##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 Commission file number 019433
 
 Technology Solutions Company
 Incorporated in the State of Delaware  I.R.S. Employer Identification No. 36-3584201
 55 East Monroe
Suite 2600
Chicago, Illinois 60603
(312) 228-4500
 205 North Michigan Avenue
Suite 1500
Chicago, Illinois 60601
(Former address)
 Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period
that the registrant was required to file such reports), and (2) has been subject to such
filing requirements
for the past 90 days. Yes
þ   No o
 Indicate by check mark whether the registrant is a large accelerated filer , an accelerated
filer, or a
non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the
Exchange Act. (Check one):
 Large accelerated Filer o      Accelerated Filer o      Non-accelerated Filer þ
 Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of
the
Exchange Act)
 Yes o   No þ
 As of August 4, 2006 there were outstanding 2,507,375 shares of TSC Common Stock, par value
$.01.




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##### 



TECHNOLOGY SOLUTIONS COMPANY  Index to Form 10-Q
 PageNumberPart IFINANCIAL INFORMATION (UNAUDITED)ITEM 1. FINANCIAL STATEMENTSConsolidated Balance Sheets as of
June 30, 2006 and December 31, 2005
    
    3Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2006 and 2005
    
    4Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2006 and 2005
    
    5Notes to Consolidated Financial Statements
    
    6ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    15ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
    
    27ITEM 4. CONTROLS AND PROCEDURES
    
    27Part IIOTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    28ITEM 1A. RISK FACTORS
    
    28ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
    
    28ITEM 5. OTHER INFORMATION
    
    29ITEM 6. EXHIBITS
    
    29SIGNATURE
    
    30
 Page 2




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##### 



PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 TECHNOLOGY SOLUTIONS COMPANY
 
 CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    13,133
    
    
    $
    20,135Receivables, less allowance for doubtful receivables
of $66
    
    
    10,851
    
    
    
    7,158Other current assets
    
    
    1,098
    
    
    
    582Total current assets
    
    
    25,082
    
    
    
    27,875COMPUTERS, FURNITURE AND EQUIPMENT, NET
    
    
    373
    
    
    
    390GOODWILL
    
    
    2,913
    
    
    
    INTANGIBLE ASSETS, NET
    
    
    1,708
    
    
    
    979LONG-TERM RECEIVABLES AND OTHER
    
    
    3,555
    
    
    
    3,555Total assets
    
    $
    33,631
    
    
    $
    32,799LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    1,037
    
    
    $
    600Accrued compensation and related costs
    
    
    4,101
    
    
    
    3,420Restructuring accruals
    
    
    637
    
    
    
    1,429Other current liabilities
    
    
    2,732
    
    
    
    2,702Total current liabilities
    
    
    8,507
    
    
    
    8,151COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock, $.01 par value; shares authorized 
10,000,000; none issued
    
    
    
    
    
    
    Common stock, $.01 par value; shares authorized 
20,000,000; shares issued  2,677,452 and 2,526,427;
shares outstanding 2,507,375 and 2,356,350
    
    
    27
    
    
    
    25Capital in excess of par value
    
    
    129,607
    
    
    
    127,889Accumulated deficit
    
    
    (99,907
    )
    
    
    (98,687
    )Treasury stock, at cost, 170,077 shares
    
    
    (4,819
    )
    
    
    (4,819
    )Accumulated other comprehensive income:Cumulative translation adjustment
    
    
    216
    
    
    
    240Total stockholders equity
    
    
    25,124
    
    
    
    24,648Total liabilities and stockholders equity
    
    $
    33,631
    
    
    $
    32,799
  Page 3




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three
    
    
    For the SixMonths Ended
    
    
    Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(unaudited)
    
    
    (unaudited)REVENUES:Revenues before reimbursements
    
    $
    11,492
    
    
    $
    9,166
    
    
    $
    20,918
    
    
    $
    18,994Reimbursements
    
    
    1,495
    
    
    
    1,309
    
    
    
    2,742
    
    
    
    2,54912,987
    
    
    
    10,475
    
    
    
    23,660
    
    
    
    21,543COSTS AND EXPENSES:Project personnel
    
    
    6,436
    
    
    
    6,195
    
    
    
    11,404
    
    
    
    13,029Other project expenses
    
    
    2,493
    
    
    
    1,926
    
    
    
    4,508
    
    
    
    4,397Reimbursable expenses
    
    
    1,495
    
    
    
    1,309
    
    
    
    2,742
    
    
    
    2,549Cost of services
    
    
    10,424
    
    
    
    9,430
    
    
    
    18,654
    
    
    
    19,975Bad debt expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Management and administrative support
    
    
    3,308
    
    
    
    3,953
    
    
    
    6,125
    
    
    
    8,594Intangible asset amortization
    
    
    265
    
    
    
    256
    
    
    
    476
    
    
    
    512Goodwill and intangible asset impairment
    
    
    
    
    
    
    679
    
    
    
    
    
    
    
    679Restructuring and other charges
    
    
    
    
    
    
    1,674
    
    
    
    
    
    
    
    1,674Gain on litigation settlement
    
    
    
    
    
    
    (2,722
    )
    
    
    
    
    
    
    (2,722
    )13,997
    
    
    
    13,270
    
    
    
    25,255
    
    
    
    28,712OPERATING LOSS
    
    
    (1,010
    )
    
    
    (2,795
    )
    
    
    (1,595
    )
    
    
    (7,169
    )OTHER INCOME:Net investment income
    
    
    97
    
    
    
    173
    
    
    
    375
    
    
    
    360LOSS BEFORE INCOME TAXES
    
    
    (913
    )
    
    
    (2,622
    )
    
    
    (1,220
    )
    
    
    (6,809
    )INCOME TAX PROVISION
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (913
    )
    
    $
    (2,622
    )
    
    $
    (1,220
    )
    
    $
    (6,809
    )BASIC NET LOSS
PER COMMON SHARE
    
    $
    (0.36
    )
    
    $
    (1.12
    )
    
    $
    (0.50
    )
    
    $
    (2.90
    )WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
    
    
    2,507
    
    
    
    2,347
    
    
    
    2,446
    
    
    
    2,345DILUTED NET LOSS
PER COMMON SHARE
    
    $
    (0.36
    )
    
    $
    (1.12
    )
    
    $
    (0.50
    )
    
    $
    (2.90
    )WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING
    
    
    2,507
    
    
    
    2,347
    
    
    
    2,446
    
    
    
    2,345
  Page 4




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For theSix Months EndedJune 30,2006
    
    
    2005(unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (1,220
    )
    
    $
    (6,809
    )Restructuring and other charges
    
    
    
    
    
    
    1,674Goodwill and intangible asset impairment
    
    
    
    
    
    
    679Adjustments to reconcile net loss to net
cash from operating activities:Depreciation and amortization
    
    
    538
    
    
    
    754Non-cash stock compensation
    
    
    320
    
    
    
    89Changes in assets and liabilities:Receivables
    
    
    (3,693
    )
    
    
    (817
    )Other current assets
    
    
    (517
    )
    
    
    (607
    )Accounts payable
    
    
    445
    
    
    
    (86
    )Accrued compensation and related costs
    
    
    686
    
    
    
    (1,269
    )Restructuring accruals
    
    
    (792
    )
    
    
    (1,043
    )Other current liabilities
    
    
    70
    
    
    
    (1,339
    )Other assets
    
    
    2
    
    
    
    2,046Net cash used in operating activities
    
    
    (4,161
    )
    
    
    (6,728
    )CASH FLOWS FROM INVESTING ACTIVITIES:Net assets of acquired businesses, net of cash
    
    
    (2,734
    )
    
    
    Capital expenditures
    
    
    (29
    )
    
    
    Net cash used in investing activities
    
    
    (2,763
    )
    
    
    CASH FLOWS FROM FINANCING ACTIVITIES:Line of credit
    
    
    
    
    
    
    (649
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    9Proceeds from employee stock purchase plan
    
    
    
    
    
    
    101Net cash used in financing activities
    
    
    
    
    
    
    (539
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS
    
    
    (78
    )
    
    
    (51
    )DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (7,002
    )
    
    
    (7,318
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    20,135
    
    
    
    30,032CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    13,133
    
    
    $
    22,714SUPPLEMENTAL DISCLOSURES:Noncash investing activities:Common stock issued for acquisition activity
    
    $
    1,400
    
    
    $
    
  Page 5




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
 NOTE 1  BASIS OF PRESENTATION
   NOTE 2  THE COMPANY
  NOTE 3  NEW ACCOUNTING STANDARDS
  Page 6




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
(Continued)
 NOTE 4  BUSINESS COMBINATIONS
   Computers, furniture and equipment
    
    $
    17Intangible assets
    
    
    1,204Goodwill
    
    
    2,913Total asset acquired
    
    
    4,134Lease termination
    
    
    (334
    )Accrued liabilities
    
    
    (1,000
    )Total liabilities assumed
    
    
    (1,334
    )Net assets acquired
    
    $
    2,800
  Page 7




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
(Continued)
 NOTE 5  STOCK-BASED COMPENSATION
 Share-Based Payment Accounting for
Stock Based Compensation Accounting for Stock Issued to Employees
   Page 8




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
(Continued)
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Actual
    
    
    Pro-Forma
    
    
    Actual
    
    
    Pro-FormaNet loss:As reported
    
    $
    (913
    )
    
    $
    (2,622
    )
    
    $
    (1,220
    )
    
    $
    (6,809
    )Add: Employee stock-based compensation
expense included in reported net loss
    
    
    262
    
    
    
    89
    
    
    
    320
    
    
    
    89Less: Employee stock-based compensation
expense under SFAS 123R/SAFS 123
    
    
    (262
    )
    
    
    (221
    )
    
    
    (320
    )
    
    
    (593
    )Pro forma
    
    $
    (913
    )
    
    $
    (2,754
    )
    
    $
    (1,220
    )
    
    $
    (7,313
    )Basic net loss per common share:As reported
    
    $
    (0.36
    )
    
    $
    (1.12
    )
    
    $
    (0.50
    )
    
    $
    (2.90
    )Pro forma
    
    
    
    
    
    $
    (1.17
    )
    
    
    
    
    
    $
    (3.12
    )Diluted net loss per common share:As reported
    
    $
    (0.36
    )
    
    $
    (1.12
    )
    
    $
    (0.50
    )
    
    $
    (2.90
    )Pro forma
    
    
    
    
    
    $
    (1.17
    )
    
    
    
    
    
    $
    (3.12
    )
  For the Three Months
    
    For the Six MonthsEnded June 30,
    
    Ended June 30,2006
    
    2005
    
    2006
    
    2005Expected volatility
    
    
    65.2
    %
    
    
    
    
    
    
    65.2
    %
    
    
    88.4
    %Risk-free interest rates
    
    
    4.89
    %
    
    
    
    
    
    
    4.89
    %
    
    
    3.7
    %Expected lives
    
    4.5 years
    
    
    
    
    
    4.5 years
    
    4.5 yearsWeighted average grant date fair value
    
    $
    5.39
    
    
    
    
    
    
    $
    5.39
    
    
    $
    14.94
  Page 9




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
(Continued)
    Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicExercise
    
    
    Contractual
    
    
    ValueShares
    
    
    Prices
    
    
    Life
    
    
    (000)Outstanding at December 31, 2005
    
    
    387,380
    
    
    $
    25.68
    
    
    8 yearsGranted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (37,763
    )
    
    $
    22.41
    
    
    8 yearsOutstanding at March 31, 2006
    
    
    349,617
    
    
    $
    26.03
    
    
    7 years
    
    $
    9,102Granted  under 1996 Plan
    
    
    50,000
    
    
    $
    10.87
    
    
    10 yearsGranted  Inducement Options
    
    
    170,000
    
    
    $
    9.19
    
    
    10 yearsExercised
    
    
    
    
    
    
    Forfeited
    
    
    (20,141
    )
    
    $
    23.55
    
    
    7 yearsOutstanding at June 30, 2006
    
    
    549,476
    
    
    $
    19.53
    
    
    8 years
    
    $
    10,733Vested at end of period
    
    
    329,476
    
    
    $
    26.19
    
    
    7 years
    
    $
    8,627Exercisable at end of period
    
    
    329,476
    
    
    $
    26.19
    
    
    7 years
    
    $
    8,627
 Page 10




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
(Continued)
  Weighted-AverageGrant-DateShares
    
    
    Fair ValueNon-vested at December 31, 2005
    
    
    
    
    
    
    Granted
    
    
    168,625
    
    
    $
    9.29Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Non-vested at March 31, 2006
    
    
    168,625
    
    
    $
    9.29Granted
    
    
    34,500
    
    
    $
    10.22Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Non-vested at June 30, 2006
    
    
    203,125
    
    
    $
    9.45
   NOTE 6  CAPITAL STOCK
   NOTE 7  LOSS PER COMMON SHARE
  Page 11




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
(Continued)
   June 30, 2006
    
    
    June 30, 2005Shares
    
    
    Per
    
    
    
    
    
    
    Shares
    
    
    PerNet
    
    
    (In
    
    
    Common
    
    
    Net
    
    
    (In
    
    
    CommonLoss
    
    
    Thousands)
    
    
    Share
    
    
    Loss
    
    
    Thousands)
    
    
    ShareBasic loss per share
    
    $
    (913
    )
    
    
    2,507
    
    
    $
    (0.36
    )
    
    $
    (2,622
    )
    
    
    2,347
    
    
    $
    (1.12
    )Effect of common
equivalent shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted loss per share
    
    $
    (913
    )
    
    
    2,507
    
    
    $
    (0.36
    )
    
    $
    (2,622
    )
    
    
    2,347
    
    
    $
    (1.12
    )
  June 30, 2006
    
    
    June 30, 2005Shares
    
    
    Per
    
    
    
    
    
    
    Shares
    
    
    PerNet
    
    
    (In
    
    
    Common
    
    
    Net
    
    
    (In
    
    
    CommonLoss
    
    
    Thousands)
    
    
    Share
    
    
    Loss
    
    
    Thousands)
    
    
    ShareBasic loss per share
    
    $
    (1,220
    )
    
    
    2,446
    
    
    $
    (0.50
    )
    
    $
    (6,809
    )
    
    
    2,345
    
    
    $
    (2.90
    )Effect of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted loss per share.
    
    $
    (1,220
    )
    
    
    2,446
    
    
    $
    (0.50
    )
    
    $
    (6,809
    )
    
    
    2,345
    
    
    $
    (2.90
    )
 NOTE 8  COMPREHENSIVE (LOSS) INCOME
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net loss
    
    $
    (913
    )
    
    $
    (2,622
    )
    
    $
    (1,220
    )
    
    $
    (6,809
    )Other comprehensive (loss) income:Translation adjustment
    
    
    (21
    )
    
    
    16
    
    
    
    (24
    )
    
    
    19Other comprehensive (loss) income
    
    
    (21
    )
    
    
    16
    
    
    
    (24
    )
    
    
    19Total comprehensive loss
    
    $
    (934
    )
    
    $
    (2,606
    )
    
    $
    (1,244
    )
    
    $
    (6,790
    )
 Page 12




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
(Continued)
 NOTE 9 OTHER EVENTS
  Restructuring and Other Charges 
    
    
    
    
    
    Cash(1)
    
    
    Non-cash
    
    
    Balance as ofQ4 2005
    
    Charge
    
    
    Payments
    
    
    Usage
    
    
    June 30, 2006Former CEO severance costs
    
    $
    438
    
    
    $
    128
    
    
    $
    
    
    
    $
    310Severance costs (9 employees)
    
    
    340
    
    
    
    338
    
    
    
    
    
    
    
    2Office reduction
    
    
    273
    
    
    
    87
    
    
    
    
    
    
    
    186Other costs
    
    
    107
    
    
    
    95
    
    
    
    
    
    
    
    12Total
    
    $
    1,158
    
    
    $
    648
    
    
    $
    
    
    
    $
    510
 (1)
  Restructuring and Other Charges 
    
    
    
    
    
    Cash(2)
    
    
    Non-cash
    
    
    Balance as ofQ2 2005
    
    Charge
    
    
    Payments
    
    
    Usage
    
    
    June 30, 2006Severance costs (23 employees)
    
    $
    1,173
    
    
    $
    1,111
    
    
    $
    
    
    
    $
    62Office closures
    
    
    511
    
    
    
    289
    
    
    
    45
    
    
    
    177Other costs
    
    
    3
    
    
    
    2
    
    
    
    
    
    
    
    1Total original charge
    
    
    1,687
    
    
    
    1,402
    
    
    
    45
    
    
    
    240Q4 2005 adjustment
    
    
    (113
    )
    
    
    
    
    
    
    
    
    
    
    (113
    )Total
    
    $
    1,574
    
    
    $
    1,402
    
    
    $
    45
    
    
    $
    127
 
 (2)
    
    Net cash payments totaling $178 were made during the six months ended June 30,
2006.  Page 13




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
(Continued)
  Restructuring and Other
    
    
    
    
    
    Cash(3)
    
    
    Non-cash
    
    
    Balance as ofCharge-2003
    
    Charge
    
    
    Payments
    
    
    Usage
    
    
    Dec. 31, 2005Severance costs
(approximately 30 employees)
    
    $
    3,917
    
    
    $
    3,860
    
    
    $
    33
    
    
    $
    24Office reductions
    
    
    921
    
    
    
    592
    
    
    
    64
    
    
    
    265Professional fees
    
    
    373
    
    
    
    383
    
    
    
    
    
    
    
    (10
    )Total original charge
    
    
    5,211
    
    
    
    4,835
    
    
    
    97
    
    
    
    2792004 adjustment
    
    
    (266
    )
    
    
    
    
    
    
    
    
    
    
    (266
    )2005 adjustment
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    (13
    )Total
    
    $
    4,932
    
    
    $
    4,835
    
    
    $
    97
    
    
    $
    
 Page 14




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 RESULTS OF OPERATIONS
 OVERVIEW
  ® ®
   Page 15




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  REVENUES
  COSTS AND EXPENSES
 Project Personnel
  Other Project Expenses
  Reimbursable Expenses
  Bad Debt Expense
  Management and Administrative Support
  Page 16




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  Intangible asset amortization
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   Revenue Recognition
  Page 17




---



##### 



TECHNOLOGY SOLUTIONS COMPANY
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  Allowance for Doubtful Receivables
  Accounting for Income Taxes
  Stock-Based Compensation
 Share-Based Payment
 Page 18




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 Goodwill and Intangible Assets
   Restructuring and Other Charges
  THREE MONTHS ENDED JUNE 30, 2006 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2005
 Revenues
   Page 19




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  Costs and Expenses
     Page 20




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
      Operating Loss
  Other Income
  Income Tax Provision
  Shares Outstanding
  Page 21




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  SIX MONTHS ENDED JUNE 30, 2006 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2005
 Revenues
  Costs and Expenses
     Page 22




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
    Operating Loss
  Other Income
  Income Tax Provision
  Shares Outstanding
  Page 23




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 LIQUIDITY AND CAPITAL RESOURCES
   Payments Due By Period (In thousands)RemainingQuarters in2006
    
    
    2007
    
    
    2008
    
    
    Thereafter
    
    
    TotalOperating leases (net of
restructuring and other
charges)
    
    $
    159
    
    
    $
    251
    
    
    $
    207
    
    
    $
    231
    
    
    $
    848Operating leases (included in
other current liabilities)
    
    
    215
    
    
    
    215
    
    
    
    
    
    
    
    
    
    
    
    430Cash outlay for restructuring
and
other charges
    
    
    303
    
    
    
    334
    
    
    
    
    
    
    
    
    
    
    
    637Purchase obligations (net of
restructuring and other
charges)
    
    
    113
    
    
    
    199
    
    
    
    5
    
    
    
    
    
    
    
    317Contingent payment for Proceed
    
    
    
    
    
    
    167
    
    
    
    167
    
    
    
    
    
    
    
    334Total
    
    $
    790
    
    
    $
    1,166
    
    
    $
    379
    
    
    $
    231
    
    
    $
    2,566
    Page 24




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
    NEW ACCOUNTING STANDARDS
  ASSUMPTIONS UNDERLYING CERTAIN FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE
RESULTS
 This Form 10-Q contains or may contain certain forward-looking statements concerning our financial
position, results of operations, cash flows, business strategy, budgets, projected costs and plans
and objectives of management for future operations as well as other statements including words such
as anticipate, believe, plan, estimate, expect, intend, and other similar expressions.
These forward-looking statements involve significant risks and uncertainties. Although we believe
that the expectations reflected in such forward-looking statements are based on reasonable
assumptions, readers are cautioned that no assurance can be
given that such expectations will prove correct and that actual results and developments may
 Page 25




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 differ
materially from those conveyed in such forward-looking statements. We claim the protection of the
safe harbor for forward-looking statements contain in the Private Securities Litigation Reform Act
of 1995 for all forward-looking statements. Important factors that could cause actual results to
differ materially from the expectations reflected in the forward-looking statements in this Form
10-Q include, among others, our ability to manage decreased revenue levels; our need to attract new
business and increase revenues; our declining cash position; our ability to manage costs and
headcount relative to expected revenues; our ability to achieve proper utilization rates or charge
acceptable rates for our services could adversely our ability to successfully introduce new
service offerings; our dependence on a limited number of clients for a large portion of our
revenue; the potential loss of significant clients; our ability to attract new clients and sell
additional work to existing clients; our ability to attract and retain employees; the rapidly
changing nature of information technology services, including our ability to keep pace with
technological and market changes and our ability to refine and add to existing service offerings;
the decreasing level of options available for grants by us to attract new employees and to retain
existing employees; our ability to successfully integrate the Charter business with our business;
and changing business, economic or market conditions and changes in competitive and other factors,
all as more fully described herein and in our Annual Report on Form 10-K for the year ended
December 31, 2005 under Risk Factors and elsewhere from time to time in our other SEC reports. Such
forward-looking statements speak only as of the date on which they are made and we do not undertake
any obligation to update any forward-looking statement to reflect events or circumstances after the
date of this Form 10-Q. If we do update or correct one or more forward-looking statements,
investors and others should not conclude that we will make additional updates or corrections with
respect thereto or with respect to other forward-looking statements. Actual results may vary
materially.
 Page 26




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 PART I. FINANCIAL INFORMATION
(Continued)
 
 ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
 MARKET RISK
   
 ITEM 4CONTROLS AND PROCEDURES
  Page 27




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 
 PART II. OTHER INFORMATION
 
 ITEM 1LEGAL PROCEEDINGS
  
 ITEM 1ARISK FACTORS
  
 ITEM 2UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 (c) STOCK REPURCHASES
 (c) Total number
    
    (d) Maximum number ofof shares
    
    shares (or approximate(a) Total
    
    
    
    
    
    purchased as
    
    dollar value of shares)number
    
    (b) Average
    
    part of publicly
    
    that may yet beof shares
    
    price paid per
    
    announced plans
    
    purchased under thePeriod
    
    purchased
    
    share
    
    or programs
    
    plans or programsApril 1, 2006 
April 30, 2006
    
    
    0
    
    
    $
    
    
    
    
    0
    
    
    
    234,360May 1, 2006  May 31, 2006
    
    
    0
    
    
    $
    
    
    
    
    0
    
    
    
    234,360June 1, 2006  June 30,
2006
    
    
    0
    
    
    $
    
    
    
    
    0
    
    
    
    234,360Total
    
    
    0
    
    
    $
    
    
    
    
    0
    
    
    
    234,360
  Page 28




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##### 



TECHNOLOGY SOLUTIONS COMPANY
 PART II. OTHER INFORMATION  (Continued)
 
 ITEM 5OTHER INFORMATION
  
 ITEM 6EXHIBITS
  Exhibit #
    
    Description of Document31.1*
    
    Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 200231.2*
    
    Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 200232.1*
    
    Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 200232.2*
    
    Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
  
 *Filed herewith Page 29




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##### 



SIGNATURE
  TECHNOLOGY SOLUTIONS COMPANYDate: August 14, 2006
    
    By:
    
    /s/ SANDOR GROSZSandor GroszChief Financial Officer
 Page 30