**** ****

****UNITED STATES****

****SECURITIES AND EXCHANGECOMMISSION****

**Washington, D.C. 20549**

 

****FORM 10-Q****

 
| x                                                                                                                                                                             | ****Quarterly  Report Pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934****  |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                          |                                                                                                         |
| **For the  quarterly period ended April 4, 2009**                                                                                                                        |
|                                                                                                                                                                          |                                                                                                         |
| **or**                                                                                                                                                                        |
|                                                                                                                                                                          |                                                                                                         |
| o                                                                                                                                                                             | ****Transition  Report Pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934**** |
|                                                                                                                                                                          |                                                                                                         |
| **For the  transition period from                          to** |
|                                                                                                                                                                          |                                                                                                         |
| **Commission  File Number: 0-4090**                                                                                                                                           |

 

****ANALYSTS INTERNATIONALCORPORATION****

(Exact name of registrant as specified in its charter)

 

| ****Minnesota****                                  | **** **** | ****41-0905408****                 |
|----------------------------------------------------|----------------|------------------------------------|
| (State of  Incorporation)                          |           | (IRS Employer  Identification No.) |
|                                               |           |                               |
| ****3601 West 76********th******** Street**** |           |                               |
| ****Minneapolis, MN****                            | **** **** | ****55435****                      |
| (Address of  Principal Executive Offices)          |           | (Zip Code)                         |

 

Registrant’s telephone number, including area code: ****(952) 835-5900****

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes x No o

 

Indicate by checkmark whether the registrant has submitted electronically and posted on itscorporate Web site, if any, every Interactive Date File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during thepreceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files).  Yes o No o

 

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

 

| Large  accelerated filer o |   | Accelerated  Filer o         |
|----------------------------|--------|------------------------------|
|                       |   |                         |
| Non-accelerated  Filer o   |   | Smaller  Reporting Company x |

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes o Nox

 

As of May 6,2009, 24,925,076 shares of the registrant’s common stock were outstanding.

 

 

 

----

 

****ANALYSTS INTERNATIONAL CORPORATION****

 

****INDEX****

 
| ******Part I.****** | ******FINANCIAL  INFORMATION.******                                                                           | 3      |
|--------------------------|---------------------------------------------------------------------------------------------------------------|--------|
|                     |                                                                                                          |   |
| Item 1.                  | Financial Statements (Unaudited)                                                                              | 3      |
|                     |                                                                                                          |   |
|                     | Consolidated Balance Sheets as of  April 4, 2009 and January 3, 2009                                | 3      |
|                     |                                                                                                          |   |
|                     | Consolidated Statements of  Operations for the Three Months Ended April 4, 2009 and March 29,  2008 | 4      |
|                     |                                                                                                          |   |
|                     | Consolidated Statements of  Cash Flows for the Three Months Ended April 4, 2009 and March 29,  2008 | 5      |
|                     |                                                                                                          |   |
|                     | Notes to  Consolidated Financial Statements                                                                   | 6      |
|                     |                                                                                                          |   |
| Item 2.                  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                   | 10     |
|                     |                                                                                                          |   |
| Item 3.                  | Quantitative  and Qualitative Disclosures About Market Risk                                                   | 18     |
|                     |                                                                                                          |   |
| Item 4T.                 | Controls and  Procedures                                                                                      | 18     |
|                     |                                                                                                          |   |
| **Part II.**        | **OTHER INFORMATION**                                                                                         | 19     |
|                     |                                                                                                          |   |
| Item 1.                  | Legal Proceedings                                                                                             | 19     |
|                     |                                                                                                          |   |
| Item 1A.                 | Risk Factors                                                                                                  | 19     |
|                     |                                                                                                          |   |
| Item 2.                  | Unregistered  Sales of Equity Securities and Use of Proceeds                                                  | 19     |
|                     |                                                                                                          |   |
| Item 3.                  | Defaults  Upon Senior Securities                                                                              | 20     |
|                     |                                                                                                          |   |
| Item 4.                  | Submission  of Matters to a Vote of Security Holders                                                          | 20     |
|                     |                                                                                                          |   |
| Item 5.                  | Other Information                                                                                             | 20     |
|                     |                                                                                                          |   |
| Item 6.                  | Exhibits                                                                                                      | 20     |
|                     |                                                                                                          |   |
| Signatures               |                                                                                                          | 21     |
|                     |                                                                                                          |   |
| Exhibit Index       |                                                                                                          | 22     |

 

2

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****PART I. FINANCIAL INFORMATION****

 

****Item 1. Financial Statements****

 

****AnalystsInternational Corporation****

****Consolidated Balance Sheets****

**(Unaudited)**

 
| ** **                                                                                                                           | ** ** | **April 4,** | ** ** | **January 3,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|---------------------|------------|
| **(In thousands)**                                                                                                              | ** ** | **2009**          | ** ** | **2009**            | ** ** |
|                                                                                                                                 |       |              |       |                |       |
| **ASSETS**                                                                                                                           |       |              |       |                |       |
|                                                                                                                                 |       |              |       |                |       |
| Current assets:                                                                                                                      |       |              |       |                |       |
| Cash and cash equivalents                                                                                                            |       | $                 | 4,571      |                | $          | 2,288 |   |
| Accounts receivable, less allowance for doubtful accounts of $1,057  and $1,092, respectively                                        |       | 33,675            |       | 40,814              |       |
| Prepaid expenses and other current assets                                                                                            |       | 1,473             |       | 1,521               |       |
| Total current assets                                                                                                                 |       | 39,719            |       | 44,623              |       |
|                                                                                                                                 |       |              |       |                |       |
| Property and equipment, net                                                                                                          |       | 2,944             |       | 3,081               |       |
| Intangible assets, net of accumulated amortization of $6,960 and $7,155,  respectively                                               |       | 5,881             |       | 6,104               |       |
| Other assets                                                                                                                         |       | 387               |       | 446                 |       |
| Total assets                                                                                                                         |       | $                 | 48,931     |                | $          | 54,254 |   |
|                                                                                                                                 |       |              |       |                |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                        |       |              |       |                |       |
|                                                                                                                                 |       |              |       |                |       |
| Current liabilities:                                                                                                                 |       |              |       |                |       |
| Accounts payable                                                                                                                     |       | $                 | 11,143     |                | $          | 15,581 |   |
| Line of credit                                                                                                                       |       | —            |       | —              |       |
| Salaries and benefits                                                                                                                |       | 5,416             |       | 3,249               |       |
| Deferred revenue                                                                                                                     |       | 1,174             |       | 1,473               |       |
| Deferred compensation                                                                                                                |       | 257               |       | 275                 |       |
| Restructuring accrual                                                                                                                |       | 167               |       | 184                 |       |
| Other current liabilities                                                                                                            |       | 942               |       | 1,025               |       |
| Total current liabilities                                                                                                            |       | 19,099            |       | 21,787              |       |
|                                                                                                                                 |       |              |       |                |       |
| Non-current liabilities:                                                                                                             |       |              |       |                |       |
| Deferred compensation                                                                                                                |       | 1,274             |       | 1,391               |       |
| Restructuring accrual                                                                                                                |       | 59                |       | 65                  |       |
| Other long-term liabilities                                                                                                          |       | 242               |       | 616                 |       |
| Total non-current liabilities                                                                                                        |       | 1,575             |       | 2,072               |       |
|                                                                                                                                 |       |              |       |                |       |
| Shareholders’ equity:                                                                                                           |       |              |       |                |       |
| Common stock, par value $.10 a share; authorized 120,000,000 shares;  issued and outstanding 24,925,076 and 24,913,076, respectively |       | 2,492             |       | 2,491               |       |
| Additional capital                                                                                                                   |       | 23,240            |       | 23,145              |       |
| Retained earnings                                                                                                                    |       | 2,525             |       | 4,759               |       |
| Total shareholders’ equity                                                                                                      |       | 28,257            |       | 30,395              |       |
| Total liabilities and shareholders’ equity                                                                                      |       | $                 | 48,931     |                | $          | 54,254 |   |

 

See notes to consolidated financial statements.

 

3

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**** ****

****AnalystsInternational Corporation****

****Consolidated Statements of Operations****

****(Unaudited)****

 
| ** **                                                           | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                           | ** ** | **April 4,**                | ** ** | **March 29,** | ** ** |
| **(In thousands except per share amounts)** | ** ** | **2009**                         | ** ** | **2008** | ** ** |
|                                                                 |       |                             |       |   |   |
| Revenue:                                                             |       |                             |       |   |   |
| Professional services provided directly                              |       | $                                | 40,823     |   | $ | 60,740 |   |
| Professional services provided through subsuppliers                  |       | 873                              |       | 14,096 |   |
| Product sales                                                        |       | 3,436                            |       | 7,967 |   |
| Total revenue                                                        |       | 45,132                           |       | 82,803 |   |
|                                                                 |       |                             |       |   |   |
| Expenses:                                                            |       |                             |       |   |   |
| Cost of services provided directly                                   |       | 32,288                           |       | 47,617 |   |
| Cost of services provided through subsuppliers                       |       | 831                              |       | 13,574 |   |
| Cost of product sales                                                |       | 2,929                            |       | 6,990 |   |
| Selling, administrative and other operating costs                    |       | 11,029                           |       | 13,689 |   |
| Restructuring costs and other severance related costs                |       | 66                               |       | 1,639 |   |
| Amortization of intangible assets                                    |       | 223                              |       | 279 |   |
| Total expenses                                                       |       | 47,366                           |       | 83,788 |   |
|                                                                 |       |                             |       |   |   |
| Operating loss                                                       |       | (2,234                           | )          | (985 | ) |
|                                                                 |       |                             |       |   |   |
| Non-operating income                                                 |       | 14                               |       | 34 |   |
| Interest expense                                                     |       | (8                               | )          | (92 | ) |
|                                                                 |       |                             |       |   |   |
| Loss before income taxes                                             |       | (2,228                           | )          | (1,043 | ) |
|                                                                 |       |                             |       |   |   |
| Income tax expense                                                   |       | 6                                |       | 4 |   |
|                                                                 |       |                             |       |   |   |
| Net loss                                                             |       | $                                | (2,234     | ) | $ | (1,047 | ) |
|                                                                 |       |                             |       |   |   |
| Per common share (basic):                                            |       |                             |       |   |   |
| Net loss                                                             |       | $                                | (0.09      | ) | $ | (0.04 | ) |
|                                                                 |       |                             |       |   |   |
| Per common share (diluted):                                          |       |                             |       |   |   |
| Net loss                                                             |       | $                                | (0.09      | ) | $ | (0.04 | ) |
|                                                                 |       |                             |       |   |   |
| Weighted-average shares outstanding:                                 |       |                             |       |   |   |
| Basic                                                                |       | 24,925                           |       | 24,913 |   |
| Diluted                                                              |       | 24,925                           |       | 24,913 |   |

 

See notes to consolidated financial statements.

 

4

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****AnalystsInternational Corporation****

****Consolidated Statements of Cash Flows****

****(Unaudited)****

 
| ** **                                          | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------|------------|----------------------------------|------------|
| ** **                                          | ** ** | **April 4,**                | ** ** | **March 29,** | ** ** |
| **(In thousands)**                             | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| ** **                                          | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Cash flows from operating activities:               |       |                             |       |   |   |
| Net loss                                            |       | $                                | (2,234     | ) | $ | (1,047 | ) |
|                                                |       |                             |       |   |   |
| Adjustments to net loss:                            |       |                             |       |   |   |
| Depreciation                                        |       | 376                              |       | 414 |   |
| Amortization of intangible assets                   |       | 223                              |       | 279 |   |
| Stock based compensation                            |       | 96                               |       | 103 |   |
| Loss on asset disposal                              |       | 1                                |       | 36 |   |
|                                                |       |                             |       |   |   |
| Changes in:                                         |       |                             |       |   |   |
| Accounts receivable                                 |       | 7,194                            |       | 6,678 |   |
| Accounts payable                                    |       | (4,542                           | )          | (2,253 | ) |
| Salaries and benefits                               |       | 2,167                            |       | (3,205 | ) |
| Restructuring accrual                               |       | (23                              | )          | (1,374 | ) |
| Deferred compensation                               |       | (135                             | )          | (1,083 | ) |
| Prepaid expenses and other assets                   |       | 52                               |       | 58 |   |
| Deferred revenue                                    |       | (343                             | )          | (88 | ) |
| Other accrued liabilities                           |       | (79                              | )          | (50 | ) |
| Net cash provided by (used in) operating activities |       | 2,753                            |       | (1,532 | ) |
|                                                |       |                             |       |   |   |
| Cash flows from investing activities:               |       |                             |       |   |   |
| Expended for property and equipment additions       |       | (440                             | )          | (358 | ) |
| Net cash used in investing activities               |       | (440                             | )          | (358 | ) |
|                                                |       |                             |       |   |   |
| Cash flows from financing activities:               |       |                             |       |   |   |
| Net change in line of credit                        |       | —                           |       | 1,940 |   |
| Payment of capital lease obligation                 |       | (30                              | )          | — |   |
| Net cash (used in) provided by financing activities |       | (30                              | )          | 1,940 |   |
|                                                |       |                             |       |   |   |
| Net increase in cash and cash equivalents           |       | 2,283                            |       | 50 |   |
|                                                |       |                             |       |   |   |
| Cash and cash equivalents at beginning of period    |       | 2,288                            |       | 91 |   |
|                                                |       |                             |       |   |   |
| Cash and cash equivalents at end of period          |       | $                                | 4,571      |   | $ | 141 |   |

 

See notes to consolidated financial statements.

 

5

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****AnalystsInternational Corporation****

****Notes to Consolidated Financial Statements****

**(Unaudited)**

 

**1. ******Organization and Natureof Business****

 

AnalystsInternational Corporation (“AIC,” “Company,” “we,” “us” or “our”) is aninformation technology (“IT”) services company that is focused on providingconfigured solutions for our clients. We provide IT staffing and project basedservices, including application development and integration, systemsintegration, portals and collaboration solutions, network and infrastructuresolutions, and managed services. We were incorporated under Minnesota law in1966 and our corporate headquarters are located in Minneapolis, Minnesota. Fora more complete description of our company, please refer to our Annual Reporton Form 10-K for the fiscal year ended January 3, 2009.

 

We operate on afiscal year ending on the Saturday closest to December 31. Accordingly, fiscal2009 will end on Saturday, January 2, 2010. The first quarter of fiscal 2009ended on April 4, 2009 and the first quarter of fiscal 2008 ended on March 29,2008. Fiscal 2009 will include 52 weeks while fiscal 2008 included 53 weeks.

 

****2.  Summary of Significant Accounting Policies****

 

*Basis ofConsolidation*

 

The accompanyingunaudited Consolidated Financial Statements of AIC have been prepared on theaccrual basis of accounting and in accordance with the requirements of theSecurities and Exchange Commission (“SEC”) for interim financial reporting. Aspermitted under these rules, certain footnotes and other financial informationthat are normally required by accounting principles generally accepted in theUnited States (“U.S. GAAP”) can be condensed or omitted. The ConsolidatedFinancial Statements included in this document reflect, in the opinion of ourmanagement, all adjustments (consisting of only normal recurring adjustments,except as noted elsewhere in the Notes to Consolidated Financial Statements)necessary for fair presentation of our financial position as of April 4,2009 and our results of operations and cash flows for the three months ended April 4,2009 and March 29, 2008. The following notes should be read in conjunctionwith the accounting policies and other disclosures in the Notes to theConsolidated Financial Statements incorporated by reference in our AnnualReport on Form 10-K for the fiscal year ended January 3, 2009.Revenues, expenses, cash flows, assets and liabilities can and do vary duringthe year. Therefore, interim results are not necessarily indicative of theresults to be expected for the full fiscal year.

 

*Estimates*

 

The preparation ofconsolidated financial statements in conformity with U.S. GAAP requiresmanagement to make estimates and assumptions affecting the reported amounts ofassets and liabilities, the disclosure of contingent assets and liabilities atthe date of the consolidated financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differfrom these estimates.

 

*Reclassifications*

 

To maintain consistencyand comparability, we reclassified certain prior-year amounts previouslyreported in our Annual Report on Form 10-K for the fiscal year ended January 3,2009 to conform to the current-year presentation.  The reclassifications affect only thegrouping of line item balances within current liabilities and non-currentliabilities. The reclassifications were deemed immaterial to the financialstatements as they did not change the character of any liability and had noeffect on total current and non-current liabilities, net income or cash flows.

 

*AccountingPronouncements*

 

In April 2009, theFinancial Accounting Standards Board (“FASB”) issued Financial Staff Position (“FSP”)FAS 141(R)-1, *Accounting for Assets Acquired andLiabilities Assumed in a Business Combination That Arise from Contingencies*(“FSP FAS 141R-1”) which amends and clarifies Statements of FinancialAccounting Standards 

 

6

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(“SFAS”) 141(R), *Business Combinations*, on initial recognition andmeasurement, subsequent measurement and accounting, and disclosure of assetsand liabilities arising from contingencies in a business combination. FSP FAS141R-1 is effective for business combinations occurring in fiscal yearsbeginning on or after December 15, 2008. The impact on our consolidatedfinancial statements of adopting FSP FAS 141R-1 will depend on the nature,terms and size of business combinations completed after the effective date.

 

In April 2009, theFASB issued FSP FAS 107-1 and APB 28-1, *Interim Disclosures aboutFair Value of Financial Instruments* (“FSP FAS 107-1 and APB 28-1”)to require an entity to provide disclosures about the fair value of financialinstruments in interim financial information. FSP FAS 107-1 and APB 28-1 wouldapply to all financial instruments within the scope of SFAS 107, *Disclosures about Fair Value of Financial Instruments*, andwill require entities to disclose the method(s) and significantassumptions used to estimate the fair value of financial instruments, in bothinterim financial statements as well as annual financial statements. FSP FAS107-1 and APB 28-1 will be effective for interim and annual periods endingafter June 15, 2009, with early adoption permitted for periods endingafter March 15, 2009. The Company is currently evaluating the effect FSPFAS 107-1 and APB 28-1 will have on our financial statement disclosures.

 

****3.****  ****Fair Value Measurement****

 

Effective January 1,2008, we adopted SFAS 157, *Fair Value Measurements*(“SFAS 157”). The adoption of SFAS 157 had no impact on our consolidatedfinancial statements or the valuation methods consistently followed by theCompany.

 

The fair value hierarchygives the highest priority to unadjusted quoted prices in active markets foridentical assets or liabilities (Level 1) and the lowest priority tounobservable inputs (Level 3). A financial instrument’s level within thehierarchy is based on the lowest level of any input that is significant to thefair value measurement. The levels of the fair value hierarchy are defined asfollows:

 

Level 1 — Quoted pricesin active markets for identical assets or liabilities. The types of assets andliabilities included in Level 1 are highly liquid and actively tradedinstruments with quoted market prices.

 

Level 2 — Observableinputs other than Level 1 prices such as quoted prices for similar assets orliabilities; quoted prices in markets that are not active; or other inputs thatare observable or can be corroborated by observable market data forsubstantially the full term of the assets or liabilities. The type of assetsand liabilities included in Level 2 are typically either comparable to activelytraded securities or contracts or priced with models using observable inputs.

 

Level 3 — Unobservableinputs that are supported by little or no market activity and that aresignificant to the fair value of the assets and liabilities. The type of assetsand liabilities included in Level 3 are those with inputs requiring significantmanagement judgment or estimation.

 

Short-term cashinvestments in money market accounts are considered to be cash equivalents. Theestimated fair values for cash equivalents approximate their carrying valuesdue to the short-term maturities of these instruments. Cash equivalents areclassified as Level 1 and are recorded in our cash and cash equivalents line onour Consolidated Balance Sheets.

 

**4.   Intangible Assets**

 

Duringthe first quarter of fiscal 2009, no intangible assets were acquired orimpaired. In the first quarter of fiscal 2009, we disposed of a customer listand a trade name that were fully amortized. Intangible assets consist of thefollowing:

 

7

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| ** **              | ** ** | **April 4, 2009**     | ** ** | **January 3, 2009** | ** ** |
|-------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| **(In thousands)** | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Intangibles,  Net** | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Intangibles,  Net** | ** ** |
| ** **              | ** ** | ** **                      | ** ** | ** **                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Customer lists          |       | $                               | 12,841     |                          | $          | (6,960 | ) | $ | 5,881 |   | $ | 13,259 |   | $ | (7,155 | ) | $ | 6,104 |   |
|                         |            |                                 |            |                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Thecustomer lists are amortized on a straight-line basis over their estimateduseful lives and are scheduled  to befully amortized by 2015. Annual amortization expense is estimated to beapproximately $0.9 million from 2009 to 2014 and $0.7 million in 2015.

 

****5. **** ****Financing Agreement****

 

Effective April 11,2002, we consummated an asset-based revolving credit facility with GE CapitalCorporation which provides us with up to $45.0 million of availability. As of April 4,2009, we had no borrowing under the credit facility and total availability,which fluctuates based on our level of eligible accounts receivable, was $14.3million. Borrowing under this credit agreement is secured by all of our assets.The agreement restricts, among other things, the payment of dividends andcapital expenditures.

 

Effective January 20,2006, we amended the revolving credit agreement extending the expiration datefrom October 31, 2006 to January 20, 2010. The modifications includedthe elimination of certain reserves in calculating the amount we can borrowunder the facility and changes to the definition of eligible receivables. Thecredit facility, as amended, requires a commitment fee of 0.25% of the unusedportion of the facility and an annual administration fee of $25,000. Thefacility carries an interest rate on daily advances equal to the Wall StreetJournal’s “Prime Rate” (3.25% on April 4, 2009) and on fixed-term advancesequal to the applicable LIBOR rate plus 2.0%. As of April 4, 2009, we are in compliance with all the requirementsof the credit facility.

 

**6.  Shareholders’ Equity**

 
| ** **                                 | ** ** | ** ** | ** ** | ** **     | ** ** | ** **   | ** ** | **Total**              | ** ** |
|--------------------------------------------|------------|------------|------------|----------------|------------|--------------|------------|------------------------|------------|
| ** **                                 | ** ** | **Common** | ** ** | **Additional** | ** ** | **Retained** | ** ** | **Shareholders’** | ** ** |
| **(In thousands)**                    | ** ** | **Stock**  | ** ** | **Capital**    | ** ** | **Earnings** | ** ** | **Equity**             | ** ** |
|                                       |       |       |       |           |       |         |       |                   |       |
| Balances as of January 3, 2009        |       | $          | 2,491      |           | $          | 23,145       |       | $                      | 4,759      |   | $ | 30,395 |   |
| Common stock issued - 12,000 shares        |       | 1          |       | 4              |       | —       |       | 5                      |       |
| SFAS 123R share based compensation expense |       | —     |       | 91             |       | —       |       | 91                     |       |
| Net loss                                   |       | —     |       | —         |       | (2,234       | )          | (2,234                 | )          |
| Balance as of April 4, 2009           |       | $          | 2,492      |           | $          | 23,240       |       | $                      | 2,525      |   | $ | 28,257 |   |

 

**7.   Restructuring**

 

Duringthe first quarter of fiscal 2009, we recorded workforce reduction chargestotaling $0.1 million, all of which related to severance and benefits.

 

Duringthe first quarter of fiscal 2008, we recorded workforce reduction and officeclosure and consolidation charges totaling $1.6 million.  Of these charges, $1.4 million related toseverance and severance-related charges and $0.2 million related to future rentobligations (net of anticipated sub-lease income) for locations we closed ordownsized prior to March 29, 2008.

 

A summary of the activityin the restructuring accrual for the three months ended April 4, 2009 isas follows:

 

8

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| ** **                         | ** ** | **Workforce** | ** ** | **Office Closure/** | ** ** | ** ** | ** ** |
|------------------------------------|------------|---------------|------------|--------------------------|------------|------------|------------|
| **(In thousands)**            | ** ** | **Reduction** | ** ** | **Consolidation**        | ** ** | **Total**  | ** ** |
| ** **                         | ** ** | ** **    | ** ** | ** **               | ** ** | ** ** | ** ** |
| Balance as of January 3, 2009 |       | $             | 28         |                     | $          | 221        |       | $ | 249 |   |
| Additional restructuring charges   |       | 66            |       | —                   |       | 66         |       |
| Cash expenditures                  |       | (28           | )          | (61                      | )          | (89        | )          |
| Balance as of April 4, 2009   |       | $             | 66         |                     | $          | 160        |       | $ | 226 |   |

 

****8.**** ****Equity Compensation Plans****

 

Total equity-basedcompensation expense for the first quarters of fiscal 2009 and fiscal 2008 wasapproximately $0.1 million and includes compensation expense related to bothstock options and stock awards. The tax benefit recorded for the first quarterof fiscal 2009 and fiscal 2008 was $7,000 and $14,000, respectively. The taxbenefit is offset against our valuation allowance for our deferred tax asset.

 

No stock options wereexercised during the periods ended April 4, 2009 and March 29, 2008.As of April 4, 2009, there was approximately $0.4 million of unrecognizedcompensation expense related to unvested option awards that are expected tovest over a weighted-average period of 1.3 years.

 

We granted equitycompensation awards as follows:

 
| ** **    | ** ** | **Three Months Ended** | ** ** |
|---------------|------------|----------------------------------|------------|
| ** **    | ** ** | **April 4,**                | ** ** | **March 29,** | ** ** |
| ** **    | ** ** | **2009**                         | ** ** | **2008** | ** ** |
| ** **    | ** ** | **Grants**                       | ** ** | **Weighted-  Average  Grant Date  Fair Value** | ** ** | **Grants** | ** ** | **Weighted-  Average Grant  Date Fair Value** | ** ** |
| ** **    | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Stock Options |       | 104,000                          |       | $ | 0.24 |   | 318,000 |   | $ | 0.60 |   |
| Stock Awards  |       | 12,000                           |       | $ | 0.44 |   | 9,000 |   | $ | 1.38 |   |

 

**9.  Loss Per Share**

 

Basic and diluted lossper share is presented in accordance with SFAS No. 128, *Earnings per Share*. Basic loss per share excludes dilution and is computed by dividing lossavailable to common stockholders by the weighted-average number of commonshares outstanding for the period. Options to purchase approximately 2,351,000 and 1,743,000 shares ofcommon stock were outstanding at April 4, 2009 and March 29, 2008,respectively.  All options wereconsidered anti-dilutive and excluded from the computation of common equivalentshares at April 4, 2009 and March 29, 2008, because we reported a netloss.  The computation of basic anddiluted loss per share for the three months ended April 4, 2009 and March 29,2008, is as follows:

 
| ** **                                                                  | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                  | ** ** | **April 4,**                | ** ** | **March 29,** | ** ** |
| **(In thousands except per share amounts)**        | ** ** | **2009**                         | ** ** | **2008** | ** ** |
|                                                                        |       |                             |       |   |   |
| Net loss                                                                    |       | $                                | (2,234     | ) | $ | (1,047 | ) |
| Weighted-average number of common shares outstanding                        |       | 24,925                           |       | 24,913 |   |
| Dilutive effect of equity compensation awards                               |       | —                           |       | — |   |
| Weighted-average number of common and common equivalent shares  outstanding |       | 24,925                           |       | 24,913 |   |
|                                                                        |       |                             |       |   |   |
| Net loss per share:                                                         |       |                             |       |   |   |
| Basic                                                                       |       | $                                | (0.09      | ) | $ | (0.04 | ) |
| Diluted                                                                     |       | $                                | (0.09      | ) | $ | (0.04 | ) |

 

9

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****Item 2. Management’s Discussion and Analysis of Financial Condition andResults of Operations.****

 

*Company Overview*

 

Analysts InternationalCorporation (“AIC,” “Company,” “we,” “us” or “our) is an IT services companythat is focused on providing configured solutions for our clients. We provideIT staffing and project based services, including application development andintegration, systems integration, portals and collaboration solutions, networkand infrastructure solutions, and managed services. We were incorporated underMinnesota law in 1966 and our corporate headquarters are located inMinneapolis, Minnesota. For a more complete description of our Company, pleaserefer to our Annual Report on Form 10-K for the fiscal year ended January 3,2009.

 

*OurStrategic Plan*

 

InJanuary 2008, we announced a long-term strategic plan (the “Plan”)intended to restore AIC to profitability and increase shareholder value. ThePlan was built around four strategic goals:

 

1.Returning the Company to sustainedprofitability;

2.Focusing on business development andexpanding our service offerings in key metro markets;

3.Attracting and retaining top talent; and

4.Aligning with our technology partners.

 

In our 2008 AnnualReport, we communicated our annual objectives in support of our businessstrategy, placing the highest priority on protecting our business through theseeconomic challenges. Our objectives for fiscal 2009 and our progress towardsthese objectives are as follows:

 

·  **Manage Cash Flow and Maintain a Strong Balance Sheet**

 

We believemanaging our cash flow activity and maintaining a strong balance sheet isnecessary to mitigate the financial risks during the current economicrecession.

·      Duringthe first quarter of fiscal 2009, cash provided by operations was approximately$2.8 million. See “Liquidity and Capital Resources” in this Form 10-Q forfurther discussion regarding our changes in working capital.

·      As ofApril 4, 2009, our current ratio is substantially unchanged from the endof fiscal 2008.

·      As ofApril 4, 2009, we have no borrowing outstanding under our credit facility.

 

·  **Exit Non-Strategic or Non-Core Business**

 

We believe exitingadditional lines of business that are non-strategic or non-core to our futurewill allow us to focus on growing our business, provide the cash to fund ourgrowth and aid in simplifying our business model.

·      Wecontinue to evaluate our entire portfolio of businesses for synergies and fitwith our core business operations. As we complete these evaluations, we expectto sell or discontinue certain business operations.

 

·  **Strengthen our IT Staffing Business**

 

Strengthening ourIT staffing business is essential to the financial stability of the Company;however, we have experienced a further decline in the number of technicalconsultants and associated billable hours in the first quarter of fiscal 2009.

 

·  **Expand our Public Sector Practice**

 

The United States’government has enacted substantial economic stimulus programs, includingprograms in practice areas where we provide services. We have experience inJustice & Public Safety engagements as well as existing governmentalrelationships, and are actively pursuing several opportunities in the public sector.

 

·  **Improve Gross Margins**

 

We continue tofocus on improving our gross margins. The positive effects of improvement inour gross margin percentage have been attenuated, however, by the lower volumesof business. Recently, our gross margin increased to 20.1% in the first quarterof fiscal 2009 from 17.7% and 19.3% in the first and fourth quarters,respectively, of fiscal 2008. The primary driver of the increase is theelimination or exit from low margin and subsupplier business during fiscal2008.

 

·  **Retain Clients and Develop Business**

 

Retaining grossmargins from existing clients as well as attracting new clients and developingbusiness in key markets is vital to delivering long-term operating profits.

 

10

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·  **Reduce Selling, Administrative and Other Operating Expenses(“SG&A”)**

 

Reducing ourSG&A as a percent of revenue through continued process improvements, costreductions and controls and improved performance management will allow us toprovide additional operating capital to support our business and fund futuregrowth.

·      Wereduced our SG&A expenses in the first quarter of fiscal 2009 by $2.7million and $0.6 million when compared against the first and fourth quarters,respectively, of fiscal 2008; however, we expect the rate and amount of futureSG&A reductions to decline. As a percentage of revenue, our SG&Aexpense increased to 24.4% during the quarter compared to 16.5% and 20.6% inthe first and fourth quarters, respectively, of fiscal 2008 primarily due to asignificantly lower revenue base.

·      Duringthe first quarter of fiscal 2009, we reduced our SG&A staff byapproximately 14%.

 

*Consequencesand Challenges of the Economic Downturn on Our Business and Our Strategic Plan*

 

The sharp contraction inthe U.S. economy that began in the second half of fiscal 2008 has had asignificant and continuing impact on our business. The effects of this economicdeterioration have presented significantly greater challenges than wepreviously anticipated, resulting in accelerating downward pressures on bothour revenues and margins. We expect the challenges resulting from the globaleconomic deterioration to continue throughout the remainder of fiscal2009.  Based on our current outlook forfiscal 2009, we now believe that our ability to deliver operating profits infiscal 2009 is unlikely given the current economic environment. However, wealso believe that executing on our Plan should help us to weather the economicdownturn and emerge as a stronger, more institutionally mature business thatcan serve as a platform for future growth.

 

**Overview ofResults of First Quarter Fiscal 2009 Operations**

 

Our revenuesdecreased $37.7 million, or 45.5%, in the first quarter of fiscal 2009 ascompared to the first quarter of fiscal 2008. Our revenues decreased $20.9million, or 25.2%, during the first quarter of fiscal 2009 due to the negative effectthe economic environment has had on the demand for our IT professionalservices, staffing and products. In addition, our planned exit from non-coreand low-margin lines of business caused our revenues to decline $16.8 million,or 20.3%, compared to the first quarter of fiscal 2008. Early in the thirdquarter of fiscal 2008, we sold Symmetry Workforce Solutions (“Symmetry”), ourmanaged staffing business, to COMSYS Information Technology Services, Inc.and discontinued our staffing relationship with one of our large staffingaccounts. Together, business through Symmetry and the large staffing accountrepresented approximately $15 million in quarterly revenue and$60 million in annualized revenue.

 

Gross margins as apercent of revenue increased due to the impact of implementing our strategy ofexiting low margin lines of business and accounts and the reduction in lowermargin product sales.

 

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SG&A expensesdeclined in the first quarter of fiscal 2009 due largely to the execution ofour Plan and the reduction in business volume.

 

We generated cashfrom operations of $2.8 million during the first quarter of fiscal 2009.As of April 4, 2009, we had a cash balance of approximately$4.6 million and no borrowing under our revolving credit facility.

 

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****RESULTS OFOPERATIONS, THREE MONTHS ENDED APRIL 4, 2009 VS. MARCH 29, 2008****

 

The following tableillustrates the relationship between revenue and expense categories along witha count of employees and technical consultants as of April 4, 2009 and March 29,2008.

 
| ** **                                            | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** |
|-------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|------------|------------|
| ** **                                            | ** ** | **April 4, 2009**      | ** ** | **March 29, 2008**     | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | ** **                       | ** ** | **% of**                    | ** ** | ** ** | ** ** | **% of** | ** ** | **Increase (Decrease)** | ** ** |
| **(Dollars in thousands)**                  | ** ** | **Amount**                       | ** ** | **Revenue**                      | ** ** | **Amount** | ** ** | **Revenue** | ** ** | **Amount** | ** ** | **%** | ** ** |
| Revenue:                                              |       |                             |       |                             |       |       |       |   |   |   |   |   |   |
| Professional services provided directly               |       | $                                | 40,823     |                             | 90.5       | %          | $          | 60,740 |   | 73.4 | % | $ | (19,917 | ) | (32.8 | )% |
| Professional services provided through subsuppliers   |       | 873                              |       | 1.9                              |       | 14,096     |       | 17.0 |   | (13,223 | ) | (93.8 | ) |
| Product sales                                         |       | 3,436                            |       | 7.6                              |       | 7,967      |       | 9.6 |   | (4,531 | ) | (56.9 | ) |
| Total revenue                                         |       | 45,132                           |       | 100.0                            |       | 82,803     |       | 100.0 |   | (37,671 | ) | (45.5 | ) |
|                                                  |       |                             |       |                             |       |       |       |   |   |   |   |   |   |
| Expenses:                                             |       |                             |       |                             |       |       |       |   |   |   |   |   |   |
| Cost of services provided directly                    |       | 32,288                           |       | 71.5                             |       | 47,617     |       | 57.5 |   | (15,329 | ) | (32.2 | ) |
| Cost of services provided through subsuppliers        |       | 831                              |       | 1.8                              |       | 13,574     |       | 16.4 |   | (12,743 | ) | (93.9 | ) |
| Cost of product sales                                 |       | 2,929                            |       | 6.5                              |       | 6,990      |       | 8.4 |   | (4,061 | ) | (58.1 | ) |
| Selling, administrative and other operating costs     |       | 11,029                           |       | 24.4                             |       | 13,689     |       | 16.5 |   | (2,660 | ) | (19.4 | ) |
| Restructuring costs and other severance related costs |       | 66                               |       | 0.1                              |       | 1,639      |       | 2.0 |   | (1,573 | ) | (96.0 | ) |
| Amortization of intangible assets                     |       | 223                              |       | 0.5                              |       | 279        |       | 0.3 |   | (56 | ) | (20.1 | ) |
| Total expenses                                        |       | 47,366                           |       | 104.9                            |       | 83,788     |       | 101.2 |   | (36,422 | ) | (43.5 | ) |
|                                                  |       |                             |       |                             |       |       |       |   |   |   |   |   |   |
| Operating loss                                        |       | (2,234                           | )          | (4.9                             | )          | (985       | )          | (1.2 | ) | 1,249 |   | 126.8 |   |
|                                                  |       |                             |       |                             |       |       |       |   |   |   |   |   |   |
| Non-operating income                                  |       | 14                               |       | 0.0                              |       | 34         |       | 0.0 |   | (20 | ) | (58.8 | ) |
| Interest expense                                      |       | (8                               | )          | 0.0                              |       | (92        | )          | (0.1 | ) | (84 | ) | (91.3 | ) |
|                                                  |       |                             |       |                             |       |       |       |   |   |   |   |   |   |
| Loss before income taxes                              |       | (2,228                           | )          | (4.9                             | )          | (1,043     | )          | (1.3 | ) | 1,185 |   | 113.6 |   |
|                                                  |       |                             |       |                             |       |       |       |   |   |   |   |   |   |
| Income tax expense                                    |       | 6                                |       | 0.0                              |       | 4          |       | 0.0 |   | 2 |   | 50.0 |   |
|                                                  |       |                             |       |                             |       |       |       |   |   |   |   |   |   |
| Net loss                                              |       | $                                | (2,234     | )                                | (4.9       | )%         | $          | (1,047 | ) | (1.3 | )% | $ | 1,187 |   | 113.4 | % |
|                                                  |       |                             |       |                             |       |       |       |   |   |   |   |   |   |
| Personnel:                                            |       |                             |       |                             |       |       |       |   |   |   |   |   |   |
| Management and Administrative                         |       | 223                              |       |                             |       | 333        |       |   |   | (110 | ) | (33.0 | )% |
| Technical Consultants                                 |       | 1,174                            |       |                             |       | 2,005      |       |   |   | (831 | ) | (41.4 | )% |

 

**Revenue**

 

Revenue fromservices provided directly declined 32.8% from the comparable period a yearago. The decline in revenue was primarily due to a reduction in the number ofbillable hours and technical consultants as a result of lower business volumesand our decision to discontinue our relationship with one of our large staffingaccounts which was partially offset by a 9.2% increase in overall billing ratesover the prior year period. Our subsupplier revenue, which is mainlypass-through revenue with associated fees, declined by 93.8% over the prioryear period primarily due to the sale of Symmetry early in the third quarter offiscal 2008. Product sales in the first quarter of fiscal 2009 declined by56.9% over the prior year period due to an overall reduction in businessvolume.

 

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**Cost of Services Provided Directly**

 

Cost of servicesprovided directly represents our payroll and benefit costs associated with ourbillable consultants. This category of expense as a percentage of directservices revenue increased to 79.1% in the first quarter of fiscal 2009compared to 78.4% in the prior comparable period. The increase in expense as apercentage of direct services revenue is due to our inability to pass throughall customer requested rate changes to our consultants and slightly lowerutilization levels of our salaried consultants.

 

**Cost of Services Provided Through Subsuppliers**

 

**Cost of services provided through subsuppliersrepresents our cost when we utilize third parties to fulfill our obligations toour large staffing clients.  Thiscategory of expense as a percentage of revenue for services provided throughsubsuppliers was 95.2% for the first quarter of fiscal 2009 compared to 96.3%for the comparable period in fiscal 2008. The decrease in expense as apercentage of subsupplier revenue is primarily due to**exiting lower margin subsupplier businessduring fiscal 2008.

 

**Cost of Product Sales**

 

Costof product sales represents our cost when we resell hardware and softwareproducts.  This category of expense, as apercentage of product sales, was 85.2% in the first quarter of fiscal 2009compared to 87.7% in the first quarter of fiscal 2008. The decrease in expenseas a percentage of revenue is primarily due to the mix of product sales betweenthe comparable periods.

 

**Selling, Administrative and Other Operating Costs**

 

SG&Acosts include management and administrative salaries, commissions paid to salesrepresentatives and recruiters, location costs, and other administrativecosts.  This category of costs decreasedapproximately $2.7 million from the comparable period in 2008 and represented24.4% of total revenue for the first quarter of fiscal 2009 compared to 16.5%in fiscal 2008. SG&A expenses decreased primarily due to the impact ofpersonnel reductions and implementation of non-personnel cost reductions and areduction of sales and recruiting incentive compensation expense due to thedecrease in volume. As a percentage of revenue, SG&A costs increased due toa significantly lower revenue base in the first quarter of fiscal 2009.

 

*Restructuring Costs and Other Severance RelatedCosts*

 

Duringthe first quarter of fiscal 2009, we recorded restructuring and severancerelated expenses totaling $0.1 million, all of which related to workforcereductions.

 

Duringthe first quarter of fiscal 2008, we recorded restructuring and severancerelated expenses totaling $1.6 million. Of this amount, $1.4 million related to workforce reductions. Theremaining $0.2 million related to lease obligations and abandonment costs (netof anticipated sub-lease income) for locations where we chose to downsize orexit completely.

 

*Amortizationof Intangible Assets*

 

Amortization ofintangible assets primarily relates to our customer lists. This category ofexpense decreased during the first quarter of fiscal 2009 compared to the firstquarter of fiscal 2008 due to the SequoiaNet.com trade name and a certaincustomer list becoming fully amortized during fiscal 2008.

 

*Non-operatingIncome*

 

Non-operatingincome decreased slightly in the first quarter of fiscal 2009 compared to thefirst quarter of fiscal 2008 as a result of less interest income earned fromour cash balances due to lower interest rates and higher interest incomerelated to an equipment lease in the prior year.

 

14

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**Interest Expense**

 

In the firstquarter of fiscal 2009 and fiscal 2008, we had average borrowing outstandingunder our credit facility of approximately $0.1 million and $5.7 million at anaverage rate of 3.25% and 5.25%, respectively.

 

**Income Taxes**

 

For both the firstquarter of fiscal 2009 and first quarter of fiscal 2008, we recorded aprovision for income taxes for amounts due for certain state income taxes andchanges in our reserves for tax obligations. We recorded no additional incometax expense associated with our net operating losses because any tax expensethat would otherwise have been recorded has been negated by adjusting thevaluation allowance against our deferred tax asset.  If, however, we successfully return toprofitability to a point where future realization of deferred tax assets, whichare currently reserved, becomes “more likely than not,” we may be required toreverse the existing valuation allowance to realize the benefit of theseassets.

 

**Personnel**

 

Our technicalconsulting staff levels finished the first quarter of fiscal 2009 at 1,174, a41.4% decline against the comparable period last year.  The decline in technical consulting stafflevels is due to a reduction of approximately 320 billable consultants as aresult of the transfer of our existing contract with one of our largeststaffing accounts to other suppliers in the third quarter of fiscal 2008 and anoverall decline in business volume. The decline in management andadministrative personnel is due to our focus on reducing the number ofmanagement and administrative personnel that are necessary to support thebusiness operations. The reported technical consulting staff levels excludeMedical Concepts Staffing, our medical staffing business, due to the separateindustry focus of that business.

 

**CertainInformation Concerning Off-Balance Sheet Arrangements**

 

As of April 4,2009, we did not have any relationships with unconsolidated entities orfinancial partnerships, such as entities often referred to as structuredfinance or special purpose entities that would have been established for thepurpose of facilitating off-balance sheet arrangements or other contractuallynarrow or limited purposes. We are, therefore, not exposed to any financing,liquidity, market or credit risk that could arise if we had engaged in theserelationships.

 

**Liquidityand Capital Resources**

 

The followingtable provides information relative to the liquidity of our business.

 

15

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| ** **                      | ** ** | ** **        | ** ** | ** **          | ** ** | ** **     | ** ** | **Percentage** | ** ** |
|---------------------------------|------------|-------------------|------------|---------------------|------------|----------------|------------|----------------|------------|
| ** **                      | ** ** | **April 4,** | ** ** | **January 3,** | ** ** | **Increase**   | ** ** | **Increase**   | ** ** |
| **(In thousands)**         | ** ** | **2009**          | ** ** | **2009**            | ** ** | **(Decrease)** | ** ** | **(Decrease)** | ** ** |
|                            |       |              |       |                |       |           |       |           |       |
| Cash and cash equivalents       |       | $                 | 4,571      |                | $          | 2,288          |       | $              | 2,283      |   | 99.8 | % |   |
| Accounts receivable             |       | 33,675            |       | 40,814              |       | (7,139         | )          | (17.5          | )          |   |
| Other current assets            |       | 1,473             |       | 1,521               |       | (48            | )          | (3.2           | )          |   |
| Total current assets            |       | $                 | 39,719     |                | $          | 44,623         |       | $              | (4,904     | ) | (11.0 | )% |   |
|                            |       |              |       |                |       |           |       |           |       |   |
| Accounts payable                |       | $                 | 11,143     |                | $          | 15,581         |       | $              | (4,438     | ) | (28.5 | )% |   |
| Line of credit                  |       | —            |       | —              |       | —         |       | —         |       |   |
| Salaries and benefits           |       | 5,416             |       | 3,249               |       | 2,167          |       | 66.7           |       |   |
| Deferred revenue                |       | 1,174             |       | 1,473               |       | (299           | )          | (20.3          | )          |   |
| Deferred compensation           |       | 257               |       | 275                 |       | (18            | )          | (6.5           | )          |   |
| Restructuring accrual           |       | 167               |       | 184                 |       | (17            | )          | (9.2           | )          |   |
| Other current liabilities       |       | 942               |       | 1,025               |       | (83            | )          | (8.1           | )          |   |
| Total current liabilities       |       | $                 | 19,099     |                | $          | 21,787         |       | $              | (2,688     | ) | (12.3 | )% |   |
|                            |       |              |       |                |       |           |       |           |       |   |
| Working capital                 |       | $                 | 20,620     |                | $          | 22,836         |       | $              | (2,216     | ) | (9.7 | )% |   |
| Current ratio                   |       | 2.08              |       | 2.05                |       | 0.03           |       | 1.5            | %          |   |
|                            |       |              |       |                |       |           |       |           |       |   |
| Total shareholders’ equity |       | $                 | 28,257     |                | $          | 30,395         |       | $              | (2,138     | ) | (7.0 | )% |   |

 

**Change in WorkingCapital**

 

Working capitalwas $20.6 million at April 4, 2009, down approximately $2.2 million from January 3,2009. The ratio of current assets to current liabilities increased by 1.5% at April 4,2009 compared to January 3, 2009.

 

Our total currentassets decreased approximately $4.9 million at April 4, 2009 comparedto the beginning of the year as a result of lower accounts receivable offsetslightly by an increase in our cash and cash equivalents. The primary reasonfor the 17.5% decrease in our accounts receivable from the beginning of theyear is the approximately 20.5% decline in revenues from the fourth quarter of fiscal2008 to the first quarter of fiscal 2009.

 

Our total currentliabilities decreased approximately $2.7 million at April 4, 2009compared to the beginning of the year primarily due to fewer product purchasesoffset by the timing of our payroll periods. In the first quarter of fiscal2009, our accounts payable declined primarily due to a $4.1 million reductionin our product payables as a result of fewer product sales during the quarter.In addition, the timing of our payroll periods from our fiscal year end to the firstquarter of fiscal 2009 caused our salaries and benefits payable balance toincrease approximately $2.2 million.

 

We believe ourworking capital and availability under our GE Capital credit agreement will besufficient to support the cash flow needs of our business in fiscal 2009.Continuing operating losses, a significant increase in bad debt experience, asignificant lengthening of payment terms, or significant costs associated withrestructuring activities could create a need for additional working capital. Aninability to obtain additional working capital, should it be required, couldhave a material adverse effect on our business. We expect to be able to complywith the requirements of our credit agreement; however, failure to do so couldaffect our ability to obtain necessary working capital and could have amaterial adverse effect on our business. In addition, the current GE Capitalcredit agreement expires on January 20, 2010. We expect to either renew orobtain a new credit facility during fiscal 2009; however, failure to do socould have a material adverse effect on our business. See Part II. OtherInformation, Item 1A. Risk Factors.

 

*Sourcesand Uses of Cash/Credit Facility*

 

Cash and cashequivalents increased by $2.3 million from January 3, 2009 to April 4,2009. Our primary need for working capital is to support accounts receivableand to fund the time lag between payroll and vendor 

 

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disbursements and receiptof fees billed to clients. Historically, we have been able to support internalgrowth in our business with internally generated funds and the use of ourcredit facility.

 

Our asset-basedrevolving credit agreement provides up to $45.0 million of availability.At April 4, 2009, our borrowing availability under this credit facility,which fluctuates based on our level of eligible accounts receivable, was$14.3 million and we had no amounts outstanding. Borrowing under thecredit agreement is secured by all of our assets. This line of credit isavailable to us to fund working capital needs and other investments such asacquisitions as these needs arise. We believe we will be able to continue tomeet the requirements of this agreement.

 

The revolvingcredit agreement requires us to take advances or pay down the outstandingbalance on the line of credit daily. However, we can request fixed-termadvances of one, two or three months for a portion of the outstanding balanceon the line of credit. Effective August 5, 2004, we amended our creditagreement and modified certain terms of the agreement. The amendment reducedthe annual commitment fee to 0.25% of the unused portion of the line, reducedthe annual administration fee to $25,000, and reduced the interest rates ondaily advances to the Wall Street Journal’s “Prime Rate”, or 3.25% as of April 4,2009, and fixed-term advances to the applicable LIBOR rate plus 2.0%. Theagreement continues, among other things, to prohibit the payment of dividendsand to restrict capital expenditures. Effective January 20, 2006, we againamended the credit agreement extending the expiration date from October 31,2006 to January 20, 2010. The amendment eliminated certain reserves incalculating the amount we can borrow under the facility and changed the definitionof eligible accounts receivable in calculating our borrowing capacity. Theeffect of the modifications was to increase the borrowing capacity under theline by approximately $3.5 million.

 

During each of thefirst quarters of fiscal 2009 and fiscal 2008, we made capital expenditures ofapproximately $0.4 million.

 

On July 25,2007, we announced that our Board of Directors authorized the repurchase of upto one million shares of our common stock. On July 26, 2007, we amendedour credit agreement with GE Capital to allow us to repurchase up to$5,000,000 of our common stock. Timing of repurchases will be based on severalfactors, including the price of the common stock, general market conditions,corporate and regulatory requirements and alternate investment opportunities.Repurchases may be made in the open market or through private transactions, inaccordance with SEC requirements. Repurchases may be suspended at any time andare subject to the terms and conditions of our credit agreement with GE Capitalwhich includes restrictions based on our borrowing availability under thecredit agreement and a maximum dollar expenditure for repurchases. During thefirst quarter of fiscal 2009, we did not engage in any repurchases of ourcommon stock.

 

**NewAccounting Pronouncements**

 

In April 2009, theFinancial Accounting Standards Board (“FASB”) issued Financial Staff Position (“FSP”)FAS 141(R)-1, *Accounting for Assets Acquired andLiabilities Assumed in a Business Combination That Arise from Contingencies*(“FSP FAS 141R-1”) which amends and clarifies Statement of Financial AccountingStandards (“SFAS”) 141(R), *Business Combinations*,on initial recognition and measurement, subsequent measurement and accounting,and disclosure of assets and liabilities arising from contingencies in abusiness combination. FSP FAS 141R-1 is effective for business combinationsoccurring in fiscal years beginning on or after December 15, 2008. Theimpact on our consolidated financial statements of adopting FSP FAS 141R-1will depend on the nature, terms and size of business combinations completedafter the effective date.

 

In April 2009, theFASB issued FSP FAS 107-1 and APB 28-1, *Interim Disclosures aboutFair Value of Financial Instruments* (“FSP FAS 107-1 and APB 28-1”)to require an entity to provide disclosures about the fair value of financialinstruments in interim financial information. FSP FAS 107-1 and APB 28-1 wouldapply to all financial instruments within the scope of SFAS 107, *Disclosures about Fair Value of Financial Instruments*, andwill require entities to disclose the method(s) and significantassumptions used to estimate the fair value of financial instruments, in bothinterim financial statements as well as annual financial statements. FSP FAS107-1 and APB 28-1 will be effective for interim and annual periods endingafter June 15, 2009, with early adoption permitted for periods endingafter March 15, 2009. The Company is currently evaluating the effect FSPFAS 107-1 and APB 28-1 will have on our financial statement disclosures.

 

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**Forward-LookingStatements**

 

This Form 10-Qcontains forward-looking statements (within the meaning of the PrivateSecurities Litigation Reform Act of 1995) about: (i) our expectations andbeliefs with respect to the recession, the volatility of the capital markets,the tightening of lending standards in the credit markets, and the generaldownturn in the global economy, as well as our assumptions with respect to theimpact these economic conditions will have on our business, including anexpectation of a reduction in business volume, (ii) our Plan and theobjectives of the Plan, including certain expense reduction initiatives and theplanned expansion into new geographic markets, (iii) our expectations withrespect to growing our business and achieving profitability, (iv) ourbeliefs regarding the adequacy of our working capital and our ability to meetthe requirements of our credit facility or to obtain a replacement creditfacility on commercially reasonable terms, and (v) our expectations withrespect to our financial results and operating performance. You can identifythese statements by the use of words such as “anticipate,” “estimate,” “expect,”“project,” “intend,” “plan,” “believe,” “will,” and other words and terms ofsimilar meaning or import in connection with any discussion of future operatingor financial performance. Among the factors that could cause actual results todiffer materially are: (i) our inability, in whole or in part, toimplement or execute the Plan, (ii) our inability to successfully recruitand hire qualified technical personnel, (iii) our inability tosuccessfully compete on a national basis with other companies in our industryby responding to our customers’ varied staffing needs, (iv) our inabilityto maintain key client relationships, (v) our inability to attract orretain key personnel (vi) our inability to reduce operating costs, (vii) ourinability to comply with the covenants in our credit facilities or inability toobtain a credit facility on commercially reasonable terms, (viii) aprolonged or worsened downturn in the national or global economy, and (ix) ourinability to effectively manage accounts receivable, as well as other economic,business, competitive and/or regulatory factors affecting our businessgenerally, including those set forth in our most recent Annual Report on Form 10-Kand our Current Reports on Form 8-K. All forward-looking statementsincluded in this Form 10-Q are based on information available to us as ofthe date hereof. We undertake no obligation (and expressly disclaim any suchobligation) to update forward-looking statements made in this Form 10-Q toreflect events or circumstances after the date of this Form 10-Q or toupdate reasons why actual results would differ from those anticipated in anysuch forward-looking statements, other than as required by law.

 

**Item 3. Quantitative and Qualitative Disclosures About Market Risk.**

 

Notapplicable.

 

****Item 4T. Controls and Procedures.****

 

(a)                      Evaluation of Disclosure Controls andProcedures

 

Asof the end of the period covered by this report, we conducted an evaluationunder the supervision and with the participation of our management, includingthe President and Chief Executive Officer, Elmer N. Baldwin, and ChiefFinancial Officer and Treasurer, Randy W. Strobel, regarding the effectivenessof the design and operation of our disclosure controls and procedures pursuantto Rules 13a-15(e) of the Securities Exchange Act of 1934 (the “ExchangeAct”). Based upon that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that our disclosure controls and procedures areeffective to ensure that information that is required to be disclosed by us inreports that are filed under the Exchange Act is recorded, processed,summarized and reported within the time period specified in the rules ofthe Securities Exchange Commission.

 

(b)                     Changes in Internal Controls

 

Therewere no changes in our internal control over financial reporting that occurredduring the period covered by this report that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

18

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****PART II. OTHER INFORMATION****

 

****Item 1.********                                  ********Legal Proceedings****

 

Thereare no pending legal proceedings to which we are a party or to which any of ourproperty is subject, other than routine litigation incidental to the business.

 

**Item 1A.****                         ****Risk Factors.**

 

Our businesscontinues to be subject to material risks. See Item 1A. *Risk Factors*in our Annual Report on Form 10-K for the fiscal year ended January 3, 2009.

 

****Item 2.********                                  ********Unregistered Salesof Equity Securities and Use of Proceeds.****

 

None.

 

19

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****Item 3.****                                   ****Defaults UponSenior Securities.****

 

None.

 

****Item 4.********                                  ********Submission ofMatters to a Vote of Security Holders.****

 

None.

 

****Item 5.********                                  ********Other Information.****

 

None.

 

****Item 6.********                                  ********Exhibits.****

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                      |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                                                 |
| ^ 3.1                |       | Articles of  Incorporation, as amended (Exhibit 3-a to Annual Report on  Form 10-K for fiscal year 1988, Commission File No. 0-4090,  incorporated by reference).                                                                                                                                     |
| ^ 3.2           |       | Restated Bylaws  (Exhibit 3-b to Annual Report on Form 10-K for fiscal year 2000,  Commission File No. 0-4090, incorporated by reference).                                                                                                                                                            |
| ^ 3.3                |       | Amendment to Articles  of Incorporation to increase authorized shares to 40 million (Exhibit A  to Definitive Proxy Statement dated September 5, 1996, Commission File  No. 0-4090, incorporated by reference).                                                                                       |
| ^ 3.4                |       | Amendment to Articles  of Incorporation to increase authorized shares to 60 million  (Exhibit 3-d to Annual Report on Form 10-K for fiscal year 1998,  Commission File No. 0-4090, incorporated by reference).                                                                                        |
| ^ 3.5                |       | Amendment to Articles  of Incorporation to increase authorized shares to 120 million (Exhibit A  to Definitive Proxy Statement dated September 8, 1998, Commission File  No. 0-4090, incorporated by reference).                                                                                      |
| ^ 4.1                |       | Specimen Common Stock  Certificate (Exhibit 4(a) to Annual Report on Form 10-K for  fiscal year 1989, Commission File No. 0-4090, incorporated by  reference).                                                                                                                                   |
| ^ 4.2                |       | Amended and Restated  Rights Agreement dated as of February 27, 2008 between the Company and  Wells Fargo Bank N.A. and Form of Right Certificate (Exhibit 4.1 to  the Registrant’s Form 8-A12B dated February 27, 2008, Commission  File No. 0-4090, incorporated by reference). |
| + 31.1               |       | Certification of CEO  Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.                                                                                                                                                                                                                                |
| + 31.2               |       | Certification of CFO  Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.                                                                                                                                                                                                                                |
| ++ 32                |       | Certification of CEO  and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes Oxley Act of 2002.                                                                                                                                                                   |

 

----

| ^  |   | Denotes an exhibit  previously filed with the Securities and Exchange Commission and incorporated  herein by reference. |
|----|--------|-------------------------------------------------------------------------------------------------------------------------|
| +  |   | Filed herewith.                                                                                                         |
| ++ |   | Furnished herewith.                                                                                                     |

 

20

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****SIGNATURES****

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned there untoduly authorized.

 

 
|                    | ANALYSTS  INTERNATIONAL CORPORATION |
|-------------------------|-------------------------------------|
|                    | (Registrant)                        |
|                    |                                |   |
|                    |                                |   |
|                    |                                |   |
| Date: May 14, 2009 | By:                                 | /s/ Elmer N. Baldwin |
|                    |                                | Elmer N. Baldwin |
|                    |                                | President and Chief  Executive Officer |
|                    |                                | (Principal Executive  Officer) |
|                    |                                |   |
|                    |                                |   |
| Date: May 14, 2009 | By:                                 | /s/ Randy W. Strobel |
|                    |                                | Randy W. Strobel |
|                    |                                | Chief Financial Officer  and Treasurer |
|                    |                                | (Principal Financial  and Accounting Officer) |

 

21

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****EXHIBIT INDEX****

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                      |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                                                 |
| ^ 3.1                |       | Articles of  Incorporation, as amended (Exhibit 3-a to Annual Report on Form 10-K  for fiscal year 1988, Commission File No. 0-4090, incorporated by  reference).                                                                                                                                     |
| ^ 3.2           |       | Restated Bylaws  (Exhibit 3-b to Annual Report on Form 10-K for fiscal year 2000,  Commission File No. 0-4090, incorporated by reference).                                                                                                                                                            |
| ^ 3.3                |       | Amendment to Articles  of Incorporation to increase authorized shares to 40 million (Exhibit A  to Definitive Proxy Statement dated September 5, 1996, Commission File  No. 0-4090, incorporated by reference).                                                                                       |
| ^ 3.4                |       | Amendment to Articles  of Incorporation to increase authorized shares to 60 million  (Exhibit 3-d to Annual Report on Form 10-K for fiscal year 1998,  Commission File No. 0-4090, incorporated by reference).                                                                                        |
| ^ 3.5                |       | Amendment to Articles  of Incorporation to increase authorized shares to 120 million (Exhibit A  to Definitive Proxy Statement dated September 8, 1998, Commission File  No. 0-4090, incorporated by reference).                                                                                      |
| ^ 4.1                |       | Specimen Common Stock  Certificate (Exhibit 4(a) to Annual Report on Form 10-K for  fiscal year 1989, Commission File No. 0-4090, incorporated by reference).                                                                                                                                    |
| ^ 4.2                |       | Amended and Restated  Rights Agreement dated as of February 27, 2008 between the Company and  Wells Fargo Bank N.A. and Form of Right Certificate (Exhibit 4.1 to  the Registrant’s Form 8-A12B dated February 27, 2008, Commission  File No. 0-4090, incorporated by reference). |
| + 31.1               |       | Certification of CEO  Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.                                                                                                                                                                                                                                |
| + 31.2               |       | Certification of CFO  Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.                                                                                                                                                                                                                                |
| ++ 32                |       | Certification of CEO  and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes Oxley Act of 2002.                                                                                                                                                                   |

 

----

| ^  |   | Denotes an exhibit  previously filed with the Securities and Exchange Commission and incorporated  herein by reference. |
|----|--------|-------------------------------------------------------------------------------------------------------------------------|
| +  |   | Filed herewith.                                                                                                         |
| ++ |   | Furnished herewith.                                                                                                     |

 

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