**UNITED
STATES**


**SECURITIES
AND EXCHANGE COMMISSION**


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 2, 2005





or





**(
) 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
      INTERNATIONAL CORPORATION**(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 check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days.  Yes x No o





Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes x No o





As of May
5, 2005, 24,792,255 shares of the registrant's common stock were
outstanding.


















**ANALYSTS
INTERNATIONAL CORPORATION**





**INDEX**








**Part I.**
    **FINANCIAL INFORMATION**Item 1.
    Financial StatementsCondensed Consolidated Balance
    SheetsApril 2, 2005 (Unaudited) and January 1,
      2005Condensed Consolidated Statements of
      OperationsThree months ended April 2, 2005 and April 3, 2004
      (Unaudited)Condensed Consolidated Statements of Cash
      FlowsThree months ended April 2, 2005 and April 3, 2004
      (Unaudited)Notes to Condensed Consolidated Financial Statements
      (Unaudited)Item 2.
    Management’s Discussion and Analysis of Financial Condition
      and Results of OperationsItem 3.
    Quantitative and Qualitative Disclosures About Market
      RiskItem 4.
    Controls and Procedures**Part II.**
    **OTHER INFORMATION**Item 2.
    Unregistered Sales of Equity Securities and Use
      of ProceedsItem 6.
    ExhibitsSignaturesExhibit Index






2


****


**PART I. FINANCIAL INFORMATION**





**Item 1.  Financial Statements**





**Analysts International Corporation**


**Condensed
Consolidated Balance Sheets**





**April
      2,**
    
    **January
      1,*****(In
      thousands)***
    
    **2005**
    
    **2005*****(Unaudited)*****ASSETS**Current
      assets:Cash
      and cash equivalents
    
    $
    913
    
    $
    7,889Accounts
      receivable, less allowance for doubtful accounts
    
    
    56,574
    
    
    57,764Prepaid
      expenses and other current assets
    
    
    3,548
    
    
    3,208Total
      current assets
    
    
    61,035
    
    
    68,861Property
      and equipment, net
    
    
    6,198
    
    
    5,658Intangible
      assets
    
    
    10,282
    
    
    10,475Goodwill
    
    
    18,639
    
    
    16,460Other
      assets
    
    
    5,031
    
    
    4,223$
    101,185
    
    $
    105,677**LIABILITIES
      AND SHAREHOLDERS' EQUITY**Current
      liabilities:Accounts
      payable
    
    $
    12,572
    
    $
    16,366Salaries
      and vacations
    
    
    6,077
    
    
    9,388Deferred
      revenue
    
    
    2,829
    
    
    1,658Self-insured
      health care reserves and other amounts
    
    
    3,642
    
    
    2,010Total
      current liabilities
    
    
    25,120
    
    
    29,422Non-current
      liabilities, primarily deferred compensation
    
    
    3,647
    
    
    3,637Shareholders'
      equity
    
    
    72,418
    
    
    72,618$
    101,185
    
    $
    105,677





Note:
Certain reclassifications have been made to the audited balance sheet at January
1, 2005 to conform to the April 2, 2005 presentation. Such reclassifications
have no effect on previously reported net income or shareholders'
equity.








See notes
to condensed consolidated financial statements.


3


**Analysts International Corporation**


**Condensed
Consolidated Statements of Operations**


*(Unaudited)*





**Three
      Months Ended****April
      2,**
    
    **April
      3,*****(In
      thousands except per share amounts)***
    
    **2005**
    
    **2004**Revenue:Professional
      services provided directly
    
    $
    66,050
    
    $
    67,424Professional
      services provided through subsuppliers
    
    
    7,597
    
    
    14,325Product
      sales
    
    
    5,452
    
    
    3,645Total
      revenue
    
    
    79,099
    
    
    85,394Expenses:Salaries,
      contracted services and direct charges
    
    
    59,067
    
    
    66,235Cost
      of product sales
    
    
    5,107
    
    
    3,429Selling,
      administrative and other operating costs
    
    
    15,454
    
    
    15,081Amortization
      of intangible assets
    
    
    193
    
    
    193Operating
      (loss) income
    
    
    (722
    )
    
    456Non-operating
      income
    
    
    21
    
    
    6Interest
      expense
    
    
    (5
    )
    
    (8
    )(Loss)
      income before income taxes
    
    
    (706
    )
    
    454Income
      tax expense (benefit)
    
    
    --
    
    
    --Net
      (loss) income
    
    $
    (706
    )
    $
    454Per
      common share:Basic
      (loss) income
    
    $
    (.03
    )
    $
    .02Diluted
      (loss) income
    
    $
    (.03
    )
    $
    .02Average
      common shares outstanding
    
    
    24,316
    
    
    24,212Average
      common and common equivalent shares outstanding
    
    
    24,316
    
    
    24,237








See notes
to condensed consolidated financial statements.




4


**Analysts International Corporation**


**Condensed
Consolidated Statements of Cash Flows**


*(Unaudited)*





**Three
      Months Ended****April
      2,**
    
    **April
      3,*****(In
      thousands)***
    
    **2005**
    
    **2004**Net
      cash used in operating activities
    
    $
    (3,798
    )
    $
    (3,160
    )Cash
      flows from investing activities:Property
      and equipment additions
    
    
    (1,171
    )
    
    (628
    )Proceeds
      from property and equipment sales
    
    
    --
    
    
    6Payments
      for acquisitions, net of cash acquired
    
    
    (2,018
    )
    
    --Net
      cash used in investing activities
    
    
    (3,189
    )
    
    (622
    )Cash
      flows from financing activities:Proceeds
      from exercise of stock options
    
    
    11
    
    
    1Net
      cash provided by financing activities
    
    
    11
    
    
    1Net
      decrease in cash and cash equivalents
    
    
    (6,976
    )
    
    (3,781
    )Cash
      and cash equivalents at beginning of period
    
    
    7,889
    
    
    4,499Cash
      and cash equivalents at end of period
    
    $
    913
    
    $
    718**Non-cash
      activities:**Value
      of common stock issued for acquisitions
    
    $
    400
    
    
    --Value
      of common stock issued for stock awards
    
    $
    28
    
    
    --








See notes
to condensed consolidated financial statements.


5


**Analysts International Corporation**


**Notes
to Condensed Consolidated Financial Statements**


(Unaudited)





**1.**  **Summary
of Significant Accounting Policies**





Condensed
Consolidated Financial Statements - The condensed consolidated balance sheet as
of April 2, 2005, the condensed consolidated statements of operations for the
three-month periods ended April 2, 2005 and April 3, 2004, and the condensed
consolidated statements of cash flows for the three-month periods ended April 2,
2005 and April 3, 2004 have been prepared by the Company, without audit. In the
opinion of management, all adjustments necessary to present fairly the financial
position at April 2, 2005 and the results of operations and the cash flows for
the periods ended April 2, 2005 and April 3, 2004 have been made.





The
Company operates on a fiscal year ending on the Saturday closest to December 31.
Accordingly, the Company’s fiscal quarters end on the Saturday closest to the
end of the calendar quarter.





Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted in these condensed
consolidated financial statements. The Company suggests reading these statements
in conjunction with the financial statements and notes thereto included in the
Company's January 1, 2005 annual report to shareholders.





In
accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the
Company is required to evaluate its goodwill and indefinite-lived intangible
assets for impairment at least annually and whenever events or changes in
circumstances indicate that the assets might be impaired. The Company currently
performs the annual test as of the last day of its monthly accounting period for
August. In the current year, the Company will evaluate these assets on September
3, 2005. In the prior year, the Company evaluated these assets on September 4,
2004 and found no indication of impairment of its recorded goodwill, although
the evaluation determined the fair value of the Staffing, Infrastructure and
Solutions reporting units to approximate their carrying value.





During
the three months ended April 2, 2005, the Company purchased WireSpeed Networks
LLC (“WireSpeed”) and preliminarily allocated the excess purchase price of $2.2
million to goodwill. The Company expects to assign a portion of the excess of
the purchase price to WireSpeed’s customer lists upon the completion of the
final allocation of purchase price. Other than the WireSpeed purchase, no other
intangibles were acquired, impaired or disposed. Other intangibles consisted of
the following:


**April
      2, 2005**
    
    **January
      1, 2005*****(In
      thousands)***
    
    **Gross**
      **Carrying****Amount**
    
    **Accumulated**
      **Amortization**
    
    **Other
      Intangibles,****Net**
    
    **Gross**
      **Carrying****Amount**
    
    **Accumulated****Amortization**
    
    **Other
      Intangibles,****Net**Customer
      list
    
    $
    12,270
    
    $
    (3,575
    )
    $
    8,695
    
    $
    12,270
    
    $
    (3,382
    )
    $
    8,888Tradename
    
    
    1,720
    
    
    (133
    )
    
    1,587
    
    
    1,720
    
    
    (133
    )
    
    1,587$
    13,990
    
    $
    (3,708
    )
    $
    10,282
    
    $
    13,990
    
    $
    (3,515
    )
    $
    10,475





The
customer list is scheduled to be fully amortized by 2015 with corresponding
amortization estimated to be approximately $800,000 per year. The tradename is
considered to have an indefinite life and therefore is no longer
amortized.




6


The
Company applies the disclosure provisions of SFAS No. 148, “Accounting for
Stock-Based Compensation - Transition and Disclosure,” and continues to account
for its five stock-based compensation plans under Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations.





Had
compensation cost for our stock-based compensation plans been determined based
on the fair value at the grant dates in accordance with SFAS 123, "Accounting
for Stock-Based Compensation," as amended by SFAS 148, our pro forma net (loss)
income and net (loss) income per share for the three months ended April 2, 2005
and April 3, 2004 would have been the amounts indicated below:





**Three
      Months Ended****April
      2,**
    
    **April
      3,*****(in
      thousands except per share amounts)***
    
    **2005**
    
    **2004**Net
      (loss) income as reported
    
    $
    (706
    )
    $
    454Deduct:
      Total stock-based employee compensation expense determined under the fair
      value based method, net of related tax effects
    
    
    (142
    )
    
    (164
    )Pro
      forma net (loss) income
    
    $
    (848
    )
    $
    290Net
      (loss) income per share:Basic
      - as reported
    
    $
    (.03
    )
    $
    .02Basic
      - pro forma
    
    
    (.03
    )
    
    .01Diluted
      - as reported
    
    $
    (.03
    )
    $
    .02Diluted
      - pro forma
    
    
    (.03
    )
    
    .01








**2.**  **Line
of Credit**





The
Company has an asset-based revolving credit facility with up to $45,000,000 of
availability. Borrowings under this credit agreement are secured by all of the
Company’s assets. Under the revolving credit agreement, the Company must take
advances or pay down the outstanding balance daily. The Company can, however,
choose to request fixed-term advances of one, two, or three months for a portion
of the outstanding balance on the line of credit. Effective August 5, 2004, the
Company amended its credit agreement to extend the expiration date from April
10, 2005 to October 31, 2006 and modified certain terms of the agreement. The
amendment reduced the commitment fee from .50% to .25% of the unused portion of
the line, reduced the annual administration fee from $50,000 to $25,000, and
reduced the interest rates on daily advances from the Wall Street Journal’s
“Prime Rate” plus .75% to only its Prime Rate (5.75% April 2, 2005) and
fixed-term advances from the LIBOR rate plus 3.0% to the LIBOR rate plus 2.0%.
The agreement continues to restrict, among other things, the payment of
dividends, establishes limits on capital expenditures and requires the Company
to maintain a minimum accounts payable turnover ratio. The Company believes it
will be able to continue to meet these requirements for the foreseeable future
and as of April 2, 2005 did not have any borrowings under this
agreement.








**3.**  **Shareholders'
Equity**





**Three
      Months Ended*****(In
      thousands)***
    
    **April
      2, 2005**Balance
      at beginning of period
    
    $
    72,618Issuance
      of common stock
    
    
    439Amortization
      of deferred compensation
    
    
    67Comprehensive
      loss
    
    
    (706
    )Balance
      at end of period
    
    $
    72,418




7


**4.**  **Earnings
Per Share**





Basic and
diluted earnings (loss) per share (EPS) are presented in accordance with SFAS
No. 128, "Earnings per Share.” Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. The difference between
weighted-average common shares and average common and common equivalent shares
used in computing diluted EPS is the result of outstanding stock options and
other contracts to issue common stock. Options to purchase 2,480,000 and
2,133,000 shares of common stock were outstanding at the end of the periods
ended April 2, 2005 and April 3, 2004, respectively. All options were considered
anti-dilutive and excluded from the computation of common equivalent shares at
April 2, 2005 because the Company reported a net loss. Options to purchase
1,552,000 shares were considered anti-dilutive and excluded from the computation
of common equivalent shares for the three months ended April 3, 2004 because the
exercise price was greater than the average share price. The computation of
basic and diluted (loss) income per share for the three months ended April 2,
2005 and April 3, 2004 is as follows:





**Three
      Months Ended*****(In
      thousands, except per share amounts)***
    
    **April
      2,**
      **2005**
    
    **April
      3,**
      **2004**Net
      (loss) income
    
    $
    (706
    )
    $
    454Weighted-average
      number of common shares outstanding
    
    
    24,316
    
    
    24,212Dilutive
      effect of employee stock options
    
    
    --
    
    
    25Weighted-average
      number of common and common equivalent shares outstanding
    
    
    24,316
    
    
    24,237Net
      (loss) income per share:Basic
    
    $
    (.03
    )
    $
    .02Diluted
    
    $
    (.03
    )
    $
    .02






**5.**  **Restructuring**





In
December 2000, the Company recorded a restructuring charge of $7,000,000
including $4,400,000 to cover lease termination and abandonment costs (net of
sub-lease income). A summary of activity with respect to the restructuring
accrual account for the three-month period ended April 2, 2005 is as
follows:





**Office
      Closure/*****(In
      thousands)***
    
    **Consolidation**Balance
      at January 1, 2005
    
    $
    318Cash
      expenditures
    
    
    67Balance
      at April 2, 2005
    
    $
    251




The
remaining balance in this accrual is to cover the ongoing lease payments for
properties abandoned as a part of the restructuring. The last of these lease
obligations is expected to terminate in September 2006.


8




**6.**  **Acquisitions**





On
January 6, 2005, the Company acquired the assets of WireSpeed Networks LLC for
$2.0 million in cash and 103,093 shares of common stock valued at $400,000. The
common stock and $250,000 in cash were placed in escrow to be paid to the
principals of WireSpeed over the next three years. In addition, the purchase
agreement contains a maximum payout of an additional $2.8 million in earn-out
consideration over the next four years, contingent upon the achievement of
aggressive financial targets.





This
transaction was accounted for using the purchase method in accordance with SFAS
141, “Business Combinations.” Preliminarily, the Company has allocated
approximately $200,000 of the purchase price to the tangible net assets of
WireSpeed and the excess purchase price of $2.2 million has been allocated to
goodwill in the accompanying balance sheet. The Company expects to assign a
portion of the excess of the purchase price over the tangible net assets to
WireSpeed’s customer lists upon the completion of the final allocation of
purchase price.





WireSpeed
Networks LLC is a Cincinnati-based company specializing in IP telephony and
wireless networking. WireSpeed's
assets, employees and service offerings have been integrated into Analysts
International's Technology Integration Services Practice, extending and
enhancing the Company's offerings in the rapidly growing area.





**7.**  **Subsequent
Events**





*Acquisition
of Redwood Solutions -* On April
4, 2005, the Company acquired the assets of Redwood Solutions Corporation
(“Redwood”) for $2.4 million in cash and 166,205 shares of common stock valued
at $600,000. The common stock and $900,000 in cash were placed in escrow to
be paid to the principals of Redwood over the next four years. In addition, the
purchase agreement contains an earn-out clause over the next four years,
contingent upon the achievement of aggressive financial targets. The acquisition
will be accounted for under the purchase method in accordance with
SFAS 141, "Business Combinations."





Redwood
Solutions is an information technology services company based in Livonia,
Michigan, specializing in integrating hardware and software solutions for data
storage and retrieval systems. Redwood's
assets, employees and service offerings will
become part of Analysts International's Storage Solutions Group.





*Merger
Announcement with Computer Horizons Corporation -* On April
13, 2005, the Company and Computer Horizons Corporation announced jointly that
they executed
a definitive agreement to combine in a merger-of-equals transaction. The
transaction is subject to the approval of the respective shareholders of each
company and is also subject to appropriate regulatory approvals and other
customary closing conditions. The Boards of Directors of both Analysts
International and Computer Horizons Corporation have unanimously approved the
proposed merger. Both companies will hold special shareholders meetings
regarding the proposed merger as soon as practical, after regulatory
review.


9


**Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations**


Three
Months Ended April 2, 2005 and April 3, 2004





*Forward
Looking Statements*





Statements
contained herein, which are not strictly historical fact, are forward-looking
statements. Words such as “believes,” “intends,” “possible,” “expects,”
“estimates,” “anticipates,” or “plans” and similar expressions are intended to
identify forward-looking statements. Any forward-looking statements in this
release are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Such statements are based on the
Company’s current expectations relating to future revenues, earnings, results of
operations and future sales or growth. The Company’s actual results may vary
materially from those projected due to certain risks and uncertainties such as
the general state of the economy, volume of business activity, continued need
for our services by current and prospective clients, client cancellations or
re-bidding of work, the Company’s ability to control and improve profit margins,
including our ability to control operating and labor costs and hourly rates for
our services, the availability and utilization of qualified technical personnel,
the loss of one or more material contracts, the completion of its pending merger
with Computer Horizons Corporation and other similar factors. For more
information concerning risks and uncertainties to the Company’s business refer
to the discussion in the “Market Condition, Business Outlook and Risks to Our
Business” section in the Company’s Annual Report for the year ended January 1,
2005 and the Company’s prior Annual Reports, 10-Ks, 10-Qs, other Securities and
Exchange Commission filings and investor relations materials.





The
following discussion of the results of our operations and our financial
condition should be read in conjunction with our condensed consolidated
financial statements and the related notes to condensed consolidated financial
statements in this 10-Q, our other filings with the Securities and Exchange
Commission (SEC) and our other investor communications.





Overview





Total
revenue for the three months ended April 2, 2005 was $79.1 million, compared to
$85.4 million during the period ended April 3, 2004. The decrease included a
47.0% decrease in revenue from services provided through subsuppliers for the
three months ended April 2, 2005. For the three-month period ended April 2,
2005, 83.5% of our revenue was derived from services provided directly, compared
to 78.9% in the comparable period a year ago. The change in revenue mix was due
mainly to a decrease in revenue from Bank of America, the services for which
were provided mostly by subsuppliers.





Our net
loss for the three months ended April 2, 2005 was ($706,000), compared with net
income of $454,000 for the comparable period ended April 3, 2004. On a diluted
per share basis, the net loss for the three months ended April 2, 2005 was
($.03) per share, compared with net income of $.02 per share in the comparable
period ended April 3, 2004.





During
the first quarter we continued our focus on managing the key elements to our
future success: (i) increasing the number of requirements our sales organization
brings to the Company from new and existing clients; (ii) increasing the number
of qualified candidates our recruiting organization submits against those
requirements; and most importantly, (iii) increasing the rate at which quality
submittals turn into placements. Although average weekly requirements increased
by 8.5 % during the first quarter of 2005 over the comparable quarter last year,
average weekly submittals decreased by 0.7% and average weekly placements
decreased by 14.3%. Competition for the resources we recruit continues to
intensify. As a result, quality submittals are more difficult to find, and
turning the submitted resumes into placements has become more
difficult.





10


As
important as the preceding factors are to growth of revenue, the bill rates we
are able to charge to clients and the margins we are able to obtain on those
bill rates are the key indicators of our profitability. We continue to
experience intense competition on average bill rates. During the first quarter
of 2005, we encountered a 3% decrease in average bill rates due in part to this
competition and in part to the loss of subsupplier revenue related to a single
client where bill rates were above the average rate. We expect continuing
pressure on bill rates during the remainder of 2005, making improvements in our
average bill rates very difficult to achieve. We are anticipating average bill
rates to remain flat for the remainder of 2005. To enhance profitability in an
environment of intense margin pressures, we are focused on the following key
objectives: i) implementing a next generation staffing model, which will
transform workforce deployment and human capital management; ii) implementing a
number of improvements around key business processes that we believe will better
align our business with the market needs and allow us to build a more adaptive
delivery model to drive growth; iii) building a focused set of services and
solutions around high-demand, emerging technologies; and iv) being an active
participant in the significant consolidation taking place throughout the
industry.





Critical
Accounting Estimates





The
discussion and analysis of our financial condition and results of operations are
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amount of assets and
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities at the date of our financial statements. Actual results may
differ from these estimates under different assumptions or
conditions.





*Estimates
of Future Operating Results*





The
realization of certain assets recorded in our balance sheet is dependent upon
our ability to maintain profitability. In evaluating the recorded value of our
indefinite-lived intangible assets, goodwill, and deferred tax assets for
indication of impairment, we are required to make critical accounting estimates
regarding the future operating results of the Company. These estimates are based
on management’s current expectations but involve risks, uncertainties and other
factors that could cause actual results to differ materially from these
estimates.





To
evaluate our indefinite-lived intangible assets and goodwill for impairment, we
rely heavily on the discounted cash flow model to assess the value of the
associated reporting units. The discounted cash flow valuation technique
requires us to project operating results and the related cash flows over a
ten-year period. These projections involve risks, uncertainties and other
factors and are by their nature extremely subjective. If actual results were
substantially below projected results, an impairment of the recorded value of
our goodwill and intangible assets could result.





To assess
the recorded value of our deferred tax assets for possible impairment, we must
predict the likelihood of future taxable income generation. Realization of the
net deferred tax assets of $2.6 million requires the generation of at least $6.8
million of future taxable income. If the Company does not generate sufficient
future taxable income, an impairment of the recorded assets could
result.





*Allowance
for Doubtful Accounts*





In each
accounting period we determine an amount to be set aside to cover potentially
uncollectible accounts. We base our determination on an evaluation of accounts
receivable for risk associated with a client’s ability to make contractually
required payments. These determinations require considerable judgment in
assessing the ultimate potential for collection of these receivables and include
reviewing the financial stability of the client, the clients’ willingness to pay
and current market conditions. If our evaluation of a client’s ability to pay is
incorrect, we may incur future charges.


11


*Accrual
of Unreported Medical Claims*





In each
accounting period we estimate an amount to accrue for medical costs incurred but
not yet reported (IBNR) under our self-funded employee medical insurance plans.
We base our determination on an evaluation of past rates of claim payouts and
trends in the amount of payouts. This determination requires significant
judgment and assumes past patterns are representative of future payment patterns
and that we have identified any trends in our claim experience. A significant
shift in usage and payment patterns within our medical plans could necessitate
significant adjustments to these accruals in future accounting
periods.





Critical
Accounting Policies





Critical
accounting policies are defined as those that involve significant judgments and
uncertainties or affect significant line items within our financial statements
and potentially result in materially different outcomes under different
assumptions and conditions. Application of these policies is particularly
important to the portrayal of our financial condition and results of operations.
We believe the accounting policies described below meet these
characteristics.





*Revenue
Recognition*





We
recognize revenue for our staffing business and the majority of our business
solutions and infrastructure business as services are performed or products are
delivered. Certain of our outsourcing and help desk engagements provide for a
specific level of service each month for which we bill a standard monthly fee.
Revenue for these engagements is recognized in monthly installments over the
period of the contract. In some such contracts we invoice in advance for two or
more months of service. When we do this, the revenue is deferred and recognized
over the term of the invoicing agreement.





We
generally do not enter into fixed price engagements. If we enter into such an
engagement, revenue is recognized over the life of the contract based on time
and materials input to date and estimated time and materials to complete the
project. This method of revenue recognition relies on accurate estimates of the
cost, scope and duration of the engagement. If the Company does not accurately
estimate the resources required or the scope of the work to be performed, then
future revenues may be negatively affected or losses on contracts may need to be
recognized. All future anticipated losses are recognized in the period they are
identified.





*Subsupplier
Revenue*





In
certain client situations, where the nature of the engagement requires it, we
utilize the services of other companies in our industry. If these services are
provided under an arrangement whereby we agree to retain only a fixed portion of
the amount billed to the client to cover our management and administrative
costs, we classify the amount billed to the client as subsupplier revenue. These
revenues, however, are recorded on a gross basis because we retain credit risk
and are the primary obligor to our client. All revenue derived from services
provided by our employees or other independent contractors who work directly for
us are recorded as direct revenue.





*Goodwill
and Intangible Impairment*





We
evaluate goodwill and other intangible assets on a periodic basis. This
evaluation relies on assumptions regarding estimated future cash flows and other
factors to determine the fair value of the respective assets. If these estimates
or related assumptions change, we may be required to recognize impairment
charges.


12


In
accordance with the provisions of SFAS 142, “Goodwill and Other Intangible
Assets,” effective January 1, 2002 we ceased amortization
of indefinite-lived intangible assets including goodwill. Intangible assets
with definite useful lives will continue to be amortized over their useful lives
and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets.” The Company will complete its
impairment analysis during the third quarter of 2005. Additional write-downs of
intangible assets may be required if future valuations do not support current
carrying value.





*Deferred
Taxes*





We
account for income taxes in accordance with SFAS No. 109, “Accounting for Income
Taxes,” which requires that deferred tax assets and liabilities be recognized
for the effect of temporary differences between reported income and income
considered taxable by the taxing authorities. SFAS 109 also requires the
resulting deferred tax assets to be reduced by a valuation allowance if some
portion or all of the deferred tax assets are not expected to be realized. Based
upon prior taxable income and estimates of future taxable income, we expect our
deferred tax assets, net of the established valuation allowance, will be fully
realized in the future. If actual future taxable income is less than we
anticipate from our estimates, we may be required to record a valuation
allowance against our deferred tax assets resulting in additional income tax
expense which will be recorded in our consolidated statement of
operations.





*Restructuring
Charge*





We
recorded a restructuring charge and reserves associated with restructuring plans
approved by management in December 2000. The remaining reserve consists of an
estimate pertaining to real estate lease obligations. Factors such as the
Company’s ability to enter into subleases, the creditworthiness of sublessees,
and the ability to negotiate early termination agreements with lessors could
materially affect this real estate reserve. While we believe our current
estimates regarding lease obligations are adequate, our inability to sublet the
remaining space or obtain payments from sublessees could necessitate significant
adjustments to these estimates in the future.





13


**RESULTS
OF OPERATIONS, THREE-MONTH PERIODS ENDED APRIL 2, 2005 VS. APRIL 3,
2004**





The
following table illustrates the relationship between revenue and expense
categories along with a count of employees and technical consultants for the
three-month periods ended April 2, 2005 and April 3, 2004. The table provides
guidance in our explanation of our operations and results.





****
    **Three
      Months Ended**
    ****
    **Three
      Months Ended**
    ****
    ****
    ****
    ****
    ****
    ****
    ********
    ****
    **April
      2, 2005**
    ****
    **April
      3, 2004**
    ****
    **Increase
      (Decrease)**
    ********
    ****
    ****
    ****
    **%
      of**
    ****
    ****
    ****
    **%
      of**
    ****
    ****
    ****
    **%**
    ****
    **As
      % of**
    *******(dollars
      in thousands)***
    ****
    **Amount**
    ****
    **Revenue**
    ****
    **Amount**
    ****
    **Revenue**
    ****
    **Amount**
    ****
    **Inc
      (Dec)**
    ****
    **Revenue**Revenue:Professional
      services provided directly
    
    $
    66,050
    
    
    83.5
    %
    $
    67,424
    
    
    78.9
    %
    $
    (1,374
    )
    
    (2.0
    )%
    
    4.6
    %Professional
      services provided through subsuppliers
    
    
    7,597
    
    
    9.6
    
    
    14,325
    
    
    16.8
    
    
    (6,728
    )
    
    (47.0
    )
    
    (7.2
    )Product
      sales
    
    
    5,452
    
    
    6.9
    
    
    3,645
    
    
    4.3
    
    
    1,807
    
    
    49.6
    
    
    2.6Total
      revenue
    
    
    79,099
    
    
    100.0
    
    
    85,394
    
    
    100.0
    
    
    (6,295
    )
    
    (7.4
    )
    
    .0Salaries,
      contracted services and direct charges
    
    
    59,067
    
    
    74.7
    
    
    66,235
    
    
    77.6
    
    
    (7,168
    )
    
    (10.8
    )
    
    (2.9
    )Cost
      of product sales
    
    
    5,107
    
    
    6.5
    
    
    3,429
    
    
    4.0
    
    
    1,678
    
    
    48.9
    
    
    2.5Selling,
      administrative and other operating costs
    
    
    15,454
    
    
    19.5
    
    
    15,081
    
    
    17.7
    
    
    373
    
    
    2.5
    
    
    1.8Amortization
      of intangible assets
    
    
    193
    
    
    .2
    
    
    193
    
    
    .2
    
    
    --
    
    
    .0
    
    
    .0Non-operating
      income
    
    
    (21
    )
    
    (.0
    )
    
    (6
    )
    
    (.0
    )
    
    (15
    )
    
    250.0
    
    
    .0Interest
      expense
    
    
    5
    
    
    .0
    
    
    8
    
    
    .0
    
    
    (3
    )
    
    (37.5
    )
    
    .0(Loss)
      income before income taxes
    
    
    (706
    )
    
    (.9
    )
    
    454
    
    
    .5
    
    
    (1,160
    )
    
    (255.5
    )
    
    (1.4
    )Income
      tax expense (benefit )
    
    
    --
    
    
    .0
    
    
    --
    
    
    .0
    
    
    --
    
    
    .0
    
    
    .0Net
      (loss) income
    
    $
    (706
    )
    
    (.9
    )%
    $
    454
    
    
    .5
    %
    $
    (1,160
    )
    
    (255.5
    )%
    
    (1.4
    )%Personnel:Management
      and administrative
    
    
    440
    
    
    
    
    
    415
    
    
    
    
    
    25
    
    
    6.0
    %Technical
      consultants
    
    
    2,550
    
    
    
    
    
    2,590
    
    
    
    
    
    (40
    )
    
    (1.5
    )%


*Revenue*





Revenue
from services provided directly during the three-month period ended April 2,
2005 decreased 2.0% from the comparable period a year ago. We derived a greater
percentage of our total revenue from direct billings during the period in 2005
as compared to the comparable period last year. This increase was due primarily
to a decrease in revenue from Bank of America, for whom services were provided
mostly by subsuppliers. Our subsupplier revenue is mainly pass-through revenue
with associated fees providing minimal profit.





The
decrease in direct revenue resulted primarily from the decrease in the number of
consultants we had billable during this period. Our technical consultant staff
has decreased by 40 consultants from April 3, 2004 and 35 consultants from
January 1, 2005. We experienced a larger than usual seasonal decline in
headcount during the first part of the three-month period ended April 2, 2005.
In addition to the decrease in technical consultants, hourly rates decreased
slightly during the period ended April 2, 2005 as compared to last
year.





Product
sales during the three-month period ended April 2, 2005 have grown by 49.6% over
the comparable period last year. Product sales are growing as we continue to
successfully implement our IP Telephony strategy.





*Salaries,
Contracted Services and Direct Charges*





Salaries,
contracted services and direct charges primarily represent our payroll and
benefit costs associated with billable consultants. Excluding the revenue
associated with product sales, this category of expense as a percentage of
revenue was 80.2% for the three-month period ended April 2, 2005, compared to
81.0% for the comparable period a year ago. This decrease was due mainly to the
shifting of our revenue mix in 2005 to include less subsupplier revenue with
lower margins, offset by an increase in direct costs on our direct revenue
caused primarily by intense competition on average bill rates and continued
pressure on labor rates. Although we continuously attempt to control the factors
which affect this category of expense, there can be no assurance we will be able
to maintain or improve this level.





14


*Cost
of Product Sales*





Cost of
product sales represents our cost when we resell hardware and software products.
These costs, as a percentage of product sales, decreased slightly from 94.1% for
the three-month period ended April 3, 2004, compared to 93.7% for the
three-month period ended April 2, 2005.





*Selling,
Administrative and Other Operating Costs*





Selling,
administrative and other operating (SG&A) costs include management and
administrative salaries, commissions paid to sales representatives and
recruiters, location costs, and other administrative costs. This category of
costs represented 19.5% of total revenue for the three-month period ended April
2, 2005, up from 17.7% for the comparable period in 2004. We began to make
investments in additional sales and recruiting resources during the fourth
quarter of 2004 and continued these investments into the first quarter of 2005.
Also during the first quarter, we incurred certain costs to integrate WireSpeed,
and invested significantly in training internal resources to help capitalize on
the opportunity created by our WireSpeed acquisition. We are committed to
continuing to manage this category of expense to the right level for the
Company; however, there can be no assurance this category of cost will not
increase as a percentage of revenue, especially if our revenue was to
decline.





*Non-Operating
Income*





Non-operating
income, consisting primarily of interest income, increased during the three
months ended April 2, 2005 compared to the equivalent period a year ago due to
an increase in invested cash balances and an increase in the rate of return on
those investments.





*Interest
Expense*





Interest
expense during the three-month period ended April 2, 2005 decreased slightly
over the equivalent period last year due to a decrease in average borrowings
under our line of credit.





*Income
Taxes*





We have
not recorded a credit for income taxes during the three-month period ended April
2, 2005. We maintain large reserves against our deferred tax assets. As we
generate annual profits, we expect to continue our practice of reversing these
reserves to negate any tax expense that may otherwise have been recorded. As
such, we have not recorded a tax benefit against the first quarter
loss.





*Personnel*





The
decrease in technical consultants is primarily attributable to a larger than
usual seasonal decline in headcount during the beginning of the three-month
period ended April 2, 2005. Administrative and management personnel increased
mainly as a result of increased staff in our recruiting
organization.


15


Liquidity
and Capital Resources





The
following table provides information relative to the liquidity of our
business.





**Percentage****April
      2,**
    
    **January
      1,**
    
    **Increase**
    
    **Increase*****(In
      thousands except percentages)***
    
    **2005**
    
    **2005**
    
    **(Decrease)**
    
    **(Decrease)**Cash
      and Cash Equivalents
    
    $
    913
    
    $
    7,889
    
    $
    (6,976
    )
    
    (88.4
    )%Accounts
      Receivable
    
    
    56,574
    
    
    57,764
    
    
    (1,190
    )
    
    (2.1
    )Other
      Current Assets
    
    
    3,548
    
    
    3,208
    
    
    340
    
    
    10.6Total
      Current Assets
    
    $
    61,035
    
    $
    68,861
    
    $
    (7,826
    )
    
    (11.4
    )Accounts
      Payable
    
    $
    12,572
    
    $
    16,366
    
    $
    (3,794
    )
    
    (23.2
    )Salaries
      and Vacations
    
    
    6,077
    
    
    9,388
    
    
    (3,311
    )
    
    (35.3
    )Other
      Current Liabilities
    
    
    6,471
    
    
    3,668
    
    
    2,803
    
    
    76.4Total
      Current Liabilities
    
    $
    25,120
    
    $
    29,422
    
    $
    (4,302
    )
    
    (14.6
    )Working
      Capital
    
    $
    35,915
    
    $
    39,439
    
    $
    (3,524
    )
    
    (8.9
    )Current
      Ratio
    
    
    2.43
    
    
    2.34
    
    
    .09
    
    
    3.8Total
      Shareholders’ Equity
    
    $
    72,418
    
    $
    72,618
    
    $
    (200
    )
    
    (.3
    )%





*Cash
Requirements*





The
day-to-day operation of our business requires a significant amount of cash to
flow through the Company. During the three-month period ended April 2, 2005, we
made total payments of approximately $54.0 million to pay our employee’s wages,
benefits and associated taxes. We also made payments of approximately $16.6
million to pay vendors who provided billable technical resources to our clients
through us. We made payments of approximately $14.2 million to fund other
operating expenses such as our cost of product sales, employee expense
reimbursement, office space rental and utilities.  Finally, we paid $2.0
million in cash for the acquisition of WireSpeed.





The cash
to fund these significant payments comes almost exclusively from our collection
of amounts due the Company for services rendered to our clients (approximately
$79.8 million in the three-month period ended April 2, 2005). Generally,
payments made to fund the day-to-day operation of our business are due and
payable regardless of the rate of cash collections from our clients. While we do
not anticipate such an occurrence, a significant decline in the rate of
collections from our clients, or an inability of the Company to timely invoice
and therefore collect from our clients, could rapidly increase our need to
borrow to fund the operations of our business.





*Sources
and Uses of Cash/Credit Facility*





Cash and
cash equivalents at April 2, 2005 decreased considerably from January 1, 2005.
The decrease in cash was due mainly to the purchase of WireSpeed Networks LLC in
January 2005 and the timing of our payroll disbursement occurring on the last
business day of the quarter ended April 2, 2005. Our primary need for working
capital is to support accounts receivable resulting from our business and to
fund the time lag between payroll disbursement and receipt of fees billed to
clients. Historically, we have been able to support internal growth in our
business with internally generated funds. As our revenue and payroll begin to
grow, and we continue to use our cash to make small acquisitions, we would
expect our need to borrow to increase.





Working
capital at April 2, 2005 was down from January 1, 2005 due mainly to cash paid
at closing of the acquisition of WireSpeed. During the first three months of
2005, we have been able to keep our line of credit at or near zero and maintain
modest cash balances. The ratio of current assets to current liabilities
increased slightly at April 2, 2005, compared to January 1,
2005.


16


Our
asset-based revolving credit agreement, consummated in April 2002, provides us
with up to $45.0 million of availability. We have been successful at maintaining
the balance on this line of credit at or near zero throughout the quarter ended
April 2, 2005. At April 2, 2005, our borrowing availability under this credit
facility, which fluctuates based on our level of eligible accounts receivable,
was at $27.0 million. The level of availability has decreased compared to
January 1, 2005 as our receivable collateral base has decreased. Borrowings
under the credit agreement are secured by all of our assets.





The
revolving credit agreement requires us to take advances or pay down the
outstanding balance on the line of credit daily. However, we can request
fixed-term advances of one, two, or three months for a portion of the
outstanding balance on the line of credit. Effective August 5, 2004, the Company
amended its credit agreement to extend the expiration date to October 31, 2006
and modified certain terms of the agreement. The amendment reduced the
commitment fee to .25% of the unused portion of the line, reduced the annual
administration fee to $25,000, and reduced the interest rates on daily advances
to the Wall Street Journal’s “Prime Rate”, or 5.75% currently, and fixed-term
advances to the LIBOR rate plus 2.0%. The agreement continues to restrict, among
other things, the payment of dividends, establishes limits on capital
expenditures and requires the Company to maintain a minimum accounts payable
turnover ratio.





During
the three-month period ended April 2, 2005, we made capital expenditures
totaling $1.2 million, compared to $628,000 in the three-month period ended
April 3, 2004. We funded these capital expenditures with internally generated
funds. We continue to tightly control capital expenditures to preserve working
capital.





Commitments
and Contingencies





The
Company leases office facilities under non-cancelable operating leases. Deferred
compensation is payable to participants in accordance with the terms of
individual contracts. Minimum future obligations on operating leases and
deferred compensation at April 2, 2005, are as follows:


***(in
      thousands)***
    
    **1
      Year**
    
    **2-3
      Years**
    
    **4-5
      Years**
    
    **Over
      5****Years**
    
    **Total**Operating
      Leases
    
    $
    4,979
    
    $
    6,951
    
    $
    1,197
    
    $
    --
    
    $
    13,127Deferred
      Compensation
    
    
    805
    
    
    693
    
    
    619
    
    
    2,033
    
    
    4,150Total
    
    $
    5,784
    
    $
    7,644
    
    $
    1,816
    
    $
    2,033
    
    $
    17,277


New Accounting
Pronouncements





In
December 2004, the Financial Accounting Standards Board issued a revision to
SFAS 123, ** “Share-Based
Payment.” The revision requires all entities to recognize compensation expense
in an amount equal to the fair value of share-based payments granted to
employees. The statement eliminates the alternative method of accounting for
employee share-based payments previously available under APB Opinion No. 25.
Effective April 14, 2005, the SEC announced the adoption of a rule that defers
the required effective date of SFAS 123(R) to the beginning of the first fiscal
year beginning after June 15, 2005, instead of at the beginning of the first
fiscal quarter after June 15, 2005. The Statement is effective for the Company
beginning in the first quarter of fiscal 2006. The Company has not completed the
process of evaluating the full financial statement impact that will result from
the adoption of SFAS 123(R).  See Note 1 to the condensed consolidated
financial statements for the Company's disclosure regarding the pro forma effect
of the adoption of SFAS 123(R) on the Company's consolidated financial
statements.





17


Market
Conditions, Business Outlook and Risks to Our Business





Several
market conditions are affecting our industry. Intense price competition in the
area of IT staffing has created pressure on billable hourly rates, and clients
have been requesting increasingly lower cost models for staff augmentation
services. As a result, we encountered a decrease in billing rates in the first
quarter, and we expect rates to remain a challenge throughout the remainder of
2005. Low cost offerings for IT staffing services through e-procurement systems,
extremely competitive bidding processes, the granting of various types of
discounts and the use of offshore resources will continue, thus making
improvement in our average billing rates very difficult. Our ability to respond
to customer requests for lower pricing or to provide other low cost solutions in
this area of our business will have a direct effect on our performance.
Management expects competitive conditions in the area of IT staffing services to
continue for the foreseeable future, although it expects that demand for these
services will increase as the economic recovery continues.





IT
staffing continues to represent more than half of total revenues. We saw a
slight decrease in demand for our services during the first three months of
2005. There can be no assurance as to when, or if, we will begin to see
significant increases in revenue. Our ability to respond to the conditions
outlined above will bear directly on our performance.





Our
ability to quickly identify, attract and retain qualified technical personnel,
especially during an economic recovery, will affect our results of operations
and ability to grow in the future. Competition for qualified personnel is
intense. If we are unable to hire the talent required by our clients in a
timely, cost-effective manner and to retain existing technical staff, it will
affect our ability to grow our business. In addition to our ability to control
labor costs, our ability to control employee benefits costs and other
employee-related costs will affect our future performance. In an effort to
contain our benefits costs, we have periodically implemented changes to our
benefits plans. While these changes have been effective in controlling our
benefit costs, our ability to continue to control these costs by implementing
changes in the benefits programs diminishes as medical and other benefit costs
continue to rise.





We
continue to concentrate on IT staffing services in Fortune 500 and small and
medium-sized businesses, business solutions for small and medium-sized
businesses, and business opportunities with technology and product partners. To
serve this client base, we are focusing on the following objectives: i)
implementing a next generation staffing model, which will transform workforce
deployment and human capital management; ii) implementing a number of
improvements around key business processes that we believe will better align our
business with the market needs and allow us to build a more adaptive delivery
model to drive growth; iii) building a focused set of services and solutions
around high-demand, emerging technologies; and iv) being an active participant
in the significant consolidation taking place throughout our industry. We
believe these objectives present opportunities to grow our business and provide
the scale, which we believe is necessary to be successful in the staffing
business in the long term. We believe scale is important because more and more
clients are requiring it and it provides the operating leverage necessary to
create competitive margins. Success in meeting the objectives outlined above
will depend on, among other things, our ability to compete with other vendors,
our ability to obtain qualified technical personnel, our success in obtaining
new clients and our ability to implement those objectives.





Terms and
conditions standard to computer consulting services contracts also present a
risk to our business. In general, our clients can cancel or reduce their
contracts on short notice. Loss of a significant client relationship or a
significant portion thereof, a significant number of relationships or a major
contract could have a material adverse effect on our business. During the fourth
quarter, we were notified that we would no longer be a prime vendor to Bank of
America. While we will continue to realize direct revenue from Bank of America
work through another prime vendor, effective January 1, 2005, we are no longer
providing services to Bank of America using our subsupplier channel partners.
During 2004 we provided $22.8 million in services to Bank of America using our
partners.





18


As the IT
services market continues to consolidate, we continue to look for opportunities
to acquire well-managed companies with strong client and/or vendor
relationships, and with geographic or vertical market presence complementary to
our business. As a result, we acquired the assets of two companies, WireSpeed
Networks LLC in the first quarter of 2005 and Redwood Solutions Corporation
during the second quarter of 2005. These acquisitions provide the
opportunity to expand our existing service offerings in the areas of IP
telephony and data storage solutions.





Pursuit
of a merger and acquisition strategy presents significant risks to the Company.
If we are unable to transition and maintain employee, client and vendor
relationships of acquired companies, or are unable to integrate the back office
operations of these companies to provide seamless and cost effective service to
our combined clients, the anticipated benefits of these transactions may be less
than expected. Additionally, use of our financial resources to acquire these
companies means these resources are not available for our ordinary operations.
While we expect to enter into transactions that are accretive to earnings and
enhance our cash flow, failure to successfully integrate acquired companies and
achieve such results could have a material adverse effect on our
business.





In
further pursuit of our strategy to participate actively in the consolidation of
the IT services industry, on April 13, 2005 the Company and Computer Horizons
Corporation announced that the two companies have executed a definitive
agreement to combine in a merger-of-equals transaction. The transaction is
subject to the approval of the companies’ respective shareholders and is also
subject to applicable regulatory approvals and other customary closing
conditions.





Controlling
operating costs while attempting not to impact our ability to respond to our
clients also is a factor in our future success. We have continued to streamline
our operations by consolidating offices, reducing administrative and management
personnel and continuing to review our company structure for more efficient
methods of operating our business and delivering our services. We may not be
able to continue to reduce costs without affecting our ability to timely deliver
service to our clients and therefore may choose to forego particular cost
reductions, or to increase investments in certain areas, if we believe it would
be prudent to do so for the future business of the Company.





Compliance
with Section 404 of the Sarbanes-Oxley Act has created substantial cost to us
and strained our internal resources. We incurred significant costs throughout
2004, and we expect to continue to incur costs in future years to maintain
compliance. An inability to control these costs, a failure to comply with
Section 404, or a failure to adequately remediate control deficiencies, if any,
as they are identified could have a material adverse effect on our
business.





We
believe our working capital will be sufficient for the foreseeable needs of our
business. Significant rapid growth in our business, a major acquisition or a
significant lengthening of payment terms with major clients, could create a need
for additional working capital. An inability to obtain additional working
capital, should it be required, could have a material adverse effect on our
business. We expect to be able to comply with the requirements of our credit
agreement; however, failure to do so could have a material adverse effect on our
business.





19


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





Our
financing agreement with GE Capital Corporation carries a variable interest rate
which exposes us to certain market risks. Market risk is the potential loss
arising from the adverse changes in market rates and prices, such as interest
rates. Market risk is estimated as the potential increase in fair value
resulting from a hypothetical one percent increase in interest rates. For
example, while our outstanding balance on our line of credit has averaged less
than $1.0 million during 2004, if our average outstanding debt balance were $5.0
million, a one percent increase in interest rates would result in an annual
interest expense increase of approximately $50,000.








**Item 4. Controls and Procedures**





(a)  Evaluation
of Disclosure Controls and Procedures





As of the
end of the period covered by this report, the Company conducted an evaluation
under the supervision and with the participation of the Company’s management,
including the Company’s Chief Executive Officer, Michael J. LaVelle, and Chief
Financial Officer, David J. Steichen, regarding the effectiveness of the design
and operation of the Company’s disclosure controls and procedures pursuant to
Rules 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”).
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company’s disclosure controls and procedures are
effective to ensure that information that is required to be disclosed by the
Company in reports that it files under the Exchange Act is recorded, processed,
summarized and reported within the time period specified in the rules of the
Securities Exchange Commission.





(b)  Changes
in Internal Controls





There
were no changes in the Company’s internal control over financial reporting that
occurred during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.





20


**PART II. OTHER INFORMATION**





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





On
January 6, 2005, the Company acquired WireSpeed Networks LLC. The Company issued
103,093 of its common stock, having an aggregate value of $400,000, to an escrow
account. The shares will be distributed on a pro rata basis from the escrow
account to the principals of WireSpeed at the end of the next three fiscal
years. These shares were not registered under the Securities Act of 1933. The
unregistered shares were issued in reliance upon Section 4(2) of the Securities
Act of 1933, as amended, as a sale by the Company not involving a public
offering. No underwriters were involved with such issuance of common
stock.





On April
4, 2005, the Company acquired Redwood Solutions Corporation. The Company issued
166,205 of its common stock, having an aggregate value of $600,000, to an escrow
account. The shares will be distributed on a pro rata basis from the escrow
account to the principals of Redwood at the end of the next four fiscal years.
These shares were not registered under the Securities Act of 1933. The
unregistered shares were issued in reliance upon Section 4(2) of the Securities
Act of 1933, as amended, as a sale by the Company not involving a public
offering. No underwriters were involved with such issuance of common
stock.








**Item 6. Exhibits**





Exhibit
      31.1
    
    Certification
      of CEO Pursuant to Section 302 of the Sarbanes Oxley Act of
      2002.Exhibit
      31.2
    
    Certification
      of CFO Pursuant to Section 302 of the Sarbanes Oxley Act of
      2002.Exhibit
      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.




21


**SIGNATURES**











Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned there unto
duly authorized.














ANALYSTS
      INTERNATIONAL CORPORATION(Registrant)Date:
      May 10, 2005
    By:
    /s/
      Michael J. LaVelleMichael
      J. LaVelleChief
      Executive OfficerDate:
      May 10, 2005
    By:
    David
      J. SteichenDavid
      J. SteichenChief
      Financial Officer(Principal
      Financial and Accounting Officer)




22


**EXHIBIT INDEX**





Exhibit
      31.1
    
    Certification
      of CEO Pursuant to Section 302 of the Sarbanes Oxley Act of
      2002.Exhibit
      31.2
    
    Certification
      of CFO Pursuant to Section 302 of the Sarbanes Oxley Act of
      2002.Exhibit
      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.


23