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 June 29, 2008


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: 1-6081





COMFORCE
Corporation


(Exact
name of registrant as specified in its charter)





Delaware
            36-2262248(State
      or other jurisdiction of incorporation or organization)
            (IRS
      Employer Identification No.)415
      Crossways Park Drive, P.O. Box 9006, Woodbury, New York
            11797(Address
      of principal executive offices)
            (Zip
      Code)(516)
      437-3300Registrant’s
      telephone number, including area codeNot
      ApplicableFormer
      name, former address and former fiscal year, if changed since last
      report





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes  X       No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.   See definition
of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):  Large accelerated filer
  ___     Accelerated
filer  ___     Non-accelerated
filer  X





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).





Yes        No  X





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.





Class
            
            Outstanding
      at August 4, 2008Common
      stock, $.01 par value
            
            17,387,555
      shares





1


COMFORCE
Corporation





INDEX











PageNumberPART
      I
            FINANCIAL
      INFORMATION
            3Item
      1.
            Financial
      Statements (unaudited)
            3Condensed
      Consolidated Balance Sheets at June 29, 2008 and December 30,
      2007
            3Condensed
      Consolidated Statements of Income for the three and six months ended June
      29, 2008 and July 1, 2007
            4Condensed
      Consolidated Statements of Cash Flows for the six months ended June 29,
      2008 and July 1, 2007
            5Notes
      to Unaudited Condensed Consolidated Financial Statements
            6Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            13Item
      3.
            Quantitative
      and Qualitative Disclosures about Market Risk
            19Item
      4.
            Controls
      and Procedures
            19PART
      II
            OTHER
      INFORMATION
            20Item
      1.
            Legal
      Proceedings
            20Item
      1A.
            Risk
      Factors
            20Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            20Item
      3.
            Defaults
      Upon Senior Securities
            20Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            20Item
      5.
            Other
      Information
            21Item
      6.
            Exhibits
            21SIGNATURES
            22





2


PART
I - FINANCIAL INFORMATION





ITEM
1.  FINANCIAL STATEMENTS





COMFORCE
CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(in
thousands, except share and per share amounts)


(unaudited)





June
      29,
              2008
            
            
            December
      30, 2007AssetsCurrent
      assets:Cash
      and cash equivalents
            
            $
            4,758
            
            
            $
            6,654Accounts
      receivable, less allowance of $102 in 2008 and $129 in
2007
            
            
            123,641
            
            
            
            118,163Funding
      and service fees receivable, less allowance of $44 in 2008 and
      2007
            
            
            10,891
            
            
            
            13,101Prepaid
      expenses and other current assets
            
            
            2,911
            
            
            
            4,408Deferred
      income taxes, net
            
            
            368
            
            
            
            388Total
      current assets
            
            
            142,569
            
            
            
            142,714Deferred
      income taxes, net
            
            
            106
            
            
            
            164Property
      and equipment, net
            
            
            9,210
            
            
            
            7,723Deferred
      financing costs, net
            
            
            339
            
            
            
            480Goodwill
            
            
            32,073
            
            
            
            32,073Other
      assets, net
            
            
            202
            
            
            
            230Total
      assets
            
            $
            184,499
            
            
            $
            183,384Liabilities
      and Stockholders’ DeficitCurrent
      liabilities:Accounts
      payable
            
            $
            1,830
            
            
            $
            2,376Accrued
      expenses
            
            
            106,911
            
            
            
            105,825Total
      current liabilities
            
            
            108,741
            
            
            
            108,201Long-term
      debt (including related party debt of $1,710 in 2008 and $1,644 in
      2007)
            
            
            81,877
            
            
            
            83,858Other
      liabilities
            
            
            638
            
            
            
            828Total
      liabilities
            
            
            191,256
            
            
            
            192,887Commitments
      and contingencies (note 9)Stockholders’
      deficit:Common
      stock, $.01 par value; 100,000,000 shares authorized; 17,387,555 and
      17,387,553 shares issued and outstanding at June 29, 2008 and December 30,
      2007, respectively
            
            
            174
            
            
            
            174Convertible
      preferred stock, $.01 par value:Series
      2003A, 6,500 shares authorized; 6,148 shares issued and outstanding at
      June 29, 2008 and December 30, 2007, with an aggregate liquidation
      preference of $8,619 at June 29, 2008 and $8,389 at December 30,
      2007
            
            
            4,304
            
            
            
            4,304Series
      2003B, 3,500 shares authorized; 513 shares issued and outstanding at June
      29, 2008 and December 30, 2007, with an aggregate liquidation preference
      of $695 at June 29, 2008 and $676 at December 30, 2007
            
            
            513
            
            
            
            513Series
      2004A, 15,000 shares authorized; 6,737 shares issued and outstanding at
      June 29, 2008 and December 30, 2007, with an aggregate liquidation
      preference of $8,537 at June 29, 2008 and $8,284 at December 30,
      2007
            
            
            10,264
            
            
            
            10,264Additional
      paid-in capital
            
            
            48,412
            
            
            
            48,356Accumulated
      other comprehensive income
            
            
            (157
            )
            
            
            (256
            )Accumulated
      deficit
            
            
            (70,267
            )
            
            
            (72,858
            )Total
      stockholders’ deficit
            
            
            (6,757
            )
            
            
            (9,503
            )Total
      liabilities and stockholders’ deficit
            
            $
            184,499
            
            
            $
            183,384







The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.




3







COMFORCE
CORPORATION AND SUBSIDIARIES




CONDENSED
CONSOLIDATED STATEMENTS OF INCOME


(in
thousands except per share amounts)


(unaudited)





Three
      Months Ended
            
            
            Six
      Months EndedJune
      29, 2008
            
            
            July
      1, 2007
            
            
            June
      29, 2008
            
            
            July
      1, 2007Net
      sales of services
            
            $
            152,756
            
            
            $
            149,696
            
            
            $
            302,966
            
            
            $
            291,299Costs
      and expenses:Cost
      of services
            
            
            128,365
            
            
            
            126,442
            
            
            
            254,767
            
            
            
            245,896Selling,
      general and administrative expenses
            
            
            19,632
            
            
            
            18,530
            
            
            
            39,251
            
            
            
            36,485Depreciation
      and amortization
            
            
            738
            
            
            
            702
            
            
            
            1,413
            
            
            
            1,339Total
      costs and expenses
            
            
            148,735
            
            
            
            145,674
            
            
            
            295,431
            
            
            
            283,720Operating
      income
            
            
            4,021
            
            
            
            4,022
            
            
            
            7,535
            
            
            
            7,579Other
      income (expense):Interest
      expense
            
            
            (1,129
            )
            
            
            (2,015
            )
            
            
            (2,568
            )
            
            
            (4,049
            )Loss
      on debt extinguishment
            
            
            (129
            )
            
            
            (424
            )
            
            
            (129
            )
            
            
            (424
            )Other
      income (expense), net
            
            
            106
            
            
            
            297
            
            
            
            (177
            )
            
            
            340(1,152
            )
            
            
            (2,142
            )
            
            
            (2,874
            )
            
            
            (4,133
            )Income
      before income taxes
            
            
            2,869
            
            
            
            1,880
            
            
            
            4,661
            
            
            
            3,446Provision
      for income taxes
            
            
            1,270
            
            
            
            806
            
            
            
            2,070
            
            
            
            1,458Net
      income
            
            $
            1,599
            
            
            $
            1,074
            
            
            $
            2,591
            
            
            $
            1,988Dividends
      on preferred stock
            
            
            251
            
            
            
            251
            
            
            
            502
            
            
            
            502Net
      income available to common stockholders
            
            $
            1,348
            
            
            $
            823
            
            
            $
            2,089
            
            
            $
            1,486Basic
      income per common share
            
            $
            0.08
            
            
            $
            0.05
            
            
            $
            0.12
            
            
            $
            0.09Diluted
      income per common share
            
            $
            0.05
            
            
            $
            0.03
            
            
            $
            0.08
            
            
            $
            0.06Weighted
      average common shares outstanding, basic
            
            
            17,388
            
            
            
            17,386
            
            
            
            17,388
            
            
            
            17,384Weighted
      average common shares outstanding, diluted
            
            
            32,853
            
            
            
            32,165
            
            
            
            32,628
            
            
            
            31,899





The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.


4


COMFORCE
CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS




(in
thousands)




(unaudited)




Six
      months EndedJune
      29, 2008
            
            
            July
      1, 2007Cash
      flows from operating activities:
            
            $
            2,591
            
            
            $
            1,988Net
      incomeAdjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization of property and equipment
            
            
            1,413
            
            
            
            1,339Amortization
      of deferred financing fees
            
            
            91
            
            
            
            107Net
      recoveries of bad debts
            
            
            (27
            )
            
            
            (7
            )Interest
      expense paid by the issuance of convertible notes
            
            
            66
            
            
            
            61Loss
      on repurchase of Senior Notes
            
            
            129
            
            
            
            424Excess
      tax benefit from stock option exercises
            
            
            -
            
            
            
            (4
            )Share-based
      payment compensation expense
            
            
            65
            
            
            
            90Changes
      in assets and liabilities:
            
            
            
            
            
            
            -Accounts,
      funding and service fees receivable
            
            
            (3,248
            )
            
            
            (1,980
            )Prepaid
      expenses and other current assets
            
            
            1,513
            
            
            
            511Accounts
      payable and accrued expenses
            
            
            521
            
            
            
            (3,908
            )Income
      tax receivable
            
            
            8
            
            
            
            378Net
      cash provided by (used in) operating activities
            
            
            3,122
            
            
            
            (1,001
            )Cash
      flows from investing activities:Purchases
      of property and equipment
            
            
            (2,900
            )
            
            
            (2,457
            )Net
      cash used in investing activities
            
            
            (2,900
            )
            
            
            (2,457
            )Cash
      flows from financing activities:Net
      repayments under capital lease obligations
            
            
            (115
            )
            
            
            (41
            )Net
      borrowings under line of credit agreements
            
            
            4,451
            
            
            
            11,426Repurchases
      of Senior Notes
            
            
            (6,563
            )
            
            
            (10,300
            )Excess
      tax benefit from stock option exercises
            
            
            -
            
            
            
            4Debt
      financing costs
            
            
            -
            
            
            
            (13
            )Proceeds
      from exercise of stock options
            
            
            -
            
            
            
            21Net
      cash (used in) provided by financing activities
            
            
            (2,227
            )
            
            
            1,097Net
      decrease in cash and cash equivalents
            
            
            (2,005
            )
            
            
            (2,361
            )Effect
      of exchange rates on cash
            
            
            109
            
            
            
            10Cash
      and cash equivalents at beginning of period
            
            
            6,654
            
            
            
            3,782Cash
      and cash equivalents at end of period
            
            $
            4,758
            
            
            $
            1,431Supplemental
      disclosures:Cash
      paid for:Interest
            
            $
            2,263
            
            
            $
            3,976Income
      taxes
            
            
            330
            
            
            
            1,143Supplemental
      schedule of significant non-cash financing activities:Capital
      lease obligations incurred for the purchase of new
    equipment
            
            $
            -
            
            
            $
            723




The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.




5


COMFORCE
CORPORATION AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




1.           GENERAL




COMFORCE
Corporation (“COMFORCE”) is a provider of outsourced staffing management
services that enable Fortune 1000 companies and other large employers to
consolidate, automate and manage staffing, compliance and oversight processes
for their contingent workforces.  The Company also provides specialty
staffing, consulting and other outsourcing services to Fortune 1000 companies
and other large employers for their healthcare support services, technical and
engineering, information technology, telecommunications and other staffing
needs.




COMFORCE
Operating, Inc. (“COI”), a wholly-owned subsidiary of COMFORCE, was formed for
the purpose of facilitating certain of the Company’s financing transactions in
November 1997.  Unless the context otherwise requires, the term the
“Company” refers to COMFORCE, COI and all of their direct and indirect
subsidiaries, all of which are wholly-owned.




The
accompanying unaudited interim condensed consolidated financial statements of
the Company have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission.  Certain information and footnote
disclosures normally included in annual financial statements have been condensed
or omitted pursuant to those rules and regulations.  In the opinion of
management, all adjustments, consisting of normal recurring adjustments
considered necessary for a fair presentation, have been
included.  Management believes that the disclosures made are adequate
to ensure that the information presented is not misleading; however, these
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company’s annual report
on Form 10-K for the fiscal year ended December 30, 2007.  The results
for the three and six month periods ended June 29, 2008 are not necessarily
indicative of the results of operations that might be expected for the entire
year.




2.           ESTIMATES




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Some of the significant estimates involved are the
collectibility of receivables, the fair value of goodwill and share-based
compensation expense, the recoverability of long-lived assets and deferred tax
assets, accrued workers compensation liabilities and the assessment of
litigation and contingencies.  Actual results could differ from those
estimates.






3.           SHARE-BASED
PAYMENTS




During
the second quarter of 2008, the Company recorded $65,100 of compensation expense
relating to the awarding of stock option grants, which options immediately
vested.  The compensation expense has been recorded within selling,
general and administrative expenses.  In addition, the Company
recorded an income tax benefit of $26,000 in the accompanying statements of
operations related to these grants.  For the six months ended July 1,
2007, $89,600 of compensation expense has been recorded within selling, general
and administrative expense and the Company has recorded an income tax benefit of
$35,000 in the accompanying statements of operations for options granted during
the second quarter of 2007, which options immediately vested.




The
Company estimates the fair value of share-based payments using the Black-Scholes
option pricing model.  Estimates of fair value are not intended to
predict actual future events or the value ultimately realized by the employees
who receive equity awards.




The per
share weighted average fair value of stock options granted were $0.93 during the
six months ended June 29, 2008 and $1.28 during the six months ended July 1,
2007.  In addition to the exercise and grant date prices of the
awards, certain weighted average assumptions that were used to estimate the fair
value of stock option grants in the six month periods are listed in the table
below:




6




Six
      Month EndedJune
      29,
              2008
            
            July
      1,
              2007Expected
      dividend
              yield
            0.0%
            
            0.0%Expected
      volatility
            47.2%
            
            49.0%Risk-free
      interest rate
            3.49%
            
            5.18%Expected
      term (years)
            5
            
            5




The
Company estimates expected volatility based primarily on historical monthly
price changes of the Company’s stock and other known or expected
trends.  The risk-free interest rate is based on the United States
(“U.S.”) treasury yield curve in effect at the time of grant.  The
expected term of these awards was determined using the “simplified method”
prescribed in SEC Staff Accounting Bulletin (“SAB”) No. 107, as the Company
believes that there is insufficient historical option exercise information
available to make a reasonable estimate of the expected term.









4.           DEBT




Long-term
debt at June 29, 2008 and December 30, 2007, consisted of (in
thousands):




June
      29, 2008
            
            
            December
      30, 200712%
      Senior Notes, due December 1, 2010
            
            $
            5,216
            
            
            $
            11,7148%
      Subordinated Convertible Note, due December 2, 2009
            
            
            1,710
            
            
            
            1,644Revolving
      line of credit, due July 24, 2010, with interest payable at prime plus
      0.5% and/or LIBOR plus a stated percentage with a weighted average rates
      of 4.2% at June 29, 2008 (LIBOR plus 1.50%) and 6.9% at December 30,
      2007(LIBOR plus 1.75%)
            
            
            74,951
            
            
            
            70,500Total
      long-term debt
            
            $
            81,877
            
            
            $
            83,858





Contractual
maturities of long-term debt as of June 29, 2008 are as follows (in
thousands):





2009
            $     1,7102010
            80,167Total
            $   81,877





Senior
Notes:  In November 1997,
COI issued $110 million of 12% Senior Notes due December 1, 2007, subsequently
extended until December 1, 2010 (the “Senior Notes”), principally to fund its
acquisition of Uniforce Services, Inc.  The Senior Notes provide for
semi-annual payments of interest at the rate of 12% per annum.




The
Senior Notes are governed by an indenture (the “Indenture”) under which
Wilmington Trust Company serves as the trustee.  The Indenture
contains a number of significant restrictions and covenants (with which COI
believes it was in compliance at June 29, 2008) that require COI to ensure among
other things that:




·
            COI
      does not grant a security interest in its assets or incur indebtedness,
      except indebtedness incurred in accordance with the Indenture, which
      permits indebtedness subordinated to and due later than the Senior Notes
      and that meets other conditions in the Indenture, indebtedness on a parity
      with the Senior Notes meeting specified conditions in the Indenture,
      renewals or replacements of any bank credit facility, capital lease
      obligations, securitization transactions, indebtedness within specified
      dollar limitations and other
exceptions;




·
            COI
      does not sell or dispose of its assets except in accordance with the
      covenants and




7




conditions
      in the Indenture, or issue shares of its capital stock except in
      accordance with the covenants and conditions in the
  Indenture;




·
            the
      net proceeds from any permitted sale of COI’s capital stock or its assets
      are applied to repay any bank credit facility, or, if not required by the
      lender or such net proceeds are not reinvested in other assets, to redeem
      Senior Notes or be applied for other specified proper
      purposes;




·
            COI
      does not enter into transactions with affiliates other than in accordance
      with the Indenture; and




·
            COI
      does not invest in other businesses or engage in other business activities
      unless permitted under the
Indenture.




In April
2008, the Company repurchased $6.5 million principal amount of 12% Senior Notes
at a price equal to 101% of the principal amount, plus accrued
interest.  The total repurchase price, including accrued interest, was
$6.9 million.  The Company repurchased the Senior Notes from an
unrelated party utilizing available funds under the PNC Credit
Facility.  As a result of this repurchase, the Company recognized a
loss on debt extinguishment of $129,000 in the second quarter of 2008, including
the write-off of $64,000 of deferred financing costs. As of June 29, 2008, $5.2
million principal amount of Senior Notes remained outstanding.  The
Company has caused a notice to be sent to the holders of the Senior Notes to
effect the redemption of the remaining Senior Notes in the third quarter of
2008.  See “Revolving Line of Credit” in this note 3, below, and note
10.




Convertible
Note:  The Company’s
8.0% Subordinated Convertible Note due December 2, 2009 (the “Convertible Note”)
is convertible into common stock at $1.70 per share (or, in certain
circumstances, into a participating preferred stock which in turn would be
convertible into common stock at the same effective rate).





Under the
terms of the Convertible Note, interest is payable either in cash or in-kind at
the Company’s election.  Debt service costs associated with the
Convertible Note have been satisfied through additions to principal through June
1, 2008 (the most recent semi-annual interest payment
date).  Additional principal is convertible into common stock on the
same basis as other amounts outstanding under the Convertible Note, which
provides for conversion into common stock at the rate of $1.70 per
share.  As a result of its election to pay interest in-kind under the
Convertible Note, the Company recognized beneficial conversion features of
$14,000 during the first six months of 2008 and $43,000 during fiscal 2007,
which resulted in an increase in deferred financing costs and paid-in
capital.  The Convertible Note may be prepaid in whole or in part,
provided that the market value of the Company’s common stock exceeds $2.13 for a
specified period of time.  The holder has 10 days to convert the
Convertible Note following notice of prepayment.  The holder of the
Convertible Note is a related party.




Revolving Line of
Credit:  At June 29, 2008,
COMFORCE, COI and various of their operating subsidiaries, as co-borrowers and
guarantors, were parties to a $110.0 million Revolving Credit and Security
Agreement (the “PNC Credit Facility”) with PNC Bank, National Association, as a
lender and administrative agent (“PNC”), and other financial institutions
participating as lenders to provide for a revolving line of credit with
available borrowings based, generally, on 87.0% of the Company’s accounts
receivable aged 90 days or less, subject to specified limitations and
exceptions.




8




Borrowings
under the PNC Credit Facility bear interest, at the Company’s option, at a per
annum rate equal to either (i) the greater of the federal funds rate plus 0.5%
or the base commercial lending rate of PNC as announced from time to time, or
(ii) LIBOR plus a specified margin, determined as follows:




Fixed
      charge coverage ratio*
            
            Margin
      (%)greater
      than 1.75:1.00
            
            1.50greater
      than 1.50:1.00 to 1.75:1.00
            
            1.75greater
      than 1.30:1.00 to 1.50:1.00
            
            2.00greater
      than 1.05:1.00 to 1.30:1.00
            
            2.25equal
      to or less than 1.05:1.00
            
            2.50*as
      defined in the PNC Credit Facility loan documents




The PNC
Credit Facility also provides for a commitment fee of 0.25% of the unused
portion of the facility. The obligations under the PNC Credit Facility are
collateralized by a pledge of the capital stock of certain operating
subsidiaries of the Company and by security interests in substantially all of
the assets of the Company.  The PNC Credit Facility contains various
financial and other covenants and conditions, including, but not limited to, a
prohibition on paying cash dividends and limitations on engaging in affiliate
transactions, making acquisitions and incurring additional
indebtedness.




The PNC
Credit Facility generally permits the Company to use up to $15.0 million in loan
proceeds annually to repurchase its Senior Notes so long as the remaining
availability under the facility, as defined in the agreement, is at least $2.5
million for the specified measurement period, subject to the Company’s
obligation to restore the availability to $7.5 million through equal monthly
increases following any redemption of the Senior Notes.  The PNC
Credit Facility was amended effective as of June 6, 2008 to provide for this
temporary reduction in the required availability under the facility for the
purpose of enabling the Company to redeem all of the Senior Notes that remain
outstanding ($5.2 million principal amount).  The Company has caused a
notice to be sent to the holders of the Senior Notes to effect the redemption of
the remaining Senior Notes in the third quarter of 2008 (see note
10).  At June 29, 2008, the Company had remaining availability under
the PNC Credit Facility of $11.7 million.




As of
June 29, 2008, the Company had outstanding $4.5 million of standby letters of
credit under this facility. The Company was in compliance with all financial
covenants under the PNC Credit Facility at June 29, 2008.







5.           INCOME  PER
SHARE




Basic
income per common share is computed by dividing net income available to common
stockholders by the weighted average number of shares of common stock
outstanding during each period.  Diluted income per share is computed
assuming the conversion of stock options and warrants with exercise prices less
than the average market value of the Company’s common stock during the period,
and the conversion of convertible debt and preferred stock into common stock to
the extent such conversion assumption is dilutive.  The following
represents a reconciliation of the numerators and denominators for basic and
diluted income per share computations (in thousands):




9





Three
      Months Ended
            
            
            Six
      Months EndedJune
      29, 2008
            
            
            July
      1, 2007
            
            
            June
      29, 2008
            
            
            July
      1, 2007Basic
      income per common share:Net
      income
            
            $
            1,599
            
            
            $
            1,074
            
            
            $
            2,591
            
            
            $
            1,988Deduct
      dividends on preferred stock:Series
      2003A
            
            
            115
            
            
            
            115
            
            
            
            230
            
            
            
            230Series
      2003B
            
            
            10
            
            
            
            10
            
            
            
            19
            
            
            
            19Series
      2004A
            
            
            126
            
            
            
            126
            
            
            
            253
            
            
            
            253251
            
            
            
            251
            
            
            
            502
            
            
            
            502Income
      available to common stockholders
            
            $
            1,348
            
            
            $
            823
            
            
            $
            2,089
            
            
            $
            1,486Weighted
      average common shares outstanding
            
            
            17,388
            
            
            
            17,386
            
            
            
            17,388
            
            
            
            17,384Basic
      income per common share
            
            $
            0.08
            
            
            $
            0.05
            
            
            $
            0.12
            
            
            $
            0.09Diluted
      income per common share:Income
      available to common stockholders
            
            $
            1,348
            
            
            $
            823
            
            
            $
            2,089
            
            
            $
            1,486Add
      dividends on preferred stock:Series
      2003A
            
            
            115
            
            
            
            115
            
            
            
            230
            
            
            
            230Series
      2003B
            
            
            10
            
            
            
            10
            
            
            
            19
            
            
            
            19Series
      2004A
            
            
            126
            
            
            
            126
            
            
            
            253
            
            
            
            253251
            
            
            
            251
            
            
            
            502
            
            
            
            502Add
      after tax equivalent of interest expense on 8% Subordinated Convertible
      Note
            
            
            20
            
            
            
            19
            
            
            
            40
            
            
            
            37Income
      for purposes of computing diluted income per common share
            
            $
            1,619
            
            
            $
            1,093
            
            
            $
            2,631
            
            
            $
            2,025Weighted
      average common shares outstanding
            
            
            17,388
            
            
            
            17,386
            
            
            
            17,388
            
            
            
            17,384Dilutive
      stock options
            
            
            155
            
            
            
            351
            
            
            
            151
            
            
            
            307Assumed
      conversion of 8% Subordinated Convertible Note
            
            
            993
            
            
            
            918
            
            
            
            974
            
            
            
            900Assumed
      conversion of Preferred Stock:Series
      2003A
            
            
            8,099
            
            
            
            7,660
            
            
            
            7,989
            
            
            
            7,550Series
      2003B
            
            
            1,271
            
            
            
            1,200
            
            
            
            1,253
            
            
            
            1,182Series
      2004A
            
            
            4,947
            
            
            
            4,650
            
            
            
            4,873
            
            
            
            4,576Weighted
      average common shares outstanding for purposes of computing diluted income
      per share
            
            
            32,853
            
            
            
            32,165
            
            
            
            32,628
            
            
            
            31,899Diluted
      income per common share
            
            $
            0.05
            
            
            $
            0.03
            
            
            $
            0.08
            
            
            $
            0.06







Options
and warrants to purchase 1.4 million shares of common stock were outstanding as
of June 29, 2008 and July 1, 2007, but were not included in the computation
of diluted income per share because their effect would be
anti-dilutive.




6.           INDUSTRY
SEGMENT INFORMATION




COMFORCE
has determined that its reportable segments are distinguished principally by the
types of services offered to the Company’s clients.  The Company
manages its operations and reports its results through three




10




operating
segments – Human Capital Management Services, Staff Augmentation and Financial
Outsourcing Services. The Human Capital Management Services segment primarily
provides contingent workforce management services.  The Staff
Augmentation segment provides healthcare support services, technical and
engineering, information technology, telecommunications and other staffing
services. The Financial Outsourcing Services segment provides funding and back
office support services to independent consulting and staffing
companies.




COMFORCE
evaluates the performance of its segments and allocates resources to them based
on operating contribution, which represents segment revenues less direct costs
of operations, excluding the allocation of corporate general and administrative
expenses and share-based payment expenses.  Assets of the operating
segments reflect primarily net accounts receivable and goodwill associated with
segment activities; all other assets are included as corporate
assets.  The Company does not evaluate or account for expenditures for
long-lived assets on a segment basis.




The table
below presents information on the revenues and operating contribution for each
segment for the three and six month periods ended June 29, 2008 and July 1,
2007, and items which reconcile segment operating contribution to COMFORCE’s
reported income before income taxes (in thousands):




Three
      Months Ended
            
            
            Six
      Months EndedJune
      29, 2008
            
            
            July
      1, 2007
            
            
            June
      29, 2008
            
            
            July
      1,2007Net
      sales of services:Human
      Capital Management Services Services
            
            $
            97,280
            
            
            $
            94,011
            
            
            $
            193,289
            
            
            $
            180,998Staff
      Augmentation
            
            
            54,576
            
            
            
            54,859
            
            
            
            108,043
            
            
            
            108,642Financial
      Outsourcing Services
            
            
            900
            
            
            
            826
            
            
            
            1,634
            
            
            
            1,659$
            152,756
            
            
            $
            149,696
            
            
            $
            302,966
            
            
            $
            291,299Operating
      contribution:Human
      Capital Management Services
            
            $
            4,086
            
            
            $
            4,321
            
            
            $
            7,706
            
            
            $
            8,181Staff
      Augmentation
            
            
            4,916
            
            
            
            4,593
            
            
            
            9,554
            
            
            
            8,915Financial
      Outsourcing Services
            
            
            844
            
            
            
            676
            
            
            
            1,533
            
            
            
            1,3759,846
            
            
            
            9,590
            
            
            
            18,793
            
            
            
            18,471Consolidated
      expenses:Corporate
      general and administrative expenses
            
            
            5,087
            
            
            
            4,866
            
            
            
            9,845
            
            
            
            9,553Depreciation
      and amortization
            
            
            738
            
            
            
            702
            
            
            
            1,413
            
            
            
            1,339Interest
      and other, net
            
            
            1,023
            
            
            
            1,718
            
            
            
            2,745
            
            
            
            3,709Loss
      on debt extinguishment
            
            
            129
            
            
            
            424
            
            
            
            129
            
            
            
            4246,977
            
            
            
            7,710
            
            
            
            14,132
            
            
            
            15,025Income
      before income taxes
            
            $
            2,869
            
            
            $
            1,880
            
            
            $
            4,661
            
            
            $
            3,446




Total
assets:




At
      June 29, 2008
            
            
            At
      December 30, 2007Human
      Capital Management Services
            
            $
            99,292
            
            
            $
            96,120Staff
      Augmentation
            
            
            56,422
            
            
            
            54,116Financial
      Outsourcing Services
            
            
            10,891
            
            
            
            13,101Corporate
            
            
            17,894
            
            
            
            20,047$
            184,499
            
            
            $
            183,384







11


7.           COMPREHENSIVE
INCOME




The
components of comprehensive income are as follows (in thousands):




Three
      Months Ended
            
            
            Six
      Months EndedJune
      29, 2008
            
            
            July
      1, 2007
            
            
            June
      29, 2008
            
            
            July
      1, 2007Net
      income
            
            $
            1,599
            
            
            $
            1,074
            
            
            $
            2,591
            
            
            $
            1,988Foreign
      currency translation adjustment, net of tax
            
            
            (67
            )
            
            
            (133
            )
            
            
            99
            
            
            
            (162
            )Total
      comprehensive income
            
            $
            1,532
            
            
            $
            941
            
            
            $
            2,690
            
            
            $
            1,826









8.           ACCRUED
EXPENSES






Accrued expenses as of June 29, 2008
and December 30, 2007 consisted of (in thousands):




June
      29, 2008
            
            
            December
      30, 2007Payroll,
      payroll taxes and sub-vendor payments
            
            $
            84,697
            
            
            $
            85,043Book
      overdrafts
            
            
            10,858
            
            
            
            11,322Other
            
            
            11,356
            
            
            
            9,460$
            106,911
            
            
            $
            105,825







9.           CONTINGENCIES









In 2006, COMFORCE Technical Services,
Inc. (“CTS”) entered into a contract with a United States government agency (the
“Agency”) to provide technical, operational and professional services in foreign
countries throughout the world for humanitarian purposes.  Persons
employed by CTS (directly or through its COMFORCE Technical Global, Inc.
subsidiary) in the host countries include U.S. nationals, nationals of the host
countries (local nationals) and nationals of other countries (third country
nationals). The contract provides, generally, that the U.S. government will
reimburse CTS for all direct labor properly chargeable to the contract plus
fringe benefits, in some cases at specified rates and profit.









The contract does not directly address
taxes payable to each of the foreign jurisdictions, but the contracting officer
advised CTS by letter in June 2006 that CTS should not make tax payments or
withholdings in the host countries because the Agency had negotiated or would
negotiate with the host countries and expected these discussions to lead to
bilateral agreements exempting contractors and contractor personnel from all tax
liability.  The contract provides that CTS will be reimbursed for “all
fines, penalties, and reasonable litigation expenses incurred as a result of
compliance with specific contract terms and conditions or written instructions
from the Contracting Officer.”  The contracting officer’s June 2006
letter states that any fines, penalties, interest or costs of legal proceedings
incurred in honoring these instructions will be reimbursable.









At a June
2008 meeting, the Agency confirmed that the United States had entered into
bilateral agreements with, or confirmed the availability of exemptions in 35 of
the host countries served by CTS under the contract, but advised CTS that it had
not entered into and would not continue to pursue bilateral agreements having
retroactive effect with 22 of the host countries served under the contract, and
advised and encouraged CTS to pursue its own agreements with these host
countries.  The Agency confirmed, however, that the United States
planned to pursue bilateral agreements having prospective effect with these 22
host countries, which management believes will have a favorable impact on the
CTS’s own pursuit of agreements having both prospective and retroactive
effect.  In response, CTS has engaged a firm to provide mitigation
services with respect to these 22 host countries.  Initially,




12




that firm
will approach the authorities in the host countries and seek to negotiate
agreements to exempt CTS from all taxes, fines or penalties, prospectively and
retroactively.




Management
believes that the host countries have the same strong interest in entering into
agreements with CTS that they would have in entering into bilateral agreements
with the Agency, and that many, if not all, of the host countries will not wish
to impose, or ultimately enforce, payment of wage taxes on CTS and will be
willing to enter into agreements with CTS.  Management believes that
it is reasonably possible that each of the host countries will waive or decline
to assess or to enforce payment of wage taxes against CTS.




If CTS is
not successful in reaching agreements with any host country, CTS intends to pay
any assessment and related fines and seek prompt reimbursement from the
Agency.  Although not anticipated, amounts assessed could potentially
exceed the amount available to the Company from its own resources or under the
PNC Credit Facility. In such event, it is anticipated that management will ask
PNC to make a special advance or request the Agency to pre-pay these
liabilities.




Except as described above or in note 12
of our consolidated financial statements for the year ended December 30, 2007,
there are no other pending matters, individually or in the aggregate, that, if
adversely determined, are believed by management to be material to the business
or financial condition of the Company. The Company expenses legal costs
associated with contingencies when incurred.  The Company maintains
general liability insurance, property insurance, automobile insurance, fidelity
insurance, errors and omissions insurance, professional/medical malpractice
insurance, fiduciary insurance, and directors’ and officers’ liability insurance
for domestic and foreign operations as management deems appropriate and prudent.
The Company is generally self-insured with respect to workers compensation, but
maintains excess workers compensation coverage to limit its maximum exposure to
such claims.




10.           SUBSEQUENT
EVENT




On July 25, 2008, at COI’s
request, Wilmington Trust Company, the Senior Notes indenture trustee, sent a
notice of redemption in order to redeem, on August 25, 2008, all of the
outstanding  Senior Notes at a redemption price equal to 102% of the
outstanding principal amount of the Senior Notes ($5.2 million), plus accrued
interest from June 1, 2008 to the scheduled redemption date.  The
total redemption price, including accrued interest and the 2% premium, will be
$5.5 million COI expects to utilize loan proceeds under its bank credit facility
to effect this redemption of its Senior Notes on the scheduled redemption
date.  Upon completion of this redemption, none of the Senior Notes
will remain outstanding.  If the redemption is completed as
anticipated, the Company expects to recognize a loss on debt extinguishment of
approximately $148,000, net of approximately $44,000 of deferred financing costs
in the third quarter of 2008.







ITEM
2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS




The
discussion set forth below supplements the information found in the accompanying
condensed consolidated financial statements and related notes of COMFORCE
Corporation (“COMFORCE”) and its wholly-owned subsidiaries, including COMFORCE
Operating, Inc. (“COI”) (collectively, the “Company”).




Overview
and Recent Developments




The
Company reports its results through three operating segments -- Human Capital
Management Services, Staff Augmentation and Financial Outsourcing
Services.  The Human Capital Management Services segment primarily
provides staffing management services that enable Fortune 1000 companies and
other large employers to consolidate, automate and manage staffing, compliance
and oversight processes for their contingent workforces.  The Staff
Augmentation segment provides healthcare support services, technical and
engineering, information technology, telecommunications and other staffing
needs.  The Financial Outsourcing Services segment provides funding
and back office support services to independent consulting and staffing
companies.




Management
of the Company has observed continuing deterioration in the labor markets and
continuing




13




instability
in the credit markets since the end of the first quarter of
2008.  While these conditions have not had a significant negative
impact on our operations through the end of the second quarter of 2008, if these
conditions persist, they could potentially have a more significant adverse
impact on our operations in future periods.





On July 25, 2008, at COI’s request,
Wilmington Trust Company, the Senior Notes indenture trustee, sent a notice of
redemption in order to redeem, on August 25, 2008, all of the
outstanding  Senior Notes at a redemption price equal to 102% of the
outstanding principal amount of the Senior Notes ($5.2 million), plus accrued
interest from June 1, 2008 to the scheduled redemption date.  The
total redemption price, including accrued interest and the 2% premium, will be
$5.5 million COI expects to utilize loan proceeds under its bank credit facility
to effect this redemption of its Senior Notes on the scheduled redemption
date.  Upon completion of this redemption, none of the Senior Notes
will remain outstanding.   If the redemption is completed as
anticipated, the Company expects to recognize a loss on debt extinguishment of
approximately $148,000, net of approximately $44,000 of deferred financing costs
in the third quarter of 2008.





Results
of Operations





Three
Months Ended June 29, 2008 compared to July 1, 2007


Net sales
of services for the three months ended June 29, 2008 were $152.8 million, which
represents a 2.0% increase from the $149.7 million in net sales of services
recorded for the three months ended July 1, 2007.  Net sales of
services in the Human Capital Management Services segment increased by $3.3
million, or 3.5%, due to an increase in services provided to new
clients.  Management believes such increase is reflective of a trend
for companies to rely increasingly on providers of human capital management
services, such as those provided by the Company’s PrO Unlimited
subsidiary.  In the Staff Augmentation segment, the sales decrease of
$280,000, or 0.5%, is principally attributable to the decrease of services
provided to technical services customers, partially offset by an increase in
services provided to information technology and healthcare support
customers.




Cost of
services for the three months ended June 29, 2008 was 84.0% of net sales of
services as compared to cost of services of 84.5% net sales of services for the
three months ended July 1, 2007.  The cost of services as a percentage
of net sales for the second quarter of 2008 decreased slightly from the second
quarter of 2007 principally due to higher gross margins on services provided to
healthcare support customers.




Selling,
general and administrative expenses as a percentage of net sales of services
were 12.9% for the three months ended June 29, 2008, compared to 12.4% for the
three months ended July 1, 2007.  The $1.1 million increase in
selling, general and administrative expenses is primarily due to higher
personnel costs incurred to support the increase in consultant consolidation
services provided in the Human Capital Management Services segment discussed
above.




Operating
income for the three months ended June 29, 2008 was $4.0 million, or 2.6% of net
sales, as compared to operating income of $4.0 million, or 2.7% of net sales,
for the three months ended July 1, 2007.  The Company’s operating
income for the second quarter of 2008 is slightly lower than for the second
quarter of 2007 principally due to an increase in selling, general, and
administrative expenses discussed above, partially offset by an increase in net
sales of services and related gross margins in Human Capital Management Services
and Healthcare Support.




The
Company’s interest expense for the three months ended June 29, 2008 was
principally attributable to interest recorded on the PNC Credit Facility, the
Convertible Note and the Senior Notes. The interest expense of $1.1 million for
the second quarter of 2008 was lower as compared to the interest expense of $2.0
million for the second quarter of 2007.  This decrease in interest
expense was principally due to the repurchase and redemption of $11.2 million of
Senior Notes during 2007 and the repurchase of $6.5 million of Senior Notes in
April 2008 and to lower interest rates under the PNC Credit
Facility.  As a result of the April 2008 repurchase of $6.5 million of
Senior Notes, the Company recognized a loss on debt extinguishment of $129,000,
including the write-off of $64,000 of deferred financing costs.  As a
result of the $10.0 million redemption in the second quarter of 2007, the
Company recognized a loss on debt extinguishment of $424,000, including a
write-off of $124,000 in deferred financing costs.




14




The
income tax provision for the three months ended June 29, 2008 was $1.3 million
(a rate of 44.3%) on income before income taxes of $2.9
million.   The income tax provision for the three months ended
July 1, 2007 was $806,000 (a rate of 42.9%) on income before income taxes of
$1.9 million. The difference between income taxes at the federal statutory
income tax rate and the Company’s tax provision for the respective periods
relates primarily to state and foreign income taxes, and non-deductible expenses
(primarily a portion of meals and entertainment).





Six
Months Ended June 29, 2008 compared to July 1, 2007


Net sales
of services for the six months ended June 29, 2008 were $303.0 million, which
represents a 4.0% increase from the $291.3 million in net sales of services
recorded for the six months ended July 1, 2007.  Net sales of services
in the Human Capital Management Services segment increased by $12.3 million, or
6.8%, due to an increase in services provided to new
clients.  Management believes such increase is reflective of a trend
for companies to rely increasingly on providers of human capital management
services, such as those provided by the Company’s PrO Unlimited
subsidiary.  In the Staff Augmentation segment, the sales decrease of
$597,000, or 0.5%, is principally attributable to the decrease of services
provided to technical services customers, partially offset by an increase in
services provided to healthcare support services and information technology
customers.




Cost of
services for the six months ended June 29, 2008 was 84.1% of net sales of
services as compared to cost of services of 84.4% net sales of services for the
six months ended July 1, 2007.  The cost of services as a percentage
of net sales for the first six months of 2008 decreased slightly from the first
six months of 2007 principally due to higher gross margins on services provided
to healthcare support services customers.




Selling,
general and administrative expenses as a percentage of net sales of services
were 13.0% for the six months ended June 29, 2008, compared to 12.5% for the six
months ended July 1, 2007.  The $2.8 million increase in selling,
general and administrative expenses is primarily due to higher personnel costs
incurred to support the increase in consultant consolidation services provided
in the Human Capital Management Services segment discussed above.




Operating
income for the six months ended June 29, 2008 was $7.5 million, or 2.5% of net
sales, as compared to operating income of $7.6 million, or 2.6% of net sales,
for the six months ended July 1, 2007.  The Company’s operating income
for the first six months of 2008 is slightly lower than for the first six months
of 2007 principally due to an increase in selling, general, and administrative
expenses discussed above, partially offset by an increase in net sales of
services in Human Capital Management Services and healthcare support
services.




The
Company’s interest expense for the six months ended June 29, 2008 was
principally attributable to interest recorded on the PNC Credit Facility, the
Convertible Note and the Senior Notes. The interest expense of $2.6 million for
the first six months of 2008 was lower as compared to the interest expense of
$4.0 million for the first six months of 2007.  This decrease in
interest expense was principally due to the repurchase and redemption of $11.2
million of Senior Notes during 2007 and the repurchase of $6.5 million of Senior
Notes in April 2008 and to lower interest rates on the PNC Credit
Facility.  As a result of the April 2008 repurchase of $6.5 million of
Senior Notes, the Company recognized a loss on debt extinguishment of $129,000,
including the write-off of $64,000 of deferred financing costs.  As a
result of the $10.0 million redemption in the second quarter of 2007, the
Company recognized a loss on debt extinguishment of $424,000, including a
write-off of $124,000 in deferred financing costs.




The
income tax provision for the six months ended June 29, 2008 was $2.1 million (a
rate of 44.4%) on income before income taxes of $4.7
million.   The income tax provision for the six months ended July
1, 2007 was $1.5 million (a rate of 42.3%) on income before income taxes of $3.4
million. The difference between income taxes at the federal statutory income tax
rate and the Company’s tax provision for the respective periods relates
primarily to state and foreign income taxes, and non-deductible expenses
(primarily a portion of meals and entertainment).







Financial
Condition, Liquidity and Capital Resources




The
Company generally pays its billable employees weekly or bi-weekly for their
services, and remits certain statutory payroll and related taxes as well as
other fringe benefits.  Invoices are generated to reflect these costs
plus the Company’s markup.  These invoices are typically paid within
40 days.  Increases in the Company’s




15




net sales
of services, resulting from expansion of existing offices or establishment of
new offices, will require additional cash resources.




Staffing
personnel placed by the Company are employees of the Company. The Company is
responsible for employment related expenses for its employees, including workers
compensation, unemployment compensation insurance, Medicare and Social Security
taxes and general payroll expenses.  The Company offers health,
dental, 401(k), disability and life insurance to its eligible employees.
Staffing and consulting companies, including the Company, typically pay their
billable employees for their services before receiving payment from their
customers, resulting in significant outstanding receivables.  To the
extent the Company grows, these receivables will increase and there will be
greater need for borrowing availability under the PNC Credit
Facility.  At July 20, 2008, the Company had outstanding $74.9 million
principal amount under the PNC Credit Facility with remaining availability of up
to $13.7 million, as defined in the loan agreement, to fund
operations.




Off-Balance Sheet and Contractual
Obligations: As of June 29, 2008, we had no off-balance sheet
arrangements other than operating leases entered into in the normal course of
business, as indicated in the table below.  The following table
represents contractual commitments associated with operating lease agreements,
employment agreements and principal repayments on debt obligations (excluding
interest):




Payments
      due by fiscal year (in thousands)2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            ThereafterOperating
      Leases
            
            $
            1,514
            
            
            $
            2,734
            
            
            $
            1,737
            
            
            $
            1,054
            
            
            $
            708Employment
      Agreements
            
            
            494
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -PNC
      Credit Facility*- principal repayments
            
            
            -
            
            
            
            -
            
            
            
            74,951
            
            
            
            -
            
            
            
            -Senior
      Notes* - principal repayments
            
            
            -
            
            
            
            -
            
            
            
            5,216
            
            
            
            -
            
            
            
            -Convertible
      Note* - principal repayments
            
            
            -
            
            
            
            1,710
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            $
            2,008
            
            
            $
            4,444
            
            
            $
            81,904
            
            
            $
            1,054
            
            
            $
            708





*  See
note 4 to our condensed consolidated financial statements.





COMFORCE,
COI and various of their operating subsidiaries, as co-borrowers and guarantors,
are parties to the $110.0 million PNC Credit Facility with PNC, as a lender and
administrative agent, and other financial institutions participating as lenders
to provide for a revolving line of credit with available borrowings based,
generally, on 87.0% of the Company’s accounts receivable aged 90 days or less,
subject to specified limitations and exceptions.  The Company entered
into the PNC Credit Facility in June 2003 and it has been subject to eight
amendments.




The
obligations under the PNC Credit Facility are collateralized by a pledge of the
capital stock of certain key operating subsidiaries of the Company and by
security interests in substantially all of the assets of the Company. The PNC
Credit Facility contains various financial and other covenants and conditions,
including, but not limited to, a prohibition on paying cash dividends and
limitations on engaging in affiliate transactions, making acquisitions and
incurring additional indebtedness.  The maturity date of the PNC
Credit Facility is July 24, 2010.




The
Company also had standby letters of credit outstanding under the PNC Credit
Facility at June 29, 2008 in the aggregate amount of $4.5 million.




During the first six months of 2008,
the Company’s primary sources of funds were $3.1 million provided by its
operating activities due to the profitability of the Company.  The
Company also used cash of $2.9 million in investing activities due to the
purchases of property and equipment.  In addition, the cash used in
financing activities of $2.2 million is primarily a result of the $6.6 million
repurchase of the 12% Senior Notes, partially offset by
increased borrowings of $4.5 million under the PNC Credit Facility to facilitate
the repurchase.




16




At June
29, 2008, the Company also had outstanding (i) $5.2 million principal amount of
Senior Notes bearing interest at 12% per annum and (ii) $1.7 million principal
amount of Convertible Notes bearing interest at 8% per annum.  At June
29, 2008, the Company had outstanding $75.0 million principal amount under the
PNC Credit Facility bearing interest at a weighted average rate of 4.2% per
annum.  At such date, the Company had remaining availability of up to
$11.7 million, as defined in the agreement, under the PNC Credit
Facility.




The
Company has made significant progress in improving its capital structure through
the elimination of long-term debt through the repurchase, redemption or exchange
of Senior Notes, Convertible Notes and other instruments.  Since June
2000 and through the date of this Report, the Company has reduced its public
debt from $138.8 million to $5.2 million and its total long-term debt from
$195.3 million to $81.9 million during the same period.  The Company
has reduced its annualized interest expense by borrowing at the lower rates
available under the PNC Credit Facility to effectuate the repurchase or
redemption of long-term debt and by exchanging preferred stock and lower
interest rate Convertible Notes for public debt.




Substantially
all of the consolidated net assets of the Company are assets of COI and all of
the net income that had been generated by the Company was attributable to the
operations of COI.  Except for permitted distributions, these assets
and any cumulated net income are restricted as to their use by
COMFORCE.  The Indenture imposes restrictions on COI making specified
payments, which are referred to as “restricted payments,” including making
distributions or paying dividends (referred to as upstreaming funds) to
COMFORCE.  Under the Indenture, COI is not permitted to make cash
distributions to COMFORCE other than to upstream $2.0 million annually to pay
public company expenses, and to upstream funds to the extent COI meets the
restricted payments test under the Indenture, the most significant component of
which is based upon 50% of net income generated by COI since January 1, 1998 on
a cumulative basis, less prior distributions made in reliance on this
provision.   In calculating net income for this purpose, under
the terms of the Indenture, the Company must apply generally accepted accounting
principles as in effect at the time the Indenture was entered into in
1997.  Principally as a result of distributions made, and losses
incurred by COI in prior years, COI can make no distributions to COMFORCE based
upon the cumulative net income provisions of the Indenture until COI generates
additional net income of approximately $4.0 million.  However,
COMFORCE has approximately $1.9 million available at June 29, 2008 from proceeds
it has generated from the sale of stock, principally upon the exercise of
options and warrants. This $1.9 million may be used by COMFORCE to pay interest
and principal on the Convertible Notes or for other business
purposes.  Upon the completion of the redemption of the Senior Notes
as described under “Overview and Recent Developments” in this Item 2, these
restrictions will lapse.




The
Company’s Series 2003A, 2003B and 2004A Preferred Stock provide for dividends of
7.5% per annum and, at June 29, 2008 there were cumulated, unpaid and undeclared
dividends of $2.5 million on the Series 2003A Preferred Stock, $183,000 on the
Series 2003B Preferred Stock and $1.8 million on the Series 2004A Preferred
Stock.  If such dividends and underlying instruments were converted to
voting or non-voting common stock, the aggregate amount would equal 14.5 million
shares at June 29, 2008 (as compared to 13.7 million shares at July 1,
2007).




Management
of the Company believes that cash flow from operations and funds anticipated to
be available under the PNC Credit Facility will be sufficient to service the
Company’s indebtedness and to meet currently anticipated working capital
requirements for the next 12 months.  The Company was in compliance
with all covenants under the PNC Credit Facility at June 29, 2008 and expects to
remain in compliance for the next 12 months.




The
Company is currently undergoing audits for certain state and local tax
returns.  The results of these audits are not expected to have a
material effect upon the results of operations.




In 2006,
COMFORCE Technical Services, Inc. (“CTS”) entered into a contract with a United
States government agency (the “Agency”) to provide technical, operational and
professional services in foreign countries throughout the world for humanitarian
purposes.  Persons employed by CTS in the host countries include US
nationals, nationals of the host countries (local nationals) and nationals of
other countries (third country nationals). The contract provides, generally,
that the U.S. government will reimburse the Company for all direct labor
properly chargeable to the contract plus fringe benefits, in some cases at
specified rates and profit.  Although not anticipated, the amount of
foreign payroll taxes and other taxes related to these employees could
potentially exceed the amount




17




available
to us from our own resources or under the PNC Credit Facility.  See
note 9 to our condensed consolidated financial statements.






Critical Accounting Policies and
Estimates





As disclosed in the annual report on
Form 10-K for the year ended December 30, 2007, the discussion and analysis of
our financial condition and results of operations are based upon our condensed
consolidated financial statements, which have been prepared in conformity with
accounting principles generally accepted in the United States.  The
preparation of these financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses reported in those financial statements.  These judgments
can be subjective and complex, and consequently actual results could differ from
those estimates.  Our most critical accounting policies relate to
allowance for doubtful accounts, accrued workers compensation liability,
goodwill impairment, and income taxes.  Since December 30, 2007, there
have been no changes in our critical accounting policies and no other
significant changes to the methods used in the assumptions and estimates related
to them.




Seasonality




The
Company’s quarterly operating results are affected primarily by the number of
billing days in the quarter and the seasonality of its customers’
businesses.  Demand for technical and engineering services and IT
services has historically been lower during the second half of the fourth
quarter through the following second quarter, and, generally shows gradual
improvement until the second half of the fourth quarter.





Forward
Looking Statements





We have
made statements under the caption “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” under this Item 2, as well as in
other sections of this report that are forward-looking statements.  In
some cases, you can identify these statements by forward-looking words such as
“may,” “might,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,”
“believes,” “estimates,” “forecasts,” “projects,” “predicts,” “intends,”
“potential,” “continue,” the negative of these terms and other comparable
terminology.  These forward-looking statements, which are subject to
risks, uncertainties and assumptions about us, may include projections of our
future financial performance, our anticipated growth strategies and anticipated
trends in our business and industry. These statements are only predictions based
on our current expectations and projections about future events.





Although
we believe the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee our future results, level of activity,
performance or achievements. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of any of these forward-looking
statements. We undertake no obligation to update any of these forward-looking
statements after the date of this report to conform our prior statements to
actual results or revised expectations.




Factors
which may cause our actual results, level of activity, performance or
achievements to differ materially from the results, level of activity,
performance or achievements expressed or implied by the forward-looking
statements include the following:




·
            unfavorable
      global, national or local economic conditions that cause our customers to
      defer hiring contingent workers or reduce spending on the human capital
      management services and staffing that we
  provide;




·
            significant
      increases in the effective rates of any payroll-related costs that we are
      unable to pass on to our customers;




·
            increases
      in the costs of complying with the complex federal, state and foreign laws
      and regulations in which we operate, or our inability to comply with these
      laws and regulations;




18




·
            our
      inability to collect fees due to the bankruptcy of our customers,
      including the amount of any wages we have paid to our employees for work
      performed for these customers;




·
            our
      inability to keep pace with rapid changes in technology in our
      industry;




·
            potential
      losses relating to the placement of our employees in other workplaces,
      including our employees’ misuse of customer proprietary information,
      misappropriation of funds, discrimination, harassment, theft of property,
      accidents, torts or other claims;




·
            increases
      in interest rates, which could significantly increase our interest expense
      under the PNC Credit Facility;




·
            our
      inability to successfully develop new services or enhance our existing
      services as the markets in which we compete grow more
      competitive;




·
            unfavorable
      developments in our business may result in the necessity of writing off
      goodwill in future periods;




·
            as
      a result of covenants and restrictions in the agreements governing the
      Senior Notes, the PNC Credit Facility or any future debt instruments, our
      inability to use available cash in the manner management believes will
      maximize stockholder value;




·
            unfavorable
      press or analysts’ reports concerning our industry or our company could
      negatively affect the perception investors have of our company and our
      prospects; or




·
            any
      of the other factors described under “Risk Factors” in Item 1A of the
      Company’s Annual Report on Form 10-K for the year ended December 30,
      2007.




ITEM
3.                      QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




The
information required by Item 3 has been disclosed in Item 7A of the Company’s
annual report on Form 10-K for the year ended December 30,
2007.  There has been no material change in the Company’s market
risks.




ITEM
4.                      CONTROLS
AND PROCEDURES




The
Company’s management evaluated, with the participation of the chief executive
officer and chief financial officer, the effectiveness of the Company’s
disclosure controls and procedures as of the end of the period covered by this
Report.  Based on that evaluation, the chief executive officer and
chief financial officer have concluded that the Company’s disclosure controls
and procedures were effective as of the end of the period covered by this
Report.  There has been no change in the Company’s internal controls
over financial reporting that occurred during the quarter covered by this Report
that has materially affected, or is reasonably likely to materially affect, the
Company’s internal controls over financial reporting.




19







PART
II - OTHER INFORMATION




ITEM
1.                      LEGAL
PROCEEDINGS.




Since the
date of the filing of the Company’s annual report on Form 10-K for the year
ended December 30, 2007, there have been no material new legal proceedings
involving the Company or any material developments to the proceedings described
in such Form 10-K.




ITEM
1A.                      RISK
FACTORS.




Since the
date of the filing of the Company’s annual report on Form 10-K for the year
ended December 30, 2007, there have been no material changes to the risk factors
described under Item 1A in such Form 10-K.




ITEM
2.                      UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.




Not
applicable.




ITEM
3.                      DEFAULTS
UPON SENIOR SECURITIES.




Not
applicable.




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




On June 11, 2008, the annual meeting of
the stockholders of the Company was held.  At this meeting, the
stockholders voted (1) to elect directors for a term of one year, and (2) to
ratify the appointment of KPMG LLP as the Company’s independent registered
public accounting firm for the fiscal year ending December 28,
2008.





In the election of directors, the
following individuals were elected to the board of directors upon the vote shown
below.





Nominee
            For
            WithheldJohn
      C. Fanning
            13,953,877
            1,306,871Harry
      V. Maccarrone
            13,930,099
            1,330,649Rosemary
      Maniscalco
            13,922,244
            1,338,504Kenneth
      J. Daley
            13,982,012
            1,278,736Daniel
      Raynor
            13,982,929
            1,277,819Gordon
      Robinett
            13,957,341
            1,303,407Pierce
      J. Flynn
            13,982,027
            1,278,721







The
proposal to ratify the appointment of KPMG LLP as the Company’s independent
registered public accounting firm was approved.   The votes were
cast as follows:









For
            Against
            Abstentions15,214,335
            22,948
            23,463










20




ITEM
5.                      OTHER
INFORMATION.




None.




ITEM
6.                      EXHIBITS.




10.1
            Amendment
      No. 8 to Revolving Credit and Security Agreement dated as of June 6, 2008
      among the Company and certain of its operating subsidiaries, as borrowers,
      and PNC Bank, National Association, as agent and lender, and other
      participating lenders.31.1
            Rule
      13a-14(a) certification of chief executive officer in accordance with
      section 302 of the Sarbanes-Oxley Act of 2002.31.2
            Rule
      13a-14(a) certification of chief financial officer in accordance with
      section 302 of the Sarbanes-Oxley Act of 2002.32.1
            Section
      1350 certification of chief executive officer in accordance with section
      906 of the Sarbanes-Oxley Act of 2002.32.2
            Section
      1350 certification of chief financial officer in accordance with 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 thereunto
duly authorized.









COMFORCE
      Corporation/s/
      Harry V. MaccarroneHarry
      V. MaccarroneExecutive
      Vice President and Chief Financial OfficerDate:  August
      7, 2008






22