**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 September 30, 2007**


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)
                437-3300**Registrant’s
                telephone number, including area code**Not
                Applicable**Former
                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.




YesýNoo




Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act).




YesoNoý




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 fileroAccelerated
      fileroNon-accelerated
      filerý




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




YesoNoý




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 November 2, 2007Common
                stock, $.01 par value
            
            17,387,553
                shares





1


**COMFORCE
      Corporation**





INDEX








Page NumberPART
                I
            FINANCIAL
                INFORMATION
            3Item
                1.
            Financial
                Statements (unaudited)
            3Condensed
                Consolidated Balance Sheets at September 30, 2007 and December 31,
                2006
            3Condensed
                Consolidated Statements of Income for the three and nine months ended
                September 30, 2007 and September 24, 2006
            4Condensed
                Consolidated Statements of Cash Flows for the nine months ended September
                30, 2007 and September 24, 2006
            5Notes
                to Unaudited Condensed Consolidated Financial Statements
            6Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            15Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            22Item
                4.
            Controls
                and Procedures
            22PART
                II
            OTHER
                INFORMATION
            23Item
                1.
            Legal
                Proceedings
            23Item
                1A.
            Risk
                Factors
            23Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            23Item
                3.
            Defaults
                Upon Senior Securities
            23Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            23Item
                5.
            Other
                Information
            23Item
                6.
            Exhibits
            24SIGNATURES
            25





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)





September
                30, 2007
            
            
            December 31,
                2006**Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            4,200
            
            
            
            3,782Accounts
                receivable, less allowance of $144 in 2007 and $195
                in  2006
            
            
            118,453
            
            
            
            114,079Funding
                and service fees receivable, less allowance of $64 in 2007 and $81
                in
                2006
            
            
            13,557
            
            
            
            13,170Prepaid
                expenses and other current assets
            
            
            4,064
            
            
            
            3,863Deferred
                income taxes, net
            
            
            836
            
            
            
            1,500Total
                current assets
            
            
            141,110
            
            
            
            136,394Deferred
                income taxes, net
            
            
            1,037
            
            
            
            263Property
                and equipment, net
            
            
            7,652
            
            
            
            5,376Deferred
                financing costs, net
            
            
            534
            
            
            
            765Goodwill
            
            
            32,073
            
            
            
            32,073Other
                assets, net
            
            
            246
            
            
            
            267Total
                assets
            
            $
            182,652
            
            
            
            175,138**Liabilities
                and Stockholders’ Deficit**Current
                liabilities:Accounts
                payable
            
            $
            2,375
            
            
            
            3,281Accrued
                expenses
            
            
            100,562
            
            
            
            100,768Total
                current liabilities
            
            
            102,937
            
            
            
            104,049Long-term
                debt (including related party debt of $1,581 in 2007 and $1,520 in
                2006)
            
            
            90,471
            
            
            
            89,770Other
                liabilities
            
            
            936
            
            
            
            34Total
                liabilities
            
            
            194,344
            
            
            
            193,853Commitments
                and contingenciesStockholders’
                deficit:Common
                stock, $.01 par value; 100,000,000 shares authorized; 17,387,553
                and
                17,370,551 shares issued and outstanding at September 30, 2007 and
                December 31, 2006, respectively
            
            
            174
            
            
            
            174Convertible
                preferred stock, $.01 par value:Series
                2003A, 6,500 shares authorized; 6,148 shares issued and outstanding
                at
                September 30, 2007 and December 31, 2006, with an aggregate liquidation
                preference of $8,273 atSeptember
                30, 2007 and $7,928 at December 31, 2006
            
            
            4,304
            
            
            
            4,304Series
                2003B, 3,500 shares authorized; 513 shares issued and outstanding
                at
                September 30, 2007 and December 31, 2006, with an aggregate liquidation
                preference of $667 atSeptember
                30, 2007 and $638 at December 31, 2006
            
            
            513
            
            
            
            513Series
                2004A, 15,000 shares authorized; 6,737 shares issued and outstanding
                at
                September 30, 2007 and December 31, 2006, with an aggregate liquidation
                preference of $8,158 atSeptember
                30, 2007 and $7,778 at December 31, 2006
            
            
            10,264
            
            
            
            10,264Additional
                paid-in capital
            
            
            48,345
            
            
            
            48,190Accumulated
                other comprehensive (loss) income
            
            
            (222
            )
            
            
            55Accumulated
                deficit
            
            
            (75,070
            )
            
            
            (82,215
            )Total
                stockholders’ deficit
            
            
            (11,692
            )
            
            
            (18,715
            )Total
                liabilities and stockholders’ deficit
            
            $
            182,652
            
            
            
            175,138







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
            
            
            Nine
                Months EndedSeptember
                30, 2007
            
            
            September
                24, 2006 (1)
            
            
            September
                30, 2007
            
            
            September
                24, 2006 (1)Net
                sales of services
            
            $
            150,667
            
            
            $
            140,158
            
            
            $
            441,966
            
            
            $
            418,736Costs
                and expenses:Cost
                of services
            
            
            127,503
            
            
            
            118,207
            
            
            
            373,399
            
            
            
            354,471Selling,
                general and administrative expenses
            
            
            18,313
            
            
            
            17,034
            
            
            
            54,798
            
            
            
            50,407Depreciation
                and amortization
            
            
            679
            
            
            
            787
            
            
            
            2,018
            
            
            
            2,337Total
                costs and expenses
            
            
            146,495
            
            
            
            136,028
            
            
            
            430,215
            
            
            
            407,215Operating
                income
            
            
            4,172
            
            
            
            4,130
            
            
            
            11,751
            
            
            
            11,521Other
                income (expense):Interest
                expense
            
            
            (1,872
            )
            
            
            (2,292
            )
            
            
            (5,921
            )
            
            
            (7,222
            )Loss
                on debt extinguishment
            
            
            -
            
            
            
            (151
            )
            
            
            (424
            )
            
            
            (169
            )Other
                income (expense), net
            
            
            363
            
            
            
            64
            
            
            
            703
            
            
            
            264(1,509
            )
            
            
            (2,379
            )
            
            
            (5,642
            )
            
            
            (7,127
            )Income
                before income taxes
            
            
            2,663
            
            
            
            1,751
            
            
            
            6,109
            
            
            
            4,394Provision
                for income taxes
            
            
            874
            
            
            
            816
            
            
            
            2,332
            
            
            
            2,207Net
                income
            
            $
            1,789
            
            
            $
            935
            
            
            $
            3,777
            
            
            $
            2,187Dividends
                on preferred stock
            
            
            252
            
            
            
            252
            
            
            
            754
            
            
            
            754Net
                income available to common stockholders
            
            $
            1,537
            
            
            $
            683
            
            
            $
            3
                ,023
            
            
            $
            1,433Basic
                income per common share
            
            $
            0.09
            
            
            $
            0.04
            
            
            $
            0.17
            
            
            $
            0.08Diluted
                income per common share
            
            $
            0.06
            
            
            $
            0.03
            
            
            $
            0.12
            
            
            $
            0.07Weighted
                average common shares outstanding, basic
            
            
            17,387
            
            
            
            17,337
            
            
            
            17,385
            
            
            
            17,302Weighted
                average common shares outstanding, diluted
            
            
            32,341
            
            
            
            31,420
            
            
            
            31,903
            
            
            
            26,741









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





(1)  Revised
      for the adoption of SAB 108 effective December 26, 2005.





4


COMFORCE
      CORPORATION AND SUBSIDIARIES


CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS


(in
      thousands)


(unaudited)




Nine months
                EndedSeptember
                30, 2007
            
            
            September
                24, 2006 (1)Cash
                flows from operating activities:Net
                income
            
            $
            3,777
            
            
            
            2,187Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
                and amortization of property and equipment
            
            
            2,018
            
            
            
            2,297Amortization
                of intangible assets
            
            
            -
            
            
            
            40Amortization
                of deferred financing costs
            
            
            155
            
            
            
            335Net
                recoveries of bad debts
            
            
            (5
            )
            
            
            (80
            )Deferred
                income taxes
            
            
            68
            
            
            
            77Interest
                expense paid by the issuance of convertible notes
            
            
            61
            
            
            
            57Loss
                on repurchase of Senior Notes
            
            
            424
            
            
            
            169Tax
                benefit from stock option exercises
            
            
            (5
            )
            
            
            (123
            )Share-based
                payment compensation expense
            
            
            90
            
            
            
            98Changes
                in assets and liabilities:Accounts,
                funding and service fees receivable
            
            
            (5,211
            )
            
            
            (8,908
            )Prepaid
                expenses and other assets
            
            
            212
            
            
            
            721Accounts
                payable and accrued expenses
            
            
            1,691
            
            
            
            15,681Income
                tax receivable
            
            
            451
            
            
            
            37Net
                cash provided by operating activities
            
            
            3,726
            
            
            
            12,588Cash
                flows from investing activities:Purchases
                of property and equipment
            
            
            (3,570
            )
            
            
            (1,973
            )Net
                cash used in investing activities
            
            
            (3,570
            )
            
            
            (1,973
            )Cash
                flows from financing activities:Net
                repayments under capital lease obligations
            
            
            (95
            )
            
            
            (6
            )Net
                borrowings under line of credit agreements
            
            
            10,640
            
            
            
            9,033Repurchases
                of Senior Notes
            
            
            (10,300
            )
            
            
            (23,461
            )Tax
                benefit from stock option exercises
            
            
            5
            
            
            
            123Debt
                financing costs
            
            
            (13
            )
            
            
            (361
            )Proceeds
                from exercise of stock options
            
            
            25
            
            
            
            174Net
                cash provided by (used in) financing activities
            
            
            262
            
            
            
            (14,498
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            418
            
            
            
            (3,883
            )Cash
                and cash equivalents at beginning of period
            
            
            3,782
            
            
            
            8,417Cash
                and cash equivalents at end of period
            
            $
            4,200
            
            
            
            4,534Supplemental
                disclosures:Cash
                paid for:Interest
            
            $
            5,225
            
            
            
            6,492Income
                taxes
            
            
            1,824
            
            
            
            3,247Supplemental
                schedule of significant non-cash financing activities:Capital
                lease obligations incurred for the purchase of new
                equipment
            
            
            724
            
            
            
            -





(1)  Revised
      for the adoption of SAB 108 effective December 26, 2005.


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.




The
      accompanying unaudited interim condensed consolidated financial statements
      of
      COMFORCE and its subsidiaries, including COMFORCE Operating, Inc. (“COI”)
      (collectively, 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 31,
      2006.  The results for the three and nine month periods ended
      September 30, 2007 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**




Effective
      December 26, 2005, the Company adopted the provisions of the FASB Statement
      of
      Financial Accounting Standards 123(R), *Share-Based Payments*(“SFAS No.
      123(R)”), which establishes the accounting for employee share-based
      awards.  Under the provisions of SFAS No. 123(R), share-based
      compensation is measured at the grant date, based on the fair value of the
      award, and is recognized as an expense over the requisite employee service
      period (generally the vesting period of the grant).




For
      the
      nine months ended September 30, 2007, the Company recorded $89,600 of
      compensation expense relating to the awarding of stock option grants in the
      second quarter of 2007, 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 $35,000 in the accompanying statements of operations related
      to
      these grants.  For the nine months ended September 24, 2006, $98,000
      of compensation expense has been recorded within selling, general and
      administrative expense and the Company has recorded an income tax benefit of
      $38,000 in the accompanying statements of operations for options granted during
      the second quarter of 2006, 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.




6


The
      per
      share weighted average fair value of stock options granted were $1.28 during
      the
      nine months ended September 30, 2007 and $1.40 during the nine months ended
      September 24, 2006.  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 nine month periods are listed
      in
      the table below:




Nine
                Months EndedSeptember
                30, 2007
            
            
            September
                24, 2006Expected
                dividend yield
            
            
            0.0
            %
            
            
            0.0
            %Expected
                volatility
            
            
            49.0
            %
            
            
            55.0
            %Risk-free
                interest rate
            
            
            5.2
            %
            
            
            5.0
            %Expected
                term (years)
            
            
            5
            
            
            
            5




The
      Company estimates expected volatility based primarily on historical daily 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.






**4.        DEBT**




****Long-term
      debt at September 30, 2007 and December 31, 2006, consisted of (in
      thousands):




September
                30, 2007
            
            
            December
                31, 200612%
                Senior Notes, due December 1, 2010
            
            $
            12,890
            
            
            
            22,8908%
                Subordinated Convertible Note, due December 2, 2009
            
            
            1,581
            
            
            
            1,520Revolving
                line of credit, due July 24, 2010, with interest payable at prime
                plus
                0.5% and/or LIBOR plus 1.75% with a weighted average rate of 7.38%
                at
                September 30, 2007, and 7.25% at December 31, 2006
            
            
            76,000
            
            
            
            65,360Total
                long-term debt
            
            $
            90,471
            
            
            
            89,770





Contractual
      maturities of long-term debt are as follows (in thousands):





2009
            
            $
            1,5812010
            
            
            88,890Total
            
            $
            90,471





***Senior
      Notes*****:**  In November 1997, COI issued
      $110 million original principal amount of its 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.  On
      June 28, 2007, COI redeemed $10.0 million principal amount of Senior Notes
      at a
      redemption price equal to 103% of the principal amount, plus accrued
      interest.   The total redemption price, including accrued
      interest from June 1, 2007 to the redemption date, was $10.4
      million.  As a result of this redemption, the Company recognized a
      loss on debt extinguishment of $424,000 in the second quarter of 2007, including
      the write-off of $124,000 of deferred financing costs.  See also the
      discussion in this note 4 under “Revolving Line of Credit.”  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 September 30, 2007) that require COI to ensure
      among other things that:




7




**·**
              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 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.




***Convertible
      Notes*****:**  The Company’s 8.0% Subordinated
      Convertible Notes due December 2, 2009 (the “Convertible Note”) are convertible
      into common stock at $1.70 per share.




In
      December 2004, the Company issued 6,737 shares of its Series 2004A Convertible
      Preferred Stock in exchange for $6.7 million of its Convertible Note, plus
      accrued interest of $10,463, in a transaction with the Fanning CPD Assets,
      LP
      (the “Fanning Partnership”), a related party, as described
      below.  This exchange eliminated $6.7 million of long-term debt while
      maintaining, under the terms of the 2004A Series Preferred Stock, the same
      common stock conversion rights as existed for the Convertible
      Note.  As part of the transaction, the Convertible Note was restated
      at the principal amount of $1.3
      million, and the terms were modified topermit the Company to pay
      interest in cash or kind, at its election, for the balance of the term of the
      Convertible Note.




Under
      the
      terms of the Convertible Note prior to this amendment, interest was to be
      payable only in cash beginning with the interest payment due on June 1,
      2005.  This amendment extended, for the balance of the term, the
      provision allowing the Company to pay interest either in cash or in kind, and
      as
      a result the debt service costs associated with the Convertible Note have been
      satisfied through additions to principal through June 1, 2007 (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 $35,000 during the first nine months of 2007 and $60,000
      during fiscal 2006 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 Notes following notice of prepayment.




The
      Fanning Partnership is a limited partnership in which John C. Fanning, the
      Company’s chairman and chief executive officer, holds the principal economic
      interest.  Rosemary Maniscalco, a director and vice chairman of the
      Company, is the general partner of the Fanning Partnership, but holds no
      pecuniary interest therein.  The Company obtained the opinion of an
      independent investment banking firm that the terms of the exchange transaction
      with the Fanning Partnership were fair to the Company from a financial point
      of
      view, and the Company’s independent directors approved the terms of the
      transaction.




8


***Revolving
      Line of Credit*****:**  At September 30, 2007,
      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.




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 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
      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 $7.5
      million for the specified measurement period.  To enable the Company
      to effect the redemption of its Senior Notes in 2006, PNC permitted the Company
      to use (and it did use) $25.0 million of loan proceeds to pay the redemption
      price of the Senior Notes, subject to a reduction of the maximum funds available
      to repurchase or redeem Senior Notes in 2007.   The PNC Credit
      Facility permits the Company to carryover from any prior calendar year any
      unused portion of this amount, so long as the other criteria for borrowing
      are
      then satisfied.  As described above in this note 4 under “Senior
      Notes,” on June 28, 2007, COI redeemed $10.0 million principal amount of Senior
      Notes at a redemption price equal to 103% of the principal amount, plus accrued
      interest.   The Company used loan proceeds under its bank credit
      facility to pay the entire redemption price of $10.4 million.




At
      September 30, 2007, the Company had remaining availability, as defined in the
      agreement, under the PNC Credit Facility of up to $13.4 million.  As
      of September 30, 2007, 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 September 30,
      2007.






**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
            
            
            Nine
                Months EndedSeptember
                30, 2007
            
            
            September
                24, 2006
            
            
            September
                30, 2007
            
            
            September
                24, 2006Basic
                income per common share:Net
                income
            
            $
            1,789
            
            
            $
            935
            
            
            $
            3,777
            
            
            $
            2,187Deduct
                dividends on preferred stock:Series
                2003A
            
            
            115
            
            
            
            115
            
            
            
            345
            
            
            
            346Series
                2003B
            
            
            10
            
            
            
            10
            
            
            
            29
            
            
            
            29Series
                2004A
            
            
            127
            
            
            
            127
            
            
            
            380
            
            
            
            379252
            
            
            
            252
            
            
            
            754
            
            
            
            754Income
                available to common stockholders
            
            $
            1,537
            
            
            $
            683
            
            
            $
            3,023
            
            
            $
            1,433Weighted
                average common shares outstanding
            
            
            17,387
            
            
            
            17,337
            
            
            
            17,385
            
            
            
            17,302Basic
                income per common share
            
            $
            0.09
            
            
            $
            0.04
            
            
            $
            0.17
            
            
            $
            0.08Diluted
                income per common share:Income
                available to common stockholders
            
            $
            1,537
            
            
            $
            683
            
            
            $
            3,023
            
            
            $
            1,433Add
                dividends on preferred stock:Series
                2003A
            
            
            115
            
            
            
            115
            
            
            
            345
            
            
            
            346Series
                2003B
            
            
            10
            
            
            
            10
            
            
            
            29
            
            
            
            29Series
                2004A
            
            
            127
            
            
            
            127
            
            
            
            380
            
            
            
            --252
            
            
            
            252
            
            
            
            754
            
            
            
            375Add
                after tax equivalent of interest expense on 8% Subordinated Convertible
                Note
            
            
            19
            
            
            
            18
            
            
            
            57
            
            
            
            52Income
                for purposes of computing diluted income per common share
            
            $
            1,808
            
            
            $
            953
            
            
            $
            3,834
            
            
            $
            1,860Weighted
                average common shares outstanding
            
            
            17,387
            
            
            
            17,337
            
            
            
            17,385
            
            
            
            17,302Dilutive
                stock options
            
            
            317
            
            
            
            325
            
            
            
            311
            
            
            
            385Assumed
                conversion of 8% Subordinated Convertible Note
            
            
            924
            
            
            
            855
            
            
            
            900
            
            
            
            832Assumed
                conversion of Preferred Stock:Series
                2003A
            
            
            7,771
            
            
            
            7,330
            
            
            
            7,549
            
            
            
            7,111Series
                2003B
            
            
            1,218
            
            
            
            1,146
            
            
            
            1,182
            
            
            
            1,111Series
                2004A
            
            
            4,724
            
            
            
            4,427
            
            
            
            4,576
            
            
            
            --Weighted
                average common shares outstanding for purposes of computing diluted
                income
                per share
            
            
            32,341
            
            
            
            31,420
            
            
            
            31,903
            
            
            
            26,741Diluted
                income per common share
            
            $
            0.06
            
            
            $
            0.03
            
            
            $
            0.12
            
            
            $
            0.07








As
      of
      September 24, 2006, 4.3 million shares issuable upon the conversion of the
      Series 2004A Preferred Stock were excluded from the above calculations as their
      effect would have been anti-dilutive.




In
      addition, options and warrants to purchase 1.4 million and 1.3 million shares
      of
      common stock were


10




outstanding
      as of September 30, 2007 and September 24, 2006, respectively, 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 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.  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 nine month periods ended September 30, 2007 and
      September 24, 2006, and items which reconcile segment operating contribution
      to
      COMFORCE’s reported income before income taxes (in thousands):




Three
                Months Ended
            
            
            Nine
                Months EndedSeptember
                30, 2007
            
            
            September
                24, 2006
            
            
            September
                30, 2007
            
            
            September
                24, 2006Net
                sales of services:Human
                Capital Management Services
            
            $
            93,170
            
            
            $
            84,469
            
            
            $
            274,168
            
            
            $
            248,650Staff
                Augmentation
            
            
            56,676
            
            
            
            54,777
            
            
            
            165,318
            
            
            
            167,341Financial
                Outsourcing Services
            
            
            821
            
            
            
            912
            
            
            
            2,480
            
            
            
            2,745$
            150,667
            
            
            $
            140,158
            
            
            $
            441,966
            
            
            $
            418,736Operating
                contribution:Human
                Capital Management Services
            
            $
            4,187
            
            
            $
            3,872
            
            
            $
            12,368
            
            
            $
            10,899Staff
                Augmentation
            
            
            4,455
            
            
            
            4,893
            
            
            
            13,370
            
            
            
            14,412Financial
                Outsourcing Services
            
            
            724
            
            
            
            723
            
            
            
            2,099
            
            
            
            2,0989,366
            
            
            
            9,488
            
            
            
            27,837
            
            
            
            27,409Consolidated
                expenses:Corporate
                general and administrative expenses
            
            
            4,515
            
            
            
            4,571
            
            
            
            14,068
            
            
            
            13,551Depreciation
                and amortization
            
            
            679
            
            
            
            787
            
            
            
            2,018
            
            
            
            2,337Interest
                and other, net
            
            
            1,509
            
            
            
            2,228
            
            
            
            5,218
            
            
            
            6,958Loss
                on debt extinguishment
            
            
            -
            
            
            
            151
            
            
            
            424
            
            
            
            1696,703
            
            
            
            7,737
            
            
            
            21,728
            
            
            
            23,015Income
                before income taxes
            
            $
            2,663
            
            
            $
            1,751
            
            
            $
            6,109
            
            
            $
            4,394









11




Total
      assets:




At
                September 30, 2007
            
            
            At
                December 31, 2006Human
                Capital Management Services
            
            $
            91,523
            
            
            
            91,836Staff
                Augmentation
            
            
            59,003
            
            
            
            54,316Financial
                Outsourcing Services
            
            
            13,557
            
            
            
            13,170Corporate
            
            
            18,569
            
            
            
            15,816$
            182,652
            
            
            
            175,138






**7.        NEW
      ACCOUNTING STANDARDS**




In
      June
      2006, the Emerging Issues Task Force issued EITF 06-03, *How Taxes Collected
      from Customers and Remitted to Governmental Authorities Should Be Presented
      in
      the Income Statement (That Is, Gross versus Net Presentation)*(“EITF
      06-03”) to clarify diversity in practice on the presentation of different types
      of taxes in the financial statements. The Task Force concluded that, for taxes
      within the scope of this issue, a company may adopt a policy of presenting
      taxes
      either gross within revenue or net. That is, it may include charges to customers
      for taxes within revenues and the charge for the taxes from the taxing authority
      within cost of sales, or, alternatively, it may net the charge to the customer
      and the charge from the taxing authority. If taxes subject to this issue are
      significant, a company is required to disclose its accounting policy for
      presenting taxes and the amounts of such taxes that are recognized on a gross
      basis. The guidance in this consensus is effective for the first interim
      reporting period beginning after December 15, 2006. The Company’s
      historical and future practice is to present these taxes on a net basis and,
      therefore, there was no impact on its financial position or results of
      operations upon its adoption of EITF 06-03 in fiscal 2007.




In
      September 2006, the FASB issued SFAS No. 157, *Fair Value
      Measurements* (“SFAS 157”). SFAS 157 provides guidance for using
      fair value to measure assets and liabilities. It also responds to investors’
requests for expanded information about the extent to which companies measure
      assets and liabilities at fair value, the information used to measure fair
      value, and the effect of fair value measurements on earnings. SFAS 157
      applies whenever other standards require (or permit) assets or liabilities
      to be
      measured at fair value, and does not expand the use of fair value in any new
      circumstances. SFAS 157 is effective for financial statements issued for
      fiscal years beginning after November 15, 2007. The Company has early
      adopted SFAS 157 effective January 1, 2007, which adoption did not have an
      impact on its financial position or results of operations.




In
      February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an amendment of FASB
      Statement No. 115* ("SFAS 159").  SFAS 159 permits companies to elect,
      at specified election dates, to measure eligible financial instruments and
      certain other items at fair value.  A company must report unrealized gains
      and losses on items for which the fair value option has been elected in earnings
      at each subsequent reporting date, and recognize upfront costs and fees related
      to those items in earnings as incurred.  SFAS 159 is effective for
      financial statements issued for fiscal years beginning after November 15,
      2007.  The Company has early adopted SFAS 159 effective January 1,
      2007, which adoption did not have an impact on its financial position or results
      of operations.






**8.         CCOUNTING
      FOR UNCERTAINTY IN INCOME TAXES**




In
      June
      2006, the FASB issued FIN 48, *Accounting for Uncertainty in Income Taxes -
      an interpretation of FASB Statement No. 109, Accounting for Income Taxes (“FIN
      48”).*The interpretation addresses the determination of whether
      tax benefits claimed or expected to be claimed on a tax return should be
      recorded in the financial statements.  Under FIN 48, the Company may
      recognize the tax benefit from an uncertain tax position only if it is more
      likely than not that the tax position will be sustained on examination by the
      taxing authorities, based on the technical merits of the tax
      position.  The tax benefits recognized in the financial statements
      from such tax position should be measured based on the largest benefit that
      has
      a greater than fifty percent likelihood of being realized upon ultimate
      settlement.  FIN 48 also provides guidance on derecognition,
      classification, interest and penalties on income taxes, accounting in interim
      periods, and requires increased disclosures.




12


The
      Company adopted the provisions of FIN 48 on January 1, 2007.  The
      impact upon adoption was to increase retained earnings by approximately $3.4
      million and to decrease the accruals for uncertain tax positions and related
      penalties and interest by a corresponding amount.




The
      Company will continue its historical practice of recognizing accrued interest
      and penalties related to income tax matters in income tax expense in the
      consolidated financial statements.  As of January 1, 2007, the Company
      has no liability accrued for uncertain tax positions, interest and
      penalties.




The
      Company and its subsidiaries are subject to U.S. federal income tax as well
      as
      income tax of multiple state and foreign jurisdictions.  The Company
      has concluded all U.S. federal and state income tax matters for years through
      2003.






**9.        COMPREHENSIVE
      INCOME**




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




Three
                Months Ended
            
            
            Nine
                Months EndedSeptember
                30, 2007
            
            
            September
                24, 2006
            
            
            September
                30, 2007
            
            
            September
                24, 2006Net
                income
            
            $
            1,789
            
            
            $
            935
            
            
            $
            3,777
            
            
            $
            2,187Foreign
                currency translation adjustment, net of tax
            
            
            (115
            )
            
            
            (19
            )
            
            
            (277
            )
            
            
            (149
            )Total
                comprehensive income
            
            $
            1,674
            
            
            $
            916
            
            
            $
            3,500
            
            
            $
            2,038








**10.        ACCRUED
      EXPENSES**




Accrued
      expenses as of September 30,
      2007 and December 31, 2006 consisted (in thousands):




September
                30, 2007
            
            
            December
                31, 2006Payroll,
                payroll taxes and sub-vendor payments
            
            $
            89,446
            
            
            
            88,966Vacation/retirement
                plans
            
            
            3,935
            
            
            
            2,948Income
                taxes payable
            
            
            -
            
            
            
            2,525Commissions
            
            
            1,810
            
            
            
            1,678Interest
            
            
            1,176
            
            
            
            558Other
            
            
            4,195
            
            
            
            4,093$
            100,562
            
            
            
            100,768





13




**11.        LITIGATION
      AND CONTINGENCIES**




In
      November 2003, the Company received a general notice letter from the United
      States Environmental Protection Agency (the “U.S. EPA”) that it is a potentially
      responsible party at Chicago’s Lake Calumet Cluster Site, which for decades
      beginning in the late 19th/early 20th
      centuries had
      served as a waste disposal site. In December 2004, the U.S. EPA sent the Company
      and numerous other companies special notice letters requiring the recipients
      to
      make an offer by a date certain to perform a remedial investigation and
      feasibility study (RI/FS) to select a remedy to clean up the
      site.  The Company’s predecessor, Apeco Corporation (“Apeco”), a
      manufacturer of photocopiers, allegedly sent waste material to this
      site.  The State of Illinois and the U.S. EPA have proposed that the
      site be designated as a Superfund site.  The Company is one of over
      400 potentially responsible parties (many of which may no longer be in operation
      or viable) to which notices were sent, and the Company has joined a working
      group of more than 100 members representing over 120 potentially responsible
      parties for the purpose of responding to the United States and Illinois
      environmental protection agencies.




Until
      the
      United States and Illinois environmental protection and other agencies agree
      upon remedies, accurate estimates of clean-up costs cannot be made and site
      studies cannot be completed.  Consequently, no assessment can be made
      as to any potential liability to the Company.  Furthermore, the
      Company has made inquiries of the insurance carriers for Apeco to determine
      if
      it has coverage under old insurance policies.  Although another
      company had agreed to indemnify the Company against environmental liabilities,
      the Company believes that its claim against this indemnitor has been
      extinguished through the indemnitor’s bankruptcy.




In
      July
      2005, the Company’s subsidiary, COMFORCE Technical Services, Inc. (“CTS”) was
      served with an amended complaint in the suit titled *Reyes V. East Bay
      Municipal Utility District, et al,* filed in the Superior Court of
      California, Alameda County, in connection with a gas pipeline explosion in
      November 2004 that killed five workers and injured four others.  As
      part of a construction project to lay a water transmission line, a backhoe
      operator employed by a construction contractor unaffiliated with CTS allegedly
      struck and breached a gas pipeline and an explosion occurred when leaking gas
      ignited.  The complaint names various persons involved in the
      construction project as defendants, including CTS.  The complaint
      alleges, among other things, that CTS was negligent in failing to properly
      mark
      the location of the pipeline.  The complaint did not specify specific
      monetary damages.




CTS
      was
      subsequently named as a defendant in 15 other lawsuits concerning this accident
      in the Superior Court of California which have been consolidated with the
*Reyes* case in a single coordinated action styled as the *Gas
      Pipeline Explosion Cases* in the Superior Court of California, Contra Costa
      County.  Two co-defendants brought cross-claims against
      CTS.  In addition, a company that provided insurance coverage to a
      private home and property damaged by the explosion brought a subrogation action
      against CTS.  CTS denies any culpability for this
      accident.  Following an investigation of the accident, Cal-OSHA issued
      citations to four unrelated contractors on the project, but declined to issue
      any citations against CTS.  Although Cal-OSHA did not issue a citation
      against CTS, it will not be determinative in the pending civil
      cases.




14


CTS
      requested that its insurance carriers defend it in these actions, and the
      carrier under the primary policy appointed counsel and has defended CTS in
      these
      actions.  As of June 2007, CTS has settled with 17 of the 19
      plaintiffs, in each case within the limits of its primary policy, except as
      described below.  With the settlements, the limits under the primary
      policy have been reached.  The umbrella insurance carrier for CTS had
      previously denied the claims of CTS for coverage, claiming that the matter
      was within the policy exclusions.  This carrier also initiated a
      declaratory action in Contra Costa County, California in which it asked the
      court to determine whether the claims against CTS were within the policy
      exclusions.  In March 2007, CTS and this carrier reached a tentative
      settlement under which the carrier agreed to dismiss CTS from the declaratory
      action and defend and insure CTS in the remaining cases when the primary
      coverage limits have been reached, subject to an agreed upon contribution by
      CTS
      and the carrier's reservation of rights to seek recovery against CTS for the
      claims of Mountain Cascade, Inc., a co-defendant not related to CTS
      that served as a contractor for East Bay Municipal Utility
      District.  Management of CTS (and the Company) believes that any
      losses in respect of Mountain Cascade should be covered under the umbrella
      policy.  However, the carrier has declined to release
      its reservation of rights as to this unresolved Mountain Cascade claim, and
      the amount that CTS will be required to contribute to any settlement of or
      judgment on the remaining plaintiffs’ cases is not
      determinable.  Accordingly, management of CTS (and the Company) cannot
      estimate the amount of losses that CTS may ultimately incur in connection with
      these cases, if any, other than to estimate that any losses will be less than
      $1.5 million. No assurance can be given that the costs to CTS to resolve all
      remaining claims will be within management’s estimates.




Except
      as
      described above, there are no other pending matters, individually or in the
      aggregate, 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
      and
      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.






**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 audited
      consolidated financial statements and notes thereto included in the annual
      report on Form 10-K for the fiscal year ended December 31, 2006 of COMFORCE
      Corporation (“COMFORCE”) and its wholly-owned subsidiaries, including COMFORCE
      Operating, Inc. (“COI”) (collectively, the “Company”).




**Overview
      and Recent Developments**




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 October
      21, 2007, the Company had outstanding $71.0 million principal amount under
      the
      PNC Credit Facility with remaining availability of up to $20.9 million, as
      defined in the loan agreement, to fund operations.




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.




15


Management
      of the Company has observed improvement in the business environment for staffing
      companies beginning in the first quarter of 2003.  Industry statistics
      have generally supported management’s observations including, since the
      beginning of 2004, continued job creation in the United States; however
      management is unsure how long these trends will continue in the
      future.


**Critical
        Accounting Policies and Estimates**


As
      disclosed in the annual report on Form 10-K for the fiscal year ended December
      31, 2006, 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 31, 2006, 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.


**Results
        of Operations**


***Three
        Months Ended September 30, 2007 compared to September 24,
        2006***


Net
      sales
      of services for the three months ended September 30, 2007 were $150.7 million,
      which represents a 7.5% increase from the $140.2 million in net sales of
      services recorded for the three months ended September 24, 2006.  Net
      sales of services in the Human Capital Management Services segment increased
      by
      $8.7 million, or 10.3%, due to an increase in services provided to new and
      existing 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 increase of $1.9
      million, or 3.5%, is principally attributable to the increase of services
      provided to technical and information technology customers, partially offset
      by
      a decrease in services provided to Telecom customers.  The reduction
      in net sales of services in the telecom sector was due to a reduction in demand
      from our largest telecom client.




Cost
      of
      services for the three months ended September 30, 2007 was 84.6% of net sales
      of
      services as compared to cost of services of 84.3% of net sales of services
      for
      the three months ended September 24, 2006.  The cost of services as a
      percentage of net sales for the third quarter of 2007 increased slightly from
      the year ago quarter principally due to less favorable workers compensation
      claims experience, partially offset by higher gross margins as a result of
      increased consultant consolidation services provided by the Human Capital
      Management Services segment and lower state unemployment rates.




Selling,
      general and administrative expenses as a percentage of net sales of services
      were 12.2% for the three months ended September 30, 2007 and 12.2% for the
      three
      months ended September 24, 2006.  The $1.3 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 September 30, 2007 was $4.2 million, or 2.8%
      of net sales, as compared to operating income of $4.1 million, or 2.9% of net
      sales, for the three months ended September 24, 2006.  The Company’s
      lower operating income as a percentage of net sales of services for the third
      quarter of 2007 is principally due to an increase in selling, general, and
      administrative expenses and less favorable workers compensation claims
      experience discussed above.




16


The
      Company’s interest expense for the three months ended September 30, 2007 was
      principally attributable to interest recorded on the PNC Credit Facility, the
      Convertible Note and the Senior Notes. The interest expense of $1.9 million
      for
      the third quarter of 2007 was lower as compared to the interest expense of
      $2.3
      million for the third quarter of 2006.  This reduction was principally
      due to the repurchase and redemption of $10.0 million of Senior Notes during
      2007 and $23.4 million during 2006.  These decreases were partially
      offset by increased interest expense on the Company’s revolving line of credit
      due to higher average interest rates and borrowings in the third quarter of
      2007
      as compared to the year ago period.







The
      income tax provision for the three months ended September 30, 2007 was $874,000
      (a rate of 32.8%) on income before income taxes of $2.7
      million.   The income tax provision for the three months ended
      September 24, 2006 was $816,000 (a rate of 46.6%) on income before income taxes
      of $1.8 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 income taxes and a disallowance for
      non-deductible expenses, as well as adjustments to tax contingencies during
      2006.  In addition, the Company included a tax deduction of
      approximately $1.3 million when determining its expected annual effective tax
      rate for the three months ended September 30, 2007 due to tax benefits expected
      to be realized upon the dissolution of a subsidiary that represented one closed
      branch office.


***Nine
        Months Ended September 30, 2007 compared to September 24,
        2006***


Net
      sales
      of services for the nine months ended September 30, 2007 were $442.0 million,
      which represents a 5.5% increase from the $418.7 million in net sales of
      services recorded for the nine months ended September 24, 2006.  Net
      sales of services in the Human Capital Management Services segment increased
      by
      $25.5 million, or 10.3%, due to an increase in services provided to new and
      existing 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 decrease of $2.0
      million, or 1.2%, is principally attributable to the decrease of services
      provided to telecom customers, partially offset by an increase in services
      provided to information technology and healthcare support
      customers.  The reduction in net sales of services in the telecom
      sector was due to a reduction in demand from our largest telecom
      client.




Cost
      of
      services for the nine months ended September 30, 2007 was 84.5% of net sales
      of
      services as compared to cost of services of 84.7% of net sales of services
      for
      the nine months ended September 24, 2006.  The cost of services as a
      percentage of net sales for the nine months ended September 30, 2007 decreased
      slightly from the prior year period principally due to higher gross margins
      as a
      result of increased consultant consolidation services provided by the Human
      Capital Management Services segment and lower state unemployment rates,
      partially offset by less favorable workers compensation claims experience during
      2007.




Selling,
      general and administrative expenses as a percentage of net sales of services
      were 12.4% for the nine months ended September 30, 2007, compared to 12.0%
      for
      the nine months ended September 24, 2006.  The $4.4 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 nine months ended September 30, 2007 was $11.8 million, or 2.7%
      of net sales, as compared to operating income of $11.5 million, or 2.8% of
      net
      sales, for the nine months ended September 24, 2006.  The Company’s
      operating income for the first nine months of 2007 is slightly higher than
      2006
      principally due to an increase in net sales of services and higher gross margins
      in the Human Capital Management Services segment, which were partially offset
      by
      an increase in selling, general, and administrative expenses and less favorable
      workers compensation experience discussed above.




17


The
      Company’s interest expense for the nine months ended September 30, 2007 was
      principally attributable to interest recorded on the PNC Credit Facility, the
      Convertible Note and the Senior Notes. The interest expense of $5.9 million
      for
      the first nine months of 2007 was lower as compared to the interest expense
      of
      $7.2 million for the first nine months of 2006.  This reduction was
      principally due to the repurchase and redemption of $10.0 million of Senior
      Notes during 2007 and $23.4 million during 2006.  These decreases were
      partially offset by increased interest expense on the Company’s revolving line
      of credit due to higher average interest rates and borrowings in the first
      nine
      months of 2007 as compared to the first nine months of 2006.  As a
      result of the June 28, 2007 redemption (see note 4 to the Company’s condensed
      consolidated financial statements), the Company recognized a loss on debt
      extinguishment of $424,000, including a reduction of $124,000 of deferred
      financing costs.





The
      income tax provision for the nine months ended September 30, 2007 was $2.3
      million (a rate of 38.2%) on income before income taxes of $6.1
      million.   The income tax provision for the nine months ended
      September 24, 2006 was $2.2 million (a rate of 50.2%) on income before income
      taxes of $4.4 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 income taxes, as well as a
      disallowance for non-deductible expenses and adjustments to tax contingencies
      during 2006.  In addition, the Company included a tax deduction of
      approximately $1.3 million when determining its expected annual effective tax
      rate for the nine months ended September 30, 2007 due to tax benefits expected
      to be realized upon the dissolution of a subsidiary that represented one closed
      branch office.







**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
      45 days.  Increases in the Company’s net sales of services, resulting
      from expansion of existing offices or establishment of new offices, will require
      additional cash resources.




*Off-Balance
      Sheet and Contractual Obligations*: As of September 30, 2007, 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)2007
            
            
            2008
            
            
            2009
            
            
            2010
            
            
            ThereafterOperating
                Leases
            
            $
            654
            
            
            $
            2,189
            
            
            $
            1,923
            
            
            $
            978
            
            
            $
            696Employment
                Agreements
            
            
            225
            
            
            
            946
            
            
            
            -
            
            
            
            -
            
            
            
            -PNC
                Credit Facility- principal repayments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            76,000
            
            
            
            -Senior
                Notes - principal repayments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            12,890
            
            
            
            -Convertible
                Note - principal repayments
            
            
            -
            
            
            
            -
            
            
            
            1,581
            
            
            
            -
            
            
            
            -Total
            
            $
            879
            
            
            $
            3,135
            
            
            $
            3,504
            
            
            $
            89,868
            
            
            $
            696






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 seven
      amendments.




18




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 was in compliance with
      all financial covenants under the PNC Credit Facility at September 30,
      2007.




The
      Company also had standby letters of credit outstanding under the PNC Credit
      Facility at September 30, 2007 in the aggregate amount of $4.5
      million.




During
      the nine months ended September
      30, 2007, the Company’s primary sources of funds were $3.7 million provided by
      its operating activities due to the profitability of the Company and changes
      in
      working capital.  The Company also used cash of $3.6million
      in investing activities due to the purchases of property and
      equipment.  In addition, the cash provided by financing activities of
      $262,000 is primarily a result of increased borrowings of $10.6 million under
      the PNC Credit Facility, partially offset by $10.3million
      for the redemption of Senior Notes.




At
      September 30, 2007, the Company also had outstanding (i) $12.9 million principal
      amount of Senior Notes bearing interest at 12% per annum and (ii) $1.6 million
      principal amount of Convertible Notes bearing interest at 8% per
      annum.  As described in note 4 to the Company’s condensed consolidated
      financial statements, on June 28, 2007, COI redeemed $10.0 million principal
      amount of Senior Notes at a redemption price of $10.4 million (including accrued
      interest).  The Company used loan proceeds under the PNC Credit
      Facility to pay the entire redemption price.  At September 30, 2007,
      the Company had outstanding $76.0 million principal amount under the PNC Credit
      Facility bearing interest at a weighted average rate of 7.38% per
      annum.  At such date, the Company had remaining availability of up to
      $13.4 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, the Company has reduced its public debt from $138.8 million to $12.9
      million and its total long-term debt from $195.3 million to $90.5 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 $6.8 million.  However,
      COMFORCE has approximately $2.0 million available at September 30, 2007 from
      proceeds it has generated from the sale of stock, principally upon the exercise
      of options and warrants. This $2.0 million may be used by COMFORCE to pay
      interest and principal on the Convertible Notes or for other business
      purposes.




19


The
      Company’s Series 2003A, 2003B and 2004A Preferred Stock provide for dividends of
      7.5% per annum and, at September 30, 2007 there were cumulated, unpaid and
      undeclared dividends of $2.1 million on the Series 2003A Preferred Stock,
      $154,000 on the Series 2003B Preferred Stock and $1.4 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 13.9 million shares at September 30, 2007 (as compared to 13.3 million
      shares at December 31, 2006).




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 financial covenants under the PNC Credit Facility at September 30,
      2007
      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.






**Impact
      of Recently Issued Accounting Standards**




In
      June
      2006, the Emerging Issues Task Force issued EITF 06-03, *How Taxes Collected
      from Customers and Remitted to Governmental Authorities Should Be Presented
      in
      the Income Statement (That Is, Gross versus Net Presentation)*(“EITF
      06-03”) to clarify diversity in practice on the presentation of different types
      of taxes in the financial statements. The Task Force concluded that, for taxes
      within the scope of this issue, a company may adopt a policy of presenting
      taxes
      either gross within revenue or net. That is, it may include charges to customers
      for taxes within revenues and the charge for the taxes from the taxing authority
      within cost of sales, or, alternatively, it may net the charge to the customer
      and the charge from the taxing authority. If taxes subject to this issue are
      significant, a company is required to disclose its accounting policy for
      presenting taxes and the amounts of such taxes that are recognized on a gross
      basis. The guidance in this consensus is effective for the first interim
      reporting period beginning after December 15, 2006. The Company’s
      historical and future practice is to present these taxes on a net basis and,
      therefore, there was no impact on its financial position or results of
      operations upon its adoption of EITF 06-03 in fiscal 2007.




In
      September 2006, the FASB issued SFAS No. 157, *Fair Value
      Measurements* (“SFAS 157”). SFAS 157 provides guidance for using
      fair value to measure assets and liabilities. It also responds to investors’
requests for expanded information about the extent to which companies measure
      assets and liabilities at fair value, the information used to measure fair
      value, and the effect of fair value measurements on earnings. SFAS 157
      applies whenever other standards require (or permit) assets or liabilities
      to be
      measured at fair value, and does not expand the use of fair value in any new
      circumstances. SFAS 157 is effective for financial statements issued for
      fiscal years beginning after November 15, 2007. The Company has early
      adopted SFAS 157 effective January 1, 2007, which adoption did not have an
      impact on its financial position or results of operations.




In
      February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an amendment of FASB
      Statement No. 115* ("SFAS 159").  SFAS 159 permits companies to elect,
      at specified election dates, to measure eligible financial instruments and
      certain other items at fair value.  A company must report unrealized gains
      and losses on items for which the fair value option has been elected in earnings
      at each subsequent reporting date, and recognize upfront costs and fees related
      to those items in earnings as incurred.  SFAS 159 is effective for
      financial statements issued for fiscal years beginning after November 15,
      2007.  The Company has early adopted SFAS 159 effective January 1,
      2007, which adoption did not have an impact on its financial position or results
      of operations.






**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.




20




**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;




**·**
            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




21


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 our
                annual report on Form 10-K for the year ended December 31,
                2006.






**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 31,
      2006.  There has been no material change in the disclosure regarding
      market risk.






**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.




22


**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 31, 2006, 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 31, 2006, 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.**




None.






**ITEM
      5.              OTHER
      INFORMATION.**




None.




23


**ITEM
      6.              EXHIBITS.**




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.







24





**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
                CorporationHarry
                V. MaccarroneExecutive
                Vice President and Chief Financial OfficerDate:  November
                6, 2007