Tci Solutions 10QSB Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

[ X ]	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005
[ ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________________
Commission file number 0-49783

TCI Solutions, Inc. (Exact name of small business issuer as specified in its charter)
Delaware (State of incorporation)	33-0537151 (IRS Employer Identification No.)
17752 Skypark Circle, Suite 160 Irvine, California 92614 (949) 476-1122 (Address and telephone number of principal executive offices)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the last 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 whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes [ ] No [ X ]

The number of shares outstanding of the registrant’s Common Stock, $0.001 par value, was 12,825,459 as of November 18, 2005.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

TCI Solutions, Inc.

CONDENSED BALANCE SHEETS

	September 30, 2005		December 31, 2004
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	730,359	$	3,344,919
Accounts receivable, net of allowances of $954,830 at 9/30/05 and $127,798 at 12/31/04		2,444,783		3,355,635
Prepaid expenses and other current assets		84,419		212,217
Total current assets		3,259,561		6,912,771
Property and equipment, net		1,001,611		1,274,328
Goodwill and intangibles		34,955,758		529,031
Other assets		23,232		23,232
Total assets	$	39,240,162	$	8,739,362
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	365,114	$	825,873
Related party payable		4,094,386		0
Accrued expenses		2,835,589		1,504,868
Line of credit		0		2,437,046
Current portion of captial lease obligations		16,906		24,270
Deferred revenue		1,638,151		2,131,372
Total current liabilities		8,950,146		6,923,429
Captial lease obligation, net of current portion		0		11,603

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Commitments and contingencies (Note 4)
Stockholders’ equity:
Convertible preferred stock		17,850,740		17,850,740
Common stock		37,481,222		37,481,222
Paid in capital		35,967,134		0
Warrants to purchase common stock		178,129		178,129
Accumulated deficit		(61,187,209)		(53,705,761)
Stockholders’ equity		30,290,016		1,804,330
Total liabilities and stockholders’ equity	$	39,240,162	$	8,739,362

See accompanying notes to condensed financial statements

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TCI Solutions, Inc.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended September 30, 2005	Three Months Ended September 30, 2004	For the 90 Day Period From January 1 to March 31, 2005	For the 183 Day Period From April 1 to September 30, 2005	Nine Months Ended September 30, 2004
	(Successor)	(Predecessor)	(Predecessor)	(Successor)	(Predecessor)
Revenues:
Software licenses	$625,857	$1,919,732	$1,788,273	$1,576,218	$4,129,154
Maintenance	1,433,409	1,255,231	1,331,007	2,799,232	3,767,823
Services	1,782,447	2,585,838	2,669,679	3,937,132	8,003,741
Other	12,248	152,210	16,730	35,740	524,172
Total revenues	3,853,961	5,913,011	5,805,689	8,348,322	16,424,890
Cost of revenues:
Software licenses	96,599	77,644	245,465	181,499	412,330
Maintenance	80,655	162,260	179,523	144,107	718,125
Services	1,410,142	1,727,264	1,701,740	2,918,687	5,392,921
Other	4,965	173,136	11,061	29,002	487,553
Total cost of revenues	1,592,361	2,140,304	2,137,789	3,273,295	7,010,929
Gross profit	2,261,600	3,772,707	3,667,900	5,075,027	9,413,961
Operating expenses:
Product development	740,662	743,595	771,732	1,550,470	2,574,755
Sales and marketing	984,225	1,740,463	1,726,672	2,327,632	5,266,791
General and administrative	1,448,375	1,153,136	2,377,821	3,478,268	3,875,661
Acquisition related costs	0	0	3,946,679		0
Total operating expenses	3,173,262	3,637,194	8,822,904	7,356,370	11,717,207
Loss from operations	(911,662)	135,513	(5,155,004)	(2,281,343)	(2,303,246)
Other expense, net	(950)	(19,070)	(33,858)	(11,243)	(57,315)
Loss before income taxes	(912,612)	116,443	(5,188,862)	(2,292,586)	(2,360,561)
Provision for income taxes	—	—	—	—	—
Net Income (loss)	($912,612)	$116,443	($5,188,862)	($2,292,586)	($2,360,561)
Net Income (loss) per share
-basic	($0.08)	$0.01	($0.41)	($0.18)	($0.18)
-diluted	($0.08)	$0.00	($0.41)	($0.18)	($0.18)
Weighted average common shares outstanding
-basic	12,825,459	12,823,777	12,825,459	12,825,459	12,821,531
-diluted	12,825,459	45,385,327	12,825,459	12,825,459	12,821,531

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TCI Solutions, Inc.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

For the 90 Day Period From January 1 to March 31, 2005		For the 183 Day Period From April 1 to September 30, 2005		For the Nine Months Ended September 30, 2004
		(Predecessor)		(Successor)		(Predecessor)
Operating activities
Net loss	$	(5,188,862)	$	(2,292,586)	$	(2,360,561)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		153,407		926,689		479,861
Provision for doubtful accounts		706,667		180,335		(50,000)
Changes in operating assets and liabilities:
Accounts receivable		(1,996,723)		1,224,635		(685,682)
Prepaid expenses and other current assets		14,144		113,655		4,981
Accounts payable		347,240		(807,998)		(175,058)
Related party payable		0		4,094,386		0
Accrued expenses		4,324,711		(1,295,762)		(3,873)
Deferred revenue		1,605,631		(2,098,852)		1,122,327
Net cash provided by (used in) operating activities		(33,785)		44,502		(1,668,005)
Investing activities
Purchases of property and equipment		(132,392)		(36,872)		(164,866)
Financing activities
Proceeds from line of credit		0		0		0
Repayments on line of credit		(212,144)		(2,224,902)		(145,590)
Principal payments on capital lease obligations		(6,317)		(12,650)		(17,293)
Proceeds from issuance of common stock		0		0		1,930
Net cash provided by (used in) financing activities		(218,461)		(2,237,552)		(160,953)
Net decrease in cash and cash equivalents		(384,638)		(2,229,922)		(1,993,824)
Cash and cash equivalents at beginning of period		3,344,919		2,960,281		3,679,331
Cash and cash equivalents at end of period	$	2,960,281	$	730,359	$	1,685,507

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TCI Solutions, Inc.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1. Nature of Operations and Summary of Accounting Policies

The accompanying unaudited condensed financial statements included herein have been prepared by us in conformity with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information for reporting on Form 10-QSB. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Our Unaudited Condensed Financial statements should be read in conjunction with the financial statements and notes thereto included in our Form 10-KSB for the year ended December 31, 2004.

In our opinion, the accompanying Unaudited Condensed Financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of our financial position, results of operations and cash flows.

The results of operations for the three and nine months ended September 30, 2005, are not necessarily indicative of the results of operations that may be reported for any other interim period or for the entire year ending December 31, 2005. The balance sheet at December 31, 2004 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements, as permitted by SEC rules and regulations for interim reporting.

On April 1, 2005, we entered into a Stock Purchase Agreement with Retalix Ltd., an Israeli corporation, Retalix Holdings Inc. and certain holders of our outstanding Series A Preferred Stock and Series B Preferred Stock (the "Selling Stockholders"), pursuant to which Retalix Holdings Inc. purchased substantially all of our outstanding Series A Preferred Stock and Series B Preferred Stock (the "Acquisition") for an aggregate purchase price of $30.3 million, consisting of 715,730 ordinary shares of Retalix Ltd. valued at $16.8 million and $13 million in cash which was paid to the Selling Stockholders pro rata plus direct acquisition costs. As part of the transaction, we paid a bonus to certain employees and directors for the cancellation of their vested stock options under our 1993 and 2001 Option Plans and for stock options that had been tendered under our stock option exchange offer initiated in November 2004, of an aggregate of $1.7 million in cash. The Acquisition resulted in Retalix Holdings Inc. beneficially owning in excess of 73% of our outstanding voting stock (calculated on an as-converted-to-common-stock basis), and specifically, 99.8% of the outstanding Series A Preferred Stock and 95.8% of the outstanding Series B Preferred Stock.

Also on April 1, 2005, we entered into an agreement and plan of merger with Retalix Ltd., Retalix Holdings Inc. and certain subsidiaries of Retalix Holdings Inc. under which we would be merged with and into a subsidiary of Retalix Holdings Inc. and all outstanding common stock and preferred stock of TCI (other than shares held by Retalix Holdings Inc. and shares as to which appraisal rights have been properly perfected under Delaware law) would be exchanged for cash. Following the merger, we would cease to exist and all of our assets and liabilities would be held by a subsidiary of Retalix Holdings Inc.

On April 1, 2005, Retalix acquired approximately 73% of TCI common stock for cash of $13 million and 715,730 (fair value of $16.8 million) ordinary shares of Retalix Ltd. plus direct acquisition costs. The following table summarizes the estimated fair value of the net assets acquired:

Working capital	$(4,258,000)
Fixed assets	1,253,000
Identified intangible assets	9,596,000
Goodwill	25,998,000
Other assets	24,000
Debt assumed	(24,000)
Consideration paid	$32,589,000

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In the third quarter of 2005 we adjusted the fair value of the net assets that were acquired on April 1, 2005 by approximately $1.3 million. The adjustments relate to additional direct acquisition costs that are required to be pushed down to us and pre-acquisition contingencies that were not discovered until after the acquisition date. We are not aware of any additional pre-acquisition contingencies that would impact future operations, liquidity or financial condition.

As a result of the change in control, generally accepted accounting principles (“GAAP”) requires the acquisition by Retalix Holdings Inc. to be accounted for as a purchase transaction in accordance with Statement of Financial Accounting Standards No. 141, (“SFAS”) Business Combinations. GAAP requires the application of “push down accounting” in situations where the ownership of an entity has changed, meaning that the post-transaction financial statements of the acquired entity (i.e. TCI Solutions, Inc.) reflect the new basis of accounting in accordance with the SEC Staff Accounting Bulletin (“SAB”) No. 54. Accordingly, the financial statements as of September 30, 2005 and for the first 183 day period then ended reflect Retalix Holdings Inc.’s stepped up basis resulting from the acquisition that has been pushed down to us. The aggregate purchase price has been allocated to the underlying assets and liabilities based upon the respective estimated fair value at April 1, 2005 (date of acquisition). Carryover basis accounting applies for tax purposes. All financial information presented prior to April 1, 2005 represents predecessor basis of accounting.

		Estimated
Intangible asset (in thousand)	Amount	Life
Software Technology	$ 2,810	4
Customer base	$ 6,506	15
Other identified intangible assets	$ 280	2
	$ 9,596
Estimated amortization is as follows:
2005	$ 957
2006	$ 1,276
2007	$ 1,171
2008	$ 1,136
2009	$ 609
Thereafter	$ 4,447

The purchase price allocation resulted in $24.7 million of goodwill. None of the goodwill is deductible for income tax purposes. Furthermore, in accordance with SFAS No. 142, Goodwill and Intangible Assets, goodwill is not amortized, but is tested for impairment on an annual basis, or more frequently as impairment indicators arise. Impairment tests, which involve the use of estimates related to the fair market value of the business operations with which goodwill is associated, are performed annually at the end ofour fourth quarter. Losses, if any, resulting from impairment test will be reflected in operating income in the statement of operations.

On April 1, 2005, the majority of our stock was acquired by Retalix Holdings Inc. In conjunction with this transaction, certain one-time termination costs were incurred or became determinable. SFAS No. 146, Accounting

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for Costs Associated with Exit or Disposal Activities (“SFAS No. 146”) has been applied to this transaction. Under SFAS No. 146, the liability for costs associated with exit or disposal activities is recognized and measured initially at fair value only when the liability is incurred, rather than the effective date of the exit plan. Restructuring charges are not directly identified with a particular business segment and as a result, management does not consider these charges in the evaluation of the operating loss from the business segments. The following table presents the one-time termination costs incurred relating to this transaction:

Stock option termination costs	$1,697,794
Facility & lease termination costs	586,645
Professional fees	542,167
Employee severance and benefit termination costs	1,120,073
Total transaction related costs	$3,946,679

Reclassifications— certain amounts previously reported have been reclassified to conform with the presentation for the three and nine months ended September 30, 2005.

Revenue Recognition

We license software products under non-cancelable perpetual license agreements and provide related services, including consulting and customer support. We recognize revenue in accordance with Statement of Position (“SOP”) 97-2, Software Revenue Recognition, as amended and interpreted by SOP 98-9, Modification of SOP97-2, Software Revenue Recognition, with respect to certain transactions, as well as Technical Practice Aids issued from time to time by the American Institute of Certified Public Accountants and SAB No. 104, Revenue Recognition in Financial Statements, which provides further interpretive guidance for public reporting companies on the recognition, presentation and disclosure of revenue in financial statements.

Software license revenue is recognized when a license agreement has been signed, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is considered reasonably assured. If a software license contains an undelivered element, the fair value of the undelivered element is deferred and the revenue recognized once the element is delivered. Revenues attributable to undelivered elements, including consulting services and post-contract support, are based on the sales price of those elements when sold separately. If vendor specific objective evidence of the fair value of an undelivered element is not available, all revenue is deferred. In addition, if a software license contains customer acceptance criteria or a cancellation right, the software revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period or cancellation right. We do not offer rights of return.

Services are separately priced, are generally available from a number of suppliers and are not essential to the functionality of our software products. Services, which include project management, system planning, design and implementation, customer configurations and training, are billed on an hourly basis. Services revenue billed on an hourly basis is recognized as the work is performed. Customer support services include post-contract support and the rights to unspecified upgrades and enhancements, when and if available. Maintenance revenues from ongoing customer support services are billed on an annual basis with the revenue being deferred and recognized ratably over the maintenance period.

Other revenue consists of the sales of third-party hardware and software products and is recognized upon delivery and passage of title.

Basic and Diluted Net Income (Loss) Per Share

Net loss per share is calculated in accordance with SFAS No. 128, Earnings Per Share. Under the provisions of SFAS No. 128, basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. There were no common equivalent shares for the three and nine months ended September 30, 2005. For the three months ended September 30, 2004, common equivalent shares of 32,561,550 have been included in diluted weighted average common shares. For the

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nine months ended September 30, 2004, common equivalent shares of 32,589,841 have been excluded from diluted weighted average common shares as the effect would be anti-dilutive.

Stock-Based Compensation

We account for employee stock-based compensation using the fair value method in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations and have adopted the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation.

SFAS No. 123, Accounting for Stock-Based Compensation, requires the disclosure of pro forma net income (loss) had we adopted the fair value method. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option-pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from our stock option awards. These models also require

subjective assumptions, including expected life, which greatly affect the calculated values. Our calculations were made using the Black-Scholes option-pricing model (fair value method) with the following weighted-average assumptions: expected life of six years; stock volatility, 1%; risk-free interest rates, 4.0% for the three and nine months ended September 30, 2005 and 2004, respectively; and no dividends during the expected term. Our calculations are based on an option valuation approach, and forfeitures are recognized as they occur. We had no outstanding stock option awards as of September 30, 2005.

New Accounting Pronouncement

In December 2004, the Financial Accounting Standards Board revised SFAS No. 123 (“FAS 123R”), Share-Based Payment, which requires companies to expense the estimated fair value of employee stock options and similar awards based on the grant-date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award, usually the vesting period. The accounting provisions of FAS 123R will be effective as of the beginning of the first interim or annual reporting period that begins on or after December 15, 2005. We will adopt the provisions of FAS 123R effective on the first quarter of 2006 using a modified prospective application. Under the modified prospective application, FAS 123R, will apply to new awards, unvested awards that are outstanding on the effective date and any awards that are subsequently modified or cancelled. Compensation expense for outstanding awards for which the requisite service had not been rendered as of the effective date will be recognized over the remaining service period using the compensation cost calculated for pro forma disclosure purposes under SFAS 123 . We believe adoption of FAS 123R will not have a material impact on our financial statements as there are no stock options outstanding as of September 30, 2005.

2. Segment Information and Customer Concentration

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by our chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our operating segments are managed separately because each segment represents a strategic business unit that offers different products or services.

Our reportable operating segments include software licenses, maintenance, services, and other. The software licenses operating segment develops and markets our software products. The maintenance operating segment includes post-sale support for software products. The services segment provides fee-based implementation and training services related to our products. The other segment represents third party hardware and software products.

We do not separately allocate operating expenses to these segments, nor do we allocate specific assets to these segments. Therefore, segment information reported includes only revenues, cost of sales, and gross profit, as this information is the only information provided to the chief operating decision-maker.

Operating segment data for the three and nine months ended September 30, 2005 and 2004 is as follows:

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	Software
	Licenses	Maintenance	Services	Other	Total
Three months-ended September 30, 2005:
Revenues	$  625,857	$  1,433,409	$  1,782,447	$  12,248	$  3,853,961
Cost of revenues	$  96,599	$  80,655	$  1,410,142	$  4,965	$  1,592,361
Gross profit	$  529,258	$  1,352,754	$  372,305	$  7,283	$  2,261,600
Three months-ended September 30, 2004:
Revenues	$  1,919,732	$  1,255,231	$  2,585,838	$  152,210	$  5,913,011
Cost of revenues	$  77,644	$  162,260	$  1,727,264	$  173,136	$  2,140,304
Gross profit	$  1,842,088	$  1,092,971	$  858,574	$  (20,926)	$  3,772,707
Nine months-ended September 30, 2005:
Revenues	$  3,364,492	$  4,130,239	$  6,606,811	$  52,470	$  14,154,011
Cost of revenues	$  426,964	$  323,630	$  4,620,427	$  40,063	$  5,411,084
Gross profit	$  2,937,528	$  3,806,609	$  1,986,384	$  12,407	$  8,742,927
Nine months-ended September 30, 2004:
Revenues	$  4,129,154	$  3,767,823	$  8,003,741	$  524,172	$  16,424,890
Cost of revenues	$  412,330	$  718,125	$  5,392,921	$  487,553	$  7,010,929
Gross profit	$  3,716,824	$  3,049,698	$  2,610,820	$  36,619	$  9,413,961

One customer accounted for 14.9% of revenues for the three months ended September 30, 2005 and one customer accounted for 35.5% of revenues for the three months ended September 30, 2004. One customer accounted for 15.11% of revenues for the nine months ended September 30, 2005 and one customer accounted for 31.7% of revenues for the nine months ended September 30, 2004. Approximately 24% of accounts receivable was due from three customers as of September 30, 2005. All of our customers are in the retail industry.

3. Credit Facility

On February 27, 2004, we entered into a $3,500,000 credit facility with a financial institution composed of a $500,000 equipment line of credit and a $3,000,000 accounts receivable revolving line of credit. Each advance under the equipment line of credit shall accrue interest at 0.75% above the prime rate is payable monthly. Beginning November 27, 2004, outstanding borrowings under the equipment line of credit shall be payable in 30 equal monthly installments, plus interest at 0.75% above the prime rate through the maturity date. The equipment line of credit matures in June 2007. The accounts receivable revolving line of credit bears interest at 0.50% above the prime rate .

On November 18, 2004, we amended the above facility. The amended credit facility is comprised of a $3,000,000 accounts receivable revolving line of credit and a $1,000,000 maintenance receivable revolving line of credit. The maintenance revolving line of credit is not to exceed (i) $1.5 million from November 18, 2004 through February 28, 2005, (ii) $1 million from March 1, 2005 through March 31, 2005 and (iii) $500,000 from April 1, 2005 through May 31, 2005. The amended facility does not extend an equipment line of credit. The revolving line of credit bears interest at 0.50% above the prime rate and matured in May 2005. Borrowings were collateralized by substantially all of our assets, including our intellectual property.

Retalix Ltd., who indirectly purchased substantially all of our outstanding Series A Preferred Stock and Series B Preferred Stock on April 1, 2005, paid down the entire accounts receivable revolving line of credit out of working

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capital on April 28, 2005. Additionally, Retalix paid down the entire equipment line of credit out of working capital on June 7, 2005. Upon full payment of the lines of credit, these agreements were cancelled.

In connection with our credit facility, we granted warrants to purchase 115,000 shares of common stock at an exercise price of $0.25 per share to the financial institution. As the warrants were substantially out of the money, the fair value of the warrants, which was estimated using the Black-Scholes model, was nominal.

4. Commitments and Contingencies

We are involved in a dispute related to alleged preference payments to TCI from a customer who subsequently declared bankruptcy.  We have provided a written response to the claimant regarding our defenses to the claims made.  In addition, a former significant customer filed bankruptcy in February 2005. It is not possible to estimate the outcome of these issues; however, we believe that the possible minimum liability could reasonably be $617,000.  As such, we have recorded a $617,000 accrual in the financial statements as of September 30, 2005.

At September 30, 2005, future minimum lease payments under non-cancelable operating leases consist of the following:

Year ending December 31:
2005 (October 1 through December 31)	$176,188
2006	662,539
2007	656,793
2008	48,930
Future minimum lease payments	$1,544,450

Guarantees and Indemnifications - During our normal course of business, we have made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities include intellectual property indemnities to our customers in connection with the sales of our products, indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, and indemnities to our directors and officers. The duration of these indemnities, commitments and guarantees varies and, in certain cases, is indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments we could be obligated to make. Generally, a maximum obligation arising out of these types of agreements is not explicitly stated, and therefore, the overall maximum amount of these obligations cannot be reasonably estimated. Historically, we have not been obligated to make significant payments for these obligations and thus no liabilities have been recorded for these obligations on our balance sheet at September 30, 2005.

Litigation - In the normal course of business, we are subject to various legal matters. In the opinion of management, the resolution of these matters will not have a material adverse effect on our operations, cash flows and financial position.

5. Related Party Payables

As of September 30, 2005, we have approximately $4.0 million in payables to Retalix Holdings and $110,000 to Retalix Ltd. Subsequent to the acquisition by Retalix Holdings Inc., we received advances of $1.7 million to payoff the lines of credit from Retalix Holdings Inc. In addition, our payroll, related payroll expenses and other expenses of approximately $2.3 million was processed and funded by Retalix Holdings and is recorded as a related party payable. We also incurred $110,000 management fee with Retalix Ltd. for management services performed subsequent to the acquisition.

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Item 2. Management's Discussion and Analysis or Plan of Operation.

We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) with our overall strategy to give readers an overview of the goals of our business and the direction in which our business and products are moving. The strategy section is followed by a discussion of the Critical Accounting Estimates that we believe are important to understanding the assumptions and judgments incorporated in this quarterly report for the period ended September 30, 2005, and an Overview of Significant Trends and Developments in Our Business. We then provide an analysis of the financial results for the three and nine months ended September 30, 2005 compared to the three and nine months ended September 30, 2004. We conclude this MD&A with our Business Outlook section wherein we discuss the outlook for the remainder of 2005.

Forward Looking Statements

This MD&A should be read in conjunction with the other sections of this Quarterly Report on Form 10-QSB, including "Item 1: Financial Statements". The various sections of this MD&A contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by uncertainties and risk factors described throughout this filing and particularly in the "Business Outlook" section. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "plan," "seek," or "believe". We believe that the expectations reflected in such forward-looking statements are accurate. However, we can not assure you that such expectations will occur. Our actual results may differ materially, and you should not unduly rely on these forward-looking statements, which speak only as of the date of this report. These forward-looking statements do not reflect the potential impact of any business activities not completed as of November 18, 2005. For example, when our merger with a subsidiary of Retalix Ltd. is completed, our outlook, expected results, future strategy and other forward looking information may change substantially.

Our Strategy

We intend to solidify our presence in grocery retail and wholesale, broaden our product offering with new and complimentary products developed internally and through partnerships, and focus on the critical elements of operational execution. Our goal is to enhance retail operations and execution with high quality solutions to add and retain valuable customers. Key elements of our strategy to fulfill our vision are outlined in the points that follow:

• Operational Efficiency – We have clearly defined our business strategy and core business activities. As a result, we have developed an operating structure designed to boost software license revenues and shrink operating costs in order to improve operational efficiency and enhance customer satisfaction. The actions we have taken include:

• Focused Market Approach – We have aligned our operational activities and resources with the delivery of solutions and services for the following market definitions:

Mainstream & Enterprise Marketplace- For this marketplace, we focus on delivering a high quality, strategic pricing and inventory management solutions that deliver rich and flexible functionality. This marketplace also has the following attributes:

• Retailers with greater than or equal to 10 stores

• Sophisticated functional requirements

• Sales occur primarily through our direct sales force

• Implementations range from simplistic to sophisticated and may be supported through strategic implementation partners

Small to Medium Retail Marketplace – Within this marketplace we offer a competitively priced solution with the benefits of pre-defined functionality, rapid implementation and minimal support requirements. Additionally, this marketplace has the following characteristics:

• Retailers with less than 10 stores

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• Minimal functional requirements

• Dealers are our primary sale and delivery mechanism for product sales

• Develop and Leverage Strategic Relationships - We will continue to establish strategic business relationships that enhance the development of our products, the breadth of our product offering and the delivery of services that empower us to deliver a complete customer solution. We believe these relationships can provide greater market presence, greater opportunity to increase sales, improve operational efficiencies and provide greater access to other retail sectors and international markets. Additionally, within our Small to Medium Retail marketplace, software is now primarily sold and serviced through our reseller and point-of-sale dealer networks.

• Client Satisfaction – Since 2003, we have renewed our focus to continually improve by developing initiatives designed to focus the organization on delivering value to both our new and existing customer base. These initiatives have resulted in and will continue to improve quality, satisfaction and the efficiency of our customers’ experience. The initiatives we are cultivating for the benefit of our customers are as follows:

• Product Development Process- We continue to implement new processes for operational improvement around product development.  Initially addressing the product management process and market requirements definition, the Product Development Process includes formality around functional and technical specifications.  These processes and procedures insure that we remain in touch with delivering high quality solutions and functionality for our customers.

• Engagement Management – Engagement Management is a services and support initiative complete with governances and processes that have aided in the creation of great customer experiences both during and beyond our software implementations. Our goal is to optimize the project and it begins with understanding our customer’s expectations. Engagement management transcends the services implementation and improves the depth of our win-win customer relationships.

• Fast Track Implementations - Fast-Track is a packaged implementation program to lower the risks of replacing legacy pricing and hosting systems. Fast-Track is a phased implementation of TCI's core pricing and hosting foundation offering predefined deliverables, installation scope and timeframe. Fast-Track provides grocers with price management, base price generation, hosting and store system interfaces, to systems such as point-of-sale, and signs and labels. It also includes development of roles-based menu templates and personalized reports, as well as training, and pilot and go live support.

• Quality and Customer Centricity – A critical component to our success as a developer of technology solutions begins with listening to user concerns and understanding their requirements from the beginning. We put the customer at the center of our organizational structure and it is very important to us that the customer always has a single integrated view of our company. Our quality and customer centricity initiatives are focused on continuously improving in these areas.

Critical Accounting Policies

The methods, estimates and judgments we use in applying our accounting policies have an impact on the results we report in our financial statements. Our discussion and analysis of results of operations and financial condition are based upon financial statements that we prepared in accordance with generally accepted accounting principles of the United States of America.

We have identified the following policies as critical to the understanding of our financial statements and results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout our Management’s Discussion and Analysis where such policies affect our reported and expected

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financial results. For a detailed discussion on the application of these and other accounting policies, see Note 1 in the Notes to our Unaudited Condensed Financial Statements which are included elsewhere herein. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

Revenue recognition – Our revenue recognition policy is significant because our revenue is a key component to our results of operations. In addition, our revenue recognition determines the timing of certain expenses such as commissions and royalties. We follow specific detailed guidelines in measuring revenue; however, certain judgments affect the application of our revenue policy.

We license software products under non-cancelable perpetual license agreements and provide related services, including consulting and customer support. We recognize revenue in accordance with SOP 97-2, Software Revenue Recognition, as amended and interpreted by SOP 98-9, Modification of SOP97-2, Software Revenue Recognition, with respect to certain transactions, as well as Technical Practice Aids issued from time to time by the American Institute of Certified Public Accountants and Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements, which provides further interpretive guidance for public reporting companies on the recognition, presentation and disclosure of revenue in financial statements.

Software license revenue is recognized when a license agreement has been signed, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is considered reasonably assured. If a software license contains an undelivered element, the fair value of the undelivered element is deferred and the revenue recognized once the element is delivered. Revenues attributable to undelivered elements, including consulting services and post-contract support, are based on the sales price of those elements when sold separately. In addition, if a software license contains customer acceptance criteria or a cancellation right, the software revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period or cancellation right. We do not offer rights of return.

Services are separately priced, are generally available from a number of suppliers and are not essential to the functionality of our software products. Services, which include project management, system planning, design and implementation, customer configurations and training, are billed on an hourly basis. Services revenue billed on an hourly basis is recognized as the work is performed.

Customer support services include post-contract support and the rights to unspecified upgrades and enhancements, when and if available. Maintenance revenues from ongoing customer support services are billed on an annual basis with the revenue being deferred and recognized ratably over the maintenance period.

Other revenue is recognized when the third-party products have been delivered and title has passed.

Accounts Receivable - We typically extend credit to our customers. Payments for software licenses generally include payment terms with installments due within six months from the date of delivery. All significant customers are reviewed for credit worthiness before we license our software and we do not sell our software or recognize any license revenue unless we believe that collection is probable. Billings for customer support and professional services performed on a time and material basis are due on net 30-day terms. We review past due accounts and provide specific reserves based upon the information we gather from sources including customers, subsequent cash receipts, professional services, and credit rating services such as Dunn & Bradstreet. We estimate the probability of collection of the receivable balances and provide an allowance for doubtful accounts based upon an evaluation of our customers’ ability to pay and general economic conditions. While our losses have historically been within our estimates, we cannot guarantee that we will continue to experience the same collection experience. A loss of any significant customer could have a material adverse effect on our operations. We expect that revenues from a limited number of new customers will continue to account for a large percentage of total revenues in future quarters. If actual bad debts are greater than the reserves calculated based on historical trends and known customer issues, we may be required to record additional bad debt expense which could have a material adverse impact on our results of operations and financial position for the periods in which such additional expense occurs.

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Goodwill – Our business combinations have resulted in goodwill. We review the recoverability of the carrying value of goodwill on an annual basis or more frequently when an event occurs or circumstances change to indicate that an impairment of goodwill has possibly occurred. We compare the estimated market value of our segments to book value to determine whether or not any potential impairment of goodwill exists. Our estimates of market value are based on average multiples of our public competitors, which are subject to change based on industry, economic and business conditions. While we have not experienced impairment of goodwill assets in prior periods, we cannot guarantee that there will not be impairment in the future.

Income Taxes – We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, projected future taxable income and the expected timing of the reversals of existing temporary differences. If we operate at a profit in the future and generate sufficient future taxable income, we could be required to reverse the current valuation allowance against the deferred tax assets which would result in a reduction in goodwill.

Overview of Significant Trends and Developments in Our Business

The Majority of Our Stock has been Acquired. On April 1, 2005, we entered into a Stock Purchase Agreement with Retalix Ltd., an Israeli corporation (“Retalix”), Retalix Holdings Inc., and certain holders of our outstanding Series A Preferred Stock and Series B Preferred Stock ("Selling Stockholders"), pursuant to which Retalix purchased substantially all of the our outstanding Series A Preferred Stock and Series B Preferred Stock (the "Acquisition") for an aggregate purchase price of $30,035,148, consisting of 715,730 ordinary shares of Retalix valued at $17,177,520 and $12,857,648 in cash which was paid to the Selling Stockholders pro rata. We paid to employees and directors who held vested stock options under our stock option plans and who had tendered options under our option exchange offer which closed in 2004, an aggregate of $1,744,999 in cash. The Acquisition resulted in Retalix beneficially owning in excess of 73% of our outstanding voting stock (calculated on an as-converted -to -common -stock basis), and specifically, 99.8% of the outstanding Series A Preferred Stock and 95.8% of the outstanding Series B Preferred Stock. Also on April 1, 2005, we entered into an agreement and plan of merger with Retalix, Retalix Holdings Inc. and certain subsidiaries of Retalix Holdings Inc. under which we would be merged with and into a subsidiary of Retalix Holdings Inc. and all outstanding common stock and preferred stock of TCI (other than shares held by Retalix Holdings Inc. and shares as to which appraisal rights have been properly perfected under Delaware law) would be exchanged for cash (the “Merger”). Following the Merger, we would cease to exist and all of our assets and liabilities would be held by a subsidiary of Retalix Holdings Inc.

Revenue Trends – We see signs of domestic economic recovery. We believe there are a significant number of sales opportunities that will support a sustained level of activity and we anticipate increases in software license revenues and related services revenues throughout the remainder of 2005. The preponderance of the business in the near term continues to be for our TCI Retail solutions. Our acquisition by Retalix on April 1, 2005 is still fairly recent and although positively received by the market, its full impact on our growth plans is not yet fully known.

Three and Nine Months Ended September 30, 2005 Compared to Three and Nine Months Ended September 30, 2004.

Revenues consist of software license revenues, maintenance, services and other revenues, which represents 16.2%, 37.2%, 46.3% and 0.3%, respectively, of total revenues for the three months ended September 30, 2005 compared to 32.5%, 21.2%, 43.7% and 2.6%, respectively, for the three months ended September 30, 2004. Additionally, revenues from these sources represented 23.8%, 29.2%, 46.7% and .3%, respectively, of total revenues for the nine months ended September 30, 2005 compared to 25.1%, 22.9%, 48.8% and 3.2%, respectively, for the nine months ended September 30, 2004. Total revenues for the three months ended September 30, 2005 were $3.9 million, a decrease of $2,059,083 or 34.8%, from the $5.9 million reported for the three months ended September 30, 2004. Additionally, total revenues for the nine months ended September 30, 2005 were $14.2 million, a decrease of $2,270,879 or 13.8% from the $16.4 million reported for the nine months ended September 30, 2004.

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Revenues

Software Licenses. Software license revenue for the three months ended September 30, 2005 decreased $1,293,875 or 67.4% to $625,857 from $1,919,732 for the three months ended September 30, 2004. Software license revenue for the nine months ended September 30, 2005 decreased $764,662 or 18.5% to $3.4 million from $4.1 million for the nine months ended September 30, 2004. The decrease resulted primarily from delayed purchasing decisions due to customers’ uncertainty regarding the long-term direction of the TCI-Retalix product offering. Software license revenue represented 16.2% of total revenue for the three months ended September 30, 2005 compared to 32.5% for the three months ended September 30, 2004. Software license revenue represented 23.8% of total revenue for the nine months ended September 30, 2005 compared to 25.1% for the nine months ended September 30, 2004. The buying cycles of customers appear to have stabilized and thus, we are optimistic that we will see software license growth throughout the remainder of the year.

Maintenance. Maintenance revenue for the three months ended September 30, 2005 increased $178,178 or 14.2% to $1.4 million from $1.3 million for the three months ended September 30, 2004. Maintenance revenue for the nine months ended September 30, 2005 increased $362,416 or 9.6% to $4.1 million from $3.8 million for the nine months ended September 30, 2004. The increase in maintenance revenue primarily results from $8.3 million in new software licenses sold for the eighteen-month period ended September 30, 2005, resulting in an increase in the number of customers under maintenance contracts. Maintenance revenue represented 37.2% of total revenue for the three months ended September 30, 2005 compared to 21.2% for the three months ended September 30, 2004. Maintenance revenue represented 29.2% of total revenue for the nine months ended September 30, 2005 compared to 23.0% for the nine months ended September 30, 2004.

Services. Services revenue for the three months ended September 30, 2005 decreased $803,391 or 31.1% to $1.8 million from $2.6 million for the three months ended September 30, 2004. Services revenue for the nine months ended September 30, 2005 decreased $1,396,930 or 17.5% to $6.6 million from $8.0 million for the nine months ended September 30, 2004. The decrease in services revenue is directly attributed to the bankruptcy of our largest services customer that accounted for nearly $3 million of services revenue during all of 2004. We anticipate stable demand in services revenue for the year due to the acquisition of TCI by Retalix and the operational efforts required to consolidate operations. Services revenue represented 46.2% of total revenue for the three months ended September 30, 2005 compared to 43.7% for the three months ended September 30, 2004. Services revenue represented 46.7% of total revenue for the nine months ended September 30, 2005 compared to 48.7% for the nine months ended September 30, 2004.

Other. Other revenue for the three months ended September 30, 2005 decreased $139,962 or 92.0% to $12,248 from $152,210 for the three months ended September 30, 2004. Other revenue for the nine months ended September 30, 2005 decreased $471,702 or 90.0% to $52,470 from $524,172 for the nine months ended September 30, 2004. The decrease in other revenue results from delivering less hardware, a trend we anticipate will continue into the foreseeable future. Other revenue represented 0.3% of total revenue for the three months ended September 30, 2005 compared to 2.6% for the three months ended September 30, 2004. Other revenue represented 0.4% of total revenue for the nine months ended September 30, 2005 compared to 3.2% for the nine months ended September 30, 2004.

Gross Profit

Gross profit dollars for the three months ended September 30, 2005 decreased $1,511,107 or 40.0% to $2.3 million from $3.8 million for the three months ended September 30, 2004. Gross profit dollars for the nine months ended September 30, 2005 decreased $671,034 or 7.1% to $8.7 million from $9.4 million for the nine months ended September 30, 2004. The decrease in gross profit dollars is primarily from the decreases in software sales and services revenues for the three months ended September 30, 2005. Gross profit percent for the three months ended September 30, 2005 decreased 5.1% to 58.7% from 63.8% for the three months ended September 30, 2004. Gross profit percent for the nine months ended September 30, 2005 increased 4.5% to 61.8% from 57.3% for the nine months ended September 30, 2004. The decrease in gross profit percentage for the three months ended September 30, 2005 versus 2004 is primarily due to decreases in software revenue.

Software License Margins. Software license margins for the three months ended September 30, 2005 decreased $1,312,830 or 71.3% to $529,258 from $1,842,088 for the three months ended September 30, 2004. Software

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license margins for the nine months ended September 30, 2005 decreased $779,296 or 21.0% to $2.9 million from $3.7 million for the nine months ended September 30, 2004. The decrease in software license margins for the three and the nine months ended September 30, 2005 is primarily due to higher sales of third party software products, which have a higher cost of sale. Software license margins as a percentage of software license revenue were 84.6% and 87.3% for the three and nine months ended September 30, 2005, compared to 96.0% and 90.0% for the three and nine months ended September 30, 2004.

Maintenance Margins. Maintenance revenue margins for the three months ended September 30, 2005 increased $259,783 or 23.8% to $1.4 million from $1.1 million for the three months ended September 30, 2004. Maintenance revenue margins for the nine months ended September 30, 2005 increased $756,911 or 24.8% to $3.8 million from $3.0 million for the nine months ended September 30, 2004. Maintenance revenue margins as a percentage of maintenance revenue were 94.4% and 92.2% for the three and nine months ended September 30, 2005, compared to 87.1% and 80.9% for the three and nine months ended September 30, 2004. The increase in maintenance revenue margins as a percentage of maintenance revenue for the three and nine months ended September 30, 2005 is due to an increase in maintenance revenue and cost savings that resulted from the closure of a regional office used for customer support that will now be housed within our Tucson facility.

Services Margins. Services revenue margins for the three months ended September 30, 2005 decreased $486,269 or 56.6% to $372,305 from $858,574 for the three months ended September 30, 2004. Services revenue margins for the nine months ended September 30, 2005 decreased $624,436 or 23.9% to $2.0 million from $2.6 million for the nine months ended September 30, 2004. The decrease in services revenue margins for the three and nine months ended September 30, 2005 is primarily due to bankruptcy of our largest services customer. Services revenue margins as a percentage of services revenue were 20.9% and 30.1% for the three and nine months ended September 30, 2005, compared to 33.2% and 32.6% for the three and nine months ended September 30, 2004. The decrease in services revenue margins as a percentage of services revenues is due to decreased utilization within our professional services staff and stable total headcount.

Other Margins. Other revenue margins for the three months ended September 30, 2005 increased $28,209 or 134.8% to $7,283 from a loss of $(20,926) for the three months ended September 30, 2004. Other revenue margins for the nine months ended September 30, 2005 decreased $24,212 or 66.1% to $12,407 from $36,619 for the nine months ended September 30, 2004. Other revenue margins as a percentage of other revenue were 59.5% and 23.6% for the three and nine months ended September 30, 2005, compared to (13.7%) and 7.0% for the three and nine months ended September 30, 2004. The increase in other revenue margins as a percentage of other revenue for the three and nine months ended September 30, 2005 was primarily related to variances in third party vendor pricing over the same period in 2004. This decrease in other revenue related to lower hardware sales within our packaged marketplace.

Operating Expenses

Operating expenses for the three months ended September 30, 2005 decreased $463,933 or 12.8% to $3.2 million from $3.7 million for the three months ended September 30, 2004. Operating expenses for the nine months ended September 30, 2005 increased $4.2 million or 38.1% to $16.2 million from $12.0 million for the nine months ended September 30, 2004. Operating expenses represented 82.3% and 114.3% of total revenues for the three and nine months ended September 30, 2005 compared to 61.5% and 71.3% for the three and nine months ended September 30, 2004. The increase in operating expenses for the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004 is primarily attributable to acquisition related costs associated with the Retalix purchase on April 1, 2005 and legal fees incurred in connection with the acquisition.

Product Development. Product development expenses for the three months ended September 30, 2005 decreased $2,933 or .4% to $740,662 from $743,595 for the three months ended September 30, 2004. Product development expenses for the nine months ended September 30, 2005 decreased $252,553 or 9.8% to $2.3 million from $2.6 million for the nine months ended September 30, 2004. The decrease in product development expense primarily results from decreased headcount and efforts to increase development efficiencies through process improvement and through the reduction of expenses associated with lower development resources needed to support our heritage product, IMS. Product development expenses represented 19.2% and 16.4% of total revenue for the three and nine

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months ended September 30, 2005 compared to 12.6% and 15.7% for the three and nine months ended September 30, 2004.

Sales and Marketing. Sales and marketing expenses for the three months ended September 30, 2005 decreased $756,238 or 43.5% to $1.0 million from $1.7 million for the three months ended September 30, 2004. Sales and marketing expenses for the nine months ended September 30, 2005 decreased $1,212,487 or 23.0% to $4.1 million from $5.3 million for the nine months ended September 30, 2004. The decrease in sales and marketing expenses during the three and nine months ended September 30, 2005 is primarily due to decreased headcount, decreases in marketing activities and focused cost control efforts. Sales and marketing expenses represented 25.5% and 28.6% of total revenue for the three and nine months ended September 30, 2005 compared to 29.4% and 32.1% for the three and nine months ended September 30, 2004.

General and Administrative. General and administrative expenses for the three months ended September 30, 2005 increased $295,239 or 25.6% to $1.4 million from $1.2 million for the three months ended September 30, 2004. General and administrative expenses for the nine months ended September 30, 2005 increased $2.0 million or 51.0% to $5.9 million from $3.9 million for the nine months ended September 30, 2004. The increase in general and administrative expenses during the three and nine months ended September 30, 2005 is due to acquisition related transition costs and legal fees. General and administrative expenses represented 37.6% and 41.4% of total revenue for the three and nine months ended September 30, 2005 compared to 19.5% and 23.6% for the three and nine months ended September 30, 2004.

Acquisition Related Costs. Acquisition related costs for the nine months ended September 30, 2005 resulted from our acquisition by Retalix on April 1, 2005. In conjunction with this transaction, certain one-time termination costs were incurred or became determinable. Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS No. 146”) has been applied to this transaction. Under SFAS No. 146, the liability for costs associated with exit or disposal activities is recognized and measured initially at fair value only when the liability is incurred, rather than at the date we committed to the exit plan. Restructuring charges are not directly identified with a particular business segment and as a result, management does not consider these charges in the evaluation of the operating loss from the business segments. The following table presents the one-time termination costs incurred relating to this transaction:

Stock option termination costs	$1,697,794
Facility & lease termination costs	586,645
Professional fees	542,167
Employee severance and benefit termination costs	1,120,073
Total transaction related costs	$3,946,679

Liquidity and Capital Resources

Historically, we have financed our operations primarily through private sales of equity securities and working capital. We expect to finance future operations through existing cash, working capital and funding from our majority stockholder, Retalix. We had working capital of ($5.7 million) at September 30, 2005 compared with ($11,000) at December 31, 2004. The decrease in working capital is primarily due to increase in related party payables of $4.0 million, increase in accrued expenses of $1.3 million, offset by a decrease in deferred revenue of $493,000 and increase in allowance for bad debts of $887,000 . Cash and cash equivalents at September 30, 2005 were $730,359 a decrease of $2.6 million from the $3.3 million reported at December 31, 2004. Cash balances decreased in the nine months ended September 30, 2005 primarily as a result ofa net loss, an increase in transaction related accrued expenses and the increase in deferred revenue attributed to our annual maintenance billing recorded in the nine months ended September 30, 2005. In September 30, 2005, we had approximately $4.0 million in payables to Retalix Holdings Inc. related to the payoff of our lines of credit and payoff of payroll, related payroll expenses and other expenses they funded, and $110,000 to Retalix Ltd. related to management fees.

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Operating activities provided cash of $10,717 in the nine months ended September 30, 2005. Cash provided by operating activities in the nine months ended September 30, 2005 results primarily from a net loss of $7.5 million offset by an increase of $3.5 million in accrued expenses related to our acquisition by Retalix, and a $887,000 increase in allowance for bad debts. We had net receivables of $2.4 million at September 30, 2005 compared to $3.4 million at December 31, 2004.

Investing activities used cash of $169,264 in the nine months ended September 30, 2005. Cash used by investing activities in the nine months ended September 30, 2005 results from the purchase of software and computer equipment. We expect capital expenditures to be approximately $100,000 for the remainder of 2005, which we expect to be paid by Retalix Holdings Inc. using existing cash and working capital.

Financing activities used cash of $2.5 million during the nine months ended September 30, 2005. Cash used by financing activities for the nine month period ending September 30, 2005 results from the repayment of our lines of credit and capital lease obligations.

We believe that our cash, combined with that of Retalix’s working capital, will provide adequate liquidity to meet our anticipated operating requirements for at least the next twelve months.

Business Outlook

As we look ahead to the rest of 2005, we are planning for growth. Our acquisition by Retalix on April 1, 2005 is still fairly recent and although positively received by the market, its full impact on our growth plans is not yet fully known.

Our financial results are substantially dependent upon sales of TCI Retail software. Revenue is partly a function of the mix of software, services, maintenance and other third party hardware and software sales. Our margins are highest for software and maintenance and significantly lower for our services and other revenue categories. Our margins are also affected by the product mix within the various markets we serve. Margins are higher in the Mainstream & Enterprise market than in the Small to Medium Retail marketplace due to the fact that the overall sale in the Mainstream & Enterprice market is weighted towards our higher margin offerings of software and maintenance. Our gross margin as a result, varies with revenue levels from the various markets and the revenue mix.

We believe that we have the product offerings, personnel, competitive and financial resources for continued business success. Future revenues, gross margins and profits however, are all influenced by a number of factors, including those discussed above, all of which are inherently difficult to forecast. As a result, there are no assurances that we will achieve these objectives. See 'Certain Risks that May Affect Future Results' herein for a more detailed discussion of the risks that may affect our business.

We believe that we should be able to withstand the impact of the bankruptcies of some of our former customers, including Fleming Companies and Winn-Dixie Stores, Inc. We believe we have valid defenses to any allegations of preferential payments made prior to these bankruptcies and that our actual liability from these actions will not materially adversely affect our financial condition. Nonetheless, we cannot predict with any certainty the outcome of any preference litigation against us or whether the bankruptcy trustees in these cases will agree to settle for amounts substantially less than the preference claim amounts.

New Accounting Pronouncement

In December 2004, the Financial Accounting Standards Board revised Statement of Financial Accounting Standards No. 123 (“FAS 123R”), Share-Based Payment, which requires companies to expense the estimated fair value of employee stock options and similar awards based on the grant-date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award, usually the vesting period. The accounting provisions of FAS 123R will be effective as of the beginning of the first interim or annual reporting period that begins on or after December 15, 2005. We will adopt the provisions of FAS 123R effective on the first quarter of 2006 using a modified prospective application. Under the modified prospective

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application, FAS 123R, will apply to new awards, unvested awards that are outstanding on the effective date and any awards that are subsequently modified or cancelled. Compensation expense for outstanding awards for which the requisite service had not been rendered as of the effective date will be recognized over the remaining service period using the compensation cost calculated for pro forma disclosure purposes under SFAS 123. We believe adoption of FAS 123R will not have a material impact on our financial statements as there are no stock options outstanding as of September 30, 2005.

Certain Risks That MayAffect Future Results

We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. The following section describes some, but not all, of these risks and uncertainties that we believe may adversely affect our business, financial condition or results of operations.

Investors evaluating our business should carefully consider the factors described below and all other information contained in this Form 10-QSB. Additional factors and uncertainties not currently known to us or that we currently consider immaterial could also harm our business, operating results and financial condition. Investors could lose all or part of their investment as a result of these factors. This section should be read in conjunction with the unaudited financial statements and notes thereto for the periods ended September 30, 2005 and 2004 contained elsewhere in this Form 10-QSB and our audited financial statements and notes thereto contained in our Form 10-KSB for the year ended December 31, 2004.

The Acquisition of TCI by Retalix Could Cause Decreases in Demand for Our Software and Related Services and Thereby Negatively Impact our Financial Condition.

Our revenue and profitability depend on the overall demand for our software and related services. Customer purchases and/or maintenance renewals could decrease as a result of uncertainty on the part of customers about the impact of the acquisition. If demand for our software and related services decreases, our revenues would decrease and our operating results would be adversely affected.

We Are Controlled by Retalix, Who MayNot Act in the Best Interests of Our Other Stockholders.

Retalix holds 99.8% of our outstanding Series A Preferred Stock and in excess of 95.8% of our outstanding Series B Preferred Stock. On most matters, the preferred stock votes on an as-converted to common stock basis and the preferred stock and common stock vote together as a single class. Currently, the outstanding preferred stock held by Retalix represents approximately 73% of our outstanding capital stock on an as-converted basis. As a result, Retalix holds a controlling interest in us and will be able to make decisions in its own interest which may not be in the best interests of other stockholders. In addition, representatives of Retalix hold three of the four filled seats on our board of directors, which gives Retalix additional influence over our operations.

We have entered into a merger agreement with Retalix and certain of its subsidiaries pursuant to which (other than for shares held by Retalix or stockholders who perfect their appraisal rights) each holder of common stock will receive $0.132 in cash per share; each holder of Series A Preferred Stock (on an as-converted-to-common-stock basis) will receive $0.8409 in cash per share; and each holder of Series B Preferred Stock (on an as-converted-to-common-stock basis) will receive $0.7573 in cash per share. We will incur costs and charges related to the proposed merger. In addition, though we believe the merger will close, we must fulfill certain closing conditions and the uncertainty during the time period until such closing may adversely impact our operations.

Our Quarterly Operating Results May Fluctuate Significantly and Economic Conditions Could Impair Our Ability to Execute Our Business Plan and Thereby Negatively Impact Our Financial Condition.

Our quarterly operating results have varied in the past and are expected to continue to vary in the future. Significant fluctuations in our quarterly operating results may harm our business operations by making it difficult to implement our budget and business plan. Factors, many of which are outside of our control, which could cause our operating results to fluctuate include:

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• the demand for and market acceptance of our software solutions or changes in the length and complexity of our sales cycle;

• lower than anticipated consumption and/or utilization of our professional services group as a result of reduced levels of software sales, reduced implementation times for our products, changes in the mix of demand for our software products;

• customer order deferrals resulting from the anticipation of new products, economic uncertainty, disappointing operating results by the customer or customer budgeting and purchasing cycles;

• changes in the number, size or timing of new and renewal maintenance contracts or cancellations;

• competitive price pressures, the success or failure of significant transactions and competitors’ announcements or introductions of new software solutions, services or technological innovations;

• our ability to develop, introduce and market new products on a timely basis;

• customer deferral of material contracts in anticipation of new releases or new product introductions; and

• changes in our operating expenses.

Additionally, our market activity in target markets has increased in recent years and we have made more large sales than in past periods. Because of this, sales we expect to make in a particular period, that do not occur, or sales made in a particular period that were not expected, can affect our results of operations in a given period more so now than in the past when the size of the average order was smaller. As a result of these and other factors, period-to-period comparisons of financial results may not be meaningful. Historical results of operations are not necessarily indicative of future results, and interim results are not necessarily indicative of future annual results. Although our primary market of grocery and drug store retailers may be less susceptible to cyclical shifts in the economy, this segment of the retail industry may experience downturns due to macroeconomic pressures that could, in turn, have a material adverse effect on our business, results of operations or financial condition.

We May Be Unable to Satisfy the Requirements of Section 404 of the Sarbanes-Oxley Act, or We or Our Auditors May Identify Significant Deficiencies or Material Weaknesses in Our Internal Controls.

Pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to furnish a report of our management’s assessment of the effectiveness of our internal control over financial reporting and our auditors are required to provide a report on management’s assessment and their own audit of our internal control over financial reporting. We are not required to provide our internal control report and related audit report until our fiscal year ending December 31, 2007. Compliance with the Sarbanes-Oxley Act regulations is costly, and requires resources beyond our current capacities. To date, we have not prepared an internal plan of action for compliance, and we have not begun the process of assessing our internal controls to provide the basis for our internal control report. We expect to be able to furnish the internal control report and related attestation report when due. However, if we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, this could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Changes in Economic, Political and Market Conditions Could Cause Decreases in Demand for Our Software and Related Services Which Could Negatively Affect Our Revenue and Operating Results.

Our revenue and profitability depend on the overall demand for our software and related services. A regional and/or global change in the economy and financial markets could result in delay or cancellation of customer purchases. If demand for our software and related services decrease, our revenues would decrease and our operating results would be adversely affected.

Changes in Market Size and Dynamics Could Have a Material Adverse Effect on Our Ability to Generate Sales and Our Future Prospects for Growth.

A dynamic U.S. economy, consolidations and the entry of large mass merchants such as Wal-Mart may have a long-lasting, detrimental effect on the market for our products as retailers scale back on their expenditures or

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are forced to go out of business. In addition, reductions or allocations of retail Information Technology budgets, due to economic conditions could affect retailers’ demand for our products. A significant reduction in the number of customers or purchases made by customers as a result of these conditions could have a material adverse effect on our sales and prospects for growth.

We also believe that the retail industry may be consolidating and that the industry is, from time to time, subject to increased competition and weakening economic conditions that could negatively impact the industry and our customers’ ability to pay for our products and services which have and could potentially lead to an increased number of bankruptcy filings. Such consolidation and weakening economic conditions have in the past, and may in the future, negatively impact our revenues, require increases in our bad debt reserves or reduce the demand for our products which may negatively impact our business, operating results and financial condition.

Decreases in Demand From Grocery Retailers Will Hurt Our Ability to Generate Revenues.

Historically, we have derived almost 100% of our revenues from the licensing of software products and the performance of related services to the grocery retail industry. Our future growth is critically dependent on increased sales to grocery and other retail sectors within the industry. The success of our customers is directly linked to economic conditions in the retail industry, which in turn are subject to intense competitive pressures and are affected by macro-economic conditions. In addition, we believe that the license of our software products generally involves a large capital expenditure, which is often accompanied by large-scale hardware purchases or commitments. As a result, demand for our products and services could decline in the event of instability or downturns. Such downturns may cause customers to exit the industry or delay, cancel or reduce any planned expenditure for information management systems and software products.

The Industries’ Rapid Pace of Change Could Render our Technology Unmarketable and Result in a Decrease in Revenue.

If we are unable to develop new software solutions or enhancements to our existing products on a timely and cost-effective basis, or if new products or enhancements do not achieve market acceptance, our sales may decline. The life cycles of our products are difficult to predict because the market for our products is characterized by rapid technological change and changing customer needs. The introduction of products employing new technologies could render our existing products or services obsolete and unmarketable.

In developing new products and services, we may:

• fail to respond to technological changes in a timely or cost-effective manner;

• encounter products, capabilities or technologies developed by others that render our products and services obsolete or noncompetitive or that shorten the life cycles of our existing products and services;

• experience difficulties that could delay or prevent the successful development, introduction and marketing of these new products and services; or

• fail to achieve market acceptance of our products and services.

We May Introduce New Lines of Business and Channel Distribution Strategies Where We are Less Experienced and Unable to Successfully Sell, Which Could Result Negatively Impact Revenues and Our Results of Operations.

We may introduce new lines of business and channel sale/distribution strategies that are outside our traditional focus on software licenses, related maintenance and professional services. Introducing new lines of business involves a number of uncertainties, including a lack of internal resources and expertise to operate and grow new lines of business, manage new distribution systems, immature internal processes and controls, predicting revenues and expenses for the new lines of business, and the possibility that such new lines of business will divert management attention and resources from our traditional business. The inability of management to effectively develop and operate these new lines of business could have a material adverse effect on our business, operating results and financial condition. Moreover, we may not be able to gain acceptance of any new lines of business in

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our markets or channel strategies or obtain the anticipated or desired benefits of such new lines or channel sale/distribution strategies.

It May Be Difficult to Profitably Identify, Adopt and Develop Product Architecture That is Compatible With Emerging Industry Standards, Which Could Negatively Impact Our Ability to Generate Future Revenues.

The markets for our software products are characterized by rapid technological change, evolving industry standards, changes in customer requirements and frequent new product introductions and enhancements. If we fail in our product development efforts to accurately address evolving industry standards or important third-party interfaces or product architectures, sales of our products and services will suffer.

Our software products can be licenses with a variety of popular industry standard platforms, and are authored in various development environments using different programming languages and underlying architectures. There may be future or existing platforms that achieve popularity in the marketplace that may not be compatible with our software product design. Developing and maintaining consistent software product performance across various technology platforms could place a significant strain on our resources and product release schedules, which could adversely affect our results of operations.

Changes in Technology Could Render Our Products Obsolete and Negatively Impact Our Results of Operations.

Technological changes in computer operating systems and hardware could render our products obsolete or unmarketable and may require us to modify existing applications to be marketable or develop new applications to be competitive with products from competitors. These changes may cause us to have to make changes to existing applications or to create new applications, resulting in additional development and other costs beyond those currently anticipated. We can provide no assurances that our software applications will be compatible with new or modified operating systems or hardware, or that we will be able to modify its applications or create new applications to keep pace with new or changed operating systems or hardware that may be purchased by our customers. In addition, if we are unable to modify existing applications or develop new applications on a timely and cost effective basis, or if new applications or enhancements do not achieve market acceptance, our sales may decline.

We May Have Difficulty Implementing Our Products.

Our software products are complex and perform, or directly affect, mission-critical functions across many functional and geographical areas of an enterprise. Consequently, implementation of our software products can be a lengthy process, and commitment of resources by our clients is subject to a number of significant risks over which we have little or no control. Although average implementation times have declined, we believe delays in the implementation of our software may result in client dissatisfaction, disputes or damage to our reputation. Significant problems implementing our software therefore, can cause delays or prevent us from collecting license fees for our software and services and can damage our ability to generate referral business.

An Inability to Build Relationships with Systems Integrators Could Result in a Damaged Reputation that could Negatively Impact Our Ability to Generate Future Revenues.

Systems integrators assist our customers with the installation and deployment of our products, in addition to those of our competitors, and perform custom integration of computer systems and software. In the future, we intend to increase our reliance on system integrators to help customers with the implementation of our products. If we are unable to develop and maintain relationships with systems integrators, we would be required to hire additional personnel to install and maintain products, which would result in lower margins due to the higher expenses associated with systems integrators. Additionally, in the event that system’s integrators are not able to provide an adequate level of services, we may be required to deploy unexpected resources to provide integration services and avoid potential damage to our reputation.

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The Sales Cycle for Our TCI Retail Products is Long and Costly and MayNot Result in Revenues.

The licensing of our products is often an enterprise-wide decision by our customers that involves a significant commitment of resources by the customer and us. Prospective customers generally consider a wide range of issues and competitive products before committing to purchase our products. These issues may include product benefits, cost, time of implementation, ability to operate with existing and future computer systems, ability to accommodate increased transaction volume and product reliability. The period between initial contact with a prospective customer and sale of our products and services varies, but typically ranges from three months to twenty-four months. As part of the sales process, we spend a significant amount of resources informing prospective customers about the use and benefits of our products and these sales efforts may not result in a sale.

Generating the Appropriate Mix of Revenues from Software and Services is Critical to Generating Acceptable Profit Margins and Operating Results.

Because our gross margins on product revenues (software licenses and maintenance services) are significantly greater than our gross margins on services and hardware, our combined gross margin has fluctuated from quarter to quarter, and it may continue to fluctuate significantly based on revenue mix and service utilization rates. Services revenues are to a significant extent dependent upon new software license sales and effective utilization of professional service resources. Although there can be no assurance, we expect that our utilization rates and service margins will gradually improve if we experience a substantial increase in demand for our software products. However, in the event that software license revenues fail to meet our expectations or there is a decline in demand for our software or services, our consulting service revenue would be adversely impacted.

Competition Could Seriously Impede Our Ability to Profitably Sell Our Solutions.

The markets for our software products are highly competitive. We believe the principal competitive factors in our markets are feature and functionality, product reputation and reference accounts, grocery retail expertise, total solution cost and quality of customer support. We believe that pricing pressure has increased in response to market and macroeconomic factors, which could cause us to offer more significant discounts, or in some cases to lose potential business to competitors willing to offer what we believe to be overly aggressive discounts. Competition could seriously impede our ability to sell additional products and services on favorable terms. Competitive pressures could reduce our market share or require us to reduce prices, which could reduce our revenues and/or operating margins. Many of our competitors have substantially greater financial, marketing or other resources, and greater name recognition than us. Our competitors may also be able to respond more quickly than we can to new or emerging technologies and changes in customer requirements. Our current and potential competitors may:

• Develop and market new technologies that render our existing or future products obsolete, unmarketable or less competitive;

• Make strategic acquisitions or establish cooperative relationships among themselves or with other solution providers, which could increase the ability of their products to address the needs of our customers; and

• Establish or strengthen cooperative relationships with our current or future strategic partners, which could limit our ability to sell products through these channels.

It is Difficult for Us to Accurately Predict the Timing of Software Licenses Revenue and Our Results of Operations Could be Negatively Impacted.

Software license revenues in any quarter depend substantially upon contracts signed and the related shipment and transfer of title of software in that quarter. It is therefore difficult for us to accurately predict software license revenues. Because of the timing of our sales, we typically recognize the substantial majority of our software license revenues in the last weeks or days of the quarter, and we may derive a significant portion of our quarterly software license revenues from a small number of relatively larger sales. In addition, it is difficult to forecast the timing of large individual software license sales with a high degree of certainty due to the extended length of the sales cycle and generally more complex contractual terms that may be associated with such licenses that could result in the deferral of some or all of the revenue to future periods. Accordingly, large individual sales have sometimes occurred in quarters subsequent to when we anticipate. We expect these aspects of our business to continue. If we

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receive any significant cancellation or deferral of customer contracts, or we are unable to continue license negotiations by the end of a fiscal quarter, our operating results may be lower than planned. In addition, any weakening or uncertainty in the economy may make it more difficult for us to predict quarterly results in the future, and could negatively impact our business, operating results and financial condition for an indefinite period.

We May Not Be Able to Reduce Expense Levels If Our Revenues Decline.

Our expense levels are based on our expectations or future revenues. Since software license sales are typically accompanied by a significant amount of services and maintenance revenues, the size of our services organization must be managed to meet our anticipated software license revenues. We have also made a strategic decision to make a significant investment in new product development. As a result, we hire and train service personnel and incur research and development costs in advance of anticipated software license revenues. If software license revenues fall short of our expectations, or if we are unable to fully utilize our service personnel, our operating results are likely to decline because a significant portion of our expenses cannot be quickly reduced to respond to any unexpected revenue shortfall.

A Loss of Important Customers MayResult in a Loss of Revenues.

One customer accounted for 14.9% of revenues for the three months ended September 30, 2005 and one customer accounted for 35.5% of revenues for the three months ended September 30, 2004. One customer accounted for 15.11% of revenues for the nine months ended September 30, 2005 and one customer accounted for 31.7% of revenues for the nine months ended September 30, 2004. No other single customer accounted for more than 10% of 2004 or 2005 total revenues to date. A loss of any significant customer could have a material adverse effect on our operations. We expect that revenues from a limited number of new customers will continue to account for a large percentage of total revenues in future quarters. Our ability to attract new customers will depend on a variety of factors, including the performance, quality, features and price of our current and future products. A failure to add new customers that make significant purchases of our products and services could impair future revenues.

A Loss of Existing Resellers Could Harm Our Financial Position and Results of Operation.

A portion of our product sales are driven or influenced by the recommendation of marketing partners, consulting firms and other third parties. Our inability to obtain the support of these third parties may limit our ability to penetrate existing and targeted markets. These third parties are under no obligation to recommend or support our products and could recommend or give higher priority to the products and services of other companies or to their own products. A decision by these companies to favor competing products could negatively affect our software and service revenues.

If we are unable to establish relationships with marketing partners, we will have to devote substantially more resources to the sales and marketing of our products. In many cases, these parties have extensive relationships with our existing and potential customers and influence the decisions of these customers. A number of our competitors have long and established relationships with these same systems integrators, and as a result, these marketing partners may be more likely to recommend competitors’ products and services.

There May Be an Increase in Customer Bankruptcies Due to Weak Economic Conditions and Result in Uncollectible Accounts Receivable Balances.

We have in the past and may in the future be impacted by customer bankruptcies that occur in periods subsequent to the software license sale or the delivery of services. During weak economic conditions, such as those being experienced in some geographic regions we serve, there is an increased risk that certain of our customers will file for bankruptcy. When our customers file for bankruptcy, we may be required to forego collection of pre-petition amounts owed and to repay amounts remitted to us during the 90-day preference period preceding the filing. Accounts receivable balances related to pre-petition amounts may in certain of these instances be large due to extended payment terms for software license fees, and significant billings for professional services on large projects. The bankruptcy laws, as well as the specific circumstances of each bankruptcy, may severely limit our ability to

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collect pre-petition amounts, and may force us to disgorge payments made during the preference period. We also face risk from international customers that file for bankruptcy protection in foreign jurisdictions, in that the application of foreign bankruptcy laws may be less certain or harder to predict. Although we believe that we have sufficient reserves to cover anticipated customer bankruptcies, there can be no assurance that such reserves will be adequate, and if they are not adequate, our business, operating results and financial condition would be adversely affected.

We MayNot be able to Generate Positive Cash Flows or Profits Sufficient to Sustain Our Operations.

We have experienced net losses and negative cash flows from operating activities for the last five fiscal years. Although our long-term business strategy is intended to turn such net losses into net profits and net losses and negative cash flows are expected to turn around within three months, in the long-term, if we are unable to generate positive cash flows and net income, we may be required to change our business plan and/or seek additional financing. If unsuccessful in either case, we or Retalix may be required to sell our assets, discontinue operations or dissolve.

An Inability for Us to Protect Our Intellectual Property Rights Could Negatively Impact Our Business and Operating Results.

We depend on our ability to develop and maintain the proprietary aspects of our technology. To protect proprietary technology, we rely on a combination of copyright, trade secret, patent and trademark laws, common law rights and license agreements. We also seek to protect our software documentation and other written materials under trade secret and copyright laws, which afford only limited protection.

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult and expensive. There can be no assurance that the steps taken by us to protect our proprietary technology will be adequate to prevent misappropriation of our technology or to provide an adequate remedy in the event of a breach by others. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States. We intend to vigorously protect intellectual property rights through litigation and other means. However, such litigation can be costly to prosecute and we cannot be certain that we will be able to enforce our rights or prevent other parties from developing similar technology, duplicating our products or designing around our intellectual property.

We May Face Liability If Our Products Are Defective Or If We Make Errors Implementing Our Products That Could Negatively Impact Our Financial Position and Results of Operations.

Our software products are highly complex and sophisticated. As a result, they may occasionally contain design defects or software errors that could be difficult to detect and correct. This may result in loss of, or delay in, market acceptance of our products and could cause us to incur significant costs to correct errors or failures or to pay damages suffered by customers as a result of such errors or failures. In the past, we have discovered software errors in new releases and new products after their introduction. We have incurred costs during the period required to correct these errors, although to date such costs, including costs incurred on specific contracts, have not been material. We may in the future discover errors in new releases or new products after the commencement of commercial shipping.

In addition, implementation of our products may involve customer-specific configuration by third parties, or us and my involve integration with systems developed by third parties. Errors in the product or integration process may not be discovered until the implementation is complete.

Errors in our products may be caused by defects in third-party software incorporated into our products. If so, we may not be able to fix these defects without the cooperation of these software providers. Since these defects may not be as significant to the software provider as they are to us, we may not receive the rapid cooperation that it requires. We may not have the contractual right to access the source code of third-party software and, even if we have the right to access the source code, we may not be able to fix the defect. Our customers could seek significant

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compensation from us for their losses resulting from defects in our products. Even if unsuccessful, a product liability claim brought against us could be time consuming and costly.

We believe that significant investments in research and development are required to remain competitive, and that speed to market is critical to our success. Our future performance will depend in large part on our ability to enhance our existing products through internal development and strategic partnering, internally develop new products which leverage both our existing customers and sales force, and strategically acquire complementary retail point and collaborative solutions that add functionality for specific business purposes to an enterprise-wide system. If clients experience significant problems with implementation of our products or are otherwise dissatisfied with their functionality or performance or if they fail to achieve market acceptance for any reason, our business, operating results and financial condition would suffer.

Infringement Claims MayAllow Competitors to Gain Access To Our Technology and We MayLose Customers.

We do not have any knowledge that our products infringe on the proprietary rights of any other parties. However, there can be no assurance that other parties will not assert infringement claims against us in the future with respect to current or future products. Assertion of an infringement claim may result in costly litigation or may require us to obtain license or royalty agreements to use another party’s intellectual property. There can be no assurance that any such license or royalty agreement would be available on reasonable terms, if available at all. As the number of our software products in our segment of the software industry increases and the functionality of these products increasingly overlaps, we believe that software developers may become increasingly subject to infringement claims. Any such claims, with or without merit, could be time-consuming and expensive to defend.

Before the Merger with Retalix is Completed, Stockholders Cannot Expect to be Able to Liquidate Any or All of Their Investment.

No public market exists for our common stock. Common stockholders must be prepared to hold their investment indefinitely and cannot expect to be able to liquidate any or all of their investment even in case of an emergency. All of our outstanding shares of common stock are subject to rights of first refusal in our favor, pursuant to our bylaws. The right of first refusal is triggered in the event a stockholder desires to sell or otherwise transfer any shares of our stock to a third party upon which we will have 30 days from receipt of the notice of the proposed transaction to purchase all of the shares proposed to be sold at the price and upon the terms proposed to be sold. Certain exceptions exist to this right of first refusal including the transfer of shares to members of a stockholder’s immediate family or to a trustee for the account of a stockholder or such stockholder’s immediate family.

Fluctuations in Our Operating Results Could Cause Investors to Lose All of Their Investment and We Provide No Assurance of Future Share Values.

We provide no assurances regarding the value of our outstanding capital stock. Investors in our capital stock may lose all or part of their investment in our capital stock.

If We Fail to Obtain Additional Capital, Should the Need Arise, Our Business Could be Harmed.

We have expended and will continue to expend substantial funds on the development of our products and services. Consequently, we may require additional funds to finance our operations. The precise amount and timing of our funding needs cannot be determined at this time, and will depend upon a number of factors, including the market demand for our products and services, the progress of our development efforts and our management of cash, accounts payable and other working capital items. There can be no assurance that if required by us, funds will be available on terms satisfactory to us, if at all. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our existing stockholders will be reduced, the existing stockholders may experience additional dilution and such securities may have rights, preferences or privileges senior to those of the holders of our common stock. An inability to obtain needed funding on satisfactory terms may

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require us to terminate our operations and sell our assets and dissolve. No assurances can be made that we will be able to obtain financing for our future operations.

Item 3. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures - We maintain a system of disclosure controls and procedures that are designed for the purposes of ensuring that information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our acting Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosures.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our CEO and CFO, of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, our acting CEO and our CFO concluded that our disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting - There has been no change in our internal control over financial reporting during the third quarter of 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 6. Exhibits.

Exhibit No.	Description
31.1	Section 302 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Section 302 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		TCI SOLUTIONS, INC.
Dated: November 18, 2005	By:	/s/ Victor Hamilton
		Victor Hamilton Acting Chief Executive Officer

Dated: November 18, 2005	By:	/s/ Stephen P. DeSantis
		Stephen P. DeSantis Executive Vice President and Chief Financial Officer

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