##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 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
 Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or
1 5(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 November 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 September 30, 2006 and December 31, 2005
    
    
    3Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2006 and 2005
    
    
    4Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    16ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    29ITEM 4. CONTROLS AND PROCEDURES
    
    
    29Part IIOTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    30ITEM 1A. RISK FACTORS
    
    
    30ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    30ITEM 5. OTHER INFORMATION
    
    
    31ITEM 6. EXHIBITS
    
    
    31SIGNATURE
    
    
    32Certification of CEOCertification of CFOSection 906 Certification of CEOSection 906 Certification of CFO
  Page
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##### Table of Contents



PART
I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 TECHNOLOGY SOLUTIONS COMPANY
 
 CONSOLIDATED BALANCE SHEETS
  September 30,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    14,327
    
    
    $
    20,135Receivables, less allowance for doubtful receivables
of $66
    
    
    7,889
    
    
    
    7,158Other current assets
    
    
    842
    
    
    
    582Total current assets
    
    
    23,058
    
    
    
    27,875COMPUTERS, FURNITURE AND EQUIPMENT, NET
    
    
    356
    
    
    
    390GOODWILL
    
    
    2,913
    
    
    
    INTANGIBLE ASSETS, NET
    
    
    1,446
    
    
    
    979LONG-TERM RECEIVABLES AND OTHER
    
    
    3,555
    
    
    
    3,555Total assets
    
    $
    31,328
    
    
    $
    32,799LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    897
    
    
    $
    600Accrued compensation and related costs
    
    
    4,059
    
    
    
    3,420Restructuring accruals
    
    
    518
    
    
    
    1,429Other current liabilities
    
    
    2,808
    
    
    
    2,702Total current liabilities
    
    
    8,282
    
    
    
    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
    
    
    129,876
    
    
    
    127,889Accumulated deficit
    
    
    (102,249
    )
    
    
    (98,687
    )Treasury stock, at cost, 170,077 shares
    
    
    (4,819
    )
    
    
    (4,819
    )Accumulated other comprehensive income:Cumulative translation adjustment
    
    
    211
    
    
    
    240Total stockholders equity
    
    
    23,046
    
    
    
    24,648Total liabilities and stockholders equity
    
    $
    31,328
    
    
    $
    32,799
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TECHNOLOGY SOLUTIONS COMPANY
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
  For the Three
    
    
    For the NineMonths Ended
    
    
    Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(unaudited)
    
    
    (unaudited)REVENUES:Revenues before reimbursements
    
    $
    8,743
    
    
    $
    9,347
    
    
    $
    29,661
    
    
    $
    28,341Reimbursements
    
    
    1,290
    
    
    
    1,213
    
    
    
    4,032
    
    
    
    3,76210,033
    
    
    
    10,560
    
    
    
    33,693
    
    
    
    32,103COSTS AND EXPENSES:Project personnel
    
    
    6,139
    
    
    
    5,487
    
    
    
    17,543
    
    
    
    18,516Other project expenses
    
    
    2,334
    
    
    
    1,706
    
    
    
    6,842
    
    
    
    6,103Reimbursable expenses
    
    
    1,290
    
    
    
    1,213
    
    
    
    4,032
    
    
    
    3,762Cost of services
    
    
    9,763
    
    
    
    8,406
    
    
    
    28,417
    
    
    
    28,381Bad debt expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Management and administrative support
    
    
    2,687
    
    
    
    3,224
    
    
    
    8,812
    
    
    
    11,818Intangible asset amortization
    
    
    260
    
    
    
    253
    
    
    
    736
    
    
    
    765Goodwill and intangible asset impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    679Restructuring and other charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,674Gain on litigation settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,722
    )12,710
    
    
    
    11,883
    
    
    
    37,965
    
    
    
    40,595OPERATING LOSS
    
    
    (2,677
    )
    
    
    (1,323
    )
    
    
    (4,272
    )
    
    
    (8,492
    )OTHER INCOME:Net investment income
    
    
    335
    
    
    
    247
    
    
    
    710
    
    
    
    607LOSS BEFORE INCOME TAXES
    
    
    (2,342
    )
    
    
    (1,076
    )
    
    
    (3,562
    )
    
    
    (7,885
    )INCOME TAX PROVISION
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (2,342
    )
    
    $
    (1,076
    )
    
    $
    (3,562
    )
    
    $
    (7,885
    )BASIC NET LOSS
PER COMMON SHARE
    
    $
    (0.93
    )
    
    $
    (0.46
    )
    
    $
    (1.44
    )
    
    $
    (3.36
    )WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
    
    
    2,507
    
    
    
    2,351
    
    
    
    2,467
    
    
    
    2,347DILUTED NET LOSS
PER COMMON SHARE
    
    $
    (0.93
    )
    
    $
    (0.46
    )
    
    $
    (1.44
    )
    
    $
    (3.36
    )WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING
    
    
    2,507
    
    
    
    2,351
    
    
    
    2,467
    
    
    
    2,347
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TECHNOLOGY SOLUTIONS COMPANY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  For theNine Months EndedSeptember 30,2006
    
    
    2005(unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (3,562
    )
    
    $
    (7,885
    )Restructuring and other charges
    
    
    
    
    
    
    1,674Goodwill and intangible asset impairment
    
    
    
    
    
    
    679Adjustments to reconcile net loss to net
cash from operating activities:Depreciation and amortization
    
    
    816
    
    
    
    1,087Non-cash stock compensation
    
    
    589
    
    
    
    89Changes in assets and liabilities:Receivables
    
    
    (731
    )
    
    
    (1,658
    )Other current assets
    
    
    (260
    )
    
    
    (284
    )Accounts payable
    
    
    307
    
    
    
    102Accrued compensation and related costs
    
    
    646
    
    
    
    (1,315
    )Restructuring accruals
    
    
    (911
    )
    
    
    (1,674
    )Other current liabilities
    
    
    145
    
    
    
    (1,196
    )Other assets
    
    
    2
    
    
    
    2,068Net cash used in operating activities
    
    
    (2,959
    )
    
    
    (8,313
    )CASH FLOWS FROM INVESTING ACTIVITIES:Net assets of acquired businesses, net of cash
    
    
    (2,734
    )
    
    
    Capital expenditures
    
    
    (30
    )
    
    
    (208
    )Net cash used in investing activities
    
    
    (2,764
    )
    
    
    (208
    )CASH FLOWS FROM FINANCING ACTIVITIES:Line of credit
    
    
    
    
    
    
    (649
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    9Proceeds from employee stock purchase plan
    
    
    
    
    
    
    128Net cash used in financing activities
    
    
    
    
    
    
    (512
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS
    
    
    (85
    )
    
    
    (48
    )DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (5,808
    )
    
    
    (9,081
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    20,135
    
    
    
    30,032CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    14,327
    
    
    $
    20,951SUPPLEMENTAL DISCLOSURES:Noncash investing activities:Common stock issued for acquisition activity
    
    $
    1,400
    
    
    $
    
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##### Table of Contents



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)
   Page
7




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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
8




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##### Table of Contents



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
9




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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
(Continued)
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Actual
    
    
    Pro-Forma
    
    
    Actual
    
    
    Pro-FormaNet loss:As reported
    
    $
    (2,342
    )
    
    $
    (1,076
    )
    
    $
    (3,562
    )
    
    $
    (7,885
    )Add: Employee stock-based compensation
expense included in reported net loss
    
    
    269
    
    
    
    
    
    
    
    589
    
    
    
    89Less: Employee stock-based compensation
expense under SFAS 123R/SFAS 123
    
    
    (269
    )
    
    
    (348
    )
    
    
    (589
    )
    
    
    (941
    )Pro forma
    
    $
    (2,342
    )
    
    $
    (1,424
    )
    
    $
    (3,562
    )
    
    $
    (8,737
    )Basic net loss per common share:As reported
    
    $
    (0.93
    )
    
    $
    (0.46
    )
    
    $
    (1.44
    )
    
    $
    (3.36
    )Pro forma
    
    
    
    
    
    $
    (0.61
    )
    
    
    
    
    
    $
    (3.72
    )Diluted net loss per common share:As reported
    
    $
    (0.93
    )
    
    $
    (0.46
    )
    
    $
    (1.44
    )
    
    $
    (3.36
    )Pro forma
    
    
    
    
    
    $
    (0.61
    )
    
    
    
    
    
    $
    (3.72
    )
  For the Three Months
    
    For the Nine MonthsEnded September 30,
    
    Ended September 30,2006
    
    2005
    
    2006
    
    2005Expected volatility
    
    
    
    
    
    
    74.6
    %
    
    
    65.2
    %
    
    
    85.8
    %Risk-free interest rates
    
    
    
    
    
    
    4.15
    %
    
    
    4.89
    %
    
    
    3.77
    %Expected lives
    
    
    
    
    
    4.5 years
    
    4.5 years
    
    4.5 yearsWeighted average grant date fair value
    
    
    
    
    
    $
    5.46
    
    
    $
    5.39
    
    
    $
    13.26
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10




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##### Table of Contents



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
    
    
    6 yearsOutstanding at June 30, 2006
    
    
    549,476
    
    
    $
    19.53
    
    
    8 years
    
    $
    10,733Granted  under 1996 Plan
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (40,551
    )
    
    $
    33.79
    
    
    5 yearsOutstanding at September 30, 2006
    
    
    508,925
    
    
    $
    18.40
    
    
    8 years
    
    $
    9,363Vested at end of period
    
    
    288,117
    
    
    $
    25.14
    
    
    6 years
    
    $
    7,243Exercisable at end of period
    
    
    288,117
    
    
    $
    25.14
    
    
    6 years
    
    $
    7,243
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11




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##### Table of Contents



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
    
    
    $
    9.29Granted
    
    
    14,875
    
    
    $
    9.12Vested
    
    
    
    
    
    
    Forfeited
    
    
    (21,000
    )
    
    $
    9.51Non-vested at September 30, 2006
    
    
    197,000
    
    
    $
    9.42
   NOTE 6  CAPITAL STOCK
   Page
12




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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
(Continued)
 NOTE 7  LOSS PER COMMON SHARE
   September 30, 2006
    
    
    September 30, 2005Shares
    
    
    Per
    
    
    
    
    
    
    Shares
    
    
    PerNet
    
    
    (In
    
    
    Common
    
    
    Net
    
    
    (In
    
    
    CommonLoss
    
    
    Thousands)
    
    
    Share
    
    
    Loss
    
    
    Thousands)
    
    
    ShareBasic loss per share
    
    $
    (2,342
    )
    
    
    2,507
    
    
    $
    (0.93
    )
    
    $
    (1,076
    )
    
    
    2,351
    
    
    $
    (0.46
    )Effect of common
equivalent shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted loss per share
    
    $
    (2,342
    )
    
    
    2,507
    
    
    $
    (0.93
    )
    
    $
    (1,076
    )
    
    
    2,351
    
    
    $
    (0.46
    )
  September 30, 2006
    
    
    September 30, 2005Shares
    
    
    Per
    
    
    
    
    
    
    Shares
    
    
    PerNet
    
    
    (In
    
    
    Common
    
    
    Net
    
    
    (In
    
    
    CommonLoss
    
    
    Thousands)
    
    
    Share
    
    
    Loss
    
    
    Thousands)
    
    
    ShareBasic loss per share
    
    $
    (3,562
    )
    
    
    2,467
    
    
    $
    (1.44
    )
    
    $
    (7,885
    )
    
    
    2,347
    
    
    $
    (3.36
    )Effect of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted loss per share
    
    $
    (3,562
    )
    
    
    2,467
    
    
    $
    (1.44
    )
    
    $
    (7,885
    )
    
    
    2,347
    
    
    $
    (3.36
    )
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13




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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
(Continued)
 NOTE 8  COMPREHENSIVE (LOSS) INCOME
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net loss
    
    $
    (2,342
    )
    
    $
    (1,076
    )
    
    $
    (3,562
    )
    
    $
    (7,885
    )Other comprehensive (loss) income:Translation adjustment
    
    
    (5
    )
    
    
    7
    
    
    
    (29
    )
    
    
    26Other comprehensive (loss) income
    
    
    (5
    )
    
    
    7
    
    
    
    (29
    )
    
    
    26Total comprehensive loss
    
    $
    (2,347
    )
    
    $
    (1,069
    )
    
    $
    (3,591
    )
    
    $
    (7,859
    )
 NOTE 9 OTHER EVENTS
  Restructuring and Other Charges 
    
    
    
    
    
    Cash(1)
    
    
    
    
    
    
    Balance as ofQ4 2005
    
    Charge
    
    
    Payments
    
    
    Non-cash Usage
    
    
    September 30, 2006Former CEO severance costs
    
    $
    438
    
    
    $
    181
    
    
    $
    
    
    
    $
    257Severance costs (9 employees)
    
    
    340
    
    
    
    340
    
    
    
    
    
    
    
    Office reduction
    
    
    273
    
    
    
    132
    
    
    
    
    
    
    
    141Other costs
    
    
    107
    
    
    
    95
    
    
    
    
    
    
    
    12Total
    
    $
    1,158
    
    
    $
    748
    
    
    $
    
    
    
    $
    410
 
 (1)
    
    Net cash payments totaling $714 were made during the nine months ended
September 30, 2006.  Page
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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
(Continued)
 Balance as ofRestructuring and Other Charges 
    
    
    
    
    
    Cash(2)
    
    
    Non-cash
    
    
    September 30,Q2 2005
    
    Charge
    
    
    Payments
    
    
    Usage
    
    
    2006Severance costs (23 employees)
    
    $
    1,173
    
    
    $
    1,111
    
    
    $
    
    
    
    $
    62Office closures
    
    
    511
    
    
    
    308
    
    
    
    45
    
    
    
    158Other costs
    
    
    3
    
    
    
    2
    
    
    
    
    
    
    
    1Total original charge
    
    
    1,687
    
    
    
    1,421
    
    
    
    45
    
    
    
    221Q4 2005 adjustment
    
    
    (113
    )
    
    
    
    
    
    
    
    
    
    
    (113
    )Total
    
    $
    1,574
    
    
    $
    1,421
    
    
    $
    45
    
    
    $
    108
 
 (2)
    
    Net cash payments totaling $197 were made during the nine months ended
September 30, 2006.  Restructuring and Other Charges
    
    
    
    
    
    Cash(3)
    
    
    Non-cash
    
    
    Balance as of 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
15




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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 RESULTS OF OPERATIONS
 OVERVIEW
   ® ®
   Page
16




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##### Table of Contents



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
17




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##### Table of Contents



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
18




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##### Table of Contents



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
19




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##### Table of Contents



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 SEPTEMBER 30, 2006 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 2005
 Revenues
   Page
20




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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  Costs and Expenses
     Page 21




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##### Table of Contents



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
  NINE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 2005
 Revenues
  Costs and Expenses
  Page 22




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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
         Page 23




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##### Table of Contents



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
  LIQUIDITY AND CAPITAL RESOURCES
   Page 24




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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  Payments Due By Period (In thousands)RemainingQuarter in2006
    
    
    2007
    
    
    2008
    
    
    Thereafter
    
    
    TotalOperating leases (net of
restructuring and other
charges)
    
    $
    79
    
    
    $
    251
    
    
    $
    207
    
    
    $
    231
    
    
    $
    768Operating leases (included in
other current liabilities)
    
    
    108
    
    
    
    215
    
    
    
    
    
    
    
    
    
    
    
    323Cash outlay for
restructuring and
other charges
    
    
    184
    
    
    
    334
    
    
    
    
    
    
    
    
    
    
    
    518Purchase obligations (net of
restructuring and other
charges)
    
    
    56
    
    
    
    199
    
    
    
    5
    
    
    
    
    
    
    
    260Total
    
    $
    427
    
    
    $
    999
    
    
    $
    212
    
    
    $
    231
    
    
    $
    1,869
      Page 25




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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  NEW ACCOUNTING STANDARDS
   Page 26




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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  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 differ materially from those conveyed in such
forward-looking statements. We claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995 for all
forward-looking statements. 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 affect 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 lack of shareholder
approved stock options available for grants by the Company 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
 Page 27




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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 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 28




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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY
 PART I. FINANCIAL INFORMATION
(Continued)
 
 ITEM
3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4CONTROLS AND PROCEDURES
  Page 29




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##### Table of Contents



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 part
    
    dollar value of shares)number
    
    (b) Average
    
    of publicly
    
    that may yet beof shares
    
    price paid per
    
    announced plans
    
    purchased under thePeriod
    
    purchased
    
    share
    
    or programs
    
    plans or programsJuly 1, 2006  July
31, 2006
    
    
    0
    
    
    $
    
    
    
    
    0
    
    
    
    234,360August 1, 2006  August
31, 2006
    
    
    0
    
    
    $
    
    
    
    
    0
    
    
    
    234,360September 1, 2006 
September 30, 2006
    
    
    0
    
    
    $
    
    
    
    
    0
    
    
    
    234,360Total
    
    
    0
    
    
    $
    
    
    
    
    0
    
    
    
    234,360
  Page 30




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##### Table of Contents



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 31




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##### Table of Contents



SIGNATURE
  TECHNOLOGY SOLUTIONS COMPANYDate:  November 13, 2006
    By:
    /s/ SANDOR GROSZSandor GroszChief Financial Officer Page 32