**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**FORM      10-Q**

**(x)      Quarterly Report Pursuant to Section 13 or 15(d) of**

**the      Securities Exchange Act of 1934**

**(      ) Transition Report Pursuant to Section 13 or 15(d) of**

**the      Securities Exchange Act of 1934**

| **ANALYSTS                INTERNATIONAL CORPORATION**                                                      |
|------------------------------------------------------------------------------------------------------------|
| (Exact                name of registrant as specified in its charter)                                      |
|                                                                                                       |
| **Minnesota**                                                                                              | **41-0905408** |
| (State                of Incorporation)                                                                    | (IRS                Employer Identification No.) |
|                                                                                                       |   |
| **3601                West 76****th****Street**                                                            |   |
| **Minneapolis,                MN**                                                                         | **55435** |
| (Address                of Principal Executive Offices)                                                    | (Zip                Code) |
|                                                                                                       |   |
| Registrant’s                telephone number, including area code: **(952)                835-5900** |

----

**ANALYSTS      INTERNATIONAL CORPORATION**

**INDEX**

|                         |                                                                                                                      |
|------------------------------|---------------------------------------------------------------------------------------------------------------------------|
| **Part                I.**   | **FINANCIAL                INFORMATION**                                                                                  |
|                         |                                                                                                                      |
| Item                1.       | Financial                Statements                                                                                       |
|                         |                                                                                                                      |
|                         | Condensed                Consolidated Balance                Sheets                                                       |
|                         | September                30, 2006 (Unaudited) and December 31, 2005                                                       |
|                         |                                                                                                                      |
|                         | Condensed                Consolidated Statements of                Operations                                             |
|                         | Three                and nine months ended September 30, 2006 and October 1, 2005                (Unaudited)              |
|                         |                                                                                                                      |
|                         | Condensed                Consolidated Statements of Cash                Flows                                             |
|                         | Nine                months ended September 30, 2006 and October 1, 2005                (Unaudited)                        |
|                         |                                                                                                                      |
|                         | Notes                to Condensed Consolidated Financial                Statements (Unaudited)                            |
|                         |                                                                                                                      |
| Item                2.       | Management’s                Discussion and Analysis of                Financial Condition and Results of Operations |
|                         |                                                                                                                      |
| Item                3.       | Quantitative                and Qualitative Disclosures About Market                Risk                                  |
|                         |                                                                                                                      |
| Item                4.       | Controls                and                Procedures                                                                     |
|                         |                                                                                                                      |
| **Part                II.**  | **OTHER                INFORMATION**                                                                                      |
|                         |                                                                                                                      |
| Item                1.       | Legal                Proceedings                                                                                          |
|                         |                                                                                                                      |
| Item                1A.      | Risk                Factors                                                                                               |
|                         |                                                                                                                      |
| Item                2.       | Unregistered                Sales of Equity Securities and Use                of Proceeds                                 |
|                         |                                                                                                                      |
| Item                3.       | Defaults                Upon Senior                Securities                                                             |
|                         |                                                                                                                      |
| Item                4.       | Submission                of Matters to a Vote of Security                Holders                                         |
|                         |                                                                                                                      |
| Item                5.       | Other                Information                                                                                          |
|                         |                                                                                                                      |
| Item                6.       | Exhibits                                                                                                                  |
|                         |                                                                                                                      |
| Signatures                   |
|                         |                                                                                                                      |
| Exhibit                Index |

----

**PART      I. FINANCIAL INFORMATION**

**Item      1. Financial Statements**

**Analysts      International Corporation**

**Condensed      Consolidated Balance      Sheets**

|                                                                     |   |   |                                   |   |   |
|--------------------------------------------------------------------------|--------|--------|----------------------------------------|--------|--------|
|                                                                     |   |   | **September                30,**  |   |   | **December                31,** |   |
| ***(In                thousands)***                                      |   |   | **2006**                               |   |   | **2005** |   |
|                                                                          |   |   | ***(Unaudited)***                 |   |   |   |   |
|                                                                     |   |   |                                   |   |   |   |   |
| **ASSETS**                                                               |   |   |                                   |   |   |   |   |
| Current                assets:                                           |   |   |                                   |   |   |   |   |
| Cash                and Cash Equivalents                                 |   | $      | 143                                    |   | $      | 64 |   |
| Accounts                receivable, less allowance for doubtful accounts |   |   | 71,566                                 |   |   | 66,968 |   |
| Prepaid                expenses and other current assets                 |   |   | 2,347                                  |   |   | 2,383 |   |
| Total                current assets                                      |   |   | 74,056                                 |   |   | 69,415 |   |
|                                                                     |   |   |                                   |   |   |   |   |
| Property                and equipment, net                               |   |   | 3,413                                  |   |   | 4,056 |   |
| Intangible                assets                                         |   |   | 11,512                                 |   |   | 12,298 |   |
| Goodwill                                                                 |   |   | 11,799                                 |   |   | 11,799 |   |
| Other                assets                                              |   |   | 3,628                                  |   |   | 4,436 |   |
|    Total                assets                            |   | $      | 104,408                                |   | $      | 102,004 |   |
|                                                                     |   |   |                                   |   |   |   |   |
| **LIABILITIES                AND SHAREHOLDERS' EQUITY**                  |   |   |                                   |   |   |   |   |
| Current                liabilities:                                      |   |   |                                   |   |   |   |   |
| Accounts                payable                                          |   | $      | 23,295                                 |   | $      | 24,581 |   |
| Salaries                and vacations                                    |   |   | 5,679                                  |   |   | 8,260 |   |
| Line                of credit                                            |   |   | 11,422                                 |   |   | 5,000 |   |
| Deferred                revenue                                          |   |   | 1,078                                  |   |   | 1,645 |   |
| Restructuring                accrual, current portion                    |   |   | 535                                    |   |   | 971 |   |
| Health                care reserves and other amounts                    |   |   | 3,591                                  |   |   | 2,242 |   |
| Deferred                compensation                                     |   |   | 172                                    |   |   | 534 |   |
| Total                current liabilities                                 |   |   | 45,772                                 |   |   | 43,233 |   |
|                                                                     |   |   |                                   |   |   |   |   |
| Non-current                liabilities:                                  |   |   |                                   |   |   |   |   |
| Deferred                compensation                                     |   |   | 2,274                                  |   |   | 1,878 |   |
| Restructuring                accrual                                     |   |   | 203                                    |   |   | 581 |   |
|                                                                     |   |   |                                   |   |   |   |   |
| Shareholders'                equity                                      |   |   | 56,159                                 |   |   | 56,312 |   |
|                                                                     |   | $      | 104,408                                |   | $      | 102,004 |   |

----

**Analysts      International Corporation**

**Condensed      Consolidated Statements of      Operations**

*(Unaudited)*

|                                                                   |   | **Three                Months Ended** |   | **Nine                Months Ended** |   |
|------------------------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                                                   |   | **September**** ****30,**        |   | **October                1,**        |   | **September                30,** |   | **October                1,** |   |
| ***(In                thousands except per share amounts)***           |   | **2006**                              |   | **2005**                             |   | **2006** |   | **2005** |   |
|                                                                   |   |                                  |   |                                 |   |   |   |   |   |
| Revenue:                                                               |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Professional                services provided directly                 |   | $                                     | 65,655 |                                 | $      | 65,042 |   | $ | 196,969 |   | $ | 197,359 |   |
| Professional                services provided through subsuppliers     |   |                                  | 12,470 |                                 |   | 7,757 |   |   | 40,194 |   |   | 22,874 |   |
| Product                sales                                           |   |                                  | 7,355  |                                 |   | 5,445 |   |   | 23,064 |   |   | 16,214 |   |
| Total                revenue                                           |   |                                  | 85,480 |                                 |   | 78,244 |   |   | 260,227 |   |   | 236,447 |   |
|                                                                   |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Expenses:                                                              |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Salaries,                contracted services and direct charges        |   |                                  | 64,333 |                                 |   | 59,261 |   |   | 195,443 |   |   | 177,220 |   |
| Cost                of product sales                                   |   |                                  | 6,450  |                                 |   | 4,820 |   |   | 20,202 |   |   | 14,731 |   |
| Selling,                administrative and other operating costs       |   |                                  | 14,876 |                                 |   | 16,031 |   |   | 44,200 |   |   | 47,395 |   |
| Merger                related costs                                    |   |                                  | (83    | )                                    |   | 1,225 |   |   | (327 | ) |   | 2,113 |   |
| Restructuring                and other severance related costs         |   |                                  | (39    | )                                    |   | 3,161 |   |   | (54 | ) |   | 3,904 |   |
| Asset                write-off                                         |   |                                  | --     |                                 |   | 1,817 |   |   | -- |   |   | 1,817 |   |
| Goodwill                impairment                                     |   |                                  | --     |                                 |   | 7,050 |   |   | -- |   |   | 7,050 |   |
| Amortization                of intangible assets                       |   |                                  | 266    |                                 |   | 342 |   |   | 786 |   |   | 729 |   |
|                                                                   |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Operating                loss                                          |   |                                  | (323   | )                                    |   | (15,463 | ) |   | (23 | ) |   | (18,512 | ) |
| Non-operating                income                                    |   |                                  | 5      |                                 |   | 4 |   |   | 114 |   |   | 26 |   |
| Interest                expense                                        |   |                                  | 194    |                                 |   | 125 |   |   | 586 |   |   | 179 |   |
|                                                                   |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Loss                before income taxes                                |   |                                  | (512   | )                                    |   | (15,584 | ) |   | (495 | ) |   | (18,665 | ) |
| Income                tax expense                                      |   |                                  | 10     |                                 |   | -- |   |   | 31 |   |   | -- |   |
| Net                loss                                                |   | $                                     | (522   | )                                    | $      | (15,584 | ) | $ | (526 | ) | $ | (18,665 | ) |
|                                                                   |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Per                common share:                                       |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Basic                loss                                              |   | $                                     | (.02   | )                                    | $      | (.63 | ) | $ | (.02 | ) | $ | (.76 | ) |
| Diluted                loss                                            |   | $                                     | (.02   | )                                    | $      | (.63 | ) | $ | (.02 | ) | $ | (.76 | ) |
|                                                                   |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Average                common shares outstanding                       |   |                                  | 24,662 |                                 |   | 24,565 |   |   | 24,631 |   |   | 24,462 |   |
| Average                common and common equivalent shares outstanding |   |                                  | 24,662 |                                 |   | 24,565 |   |   | 24,631 |   |   | 24,462 |   |

----

**Analysts      International Corporation**

**Condensed      Consolidated Statements of Cash      Flows**

*(Unaudited)*

|                                                                |   | **Nine                Months Ended** |   |
|---------------------------------------------------------------------|--------|--------------------------------------|--------|
|                                                                |   | **September                30,**     |   | **October                1,** |   |
| ***(In                thousands)***                                 |   | **2006**                             |   | **2005** |   |
|                                                                |   |                                 |   |   |   |
| Net                cash used in operating activities                |   | $                                    | (5,178 | ) | $ | (6,743 | ) |
|                                                                |   |                                 |   |   |   |   |   |
| Cash                flows from investing activities:                |   |                                 |   |   |   |   |   |
| Property                and equipment additions                     |   |                                 | (1,181 | ) |   | (2,907 | ) |
| Proceed                from property and equipment sales            |   |                                 | 16     |   |   | 15 |   |
| Payments                for acquisitions, net of cash acquired      |   |                                 | --     |   |   | (5,046 | ) |
| Net                cash used in investing activities                |   |                                 | (1,165 | ) |   | (7,938 | ) |
|                                                                |   |                                 |   |   |   |   |   |
| Cash                flows from financing activities:                |   |                                 |   |   |   |   |   |
| Net                change in line of credit                         |   |                                 | 6,422  |   |   | 6,794 |   |
| Proceeds                     from exercise of stock options         |   |                                 | --     |   |   | 98 |   |
| Net                cash provided by financing activities            |   |                                 | 6,422  |   |   | 6,892 |   |
|                                                                     |   |                                 |   |   |   |   |   |
| Net                increase (decrease) in cash and cash equivalents |   |                                 | 79     |   |   | (7,789 | ) |
|                                                                |   |                                 |   |   |   |   |   |
| Cash                and cash equivalents at beginning of period     |   |                                 | 64     |   |   | 7,889 |   |
|                                                                |   |                                 |   |   |   |   |   |
| Cash                and cash equivalents at end of period           |   | $                                    | 143    |   | $ | 100 |   |
|                                                                |   |                                 |   |   |   |   |   |
| **Non-cash                activities:**                             |   |                                 |   |   |   |   |   |
| Value                of common stock issued for acquisitions        |   | $                                    | --     |   | $ | 1,000 |   |
| Value                of common stock issued for stock awards        |   | $                                    | 20     |   | $ | 28 |   |

----

**Analysts      International Corporation**

**Notes      to Condensed Consolidated Financial      Statements**

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

*Goodwill      and Intangible Assets*

|                                            |   | **September                30, 2006** |   | **December                31, 2005** |   |
|-------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|   ***(In                thousands)*** |   | **Gross****Carrying****Amount**       |   | **Accumulated****Amortization**      |   | **Other                Intangibles,****Net** |   | **Gross****Carrying****Amount** |   | **Accumulated****Amortization** |   | **Other                Intangibles,****Net** |   |
|                                            |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Customer                list                    |   | $                                     | 15,075 |                                 | $      | (5,150 | ) | $ | 9,925 |   | $ | 15,075 |   | $ | (4,364 | ) | $ | 10,711 |   |
| Tradename                                       |   |                                  | 1,720  |                                 |   | (133 | ) |   | 1,587 |   |   | 1,720 |   |   | (133 | ) |   | 1,587 |   |
|                                            |   | $                                     | 16,795 |                                 | $      | (5,283 | ) | $ | 11,512 |   | $ | 16,795 |   | $ | (4,497 | ) | $ | 12,298 |   |

----

*Equity      Compensation Plans*

*Accounting      for Stock Issued to *

| a)   | Compensation                expense for all stock-based compensation awards granted prior to                December                31, 2005, which were not fully vested as of December 31, 2005, based                on                the grant date fair value estimated in accordance with the original                provisions of SFAS No. 123, *Accounting                for Stock-Based Compensation;*                and |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b)   | Compensation                expense for all stock-based compensation awards granted subsequent                to                December 31, 2005, based on the grant-date fair value estimated in                accordance with the provisions of SFAS No. 123R. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*(in      thousands)*

|                                                                                                                       |   | **Three                Months Ended** |    | **Nine                Months Ended** |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------|--------------------------------------|--------|
|                                                                                                                       |   | **October                1, 2005**    |    | **October                1, 2005**   |   |
|                                                                                                                       |   |                                  |    |                                 |   |
| Net                loss, as reported                                                                                       |   | $                                     | (15,584 | )                                    | $      | (18,665 | ) |
| Deduct:                Stock-based compensation expense determined under fairValue                method for all awards(1) |   |                                  | (135    | )                                    |   | (371 | ) |
|                                                                                                                       |   |                                  |    |                                 |   |   |   |
| Net                loss, pro forma                                                                                         |   |                                  | (15,719 | )                                    |   | (19,036 | ) |
|                                                                                                                       |   |                                  |    |                                 |   |   |   |
| Earnings                per share:                                                                                         |   |                                  |    |                                 |   |   |   |
| Basic                - as reported                                                                                         |   | $                                     | (.63    | )                                    | $      | (.76 | ) |
| Basic                - pro forma                                                                                           |   |                                  | (.64    | )                                    |   | (.78 | ) |
|                                                                                                                       |   |                                  |    |                                 |   |   |   |
| Diluted                - as reported                                                                                       |   | $                                     | (.63    | )                                    | $      | (.76 | ) |
| Diluted                - pro forma                                                                                         |   |                                  | (.64    | )                                    |   | (.78 | ) |

|                                             |   |     **Options** |      |  **Weighted****Average****Exercise****Price****Per                Share** |   | **Weighted****Average****Remaining****Contractual****Term****(in                years)** |   |    **Aggregate****Intrinsic****Value** |   |
|--------------------------------------------------|--------|-------------------------------------|-----------|--------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------|--------|-------------------------------------------------------|--------|
|                                             |   |                                |      |                                                                           |   |                                                                                     |   |                                                  |   |
| Outstanding                on December 31, 2005  |   |                                | 2,348,781 |                                                                           | $      | 6.36                                                                                     |   |                                                  | 6.38   |   | $ | 25,250 |   |
| Granted                                          |   |                                | 164,000   |                                                                           |   | 2.44                                                                                     |   |                                                  |   |   |   |   |   |
| Exercised                                        |   |                                | 0         |                                                                           |   | 0                                                                                        |   |                                                  |   |   |   |   |   |
| Forfeited/Canceled                               |   |                                | 256,924   |                                                                           |   | 7.74                                                                                     |   |                                                  |   |   |   |   |   |
|                                             |   |                                |      |                                                                           |   |                                                                                     |   |                                                  |   |   |   |   |   |
| Outstanding                on September 30, 2006 |   |                                | 2,255,857 |                                                                           | $      | 5.92                                                                                     |   |                                                  | 6.01   |   | $ | 4,620 |   |
| Exercisable                on September 30, 2006 |   |                                | 1,707,857 |                                                                           | $      | 6.86                                                                                     |   |                                                  | 5.27   |   | $ | 4,620 |   |

----

|                                                                       | **The                Nine-Month Period Ended** |
|----------------------------------------------------------------------------|------------------------------------------------|
|  **Black-Scholes                Option Valuation Assumptions****(1)** | **September                30,****2006**       | **October                1,****2005** |
|                                                                       |                                           |   |
| Risk-free                interest rate(2)                                  | 4.6                - 4.9                       | 3.6                - 4.4 |
| Expected                dividend yield                                     | 0                                              | 0 |
| Expected                stock price volatility(3)                          | 41.4                - 75.1                     | 48.1                - 80.1 |
| Expected                life of stock options (in years)(4)                | 6.0                                            | 6.5 |

|                                            |   | **Shares** |    | **Weighted****Average****Grant                Date****Fair                Value** |   |
|-------------------------------------------------|--------|------------|---------|-----------------------------------------------------------------------------------|--------|
| Non-vested                December 31, 2005     |   |       | 217,000 |                                                                              |   | 3.12 |   |
| Granted                                         |   |       | 258,000 |                                                                              |   | 2.43 |   |
| Vested                                          |   |       | 58,000  |                                                                              |   | 2.74 |   |
| Forfeited                                       |   |       | 0       |                                                                              |   |   |   |
| Non-vested                at September 30, 2006 |   |       | 417,000 |                                                                              |   | 2.45 |   |

----

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

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

|                                                 |   | **Nine                Months Ended**  |   |
|------------------------------------------------------|--------|---------------------------------------|--------|
| ***(In                thousands)***                  |   | **September                30, 2006** |   |
|                                                 |   |                                  |   |
| Balance                at beginning of period        |   | $                                     | 56,312 |   |
|                                                 |   |                                  |   |   |
| Issuance                of common stock              |   |                                  | 20     |   |
| Amortization                of deferred compensation |   |                                  | 251    |   |
| FAS                123 R stock option expense        |   |                                  | 102    |   |
| Net                Loss                              |   |                                  | (526   | ) |
|                                                 |   |                                  |   |   |
| Balance                at end of period              |   | $                                     | 56,159 |   |

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

|                                                                                      |   | **Three                Months Ended** |                                  | **Nine                Months Ended** |   |
|-------------------------------------------------------------------------------------------|--------|---------------------------------------|---------------------------------------|--------------------------------------|--------|
| ***(In                thousands, except per share amount)***                              |   |                                  | **September                30, 2006** |                                 |   | **October                2,****2005** |   |   | **September                30, 2006** |   |   | **October                1,****2005** |   |
|                                                                                      |   |                                  |                                  |                                 |   |   |   |   |   |   |   |   |   |
| Net                loss                                                                   |   | $                                     | (522                                  | )                                    | $      | (15,584 | ) | $ | (526 | ) | $ | (18,665 | ) |
|                                                                                      |   |                                  |                                  |                                 |   |   |   |   |   |   |   |   |   |
| Weighted-average                number of common shares outstanding                       |   |                                  | 24,662                                |                                 |   | 24,565 |   |   | 24,631 |   |   | 24,462 |   |
| Dilutive                effect of equity compensation plan awards                         |   |                                  | --                                    |                                 |   | -- |   |   | -- |   |   | -- |   |
| Weighted-average                number of common and common equivalent shares outstanding |   |                                  | 24,662                                |                                 |   | 24,565 |   |   | _                24,631 _____ |   |   | 24,462 |   |
|                                                                                      |   |                                  |                                  |                                 |   |   |   |   |   |   |   |   |   |
| Net                loss per share:                                                        |   |                                  |                                  |                                 |   |   |   |   |   |   |   |   |   |
| Basic                                                                                     |   | $                                     | (.02                                  | )                                    | $      | (.63 | ) | $ | (.02 | ) | $ | (.76 | ) |
| Diluted                                                                                   |   | $                                     | (.02                                  | )                                    | $      | (.63 | ) | $ | (.02 | ) | $ | (.76 | ) |

----

**5.**
**Restructuring**

|                                         |   | **Workforce** |   | **Office                Closure/** |   |      |   |
|----------------------------------------------|--------|---------------|--------|------------------------------------|--------|-----------|--------|
| ***(In                thousands)***          |   | **Reduction** |   | **Consolidation**                  |   | **Total** |   |
|                                         |   |          |   |                               |   |      |   |
| Balance                at December 31, 2005  |   | $             | 44     |                               | $      | 1,508     |   | $ | 1,552 |   |
| Cash                expenditures             |   |          | (44    | )                                  |   | (703      | )      |   | (747 | ) |
| Non-cash                credits              |   |          | 0      |                               |   | (67       | )      |   | (67 | ) |
| Balance                at September 30, 2006 |   | $             | 0      |                               | $      | 738       |   | $ | 738 |   |

**6.**
**Asset      Write-Off**

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

*Forward-Looking      Statements*

-  The          extent to which our investment and performance improvement          initiatives are successful. 

-  The          market conditions in the IT services industry, including intense competition          for billable technical personnel at competitive rates, strong pricing          pressures from many of the largest clients and a continuing economic recession          in Michigan. 

-  Difficulty          in identifying, attracting and retaining qualified technical personnel          and its          continued impact on our ability to grow our business. 

-  The          possibility that reducing employee-related costs may limit our ability          to          retain or attract consultants. 

-  Our          ability to respond to client needs in a cost-controlled environment and          the          possibility that we may not be able to continue reducing costs if it affects          our ability to deliver timely services or otherwise respond to customer          needs          or requirements. 

-  Significant          rapid growth in or a significant loss in our business, a major acquisition          or          significant lengthening of payment terms with a major client could create          a          need for additional working capital. A failure to obtain additional working          capital, should it be required, would materially affect our          business. 

----

*Introduction      and Overview*

*Market      Conditions and Economics of Our Business*

----

*Strategy*

| §   | IP                Communications, which includes Wireless, IP Telecommunications, Call                Center and Security Services |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------|
| §  | Storage                Solutions, which includes storage product support and VMware                services |
|--------------|-------------------------------------------------------------------------------------------------------------|
| §  | Lawson                Services, which includes integration, customization, and administration                of                Lawson Software applications |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
| §  | Managed                IT Services, which includes Application Outsourcing, Help Desk, Hosting,                and Field Engineering services |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------|

*Other      Factors*

----

*Overview      of Results of Third Quarter 2006 Operations*

*    Estimates      of      Future Operating Results*

*    Allowance      for      Doubtful Accounts*

----

*Accrual      of Unreported Medical Claims*

*Revenue      Recognition*

*Subsupplier      Revenue*

*Goodwill      and Other Intangible Impairment*

----

*    Deferred      Taxes*

*    Restructuring      and other severance related costs*

*    Stock-Based      Compensation*

----

**RESULTS      OF OPERATIONS, THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2006 VS.      OCTOBER 1, 2005**

|                                                                    |   | ThreeMonths                Ended |   | ThreeMonths                Ended |   |                               |   |                |    |   |   |
|-------------------------------------------------------------------------|--------|----------------------------------|--------|----------------------------------|--------|------------------------------------|--------|---------------------|---------|--------|--------|
|                                                                    |   | Sept                30, 2006     |   | Oct                1, 2005       |   | Increase                (Decrease) |   |
|                                                                    |   |                             |   | %                of              |   |                               |   | %                of |    | %      |   |   |   | As                % of |   |
| *(dollars                in thousands)*                                 |   | Amount                           |   | Revenue                          |   | Amount                             |   | Revenue             |    | Amount |   | Inc                (Dec) |   | Revenue |   |
| Revenue:                                                                |   |                             |   |                             |   |                               |   |                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Professional                services provided directly                  |   | $                                | 65,655 |                             |   | 76.8                               | %      | $                   | 65,042  |   |   | 83.1 | % | $ | 613 |   |   | .9 | % |   | (6.3 | )% |
| Professional                services provided through subsuppliers |   |                             | 12,470 |                             |   | 14.6                               |   |                | 7,757   |   |   | 9.9 |   |   | 4,713 |   |   | 60.8 |   |   | 4.7 |   |
| Product                sales                                            |   |                             | 7,355  |                             |   | 8.6                                |   |                | 5,445   |   |   | 7.0 |   |   | 1,910 |   |   | 35.1 |   |   | 1.6 |   |
| Total                revenue                                            |   |                             | 85,480 |                             |   | 100.0                              |   |                | 78,244  |   |   | 100.0 |   |   | 7,236 |   |   | 9.2 |   |   | 0 |   |
| Salaries,                contracted services and direct charges         |   |                             | 64,333 |                             |   | 75.3                               |   |                | 59,261  |   |   | 75.7 |   |   | 5,072 |   |   | 8.6 |   |   | (.4 | ) |
| Cost                of product sales                                    |   |                             | 6,450  |                             |   | 7.5                                |   |                | 4,820   |   |   | 6.2 |   |   | 1,630 |   |   | 33.8 |   |   | 1.3 |   |
| Selling,                administrative and other operating costs        |   |                             | 14,876 |                             |   | 17.4                               |   |                | 16,031  |   |   | 20.5 |   |   | (1,155 | ) |   | (7.2 | ) |   | (3.1 | ) |
| Merger                related costs                                     |   |                             | (83    | )                                |   | (0.1                               | )      |                | 1,225   |   |   | 1.6 |   |   | (1,308 | ) |   | (106.8 | ) |   | (1.7 | ) |
| Restructuring                and other severance related costs          |   |                             | (39    | )                                |   | (0.0                               | )      |                | 3,161   |   |   | 4.0 |   |   | (3,200 | ) |   | (101.2 | ) |   | (4.0 | ) |
| Asset                write-off                                          |   |                             | 0      |                             |   | 0.0                                |   |                | 1,817   |   |   | 2.3 |   |   | (1,817 | ) |   | (100.0 | ) |   | (2.3 | ) |
| Goodwill                impairment                                      |   |                             | 0      |                             |   | 0.0                                |   |                | 7,050   |   |   | 9.0 |   |   | (7,050 | ) |   | (100.0 | ) |   | (9.0 | ) |
| Amortization                of intangible assets                        |   |                             | 266    |                             |   | 0.3                                |   |                | 342     |   |   | .4 |   |   | (76 | ) |   | (22.2 | ) |   | (.1 | ) |
| Non-operating                income                                     |   |                             | (5     | )                                |   | (0.0                               | )      |                | (4      | )      |   | (.0 | ) |   | (1 | ) |   | 25.0 |   |   | 0.0 |   |
| Interest                expense                                         |   |                             | 194    |                             |   | .2                                 |   |                | 125     |   |   | .2 |   |   | 69 |   |   | 55.2 |   |   | 0.0 |   |
|                                                                    |   |                             |   |                             |   |                               |   |                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss                before income taxes                                 |   |                             | (512   | )                                |   | (.6                                | )      |                | (15,584 | )      |   | (19.9 | ) |   | 15,072 |   |   | 96.7 |   |   | 19.3 |   |
| Income                tax expense                                       |   |                             | 10     |                             |   | 0.0                                |   |                | --      |   |   | .0 |   |   | 10 |   |   | 0.0 |   |   | 0.0 |   |
|                                                                    |   |                             |   |                             |   |                               |   |                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                loss                                                 |   | $                                | (522   | )                                |   | (.6                                | )%     | $                   | (15,584 | )      |   | (19.9 | )% | $ | 15,062 |   |   | 96.7 | % |   | 19.3 | % |

|                                                              |   | NineMonths                Ended |    | NineMonths                Ended |   |                               |   |                |    |   |   |
|-------------------------------------------------------------------|--------|---------------------------------|---------|---------------------------------|--------|------------------------------------|--------|---------------------|---------|--------|--------|
|                                                              |   | Sept                30, 2006    |    | Oct                1, 2005      |   | Increase                (Decrease) |   |
|                                                              |   |                            |    | %                of             |   |                               |   | %                of |    | %      |   |   |   | As                % of |   |
| *(dollars                in thousands)*                           |   | Amount                          |    | Revenue                         |   | Amount                             |   | Revenue             |    | Amount |   | Inc                (Dec) |   | Revenue |   |
| Revenue:                                                          |   |                            |    |                            |   |                               |   |                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Professional                services provided directly            |   | $                               | 196,969 |                            |   | 75.7                               | %      | $                   | 197,359 |   |   | 83.5 | % | $ | (390 | ) |   | (.2 | )% |   | (7.8 | )% |
| Professional                services provided throughsubsuppliers |   |                            | 40,194  |                            |   | 15.4                               |   |                | 22,874  |   |   | 9.7 |   |   | 17,320 |   |   | 75.7 |   |   | 5.7 |   |
| Product                sales                                      |   |                            | 23,064  |                            |   | 8.9                                |   |                | 16,214  |   |   | 6.8 |   |   | 6,850 |   |   | 42.2 |   |   | 2.1 |   |
| Total                revenue                                      |   |                            | 260,227 |                            |   | 100.0                              |   |                | 236,447 |   |   | 100.0 |   |   | 23,780 |   |   | 10.1 |   |   | 0.0 |   |
| Salaries,                contracted services and direct charges   |   |                            | 195,443 |                            |   | 75.1                               |   |                | 177,220 |   |   | 75.0 |   |   | 18,223 |   |   | 10.3 |   |   | .1 |   |
| Cost                of product sales                              |   |                            | 20,202  |                            |   | 7.7                                |   |                | 14,731  |   |   | 6.2 |   |   | 5,471 |   |   | 37.1 |   |   | 1.5 |   |
| Selling,                administrative and other operating costs  |   |                            | 44,200  |                            |   | 17.0                               |   |                | 47,395  |   |   | 20.0 |   |   | (3,195 | ) |   | (6.7 | ) |   | (3.0 | ) |
| Merger                related costs                               |   |                            | (327    | )                               |   | (.1                                | )      |                | 2,113   |   |   | .9 |   |   | (2,440 | ) |   | (115.5 | ) |   | (1.0 | ) |
| Restructuring                and other severance related costs    |   |                            | (54     | )                               |   | (0.0                               | )      |                | 3,904   |   |   | 1.6 |   |   | (3,958 | ) |   | (101.4 | ) |   | (1.6 | ) |
| Asset                write-off                                    |   |                            | 0       |                            |   | 0.0                                |   |                | 1,817   |   |   | .8 |   |   | (1,817 | ) |   | (100.0 | ) |   | (.8 | ) |
| Goodwill                Impairment                                |   |                            | 0       |                            |   | 0.0                                |   |                | 7,050   |   |   | 3.0 |   |   | (7,050 | ) |   | (100.0 | ) |   | (3.0 | ) |
| Amortization                of intangible assets                  |   |                            | 786     |                            |   | .3                                 |   |                | 729     |   |   | .3 |   |   | 57 |   |   | 7.8 |   |   | 0.0 |   |
| Non-operating                income                               |   |                            | (114    | )                               |   | (0.0                               | )      |                | (26     | )      |   | (.0 | ) |   | (88 | ) |   | 338.5 |   |   | 0.0 |   |
| Interest                expense                                   |   |                            | 586     |                            |   | 0.2                                |   |                | 179     |   |   | .1 |   |   | 407 |   |   | 227.4 |   |   | .1 |   |
|                                                              |   |                            |    |                            |   |                               |   |                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss                before income taxes                           |   |                            | (495    | )                               |   | (.2                                | )      |                | (18,665 | )      |   | (7.9 | ) |   | 18,170 |   |   | 97.3 |   |   | 7.7 |   |
| Income                tax expense                                 |   |                            | 31      |                            |   | 0.0                                |   |                | --      |   |   | .0 |   |   | 31 |   |   | 0.0 |   |   | 0.0 |   |
|                                                              |   |                            |    |                            |   |                               |   |                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                loss                                           |   | $                               | (526    | )                               |   | (.2                                | )%     | $                   | (18,665 | )      |   | (7.9 | )% | $ | 18,139 |   |   | 97.2 | % |   | 7.7 | % |
|                                                              |   |                            |    |                            |   |                               |   |                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Personnel:                                                        |   |                            |    |                            |   |                               |   |                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Management                and administrative                      |   |                            | 415     |                            |   |                               |   |                | 434     |   |   |   |   |   |   |   |   | (19 | ) |   |   |   |
| Technical                consultants                              |   |                            | 2,370   |                            |   |                               |   |                | 2,527   |   |   |   |   |   |   |   |   | (157 | ) |   |   |   |

----

*    Revenue*

*    Salaries,      Contracted Services and Direct Charges*

*    Cost      of      Product Sales*

*    Selling,      Administrative and Other Operating Costs*

*    Merger      and      Severance Related Costs*

----

*Restructuring      and Other Severance Related Costs*

*Asset      Write-Off*

*Goodwill      Impairment*

*Non-Operating      Income*

*Interest      Expense*

*Income      Taxes*

*Personnel*

----

|                                                   |   |                             |   |                            |   |           |   | **Percentage** |   |
|--------------------------------------------------------|--------|----------------------------------|--------|---------------------------------|--------|----------------|--------|----------------|--------|
|                                                   |   | **September                30,** |   | **December                31,** |   | **Increase**   |   | **Increase**   |   |
| ***(In                thousands except percentages)*** |   | **2006**                         |   | **2005**                        |   | **(Decrease)** |   | **(Decrease)** |   |
|                                                   |   |                             |   |                            |   |           |   |           |   |
| Cash                and Cash Equivalents               |   | $                                | 143    |                            | $      | 64             |   | $              | 79     |   |   | 123.4 | % |
| Accounts                Receivable                     |   |                             | 71,566 |                            |   | 66,968         |   |           | 4,598  |   |   | 6.9 |   |
| Other                Current Assets                    |   |                             | 2,347  |                            |   | 2,383          |   |           | (36    | ) |   | (1.5 | ) |
| Total                Current Assets                    |   | $                                | 74,056 |                            | $      | 69,415         |   | $              | 4,641  |   |   | 6.7 | % |
|                                                   |   |                             |   |                            |   |           |   |           |   |   |   |   |   |
| Accounts                Payable                        |   | $                                | 23,295 |                            | $      | 24,581         |   | $              | (1,286 | ) |   | (5.2 | )% |
| Salaries                and Vacations                  |   |                             | 5,679  |                            |   | 8,260          |   |           | (2,581 | ) |   | (31.2 | ) |
| Line                of Credit                          |   |                             | 11,422 |                            |   | 5,000          |   |           | 6,422  |   |   | 128.4 |   |
| Restructuring                Accruals Current          |   |                             | 535    |                            |   | 971            |   |           | (436   | ) |   | (44.9 | ) |
| Other                Current Liabilities               |   |                             | 4,841  |                            |   | 4,421          |   |           | 420    |   |   | 9.5 |   |
| Total                Current Liabilities               |   | $                                | 45,772 |                            | $      | 43,233         |   | $              | 2,539  |   |   | 5.9 | % |
|                                                   |   |                             |   |                            |   |           |   |           |   |   |   |   |   |
| Working                Capital                         |   | $                                | 28,284 |                            | $      | 26,182         |   | $              | 2,102  |   |   | 8.0 | % |
| Current                Ratio                           |   |                             | 1.62   |                            |   | 1.61           |   |           | .01    |   |   | .6 |   |
|                                                   |   |                             |   |                            |   |           |   |           |   |   |   |   |   |
| Total                Shareholders’ Equity        |   | $                                | 56,159 |                            | $      | 56,312         |   | $              | (153   | ) |   | (.3 | )% |

*Cash      Requirements*

*Sources      and Uses of Cash/Credit Facility*

----

|  ***(in                thousands)*** |   |  **1                Year** |   |  **2-3                Years** |   |  **4-5                Years** |   | **Over                5****Years** |   |  **Total** |   |
|-------------------------------------------|--------|---------------------------------|--------|------------------------------------|--------|------------------------------------|--------|------------------------------------|--------|-----------------|--------|
|                                      |   |                            |   |                               |   |                               |   |                               |   |            |   |
| Line                of Credit             |   | $                               | 0      |                               | $      | 0                                  |   | $                                  | 11,422 |            | $      | 0 |   | $ | 11,422 |   |
|                                      |   |                            |   |                               |   |                               |   |                               |   |            |   |   |   |   |   |   |
| Operating                Leases           |   |                            | 4,249  |                               |   | 5,553                              |   |                               | 3,575  |            |   | 1,098 |   |   | 14,475 |   |
|                                      |   |                            |   |                               |   |                               |   |                               |   |            |   |   |   |   |   |   |
| Deferred                Compensation      |   |                            | 172    |                               |   | 1,106                              |   |                               | 235    |            |   | 933 |   |   | 2,446 |   |
|                                      |   |                            |   |                               |   |                               |   |                               |   |            |   |   |   |   |   |   |
| Total                                     |   | $                               | 4,421  |                               | $      | 6,659                              |   | $                                  | 15,232 |            | $      | 2,031 |   | $ | 28,343 |   |

* *

*      Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement      No. 109,*
*      Accounting for Income Taxes.*

*Fair      Value Measurements.*

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

**Item      4. Controls and      Procedures**

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**PART      II. OTHER INFORMATION**

**Item      1. Legal Proceedings**

**Item      1A. Risk Factors**

*The      terms of our standard agreements with our customers allow the customers to      terminate or reduce the amount of our services they purchase from us on short      notice, and a limited number of customers comprise a significant portion of      our      revenues. The loss of one or more significant customers could negatively affect      our business.*

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

**Item      3.**  **Defaults Upon Senior Securities**

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

**Item      5. Other Information**

**Item      6. Exhibits**

| ^ Exhibit                10.1 |   | Form                of First Amendment to Change in Control Agreement (incorporated by                reference to Exhibit 10.1 of our Current Report on Form 8-K filed                October                25, 2006).                 |
|------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ^ Exhibit                10.2 |   | Form                of Second Amendment to Change in Control Agreement (incorporated                by                reference to Exhibit 10.2 of our Current Report on Form 8-K filed                October                25, 2006). |
| +                Exhibit 31.1      |   | Certification                of CEO Pursuant to Section 302 of the Sarbanes Oxley Act of                2002.                                                                                                                            |
| +                Exhibit 31.2      |   | Certification                of CFO Pursuant to Section 302 of the Sarbanes Oxley Act of                2002.                                                                                                                            |
| ++                Exhibit 32       |   | Certification                of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant                to                Section 906 of the Sarbanes Oxley Act of                2002.                                       |

| *  |   | Denotes                a management contract or compensatory plan or arrangement required                to be                filed as an exhibit to this quarterly report pursuant to Item 6 of                Form                10-Q. |
|----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ^  |   | Denotes                an exhibit previously filed with the Securities and Exchange Commission                and incorporated herein by reference.                                                                                       |
| +  |   | Filed                herewith                                                                                                                                                                                                             |
| ++ |   | Furnished                herewith                                                                                                                                                                                                         |

----

**SIGNATURES**

|                                  | ANALYSTS                INTERNATIONAL CORPORATION |
|---------------------------------------|---------------------------------------------------|
|                                  | (Registrant)                                      |
|                                  |                                              |   |
|                                  |                                              |   |
|                                  |                                              |   |
| Date:                November 9, 2006 | By:                                               | /s/                Jeffrey P. Baker |
|                                  |                                              | Jeffrey                P. Baker |
|                                  |                                              | Chief                Executive Officer |
|                                  |                                              | (Principal                Executive Officer) |
|                                  |                                              |   |
|                                  |                                              |   |
| Date:                November 9, 2006 | By:                                               | /s/                David J. Steichen |
|                                  |                                              | David                J. Steichen |
|                                  |                                              | Chief                Financial Officer |
|                                  |                                              | (Principal                Financial and Accounting Officer) |

----

**EXHIBIT      INDEX**

| Exhibit                10.1 |   | Form                of First Amendment to Change in Control Agreement (incorporated by                reference to Exhibit 10.1 of our Current Report on Form 8-K filed                October                25, 2006).                           |
|-----------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Exhibit                10.2 |   | Form                of Second Amendment to Change in Control Agreement (incorporated                by                reference to Exhibit 10.2 of our Current Report on Form                8-K                filed October 25, 2006). |
| Exhibit                31.1 |   | Certification                of CEO Pursuant to Section 302 of the Sarbanes Oxley Act of                2002.                                                                                                                                      |
| Exhibit                31.2 |   | Certification                of CFO Pursuant to Section 302 of the Sarbanes Oxley Act of                2002.                                                                                                                                      |
| Exhibit                32   |   | Certification                of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant                to                section 906 of the Sarbanes Oxley Act of                2002.                                                 |

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