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Article by DailyStocks_admin    (01-20-09 06:21 AM)

Filed with the SEC from Jan 08 to Jan 14:

TechTeam Global (TEAM)
Costa Brava Partnership III urged TechTeam's board to immediately announce a short timetable for separating the roles of chief executive and chairman. On Jan. 9, TechTeam appointed CEO Gary J. Cotshott as chairman. Costa Brava said the combination of CEO and chairman "limits the ability of the board to exercise true independent oversight of management and diminishes board effectiveness." Costa Brava said that, if the company persists in its current course, it would consider unspecified "alternatives." Costa Brava holds 1,360,391 shares (12.12% of the total outstanding).

BUSINESS OVERVIEW

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 that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of TechTeam Global, Inc. and its consolidated subsidiaries (“TechTeam”) to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of revenue, gross margin, expenses, earnings or losses from operations, synergies or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning developments or performance relating to our services; any statements regarding future economic conditions or performance; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include the performance of contracts by suppliers, customers and partners; employee management issues; the difficulty of aligning expense levels with revenue changes; complexities of global political and economic developments; 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 TechTeam’s reports filed with the United States Securities and Exchange Commission. TechTeam assumes no obligation and does not intend to update these forward-looking statements.
PART I
Item 1. BUSINESS
General
TechTeam Global, Inc. (including its consolidated subsidiaries, “TechTeam,” the “Company” or “we”) is a global provider of information technology (“IT”) outsourcing, enterprise support and business process outsourcing (“BPO”) services to Fortune 1000 companies, government entities, multinational companies, product and service providers, and small and medium-sized companies. 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.
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 Ford Motor Company, Canon Europe NV, Deere & Company, MICROS, Inc., United Parcel Service, Essilor International, Boehringer Ingelheim 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, Department of Defense, Department of Homeland Security and Department of Health and Human Services.
Our subsidiaries are: TechTeam Global NV/SA (Brussels, Belgium), with its subsidiary TechTeam A.N.E. NV/SA (Gent, Belgium); TechTeam Global Ltd. (United Kingdom); TechTeam Global GmbH (Germany); TechTeam Global AB (Sweden), with its subsidiary TechTeam SQM AB (Sweden); 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 SĂ rl (Switzerland); TechTeam Government Solutions, Inc. (formerly known as Digital Support Corporation, Chantilly, Virginia), with its subsidiary Sytel, Inc., (Bethesda, Maryland); and TechTeam Cyntergy, L.L.C. (Southfield, Michigan).
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. Over the past five years, we have strategically strengthened our service offerings through a combination of organic growth, acquisitions and enhancements to our business model, and we intend to continue this strategy of strengthening and growing our core service offerings.

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 13 of the Notes to Consolidated Financial Statements included in “Item 8 — Financial Statements and Supplementary Data.”
1. IT Outsourcing Services
Our IT Outsourcing Services segment provides service desk and 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 internationally and in multiple languages for our customers’ products in the marketplace. The two primary elements of this business segment are Enterprise Support Services and BPO Services, which are supported by a global IT outsourcing delivery model for service desk services as discussed below.
Enterprise Support Services
Our enterprise support services are principally deployed using a “single point of contact” (“SPOC”) 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 diagnose and solve the end-user’s problems and answer technical questions. We then integrate other infrastructure support services into our delivery including, but not limited to, desk side support, remote maintenance, asset management, network monitoring and server maintenance.
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.
We are focused on expanding the markets for our enterprise support service model. Historically, we have provided these services to large enterprises. 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. We believe that we will continue to see growth in our enterprise support for large businesses. We also provide enterprise support services for smaller businesses. Our enterprise support services provide these businesses 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.
As part of our service offering, we initiated a business relationship with CA, Inc. (formerly known as Computer Associates) under which we license CA’s suite of tools to provide Information Technology Infrastructure Library (“ITIL”)-based software and services to our customers. With this arrangement, our customers are able to obtain our services that leverage the use of CA technology without purchasing the software from CA. We believe the combination of our integrated infrastructure support and CA technology provides a unique service solution to the market.
We are strategically expanding the scope of services provided within our enterprise support business model. In order to enhance the value-added set of services within our model, we are increasing our expertise in IT services management through the implementation of the comprehensive set of best practices set forth in ITIL, which has been integrated into the ISO standards. In addition to incident management, our current core service offering, we are expanding our services to include problem management, change management, configuration management, availability management and capacity management; thereby increasing the value of our services to our customers.

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. We provide technical, “post-sales” support for our clients’ products, services and software. For example, we provide technical product support to European consumers of Canon products (cameras, printers, etc.). We also provide support for our client’s customer-facing applications, such as United Parcel Service’s Web-based portal. Finally, we provide limited non-technical customer service support for our clients, such as customer enrollments and marketing promotion support. Our BPO service clients are primarily centered in Europe.
Global IT Outsourcing Delivery Model
Our service desk services for enterprise support and BPO services are delivered from our facilities in the United States (Dearborn and Southfield, Michigan; and Davenport, Iowa), our facilities in Europe (Brussels, Belgium; Bucharest, Romania; and Stockholm, Sweden), and from our customers’ facilities. Utilizing a client-specific solution that blends the advantages of each location, we are able to provide cost-effective service in over 25 languages.
While most of our service desk business is performed as a dedicated desk for a single client, a growing percentage of our support is provided through a shared desk service offering, where our technicians provide concurrent support for more than one client. In addition, we continue to expand our shared desk support capability to provide IT service desk support bundled with other IT support services and a shared BPO service desk.
Our IT Outsourcing Services business has become increasingly global. Several of our customers are seeking our services in new countries and languages, and they are sensitive to the price of our services. As a result, we are expanding our global footprint.
While we were one of the first service desk centers established in Bucharest, Romania in 2004, there are now major businesses (including Accenture, Hewlett Packard and Microsoft) vying for resources in the same labor market. Over the past year, we have had an increasingly difficult time recruiting qualified employees in Bucharest, Romania for specialized requirements, such as German language skills and IT infrastructure skills. Accordingly, we are in the process of opening satellite offices in Stockholm, Sweden; Dresden, Germany; and Sibiu, Romania, in order to obtain a better blend of resource skills. With this site expansion, we believe that we will be able to manage, at a lower cost per technician, the multiple variables that affect the pricing of a globally delivered multilingual service desk including, but not limited to, language distribution, hours of operation and technical skills. Furthermore, we are exploring ways to enhance our ability to provide support in the languages of the Asia-Pacific region while lowering our total cost of labor. Accordingly, during 2008, we anticipate that we will place service desk operations in Asia-Pacific that provide for multilingual capabilities and/or a lower total cost of service.
With an increasing number of our service desk sites deployed around the world, we are increasingly 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. We have upgraded our workforce management software to allow us to better optimize the scheduling of resources. We are also implementing continuous improvement methodologies in order to optimize the efficiency of our projects. Due to these projects and our investment in the CA technology noted earlier, we expect our capital expenditures to increase over 50% in 2008, as compared to 2007.

2. IT Consulting and Systems Integration
Within our IT Consulting and Systems Integration business segment, we provide customers with IT infrastructure (such as personal computers, printers, phone systems, networks, servers and switches) design, development, technology deployment, application development and implementation services from project planning and implementation to full-scale network, server and workstation installations, and maintenance. We offer customers a wide spectrum of IT services including technology consulting, security, and application integration and storage. We follow our implementation with a full range of services ranging from maintenance, service desk and desk side support to network monitoring in order to assist companies in managing their IT infrastructure.
Through our TechTeam Cyntergy, L.L.C. subsidiary, we offer deployment, technical support and training services to companies in the hospitality, retail and food service industries throughout the United States. TechTeam Cyntergy employees provide on-site services to implement technology and train our customers’ personnel in the use of point-of-sale and property management software.
3. Government Technology Services
Our Government Technology Services are delivered by TechTeam Government Solutions, Inc. (“TTGSI”) and its wholly-owned subsidiary, Sytel, Inc. 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 customer’s 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, National Institutes of Health, Department of Defense, Department of Homeland Security, Immigration and Naturalization Service, and Department of Health and Human Services, and to local governmental entities in the United States (see information included in “Risks Inherent in Government Technology Services” located in “Item 1A — Risk Factors”).
Over the past two years, the U.S. Federal Government IT services market has become more difficult, due to a variety of factors including changes in the Congress and the increasing expenditures to support military operations and the global war on terrorism. We expect this trend to continue at least through the end of the term of the current White House Administration, and therefore anticipate unpredictable shifts in IT spending by the U.S. Federal Government for the foreseeable future. During the government fiscal year ending September 30, 2007, only the budgets of the Department of Defense and the Department of Homeland Security had been passed while the rest of U.S. Federal Government was funded under a “continuing resolution” that authorizes agencies of the government to continue to operate, but traditionally does not authorize new spending initiatives. When the U.S. Federal Government operates pursuant to a continuing resolution, delays can occur in procurement of products and services, and such delays can affect our revenue, profit and cash flow during the period of delay. These circumstances in 2007 have contributed (a) to longer collection times for accounts receivable and increased administrative burden for billing and collection activities for some of our U.S. Federal Government contracts, (b) slower ramp-up times and revenue growth on existing contracts and (c) increased pressure for cost savings on new contracts and renewal contracts.
In 2007, TTGSI acquired NewVectors LLC (“NewVectors”), a provider of consultative services in agent-based modeling, operations analysis, program management and supply chain engineering. NewVectors 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.
Accordingly, 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 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.
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 NewVectors, over one-half of which is derived from short-term projects. 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 U.S. Air National Guard in all 50 states and four U.S. territories.
4. 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. We strive to recruit a technically proficient employee base. We enhance our employees’ proficiency by providing access to technical training programs, which include training in new technologies, advanced operating systems and sophisticated applications such as Oracle. Most of our technical staffing placements are long-term assignments.
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 20.1% of our total revenue in 2007, as compared to 26.4% in 2006 and 27.4% in 2005. The U.S. Federal Government accounted for 27.1% of our total revenue in 2007, as compared to 24.9% in 2006 and 30.0% in 2005. No single agency or department of the U.S. Federal Government comprised 10% or greater of our total revenue in 2006 or 2005; however, in the aggregate, approximately 15.9% of our total revenue in 2007 was derived from agencies within the U.S. Department of Defense.
Ford Motor Company
Our business with Ford consists of service desk and desk side services, technical staffing, network management and a specific project installing personal computers subcontracted through Dell Inc. Revenue generated through our business with Ford increased to $44.6 million in 2007, from $44.1 million in 2006 and $45.7 million in 2005. The increase in revenue for 2007 is largely due to the weakening of the U.S. dollar against European currencies in which we perform services.
Our largest contract with Ford is our Ford Global SPOC Program, which is currently scheduled to expire at the end of November 2008. Ford continues to seek cost savings on its total cost of IT infrastructure support, and we continue to work with Ford during the contract renewal process to find ways to reduce the total cost for our services. We recently expanded the SPOC Program to provide SPOC services to Volvo Car Company, to whom we used to provide infrastructure support services as a subcontractor. Except for Volvo, for whom we bill on a per-incident basis, we provide a set of 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 December 1 and June 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. As a result of Ford’s corporate restructuring during 2007, we saw a 12% decline in seats supported in the U.S.; however, we saw a 60% increase in seats supported in Europe as a result of Volvo joining the SPOC Program in the fourth quarter although we continue to invoice Volvo on a per-incident basis. In our work on the contract renewal with Ford, we are attempting to offset the anticipated decrease in the price charged for our services with an increase in the number of seats supported and expansion of the scope of our services. Except for the uncertainty around our continuing to provide services to the Jaguar and Land Rover units, if Ford concludes the sale of these units, we believe we are well positioned to expand the SPOC program.

We have been informed by Ford that certain services that we perform for Ford, valued at approximately $4 million in annual revenue, will be transitioned to internal Ford staff by the end of the first quarter of 2008. As a result of this and other changes in the mix and volume of services provided to Ford, it is possible that we may lose 6-8% of our 2007 revenue from Ford in 2008, with a small degradation of gross profit margin.
We do not believe that Ford’s financial condition will otherwise affect our business with Ford or the collectibility of our accounts receivable from Ford; however, any failure to retain a significant amount of business with Ford, a bankruptcy filing or other restructuring by Ford, would 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 increased to $60.3 million in 2007, from $41.7 million in 2006 and $50.0 million in 2005.
In years when the U.S. Federal Government does not complete its budget process before the end of its fiscal year, government operations typically are funded pursuant to a “continuing resolution” that authorizes agencies of the government to continue to operate, but traditionally does not authorize new spending initiatives. When the U.S. Federal Government operates pursuant to a continuing resolution, delays can occur in procurement of products and services, and such delays can affect our revenue, profit and cash flow during the period of delay.
The results of our Government business have been negatively impacted by the difficult government contracting environment created by the continuing resolution enacted by the U.S. Federal Government in 2007 and the delayed passage of the supplemental appropriations bill for the conflicts in Iraq and Afghanistan. As a result of this environment, many customers have delayed procurement actions. As a result, we have experienced delays in our expected new business development. With the NewVectors acquisition, the Company now derives a greater portion of its government revenue from short-term, project-based work. The uncertainty in government spending makes it more difficult to manage resources. Moreover, in 2008, our contract with the Business Transformation Agency of the Department of Defense is up for renewal. Revenue from the Business Transformation Agency totaled $7.2 million for the seven months ended December 31, 2007, since the acquisition of NewVectors. While we believe that, as a member of a team with other contractors, we are well positioned to obtain the renewal, but there can be no assurances in this regard.
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, EDS and Computer Science Corporation), our potential customer’s 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 low-cost providers able to provide similar services. Our large competitors typically provide a wide range of services through a global network of service providers and have stronger brand recognition.
We compete with a strong combination of quality, attentiveness to customers’ needs, flexibility, responsiveness, competitive pricing, quality and consistently high levels of client satisfaction. We compete on our service desk services based on price, experience and reputation in the industry, technological capabilities, ISO quality practices, 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.
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 government-wide acquisition contracts and 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 are focusing attention on competing for work under these contracts. 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 size in the market may be disadvantageous because we are not a small or disadvantaged business, and we may be too small to successfully compete as a prime contractor on many government-wide acquisition contracts; 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.
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 and account management teams are focused on both new customer acquisitions and 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. Our third quarter tends to be slower than the other quarters in our Commercial business due to the summer holiday season in Europe, particularly in Sweden. 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, since we invoice approximately 60% 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 and (2) a per-incident or per-call-handled basis in which revenue variations are caused by variations in call volumes and incidents handled, we can see significant month-to-month variations in our revenue and gross margin.


CEO BACKGROUND

The stockholders elect TechTeam’s directors annually as TechTeam does not have staggered board terms. Each director will serve until the 2009 Annual Meeting of Stockholders, or until he or she is succeeded by another qualified director who has been duly elected. As of the date of this proxy statement, there are nine members of the TechTeam Board of Directors. However, after careful consideration and at the recommendation of the Company’s Governance and Nominating Committee, the Board has decided to reduce the number of seats to seven, effective as of the Company’s 2008 Annual Meeting of Stockholders. If a nominee is unavailable for election, the proxy holders may vote for another nominee proposed by the Board, or the Board may reduce the number of directors to be elected at the Annual Meeting. Accordingly, stockholders will be electing seven (7) directors. Proxies may not be voted for a greater number of persons than the number of nominees (seven) named in this proxy statement.
The following is a description of the background of the persons nominated for election as directors of TechTeam.
Gary J. Cotshott , 57, has been President, Chief Executive Officer and a director of TechTeam since February 2008. Mr. Cotshott was Vice President and General Manager of the Dell Services division of Dell Inc. between 1998 and August 2007.
Kent Heyman , 52, has been a director since June 2006. Mr. Heyman has been the Chairman of the Board and Chief Executive Officer of Migo Software, Inc. (OTC: “MIGO”), a publicly-traded provider of mobile computing software, since September 2006 and January 2006, respectively. Mr. Heyman was the Chief Executive Officer of ServiceWare Technologies, Inc., a provider of customer relationship management software applications that is now known as Knova Software, Inc. (OTC: “KNVS”), from September 2001 to February 2006, and he served as the company’s non-executive Chairman until March 2007, when it was sold to Consona Corporation. Prior to joining ServiceWare, Mr. Heyman was a founding officer and General Counsel to MPower Communications, Inc., a competitive telecommunications provider.
General John P. Jumper (USAF Ret.) , 63, has been a director since June 2006. General Jumper retired from the United States Air Force effective November 1, 2005. From September 2001 through November 1, 2005, General Jumper was Chief of Staff of the United States Air Force, serving as the senior uniformed Air Force officer responsible for the organization, training and equipping of more than 700,000 active-duty, Guard, Reserve and civilian forces serving in the United States and overseas. As a member of the Joint Chiefs of Staff, General Jumper functioned as a military advisor to the Secretary of Defense, National Security Council and the President. Between February 2000 and September 2001, General Jumper was the Commander of Headquarters Air Combat Control. General Jumper serves on the Board of Directors of Goodrich Corporation (NYSE: “GR”), Jacobs Engineering Group, Inc. (NYSE: “JEC”), SAIC, Inc. (NYSE: “SAI”), and Somanetics Corporation (NASDAQ: “SMTS”).
Alok Mohan , 59, has been a director and Chairman of the Board since June 2006. Mr. Mohan served as Chief Executive Officer of Santa Cruz Operations, Inc. (“SCO”) from July 1995 until April 1998, when he was appointed that company’s Chairman of the Board. He served as Chairman of SCO until May 2001, when a portion of SCO’s assets were sold to Caldera International, Inc. He continued as Chairman of the Board of Directors of the remaining business, renamed Tarantella, Inc., until it was sold to Sun Microsystems, Inc. in 2006. From May 1994 to July 1995, Mr. Mohan served as Senior Vice President, Operations and Chief Financial Officer of SCO. Prior to joining SCO, Mr. Mohan was employed with NCR Corporation (“NCR”), where he served as Vice President of Strategic Planning, Controller and Vice President and General Manager of the Workstation Products Division Mr. Mohan is also the non-executive Chairman of the Board of Directors of Rainmaker Systems, Inc. (NASDAQ: “RMKR”), and he serves on the Board of Directors of Stampede Technologies, Inc. and CrystalGraphics, Inc.
James G. Roche, DBA , 68, has been a director since June 2006. Dr. Roche served as the 20th Secretary of the United States Air Force from June 2001 through January 2005. For the five years prior to his Air Force service, he was Corporate Vice President and President of the Electronic Sensors and Systems Sector of Northrop Grumman Corporation. Secretary Roche held various other positions with Northrop Grumman, which included Corporate Vice President and Chief Advanced Development, Planning, and Public Affairs Officer responsible for the company’s strategy development and mergers and acquisition strategy.

Dr. Roche is a retired Captain in the United States Navy with 23 years of service. He is currently a director of the Orbital Sciences Corporation (NYSE: “ORB”).
Andrew R. Siegel , 39, has been a director since June 2006. Since March 2005, Mr. Siegel has been a Senior Vice President at Roark, Rearden & Hamot Capital Management LLC, an investment management firm that is the general partner of Costa Brava Partnership III, L.P. Since October 2004, Mr. Siegel has been the founding Managing Member of White Bay Capital Management, an investment management firm. From July 2003 to February 2004, Mr. Siegel was a Member of Debt Traders, Ltd., a capital management firm. Mr. Siegel is a director of Telos Corporation (OTC: “TLSRP.PK”).
Richard R. Widgren , 65, has been a director since May 2005. Mr. Widgren is currently Vice President — Finance, Treasurer and Chief Financial Officer of Urban Science, Inc., a retail sales channel consulting company, where he began employment in August 2001. Previously, Mr. Widgren served as Vice President — Finance and Corporate Controller of Kelly Services, Inc. Mr. Widgren is a member of the Detroit Medical Center Board as a Director, where he serves as the chairman of the Audit Committee.
Required Vote and Board of Directors Recommendation
If a quorum is present, the seven nominees receiving the highest number of votes will be elected to serve as a director until the 2009 Annual Meeting of Stockholders, or until he is succeeded by another qualified director who has been elected. Withheld votes and broker non-votes will each be counted as present for the purposes of determining the presence of a quorum but will not have any effect on the outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”
THE ELECTION OF EACH OF THE NOMINEES NAMED ABOVE.
BOARD MATTERS
Committee Composition and Meeting Attendance
During 2007, the Board held sixteen meetings of the Board, which included six separate meetings of the non-employee Board members meeting in Executive Session. The Board has four standing committees: (1) Audit, (2) Compensation, (3) Governance and Nominating and (4) Strategy and Investment. The membership during the last fiscal year and the function of each of the committees are set forth below. Each director attended at least 75% of all Board and applicable Committee meetings.

In November 2007, as a result of the decision not to renew the employment contract of William C. Brown, the Board commenced a search for a new President and Chief Executive Officer, and it formed two committees to assist during the transition: the Search Committee (comprised of Kent Heyman, James A. Lynch, Alok Mohan and Richard R. Widgren) and the Transition Committee (comprised of Alok Mohan). The Search Committee assisted the Board in the evaluation of CEO candidates, and the Transition Committee provided additional Board oversight of the Company’s day-to-day activities during the leadership transition period.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview
We are a global provider of information technology (“IT”), enterprise support and business process outsourcing services to Fortune 1000 companies, government entities, multinational companies, product and service providers, and small and medium-sized companies. 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 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 Government Solutions (defined as our government-based subsidiaries). Together, the Americas and Europe comprise our Commercial business.
Nearly three years ago, TechTeam began to make a transition from being a founder led company to a mature global services organization. During the past two years, significant strides have been made to establish the foundation necessary for the Company’s continued strong growth and profitability. Our efforts have included, among other things, pursuing acquisitions, improving our overall execution in areas such as service delivery and new business development, and instilling a greater sense of discipline and accountability throughout the organization. These initiatives enabled the Company to report earnings of $0.60 per diluted share, an increase of 233% from 2006, and record revenue of $222.2 million for fiscal 2007. Revenue grew by almost 33% in 2007 from a combination of growth through acquisitions and 14% growth in the base business.
During 2007, revenue from our Commercial business grew 27% over 2006, 17% excluding acquisitions, led by over 21% growth in IT Outsourcing Services. We are extending our global reach in our Commercial business by expanding into targeted geographies, and by leveraging the strong relationships that we have with current clients to expand the scope of our services to them globally. We entered 2007 with one global customer (defined as a customer that receives services from more than one major geography) and exited 2007 with four global customers. We continued our steady expansion of our service capabilities in Europe, and began providing support services in three new countries. Moreover, we accelerated our efforts to expand into locations with lower overall cost of providing services. Our strategy to leverage demand creation through alliance relationships continues to develop. As noted in the third quarter of 2007, TechTeam Global NV/SA, the Company’s Belgian subsidiary, was selected for the third time to provide service desk services as a subcontractor of a major European telecommunications provider, and as one of four preferred providers of service desk services in Europe to the customers of a major, U.S.-based manufacturer of computer equipment. Our focus on improving the efficiency of our service delivery execution and, consequently, the profitability of our projects is evident in our gross margin improvement in our Commercial business to 24.8% in 2007 from 23.2% in 2006.
Our Government business also made significant strides during 2007 as it grew 46% over 2006 primarily due to our acquisition of NewVectors LLC (“NewVectors”) on May 31, 2007, and RL Phillips, Inc. (“RL Phillips”) on August 31, 2007. These acquisitions enhance our competitiveness on larger opportunities by adding greater breadth and scale to our Government operations and broadening our capabilities in this market. NewVectors broadens and deepens our Department of Defense footprint, while adding an enhanced skill set, particularly around logistics modernization, modeling and simulation, and business transformation, and RL Phillips adds primarily information assurance services. We believe that we are now more capable of effectively competing for larger contracts in the government services marketplace with this strengthened value proposition for our customers.
In the fall of 2007, the Board of Directors and the Company’s then president and chief executive officer, William C. Brown (“Chris”), agreed that Mr. Brown’s employment contract would not be renewed upon its completion in February 2009. Mr. Brown remains an employee and a director of the Company. On February 11, 2008, after an extensive search process, Gary J. Cotshott joined the Company in the role of president and chief executive officer. Mr. Cotshott brings 34 years of global services industry experience with him from his tenures at NCR Corporation and Dell Inc., and is undertaking a thorough review and evaluation of the Company, including, but not necessarily limited to, its organizational structure, operating efficiency and long-term business strategies.

Total Company revenue increased 32.8% to $222.2 million through a combination of acquisitions and organic growth from both new and existing customers across all service lines. Excluding revenue contributed by three acquisitions completed in 2007, total Company revenue increased 13.5% to $189.9 million. This organic growth in revenue was over 17% in the Commercial business and about 4% in the Government business. Revenue from the Commercial business in 2007 was also favorably impacted by approximately $6.2 million from the weakening of the U.S. dollar over 2006 relative to the international currencies in which we conduct business. We are unable to predict the effect fluctuations in international currencies will have on our revenue in 2008, but since the euro continues at record levels against the U.S. dollar, there could be significant revenue volatility.
IT Outsourcing Services
Revenue from IT Outsourcing Services increased 21.0% to $104.7 million in 2007, from $86.5 million in 2006, as a result of revenue growth of 11.7% in the Americas and 30.0% in Europe. Our revenue growth reflects our continuing success at being able to grow existing accounts in our Commercial business by expanding the scope of our services and the geographies in which we deliver services. As noted in the overview, we entered the year with one global customer and exited 2007 with four global customers, and we expanded the scope of services we provide to a number of customers. Revenue growth in the Americas also reflects greater activity on certain accounts that were ramping up in 2006 and a new Fortune 500 account added in the fourth quarter of 2007. Revenue growth in Europe also resulted from a combination of new account growth, our acquisition of SQM and the weakening of the U.S. dollar over 2006 relative to the international currencies in which we conduct business. If IT Outsourcing Services revenue in Europe were translated into U.S. dollars at the average exchange rate in 2006, reported revenue would have decreased approximately $4.4 million in 2007. 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 that the estimated impact on revenue, and it is not significant.
Ford is the Company’s largest Commercial customer. IT Outsourcing Services revenue generated from Ford globally decreased 0.8% to $36.6 million in 2007, from $36.9 million in 2006. Revenue from Ford declined over 9% in the Americas while revenue in Europe increased in each country in which we deliver services to Ford resulting in aggregate growth in Europe of over 14%. Please refer to our discussion of Ford in the “Impact of Business with Major Clients” section of MD&A.
The Company has several IT Outsourcing contracts that expire in 2008; most notably the Ford Global SPOC Contract and several accounts in the Americas and Europe that together comprised 32% of the Company’s total revenue in 2007. While we feel that we are well positioned to renew many of these contracts in 2008, it is not possible to predict the outcome of these renewals or the terms under which the renewals will occur. Notably, two projects comprising about 4% of IT Outsourcing Services revenue in 2007 are not renewing their contracts at the end of March 2008.

IT Consulting and Systems Integration
Revenue from IT Consulting and Systems Integration increased 16.9% to $28.1 million in 2007, from $24.0 million in 2006. We experienced an increase in revenue in Europe of $5.8 million, or 59.5%, driven primarily by new and existing customer growth at TechTeam Akela and the acquisition of SQM. Excluding revenue from the acquisition of SQM, revenue in Europe increased 43.8% to $14.1 million, and revenue globally increased 10.4% to $26.5 million. The increase in revenue in Europe was partially offset by a decline in revenue in the Americas of 12.6% from the wind-down of certain systems implementation and training projects in our hospitality business. We anticipate that our business in the Americas will increase in 2008 over 2007 as a result of new projects awarded to us by customers in the hospitality industry.
Government Technology Services
Revenue from Government Technology Services increased 46.1% to $69.3 million in 2007, from $47.4 million in 2006, primarily due to our acquisitions of NewVectors and RL Phillips. Excluding revenue from these acquisitions, revenue increased 3.8% to $49.2 million. As discussed in our quarterly filings on Form 10-Q, our Government business was adversely affected in 2007 by the difficult government contracting environment created by the “continuing resolution” funding the civilian agencies enacted by the U.S. Federal Government for fiscal 2007. Our Government business was also impacted by the uncertainty created in funding for our Department of Defense customers earlier in 2007 when the supplemental war funding bill was passed later than anticipated, as they contemplated the need to reallocate funds to support the war effort and delayed procurement decisions. When the U.S. Federal Government operates pursuant to a continuing resolution, delays can occur in procurement of products and services, and such delays can affect our revenue, profit and cash flow during the period of delay. While we experienced delays in customer procurement decisions, revenue from our Government business grew 11.8% in fourth quarter of 2007 over the comparable period in 2006. Please refer to our discussion of the U.S. Federal Government in the “Impact of Business with Major Clients” section of MD&A.

The 40.4% increase in gross profit to $56.8 million was attributable to a combination of growth from acquisitions, organic growth from both new and existing customers across all service lines and gross margin improvement across most service lines. Gross profit growth and gross margin improvement in our Commercial business was led by IT Outsourcing Services and our acquisition of SQM. Gross profit growth and gross margin improvement in our Government business was principally due to acquisitions. Excluding gross profit contributed by acquisitions completed in 2007, total gross profit increased 17.0% to $47.4 million and gross margin improved to 24.9%.

IT Outsourcing Services
Gross profit from IT Outsourcing Services increased 31.0% to $26.9 million in 2007, from $20.5 million in 2006, and gross margin increased to 25.7% from 23.7%. Gross profit in 2006 included an asset impairment loss of $580,000 related to our decision to discontinue using certain software. Gross profit growth and gross margin improvement occurred in the Americas and included improved performance on two specific accounts, which impaired the America’s gross margin during 2006 while the accounts were ramping up, and over 74% revenue growth from a major U.S.-based customer that is now a global account. Gross profit increased in Europe, but gross margin declined primarily due to a contract renegotiation with a customer during the first quarter of 2007, which resulted in new pricing and severance costs relating to reduction of staff, and costs associated with employee recruiting and retention in Romania where we have had an increasingly difficult time recruiting qualified employees for specialized requirements, such as German language skills and IT infrastructure skills. Accordingly, we are in the process of opening satellite offices in Stockholm, Sweden; Dresden, Germany; and Sibiu, Romania, in order to obtain a better blend of resource skills. With this site expansion, we believe that we will be able to manage, at a lower cost per technician, the multiple variables that affect the pricing of a globally delivered multilingual service desk including, but not limited to, language distribution, hours of operation and technical skills. Furthermore, we are exploring ways to enhance our ability to provide support in the languages of the Asia-Pacific region while lowering our total cost of labor. Accordingly, during 2008, we anticipate that we will place service desk operations in Asia-Pacific that provide for multilingual capabilities and/or a lower total cost of service.
IT Consulting and Systems Integration
Gross profit from IT Consulting and Systems Integration increased 7.8% to $6.2 million in 2007, from $5.7 million in 2006, driven by new customer growth at TechTeam Akela and our acquisition of SQM. Gross margin decreased to 22.0% in 2007, from 23.9% in 2006, due to a decline in the Americas and, to a lesser extent, in Europe. We experienced a decrease in profitability in the Americas primarily from the wind-down of certain systems implementation and training projects in our hospitality business and training costs that were incurred for a new hospitality project. These decreases were partially offset by improved profitability from our Ford-related services, which, had experienced a decline in gross profit and gross margin in 2006.
Government Technology Services
Gross profit from our Government Technology Services segment increased 50.6% to $19.0 million in 2007, from $12.6 million in 2006, and gross margin increased to 27.4% from 26.6%. The increase in gross profit and gross margin is primarily due to our acquisition of NewVectors. Excluding gross profit from acquisitions, gross profit increased slightly and gross margin decreased slightly. The decline in gross margin from 2006 is due to various factors that include hiring additional personnel to support our operations and increasing employee benefits to ensure that we remain competitive in the workplace for attracting the best employees. Moreover, our Government business was adversely affected in 2007 by the difficult government contracting environment created by the continuing resolution discussed earlier in this MD&A. Please refer to our discussion of the U.S. Federal Government in the “Impact of Business with Major Clients” section of MD&A.

Americas
Revenue generated in the Americas increased 7.1% to $68.0 million in 2007, from $63.5 million in 2006, led by almost 12% revenue growth from IT Outsourcing Services. In addition, revenue from our Other Services segment increased over 19% in the Americas from a new global account, while revenue from IT Consulting and Systems Integration decreased over 12% primarily from the wind-down of certain systems implementation and training projects in our hospitality business.
Gross margin from the Americas increased to 23.0% in 2007 from 20.3% in 2006. Gross margin in 2006 includes an asset impairment loss of $580,000 related to our decision to discontinue using certain software that, when excluded, results in gross margin of 21.3% in 2006. Gross margin improvement occurred in the Americas primarily due to improved performance on two specific accounts, which impaired the America’s gross margin while they were ramping up during 2006, and over 74% revenue growth from a major U.S.-based customer that is now a global account. These improvements were partially offset by a decrease in gross margin from IT Consulting and Systems Integration from the wind-down of certain projects in our hospitality business.
Europe
Revenue generated in Europe increased 50.4% to $84.9 million in 2007, from $56.5 million in 2006, due to revenue growth across all service lines from new and existing account growth, our acquisition of SQM and the weakening of the U.S. dollar over 2006 relative to the international currencies in which we conduct business. If revenue in Europe were translated into U.S. dollars at the comparable average exchange rate in 2006, reported revenue would have decreased approximately $6.2 million in 2007. Since most of our international operating expenses are incurred in the same foreign currencies in which the associated revenue is denominated, the net impact of exchange rate fluctuations on operating margins is not significant. Excluding the acquisition of SQM, revenue in Europe increased 28.7% to $72.7 million led by 24.9% organic growth in IT Outsourcing Services.
Gross margin from Europe decreased slightly to 26.1% in 2007, from 26.5% in 2006, primarily due to a contract renegotiation with an IT Outsourcing Services customer during the first quarter of 2007, which resulted in new pricing and severance costs relating to reduction of staff. Gross margin in Europe also declined from the need to increase staff on certain IT Outsourcing Services projects in order to meet agreed-upon service levels.

Selling, general and administrative expense increased 21.5% to $46.5 million in 2007, from $38.3 million in 2006; however, SG&A expense as a percentage of revenue declined to 20.9% of total revenue in 2007 from 22.9% in 2006. SG&A expense in 2007 includes the impact from acquisitions, and SG&A expense in 2006 includes professional fees totaling $2.1 million related to a shareholder complaint and proxy contest, the settlement agreement related to the complaint and proxy contest matters, and professional fees and a settlement charge related to claims filed against the Company by former officers. Excluding acquisitions completed in 2007 and the aforementioned professional fees and settlement expenses in 2006, SG&A expense was $39.7 million in 2007, or 20.9% of revenue in 2007, as compared to $36.2 million in 2006, or 21.6% of revenue in 2006. SG&A expense increased year-over-year as we are making investments to support our growth and global expansion and enhance our value-added service capabilities in areas such as employee recruiting and retention, sales and marketing resources, selection of new delivery sites, new business launches in Europe, and the effect of the weakening of the U.S. dollar from 2006. These increases were partially offset by reduced facility costs from expired and renegotiated leases.
In connection with the decision between the Board of Directors and Mr. 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, (1) the vesting of all outstanding, unvested stock-based awards will accelerate and become fully vested, (2) Mr. Brown will have until February 15, 2010 to exercise outstanding stock options and (3) Mr. Brown will be paid a bonus for fiscal 2008 of not less than $75,000. The modification of the stock-based awards to accelerate vesting and extend the period in which stock options may be exercised will result in additional compensation expense of $192,000 in the first quarter of 2008.
We incurred net interest expense of $572,000 in 2007, compared to net interest income of $776,000 in 2006. The increase in net interest expense is primarily due to interest expense on long-term debt issued in connection with the acquisitions of NewVectors and RL Phillips.
The consolidated effective tax rate of 34.7% for 2007, differs from the statutory tax rate of 34% primarily due to state income taxes and nondeductible expenses, which are partially offset by the tax benefit of tax rates in certain foreign countries that are lower than 34%. The consolidated effective tax rate in 2007 increased from 31.7% for 2006 primarily due to greater income in jurisdictions with higher tax rates and operating losses in certain jurisdictions for which a tax benefit has not been recorded.

As shown in the above table, the moderate increase in revenue to $167.4 million in 2006 is attributable to growth in IT Outsourcing Services largely from new customer contracts that was offset by revenue declines from the conclusion of certain contracts in Government Technology Services and the wind-down of certain systems implementation and training projects in IT Consulting and Systems Integration. Excluding revenue from our acquisition of Akela on October 3, 2005, revenue decreased slightly to $163.0 million in 2006, from $165.7 million in 2005. Revenue was also positively affected by the weakening of the U.S. dollar over 2005 relative to the international currencies in which we conduct business, which increased revenue by approximately $503,000 over 2005.
IT Outsourcing Services
Revenue from IT Outsourcing Services increased 12.5% to $86.5 million in 2006, from $76.8 million in 2005, as a result of an 18.3% increase in revenue in the Americas from new customer contracts awarded in 2006 and the fourth quarter of 2005, and a 7.5% increase in revenue in Europe primarily from growth in Ford, new customer accounts and our shared services offering for our pharmaceutical clients. The revenue increase in the Americas was partially offset by a decline in revenue from certain existing customers, including over an 8% decline in revenue in Ford. Revenue in Europe was positively affected by the weakening of the U.S. dollar relative to the European euro and other international currencies in which we conduct business. If IT Outsourcing Services revenue in Europe were translated into U.S. dollars at the comparable average exchange rate in 2005, reported revenue would have decreased approximately $167,000 in 2006. 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 and is not significant.
Globally, IT Outsourcing Services revenue generated from Ford declined 3.6% to $36.1 million in 2006, from $37.4 million in 2005. Revenue from Ford declined in each country (United States, Germany and Sweden) except the United Kingdom, where we began providing SPOC services to the Jaguar and Land Rover units of Ford in March 2006. Revenue from Ford in other regions decreased primarily due to a reduction in the number of seats supported as Ford continues to restructure its operations and reduce its worldwide workforce and from lower prices charged under the Global SPOC Program contract renewal on December 1, 2005. Please refer to our discussion of Ford in the “Impact of Business with Major Clients” section of MD&A.
IT Consulting and Systems Integration Services
Revenue from IT Consulting and Systems Integration decreased 1.9% to $24.0 million in 2006, from $24.5 million in 2005, due to the wind-down of certain systems implementation and training projects from TechTeam Cyntergy, which provides deployment, training and implementation services to companies in the hospitality, retail, food service and other industries and drove significant growth in this segment in 2005. The decline in revenue was partially offset by our acquisition of Akela in October 2005. Excluding revenue from our acquisition of Akela, revenue from IT Consulting and Systems Integration decreased 13.3% to $20.8 million in 2006, from $24.0 million in 2005. While the decline in revenue from certain project-based work was expected, we were not able to replace the work prior to the decline in revenue.
Government Technology Services
Revenue from Government Technology Services decreased 15.6% to $47.4 million in 2006, from $56.2 million in 2005, primarily due to the conclusion of two contracts that provided $6.0 million in incremental revenue in 2005 over 2006, and the completion of projects at other customers. Most significantly, while our contract with the U.S. Department of State, which provided $4.5 million of revenue in 2005, ended in September 2005, in our purchase agreement acquiring Sytel we held back and retained $2 million of the original purchase price for this contingency. Certain other contracts that concluded were small-business contracts that were not renewed because Sytel no longer qualified as a small business.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of TechTeam Global, Inc. and its consolidated subsidiaries (“TechTeam”) to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of revenue, gross margin, expenses, earnings or losses from operations, synergies, or other financial items; any statements of the plans, strategies, and objectives of management for future operations; any statement concerning developments or performance relating to our services; any statements regarding future economic conditions or performance; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include the performance of contracts by suppliers, customers, and partners; employee management issues; the difficulty of aligning expense levels with revenue changes; complexities of global political and economic developments; and other risks that are described herein, including but not limited to the items discussed in “Factors that Could Affect Future Results” set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of this report, and that are otherwise described from time to time in TechTeam’s Securities and Exchange Commission reports filed after this report. TechTeam assumes no obligation and does not intend to update these forward-looking statements.
ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)
We are a global provider of information technology (“IT”), enterprise support and business process outsourcing services to Fortune 1000 corporations, government entities, multinational companies, product and service providers and small and medium-sized companies. 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 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 Government Solutions (defined as our government-based subsidiaries). Together, the Americas and Europe comprise our Commercial business.
Over the past nine months, we have been engaged in a thorough evaluation of all aspects of our business to bring about a transformation in the Company’s focus and performance. The transformation began by enhancing our leadership team. With the addition of our new chief financial officer, Margaret M. Loebl, and our new president of TechTeam Government Solutions, Inc., David A. Kriegman, we now have a full leadership team that supplements pre-existing leaders with new executive-level talent that has deep experience, functional expertise and strong leadership qualities.
In the second quarter, we finished the optimization phase of our transformation, which resulted in a company-wide organizational change and restructuring plan. In the third quarter, we began to realize the benefits of these changes when the Company earned a record level operating income of $3.8 million. The Company reported earnings for the third quarter of 2008 of $1.9 million, or $0.18 per diluted share, as compared to net income of $.20 per diluted share for the same period in 2007.
In the third quarter, we launched a new strategic business plan that was conceived through a comprehensive analysis of our operations, the information technology outsourcing marketplace and the industry verticals in which we do business. We now have created a clear direction for our business, enabling us to achieve greater focus and global alignment to more effectively manage the growth and profitability of the business. We are focused on operationalizing the strategic plan and are taking decisive action to implement it.
In the fourth quarter, we have begun to announce these actions. Specifically, we have adopted a more focused approach to service offerings and targeted customers. In line with this effort, we have chosen to divest certain IT consulting and systems integration capabilities focused on small business customers in Belgium. This divestiture also de-emphasizes low margin product sales, which were approximately 70% of TechTeam A.N.E.’s business.
Revenue increased 8.5% on a year-over-year basis for the third quarter of 2008 over 2007 to $64.2 million. We continue to see strong demand for our services in the Americas, and we are especially pleased with our new brand name customers and two new contracts under our USA Contact contract in our U.S. Government business with the Office of Personnel Management and the Public Building Service. However, in light of difficult global economic and financial market conditions, the Company anticipates that there may be a decline in revenue due to decreased volume from customers affected by the downturn, uncertain times in our key industry verticals such as the automotive industry, the strengthening of the U.S. dollar against the other currencies in which the Company conducts business, and transitions in customer contracts, including our contract with Canon Europa Nv, which they have chosen not to renew.

Total Company revenue increased 8.5% to $64.2 million for the third quarter of 2008 through a combination of acquisitions completed in 2008 and 2007 and strong organic growth (growth without acquisitions) from IT Outsourcing Services. Excluding revenue from acquisitions that affect year-over-year comparability, revenue increased 6.8% to $63.1 million for the third quarter of 2008. If revenue generated in Europe was translated into U.S. dollars at the comparable average exchange rates for the third quarter of 2007, reported revenue would have decreased by approximately $1.4 million for the third quarter of 2008. We are unable to predict the effect fluctuations in international currencies will have on our revenue in 2008, but given the currently volatile market condition and the effect on the U.S. dollar, there could be significant revenue volatility.
IT Outsourcing Services
Revenue from IT Outsourcing Services increased 17.5% to $30.5 million for the third quarter of 2008, from $25.9 million for the same period in 2007, primarily as a result of over 31.7% revenue growth in Europe. Our solid revenue growth reflects our success at being able to grow existing accounts in our Commercial business by expanding the scope of our services and the geographies in which we deliver services. The majority of revenue growth in the third quarter occurred in existing accounts, including existing clients of the Americas to whom we have expanded our service delivery to include parts of Europe. This growth occurred despite a reduction in revenue from two projects comprising about 4% of IT Outsourcing Services revenue in the third quarter of 2007 that concluded and the related contracts were not renewed at the end of March 2008.
The Company has several IT Outsourcing contracts that expire in 2008 — most notably the Ford Global SPOC Contract and several accounts in the Americas and Europe that together comprised 32% of the Company’s total revenue in fiscal 2007. While we feel that we are well positioned to renew many of these contracts in 2008, it is not possible to predict the outcome of these renewals or the terms under which the renewals will occur.

Ford is the Company’s largest Commercial customer. IT Outsourcing Services revenue generated from Ford globally decreased to $8.5 million for the third quarter of 2008 from $8.6 million for the same quarter in 2007. Revenue from Ford declined 18.1% in the Americas as a result of a decline in seats supported from a reduction in Ford’s workforce and the conclusion of a project that did not renew at the end of March 2008. Revenue in Europe increased from expansion of the SPOC Program resulting in aggregate growth in Europe of over 26.0%. Please refer to our discussion of Ford in the “Significant Customers” section of MD&A.
If IT Outsourcing revenue in Europe was translated into U.S. dollars at the comparable average exchange rates for the third quarter of 2007, reported revenue would have decreased by approximately $1.1 million for the third quarter of 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.
IT Consulting and Systems Integration
Revenue from IT Consulting and Systems Integration decreased 6.0% to $6.3 million for the third quarter of 2008, from $6.7 million for the same period in 2007 driven mainly by a decline in revenue in Europe due to a decrease in project-based IT Consulting work and the Company’s decision to exit certain application development projects for small, non-strategic customers in Europe as we continue to refine and focus our business.
Government Technology Services
Revenue from Government Technology Services increased 4.1% to $22.0 million for the third quarter of 2008, from $21.1 million for the same period in 2007, primarily due to the acquisition of RL Phillips in 2007. Excluding revenue from this acquisition, revenue increased 1.2% to $21.4 million for the third quarter of 2008 due to growth in existing customer programs and, to a lesser extent, new customer contracts. Please refer to our discussion of the U.S. Federal Government in the “Significant Customers” section of MD&A.

Consistent with revenue, the increase in gross profit is attributable to a combination of acquisitions completed in 2008 and 2007 and organic growth from IT Outsourcing Services. Excluding gross profit contributed by acquisitions that affect year-over-year comparability, total gross profit increased less than 1% to $15.8 million for the third quarter of 2008, but gross margin (defined as gross profit as a percentage of revenue) decreased to 25.0% from 26.4%.
IT Outsourcing Services
Gross profit from IT Outsourcing Services increased 11.9% to $7.6 million for the third quarter of 2008, from $6.8 million for the same period in 2007, and gross margin decreased to 25.0% from 26.3%. In the Americas, gross margin declined primarily from a decrease in Ford due to a decline in seats supported from a reduction in Ford’s workforce and the conclusion of the project noted earlier that did not renew at the end of March 2008. Please refer to our discussion of Ford in the “Significant Customers” section of MD&A.
In Europe, gross margin decreased as a result of several factors, including expanding our service delivery capabilities in Europe and increased labor and benefit-related costs. During the last four quarters, the Company has expanded its service delivery capabilities with the establishment of new locations in Dresden, Germany; Sibiu, Romania; and Stockholm, Sweden. Currently, these facilities have excess capacity, are underutilized and negatively impacted gross margin in 2008. Moreover, the competitive environment in Romania is making it more difficult to recruit and retain employees.
IT Consulting and Systems Integration
Gross profit from IT Consulting and Systems Integration decreased 12.1% to $1.4 million for the third quarter of 2008, from $1.5 million for the same period in 2007, and gross margin decreased to 21.3% from 22.8%. Gross margin increased in the Americas from new project-based work in the Company’s hospitality business. Gross margin declined in Europe primarily due to challenges from the competitive environment in our application development business in Romania and a decision to exit certain application development projects for small, non-strategic customers in Europe as the Company continues to refine and focus our business.
Government Technology Services
Gross profit from our Government Technology Services segment increased 0.8% to $6.0 million for the third quarter of 2008, from $5.9 million for the same period in 2007, while gross margin decreased to 27.2% from 28.1%. The decrease in gross margin was due to various factors, most notably the increased requirement for subcontracted resources on several programs. Excluding gross profit contributed by acquisitions that affect year-over-year comparability, gross profit was $5.9 million and gross margin was 27.4% for the third quarter of 2008.

Americas
Revenue and gross margin generated in the Americas was flat compared to the same period in 2007. The combination of expanded business with existing customers and new business wins offset revenue declines from Ford, as noted previously, and from the exit of a non-strategic, low margin contract during the second quarter.
Europe
Revenue generated in Europe increased 19.6% to $24.9 million for the third quarter of 2008, from $20.8 million for the same period in 2007, due mainly to solid revenue growth in IT Outsourcing Services and the weakening of the U.S. dollar against the currencies in which the Company does business. If revenue in Europe was translated into U.S. dollars at the comparable average exchange rates for the third quarter of 2007, reported revenue would have decreased by approximately $1.4 million for the third quarter of 2008. Gross margin from Europe decreased to 22.7% for the third quarter of 2008, from 25.1% for the same period in 2007. The decrease was primarily due to expanding IT Outsourcing Services delivery capabilities with the establishment of new locations in Dresden, Germany; Sibiu, Romania; and Stockholm, Sweden. Currently, these facilities have excess capacity and are underutilized. Gross margin in the IT Consulting and Systems Integration Services also declined due to a decision to exit certain application development projects for small, non-strategic customers in Europe and challenges from the competitive environment in our application development business in Romania, which is making it more difficult to recruit and retain employees.

Selling, general, and administrative (“SG&A”) expense decreased to 19.3% of total revenue for the third quarter of 2008, from 20.1% of total revenue for the same period in 2007. As the Company’s revenue has grown, we have achieved greater leverage in our SG&A spending. On a dollar basis, SG&A increased as a result of expansion of service delivery locations in Europe and investment in leadership talent. SG&A expense also increased due to the weakening of the U.S. dollar from the third quarter of 2007.
Net interest expense of $425,000 for the third quarter of 2008 was flat with interest expense of $413,000 for the same period in 2007. The net interest expense in both periods was primarily due to interest expense on long-term debt issued in connection with acquisitions.
For the three months ended September 30, 2008, the consolidated effective tax rate of 38.1% differs from the statutory tax rate of 34.0% primarily due to state income taxes, foreign operating losses for which a tax benefit is not recorded and nondeductible expenses. The Company recorded State of Michigan income tax expense of $128,000 for the third quarter of 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 $162,000 in the third quarter of 2007. For the three months ended September 30, 2007, the consolidated effective tax rate of 37.0% differs from the statutory tax rate of 34.0% primarily due to state income taxes, foreign operating losses for which a tax benefit is not recorded and non deductible expenses.

Total Company revenue increased 25.4% to $198.0 million for the nine months ended September 30, 2008, through a combination of acquisitions completed in 2008 and 2007 and strong organic growth in all product lines. Excluding revenue from acquisitions that affect year-over-year comparability, revenue increased 14.6% to $181.0 million for the nine months ended September 30, 2008. If revenue generated in Europe was translated into U.S. dollars at the average exchange rates in effect for the nine months ended September 30, 2007, reported revenue would have decreased by approximately $6.6 million for the nine months ended September 30, 2008. We are unable to predict the effect fluctuations in international currencies will have on revenue in 2008, but given the uncertain economic times and the effect on the U.S. dollar, there could be significant revenue volatility.
IT Outsourcing Services
Revenue from IT Outsourcing Services increased 21.1% to $91.2 million for the nine months ended September 30, 2008, from $75.3 million for the same period in 2007, primarily as a result of over 35.9% revenue growth in Europe. Our solid revenue growth reflects our success at being able to grow existing accounts in our Commercial business by expanding the scope of our services and the geographies in which we deliver services. 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. This growth occurred despite a reduction in revenue from two projects, comprising about 4% of IT Outsourcing Services revenue for the nine months ended September 30, 2007, that concluded and the related contracts were not renewed at the end of March 2008.
IT Outsourcing Services revenue generated from Ford globally increased to $27.0 million for the nine months ended September 30, 2008 compared to $26.7 million from the same period in 2007. Revenue from Ford declined 17.4% 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 29.2%. Please refer to our discussion of Ford in the “Significant Customers” section of MD&A.
If IT Outsourcing revenue in Europe was translated into U.S. dollars at the average exchange rates in effect for the nine months ended September 30, 2007, reported revenue would have decreased by approximately $4.7 million for the nine months ended September 30, 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.

IT Consulting and Systems Integration
Revenue from IT Consulting and Systems Integration increased 3.4% to $21.3 million for the nine months ended September 30, 2008, from $20.6 million for the same period in 2007, due primarily to revenue growth in the Americas. Revenue in the Americas increased from growth in the Company’s hospitality business and a new project with an existing customer. This increase was partially offset by a decrease in business with Ford, which resulted from a reduction in Ford’s workforce and also from the tendency of this business to fluctuate from period to period.
Government Technology Services
Revenue from Government Technology Services increased 38.6% to $66.2 million for the nine months ended September 30, 2008, from $47.8 million for the same period in 2007, primarily due to our acquisitions of NewVectors and RL Phillips in 2007. Excluding revenue from these acquisitions, revenue increased 6.6% to $51.0 million for the nine months ended September 30, 2008 due to growth in existing customer programs and, to a lesser extent, new customer contracts. Please refer to our discussion of the U.S. Federal Government in the “Significant Customers” section of MD&A.

Consistent with revenue, the increase in gross profit is attributable 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 9.8% to $44.8 million and gross margin decreased to 24.8% for the nine months ended September 30, 2008 from 25.9% for the same period in 2007.
IT Outsourcing Services
Gross profit from IT Outsourcing Services increased 17.7% to $22.7 million for the nine months ended September 30, 2008, from $19.3 million for the same period in 2007, and gross margin decreased to 24.9% from 25.6%. In the Americas, gross margin improved primarily due to margin improvements on certain existing accounts. In Europe, gross margin decreased as a result of several factors, including expanding our service delivery capabilities in Europe and increased labor and benefit-related costs. During the last four quarters, the Company has expanded its service delivery capability in Europe with the establishment of new locations in Dresden, Germany; Sibiu, Romania; and Stockholm, Sweden. Currently, these facilities have excess capacity, are underutilized and negatively impacted gross margin in 2008. Moreover, the competitive environment in Romania is making it more difficult to recruit and retain employees.

CONF CALL

Marc Lichtman

Thank you, Betsy and good afternoon every one. Thank you for joining us today for TechTeam Global’s fourth quarter 2007 earnings conference call. A copy of our complete press release issued earlier today is available on our company’s website techteam.com in the investors section. With me today on the call is Gary Cotshott our new President and Chief Executive Officer and Director and Chris Brown our former President and CEO and current Director.

Before we begin I would like to remind our listeners once again that certain matters that we may be discussing today, including, but not limited to the discussion of the company’s business strategies, business developments and future performance, as well as statements of expectation and belief consist of forward-looking statements. Actual results may vary materially from these statements. These forward looking statements are affected by many factors, including, but not limited to the factors set forth in our press release issued today, as well as the other risk factors disclosed in the company’s reports filed with the U.S. Securities and Exchange Commission, including our form 10-K for 2006. We recommend that you review these risk factors as you make your investment decisions.

Today TechTeam reported net income of $0.17 per diluted share for the fourth quarter of 2007 compared to net income of $0.12 per diluted share for the same period in 2006 an increase of about 50%. For the full year of 2007 the company more than tripled net income and reported $0.60 per diluted share compared to net income of $0.18 per diluted share for fiscal 2006. Fiscal 2006 included unusual expenses related to a proxy contest, legal settlement and asset impairment and reduced 2006 net income by $0.18 per share.

TechTeam reported revenue of $64.3 million for the fourth quarter of 2007, the company's 5th consecutive quarter of record revenue. This represents an increase of 46.6% from the same period in 2006. Excluding revenue contributed by three acquisitions completed in 2007, total revenue during the quarter was $51.6 million, representing growth in the base business or organic growth of 17.6%.

In the company's commercial business, revenue for the fourth quarter of 2007 increased 33.2% over the same period in 2006. Total revenue for the commercial business also was positively impacted by approximately $2 million from the weakening of the US dollar relative to the fourth quarter of 2006.

In TechTeam's government business, revenue for the fourth quarter of 2007 increased 83.4% over the same period in 2006, driven by, both acquisitions and organic growth. Excluding acquisitions, organic growth from the government business increased 11.8% over 2006. Total gross profit increased 45.3% to $16 million for the fourth quarter of 2007 from $11 million for the same period in 2006.

The company's gross margin, which is gross profit as a percent of revenue, was essentially flat with the same period in 2006. Gross margin in the quarter were affected by unique project and new account launch related expenses. Excluding the gross profit contributed by acquisitions completed in 2007, fourth quarter gross profit increased 14.8% to $12.6 million.

Gross profit from the company's commercial business increased 31.1% to $10.2 million, and gross profit from the company's government business increased 80% to $5.8 million.

Total selling, general, and administrative expense, or SG&A, was $12.8 million in the fourth quarter of 2007, up from $9.4 million for the same pried in 2006. However, SG&A, as a percent of revenue declined to 19.9% from 21.5% for the same period last year.

SG&A expense as a percent of revenue does not change when acquisitions completed in 2007 are excluded. This improvement occurred despite of higher employee recruiting expenses, cost related to the company's CEO succession plan, and higher than normal travel expenses, and also the weakening of the US dollar from the fourth quarter of 2006.

Operating income for the fourth quarter of 2007 was $3.2 million or 5% of revenue in comparison to operating income of $1.6 million or 3.6% of revenue for the same period last year.

Earnings before interest, taxes, depreciation, and amortization expense, commonly known as EBITDA, was $5.2 million or 8% of revenue for the fourth quarter of 2007, compared to $2.9 million or 6.5% of revenue for the same period in 2006.

And finally, TechTeam reported cash and cash equivalents of $19.4 million and total debt of $37 million as of December 31st, 2007.

And now I will like to turn the call over to our, President and CEO, Gary Cotshott.

Gary Cotshott

Thanks, Marc, and thanks to our shareholders and other members of the investment community who have joined us on the call. TechTeam concluded an extensive executive search and leadership transition as announced on February 11th. I am pleased to be with you today fully transitioned into the role of President and Chief Executive Officer and a Director of TechTeam. I would personally like to thank Chris Brown for his support and efforts throughout the transition. He has done an excellent job of establishing a solid foundation for the company and led it to a very strong finish in 2007.

I will return in a couple of minutes to provide some additional commentary on the many opportunities I see for TechTeam going forward. But first, I would like Chris to provide color around the fourth quarter and the full year. Chris.

Chris Brown

Thanks Gary. We closed out the year having demonstrated substantial growth in revenues and improved profitability. Two important goals we set out to achieve at the beginning of the year. Total revenue was up 33% from 2006 and up close to 18% organically. Profitability on a net income basis increased over 50% year-over-year for the quarter.

Our turnaround efforts that began in the latter part of 2006 and continued through 2007 paid off this year and bode well for our continued growth going forward. The fourth quarter of 2007 was another quarter of record revenue, the fifth consecutive quarter that we have achieved a new record. Our top line momentum continued, as revenue increased by 47% over the fourth quarter of 2006 and almost 9% sequentially over the third quarter of 2007.

We generated growth in all of our business, but most impressively in IT outsourcing segment, which was up 13% sequentially. Our profitability on a net income basis grew significantly over 2006, as well, improving 50% over the last year to $0.17 per share. However, net income did decrease $0.3 per share from the third quarter'0s record to $0.20 per share.

While much of the pressure was one time in nature, I want to provide some additional color to Marc's earlier comments. Our gross margin in the US commercial business was impacted by events at a large retail customer. As you know, the holiday season is their busiest time in the year and we ramped up our resources in anticipation of additional volumes, however this past November and December this customer did not see increased call volumes. And therefore our margins came in lower than anticipated.

We also, encouraged some front end cost loading on a new project in the hospitality sector. In addition, we incurred some higher than normal costs associated with the launch of new customer accounts in Europe during the fourth quarter.

With our government customers the caution I have alluded to previously continues, with delayed award decisions and delays in allowing us to staff awarded positions. And we even lost some productivity and margin in our government business when the President gave Federal employees the day before Christmas off as an extra holiday.

Now let me turn to our pipeline. On the business capturing pipeline front, in the fourth quarter, we closed 71 transactions worth $40 million total contract value, and end of the year with a pipeline of potential business worth over $400 million. This compares the $53 million worth of transactions in the third quarter and a pipeline worth $350 million at the end of October.

70% of our dollar volume of business captured was in the commercial business and 30% in our government business. Over the full year we closed over a $160 million worth of business acquisition transactions. Our fourth quarter business wins included a substantial contract expansion by the team at NewVectors. And a major renewal from one of our automotive customers in Europe. In addition we landed a very substantial new opportunity in the Americas with another automotive sector client. This one is conservatively estimated to be worth $5 million over 3 years.

Last quarter I alluded to three promising opportunities, one in the Americas in hospitality, one with a technology products company and one in the travel industry. The $3 million hospitality opportunity and the $3 million technology opportunity did close in Q4. We also signed a letter of intent with a travel company in January and we expect to conclude the definitive contract in the first quarter.

In summary, 2007 was a very successful year for TechTeam. As we entered the year we said that our goal is to get the company growing again and return it to profitability. We achieved both, but we still have plenty of work to do. While we are very pleased with the top line performance TechTeam achieved, we are not content with these results, unless we can translate that growth to increased profitability

Before I turn the call back over to Gary I want to say a few words about him. Gary comes to us from a distinguished services management career at NCR, where he spent 24 years. And more recently at Dell, where he spent the last 9 years building Dell's Services Business and guiding it through extraordinary growth. Gary understands this business and he also shares the same enthusiasm for our prospects, as I do. I am very pleased that he joined our team. Gary?

Gary Cotshott

Thanks Chris. The numbers for the fourth quarter in 2007 do tell a great story and demonstrate the momentum that the company has achieved. TechTeam had a year of solid growth, improved profitability and made great progress on all fronts. It's a great foundation to build on and that is exactly what we intend to do, recognizing still that we operate in a very competitive environment with some equally challenging market and economic conditions.

That said, I am excited to be here and believe that there are more untapped opportunities that will allow us to sustain the organic growth, acquire new capabilities, improve the efficiency of the operations, and drive continued improvements in operating income. Obviously, I have only been here a little over a week, but my initial observations and key priorities over the near-term are as follows.

First, we have a great base of high profile logo customers in all of our business units. Continuing to expand our footprint in these accounts is our number one focus and priority. Our customers are asking us to expand the service portfolio that we offer, and extend our service capabilities globally, and we intend to pursue both aggressively. In addition, with a great set of offerings and a low cost structure, we will continue to compete for and win new accounts.

Second, we need to raise our profile in the industry and particularly with large potential alliance partners like, CA in the US, and Orange Business Services, in Europe. As stated in our third quarter 10-Q, we added an alliance in Europe with a major US based manufacturer of computers, and we hope to be able to announce more specifics on this in the near future. With the focus on building alliances, we will extend our reach and leverage the demand creation resources of our partners to tap into a rich vein of new business.

Third, although our cost structure is reasonably competitive already, we still have opportunities for margin and SG&A improvements and we are going after those opportunities aggressively. To improve margins, we intend to pursue higher value, higher margin offerings, optimize our cost structure further by improving agent productivity, establishing additional low cost offshore locations and examining our companywide expense structure.

From an SG&A standpoint, we intend to continue to reduce these expenses as a percent of revenue over time. As we move forward, we will execute against these opportunities to grow profitability and sustain the momentum that TechTeam has created in 2007.

I will also be working closely with the Board, to develop the strategy that will build on our current solid foundation and meet our goals of establishing TechTeam as the partner of choice for Fortune 1000 companies and government organizations when it comes to optimizing information technology costs for our customers. Now, I would like to ask the operator to open the call for questions.

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