##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q



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

For the quarterly period ended June 30, 2003

Commission file number 019433

(TCS LOGO)

TECHNOLOGY SOLUTIONS COMPANY


INCORPORATED IN THE STATE OF DELAWARE


I.R.S. EMPLOYER IDENTIFICATION NO. 36-3584201


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

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

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

As of July 25, 2003, there were outstanding 40,564,189 shares of TSC
Common Stock, par value $.01.





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TABLE OF CONTENTS



|                                             |                                                                                               |                                            |  |  |  |  |  | 
|-------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION               
|                                             | ITEM 1. Financial Statements                                                                 
|                                             |                                                                                               | CONSOLIDATED BALANCE SHEETS               
|                                             |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                             |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                             |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                             | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                             | ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            
|                                             | ITEM 4CONTROLS AND PROCEDURES                                                               
|PART II. OTHER INFORMATION                  
|                                             | ITEM 6EXHIBITS AND REPORT ON FORM 8-K                                                       
|SIGNATURE                                   
|Retirement Agreement with Jack N. Hayden    
|Retirement Agreement with William H. Haltrip
|Employment Agreement with Stephen B. Oresman
|CEO Certification                           
|CFO Certification                           
|Certification of Stephen B. Oresman         
|Certification of Timothy P. Dimond          



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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY
INDEX TO FORM 10-Q

|                                                                                                |  |       
|----------------------------------------------------------------------------------------------- |  | ------
|                                                                                                |  | Page  
|                                                                                                |  | Number
|                                                                                                |  |       
|Part I                                                                                          |  |       
|FINANCIAL INFORMATION (UNAUDITED)                                                               |  |       
|ITEM 1. FINANCIAL STATEMENTS                                                                    |  |       
|Consolidated Balance Sheets as of
June 30, 2003 and December 31, 2002                           |  | 3     
|Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2003 and 2002 |  | 4     
|Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2003 and 2002           |  | 5     
|Notes to Consolidated Financial Statements                                                      |  | 6     
|ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   |  | 15    
|ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK                              |  | 27    
|ITEM 4. CONTROLS AND PROCEDURES                                                                 |  | 27    
|Part II                                                                                         |  |       
|OTHER INFORMATION                                                                               |  |       
|ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                        |  | 28    
|SIGNATURE                                                                                       |  | 29    

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##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. Financial Statements




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

|                                               |                                                                                                                                         |                                            |                                      |         |        |             |        |              |        |   |  | 
|---------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | ------- | ------ | ----------- | ------ | ------------ | ------ | - |  | 
|                                               |                                                                                                                                         |                                            |                                      |         |        | June 30,    |        | December 31,
|                                               |                                                                                                                                         |                                            |                                      |         |        | 2003        |        | 2002        
|                                               |                                                                                                                                         |                                            |                                      |         |        |             |        |             
|                                               |                                                                                                                                         |                                            |                                      |         |        | (unaudited) |        |              |        |  
|                                               |                                                                                                                                         |                                            |                                      | ASSETS  |        |             |        |              |        |   |  | 
|CURRENT ASSETS:                                |                                                                                                                                         |                                            |                                      |         |        |             |        |             
|                                               | Cash and cash equivalents                                                                                                               |                                            | $                                    | 45,913  |        |             | $      | 47,004       |       
|                                               | Marketable securities                                                                                                                   |                                            |                                      |        |        |             |        | 1,624        |       
|                                               | Marketable securities held in trust                                                                                                     |                                            |                                      | 7,241   |        |             |        | 6,735        |       
|                                               | Receivables, less allowance for doubtful receivables
of $2,358 and $2,377                                                               |                                            |                                      | 7,430   |        |             |        | 11,829       |       
|                                               | Deferred income taxes                                                                                                                   |                                            |                                      |        |        |             |        | 7,198        |       
|                                               | Other current assets                                                                                                                    |                                            |                                      | 1,661   |        |             |        | 807          |       
|                                               |                                                                                                                                         |                                            |                                      |         |        |             |        |             
|                                               |                                                                                                                                         | Total current assets                       |                                      |         | 62,245 |             |        |              | 75,197 |  
|COMPUTERS, FURNITURE AND EQUIPMENT, NET        |                                                                                                                                         |                                            | 453                                  |         |        |             | 719    |             
|DEFERRED INCOME TAXES                          |                                                                                                                                         |                                            |                                     |         |        |             | 15,614 |             
|LONG-TERM RECEIVABLES AND OTHER                |                                                                                                                                         |                                            | 7,316                                |         |        |             | 7,714  |             
|                                               |                                                                                                                                         |                                            |                                      |         |        |             |        |             
|                                               |                                                                                                                                         | Total assets                               |                                      | $       | 70,014 |             |        | $            | 99,244 |  
|                                               |                                                                                                                                         |                                            |                                      |         |        |             |        |             
|                                               |                                                                                                                                         |                                            | LIABILITIES AND STOCKHOLDERS EQUITY |         |        |             |        |              |        |   | 
|CURRENT LIABILITIES:                           |                                                                                                                                         |                                            |                                      |         |        |             |        |             
|                                               | Accounts payable                                                                                                                        |                                            | $                                    | 1,180   |        |             | $      | 1,099        |       
|                                               | Accrued compensation and related costs                                                                                                  |                                            |                                      | 5,063   |        |             |        | 9,128        |       
|                                               | Deferred compensation                                                                                                                   |                                            |                                      | 7,241   |        |             |        | 6,735        |       
|                                               | Restructuring accruals                                                                                                                  |                                            |                                      | 5,553   |        |             |        | 466          |       
|                                               | Other current liabilities                                                                                                               |                                            |                                      | 2,244   |        |             |        | 2,114        |       
|                                               |                                                                                                                                         |                                            |                                      |         |        |             |        |             
|                                               |                                                                                                                                         | Total current liabilities                  |                                      |         | 21,281 |             |        |              | 19,542 |  
|DEFERRED INCOME TAXES DUE TO FORMER SUBSIDIARY |                                                                                                                                         |                                            |                                     |         |        |             | 6,210  |             
|                                               |                                                                                                                                         |                                            |                                      |         |        |             |        |             
|                                               | Total liabilities                                                                                                                       |                                            |                                      | 21,281  |        |             |        | 25,752       |       
|                                               |                                                                                                                                         |                                            |                                      |         |        |             |        |             
|COMMITMENTS AND CONTINGENCIES                  |                                                                                                                                         |                                            |                                      |         |        |             |        |             
|STOCKHOLDERS EQUITY:                          |                                                                                                                                         |                                            |                                      |         |        |             |        |             
|                                               | Preferred stock, $.01 par value; shares authorized 
10,000,000; none issued                                                            |                                            |                                      |        |        |             |        |             |       
|                                               | Common stock, $.01 par value; shares authorized 
100,000,000; shares issued  44,695,788;
shares outstanding 40,548,964 and 40,665,141 |                                            |                                      | 447     |        |             |        | 447          |       
|                                               | Capital in excess of par value                                                                                                          |                                            |                                      | 122,184 |        |             |        | 122,282      |       
|                                               | Accumulated deficit                                                                                                                     |                                            |                                      | (68,219 | )      |             |        | (43,232      | )     
|                                               | Treasury stock, at cost, 4,146,824 and 4,030,647 shares                                                                                 |                                            |                                      | (5,909  | )      |             |        | (5,853       | )     
|                                               | Accumulated other comprehensive income (loss):                                                                                          |                                            |                                      |         |        |             |        |              |       
|                                               |                                                                                                                                         | Unrealized holding loss, net               |                                      |         |       |             |        |              | (119   | )
|                                               |                                                                                                                                         | Cumulative translation adjustment          |                                      |         | 230    |             |        |              | (33    | )
|                                               |                                                                                                                                         |                                            |                                      |         |        |             |        |             
|                                               | Total stockholders equity                                                                                                              |                                            |                                      | 48,733  |        |             |        | 73,492       |       
|                                               |                                                                                                                                         |                                            |                                      |         |        |             |        |             
|                                               |                                                                                                                                         | Total liabilities and stockholders equity |                                      | $       | 70,014 |             |        | $            | 99,244 |  
|                                               |                                                                                                                                         |                                            |                                      |         |        |             |        |             

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

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

|                                                                           |                                       |   |               |       |              |   |        |        |      |   |         |        |  |   |        |        | 
|-------------------------------------------------------------------------- | ------------------------------------- | - | ------------- | ----- | ------------ | - | ------ | ------ | ---- | - | ------- | ------ |  | - | ------ | ------ | 
|                                                                           |                                       |   | For the Three |       | For the Six 
|                                                                           |                                       |   | Months Ended  |       | Months Ended
|                                                                           |                                       |   | June 30,      |       | June 30,    
|                                                                           |                                       |   |               |       |             
|                                                                           |                                       |   | 2003          |       | 2002         |   | 2003   |        | 2002
|                                                                           |                                       |   |               |       |              |   |        |        |     
|                                                                           |                                       |   | (unaudited)   |       | (unaudited) 
|REVENUES:                                                                  |                                       |   |               |       |              |   |        |        |      |   |         |        |  |   |        |       
|                                                                           | Revenues before reimbursements        |   | $             | 9,756 |              |   | $      | 22,386 |      |   | $       | 24,937 |  |   | $      | 46,846 | 
|                                                                           | Reimbursements                        |   |               | 1,184 |              |   |        | 2,500  |      |   |         | 2,574  |  |   |        | 5,290  | 
|                                                                           |                                       |   |               |       |              |   |        |        |      |   |         |        |  |   |        |       
|                                                                           |                                       |   | 10,940        |       |              |   | 24,886 |        |      |   | 27,511  |        |  |   | 52,136 |       
|                                                                           |                                       |   |               |       |              |   |        |        |      |   |         |        |  |   |        |       
|COSTS AND EXPENSES:                                                        |                                       |   |               |       |              |   |        |        |      |   |         |        |  |   |        |       
|                                                                           | Project personnel                     |   |               | 7,865 |              |   |        | 12,543 |      |   |         | 16,828 |  |   |        | 25,909 | 
|                                                                           | Other project expenses                |   |               | 1,306 |              |   |        | 3,329  |      |   |         | 2,978  |  |   |        | 7,056  | 
|                                                                           | Reimbursable expenses                 |   |               | 1,184 |              |   |        | 2,500  |      |   |         | 2,574  |  |   |        | 5,290  | 
|                                                                           | Bad debt expense                      |   |               | 136   |              |   |        | 300    |      |   |         | 257    |  |   |        | 729    | 
|                                                                           | Management and administrative support |   |               | 3,978 |              |   |        | 5,169  |      |   |         | 8,175  |  |   |        | 10,793 | 
|                                                                           | Restructuring and other charges       |   |               | 5,211 |              |   |        |       |      |   |         | 5,211  |  |   |        |       | 
|                                                                           | Incentive compensation                |   |               |      |              |   |        | 1,025  |      |   |         | 311    |  |   |        | 2,504  | 
|                                                                           |                                       |   |               |       |              |   |        |        |      |   |         |        |  |   |        |       
|                                                                           |                                       |   | 19,680        |       |              |   | 24,866 |        |      |   | 36,334  |        |  |   | 52,281 |       
|                                                                           |                                       |   |               |       |              |   |        |        |      |   |         |        |  |   |        |       
|OPERATING (LOSS) INCOME                                                    |                                       |   | (8,740        | )     |              |   | 20     |        |      |   | (8,823  | )      |  |   | (145   | )     
|                                                                           |                                       |   |               |       |              |   |        |        |      |   |         |        |  |   |        |       
|OTHER INCOME:                                                              |                                       |   |               |       |              |   |        |        |      |   |         |        |  |   |        |       
|                                                                           | Net investment income                 |   |               | 133   |              |   |        | 184    |      |   |         | 447    |  |   |        | 560    | 
|                                                                           |                                       |   |               |       |              |   |        |        |      |   |         |        |  |   |        |       
|(LOSS) INCOME BEFORE INCOME TAXES                                          |                                       |   | (8,607        | )     |              |   | 204    |        |      |   | (8,376  | )      |  |   | 415    |       
|INCOME TAX PROVISION                                                       |                                       |   | 16,519        |       |              |   | 88     |        |      |   | 16,611  |        |  |   | 172    |       
|                                                                           |                                       |   |               |       |              |   |        |        |      |   |         |        |  |   |        |       
|NET (LOSS) INCOME                                                          |                                       | $ | (25,126       | )     |              | $ | 116    |        |      | $ | (24,987 | )      |  | $ | 243    |       
|                                                                           |                                       |   |               |       |              |   |        |        |      |   |         |        |  |   |        |       
|BASIC NET (LOSS) EARNINGS
PER COMMON SHARE                                 |                                       | $ | (0.62         | )     |              | $ | 0.00   |        |      | $ | (0.62   | )      |  | $ | 0.01   |       
|                                                                           |                                       |   |               |       |              |   |        |        |      |   |         |        |  |   |        |       
|WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING                       |                                       |   | 40,486        |       |              |   | 42,665 |        |      |   | 40,539  |        |  |   | 42,899 |       
|                                                                           |                                       |   |               |       |              |   |        |        |      |   |         |        |  |   |        |       
|DILUTED NET (LOSS) EARNINGS
PER COMMON SHARE                               |                                       | $ | (0.62         | )     |              | $ | 0.00   |        |      | $ | (0.62   | )      |  | $ | 0.01   |       
|                                                                           |                                       |   |               |       |              |   |        |        |      |   |         |        |  |   |        |       
|WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING |                                       |   | 40,486        |       |              |   | 43,494 |        |      |   | 40,539  |        |  |   | 43,900 |       
|                                                                           |                                       |   |               |       |              |   |        |        |      |   |         |        |  |   |        |       

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

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TECHNOLOGY SOLUTIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

|                                                             |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        |                  |        |        |      |        |        |  
|------------------------------------------------------------ | --------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | --------------------------------------------------- | ------ | ---------------- | ------ | ------ | ---- | ------ | ------ | -
|                                                             |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        | For the         
|                                                             |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        | Six Months Ended
|                                                             |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        | June 30,        
|                                                             |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        |                 
|                                                             |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        | 2003             |        | 2002  
|                                                             |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        |                  |        |       
|                                                             |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        | (unaudited)     
|CASH FLOWS FROM OPERATING ACTIVITIES:                        |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        |                  |        |       
|                                                             | Net (loss) income                                                                 |                                                                                                    | $                                                                                                | (24,987                                             | )      |                  | $      | 243    |     
|                                                             | Restructuring and other charges                                                   |                                                                                                    |                                                                                                  | 5,211                                               |        |                  |        |       |     
|                                                             | Adjustments to reconcile net (loss) income to net
cash from operating activities: |                                                                                                    |                                                                                                  |                                                     |        |                  |        |        |     
|                                                             |                                                                                   | Depreciation and amortization                                                                      |                                                                                                  |                                                     | 269    |                  |        |        | 701  |       
|                                                             |                                                                                   | Provisions for receivable valuation allowances and
reserves for possible losses, net of recoveries |                                                                                                  |                                                     | 257    |                  |        |        | 729  |       
|                                                             |                                                                                   | Gain on sale of investments                                                                        |                                                                                                  |                                                     | (9     | )                |        |        |     |       
|                                                             |                                                                                   | Deferred income taxes                                                                              |                                                                                                  |                                                     | 16,543 |                  |        |        | (117 | )     
|                                                             |                                                                                   | Changes in assets and liabilities:                                                                 |                                                                                                  |                                                     |        |                  |        |        |      |       
|                                                             |                                                                                   |                                                                                                    | Receivables                                                                                      |                                                     |        | 4,122            |        |        |      | 129    |       
|                                                             |                                                                                   |                                                                                                    | Purchases of trading securities related to deferred
compensation plan, net of market adjustments |                                                     |        | (879             | )      |        |      | (603   | )     
|                                                             |                                                                                   |                                                                                                    | Sales of trading securities related to deferred
compensation plan                                |                                                     |        | 373              |        |        |      | 1,180  |       
|                                                             |                                                                                   |                                                                                                    | Other current assets                                                                             |                                                     |        | (855             | )      |        |      | (605   | )     
|                                                             |                                                                                   |                                                                                                    | Accounts payable                                                                                 |                                                     |        | 78               |        |        |      | (191   | )     
|                                                             |                                                                                   |                                                                                                    | Accrued compensation and related costs                                                           |                                                     |        | (4,053           | )      |        |      | (5,460 | )     
|                                                             |                                                                                   |                                                                                                    | Deferred compensation liability                                                                  |                                                     |        | 506              |        |        |      | (577   | )     
|                                                             |                                                                                   |                                                                                                    | Restructuring accruals                                                                           |                                                     |        | (88              | )      |        |      | (945   | )     
|                                                             |                                                                                   |                                                                                                    | Other current liabilities                                                                        |                                                     |        | 106              |        |        |      | (1,506 | )     
|                                                             |                                                                                   |                                                                                                    | Other assets                                                                                     |                                                     |        | 397              |        |        |      | 166    |       
|                                                             |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        |                  |        |       
|                                                             |                                                                                   |                                                                                                    |                                                                                                  | Net cash used in operating activities               |        |                  | (3,009 | )      |      |        | (6,856 | )
|                                                             |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        |                  |        |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                        |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        |                  |        |       
|                                                             | Proceeds from available-for-sale securities                                       |                                                                                                    |                                                                                                  | 1,801                                               |        |                  |        |       |     
|                                                             | Capital expenditures                                                              |                                                                                                    |                                                                                                  | (24                                                 | )      |                  |        | (422   | )   
|                                                             |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        |                  |        |       
|                                                             |                                                                                   |                                                                                                    |                                                                                                  | Net cash provided by (used in) investing activities |        |                  | 1,777  |        |      |        | (422   | )
|                                                             |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        |                  |        |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        |                  |        |       
|                                                             | Proceeds from exercise of stock options                                           |                                                                                                    |                                                                                                  | 1                                                   |        |                  |        | 317    |     
|                                                             | Proceeds from employee stock purchase plan                                        |                                                                                                    |                                                                                                  | 129                                                 |        |                  |        | 327    |     
|                                                             | Purchase of Company stock for treasury                                            |                                                                                                    |                                                                                                  | (286                                                | )      |                  |        | (2,780 | )   
|                                                             |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        |                  |        |       
|                                                             |                                                                                   |                                                                                                    |                                                                                                  | Net cash used in financing activities               |        |                  | (156   | )      |      |        | (2,136 | )
|                                                             |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        |                  |        |       
|EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS |                                                                                   |                                                                                                    | 297                                                                                              |                                                     |        |                  | (17    | )     
|                                                             |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        |                  |        |       
|DECREASE IN CASH AND CASH EQUIVALENTS                        |                                                                                   |                                                                                                    | (1,091                                                                                           | )                                                   |        |                  | (9,431 | )     
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD               |                                                                                   |                                                                                                    | 47,004                                                                                           |                                                     |        |                  | 50,115 |       
|                                                             |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        |                  |        |       
|CASH AND CASH EQUIVALENTS, END OF PERIOD                     |                                                                                   | $                                                                                                  | 45,913                                                                                           |                                                     |        | $                | 40,684 |       
|                                                             |                                                                                   |                                                                                                    |                                                                                                  |                                                     |        |                  |        |       

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

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TECHNOLOGY SOLUTIONS COMPANY




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

NOTE 1 BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Technology
Solutions Company and its subsidiaries (TSC or the Company). The
consolidated balance sheet as of June 30, 2003, the consolidated statements of
operations for the three and six months ended June 30, 2003 and 2002 and the
consolidated statements of cash flows for the six months ended June 30, 2003
and 2002 have been prepared by the Company without audit. In the opinion of
management, these financial statements include all adjustments necessary to
present fairly the financial position, results of operations and cash flows as
of June 30, 2003 and for all periods presented. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with accounting principles generally accepted in the United States
of America have been condensed or omitted. The Company believes that the
disclosures included are adequate and provide a fair presentation of interim
period results. Interim financial statements are not necessarily indicative of
financial position or operating results for an entire year. It is suggested
that these interim financial statements be read in conjunction with the audited
financial statements and the notes thereto included in the Companys Annual
Report on Form 10-K for the year ended December 31, 2002 filed with the United
States Securities and Exchange Commission (SEC) on March 20, 2003.

NOTE 2  THE COMPANY

Delivering business benefits to companies worldwide through process and
technology expertise, TSC is a leading systems integration and business
consulting firm that focuses on rapid results. TSCs core competencies
include: enterprise resource management, supply chain management, customer
relationship management, support services, and change management and training.
Its services span the entire technology lifecycle  from strategy definition
and planning; through implementation and integration; to extended support. The
Companys clients are primarily located throughout the United States but the
Company also supports global deployments and some international clients in
Europe.

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TECHNOLOGY SOLUTIONS COMPANY

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

NOTE 3  NEW ACCOUNTING STANDARDS

In January 2003, the Financial Accounting Standards Board (FASB) issued
Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with
Multiple Deliverables. EITF Issue No. 00-21 provides guidance on how to
determine whether an arrangement involving multiple deliverables contains more
than one unit of accounting and how arrangement consideration should be
measured and allocated to the separate units of accounting in the arrangement.
EITF Issue No. 00-21 will be effective for arrangements entered into in fiscal
periods beginning after June 15, 2003. The Company does not expect that the
provisions of EITF Issue No. 00-21 will have a material impact on the Companys
results of operations or financial position.

In January 2003, the FASB issued FASB Interpretation No.46, Consolidation of
Variable Interest Entities  an interpretation of ARB No. 51 (FIN 46). FIN
46 requires that if an entity has a controlling financial interest in a
variable interest entity, the assets, liabilities and results of activities of
the variable interest entity should be included in the consolidated financial
statements of the entity. FIN 46 requires that its provisions are effective
immediately for all arrangements entered into after January 31, 2003. For
those arrangements entered into prior to January 31, 2003, the FIN 46
provisions are required to be adopted at the beginning of the first interim or
annual period beginning after June 15, 2003. The Company does not expect that
the provisions of FIN 46 will have a material impact on the Companys results
of operations or financial position.

In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities. SFAS No. 149 amends and clarifies financial accounting
and reporting for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities under SFAS
No. 133, Accounting for Derivative instruments and Hedging Activities. SFAS
No. 149 is effective for contracts entered into or modified after June 30,
2003. The Company believes that the adoption of SFAS No. 149 will not have a
material impact on the Companys results of operations or financial position.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company believes that the adoption of SFAS
No. 150 will not have a material impact on the Companys results of operations
or financial position.

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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY

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

NOTE 4  DEFERRED INCOME TAXES

The Company uses an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income taxes are provided using currently
enacted tax rates when tax laws and financial accounting standards differ with
respect to the amount of income for a year and the basis of assets and
liabilities. Significant management judgement is required in determining its
provision for income taxes, deferred tax assets and liabilities and any
valuation allowance recorded against its net deferred tax assets.

The Company has generated certain deferred tax assets as a result of operating
losses and temporary differences between book and tax accounting, as well as
tax benefits resulting from the exercise of employee stock options which were
recorded as additional paid-in capital in the period of exercise.

SFAS No. 109 Accounting for Income Taxes, requires the establishment of a
valuation allowance to reflect the likelihood of realization of deferred tax
assets. As a result of operating losses incurred and reported during 2000, 2001
and the second quarter of 2003, as well as anticipated operating losses in the
third quarter of 2003, and the uncertainty of the timing and amount of taxable
income, the Company recorded a full valuation allowance against its deferred
tax assets of approximately $19.9 million during the quarter ended June 30,
2003. If the realization of deferred tax assets in future periods is
considered more likely than not, an adjustment to the deferred tax asset would
increase net income in the period such determination is made. The amount of
deferred tax asset considered realizable is based on significant estimates.
Changes in these estimates could materially affect the Companys financial
condition and results of operations in future periods.

NOTE 5  STOCK OPTIONS

Effective for fiscal 2003, the Company adopted the disclosure requirements
under SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, as an amendment to SFAS No. 123.

The Companys stock-based employee compensation, including stock options, was
accounted for under the intrinsic value-based method as prescribed by
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees. Therefore, no compensation expense was recognized for
these stock options as they had no intrinsic value on the date of grant.

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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY

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

If the Company were to recognize compensation expense over the relevant service
period under the fair-value method of SFAS No. 123 with respect to stock
options granted and employee stock purchases for the three and six months ended
June 30, 2003 and all prior periods, net earnings would have decreased,
resulting in pro forma net losses and losses per share as presented below:

|                                              |                                                                                                                                |           |   |                      |         |                          |   |       |      |      |   |         |         |   |   |       |      |  
|--------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | --------- | - | -------------------- | ------- | ------------------------ | - | ----- | ---- | ---- | - | ------- | ------- | - | - | ----- | ---- | -
|                                              |                                                                                                                                |           |   | For the Three Months |         | For the Six Months Ended
|                                              |                                                                                                                                |           |   | Ended June 30,       |         | June 30,                
|                                              |                                                                                                                                |           |   |                      |         |                         
|                                              |                                                                                                                                |           |   | 2003                 |         | 2002                     |   | 2003  |      | 2002
|                                              |                                                                                                                                |           |   |                      |         |                          |   |       |      |     
|Net (loss) income:                            |                                                                                                                                |           |   |                      |         |                          |   |       |      |      |   |         |         |   |   |      
|                                              | As reported                                                                                                                    |           | $ | (25,126              | )       |                          | $ | 116   |      |      | $ | (24,987 | )       |   | $ | 243   |     
|                                              | Less: Stock-based compensation expense
Determined under fair value method
for all
awards, net of related taxes (as
applicable) |           |   | (549                 | )       |                          |   | (410  | )    |      |   | (1,112  | )       |   |   | (958  | )   
|                                              |                                                                                                                                |           |   |                      |         |                          |   |       |      |      |   |         |         |   |   |      
|                                              |                                                                                                                                | Pro forma |   | $                    | (25,675 | )                        |   | $     | (294 | )    |   | $       | (26,099 | ) |   | $     | (715 | )
|                                              |                                                                                                                                |           |   |                      |         |                          |   |       |      |      |   |         |         |   |   |      
|Basic net earnings (loss)
per common share:   |                                                                                                                                |           |   |                      |         |                          |   |       |      |      |   |         |         |   |   |      
|                                              | As reported                                                                                                                    |           | $ | (0.62                | )       |                          | $ | 0.00  |      |      | $ | (0.62   | )       |   | $ | 0.01  |     
|                                              | Pro forma                                                                                                                      |           | $ | (0.63                | )       |                          | $ | (0.01 | )    |      | $ | (0.64   | )       |   | $ | (0.02 | )   
|Diluted net earnings (loss)
per common share: |                                                                                                                                |           |   |                      |         |                          |   |       |      |      |   |         |         |   |   |      
|                                              | As reported                                                                                                                    |           | $ | (0.62                | )       |                          | $ | 0.00  |      |      | $ | (0.62   | )       |   | $ | 0.01  |     
|                                              | Pro forma                                                                                                                      |           | $ | (0.63                | )       |                          | $ | (0.01 | )    |      | $ | (0.64   | )       |   | $ | (0.02 | )   

As of June 30, 2003 and 2002, options to purchase 8,446,806 and 10,918,759
shares of common stock were outstanding, respectively, and options to purchase
an additional 4,748,649 and 2,299,871 shares of common stock were available for
grant, respectively, under the Technology Solutions Company 1996 Stock
Incentive Plan.

NOTE 6  CAPITAL STOCK

The Company has a stock repurchase program, which allows for share repurchases
of up to 11,525,327 shares of outstanding Company common stock (the Repurchase
Program). During the six months ended June 30, 2003 and 2002, the Company
repurchased 277,000 shares for $286 and 1,748,700 shares for $2,780,
respectively. The Company has repurchased an aggregate total of 6,762,627
shares since the inception of the Repurchase Program. As of June 30, 2003,
there were 4,762,700 shares available to be purchased under the Repurchase
Program.

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

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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY

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

NOTE 7  (LOSS) EARNINGS PER COMMON SHARE

The Company discloses basic and diluted (loss) earnings per share in the
consolidated statements of operations under the provisions of SFAS No. 128,
(Loss) Earnings Per Share. Diluted (loss) earnings per common share is
computed by dividing net (loss) income by the weighted average number of common
shares outstanding during each period presented, plus the dilutive effect of
common equivalent shares arising from the assumed exercise of stock options
using the treasury stock method. Common equivalent shares of 960,485 and
951,227 were not included in the diluted loss per share calculation as they
were antidilutive for the three and six months ended June 30, 2003,
respectively. Basic (loss) earnings per common share is computed by dividing
net (loss) income by the weighted average number of common shares outstanding
during each period presented.

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

|                                  |  |               |         |               |  |        |        |        |  |            |       |        |  |        |     |     |  |  |        |  |  |   |      | 
|--------------------------------- |  | ------------- | ------- | ------------- |  | ------ | ------ | ------ |  | ---------- | ----- | ------ |  | ------ | --- | --- |  |  | ------ |  |  | - | ---- | 
|                                  |  | June 30, 2003 |         | June 30, 2002
|                                  |  |               |         |              
|                                  |  |               |         |               |  | Shares |        | Per    |  |            |       |        |  | Shares |     | Per
|                                  |  | Net           |         | (In           |  | Common |        | Net    |  | (In        |       | Common
|                                  |  | Loss          |         | Thousands)    |  | Share  |        | Income |  | Thousands) |       | Share 
|                                  |  |               |         |               |  |        |        |        |  |            |       |       
|Basic (loss) earnings
per share   |  | $             | (25,126 | )             |  |        | 40,486 |        |  | $          | (0.62 | )      |  | $      | 116 |     |  |  | 42,665 |  |  | $ | 0.00 | 
|                                  |  |               |         |               |  |        |        |        |  |            |       |        |  |        |     |     |  |  |        |  |  |   |      | 
|Effect of stock options           |  |               |        |               |  |        |       |        |  |            |       |        |  |        |    |     |  |  | 829    |  |  |   |      | 
|                                  |  |               |         |               |  |        |        |        |  |            |       |        |  |        |     |     |  |  |        |  |  |   |      | 
|Diluted (loss)
earnings per share |  | $             | (25,126 | )             |  |        | 40,486 |        |  | $          | (0.62 | )      |  | $      | 116 |     |  |  | 43,494 |  |  | $ | 0.00 | 
|                                  |  |               |         |               |  |        |        |        |  |            |       |        |  |        |     |     |  |  |        |  |  |   |      | 

Reconciliation of basic and diluted earnings per share for the six months ended:

|                                  |  |               |         |               |  |        |        |        |  |            |       |        |  |        |     |     |  |  |        |  |  |   |      | 
|--------------------------------- |  | ------------- | ------- | ------------- |  | ------ | ------ | ------ |  | ---------- | ----- | ------ |  | ------ | --- | --- |  |  | ------ |  |  | - | ---- | 
|                                  |  | June 30, 2003 |         | June 30, 2002
|                                  |  |               |         |              
|                                  |  |               |         |               |  | Shares |        | Per    |  |            |       |        |  | Shares |     | Per
|                                  |  | Net           |         | (In           |  | Common |        | Net    |  | (In        |       | Common
|                                  |  | Loss          |         | Thousands)    |  | Share  |        | Income |  | Thousands) |       | Share 
|                                  |  |               |         |               |  |        |        |        |  |            |       |       
|Basic (loss) earnings
per share   |  | $             | (24,987 | )             |  |        | 40,539 |        |  | $          | (0.62 | )      |  | $      | 243 |     |  |  | 42,899 |  |  | $ | 0.01 | 
|                                  |  |               |         |               |  |        |        |        |  |            |       |        |  |        |     |     |  |  |        |  |  |   |      | 
|Effect of stock options           |  |               |        |               |  |        |       |        |  |            |       |        |  |        |    |     |  |  | 1,001  |  |  |   |      | 
|                                  |  |               |         |               |  |        |        |        |  |            |       |        |  |        |     |     |  |  |        |  |  |   |      | 
|Diluted (loss)
earnings per share |  | $             | (24,987 | )             |  |        | 40,539 |        |  | $          | (0.62 | )      |  | $      | 243 |     |  |  | 43,900 |  |  | $ | 0.01 | 
|                                  |  |               |         |               |  |        |        |        |  |            |       |        |  |        |     |     |  |  |        |  |  |   |      | 

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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY

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

NOTE 8  COMPREHENSIVE (LOSS) INCOME

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

|                                   |                                                                           |                                   |         |                      |     |                    |     |      |     |      |         |     |     |   |     |     |     |  
|---------------------------------- | ------------------------------------------------------------------------- | --------------------------------- | ------- | -------------------- | --- | ------------------ | --- | ---- | --- | ---- | ------- | --- | --- | - | --- | --- | --- | -
|                                   |                                                                           |                                   |         | For the Three Months |     | For the Six Months
|                                   |                                                                           |                                   |         | Ended June 30,       |     | Ended June 30,    
|                                   |                                                                           |                                   |         |                      |     |                   
|                                   |                                                                           |                                   |         | 2003                 |     | 2002               |     | 2003 |     | 2002
|                                   |                                                                           |                                   |         |                      |     |                    |     |      |     |     
|Net (loss) income                  |                                                                           | $                                 | (25,126 | )                    |     | $                  | 116 |      |     | $    | (24,987 | )   |     | $ | 243 |    
|Other comprehensive income (loss): |                                                                           |                                   |         |                      |     |                    |     |      |     |      |         |     |     |   |     |    
|                                   | Net unrealized holding gains on
available-for-sale securities, net of tax |                                   |         | (8                   | )   |                    |     | 50   |     |      |         | 119 |     |   |     | 39  |    
|                                   | Translation adjustment                                                    |                                   |         | 242                  |     |                    |     | (107 | )   |      |         | 263 |     |   |     | (68 | )  
|                                   |                                                                           |                                   |         |                      |     |                    |     |      |     |      |         |     |     |   |     |    
|                                   |                                                                           | Other comprehensive income (loss) |         |                      | 234 |                    |     |      | (57 | )    |         |     | 382 |   |     |     | (29 | )
|                                   |                                                                           |                                   |         |                      |     |                    |     |      |     |      |         |     |     |   |     |    
|Total comprehensive (loss) income  |                                                                           | $                                 | (24,892 | )                    |     | $                  | 59  |      |     | $    | (24,605 | )   |     | $ | 214 |    
|                                   |                                                                           |                                   |         |                      |     |                    |     |      |     |      |         |     |     |   |     |    

NOTE 9  BUSINESS SEGMENTS

The Company operates in a single business segment. The Companys clients are
primarily located throughout the United States but the Company also supports
global deployments and some international clients in Europe. The following is
revenue, including reimbursements, and long-lived asset information by
geographic area:

|                                                   |  |               |        |            |  |         |       |  |  |   |        | 
|-------------------------------------------------- |  | ------------- | ------ | ---------- |  | ------- | ----- |  |  | - | ------ | 
|                                                   |  |               |        |            |  | Foreign |       |  |  |  
|For and as of the three months ended June 30, 2003 |  | United States |        | Subsidiary |  | Total  
|                                                   |  |               |        |            |  |        
|Revenues                                           |  | $             | 10,874 |            |  | $       | 66    |  |  | $ | 10,940 | 
|Identifiable assets                                |  | $             | 68,489 |            |  | $       | 1,525 |  |  | $ | 70,014 | 

|                                                   |  |               |        |            |  |         |       |  |  |   |         | 
|-------------------------------------------------- |  | ------------- | ------ | ---------- |  | ------- | ----- |  |  | - | ------- | 
|                                                   |  |               |        |            |  | Foreign |       |  |  |  
|For and as of the three months ended June 30, 2002 |  | United States |        | Subsidiary |  | Total  
|                                                   |  |               |        |            |  |        
|Revenues                                           |  | $             | 23,986 |            |  | $       | 900   |  |  | $ | 24,886  | 
|Identifiable assets                                |  | $             | 98,436 |            |  | $       | 4,936 |  |  | $ | 103,372 | 

|                                                 |  |               |        |            |  |         |       |  |  |   |        | 
|------------------------------------------------ |  | ------------- | ------ | ---------- |  | ------- | ----- |  |  | - | ------ | 
|                                                 |  |               |        |            |  | Foreign |       |  |  |  
|For and as of the six months ended June 30, 2003 |  | United States |        | Subsidiary |  | Total  
|                                                 |  |               |        |            |  |        
|Revenues                                         |  | $             | 27,155 |            |  | $       | 356   |  |  | $ | 27,511 | 
|Identifiable assets                              |  | $             | 68,489 |            |  | $       | 1,525 |  |  | $ | 70,014 | 

|                                                 |  |               |        |            |  |         |       |  |  |   |         | 
|------------------------------------------------ |  | ------------- | ------ | ---------- |  | ------- | ----- |  |  | - | ------- | 
|                                                 |  |               |        |            |  | Foreign |       |  |  |  
|For and as of the six months ended June 30, 2002 |  | United States |        | Subsidiary |  | Total  
|                                                 |  |               |        |            |  |        
|Revenues                                         |  | $             | 49,981 |            |  | $       | 2,155 |  |  | $ | 52,136  | 
|Identifiable assets                              |  | $             | 98,436 |            |  | $       | 4,936 |  |  | $ | 103,372 | 

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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY

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

Foreign revenues and identifiable assets are based on the country in which the
legal subsidiary is domiciled. No single foreign countrys revenues or
identifiable assets were material to the consolidated revenues or identifiable
assets of the Company.

NOTE 10  OTHER EVENTS

In the second quarter of 2003, the Company recorded $5,211 in restructuring and
other charges as a result of organizational changes announced in June 2003.
These charges consisted of the severance costs of professional personnel and
executives, and office reductions as well as professional fees incurred in
connection with terminated negotiations with a party that had expressed
interest in acquiring the Company. As of June 30, 2003, there was an accrual
balance of $5,133. The Company expects to utilize the balance by 2005. The
following table provides the components of this charge.

|                                             |       |        |       |             |  |       |      |               |          |   |               |    |  |   |       |       | 
|-------------------------------------------- | ----- | ------ | ----- | ----------- |  | ----- | ---- | ------------- | -------- | - | ------------- | -- |  | - | ----- | ----- | 
|                                             |       |        |       |             |  |       | Cash |               | Non-cash |   | Balance as of
|Restructuring and Other Charges - 2003       |       | Charge |       | Payments(1) |  | Usage |      | June 30, 2003
|                                             |       |        |       |             |  |       |      |              
|Severance costs
(approximately 30
employees) |       | $      | 3,917 |             |  | $     | 15   |               |          | $ | 33            |    |  | $ | 3,869 |      
|Office reductions                            |       |        | 921   |             |  |       | 25   |               |          |   | 2             |    |  |   | 894   |      
|Professional fees                            |       |        | 373   |             |  |       | 3    |               |          |   |              |    |  |   | 370   |      
|                                             |       |        |       |             |  |       |      |               |          |   |               |    |  |   |       |      
|                                             | Total |        | $     | 5,211       |  |       | $    | 43            |          |   | $             | 35 |  |   | $     | 5,133 | 
|                                             |       |        |       |             |  |       |      |               |          |   |               |    |  |   |       |      

(1) Paid during the quarter ended June 30, 2003.

In 2001, the Company recorded $9,256 in restructuring and other charges
comprised of $6,930 relating to the closure of its Peer3 software development
operation and $2,326 in non-Peer3 severance related costs. The Peer3 charge
was more than originally anticipated and, as a result, this charge was
increased by $82 to $7,012 during 2002. The non-Peer3 severance related costs
were $227 lower than originally anticipated and, as a result, this charge was
reduced by $227 to $2,099 during 2002. As the Company made final payments
related to these restructuring and other charges during 2002, no further
payments are due. The following tables provide the components of these
charges.

|                                             |                       |        |       |          |  |       |       |               |          |   |               |       |  |   |     |     |  
|-------------------------------------------- | --------------------- | ------ | ----- | -------- |  | ----- | ----- | ------------- | -------- | - | ------------- | ----- |  | - | --- | --- | -
|                                             |                       |        |       |          |  |       | Cash  |               | Non-cash |   | Balance as of
|Peer3 Charge  2001                          |                       | Charge |       | Payments |  | Usage |       | June 30, 2003
|                                             |                       |        |       |          |  |       |       |              
|Goodwill impairment                          |                       | $      | 3,014 |          |  | $     |      |               |          | $ | 3,014         |       |  | $ |    |    
|Asset write-offs                             |                       |        | 866   |          |  |       |      |               |          |   | 951           |       |  |   | (85 | )  
|Lease terminations                           |                       |        | 668   |          |  |       | 687   |               |          |   | 56            |       |  |   | (75 | )  
|Severance costs
(approximately 30
employees) |                       |        | 1,430 |          |  |       | 1,364 |               |          |   |              |       |  |   | 66  |    
|Professional fees                            |                       |        | 357   |          |  |       | 357   |               |          |   |              |       |  |   |    |    
|Computer lease,
commitments and other
costs  |                       |        | 595   |          |  |       | 495   |               |          |   | 88            |       |  |   | 12  |    
|                                             |                       |        |       |          |  |       |       |               |          |   |               |       |  |   |     |    
|                                             | Total original charge |        |       | 6,930    |  |       |       | 2,903         |          |   |               | 4,109 |  |   |     | (82 | )
|                                             |                       |        |       |          |  |       |       |               |          |   |               |       |  |   |     |    
|2002 adjustment                              |                       |        | 82    |          |  |       |      |               |          |   |              |       |  |   | 82  |    
|                                             |                       |        |       |          |  |       |       |               |          |   |               |       |  |   |     |    
|                                             | Total                 |        | $     | 7,012    |  |       | $     | 2,903         |          |   | $             | 4,109 |  |   | $   |    |  
|                                             |                       |        |       |          |  |       |       |               |          |   |               |       |  |   |     |    

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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY

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

|                                             |                       |        |       |          |  |       |       |               |  |               |     |     |  |   |      |     | 
|-------------------------------------------- | --------------------- | ------ | ----- | -------- |  | ----- | ----- | ------------- |  | ------------- | --- | --- |  | - | ---- | --- | 
|Non-Peer3
Severance                          |                       |        |       |          |  | Cash  |       | Non-cash      |  | Balance as of
|Charge  2001                                |                       | Charge |       | Payments |  | Usage |       | June 30, 2003
|                                             |                       |        |       |          |  |       |       |              
|Severance costs
(approximately 70
employees) |                       | $      | 1,480 |          |  | $     | 1,466 |               |  | $             |    |     |  | $ | 14   |    
|Asset write-offs                             |                       |        | 520   |          |  |       |      |               |  |               | 520 |     |  |   |     |    
|Other costs                                  |                       |        | 326   |          |  |       | 113   |               |  |               |    |     |  |   | 213  |    
|                                             |                       |        |       |          |  |       |       |               |  |               |     |     |  |   |      |    
|                                             | Total original charge |        |       | 2,326    |  |       |       | 1,579         |  |               |     | 520 |  |   |      | 227 | 
|                                             |                       |        |       |          |  |       |       |               |  |               |     |     |  |   |      |    
|2002 adjustment                              |                       |        | (227  | )        |  |       |      |               |  |               |    |     |  |   | (227 | )  
|                                             |                       |        |       |          |  |       |       |               |  |               |     |     |  |   |      |    
|                                             | Total                 |        | $     | 2,099    |  |       | $     | 1,579         |  |               | $   | 520 |  |   | $    |    | 
|                                             |                       |        |       |          |  |       |       |               |  |               |     |     |  |   |      |    

In 2000, the Company recorded a pre-tax charge of $4,701 for the closure of its
Latin American operations. Subsequently in 2000, the Company collected $400 of
accounts receivable previously written-off and, as a result, the cumulative
charge was reduced to $4,301. As of June 30, 2003, there was an accrual
balance of $211, which represented professional fees and various other closure
costs and is expected to be utilized by the end of 2003. The following table
provides the components of this charge.

|                                             |                       |        |       |          |  |       |       |               |          |   |               |       |  |   |     |     | 
|-------------------------------------------- | --------------------- | ------ | ----- | -------- |  | ----- | ----- | ------------- | -------- | - | ------------- | ----- |  | - | --- | --- | 
|                                             |                       |        |       |          |  |       | Cash  |               | Non-cash |   | Balance as of
|Latin America Charge - 2000                  |                       | Charge |       | Payments |  | Usage |       | June 30, 2003
|                                             |                       |        |       |          |  |       |       |              
|Severance costs
(approximately 40
employees) |                       | $      | 1,785 |          |  | $     | 1,574 |               |          | $ |              |       |  | $ | 211 |    
|Asset write-offs                             |                       |        | 2,916 |          |  |       |      |               |          |   | 2,916         |       |  |   |    |    
|                                             |                       |        |       |          |  |       |       |               |          |   |               |       |  |   |     |    
|                                             | Total original charge |        |       | 4,701    |  |       |       | 1,574         |          |   |               | 2,916 |  |   |     | 211 | 
|                                             |                       |        |       |          |  |       |       |               |          |   |               |       |  |   |     |    
|Accounts receivable
collections  2000       |                       |        | (400  | )        |  |       | (400  | )             |          |   |              |       |  |   |    |    
|                                             |                       |        |       |          |  |       |       |               |          |   |               |       |  |   |     |    
|                                             | Total                 |        | $     | 4,301    |  |       | $     | 1,174         |          |   | $             | 2,916 |  |   | $   | 211 | 
|                                             |                       |        |       |          |  |       |       |               |          |   |               |       |  |   |     |    

In 1999, the Company recorded $6,967 in restructuring and other charges
associated with lease terminations, former executive severance costs, CourseNet
Systems, Inc. acquisition costs and asset write-offs. On February 15, 2000,
the Company distributed the common stock of eLoyalty Corporation (eLoyalty)
owned by the Company to the Companys stockholders (the Spin-Off). eLoyalty
operated within the Company prior to the Spin-Off and is now a separate,
publicly traded company. The Company determined that a portion of the lease
terminations became unnecessary due to changes in TSC office usage by TSC and
eLoyalty and also determined that the actual costs for these lease terminations
would be less than previously anticipated and, as a result, the cumulative
charge was reduced by $1,892 to $5,075 during 2000 and 2001 and by $144 to
$4,931 during 2002. As of June 30, 2003, there was an accrual balance of $209,
which relates to amounts that the Company is contractually obligated to pay
through 2004 as a result of the lease terminations. The following table
provides the components of this charge.

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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY

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

|                                          |                       |        |        |             |  |       |       |               |          |   |               |       |  |   |        |       | 
|----------------------------------------- | --------------------- | ------ | ------ | ----------- |  | ----- | ----- | ------------- | -------- | - | ------------- | ----- |  | - | ------ | ----- | 
|                                          |                       |        |        |             |  |       | Cash  |               | Non-cash |   | Balance as of
|Restructuring and Other Charges  1999    |                       | Charge |        | Payments(2) |  | Usage |       | June 30, 2003
|                                          |                       |        |        |             |  |       |       |              
|Lease terminations                        |                       | $      | 3,011  |             |  | $     | 648   |               |          | $ | 35            |       |  | $ | 2,328  |      
|Former executive
severance costs          |                       |        | 1,814  |             |  |       | 1,747 |               |          |   | 150           |       |  |   | (83    | )    
|CourseNet Systems, Inc.
acquisition costs |                       |        | 1,300  |             |  |       |      |               |          |   | 1,300         |       |  |   |       |      
|Asset write-offs                          |                       |        | 842    |             |  |       |      |               |          |   | 842           |       |  |   |       |      
|                                          |                       |        |        |             |  |       |       |               |          |   |               |       |  |   |        |      
|                                          | Total original charge |        |        | 6,967       |  |       |       | 2,395         |          |   |               | 2,327 |  |   |        | 2,245 | 
|                                          |                       |        |        |             |  |       |       |               |          |   |               |       |  |   |        |      
|2000 adjustment                           |                       |        | (404   | )           |  |       |      |               |          |   |              |       |  |   | (404   | )    
|2001 adjustment                           |                       |        | (1,488 | )           |  |       |      |               |          |   |              |       |  |   | (1,488 | )    
|2002 adjustment                           |                       |        | (144   | )           |  |       |      |               |          |   |              |       |  |   | (144   | )    
|                                          |                       |        |        |             |  |       |       |               |          |   |               |       |  |   |        |      
|                                          | Total                 |        | $      | 4,931       |  |       | $     | 2,395         |          |   | $             | 2,327 |  |   | $      | 209   | 
|                                          |                       |        |        |             |  |       |       |               |          |   |               |       |  |   |        |      

(2) Net cash payments totaling $15 were made during the quarter ended June 30,
2003.

NOTE 11  RELATED PARTY

During the six months ended June 30, 2003 and 2002, the Company provided
services to Bausch & Lomb, Inc (B&L). The Companys former chairman, William
H. Waltrip, and its current chairman, John R. Purcell, also serve as directors
for B&L. The services performed related to B&Ls global IT integration project
and were awarded following a competitive bidding process. The amount of
revenues recognized for such services during the six months ended June 30, 2003
and 2002 represented 8 percent and 2 percent of the Companys total revenues
before reimbursements, respectively and during the quarters ended June 30, 2003
and 2002 represented 3 percent and 2 percent of such revenues before
reimbursements, respectively. The net accounts receivable balances from these
services as of June 30, 2003 and December 31, 2002 were $137 and $1,158,
respectively.

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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

Revenues in 2003 continue to be impacted by economic uncertainties and weakness
in the United States and global economies. As a result, demand for information
technology services, such as those we provide, continues to be adversely
impacted and our quarterly revenues have continued to decline. We expect that
these general economic uncertainties and weaknesses may continue throughout
2003 and perhaps beyond. We expect quarterly revenues in the third quarter to
decline as compared to the second quarter of 2003.

In addition to the challenges presented by the difficult economic environment,
we also believe we are in the midst of some fundamental changes in the
information technology (IT) services industry. These changes include
competition from application software firms as they continue to enhance
services and implementation capabilities to increase their corporate revenue;
offshore application development and maintenance consulting firms which
typically have lower labor costs and billing rates; and the proliferation of
Enterprise Resource Planning (ERP) expertise within the IT departments of
organizations, reducing the need to engage outside consulting help. This
increase in supply of trained personnel will likely result in continued
downward pressure on billing rates and gross margins, even after the overall
economic climate improves and demand for IT services recovers from its current
depressed state.

As a result of the difficult economic environment and the resulting depressed
market conditions, we implemented business and organizational changes during
the quarter ended June 30, 2003. These changes, which resulted in a pre-tax
charge of $5.2 million, included the resignation and replacement of both our
Chairman of the Board and our Chief Executive Officer and the rightsizing of
our capacity to better align it with our current and anticipated near-term
demand (including personnel terminations and office reductions). The pre-tax
charge also included professional fees incurred in connection with terminated
negotiations with a party that had expressed interest in acquiring us.

The results of our operations are affected by general economic conditions as
well as the level of economic activity and changes in the industries that we
serve. Our business is also driven by the pace of technological change and the
type and level of spending by our clients in the areas in which we provide
services. Many factors can result in a deferral, reduction or cancellation of
services requested by our prospective or current clients including budget
constraints, economic conditions and perceived project progress, success or
value. During periods of decreased demand, pricing pressures emerge as
companies try to minimize costs and negotiate lower prices for our services.
Our ability to successfully identify and prepare for these changes early in
their cycles is a key driver of our performance. Therefore, our strategy is to
try to anticipate these trends and identify cost-management initiatives that
will allow us to manage costs relative to expected revenues. In addition, a
significant portion of our revenues may be derived from large projects for a
limited number of clients. Accordingly, the loss of a significant client or
the loss or

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TECHNOLOGY SOLUTIONS COMPANY

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

delay of a significant project could adversely impact our revenues and
financial position.

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

Management believes that judgement and estimates related to the following
critical accounting policies could materially affect its consolidated financial
statements. Our critical accounting policies are as follows:



| |  | Revenue recognition                              
|- |  | -------------------------------------------------
| 
| |  | Estimating the allowance for doubtful receivables
| 
| |  | Accounting for income taxes                      

These policies are discussed further in this section under Revenues, Bad
Debt Expense and Income Taxes.

REVENUES

We derive our revenues from a variety of information technology services,
including systems integration, packaged software integration and implementation
services, programming, training and extended support services. For most of our
engagements, we recognize revenues on contracts on a time and materials basis
as work is performed primarily based on hourly billing rates. For our limited
number of fixed price contracts (which require, depending on size, senior
executive and/or board level approval), we recognize revenues using the
percentage-of-completion method, which is based on the percentage of work
performed in the period compared to the total estimated work to be performed
over the entire contract. Revenues are subject to revision as the contract
progresses to completion. Any revisions in the estimate are charged to
operations in the period in which the facts that give rise to the revision
become known. Contracts are performed in phases. Losses on contracts, if any,
are reserved in full when determined. Contract losses are determined by the
amount by which the estimated cost of the
contract exceeds the estimated total revenues that will be generated by the
contract. Extended support revenues are recognized as services are rendered.

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TECHNOLOGY SOLUTIONS COMPANY

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

COSTS AND EXPENSES

Project Personnel

Project personnel costs consist primarily of professional salaries and
benefits.

Other Project Expenses

Other project expenses consist of the cost for subcontractors hired for use on
our client projects and billed to our clients as well as nonbillable expenses
incurred for client projects and business development. Nonbillable expenses
include recruiting fees, certain selling expenses, and personnel training.

Reimbursable Expenses

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

Bad Debt Expense

We maintain an allowance for doubtful receivables resulting from the failure of
our customers to make required payments. We also analyze our note receivables.
Management specifically analyzes accounts receivable, on a client by client
basis, when evaluating the adequacy of our allowance for doubtful receivables
including customer credit worthiness and current economic trends and records
any necessary bad debt expense based on the best estimate of the facts known to
date. Should the facts regarding the collectability of receivables change, the
resulting change in the allowance would be charged or credited to income in the
period such determination is made. Such a change could materially impact our
financial position and results of operations.

Management and Administrative Support

Management and administrative support costs consist of practice area costs and
infrastructure costs. Practice area costs include practice area management,
support personnel, marketing costs and recruiting costs. Infrastructure costs
include senior corporate management and our board of directors; accounting;
financial reporting; finance; tax; legal; treasury; human resources; employee
benefits; marketing; public and investor relations; office operations;
recruiting; training; internal communications; internal technology
applications; planning; quality assurance; and risk management.

Incentive Compensation

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

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TECHNOLOGY SOLUTIONS COMPANY

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

Income Taxes

We use an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income taxes are provided using currently enacted
tax rates when tax laws and financial accounting standards differ with respect
to the amount of income for a year and the basis of assets and liabilities.
Significant management judgement is required in determining its provision for
income taxes, deferred tax assets and liabilities and any valuation allowance
recorded against its net deferred tax assets. We have generated certain
deferred tax assets as a result of operating losses and temporary differences
between book and tax accounting, as well as tax benefits resulting from the
exercise of employee stock options which were recorded as additional paid-in
capital in the period of exercise. SFAS No. 109 Accounting for Income Taxes,
requires the establishment of a valuation allowance to reflect the likelihood
of realization of deferred tax assets. As a result of operating losses
incurred and reported in 2000, 2001 and the second quarter of 2003, as well as
anticipated operating losses in the third quarter of 2003, and the uncertainty
of the timing and amount of future taxable income, we recorded a full valuation
allowance against our deferred tax assets of approximately $19.9 million during
the quarter ended June 30, 2003. This valuation allowance represents
approximately $16.5 million in net deferred tax assets at March 31, 2003 plus
an approximate $3.4 million tax benefit for the pre-tax loss for the three
months ended June 30, 2003. If the realization of our deferred tax assets in
future periods is considered more likely than not, an adjustment to our
deferred tax asset would increase net income in the period such determination
is made. The amount of deferred tax asset considered realizable is based on
significant estimates. Changes in these estimates could materially affect our
financial condition and results of operations in future periods.

THREE MONTHS ENDED JUNE 30, 2003 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2002

Revenues

Consolidated net revenues were $10.9 million for the three months ended June
30, 2003, a decrease of 56 percent from the same period in the prior year.
Revenues before reimbursements decreased 56 percent to $9.8 million from $22.4
million. We believe that this decline in revenues was primarily due to
decreased demand arising out of the continuing economic uncertainties and a
decline in corporate information technology capital expenditures as large and
small companies reassessed their goals and budgets.

During the three months ended June 30, 2003, two clients accounted for 29
percent of revenues before reimbursements (ExxonMobil Corp.  17 percent and
Caterpillar Inc.  12 percent). During the three months ended June 30, 2002, three customers accounted for 53
percent of revenues before reimbursements (ExxonMobil Corp.  22 percent,
Caterpillar Inc.  20 percent and Pfizer Inc.  11 percent). We added 15 new
clients and 37 new projects during the three months ended June 30, 2003
compared to 15 new clients and 24 new projects during the same period in the
prior year. In addition, we performed work for 53 clients and 93 projects
during the

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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY

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

three months ended June 30, 2003 compared to 63 clients and 145 projects
during the same period in the prior year.

During the quarters ended June 30, 2003 and 2002, we provided services to
Bausch & Lomb, Inc (B&L). Our former chairman, William H. Waltrip, and our
current chairman, John R. Purcell, also serve as directors for B&L. The
services performed related to B&Ls global IT integration project and were
awarded following a competitive bidding process. The amount of revenues
recognized for such services during the quarters ended June 30, 2003 and 2002
represented 3 percent and 2 percent of our total revenues before
reimbursements, respectively. The net accounts receivable balances from these
services as of June 30, 2003 and December 31, 2002 were $137 and $1,158,
respectively.

Costs and Expenses

Project personnel costs were $7.9 million for the three months ended June 30,
2003, a decrease of 37 percent from the same period in the prior year. This
decrease was largely attributable to staff and salary reductions driven by our
ongoing efforts to keep headcount and costs in line with demand for our
services, as described earlier in this item. Professional domestic headcount
decreased to 201 as of June 30, 2003 compared to 341 as of June 30, 2002.
Annualized voluntary turnover increased to 18 percent from 14 percent for the
three months ended June 30, 2002. Project personnel costs as a percentage of
revenues before reimbursements increased to 81 percent for the three months
ended June 30, 2003 from 56 percent from the same period in the prior year
primarily due to a decline in average hourly billing rates and staff
utilization. Average hourly billing rates decreased 18 percent to $144. The
decline in hourly billing rates primarily reflects the increased competitive
environment in the information technology consulting market as well as our
project mix. Staff utilization declined to 62 percent from 71 percent.

Other project expenses were $1.3 million for the three months ended June 30,
2003, a decrease of 61 percent from the same period in the prior year. The
decrease in other project expenses consisted of the following: a decrease in
subcontractor costs of $0.4 million due to the decline in revenues and the
corresponding limited use of subcontractors; a decrease in business development
costs of $0.9 million, such as, travel, certain marketing costs and practice
area development costs; a decrease in headcount related costs of $0.1 million,
which included training, computer and communication costs; and a decrease in
various other costs of $0.6 million, such as, our normal severance and selling
expenses. Other project expenses as a percentage of revenues before
reimbursements decreased to 13 percent for the three months ended June 30, 2003
from 15 percent for the same period in the prior year as a result of the our
ongoing cost controls.

Bad debt expense was $0.1 million for the three months ended June 30, 2003
compared to $0.3 million for the same period in the prior year. This decrease
was due to fewer collection issues and lower revenues during the quarter
compared to the same period in the prior year.

Management and administrative support costs decreased to $4.0 million for the
three months ended June 30, 2003 from $5.2 million in the same period in the
prior year. This decrease

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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY

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

resulted from a decrease in labor costs of $0.5 million as we reduced
headcount as a result of our cost-management initiatives; and a decrease in
various other costs, mainly office and occupancy related costs, of $0.7 million
due to reduced headcount and our continued cost controls.

In the second
quarter of 2003, we recorded $5.2 million in restructuring and other charges as
a result of organizational changes announced in June 2003. These charges
consisted of the severance costs of professional personnel and executives and
office reductions as well as professional fees incurred in connection with
terminated negotiations with a party that had expressed interest in acquiring
us. As of June 30, 2003, there was an accrual balance of $5.1 million. We
expect to utilize the balance by 2005. The following table provides the
components of this charge.

|                                             |       |        |       |             |  |       |    |               |  |               |    |    |  |   |       |       | 
|-------------------------------------------- | ----- | ------ | ----- | ----------- |  | ----- | -- | ------------- |  | ------------- | -- | -- |  | - | ----- | ----- | 
|Restructuring and Other                      |       |        |       |             |  | Cash  |    | Non-cash      |  | Balance as of
|Charges - 2003 (in thousands)                |       | Charge |       | Payments(1) |  | Usage |    | June 30, 2003
|                                             |       |        |       |             |  |       |    |              
|Severance costs
(approximately 30
employees) |       | $      | 3,917 |             |  | $     | 15 |               |  | $             | 33 |    |  | $ | 3,869 |      
|Office reductions                            |       |        | 921   |             |  |       | 25 |               |  |               | 2  |    |  |   | 894   |      
|Professional fees                            |       |        | 373   |             |  |       | 3  |               |  |               |   |    |  |   | 370   |      
|                                             |       |        |       |             |  |       |    |               |  |               |    |    |  |   |       |      
|                                             | Total |        | $     | 5,211       |  |       | $  | 43            |  |               | $  | 35 |  |   | $     | 5,133 | 
|                                             |       |        |       |             |  |       |    |               |  |               |    |    |  |   |       |      

(1) Paid during the quarter ended June 30, 2003.

There was no incentive compensation expense for the three months ended June 30,
2003 as performance targets, goals and objectives were not achieved. For the
quarter ended June 30, 2002, incentive compensation expense was $1.0 million.
If the Company and employees meet their 2003 quarterly quantitative and
qualitative objectives, we will accrue incentive compensation in the remainder
of 2003.

Operating Loss

Consolidated operating loss was $8.7 million for the three months ended June
30, 2003 compared to approximately break even for the same period in the prior
year. Our operating loss for the three months ended June 30, 2003 included
restructuring and other charges of $5.2 million. The increase in the operating
loss from the prior year, excluding the restructuring charges, was mainly due
to the decline in revenues as well as higher project personnel costs as a
percent of revenues due to lower utilization and billing rates.

Other Income

Other income for the three months ended June 30, 2003 was $0.1 million compared
to $0.2 million for the same period in the prior year. The
decrease was a result
of lower interest rates year over year. Our cash and cash equivalents were
primarily invested in overnight money market type accounts. Average interest
rates were approximately 1.12 percent for the three months ended June 30, 2003
compared to approximately 1.85 percent during the same period in the prior
year.

Income Tax Provision

Our tax provision for the three months ended June 30, 2003 was $16.5 million
compared to $0.1

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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY

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

million for the same period for the prior year. The 2003 charge results
from the $19.9 million valuation allowance for deferred tax assets, net of
approximately $3.4 million related to our operating loss in the second quarter
of 2003.

Shares Outstanding

Weighted average number of common shares outstanding and weighted average
number of common and common equivalent shares outstanding decreased due to the
repurchase of outstanding shares under our previously announced Repurchase
Program as well as a reduction in the dilutive effect of common equivalent
shares due to a decline in our stock price. During the three months ended June
30, 2003 under the Repurchase Program, we purchased 34,300 shares of our Common
Stock at an average price of $1.02 per share and 827,300 shares at an average
price of $1.52 per share in the same period in the prior year.

SIX MONTHS ENDED JUNE 30, 2003 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2002

Revenues

Consolidated net revenues were $27.5 million for the six months ended June 30,
2003, a decrease of 47 percent from the same period in the prior year.
Revenues before reimbursements decreased 47 percent to $24.9 million from $46.8
million. We believe that this decline in revenues was primarily due to
decreased demand arising out of the continuing economic uncertainties and a
decline in corporate information technology capital expenditures as large and
small companies reassessed their goals and budgets.

Costs and Expenses

Project personnel costs were $16.8 million for the six months ended June 30,
2003, a decrease of 35 percent from the same period in the prior year. This
decrease was largely attributable to staff and salary reductions driven by our
ongoing efforts to keep headcount and costs in line with associated demand for
our services, as described earlier in this item. Project personnel costs as a
percentage of revenues before reimbursements increased to 67 percent for the
six months ended June 30, 2003 from 55 percent from the same period in the
prior year primarily due to a decline in average hourly billing rates and staff
utilization. Average hourly billing rates decreased 9 percent to $162. The
decline in hourly billing rates reflects the increased competitive environment
in the information technology consulting market. Staff utilization declined to
63 percent from 69 percent.

Other project expenses were $3.0 million for the six months ended June 30,
2003, a decrease of 58 percent from the same period in the prior year. The
decrease in other project expenses consisted of the following: a decrease in
subcontractor costs of $1.1 million due to the decline in revenues and the
corresponding limited use of subcontractors; a decrease in business development
costs of $1.3 million, such as, travel, certain marketing costs and practice
area

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TECHNOLOGY SOLUTIONS COMPANY

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

development costs; a decrease in headcount related costs of $0.4 million,
which included training, computer and communication costs; and a decrease in
various other costs of $1.3 million, such as, severance and selling expenses.
Other project expenses as a percentage of revenues before reimbursements
decreased to 12 percent for the six months ended June 30, 2003 from 15 percent
for the same period in the prior year as a result of the Companys ongoing cost
controls.

Bad debt expense was $0.3 million for the six months ended June 30, 2003
compared to $0.7 million for the same period in the prior year. This decrease
was due to fewer collection issues and lower revenues during the six months ended June 30, 2003
compared to the same period in the prior year.

Management and administrative support costs decreased to $8.2 million for the
six months ended June 30, 2003 from $10.8 million in the same period in the
prior year. This decrease mainly resulted from a decrease in labor costs of
$1.2 million as we reduced headcount and salaries as a result of our
cost-management initiatives; and a decrease in various other costs, such as,
office, occupancy related, travel and legal costs of $1.4 million due to
reduced headcount and our continued cost controls.

As described in more detail above in connection with the comparison of the
three months ended June 30, 2003 and the three months ended June 30, 2002, in
the second quarter of 2003, we recorded $5.2 million in restructuring and other
charges as a result of organizational changes announced in June 2003.

Incentive compensation expense was $0.3 million for the six months ended June
30, 2003 compared with $2.5 million in the same period in the prior year.
Incentive compensation as a percentage of revenues excluding reimbursements
decreased to 1 percent during the six months ended June 30, 2003 compared to 5
percent in the same period in the prior year since there was no incentive
compensation expense for the three months ended June 30, 2003 as performance
targets, goals and objectives were not achieved. If the company and employees
meet their 2003 quarterly quantitative and qualitative objectives, we will
accrue incentive compensation in the remainder of 2003.

Operating Loss

Consolidated operating loss was $8.8 million for the six months ended June 30,
2003 compared $0.1 million for the same period in the prior year. Our
operating loss for the six months ended June 30, 2003 included restructuring
and other charges of $5.2 million. The increase in the operating loss from
the prior year, excluding the restructuring charge, was mainly due to the
decline in revenues as well as higher project personnel costs as a percent of
revenues due to lower utilization and billing rates.

Other Income

Other income for the six months ended June 30, 2003 was $0.4 million compared
to $0.6 million for the same period in the prior year. The slight decrease is
a result of lower interest rates year over year. Our cash and cash equivalents
were primarily invested in overnight money market

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TECHNOLOGY SOLUTIONS COMPANY

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

type accounts. Average interest rates were approximately 1.17 percent
during the six months ended June 30, 2003 compared to approximately 1.91
percent during the same period in the prior year.

Income Tax Provision

Our tax provision for the six months ended June 30, 2003 was $16.6 million
compared to $0.2 million for the same period for the prior year. The 2003
charge results from the $19.9 million valuation allowance for deferred tax
assets, net of approximately $3.4 million related to our operating loss in the
second quarter of 2003.

Shares Outstanding

Weighted average number of common shares outstanding and weighted average
number of common and common equivalent shares outstanding decreased due to the
repurchase of outstanding shares under our previously announced Repurchase
Program as well as a reduction in the dilutive effect of common equivalent
shares due to a decline in our stock price. During the six months ended June
30, 2003 under the Repurchase Program, we purchased 277,000 shares of our
Common Stock at an average price of $1.03 per share and 1,748,700 shares at an
average price of $1.59 per share in the same period in the prior year.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was $3.0 million and $6.9 million for the
six months ended June 30, 2003 and 2002, respectively. Net cash used in
operating activities for the six months ended June 30, 2003 included bonus and
401k match payments related to 2002 but funded during the first quarter of 2003
as well as annual corporate insurance payments made during the second quarter,
partially offset by accounts receivable collections. These payments resulted
in a decrease in accrued compensation and related costs and an increase in
other current assets. The accounts receivable collections contributed to
improved days sales outstanding during the period. Days sales outstanding
improved by 15 days to 61 days at June 30, 2003 as compared to June 30, 2002
primarily due to enhanced collections efforts.

Cash commitments relating to remaining restructuring and other charges are $3.8
million in severance costs, $1.1 million in office costs and $0.6 million in
other commitments. The anticipated cash outflows for these restructuring and
other charges are as follows: $2.8 million for the remaining two quarters in
2003, $1.5 million in 2004 and the remaining balance of $1.2
million in 2005 and thereafter. Other estimated future cash commitments
include various office facilities, property and office equipment under
operating leases and other costs that expire at various dates. The minimum
cash commitments under these non-cancelable operating leases and other
obligations with terms in excess of one year, net of restructuring and other
charges, are as follows: $0.8 million for the remaining two quarters in 2003,
$1.2 million in 2004 and $0.4 million in 2005. In addition, we have a minimum
remaining annual commitment for

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TECHNOLOGY SOLUTIONS COMPANY

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

telecommunications of $0.4 million for the remaining two quarters in 2003.
The Company has no guarantees of third party debt as of June 30, 2003.

Net cash provided by investing activities was $1.8 million for the six months
ended June 30, 2003 from the sale of available-for-sale securities. We
currently have no material commitments for capital expenditures.

Net cash used in financing activities was $0.2 million for the six months ended
June 30, 2003. During the six months ended June 30, 2003 we purchased 277,000
shares of our Common Stock under our share Repurchase Program for $0.3 million
and received $0.1 million from purchases under the employee stock purchase
plan.

Our primary sources of liquidity are our cash and cash equivalents, marketable
securities and anticipated operating cash flows. Our cash and cash equivalents
at June 30, 2003 were $45.9 million. Depending on revenues and cash
collections, we expect our cash and cash equivalent balance at September 30,
2003 to be approximately $37 million to $40 million. We believe that these
sources are sufficient to meet our current cash requirements. Our investment
policy is to maintain most of our cash and cash equivalents in highly liquid,
large money market type funds. This policy exposes us to short-term interest
rate fluctuations. Operating results and liquidity, including our ability to
raise additional capital, if necessary, may be materially and adversely
affected by a decrease in demand for the Companys services. While it is our
strategy to reduce costs in order to match our capacity with demand, this may
not achieve the necessary cost savings. In addition, a number of other
factors, including changes in general economic conditions, technological
changes, competition, and the suspension or cancellation of a large project
could have an adverse effect on future results and liquidity. These
aforementioned factors, as well as other factors, are more fully described in
the Companys Annual Report on Form 10-K for the year ended December 31, 2002
under Managements Discussion and Analysis of Financial Condition and Results
of Operations Assumptions Underlying Certain Forward-Looking Statements and
Factors that May Affect Future Results.

We have a nonqualified deferred compensation plan. All Company executives
(defined as those at the level of Vice President and above) are eligible to
participate in this voluntary program, which permits participants to defer
receipt of a portion of their compensation. We hold deferred amounts in a
rabbi trust for the benefit of plan participants and investment earnings (or
losses) are credited to the participants accounts based on investment
allocation options selected by the participants. We do not guarantee these
investments or earnings thereon. These investments remain assets of the
Company and are available to the general creditors of the Company in the event
of our insolvency.

We had a $10.0 million unsecured line of credit facility (the Facility) with
Bank of America National Trust and Savings Association. The agreement expired
on March 31, 2003. We had never borrowed against the Facility and accordingly,
we chose not to renew it upon its expiration.

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TECHNOLOGY SOLUTIONS COMPANY

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

NEW ACCOUNTING STANDARDS

In January 2003, the Financial Accounting Standards Board (FASB) issued
Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with
Multiple Deliverables. EITF Issue No. 00-21 provides guidance on how to
determine whether an arrangement involving multiple deliverables contains more
than one unit of accounting and how arrangement consideration should be
measured and allocated to the separate units of accounting in the arrangement.
EITF Issue No. 00-21 will be effective for arrangements entered into in fiscal
periods beginning after June 15, 2003. We do not expect that the provisions of
EITF Issue No. 00-21 will have a material impact on our results of operations
or financial position.

In January 2003, the FASB issued FASB Interpretation No.46, Consolidation of
Variable Interest Entities  an interpretation of ARB No. 51 (FIN 46). FIN
46 requires that if an entity has a controlling financial interest in a
variable interest entity, the assets, liabilities and results of activities of
the variable interest entity should be included in the consolidated financial
statements of the entity. FIN 46 requires that its provisions are effective
immediately for all arrangements entered into after January 31, 2003. For
those arrangements entered into prior to January 31, 2003, the FIN 46
provisions are required to be adopted at the beginning of the first interim or
annual period beginning after June 15, 2003. We do not expect that the
provisions of FIN 46 will have a material impact on our results of operations
or financial position.

In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities. SFAS No. 149 amends and clarifies financial accounting
and reporting for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities under SFAS
No. 133, Accounting for Derivative instruments and Hedging Activities. SFAS
No. 149 is effective for contracts entered into or modified after June 30,
2003. The Company believes that the adoption of SFAS No. 149 will not have a
material impact on the Companys results of operations or financial position.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
Company believes that the adoption of SFAS No. 150 will not have a material
impact on the Companys results of operations or financial position.

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

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TECHNOLOGY SOLUTIONS COMPANY

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

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.
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 the pace of technological change,
our ability to manage the current downturn in our industry and the economy in
general, our ability to manage growth and attract and retain employees in the
event the economy turns around, our ability to accommodate a changing business
environment, general business and economic conditions in our operating regions,
market conditions and competitive and other factors, our ability to continue to
attract new clients and sell additional work to existing clients and our
ability to manage costs and headcount relative to expected revenues, all as
more fully described herein and in our Annual Report on Form 10-K for the year
ended December 31, 2002 under Managements Discussion and Analysis of Financial
Condition and Results of Operations Assumptions Underlying Certain
Forward-Looking Statements and Factors that May Affect Future Results and
elsewhere from time to time in our other SEC reports. 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 would make additional updates or corrections with respect
thereto or with respect to other forward-looking statements. Actual results
may vary materially.

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TECHNOLOGY SOLUTIONS COMPANY

PART I. FINANCIAL INFORMATION
(Continued)




ITEM 3QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

TSC is exposed to interest rate fluctuations. Changes in interest rates affect
interest income and expense on cash and cash equivalents, marketable securities
and marketable securities held in trust. The Companys cash and cash
equivalents were primarily invested in overnight money market type accounts.
Average interest rates were approximately 1.17 percent during the six months
ended June 30, 2003 compared to approximately 1.91 percent during the same
period in the prior year and 1.12 percent during the three months ended June
30, 2003 compared to approximately 1.85 percent during the same period in the
prior year. Based on the cash and cash equivalents balances as of June 30,
2003 and 2002, a hypothetical 1.00 percent increase in interest rates would
have resulted in approximately $0.1 million in additional net investment income
during each of the quarters ended June 30, 2003 and 2002 and approximately $0.2
million during each of the six months ended June 30, 2003 and 2002.

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




ITEM 4CONTROLS AND PROCEDURES

The management of the Company, including the Chief Executive Officer and Chief
Financial Officer, have conducted an evaluation of the effectiveness of the
Companys disclosure controls and procedures pursuant to Exchange Act Rule
13a-15 (b) (as amended by SEC Release 33-8238) as of the end of the period
covered by this quarterly report. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective in ensuring that all material
information relating to the Company that is required to be included in the
reports that the Company files with the SEC is made known to them in a timely
fashion. There have been no changes in the Companys internal controls over
financial reporting that were identified during the evaluation that occurred
during the Companys last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Companys internal control over
financial reporting.

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TECHNOLOGY SOLUTIONS COMPANY




PART II. OTHER INFORMATION




ITEM 6EXHIBITS AND REPORT ON FORM 8-K



| | (a) |  | Exhibits
| | --- |  | --------

|          |  |                                                                                                                  
|--------- |  | -----------------------------------------------------------------------------------------------------------------
|Exhibit # |  | Description of Document                                                                                          
|          |  |                                                                                                                  
|10.01*    |  | Retirement Agreement with Jack N. Hayden.                                                                        
|          |  |                                                                                                                  
|10.02*    |  | Retirement Agreement with William H. Waltrip                                                                     
|          |  |                                                                                                                  
|10.03*    |  | Employment Agreement with Stephen B. Oresman.                                                                    
|          |  |                                                                                                                  
|31.1*     |  | CEO Certification                                                                                                
|          |  |                                                                                                                  
|31.2*     |  | CFO Certification                                                                                                
|          |  |                                                                                                                  
|32.1*     |  | Certification of Stephen B. Oresman Pursuant to Section 1350 of
Chapter 63 of Title 18 of the United States Code.
|          |  |                                                                                                                  
|32.2*     |  | Certification of Timothy P. Dimond Pursuant to Section 1350 of
Chapter 63 of Title 18 of the United States Code. 



| | (b) |  | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Four reports on Form 8-K were filed during the
quarter ended June 30, 2003. The report dated April 3,
2003 stated the change in the Companys certifying
accountant. The Company dismissed PricewaterhouseCoopers
LLP and appointed Grant Thornton LLP as the Companys
independent accountants. The report dated April 30, 2003
related to the Companys financial results for the quarter
ended March 31, 2003. The report dated June 18, 2003
announced the Companys actions in response to continued
depressed market conditions. The report dated June 23,
2003 announced the Companys business and organization
changes, which included the resignations and new
appointments of its Chairman of the Board and Chief
Executive Officer.
|
| |     |  | All other items in Part II are either not applicable to the
Company during the quarter ended June 30, 2003, the answer is
negative, or a response has been previously reported and an
additional report of the information is not required, pursuant
to the instructions to Part II.                                                                                                                                                                                                                                                                                                                                                                                                                                                           



---

|*Filed herewith
|---------------

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SIGNATURE

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

TECHNOLOGY SOLUTIONS COMPANY

|                      |  |     |  |                        
|--------------------- |  | --- |  | -----------------------
|Date: August 12, 2003 |  | By: |  | /s/ TIMOTHY P. DIMOND  
|                      |  |     |  |                        
|                      |  |     |  | Timothy P. Dimond      
|                      |  |     |  | Chief Financial Officer

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