THOMAS GROUP INC, 10-K405, 2000-03-30

THOMAS GROUP INC
10-K405, 2000-03-30
MANAGEMENT CONSULTING SERVICES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE YEAR
ENDED DECEMBER 31, 1999.
</TABLE>

<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE
TRANSITION PERIOD FROM TO .
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COMMISSION FILE NUMBER 0-22010
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THOMAS GROUP, INC.
(Exact name of registrant as specified in its charter)

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<S> <C>
DELAWARE 72-0843540
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)

5221 NORTH O'CONNOR BOULEVARD, SUITE 500, IRVING, TEXAS 75039-3714
(Address of principal executive offices) (Zip Code)

(972) 869-3400
(Registrant's telephone number, including area code)
</TABLE>

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

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<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common stock, par value $.01 per share NASDAQ-NMS
</TABLE>

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /X/

As of March 20, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $38,194,000, based on the NASDAQ-NMS
closing price.

As of March 20, 2000, the following number of shares of the registrant's stock
were outstanding:

<TABLE>
<S> <C>
Common stock................................................ 4,747,601
Class B common stock........................................ 3,970
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Total....................................................... 4,751,571
=========
</TABLE>

DOCUMENTS INCORPORATED BY REFERENCE.

Portions of the definitive Proxy Statement for the 2000 Annual Meeting of
Stockholders are incorporated by reference into Part III.

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TABLE OF CONTENTS

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PAGE
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PART I

Item 1. Business.................................................... 3
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 10

PART II

Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 10
Item 6 Selected Financial Data..................................... 11
Item 7 Management's Discussion and Analysis of Financial Condition
and Results Of Operations................................. 12
Item 7a Quantitative and Qualitative Disclosure About Market Risk... 19
Item 8 Financial Statements and Supplementary Data................. 19
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 19

PART III

Item 10 Directors and Executive Officers of the Company............. 19
Item 11 Executive Compensation...................................... 19
Item 12 Security Ownership of Certain Beneficial Owners and
Management................................................ 20
Item 13 Certain Relationships and Related Transactions.............. 20

PART IV

Item 14 Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 20
Signatures.................................................. 22

Index to Consolidated Financial Statements................................ F-1
</TABLE>

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PART I

ITEM 1. BUSINESS.

GENERAL

The Company, established in 1978, provides management consulting services
designed to improve the competitiveness and profitability of the Company's
clients. The Company's specific methodology, known as TOTAL CYCLE TIME, focuses
on reducing the time spent on revenue-producing, product development and
administrative processes. By accelerating these processes using TOTAL CYCLE TIME
methodology, clients are able to improve responsiveness to customers, accelerate
new product design and introduction and increase quality and productivity,
thereby resulting in improvements in financial performance. The Company's
clients are typically large companies, many of whom are included in the Fortune
1000.

The need for the Company's TOTAL CYCLE TIME services arises from growing
competitive pressures that affect most industries worldwide and require
companies to respond with faster development and supply of goods and services.
The Company believes this change has been caused by several factors, including
shorter product life cycles, higher quality standards and technological
innovation. Many historically competitive companies, which are now burdened by
slow, bureaucratic operations, risk deteriorating margins, product obsolescence
and loss of market share. Past competitive advantages such as size, market
position and reputation are often no longer sufficient to maintain a leading
competitive position. As a result, traditional management techniques, which
often focus on individual departments or functional units of a business, rather
than processes, may lessen a Company's ability to respond to market
opportunities.

Utilizing TOTAL CYCLE TIME methodology, the Company analyzes a client's
business, assesses potential performance improvements, trains the client's
senior management and employees, and works to implement actions to improve
operating performance. TOTAL CYCLE TIME services are designed to enable the
Company's clients to achieve quantifiable results, such as improved
profitability, greater productivity, more effective asset utilization and
reduced time in developing and delivering new products to market, thereby making
clients more competitive. Due to the Company's prior success with and confidence
in TOTAL CYCLE TIME services, the Company is generally willing to accept a
combination of fixed fees and incentive fees based on measurable improvements in
a client's business operations.

During 1999, the Company positioned itself to service new markets by
creating regional operating areas in the United States, Europe and Asia. As part
of this regional approach the Company is opening a new office in Washington,
D.C. which allows for the targeting of businesses operated by the U.S.
Government.

In November 1999, the Company enhanced its ability to service the growing
eBusiness market by the formation of a strategic partnership with i2
Technologies, Inc. (i2). i2 is the leading provider of software solutions for
supply chain optimization, decision support and intelligent eBusiness solutions.
The partnership will allow the Company to combine its expertise of accelerating
business processes with i2's decision support software to attain peak
operational performance, particularly in an eBusiness environment.

Historically, Thomas Group has worked on a pure process basis, without
offering a direct bridge to technology enhancement. Yet technology enhancement
services can often institutionalize process change as well as speed the delivery
of required information through the process. Within the last two years, at the
request of clients, Thomas Group has started to merge the delivery of process
improvement and software enhancement by managing software changes during the
implementation of TOTAL CYCLE TIME programs. The Company now offers a full
eBusiness environment, starting from the external portal--the web page in
commercial situations or the electronic data interchange (EDI) entry point in
business to business situations--through the underlying business process and the
facility information technology (ERP) infrastructure. Thomas Group, therefore,
now offers process improvement enhanced by rapid information delivery through
related data delivery systems. This new business approach has in part been made
possible

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by formal partnership arrangements with i2 Technologies, Siebel Systems and
Integrated Business Systems and Solutions (IBS&S) as well as informal
relationships with other software and technology providers.

As part of restructuring in the second quarter of 1998, the Company exited
its information technologies business segment, wrote down underutilized assets
and incurred personnel charges to focus on its core competency--business process
improvement.

TOTAL CYCLE TIME

The TOTAL CYCLE TIME methodology developed and employed by the Company is
used to analyze and re-engineer a client's business into components of three
basic processes: the development of new products and services; the production
and delivery of goods and services; and the definition and implementation of
strategies to capitalize on fast response. By defining such processes, the
Company is able to analyze and quantify a client's existing performance levels
using measures of time, productivity, asset utilization, cost and quality. These
measurements are then used to establish operating and financial improvements the
Company believes can be obtained by a client using existing or reduced
resources. TOTAL CYCLE TIME implementation programs typically span one to three
years, although new, more targeted products can be implemented in three to six
months.

The Company's activities begin with the assessment of a potential client's
existing level of performance. This assessment typically includes site visits,
interviews with a diagonal slice of the organization, interaction with
management and an analysis of historical performance. The Company uses the
results of this assessment to determine the estimated operating and financial
improvements that can be obtained by the client through the implementation of
TOTAL CYCLE TIME. The Company then analyzes whether a TOTAL CYCLE TIME program
or shorter-term products will generate sufficient benefits to the client prior
to proceeding with a proposal.

The Company believes that results from the implementation of TOTAL CYCLE
TIME programs will be obtained only if the senior executives of a client are
committed to change. Consequently, the Company may provide a client's chief
executive officer (or chief operating officer of a business unit) and senior
managers a CEO workshop tailored exclusively for the client. The CEO workshop is
generally conducted at a site selected by the client or at the Company's CEO
Center, a remote facility located near Baton Rouge, Louisiana. At the
concentrated workshop, a client will gain exposure to TOTAL CYCLE TIME tools,
help define what the client's business is capable of achieving, identify the
critical processes/high leverage areas within the client's business, identify
appropriate measurements for each of the critical processes and learn how the
improvement of critical processes will lead to tangible results. A key objective
of the workshop is to build a business team commitment to improve performance
using TOTAL CYCLE TIME as the driver for process improvement. See
"Business--Facilities." If a full CEO workshop is not relevant due to the length
of the selected Thomas Group program then the Company's methodology is
introduced and taught in an integrated manner along with the implementation of
fast process improvements at the client.

Frequently, business and cultural "barriers" restrict or hinder a client's
operating processes. These barriers may consist of excessive inspections or
approval levels, inappropriate lot/batch sizes, improper measures or a client's
view of its business as departments or functions rather than integrated
processes. Cultural and business process barriers appear in a wide variety of
manufacturing, project and service businesses and their removal can have a
significant, positive impact on a client's business. Because these barriers are
ingrained in a client's business and culture, they may be difficult for a
client's management to identify and address without the assistance of
experienced outside business professionals.

At an early stage of a program's implementation, the Company analyzes each
of a client's business processes, identifies the business process and cultural
barriers restricting a client's business and determines the actions required to
remove these barriers. As barriers to improved performance and unnecessary steps
in the business processes are removed, cycle times are reduced and activities or
actions are more rapidly

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and efficiently completed. As time is reduced, cost automatically goes down
while quality improves. Quality improves because driving with time highlights
poor quality and speeds its removal.

During implementation of a TOTAL CYCLE TIME program, the Company generally
transfers its methodology to a client. The Company works with a client to
internalize TOTAL CYCLE TIME in order to sustain a change in a client's culture
after the Company's personnel complete the bulk of the program. The Company
grants its clients a limited license to use TOTAL CYCLE TIME rights internally
following completion of a program. See "Intellectual Property."

In response to client demand, the Company introduced a range of "continuous
improvement services," consisting in part of ongoing assessments and upgrades to
TOTAL CYCLE TIME methodology for completed programs. Continuous improvement
services are designed to maintain and improve upon the successes of the original
TOTAL CYCLE TIME programs. In addition to providing the Company with the
opportunity for further client development and additional fees, continuous
improvement services provide clients with an extended means of assessing,
monitoring and improving their business utilizing TOTAL CYCLE TIME.

COMPETITIVE STRATEGY

The Company's strategy is to maintain and enhance its position in the
development and implementation of its TOTAL CYCLE TIME methodology. The
Company's strategy includes the following key elements, many of which
differentiate the Company from traditional providers of consulting services.

EMPHASIZE RESULTS. The Company may enter into incentive fee contracts,
which make a portion of the Company's revenue from a particular program
contingent upon certain results. The Company offers incentive fee contracts in
cases where the client may doubt the ability of Thomas Group to extract change
or prefers to work on a gain-sharing basis. The Company's competitors generally
charge fees based on time expended regardless of results. These incentive fee
contracts demonstrate the Company's confidence that its programs will positively
enhance the businesses of its clients.

TARGETS LARGE CLIENTS AND MULTIPLE PROGRAM OPPORTUNITIES. The Company has
focused its marketing efforts on companies with annual revenues greater than
$500 million, preferably where sequential program opportunities exist. The
Company believes larger clients provide greater revenue opportunities because
such clients are likely to realize greater economic benefit from the Company's
services.

ACTIVE INVOLVEMENT AND METHOD FOR CONTINUOUS IMPROVEMENT. By implementing
TOTAL CYCLE TIME throughout a complete business or business unit in cooperation
with a client's management, the Company believes it can more effectively
influence business culture and processes and provide clients with the
methodology necessary for continuous improvement. In contrast, traditional
consulting firms often provide only isolated expertise in the form of written
assessments or reports that focus on discrete functions or an isolated segment
of a business.

EXPERIENCED PROFESSIONAL STAFF. The Company employs professionals with
extensive business management experience. Traditional consulting firms often
hire recent business school graduates with expertise in a particular subject
rather than expertise in business management.

PROGRAM FOCUS. The Company focuses primarily on cultural and business
process barriers rather than on subject matter barriers and functional units.
The Company believes reductions in cultural and business process barriers have a
greater impact on improving a client's performance.

CLIENTS

The Company's clients are typically large, well-established manufacturing,
project and service companies, or distinct business units of such companies, in
the United States, Europe, and the Asia/Pacific

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region. Many of the Company's clients are Fortune 1000 companies (or equivalent
size non-U.S. companies) or units thereof. The Company has worked for over 250
clients, including the following:

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DOMESTIC CLIENTS:
Acton Burnell Hillenbrand Industries
American Microsystems ITT
Bell Packaging Moore Business Forms
Boston Scientific Motorola
Chief Auto Parts National Semiconductor
Coleman Outdoor Products Olivetti
Cypress Semiconductor Osram Sylvania
Cyprus Amax Pawnee Industries
Delco Electronics Pinnacle Automation
Detroit Diesel Polaroid
Dresser Industries Rohm and Haas
DSC Communications Skychefs Caterair
Douglas Aircraft Signetics
Dover Tastemaker
Electronic Data Systems Teledyne
Gulfstream Aerospace

INTERNATIONAL CLIENTS:
ABB Asea Brown Boveri Philco Tatuapa Radio & Televisao
Adam Opel AG Philips N.V.
Bosch Blaupunkt SAAB
Esquel Schindler
Euclid Hitachi SGS Thomson Microelectronics
Gemplus Siemens
Greuguet Vtech
Hilti Varitronix
Johnson Electric
</TABLE>

There can be no assurance that in the future the Company will perform
services for any of the companies listed above. In order to maintain and
increase its revenues, the Company will need to add new clients or expand
existing client relationships to include additional divisions or business units
of such clients.

The Company operates in one industry segment, but conducts its business
primarily in three geographic areas: the United States, Europe and Asia.
Information regarding these areas follows:

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<CAPTION>
IN THOUSANDS OF DOLLARS UNITED STATES EUROPE ASIA CORPORATE TOTAL
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<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Revenue...................................... $39,933 $18,352 $5,521 $ -- $63,806
Long-lived assets............................ $ 3,413 $ 680 $ 51 $2,773 $ 6,917

Year ended December 31, 1998:
Revenue...................................... $48,027 $16,764 $3,570 $ -- $68,361
Long-lived assets............................ $ 3,420 $ 572 $ 54 $6,494 $10,540

Year ended December 31, 1997:
Revenue...................................... $49,747 $14,903 $4,970 $ -- $69,620
Long-lived assets............................ $10,850 $ 829 $ 81 $5,191 $16,951
</TABLE>

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In 1999, three clients, General Motors, Bosch and Delphi Delco accounted for
21%, 15% and 12% of the Company's total revenues, respectively. In 1998, one
client, General Motors accounted for 30% of the Company's total revenues. In
1997, two clients, LSG Skychefs and General Motors accounted for an aggregate of
20% of the Company's total revenues.

SALES AND MARKETING

In addition to direct sales efforts, the Company's services are marketed
using several methods, including:

REFERENCES AND REFERRALS. The Company believes references and referrals
from clients and technology partners are its most powerful sales tool. Even
without a direct referral, clients are frequently contacted for their evaluation
of the Company and its services. In addition, the Company believes each TOTAL
CYCLE TIME program holds the potential for added revenue by exposing the Company
and its programs to other business units, customers and suppliers of each
client.

LECTURES AND PUBLICATIONS. The Company also markets its services through
lectures and publications. Five books provide an introduction to the value of
implementing TOTAL CYCLE TIME. These five books are COMPETITIVENESS THROUGH
TOTAL CYCLE TIME, GETTING COMPETITIVE, TIME WARRIOR, QUALITY ALONE IS NOT ENOUGH
and SURVIVAL AT NODULEX. In addition, the Company promotes the publication, in
periodical and business journals, of articles about time-based management
generally and TOTAL CYCLE TIME specifically. Company personnel also lecture to
chambers of commerce, trade associations, and business symposia on the subject
of achieving competitiveness through the application of TOTAL CYCLE TIME.

CONTRACTUAL ARRANGEMENTS

The Company performs TOTAL CYCLE TIME services for clients pursuant to
contracts generally with terms of one to three years or targeted process
improvement programs that could last from three to six months. Clients
compensate the Company for its services in the form of fixed fees or a
combination of fixed and incentive fees (based on client improvements achieved).
The Company's fee structure is based on a client's size, the complexity and
geographic deployment of a client's business, the level of improvement
opportunity available to a client and certain other factors.

Fixed fees are recognized as revenue monthly over the term of a program.
Incentive fees are generally based on objective measures, such as cycle time
reduction, inventory reduction, accounts receivable reduction, profit
improvement or other quantifiable objectives and are recognized as revenue as
earned under the terms of the relevant contract. Factors such as a client's
commitment to TOTAL CYCLE TIME, general business and economic cycles, and a
client's product position in the marketplace will affect the performance of the
Company's clients, thus affecting the Company's revenue from incentive fee
compensation. In 1999, 1998 and 1997, approximately 10%, 21% and 25%,
respectively, of the Company's revenue was attributable to incentive fees.

The Company includes in its business under commitment (backlog) signed
client contracts with terms generally ranging from 12 to 18 months. Business
under commitment was $66 million at December 31, 1999, of which approximately
$45 million is expected to be realized within fiscal 2000.

PROFESSIONAL STAFF

The Company's staff of business professionals who apply TOTAL CYCLE TIME
methodology are referred to by the Company as "Resultants." For its Resultant
work force, the Company employs individuals with significant problem-solving and
managerial skills from fields ranging from manufacturing, engineering,
logistics, health care, banking and finance. The Company's Resultants typically
have 15 to 20 years of business management and specific industry experience. The
Company provides computer-based, classroom, textbook and videotape training for
all new Resultants. The Company historically has experienced

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less than 10% voluntary annual turnover of its Resultants, reflecting the stable
nature of its workforce. The Company provides its Resultants with the
opportunity to share in the Company's profits and achieve bonuses through
results-oriented compensation such as the Company's stock option and bonus
plans.

COMPETITION

Traditional consulting firms provide services similar in some respects to
the services provided by the Company. Providers of such services include A.T.
Kearney, Inc., Boston Consulting Group, McKinsey & Co. and major international
accounting firms, as well as several small firms that primarily focus on
time-based management services. Many of the Company's competitors have greater
personnel, financial, technical and marketing resources than the Company, and
there can be no assurance the Company will be able to compete successfully with
its existing competitors or with any new competitors.

The Company believes the competitive factors most important to its business
are the unique quality of its TOTAL CYCLE TIME methodology, the quality of its
professional staff, its willingness to be compensated on an incentive basis, its
reputation for achieving targeted results, and its dedication to selling
results. The Company believes that no significant competitors offer their
clients the opportunity to base fees on the results achieved.

The Company believes its most significant "competitor" is the propensity for
potential clients to "self-medicate" by attempting to implement changes in their
businesses themselves, in the belief they will achieve results comparable to
those resulting from the Company's services without the assistance of outside
professionals. The Company believes these attempts to self-medicate may result
in limited success. However, such attempts may substantially lengthen the
Company's sales cycle and may therefore limit its business opportunities.

Because the TOTAL CYCLE TIME methodology or related shorter term products
are not capable of being patented, there can be no assurance the Company will
not be subject to competition from others using substantially similar
methodologies. However, the Company believes its base of knowledge, experience
and clients provide it with a competitive advantage.

INTELLECTUAL PROPERTY

The Company has secured federal registration for the service marks "TOTAL
CYCLE TIME," "TCT-REGISTERED TRADEMARK-, 5 I'S PROCESS" and "CYCLES OF
LEARNING." These registrations expire from August 2002 to January 2003. The
Company has filed an application for federal service mark registration for
several other marks important to its business. The Company has also made
appropriate filings in several European countries to secure protection of its
marks in those countries. The Company considers each of these service marks to
be significant to its business.

The Company's proprietary methodologies have been developed over 20 years at
great expense, have required considerable effort on the part of skilled
professionals, are not generally known and are considered trade secrets.
Although the Company's services necessarily incorporate trade secrets the
Company grants clients a limited license to make internal use of certain of the
Company's proprietary methodologies following completion of a program. The
Company maintains its trade secrets in strict confidence and as part of its
standard engagement.

The Company has entered into nondisclosure and noncompete agreements with
all of its current and former employees. There can be no assurance that such
agreements will deter any employee of the Company from disclosing confidential
information to third parties or from using such information to compete with the
Company in the future.

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FACILITIES

The Company leases approximately 22,000 square feet of office space at its
principal executive office under leases that expire in August 2001 and
December 2002. The Company also leases space for its offices in Troy, Michigan;
Reston, Virginia; Frankfurt, Germany; and Singapore. The Company believes these
facilities are adequate for its current needs.

Near Baton Rouge, Louisiana, the Company has entered into 25 year lease
agreements with Philip Thomas, founder and former Chief Executive Officer, for
60 acres of land on which an executive training facility is situated and for
guest accommodations on Mr. Thomas' adjacent property. The land is leased
pursuant to two 25 year leases entered into in December, 1991 and January, 1994.
The annual rental on these leases is $6,000 each, one of which has been prepaid
throughout the year 2016. The usage agreement on the guest accommodations had
provided for monthly payments of $12,960 through November 30, 2016. On
December 31, 1995, the Company prepaid the guest accommodations usage agreement
in its entirety at a substantial discount.

EMPLOYEES

At February 29, 2000, the Company had a total of 270 employees, consisting
of 150 full-time RESULTANTS, 38 part-time RESULTANTS and 82 sales and
administrative employees. The Company's employees are not represented by a labor
union nor are they subject to any collective bargaining agreement. The Company
considers its employee relations to be good.

ITEM 2. PROPERTIES.

The Company's principal executive office is located in Irving, Texas. The
Company also leases space for its offices in Troy, Michigan; Reston, Virginia;
Frankfurt, Germany; and Singapore. The Company currently leases 60 acres of land
near Baton Rouge, Louisiana, on which the Company conducts seminars when the
customer has not selected an alternate location. The Company considers these
properties to be adequate for its business purposes.

ITEM 3. LEGAL PROCEEDINGS.

The Company is party to a legal action styled Philip R. Thomas and Wayne
Heirtzler Thomas v. Thomas Group, Inc., before the U.S. District Court, Middle
District of Louisiana, consolidated with another action styled Thomas Group of
Louisiana, Inc. v. Philip R. Thomas and Wayne Heirtzler Thomas. Mr. and
Mrs. Thomas sought to "enforce leases" and seized, under a writ of
sequestration, movable assets at the Company's CEO Center in Louisiana. The
second suit was filed against Mr. and Mrs. Thomas by a subsidiary of the
Company, seeking to dissolve the writ of sequestration and asserting a claim for
damages. A hearing was held on the motions of the Company and its subsidiary to
dissolve the writ of sequestration, and the court has lifted the sequestration
order. The Company has amended its complaint in this action to seek a
declaratory judgment from the Federal Court that the Company is not in default
under any of the leases relating to the Louisiana property.

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Arbitration Association in Dallas, Texas pursuant to an arbitration clause in
Mr. Thomas' employment agreement. In this proceeding Mr. Thomas has asserted
claims for actual damages of $9 million to $11 million, plus damages for
emotional distress and exemplary damages. The Company believes Mr. Thomas'
claims have no merit, and is seeking a determination that Mr. Thomas is owed
nothing further as a result of his former employment relationship with the
Company. The arbitration hearing was held the week of February 21, 2000. A
ruling is expected on or about May 20, 2000.

In the case of Thomas Group, Inc. v. Blevins, et al., filed May 19, 1997 in
the U.S. District Court for the Northern District of Texas, consolidated with
the case styled Blevins, et al. v. Thomas Group, Inc., et al., filed June 9,
1997 in the U.S. District Court for the Northern District of Ohio, each party
asserted claims arising out of the purchase agreement and consulting agreement
in connection with the Company's purchase of Interlink Technologies. In
connection with a settlement reached on October 26, 1999, the Company recorded
an additional $2.0 million after tax charge to discontinued operations. The
settlement agreement also stipulates that the Company make $0.6 million payments
in December 2000 and December 2001.

The Company has become subject to various other claims and other legal
matters, such as collection matters initiated by the Company, in the course of
conducting its business. The Company believes that neither such claims and other
legal matters nor the cost of prosecuting and/or defending such claims and other
legal matters should have a material adverse effect on the Company's
consolidated results of operations, financial condition or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of stockholders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
1999.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET FOR REGISTRANT'S COMMON EQUITY

The Company's common stock is traded on the over the counter market on the
NASDAQ National Market System under the symbol TGIS. The stock prices set forth
below represent the highest and lowest sales prices per share of the Company's
common stock as reported by the NASDAQ National Market System. The prices
reported in the following table by the NASDAQ National Market System reflect
inter-dealer prices without retail mark-up, mark-down or commissions.

<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
- - ------------- -------- --------
<S> <C> <C>
March 31, 1998........................................... $ 9.00 $ 8.81
June 30, 1998............................................ $10.75 $10.50
September 30, 1998....................................... $ 9.06 $ 9.06
December 31, 1998........................................ $10.50 $ 9.00
March 31, 1999........................................... $10.50 $ 8.63
June 30, 1999............................................ $ 9.25 $ 7.06
September 30, 1999....................................... $ 9.94 $ 8.25
December 31, 1999........................................ $11.44 $ 6.31
</TABLE>

There is no established public market for the Company's class B common
stock.

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HOLDERS OF RECORD

As of March 1, 2000 there were approximately 140 holders of record of the
Company's common stock.

DIVIDENDS

The Company has not paid cash dividends on its common stock. The Company
intends to retain future earnings to provide funds for use in the operation and
expansion of the business, and, accordingly, does not anticipate paying regular
cash dividends on its common stock in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA.

The following table sets forth selected historical financial information
regarding the Company. This historical financial information has been derived
from the audited financial statements of the Company and, with respect to data
for 1997, 1996 and 1995, is adjusted for the reclassification of discontinued
operations. This information should be read in conjunction with, and is
qualified by, the consolidated financial statements and notes thereto included
in this Annual Report on Form 10-K.

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<CAPTION>
YEAR ENDED DECEMBER 31,
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1999 1998 1997 1996 1995
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IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue from continuing operations...... $ 63,806 $ 68,361 $ 69,620 $ 65,012 $ 63,392
Operating expenses...................... 54,111 68,069 58,625 59,604 53,183
--------- --------- --------- --------- ---------
Operating income........................ 9,695 292 10,995 5,408 10,209
Interest income (expense)............... 214 (164) 159 252 524
--------- --------- --------- --------- ---------
Income from continuing operations before
income taxes.......................... 9,909 128 11,154 5,660 10,733
Income tax expense...................... 3,765 37 4,461 2,264 4,203
--------- --------- --------- --------- ---------
Income from continuing operations....... 6,144 91 6,693 3,396 6,530
Discontinued operations:
Income (loss) from operations, net of
income tax.......................... -- (1,092) (4,267) (1,571) 225
Loss on disposal, net of income tax... (2,330) (3,341) -- -- --
--------- --------- --------- --------- ---------
Net income (loss)....................... $ 3,814 $ (4,342) $ 2,426 $ 1,825 $ 6,755
========= ========= ========= ========= =========
Earnings (loss) per share
Basic
Income from continuing operations..... $ 1.26 $ 0.02 $ 1.10 $ 0.57 $ 1.09
Income (loss) from discontinued
operations.......................... (0.48) (0.84) (0.70) (0.26) 0.04
--------- --------- --------- --------- ---------
Net income (loss)..................... $ 0.78 $ (0.82) $ 0.40 $ 0.31 $ 1.13
========= ========= ========= ========= =========
Diluted
Income from continuing operations..... $ 1.25 $ 0.02 $ 1.06 $ 0.54 $ 1.04
Income (loss) on discontinued
operations.......................... (0.47) (0.82) (0.68) (0.25) 0.04
--------- --------- --------- --------- ---------
Net income (loss)..................... $ 0.78 $ (0.80) $ 0.38 $ 0.29 $ 1.08
========= ========= ========= ========= =========
</TABLE>

11
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Weighted average shares
Basic................................. 4,862,759 5,304,882 6,097,782 5,963,394 5,998,009
Diluted............................... 4,917,498 5,433,707 6,327,484 6,309,970 6,282,036

<CAPTION>
DECEMBER 31
---------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
IN THOUSANDS, EXCEPT PER SHARE DATA
BALANCE SHEET DATA
<S> <C> <C> <C> <C> <C>
Working capital......................... $ 19,359 $ 13,600 $ 20,738 $ 15,705 $ 20,001
Total assets............................ $ 32,865 $ 31,631 $ 44,386 $ 38,890 $ 40,157
Long-term obligations, including current
maturities............................ $ 4,244 $ 3,257 $ 3,286 $ 1,661 $ 1,128
Total stockholders' equity.............. $ 22,854 $ 21,212 $ 34,708 $ 31,512 $ 31,051
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto and the other
information included in Item 14(a)(1) and (2) of this Annual Report on
Form 10-K.

OVERVIEW

The Company derives the majority of its revenue from monthly fixed and
incentive fees for the implementation OF TOTAL CYCLE TIME and other business
improvement programs. Incentive fees are tied to improvements in a variety of
client performance measures typically involving response time, asset
utilization, productivity and profitability. Due to the Company's use of
incentive fee contracts, variations in revenue levels may cause fluctuations in
quarterly results. Factors such as a client's commitment to a TOTAL CYCLE TIME
program, general economic and industry conditions, and other issues could affect
a client's business performance, thereby affecting the Company's incentive fee
revenue and quarterly earnings. Quarterly revenue and earnings of the Company
may also be impacted by the size of individual contracts relative to the annual
revenues of the Company.

In 1998, the Company announced its plans to dispose of its Information
Technologies business segment. In 1998, the Company recorded an after tax charge
of approximately $3.3 million as the estimated loss on disposal of the segment,
including estimated operating losses during the phase-out period. The Company
realized a loss of $1.1 million net of tax in 1998 as a result of the operations
of the discontinued segment.

The sale of the Thomas Group Information Technologies assets closed on
August 31, 1998. No proceeds were received at the time of the transaction, but
the agreements included earn-outs that may be earned over the next five years.
In exchange, the Company was relieved of the liabilities related to extended
service contracts. In 1999, the Company received no earn-outs in relation to
this agreement.

During the third quarter of 1999, the Company recorded a $2.0 million after
tax charge to discontinued operations as a result of the settlement of a lawsuit
related to the Company's Information Technologies business segment. The
settlement agreement specifies that the Company make $0.6 million payments in
December 2000 and 2001. In December 1999, the Company recognized a $0.3 million
after tax charge to discontinued operations due to additional legal costs.

In the second quarter of 1998, the Company announced a plan to realign its
corporate structure. The restructuring charges include approximately
$3.0 million for personnel reduction costs, a $5.9 million reserve established
against the value of certain leasehold improvements and underutilized and
unnecessary

12
<PAGE>
facilities and miscellaneous other charges of approximately $0.8 million. The
Company also recorded a non-recurring charge of $0.8 million in 1998 associated
with the departure of three senior level managers.

With the 1998 management and organizational changes completed, the Company's
focus became future revenue growth. Management is currently implementing several
strategies for increasing revenue, including establishing strategic
partnerships, opening new geographic offices and leveraging past and current
client relationships. In addition, the Company is considering the possible
acquisitions of other consulting companies as a means of future revenue growth.

In addition to its domestic operations, the Company has operations and
contracts in Europe and Asia. The majority of contracts in these regions have
been denominated using the United States dollar. However, some of the Company's
contracts are in the local currency of the client; therefore, the Company is
exposed to currency fluctuation risks.

Unless otherwise stated, the discussion that follows pertains to continuing
operations only.

<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
FOR YEAR ENDED DECEMBER 31,
------------------------------
1999 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Revenue from continuing operations.......................... 100.0% 100.0% 100.0%
Cost of sales............................................... 55.8% 58.0% 57.9%
----- ----- -----
Gross profit................................................ 44.2% 42.0% 42.1%
Selling, general and administrative......................... 29.0% 41.6% 26.2%
----- ----- -----
Operating income............................................ 15.2% 0.4% 15.9%
Interest income (expense), net.............................. 0.3% (0.2)% 0.2%
----- ----- -----
Income from continuing operations before income taxes....... 15.5% 0.2% 16.1%
Income taxes................................................ 5.9% 0.1% 6.4%
----- ----- -----
Income from continuing operations........................... 9.6% 0.1% 9.7%
===== ===== =====
</TABLE>

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998

REVENUE

Revenue decreased $4.6 million, or 7% to $63.8 million in 1999, from
$68.4 million in 1998 primarily due to a reduction in incentive programs.
Incentive programs as a percentage of revenue decreased from 21% in 1998 to 10%
in 1999. Fixed fee contract revenue increased 5% to $57.6 million in 1999 from
$54.8 million in 1998.

United States revenue decreased $8.1 million or 17% to $39.9 million in 1999
from $48.0 million in 1998. This decrease relates to the expiration of contracts
associated with the Company's former Electronics and Consumer and Industrial
Practices business units. Also the Company's Aviation business unit experienced
a decline in revenue due to the early termination of a contract which accounted
for 45% of Aviation revenues in 1998. These decreases were offset by revenue in
the Company's two new business units, Business Solutions and Telecommunications
and a 7% increase in the Automotive business unit when compared to 1998. Despite
the decrease in revenue, the number of contracts for the United States region
remained relatively unchanged when comparing 1999 to 1998.

Asia revenue increased by 53% to $5.5 million in 1999 from $3.6 million in
1998. This increase is attributable to new contracts attained during 1999. These
results reflect the Company's continued effort to develop and maintain business
relationships in the Asia region.

13
<PAGE>
European revenue increased 10% to $18.4 million in 1999 from $16.8 million
in 1998. This increase is attributable to a significant contract, which produced
revenue of $9.5 million in 1999 compared to revenue of $3.9 million in 1998.
With the stability of the client base in the European region, the Company
anticipates revenue growth to continue in 2000.

GROSS PROFIT

Gross profit for 1999 decreased slightly to $28.2 million from
$28.7 million in 1998. Despite this decrease, the Company's gross margin as a
percentage of revenue increased to 44% compared to 42% in 1998. This improvement
is attributable to the Company's management and organizational restructuring
during 1998.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses decreased significantly due to
the absence of a $9.7 million restructuring charge and $0.8 million
non-recurring charge incurred in 1998. (See Note 3 to the Consolidated Financial
Statements of the Company.)

Excluding the effect of the restructuring and non-recurring charges,
selling, general and administrative expenses increased 3% to $18.5 million in
1999 from $18.0 million in 1998. The slight increase is the result of higher
advertising and promotion expenses as well as travel costs associated with the
Company's expanded marketing effort during 1999. In addition, the Company
experienced increased legal costs associated with the conclusion of two lawsuits
during 1999.

INCOME TAXES

The Company's effective tax rate in 1999 was 38%, compared to 29% in 1998.
The tax rate has been significantly affected by an increase in foreign source
income subject to current U.S. taxation, the Company's intention to repatriate
only 1999 and future earnings and profits from its controlled foreign
subsidiaries, and a decrease in the Company's valuation allowance related to the
utilization of foreign tax credit carryovers. The Company has a net deferred tax
asset of $4.7 million at December 31, 1999. Management believes that future
levels of U.S. and foreign source taxable income will be sufficient to realize
the benefits of the deferred tax asset.

INCOME FROM CONTINUING OPERATIONS

Income from continuing operations increased to $6.1 million in 1999 compared
to $0.1 million in 1998. The increase primarily reflects the benefits in 1999 of
the absence of restructuring charges incurred during 1998. Earnings per share
from continuing operations increased to $1.25 per diluted share in 1999 from
$0.02 per diluted share in 1998. Affecting the per share results for the Company
is the purchase of 289,150 shares of common stock into treasury during 1999.
These treasury shares reduced the weighted average shares outstanding to
4.9 million in 1999 from 5.4 million in 1998.

DISCONTINUED OPERATIONS

14
<PAGE>
in December 2000 and 2001. In December 1999, the Company recognized a
$0.3 million after tax charge to discontinued operations due to additional legal
costs.

YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997

REVENUE

Revenue decreased $1.2 million, or 2%, from $69.6 million in 1997 to
$68.4 million in 1998; however, the number of active programs in 1998 increased.
Also, the Company had fewer incentive programs in 1998 which reduces the revenue
volatility. Incentive revenues in 1998 were $14.0 million or 21% of total
revenue a decrease from $18.6 million or 27% of revenue in 1997.

United States revenue decreased $1.7 million, or 3%, from $49.7 million in
1997 to $48.0 million in 1998. The mix of this decrease reflected a strong
increase in the operations of the Company's Aviation and Automotive business
units combined with a decrease in the Electronics business unit and the Consumer
and Industrial Products' business unit operations in 1998. This decline is
partially due to a reduction in the number of semiconductor clients.

Also affecting 1998 revenue was the decrease in the Company's Asia business
unit where revenue decreased to $3.6 million in 1998 from $5.0 million in 1997.
The Company continues to work closely with its existing and potential clients on
structuring fees that are compatible with the continuing Asian economic
situation.

European revenue increased $1.9 million, to $16.8 million in 1998 from
$14.9 million in 1997. The primary cause of this increase was the addition of a
large contract in Sweden and two additional significant contracts through the
Company's Switzerland operations.

GROSS PROFIT

Gross profit for 1998 decreased slightly to $28.7 million in 1998 from
$29.3 million in 1997. As a percentage of revenue, gross margin was 42% for 1997
and 1998. In 1998, the Company increased the use of part-time Resultants who are
compensated only when they are working on client assignments. This use of
part-time employees is designed to reduce the volatility of the Company's profit
margin in the event of a reduction in the number of active contracts.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses increased significantly due to
a $9.7 million restructuring charge in the second quarter of 1998. On May 6,
1998, the Company announced a plan to realign its corporate structure. The
restructuring charges include approximately $3.0 million for personnel reduction
costs, a $5.9 million reserve established against the value of certain leasehold
improvements and underutilized and unnecessary facilities and miscellaneous
other charges of approximately $0.8 million. The Company also recorded a
non-recurring charge of $0.8 million in the first quarter of 1998 associated
with the departure of three senior level managers.

Excluding the effect of the restructuring and non-recurring charges,
selling, general and administrative expenses decreased slightly to
$17.9 million in 1998 from $18.3 million in 1997. Significant cost savings in
personnel costs, rent expense and sales and marketing expenses resulting from
the restructuring in the second quarter of 1998 were offset by increased
employee bonuses and $1.0 million in increased legal costs. Additionally, costs
related to telephone and internet connectivity increased as the Company
developed it's own intranet and increased its use of teleconferencing in order
to reduce travel expense. Additionally, the Company increased its technology
expenditures by approximately $0.6 million as it continued to upgrade its
systems, networks, and general support for travelling Resultants.

INCOME TAXES

The Company's effective tax rate in 1998 was 29%, compared to 40% in 1997.
The tax rate has been significantly affected by issues related to the
restructuring charge in the second quarter of 1998 and the

15
<PAGE>
allowance that has been established against the deferred tax asset related to
deferred tax assets on foreign operations and includes the Asian net operating
loss, the foreign tax credit carryover and certain temporary differences related
to foreign operations. The Company had deferred tax assets of $4.9 million at
December 31, 1998.

INCOME FROM CONTINUING OPERATIONS

As a result of the foregoing, income from continuing operations for 1998 was
$0.1 million compared to $6.7 million for 1997. Earnings per share from
continuing operations decreased from $1.06 per diluted share in 1997 to $0.02
per diluted share in 1998. Affecting the per share results is a purchase of
1.3 million shares of common stock into treasury in April 1998. This purchase
into treasury reduced the weighted average shares outstanding used in the
calculation of per share results from 6.3 million diluted shares at
December 31, 1997 to 5.4 million shares at December 31, 1998.

DISCONTINUED OPERATIONS

The Company's loss on the Information Technologies business segment,
discontinued May 1998, decreased from $4.3 million in 1997 to $1.1 million in
1998. This decrease in loss is due primarily to inclusion of only five months of
operations in 1998.

QUARTERLY RESULTS--The following table sets forth certain unaudited
operating results for each of the four quarters in the two years ended
December 31, 1999. This information has been prepared on the same basis as the
audited financial statements and, in the opinion of the Company, includes all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the information for the periods presented.

<TABLE>
<CAPTION>
1999 1998
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
----------------------------------------- -----------------------------------------
MAR 31 JUNE 30 SEPT. 30 DEC. 31 MAR 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- -------- -------- -------- -------- --------
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................................... $14,710 $15,752 $14,774 $18,570 $15,646 $16,565 $17,439 $18,711
Operating income (loss)................... 1,274 2,237 2,203 3,981 645 (7,546) 3,150 4,043
Income (loss) before income taxes......... 1,311 2,266 2,276 4,056 674 (7,636) 3,080 4,010
Income (loss) from continuing
operations.............................. 787 1,361 1,445 2,551 405 (4,731) 1,956 2,462
Earnings (loss) per share from continuing
operations
Basic................................... $ 0.16 $ 0.28 $ 0.30 $ 0.53 $ 0.07 $ (0.94) $ 0.40 $ 0.48
Diluted................................. $ 0.15 $ 0.28 $ 0.29 $ 0.53 $ 0.06 $ (0.94) $ 0.39 $ 0.47
Weighted average shares
Basic................................... 5,004 4,896 4,830 4,814 6,152 5,031 4,946 5,116
Diluted................................. 5,084 4,938 4,899 4,848 6,257 5,031 5,055 5,258
Stock Price(1)
High...................................... $ 10.50 $ 9.25 $ 9.94 $ 11.44 $ 13.00 $ 12.06 $ 11.38 $ 13.00
Low....................................... $ 8.63 $ 7.06 $ 8.25 $ 6.31 $ 7.00 $ 7.75 $ 8.00 $ 7.25
Close..................................... $ 8.75 $ 8.94 $ 8.31 $ 11.25 $ 9.00 $ 10.63 $ 9.06 $ 10.25
</TABLE>

- - ------------------------------

(1) The stock prices set forth above represent the highest and lowest sales
prices per share of the Company's common stock as reported by NASDAQ. The
prices reported by NASDAQ reflect inter-dealer prices without retail
mark-up, mark-down or commissions, and may not necessarily represent actual
transactions.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary source of liquidity is cash flow from operations,
periodically supplemented by borrowings under a bank line of credit when it is
not efficient to transfer funds among the Company's subsidiaries.

Operations provided cash of $8.2 million in 1999, as compared to
$7.1 million in 1998. The primary reason for the increase is collection of fixed
and incentive fee revenue, a $1.6 million decrease in the net

16
<PAGE>
deferred tax asset and the change in trade accounts receivable balances improved
$1.8 million when comparing 1999 to 1998. These increases were offset by a
$2.0 million decrease in accounts payable and accrued liabilities. Days sales
outstanding remained relatively constant at 55 days for 1999, compared to
54 days in 1998.

Net cash used in investing activities decreased to $0.5 million in 1999 from
$1.3 million in 1998. Capital expenditures in 1999 related primarily to office
facilities and miscellaneous equipment.

Cash flows used in financing activities decreased to $2.0 million in 1999
from $8.2 million in 1998. The decrease is due to a reduction in the value of
treasury shares purchased during 1999.

In February 1998, the Company entered into a stock purchase agreement with
Philip R. Thomas, former Chairman and Chief Executive Officer, to repurchase
shares of the common stock of the Company for $8.3 million in cash and
satisfaction of a $2.3 million debt to the Company. At the close of the market
on April 24, 1998, the end of the ninety-day valuation period, the number of
shares to be purchased was determined to be approximately 1.3 million shares.

In 1994, the Board of Directors approved a stock repurchase plan for up to
250,000 shares. The Company purchased 7,000 shares at an average price per share
of $10.71 in 1994, 226,600 shares at an average price per share of $14.74 in
1996 and 16,400 shares at an average price per share of $11.37 in 1997.

In January and October of 1999, the Company announced two additional stock
repurchase plans for up to 250,000 and 500,000 shares, respectively. During
1999, the Company purchased 289,150 shares at an average price of $8.38 per
share. Through March 20, 2000, the Company had purchased 32,100 additional
shares at an average price of $10.32 per share.

The Company previously maintained a $20 million revolving credit agreement.
Terms of the agreement provided for a $1 million per quarter reduction in
available credit beginning in the first quarter of 1999. In April 1999, the
revolving credit agreement was amended to reduce the maximum allowable
borrowings to $15 million with no quarterly reduction. Loans under this
agreement bear interest at the prime rate or other similar interest options. At
December 31, 1999 the Company had approximately $0.1 million outstanding on this
agreement. The agreement is in place to provide funding for potential future
operating cash requirements or business expansion purposes.

The Company also has a $1 million credit facility for the purchase of
computer equipment. The Company made draws of $0.9 million on this facility
during 1997 to purchase computer equipment. Loans under this facility bear
interest at 7.25%. At December 31, 1999 the Company had approximately
$0.2 million outstanding on this credit facility.

DEFERRED TAXES

As a result of the restructuring charges and foreign tax credit carryovers,
the Company has a net deferred tax asset of $4.7 million at December 31, 1999.
Utilization of the net deferred tax asset is dependent on both U.S. and foreign
source taxable income.

The Company has recognized a net deferred tax asset because management
believes it is more likely than not that the net deferred tax asset will be
utilized in future years. This conclusion is based on the belief that current
and future levels of U.S. and foreign source taxable income will be sufficient
to realize the benefits of the net deferred tax asset. The Company has not
historically realized losses on its Business Improvement Services. (See
"Selected Historical Financial Data") Unprofitable operations were sold in 1998.
At a tax rate of 38%, the Company needs to realize pre-tax income of
$12.7 million in the next four years to fully realize the benefit of the
$4.7 million net deferred tax asset. Assuming margins remain equivalent to
historical levels, business under commitment (backlog) at December 31, 1999
should produce income before taxes of approximately $10.5 million in the next
two years. Management believes that closing additional $2.2 million of revenue
in this period is highly likely.

17
<PAGE>
Included in the $4.7 million net deferred tax asset is a $0.5 million
valuation allowance. The valuation allowance is related to deferred tax assets
on certain temporary differences related to foreign operations and the Asian net
operating loss carryover. The Company will continue in future periods to
evaluate the realizability of the net deferred tax asset and make necessary
adjustments through charges to expense should projected future U.S. and foreign
source taxable income be insufficient to realize the benefit of the net deferred
tax asset. (See Note 8 to the Consolidated Financial Statements of the Company.)

INFLATION

Although the operations of the Company are influenced by general economic
conditions, the Company does not believe inflation had a material effect on the
results of operations during the year ended December 31, 1999. However, there
can be no assurance the Company's business will not be affected by inflation in
the future.

FINANCIAL CONDITION

The Company believes its financial condition remains strong and that it has
the financial resources necessary to meet its needs. Cash provided by operating
activities and the Company's credit facility should be sufficient to meet the
Company's operational needs through December 31, 2000.

YEAR 2000 ISSUES

The Company did not experience any significant malfunctions or errors in its
operating or business systems as a result of the Year 2000. Based on operations
since January 1, 2000, the Company does not expect any significant impact to its
ongoing business as a result of the Year 2000. It is possible the full impact of
the date change has not been fully recognized. However, the Company believes any
such problems are likely to be minor and correctable. In addition, the Company
could still be negatively affected if its customers or suppliers are adversely
affected by the Year 2000 or similar issues. The Company currently is not aware
of any significant Year 2000 or similar problems that have arisen for its
customers and suppliers.

As of December 31, 1999, the Company has not, nor does it expect to, incur
any material costs associated with the Year 2000.

RECENT ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This statement standardized the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
value. The statement generally provides for matching the timing of gain or loss
recognition on the hedging instrument with the recognition of (a) the changes in
fair value of hedged asset or liabilities that are attributable to the hedged
risk or (b) the earnings effect of the hedged forecasted transaction. The
statement is effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000, with early application encouraged, and shall not be applied
retroactively to financial statements of prior periods. Adoption of SFAS 133 is
expected to have no effect on the Company's financial statements.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT:

With the exception of historical information, the matters discussed in this
report are "forward looking statements" as that term is defined in Section 21E
of the Securities Exchange Act of 1934.

18
<PAGE>
While the Company believes its strategic plan is on target and the business
outlook remains strong, several important factors have been identified, which
could cause actual results to differ materially from those predicted. By way of
example:

- The competitive nature of the management consulting industry, in light of
new entrants into the industry and the difficulty of differentiating the
services offered to potential clients.

- The time required by prospective clients to fully understand the value and
complexity of a typical TOTAL CYCLE TIME (TCT) program may result in an
extended lead time to close new business.

- Performance-oriented fees are earned upon the achievement of improvements
in a client's business. The client's commitment to a TCT program and
general economic/industry conditions could impact a client's business
performance and consequently the Company's ability to forecast the timing
and ultimate realization of performance-oriented fees.

- The ability of the Company to productively re-deploy personnel during
program transition periods.

- The ability of the Company to create alliances and make acquisitions that
are accretive to earnings.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company invests cash balances in excess of operating requirements in
short-term securities, generally with maturities of 90 days or less. In
addition, the Company's Credit Agreement provides for borrowings which bear
interest at variable rates based on either a prime rate or other options. The
Company had borrowings on this credit facility from time to time during 1999
with an outstanding balance of $0.1 million at December 31, 1999. Through
March 20, 2000, the Company had additional borrowings of $2.1 million and
repayments of $2.2 million. As of March 20, 2000, the Company had no outstanding
borrowings on this credit facility. Due to the Company's foreign operations in
Europe and Asia, the Company is exposed to transaction and translation
adjustments with respect to foreign currency. To minimize this risk, the Company
maintains the majority of its foreign contracts in U.S. dollars. The Company
believes the effect, if any, of reasonably possible near-term changes in
interest rates and foreign currency transaction and translation adjustments on
the Company's financial position, results of operations, and cash flows should
not be material.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to Consolidated Financial Statements on page F-1. Supplementary
quarterly financial information for the Company is included in Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

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

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information relating to the Company's directors and nominees for
election as directors, and the information relating to executive officers of the
Company, is incorporated herein by reference from the Company's Proxy Statement
(herein so called) for its 2000 Annual Meeting of Stockholders. It is currently
anticipated that the Proxy Statement will be publicly available and mailed to
stockholders in May 2000.

ITEM 11. EXECUTIVE COMPENSATION.

The discussion under "Executive Compensation" in the Company's Proxy
Statement for its 2000 Annual Meeting is incorporated herein by reference.

19
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The discussion under "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement for its 2000 Annual Meeting is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The discussion under "Certain Transactions" in the Company's Proxy Statement
for its 2000 Annual Meeting is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)(1) See Index to Consolidated Financial Statements on page F-1.

(a)(2) All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.

(a)(3) Documents filed as part of this report.

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
--------------------- ----------- ----------
<C> <S> <C>
3.1 Amended and Restated Certificate of Incorporation of the
Company

3.2 Amended and Restated By-Laws dated August 9, 1993

4.1 Specimen Certificate evidencing Common Stock (filed as
Exhibit 4.1 to the Company's 1993 Form S-1 (File No.
33-64492) and incorporated herein by reference).

4.2 Form of Warrant Certificate for the Purchase of Shares (SRG&
Associates, Ltd.)

4.3 Form of Warrant Certificate for the Purchase of Shares (Lyon
Securities, Inc.)

4.4 Amendment No. 1 to Rights Agreement dated March 1, 1999

4.5 Amendment No. 2 to Rights Agreement dated August 12, 1999

10.1 Employment Agreement between the Company and Leland L.
Grubb, Jr.

10.2 Employment Agreement between the Company and J. Thomas
Williams

10.2 Amended and Restated 1988 Stock Option Plan

10.3 Amended and Restated 1992 Stock Option Plan

10.4 Amended and Restated 1997 Stock Option Plan

10.5 401(k) Plan

10.6 First Amended and Restated Revolving Credit Loan Agreement
dated December 4, 1996 between Comerica Bank-Texas and the
Company

10.12 Amendment No. 1 to Revolving Credit Loan Agreement April 1,
1999

10.19 Non-Employee Director Retainer Fee Plan

13 1998 Annual Report to Stockholders (Filed as Exhibit 13 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 and incorporated herein by
reference.)

*21 Subsidiaries of the Company
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
--------------------- ----------- ----------
<C> <S> <C>
*23 Consent of BDO Seidman, LLP.

*23.1 Consent of Ernst & Young LLP

24 Power of Attorney (set forth on the signature page of this
Form 10-K).

*27 Financial Data Schedule
</TABLE>

- - ------------------------

* Filed herewith

(b) Reports on Form 8-K

During the last quarter of the Company's fiscal year ended December 31,
1999, no reports on Form 8-K were filed with the Securities and Exchange
Commission by the Company.

(d) Financial statement schedules--See Item 14 (a)(2) for the response to
this portion of Item 14.

21
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Form 10-K to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Irving,
State of Texas, on March 30, 2000.

<TABLE>
<S> <C> <C>
THOMAS GROUP, INC.

By: /s/ J. THOMAS WILLIAMS
-----------------------------------------
J. Thomas Williams
CHIEF EXECUTIVE OFFICER
</TABLE>

POWER OF ATTORNEY

Each individual whose signature appears below constitutes and appoints J.
Thomas Williams such person's true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for such person and in such
person's name, place, and stead, in any and all capacities, to sign any and all
amendments to this Form 10-K and to file the same with all exhibits thereto, and
all documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Form 10-K has been signed by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ J. THOMAS WILLIAMS Chief Executive Officer, President, March 30, 2000
--------------------------------- and Director
J. Thomas Williams

/s/ ANNETTE M. ZWERNER Executive Vice President and Chief March 30, 2000
--------------------------------- Operating Officer
Annette M. Zwerner

/s/ LELAND L. GRUBB, JR. Vice President, Chief Financial
--------------------------------- Officer and Treasurer (Principal March 30, 2000
Leland L. Grubb, Jr. Financial and Accounting Officer)

/s/ JOHN T. CHAIN, JR. Chairman of the Board March 30, 2000
---------------------------------
John T. Chain, Jr.
</TABLE>

22
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ JAMES E. DYKES Director March 30, 2000
---------------------------------
James E. Dykes

/s/ RICHARD A. FREYTAG Director March 30, 2000
---------------------------------
Richard A. Freytag

/s/ DAVID B. MATHIS Director March 30, 2000
---------------------------------
David B. Mathis
</TABLE>

23
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8 AND 14(a)(1) AND (c)
LIST OF FINANCIAL STATEMENTS
CERTAIN EXHIBITS
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
THOMAS GROUP, INC.
DALLAS, TEXAS
<PAGE>
FORM 10-K--ITEM 14(a)(1)
THOMAS GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The following consolidated financial statements of Thomas Group, Inc. are
included in response to Item 8:

<TABLE>
<S> <C>
Reports of Independent Certified Public Accountants......... F-2

Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-4

Consolidated Statements of Operations for the fiscal years
ended December 31, 1999, 1998 and 1997.................... F-5

Consolidated Statements of Stockholders' Equity for the
fiscal years ended December 31, 1999, 1998 and 1997....... F-6

Consolidated Statements of Cash Flows for the fiscal years
ended December 31, 1999, 1998 and 1997.................... F-7

Notes to Consolidated Financial Statements.................. F-8
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Thomas Group, Inc.

We have audited the accompanying consolidated balance sheet of Thomas
Group, Inc. as of December 31, 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Thomas
Group, Inc. at December 31, 1999, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.

ERNST & YOUNG LLP

Dallas, Texas
March 8, 2000

F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Thomas Group, Inc.
Irving, Texas

We have audited the accompanying consolidated balance sheet of Thomas
Group, Inc. as of December 31, 1998 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the two years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Thomas Group, Inc. at December 31, 1998 and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1998
in conformity with generally accepted accounting principles.

BDO SEIDMAN, LLP

Dallas, Texas
February 12, 1999

F-3
<PAGE>
THOMAS GROUP, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
-------- --------
IN THOUSANDS,
EXCEPT SHARE DATA
<S> <C> <C>
ASSETS

Current Assets
Cash and cash equivalents................................. $ 9,698 $ 6,376
Trade accounts receivable, net of allowances of $546 and
$396 at December 31, 1999 and 1998, respectively........ 11,481 11,239
Unbilled receivables...................................... 200 740
Deferred tax asset........................................ 3,252 2,331
Other assets.............................................. 1,317 405
-------- --------
Total Current Assets.................................... 25,948 21,091
-------- --------
Property and equipment, net................................. 2,430 3,627
Deferred tax asset.......................................... 1,401 2,519
Other assets................................................ 3,086 4,394
-------- --------
$ 32,865 $ 31,631
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts payable and accrued liabilities.................. $ 4,679 $ 6,028
Income taxes payable...................................... 1,014 602
Advance payments.......................................... 74 532
Current maturities of long-term obligations............... 822 329
-------- --------
Total Current Liabilities............................... 6,589 7,491
Long-Term Obligations....................................... 3,422 2,928
-------- --------
Total Liabilities....................................... 10,011 10,419
-------- --------
Commitments and Contingencies

Stockholders' Equity
Common stock, $.01 par value; 25,000,000 shares
authorized; 6,603,064 and 6,536,416 shares issued and
4,755,065 and 4,977,567 outstanding at December 31, 1999
and 1998, respectively.................................. 66 65
Class B Common stock, $.01 par value; 1,200,000 shares
authorized; 3,970 and 22,989 shares issued and
outstanding at December 31, 1999 and 1998,
respectively............................................ -- --
Additional paid-in capital................................ 23,658 22,699
Retained earnings......................................... 17,468 13,654
Accumulated other comprehensive loss...................... (1,182) (482)
Treasury stock, 1,847,999 and 1,558,849 shares at December
31, 1999 and 1998, respectively, at cost................ (17,156) (14,724)
-------- --------
Total Stockholders' Equity................................ 22,854 21,212
-------- --------
$ 32,865 $ 31,631
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
THOMAS GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
IN THOUSANDS, EXCEPT SHARE DATA
<S> <C> <C> <C>
Revenue..................................................... $ 63,806 $ 68,361 $ 69,620
Cost of sales............................................... 35,598 39,625 40,302
--------- --------- ---------
Gross profit................................................ 28,208 28,736 29,318
Selling, general and administrative......................... 18,513 28,444 18,323
--------- --------- ---------
Operating income............................................ 9,695 292 10,995
Interest income (expense), net.............................. 214 (164) 159
--------- --------- ---------
Income from continuing operations before income taxes....... 9,909 128 11,154
Income taxes................................................ 3,765 37 4,461
--------- --------- ---------
Income from continuing operations........................... 6,144 91 6,693

Discontinued Operations:
Loss from operations, net of income tax benefit of $471 in
1998 and $2,844 in 1997................................... -- (1,092) (4,267)
Loss on disposal, net of income tax benefit of $1,428 in
1999 and $1,302 in 1998................................... (2,330) (3,341) --
--------- --------- ---------
Net Income (loss)........................................... $ 3,814 $ (4,342) $ 2,426
========= ========= =========
Earnings (loss) per common share
Basic:
Income from continuing operations........................... $ 1.26 $ 0.02 $ 1.10
Loss from discontinued operations........................... (0.48) (0.84) (0.70)
--------- --------- ---------
Net Income (loss)........................................... $ 0.78 $ (0.82) $ 0.40
========= ========= =========
Diluted:
Income from continuing operations........................... $ 1.25 $ 0.02 $ 1.06
Loss from discontinued operations........................... (.47) (0.82) (0.68)
--------- --------- ---------
Net Income (loss)........................................... $ 0.78 $ (0.80) $ 0.38
========= ========= =========
Weighted average shares:
Basic....................................................... 4,862,759 5,304,882 6,097,782
Diluted..................................................... 4,917,498 5,433,707 6,327,484
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
THOMAS GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
CLASS B ADDITIONAL OTHER
COMMON COMMON PAID-IN- RETAINED COMPREHENSIVE
STOCK STOCK CAPITAL EARNINGS INCOME (LOSS) TREASURY STOCK TOTAL
-------- -------- ---------- -------- -------------- -------------- --------
IN THOUSANDS, EXCEPT SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1996....... $62 $ 2 $20,143 $15,570 $ (32) $ (4,233) $ 31,512
Issuance of 97,632 and 1,378 shares of
common stock and of class B......... 1 -- 998 -- -- -- 999
Tax benefit of non-qualified stock
option exercises.................... -- -- 247 -- -- -- 247
Redemption of 9,973 shares of class
B................................... -- -- (82) -- -- -- (82)
Purchase of 16,400 shares of common
stock............................... -- -- -- -- -- (186) (186)
Discounted common stock options issued
under employee stock option plans... -- -- 291 -- -- -- 291
Comprehensive income:
Foreign currency translation
adjustment........................ -- -- -- -- (499) -- (499)
Net income.......................... -- -- -- 2,426 -- -- 2,426
--- --- ------- ------- ------- -------- --------
Total comprehensive income........ 1,927
--------
BALANCE AS OF DECEMBER 31, 1997....... 63 2 21,597 17,996 (531) (4,419) 34,708
--- --- ------- ------- ------- -------- --------
Issuance of 100,420 shares of common
stock............................... 2 -- 666 -- -- -- 668
Purchase of 1,277,627 shares of common
stock............................... -- -- -- -- -- (10,604) (10,604)
Tax benefit of non-qualified stock
option exercises.................... -- -- 146 -- -- -- 146
Redemption of 153,605 shares of class
B................................... -- (2) (1) -- -- -- (3)
Discounted common stock options issued
under employee stock option plans... -- -- 291 -- -- -- 291
Reissuance of 31,169 shares of
treasury stock...................... -- -- -- -- -- 299 299
Comprehensive Income:
Foreign currency translation
adjustment........................ -- -- -- -- 49 -- 49
Net loss............................ -- -- -- (4,342) -- -- (4,342)
--- --- ------- ------- ------- -------- --------
Total comprehensive loss.......... (4,293)
--------
BALANCE AS OF DECEMBER 31, 1998....... 65 -- 22,699 13,654 (482) (14,724) 21,212
Issuance of 66,618 shares of common
stock............................... 1 -- 582 -- -- -- 583
Purchase of 289,150 shares of common
stock............................... -- -- -- -- -- (2,432) (2,432)
Tax benefit of non-qualified stock
option exercises.................... -- -- 85 -- -- -- 85
Discounted common stock options issued
under employee stock option plans... -- -- 292 -- -- -- 292
Comprehensive income:
Foreign currency translation
adjustment........................ -- -- -- -- (700) -- (700)
Net income.......................... -- -- -- 3,814 -- -- 3,814
--- --- ------- ------- ------- -------- --------
Total comprehensive income........ 3,114
--------
BALANCE AS OF DECEMBER 31, 1999....... $66 $-- $23,658 $17,468 $(1,182) $(17,156) $ 22,854
=== === ======= ======= ======= ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>
THOMAS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
IN THOUSANDS
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations........................... $ 6,144 $ 91 $ 6,693
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities
Depreciation.............................................. 886 1,203 2,205
Amortization.............................................. 753 432 647
Write-down of assets...................................... -- 3,867 --
Allowance for doubtful accounts........................... 150 250 255
Other..................................................... (608) 31 (31)
Deferred taxes............................................ 1,625 (1,118) 1,785
Amortization of stock option grants....................... 292 291 291
Change in operating assets and liabilities
(Increase) decrease trade accounts receivable........... (668) (2,463) (2,076)
(Increase) decrease unbilled receivables................ 540 1,343 (720)
(Increase) decrease other assets........................ 643 1,752 (289)
Increase (decrease) accounts payable and accrued
liabilities............................................ (1,979) 1,137 1,705
Increase (decrease) advance payments.................... (255) 418 58
Increase (decrease) income taxes payable................ 631 (122) 2,086
------- ------- -------
Net Cash Provided by Operating Activities................... 8,154 7,112 12,609
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (506) (1,341) (3,131)
------- ------- -------
Net Cash Used in Investing Activities....................... (506) (1,341) (3,131)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock.................................. (2,432) (10,604) (186)
Proceeds from sale of treasury stock........................ -- 299 --
Proceeds from exercise of stock options..................... 488 146 552
Repayment of other long-term obligations.................... (163) (307) (71)
Advances--computer line of credit........................... -- -- 977
Advances--line of credit.................................... 447 32,508 5,500
Repayments--line of credit.................................. (303) (32,508) (5,500)
Net repayments from (advances to) affiliates................ -- 2,274 (1,881)
------- ------- -------
Net Cash Used in Financing Activities....................... (1,963) (8,192) (609)
Effect of exchange rate changes on cash..................... (213) 51 (311)
------- ------- -------
Net Cash Provided by (Used in) Continuing Operations........ 5,472 (2,370) 8,558
------- ------- -------
DISCONTINUED OPERATIONS:
Net cash used in operating activities................... (2,150) (2,508) (3,296)
Net cash used in investing activities................... -- -- (784)
Net cash provided by financing activities............... -- -- 1,065
------- ------- -------
Net Cash Used in Discontinued Operations.............. (2,150) (2,508) (3,015)
------- ------- -------
Cash and Cash Equivalents
Beginning of year......................................... 6,376 11,254 5,711
------- ------- -------
End of year............................................... $ 9,698 $ 6,376 $11,254
======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE>
THOMAS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) THE COMPANY--Thomas Group, Inc. (the "Company") was incorporated under
the laws of the State of Delaware in June 1978 and provides management services
designed to improve the competitiveness and profitability of the Company's
clients. The Company's specific methodology in its core product is known as
TOTAL CYCLE TIME and focuses on reducing the time spent on revenue-producing,
product development and administrative processes, resulting in operational and
financial improvements.

(b) BASIS OF PRESENTATION--The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated.

(c) EARNINGS PER SHARE--Earnings (loss) per common share is presented in
accordance with the provisions of the Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (SFAS 128), which requires the
presentation of "basic" and "diluted" earnings per share. Basic earnings (loss)
per share is based on the weighted average shares outstanding. Diluted earnings
per share includes the effect of dilutive securities such as stock options and
warrants.

The following table reconciles basic earnings per share to diluted earnings
per share under the provisions of SFAS 128. Diluted earnings per share and
diluted weighted average shares outstanding for the year ended December 31, 1998
are presented in accordance with the provisions of SFAS 128, even though
inclusion of common stock equivalents in the calculation of loss per share
results in antidilutive adjustments to basic loss per share for that period.

<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Basic earnings per share.................. $ 3,814 4,863 $ 0.78
Effect of dilutive securities:
Options and warrants.................... -- 54
------- -----
Diluted earnings per share................ $ 3,814 4,917 $ 0.78
======= ===== ======

YEAR ENDED DECEMBER 31, 1998
Basic earnings (loss) per share........... $(4,342) 5,305 $(0.82)
Effect of dilutive securities:
Options and warrants.................... -- 129
------- -----
Diluted earnings per share................ $(4,342) 5,434 $(0.80)
======= ===== ======

YEAR ENDED DECEMBER 31, 1997
Basic earnings per share.................. $ 2,426 6,098 $ 0.40
Effect of dilutive securities:
Options and warrants.................... -- 229
------- -----
Diluted earnings per share................ $ 2,426 6,327 $ 0.38
======= ===== ======
</TABLE>

(d) MANAGEMENT'S ESTIMATES AND ASSUMPTIONS--The presentation of financial
statements in conformity with accounting principles generally accepted in the
United States requires management to make

F-8
<PAGE>
THOMAS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 (CONTINUED)
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The Company reviews all significant estimates affecting the financial statements
on a recurring basis and records the effect of any necessary adjustments prior
to their issuance.

(e) WARRANTS--At December 31, 1997 the Company had 225,000 warrants
outstanding to purchase the Company's common stock. During 1998 175,000 warrants
expired. The remaining 50,000 warrants were repriced at an exercise price of
$9.125 per share, the market price on the date of repricing, and extended to
expire on October 28, 2003. The warrants are granted to a financial advisor to
the Company.

(f) ADVERTISING--The Company expenses the costs of advertising as incurred.
Advertising expense was $1.3 million, $0.5 million and $0.6 million for the
years ended December 31, 1999, 1998 and 1997, respectively.

(g) PROPERTY AND EQUIPMENT--Property and equipment are stated at cost less
accumulated depreciation. The Company records impairment losses on long-lived
assets used in operations when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts of those assets. Depreciation is
calculated on a straight-line basis over the estimated useful lives of the
various assets as follows:

<TABLE>
<S> <C>
Furniture and fixtures...................................... 5-7 Years
Equipment................................................... 3-7 Years
Leasehold improvements...................................... 5-19 Years
</TABLE>

(h) CAPITALIZED SOFTWARE DEVELOPMENT COSTS--Through 1997, the Company was
required to capitalize certain software development and production costs once
technological feasibility was achieved. The cost of purchased software was
capitalized when related to a product which had achieved technological
feasibility or that had an alternative future use. Capitalization of software
development costs ceased when the product was available for sale. For the year
ended December 31, 1997, the Company capitalized $0.6 million. Software
development costs incurred prior to achieving technological feasibility were
charged to research and development expense. In 1998 all capitalized software
costs were written off in conjunction with the discontinuation of the
Information Technologies segment. (See Note 2 to the Consolidated Financial
Statements.)

(i) INTANGIBLES--The Company amortized costs in excess of net assets
acquired on a straight-line basis over the estimated benefit period, generally
three to five years. Patents and licenses were generally amortized on a
straight-line basis over five years. The carrying value of goodwill, patents and
licenses was evaluated periodically in relation to the operating performance and
future undiscounted net cash flows of the related business. In 1998 all
intangibles were written off in conjunction with the discontinuation of the
Information Technologies segment. (See Note 2 to the Consolidated Financial
Statements.)

(j) REVENUE--Business Improvement Program contracts specify fixed fees, or
fixed fees plus incentives based on improvements achieved. Incentive
(performance-oriented) revenue is based on agreed-upon formulas relating to
improvements in customer-specific measures. Improvements are measured at time
intervals specified in each contract. Both the Company and the client agree to
the measured improvements and the corresponding incentive fees earned by the
Company, thereby completing the earnings process. Fixed fees are recognized as
revenue when earned, generally on a straight-line basis over the life of the

F-9
<PAGE>
THOMAS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 (CONTINUED)
contract. An allowance for doubtful accounts is provided when necessary and is
evaluated periodically on a client-by-client basis. Receivables written off
against the allowance totalled $0, $410,000 and $196,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.

(k) UNBILLED RECEIVABLES--Fixed fees are recognized when earned, generally
as services are provided over the life of the contract. Although fixed fee
recognition generally coincides with billings, as an accommodation to its
clients the Company may structure fee billings to increase in the latter stages
of a program. In such instances, revenue recognition as services are provided
results in unbilled receivables.

(l) ADVANCE PAYMENTS--The Company occasionally receives advance payments of
a portion of its fees. Advance payments are deferred upon receipt and recorded
as revenue when earned as specified by the contract.

(m) INCOME TAXES--Deferred income taxes are provided for temporary
differences between the financial statement and income tax basis of assets and
liabilities. Provisions are made for estimated domestic and foreign income
taxes, less available tax credits and deductions, which may be incurred on the
remittance of the Company's share of foreign subsidiaries' undistributed
earnings.

(n) CASH AND CASH EQUIVALENTS--Cash equivalents consist of highly liquid
investments with original maturities of three months or less.

(o) CONCENTRATION OF CREDIT RISK--The Company provides its services
primarily to a diverse group of large, well-established companies and does not
require collateral on receivable balances. The Company is currently expanding
its operations in Europe and Asia where potential economic turmoil may result in
significant fluctuations in the value of certain foreign currencies versus the
U.S. dollar. The Company may experience difficulties expanding its operations or
may encounter other collection issues if economic conditions should change.

(p) FOREIGN CURRENCY TRANSLATION--All balance sheet accounts of foreign
subsidiaries are translated at the current exchange rate as of the end of the
accounting period. The resulting translation adjustment is recorded as a
separate component of stockholders' equity. Income statement items are
translated at average currency exchange rates. Foreign currency fluctuation
risks are partially offset because the foreign subsidiaries' costs are
denominated in local currency.

(q) COMPREHENSIVE INCOME--In the first quarter of 1998, the Company adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income. Comprehensive income includes all changes in equity except those
resulting from investments by stockholders and distributions to stockholders.

(r) STOCKHOLDER RIGHTS PLAN--On July 9, 1998, the Company announced the
adoption of a Stockholder Rights Plan, intended to protect the Company from
unfair or coercive takeover attempts. The grant of the rights was made to
stockholders of record as of July 20, 1998.

(s) STOCK OPTIONS AND WARRANTS--The Company accounts for its stock-based
compensation plans in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations. Under APB 25, no compensation expense is recognized for stock
option grants if the exercise price of the Company's stock option grants equals
or exceeds the fair market value of the underlying stock on the date of grant.

F-10
<PAGE>
THOMAS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 (CONTINUED)
(t) FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS--The Company's financial
instruments include notes payable. The carrying value of these notes
approximates market value because the borrowing rate is similar to other
financial instruments with similar terms.

(u) RECENT ACCOUNTING STANDARDS--In June, 1998 the Financial Accounting
Standards Board issued Statement of Financial Accounting Standard No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
This statement standardized the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. The statement generally
provides for matching the timing of gain or loss recognition on the hedging
instrument with the recognition of (a) the changes in fair value of hedged
assets or liabilities that are attributable to the hedged risk or, (b) the
earnings effect of the hedged transaction. The statement is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000, with earlier
application encouraged, and shall not be applied retroactively to financial
statements of prior periods. Adoption of SFAS 133 is expected to have no effect
on the Company's financial statements.

NOTE 2

DISCONTINUED OPERATIONS

The net loss from operations of Information Technologies prior to May 6,
1998 is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1998 1997
-------- --------
IN THOUSANDS OF
DOLLARS
<S> <C> <C>
Revenues.................................................. $ 2,040 $ 5,504
Loss before income taxes.................................. $(1,563) $(7,111)
Income tax benefit........................................ $ 471 $ 2,844
Loss from discontinued operations......................... $(1,092) $(4,267)
</TABLE>

F-11
<PAGE>
THOMAS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3

RESTRUCTURING CHARGE

On May 6, 1998, the Company announced its plan to realign its corporate
structure, including establishing a reserve against the value of certain
facilities and other cost-cutting measures. As a result of these actions, the
Company recorded restructuring charges of $9.7 million in the second quarter of
1998. The restructuring charges include approximately $3.0 million for personnel
reduction costs, a $5.9 million reserve established against the value of
leasehold improvements and other costs associated with underutilized and
unnecessary facilities and miscellaneous other charges of approximately
$0.8 million. Charges against the restructuring reserve were as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1999 1998
-------- --------
IN THOUSANDS OF DOLLARS
<S> <C> <C>
Outstanding at beginning of year......................... $1,075 $ --
Establishment of reserve................................. -- 9,674
Write-down of assets..................................... -- (4,667)
Severance................................................ -- (3,015)
Office rent.............................................. -- (325)
Accrued expenses......................................... (322) (248)
Leasehold improvements................................... -- (189)
Furniture lease.......................................... (143) (91)
Office lease............................................. (239) (64)
------ -------
Outstanding at end of year............................... $ 371 $ 1,075
====== =======
</TABLE>

NOTE 4

OTHER ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
-------- --------
IN THOUSANDS OF DOLLARS
<S> <C> <C>
Deferred compensation plan assets........................ $ 2,603 $2,434
Cash surrender value of key-man life insurance........... -- 974
Prepaid expenses......................................... 709 385
Long-term receivables.................................... 365 330
Income tax receivable.................................... 129 265
Investment in Texas Stadium Suite........................ 170 189
Notes receivable, affiliate.............................. 171 129
Other.................................................... 256 93
------- ------
4,403 4,799
Less current portion..................................... (1,317) (405)
------- ------
$ 3,086 $4,394
======= ======
</TABLE>

F-12
<PAGE>
THOMAS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5

PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
-------- --------
IN THOUSANDS OF DOLLARS
<S> <C> <C>
Equipment.............................................. $ 6,055 $ 5,813
Furniture and fixtures................................. 2,166 2,163
Leasehold improvements................................. 1,939 1,692
Equipment under capital leases......................... 977 977
Construction in process................................ 8 411
Automobiles............................................ 78 31
------- -------
11,223 11,087
Less accumulated depreciation and amortization,
including $734 and $414 respectively, relating to
capital leases....................................... (8,793) (7,460)
------- -------
$ 2,430 $ 3,627
======= =======
</TABLE>

F-13
<PAGE>
THOMAS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6

LONG-TERM OBLIGATIONS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
-------- --------
IN THOUSANDS OF
DOLLARS
<S> <C> <C>
Capital lease obligations................................ $ 247 $ 579
Deferred compensation plan (See Note 9).................. 2,603 2,434
Estimated loss on disposal of segment.................... 1,150 --
Other.................................................... 244 244
------ ------
4,244 3,257
Less current portion..................................... (822) (329)
------ ------
$3,422 $2,928
====== ======
</TABLE>

Minimum lease payments required under non-cancelable lease arrangements
subsequent to December 31, 1999, are as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- --------
IN THOUSANDS OF DOLLARS
<S> <C> <C>
2000.................................................... $1,556 $256
2001.................................................... 985 --
2002.................................................... 866 --
2003.................................................... 466 --
2004.................................................... 82 --
Thereafter.............................................. 78 --
------ ----
$4,033 256
======
Less amount representing interest....................... (9)
----
$247
====
</TABLE>

The Company leases office space, vehicles and various types of office
equipment. Rent expense related to operating leases totaled $1.5 million for
1999, $2.1 million for 1998 and $3.3 million for 1997.

F-14
<PAGE>
THOMAS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
-------- --------
IN THOUSANDS OF
DOLLARS
<S> <C> <C>
Accounts payable and accrued liabilities................. 3,157 $4,789
Accrued payroll and bonuses.............................. 1,399 1,116
Accrued employee benefits................................ 123 123
------ ------
$4,679 $6,028
====== ======
</TABLE>

NOTE 8

INCOME TAXES

The domestic and foreign source components of income (loss) before taxes are
as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
IN THOUSANDS OF DOLLARS
<S> <C> <C> <C>
Domestic sources................................. $ 3,207 $(4,894) $ 9,983
Foreign sources.................................. 6,702 5,022 1,171
------- ------- -------
9,909 128 11,154
Discontinued operations.......................... (3,758) (6,206) (7,111)
------- ------- -------
$ 6,151 $(6,078) $ 4,043
======= ======= =======
</TABLE>

The reconciliation of income tax from continuing operations computed at the
U.S. federal statutory tax rate to the Company's effective income tax rate is as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
IN THOUSANDS OF DOLLARS
<S> <C> <C> <C>
Income taxes at statutory rate....................... $ 3,369 $ 44 $3,792
Effect on taxes resulting from:
State taxes........................................ 322 5 446
Foreign taxes...................................... -- (16) 129
Decrease in valuation allowance.................... (1,043) -- --
Foreign income subject to current U.S. taxation.... 772 -- --
Other (primarily permanent differences)............ 345 4 94
------- ---- ------
$ 3,765 $ 37 $4,461
======= ==== ======
</TABLE>

F-15
<PAGE>
THOMAS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8 (CONTINUED)
Federal, state and foreign income tax expense consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
IN THOUSANDS OF DOLLARS
<S> <C> <C> <C>
Current tax expense:
Federal......................................... $ 334 $ -- $ 1,656
State........................................... 661 -- 280
Foreign......................................... 1,147 1,095 1,015
------ ------- -------
2,142 1,095 2,951

Deferred tax expense (benefit):
Federal......................................... 826 (3,589) (586)
State........................................... (631) (422) (154)
Foreign......................................... -- 1,180 (594)
------ ------- -------
195 (2,831) (1,334)
------ ------- -------
$2,337 $(1,736) $ 1,617
====== ======= =======
</TABLE>

Income tax expense (benefit) is included in the consolidated financial
statements as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
IN THOUSANDS OF DOLLARS
<S> <C> <C> <C>
Continuing operations........................... $ 3,765 $ 37 $ 4,461
Discontinued operations......................... (1,428) (1,773) (2,844)
------- ------- -------
$ 2,337 $(1,736) $ 1,617
======= ======= =======
</TABLE>

F-16
<PAGE>
THOMAS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8 (CONTINUED)
Significant components of the Company's net deferred tax assets
(liabilities) for federal and state income taxes are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
-------- --------
IN THOUSANDS OF DOLLARS
<S> <C> <C>
Deferred tax assets:
Fixed assets........................................... $ 201 $ 504
Allowance for doubtful accounts........................ 207 135
Foreign tax credit carryforward........................ 1,527 569
Restructuring expenses................................. 1,501 1,721
Discontinued operations................................ 437 203
Accrued expenses....................................... 481 267
Deferred compensation.................................. 688 535
Contributions carryforward............................. -- 17
Net operating loss carryforward........................ 483 2,414
Minimum tax credit carryforward........................ 178 --
------ -------
5,703 6,365
Valuation allowance.................................... (472) (1,515)
------ -------
Total deferred tax assets.............................. 5,231 4,850

Deferred tax liabilities:
Unremitted earnings of foreign subsidiaries............ (408) --
Other, net............................................. (170) --
------ -------
Total deferred tax liabilities......................... (578) --
------ -------
Net deferred tax asset................................... $4,653 $ 4,850
====== =======
Net deferred tax asset--current.......................... $3,252 $ 2,331
Net deferred tax asset--non-current...................... 1,401 2,519
------ -------
$4,653 $ 4,850
====== =======
</TABLE>

At December 31, 1999 the Company has approximately $1.2 million of Asian net
operating loss carryover which has been completely offset by a valuation
allowance. In addition, the Company has approximately $1.5 million of U.S.
foreign tax credit carryovers which begin to expire in 2003 and approximately
$178,000 of U.S. minimum tax credits which may be carried forward indefinitely.

Utilization of the net deferred tax asset is dependent on future taxable
income in excess of profits arising from existing taxable temporary differences.
A net deferred tax asset has been recognized because management believes it is
more likely than not that the net deferred tax asset will be utilized in future
years. This conclusion is based on the belief that current and future levels of
U.S. and foreign source taxable income will be sufficient to realize the
benefits of the net deferred tax asset. In addition to the valuation allowance
related to the Asian net operating loss carryover, the Company has established a
valuation allowance on certain temporary differences related to foreign
operations.

F-17
<PAGE>
THOMAS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9

EMPLOYEE BENEFIT PLANS

The Company sponsors a 401(k) retirement plan. The Company, at its
discretion, matches a portion of the participants' contribution. Participants
are vested in the Company's matching contribution after five years of full-time
service and may join the plan January 1 and July 1. Matching contribution
expense was $0.4 million, for 1999, 1998 and 1997, respectively.

In 1994, the Company established a non-qualified deferred compensation plan.
Participation is limited to officers and key employees. Assets and accrued
liabilities of the plan were $2.6 and $2.4 million at December 31, 1999 and
1998, respectively and are recorded in the long term section of the balance
sheet.

The Company has incentive compensation plans covering all full-time
employees and a separate incentive compensation program for certain key
executive officers. The aggregate incentive compensation paid or advanced under
these plans was $1.4 million in 1997. (See Note 12).

The Company self-insures its medical costs associated with injury and
hospitalization to its employees and their dependents up to a limit of $50,000
per person per plan year. Insurance is purchased for claims in excess of the
self-insurance limits. The current program also has contractual caps on the
total aggregate claims the Company is obligated to fund in any plan year. The
Company had an accrual for outstanding claims of approximately $0.1 million to
cover any loss incurred, including those not yet reported, through December 31,
1999.

NOTE 10

LITIGATION

The Company is party to an arbitration proceeding with the former Chairman
and CEO of the Company, styled Thomas Group, Inc. v. Philip Thomas. The Company
timely paid Mr. Thomas all benefits due him under his written employment
agreement, including a $1.8 million severance payment and full vesting of
375,000 stock options, yet Mr. Thomas has demanded additional compensation and
retirement benefits. Consequently, on December 18, 1998 the Company initiated
this proceeding before the American Arbitration Association in Dallas, Texas
pursuant to an arbitration clause in Mr. Thomas' employment agreement. In this
proceeding Mr. Thomas has asserted claims for actual damages of $9 million to
$11 million, plus damages for emotional distress and exemplary damages. The
Company believes Mr. Thomas' claims have no merit, and is seeking a
determination that Mr. Thomas is owed nothing further as a result of his former
employment relationship with the Company. The arbitration hearing was held the
week of February 21, 2000. A ruling is expected on or about May 20, 2000.

F-18
<PAGE>
THOMAS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 (CONTINUED)
al., filed June 9, 1997 in the U.S. District Court for the Northern District of
Ohio, each party asserted claims arising out of the purchase agreement and
consulting agreement in connection with the Company's purchase of Interlink
Technologies. In connection with a settlement reached on October 26, 1999, the
Company recorded an additional $2.0 million after tax charge to discontinued
operations. The settlement agreement also stipulates that the Company make
$0.6 million payments in December 2000 and December 2001.

NOTE 11

SEGMENT DATA AND SALES TO MAJOR CUSTOMERS

The Company operates in one industry segment, but conducts its business
primarily in three geographic areas: the United States, Europe and Asia.
Information regarding these areas follows:

<TABLE>
<CAPTION>
UNITED STATES EUROPE ASIA CORPORATE TOTAL
------------- -------- -------- --------- --------
IN THOUSANDS OF DOLLARS
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Revenue...................................... $39,933 $18,352 $5,521 $ -- $63,806
Long-lived assets............................ $ 3,413 $ 680 $ 51 $2,773 $ 6,917
Year ended December 31, 1998:
Revenue...................................... $48,027 $16,764 $3,570 $ -- $68,361
Long-lived assets............................ $ 3,420 $ 572 $ 54 $6,494 $10,540
Year ended December 31, 1997:
Revenue...................................... $49,747 $14,903 $4,970 $ -- $69,620
Long-lived assets............................ $10,850 $ 829 $ 81 $5,191 $16,951
</TABLE>

The following table indicates those clients whose revenues were in excess of
10% of consolidated revenues in any of the three years ended December 31, 1999.

<TABLE>
<CAPTION>
% OF % OF % OF
UNITED STATES TOTAL EUROPE TOTAL ASIA TOTAL
------------- -------- -------- -------- -------- --------
IN THOUSANDS OF DOLLARS
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1999:
Client 1.................................... $11,954 19% $1,412 2% -- --
Client 2.................................... $ 486 1% $9,252 14% -- --
Client 3.................................... $ 7,977 12% -- -- -- --
Year ended December 31, 1998:
Client 1.................................... $20,466 30% -- -- -- --

Year Ended December 31, 1997:
Client 1.................................... $ 2,297 3% $4,466 6% $1,082 2%
Client 2.................................... $ 7,317 10% -- -- -- --
</TABLE>

F-19
<PAGE>
THOMAS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12

RELATED PARTY TRANSACTIONS

PHILIP R. THOMAS--Former Chairman and Chief Executive Officer--The Company
has entered into lease agreements with Mr. Thomas for land on which the CEO
Center is situated and a separate agreement to use guest accommodations situated
on Mr. Thomas' adjacent property. The land is leased pursuant to two 25 year
leases entered into in December, 1991 and January, 1994. The annual rental on
these leases is $6,000 each, one of which has been prepaid throughout the year
2016. The usage agreement on these guest accommodations provides for monthly
payments of $12,960 through November 30, 2016. This rate was determined by
evaluating average occupancy rates and costs of comparable facilities in the
area. On December 31, 1995, the Company prepaid the guest accommodations usage
agreement in its entirety. The $0.9 million prepayment represents a discount of
$0.6 million (computed on a net present value basis) from the payments to which
Mr. Thomas was entitled. The prepayment is included in Other Assets, and is
being amortized on a straight-line basis over the term of the usage agreement.

The Company formerly employed two sales executives whose focus was acquiring
new business through relationships in the investment banking community. These
executives have an ownership interest in Celerity Partners, a limited
partnership (the "Partnership") which invests in companies whose competitiveness
within a particular industry may be significantly improved. The general partner
of the Partnership is a limited liability Company ("Celerity LLC") in which
Mr. Thomas owns a 30% equity interest. The Company's board of directors
precluded Mr. Thomas from negotiating or approving contracts with any potential
client in which the Partnership holds or is negotiating an ownership interest
and from negotiating the Company's agreements with Celerity LLC. During 1997,
the Company ended the employment of the two sales executives and entered into a
"finder's agreement" with the partnership which would compensate the partnership
when it delivered potential clients who ultimately entered into a business
improvement program. The Company made advances to Celerity LLC in 1997 in the
amount of $0.2 million against future finder's fees.

In 1997, Mr. Thomas earned $0.8 million in incentive compensation and was
paid compensation advances of $1.4 million. The excess of $0.6 million was to be
repaid through the tender of shares to the Company, as described in the
following paragraph. Mr. Thomas did not earn incentive compensation in 1996 and
therefore executed a $1.5 million promissory note, bearing interest at prime
plus 1/4% for advances made to him. This note was extended and was paid by
Mr. Thomas as a result of the Company's purchase of shares from Mr. Thomas, as
described in the following paragraph.

On February 19, 1998, the Company entered into a stock purchase agreement
with Mr. Philip R. Thomas, then the Chairman and Chief Executive Officer, for a
to be determined number of shares of common stock in exchange for $8.2 million
in cash and the satisfaction of a $2.3 million outstanding debt to the Company.
The ultimate number of shares to be purchased from Mr. Thomas was determined
based on a formula and at a discount to market. The Company utilized an
investment banking firm to determine the appropriate discount factor. At the
close of the market on April 24, 1998 the number of shares to be purchased was
determined to be 1.3 million shares.

OTHER AFFILIATES--In 1996 the Company advanced a key employee $0.2 million.
The employee executed a promissory note due December 18, 2000. The employee
repaid approximately $0.1 million on the note during 1998.

F-20
<PAGE>
THOMAS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12 (CONTINUED)
A summary of current receivables from affiliates follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
-------- --------
IN THOUSANDS OF
DOLLARS
<S> <C> <C>
Other affiliates--long term................................. $171 $129
</TABLE>

A summary of transactions with affiliates follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
IN THOUSANDS OF DOLLARS
<S> <C> <C> <C>
Philip R. Thomas:
Real estate and other rentals paid to Mr. Thomas.......... $ 6 $ 6 $ 6
Payments to Celerity--advance against finder's
agreement............................................... -- -- $200
Other Affiliates:
Employee loans............................................ $100 $100 $200
</TABLE>

NOTE 13

FINANCING AGREEMENT

The Company previously maintained a $20 million revolving credit agreement.
Terms of the agreement provided for a $1 million per quarter reduction in
available credit beginning in the first quarter of 1999. In April 1999, the
revolving credit agreement was amended to reduce the maximum allowable
borrowings to $15 million with no quarterly reduction. Loans under this
agreement bear interest at the prime rate or other similar interest options. At
December 31, 1999 the Company had approximately $0.1 million outstanding on this
agreement. The Company utilized the credit line during 1999 to meet working
capital requirements. Total interest paid, at an annual rate of 8.25%, was
$4,500. The Company paid commitment fees for the periods for which the Company
had no outstanding amounts totaling $57,000, $67,000 and $56,000 for 1999, 1998,
and 1997, respectively.

In addition, the Company has a $1.0 million credit facility for the purchase
of portable computer equipment. In 1997 the Company made draws of $0.9 million
on this facility to purchase notebook computers. No additional draws were made
on this facility during 1999 or 1998. At December 31, 1999, $0.2 million
remained outstanding on the credit facility. Total interest paid under this
facility at December 31, 1999 was $35,000 at an interest rate of 7.25%.

NOTE 14

COMMON STOCK AND STOCK OPTIONS

Shares of common stock and class B common stock are identical, except that
holders of class B common stock have no voting rights. The Company grants
incentive and non-qualified stock options and has reserved 2,425,000 shares of
common stock and 675,000 shares of class B common stock for issuance. Options to
purchase shares of the Company's common stock and class B common stock have been
granted

F-21
<PAGE>
THOMAS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14 (CONTINUED)
to directors, officers and employees. The majority of the options granted become
exercisable at the rate of 20% per year, and generally expire ten years after
the date of grant.

In February 1996 the Company granted options to officers and employees at an
exercise price lower than the market price of the stock at the date of grant.
The total related deferred compensation expense was $0.9 million which is being
recognized as the options vest. The total 1999 compensation cost of
$0.3 million was recorded as an increase in additional paid-in capital.

Effective for the year ended December 31, 1996, the Company was required to
adopt the disclosure portion of Statement of Financial Accounting Standards
No. 123 (SFAS No. 123), "Accounting for Stock Based Compensation." This
statement requires the Company to provide pro forma information regarding net
income and net income per share as if compensation cost for the Company's stock
options had been determined in accordance with the fair value method. The fair
value of these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 1999,
1998, and 1997: dividend yield of 0%; expected volatility of 65%; risk free
interest rate of 6%; and expected lives ranging from 3.84 to 6 years. Had
compensation cost for the Company's stock option plans been determined based on
the fair value at the grant date consistent with the provisions of SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
IN THOUSANDS OF DOLLARS
<S> <C> <C> <C>
Net Income (Loss)
As reported...................................... $3,814 $(4,342) $2,426
Pro forma........................................ $3,165 $(7,308) $1,513
Earnings (Loss) Per Share
As reported
Basic............................................ $ 0.78 $ (0.82) $ 0.40
Diluted.......................................... $ 0.78 $ (0.80) $ 0.38
Pro forma
Basic............................................ $ 0.65 $ (1.38) $ 0.25
Diluted.......................................... $ 0.64 $ (1.34) $ 0.24
</TABLE>

F-22
<PAGE>
THOMAS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14 (CONTINUED)
A summary of the status of the Company's stock options to employees as of
December 31, 1999, 1998 and 1997 and changes in the years then ended is
presented below.

<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
COMMON OPTION SHARES SHARES PRICE SHARES PRICE SHARES PRICE
- - -------------------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year......... 1,636,354 $10.52 1,506,818 $ 9.89 1,367,625 $ 9.78
Granted................................ 141,681 8.84 1,334,718 11.37 370,250 10.35
Exercised.............................. (211,694) 9.07 (299,543) 10.45 (104,382) 6.88
Forfeited.............................. (226,409) 9.00 (905,639) 11.63 (126,675) 11.90
--------- ------ --------- ------ --------- ------
Outstanding at end of year............... 1,339,932 $10.15 1,636,354 $10.52 1,506,818 $ 9.89
========= ====== ========= ====== ========= ======
Options exercisable at year-end.......... 882,489 $11.00 1,093,274 $10.52 739,848 $10.39
Weighted average grant-date fair value of
options granted........................ $ 8.84 $11.37 $10.49
</TABLE>

<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
COMMON B OPTION SHARES SHARES PRICE SHARES PRICE SHARES PRICE
- - ---------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.................. 9,000 $5.44 12,360 $5.42
Granted......................................... -- -- -- -- -- --
Exercised....................................... -- -- -- -- (3,360) 5.36
Forfeited....................................... -- -- 9,000 $5.44 -- --
----- ------ ----- ----- ------ -----
Outstanding at end of year........................ -- -- -- -- 9,000 $5.44
===== ====== ===== ===== ====== =====
Options exercisable at year-end................... -- -- -- -- 9,000 $5.44
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1999.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE ---------------------------
COMMON OPTIONS REMAINING WEIGHTED AVERAGE WEIGHTED AVERAGE
- - ----------------------------------- CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICE OUTSTANDING LIFE (YEARS) PRICE SHARES PRICE
- - --------------------- ----------- ------------ ---------------- -------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.00 - 7.94 317,728 7.40 $ 7.59 33,629 $ 6.10
8.00 - 9.94 450,695 8.20 9.00 306,999 8.89
10.00 - 13.75 492,367 7.03 11.95 465,308 11.96
14.25 - 16.88 72,992 5.77 15.56 70,573 15.55
18.44 - 19.13 6,150 6.48 18.61 5,980 18.60
- - --------------------- --------- ---- ------ ------- ------
$ 0.00 - $19.13 1,339,932 7.44 $10.15 882,489 $11.00
===================== ========= ==== ====== ======= ======
</TABLE>

F-23
<PAGE>
THOMAS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
IN THOUSANDS OF DOLLARS
<S> <C> <C> <C>
Interest paid........................................ $107 $ 198 $ 98
Income taxes paid.................................... $928 $1,290 $1,310
Non-cash transactions:
Receipt of class B common stock in payment of
exercise price of common stock options........... -- $ 1 $ 82
Additional acquisition cost payable in common
stock............................................ -- -- $ 300
</TABLE>

F-24

<PAGE>

EXHIBIT 21
Page 1 of 1

THOMAS GROUP, INC.
SUBSIDIARIES OF THE COMPANY

<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARY INCORPORATION
- - ---------------------------------------- -----------------------------------------
<S> <C>

Thomas Group GmbH Germany
Thomas Group (Switzerland) GmbH Switzerland
Thomas Group of Louisiana, Inc. Delaware
Thomas Group Asia Pte. Ltd. Singapore
Thomas Group of Sweden Sweden
Thomas Group Hong Kong Hong Kong

</TABLE>

<PAGE>

EXHIBIT 23

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of our report dated February 12, 1999, related to the
consolidated financial statements of Thomas Group, Inc. and subsidiaries
appearing in the 1999 Annual Report on Form 10-K for the year ended December
31, 1998. We also consent to the reference to us under the caption "Experts"
in the Registration Statement.

/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP

Dallas, Texas
March 27, 2000

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-75811) pertaining to the 1997 Stock Option Plan, Amended
and Restated 1988 Stock Option Plan, and Amended and Restated 1992 Stock
Option Plan of Thomas Group, Inc. of our report dated March 8, 2000, with
respect to the consolidated financial statements of Thomas Group, Inc.
included in the Annual Report (Form 10-K) for the year ended December 31,
1999.

/s/ Ernst & Young LLP

Dallas, Texas
March 27, 2000

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,698
<SECURITIES> 0
<RECEIVABLES> 12,227
<ALLOWANCES> 546
<INVENTORY> 0
<CURRENT-ASSETS> 25,948
<PP&E> 11,223
<DEPRECIATION> 8,793
<TOTAL-ASSETS> 32,865
<CURRENT-LIABILITIES> 6,589
<BONDS> 0
0
0
<COMMON> 66
<OTHER-SE> 22,788
<TOTAL-LIABILITY-AND-EQUITY> 32,865
<SALES> 63,806
<TOTAL-REVENUES> 63,806
<CGS> 35,598
<TOTAL-COSTS> 35,598
<OTHER-EXPENSES> 18,513
<LOSS-PROVISION> 149
<INTEREST-EXPENSE> 171
<INCOME-PRETAX> 9,909
<INCOME-TAX> 3,765
<INCOME-CONTINUING> 6,144
<DISCONTINUED> 2,330
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,814
<EPS-BASIC> .78
<EPS-DILUTED> .78

</TABLE>