UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K




Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934




For the
fiscal year ended December 31, 2009




Commission
File Number:  0-16284




TECHTEAM
GLOBAL, INC.


(Exact
name of registrant as specified in its charter)





Delaware
            
            38-2774613(State
      or other jurisdiction of incorporation)
            
            (I.R.S.
      Employer Identification No.)




27335
West 11 Mile Road, Southfield, MI 48033


(Address
of principal executive offices) (Zip Code)




Registrant’s
telephone number, including area code:  (248) 357-2866




Securities
registered pursuant to Section 12(b) of the Act:


Title of Each Class
                
                Name of each exchange on which
      registeredCommon
      Stock, $.01 par value
                
                NASDAQ®
      Global Market




Securities
registered pursuant to Section 12(g) of the Act: None




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes  ̈No
x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes  ̈No
x




Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes xNo
 ̈




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




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  ̈




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




Large
accelerated filer  ̈           Accelerated
filer x         Non-
accelerated filer  ̈        Smaller
reporting company  ̈


(Do not check if smaller reporting
company)




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




The
aggregate market value of the Registrant’s common stock held by non-affiliates
of the registrant as of June 30, 2009 was approximately $55,795,000 (based
on the June 30, 2009 closing sales price of $6.54 of the Registrant’s
common stock, as reported on the NASDAQ® Global
Market). For the sole purpose of making this calculation, the term
“non-affiliates” has been interpreted to exclude directors and executive
officers of the Company. Such interpretation is not intended to be, and should
not be construed to be, an admission by TechTeam Global, Inc. or such directors
or executive officers of the Company that such directors and executive officers
of the Company are “affiliates” of TechTeam Global, Inc., as that term is
defined under the Securities Exchange Act of 1934.




The
number of shares outstanding of the registrant’s common stock as of March 1,
2010 was 11,140,704.




DOCUMENTS
INCORPORATED BY REFERENCE


Portions
of the registrant’s definitive Proxy Statement, to be filed on or before April
30, 2010, are incorporated by reference into Items 10, 11, 12, 13 and 14 of Part
III of this report.












TECHTEAM
GLOBAL, INC.




FORM
10-K




TABLE
OF CONTENTS




Page
                  NumberPART
      IItem
      1
              Business
              
              3Item
      1A
              Risk
      Factors
              
              11Item
      1B
              Unresolved
      Staff Comments
              
              21Item
      2
              Properties
              
              22Item
      3
              Legal
      Proceedings
              
              22Item
      4
              (Reserved)PART
      IIItem
      5
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              
              23Item
      6
              Selected
      Financial Data
              
              25Item
      7
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              
              27Item
      7A
              Quantitative
      and Qualitative Disclosures about Market Risk
              
              45Item
      8
              Financial
      Statements and Supplementary Data
              
              46Item
      9
              Changes
      In and Disagreements with Accountants on Accounting and Financial
      Disclosure
              
              85Item
      9A
              Controls
      and Procedures
              
              85Item
      9B
              Other
      Information
              
              85PART
      IIIItem
      10
              Directors,
      Executive Officers and Corporate Governance
              
              86Item
      11
              Executive
      Compensation
              
              86Item
      12
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              
              87Item
      13
              Certain
      Relationships and Related Transactions, and Director
      Independence
              
              87Item
      14
              Principal
      Accountant Fees and Services
              
              88PART
      IVItem
      15
              Exhibits
      and Financial Statement Schedules
              
              89SIGNATURES
              
              93FINANCIAL
      STATEMENT SCHEDULE
              
              95




2




Forward-Looking
Statements




This
Annual Report on Form 10-K, including “Item 7 — Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements represent our expectations or
beliefs concerning future events, including projections of revenue, gross
margin, expenses, earnings or losses from operations, or other financial items;
estimates of synergies; sufficiency of cash flows for future liquidity and
capital resource needs; our plans, strategies, and objectives for future
operations; developments or performance relating to our services; and future
economic conditions or performance. We caution that although forward-looking
statements reflect our good faith beliefs and reasonable judgment based upon
current information, these statements are qualified by important factors that
could cause actual results to differ materially from those in the
forward-looking statements, because of risks, uncertainties, and factors
including, but not limited to, the continuing effects of the U.S. recession and
global credit environment, other changes in general economic and industry
conditions, the award or loss of significant client assignments, timing of
contracts, new business solicitation efforts, currency fluctuations, and other
risks that are described herein, including but not limited to the items
discussed in “Item 1A — Risk Factors” of this report, and that are otherwise
described from time to time in the Company’s reports filed with the United
States Securities and Exchange Commission. The forward-looking statements
included in this report are based on information available to the Company on the
date hereof, and the Company assumes no obligation to update any such
forward-looking statements.




PART
I
  Item
      1.
              BUSINESS
  General
  TechTeam Global, Inc.
(including its consolidated subsidiaries, “TechTeam,” the “Company” or “we”) is
a leading provider of information technology (“IT”) outsourcing and business
process outsourcing services to large and medium sized businesses, as well as
government organizations. The Company's primary services include service desk,
technical support, desk-side support, security administration, infrastructure
management and related professional services. TechTeam also provides a number of
specialized, value-added services in specific vertical markets. Our business
consists of two main components — our Commercial business and our Government
business. Together, our IT Outsourcing Services segment, IT Consulting and
Systems Integration segment and Other Services segment comprise our Commercial
business. Our Government Technology Services segment comprises our Government
business. In addition to managing our Commercial business by service line, we
also manage our business by geographic markets — the Americas (defined as North
America excluding our government-based subsidiaries), Europe and Latin America
and Asia. Our periodic reports and current reports filed with the United States
(“U.S.”) Securities and Exchange Commission are available free of charge on our
Web site, www.techteam.com, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the Securities and
Exchange Commission.
  TechTeam
Global, Inc. was incorporated under the laws of the State of Delaware in 1987.
Our common stock is traded on the NASDAQ® Global
Market under the symbol “TEAM.” Our client base
includes, but is not limited to, Ford Motor Company, Deere & Company,
Essilor International, Alcoa, Inc., PLLC and Phillip Morris International, as
well as U.S. Federal Government departments and agencies and local government
entities, such as the U.S. Air National Guard, National Institutes of Health
(“NIH”), Department of Defense, Department of Homeland Security and Department
of Health and Human Services.
  3
  Services
and Information about Operating Segments
  We
provide services to our customers in four operating segments — IT Outsourcing
Services, IT Consulting and Systems Integration, Government Technology Services
and Other Services. IT Outsourcing Services, IT Consulting and Systems
Integration, and Other Services comprise our Commercial business segments, and
Government Technology Services is our Government business segment. Information
with respect to each of our segments is included in “Item 7 — Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and in
Note 15 of the Notes to Consolidated Financial Statements included in “Item
8 — Financial Statements and Supplementary Data.”
  1.         Commercial
Business
  a.         IT
Outsourcing Services
  Our IT
Outsourcing Services segment provides global service desk and IT infrastructure
support around-the-clock (24x7x365) for our clients, their end-users and other
constituencies. We maintain and support a full range of our clients’ IT and
business process infrastructures from network environments to computing systems,
and from shrink-wrapped applications to advanced proprietary and acquired
application systems. We also provide technical support and in multiple languages
for our customers’ products in the marketplace. The two primary elements of this
business segment are Enterprise Support Services and Business Process
Outsourcing (“BPO Services”), which are supported by a global IT outsourcing
delivery model for service desk services as discussed below.
  Enterprise Support
Services
  A
company’s IT infrastructure provides essential tools necessary for the effective
delivery of its product(s) or services to its customers. Over the years, the
process-based best practices for managing and controlling IT infrastructure set
forth in the Information Technology Infrastructure Library (“ITIL”) is becoming
the dominate methodology for the delivery of IT infrastructure support to
enterprises (“IT Service Management”). IT Service Management is intended to
align IT services with the current and future needs of the business and its
customers, while improving quality of services and reducing the long-term cost
of delivery. Historically, TechTeam’s core focus has been on service
operation.
  TechTeam’s
operation delivery model is primarily based upon a “single point of contact”
(“SPOC”) “service desk” delivery model designed to enable our clients to
consolidate their incident resolution support functions into a centralized
service desk, thereby reducing costs by standardizing responses to incidents,
reducing unnecessary labor costs and reducing the number of incidents that need
to be escalated to a higher-level support function. Our service desk technicians
are trained in the client’s IT infrastructure and applications to enable them to
efficiently diagnose and solve the end-user’s problems and answer technical
questions.
  From this
SPOC service desk model, TechTeam continues to transform its service desk
function into a platform for IT service management through its Lean ITIL
initiative, which utilizes Lean Six Sigma methodologies to reduce waste within
an IT infrastructure. TechTeam uses ITIL processes to monitor and identify where
inefficiencies arise. For example, within service operations, a focus on the
information derived from “incident management”, “problem management” and “event
management” could provide insight into ways to resolve problems within the
customer’s IT environment more quickly. As ITIL best practices and lean
principles are integrated, the Company assists its customers in the reduction of
support requests within their customer’s IT environment.
  4
  TechTeam
is selectively extending its ITIL expertise into other areas of infrastructure
support services including, but not limited to, desk side support, remote
management, asset management, security administration, and network monitoring.
By integrating these services with our service desk, we are able to effectively
and efficiently provide standardized infrastructure support services to our
customers. We generally provide these services on a managed service basis, with
the customer paying for the service on a per-incident, per-seat or volume basis.
Our performance is generally measured through service level agreements
negotiated with our customers.
  Historically,
we have provided these services to large enterprises with a need for
international multilingual support. For example, under the Ford Motor Company
(“Ford”) Global SPOC Program (“SPOC Program”), we provide a single point of
contact service desk for Ford that integrates desk side support. After we have
begun to provide service to a customer, we are regularly able to expand the
scope of our services to that customer because an increased volume of business
allows us to obtain a higher utilization of resources and increased efficiency
for the customer. We believe that we will continue to see growth in our
multilingual enterprise support for large businesses. We also provide support
services for smaller businesses. Our enterprise support services provide these
businesses with a more economical and higher level of service desk, desk side
support and network management services than they can provide themselves
internally. Our flexible solution design and pricing models enable these
businesses to select the level of support their organization requires, whether
from dedicated or shared resources.
  We are
focused on expanding the markets for our enterprise support service model
globally. Our customers continue to request us to expand our support for them to
new countries. As a result, we continue to logically expand our global footprint
to deliver the multilingual support these clients need. For example, we
continued our expansion into the Philippines in 2009, and we are currently
expanding our services to provide support for our customers from Latin
America.
  In order
to deliver ITIL-based services to our customer’s efficiently, the Company is
working with CA, Inc. (formerly known as Computer Associates) to deliver
ITIL-based software IT service management tools to our customers. With this
arrangement, our customers are able to obtain our services that leverage the use
of CA technology. We believe the combination of our integrated infrastructure
support and CA technology provides a differentiated service solution to the
market, and the availability of CA technology increases demand for our services.
While Company revenue related to CA software is not material, the Company
anticipates the importance of the CA technology to the Company’s performance
will continue to grow.
  Business Processing
Outsourcing (“BPO”) Services
  Our BPO
Services provide our clients with a centralized multilingual service desk. Our
clients primarily outsource the technical support aspect of their customer
service business process to us, such as providing support for our client’s
applications sold to or provided to their customers. For example, we provide
technical support for video editing software and global distribution system
software for certain customers in the travel industry. Where we can create a
niche, we also provide a fuller range of services to our customers. For example,
we manage the set-up, shipping and support of the hardware and software used in
e-clinical trials around the world for certain of our pharmaceutical industry
customers. We also provide limited non-technical customer service support for
our clients, such as customer enrollments and marketing promotion
support.
  Global IT Outsourcing
Delivery Model
  We
continue to expand our global IT outsourcing delivery model. In 2008, we
established our service desk delivery presence in Asia-Pacific through the
acquisition of Onvaio, LLC and the delivery partnership with Rainmaker Systems,
Inc. Accordingly, our service desk services for enterprise support and BPO
services are now delivered from our facilities in the United States (Southfield,
Michigan; and Davenport, Iowa), our facilities in Europe (Brussels, Belgium;
Bucharest and Sibiu, Romania; and Stockholm, Sweden), Rainmaker’s facilities in
the Philippines (Manila) and from our customers’ facilities. Utilizing a
client-specific solution that blends the advantages of each location, we have
provided cost-effective service in over 32 languages.
  5
  As our
business becomes more global, our service delivery grows in complexity. To
address the complexity we use data analytics, business process improvement
methodology, daily productivity/profitability metrics and call center management
tools to manage the variables that drive a project’s efficiency and
profitability. Each delivery site has different costs, available skills and
labor laws, which we often need to coordinate together to deliver a customized
solution for our customers.
  With
delivery sites around the world, we are dependent upon technology to assist in
maximizing the overall value and utilization of our technicians. We are in the
process of upgrading our phone switch technology globally to fully enable voice
over internet protocol (VoiP) and the dynamic routing of calls to the available
international resources. Further, we continue to enhance the ability of our
customer’s end users to obtain resolution to their problems from multiple
channels of communication.
  b.         IT
Consulting and Systems Integration
  During
2008, the Company decided to de-emphasize the IT Consulting and Systems
Integration business segment. Accordingly, on October 31, 2008, we sold TechTeam
A.N.E. NV/SA, which provided $7.2 million of revenue in this business segment in
the first ten months of 2008. While we continue to provide limited services
within this business segment to customers who need IT infrastructure design,
development, technology deployment, application development and implementation
services, we are narrowing our future focus on delivering these services to
enhance our IT Outsourcing business segment. For example, we are growing our
ability to assist customers in implementing CA’s Service Desk software
suite.
  The
Company offers deployment, technical support and training services to companies
in the hospitality, retail and food service industries throughout the United
States. Our employees provide on-site services to implement technology and train
our customers’ personnel in the use of point-of-sale and property management
software. We also offer application development and application maintenance
services from Romania.
  c.         Other
Services
  We also
provide, on a limited basis, technical staffing services and learning services.
We provide on-site technical support services including service desk
technicians, software developers and network support technicians. Most of our
technical staffing placements are long-term assignments. However, in difficult
economic environments, contract workers are generally terminated before a
customer’s employees.
  2.         Government
Technology Services
  Our
Government Technology Services are delivered by TechTeam Government Solutions,
Inc. (“TTGSI”) and its wholly-owned subsidiary, Sytel, Inc. TTGSI provides
life-cycle support to the U.S. Government, in which the thought leadership of
its Vector Research Center for Enterprise Performance division (“Vector
Research”, formerly known as NewVectors), in business process improvement and
organizational change management, is integrated with our operational IT-related
delivery capabilities to create a tailored, flexible and innovative solution for
our customer’s requirements. The types of IT support services provided in this
business segment are similar to the services offered in our other primary
business segments, but are more heavily focused on supporting the customers’ IT
network. We provide these services to various departments and agencies of the
U.S. Federal Government including, but not limited to, the U.S. Air National
Guard, NIH, Department of Defense, Department of Homeland Security, and
Department of Health and Human Services, and to local governmental entities in
the United States (see information included in “Risks inherent in the provision
of technology services to governmental entities” located in “Item 1A — Risk
Factors”).
  6
  The
majority of our revenue from this business segment is earned through long-term
contracts under which we provide either managed network services for a monthly
fee or services on a time and materials basis, except for revenue from Vector
Research, over one-half of which is derived from short-term consulting projects.
For
additional information regarding the Company’s revenue recognition for
Government contract, please see Critical Accounting Policies and Estimates,
Revenue Recognition.For our managed network services customers, we
provide complete life cycle support for a customer’s IT infrastructure ranging
from their desktops to their data and voice networks. We provide design,
implementation, operation and maintenance (service desk and desk side support)
services. For example, TTGSI provides systems administration support, network
design, database administration, engineering support and other IT technical
support services to the NIH.
  Over the
past few years in the U.S. Federal Government IT services market, two trends
have had a significant effect on our business: (a) an increasing bias toward the
award of business to small disadvantaged businesses and large contractors, and
(b) uncertain and changing customer priorities due to budgetary constraints and
the change in administrations. We expect these trends to continue in the near
term, as the Obama Administration adjusts the U.S. Federal Government priorities
and acquisition policies. As a result, we anticipate unpredictable IT spending
by the U.S. Federal Government for the foreseeable future.
  In 2007,
TTGSI acquired our Vector Research division, a provider of consultative services
in agent-based modeling, operations analysis, program management and supply
chain engineering. Vector Research is recognized as a thought leader in
providing subject matter expertise, analytical skills and process improvement
methodologies to support business transformation initiatives, particularly in
the Department of Defense. In addition to providing important critical mass to
our Government business, these capabilities provide the Company with the ability
to improve the profitability of its service offerings and expand its service
offerings by transforming the Company’s Commercial best practices to fit the
needs of the U.S. Federal Government.
  We
continue to focus our new business development: (a) in areas where we can
utilize our considerable expertise to serve the mission-critical IT needs of the
U.S. Federal Government; (b) in further developing access to government-wide
acquisition contracts (framework contracts entered into by the government
without committing to any actual business with the contract holder, or “GWACs”)
under which we can sell task-order-based work; (c) in strengthening our
relationships with other government contractors who have GWACs and other
attractive contracting vehicles; and (d) in developing opportunities to leverage
our considerable commercial sector expertise to provide enterprise support
services through a managed service to the U.S. Federal Government. We are
recognizing a trend toward consolidation in the U.S. Federal Government IT
services market, both in the increased utilization of GWACs and in the number
and size of competitors in that market. As this trend continues, we believe our
competitive position in the marketplace will be enhanced because we are large
and have critical mass to justify reliance upon us by our government clients,
yet we are small and creative and able to offer highly efficient, customized
solutions to their needs. In this regard, we have won two task orders under the
USA Contact GWAC contract based in large part on our commercial sector expertise
with call centers, contact centers and service desks.
  Impact
of Business with Major Clients
  We
conduct business under multiple contracts with various entities within the Ford
organization and with various agencies and departments of the U.S. Federal
Government. Ford accounted for 14.3% of our total revenue in 2009, as compared
to 15.9% in 2008 and 20.1% in 2007. The U.S. Federal Government accounted for
31.7% of our total revenue in 2009, as compared to 29.7% in 2008 and 27.1% in
2007. Agencies within the U.S Department of Defense, in the aggregate, accounted
for approximately 17.9% of our total revenue in 2009, as compared to 18.7% in
2008 and 15.9% in 2007.
  7
  Ford Motor
Company
  Our
business with Ford consists of service desk and desk side services, technical
staffing, and network management. Revenue generated through our business with
Ford decreased to $30.3 million in 2009, from $41.2 million in 2008 and
$44.6 million in 2007. The decline in revenue is attributable to a number
of factors, including: (a) seat count and volume declines within the Ford
environment; (b) the effects of the entry into the three-year renewal of the
Global Single Point of Contact ("SPOC") contract, which resulted in a change of
the service delivery and pricing model as discussed below; (c) the divestiture
of Jaguar Land Rover (“JLR”) from the Ford family of companies (we continue to
provide services to JLR under a direct contract); (d) the termination of the
Company’s contract with Dell, Inc. under which the Company provided systems
integration services to Ford as a subcontractor to Dell; (e) the impact of
exchange rates; and (f) the separation of Volvo Car Corporation from the global
Ford IT programs, including the SPOC contract on November 1, 2009.
  On
December 23, 2008, the Company executed a new SPOC contract, under which
TechTeam provides support services to Ford's information technology
infrastructure. Under the SPOC contract, TechTeam provides service desk,
deskside support, service management, infrastructure management, and identity
and access management services to Ford in North America, Western Europe, and
Asia. The contract renewal provides for a significant change in the service
delivery model. These changes include the transition and centralization of
service for English speaking Ford personnel to our operations in the
Philippines, the transition of service for German speaking Ford personnel to
Romania, and an enhanced centralized remote deskside support management
function. This transition was completed in 2009.
  Under the
existing SPOC contract, we provide these infrastructure support services under
specific service level metrics, and we invoice Ford based upon the number of
seats we support. The number of seats supported is determined bi-annually on
February 1 and August 1 of each year. If certain contractual conditions are met,
Ford and TechTeam have the right during each six month period to request one
out-of-cycle seat adjustment. We do not believe the revenue decline will
continue in 2010, as we believe that we are well-positioned to expand the SPOC
program into Latin America, Canada and Asia during 2010.
  As of
December 31, 2009, Ford owed the Company $2.3 million in the Americas and $1.6
million in Europe. Ford amended its North American standard purchase order terms
to increase its payment terms from 30 days to 60 days from receipt of the
invoice. Under the terms of the SPOC contract, the change in North American
payment terms took effect December 1, 2009, and, after that date, we anticipate
that there will be an increase in the aggregate accounts receivable. We do not
believe that Ford’s financial condition will otherwise affect our business with
Ford or the collectability of our accounts receivable from Ford; however, any
failure to retain a significant amount of business with Ford, a bankruptcy
filing or major restructuring by Ford, could have a material adverse effect on
our operating results and liquidity.
  U.S. Federal
Government
  We
conduct business under multiple contracts with various agencies and departments
of the U.S. Federal Government. Revenue generated through our business with the
U.S. Federal Government was $66.9 million in 2009, $77.3 million in
2008 and $60.3 million in 2007.
  The
results of our Government business have been impacted by the difficult
government contracting environment created by the budget constraints our
customers faced. As a result of this environment, many customers have delayed
procurement actions. In turn, we have experienced delays in our expected new
business development. Despite being informed that we were not selected as prime
contractor for the Business Transformation Agency (“BTA”) of the Department of
Defense, we continue to provide service to the BTA as a subcontractor. In 2009
and 2008, we earned $3.3 million and $8.9 million, respectively, in revenue from
the BTA.
  As
previously reported, our contract for the Air National Guard (“ANG”) ended on
September 30, 2009. ANG in-sourced the majority of the work performed under the
expiring contract.  ANG did award a new contract to Harris Corporation,
with the Company as a subcontractor, which covered the work under the expiring
contract that was not in-sourced and additional positions. Accordingly, the new
contract will produce significantly less revenue and gross margin than the
expiring contract. Specifically, had the Company been delivering service under
the new contract for the year ended December 31, 2009, total U.S. Federal
Government revenue would have been reduced on a net basis by approximately
11.7%.
  8
  Competition
  In our
Commercial business, there are many companies that provide services similar to
ours, but no one company dominates our industry. We compete with global IT
outsourcing companies (such as IBM, HP and Computer Science Corporation), our
potential customers’ internal staff and regional service providers. The markets
for our services have been under significant price pressure as customers
scrutinize their IT spending and globalization increases the number of providers
able to provide similar services. Our large competitors typically provide a
significantly wider range of services through a global network of service
providers and have stronger brand recognition.
  We
compete with a strong combination of quality, responsiveness and attentiveness
to customers’ needs, flexibility, competitive pricing, and consistently high
levels of client satisfaction. We compete on our service desk offerings based on
price, experience and reputation in the industry, technological capabilities,
broad multilingual expertise, and responsiveness to client needs and referrals
from existing clients. By integrating a range of IT infrastructure services into
one service desk project, we are able to compete based on improved resource
utilization. Gartner reaffirmed TechTeam’s position in the Leaders Quadrant in
both the Magic Quadrant for Help Desk Outsourcing, North America and Magic
Quadrant for Desktop Outsourcing Services, North America reports. Further, the
Black Book of Outsourcing 2009 Rankings recognized the Company as number one
globally in Help Desk Outsourcing across Tier 1 (customers with over $1 billion
in revenue) and Mid Tier (customers with between $500 million and $1 billion in
revenue) customers and number one globally in IT Infrastructure Outsourcing for
Mid Tier customers.
  In our
Government business, the industry is comprised of a large number of enterprises
ranging from small, niche-oriented companies to multi-billion dollar
corporations with a major presence throughout the U.S. Federal Government.
Because of the diverse requirements of U.S. Federal Government customers and the
highly competitive nature of large U.S. federal contracting initiatives,
corporations frequently form teams to pursue contract opportunities. Prime
contractors leading large proposal efforts select team members on the basis of
their relevant capabilities and experience particular to each opportunity. As a
result of these circumstances, companies that are competitors for one
opportunity may be team members for another opportunity.
  We have
been successful in ensuring our presence on GWAC’s and Government Service
Administration (“GSA”) schedule contracts as either a prime contractor or
subcontractor. Competition then takes place at the task order level, where
knowledge of the customer and its procurement requirements and environment are
keys to winning the business. We have deep relationships with our customers,
particularly the Department of Defense, the National Institutes of Health, and
throughout our Vector Research customer base, and are focusing increased
attention on competing for work where our relationships create a sustainable
competitive advantage. Through the various contractual vehicles at our disposal,
as either a prime contractor or subcontractor, we have the ability to market our
services to many federal agencies. Our “mid-tier” size in the market may be
disadvantageous because we are not a small or disadvantaged business, and we are
at a scale disadvantage relative to the large government contractors; however,
as a result of our experience in providing services to federal departments and
agencies, we have first-hand knowledge of our customers and their goals,
problems and challenges. We believe this knowledge gives us a competitive
advantage in competing for tasks and positions us well for future
growth.
  9
  Sales
and Marketing
  Our sales
and marketing objective in our Commercial business is to leverage our expertise,
multilingual capabilities and global presence to develop long-term relationships
with existing and potential clients internationally. Our initiatives are
designed to build stronger brand identity within our current vertical markets
and the overall IT outsourcing marketplace. We believe that our client base
provides excellent opportunities for further marketing and cross-selling of our
services. Our plans for increasing our visibility include market-focused
advertising, consultative personal visits with potential and existing clients,
participation in market specific trade shows and seminars, speaking engagements,
articles and white papers and our Web site. Further, we intend to invest in
establishing and growing our network of channel and alliance partners, such as
our relationships with CA and Orange Business Services, who are able to sell our
services in a cooperative and mutually beneficial way. Our sales force is
focused on new customer acquisitions and our customer services management is
focused on growth of business at our existing accounts.
  Within
our Government Technology Services business segment, we are focusing our new
business development (a) in areas where we can utilize our considerable
expertise to serve the mission-critical IT needs of the U.S. Federal Government;
(b) in further developing access to GWACs under which we can sell
task-order-based work; (c) in strengthening our relationships with other
government contractors who have GWACs and other attractive contracting vehicles;
and (d) in developing opportunities to leverage our considerable commercial
sector expertise to provide enterprise support services through a managed
service to the U.S. Federal Government.
  Seasonality
  There is
limited seasonality to our business. Historically, our third quarter tends to be
slower than the other quarters in our Commercial business due to the summer
holiday season in Europe. The third quarter in our Government business tends to
be positively impacted by the U.S. Federal Government agencies awarding extra
tasks or completing other contract actions in the weeks before their September
30 fiscal year end to avoid the loss of unexpended fiscal year funds. The fourth
quarter may be negatively affected by the seasonal holidays. Further, we can
experience significant month-to-month variations in our revenue and gross margin
given that we invoice approximately 54% of our revenue on:  (1) a time
and materials basis in which there are variations in revenue based on the number
of billable days during a quarter; or (2) a per-incident or per-call-handled
basis in which revenue variations are caused by variations in call volumes and
incidents handled.
  Intellectual
Property
  We rely
upon a combination of contract provisions and trade secret laws to protect our
proprietary technology. We also rely on a combination of copyright and trade
secret laws to protect our proprietary software. We attempt to further protect
our trade secrets and other proprietary information through agreements with
employees and consultants. Our Vector Research division of TechTeam Government
Solutions, Inc. has certain patents and patent applications pending, which are
not material to our business. There can be no assurance that the steps we have
taken to protect our proprietary technology will be adequate to deter
misappropriation of our proprietary rights or third-party development of similar
proprietary software. We hold a registered trademark for TechTeam®.
  Employees
  We
employed a total of 2,285 employees worldwide as of December 31, 2009,
comprised of 2,134 technicians, engineers and operational staff, 39 sales and
marketing employees and 112 administrative employees. Our employees, with the
exception of approximately 282 employees in Europe, are not represented by a
labor union, and we have never suffered an interruption of business as a result
of a labor dispute. We consider our relations with our employees generally to be
solid.
  10
  European
Operations
  We
service our clients in Europe through 12, wholly-owned subsidiaries: TechTeam
Global Ltd., TechTeam Global NV/SA, TechTeam Global GmbH, TechTeam Global AB,
TechTeam SQM AB (wholly-owned by TechTeam Global AB), TechTeam Global Denmark (a
branch of TechTeam Global AB), TechTeam Global Sp. z o.o., TechTeam Global SRL,
TechTeam Akela SRL, TechTeam Global SAS, TechTeam Global Sàrl, and TTG Portugal,
Lda. We offer services from each of our business segments in Europe except
Government Technology Services; however, the majority of our European revenue
has historically been generated in our IT Outsourcing Services
segment.
  TechTeam
Global Ltd., TechTeam Global GmbH and TechTeam Global AB provide Ford and its
subsidiaries with IT Outsourcing Services and Technical Staffing. TechTeam
Global NV/SA and TechTeam Global SRL provide our clients with primarily
multilingual IT Outsourcing Services.
  A summary
of our international revenue and long-lived assets is set forth in Note 15
of the Notes to Consolidated Financial Statements included in “Item 8 —
Financial Statements and Supplementary Data.”
  Our
international business is subject to risks typically encountered in foreign
operations, including changes in a specific country’s or region’s political or
economic conditions, trade protection measures, import or export licensing
requirements, the overlap of different tax structures, unexpected changes in
regulatory requirements and natural disasters. We are also exposed to foreign
currency exchange rate risk inherent in our sales commitments, anticipated
sales, and assets and liabilities denominated in currencies other than the U.S.
dollar or the local currency of the subsidiary delivering the service; however,
the majority of our revenue is received in the same currency in which we pay our
expenses. While these risks are believed to be manageable, no assurances can be
provided in this regard.
  Asia/Pacific
Operations
  We
service our clients in Asia/Pacific through: (a) two, wholly owned subsidiaries:
Onvaio Asia Services (wholly-owned by Onvaio LLC and TechTeam Australia Pty
Limited; and (b) our service contract with Rainmaker Systems, Inc.
  Item
      1A.
              RISK
      FACTORS
  You
should carefully consider each of the risks and uncertainties described below
and elsewhere in this Annual Report on Form 10-K, as well as any amendments or
updates reflected in subsequent filings with the SEC. The Company believes these
risks and uncertainties, individually or in the aggregate, could cause its
actual results to differ materially from expected and historical results and
could materially and adversely affect our business operations, results of
operations, financial condition and liquidity.
  While we
describe each risk separately, some of these risks are interrelated and it is
possible that certain risks could trigger the applicability of other risks
described below. Also, the risks and uncertainties described below are not the
only ones that we face. Additional risks and uncertainties not presently known
to us, or that we currently deem immaterial, could also potentially impair our
business, financial condition and operating results.
  11
  The
recent global economic and financial market crisis has had and may continue to
have a negative effect on our business and operations.
  The
global economic and financial market crisis of 2008 and 2009 has caused, among
other things, a general tightening in the credit markets, lower levels of
liquidity, increases in the rates of default and bankruptcy, lower consumer and
business spending, all of which has had and may continue to have a negative
effect on our business, results of operations, financial condition and
liquidity. The economic crisis has affected the financial health and stability
of many of our customers, and, if the downturn trend continues, the impact to
our customers may be severe. Most significantly, the economic turmoil had
serious repercussions on the automotive industry, with the bankruptcy of
automobile manufacturers or their suppliers. While the Company has reduced its
reliance on revenue from the automotive industry over the past few years, it
still earned approximately 18% of its revenue from this industry in
2009.
  Moreover,
we may continue to see erosion in our revenue from our current customers, as
these customers seek cost savings, scale back their operations and reduce their
workforce. Given the extended economic uncertainty, we are unable to predict the
full impact of this pressure on our revenue; however, it could have a material
impact on the Company’s business, financial condition and/or results of
operations. The downturn may also lead to reduced gross margins and increased
customer payment delays, defaults and/or increases in accounts receivable
write-offs and our reserves for doubtful accounts. We are limited in our ability
to reduce costs to offset the results of a prolonged or severe economic downturn
given certain fixed costs associated with our operations and our long-term
business approach that necessitates we remain in position to respond when market
conditions improve.
  Inasmuch
as we provide potential customers with an effective means of reducing the cost
of their IT support and/or making their IT support costs variable based upon
utilization, our business is partially counter-cyclical. However, we have
observed that certain current and prospective customers have slowed or stopped
their outsourcing decision-making process. Further, potential customers are
looking for immediate significant savings on the current cost of their IT
support. While the Company may provide new customers with significant savings
over the long-term, new customers have generally not been willing to pay all of
the cost to transition their business to the Company. In light of transition
costs, the ability of the Company to obtain new business and/or maintain its
gross margin may be impaired. As a result of these factors, there are no
assurances that the Company will be able to off-set the loss of revenue with new
business.
  The
timing and nature of any recovery in the credit and financial markets remains
uncertain, and there can be no assurance that market conditions will improve in
the near future or that our results will not continue to be materially and
adversely affected. Such conditions make it very difficult to forecast operating
results, make business decisions and identify and address material business
risks. The foregoing conditions in the fourth quarter did and may in the future
impact the valuation of certain long-lived or intangible assets that are subject
to impairment testing, potentially resulting in impairment charges which may be
material to our financial condition or results of operations. See risk factors
below for a discussion of additional risks to our liquidity resulting from the
current crisis.
  The
competitive pressures we face could harm our revenue, gross margin and business
prospects.
  We face
intense competition in all of our markets and for all of our services. Many
competitors have a significant scale advantage over us, including more
locations, greater financial resources, a larger client base, and greater name
and brand recognition. These competitors may be willing to provide the same
services that we provide at a loss or at a lower gross margin in order to attain
other, more lucrative business from our customers. Over the course of 2009, a
number of our customers terminated contracts with the Company in order to enter
into service agreements with new suppliers that bundled a wider range of
services than the Company was able to provide. Due to this competition, it may
be difficult for us to retain our current customers or grow our
revenue.
  The
intense competition we face may result in our customers demanding reduced
pricing from us in order for us to remain a preferred vendor. These pressures
are likely to continue to increase due to the trend to move outsourcing services
offshore to countries with lower labor costs, such as India and the Philippines.
In response to these pressures, we acquired Onvaio Services Asia to provide
services from Manila, the Philippines. We are also utilizing the services of
Rainmaker Systems, Inc. to provide personnel, training and infrastructure to
support our ITO business with Ford Motor Company, Visteon Corporation, and Deere
& Company until we have established a larger facility. Our inability to
continue to execute upon this strategy to address the globalization of the
support services market could have a material adverse impact on our ability to
maintain and grow our customer base.
  12
  In
certain markets from where we provide our services, there is excess call center
capacity, with high availability of labor. This excess capacity places
additional price pressure for our services, as our competitors may be willing to
lower their price for services below our standard margins in order to win
business to fill the excess capacity. Accordingly, we may have to continue to
lower the prices of our services to stay competitive, while at the same time
trying to maintain or improve quality, revenue and gross margin. If we cannot
proportionately decrease our cost structure on a timely basis in response to
competitive price pressures, our gross margin, and therefore our profitability,
could be adversely affected. Any of these circumstances could have a material
adverse effect on our business, financial condition and results of
operations.
  Moreover,
the process to win new business tends to be long. Our IT Outsourcing Services
business models require significant changes to our customers’ business
processes, and each customer may have significant internal political
difficulties with local regions surrendering decentralized control of the
support function. The decision makers are rarely involved in the early details
of the selection process so there are often multiple sales efforts — initially
to the team charged with selection and then to the Chief Information
Officer/Chief Executive Officer/Board — that have to occur. Our results are
dependent on our ability to successfully manage the sales process and strong
competition in these markets.
  We
are subject to contract risks inherent in our business.
  The great
majority of our contracts, including our Ford Global SPOC contract, may be
terminated without cause on short notice, often upon as little as 90-days
notice. Terminations and non-renewals of major contracts could have a material
adverse impact upon our business, financial condition and results of
operations.
  A portion
of our IT Outsourcing Services business is billed on a managed service basis (in
which the fee is fixed to perform specified services) as opposed to a time and
materials basis. The onset of problems in our customers’ infrastructure, such as
computer viruses, may require us to deploy additional resources to solve these
problems. In many instances, we would not receive any additional revenue for the
work performed, thereby adversely impacting our profitability.
  To the
extent we provide service on a per-incident, per-call or per-minute basis, our
financial performance is dependent upon the volume of service requests that we
receive on the project. Some of our contracts do not contain minimum guaranteed
volume, so we may not receive enough volume during a month to pay for our costs
relating to a specific contract. The global economic downturn is making this
problem more pronounced as our customers are not receiving their historical
volume of service requests or the volume that they expected. Even where volume
guarantees exist, we may not receive enough volume to make our expected profit
for the month when we enforce the guarantee.
  Many of
our contracts contain financial penalties for our failure to meet the
contractual performance service levels. For many potential reasons, including
volume changes higher than anticipated, we may not be able to meet the service
levels. In the United States, we are able to manage this risk through changes in
our staffing, but our European entities do not have as much flexibility in
staffing largely due to labor laws. As the complexity of our service delivery
increases and we provide services to a single customer from multiple locations,
our ability to manage service levels becomes more difficult.
  Due to
the competitive market, we often must agree to a price for providing service
based primarily on information provided to us by our prospective customer.
Sometimes this information is not correct, and it is difficult to either
properly design the project to meet service levels or increase our price to
account for the incorrect information. Our inability to accurately estimate the
resources and related expenses required for a project, or our failure to
complete our contractual obligations in a manner consistent with their terms,
could materially and adversely affect our business, financial condition and
results of operations.
  13
  We
are subject to risks inherent in the provision of technology services to
governmental entities.
  We derive
a significant amount of our revenue from U.S. Federal Government contracts that
typically are awarded through competitive processes and span a one-year base
period and one or more option years. When the U.S. Federal Government budget is
under pressure, as it is at the present time, it may be difficult to develop
business with new customers and grow or maintain contracts with existing
customers. The unexpected termination or non-renewal of one or more of our
significant contracts could result in significant revenue shortfalls. Our
clients generally have the right not to exercise the option periods. In
addition, our contracts typically contain provisions permitting an agency to
terminate the contract on short notice, with or without cause. Following the
expiration of the contract term, if the client requires further services of the
type provided in the contract, there is frequently a competitive re-bidding
process. We may not win any particular re-bid or be able to successfully bid on
new contracts to replace those that have been terminated.
  Many of
the systems we support involve managing and protecting information involved in
the U.S. Department of Defense and other sensitive government functions. A
security breach in one of these systems could cause serious harm to our
business, could result in negative publicity and could prevent us from having
further access to such critically sensitive systems or other similarly sensitive
areas for other governmental clients. Losses that we could incur from such a
security breach could exceed the policy limits that we have for “errors and
omissions” insurance or coverage may not apply.
  Some of
our U.S. Federal Government contracts require us, and certain of our employees,
to maintain security clearances. If we lose or are unable to obtain security
clearances, the client can terminate the contract or decide not to renew it upon
its expiration. As a result, to the extent we cannot obtain the required
security clearances for our employees working on a particular engagement, we may
not derive the revenue anticipated from the engagement, which could negatively
impact our operating results.
  U.S.
Federal Government agencies routinely audit government contracts. These agencies
review a contractor’s performance on its contract, pricing practices, cost
structure and compliance with applicable laws, regulations and standards. An
audit could result in an adjustment to our revenue because any costs found to be
improperly allocated to a specific contract will not be reimbursed, while
improper costs already reimbursed must be refunded. If a government audit
uncovers improper or illegal activities, we may be subject to civil and criminal
penalties and administrative sanctions, including termination of contracts,
forfeiture of profits, suspension of payments, fines and suspension or debarment
from doing business with U.S. Federal Government agencies. In addition, we could
suffer harm to our reputation if allegations of impropriety were made against
us.
  We must
comply with and are affected by U.S. Federal Government regulations relating to
the formation, administration and performance of government contracts. These
regulations affect how we do business with our clients and subcontractors,
including mandating the percentage of business contracted to us that we must
subcontract to small and minority businesses. These regulations may impose added
costs on our business. Any failure to comply with applicable laws and
regulations could result in contract termination, price or fee reductions, or
suspension or debarment from contracting with the U.S. Federal Government.
Further, the U.S. Federal Government may reform its procurement practices or
adopt new contracting methods relating to the General Services Administration
schedule or other government-wide contract vehicles. To the extent that we are
unable to successfully comply with these regulations, our Government Technology
Services business could be negatively impacted.
  If
we lose key personnel or are unable to recruit additional qualified personnel,
our business, financial condition and results of operations could be adversely
affected.
  Our
success is highly dependent upon the efforts, direction and guidance of our
executive leadership team. The loss of key management personnel or our inability
to attract, retain or replace key management personnel in the future could have
a material adverse effect on our business, financial condition and results of
operations.
  14
  Our
inability to attract and retain qualified employees could have a material
adverse effect on our business, financial condition and results of
operations.
  Our
business involves the delivery of professional services and is very labor
intensive. Our success depends in large part upon our ability to attract,
develop, motivate and retain highly skilled technical, clerical and
administrative employees. We can experience high turnover of our personnel and
are often required to recruit and train replacement personnel as a result of a
changing and expanding work force. Qualified personnel, especially in
Washington, D.C., are in high demand. Accordingly, we may experience increased
compensation costs due to the need to improve compensation or the need to train
new staff as a result of turnover. These increased costs may not be offset
through either increased productivity or higher customer pricing. Moreover, no
assurances can be given that we will be able to attract and retain sufficient
numbers of qualified employees in the future, especially when we need to expand
our services in a short time period. While we attempt to implement a career path
model where our service desks are located, thereby enabling our employees to
move to new jobs that require higher skill levels and increased pay, this
objective is difficult to achieve. Our inability to attract and retain qualified
personnel, or increases in wages or other costs of attracting, training or
retaining qualified personnel, could have a material adverse effect on our
business, financial condition and results of operations.
  Our
inability to attract and retain qualified sales and customer service management
personnel could have an adverse effect on our ability to meet our organic growth
targets.
  Our
business involves the delivery of complex services over a distributed IT
environment. It takes time to train new sales people in our business and for
them to build a pipeline of opportunities. In November 2009, the Company
reorganized its Americas and EMEA sales forces into a global sales force. To the
extent the Company replaces members of its current sales force; the Company
anticipates that the new sales persons will have limited effectiveness during
2010. Inasmuch as we strive to grow existing accounts by expanding our services
to new locations or adding new services to our solution, we rely heavily on our
client service managers to grow our revenue. In the past year, we have been
working to add customer service management personnel. Our inability to find the
right personnel and train them quickly may have an adverse effect on our ability
to appropriately manage our customers and meet our organic growth
targets.
  Our
revenue and gross profit may suffer if we are not able to maintain our
relationship with significant customers for whom we have contracts up for
renewal or we are unable to replace revenue lost as a result of recent contract
losses.
  During
2010, we have a significant volume of contracts pending renewal that comprise
approximately 11.8% of our 2009 revenue. We believe that we are well-positioned
to renew most of these contracts due to our overall value proposition and
customer relationships, but there can be no assurance in this regard. Any
significant loss of business as a result of these renewals or failure to replace
revenue lost for contract non-renewals could have a material adverse effect on
our business, financial condition and operating results. See also our discussion
below of risks inherent in providing Government Technology
Services.
  Capital
markets are currently experiencing a period of dislocation and instability,
which has had and could continue to have a negative impact on the availability
and cost of capital.
  The
general disruption in the U.S. capital markets has impacted the broader
financial and credit markets and reduced the availability of debt and equity
capital for the market as a whole. These conditions could persist for a
prolonged period of time or worsen in the future. Our ability to access the
capital markets (or any other source of funds) may be restricted at a time when
we would like, or need, to access those markets, which could have an impact on
our flexibility to react to changing economic and business conditions. The
resulting lack of available credit, lack of confidence in the financial sector,
increased volatility in the financial markets and reduced business activity
could materially and adversely affect our business, financial condition, results
of operations and our ability to obtain and manage our liquidity. In addition,
the cost of debt financing and the proceeds of equity financing may be
materially adversely impacted by these market conditions.
  15
  The
Company’s economic condition and/or credit market developments may reduce
availability of credit under our credit agreement.
  Due to
the current volatile state of the credit markets, there is risk that lenders,
even those with strong balance sheets and sound lending practices, could fail or
refuse to honor their legal commitments and obligations under existing credit
commitments, including but not limited to: extending credit up to the maximum
permitted by a credit facility, allowing access to additional credit features
and otherwise accessing capital and/or honoring loan commitments. If our
lender(s) fail to honor their legal commitments under our credit facility, it
could be difficult in the current environment to replace our credit facility on
similar terms.
  As a
result of the economic downturn, the Company’s economic performance has
declined, and this decline may affect the Company’s ability to maintain its
compliance with the financial covenants set forth in accessing the credit
agreement.  As a result of the goodwill impairment taken by the
Company in the fourth quarter of 2009, the Company was no longer in compliance
with its financial covenants, and it was required to renegotiate the terms of
its credit agreement. As a result of this renegotiation, its cost of borrowing
increased and the size of its facility decreased. To the extent that the Company
would like to access the credit facility for purposes other than working capital
or is further unable to meet the amended financial covenants, the Company
anticipates that its banks will renegotiate the terms of the loan. Further, our
credit agreement has terms favorable to the Company, and any renegotiation of
the financial covenants will further reduce the Company’s flexibility under the
credit agreement. Although we believe that our operating cash flow, access to
capital markets and existing credit facilities will give us the ability to
satisfy our liquidity needs for at least the next 12 months, the failure of
the lender under our credit facility may impact our ability to finance our
operating or investing activities.
  Implementation
of our strategy to grow through complementary business acquisitions is subject
to numerous risks and difficulties.
  Our
business strategy includes seeking to make complementary business acquisitions.
In order to pursue a growth by acquisition strategy successfully, we must
identify suitable candidates for these transactions, complete and pay for these
transactions and fully integrate them into our ongoing operations. Due to the
tightening capital markets, our strategy may be delayed or changed. Moreover,
integration issues are complex, time-consuming and potentially expensive and,
without proper planning and implementation, could significantly disrupt our
business. Integration issues include, but are not limited to, the diversion of
management’s attention, the loss of key business and/or personnel from the
acquired company, unanticipated events, legal liabilities, dilutive effect of
the issuance of additional securities and possible impairment of acquired
intangible assets. Moreover, the financial risks of acquisitions continue after
the integration of the acquired company. If the implicit value of the business
declines, there could be a non-cash, partial or full write-off of the acquired
intangible assets, including goodwill, attributed to the acquisition.
Acquisitions also may result in significant costs and expenses and charges to
earnings, including those related to severance pay, early retirement costs,
employee benefit costs, charges from the elimination of duplicative facilities
and contracts, in-process research and development charges, inventory
adjustments, legal, accounting and financial advisory fees, and required
payments to executive officers and key employees under retention plans. Any of
these possible difficulties associated with acquisitions could have a material
adverse effect on our business, financial condition and results of
operations.
  Inasmuch
as the Company has a market capitalization lower than its current book value,
the Company will need to continue to perform interim impairment testing under
Accounting Standards Codification 350, "Intangibles - Goodwill and Other", ("ASC
350"), which may require the Company to record a goodwill impairment
charge.
  During
the years ended December 31, 2009 and 2008, we performed our annual goodwill
impairment test as of October 1 of each year. Additionally during the year ended
December 31, 2008, as a result of recent economic events, coupled with the
conclusion of certain customer contracts, and the decline in our stock price, we
updated our annual goodwill impairment testing from October 1, 2008 to perform
an interim impairment test as of December 31, 2008. During our 2009 impairment
test, we determined that goodwill was impaired for our Government Solutions and
SQM reporting units. We did not incur an impairment charge relating to our
goodwill impairment test as of October 1, 2008 or December 31, 2008. If future
results for the Company’s other assets for which it holds goodwill are not
consistent with our current assumptions and estimates, we may be required to
record additional goodwill impairment charges at a later date. Please see Note 4
– Goodwill and Other Intangible Assets for further information.
  16
  We
are subject to numerous risks relating to our international
operations.
  We
operate businesses in many countries outside the United States, located
throughout Europe and Asia. As part of our business strategy, we will continue
to expand our global reach, to deliver services from additional locations in the
Asia Pacific region and from Central and South America. As a result, we expect
to continue expansion through start-up operations and acquisitions in additional
countries. Expansion of our existing international operations and entry into
additional countries will require management attention and financial
resources.
  Our
future revenue, gross margin, expenses and financial condition also could suffer
due to a variety of international factors, including the following:
  ·
              changes
      in a country’s or region’s economic or political conditions, including
      inflation, recession, interest rate fluctuations, terrorism and religious
      extremism and unanticipated military
conflicts;
  ·
              currency
      fluctuations, particularly in the European euro, which contribute to
      variations in the sale of services in impacted jurisdictions and also
      affect our reported results expressed in U.S.
  dollars;
  ·
              longer
      accounts receivable cycles and financial instability among
      customers;
  ·
              local
      labor conditions and regulations;
  ·
              differences
      in cultures and languages, which can impair our ability to work as an
      effective global team;
  ·
              differing
      political and social systems;
  ·
              changes
      in the regulatory or legal
environment;
  ·
              differing
      technology standards or customer
requirements;
  ·
              difficulties
      associated with repatriating cash generated or held abroad in a
      tax-efficient manner;
  ·
              changes
      in tax laws in international jurisdictions;
and
  ·
              natural
      and man-made disasters.
 
 To the
extent we are not able to manage our international operations successfully, our
business could be adversely affected and revenue or earnings could be
reduced.
  There
are substantial risks associated with expanding our labor force into offshore
markets.
  The
outsourcing industry trend to move business toward offshore markets could result
in excess operating capacity in the United States and Belgium. Moreover, there
are no assurances that we will be able to successfully expand into and conduct
business in offshore markets. The success of any offshore operation is subject
to numerous contingencies, some of which are beyond management control,
including general and regional economic conditions, prices for our services,
competition, changes in regulation and other risks. Any failure in our strategy
could have a material adverse effect on our business, financial condition and
results of operations. See the discussion above regarding the risks associated
with international operations.
  When a
number of service providers enter these offshore locations, the competition for
employees increases, causing turnover and increasing labor costs. In these
circumstances, we bear the risk of inflation, especially labor inflation, which
could result in our costs increasing faster than we can improve technician
productivity. While the economic downturn has reduced potential wage inflation,
the competitive trend may accelerate when economic conditions
recover.
  Several
of our customers are attracted to the reduction in the cost of our services that
they may obtain as a result of delivery from an offshore location. They also
wish to enter into contracts that tend to provide them with predictable costs,
while shifting the risk of volume fluctuations to us. Accordingly, we enter into
long-term contracts to provide monthly services with a price that does not
adjust significantly with inflation. Our inability to manage these risks could
have a material adverse effect on our business, financial condition and results
of operations.
  17
  We
are subject to currency risks as a result of our international
operations.
  We serve
an increasing number of our U.S.-based customers using service desks in Europe.
Some of these contracts are priced in U.S. dollars, while a substantial portion
of our costs are incurred in Romanian ron or the European euro. In this way, we
are subject to “operational” foreign currency exchange risk. Although we enter
into foreign exchange contracts from time to time to limit potential foreign
currency exposure, we do not fully hedge this exposure. As a result, unfavorable
shifts in exchange rates may reduce our gross profit on these
contracts.  In addition, we are subject to “financing” foreign
currency exchange risk. In the normal course of our business, our operating
subsidiaries will loan funds to each other. This creates a natural foreign
currency gain or loss for the financing counterparty subsidiary which operates
in a currency different from that in which the loan is denominated. This gain or
loss is necessarily realized in our financial statements in unpredictable
character (gain or loss) and amount.
  Our
inability to properly manage projects and capacity could have a material adverse
effect on our business, financial condition and results of
operations.
  Our
ability to profit from the global trend toward outsourcing depends in part on
how effectively we manage our service desk capacity. There are several factors
and trends that have intensified the challenge of resource management. In order
to either create the additional capacity necessary to accommodate new or
expanded outsourcing projects or to manage the risk of labor inflation, we must
consider opening new service desk facilities. The opening or expansion of a
service desk facility may result, at least in the short term, in idle capacity
until any new or expanded program is fully implemented. We periodically assess
the expected long-term capacity utilization of our service desk facilities. As a
result, we may, if deemed necessary, consolidate, close or partially close
under-performing service desk facilities in order to maintain or improve
targeted utilization and margins. There can be no assurance that we will be able
to achieve or maintain optimal utilization of our service desk capacity. If we
do not effectively manage our capacity, our business, financial condition and
results of operations could be adversely affected.
  With the
addition of our Philippines service desk facility; we continue to increase the
amount of business that we are performing for the same customer from more than
one location. Multisite and multilingual delivery increases the complexity of
the service provided including, but not limited to, managing call volume and
resources. Our inability to manage the different cultures and personnel to
deliver consistent quality from different sites could have a material adverse
effect on our business, financial condition and results of
operations.
  Our
customers often ask us to expand our geographic footprint and the languages that
we support, while reducing the cost of our support. However, as our
profitability is dependent on managing the utilization of resources, the
addition of languages or additional locations can impair our profitability.
Moreover, in order for us to keep our costs in line with the marketplace, our
future success will be dependent upon our ability to find cost-effective
locations in which to operate internationally. There is no assurance that we
will be able to find cost-effective locations, obtain favorable lease terms,
develop subcontractor relationships, establish facilities and train a workforce
in a timely or economic manner.
  Further,
our work in the IT Consulting and Systems Integration business segment requires
the efficient management of human resources. There is a risk that we may not
have sold new business to replace projects as they are completed. Because we may
not be able to maintain a steady or increasing demand for our services, we could
suffer fluctuations in our revenue, the number of employees and results of
operations.
  18
  We
are increasingly selling our services through channel partners and our inability
to effectively manage a channel partner or customer relationship may have an
adverse affect on our business, financial condition and results of
operations.
  We are
focused on developing relationships with channel partners to help us sell our
services. These channel and alliance partners may be large companies with
complementary services that may hire us to provide services to their customers.
In these relationships, we generally do not control the customer relationship.
Accordingly, we are dependent upon the prime contractor to appropriately manage
our service delivery for the end customer. The failure of the prime contractor
to do so can lead to situations where projects are delayed, modified or
terminated for reasons outside our control. The channel partners may be in a
different business or we may be their customer, and therefore we must balance
our interest in obtaining new business with the best value for our purchases.
Our inability to manage these relationships could have a negative effect on our
business, financial conditions and results of operations.
  Our
inability to effectively manage our regional subcontractors who provide service
to our customers may have an adverse affect on our business, financial condition
and results of operations.
  In order
to meet the global needs of our customers, the Company currently subcontracts
service to Rainmaker Systems, Inc. in the Philippines, and it anticipates
providing support to its customers by subcontracting services from one or more
other vendors in South America. In this way, we are able to expand globally,
without the risk and expense of launching operations in new locations. The
subcontractors are providing support to major customers of the Company,
including Ford Motor Company, Deere & Company and Visteon Corporation.
However by relying upon subcontractors, our contract risk with our customers is
heightened. We lose some control over the performance of the services because
the customer is being serviced by employees of another company. The company
selected to serve as subcontractor does not necessarily have interests aligned
with the interests of the Company. For example, the subcontractors often provide
the same type of services as TechTeam, and we often compete for the same
customers. To the extent the size of the business subcontracted is small, the
subcontractor may not place enough emphasis on providing quality service.
Accordingly, managing the business interests of the respective companies is one
of the risks of implementing a business strategy relying on subcontractors. Our
inability to manage these relationships could have a negative effect on our
business, financial conditions and results of operations.
  We
are highly dependent upon technology, and our inability to keep pace with
technological advances in our industry, or our failure or inability to protect
and maintain our existing systems, could have a material adverse effect on our
business, financial condition and results of operations.
  Our
success depends in part on our ability to develop IT solutions that keep pace
with continuing changes in the IT industry, evolving industry standards and
changing client preferences. There can be no assurance that we will be
successful in adequately addressing these developments on a timely basis or
that, if these developments are addressed, we will be successful in the
marketplace. We need to continually make significant investments, with ever
increasing regularity, in sophisticated and specialized communications and
computer technology to meet our clients’ needs. We anticipate that it will be
necessary to continue to invest in and develop new and enhanced technology in
shorter intervals and on a timely basis to maintain our competitiveness.
Significant capital expenditures may be required to keep our technology
up-to-date. There can be no assurance that any of our information systems will
be adequate to meet our future needs or that we will be able to incorporate new
technology to enhance and develop our existing services. Moreover, investments
in technology, including future investments in upgrades and enhancements to
software, may not necessarily maintain our competitiveness. Our future success
will also depend in part on our ability to anticipate and develop information
technology solutions that keep pace with evolving industry standards and
changing client demands. Our inability to effectively keep pace with continuing
changes in the IT industry could have a material adverse effect on our business,
financial condition and results of operations.
  19
  Moreover,
experienced computer programmers and hackers may be able to penetrate our
network security, or that of our customers, and misappropriate confidential
information, create system disruptions or cause shutdowns. If this were to
occur, we could incur significant expenses in addressing problems created by
security breaches of our network. Moreover, we could lose existing or potential
customers for information technology outsourcing services or other information
technology solutions, or incur significant expenses in connection with our
customers’ system failures. In addition, sophisticated hardware and operating
system software and applications that we produce or procure from third parties
may contain defects in design and manufacture, including “bugs” and other
problems that can unexpectedly interfere with the operation of our systems. The
costs to eliminate or alleviate security problems, viruses, worms and bugs could
be significant, and the efforts to address these problems could result in
interruptions, delays or cessation of service.
  Our
operations are dependent upon our ability to protect our service desk facilities
and our information databases against damages that may be caused by fire and
other disasters, power failures, telecommunications failures, unauthorized
intrusion, computer viruses and other emergencies. The temporary or permanent
loss of such systems could have a material adverse effect on our business,
financial condition and results of operations. Notwithstanding precautions we
have taken to protect ourselves and our clients from events that could interrupt
delivery of our services, there can be no assurance that a fire, natural
disaster, human error, equipment malfunction or inadequacy, computer virus,
firewall breach or other event would not result in a prolonged interruption in
our ability to provide support services to our clients. Moreover, as we deliver
services from offshore locations, the risks related to interruption of
telecommunications increases. The loss of a critical supplier due to the current
economic crisis or any interruption to our data or voice telecommunications
networks could have a material adverse effect on our business, financial
condition and results of operations.
  Our
financial results may be adversely affected by increases in business
costs.
  Health
care and other benefit costs continue to increase. Our business is labor
intensive, and therefore we have exposure to these increasing health care and
other benefit costs. While we attempt to compensate for these escalating costs
in our business cost models and customer pricing and have passed along some of
these increased costs to our employees, we generally have long-term, fixed-price
pricing agreements with our customers. Accordingly, no assurances can be given
that we will be able to recover increases in our costs through increased service
fees.
  We
may be subject to risks associated with terrorist acts or other events beyond
our control.
  Terrorist
acts or acts of war (wherever located around the world) may cause damage or
disruption to TechTeam, our employees, facilities, partners, suppliers,
distributors, resellers or customers, which could adversely impact our business,
financial condition and results of operations.
  We
are subject to risks associated with our use of intellectual
property.
  We rely
upon a combination of nondisclosure and other contractual arrangements and trade
secrets, copyright and trademark laws to protect our proprietary rights and the
proprietary rights of third parties from whom we license intellectual property.
We enter into confidentiality agreements with our employees, customers and
suppliers and limit distribution of proprietary information. There can be no
assurance, however, that the steps taken by us in this regard will be adequate
to deter misappropriation of proprietary information or that we will be able to
detect unauthorized use of such information and take appropriate steps to
enforce our intellectual property rights.Our
ability to enforce our trademarks, copyrights, software licenses, and other
intellectual property rights is subject to general litigation
risks.  In some cases, the ownership or scope of an entity’s or
person’s rights is unclear and may also change over time, including through
changes in U.S. or international intellectual property laws or regulations or
through court decisions or decisions by agencies or regulatory boards that
manage such rights.  Our intellectual property may be subject to even
greater risk in foreign jurisdictions, as it is often more difficult and costly
to enforce our rights in foreign jurisdictions.  Moreover, the laws of
many countries do not protect proprietary rights to the same extent as the laws
of the United States and intellectual property developed for us by our employees
or contractors in foreign jurisdictions may not be as protected as if created in
the United States.
  20
  Although
we believe our services and/or software do not infringe upon the intellectual
property rights of others and that we have all of the rights necessary to
utilize the intellectual property employed in our business, we are subject to
the risk of litigation alleging infringement of third-party intellectual
property rights. Any such claims could require us to spend significant sums of
money in litigation, pay damages, develop non-infringing intellectual property
or acquire licenses of the intellectual property that may be the subject of
asserted infringement.
  We
may experience volatility in our stock price that could affect your
investment.
  The price
of our common stock has been, and may continue to be, highly volatile in
response to various factors, many of which are beyond our control including, but
not limited to:
  ·
              the
      depth and liquidity of the trading market for our common
      stock;
  ·
              general
      economic conditions;
  ·
              developments
      in the industries or markets in which we
  operate;
  ·
              acquisitions
      and divestitures;
  ·
              announcements
      by competitors;
  ·
              actual
      or anticipated variations in quarterly or annual operating
      results;
  ·
              speculation
      in the press or investment
community;
  ·
              sales
      of large blocks of our common stock or sales of our common stock by
      insiders;
  ·
              any
      dilutive effect from stock
offerings;
  ·
              changes
      in accounting standards, policies, guidance, interpretations or
      principles;
  ·
              regulatory
      actions or litigation; and
  ·
              departures
      of our key personnel.
 
 The
market price of our common stock may also be affected by our inability to meet
analyst and investor expectations or failure to achieve projected financial
results. Any failure to meet such expectations or projected financial results,
even if minor, could cause the market price of our common stock to decline.
Volatility in our stock price may result in your inability to sell your shares
at or above the price at which you purchased them.
  In
addition, stock markets have generally experienced a high level of price and
volume volatility, and the market prices of equity securities of many companies
have experienced wide price fluctuations not necessarily related to the
operating performance of such companies. These broad market fluctuations may
adversely affect the market price of our common stock. In the past, securities
class action lawsuits frequently have been instituted against such companies
following periods of volatility in the market price of such companies’
securities. If any such litigation is instigated against us, it could result in
substantial costs and a diversion of management’s attention and resources, which
could have a material adverse effect on our business, financial condition and
results of operations.
  Item
      1B.
              UNRESOLVED
      STAFF COMMENTS
  None.
  21
 
 Item
2.           PROPERTIES
  Our world
headquarters and principal executive offices are located in Southfield,
Michigan. The following table sets forth certain information regarding the
principal properties used by TechTeam as of March 1, 2010, all of which are
leased:
 
 Location
                
                Function
                
                Lease Term Beginning
                    and End (mm/dd/yr)
                
                Square
                    FootageSouthfield,
      MI
                
                World
      Headquarters and Service Desk Facility
                
                11/01/93
      – 08/31/16
                
                
                73,622Brussels,
      Belgium
                
                European
      Headquarters and Service Desk Facility
                
                08/01/97
      – 06/30/18
                
                
                32,842Bucharest,
      Romania
                
                Service
      Desk Facility
                
                09/01/04
      – 05/13/15
                
                
                30,140Ann
      Arbor, MI
                
                Sales
      and Administrative Office
                
                05/31/07
      – 03/31/13
                
                
                17,766Chantilly,
      VA
                
                Headquarters
      of TechTeam Government Solutions, Inc.
                
                06/12/04
      – 05/31/11
                
                
                17,957Davenport,
      IA
                
                Service
      Desk Facility
                
                10/15/99
      – 08/31/14
                
                
                18,339Bucharest,
      Romania
                
                Headquarters
      of TechTeam Akela SRL
                
                10/01/06
      – 06/30/14
                
                
                10,065Stockholm,
      Sweden
                
                Headquarters
      of TechTeam SQM AB
                
                02/14/07
      – 12/31/13
                
                
                6,598Dresden,
      Germany
                
                Service
      Desk Facility
                
                04/01/08
      – 07/31/16
                
                
                5,748Bethesda,
      MD
                
                Sales
      and Administrative Office
                
                06/01/01
      – 10/31/13
                
                
                5,428Alexandria,
      VA
                
                Sales
      and Administrative Office
                
                05/31/07
      – 05/30/11
                
                
                5,258Portsmouth,
      RI
                
                Sales
      and Administrative Office
                
                06/01/01
      – 05/31/12
                
                
                4,200Sibiu,
      Romania
                
                Service
      Desk Facility
                
                03/07/08
      – 03/17/11
                
                
                3,659Alexandria,
      VA
                
                Sales
      and Administrative Office
                
                04/01/08
      – 03/31/13
                
                
                3,142San
      Diego, CA
                
                Sales
      and Administrative Office
                
                05/31/07
      – 04/30/13
                
                
                2,350Galati,
      Romania
                
                Sales
      and Administrative Office
                
                05/01/07
      – 09/30/10
                
                
                861Manila,
      Philippines
                
                Service
      Desk Facility
                
                05/01/08
      – 11/30/10
                
                
                3,003
  Other
than its service desk facility in Bucharest, Romania, the Company believes the
facilities it occupies are well maintained and in good operating condition. The
Company’s Bucharest, Romania service desk facility has structural defects, which
the landlord has not remedied. Accordingly, the Company is evaluating the
suitability of this facility for its long-term needs. While not ideal, the
facility does meet the Company’s short-term requirements. Although the Company
also believes these locations are adequate to meet its needs for the foreseeable
future, the Company is continually evaluating its facility requirements in light
of its need to provide cost effective global support with specific IT and
language skills. These facilities include general office space. Because some of
its services are performed at client sites, the cost of maintaining multiple
offices is minimized.
  Item
      3.
              LEGAL
      PROCEEDINGS
  From time
to time we are involved in various litigation matters arising in the ordinary
course of business. None of these matters, individually or in the aggregate,
currently is material.
  22
  PART
II
  Item
      5.
              MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
  Our
common stock trades on the NASDAQ® Global
Market under the symbol “TEAM.” The following table sets forth the reported high
and low sales prices of our common stock for the quarters indicated as reported
by the NASDAQ® Global
Market.
 
 Year and Quarter
                  
                  High
                  
                  
                  Low2009First
      Quarter
                  
                  $
                  6.45
                  
                  
                  $
                  3.50Second
      Quarter
                  
                  
                  7.10
                  
                  
                  
                  4.44Third
      Quarter
                  
                  
                  9.79
                  
                  
                  
                  5.41Fourth
      Quarter
                  
                  
                  8.47
                  
                  
                  
                  6.402008First
      Quarter
                  
                  $
                  12.60
                  
                  
                  $
                  7.80Second
      Quarter
                  
                  
                  10.85
                  
                  
                  
                  8.45Third
      Quarter
                  
                  
                  10.65
                  
                  
                  
                  7.15Fourth
      Quarter
                  
                  
                  7.31
                  
                  
                  
                  3.34
  The
Company has historically not paid dividends on its common stock and is
restricted from doing so under its current credit agreement between the Company,
JPMorgan Chase Bank, N.A and Bank of America, N.A. (“Credit Agreement”). Any
future decision regarding the payment of dividends will be made at the
discretion of our Board of Directors and will depend upon our earnings,
financial position, capital requirements, existing credit agreements and such
other factors as the Board of Directors deems relevant. The Company does not
currently have plans to pay cash dividends in the foreseeable
future.
  TechTeam
had approximately 338 shareholders of record as of March 1, 2010. A
substantially greater number of holders are beneficial owners whose shares are
held of record by banks, brokers and other financial institutions.
  On
October 30, 2008, the Board of Directors authorized a stock repurchase program.
Under the program, the Company was authorized to repurchase up to one million
shares of its common stock as the Company deems appropriate. The Company is
limited under its current credit agreement with an annual limitation of $3.0
million per year on the repurchase of its common stock. The stock repurchase
program expires on December 31, 2011.The Company did not repurchase any shares
in 2009. The maximum number of shares that may yet be purchased under the
program is 987,742.
  23
  Performance
Graph
  Set forth
below is a graph comparing the cumulative total return on TechTeam’s common
stock from January 1, 2004 through December 31, 2009, with that of the
NASDAQ Stock Market — U.S. Index (the “NASDAQ U.S. Index”) and the NASDAQ
Computer & Data Processing Services Stocks Index (the “NASDAQ Computer
Index”) over the same period. The graph assumes that the value of the investment
in TechTeam’s common stock, the NASDAQ U.S. Index and the NASDAQ Computer Index
was $100 on January 1, 2004, and that all dividends were
reinvested.
  The graph
displayed below is presented in accordance with U.S. Securities and Exchange
Commission requirements. Stockholders are cautioned against drawing any
conclusions from the data contained therein, as past results are not necessarily
indicative of future performance. This graph in no way reflects TechTeam’s
forecast of future financial performance.
  
  Total Return IndexDec 2004
                              
                              
                              Dec 2005
                              
                              
                              Dec 2006
                              
                              
                              Dec 2007
                              
                              
                              Dec 2008
                              
                              
                              Dec 2009NASDAQ
      U.S.
                              
                              $
                              100
                              
                              
                              $
                              102
                              
                              
                              $
                              112
                              
                              
                              $
                              122
                              
                              
                              $
                              59
                              
                              
                              $
                              85NASDAQ
      Computer
                              
                              $
                              100
                              
                              
                              $
                              103
                              
                              
                              $
                              116
                              
                              
                              $
                              142
                              
                              
                              $
                              82
                              
                              
                              $
                              133TechTeam
      Global
                              
                              $
                              100
                              
                              
                              $
                              99
                              
                              
                              $
                              111
                              
                              
                              $
                              124
                              
                              
                              $
                              58
                              
                              
                              $
                              75
  24
  Item
      6.
              SELECTED
      FINANCIAL DATA
  The
following table presents information derived from our consolidated financial
statements for each of the five years ended December 31, 2009. This
information should be read in conjunction with “Item 7 — Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
“Item 8 — Financial Statements and Supplementary Data.”The results
of operations presented below are not necessarily indicative of the results of
operations that may be achieved in the future.
  Year Ended December 31,Statements of Operations Data
                  
                  2009
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005(In
      thousands, except per share data)RevenueCommercialIT
      Outsourcing Services
                  
                  $
                  106,229
                  
                  
                  $
                  120,166
                  
                  
                  $
                  104,659
                  
                  
                  $
                  86,461
                  
                  
                  $
                  76,845IT
      Consulting and Systems Integration
                  
                  
                  12,755
                  
                  
                  
                  27,064
                  
                  
                  
                  28,064
                  
                  
                  
                  24,013
                  
                  
                  
                  24,483Other
      Services
                  
                  
                  15,817
                  
                  
                  
                  24,110
                  
                  
                  
                  20,219
                  
                  
                  
                  9,497
                  
                  
                  
                  9,010Total
      Commercial
                  
                  
                  134,801
                  
                  
                  
                  171,340
                  (b)
                  
                  
                  152,942
                  (d)
                  
                  
                  119,971
                  
                  
                  
                  110,338
                  (f)Government
      Technology Services
                  
                  
                  76,440
                  
                  
                  
                  88,615
                  
                  
                  
                  69,254
                  (e)
                  
                  
                  47,393
                  
                  
                  
                  56,159
                  (g)Total
      revenue
                  
                  $
                  211,241
                  
                  
                  $
                  259,955
                  
                  
                  $
                  222,196
                  
                  
                  $
                  167,364
                  
                  
                  $
                  166,497Impairment
      charges
                  
                  $
                  27,453
                  (a)
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —Restructuring
      charges, net
                  
                  
                  411
                  
                  
                  
                  5,719
                  (c)
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —(Loss)
      income before income taxes
                  
                  
                  (21,894
                  )
                  
                  
                  7,150
                  
                  
                  
                  9,639
                  
                  
                  
                  2,750
                  (h)
                  
                  
                  7,796Income
      tax (benefit) provision
                  
                  
                  (3,261
                  )
                  
                  
                  4,182
                  
                  
                  
                  3,343
                  
                  
                  
                  873
                  
                  
                  
                  2,402(Loss)
      income from continuing operations
                  
                  
                  (18,633
                  )
                  
                  
                  2,968
                  
                  
                  
                  6,296
                  
                  
                  
                  1,877
                  
                  
                  
                  5,394(Loss)
      income from discontinued operations
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (43
                  )
                  
                  
                  74Net
      (loss) income
                  
                  $
                  (18,633
                  )
                  
                  $
                  2,968
                  
                  
                  $
                  6,296
                  
                  
                  $
                  1,834
                  
                  
                  $
                  5,468Diluted
      earnings (loss) per common shareIncome
      (loss) from continuing operations
                  
                  $
                  (1.75
                  )
                  
                  $
                  0.28
                  
                  
                  $
                  0.60
                  
                  
                  $
                  0.18
                  
                  
                  $
                  0.54Income
      (loss) from discontinued operations
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  0.01Net
      income (loss) per share
                  
                  $
                  (1.75
                  )
                  
                  $
                  0.28
                  
                  
                  $
                  0.60
                  
                  
                  $
                  0.18
                  
                  
                  $
                  0.54Weighted
      average common shares andcommon
      share equivalents outstanding
                  
                  
                  10,618
                  
                  
                  
                  10,555
                  
                  
                  
                  10,506
                  
                  
                  
                  10,176
                  (i)
                  
                  
                  9,832
                  (i)Weighted
      average preferred shares outstanding
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  (i)
                  
                  
                  244
                  (i)
 (a)
              As
      part of the Company’s annual impairment test it was determined that the
      goodwill for Government Solutions and SQM reporting units were impaired.
      The Company also recorded an impairment charge for certain intangible
      assets at these reporting units.
  (b)
              On
      May 30, 2008, the Company acquired 100% of the outstanding stock of Onvaio
      LLC. On October 31, 2008, the Company completed the sale of TechTeam A.N.E
      NV/SA, the results of which were included in continuing operations through
      the date of the sale.
  (c)
              On
      May 28, 2008 and December 30, 2008, the Company announced corporate-wide
      restructuring actions.
  (d)
              On
      February 9, 2007, the Company acquired 100% of the outstanding stock
      of SQM Sverige AB.
  (e)
              On
      May 31, 2007, the Company acquired 100% of the membership interest in
      NewVectors LLC, and on August 31, 2007, we acquired 100% of the
      outstanding stock of RL Phillips,
Inc.
  (f)
              On
      October 3, 2005, the Company acquired 100% of the outstanding stock
      of Akela Informatique SRL.
  (g)
              On
      January 3, 2005, the Company acquired 100% of the outstanding stock
      of Sytel, Inc.
  (h)
              During
      2006, the Company recorded expenses totaling $1.4 million for legal and
      professional fees associated with a proxy contest initiated by a
      shareholder, an asset impairment charge of $580,000 related to a software
      asset and $650,000 for the settlement of claims against the Company by
      certain former Company officers.
  (i)
              In
      May 2005, the holder of our preferred stock converted all of the preferred
      shares into 689,656 shares of common
stock.
  25
 
 As of December 31,Balance Sheet Data
                
                2009(a)
                
                
                2008(b)
                
                
                2007(c)
                
                
                2006
                
                
                2005(d)(In
      thousands)Total
      assets
                
                $
                122,520
                
                
                $
                167,363
                
                
                $
                182,169
                
                
                $
                117,930
                
                
                $
                123,010Long-term
      obligations
                
                
                11,796
                
                
                
                30,156
                
                
                
                33,963
                
                
                
                5,426
                
                
                
                14,115Total
      shareholders’ equity
                
                $
                83,629
                
                
                $
                98,733
                
                
                $
                97,031
                
                
                $
                86,308
                
                
                $
                78,240
                (e)
  (a)
              As
      part of the Company’s annual impairment test it was determined that the
      goodwill for Government Solutions and SQM reporting units was impaired.
      The Company also recorded an impairment charge for certain intangibles
      assets at these reporting units.
  (b)
              On
      May 30, 2008, we acquired 100% of the outstanding stock of Onvaio LLC. On
      October 31, 2008, the Company completed the sale of TechTeam A.N.E
      NV/SA.
  (c)
              On
      February 9, 2007, we acquired 100% of the outstanding stock of SQM
      Sverige AB. On May 31, 2007, we acquired 100% of the membership
      interest in NewVectors LLC. On August 31, 2007, we acquired 100% of
      the outstanding stock of RL Phillips,
Inc.
  (d)
              On
      October 3, 2005, we acquired 100% of the outstanding stock of Akela
      Informatique SRL. On January 3, 2005, we acquired 100% of the
      outstanding stock of Sytel, Inc.
  (e)
              In
      May 2005, the holder of our preferred stock converted all outstanding
      shares of preferred stock into 689,656 shares of common
    stock.
  26
  Item
      7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      (“MD&A”)
  Overview
  TechTeam
Global, Inc. is a leading provider of IT outsourcing and business process
outsourcing services to large and medium business, as well as government
organizations. The Company's primary services include service desk, technical
support, desk-side support, security administration, infrastructure management
and related professional services. TechTeam also provides a number of
specialized, value-added services in specific vertical markets. Our business
consists of two main components — our Commercial business and our Government
business. Together, our IT Outsourcing Services segment, IT Consulting and
Systems Integration segment and Other Services segment comprise our Commercial
business. In addition to managing our commercial business by service line, we
also manage it by geographic markets — the Americas (defined as North America
excluding our government-based subsidiaries), Europe and Latin America/Asia. Our
Government Technology Services segment comprises our Government
business.
  As with
most businesses, 2009 was a year of significant challenges for TechTeam, as its
customers felt the effects of the worst economic downturn since the Great
Depression. The Company’s results from operations reflect these
challenges:
  ·
              As
      a result of the difficult economy, conditions in the markets we serve and
      our customer’s reactions to their financial circumstances, we experienced
      significant price, volume and account erosion. Our revenues declined by
      $48.7 million or 18.7% from 2008, across all of our business segments and
      regions. In the third quarter and fourth quarter of 2009, contracts to
      provide services to certain customers ended, steepening the revenue
      decline. While we have launched significant new business to off-set some
      of this revenue decline, the revenue decline will likely affect the
      Company’s results in the first half of
2010.
  ·
              During
      2009, our gross margins improved to 23.9% from 23.2%. In spite of revenue
      declines during the period, we responded to the need to adjust our service
      delivery cost structure to meet the needs of our
  business.
  ·
              However,
      as a result of poor economic conditions and staffing contract losses in
      Sweden, we anticipate reductions in expected future cash flows from our
      2007 acquisition of TechTeam SQM AB. In addition, the insourcing of the
      Air National Guard contract by the U.S. Federal Government and reduced
      demand for certain other contracts at our TechTeam Government Solutions,
      Inc subsidiary will also reduce our expected future cash flows. Based upon
      these reductions in anticipated cash flow, we have concluded that goodwill
      was impaired in our Government Solutions and SQM reporting units.
      Accordingly, we recorded a $20.8 million and $4.4 million pretax
      impairment charge in the fourth quarter of 2009 to reflect the implied
      fair value of goodwill for Government Solutions and SQM reporting units,
      respectively. Further, we recorded a $0.5 million and $1.8 million pretax
      impairment charge in the fourth quarter of 2009 to reflect the fair value
      of certain intangible assets relating to Government Solutions and SQM
      reporting units, respectively. The reduction in the value of intangibles
      assets will reduce the rate of amortization for these acquisitions in
      2010.
 ·
                As
      a result of the impairment, as of December 31, 2009, the Company was no
      longer in compliance with the financial covenants in its secured credit
      agreement with JPMorgan Chase Bank, N.A. (“Credit Agreement”).
      Accordingly, the Company renegotiated the terms of the Credit Agreement
      and entered into the third amendment of the Credit Agreement on March 26,
      2010. See Note 18 – Subsequent
Event.
 ·
              As
      a result of lower revenues, our SG&A expense during 2009 increased as
      percentage of revenue by 2.3 percentage points to 20.3% in 2009. Rather
      than reduce investments in marketing and sales on a short run basis, we
      chose to continue our investment in sales and marketing to increase our
      backlog of new business. We reorganized our sales and solution design
      organizations to better serve our global customers, which resulted in a
      minor restructuring of our European business in the fourth quarter
      2009.
  27
  Despite
these challenging results, the Company managed capital conservatively in
2009. Cash provided by operations for the twelve months ended December 31,
2009 increased by 130% to $20.2 million over the $8.8 million in cash provided
by operations during the same period in 2008, driven by improvements in working
capital management. For the full year 2009, the Company retired a total of $20.1
million in outstanding debt, eliminating approximately 57% of its outstanding
debt during the twelve months ended December 31, 2009. The Company made
significant progress in 2009 toward its transformation into a truly global
IT service provider with significant revenue diversification from its government
business.
  ·
              Our
      Lean ITIL (Information Technology Infrastructure Library) business model
      demonstrates an improvement in our operational excellence, which is the
      foundation of our business. Our gross margin improved in our commercial
      business in both the Americas and
Europe.
  ·
              We
      believe the focused development of our Lean ITIL-based service desk
      expertise positions the Company well in the enterprise support services
      market, as the implementation of ITIL and Lean principles into our
      customer’s environment improves quality and lowers cost.  It
      provides us with an avenue to drive value into our customer engagement
      with higher margin value-added services, including remote
      infrastructure management and security
  administration.
  ·
              We
      have extended our global reach by expanding into important, targeted
      geographies and by leveraging the strong relationships that we have with
      current global clients to provide services to them across geographies and
      in new markets.
  ·
              For
      a company of our size, we have a superb customer base and impressive
      capability to deliver standardized, cost-effective services globally. In
      this way, we believe we have made significant strides in the establishment
      of TechTeam as a brand leader in our chosen service
    offerings.
  In the
first quarter of fiscal 2009, management changed its methodology for evaluation
of the performance of the Company’s outsourcing services. As a result of this
change, certain costs that were previously included in Selling, general and
administrative expense were re-characterized in Cost of revenue in the Company’s
Condensed Consolidated Statements of Operations because they are directly
related to revenue. The Company’s financial statements for fiscal year 2008 and
2007 have been revised, for all periods presented, to conform to the current
year presentation. This re-categorization of costs did not change net income or
earnings per share, for all periods presented. There was no cumulative effect to
retained earnings as a result of this re-categorization, and there was no change
to the carrying amount of assets and liabilities in fiscal 2008.
  28
  Results
of Operations
 Year
Ended December 31, 2009 Compared to the Year Ended December 31,
2008
  Revenue
 
 Year Ended December
    31,
                
                
                Increase
                
                
                %2009
                
                
                2008
                
                
                (Decrease)
                
                
                Change(In
      thousands, except percentages)RevenueCommercial
      BusinessIT
      Outsourcing Services
                
                $
                106,229
                
                
                $
                120,166
                
                
                $
                (13,937
                )
                
                
                (11.6
                )%IT
      Consulting and Systems Integration
                
                
                12,755
                
                
                
                27,064
                
                
                
                (14,309
                )
                
                
                (52.9
                )%Other
      Services
                
                
                15,817
                
                
                
                24,110
                
                
                
                (8,293
                )
                
                
                (34.4
                )%Total
      Commercial
                
                
                134,801
                
                
                
                171,340
                
                
                
                (36,539
                )
                
                
                (21.3
                )%Government
      Technology Services
                
                
                76,440
                
                
                
                88,615
                
                
                
                (12,175
                )
                
                
                (13.7
                )%Total
      revenue
                
                $
                211,241
                
                
                $
                259,955
                
                
                $
                (48,714
                )
                
                
                (18.7
                )%
  Total
Company revenue decreased $48.7 million, or 18.7%, to $211.2 million in 2009
from $259.9 million in 2008. The revenue decrease was across all segments and
was driven primarily by approximately $7.6 million negative impact of exchange
rates on Europe revenue, $7.2 million lower revenues from the divestiture of ANE
on October 31, 2008, the conclusion of customer contracts in the IT Outsourcing
Services and Government Technology Services segments and a decrease in project
based work due to the difficult economic environment. This decrease in revenue
was partially offset by new customer contracts in the Americas and the
acquisition of Onvaio that was completed on May 30, 2008. The foreign currency
impact was calculated as if revenue generated in Europe was translated into U.S.
dollars at the average exchange rates in effect for 2008. We are unable to
predict the effect fluctuations in international currencies will have on
revenue, but given the uncertain effect of the global economic environment on
the U.S. dollar, there could be noteworthy revenue volatility in 2010. Excluding
the impact of exchange rates on revenue and the revenue from the acquisition of
Onvaio and the divestiture of ANE, revenue decreased approximately $34.5
million, or 13.7%.
  IT
Outsourcing Services
  Revenue
from IT Outsourcing Services decreased $13.9 million, or 11.6%, to
$106.2 million in 2009, from $120.1 million in 2008. The revenue decrease
was primarily the result of the impact of exchange rates on revenue, the
conclusion of customer contracts in Europe and the Americas and lower revenue
from Ford, which was partially offset by an increase in revenue in the Americas
from new customer contracts. The foreign currency impact was approximately $5.1
million and was calculated as if IT Outsourcing Services revenue in Europe was
translated into U.S. dollars at the average exchange rates in effect for
2008.
  IT
Outsourcing Services revenue generated from Ford globally decreased $8.8
million, or 25.0%, to $26.2 million in 2009 compared to $35.0 million in
2008. Revenue from Ford declined 8.9% in the Americas and 41.3% in Europe as a
result of a decline in seats supported from a reduction in Ford’s workforce, the
impact of exchange rates, the lower price in the contract renewal, the
separation of Jaguar Land Rover from the Ford SPOC contract and the separation
of Volvo Car Corporation from the global Ford IT programs, including the SPOC
contract in November 2009. However, the Company still provides services to
Jaguar Land Rover under a direct contract. Please refer to our discussion of
Ford in the “Impact of Business with Major Clients” section of
MD&A.
  29
  IT
Consulting and Systems Integration
  Revenue
from IT Consulting and Systems Integration decreased $14.3 million, or 52.9%, to
$12.8 million in 2009, from $27.1 million in 2008. Revenue decreased in
Europe mainly due to the divestiture of ANE, a decrease in project-based work
due to adifficult
economy and the elimination of projects. In the Americas, revenue decreased
primarily from the wind-down of certain systems implementation and training
projects in our hospitality business and our business with Dell through Ford.
Excluding revenue from the divestiture of ANE, IT Consulting and Systems
Integration revenue decreased $7.1 million, or 35.8%, to $12.8 million in 2009
from $19.9 million in 2008.
  Government
Technology Services
  Revenue
from Government Technology Services decreased $12.2 million, or 13.7%, to
$76.4 million in 2009, from $88.6 million in 2008, primarily due to a
reduction in business with the BTA of the Department of Defense, where we now
work as a subcontractor after being a prime contractor, and the conclusion of
the Company’s ANG contract on September 30, 2009. The work performed under the
ANG contract was in-sourced to be performed by U.S. Federal Government
employees. The Company continues to provide service to ANG as a subcontractor to
Harris Corporation who was awarded the work under the expiring contract that was
not in-sourced and added some other positions. Accordingly, the new contract
will produce significantly less revenue and gross margin than the expiring
contract. Please refer to our discussion of the U.S. Federal Government in the
“Impact of Business with Major Clients” section of MD&A.
 
 Gross
Profit and Gross Margin
 
 Year Ended December
    31,2009
                
                
                2008Amount
                
                
                Gross
                  Margin %
                
                
                Amount
                
                
                Gross
                  Margin %
                
                
                Increase
                  (Decrease)
                
                
                %
                  Change(In
      thousands, except percentages)Gross
      ProfitCommercialIT
      Outsourcing Services
                
                $
                23,330
                
                
                
                22.0
                %
                
                $
                24,350
                
                
                
                20.3
                %
                
                $
                (1,020
                )
                
                
                (4.2
                )%IT
      Consulting and Systems
                  Integration
                
                
                2,865
                
                
                
                22.5
                %
                
                
                6,427
                
                
                
                23.7
                %
                
                
                (3,562
                )
                
                
                (55.4
                )%Other
      Services
                
                
                3,854
                
                
                
                24.4
                %
                
                
                5,427
                
                
                
                22.5
                %
                
                
                (1,573
                )
                
                
                (29.0
                )%Total
      Commercial
                
                
                30,049
                
                
                
                22.3
                %
                
                
                36,204
                
                
                
                21.1
                %
                
                
                (6,155
                )
                
                
                (17.0
                )%Government
      TechnologyServices
                
                
                20,437
                
                
                
                26.7
                %
                
                
                24,232
                
                
                
                27.3
                %
                
                
                (3,795
                )
                
                
                (15.7
                )%Total
      gross profit
                
                $
                50,486
                
                
                
                23.9
                %
                
                $
                60,436
                
                
                
                23.2
                %
                
                $
                (9,950
                )
                
                
                (16.5
                )%
  Gross
profit decreased $9.9 million, or 16.5%, to $50.5 million in 2009 from $60.4
million in 2008. In contrast, gross margin improved to 23.9% in 2009 from 23.2%
in 2008. The decrease in gross profit was driven mainly by severance costs and
lower revenue related to the conclusion of customer contracts in the IT
Outsourcing Services and Government Technology Services segments. The
acquisition of Onvaio and the divestiture of ANE had a slight impact on 2009
gross profit and gross margin. The improvement in gross margin was driven by new
customer contracts in the Americas, elimination of lower margin projects,
successful execution of restructurings announced and completed in 2008 and
enhanced operational efficiencies. Excluding gross profit contributed by the
acquisition of Onvaio and the divestiture of ANE, total gross profit decreased
$9.3 million, or 15.7%, and gross margin decreased to 23.0% in 2009 from 23.5%
in 2008.
  30
  IT
Outsourcing Services
  Gross
profit from IT Outsourcing Services decreased 4.2% to $23.3 million in 2009,
from $24.4 million in 2008, while gross margin increased to 22.0% from
20.3%. Gross profit decreased mainly due to severance costs and lower revenue
related to the conclusion of customer contracts. Gross margin improved primarily
due to operational improvements on certain existing accounts and the successful
execution of restructurings announced and completed in 2008. Gross profit and
gross margin in the Americas was also positively impacted by new customer
contracts and the acquisition of Onvaio.
  IT
Consulting and Systems Integration
  Gross
profit from IT Consulting and Systems Integration decreased 55.4% to $2.9
million in 2009 from $6.4 million in 2008, and gross margin decreased to 22.5%
from 23.7% in 2008. Gross profit in Europe decreased due to the divestiture of
ANE on October 31, 2008 and a reduction in project-based IT Consulting work due
to economic pressures. Gross profit in the Americas decreased mainly due to the
wind-down of certain systems implementation and training projects in our
hospitality business and our business with Dell through Ford.
  Government
Technology Services
  Gross
profit from our Government Technology Services segment decreased 15.7% to
$20.4 million in 2009 from $24.2 million in 2008, and gross margin
decreased to 26.7% from 27.3%. The decrease in gross profit and gross margin was
due to the decrease in revenue from becoming a subcontractor with the BTA and
the loss of the ANG contract as of September 30, 2009. Please refer to our
discussion of the U.S. Federal Government in the “Impact of Business with Major
Clients” section of MD&A.
 
 Geographic
Market Discussion
 
 Year Ended December
    31,
                
                
                Increase
                
                
                %2009
                
                
                2008
                
                
                (Decrease)
                
                
                Change(In
      thousands, except percentages)RevenueCommercialAmericas
                
                $
                65,836
                
                
                $
                72,375
                
                
                $
                (6,539
                )
                
                
                (9.0
                )%Europe
                
                
                68,965
                
                
                
                98,965
                
                
                
                (30,000
                )
                
                
                (30.3
                )%Total
      Commercial
                
                
                134,801
                
                
                
                171,340
                
                
                
                (36,539
                )
                
                
                (21.3
                )%Government
                
                
                76,440
                
                
                
                88,615
                
                
                
                (12,175
                )
                
                
                (13.7
                )%Total
      revenue
                
                $
                211,241
                
                
                $
                259,955
                
                
                $
                (48,714
                )
                
                
                (18.7
                )%Gross
      MarginCommercialAmericas
                
                
                20.0
                %
                
                
                19.8
                %Europe
                
                
                24.3
                %
                
                
                22.1
                %Total
      Commercial
                
                
                22.3
                %
                
                
                21.1
                %Government
                
                
                26.7
                %
                
                
                27.3
                %Total
      Gross Margin
                
                
                23.9
                %
                
                
                23.2
                %
  31
  Americas
  Revenue
generated in the Americas decreased $6.6 million, or 9.0%, to $65.8 million in
2009, from $72.4 million in 2008. Revenue from IT Outsourcing Services grew
as a result of new customers and growth in existing customers that was partially
offset by a decline in revenue earned from Ford. Revenue in IT Consulting and
Systems Integration decreased mainly due to the wind-down of certain systems
implementation and training projects in our hospitality business and our
business with Dell through Ford. The Other Services segment also experienced a
decrease in revenue from technical staffing projects primarily due to the
Company’s decision to exit low margin work. Gross margin from the Americas
increased to 20.0% in 2009 from 19.8% in 2008 primarily due to new customers in
IT Outsourcing Services, the acquisition of Onvaio and improved operating
efficiencies.
  Europe
  Revenue
generated in Europe decreased $30.0 million, or 30.3%, to $69.0 million in
2009 from $99.0 million in 2008, due to the impact of exchange rates on revenue,
the conclusion of customer contracts in the IT Outsourcing Services segment, the
divestiture of ANE and a decrease in our staffing business at SQM and Akela. The
foreign currency impact accounted for approximately $7.6 million of the decline
and was calculated as if revenue in Europe in 2009 were translated into U.S.
dollars at the average exchange rates in effect for 2008. Excluding the impact
of exchange rates on revenue and the divestiture of ANE, revenue decreased
approximately $15.2 million, or 16.6%, to $76.6 million in 2009 from $91.8
million in 2008. Gross margin from Europe increased to 24.3% in 2009, from 22.1%
in 2008, primarily due to divesting of certain lower margin IT Consulting and
Systems Integration projects at ANE and throughout Europe and improved operating
efficiencies in our IT Outsourcing business.
  Operating
Expenses and Other
 
 Year Ended December
    31,
                
                
                Increase
                
                
                %2009
                
                
                2008
                
                
                (Decrease)
                
                
                Change(In
      thousands, except percentages)Operating
      Expenses and OtherSelling,
      general and administrative expense
                
                $
                42,823
                
                
                $
                46,920
                
                
                $
                (4,097
                )
                
                
                (8.7
                )%Impairment
      charges
                
                $
                27,453
                
                
                $
                —
                
                
                $
                27,453
                
                
                NMRestructuring
      charges, net
                
                $
                411
                
                
                $
                5,719
                
                
                $
                (5,308
                )
                
                
                (92.8
                )%Net
      interest expense
                
                $
                1,018
                
                
                $
                1,712
                
                
                $
                (694
                )
                
                
                (40.5
                )%Foreign
      currency transaction (loss) gain
                
                $
                (675
                )
                
                $
                910
                
                
                $
                (1,585
                )
                
                NMOther
      income, net
                
                $
                —
                
                
                $
                155
                
                
                $
                155
                
                
                
                (100.0
                )%Income
      tax (benefit) provision
                
                $
                (3,261
                )
                
                $
                4,182
                
                
                $
                (7,443
                )
                
                
                (178.0
                )%
  SG&A
expense decreased $4.1 million, or 8.7%, to $42.8 million in 2009 from $46.9
million in 2008. The decrease resulted primarily from a reduction in payroll
related costs driven by lower administrative headcount from the restructuring
actions taken in 2008 and a decrease in amortization expense, partially offset
by an increase in professional fees. SG&A expense increased to 20.3% of
total revenue in 2009, from 18.0% of total revenue in 2008 primarily to the
decline in revenue and the inability of the Company to adequately reduce
SG&A costs, in 2009, in response to the decline in revenue.
  32


In
connection with the decision between the Board of Directors and the Company’s
former President and Chief Executive Officer, William C. Brown, not to renew
Mr. Brown’s contract upon its completion in February 2009, Mr. Brown’s
Employment and Noncompetition Agreement was amended. Under the terms of the
amendment all outstanding, stock-based awards were accelerated and the period in
which the stock options may be exercised was extended in February 2008. These
actions resulted in additional non-cash compensation expense of $254,000 in
2008.




The
Company performed its annual impairment of goodwill test on October 1, 2009 and
recorded a $20.8 million and $4.4 million pretax impairment charge in the
Government Solutions and SQM reporting units, respectively. The Company reviewed
its other intangible assets, primarily customer relationships, for impairment in
accordance with ASC 360, “Property, Plant and Equipment”. The Company concluded,
based on this comparison, that the intangible assets were impaired at its
Government Solutions and SQM reporting units. The Company recorded a $0.5
million and $1.8 million pretax impairment charge to reflect the fair value of
those intangible assets for Government Solutions and SQM reporting units,
respectively. The goodwill and intangible impairment charges are reported in the
impairment charges line item of the Condensed Consolidated Statement of
Operations. Please see Note 4 – Goodwill and Other Intangible Assets for further
details.




In 2009,
the Company restructured its global leadership team to improve global management
consistency. The 2009 pre-tax restructuring charge amounted to $1.2 million and
was primarily related to separation costs for one employee in Belgium. In 2008,
the Company announced corporate-wide organizational realignment and
restructuring actions to improve operating efficiency, achieve greater global
consistency and drive improved financial performance.  The 2008 pre-tax
restructuring charges amounted to $5.7 million and were primarily related to
separation costs for approximately 80 employees and reductions in excess leased
facility capacity. Due to the inherent uncertainty involved in estimating
restructuring expenses, actual amounts paid for such activities may differ from
amounts initially estimated. Accordingly, previously recorded restructuring
related reserves of $756,000 were reversed in 2009 primarily from the Company
favorably amending a lease for facilities in Europe to eliminate its obligation
to pay for leased space that was vacated and expensed as part of the 2008
restructuring.




Net
interest expense was $1.0 million in 2009, compared to $1.7 million in 2008, a
result of lower average outstanding long-term debt offset by lower interest
income from lower average invested cash equivalents and lower interest
rates.




The
consolidated effective tax rate was 14.9% in 2009.  This rate differs from
the statutory rate of 34% primarily due to the effects of an impairment charge
of $27.5 million, of which $12.6 million was not tax deductible. Excluding
impairment and restructuring charges, the effective tax rate for the year ended
December 31, 2009 was 39.3%. The effective tax rate excluding the impairment and
restructuring charge differs from the statutory tax rate of 34.0% primarily due
to foreign operating losses for which a tax benefit is not recorded,
nondeductible expenses and state income taxes.




The
consolidated effective tax rate was 58.5% in 2008. This rate differs from the
statutory tax rate of 34.0% primarily due to foreign operating losses for which
a tax benefit is not recorded and nondeductible expenses.  The level of
foreign operating losses increased during the second quarter of 2008 because a
significant portion of the Company’s restructuring charges was incurred in
countries with historical operating losses.


33


Results
of Operations


Year
Ended December 31, 2008 Compared to the Year Ended December 31,
2007




Revenue




Year Ended December
    31,
              
              
              Increase
              
              
              %2008
              
              
              2007
              
              
              (Decrease)
              
              
              Change(In
      thousands, except percentages)RevenueCommercial
    BusinessIT Outsourcing
      Services
              
              $
              120,166
              
              
              $
              104,659
              
              
              $
              15,507
              
              
              
              14.8
              %IT Consulting and Systems
      Integration
              
              
              27,064
              
              
              
              28,064
              
              
              
              (1,000
              )
              
              
              (3.6
              )%Other Services
              
              
              24,110
              
              
              
              20,219
              
              
              
              3,891
              
              
              
              19.2
              %Total Commercial
              
              
              171,340
              
              
              
              152,942
              
              
              
              18,398
              
              
              
              12.0
              %Government Technology
      Services
              
              
              88,615
              
              
              
              69,254
              
              
              
              19,361
              
              
              
              28.0
              %Total
      revenue
              
              $
              259,955
              
              
              $
              222,196
              
              
              $
              37,759
              
              
              
              17.0
              %




Total
Company revenue increased 17.0% to $259.9 million for 2008, through a
combination of acquisitions completed in 2008 and 2007 along with organic growth
across most product lines. Excluding revenue from acquisitions that affect
year-over-year comparability, revenue increased 9.1% to $242.5 million for 2008.
Revenue in 2008 was also positively impacted by fluctuations in the
international currencies in which we do business. If revenue generated in Europe
were translated into U.S. dollars at the average exchange rates in effect for
2007, reported revenue would have decreased by approximately $4.3 million for
2008.




IT
Outsourcing Services




Revenue
from IT Outsourcing Services increased 14.8%, or $15.5 million, to
$120.2 million for 2008, from $104.7 million for 2007, primarily as a
result of $14.2 million of revenue growth in Europe. The majority of revenue
growth occurred in existing accounts, including existing clients of the Americas
to whom we have expanded our service delivery to include parts of Europe.
Revenue also increased $1.3 million in the Americas due to new customer
contracts in the later part of 2008. Revenue growth occurred in 2008 despite a
reduction in revenue from two projects, comprising about 4% of IT Outsourcing
Services revenue for 2007, that concluded. The related contracts were not
renewed at the end of March 2008.




IT
Outsourcing Services revenue generated from Ford globally decreased to
$35.0 million for 2008 compared to $36.6 million for 2007. Revenue from
Ford declined 19.1% in the Americas as a result of a decline in seats supported
from a reduction in Ford’s workforce, while revenue in Europe increased from
expansion of the SPOC Program resulting in aggregate growth in Europe of
16.6%.




IT
Outsourcing revenue in 2008 was positively impacted by fluctuations in the
international currencies in which we do business.  If IT Outsourcing
revenue in Europe was translated into U.S. dollars at the average exchange rates
in effect for 2007, reported revenue would have decreased by approximately $2.9
million for 2008. Since most of our international operating expenses are also
incurred in the same foreign currencies in which the associated revenue is
denominated, the net impact of exchange rate fluctuations on gross profit is
considerably less than the estimated impact on revenue.


34


IT
Consulting and Systems Integration




Revenue
from IT Consulting and Systems Integration decreased 3.6% to $27.1 million for
2008, from $28.1 million for 2007, due primarily to a decrease in Europe
from the divestiture of ANE and a decrease in project based work due to adifficult
economy and de-scoping or elimination of projects in Europe partially offset by
an increase in revenue growth in the Americas. Revenue in the Americas increased
from growth in the Company’s hospitality business and organic growth through
existing customers in our IT Outsourcing Services segment. The increase in the
Americas was partially offset by a decrease in our business with
Dell.




Government
Technology Services




Revenue
from Government Technology Services increased 28.0% to $88.6 million for
2008, from $69.3 million for 2007, primarily due to our acquisitions of
NewVectors and RL Phillips in 2007. Excluding revenue from these acquisitions,
revenue increased 5.9% to $73.4 million for 2008 due to growth in existing
customer programs and, to a lesser extent, new customer contracts.




Gross
Profit and Gross Margin




Year Ended December
    31,2008
              
              
              2007Amount
              
              
              Gross
                Margin %
              
              
              Amount
              
              
              Gross
                Margin %
              
              
              Increase
                (Decrease)
              
              
              %
                Change(In
      thousands, except percentages)Gross
      ProfitCommercialIT Outsourcing
      Services
              
              $
              24,350
              
              
              
              20.3
              %
              
              $
              19,927
              
              
              
              19.0
              %
              
              $
              4,423
              
              
              
              22.2
              %IT Consulting and
      Systems
                Integration
              
              
              6,427
              
              
              
              23.7
              %
              
              
              6,187
              
              
              
              22.0
              %
              
              
              240
              
              
              
              3.9
              %Other Services
              
              
              5,427
              
              
              
              22.5
              %
              
              
              4,789
              
              
              
              23.7
              %
              
              
              638
              
              
              
              13.3
              %Total Commercial
              
              
              36,204
              
              
              
              21.1
              %
              
              
              30,903
              
              
              
              20.2
              %
              
              
              5,301
              
              
              
              17.2
              %Government
      Technology
                Services
              
              
              24,232
              
              
              
              27.3
              %
              
              
              18,867
              
              
              
              27.2
              %
              
              
              5,365
              
              
              
              28.4
              %Total
      gross profit
              
              $
              60,436
              
              
              
              23.2
              %
              
              $
              49,770
              
              
              
              22.4
              %
              
              $
              10,666
              
              
              
              21.4
              %




Consistent
with revenue, the increase in gross profit was attributed to a combination of
acquisitions completed in 2008 and 2007 and organic growth from IT Outsourcing
Services, Government Technology Services and Other Services. Excluding gross
profit contributed by acquisitions that affect year-over-year comparability,
total gross profit increased 11.1% to $55.3 million and gross margin
increased to 22.8% for 2008 from 22.4% for the same period in
2007.




IT
Outsourcing Services




Gross
profit from IT Outsourcing Services increased 22.2% to $24.4 million for 2008,
from $19.9 million in 2007, and gross margin increased to 20.3% from 19.0%.
In the Americas, gross margin improved primarily due to margin improvements on
certain existing accounts, the acquisition of Onvaio and new customer contracts
in the later part of 2008. This improvement in the Americas was partially offset
by a decrease in gross margin from the revenue decrease with Ford due to a
reduction in their workforce.


35


IT
Consulting and Systems Integration




Gross
profit from IT Consulting and Systems Integration increased 3.9% to
$6.4 million for 2008 from $6.2 million in 2007, and gross margin increased
to 23.7% from 22.0% in 2007. Gross margin increased in the Americas from new
project-based work in the Company’s hospitality business, partially offset by a
decline in gross margin in business with Dell. In Europe, gross margin declined
primarily due to challenges from the competitive environment in our application
development business in Romania and from less project-based IT Consulting work
over the rest of Europe due to economic pressures across Europe.




Government
Technology Services




Gross
profit from our Government Technology Services segment increased 28.4% to
$24.2 million for 2008, from $18.9 million in 2007, and gross margin
increased slightly to 27.3% from 27.2%. The increase in gross profit was
primarily due to our acquisition of NewVectors in 2007. Excluding gross profit
contributed by acquisitions that affect year-over-year comparability, gross
profit increased 6.3% to $20.0 million and gross margin increased to 27.3% for
2008. The increase in gross margin was due to various factors, most notably an
increased requirement for the Company to use subcontracted resources on several
programs.




Geographic
Market Discussion




Year Ended December
    31,
              
              
              Increase
              
              
              %2008
              
              
              2007
              
              
              (Decrease)
              
              
              Change(In
      thousands, except percentages)RevenueCommercialAmericas
              
              $
              72,375
              
              
              $
              68,022
              
              
              $
              4,353
              
              
              
              6.4
              %Europe
              
              
              98,965
              
              
              
              84,920
              
              
              
              14,045
              
              
              
              16.5
              %Total Commercial
              
              
              171,340
              
              
              
              152,942
              
              
              
              18,398
              
              
              
              12.0
              %Government
              
              
              88,615
              
              
              
              69,254
              
              
              
              19,361
              
              
              
              28.0
              %Total
      revenue
              
              $
              259,955
              
              
              $
              222,196
              
              
              $
              37,759
              
              
              
              17.0
              %Gross
      MarginCommercialAmericas
              
              
              19.8
              %
              
              
              17.5
              %Europe
              
              
              22.1
              %
              
              
              22.4
              %Total Commercial
              
              
              21.1
              %
              
              
              20.2
              %Government
              
              
              27.3
              %
              
              
              27.2
              %Total
      Gross Margin
              
              
              23.2
              %
              
              
              22.4
              %





Americas




Revenue
generated in the Americas increased 6.4% to $72.4 million for 2008, from
$68.0 million in 2007 across all services lines, due primarily to new
customers and projects. Revenue from IT Outsourcing Services experienced a
significant increase in growth from new customers and growth in existing
customers that was partially offset by a decline in revenue from Ford. Revenue
in IT Consulting and Systems Integration increased due to new project-based work
in the Company’s hospitality business. The Other Services segment also
experienced an increase in revenue from an increase in technical staffing
growth. Gross margin from the Americas increased to 19.8% for 2008, from 17.5%
in 2007, as a result of gross margin improvement across all service
lines.


36


Europe




Revenue
generated in Europe increased 16.5% to $99.0 million for 2008, from $84.9
million in 2007, due to solid revenue growth in the IT Outsourcing Services and
Other Services segments, the acquisition of SQM and the weakening of the U.S.
dollar against the currencies in which the Company does business. If revenue in
Europe were translated into U.S. dollars at the average exchange rates in effect
for 2007, reported revenue would have decreased by approximately $4.3 million
for 2008. Gross margin from Europe decreased to 22.1% for 2008, from 22.4% in
2007, primarily due to expanding IT Outsourcing Services delivery capabilities
with the establishment of new locations in Dresden, Germany; Sibiu, Romania; and
Stockholm, Sweden. These facilities had some excess capacity that negatively
impacted gross margin in 2008.




Operating
Expenses and Other




Year Ended December
    31,
              
              
              Increase
              
              
              %2008
              
              
              2007
              
              
              (Decrease)
              
              
              Change(In
      thousands, except percentages)Operating
      Expenses and OtherSelling,
      general and administrative expense
              
              $
              46,920
              
              
              $
              39,475
              
              
              $
              7,445
              
              
              
              18.9
              %Restructuring
      charges
              
              $
              5,719
              
              
              $
              —
              
              
              $
              5,719
              
              
              NM
              %Net
      interest expense
              
              $
              1,712
              
              
              $
              572
              
              
              $
              1,140
              
              
              NM
              %Foreign
      currency transaction gain (loss)
              
              $
              910
              
              
              $
              (84
              )
              
              $
              994
              
              
              NM
              %Other
      income, net
              
              $
              155
              
              
              $
              —
              
              
              $
              155
              
              
              NM
              %Income
      tax provision
              
              $
              4,182
              
              
              $
              3,343
              
              
              $
              839
              
              
              
              25.1
              %




Selling,
general, and administrative (“SG&A”) expense increased slightly to 18.0% of
total revenue for 2008, from 17.8% of total revenue in 2007. As the Company’s
revenue has grown, we have achieved greater leverage in our SG&A spending,
yet we incurred greater expenses related to expansion of service delivery
locations in Europe, amortization expense in connection with acquisitions,
marketing expenses and travel expenses. SG&A expense also increased due to
the weakening of the U.S. dollar against the currencies in the foreign
jurisdictions in which we operate.




In
connection with the decision between the Board of Directors and the Company’s
former President and Chief Executive Officer, William C. Brown, not to renew
Mr. Brown’s contract upon its completion in February 2009, Mr. Brown’s
Employment and Noncompetition Agreement was amended. Under the terms of the
amendment all outstanding, stock-based awards were accelerated and the period in
which the stock options may be exercised was extended in February 2008. These
actions resulted in additional non-cash compensation expense of $254,000 in
2008.




During
2008, the Company announced corporate-wide organizational realignment and
restructuring actions to improve operating efficiency, achieve greater global
consistency and drive improved financial performance.  The restructuring
plans were approved by the Company’s Board of Directors on December 23, 2008 and
May 21, 2008.  The 2008 pre-tax restructuring charges amounted to
$5,719,000, and were primarily related to separation costs for approximately 80
employees and reductions in excess leased facility capacity.




Net
interest expense was $1.7 million for 2008, compared to $572,000 for 2007, as a
result of interest expense on long-term debt issued in connection with
acquisitions and lower interest income from lower average invested cash
equivalents.


37


For 2008,
the consolidated effective tax rate of 58.5% differs from the statutory
corporate tax rate of 34.0% in the United States primarily due to foreign
operating losses for which a tax benefit is not recorded and other nondeductible
expenses.  The level of foreign operating losses was increased during 2008
because a significant portion of the Company’s restructuring charge was incurred
in countries with historical operating losses.  Further, the Company
recorded State of Michigan income tax expense of $241,000 for 2008. Prior to
2008, the State of Michigan had a value-added tax called the Single Business Tax
that was not considered an income tax and was, therefore, included in SG&A
expense. Single Business Tax included in SG&A expense totaled $423,500 for
2007. For 2007, the consolidated effective tax rate of 34.7% differs from the
statutory corporate tax rate of 34.0% in the United States primarily due to
state income taxes and nondeductible expenses, which were partially offset by
the tax benefit of tax rates in certain foreign countries that are lower than
34%.




Impact
of Business with Major Clients




We
conduct business under multiple contracts with various entities within the Ford
organization and with various agencies and departments of the U.S. Federal
Government. Ford accounted for 14.3% of our total revenue in 2009, as compared
to 15.9% in 2008 and 20.1% in 2007. The U.S. Federal Government accounted for
31.7% of our total revenue in 2009, as compared to 29.7% in 2008 and 27.1% in
2007. Agencies within the U.S. Department of Defense, in the aggregate,
accounted for approximately 17.9% of our total revenue in 2009, as compared to
18.7% in 2008 and 15.9% in 2007.




Ford
Motor Company




Our
business with Ford consists of service desk and desk side services, technical
staffing, and network management. Revenue generated through our business with
Ford decreased to $30.3 million in 2009, from $41.2 million in 2008 and
$44.6 million in 2007. The decline in revenue is attributable to a number
of factors, including (a) seat count and volume declines within the Ford
environment; (b) the effects of the entry into three-year renewal of the Global
Single Point of Contact ("SPOC") contract, which resulted in a change of service
delivery and pricing model as discussed below; (c) the divestiture of Jaguar
Land Rover (“JLR”) from the Ford family of companies (we continue to provide
service to JLR under a direct contract); (d) the termination of the Company’s
contract with Dell, Inc. under which the Company provided systems integration
services to Ford as a subcontractor to Dell; (e) the impact of exchange rates;
and (f) the separation of Volvo Car Corporation from the global Ford IT
programs, including the SPOC contract in November 2009.




On
December 23, 2008, the Company executed a new SPOC contract, under which
TechTeam provides support services to Ford's information technology
infrastructure. Under the SPOC contract, TechTeam provides service desk,
deskside support, service management, infrastructure management, and identity
and access management services to Ford in North America, Western Europe, and
Asia. The contract renewal provides for a significant change in the service
delivery model. These changes include the transition and centralization of
service for English speaking Ford personnel to our operations in the
Philippines, the transition of service for German speaking Ford personnel to
Romania, and an enhanced centralized remote deskside support management
function. This transition was completed in 2009.




Under the
existing SPOC contract, we provide these infrastructure support services under
specific service level metrics, and we invoice Ford based upon the number of
seats we support. The number of seats supported is determined bi-annually on
February 1 and August 1 of each year. If certain contractual conditions are met,
Ford and TechTeam have the right during each six month period to request one
out-of-cycle seat adjustment. We do not believe the revenue decline will
continue in 2010, as we believe that we are well-positioned to expand the SPOC
program into Latin America, Canada and Asia during 2010.




At the
end of December 2009, Ford owed the Company $2.3 million in the Americas and
$1.6 million in Europe. We do not believe that Ford’s financial condition will
otherwise affect our business with Ford or the collectability of our accounts
receivable from Ford; however, any failure to retain a significant amount of
business with Ford, a bankruptcy filing or major restructuring by Ford, could
have a material adverse effect on our operating results and
liquidity.


38


U.S.
Federal Government




We
conduct business under multiple contracts with various agencies and departments
of the U.S. Federal Government. Revenue generated through our business with the
U.S. Federal Government decreased to $66.9 million in 2009, from
$77.3 million in 2008 and $60.3 million in 2007.




The
results of our Government business have been impacted by the difficult
government contracting environment created by the budget constraints our
customers faced. As a result of this environment, many customers have delayed
procurement actions. In turn, we have experienced delays in our expected new
business development. Despite being informed that we were not selected as prime
contractor for the BTA of the Department of Defense, we continue to provide
service to the BTA as a subcontractor. In 2009 and 2008, we earned $3.3 million
and $8.9 million, respectively, in revenue from the BTA.




As
previously reported, our contract for the ANG ended on September 30, 2009. ANG
in-sourced the majority of the work performed under the expiring contract. 
ANG did award a new contract to Harris Corporation, with the Company as a
subcontractor, which covered the work under the expiring contract that was not
in-sourced and additional positions. Accordingly, the new contract will produce
significantly less revenue and gross margin than the expiring contract.
Specifically, had the Company been delivering service under the new contract for
the year ended December 31, 2009, total U.S. Federal Government revenue would
have been reduced on a net basis by approximately 11.7%.




New
Accounting Pronouncements




In June
2009, the Financial Accounting Standards Board (“FASB”) issued ASC 105,
“Accounting Standards Codification and the Hierarchy of GAAP” (“ASC 105”). ASC
105 is effective for financial statements issued for interim and annual periods
ending after September 15, 2009. ASC 105 is now the source of authoritative
Generally Accepted Accounting Principles (“GAAP”) recognized by the FASB to be
applied by nongovernmental entities. ASC 105 was not intended to change or alter
existing GAAP, did not have a material impact on our consolidated financial
statements and only impacts references for accounting guidance.




During
the second quarter of 2009, the Company adopted the provisions of ASC 855,
“Subsequent Events” (“ASC 855”), which establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued.  The adoption of ASC 855 did
not have a material impact on our consolidated financial position or results of
operations.




On
January 1, 2009, the Company adopted the provisions of ASC 820 “Fair Value
Measurements and Disclosures” (“ASC 820”) related to nonfinancial assets and
liabilities on a prospective basis. ASC 820 establishes the authoritative
definition of fair value, sets out a framework for measuring fair value and
expands the required disclosures about fair value measurement. On
January 1, 2008, the Company adopted the provisions of ASC 820 related to
financial assets and liabilities as well as other assets and liabilities carried
at fair value on a recurring basis. The adoption of the provisions of ASC 820
did not affect the Company’s historical consolidated financial statements. For
more information, see Note 5 - Fair Value Measurements. In April 2009, the FASB
issued additional provisions of ASC 820 that extends the disclosure requirements
of ASC 820 to interim financial statements. This provision was effective for
financial statements issued for interim periods ending after June 15, 2009. The
adoption of this provision did not have a material impact on the Company’s
consolidated financial position, results of operations, or cash
flows.




On
January 1, 2009, the Company adopted the provisions of ASC 815 “Derivatives
and Hedging” (“ASC 815”) on a prospective basis. The provision amended and
expanded the disclosure requirements for derivative instruments and hedging
activities by requiring enhanced disclosures about (i) how and why an
entity uses derivative instruments, (ii) how derivative instruments and
related hedged items were accounted for previously and its related
interpretations, and (iii) how derivative instruments and related hedged
items affect an entity’s financial position, financial performance, and cash
flows. The adoption of these provisions did not have a material impact on the
Company’s consolidated financial statements.


39


In
December 2007 the FASB issued ASC 805, “Business Combinations”. Under ASC
805, an entity is required to recognize the assets acquired, liabilities
assumed, contractual contingencies, and contingent consideration at their fair
value on the acquisition date. It further requires that acquisition-related
costs are recognized separately from the acquisition and expensed as incurred,
restructuring costs generally expensed in periods subsequent to the acquisition
date, and changes in accounting for deferred tax asset valuation allowances and
acquired income tax uncertainties after the measurement period impact income tax
expense.  The adoption of ASC 805 changed the accounting treatment for
business combinations on a prospective basis beginning in the first quarter of
fiscal year 2009. The impact of adopting ASC 805 will depend on the nature and
terms of future acquisitions.




In
December 2007 the FASB issued ASC 810, “Consolidation”. ASC 810 changes the
accounting and reporting for minority interests, which will be re-characterized
as non-controlling interests and classified as a component of equity.  ASC
810 was effective on a prospective basis for business combinations with an
acquisition date beginning in the first quarter of fiscal year 2009.  The
Company does not have any minority interests; therefore the adoption of this
statement did not have an impact on the Company’s consolidated financial
statements.




Liquidity
and Capital Resources




Cash and
cash equivalents were $16.0 million at December 31, 2009, compared to
$16.9 million at December 31, 2008. Cash and cash equivalents
decreased $900,000 for year ended December 31, 2009, as a result of
$20.2 million in net cash provided by operating activities and the positive
impact of $900,000 related to exchange rates, offset by $20.1 million in cash
used for the repayment of long-term debt and $1.3 million in cash used for
capital expenditures.




Net cash
provided by operating activities for 2009 and 2008 was $20.2 million and $8.8
million, respectively. Net cash provided from operations for 2009 was primarily
due to a net loss of $18.6 million, adjusted for non-cash impairment charges of
$27.5 million, depreciation/amortization expense of $6.5 million and non-cash
stock based compensation expense of $1.9 million. This was partially offset by
an increase in our deferred tax position of $6.2 million which resulted from tax
benefits related to the impairment charges. Net changes in operating assets and
liabilities of $8.4 million also contributed to cash provided by operating
activities. The net changes in operating assets and liabilities as of December
31, 2009 were primarily related to a reduction in accounts receivable of $15.2
million, principally driven by reduction in overall sales and a focused effort
on cash collections; and an increase in deferred revenue of $1.8 million
principally driven by the timing of new customer payments; partially offset by a
reduction in accrued expenses of $2.5 million primarily due to the reversal in
accrued restructuring and a decrease in accrued liabilities related to
subcontractor and consultant expense; and a decrease in accrued payroll of $4.1
million, primarily due to the decrease in headcount. The cash generated from
these operating cash flow improvements was primarily used to pay down
debt.




Cash
provided by operations for 2008 was primarily due to net income of $3.0 million,
adjusted for depreciation/amortization expense and non-cash stock based
compensation expense of $7.9 million and $2.3 million, respectively, partially
offset by a use of cash due to net changes in operating assets and liabilities
of $4.6 million. The net changes in operating assets and liabilities as of
December 31, 2008 were primarily related to a decrease in accounts payable of
$13.8 million; partially offset by a reduction in accounts receivable of $6.6
million, an increase in accrued taxes of $1.4 million and an increase in accrued
expenses of $1.3 million. The decrease in accounts payable was primarily driven
by payments made under certain contracts with the U.S. Department of Homeland
Security (“DHS”). Sytel serves as the prime contractor and Electronic Data
Systems Corporation (“EDS”) serves as its subcontractor. EDS performs in excess
of 95% of the work under the contract and creates the invoices, which Sytel
forwards to the DHS. Under the subcontract agreement between Sytel and EDS,
Sytel does not pay EDS’ invoices until Sytel receives payment from the DHS. As a
result, there were sizable swings in our accounts receivable and accounts
payable with a minimal impact on cash flow in the future.




Net cash
used in investing activities was $1.8 million and $7.6 million for
2009 and 2008, respectively. Net cash used in investing activities in 2009 was
used to purchase equipment and software and to make payments to the selling
shareholders of prior acquisitions for achieving financial performance targets,
while net cash used in investing activities in 2008 was related to the Onvaio
acquisition and to purchases of equipment and software. Capital expenditures
were at $1.3 million and $2.5 million for 2009 and 2008,
respectively.




40




Net cash
used in financing activities for 2009 and 2008 was $20.2 million and $1.6
million, respectively, and was primarily used to pay down debt.




Long-term
cash requirements, other than for normal operating expenses, are anticipated for
continued global expansion, enhancements of existing technologies, possible
repurchases of our common stock and the possible acquisition of businesses
complementary to our existing businesses. As
December 31, 2009, the Company was not in compliance with its financial
covenants in its Credit Agreement. As set forth Note 18 – Subsequent Event, the
Company has entered into the third amendment to Credit Agreement. In light of
the Company’s cash flow and the amendment to the Credit Agreement, we believe
that cash flows from operations, together with existing cash balances and
the existing credit facility, will continue to be sufficient to meet our ongoing
operational requirements for the next twelve months and foreseeable future. We
have historically not paid dividends, and we are restricted from doing so under
our Credit Agreement. The current financing market conditions may limit our
sources of funds available, and the terms of such financings for these
activities to the extent financing is desirable or necessary.




Material
Commitments




Following
are material contractual obligations outstanding at December 31,
2009:




Maturities of Material Contractual
      Obligations
                
                Debt
                
                
                Operating
                    Leases(In
      thousands)Less
      than one year
                
                $
                4,074
                
                
                $
                4,1781-3
      years
                
                
                11,051
                
                
                
                7,5244-5
      years
                
                
                —
                
                
                
                2,834Thereafter
                
                
                —
                
                
                
                698Total
                
                $
                15,125
                
                
                $
                15,234





Critical
Accounting Policies and Estimates




We
prepare our financial statements in conformity with United States GAAP. The
preparation of these consolidated financial statements under GAAP requires
management to make estimates and judgments that affect the reported amount of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of
revenue and expense during the reporting period. On an ongoing basis, management
evaluates its estimates including those related to uncollectible accounts
receivable, contingent liabilities, revenue recognition, goodwill and other
intangible assets. Management bases its estimates on historical experience and
on various other factors that are believed to be reasonable at the time the
estimates are made. Actual results may differ from these estimates under
different assumptions or conditions. Management believes that our critical
accounting policies that require more significant judgments and estimates in the
preparation of our consolidated financial statements are revenue recognition,
deferred income taxes, accounts receivable, goodwill impairment, long-lived
assets and identifiable intangible asset impairment, and business
combinations.




Revenue
Recognition




Under all
situations, revenue is not recognized until earned, which is when persuasive
evidence of an arrangement exists, services have been provided, the revenue
terms are fixed and determinable, and collectability is reasonably
assured.




41




We earn
revenue under our IT Outsourcing Services segment under one of the following
four models: (1) time and material contracts under which we bill an agreed rate
for each service desk agent based on the number of units (i.e., hours or days)
the individual agent worked during the month; (2) per-transaction contracts
under which we bill an agreed rate per incident or call handled during a month
or per minute for the length of the telephone call for the incident; (3) fixed
monthly fee contracts under which we agree to provide all of the agreed-upon
scheduled services on a monthly basis for a fixed monthly fee; and (4) per-seat
contracts under which we agree to provide agreed-upon scheduled services for a
monthly fee that is determined by multiplying the number of users supported at
the customer by the monthly per-seat fee. Within the IT Outsourcing Services
segment, greater than 98% of our services are delivered as a “monthly service”
and not over multiple periods. We also refer to our fixed-fee and per-seat
contracts as “managed service” contracts. Many of our contracts that we bill on
a per-transaction basis contain a minimum monthly fee, which is derived by
multiplying the agreed-upon forecast of anticipated incidents by an agreed-upon
minimum percentage. Under this arrangement, we receive a minimum revenue amount
for having committed to provide a specific level of staff to support the
services projected during a month. Since we invoice the customer for the minimum
fee and do not reduce future billings, we recognize the minimum fee as revenue
in the month in which the incidents are below the customer’s minimum forecast.
Incident resolution usually occurs in the same month that incidents are
reported. Under our managed service contracts, we generally do not incur
material costs in a future month to complete a service obligation that arose in
a prior month. In those instances where our service obligation is not complete
for a month and we expect to incur more than immaterial costs in a future month,
we will defer an amount of revenue that represents the fair value of that
service obligation.




Revenue
from all other services that we provide under our other operating segments —
Government Technology Services, IT Consulting and Systems Integration, and Other
Services — may be categorized into two primary types: time and material, and
fixed price. For the year ended December 31, 2009, approximately 74% of our
revenue in these business segments was time and material and 24% was fixed price
(a substantial majority of which were fixed price level of effort contracts).
Revenue is recognized under time and materials contracts as time is spent at
hourly rates, which are negotiated with the customer, plus the cost of any
allowable material costs and out-of-pocket expenses. Revenue is recognized under
the majority of fixed price contracts, which are predominantly level of effort
contracts, using the cost-to-cost method for all services provided. In addition,
we evaluate contracts for multiple deliverables, which may require the
segmentation of each deliverable into separate accounting units for proper
revenue recognition.




The
Company has several types of contracts with the federal government, including
firm fixed-price, time and materials, and cost reimbursable contracts. The firm
fixed-price contracts are those in which the Company’s revenue under the
contract is fixed when the contract is executed, either on a per unit basis or
over the life of the contract. These contracts accounted for 31.5% of federal
government related revenue (10.0% of the Company’s total revenue) for the fiscal
year ended December 31, 2009. Time and materials (“T&M”) contracts are those
in which the federal government pays the Company based on the number of labor
hours worked and the cost of materials necessary to complete the work. Total
revenue under T&M contracts is not fixed when the contract is executed. For
the fiscal year ended December 31, 2009, T&M contracts accounted for 65.3%
of federal government related revenue (20.7% of the Company’s total revenue).
Cost reimbursable contracts are those in which the federal government pays the
Company based on the actual cost of direct labor, indirect costs and the number
of labor hours worked. Total revenue under cost reimbursable contracts is not
fixed when the contract is executed.  For the fiscal year ended
December 31, 2009, cost reimbursable contracts accounted for 3.2% of federal
government related revenue (1.0% of the Company’s total revenue).




All three
of these contract types are available under most Government-wide Acquisition
Contracts (“GWACs”).  GWACs are defined in the Federal Acquisition
Regulation (“FAR”) as task order or delivery order contracts for Information
Technology (“IT”) established by one agency for government-wide use. For the
fiscal year ended December 31, 2009, GWACs accounted for 29.3% of federal
government related revenue (9.3% of the Company’s total revenue).




The
advantage of GWACs is that multiple government agencies can issue task orders
under them, so the potential to significantly increase revenue exists. The
advantage of T&M and cost reimbursable contracts is that revenue under them
is not fixed, and accordingly, the Company’s gross profit earned from these
contracts is generally consistent. Since costs related to firm fixed-price
contracts are difficult to predict into the future, the Company’s gross profit
may fluctuate positively or negatively based upon the Company’s ability to
accurately price the cost of contract performance in the Company’s
bid.


42


Our
contracts with agencies of the U.S. Federal Government are subject to periodic
funding by the respective contracting agency. Funding for a contract may be
provided in full at inception of the contract or ratably throughout the term of
the contract as the services are provided. From time to time, we may proceed
with work and recognize revenue on unfunded portions of existing contracts based
on customer direction pending finalization and signing of formal funding
documents. In evaluating the probability of funding being received, we consider
our previous experience with the customer, communications with the customer
regarding funding status, and our knowledge of available funding for the
contract or program. If funding is not assessed as probable, revenue is deferred
and is not recognized.




We
recognize revenue under cost-based U.S. Federal Government contracts based on
allowable contract costs, as mandated by the U.S. Federal Government’s cost
accounting standards. The costs we incur under U.S. Federal Government contracts
are subject to regulation and audit by certain agencies of the U.S. Federal
Government. Contract cost disallowances, resulting from government audits, have
not historically been significant.




Deferred
Income Taxes




Deferred
income taxes represent temporary differences in the recognition of certain items
for income tax and financial reporting purposes. Realization of deferred tax
assets depends upon sufficient levels of future taxable income. If at any time
we believe that current or future taxable income does not support the
realization of deferred tax assets, a valuation allowance is
provided.




Based on
historical losses in Belgium and Romania, we have provided a valuation allowance
against the deferred tax asset related to our net operating loss carryforward in
these countries. We anticipate providing a valuation allowance for any future
losses incurred in Belgium and Romania. No valuation allowance has been
recognized against other deferred tax assets, which are in the United States, as
we believe it is more likely than not that these deferred tax assets will be
realized based on estimates of future taxable income, which have considered,
among other factors, the future benefits of our recent
acquisitions.




Accounts
Receivable




We
periodically review our accounts receivable balances for collectability based on
a combination of historical experience and existing economic conditions. The
definition of “delinquent accounts” is based on the governing contractual terms.
Delinquent accounts and balances are reserved when we determine they are more
likely than not to become uncollectible. We generally do not require collateral
and do not charge interest on past due balances.




We
generally continue to be able to collect from our customers and currently do not
know of any large accounts which will become uncollectible in the future;
however, the credit rating of at least Ford and several automotive component
companies have declined. These downgrades have not negatively affected our
relationship with these customers or the collectability of our accounts
receivable from these customers at this time; however, any bankruptcy filing by
Ford would have a material adverse impact on the collectability of our accounts
receivable from Ford and our operating results and liquidity. Additionally,
there could be concern with other automotive industry customers related to a
Ford bankruptcy and/or depressed industry.




Goodwill
Impairment




Goodwill
relating to our acquisitions represents the excess of cost over the fair value
of net tangible and separately identifiable intangible assets acquired, and has
a carrying amount of approximately $40.5 million and $65.2 million at
December 31, 2009 and 2008, respectively.




During
2009, we performed our annual goodwill impairment test as of October 1, 2009.
The Company encountered adverse changes in the business climate including a weak
U.S. and global economy which resulted in a reduction in demand for services. As
a result of these factors and related decrease in future cash flow expectations,
our step one calculations for the annual impairment test indicated a carrying
value in excess of fair value for our Government Solutions and SQM reporting
units. Because of this, we applied the second step of the annual impairment test
and determined that the fair value of our goodwill at the Government Solutions
and SQM reporting units was less than the amount reflected in the balance sheet
for these reporting units. As a result, we recorded a $20.8 million and $4.4
million pretax impairment charge in the fourth quarter of 2009 to reflect the
implied fair value of goodwill for our Government Solutions and SQM reporting
units, respectively.




43




During
the year ended December 31, 2008, we performed our annual goodwill impairment
test as of October 1, 2008 and, due to adverse economic events during 2008,
combined with the conclusion of customer contracts and a significant decline in
our stock price, we updated our annual goodwill impairment testing as of
December 31, 2008. We did not incur an impairment charge relating to our
goodwill impairment tests as of October 1, 2008 or December 31,
2008.




If future
results for our other assets for which we hold goodwill are not consistent with
our current assumptions and estimates, we may be required to record additional
goodwill impairment charges at a later date. Please see Note 4 – Goodwill and
Other Intangibles Assets and Note 5 - Fair Value Measurements for further
information.




Long-Lived
Assets and Identifiable Intangible Asset Impairment




The
carrying amount of long-lived assets and identifiable intangible assets was
approximately $14.0 million and $21.3 million at December 31, 2009 and
2008, respectively.




We
continually evaluate whether events and circumstances have occurred that
indicate the remaining estimated useful lives of long-lived and identifiable
intangible assets may warrant revision or that the remaining balances may not be
recoverable. When factors or events indicate that such costs should be evaluated
for possible impairment, we estimate the undiscounted cash flows of the assets
over their remaining lives to evaluate whether the costs are recoverable. Such
events could include, but are not limited to, the loss of a significant customer
or contract, decreases in U.S. Federal Government funding of certain programs,
or other similar events.




Based on
adverse changes in the business climate, we reviewed our long-lived assets and
identifiable intangible assets, primarily customer relationships, for impairment
in accordance with ASC 360. We estimated the fair value of our customer
relationships using a discounted cash flow analysis and compared those values to
the carrying value of each identifiable intangible asset. We concluded, based on
this comparison, that the intangible assets were impaired at our Government
Solutions and SQM reporting units. As a result, we recorded a $0.5 million and
$1.8 million impairment charge in the fourth quarter of 2009 to reflect the fair
value of those intangible assets for our Government Solutions and SQM reporting
units, respectively. There were no other impairment charges at any other
reporting units. We did not record an impairment loss in any other period
presented.




Business
Combinations




We apply
the provisions of ASC 805, “Business Combinations,” whereby the net tangible and
separately identifiable intangible assets acquired and liabilities assumed are
recognized at their estimated fair market values at the acquisition date. The
purchase price in excess of the estimated fair market value of the net tangible
and separately identifiable intangible assets acquired represents goodwill. The
allocation of the purchase price related to our business combinations involves
significant estimates and management judgment that may be adjusted during the
allocation period, but in no case beyond one year from the acquisition date.
Beginning in 2009, costs incurred for business combinations are expensed in the
periods in which the costs are incurred and the services are received. Prior to
2009, costs incurred related to successful business combinations were
capitalized as costs of business combinations, while costs incurred by the
Company for unsuccessful or terminated acquisition opportunities were expensed
when it was determined that such opportunities will no longer be pursued. Costs
incurred related to probable business combinations were
deferred.


44


Item
      7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




On
June 1, 2007, the Company entered into a Credit Agreement that provides for
long-term borrowings at variable rates of interest based upon either the London
Interbank Offered Rate (“LIBOR”), the bank’s prime rate or the federal funds
rate, each of which having an applicable interest margin added. Upon entering
into the agreement, the Company borrowed $35.0 million to finance part of
the acquisition of NewVectors. On June 4, 2007, the Company entered into an
interest rate swap agreement with a notional amount of $30.0 million to
hedge the variable rate of interest on the Company borrowings. For the year
ended December 31, 2009 and 2008, the Company recorded a loss of
approximately $769,000 and $591,000, respectively, as interest expense on the
interest rate swap. The Company has recorded a liability of $449,000 and $1.1
million for the fair value of the interest rate swap at December 31, 2009 and
2008, respectively, for which the corresponding offset has been recorded as an
unrealized gain (loss) within other comprehensive income.




On
June 5, 2008, the Company and the banks amended the Credit Agreement to
permit borrowings up to $55.0 million. In addition, the Applicable Margin on a
LIBOR-based loan was modified from a range of 0.75%-1.5% to a range of
0.95%-1.45%, and the unused commitment fee increased from a range of 0.1%-0.25%
to a range of 0.15%-0.25%. Borrowings under the Credit Agreement are currently
secured by substantially all domestic assets of the Company and 65% of its
interests in the majority of its foreign subsidiaries. The Credit Agreement
terminates on May 31, 2012.




Our
exposure to market risk relates to the interest rate risk associated with the
outstanding loan under the Credit Agreement. The market exposure for the
variable interest rate on the loan is mitigated by the interest rate swap with a
notional amount of $11.9 million and $19.4 million at December 31, 2009 and
2008, respectively. Assuming a 100 basis point increase in interest rates on our
variable rate debt and assuming the debt was outstanding since January 1,
2009, interest expense would have increased approximately $100,000 in 2009. The
estimated increase in interest expense was based on the portion of our variable
interest debt that was not offset by the interest rate swap agreement and
assumes no changes in the volume or composition of the debt.




In the
normal course of business, we are subject to market exposure from changes in
foreign currency exchange rates due to our global operations as we provide
services in the United States and Europe. As a result, our financial results and
position could be significantly affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in foreign markets in which
we provide services. Our operating results are primarily exposed to changes in
exchange rates between the U.S. dollar and European currencies. As currency
exchange rates change, translation of the statements of operations of our
international subsidiaries into U.S. dollars affects year-over-year
comparability of operating results. We do not hedge operating translation risks
because cash flows from international operations are generally reinvested
locally.




Also,
certain of our trade receivables at our international subsidiaries are
denominated in currencies other than the local currency of the TechTeam entity
that delivers the service. As currency exchange rates change, our operating
results will be affected by foreign currency transaction gains or losses on the
receivable balance until it is collected. We generally do not enter into
derivatives or similar instruments to manage our exposure to fluctuations in
exchange rates related to trade receivables. From time to time, we enter into
foreign currency option or forward contracts to manage our exposure to
fluctuations in the exchange rate between the U.S. dollar and European euro. No
derivatives, options contracts or similar instruments were outstanding on
foreign currency at December 31, 2009 or 2008. We do not enter into
derivatives or similar instruments for trading or speculative
purposes.




At
December 31, 2009 and 2008, our net current assets (defined as current
assets less current liabilities) subject to foreign currency translation risk
were $22.4 million and $21.5 million, respectively. The potential decrease in
net current assets from a hypothetical 10% adverse change in quoted foreign
currency exchange rates would be $2.2 million at December 31, 2009 and
2008. Approximately $966,000 and $1.4 million of our trade receivables at
our international subsidiaries at December 31, 2009 and 2008, respectively,
are denominated in currencies other than the local currency of the TechTeam
entity that delivers the service. The potential loss on trade receivables from a
hypothetical 10% adverse change in quoted foreign currency exchange rates would
be $97,000 and $140,000 at December 31, 2009 and 2008, respectively. The
sensitivity analysis presented assumes a parallel shift in foreign currency
exchange rates yet exchange rates rarely move in the same direction. This
assumption may overstate the impact of changing exchange rates on individual
assets and liabilities denominated in a foreign currency.


45


Item
8.        FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA




The
following consolidated financial statements of TechTeam Global, Inc. and
Subsidiaries are included in this Item 8:




PageManagement
      Report on Internal Control over Financial Reporting
              
              47Report
      of Independent Registered Public Accounting Firm
              
              47Report
      of Independent Registered Public Accounting Firm
              
              48Consolidated
      Statements of Operations — Years Ended December 31, 2009, 2008 and
      2007
              
              49Consolidated
      Statements of Comprehensive Income (Loss) — Years Ended December 31, 2009,
      2008 and 2007
              
              50Consolidated
      Balance Sheets — As of December 31, 2009 and 2008
              
              51Consolidated
      Statements of Shareholders’ Equity — Years Ended December 31, 2009, 2008
      and 2007
              
              52Consolidated
      Statements of Cash Flows — Years Ended December 31, 2009, 2008 and
      2007
              
              53Notes
      to the Consolidated Financial Statements
              
              54




The
following financial statement schedule of TechTeam Global, Inc. and Subsidiaries
is included pursuant to the requirements of Item 15:




Schedule
II — Valuation and Qualifying Accounts for the years ended December 31, 2009,
2008 and 2007




All
schedules for which provision is made in the applicable accounting regulations
of the Securities and Exchange Commission and for which the information is not
already included in the financial statements are not required under the related
instructions or are not applicable and, therefore, have been
omitted.


46


Management
Report on Internal Control over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of
the Exchange Act). Our management, with the participation of our chief executive
officer and chief financial officer, assessed the effectiveness of our internal
control over financial reporting based on the framework in “Internal
Control—Integrated Framework,” issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO Framework”). Based on our
assessment under the COSO Framework, our management concluded that our internal
control over financial reporting was effective as of December 31,
2009.




Our
independent registered public accounting firm, Ernst & Young LLP, issued an
attestation report on the effectiveness of our internal control over financial
reporting as of December 31, 2009, which appears below.




Report
of Independent Registered Public Accounting Firm




The Board
of Directors and Shareholders of TechTeam Global, Inc.




We have
audited TechTeam Global, Inc.’s internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). TechTeam Global, Inc’s (the Company) management
is responsible for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our
audit.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.




A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial
statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.




In our
opinion, TechTeam Global, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based onthe COSO criteria.


47


We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of TechTeam
Global, Inc as of December 31, 2009 and 2008, and the related consolidated
statements of operations, comprehensive income (loss), shareholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2009 of
TechTeam Global, Inc. and our report dated March 30, 2010 expressed an
unqualified opinion thereon.




/s/ Ernst
& Young LLP




Detroit,
Michigan


March 30,
2010




Report
of Independent Registered Public Accounting Firm




The Board
of Directors and Shareholders TechTeam Global, Inc.




We have
audited the accompanying consolidated balance sheets of TechTeam Global, Inc.
and subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the
related consolidated statements of operations, comprehensive income (loss),
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 2009. Our audits also included the financial statement
schedule listed in the index at Item 15(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of TechTeam Global, Inc.
and subsidiaries at December 31, 2009 and 2008, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2009, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth
therein.




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), TechTeam Global, Inc.'s internal control over
financial reporting as of December 31, 2009, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 30, 2010
expressed an unqualified opinion thereon.




/s/ Ernst
& Young LLP




Detroit,
Michigan


March 30,
2010


48


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS




(In
thousands, except per share data)




Year Ended December
    31,2009
              
              
              2008
              
              
              2007RevenueCommercialIT Outsourcing
      Services
              
              $
              106,229
              
              
              $
              120,166
              
              
              $
              104,659IT Consulting and Systems
      Integration
              
              
              12,755
              
              
              
              27,064
              
              
              
              28,064Other Services
              
              
              15,817
              
              
              
              24,110
              
              
              
              20,219Total
    Commercial
              
              
              134,801
              
              
              
              171,340
              
              
              
              152,942Government Technology
      Services
              
              
              76,440
              
              
              
              88,615
              
              
              
              69,254Total revenueTotal
      corporate services
              
              
              211,241
              
              
              
              259,955
              
              
              
              222,196Cost
      of revenueCommercialIT Outsourcing
      Services
              
              
              82,899
              
              
              
              95,816
              
              
              
              84,732IT Consulting and Systems
      Integration
              
              
              9,890
              
              
              
              20,637
              
              
              
              21,877Other Services
              
              
              11,963
              
              
              
              18,683
              
              
              
              15,430Total
    Commercial
              
              
              104,752
              
              
              
              135,136
              
              
              
              122,039Government Technology
      Services
              
              
              56,003
              
              
              
              64,383
              
              
              
              50,387Total cost of revenueTotal corporate services
              
              
              160,755
              
              
              
              199,519
              
              
              
              172,426Gross
      profitCommercial
              
              
              30,049
              
              
              
              36,204
              
              
              
              30,903Government Technology
      Services
              
              
              20,437
              
              
              
              24,232
              
              
              
              18,867Total
      gross profit
              
              
              50,486
              
              
              
              60,436
              
              
              
              49,770Selling, general and
      administrative expense
              
              
              42,823
              
              
              
              46,920
              
              
              
              39,475Impairment
    charges
              
              
              27,453
              
              
              
              —
              
              
              
              —Restructuring charges,
      net
              
              
              411
              
              
              
              5,719
              
              
              
              —Operating
      (loss) income
              
              
              (20,201
              )
              
              
              7,797
              
              
              
              10,295Net interest
      expense
              
              
              (1,018
              )
              
              
              (1,712
              )
              
              
              (572
              )Foreign currency transaction
      (loss) gain
              
              
              (675
              )
              
              
              910
              
              
              
              (84
              )Other income,
    net
              
              
              —
              
              
              
              155
              
              
              
              —(Loss)
      income before income taxes
              
              
              (21,894
              )
              
              
              7,150
              
              
              
              9,639Income tax (benefit)
      provision
              
              
              (3,261
              )
              
              
              4,182
              
              
              
              3,343Net
      (loss) income
              
              $
              (18,633
              )
              
              $
              2,968
              
              
              $
              6,296Basic
      (loss) earnings per common share
              
              $
              (1.75
              )
              
              $
              0.28
              
              
              $
              0.61Diluted
      (loss) earnings per common share
              
              $
              (1.75
              )
              
              $
              0.28
              
              
              $
              0.60Weighted
      average number of common shares and common share equivalents
      outstandingBasic—common
              
              
              10,618
              
              
              
              10,529
              
              
              
              10,355Diluted—common
              
              
              10,618
              
              
              
              10,555
              
              
              
              10,506


See
accompanying notes.


49


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)




(In
thousands)




Year
      Ended December 31,2009
              
              
              2008
              
              
              2007Net
      (loss) income, as set forth in the consolidated statements of
      operations
              
              $
              (18,633
              )
              
              $
              2,968
              
              
              $
              6,296Other
      comprehensive (loss) incomeForeign currency translation
      adjustment
              
              
              1,079
              
              
              
              (3,525
              )
              
              
              1,487Unrealized gain (loss) on
      derivative instrument
              
              
              625
              
              
              
              (318
              )
              
              
              (755
              )Comprehensive
      (loss) income
              
              $
              (16,929
              )
              
              $
              (875
              )
              
              $
              7,028




See
accompanying notes.


50


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS




(In
thousands)




December 31,2009
                  
                  
                  2008ASSETSCurrent
      assetsCash
      and cash equivalents
                  
                  $
                  15,969
                  
                  
                  $
                  16,881Accounts
      receivable (less allowance of $1,315 at December 31, 2009 and $986 at
      December 31, 2008)
                  
                  
                  44,314
                  
                  
                  
                  59,705Prepaid
      expenses and other current assets
                  
                  
                  3,766
                  
                  
                  
                  4,315Total
      current assets
                  
                  
                  64,049
                  
                  
                  
                  80,901Property,
      equipment and software, net
                  
                  
                  6,231
                  
                  
                  
                  8,327Goodwill
      and other intangible assets, net
                  
                  
                  47,270
                  
                  
                  
                  77,361Deferred
      income taxes
                  
                  
                  3,940
                  
                  
                  
                  —Other
      assets
                  
                  
                  1,030
                  
                  
                  
                  774Total
      assets
                  
                  $
                  122,520
                  
                  
                  $
                  167,363LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilitiesCurrent
      portion of long-term debt
                  
                  $
                  4,074
                  
                  
                  $
                  7,987Accounts
      payable
                  
                  
                  5,130
                  
                  
                  
                  6,340Accrued
      payroll and related taxes
                  
                  
                  8,486
                  
                  
                  
                  12,477Accrued
      expenses
                  
                  
                  5,237
                  
                  
                  
                  9,054Deferred
      revenue
                  
                  
                  3,213
                  
                  
                  
                  1,435Other
      current liabilities
                  
                  
                  955
                  
                  
                  
                  1,181Total
      current liabilities
                  
                  
                  27,095
                  
                  
                  
                  38,474Long-term
      liabilitiesLong-term
      debt, less current portion
                  
                  
                  11,051
                  
                  
                  
                  27,202Deferred
      income taxes
                  
                  
                  —
                  
                  
                  
                  1,966Other
      long-term liabilities
                  
                  
                  745
                  
                  
                  
                  988Total
      long-term liabilities
                  
                  
                  11,796
                  
                  
                  
                  30,156Shareholders’
      equityPreferred
      stock, 5,000,000 shares authorized, no shares issued
                  
                  
                  —
                  
                  
                  
                  —Common
      stock, $0.01 par value, 45,000,000 shares authorized, 11,118,309 and
      10,884,998 shares issued and outstanding at December 31, 2009 and
      2008, respectively
                  
                  
                  111
                  
                  
                  
                  109Additional
      paid-in capital
                  
                  
                  79,762
                  
                  
                  
                  77,939Retained
      earnings
                  
                  
                  2,726
                  
                  
                  
                  21,359Accumulated
      other comprehensive income (loss)
                  
                  
                  1,030
                  
                  
                  
                  (674
                  )Total
      shareholders’ equity
                  
                  
                  83,629
                  
                  
                  
                  98,733Total
      liabilities and shareholders’ equity
                  
                  $
                  122,520
                  
                  
                  $
                  167,363




See
accompanying notes.


51


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY




(In
thousands)




Common
                  Stock
                
                
                Additional
                  Paid-in Capital
                
                
                Retained
                  Earnings
                
                
                Accumulated
                  Other
                  Comprehensive
                  Income (Loss)
                
                
                Total
                  Shareholders’
                  EquityBalance
      at January 1, 2007
                
                $
                104
                
                
                $
                71,672
                
                
                $
                12,095
                
                
                $
                2,437
                
                
                $
                86,308Proceeds
      from issuance of sharesunder
      stock option plans
                
                
                1
                
                
                
                1,093
                
                
                
                —
                
                
                
                —
                
                
                
                1,094Common
      stock issued to directors
                
                
                —
                
                
                
                219
                
                
                
                —
                
                
                
                —
                
                
                
                219Issuance
      of restricted stock
                
                
                2
                
                
                
                (2
                )
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued in connection withacquisitions
                
                
                —
                
                
                
                300
                
                
                
                —
                
                
                
                —
                
                
                
                300Share-based
      compensation
                
                
                —
                
                
                
                1,521
                
                
                
                —
                
                
                
                —
                
                
                
                1,521Net
      income for 2007
                
                
                —
                
                
                
                —
                
                
                
                6,296
                
                
                
                —
                
                
                
                6,296Unrealized
      loss on derivative instrument
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (755
                )
                
                
                (755
                )Foreign
      currency translation adjustment
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                1,487
                
                
                
                1,487Other
                
                
                —
                
                
                
                561
                
                
                
                —
                
                
                
                —
                
                
                
                561Balance
      at December 31, 2007
                
                
                107
                
                
                
                75,364
                
                
                
                18,391
                
                
                
                3,169
                
                
                
                97,031Proceeds
      from issuance of sharesunder
      stock option plans
                
                
                1
                
                
                
                408
                
                
                
                —
                
                
                
                —
                
                
                
                409Common
      stock issued to directors
                
                
                —
                
                
                
                160
                
                
                
                —
                
                
                
                —
                
                
                
                160Purchase
      of common stock
                
                
                —
                
                
                
                (61
                )
                
                
                —
                
                
                
                —
                
                
                
                (61
                )Issuance
      of restricted stock
                
                
                1
                
                
                
                (1
                )
                
                
                —
                
                
                
                —
                
                
                
                —Share-based
      compensation
                
                
                —
                
                
                
                2,157
                
                
                
                —
                
                
                
                —
                
                
                
                2,157Net
      income for 2008
                
                
                —
                
                
                
                —
                
                
                
                2,968
                
                
                
                —
                
                
                
                2,968Unrealized
      loss on derivative instrument
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (318
                )
                
                
                (318
                )Foreign
      currency translation adjustment
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (3,525
                )
                
                
                (3,525
                )Other
                
                
                —
                
                
                
                (88
                )
                
                
                —
                
                
                
                —
                
                
                
                (88
                )Balance
      at December 31, 2008
                
                
                109
                
                
                
                77,939
                
                
                
                21,359
                
                
                
                (674
                )
                
                
                98,733Common
      stock issued to directors
                
                
                —
                
                
                
                148
                
                
                
                —
                
                
                
                —
                
                
                
                148Issuance
      of restricted stock
                
                
                2
                
                
                
                (2
                )
                
                
                —
                
                
                
                —
                
                
                
                —Share-based
      compensation
                
                
                —
                
                
                
                1,776
                
                
                
                —
                
                
                
                —
                
                
                
                1,776Net
      loss for 2009
                
                
                —
                
                
                
                —
                
                
                
                (18,633
                )
                
                
                —
                
                
                
                (18,633
                )Unrealized
      gain on derivative instrument
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                625
                
                
                
                625Foreign
      currency translation adjustment
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                1,079
                
                
                
                1,079Other
                
                
                —
                
                
                
                (99
                )
                
                
                —
                
                
                
                —
                
                
                
                (99
                )Balance
      at December 31, 2009
                
                $
                111
                
                
                $
                79,762
                
                
                $
                2,726
                
                
                $
                1,030
                
                
                $
                83,629




See
accompanying notes.


52


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS




(In
thousands)




Year Ended December
    31,2009
              
              
              2008
              
              
              2007Operating
      activitiesNet (loss)
income
              
              $
              (18,633
              )
              
              $
              2,968
              
              
              $
              6,296Adjustments
      to reconcile net (loss) income to net cashprovided
      by operating activities:Depreciation
              
              
              3,344
              
              
              
              4,076
              
              
              
              3,383Amortization
              
              
              3,138
              
              
              
              3,859
              
              
              
              3,623Impairment
    charge
              
              
              27,453
              
              
              
              —
              
              
              
              —Non-cash
      expense related to stock options and issuanceof
      common stock and restricted common stock
              
              
              1,924
              
              
              
              2,317
              
              
              
              1,387Gain on disposition of
      business
              
              
              —
              
              
              
              (155
              )
              
              
              —Deferred income
      taxes
              
              
              (6,201
              )
              
              
              (187
              )
              
              
              (1,148
              )Provision for uncollectible
      accounts
              
              
              614
              
              
              
              479
              
              
              
              145Other
              
              
              66
              
              
              
              (21
              )
              
              
              8Changes in assets and
      liabilities, net of acquisitions —Accounts
    receivable
              
              
              15,216
              
              
              
              6,595
              
              
              
              (18,329
              )Prepaid expenses and other
      assets
              
              
              604
              
              
              
              379
              
              
              
              1,259Accounts
payable
              
              
              (1,228
              )
              
              
              (13,840
              )
              
              
              11,059Accrued payroll and related
      taxes
              
              
              (4,127
              )
              
              
              (477
              )
              
              
              (1,084
              )Income taxes receivable and
      accrued income taxes
              
              
              (1,243
              )
              
              
              1,442
              
              
              
              721Deferred
revenue
              
              
              1,765
              
              
              
              37
              
              
              
              (415
              )Accrued expenses and other
      liabilities
              
              
              (2,504
              )
              
              
              1,336
              
              
              
              (974
              )Net operating cash flow from
      discontinued operations
              
              
              —
              
              
              
              —
              
              
              
              (3
              )Net cash provided by operating
      activities
              
              
              20,188
              
              
              
              8,808
              
              
              
              5,928Investing
      activitiesDisposition of business, net of
      cash disposed
              
              
              —
              
              
              
              953
              
              
              
              —Purchases of property, equipment
      and software
              
              
              (1,317
              )
              
              
              (2,475
              )
              
              
              (3,882
              )Cash paid for acquisitions, net
      of cash acquired
              
              
              (501
              )
              
              
              (6,084
              )
              
              
              (47,160
              )Net cash used in investing
      activities
              
              
              (1,818
              )
              
              
              (7,606
              )
              
              
              (51,042
              )Financing
      activitiesProceeds from issuance of
      long-term debt
              
              
              —
              
              
              
              5,000
              
              
              
              38,900Proceeds from issuance of common
      stock
              
              
              —
              
              
              
              348
              
              
              
              1,085Purchase of common
      stock
              
              
              —
              
              
              
              (61
              )
              
              
              —Other
              
              
              (99
              )
              
              
              (28
              )
              
              
              570Payments on long-term
      debt
              
              
              (20,064
              )
              
              
              (6,873
              )
              
              
              (6,299
              )Net cash (used in) provided by
      financing activities
              
              
              (20,163
              )
              
              
              (1,614
              )
              
              
              34,256Effect
      of exchange rate changes on cash and cash equivalents
              
              
              881
              
              
              
              (2,138
              )
              
              
              207Decrease
      in cash and cash equivalents
              
              
              (912
              )
              
              
              (2,550
              )
              
              
              (10,651
              )Cash
      and cash equivalents at beginning of year
              
              
              16,881
              
              
              
              19,431
              
              
              
              30,082Cash
      and cash equivalents at end of year
              
              $
              15,969
              
              
              $
              16,881
              
              
              $
              19,431


See
accompanying notes.


53


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note
1 — Summary of Significant Accounting Policies




Nature
of Business and Basis of Presentation




TechTeam
Global, Inc. (“TechTeam” or the “Company”) is a leading provider of IT
outsourcing and business process outsourcing services to large and medium
businesses, as well as government organizations.  The Company’s
primary services include service desk, technical support, desk-side support,
security administration, infrastructure management and related professional
services. TechTeam also provides a number of specialized, value-added services
in specific vertical markets.




TechTeam
provides support services globally through its wholly-owned subsidiaries:
TechTeam Global NV/SA (Brussels, Belgium), TechTeam Global Ltd. (United
Kingdom); TechTeam Global GmbH (Germany); TechTeam Global AB (Sweden), with its
subsidiary TechTeam SQM AB (Sweden); TechTeam Denmark (a branch of TechTeam
Global AB); TechTeam Global SRL (Bucharest, Romania); TechTeam Akela SRL
(Bucharest, Romania); TechTeam Global Sp. z o.o. (Poland); TechTeam Global
Canada, Inc.; TechTeam Global SAS (France); TechTeam Global Sàrl (Switzerland);
TTG Portugal, Lda; TechTeam Government Solutions, Inc. (formerly known as
Digital Support Corporation, Chantilly, Virginia), with its subsidiary Sytel,
Inc., (Bethesda, Maryland); TechTeam Cyntergy, L.L.C. (Southfield, Michigan);
Onvaio LLC (Los Gatos, California), with its subsidiary Onvaio Asia Services
(Manila, Philippines) and TechTeam Australia Pty Limited. TechTeam’s other
wholly-owned subsidiary is TechTeam Capital Group, L.L.C. (“Capital Group”), an
equipment leasing business that ceased operations in 2004.




The
consolidated financial statements include TechTeam Global, Inc. and its
subsidiaries. Intercompany accounts and transactions have been eliminated in
consolidation.




Use
of Estimates




The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenue and expense during the reporting period. Actual
results could differ from these estimates. Significant estimates include
realization of deferred tax assets, reserves for uncollectible accounts
receivable and assumptions used in testing goodwill and other long-lived assets
for impairment.




Cash
and Cash Equivalents




Cash
includes both interest-bearing and non-interest-bearing deposits, which are
available on demand. Cash equivalents include all liquid investments with
maturities of three months or less when purchased and are primarily comprised of
time deposits and certificates of deposit. The Company’s cash equivalents are
subject to credit risk. The Company mitigates credit risk by investing only in
investment grade securities.


54


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 1 — Summary of Significant
Accounting Policies(continued)




Accounts
Receivable




Accounts
receivable balances are periodically reviewed for collectability based on a
combination of historical experience and existing economic conditions. The
definition of “delinquent accounts” is based on the governing contractual terms.
Delinquent accounts and balances are reserved when it is determined they are
more likely than not to become uncollectible. Generally, no collateral is
required and no interest is charged on past due balances.




Property,
Equipment and Software




Property,
equipment and software are stated at cost. Computer equipment, office furniture
and transportation equipment are depreciated using the straight-line method over
their estimated useful lives, ranging from three to ten years. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
estimated useful lives of the improvements or the term of the lease. Software is
amortized over three to seven years.




Long-lived
assets are evaluated for impairment when events occur or circumstances indicate
that the remaining estimated useful lives may warrant revision or that the
remaining balances may not be recoverable. When this occurs, an estimate of
undiscounted cash flows is used to determine if the remaining balances are
recoverable.




Goodwill
and Other Intangible Assets




Under ASC
350, “Intangibles – Goodwill and Other,” the Company is required to perform
annual impairment tests of its goodwill at least annually or more frequently if
impairment indicators are present. The Company has elected to test for goodwill
impairment on October 1st each year. In the first step of the goodwill
impairment test, the Company identifies its reporting units and determines the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to these reporting units.
In performing the first step, the Company determines the estimated fair value of
each reporting unit using a combination of a discounted cash flow (“DCF”)
analysis and a market-based approach.




Cash
flows in the DCF analyses are based on the Company’s most recent budget and, for
years beyond the budget, the Company’s estimates of growth rates. Discount rates
used in the DCF analyses are intended to reflect risks inherent in the future
cash flows of the respective reporting units. Future cash flows in the DCF
analyses are based on forecasted revenues, gross profit margins and operating
margins, anticipated future cash flows, current industry and economic
conditions, market data, historical results and inflation. The market-based
approach utilizes comparable company public trading values, research analyst
estimates and, where available, values observed in private market
transactions.




Determining
fair value requires significant judgment, including judgment about appropriate
discount rates, perpetual growth rates, amount and timing of expected future
cash flows as well as relevant comparable company earnings and revenue multiples
used with market-based approaches. If the carrying value of a reporting unit
exceeds its estimated fair value, the second step of the goodwill impairment
test must be performed.




The
second step of the goodwill impairment calculation requires allocation of the
estimated fair value of the reporting unit to all of the assets and liabilities
of that reporting unit as if the reporting unit had been acquired in a business
combination.  The excess of fair value as determined in step 1 over
the fair value of the assets and liabilities of the reporting unit is the
implied value of goodwill.  The carrying value of goodwill is then
compared to the implied value of goodwill and any excess of carrying value of
goodwill over implied value of goodwill must be recognized as a goodwill
impairment.


55


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 1 — Summary of Significant
Accounting Policies(continued)




During
the years ended December 31, 2009 and 2008, The Company performed its annual
impairment test as of October 1. Additionally, as a result of unfavorable
economic events coupled with the conclusion of certain customer contracts and a
decline in our stock price, the Company performed an interim impairment test as
of December 31, 2008. The Company determined that no goodwill impairment charge
was required as a result of the testing at October 1, 2008 and December 31,
2008. However, its test as of October 1, 2009 revealed that the carrying amount
of its Government Solutions and SQM reporting units exceeded their estimated
fair values. To the extent the carrying amount of a reporting unit exceeds the
fair value of a reporting unit the Company is required to perform the second
step of the impairment test. In the second step, the Company determined that the
carrying value of goodwill was in excess of the implied value of goodwill at its
Government Solutions and SQM reporting units and therefore an impairment charge
was necessary. Please refer to Note 4 – Goodwill and Other Intangible Assets for
further information.




Deferred
Income Taxes




Deferred
income taxes represent temporary differences in the recognition of certain items
for income tax and financial reporting purposes. Realization of deferred tax
assets depends upon sufficient levels of future taxable income. If at any time
the Company believes that current or future taxable income does not support the
realization of deferred tax assets, a valuation allowance is
provided.




No
provision has been made with respect to approximately $6,802,000 and $12,503,000
of undistributed earnings of foreign subsidiaries at December 31, 2009 and
2008, respectively, since these earnings are considered to be permanently
reinvested.




Foreign
Currency Translation




Assets
and liabilities of non-U.S. subsidiaries are translated into U.S. dollars based
on the prevailing exchange rate at each respective balance sheet date. Revenue
and expenses are translated into U.S. dollars based on the average exchange rate
for the period. Cumulative translation adjustments are included as a separate
component of shareholders’ equity as accumulated other comprehensive income
(loss). Currency transaction gains or losses are generally derived from cash,
receivables and payables that are stated in a currency other than the local
currency, and are recognized as income or expense in the accompanying
consolidated statements of operations.




Revenue
Recognition




Under all
situations, revenue is not recognized until earned, which is when persuasive
evidence of an arrangement exists, services have been provided, the revenue
terms are fixed and determinable, and collectability is reasonably
assured.




The
Company earns revenue under the IT Outsourcing Services segment under one of the
following four models: (1) time and material contracts that are billed at an
agreed rate for each help desk agent based on the number of units (i.e., hours
or days) the individual agent worked during the month; (2) per-transaction
contracts that are billed at an agreed rate per incident or call handled during
a month or per minute for the length of the telephone call for the incident; (3)
fixed monthly fee contracts that are billed a fixed fee monthly for agreed-upon
scheduled services; and (4) per-seat contracts under which agreed-upon scheduled
services are provided for a monthly fee that is determined by multiplying the
number of users supported at the customer by the monthly per-seat
fee.


56


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 1 — Summary of Significant
Accounting Policies(continued)




Within
the IT Outsourcing Services segment, greater than 98% of services are delivered
as a “monthly service” and not over multiple periods. The Company refers to
fixed-fee and per-seat contracts as “managed service” contracts. Many contracts
that are billed on a per-transaction basis contain a minimum monthly fee, which
is derived by multiplying the agreed-upon forecast of anticipated incidents by
an agreed-upon minimum percentage. Under this arrangement, the Company receives
a minimum revenue amount for having committed to provide a specific level of
staff to support the services projected during a month. Since the customer is
invoiced for the minimum fee without reducing future billings, the minimum fee
is recognized as revenue in the month in which the incidents are below the
customer’s minimum forecast. Incident resolution usually occurs in the same
month that incidents are reported. Under managed service contracts, material
costs are generally not incurred in a future month to complete a service
obligation that arose in a prior month. In those instances where the Company’s
service obligation is not complete and more costs are expected to be incurred in
future months, revenue that represents the fair value of that service obligation
is deferred.




Revenue
from all other services provided under other operating segments — Government
Technology Services, IT Consulting and Systems Integration and Other Services —
may be categorized into two primary types: time and material and fixed price.
For the year ended December 31, 2009, approximately 74% of the Company’s
revenue in these business segments were time and material and 24% were fixed
price (a substantial majority of which are fixed price level of effort
contracts). Revenue is recognized under time and materials contracts as time is
spent at hourly rates, which are negotiated with the customer, plus the cost of
any allowable material costs and out-of-pocket expenses. Revenue is recognized
under the majority of fixed price contracts, which are predominantly level of
effort contracts, using the cost-to-cost method for all services provided. In
addition, contracts for multiple deliverables are evaluated and may require the
segmentation of each deliverable into separate accounting units for proper
revenue recognition.




The
Company has several types of contracts with the federal government, including
firm fixed-price, time and materials, and cost reimbursable contracts. The firm
fixed-price contracts are those in which the Company’s revenue under the
contract is fixed when the contract is executed, either on a per unit basis or
over the life of the contract. These contracts accounted for 31.5% of
federal government related revenue (10.0% of the Company’s total revenue) for
the fiscal year ended December 31, 2009.  Time and materials
(“T&M”) contracts are those in which the federal government pays the Company
based on the number of labor hours worked and the cost of materials necessary to
complete the work. Total revenue under T&M contracts is not fixed when the
contract is executed. For the fiscal year ended December 31, 2009, T&M
contracts accounted for 65.3% of federal government related revenue (20.7% of
the Company’s total revenue). Cost reimbursable contracts are those in which the
federal government pays the Company based on the actual cost of direct labor,
indirect costs and the number of labor hours worked.  Total revenue
under cost reimbursable contracts is not fixed when the contract is
executed.  For the fiscal year ended December 31, 2009, cost
reimbursable contracts accounted for 3.2% of federal government related revenue
(1.0% of the Company’s total revenue).




All three
of these contract types are available under most Government-wide Acquisition
Contracts (“GWACs”).  GWACs are defined in the Federal Acquisition
Regulation (“FAR”) as task order or delivery order contracts for Information
Technology (“IT”) established by one agency for government-wide use. For the
fiscal year ended December 31, 2009, GWACs accounted for 29.3% of federal
government related revenue (9.3% of the Company’s total revenue).




The
advantage of GWACs is that multiple government agencies can issue task orders
under them, so the potential to significantly increase revenue exists. The
advantage of T&M and cost reimbursable contracts is that revenue under them
is not fixed, and accordingly, the Company’s gross profit earned from these
contracts is generally consistent. Since costs related to firm fixed-price
contracts are difficult to predict into the future, the Company’s gross profit
may fluctuate positively or negatively based upon the Company’s ability to
accurately price the cost of contract performance in the Company’s
bid.


57


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 1 — Summary of Significant
Accounting Policies(continued)




Contracts
with agencies of the U.S. Federal Government are subject to periodic funding by
the respective contracting agency. Funding for a contract may be provided in
full at inception of the contract or ratably throughout the term of the contract
as the services are provided. From time to time, the Company may proceed with
work and recognize revenue on unfunded portions of existing contracts based on
customer direction pending finalization and signing of formal funding documents.
In evaluating the probability of funding being received, the Company considers
previous experience with the customer, communications with the customer
regarding funding status, and the Company’s knowledge of available funding for
the contract or program. If funding is not assessed as probable, revenue is
deferred and not recognized.




Revenue
is recognized under cost-based U.S. Federal Government contracts based on
allowable contract costs, as mandated by the U.S. Federal Government’s cost
accounting standards. The costs the Company incurs under U.S. Federal Government
contracts are subject to regulation and audit by certain agencies of the U.S.
Federal Government. Contract cost disallowances, resulting from government
audits, have not been significant.




Fair
Value of Financial Instruments




At
December 31, 2009, the Company’s financial instruments consist of accounts
receivable, accounts payable and long-term debt. The carrying values of accounts
receivable and accounts payable approximate their fair values due to their short
maturity periods. The fair value of the Company’s debt approximates its carrying
value based on the variable nature of the interest rates and current market
rates available to the Company.




Supplemental
Disclosure of Cash Flow Information




Cash paid
for interest expense totaled $1,279,000 in 2009, $2,163,000 in 2008, and
$1,212,000 in 2007. Cash paid for income taxes totaled $4,677,000 in 2009,
$4,365,000 in 2008, and $3,506,000 in 2007.




Derivatives




Certain
trade receivables are denominated in currencies other than the local currency of
the TechTeam entity that delivers the service. The Company also has outstanding
debt that bears interest at variable rates. From time to time, the Company
enters into foreign currency options or forward contracts to manage the
Company’s exposure to fluctuations in the exchange rate between the U.S. dollar
and European euro and enters into interest rate swaps to manage interest costs
and the risk associated with variable-rate debt. At December 31, 2009 and
2008, the Company had an interest rate swap agreement outstanding but had no
foreign currency options or forward contracts outstanding.




The
Company recognizes derivative instruments as either assets or liabilities and
measures those instruments at fair value in accordance with ASC 815 “Derivatives
and Hedging.” (“ASC 815”) The Company enters into derivative financial
instrument contracts only for hedging purposes in order to minimize the
variability of cash flows associated with the anticipated transactions being
hedged. The Company does not hold or issue derivative instruments for trading
purposes.




For a
derivative instrument designated as a cash flow hedge, the effective portion of
the derivative’s gain or loss is initially reported as a component of
accumulated other comprehensive income and subsequently reclassified into
earnings when the hedged exposure affects earnings. The ineffective portion of
the gain or loss is reported in earnings immediately. There were no significant
gains or losses recognized in earnings for hedge ineffectiveness in 2009, 2008
and 2007.


58


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 1 — Summary of Significant
Accounting Policies(continued)




Stock-Based
Compensation




Stock-based
compensation represents the cost related to stock-based awards granted to
employees, non-employee directors and non-employees. The Company measures
stock-based compensation based on the estimated fair value of the award on the
grant date. Stock-based compensation is recognized as expense on a straight-line
basis over the requisite service period. The Company estimates the fair value of
stock options using the Black-Scholes valuation model.




Restructuring




The costs
contained within “Restructuring expense, net” in the Company’s Consolidated
Statement of Operations are comprised of two types: employee costs (principally
termination benefits) and facility closure costs. Termination benefits are
accounted for in accordance with ASC 712, “Compensation – Nonretirement
Postemployment Benefits” (“ASC 712”), and are recorded when it is probable that
employees will be entitled to benefits and the amounts can be reasonably
estimated. Estimates of termination benefits are based on the frequency of past
termination benefits, the similarity of benefits under the current plan and
prior plans, and the existence of statutory required minimum benefits. Facility
closure and other costs are accounted for in accordance with ASC 420, “Exit or
Disposal Cost Obligations” (“ASC 420”), and are recorded when the liability is
incurred.




Reclassifications




In the
first quarter of fiscal 2009, management changed its methodology for evaluation
of the performance of the Company’s outsourcing services. As a result of this
change, certain costs that were previously included in Selling, general and
administrative expense are now being included in Cost of revenue in the
Company’s Condensed Consolidated Statements of Operations because they are
directly related to revenue. The Company’s financial statements for fiscal year
2008 and 2007 have been revised, for all periods presented, to conform to the
current year presentation.




The
Company’s fiscal years 2008 and 2007 financial statements were impacted as
follows as a result of this change in classification:




Year
      Ended
                        December
      31,2008
                      
                      
                      2007(In
      thousands)Cost
      of revenue
      increase
                      
                      $
                      5,854
                      
                      
                      $
                      7,073Gross
      profit
      decrease
                      
                      
                      (5,854
                      )
                      
                      
                      (7,073
                      )Selling,
      general, and administrative expense decrease
                      
                      
                      (5,854
                      )
                      
                      
                      (7,073
                      )Net
      income
                      
                      
                      —
                      
                      
                      
                      —Earnings
      per share
                      
                      
                      —
                      
                      
                      
                      —




This
re-categorization of costs did not change net income (loss) or earnings per
share, for all periods presented. There was no cumulative effect to retained
earnings as a result of this re-categorization, and there was no change to the
carrying amount of assets and liabilities in fiscal 2008.


59


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 1 — Summary of Significant
Accounting Policies(continued)




Recently
Issued Accounting Pronouncements




In June
2009, FASB issued ASC 105, “Accounting Standards Codification and the Hierarchy
of GAAP” (“ASC 105”). ASC 105 is effective for financial statements issued for
interim and annual periods ending after September 15, 2009. ASC 105 is now the
source of authoritative GAAP recognized by the FASB to be applied by
nongovernmental entities. ASC 105 was not intended to change or alter existing
GAAP and had no impact on our consolidated financial statements and only impacts
references for accounting guidance.




During
the second quarter of 2009, the Company adopted the provisions of ASC 855,
“Subsequent Events” (“ASC 855”), which establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued.  The adoption of ASC 855 did
not have a material impact on our consolidated financial position or results of
operations.




In April
2009, the FASB issued additional provisions of ASC 820 “Fair Value Measurements
and Disclosures” (“ASC 820”) that extends the disclosure requirements of ASC 820
to interim financial statements. This provision was effective for financial
statements issued for interim periods ending after June 15, 2009. The adoption
of this provision did not have a material impact on the Company’s consolidated
financial position, results of operations, or cash flows.




On
January 1, 2009, the Company adopted the provisions of ASC 820 related to
nonfinancial assets and liabilities on a prospective basis. ASC 820 establishes
the authoritative definition of fair value, sets out a framework for measuring
fair value and expands the required disclosures about fair value measurement. On
January 1, 2008, the Company adopted the provisions of ASC 820 related to
financial assets and liabilities as well as other assets and liabilities carried
at fair value on a recurring basis. The adoption of the provisions of ASC 820
did not have a material impact on the Company’s consolidated financial
statements. For more information, see Note 5 – Fair Value
Measurements.




On
January 1, 2009, the Company adopted the provisions of ASC 815 “Derivatives
and Hedging” (“ASC 815”) on a prospective basis. The provision amended and
expanded the disclosure requirements for derivative instruments and hedging
activities by requiring enhanced disclosures about (i) how and why an
entity uses derivative instruments, (ii) how derivative instruments and
related hedged items were accounted for previously and its related
interpretations, and (iii) how derivative instruments and related hedged
items affect an entity’s financial position, financial performance, and cash
flows. The adoption of these provisions requires prospective disclosures and
accordingly did not affect the Company’s historical consolidated financial
statements.




In
December 2007 the FASB issued ASC 805, “Business Combinations”. Under ASC
805, an entity is required to recognize the assets acquired, liabilities
assumed, contractual contingencies, and contingent consideration at their fair
value on the acquisition date. It further requires that acquisition-related
costs are recognized separately from the acquisition and expensed as incurred,
restructuring costs generally expensed in periods subsequent to the acquisition
date, and changes in accounting for deferred tax asset valuation allowances and
acquired income tax uncertainties after the measurement period impact income tax
expense.  The adoption of ASC 805 changed the accounting treatment for
business combinations on a prospective basis beginning in the first quarter of
fiscal year 2009. The impact of adopting ASC 805 will depend on the nature and
terms of future acquisitions.




In
December 2007 the FASB issued ASC 810, “Consolidation”. ASC 810 changes the
accounting and reporting for minority interests, which will be re-characterized
as non-controlling interests and classified as a component of equity.  ASC
810 was effective on a prospective basis for business combinations with an
acquisition date beginning in the first quarter of fiscal year 2009.  The
Company does not have any minority interests; therefore the adoption of this
statement did not have an impact on the Company’s consolidated financial
statements.


60


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note
2 — Earnings (Loss) Per Share




Earnings
(loss) per share for common stock is computed using the weighted average number
of common shares and common share equivalents outstanding. Common share
equivalents consist of stock options, unvested restricted stock issued to
employees and shares held in escrow in connection with the Company’s acquisition
of RL Phillips.




During
2009, 2,043,592 stock options were excluded from the computation of diluted
earnings per common share due to the net loss for the period. During 2008 and
2007, 1,766,474 and 370,900 stock options, respectively, were excluded from the
computation of diluted earnings per common share because the exercise prices of
the options were higher than the average market price of the Company’s common
stock for the respective year.




The
following table reconciles the numerators and denominators of the basic and
diluted (loss) earnings per common share computations for net (loss)
income:




Year Ended December
    31,2009
              
              
              2008
              
              
              2007(In
      thousands, except per share data)Net
      (loss) income
              
              $
              (18,633
              )
              
              $
              2,968
              
              
              $
              6,296Basic
      weighted average common shares
              
              
              10,618
              
              
              
              10,529
              
              
              
              10,355Common
      stock equivalents
              
              
              —
              
              
              
              26
              
              
              
              151Diluted
      weighted average common shares
              
              
              10,618
              
              
              
              10,555
              
              
              
              10,506(Loss)
      earnings per share:Basic (loss) earnings per common
      share
              
              $
              (1.75
              )
              
              $
              0.28
              
              
              $
              0.61Diluted (loss) earnings per
      common share
              
              $
              (1.75
              )
              
              $
              0.28
              
              
              $
              0.60





Note
3 — Restructuring




In 2009,
the Company implemented a restructuring plan to improve global management
consistency. The Company globalized its sales and solution design functions
across all geographies. This created a redundancy of a senior executive in
Europe. The 2009 pre-tax restructuring charge related to this action was
$1,167,000 and was primarily for separation costs for one employee. The total
2009 restructuring charge relates to the selling, general and administrative
expenses line item on the Consolidated Statement of Operation.


61


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 3 — Restructuring(continued)




The
following table summarizes the accrued charges related to the 2009 restructuring
plan:




Accrued
                        Restructuring
                        Charges
      at
                        December
      31,
                        2008
                    
                    
                    Adjustments
                        to
      Accrued
                        Restructuring
                        Charges
                    
                    
                    Cash
                        Payments
                    
                    
                    Accrued
                        Restructuring
                        Charges
      at
                        December
      31,
                        2009(In
    thousands)Workforce
      reductions
                    
                    $
                    —
                    
                    
                    $
                    1,167
                    
                    
                    $
                    (1,005
                    )
                    
                    $
                    162




During
2008, the Company announced corporate-wide organizational realignment and
restructuring actions to improve operating efficiency, achieve greater global
consistency and drive improved financial performance.  The restructuring
plans were approved by the Company’s Board of Directors on December 23, 2008 and
May 21, 2008.  The 2008 pre-tax restructuring charges amounted to
$5,719,000, and were primarily related to separation costs for approximately 80
employees and reductions in excess leased facility capacity around the
world.




Due to
the inherent uncertainty involved in estimating restructuring expenses, actual
amounts paid for such activities may differ from amounts initially estimated.
Accordingly, the Company reversed $756,000 of previously recorded liabilities in
2009 from the 2008 restructuring plan. This reversal resulted from a change in
the estimated amounts to terminate facility leases which lowered the expected
exit costs.




The
following table summarizes the accrued charges related to the 2008 restructuring
plans:




Accrued
                  Restructuring
                  Charges at
                  December 31,
                  2008
              
              
              Adjustments
                  to Accrued
                  Restructuring
                  Charges
              
              
              Cash
                  Payments
              
              
              Accrued
                  Restructuring
                  Charges at
                  December 31,
                  2009(In
    thousands)Workforce
      reductions
              
              $
              359
              
              
              $
              (43
              )
              
              $
              (316
              )
              
              $
              —Other
              
              
              1,387
              
              
              
              (713
              )
              
              
              (518
              )
              
              
              156Total
              
              $
              1,746
              
              
              $
              (756
              )
              
              $
              (834
              )
              
              $
              156




The
following table summarizes the 2008 restructuring charges by operating
segment:




Accrued
                  Restructuring
                  Charges at
                  December 31,
                  2008
              
              
              Adjustments
                  to Accrued
                  Restructuring
                  Charges
              
              
              Cash
                  Payments
              
              
              Accrued
                  Restructuring
                  Charges at
                  December 31,
                  2009(In
    thousands)Restructuring
      chargesCommercial —IT Outsourcing
      Services
              
              $
              40
              
              
              $
              (26
              )
              
              $
              (14
              )
              
              $
              —IT Consulting and Systems
      Integration
              
              
              50
              
              
              
              —
              
              
              
              (50
              )
              
              
              —Other Services
              
              
              80
              
              
              
              —
              
              
              
              (80
              )
              
              
              —Total
    Commercial
              
              
              170
              
              
              
              (26
              )
              
              
              (144
              )
              
              
              —Government Technology
      Services
              
              
              367
              
              
              
              —
              
              
              
              (216
              )
              
              
              151Selling, general and
      administrative expense
              
              
              1,209
              
              
              
              (730
              )
              
              
              (474
              )
              
              
              5Total
      restructuring charges
              
              $
              1,746
              
              
              $
              (756
              )
              
              $
              (834
              )
              
              $
              156




62


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note
4 – Goodwill and Other Intangible Assets




Impairments




During
2009, the Company encountered adverse changes in the business climate including
a weak U.S. and global economy which resulted in a reduction in demand for
services. As a result of these factors, management revised its future cash flow
expectations during the fourth quarter of 2009, which lowered the fair value
estimates of certain reporting units. The Company determined under the second
step of its annual test that the fair value of goodwill at its Government
Solutions and SQM reporting units was less than the carrying value for these
reporting units. The Company recorded a $20.8 million and $4.4 million
impairment charge in the fourth quarter of 2009 to reflect the implied fair
value of goodwill for Government Solutions and SQM reporting units,
respectively.




In
addition, the Company also reviewed its other intangible assets, primarily
customer relationships, for impairment in accordance with ASC 360. The Company
estimated the fair value of its customer relationships using a discounted cash
flow analysis and compared those values to the carrying value of the asset. The
Company concluded, based on this comparison, that certain intangible assets were
impaired at its Government Solutions and SQM reporting units. The Company
recorded a $0.5 million and $1.8 million pretax impairment charge in the fourth
quarter of 2009 to reflect the fair value of those intangible assets for
Government Solutions and SQM reporting units, respectively.




Goodwill
and Other Intangible Assets




Changes
in the carrying amount of goodwill consist of the following:




IT
                    Outsourcing
                    Services
                
                
                Government
                    Technology
                    Services
                
                
                IT
                    Consulting
                    and
                    Systems
                    Integration
                
                
                Other
                    Services
                
                
                Total(In
      thousands)Balance
      as of January 1, 2007
                
                $
                371
                
                
                $
                19,670
                
                
                $
                2,417
                
                
                $
                —
                
                
                $
                22,458Goodwill
acquired
                
                
                875
                
                
                
                34,133
                
                
                
                995
                
                
                
                3,062
                
                
                
                39,065Balance
      as of December 31, 2007
                
                
                1,246
                
                
                
                53,803
                
                
                
                3,412
                
                
                
                3,062
                
                
                
                61,523Goodwill
acquired
                
                
                4,216
                
                
                
                146
                
                
                
                23
                
                
                
                5
                
                
                
                4,390Disposition of
      business
                
                
                —
                
                
                
                —
                
                
                
                (742
                )
                
                
                —
                
                
                
                (742
                )Balance
      as of December 31, 2008
                
                
                5,462
                
                
                
                53,949
                
                
                
                2,693
                
                
                
                3,067
                
                
                
                65,171Goodwill
    impairment
                
                
                (877
                )
                
                
                (20,766
                )
                
                
                (439
                )
                
                
                (3,067
                )
                
                
                (25,149
                )Goodwill
acquired
                
                
                501
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                501Balance
      as of December 31, 2009
                
                $
                5,086
                
                
                $
                33,183
                
                
                $
                2,254
                
                
                $
                —
                
                
                $
                40,523




63


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 4 – Goodwill and Other
Intangible Assets(continued)




Other
intangible assets consist of the following:




December 31, 2009
                                      
                                      Weighted
                                        Average
                                      
                                      December 31, 2008
                                      
                                      Weighted
                                        AverageCost
                                      
                                      
                                      Accumulated
                                        Amortization
                                      
                                      Amortization
                                          Period
                                      
                                      Cost
                                      
                                      
                                      Accumulated
                                        Amortization
                                      
                                      Amortization
                                        Period(In thousands)
                                      
                                      
                                      
                                      (In thousands)Customer-related
      assets
                                      
                                      $
                                      12,461
                                      
                                      
                                      $
                                      5,833
                                      
                                      6.6
      years
                                      
                                      $
                                      22,407
                                      
                                      
                                      $
                                      10,533
                                      
                                      7.3
      yearsNoncompete
      agreement
                                      
                                      
                                      1,175
                                      
                                      
                                      
                                      1,056
                                      
                                      3.8
      years
                                      
                                      
                                      1,175
                                      
                                      
                                      
                                      907
                                      
                                      3.8
      yearsTrademark
      and other
                                      
                                      
                                      384
                                      
                                      
                                      
                                      384
                                      
                                      3.9
      years
                                      
                                      
                                      443
                                      
                                      
                                      
                                      395
                                      
                                      4.1
      years$
                                      14,020
                                      
                                      
                                      $
                                      7,273
                                      
                                      
                                      
                                      $
                                      24,025
                                      
                                      
                                      $
                                      11,835




Intangible
assets acquired in a business combination are recognized only if such assets
arise from a contractual or other legal right and are separable, that is,
capable of being sold, transferred, licensed, rented or exchanged. Intangible
assets acquired in a business combination that do not meet these criteria are
considered a component of goodwill. The useful life of amortizable intangible
assets is determined based on the period from which cash flows are expected to
be realized from these assets and considers, among other items, ability and cost
to renew contracts with similar terms and conditions and historical customer
retention rates.




Expected
amortization expense for intangible assets held at December 31, 2009 is as
follows: $2,665,000 in 2010, $2,604,000 in 2011, $1,045,000 in 2012 and $433,000
in 2013.




Note
5 – Fair Value Measurements




On
January 1, 2009, the Company adopted the provisions of ASC 820, “Fair Value
Measurements and Disclosures” (“ASC 820”) related to nonfinancial assets and
liabilities on a prospective basis. ASC 820 establishes the authoritative
definition of fair value, sets out a framework for measuring fair value and
expands the required disclosures about fair value measurement. On
January 1, 2008, the Company adopted the provisions of ASC 820 related to
financial assets and liabilities as well as other assets and liabilities carried
at fair value on a recurring basis. The valuation techniques required by ASC 820
are based on observable and unobservable inputs using the following
hierarchy:




Level 1 —
              Observable
      inputs such as quoted prices (unadjusted) in active markets for identical
      assets or liabilities.




Level 2 —
              Inputs
      other than quoted prices that are observable for the asset or liability,
      either directly or indirectly. These include quoted prices for similar
      assets or liabilities in active markets and quoted prices for identical or
      similar assets or liabilities in markets that are not
    active.




Level 3 —
              Unobservable
      inputs that reflect the reporting entity’s own
  assumptions.


64


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)





Note 5 – Fair Value Measurements(continued)




Financial
Assets and Liabilities




The
following tables summarize the basis used to measure certain financial assets
and financial liabilities at fair value on a recurring basis in the balance
sheet:





Fair Value as of December 31, 2009 (In thousands)Total
                
                
                Level 1
                
                
                Level 2
                
                
                Level 3Interest
      rate swap
                
                $
                (449
                )
                
                
                N/A
                
                
                $
                (449
                )
                
                
                N/A




Fair Value as of December 31, 2008 (In thousands)Total
                
                
                Level 1
                
                
                Level 2
                
                
                Level 3Interest
      rate swap
                
                $
                (1,074
                )
                
                
                N/A
                
                
                $
                (1,074
                )
                
                
                N/A




On
June 4, 2007, the Company entered into an interest rate swap agreement with
a notional amount of $30,000,000. Under the swap agreement, the notional amount
will be reduced by $625,000 on a monthly basis and will mature on June 3,
2011. The purpose of the interest rate swap, which is designated as a cash flow
hedge, is to manage interest costs and the risk associated with variable-rate
debt. The Company does not hold or issue derivative instruments for trading
purposes. The swap effectively converts a portion of the Company’s variable-rate
debt under the Credit Agreement to a fixed rate. Under this agreement, the
Company receives a floating rate based on LIBOR and pays a fixed rate of 5.55%
on the outstanding notional amount. The fair value of these interest rate
derivatives are based on quoted prices for similar instruments from a commercial
bank and, therefore, the interest rate derivative is considered a level 2
item.




For the
years ended December 31, 2009 and 2008, losses recognized in other comprehensive
income (loss) on derivatives were $144,000 and $909,000, respectively and losses
reclassified from other comprehensive income (loss) into interest expense upon
settlement amounted to $769,000 and $591,000, for the years ended December 31,
2009 and 2008, respectively. The liability associated with the interest rate
swap is included in other current liabilities and other long-term liabilities on
the consolidated balance sheet in the amounts of $394,000 and $55,000,
respectively, at December 31, 2009 and $679,000 and $395,000, respectively, at
December 31, 2008.




Non-financial
Assets and Liabilities




The
following table summarizes the basis used to measure certain non-financial
assets and non-financial liabilities at fair value on a nonrecurring basis in
the balance sheet:





Fair Value as of December 31, 2009 (In thousands)Total
                
                
                Level 1
                
                
                Level 2
                
                
                Level 3Goodwill
                
                $
                40,523
                
                
                
                N/A
                
                
                
                N/A
                
                
                $
                40,523Customer
      Relationships
                
                $
                6,628
                
                
                
                N/A
                
                
                
                N/A
                
                
                $
                6,628Non-compete
                
                $
                119
                
                
                
                N/A
                
                
                
                N/A
                
                
                $
                119


65





TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)





Note 5 – Fair Value Measurements(continued)




During
2009 the Company performed its annual goodwill impairment test as of October 1,
2009. The Company encountered adverse changes in the business climate including
a weak U.S. and global economy which resulted in a reduction in demand for
services. As a result of these factors and related future cash flow
expectations, step one calculations of the annual impairment test indicated a
carrying value in excess of fair value for the Government Solutions and SQM
reporting units. The Company applied the second step of its annual test and
determined that the fair value of its goodwill at the Government Solutions and
SQM reporting units was less than the amount reflected in the balance sheet for
these reporting units. The Company recorded a $20.8 million and $4.4 million
pretax impairment charge in the fourth quarter of 2009 to reflect the implied
fair value of goodwill for the Government Solutions and SQM reporting units,
respectively. The total
fair value of the reporting units plus components of the business which have no
goodwill was reconciled to end of year market capitalization.


The
estimation of factors such as future performance, market conditions, perceived
risk associated with business operations and the views of other market
participants is highly subjective, and fair value is heavily dependent on
various assumptions and estimates. No assurance can be given that future results
or values will be in line with our estimates of fair value.
  For
purposes of the first step of the goodwill impairment test for Government
Solutions, the Company considered a wide range of variables and assumptions in
conducting a discounted cash flow valuation. For the analysis, future revenue
growth was based on current contracts and renewals and long-term sales
projections that averaged 5% per annum for years 2011 through 2016. The
financial and credit market volatility directly impacts fair value measurement
through the weighted average cost of capital that the Company used to determine
the Company’s discount rate. The Company uses a discount rate in the present
value calculation which is updated annually and which the Company considers
appropriate for the country where the reporting unit is providing services.
Discount rates of 11% to 17% were considered and the Company used 14% to
determine the fair value of Government Solutions. Terminal value exit multiples
of 5 times to 8 times EBITDA were considered reasonable for purposes of the fair
value calculation of Government Solutions and the Company used an exit multiple
of 6 times 2016 EBITDA to calculate a terminal value discounted to present
value using 14% discount rate.
  For
purposes of the first step of the goodwill impairment test for SQM, the Company
considered a wide range of variables and assumptions.  Future revenue
growth was based on current contracts and renewals and long-term sales
projections that averaged 3% per annum for years 2011 through
2016.  Discount rates of 14% to 20% were considered reasonable and the
Company used 17% to determine the fair value of SQM. The exit multiples are not
relevant due to the projected losses at SQM.




In
addition, the Company also reviewed its other intangible assets, primarily
customer relationships, for impairment in accordance with ASC 360. The Company
estimated the fair value of its customer relationships using a discounted cash
flow analysis and compared those values to the carrying value of the asset. The
Company concluded, based on this comparison, that the intangible assets were
impaired at its Government Solutions and SQM reporting units. The Company
recorded a $0.5 million and $1.8 million impairment charge in the fourth quarter
of 2009 to reflect the fair value of those intangible assets for Government
Solutions and SQM reporting units, respectively. Due to the lack of observable
market quotes for the Companies intangible assets, the Company utilized
valuation models that rely exclusively on Level 3 inputs including those that
are based on expected cash flow streams. The expected cash flow streams are
based on the specific intangible asset (i.e. customer contracts) and discounted
using discount rates that reflect an estimated cost of capital. The valuation of
the Company’s intangible assets is subject to uncertainties that are difficult
to predict.




At
December 31, 2009, the Company’s financial instruments consist of accounts
receivable, accounts payable and long-term debt. The carrying values of accounts
receivable and accounts payable approximate their fair values due to their short
maturity periods. The fair value of the Company’s debt approximates its carrying
value based on the variable nature of the interest rates and current market
rates available to the Company.


66


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note
6 — Acquisitions and Dispositions




Onvaio
LLC




On
May 30, 2008, TechTeam Global, Inc. completed the acquisition of Onvaio LLC
(“Onvaio”), a California limited liability company. Onvaio is a provider of
technical support outsourcing services for clients globally through its
wholly-owned subsidiary, Onvaio Asia Services, Inc., based in Manila,
Philippines. The initial purchase price totaled $4,787,000 and included
acquisition costs of $400,000. In addition to the initial purchase price paid at
closing, an additional $1,500,000 was placed into an escrow account and is
payable in increments of $125,000 on the last day of each fiscal quarter
provided that Onvaio is still providing services to its largest customer in
substantially the same form and content as provided at closing. As of December
31, 2009, $750,000 was released from escrow and paid to the selling
shareholders. This additional amount is being recorded as goodwill as it is
earned. The acquisition was accounted for as a non-taxable transaction;
therefore, the Company will not be entitled to a tax deduction for the
amortization of goodwill and other intangible assets for tax
purposes.




RL
Phillips, Inc.




On
August 31, 2007, TechTeam Global, Inc., through its wholly-owned subsidiary
TechTeam Government Solutions, Inc., completed the acquisition of all of the
outstanding common stock of RL Phillips, Inc. (“RL Phillips”), a provider
of information technology, network engineering and information assurance
services to both government and Commercial entities. The total purchase price of
approximately $2,150,000 consisted of initial cash consideration paid by the
Company of $1,750,000, shares of TechTeam common stock equal to $300,000 and
future cash payments totaling $100,000. All of the stock consideration was
placed into escrow to the extent it is necessary to reimburse the Company for
any claims for indemnity or breach of representations and warranties. The stock
consideration of $300,000 will be released from escrow on September 30,
2010, if there are no claims for indemnity or breach of representations and
warranties.  The future cash payments of $100,000 can also be used to
offset any claims for indemnity or breach of representations and warranties. The
future cash payments are due in $50,000 installments on the first and second
anniversary of the date of acquisition. On August 31, 2008, the first
installment of $50,000 was paid to the selling shareholders. The installment due
on August 31, 2009 was held back due to the Company’s claim for indemnity
under the Stock Purchase Agreement for taxation matters. The Company has been
informed that their tax matter has been resolved favorably, but it is awaiting
documentation from the IRS prior to the releasing the final cash payment. The
acquisition was accounted for as a non-taxable transaction; therefore, the
Company will not be entitled to a tax deduction for the amortization of goodwill
and other intangible assets for tax purposes.




NewVectors
LLC




On
May 31, 2007, TechTeam Global, Inc., through its wholly-owned subsidiary
TechTeam Government Solutions, Inc., completed the acquisition of all of the
outstanding membership interest in NewVectors LLC (“NewVectors”), a provider of
business transformation, logistics modernization, and modeling and simulation
services primarily to the Department of Defense. The purchase price totaled
approximately $40,586,000 and included acquisition costs of $274,000. Of the
total purchase price, $4,000,000 was placed into escrow for a period of one year
after closing to reimburse the Company for any claims for indemnity or breach of
representation and warranties. On May 31, 2008, the amount held in escrow was
released in its entirety. The acquisition was accounted for as a taxable
transaction; therefore, the Company is entitled to a tax deduction for the
amortization of goodwill and other intangible assets for tax purposes over a
period of 15 years.


67


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 6 — Acquisitions and
Dispositions(continued)




SQM
Sverige AB




On
February 9, 2007, TechTeam Global, Inc., through its wholly-owned
subsidiary TechTeam Global AB, completed the acquisition of all of the
outstanding stock of SQM Sverige AB (“SQM”), a provider of technical staffing
solutions, IT infrastructure support solutions and management consulting related
to corporate IT support operations headquartered in Stockholm, Sweden. The
purchase price totaled SEK 37,032,000 ($5,300,000 at the acquisition date) and
included acquisition costs of $117,000.In
connection with the acquisition, the selling shareholders had the potential to
receive SEK 4,200,000 (equal to $600,000 at the acquisition date), subject to
SQM’s achievement of a defined revenue target for the 2007 calendar year. The
selling shareholders received SEK 4,200,000 (equal to $660,000 on the date of
payment) in April 2008 as a result of achieving the revenue target. The
additional consideration was recorded as goodwill when it was earned in 2007. Of
the total purchase price, SEK 5,700,000 ($800,000) was placed into escrow
for a period of one year after closing to reimburse the Company for any claims
for indemnity or breach of representations and warranties and was paid to the
selling shareholders in February 2008. The acquisition was accounted for as a
non-taxable transaction; therefore, the Company will not be entitled to a tax
deduction for the amortization of goodwill and other intangible assets for tax
purposes.




Summary
of Acquisition Purchase Price




The
following table summarizes the allocation of the cumulative purchase price and
net cash used for the acquisitions of Onvaio, RL Phillips, NewVectors, and SQM
through December 31, 2009, including additional payments earned and accrued
during 2009:





Onvaio
                
                
                RL Phillips
                
                
                NewVectors
                
                
                SQM(In thousands)Goodwill
                
                $
                4,714
                
                
                $
                1,604
                
                
                $
                32,675
                
                
                $
                4,382Amortizable
      intangible assets
                
                
                1,225
                
                
                
                162
                
                
                
                6,230
                
                
                
                2,936Property,
      equipment and software
                
                
                27
                
                
                
                —
                
                
                
                386
                
                
                
                86Other
      current and non-current assets, net of cash acquired
                
                
                42
                
                
                
                993
                
                
                
                7,458
                
                
                
                2,232Accounts
      payable and accrued liabilities assumed
                
                
                (470
                )
                
                
                (389
                )
                
                
                (6,176
                )
                
                
                (4,436
                )Accrued
      purchase price
                
                
                —
                
                
                
                (50
                )
                
                
                —
                
                
                
                —Notes
      payable assumed
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (95
                )Issuance
      of equity instruments
                
                
                —
                
                
                
                (300
                )
                
                
                —
                
                
                
                —Net
      cash used
                
                $
                5,538
                
                
                $
                2,020
                
                
                $
                40,573
                
                
                $
                5,105





Disposition
of TechTeam A.N.E. NV/SA




On
October 31, 2008, the Company completed the sale of TechTeam A.N.E NV/SA
(“ANE”), the results of which were included in continuing operations through the
date of the sale. This disposition was completed as the Company’s determined
that this business unit was not core to the Company’s long-term growth strategy.
This business included in the IT Consulting and Systems Integration segment had
net sales of $7.2 million and a net operating loss of $76,000 for 2008 through
the date of the sale. For the year ending December 31, 2007, the business had
net sales of $7.6 million and operating income of $12,000. Total gross proceeds
from the sale were 1.1 million euro ($1.4 million at the disposition date); the
Company recognized a net gain of $155,000, which is included in other income in
the Consolidated Statement of Operations, related to the sale of the business
for the year ended December 31, 2008.


68


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 6 —
Acquisitions and Dispositions(continued)




Pro
Forma Results of Operations




The
unaudited pro forma condensed combined results of operations are presented below
as though NewVectors had been acquired on January 1 of each period
presented. The pro forma results of operations for the acquisitions of Onvaio,
RL Phillips and SQM and disposition of ANE are not materially different than
reported results and are not presented. There was no material effect on 2009 or
2008 operating results related to acquisitions or dispositions:




Year Ended
                      December 31,2007(In thousands,
                      except per share
                      data)RevenueAs
      reported
                  
                  $
                  222,196Pro
      forma
                  
                  $
                  236,327Income
      from continuing operationsAs
      reported
                  
                  $
                  6,296Pro
      forma
                  
                  $
                  6,761Net
      incomeAs
      reported
                  
                  $
                  6,296Pro
      forma
                  
                  $
                  6,761Diluted
      earnings per common shareAs
      reported
                  
                  $
                  0.60Pro
      forma
                  
                  $
                  0.64





Note
7 — Notes Payable and Line of Credit




Long-Term
Debt Agreement




On
June 1, 2007, the Company entered into a five-year, secured credit
agreement (“Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPMorgan
Chase”), as Administrative Agent and participating lender, whereby the Company
may borrow up to $40,000,000 for the issuance of letters of credit and loans. On
July 3, 2007, LaSalle Bank Midwest, N.A., now known as Bank of America,
N.A. (“Bank of America”), joined as a participating lender under the Credit
Agreement through the assignment of a participation share of $15,000,000, or
37.5%. On June 5, 2008, the Company and the banks amended the Credit
Agreement to permit borrowings up to $55,000,000. Borrowings under the Credit
Agreement are currently secured by substantially all domestic assets of the
Company and 65% of its interests in the majority of its foreign subsidiaries.
The Credit Agreement terminates on May 31, 2012. As of December 31, 2009,
the Company had $15,008,000 outstanding under the Credit Agreement, of which
$4,000,000 is included in current portion of long-term debt and $11,008,000 is
included in long-term debt on the accompanying consolidated balance
sheets.


69


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 7 — Notes
Payable and Line of Credit(continued)




As of
December 31, 2007, at the Company’s option, each loan under the Credit Agreement
incurred interest at a rate equal to either (1) the London Interbank
Offered Rate (“LIBOR”), as defined, plus an “Applicable Margin” ranging from
0.75% to 1.5% based upon the Company’s leverage ratio, as defined, or
(2) the Alternate Base Rate, which is the higher of (a) the JPMorgan
Chase prime rate or (b) the federal funds rate plus an Applicable Margin
ranging from 0% to 0.5% based upon the Company’s leverage ratio. The Company is
also required to pay an unused commitment fee on the unused portion of the
facility ranging from 0.1% to 0.25% based upon the Company’s leverage ratio. In
connection with the June 5, 2008 amendment to the Credit Agreement the
Applicable Margin on a LIBOR-based loan was modified from a range of 0.75%-1.5%
to a range of 0.95%-1.45%, and the unused commitment fee increased from a range
of 0.1%-0.25% to a range of 0.15%-0.25%.




The
Credit Agreement contains various financial and non-financial covenants, the
most restrictive of which limit the Company’s ability to incur additional
indebtedness and pay dividends. The financial covenants require that the Company
maintain certain leverage ratios and fixed charge coverage ratios, as defined
therein.




On
October 28, 2008, the Company completed the second amendment to its five-year,
secured credit agreement (“Credit Agreement”) with JPMorgan Chase Bank, N.A. and
Bank of America. The Credit Agreement was amended in order to provide the
Company the ability to enter into a stock repurchase program through 2011 (with
an annual limitation of $3.0 million per year) and to increase the Company’s
ability to execute capital lease transactions from $1.0 million to $2.0
million.


On
March 26, 2010, the Company completed the third amendment to the Credit
Agreement. Please see Note 18 – Subsequent Event.


Interest
Rate Swap Agreement




On
June 4, 2007, the Company entered into an interest rate swap agreement with
a notional amount of $30 million. Under the swap agreement, the notional amount
will be reduced by $625,000 on a monthly basis and will mature on June 3,
2011. The
notional amount under the swap agreement was $11,875,000 as of December 31,
2009.The purpose of the interest rate swap, which is designated as a
cash flow hedge, is to manage interest costs and the risk associated with
variable-rate debt. The Company does not hold or issue derivative instruments
for trading purposes. The swap effectively converts a portion of the Company’s
variable-rate debt under the Credit Agreement to a fixed rate. Under this
agreement, the Company receives a floating rate based on LIBOR and pays a fixed
rate of 5.55% on the outstanding notional amount. For the years ended December
31, 2009 and 2008, the Company recorded a loss of approximately $769,000 and
$591,000, respectively, as interest expense on the interest rate swap. The
Company has recorded a liability of $449,000 and $1,074,000 for the fair value
of the interest rate swap at December 31, 2009 and 2008, respectively, for
which the corresponding offset has been recorded as an unrealized loss within
other comprehensive income (loss).




Interest
expense was $1,224,000 in 2009, $2,109,000 in 2008 and $1,417,000 in
2007.


70


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note
8 – Property, Equipment and Software




Property,
equipment and software consisted of the following:




December 31,2009
                  
                  
                  2008(In thousands)Computer
      equipment and office furniture
                  
                  $
                  31,384
                  
                  
                  $
                  30,575Software
                  
                  
                  15,512
                  
                  
                  
                  15,187Leasehold
      improvements
                  
                  
                  6,618
                  
                  
                  
                  6,495Transportation
      equipment
                  
                  
                  331
                  
                  
                  
                  37353,845
                  
                  
                  
                  52,630Less
      — Accumulated depreciation and amortization
                  
                  
                  (47,614
                  )
                  
                  
                  (44,303
                  )Net
      property, equipment and software
                  
                  $
                  6,231
                  
                  
                  $
                  8,327




Note
9 — Income Taxes




The
income tax (benefit) provision consisted of the following:





Year Ended December 31,2009
                
                
                2008
                
                
                2007(In thousands)Current:U.S.
      federal
                
                $
                1,898
                
                
                $
                1,498
                
                
                $
                1,568State
                
                
                498
                
                
                
                695
                
                
                
                365Foreign
                
                
                533
                
                
                
                1,386
                
                
                
                1,710Total
      current provision
                
                
                2,929
                
                
                
                3,579
                
                
                
                3,643Deferred
                
                
                (6,190
                )
                
                
                603
                
                
                
                (300
                )Total
      income tax (benefit) provision
                
                $
                (3,261
                )
                
                $
                4,182
                
                
                $
                3,343




The
income tax (benefit) provision was calculated based on the following components
of income (loss) before income taxes:





Year Ended December 31,2009
                
                
                2008
                
                
                2007(In thousands)Domestic
      (loss) income
                
                $
                (16,595
                )
                
                $
                7,730
                
                
                $
                3,984Foreign
      (loss) income
                
                
                (5,299
                )
                
                
                (580
                )
                
                
                5,655(Loss)
      income before income taxes (benefit)
                
                $
                (21,894
                )
                
                $
                7,150
                
                
                $
                9,639


71


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 9 — Income Taxes(continued)




A
reconciliation of the income tax (benefit) provision and the amount computed by
applying the federal statutory income tax rate to income from continuing
operations before income taxes is as follows:





Year Ended December 31,2009
                
                
                2008
                
                
                2007(In thousands)Income
      tax (benefit) provision at federal statutory rate of 34%
                
                $
                (7,444
                )
                
                $
                2,431
                
                
                $
                3,277State
      taxes, net of federal benefit
                
                
                (243
                )
                
                
                459
                
                
                
                241Permanent
      differences
                
                
                4,373
                
                
                
                84
                
                
                
                75Foreign
      operating losses not benefited/valuation allowance
                
                
                (476
                )
                
                
                1,083
                
                
                
                274Effect
      of foreign tax rates
                
                
                632
                
                
                
                (76
                )
                
                
                (487
                )Other
                
                
                (103
                )
                
                
                201
                
                
                
                (37
                )Total
      income tax (benefit) provision
                
                $
                (3,261
                )
                
                $
                4,182
                
                
                $
                3,343




The
principal components of deferred income taxes were as follows:





As of December 31,2009
                
                
                2008Assets
                
                
                Liabilities
                
                
                Assets
                
                
                Liabilities(In
      thousands)Net
      operating loss carryforwards
                
                $
                1,183
                
                
                $
                —
                
                
                $
                1,756
                
                
                $
                —Accruals
      and reserves
                
                
                594
                
                
                
                —
                
                
                
                466
                
                
                
                —Accelerated
      tax depreciation
                
                
                27
                
                
                
                —
                
                
                
                —
                
                
                
                75Intangible
      assets
                
                
                2,314
                
                
                
                —
                
                
                
                —
                
                
                
                3,357Prepaid
      expenses
                
                
                —
                
                
                
                301
                
                
                
                —
                
                
                
                320Other
                
                
                1,698
                
                
                
                —
                
                
                
                1,331
                
                
                
                —Total
      deferred income taxes
                
                
                5,816
                
                
                
                301
                
                
                
                3,553
                
                
                
                3,752Less
      — Valuation allowance
                
                
                (1,163
                )
                
                
                —
                
                
                
                (1,639
                )
                
                
                —Net
      deferred income taxes
                
                $
                4,653
                
                
                $
                301
                
                
                $
                1,914
                
                
                $
                3,752




At
December 31, 2009 and 2008, the Company had available pre-tax net operating
loss carryforwards of approximately $5,398,000 and $5,590,000, respectively, in
Europe, which may be used to offset future taxable income in the jurisdiction in
which the loss originated. The loss carryforward in Belgium does not expire. The
loss carryforward in Romania expires after five years. Based on the historical
losses in Belgium and Romania and the uncertainty surrounding the Company’s
ability to make use of them, a valuation allowance has been provided against the
deferred tax asset related to the net operating loss carryforwards in these
countries.


72


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 9 — Income Taxes(continued)




The
Company and its subsidiaries file income tax returns in the U.S. federal
jurisdiction and various state and foreign jurisdictions. With few exceptions,
the Company is no longer subject to U.S. federal, state and local, or non-U.S.
income tax examinations by tax authorities for years before 2003. The Internal
Revenue Service (“IRS”) commenced an examination of the Company’s 2004 U.S.
federal income tax return in the first quarter of 2007, which was completed in
the second quarter of 2008. The following table summarizes tax years that remain
subject to examination by major tax jurisdictions:





Major
      Jurisdiction
                      
                      Open
      YearsU.S.
      Federal income taxes
                      
                      2005
      through 2009U.S.
      State income taxes
                      
                      2005
      through 2009Foreign
      income taxes
                      
                      2003
      through
2009




The
Company adopted the provisions of ASC 740 “Income Taxes”, (“ASC 740”) on January
1, 2007. ASC 740 prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken
in a tax return. ASC 740 also provides guidance regarding subsequent reversal of
a tax position, balance sheet classification, accounting in interim periods,
disclosure and transition. The Company did not adjust its liability for
unrecognized tax benefits upon adoption of ASC 740.




A
reconciliation of the beginning and ending unrecognized tax benefits is as
follows:





December 31,2009
                
                
                2008Balance
      at beginning of period
                
                $
                107,100
                
                
                $
                52,000Additions
      for tax positions of prior years
                
                
                6,000
                
                
                
                77,100Settlements
                
                
                —
                
                
                
                (22,000
                )Balance
      at end of period
                
                $
                113,100
                
                
                $
                107,100




The
Company recognizes interest accrued related to unrecognized tax benefits in
interest expense and penalties in selling, general and administrative expenses.
During the year ended December 31, 2009 and 2008, the Company recognized
approximately $1,000 and $29,000 in interest and penalties, respectively,
related to income taxes. The Company has no material accruals for the payment of
interest and penalties at December 31, 2009 and 2008, respectively.




Note
10 — Employee Retirement Plans




At
December 31, 2009, TechTeam Global, Inc. and its domestic subsidiaries
together have two 401(k) retirement savings plans that cover substantially all
U.S.-based employees. Under the provisions of the plans, the Company may make
discretionary employer matching contributions. Matching contributions under all
plans totaled $1,136,000 in 2009, $1,824,000 in 2008 and $1,525,000 in 2007.
Matching contributions for the plan of TechTeam Global, Inc. are made only with
Company common stock and are credited to the TechTeam Global Stock Fund for the
benefit of each participant. During 2009, the Company suspended matching
contributions under the TechTeam Global, Inc. Plan for all employees effective
April 27, 2009. Matching contributions for the plan of the Company’s
government-based subsidiaries are made in cash. During 2007, the Company merged
together the two plans of its government-based subsidiaries into one
plan.


73


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued)


Note
11 — Leases




The
Company leases its service desk facilities, corporate and other offices, and
certain office equipment under various operating and month-to-month leases.
These leases are renewable with various options and terms. Total rental expense
was $5,547,000 in 2009, $6,895,000 in 2008 and $5,351,000 in 2007. The Company
subleased a portion of its facilities to third parties. Sublease income recorded
in 2009, 2008 and 2007 was $15,000, $0 and $8,000, respectively.




Minimum
future payments and receipts under noncancelable operating leases and subleases
with initial terms of one year or more at December 31, 2009, are as
follows:





Year
                  
                  Lease
                      Payments
                  
                  
                  Sublease
                      Receipts(In thousands)2010
                  
                  $
                  4,178
                  
                  
                  $
                  932011
                  
                  
                  3,169
                  
                  
                  
                  972012
                  
                  
                  2,521
                  
                  
                  
                  1012013
                  
                  
                  1,834
                  
                  
                  
                  262014
                  
                  
                  1,580
                  
                  
                  
                  —2015
      and thereafter
                  
                  
                  1,952
                  
                  
                  
                  —Total
                  
                  $
                  15,234
                  
                  
                  $
                  317




Certain
facilities leases include periods of free rent or rent payments that increase
over the life of the lease. For these leases, total rent expense for the entire
lease is recorded on a straight-line basis over the life of the lease and a
deferred asset or liability is recorded, as appropriate. At December 31,
2009 and 2008, long-term liabilities include a deferred lease liability of
$690,000 and $592,000, respectively, for these leases.




Note
12 — Stock-Based Compensation




The
Company accounts for its stock-based compensation under the provisions of ASC
718 “Compensation – Stock Compensation” (“ASC 718”) which requires companies to
measure and recognize compensation expense for all stock-based payment awards to
employees and directors based on the estimated fair value of the award.
Compensation expense is recognized over the period during which an employee or
director is required to provide service in exchange for the award. Stock-based
compensation expense recognized in each period is based on the value of the
portion of the share-based award that is ultimately expected to vest during the
period. The Company’s outstanding stock-based awards consist of stock options
and restricted stock.




As of
December 31, 2009, the Company had stock options and restricted stock
outstanding under two plans — the 2006 Incentive Stock and Awards Plan (“2006
Plan”) and the 2004 Incentive Stock and Awards Plan (“2004 Plan”). Stock-based
awards may no longer be granted under the 2004 Plan.




Under the
2006 Plan, the Compensation Committee of the Board of Directors may issue stock
options, performance stock and restricted stock to employees, non-employee
directors of the Company’s Board and consultants representing up to 2,300,000
shares of the Company’s common stock. In addition, non-employee directors
receive up to 100 shares of common stock for attendance at each Board meeting
and are required to receive a portion of their cash compensation from serving as
a director in shares of common stock, and such shares are funded by the 2006
Plan.


74


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 12 — Stock-Based
Compensation(continued)




Stock
Options




Under the
2006 Plan, stock options may be granted with terms up to ten years and must have
an exercise price that is equal to or greater than the fair market value of the
Company’s common stock on the date of the grant. Options outstanding under the
2004 Plan have expiration terms of ten years and become exercisable ratably over
periods ranging from zero to four years.




The
Company recorded compensation expense totaling $1,108,000 in 2009, $1,160,000 in
2008 and $798,000 in 2007 related to outstanding options. As of December 31,
2009, unrecognized compensation cost related to stock options totaled
$1,866,000, which is expected to be recognized over a weighted-average period of
approximately two years.




Compensation
expense reported above includes the expense associated with 110,000 stock
options that were granted to directors on June 23, 2006, and approved by
shareholders on May 16, 2007. This award was accounted for as a liability
award under a share-based payment arrangement and, therefore, the fair value of
the award was remeasured at each reporting date until the date of settlement on
May 16, 2007, when the final amount of compensation expense was measured.
The Company recorded compensation expense of approximately $366,000 in 2007 for
this stock option award.  No compensation expense for this stock
option award was recorded in 2009 or 2008. Compensation expense for 2008
included $254,000 of expense related to the accelerated vesting of all
non-vested restricted stock awards and modification of the exercise period of
vested stock options granted to the Company’s former President and Chief
Executive Officer, William C. Brown, in accordance with Mr. Brown’s amended
Employment and Noncompetition Agreement.




The
Company records compensation expense for stock options based on the estimated
fair value of the options on the date of grant using the Black-Scholes valuation
model. The Company uses historical data among other factors to estimate the
expected price volatility, the expected option term and the expected forfeiture
rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at
the date of grant for the expected term of the option.




The
following assumptions were used to estimate the fair value of options
granted:





Year Ended December 31,2009
                    
                    
                    2008
                    
                    
                    2007Expected
      dividend yield
                    
                    0.0%
                    
                    
                    0.0%
                    
                    
                    0.0%Weighted
      average volatility
                    
                    61%
                    
                    
                    37%
                    
                    
                    35%Risk
      free interest rate
                    
                    1.4%
                    
                    
                    1.2-3.4%
                    
                    
                    3.4-5.0%Expected
      term (in years)
                    
                    3.0
                    
                    
                    3.1
                    
                    
                    3.0


75


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 12 — Stock-Based
Compensation(continued)




A summary
of stock option activity under the above plans and related information is as
follows:




Number of
                        Shares
                    
                    
                    Weighted
                        Average
                        Exercise
                        Price per
                        Share
                    
                    
                    Weighted
                        Average
                        Remaining
                        Contractual
                        Term
                    
                    
                    Aggregate
                        Intrinsic
                        ValueOutstanding
      at January 1, 2007
                    
                    
                    933,967
                    
                    
                    $
                    9.71Granted
                    
                    
                    884,000
                    
                    
                    $
                    11.98Exercised
                    
                    
                    (127,767
                    )
                    
                    $
                    8.53Canceled
                    
                    
                    (178,600
                    )
                    
                    $
                    10.67Outstanding
      at December 31, 2007
                    
                    
                    1,511,600
                    
                    
                    $
                    11.02Granted
                    
                    
                    981,500
                    
                    
                    $
                    8.73Exercised
                    
                    
                    (45,500
                    )
                    
                    $
                    8.98Canceled
                    
                    
                    (205,626
                    )
                    
                    $
                    11.80Outstanding
      at December 31, 2008
                    
                    
                    2,241,974
                    
                    
                    $
                    9.99Granted
                    
                    
                    76,000
                    
                    
                    $
                    5.95Exercised
                    
                    
                    —
                    
                    
                    $
                    0.00Canceled
                    
                    
                    (274,382
                    )
                    
                    $
                    10.29Outstanding
      at December 31, 2009
                    
                    
                    2,043,592
                    
                    
                    $
                    9.74
                    
                    
                    6.6
      Years
                    
                    
                    $
                    247,305Vested
      and expected to vest in the future at December 31, 2009
                    
                    
                    2,043,592
                    
                    
                    $
                    9.74
                    
                    
                    6.3
      Years
                    
                    
                    $
                    247,305Exercisable
      at December 31, 2009
                    
                    
                    1,190,183
                    
                    
                    $
                    10.13
                    
                    
                    5.3
      Years
                    
                    
                    $
                    47,807




The
weighted average grant-date fair value of options issued under all plans was
$2.47 in 2009, $2.50 in 2008 and $3.85 in 2007. The total intrinsic value of
options exercised under all plans was $53,000 in 2008 and $468,000 in 2007. No
options were exercised during 2009. The intrinsic values were determined as of
the date of exercise.




No cash
was received from option exercises under any plan in 2009. Cash received from
option exercises under all plans was $408,000 in 2008 and $1,094,000 in
2007.




Restricted
Common Stock




General




Under the
2006 Plan, the Compensation Committee of the Board of Directors may grant shares
of performance stock and restricted stock to employees, directors and
consultants representing up to 800,000 shares of the Company’s common stock.
Performance stock and restricted stock awards may be granted subject to such
terms and conditions as the Compensation Committee deems appropriate, including
a condition that one or more performance goals be achieved for the participant
to realize all or a portion of the award. As a result of the adoption of the
2006 Plan in May 2007, restricted stock may no longer be granted under the 2004
Plan.


76


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 12 — Stock-Based
Compensation(continued)




The
Company issued 298,372, 178,388 and 132,915 shares of restricted stock to
employees and directors in 2009, 2008 and 2007, respectively. No performance
stock was granted during any period presented.




Executive Long-Term
Incentive Plan




In
January 2004, the Board of Directors approved the Executive Long-Term Incentive
Plan (“Long-Term Incentive Plan”) in which awards may be issued under: (1) a
restricted stock program that focuses on retaining high performing executives
over a longer period of time, (2) a performance stock program that focuses on
rewarding extraordinary performing executives and (3) a non-qualified stock
option program that focuses on the long-term retention of key executives. Prior
to the approval of the 2006 Plan, the awards under these programs were
administered in conjunction with the 2004 Plan whereby shares available for
issuance were funded by the shares available for issuance under the 2004 Plan.
With the approval of the 2006 Plan, the Long-Term Incentive Plan will now be
administered and funded by the shares available for issuance under the 2006
Plan. Under the Long-Term Incentive Plan, certain members of management are
entitled to an award of restricted stock equal to a percentage of the
participant’s salary if certain operating targets are met on a rolling
three-year basis.




During
January 2007, the Long-Term Incentive Plan was modified to change the vesting
period of existing and future restricted stock grants such that restricted
grants will vest ratably over four years. Previously, restricted stock grants
became 100% vested at the end of five years from the date of grant (cliff
vesting). Grants awarded on March 15, 2005, were modified to vest ratably
over the four-year period from January 1, 2007, through January 1,
2011, and grants awarded on March 15, 2006, were modified to vest ratably
over the four-year period from January 1, 2008, through January 1,
2012.




The
Company granted 22,388 and 13,568 shares of restricted stock to certain
employees under the Long-Term Incentive Plan during 2008 and 2007, respectively,
for performance during the years ended December 31, 2007, and 2006. No
shares of restricted stock were granted under the Long-Term Incentive Plan
during 2009 for performance during the year ended December 31,
2008.




Compensation
expense related to all restricted stock under all plans is recorded on a
straight-line basis over the vesting period. The Company recorded compensation
expense related to outstanding shares of restricted stock under all plans
totaling $668,000 in 2009, $997,000 in 2008 and $464,000 in 2007. The weighted
average grant-date fair value of restricted stock granted under all plans was
$5.29 in 2009, $8.61 in 2008 and $12.95 in 2007. The fair value of restricted
stock awards granted under all plans was determined based on the closing trading
price of the Company’s common stock on the grant date.




At
December 31, 2009 and 2008, there was approximately $2,280,000 and $2,241,000,
respectively, of total unrecognized compensation expense related to nonvested
shares of restricted stock. Unrecognized compensation expense at December 31,
2009 is expected to be recognized over a weighted average period of three
years.


77


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 12 — Stock-Based
Compensation(continued)




A summary
of restricted share activity under the above plans and related information is as
follows:





Restricted Shares
                      
                      Number of
                          Shares
                      
                      
                      Weighted
                          Average
                          Grant-Date
                          Fair ValueNonvested
      at January 1, 2007
                      
                      
                      96,220
                      
                      
                      $
                      10.50Granted
                      
                      
                      146,483
                      
                      
                      $
                      12.95Vested
                      
                      
                      (9,000
                      )
                      
                      $
                      8.47Forfeited
                      
                      
                      (11,500
                      )
                      
                      $
                      8.88Nonvested
      at December 31, 2007
                      
                      
                      222,203
                      
                      
                      $
                      12.20Granted
                      
                      
                      178,388
                      
                      
                      $
                      8.61Vested
                      
                      
                      (78,919
                      )
                      
                      $
                      11.05Forfeited
                      
                      
                      (36,107
                      )
                      
                      $
                      12.09Nonvested
      at December 31, 2008
                      
                      
                      285,565
                      
                      
                      $
                      10.01Granted
                      
                      
                      298,372
                      
                      
                      $
                      5.29Vested
                      
                      
                      (58,159
                      )
                      
                      $
                      9.71Forfeited
                      
                      
                      (83,281
                      )
                      
                      $
                      10.72Nonvested
      at December 31, 2009
                      
                      
                      442,497
                      
                      
                      $
                      6.79




Note
13 — Common Stock




The
Company has reserved for issuance shares of common stock necessary to affect the
exercise of all outstanding and ungranted stock options.




On
October 30, 2008, the Board of Directors authorized a stock repurchase program.
Under the program, the Company is authorized to repurchase up to 1 million
shares of its common stock on the open market as the Company deems appropriate.
During 2008, we purchased and retired 12,258 shares of common stock for $61,000,
inclusive of commission expense, under this program. No purchases occurred in
2009. The stock repurchase program expires on December 31, 2011.




Note
14 — Preferred Stock




The
Company's preferred stock may be issued from time to time in one or more series.
The Company's Board of Directors is authorized to fix the dividend rights and
dividend rates, any conversion rights or right of exchange, any voting rights,
rights and terms of redemption, payments in the event of liquidation, and any
other rights, preferences, privileges, and restrictions of any series of
preferred stock and the number of shares constituting such series and their
designation.


78


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note
15 — Segment Reporting




Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision-making group, in deciding how to allocate
resources and in assessing performance. Our chief operating decision-making
group is the Executive Leadership Team, which is comprised of the President and
Chief Executive Officer, the Chief Financial Officer, the Vice President of
Global Sales, the President of TechTeam Government Solutions, the Vice
Presidents of Service Delivery, Chief Information Officer, General Counsel and
the Vice Presidents of Human Resources. The operating segments are managed
separately because each operating segment represents a strategic business unit
that offers different services. Reportable operating segments currently include
the following:




IT Outsourcing Services — this
segment provides corporations with around-the-clock (24x7x365) technical support
for their end-users and other constituencies. The Company supports the full
range of a client’s information technology (“IT”) and business process
infrastructure. The Company also provides technical support to customers of the
Company’s client’s products and software.




Government Technology Services
— this segment provides services that are more heavily focused on supporting the
customer’s IT network with complete life cycle support for a customer’s IT
infrastructure ranging from their desktops to their data and voice networks. The
Company also provides consultative services in agent-based modeling, operations
analysis, program management and supply chain engineering and assists customers
in the design, development and implementation of enterprise-level technology
solutions.




IT Consulting and Systems
Integration — this segment provides IT infrastructure support to
commercial customers through systems integration, technology deployment,
application development and implementation services from project planning to
full-scale network, server and workstation installations and maintenance. The
Company offers a wide range of IT services including technology consulting,
security, network monitoring and application integration and storage. The
Company also provides full-service IT staff and consulting services to companies
to help manage their IT infrastructure.




Other Services — this segment
maintains a staff of trained technical personnel, which are placed at client
facilities to provide technical support services including help desk
technicians, software developers and network support. This segment also provides
custom training and documentation solutions. The Company provides customized
training programs for many customers’ proprietary applications.


79


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 15 — Segment
Reporting(continued)




The
accounting policies of the operating segments are the same as those described in
Note 1. The Company evaluates segment performance based on segment gross
profit. Assets are not allocated to operating segments, but certain amounts of
depreciation and amortization expense are allocated to operating
segments.




Financial
information for the Company’s operating segments is as follows:





Year Ended December 31,2009
                  
                  
                  2008
                  
                  
                  2007(In
      thousands)RevenueCommercialIT
      Outsourcing Services
                  
                  $
                  106,229
                  
                  
                  $
                  120,166
                  
                  
                  $
                  104,659IT
      Consulting and Systems Integration
                  
                  
                  12,755
                  
                  
                  
                  27,064
                  
                  
                  
                  28,064Other
      Services
                  
                  
                  15,817
                  
                  
                  
                  24,110
                  
                  
                  
                  20,219Total
      Commercial
                  
                  
                  134,801
                  
                  
                  
                  171,340
                  
                  
                  
                  152,942Government
      Technology Services
                  
                  
                  76,440
                  
                  
                  
                  88,615
                  
                  
                  
                  69,254Total
      revenue
                  
                  $
                  211,241
                  
                  
                  $
                  259,955
                  
                  
                  $
                  222,196Gross
      ProfitCommercialIT
      Outsourcing Services
                  
                  $
                  23,330
                  
                  
                  $
                  24,350
                  
                  
                  $
                  19,927IT
      Consulting and Systems Integration
                  
                  
                  2,865
                  
                  
                  
                  6,427
                  
                  
                  
                  6,187Other
      Services
                  
                  
                  3,854
                  
                  
                  
                  5,427
                  
                  
                  
                  4,789Total
      Commercial
                  
                  
                  30,049
                  
                  
                  
                  36,204
                  
                  
                  
                  30,903Government
      Technology Services
                  
                  
                  20,437
                  
                  
                  
                  24,232
                  
                  
                  
                  18,867Total
      gross profit
                  
                  
                  50,486
                  
                  
                  
                  60,436
                  
                  
                  
                  49,770Selling,
      general and administrative expense
                  
                  
                  (42,823
                  )
                  
                  
                  (46,920
                  )
                  
                  
                  (39,475
                  )Impairment
      charges
                  
                  
                  (27,453
                  )
                  
                  
                  —
                  
                  
                  
                  —Restructuring
      charges, net
                  
                  
                  (411
                  )
                  
                  
                  (5,719
                  )
                  
                  
                  —Net
      interest expense
                  
                  
                  (1,018
                  )
                  
                  
                  (1,712
                  )
                  
                  
                  (572
                  )Foreign
      currency transaction (loss) gain
                  
                  
                  (675
                  )
                  
                  
                  910
                  
                  
                  
                  (84
                  )Other
      income, net
                  
                  
                  —
                  
                  
                  
                  155
                  
                  
                  
                  —(Loss)
      income before income taxes
                  
                  $
                  (21,894
                  )
                  
                  $
                  7,150
                  
                  
                  $
                  9,639


80


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 15 — Segment
Reporting(continued)





Year Ended December 31,2009
                
                
                2008
                
                
                2007(In thousands)Depreciation
      and AmortizationIT
      Outsourcing Services
                
                $
                1,726
                
                
                $
                2,265
                
                
                $
                1,914IT
      Consulting and Systems Integration
                
                
                —
                
                
                
                173
                
                
                
                158Government
      Technology Services
                
                
                —
                
                
                
                —
                
                
                
                34Other
      Services
                
                
                70
                
                
                
                42
                
                
                
                1Unallocated
      depreciation and amortization
                
                
                4,686
                
                
                
                5,455
                
                
                
                4,899Total
      depreciation and amortization
                
                $
                6,482
                
                
                $
                7,935
                
                
                $
                7,006




The
Company attributes revenue to different geographic areas on the basis of the
location providing the services to the customer. Revenue and long-lived assets
by geographic area is presented below:





Geographic Information2009
                
                
                2008
                
                
                2007Revenue
                
                
                Long-Lived
                    Assets
                
                
                Revenue
                
                
                Long-Lived
                    Assets
                
                
                Revenue
                
                
                Long-Lived
                    Assets(In thousands)United
      States
                
                $
                142,276
                
                
                $
                48,641
                
                
                $
                160,990
                
                
                $
                72,629
                
                
                $
                137,276
                
                
                $
                71,497Europe:Belgium
                
                
                32,597
                
                
                
                1,514
                
                
                
                43,557
                
                
                
                1,928
                
                
                
                44,272
                
                
                
                3,697Rest
      of Europe
                
                
                36,368
                
                
                
                4,376
                
                
                
                55,408
                
                
                
                11,905
                
                
                
                40,648
                
                
                
                12,627Total
      Europe
                
                
                68,965
                
                
                
                5,890
                
                
                
                98,965
                
                
                
                13,833
                
                
                
                84,920
                
                
                
                16,324Total
                
                $
                211,241
                
                
                $
                54,531
                
                
                $
                259,955
                
                
                $
                86,462
                
                
                $
                222,196
                
                
                $
                87,821




Corporate
services for major companies are provided on an international scale. Revenue
from customers that comprise 10% or greater of total revenue in any period
presented are as follows:





Year Ended December 31,2009
                    
                    
                    2008
                    
                    
                    2007U.S.
      Federal Government
                    
                    
                    31.7
                    %
                    
                    
                    29.7
                    %
                    
                    
                    27.1
                    %Ford
      Motor Company
                    
                    
                    14.3
                    %
                    
                    
                    15.9
                    %
                    
                    
                    20.1
                    %Total
                    
                    
                    46.0
                    %
                    
                    
                    45.6
                    %
                    
                    
                    47.2
                    %


81


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note 15 — Segment
Reporting(continued)




We
conduct business under multiple contracts with various entities within the Ford
Motor Company organization and with various agencies and departments of the U.S.
Federal Government. In the aggregate, approximately 17.9%, 18.7% and 15.9% of
our total revenue in 2009, 2008 and 2007, respectively, was derived from
agencies within the U.S. Department of Defense.




Revenue
from Ford is earned in the IT Outsourcing Services, IT Consulting and Systems
Integration, and Other Services operating segments. All revenue from the U.S.
Federal Government is earned in the Government Technology Services operating
segment.




Amounts
due from the U.S. Federal Government and Ford Motor Company accounted for 23.3%
and 8.8% of total accounts receivable at December 31, 2009, respectively, and
36.7% and 13.1%, at December 31, 2008, respectively.




Note
16 — Related Party Transactions




On May
22, 2008, the Company established service desk operations in Manila, Philippines
through an agreement with Rainmaker Asia, Inc., a wholly-owned subsidiary of
Rainmaker Systems, Inc. One of the Company’s former directors, Alok Mohan, is
also an independent director and Chairman of Rainmaker Systems, Inc. The
amount of the transaction with Rainmaker Systems, Inc. did not have a material
impact on our consolidated financial position or results of operations.The Company’s Board of Directors and Audit Committee independently
approved this transaction.




Note
17 — Contingencies




From time
to time the Company is involved in various litigation matters arising in the
ordinary course of its business. None of these matters, individually or in the
aggregate, currently is material to the Company.


82


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Note
18 — Subsequent Event
  During
the second quarter of 2009, the Company adopted the provisions of ASC 855,
“Subsequent Events” (ASC 855”), which establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued. The adoption of ASC 855 did not
have a material impact on the Company’s consolidated financial position, results
of operations or cash flows.
  Credit
Agreement Amendment
  On March
26, 2010, the Company amended its existing Credit Agreement with JPMorgan Chase
Bank, N.A. and Bank of America, N.A. The Amendment reduced the Company’s
borrowing limit from $55,000,000 to $28,000,000. Bank of America, N.A. has been
paid in full and is no longer a participating lender.
  The
Amendment also increased the interest rate applicable to borrowings under the
Credit Agreement. The interest rate is equal to the Eurocurrency rate for U.S.
dollars plus a factor determined with reference to the Company’s Leverage Ratio.
The Amendment increased the range for this factor from a range of 0.95% - 1.45%
to a range of 1.50% - 2.00%. The unused commitment fee was also increased from a
range of 0.15% - 0.25% to a range of 0.25% - 0.35% and is also based on the
Company’s Leverage Ratio.
  The
Amendment permits the Company to maintain:  (a) a rolling four-quarter
Leverage Ratio as of the fiscal quarters ending March 31, 2010 and June 30, 2010
of 3.25 to 1 (up from 3.0 to 1), and 3.0 to 1 for fiscal quarters thereafter;
and (b) a rolling four-quarter Fixed Charge Coverage Ratio as of fiscal quarters
ending March 31, 2010 and June 30, 2010 of 1.0 to 1.0 (down from 1.25 to 1.0),
and 1.25 to 1.0 for fiscal quarters thereafter.
  Finally,
the Amendment also modified the definition of “Consolidated Adjusted EBITDA” to
allow the Company to exclude:  (a) non-cash goodwill and intangible
impairment charges for fiscal quarters ended December 31, 2009, March 31, 2010
and June 30, 2010; and (b) amounts related to cash restructuring charges for
fiscal quarters ended March 31, 2010 and June 30, 2010.




83


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued)


Note
18 — Subsequent Event (continued)


Restructuring




On March
29, 2010 the Company announced a restructuring plan to achieve global management
consistency. The restructuring plan was approved by the Company’s Board of
Directors on March 23, 2010. The 2010 first quarter estimated pre-tax
restructuring charge related to this action includes separation costs for
employees and facilities costs. The company currently estimates that the total
pre-tax charges resulting from the restructuring will be between $2.7 million
and $3.4 million.




Note 19
— Selected Quarterly Financial Data (Unaudited)




Quarterly
condensed consolidated results of operations are summarized as
follows:





Quarter EndedMarch 31
                
                
                June 30
                
                
                September 30
                
                
                December 31(In thousands, except per share data)2009Revenue
                
                $
                56,105
                
                
                $
                54,327
                
                
                $
                52,348
                
                
                $
                48,461Gross
      profit
                
                
                13,928
                
                
                
                13,346
                
                
                
                12,042
                
                
                
                11,170Net
      income (loss)
                
                $
                1,650
                
                
                $
                1,290
                
                
                $
                862
                
                
                $
                (22,434
                )Earnings
      (loss) per share:Basic
      per common
                
                $
                0.16
                
                
                $
                0.12
                
                
                $
                0.08
                
                
                $
                (2.11
                )Diluted
      per common
                
                $
                0.16
                
                
                $
                0.12
                
                
                $
                0.08
                
                
                $
                (2.11
                )




Quarter EndedMarch 31
                
                
                June 30
                
                
                September 30
                
                
                December 31(In thousands, except per share data)2008Revenue
                
                $
                65,964
                
                
                $
                67,876
                
                
                $
                64,184
                
                
                $
                61,930Gross
      profit
                
                
                14,778
                
                
                
                15,588
                
                
                
                14,807
                
                
                
                15,262Net
      income (loss)
                
                $
                1,691
                
                
                $
                (1,838
                )
                
                $
                1,909
                
                
                $
                1,207Earnings
      (loss) per share:Basic
      per common
                
                $
                0.16
                
                
                $
                (0.17
                )
                
                $
                0.18
                
                
                $
                0.11Diluted
      per common
                
                $
                0.16
                
                
                $
                (0.17
                )
                
                $
                0.18
                
                
                $
                0.11


84


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Item
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE




There
were no changes in accountants, disagreements, or other events requiring
reporting under this Item.




Item
      9A.
            CONTROLS
      AND PROCEDURES




Evaluation
of Disclosure Controls and Procedures




Our
management is responsible for establishing and maintaining a system of
disclosure controls and procedures (as defined in Rule 13a-15(e)) under the
Exchange Act) that is designed to ensure that information required to be
disclosed by the Company in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
specified in the Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the issuer's management, including its principal executive officer or
officers and principal financial officer or officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
  In
accordance with Exchange Act Rule 13a-15(b), our management, under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, performed an evaluation of the effectiveness of the Company's
disclosure controls and procedures as of the end of the fiscal quarter covered
by this Quarterly Report. Based on that evaluation, the Company's Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective, as of December 31, 2009, to
provide reasonable assurance that information required to be disclosed in the
Company's reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Commission's rules and forms and that such information is accumulated and
communicated to management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding
disclosure.


Management’s
Annual Report on Internal Control over Financial Reporting




Management’s
Annual Report on Internal Control over Financial Reporting accompanies the
Company’s financial statements included in Item 8 of this Form 10-K and is
incorporated herein by reference.




Report
of the Independent Registered Public Accounting Firm




The
report issued by the Company’s independent registered public accounting firm,
Ernst & Young LLP, accompanies the Company’s financial statements included
in Item 8 of this Form 10-K and is incorporated herein by
reference.




Changes
in Internal Control over Financial Reporting




No change
in our internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) occurred during the quarter ended
December 31, 2009, that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.




Item
      9B.
            OTHER
      INFORMATION




None.


85


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




PART
III




Item
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE




Directors
and Executive Officers




Information
relating to our Board of Directors will be found in our Proxy Statement to be
dated on or about April 30, 2010
(the “Proxy Statement”) under “Proposal 1. Election of Directors” and is
incorporated in this report by reference.




Information
relating to our executive officers will be found in our Proxy Statement under
“Executive Officers of the Company.” In addition, information relating to
certain filing obligations of directors and executive officers under the federal
securities laws will be found in the Proxy Statement under “Section 16(a)
Beneficial Ownership Reporting Compliance.” That information is incorporated in
this report by reference.




Code
of Ethics




We have
adopted a code of ethics as set forth in our Code of Business Conduct, which is
available on our Web site at


http://www.techteam.com/investors/corporate-governance.




In the
event of any amendments to, or waivers from, a provision of the code affecting
the chief executive officer, chief financial officer, controller or persons
performing similar functions, we intend to post on the above Web site within
four business days after the event a description of the amendment or waiver as
required under applicable U.S. Securities and Exchange Commission rules. We will
maintain that information on our Web site for at least 12 months. Paper
copies of these documents are available free of charge upon request to the
Company’s secretary at the address on the front of this
Form 10-K.




Corporate
Governance




In our
proxy statements, we describe the procedures by which shareholders can recommend
nominees to our board of directors. There have been no changes in those
procedures since they were last published in our proxy statement of March 30,
2009.




The Board
of Directors has determined that the Audit Committee consists entirely of
independent directors in accordance with applicable U.S. Securities and Exchange
Commission and Nasdaq® Global
Market rules for audit committees. The members of the committee are James A.
Lynch, Andrew R. Siegel and Richard R. Widgren (Chairman). The Board of
Directors has determined that Mr. Widgren is an audit committee financial
expert as defined in the U.S. Securities and Exchange Commission
rules.




Item
      11.
            EXECUTIVE
      COMPENSATION




Information
on director compensation, executive compensation and compensation committee
matters will be provided in the Proxy Statement under “Directors’ Compensation,”
“Executive Compensation” (which includes the Report of the Compensation
Committee) and “Compensation Committee Interlocks and Insider Participation.”
That information is incorporated in this report by reference.


86


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Item
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS




Information
relating to ownership of the Company’s common stock by management and by persons
known by the Company to be the beneficial owners of more than five percent of
the outstanding shares of common stock will be found in the Proxy Statement
under “Ownership of Company Stock.” That information is incorporated in this
report by reference.




The
following table presents information as of December 31, 2009, regarding our
compensation plans under which shares of our common stock have been authorized
for issuance.





Equity Compensation Plan Information(a)
                  
                  
                  (b)
                  
                  
                  (c)Plan Category
                  
                  Number of securities
                    to be issued upon
                    exercise of outstanding
                    options, warrants
                    and rights (1)
                  
                  
                  Weighted-average
                    exercise price of
                    outstanding options,
                    warrants and rights
                  
                  
                  Number of securities
                    remaining available for
                    future issuance under equity
                    compensation plans
                    (excluding securities
                    reflected in column (a))Equity
      compensation plans approved by security holders
                  
                  
                  1,593,592
                  
                  
                  $
                  10.34
                  
                  
                  
                  661,062Equity
      compensation plans not approved by security holders (2)
                  
                  
                  450,000
                  
                  
                  $
                  7.62
                  
                  
                  
                  —Total
                  
                  
                  2,043,592
                  
                  
                  $
                  9.74
                  
                  
                  
                  661,062





(1)
            Represents
      options to purchase shares of the Company’s common
  stock.


(2)
              Represents
      grants made to Gary J. Cotshott and Margaret M. Loebl as inducement for
      them to enter into employment with the Company. In February 2008, Mr.
      Cotshott received an option to purchase 300,000 shares of the Company’s
      common stock. In October 2008, Ms. Loebl received an option to purchase
      150,000 shares of the Company’s common stock. The options awarded to Mr.
      Cotshott have an exercise price equal to the market price on the date of
      grant ($7.99), a ten-year term and vest in 16 equal installments over four
      years. The options awarded to Ms. Loebl have an exercise price equal to
      the market price on the date of the grant ($6.89), a ten-year term and
      vest in four equal installments over four
years.




Item
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE




The
information to be set forth under the caption “Compensation of Executive
Officers — Certain Relationships and Related Transactions” in the Proxy
Statement is incorporated herein by reference.




Director
Independence




Information
relating to director independence will be found in the Proxy Statement under
“Director Independence” and is incorporated in this report by
reference.




Related
Party Transactions




Information
relating to transactions with related parties can be found in the Proxy
Statement under “Certain Relationships and Related Transactions” and information
relating to the Board of Director’s policies and procedures for approval of
related party transactions can be found in the Proxy Statement under “Board
Matters — Audit Committee.” That information is incorporated in this report by
reference.


87


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued)




Item
      14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES




The
information to be set forth under the caption “Fees of the Independent Auditors
for 2009 and 2008” in the Proxy Statement is incorporated herein by
reference.


88


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




PART
IV




Item
      15.
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES




a)
            Certain
      documents are filed as part of this Report on Form
  10-K.




(1)
            See
      “Item 8 — Financial Statements and Supplementary Data” beginning at page
      46.




(2)
            Financial
      Statement Schedules




Schedule
II — Valuation and Qualifying Accounts for the years ended December 31, 2009,
2008 and 2007




(3)
            Exhibits.




Exhibit
                                              Number
                                            
                                            Exhibit
                                            
                                            Reference *2.1
                                            
                                            Share
      Purchase Agreement between TechTeam Global AB and SQM Nordic AB dated
      January 19, 2007.
                                            
                                            *82.2
                                            
                                            First
      Amendment of Share Purchase Agreement between TechTeam Global AB and SQM
      Nordic AB dated as of February 9, 2007.
                                            
                                            *82.3
                                            
                                            Membership
      Interest Purchase Agreement between TechTeam Government Solutions, Inc.,
      NewVectors Holding LLC, Altarum Supporting Organization, Inc. and Altarum
      Institute dated May 23, 2007.
                                            
                                            *103.1
                                            
                                            Certification
      of Incorporation of TechTeam Global, Inc. filed with the Delaware
      Secretary of State on September 14, 1987.
                                            
                                            *43.2
                                            
                                            Certificate
      of Amendment dated November 27, 1987 to our Certificate of
      Incorporation.
                                            
                                            *43.3
                                            
                                            Certificate
      of Amendment dated May 8, 2002 to Certificate of
      Incorporation.
                                            
                                            *43.4
                                            
                                            Bylaws
      of TechTeam Global, Inc. as Amended and Restated December 9,
      2009.
                                            
                                            *1910.1
                                            
                                            Lease
      Agreement for office space in Southfield, Michigan known as the Cumberland
      Tech Center between the Company and Eleven Inkster Associates dated
      September 27, 1993.
                                            
                                            *210.2
                                            
                                            Seventh
      Amendment dated August 24, 2006 to the Lease Agreement for office space in
      Southfield, Michigan between Eleven Inkster L.L.C. and the
      Company.
                                            
                                            *710.3
                                            
                                            Lease
      Agreement for office space in Davenport, Iowa known as the 1010 Shopping
      Center between the Company and Partnership 1010, L.L.P. dated August 28,
      1999.
                                            
                                            *310.4
                                            
                                            Office
      Lease Agreement by and between FJ Dulles Business Park II, L.L.C., as
      Landlord, and TechTeam Government Solutions, Inc., (formerly known as
      Digital Support Corporation) as Tenant, dated December 21,
      2000.
                                            
                                            *5


89


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued)


Exhibit
                                                                          Number
                                                                        
                                                                        Exhibit
                                                                        
                                                                        Reference *10.5
                                                                        
                                                                        Office
      Building Lease between Elizabethean Court Associates III L.P., as
      landlord, and TechTeam Global, Inc., as tenant, dated May 18,
      2006.
                                                                        
                                                                        *910.6
                                                                        
                                                                        Lease
      Agreement for office space in Bucharest, Romania between S.C.
      Italian-Romanian Industrial Development Enterprises – IRIDE SA and
      TechTeam Global SRL dated February 2, 2005.
                                                                        
                                                                        *610.7
                                                                        
                                                                        Office
      building lease between EVERE REAL ESTATE and TechTeam Global NV/SA, dated
      July 1, 2009
                                                                        
                                                                        *1810.8
                                                                        
                                                                        Office
      building lease between EVERE REAL ESTATE and TechTeam Global NV/SA, dated
      July 1, 2009
                                                                        
                                                                        *1810.9
                                                                        
                                                                        1990
      Nonqualified Stock Option Plan.
                                                                        
                                                                        *110.10
                                                                        
                                                                        2004
      Incentive Stock and Awards Plan.
                                                                        
                                                                        *1710.11
                                                                        
                                                                        2006
      Incentive Stock and Awards Plan.
                                                                        
                                                                        *1710.12
                                                                        
                                                                        TechTeam
      Global, Inc. Non-Employee Directors Equity Fee Guidelines under 2006
      Incentive Stock and Awards Plan.
                                                                        
                                                                        *1110.13
                                                                        
                                                                        TechTeam
      Global, Inc. Non-Employee Directors Deferred Compensation
      Plan.
                                                                        
                                                                        *1110.14
                                                                        
                                                                        TechTeam
      Global, Inc. Compensation Policy for Non-Employee
    Directors.
                                                                        
                                                                        *1110.15
                                                                        
                                                                        TechTeam
      Global, Inc. Executive Annual Incentive Plan.
                                                                        
                                                                        *1510.16
                                                                        
                                                                        TechTeam
      Global, Inc. Executive Long Term Incentive Program.
                                                                        
                                                                        *1510.17
                                                                        
                                                                        Supplemental
      Retirement Plan dated October 1, 2000.
                                                                        
                                                                        *310.18
                                                                        
                                                                        Employment
      Agreement Relating to Change of Control.
                                                                        
                                                                        *1710.19
                                                                        
                                                                        Form
      of Indemnification Agreement
                                                                        
                                                                        *1910.20
                                                                        
                                                                        Employment
      and Noncompetition Agreement between TechTeam Global, Inc. and Gary J.
      Cotshott, dated February 11, 2008.
                                                                        
                                                                        *1210.21
                                                                        
                                                                        Amendment
      to Employment and Noncompetition Agreement between TechTeam Global,
      Inc.  and Gary J. Cotshott
                                                                        
                                                                        *1710.22
                                                                        
                                                                        Option
      Agreement between TechTeam Global, Inc. and Gary J.
    Cotshott
                                                                        
                                                                        *1710.23
                                                                        
                                                                        Employment
      and Non-Competition Agreement of Kamran Sokhanvari
                                                                        
                                                                        *1310.24
                                                                        
                                                                        Amendment
      to Employment and Non-Competition Agreement of Kamran
      Sokhanvari
                                                                        
                                                                        *1710.25
                                                                        
                                                                        Employment
      and Non-Competition Agreement of Armin Pressler
                                                                        
                                                                        *1310.26
                                                                        
                                                                        Amendment
      to Employment and Non-Competition Agreement of Armin
    Pressler
                                                                        
                                                                        *1710.27
                                                                        
                                                                        Employment
      and Non-Competition Agreement of Margaret M. Loebl
                                                                        
                                                                        *1610.28
                                                                        
                                                                        Amendment
      to Employment and Non-Competition Agreement of Margaret M.
      Loebl
                                                                        
                                                                        *1710.29
                                                                        
                                                                        Option
      Agreement between TechTeam Global, Inc. and Margaret M.
    Loebl
                                                                        
                                                                        *17


90


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued)


Exhibit
                                                    Number
                                                  
                                                  Exhibit
                                                  
                                                  Reference *10.30
                                                  
                                                  Employment
      Agreement Relating to Change of Control of Michael A.
Sosin
                                                  
                                                  *1710.31
                                                  
                                                  Employment
      Agreement Relating to Change of Control of Christopher
    Donohue
                                                  
                                                  *1710.32
                                                  
                                                  Retention
      and Change of Control of David A. Kriegman, dated October 23,
      2009.10.33
                                                  
                                                  Credit
      Agreement dated as of June 1, 2007 among TechTeam Global, Inc., the
      Lenders Party Hereto, JPMorgan Chase Bank, NA, as Administrative Agent and
      J.P. Morgan Securities, Inc., as Sole Bookrunner and Sole Lead
      Arranger.
                                                  
                                                  *1010.34
                                                  
                                                  Pledge
      and Security Agreement dated June 1, 2007 between TechTeam Global, Inc.,
      TechTeam Cyntergy, LLC, TechTeam Government Solutions, Inc., Sytel, Inc.
      and JPMorgan Chase Bank, N.A. as Administrative Agent.
                                                  
                                                  *1010.35
                                                  
                                                  First
      Amendment to Credit Agreement and Consent
                                                  
                                                  *1410.36
                                                  
                                                  Second
      Amendment to Credit Agreement
                                                  
                                                  *1510.37
                                                  
                                                  Third
      Amendment to Credit Agreement
                                                  
                                                  *2021.1
                                                  
                                                  List
      of subsidiaries of TechTeam Global, Inc.23.1
                                                  
                                                  Consent
      of Independent Registered Public Accounting Firm.31.1
                                                  
                                                  Certification
      of Gary J. Cotshott Pursuant to Rule 13a-14(a) of the Securities Exchange
      Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002.31.2
                                                  
                                                  Certification
      of Margaret M. Loebl Pursuant to Rule 13a-14(a) of the Securities Exchange
      Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002.32.1
                                                  
                                                  Certification
      of Gary J. Cotshott Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
                                                  
                                                  Certification
      of Margaret M. Loebl Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.




Exhibits
10.9 through 10.11 and Exhibits 10.15 through 10.32 represent management
contracts and compensatory plans.





Exhibit*1
              
              Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 1990,
      filed as Exhibit 4.14 thereto.*2
              
              Incorporated
      by reference to our Annual Report on Form 10-KSB for the year ended
      December 31, 1993.*3
              
              Incorporated
      by reference to our Annual Report on Form 10-K dated March 31,
      2001.*4
              
              Incorporated
      by reference to our Annual Report on Form 10-K dated March 18,
      2003.*5
              
              Incorporated
      by reference to our Report on Form 10-K dated March 24,
    2004.*6
              
              Incorporated
      by reference to our Annual Report on Form 10-K dated March 18,
      2005.*7
              
              Incorporated
      by reference to our Report on Form 10-Q dated November 9,
      2006.  91
 TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (continued)
 Exhibit*8
                                          
                                          Incorporated
      by reference to our Report on Form 8-K dated February 9,
    2007.*9
                                          
                                          Incorporated
      by reference to our Annual Report on Form 10-K dated March 16,
      2007.*10
                                          
                                          Incorporated
      by reference to our Report on Form 8-K dated June 5,
  2007.*11
                                          
                                          Incorporated
      by reference to our Report on Form 10-Q dated August 9,
    2007.*12
                                          
                                          Incorporated
      by reference to our Report on Form 8-K dated February 14,
      2008.*13
                                          
                                          Incorporated
      by reference to our Report on Form 8-K dated June 5,
  2008.*14
                                          
                                          Incorporated
      by reference to our Report on Form 8-K dated June 11,
  2008.*15
                                          
                                          Incorporated
      by reference to our Report on Form 8-K dated June 18,
  2008.*16
                                          
                                          Incorporated
      by reference to our Report on Form 8-K dated October 7,
    2008.*17
                                          
                                          Incorporated
      by reference to our Annual Report on Form 10-K dated March 16,
      2009.*18
                                          
                                          Incorporated
      by reference to our Report on Form 10-Q dated November 9,
      2009.*19
                                          
                                          Incorporated
      by reference to our Report on Form 8-K dated December 15,
      2009.*20
                                          
                                          Incorporated
      by reference to our Report on Form 8-K dated March 29,
    2010.


92


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) 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.




TechTeam
Global, Inc.





Date:
      March 30, 2010
                        By:
                        /s/ Gary J. Cotshott
                        
                        Gary
      J. CotshottPresident
      and Chief Executive
                          Officer
      (Principal Executive
                          Officer)By:
                        /s/ Margaret M. Loebl
                        
                        Margaret
      M. LoeblCorporate
      Vice President, Chief Financial
                          Officer
      and Treasurer (Principal
                          Financial
      Officer and Principal
                          Accounting
      Officer)


93


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons in the capacities indicated on March 30,
2010.




/s/
      Gary J. Cotshott
                              
                              Director
      and Chief Executive Officer
                                (Principal
      Executive Officer)Gary
      J. Cotshott/s/
      Margaret M. Loebl
                              
                              Corporate
      Vice President, Chief
                                Financial
      Officer and Treasurer
                                (Principal
      Financial Officer and Principal
                                Accounting
      Officer)Margaret
      M. Loebl/s/
      Charles Frumberg
                              
                              DirectorCharles
      Frumberg/s/
      Seth W. Hamot
                              
                              DirectorSeth
      W. HamotDirectorJames
      A. Lynch/s/
      Dov H. Scherzer
                              
                              DirectorDov
      H. Scherzer/s/
      Andrew R. Siegel
                              
                              DirectorAndrew
      R. Siegel/s/
      Richard R. Widgren
                              
                              DirectorRichard
      R. Widgren


94


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




SCHEDULE
II — Valuation and Qualifying Accounts




for
the Years Ended December 31, 2009, 2008 and 2007





Description
                
                Balance at
                    Beginning
                    of Period
                
                
                Charged to
                    (Reduction of)
                    Costs and
                    Expenses
                
                
                Deductions
                
                
                Balance
                    at End
                    of Period(In
      thousands)2009Allowance
      for doubtful accounts
                
                $
                986
                
                
                $
                329
                
                
                $
                —
                
                
                $
                1,315Valuation
      allowance for deferred taxes
                
                $
                1,639
                
                
                $
                (476
                )
                
                $
                —
                
                
                $
                1,1632008Allowance
      for doubtful accounts
                
                $
                611
                
                
                $
                375
                
                
                $
                —
                
                
                $
                986Valuation
      allowance for deferred taxes
                
                $
                503
                
                
                $
                1,136
                
                
                $
                —
                
                
                $
                1,6392007Allowance
      for doubtful accounts
                
                $
                466
                
                
                $
                145
                
                
                $
                —
                
                
                $
                611Valuation
      allowance for deferred taxes
                
                $
                290
                
                
                $
                213
                
                
                $
                —
                
                
                $
                503


95


TECHTEAM
GLOBAL, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)




INDEX
OF EXHIBITS





Exhibit
                    Number
                
                Exhibit10.32
                
                Retention
      and Change of Control of David A. Kriegman, dated October 23,
      2009.21.1
                
                List
      of subsidiaries to TechTeam Global, Inc.23.1
                
                Consent
      of Independent Registered Public Accounting Firm.31.1
                
                Certification
      of Gary J. Cotshott Pursuant to Rule 13a-14(a) of the Securities Exchange
      Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002.31.2
                
                Certification
      of Margaret M. Loebl Pursuant to Rule 13a-14(a) of the Securities Exchange
      Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002.32.1
                
                Certification
      of Gary J. Cotshott Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2
                
                Certification
      of Margaret M. Loebl Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.


96