have been described or referred to in the notice of such meeting, or (b) at any meeting of the Board, provided that any amendment or supplement proposed to be acted upon at any such meeting shall have been described or referred to in the notice of such meeting or an announcement with respect thereto shall have been made at the last previous Board meeting, and provided further that no amendment or supplement adopted by the Board shall vary or conflict with any amendment or supplement adopted by the stockholders.

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Michael E. McGrath, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Thomas Group, Inc.;

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(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) 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

(d) 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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(s) 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: August 12, 2011	/s/ Michael E. McGrath
	Michael E. McGrath
	Executive Chairman, President and CEO

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Frank W. Tilley, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Thomas Group, Inc.;

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(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) 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

(d) 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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(s) 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: August 12, 2011	/s/ Frank W. Tilley
	Frank W. Tilley
	Chief Financial Officer and Vice President
	Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Thomas Group, Inc. (the “Company”) for the three month period ending June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the date indicated below, certifies that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael E. McGrath

Michael E. McGrath

Executive Chairman, President and CEO

August 12, 2011

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Thomas Group, Inc. (the “Company”) for the three month period ending June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the date indicated below, certifies that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Frank W. Tilley

Frank W. Tilley

Chief Financial Officer and Vice President

Principal Financial Officer

August 12, 2011

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Consulting revenue before reimbursements	$ 594	$ 873	$ 1,325	$ 2,393
Reimbursements	57	121	87	252
Total revenue	651	994	1,412	2,645
Cost of sales before reimbursable expenses	384	704	803	1,719
Reimbursable expenses	57	121	87	252
Total cost of sales	441	825	890	1,971
Gross profit	210	169	522	674
Selling, general and administrative	988	1,615	2,129	3,592
Operating loss	(778)	(1,446)	(1,607)	(2,918)
Interest income, net of expense	(1)	(1)	(1)	(2)
Other income	20	18	179	180
Loss from operations before income taxes	(759)	(1,429)	(1,429)	(2,740)
Income tax (expense) benefit	(7)	(17)	(25)	(1,612)
Net loss	$ (766)	$ (1,446)	$ (1,454)	$ (4,352)
Loss per share:
Basic: (in dollars per share)	$ (0.34)	$ (0.68)	$ (0.66)	$ (2.07)
Diluted: (in dollars per share)	$ (0.34)	$ (0.68)	$ (0.66)	$ (2.07)
Weighted average shares:
Basic (in shares)	2,227	2,122	2,219	2,107
Diluted (in shares)	2,227	2,122	2,219	2,107

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Cash Flows from Operating Activities:
Net loss	$ (1,454)	$ (4,352)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation	117	132
Foreign currency translation loss	(3)	9
Stock based compensation expense	22	298
Bad debt recovery		(5)
Deferred taxes		1,582
Other		35
Change in operating assets and liabilities:
(Increase) decrease in trade accounts receivable	(171)	230
(Increase) decrease in unbilled receivables	(1)	289
Decrease in income tax receivable	9	2,477
Decrease in other assets	107	82
Decrease in accounts payable and accrued liabilities	(263)	(478)
Decrease in note payable	(29)	(98)
Decrease in other liabilities	(25)	(34)
Increase in income taxes payable	6	2
Net cash provided by (used in) operating activities	(1,685)	169
Cash Flows From Financing Activities:
Purchase of stock		(18)
Net cash used in financing activities		(18)
Effect of exchange rate changes on cash	3	(35)
Net change in cash	(1,682)	116
Cash and cash equivalents
Beginning of period	3,032	5,004
End of period	$ 1,350	$ 5,120

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Current Assets
Cash and cash equivalents	$ 1,350	$ 3,032
Trade accounts receivable, net of allowance of $42, each period	408	237
Unbilled receivables	58	57
Income tax receivable	99	108
Other current assets	211	287
Total Current Assets	2,126	3,721
Property and equipment, net of accumulated depreciation of $2,486 and $2,369 at June 30, 2011 and December 31, 2010, respectively	242	359
Other assets		31
TOTAL ASSETS	2,368	4,111
Current Liabilities
Accounts payable and accrued liabilities	218	272
Accrued wages and benefits	230	439
Income taxes payable	25	19
Note payable	10	39
Total Current Liabilities	483	769
Other long-term obligations		25
Total Liabilities	483	794
Commitments - Note 16
Stockholders' Equity
Common stock, $.01 par value; 25,000,000 shares authorized; 2,768,708 and 2,768,708 shares issued and 2,226,553 and 2,211,553 shares outstanding at June 30, 2011 and December 31, 2010, respectively	27	27
Additional paid-in capital	26,605	27,109
Accumulated deficit	(5,707)	(4,252)
Treasury stock, 542,155 and 557,155 shares at June 30, 2011 and December 31, 2010, respectively, at cost	(19,040)	(19,567)
Total Stockholders' Equity	1,885	3,317
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 2,368	$ 4,111

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Supplemental Disclosure of Cash Flow Information

6 Months Ended

Jun. 30, 2011

Supplemental Disclosure of Cash Flow Information

Supplemental Disclosure of Cash Flow Information

8. Supplemental Disclosure of Cash Flow Information

	Six Months Ended June 30,
	2011		2010
	In thousands
Interest paid	$	1	$	2
Taxes paid	$	19	$	8

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Financing Agreement

6 Months Ended

Jun. 30, 2011

Financing Agreement

Financing Agreement

13. Financing Agreement— As of June 30, 2011, we had a note payable of approximately $10,000 for insurance premiums for 2011.

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Earnings Per Share

6 Months Ended

Jun. 30, 2011

Earnings Per Share

Earnings Per Share

4. Earnings Per Share— Basic loss per share is based on the number of weighted average shares outstanding. Diluted loss per share includes the effect of dilutive securities such as stock options, stock warrants, and restricted stock awards expected to vest. The following table reconciles basic loss per share to diluted loss per share under the provisions of ASC 260, Earnings Per Share.

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	In thousands, except per share data						In thousands, except per share data
Numerator:
Net loss	$	(766	)	$	(1,464	)	$	(1,454	)	$	(4,352	)
Denominator:
Weighted average shares outstanding:
Basic	2,227			2,122			2,219			2,107
Effect of dilutive securities:
Common stock options	—			—			—			—
Restricted stock awards expected to vest	—			—			—			—
Diluted	2,227			2,122			2,219			2,107
Loss per share:
Basic	$	(0.34	)	$	(0.68	)	$	(0.66	)	$	(2.07	)
Diluted	$	(0.34	)	$	(0.68	)	$	(0.66	)	$	(2.07	)

Diluted loss per share is the same as basic loss per share for the three month and six month periods ended June 30, 2011 because the effect of outstanding options and unvested restricted stock during the periods would have been antidilutive due to the net loss.

There were no stock options and unvested restricted stock awards outstanding that are not included in the diluted loss per share computation due to the antidilutive effects for the three month period ended June 30, 2011, and 60,110 for the three month period ended June 30, 2010. There were no stock options and unvested restricted stock awards outstanding that are not included in the diluted loss per share computation due to the antidilutive effects for the six month period ended June 30, 2011, and 60,110 for the six month period ended June 30, 2010. As of June 30, 2011 there were no stock options or restricted stock awards outstanding.

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Property and Equipment

6 Months Ended

Jun. 30, 2011

Property and Equipment

Property and Equipment

10. Property and Equipment

	June 30, 2011			December 31, 2010
	In thousands of dollars
Equipment	$	864		$	864
Furniture and fixtures	541			541
Leasehold improvements	990			990
Computer software	333			333
	2,728			2,728
Less accumulated depreciation and amortization	(2,486		)	(2,369		)
	$	242		$	359

There were no investments in property and equipment during the six month period ended June 30, 2011.

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Related Party Transactions

6 Months Ended

Jun. 30, 2011

Related Party Transactions

Related Party Transactions

15.Related Party Transactions— The Third Amendment to Michael McGrath’s employment contract which was effective March 1, 2011 provides that, in addition to his salary for the portion of his time devoted to his roles of Executive Chairman, President and Chief Executive Officer, he is to receive 50% of the revenue attributable to any time he personally spends providing consulting services to our clients. The Third Amendment provides that payments for these consulting services by Mr. McGrath are to be paid to Decisions Decisions, L.L.C., an entity which is owned by Mr. McGrath. For the quarter ended June 30, 2011, this expense  totaled $51,000, and for the six months ended June 30, 2011, this expense totaled $65,000.

This payment was in addition to the salary paid to Mr. McGrath for the portion of his time devoted to his roles of Executive Chairman, President and Chief Executive Officer.

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Stockholders' Equity

6 Months Ended

Jun. 30, 2011

Stockholders' Equity

Stockholders' Equity

11.Stockholders’ Equity

On March 15, 2011, an award entitling Michael E. McGrath, our Executive Chairman, President and Chief Executive Officer, to receive up to an aggregate of 60,000 shares of restricted stock was granted to Mr. McGrath with vesting of 15,000 shares at the end of each calendar quarter, contingent upon his being employed by us at the end of such calendar quarter. On March 31, 2011, the first 15,000 shares vested and were issued to Mr. McGrath. Although Mr. McGrath continues to be employed by us as of this date, on June 9, 2011, the Compensation and Corporate Governance Committee of our Board of Directors and Mr. McGrath mutually agreed to cancel the restricted share award. Mr. McGrath will not receive the remaining 45,000 restricted shares.

Options

A summary of the status of our stock options issued to employees for the six month period ended June 30, 2011 is presented below. As of June 30, 2011, there were no unvested stock options or remaining stock-based compensation costs related to outstanding stock options.

Common Option Shares	Shares		Weighted Average Exercise Price
Outstanding at January 1, 2011	110		$	14.19
Granted	—		—
Exercised	—		—
Expired	(110	)	$	14.19
Outstanding at June 30, 2011	—		$	—
Options exercisable at June 30, 2011	—		$	—
Weighted average life of outstanding options (years)			—

Restricted Stock

A summary of the restricted stock award activity for the six month period ended June 30, 2011 is presented below.

Restricted Stock	Shares
Outstanding award grants at January 1, 2011 (1)	—
Awards granted (2)	60,000
Awards cancelled	(45,000	)
Vested (1)	(15,000	)
Outstanding grants at June 30, 2011	—
Authorized awards to be granted in future years	—
Authorized awards at June 30, 2011 (2)	—

(1) Authorized awards are future rights to shares, usually subject to conditions. Grants are authorized awards for which there is a mutual understanding of the key terms and conditions applicable to the award. Vested shares are shares on which all restrictions have lapsed under the terms of the award and that have been issued to the holder and constitute outstanding common stock. A holder of vested shares has all rights, powers and privileges of a holder of unrestricted shares of our common stock.

(2) An authorized award of 60,000 shares consisting of fully restricted shares was approved and granted to Mr. McGrath on March 15, 2011. Of the 60,000 shares, 15,000 shares vested and were issued to Mr. McGrath on March 31, 2011. On June 9, 2011, the Compensation and Corporate Governance Committee of our Board of Directors and Mr. McGrath mutually agreed to cancel the award, and Mr. McGrath will not receive the remaining 45,000 restricted shares.

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Geographical Data

6 Months Ended

Jun. 30, 2011

Geographical Data

Geographical Data

9. Geographical Data—We provide services within one industry segment and conduct our business primarily in North America and Europe with only occasional activities elsewhere. Information regarding these areas follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011		2010
	In thousands					In thousands
Revenue:
North America	$	590	$	994		$	1,351	$	2,313
Europe	61		—			61		332
Total revenue	$	651	$	994		$	1,412	$	2,645
Gross profit:
North America	$	198	$	170		$	510	$	572
Europe	12		(1		)	12		102
Total gross profit	$	210	$	169		$	522	$	674

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Liquidity

6 Months Ended

Jun. 30, 2011

Liquidity

Liquidity

2. Liquidity— Our cash balance was $1.35 million at June 30, 2011. Our available liquidity is limited to our existing working capital and cash flow that we will be able to generate from operations in the balance of 2011. While we continue to believe we have opportunities for new business in the near term, we may not have sufficient liquidity to sustain our operations through June 30, 2012. If we fail to meet our revenue expectations in our forecast for the balance of 2011 and beyond, it is probable that our independent registered public accounting firm will include an explanatory paragraph with respect to our ability to continue as a going concern in its report on our financial statements for the year ending December 31, 2011. These factors may make it more difficult for us to sign new contracts with clients and to obtain necessary capital or credit, and may have other effects that further adversely affect our ability to return to profitability.

If we fail to meet our revenue expectations in our forecast for the balance of calendar year 2011 or we are unable to control our expenses as planned, we could be required to seek other sources of liquidity during 2011 or seek or implement alternative strategies, which may include selling or liquidating assets, ceasing operations or, if appropriate, filing for bankruptcy. We are very carefully monitoring our forecasts for new business and our liquidity, and our Board of Directors has discussed and will continue to evaluate our options in light of our current cash position in order to satisfy our debts and maximize value for our stockholders. There can be no assurance that existing cash will be sufficient, that we will have access to the capital or credit markets if needed or that any of our strategies can be implemented on satisfactory terms, on a timely basis or at all to provide additional liquidity or maintain our current position.

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Options and Restricted Stock Awards

6 Months Ended

Jun. 30, 2011

Options and Restricted Stock Awards

Options and Restricted Stock Awards

5. Options and Restricted Stock Awards— On June 9, 2011, the Compensation and Corporate Governance Committee of our Board of Directors and Michael E. McGrath, our Executive Chairman, President and Chief Executive Officer, mutually agreed to cancel the restricted share award previously granted to Mr. McGrath on March 15, 2011. Under the award, Mr. McGrath was eligible to receive up to 60,000 restricted shares of our common stock, vesting in installments of 15,000 shares at the end of each calendar quarter of 2011 if he was employed by us on the last day of the quarter. Mr. McGrath previously received 15,000 shares pursuant to the award on March 31, 2011. Although Mr. McGrath continues to be employed by the Company, as a result of the cancellation of the award, Mr. McGrath will not receive the remaining 45,000 shares.

On June 9, 2011, we terminated the 2008 Omnibus Stock and Incentive Plan for Thomas Group, Inc. and the 2005 Omnibus Stock & Incentive Plan for Thomas Group, Inc., and we filed post-effective amendments to each of our outstanding registration statements on Form S-8 to deregister remaining but unsold shares of common stock under the compensation plans to which those registration statements relate.

As of  June 30, 2011, all existing options had expired and there were no options to purchase  shares of our common stock outstanding.

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Significant Clients

6 Months Ended

Jun. 30, 2011

Significant Clients

Significant Clients

6. Significant Clients— We had three clients who each accounted for more than 10% of our revenue in the three month period ended June 30, 2011. Five other clients each accounted for more than 10% of our revenue in the three month periods ended June 30, 2010. We had three clients who each accounted for more than 10% of our revenue in the six month period ended June 30, 2011. Three other clients each accounted for more than 10% of our revenue in the six month period ended June 30, 2010.

	Three Months Ended June 30,			Six Months Ended June 30,
	2011		2010	2011		2010
	Revenue ($ in thousands)			Revenue ($ in thousands)
Client A	$	268	—	$	503	—
Client B	$	153	—	$	311	—
Client C	$	111	—	$	111	—
Client D	$	—	51	$	359	203
Client E	$	—	264	$	—	292
Client F	$	—	210	$	—	671
Client G	$	—	155	$	—	155
Client H	$	—	104	$	—	199
Client I	$	—	100	$	—	100
Client J	$	—	—	$	—	332

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
	% of revenue				% of revenue
Client A	41	%	—		36	%	—
Client B	24	%	—		22	%	—
Client C	17	%	—		8	%	—
Client D	—		5	%	25	%	8	%
Client E	—		27	%	—		11	%
Client F	—		21	%	—		25	%
Client G	—		16	%	—		6	%
Client H	6	%	10	%	3	%	8	%
Client I	—		10	%	—		4	%
Client J	—		—		—		13	%

There were no other clients from whom revenue exceeded 10% of total revenue in the three and six month periods ended June 30, 2011 and 2010, respectively.

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Recently Issued Accounting Pronouncements

6 Months Ended

Jun. 30, 2011

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

14. Recently Issued Accounting Pronouncements— None.

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Concentration of Credit Risk

6 Months Ended

Jun. 30, 2011

Concentration of Credit Risk

Concentration of Credit Risk

7. Concentration of Credit Risk— Financial instruments that potentially subject us to concentrations of credit risk consist primarily of trade receivables. We encounter a certain amount of credit risk as a result of a concentration of receivables among a few significant customers. The trade receivables (in dollars and as a percentage of accounts receivable) from such significant customers are set forth below:

	June 30, 2011				December 31, 2010
	$ thousands		% of AR		$ thousands		% of AR
Client A	$	179	40	%	$	—	0	%
Client B	$	111	25	%	$	—	0	%
Client C	$	42	9	%	$	130	47	%
Client D	$	—	0	%	$	141	51	%

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Other Income

6 Months Ended

Jun. 30, 2011

Other Income

Other Income

17. Other Income— Other income for the first half of 2011 of approximately $179,000 primarily resulting from  insurance reimbursements and the reversal of the prior accrual related to the lawsuit with Earle Steinberg, our former President and CEO. The lawsuit was settled in March 2011 for a total cost to us of approximately $110,000. The final settlement was paid in March  2011.  Other income also included rental income from subleased office space.

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Basis of Presentation

6 Months Ended

Jun. 30, 2011

Basis of Presentation

Basis of Presentation

1. Basis of Presentation—The unaudited condensed consolidated financial statements of Thomas Group, Inc. (the “Company” or “we”) include all adjustments, which include only normal recurring adjustments, which are, in the opinion of management, necessary to present fairly our results of operations for the interim periods presented. The unaudited financial statements should be read in conjunction with the consolidated financial statements and notes thereto in our Form 10-K for the 2010 fiscal year, filed with the Securities and Exchange Commission. The results of operations for the three and six month periods ended June 30, 2011 are not necessarily indicative of the results of operations for the entire year ending December 31, 2011.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2011	Aug. 11, 2011
Document and Entity Information
Entity Registrant Name	THOMAS GROUP INC
Entity Central Index Key	0000900017
Document Type	10-Q
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		2,226,553
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2

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Reverse Stock Split and Voluntary Delisting from Nasdaq

6 Months Ended

Jun. 30, 2011

Reverse Stock Split and Voluntary Delisting from Nasdaq

Reverse Stock Split and Voluntary Delisting from Nasdaq

3. Reverse Stock Split and Voluntary Delisting from Nasdaq— Our Board of Directors and stockholders approved a 1-for-5 reverse split of our outstanding common stock that became effective at 6:01 pm ET, August 13, 2010. The new shares began trading on The Nasdaq Capital Market on August 16, 2010. As a result of the reverse stock split, every five shares of our issued and outstanding common stock, all treasury shares, and all unawarded or unvested shares under our approved stock plans were combined into one share. The reverse stock split did not change the number of authorized shares or par value of our common stock. All share and per share amounts have been adjusted to reflect the stock split for all periods presented.

To reduce reporting and other costs as well as the administrative burdens of our Nasdaq listing, we voluntarily delisted our common stock from The Nasdaq Capital Market effective June 16, 2011. Since that date our common stock has been quoted under the symbol “TGIS” on the OTC Pink tier operated by OTC Markets Group, a centralized electronic quotation service for over-the-counter securities.

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Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes

Income Taxes

12. Income Taxes— We follow ASC 740, Income Taxes, which requires use of the asset and liability method of accounting for deferred income taxes and providing deferred income taxes for all significant temporary differences and ASC 740-10-25, Income Taxes — Recognition, which prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return.

Income tax expense of $0.03 million for the six month period ended June 30, 2011 reflected an effective tax rate of 2%, compared to income tax expense of $1.6 million, or an effective tax rate of 59%, for the six month period ended June 30, 2010.

In the first quarter of 2010, our cumulative losses began to exceed our cumulative earnings. Additionally, we are not currently profitable and we determined that as of March 31, 2010 it was no longer probable that we will recover our deferred tax asset. Thus, we established a valuation allowance to completely offset the deferred tax asset. The combined tax effect was to cause a deferred income tax expense for the first quarter of 2010 of $1.6 million. If we are able to return to sustained profitability, and when we can comply with all the requirements of ASC 740-10-25, we should be able to recover all or part of our deferred tax asset.

We had approximately $25,000 in state taxes payable at June 30, 2011.

During the second quarter of 2011, we received notice from the Internal Revenue Service (“IRS”) that it will audit our corporate tax returns for the year ending December 31, 2009. In response to a request from the IRS, in conjunction with this audit of our 2009 tax returns, we agreed to extend the deadline for assessments related to our tax returns for the year ending December 31, 2007. We do not anticipate any material impact on our financial statements as a result of this audit process.

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Commitments

6 Months Ended

Jun. 30, 2011

Commitments

Commitments

16. Commitments— On March 3, 2011, the Compensation and Corporate Governance Committee of our Board of Directors adopted a retention pay program for certain of our officers and employees in order to help preserve the continuity of our operations and management. Under the retention pay program, each eligible employee will be entitled to receive a lump sum payment if we terminate his or her employment for any reason other than cause. The amount of the lump sum payment payable to an employee under the retention pay program will be based on the employee’s role and other facts, but it will not exceed an amount equal to six months of his or her annual base salary or annual minimum compensation (as applicable), at the time of termination. The payment will be in lieu of any cash severance payments otherwise payable under any other arrangement with the employee during the period of the retention pay program.

The retention pay program remains in effect through the end of 2012. At that time the program will expire and no payments under this program will be payable for any officer or employee whose employment is terminated after that date. As of June 30, 2011, the maximum payments under the retention pay program are approximately $526,000.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data	Jun. 30, 2011	Dec. 31, 2010
CONDENSED CONSOLIDATED BALANCE SHEETS
Trade accounts receivable, allowance (in dollars)	$ 42	$ 42
Property and equipment, accumulated depreciation (in dollars)	$ 2,486	$ 2,369
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	25,000,000	25,000,000
Common stock, shares issued	2,768,708	2,768,708
Common stock, shares outstanding	2,226,553	2,211,553
Treasury stock, shares	542,155	557,155