FORM
10-Q/A


(Amendment
No. 1)





UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION





Washington,
D.C. 20549





(Mark
One)


x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
quarterly period ended April 5, 2009


OR





 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
transition period
from              to





Commission
file number 0-20022





POMEROY
IT SOLUTIONS, INC.


(Exact
name of registrant as specified in its charter)





DELAWARE


31-1227808


(State or
other jurisdiction of incorporation (IRS Employer or organization)
Identification No.)





1020
Petersburg Road, Hebron, KY 41048


(Address
of principal executive offices)





(859)
586-0600


(Registrant's
telephone number, including area code)





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 requirements for the
past 90 days.





YES  
x
  NO    ̈





Indicate
by check mark whether the registrant submitted electronically and posted on its
corporate website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T of this Chapter during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).





YES  
 ̈
  NO    ̈ (not yet applicable to
registrant)





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





Large
      accelerated filer  ̈
                    Accelerated
      filer  ̈
                    Non-accelerated
      filer  ̈
                    Smaller
      reporting company x





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





YES
 ̈   NO
x





The
number of shares of common stock outstanding as of May 8, 2009 was
9,324,247.





EXPLANATORY
NOTE





This
Amendment No. 1 on Form 10-Q/A amends our Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission (“SEC”) on May  18, 2009
(the “Original Filing”) to reflect the restatement of our consolidated financial
statements for the quarter ended April 5, 2009. Except as stated herein, this
Amendment does not reflect events occurring after the filing of the Original
Filing and no attempt has been made in this Quarterly Report on Form 10-Q/A to
modify or update other disclosures as presented in the Original Filing.
Accordingly, this Form 10-Q/A should be read in conjunction with our filings
with the SEC subsequent to the filing of the Original Filing.





As
previously discussed in a Form 8-K, filed on August 6, 2009, on July 31, 2009,
the Audit Committee of the Company’s Board of Directors (the “Audit Committee”)
concluded that the Company’s financial statements and related audit reports
thereon in the Company’s most recently filed Annual Report on Form 10-K for the
year ended  January 5, 2009 and the interim financial statements in
the Quarterly Report on Form 10-Q for the quarter ended April 5, 2009 should no
longer be relied upon.





Following
an internal review, we identified errors in the Company’s historical accounting
treatment since 1991 of certain aged trade credits created in the ordinary
course of business. The errors relate primarily to the recognition in the
Company’s income statement of certain aged trade credits affecting accounts
receivable, accounts payable and selling, general and administrative
expenses.





The
aggregate liability recorded to the Company’s consolidated balance sheets, with
a corresponding reduction to stockholders’ equity, as a result of this
restatement approximates $5.0 million as of April 5, 2009.  The
correction of these errors had no impact on the Company’s consolidated statement
of operations, consolidated statement of comprehensive income (loss) or
consolidated statement of cash flows for the quarters ended April 5, 2009 or
2008.





The $5.0
million liability equates to less than seven one-hundredths of one percent of
the Company’s total revenue for the 1994 to 2007 period when these liabilities
were primarily incurred. Generally, the liability consists of high volumes of
small transactions. The Company estimates that over 98% of the total liability
was recognized in the Company’s consolidated income statements for periods prior
to the fourth quarter of fiscal year ended January 5, 2008.





The
Company expects that the final settlement of this liability may take several
months or possibly years as the Company remediates these credits with customers
and vendors. The Company anticipates that the liability may ultimately be
settled for less than $5.0 million. However, the Company cannot provide any
assurance that the final settlement will be materially lower. The Company has
established new processes and procedures to avoid significant future liabilities
from aged trade credits.





See Note
1 to the Company’s consolidated financial statements for additional
discussion.





For the
convenience of the reader, we have included all Parts of the Original Filing;
however, only the following Items and sections of this Form 10-Q/A have been
amended to reflect the restatement:





Part
I





Item
1.    Financial Statements





Item
4.    Controls and Procedures








POMEROY
IT SOLUTIONS, INC.


TABLE OF
CONTENTS





PagePart
      I.
                Financial
      InformationItem
      1.
                Financial
      Statements:Consolidated
      Balance Sheets as of  April  5,  2009 and
      January 5, 2009
                3Consolidated
      Statements of Operations for the Three Months Ended April 5, 2009 and
      2008
                5Consolidated
      Statements of Comprehensive Income (Loss) for the Three Months
      Ended  April 5,  2009
    and  2008
                6Consolidated
      Statements of Cash Flows for the Three Months Ended April 5, 2009 and
      2008
                7Notes
      to Consolidated Financial Statements
                8Item
      2.
                Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                15Item
      3.
                Quantitative
      and Qualitative Disclosure about Market Risk
                23Item
      4.
                Controls
      and Procedures
                23Part
      II.
                Other
      InformationItem
      1.
                Legal
      Proceedings
                24Item
      1A.
                Risk
      Factors
                24Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                24Item
      3.
                Defaults
      Upon Senior Securities
                24Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                25Item
      5.
                Other
      Information
                25Item
      6.
                Exhibits
                26SIGNATURE
                26







PART
I. FINANCIAL INFORMATION


ITEM
1. FINANACIAL STATEMENTS





POMEROY   IT SOLUTIONS, INC
..


CONSOLIDATED
BALANCE SHEETS


( UNAUDITED)





(in
      thousands)April
      5,
                      
                      
                      January
      5,2009
                      
                      
                      2009(As
      Restated)
                      
                      
                      (As
      Restated)ASSETSCurrent
      Assets:Cash
      and cash equivalents
                      
                      $
                      39,161
                      
                      
                      $
                      30,787Certificates
      of deposit
                      
                      
                      1,152
                      
                      
                      
                      1,142Accounts
      receivable:Trade,
      less allowance of $3,335 and $3,233, respectively
                      
                      
                      60,767
                      
                      
                      
                      89,654Vendor,
      less allowance of $293 and $293, respectively
                      
                      
                      1,432
                      
                      
                      
                      1,299Net
      investment in leases
                      
                      
                      55
                      
                      
                      
                      74Other
                      
                      
                      531
                      
                      
                      
                      622Total
      receivables
                      
                      
                      62,785
                      
                      
                      
                      91,649Inventories
                      
                      
                      6,380
                      
                      
                      
                      7,890Other
                      
                      
                      4,134
                      
                      
                      
                      3,861Total
      current assets
                      
                      
                      113,612
                      
                      
                      
                      135,329Equipment
      and leasehold improvements:Furniture,
      fixtures and equipment
                      
                      
                      13,971
                      
                      
                      
                      14,040Leasehold
      Improvements
                      
                      
                      5,293
                      
                      
                      
                      5,055Total
                      
                      
                      19,264
                      
                      
                      
                      19,095Less
      accumulated depreciation
                      
                      
                      13,390
                      
                      
                      
                      12,748Net
      equipment and leasehold improvements
                      
                      
                      5,874
                      
                      
                      
                      6,347Intangible
      assets, net
                      
                      
                      680
                      
                      
                      
                      752Other
      assets
                      
                      
                      462
                      
                      
                      
                      559Total
      assets
                      
                      $
                      120,628
                      
                      
                      $
                      142,987





(The
accompanying notes are an integral part of the financial
statements.)


3


POMEROY
IT SOLUTIONS, INC.


CONSOLIDATED
BALANCE SHEETS


( UNAUDITED)





(in
      thousands)April
      5,
                  
                  
                  January
      5,2009
                  
                  
                  2009(As
      Restated)
                  
                  
                  (As
      Restated)LIABILITIES
      AND EQUITYCurrent
      Liabilities:Floor
      plan financing
                  
                  $
                  7,412
                  
                  
                  $
                  11,709Accounts
      payable - trade
                  
                  
                  16,582
                  
                  
                  
                  30,774Deferred
      revenue
                  
                  
                  1,713
                  
                  
                  
                  1,557Employee
      compensation and benefits
                  
                  
                  5,054
                  
                  
                  
                  7,081Accrued
      facility closing cost and severance
                  
                  
                  762
                  
                  
                  
                  1,149Other
      current liabilities
                  
                  
                  22,483
                  
                  
                  
                  23,772Total
      current liabilities
                  
                  
                  54,006
                  
                  
                  
                  76,042Equity:Preferred
      stock,  $.01 par value; authorized 2,000 shares, (no shares
      issued or outstanding)
                  
                  
                  -
                  
                  
                  
                  -Common
      stock, $.01 par value; authorized 20,000 shares, (13,724 and 13,693 shares
      issued, respectively)
                  
                  
                  144
                  
                  
                  
                  142Paid
      in capital
                  
                  
                  94,304
                  
                  
                  
                  93,858Accumulated
      other comprehensive income
                  
                  
                  18
                  
                  
                  
                  13Accumulated
      deficit
                  
                  
                  (4,480)
                  
                  
                  
                  (3,889)89,986
                  
                  
                  
                  90,124Less
      treasury stock, at cost (4,395 and 4,340 shares,
    respectively)
                  
                  
                  23,364
                  
                  
                  
                  23,179Total
      equity
                  
                  
                  66,622
                  
                  
                  
                  66,945Total
      liabilities and equity
                  
                  $
                  120,628
                  
                  
                  $
                  142,987





(The
accompanying notes are an integral part of the financial
statements.)


4


POMEROY
IT SOLUTIONS, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


( UNAUDITED)





(in
      thousands, except per share data)
                
                Three Months EndedApril
      5,
                
                
                April
      5,2009
                
                
                2008Net
      revenues:Product
                
                $
                53,161
                
                
                $
                81,477Service
                
                
                36,299
                
                
                
                63,692Total
      net revenues
                
                
                89,460
                
                
                
                145,169Cost
      of revenues:Product
                
                
                47,644
                
                
                
                73,071Service
                
                
                28,856
                
                
                
                56,422Total
      cost of revenues
                
                
                76,500
                
                
                
                129,493Gross
      profit
                
                
                12,960
                
                
                
                15,676Operating
      expenses:Selling,
      general and administrative
                
                
                12,771
                
                
                
                18,396Depreciation
      and amortization
                
                
                703
                
                
                
                1,216Total
      operating expenses
                
                
                13,474
                
                
                
                19,612Loss
      from operations
                
                
                (514
                )
                
                
                (3,936
                )Other
      income (expense):Interest
      income
                
                
                86
                
                
                
                85Interest
      expense
                
                
                (160
                )
                
                
                (351
                )Other
                
                
                (4
                )
                
                
                -Other
      income (expense), net
                
                
                (78
                )
                
                
                (266
                )Loss
      before income tax
                
                
                (592
                )
                
                
                (4,202
                )Income
      tax expense (benefit)
                
                
                -
                
                
                
                -Net
      loss
                
                $
                (592
                )
                
                $
                (4,202
                )Weighted
      average shares outstanding:Basic
                
                
                9,354
                
                
                
                12,061Diluted
      (1)
                
                
                9,354
                
                
                
                12,061Earnings
      (loss) per common share:Basic
                
                $
                (0.06
                )
                
                $
                (0.35
                )Diluted
      (1)
                
                $
                (0.06
                )
                
                $
                (0.35
                )





(1)
Dilutive loss per common share for the 3 months ended April 5, 2009 and 2008
would have been anti-dilutive if the number of weighted average shares
outstanding were adjusted to reflect the dilutive effect of outstanding stock
options and unearned restricted shares.





(The
accompanying notes are an integral part of the financial
statements.)


5


POMEROY
IT SOLUTIONS, INC.


CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


( UNAUDITED)





(in thousands)Three Months EndedApril 5,
                
                
                April 5,2009
                
                
                2008Net
      loss
                
                $
                (592
                )
                
                $
                (4,202
                )Other
      comprehensive income (loss):Foreign
      currency translation adjustment
                
                
                5
                
                
                
                (8
                )Comprehensive
      income (loss)
                
                $
                (587
                )
                
                $
                (4,210
                )





(The
accompanying notes are an integral part of the financial
statements.)


6


POMEROY
IT SOLUTIONS, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(UNAUDITED)





(in thousands)Three Months EndedApril 5, 2009
                      
                      
                      April 5, 2008Cash Flows from (used in) Operating Activities:Net
      loss
                      
                      
                      (592
                      )
                      
                      
                      (4,202
                      )Adjustments
      to reconcile net loss tonet cash flows from (used in) operating
      activities:Depreciation
      and amortization
                      
                      
                      715
                      
                      
                      
                      1,250Stock
      option, restricted stock compensation and employee purchase plan
      expense
                      
                      
                      364
                      
                      
                      
                      755Provision
      for doubtful accounts
                      
                      
                      66
                      
                      
                      
                      300Amortization
      of unearned income
                      
                      
                      -
                      
                      
                      
                      (2
                      )(Gain)
      loss on disposal of fixed assets
                      
                      
                      -
                      
                      
                      
                      (2
                      )Changes
      in working capital accounts:Accounts
      receivable
                      
                      
                      28,778
                      
                      
                      
                      18,775Inventories
                      
                      
                      1,510
                      
                      
                      
                      259Other
      current assets
                      
                      
                      (273
                      )
                      
                      
                      (390
                      )Net
      investment in leases
                      
                      
                      19
                      
                      
                      
                      336Accounts
      payable trade
                      
                      
                      (14,192
                      )
                      
                      
                      (15,163
                      )Deferred
      revenue
                      
                      
                      155
                      
                      
                      
                      144Employee
      compensation and benefits
                      
                      
                      (2,026
                      )
                      
                      
                      (3,811
                      )Other,
      net
                      
                      
                      (1,585
                      )
                      
                      
                      (2,539
                      )Net
      operating activities
                      
                      
                      12,939
                      
                      
                      
                      (4,290
                      )Cash
      Flows used in Investing Activities:Capital
      expenditures
                      
                      
                      (172
                      )
                      
                      
                      (1,244
                      )Net
      investing activities
                      
                      
                      (172
                      )
                      
                      
                      (1,244
                      )Cash
      Flows from (used in) Financing Activities:Increase
      in short-term debt, net
                      
                      
                      -
                      
                      
                      
                      6,919Net
      reduction in floor plan financing
                      
                      
                      (4,297
                      )
                      
                      
                      (11,760
                      )Purchase
      of treasury stock
                      
                      
                      (185
                      )
                      
                      
                      (1,413
                      )Proceeds from issuance of common
      shares for employee stock purchase
      plan
                      
                      
                      84
                      
                      
                      
                      172Net
      financing activities
                      
                      
                      (4,398
                      )
                      
                      
                      (6,082
                      )Effect
      of exchange rate changes on cash and cash equivalents
                      
                      
                      5
                      
                      
                      
                      (8
                      )Increase
      (decrease) in cash and cash equivalents
                      
                      
                      8,374
                      
                      
                      
                      (11,624
                      )Cash
      and cash equivalents:Beginning
      of period
                      
                      
                      30,787
                      
                      
                      
                      13,282End
      of period
                      
                      $
                      39,161
                      
                      
                      $
                      1,658





(The
accompanying notes are an integral part of the financial
statements.)


7




POMEROY
IT SOLUTIONS, INC.





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





1.
            Restatement of Consolidated
      Balance Sheets





This Form
10-Q/A amends our previously filed Form 10-Q for the quarter ended April 5, 2009
to correct errors in the consolidated balance sheets as of April 5, 2009 and
January 5, 2009. Following an internal review, we identified errors in the
Company’s historical accounting treatment since 1991 of certain aged trade
credits created in the ordinary course of business. The errors relate primarily
to the recognition in the Company’s income statement of certain aged trade
credits affecting accounts receivable, accounts payable and selling, general and
administrative expenses.





The
following information discloses the impact of these corrections on the
consolidated balance sheets as of April 5, 2009 and January 5,
2009:





(in
      thousands, except per share data)
                
                April 5, 2009As
      Previously
                
                
                
                
                
                AsReported
                
                
                Adjustment
                
                
                RestatedOther
      current liabilities
                
                $
                17,550
                
                
                $
                4,933
                
                
                $
                22,483Retained
      earnings (accumulated deficit)
                
                $
                453
                
                
                $
                (4,933)
                
                
                $
                (4,480)





(in
      thousands, except per share data)
                
                January 5, 2009As
      Previously
                
                
                
                
                
                AsReported
                
                
                Adjustment
                
                
                RestatedOther
      current liabilities
                
                $
                18,839
                
                
                $
                4,933
                
                
                $
                23,772Retained
      earnings (accumulated deficit)
                
                $
                1,044
                
                
                $
                (4,933)
                
                
                $
                (3,889)





The
correction of these errors had no impact on the Company’s consolidated statement
of operations, consolidated statement of comprehensive income (loss) or
consolidated statement of cash flows for the quarters ended April 5, 2009 and
2008.





2.
            Basis of
      Presentation





The
consolidated financial statements of Pomeroy IT Solutions, Inc. (“the Company”)
have been prepared in accordance with accounting principles generally accepted
in the United States of America (“US GAAP”) for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X.   Accordingly, they do not include all the information and
footnotes required by US GAAP for complete financial statements.  In
the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the interim periods have been
made. The results of operations for the three month period ended April 5, 2009
are not necessarily indicative of the results that may be expected for future
interim periods or for the year ending January 5, 2010.





Use of
Estimates in Financial Statements - In preparing financial statements in
conformity with accounting principles generally accepted in the United States of
America, management makes estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting
period.  Accounting estimates in these financial statements include
allowances for trade accounts receivable and vendor accounts receivable,
deferred tax valuation allowances and estimates related to assessing the
impairment of long-lived assets. Such estimates and assumptions are subject to
inherent uncertainties, which may result in actual amounts differing from
reported amounts.





3.
            Recent Accounting
      Pronouncements





During
fiscal 2008, the Company adopted Statement of Financial Accounting Standards
No. 157, Fair Value Measurements (“SFAS 157”).  SFAS 157 establishes a
framework for measuring fair value, and expands disclosure about such fair value
measurements.  The Company had only partially applied the provisions of
SFAS 157 as management had elected the deferral provisions of FASB Staff
Position (“FSP”) 157-2 which delayed the effective date of SFAS157 for
non-financial assets and liabilities which are not measured at fair value on a
recurring basis (at least annually) until January 6, 2009 for the
Company.   The major categories of assets and liabilities that
are recognized or disclosed at fair value on a nonrecurring basis include
intangible assets and equipment and leasehold improvements that may be reported
at fair value as a result of impairment testing, and certain assets and
liabilities recognized as a result of business combinations. There was no impact
to the Company’s consolidated financial position, results of operations, or cash
flows as a result of the adoption of SFAS 157 for non-financial assets and
liabilities.





In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 141(R), “Business Combinations” which replaces SFAS No. 141,
“Business Combinations.” This Statement retains the fundamental requirements in
SFAS No. 141 that the acquisition method of accounting (formerly referred
to as purchase method) is to be used for all business combinations and that an
acquirer is identified for each business combination. This Statement defines the
acquirer as the entity that obtains control of one or more businesses in the
business combination and establishes the acquisition date as of the date that
the acquirer achieves control. This Statement requires an acquirer to recognize
the assets acquired, the liabilities assumed, and any noncontrolling interest in
the acquiree at the acquisition date, measured at their fair values. This
Statement requires the acquirer to recognize acquisition-related costs and
restructuring costs separately from the business combination as period expense.
This Statement is effective for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008. The Company will implement SFAS
No. 141(R) for any business combinations occurring subsequent to
January 5, 2009.





In April
2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of
Intangible Assets”. This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS 142, “Goodwill and Other Intangible
Assets”. The intent of this FSP is to improve the consistency between the useful
life of a recognized intangible asset under SFAS 142 and the period of expected
cash flows used to measure the fair value of the asset under SFAS 141R and other
U.S. generally accepted accounting principles. This FSP became effective for the
Company in fiscal year 2009.  The adoption of this FSP had no impact
on the consolidated financial statements.


8


POMEROY
IT SOLUTIONS, INC.





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





In June
2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating
Securities.”  FSP EITF 03-6-1 concludes that non-vested shares with
non-forfeitable dividend rights are considered participating securities and,
thus, subject to the two-class method pursuant to SFAS 128, “Earnings per
Share”, when computing basic and diluted EPS. The Company adopted FSP EITF
03-6-1 effective January 6, 2009. Upon adoption, the Company is required to
adjust all prior period EPS data on a retrospective basis to conform with the
provisions of this FSP. Due to net losses incurred for the quarter ended April
5, 2008, for the six month period ended July 5, 2008, for the nine month period
ended October 5, 2008 and for the years ended January 5, 2009 and 2008, the
Company’s previously-reported basic and diluted weighted average shares
outstanding, and earnings (loss) per share, for these periods are not affected
by the adoption of this Statement.  For the three month period ended
July 5, 2008, basic weighted average shares outstanding is adjusted from 11,946
to 12,343 with no impact on previously-reported basic earnings per share. No
adjustment is necessary for diluted weighted average shares outstanding and
diluted earnings per share for the three month period ended July 5, 2008. For
the three month period ended October 5, 2008, basic and diluted weighted average
shares outstanding are adjusted from 11,994 and 12,217, respectively, to 12,370
and 12,370, respectively, with no impact on previously-reported basic and
diluted earnings per share. See additional discussion in Note 5 to the
consolidated financial statements.





4.
            Borrowing
      Arrangements





The
Company has a Syndicated Credit Facility Agreement with GE Commercial
Distribution Finance (“GECDF”), which became effective June 25, 2004 (the
“Credit Facility”). The Credit Facility, which has been the subject of
subsequent modifications, provides for a floor plan loan facility and a
revolving loan commitment, both of which are collateralized primarily by the
Company’s accounts receivable. The Credit Facility also provides for a letter of
credit facility. The funds available for borrowing by the Company under the
Credit Facility are reduced by an amount equal to outstanding advances made to
the Company to finance inventory under the floor plan loan facility and the
aggregate amount of letters of credit outstanding at any given
time.





The
maximum available borrowings under the Credit Facility total $80.0 million for
inventory financing and the revolving loan. The Credit Facility permits
distributions up to a maximum of $18 million for the period June 25, 2008
through June 25, 2009 only if specified criteria are met.  The term
distribution is defined in the Credit Facility and includes dividends,
acquisitions of outstanding stock, reinvestment of debt securities and
compensation to a shareholder in excess of normal compensation including
performance bonuses. The agreement provides for a termination fee of up to $250
thousand to be paid by the Company in the event the Company terminates the
agreement prior to the maturity date of the revolving loan
commitment.  The Credit Facility expires on June 25, 2009. The Company
intends to negotiate a new credit facility with terms sufficient for its
financing needs and does not anticipate any problems securing a new credit
facility before June 25, 2009. However, if the Company is unable to negotiate a
new credit facility, it could adversely affect the Company’s ability to
operate.





A
significant part of the Company’s inventories are financed by floor plan
arrangements with third parties. At April 5, 2009 and January 5, 2009, these
lines of credit totaled $88.0 million, including $80.0 million with GE
Commercial Distribution Finance (“GECDF”) and $8.0 million with IBM Credit
Corporation (“ICC”). Borrowings under the GECDF floor plan arrangements are made
on 30 day notes. Borrowings under the ICC floor plan arrangement are made on 15
day notes. All such borrowings are secured by the related inventory. The Company
classifies amounts outstanding under the floor plan arrangements as floor plan
financing liability which is a current liability in the consolidated balance
sheets. Payments made under floor plan arrangements are classified as financing
activities in the consolidated statements of cash flows. Outstanding amounts
under the floor plan financing arrangements totaled $7.4 million at April 5,
2009 and $11.7 million at January 5, 2009. Interest was imputed on these
borrowings at a rate of 6.0% per annum for the three month periods ended April
5, 2009 and 2008. Related interest expense totaled $101 thousand and $196
thousand for the three month periods ended April 5, 2009 and 2008,
respectively.


9


POMEROY
IT SOLUTIONS, INC.





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





As of
April 5, 2009 and January 5, 2009, there was no balance outstanding under the
Credit Facility other than the floor plan financing liability.  At
April 5, 2009 and January 5, 2009, the amounts available under the Credit
Facility were $29.9 million and $50.2 million, respectively. Interest on
outstanding borrowings under the credit facility is payable monthly based on the
LIBOR rate and a pricing grid.  As of April 5, 2009, the adjusted
LIBOR rate was 3.01%.  The credit facility is collateralized by
substantially all the assets of Pomeroy, except those assets that collateralize
certain other financing arrangements.  Under the terms of the credit
facility, the Company is subject to various financial covenants. As of April 5,
2009, Pomeroy was not in compliance with these financial covenants due to the
$5.0 million cumulative current liability for aged trade credits, and has
obtained a waiver from GECDF.





5.
            Stock-Based
      Compensation





Restricted Common Stock
Awards





During
the three months ended April 5, 2009, the Company awarded 158,404 shares of
restricted common stock, which vest over a 4-year period.  Restricted
stock awards are valued at the closing market value of the Company’s common
stock on the date of the grant, and the total value of the award is recognized
as expense ratably over the vesting period. Total compensation expense
recognized for unvested shares was $135 thousand and $492 thousand for the three
months ended April 5, 2009 and 2008, respectively.  As of April 5,
2009, the total amount of unrecognized compensation expense related to nonvested
restricted stock awards was approximately $2.8 million, which is expected to be
recognized over a weighted-average period of approximately 3.0
years.





Weighted averageShares
                  
                  
                  fair value at
                    grant dateRestricted common stock outstanding January 5, 2009
                  
                  
                  348,397
                  
                  
                  $
                  7.13Granted
                  
                  
                  158,404
                  
                  
                  
                  3.55Vested
                  
                  
                  -
                  
                  
                  
                  -Forfeitures
                  
                  
                  (80,000
                  )
                  
                  
                  7.61Restricted
      common stock outstanding April  5, 2009
                  
                  
                  426,801
                  
                  
                  $
                  5.57





Stock Option
Awards





For the
three months ended April 5, 2009, the Company granted 293,072 stock option
awards to employees.  The fair values range from $1.64 to $1.65, based
upon the following assumptions:  underlying price of stock ranging
from $3.50 to $3.61; expected life ranging from 3.5 to 4.5 years; volatility
ranging from 58.92% to 61.38%; risk-free interest rates ranging from 1.12% to
1.41%; and dividend yield of 0.00%.





For the
three months ended April 5, 2009 and 2008, the Company recognized approximately
$209 thousand and $232 thousand, respectively, in expense related to stock
options.  The approximate unamortized stock option compensation as of
April 5, 2009, which will be recorded as expense in future periods, is $725
thousand. The weighted average time over which this expense will be recorded is
approximately 2.3 years.





Employee Stock Purchase
Plan





For the
three months ended April 5, 2009 and 2008, the Company recognized approximately
$20 thousand and $31 thousand, respectively, in expense related to the employee
stock purchase plan being compensatory under FAS 123R.


10


POMEROY
IT SOLUTIONS, INC.





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





6.
            Earnings per Common
      Share





The
following is a reconciliation of the number of shares used in the basic EPS and
diluted EPS computations:





Three Months Ended April 5,2009
                
                
                2008Per Share
                
                
                
                
                
                Per ShareShares
                
                
                Amount
                
                
                Shares
                
                
                AmountBasic
      EPS
                
                
                9,354
                
                
                $
                (0.06
                )
                
                
                12,061
                
                
                $
                (0.35
                )Effect
      of dilutive stock options and unvested restricted shares
                
                
                -
                *
                
                
                -
                *
                
                
                -
                *
                
                
                -
                *Diluted
      EPS
                
                
                9,354
                
                
                $
                (0.06
                )
                
                
                12,061
                
                
                $
                (0.35
                )





*Not
presented herein since effect on loss per common share is anti-dilutive for the
three months ended April 5, 2009 and 2008.





Effective
January 6, 2009, the Company adopted FSP EITF 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions are Participating
Securities.”  As a result of the adoption of FSP EITF 03-6-1,
non-vested shares with non-forfeitable dividend rights are considered
participating securities and, thus, subject to the two-class method pursuant to
SFAS 128, “Earnings per Share”, when computing basic and diluted EPS. 
Losses are only allocable to participating securities if the holder has a
contractual obligation to share in the losses of the Company as further defined
in EITF 03-6-1, “Participating Securities and the Two-Class Method under FASB
Statement No. 128.”  The Company’s restricted stock awards contain
non-forfeitable dividend rights but do not contractually obligate the holders to
share in losses of the Company.  Accordingly, during periods of net
income unvested restricted shares are included in the determination of both
basic and diluted earnings per share.  During periods of net loss,
these shares excluded from both basic and diluted earnings per
share.





For the
three month periods ended April 5, 2009 and 2008, a total of 426,801 and 365,351
unvested restricted share awards, respectively, were excluded from the basic and
diluted EPS calculation due to net losses incurred for these
periods.  For the three month periods ended April 5, 2009 and 2008,
1,360,172 and 1,463,986 stock options, respectively, were excluded from the
diluted EPS calculations as their effect would have been
anti-dilutive.





7.
            Treasury
    Stock




On
November 14, 2008, the Company announced that the Board of Directors of the
Company had authorized a program to repurchase up to $5.0 million of its
outstanding common stock.  On November 19, 2008, the Board of
Directors of the Company authorized a $5.0 million increase in its stock
repurchase program, therefore authorizing the Company to purchase up to $10.0
million of its outstanding common stock under the program.  All stock
repurchases are to be made through open market purchases, block purchases or
privately negotiated transactions as deemed appropriate by the Company within a
period of one year from the date of the first purchase under the
program.  The Company has no obligation to repurchase shares under the
program, and the timing, manner and actual number of shares repurchased will
depend on a variety of factors including price, corporate and regulatory
requirements and other market conditions. The Company intends to utilize
available working capital to fund the stock repurchase program. The acquired
shares will be held in treasury or cancelled.  During fiscal 2008, the
Company purchased 2,656,155 shares at a total cost of $7.9 million under this
program.  During the three month period ended April 5, 2009, the
Company purchased an additional 55,804 shares at a total cost of $185 thousand
under this program.


11


POMEROY
IT SOLUTIONS, INC.





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





8.
            Supplemental Cash Flow
      Disclosures





Supplemental
disclosures with respect to cash flow information and non-cash investing and
financing activities are as follows:





(in thousands)Three Months Ended April 5,2009
                  
                  
                  2008Interest
      paid
                  
                  $
                  149
                  
                  
                  $
                  351Income
      taxes paid
                  
                  $
                  23
                  
                  
                  $
                  9





9.
            Contingencies





The
Company is party to various negotiations, customer bankruptcies and legal
proceedings in the normal course of business.  Management believes
these matters will not have a material adverse effect on the Company's financial
position or results of operations.





10.
            Restructuring and Severance
      Charges





During
the three month periods ended April 5, 2009 and 2008, the Company recorded
charges of $101 thousand and $581 thousand, respectively, for severance related
to the realignment of the Company’s operations. As of April 5, 2009, accrued
severance charges totaled $88 thousand, which will be paid out in fiscal
2009.





As of
April 5, 2009, facility-related restructuring liabilities totaled $674 thousand,
consisting primarily of the remaining liability recorded in fiscal 2004 in
connection with the ARC acquisition for certain duplicative leased facilities.
The outstanding balance as of April 5, 2009 will be paid out in fiscal
2009.





The
expenses associated with restructuring and severance charges are recorded in
selling, general and administrative expenses in the Company’s consolidated
statements of operations.





As of
April 5, 2009, the restructuring and severance charge accrual, consisted of the
following:




(in
      thousands)Severance
                    
                    
                    Facilities
                    
                    
                    TotalLiability
      balance at January 5, 2009
                    
                    $
                    78
                    
                    
                    $
                    1,071
                    
                    
                    $
                    1,149Cash
      payments
                    
                    
                    (91
                    )
                    
                    
                    (397
                    )
                    
                    
                    (488
                    )Charges
      accrued
                    
                    
                    101
                    
                    
                    
                    -
                    
                    
                    
                    101Liability
      balance at April 5, 2009
                    
                    $
                    88
                    
                    
                    $
                    674
                    
                    
                    $
                    762


12


POMEROY
IT SOLUTIONS, INC.





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





11.
            Income
    Taxes





For the
three months ended April 5, 2009 and 2008, the Company had no income tax expense
or income tax benefit. For the three months ended April 5, 2009 and 2008, the
Company increased its tax valuation allowance by $200 thousand and $1.6 million,
respectively. The tax valuation allowance totaled $22.6 million at April 5,
2009. The tax valuation allowance is due to the future uncertainty of the
Company’s ability to utilize its deferred tax assets.  For the three
months ended April 5, 2009 and 2008, these adjustments to the tax valuation
allowance offset what would have been an income tax benefit.  The
effective income tax rate would have been 33.9% and 37.5% for the three month
periods ended April 5, 2009 and 2008, respectively, prior to the recording of
the tax valuation reserves.





As of
April 5, 2009 there have been no material changes in the Company’s uncertain tax
positions disclosures as provided in note 7 of the 2008 Annual Report on Form
10-K.





The
Company includes interest and penalties related to gross unrecognized tax
benefits within the provision for income taxes.  As of April 5, 2009,
the Company had accrued $351 thousand for payment of such interest.





The
Company and its subsidiaries file income tax returns in various tax
jurisdictions, including the United States and several U.S. states. The Company
has substantially concluded all U.S. Federal and State income tax matters for
years up to and including 2004.





12.
            Segment
      Information





The
Company follows the provisions of SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information."  This statement establishes
standards for the reporting of information about operating segments in annual
and interim financial statements.  Operating segments are defined as
components of an enterprise for which separate financial information is
available that is evaluated regularly by the chief operating decision maker(s)
in deciding how to allocate resources and in assessing
performance.  The Company is aligned into functional lines: Sales,
Service Operations, Finance and Administrative.  Management and the
board of directors review operating results on a consolidated
basis.  As a result, the Company has one operating segment and the
Company reports one reportable segment. The following is a summary of the two
major components of service revenue as viewed by the chief decision makers of
the Company.





(in millions)Service Revenue:
                      
                      For the Three Months Ended April 5,2009
                      
                      
                      2008Technical
      Staffing Services
                      
                      $
                      7.6
                      
                      
                      $
                      32.5Infrastructure
      Services
                      
                      
                      28.7
                      
                      
                      
                      31.2Total
      Service Revenue
                      
                      $
                      36.3
                      
                      
                      $
                      63.7Service Cost of Revenues:
                      
                      For the Three Months Ended April
      5,2009
                      
                      
                      2008Technical
      Staffing Services
                      
                      $
                      6.4
                      
                      
                      $
                      29.9Infrastructure
      Services
                      
                      
                      22.5
                      
                      
                      
                      26.5Total
      Service Cost of Revenues
                      
                      $
                      28.9
                      
                      
                      $
                      56.4Service Gross Profit:
                      
                      For the Three Months Ended April
      5,2009
                      
                      
                      2008Technical
      Staffing Services
                      
                      $
                      1.2
                      
                      
                      $
                      2.6Infrastructure
      Services
                      
                      
                      6.2
                      
                      
                      
                      4.7Total
      Service Gross Profit
                      
                      $
                      7.4
                      
                      
                      $
                      7.3


13


POMEROY
IT SOLUTIONS, INC.





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





13.
            Subsequent
      Event





The
Company previously reported in its Form 10-K for the year ended January 5, 2009
that the Company had entered into an Aircraft Purchase Agreement, dated March
17, 2009, to sell the Company’s aircraft to an unrelated third party (the
“Agreement”). The Company’s sale of the aircraft was completed on April 21,
2009, in accordance with the Agreement.





The
Company’s aircraft was leased under an agreement for which the Company provided
the lessor with a residual value guarantee on the aircraft. The lease also
provided the Company with the right and option to terminate the lease prior to
the end of its term and purchase the aircraft from the lessor. Therefore, the
Company effectively terminated the lease agreement on April 21, 2009, and
exercised its right and option to purchase the aircraft from the lessor in order
to simultaneously close on the sale of the aircraft on April 21, 2009, as
contemplated under the Agreement.


14




Item
2-Management’s Discussion and Analysis of Financial Condition and Results of
Operations





Special Cautionary Notice
Regarding Forward-Looking Statements





Certain
of the matters discussed under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" contain certain
forward-looking statements regarding future financial results of the Company.
The words “expect,” “estimate,” “anticipate,” “predict,” and similar expressions
are intended to identify forward-looking statements. Such statements are
forward-looking statements for purposes of the Securities Act of 1933 and the
Securities Exchange Act of 1934, as amended, and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. Important factors that could cause the actual
results, performance or achievements of the Company to differ materially from
the Company's expectations are disclosed in our Annual Report on Form 10-K under
“Item 1A Risk Factors” and in this document including, without limitation, those
statements made in conjunction with the forward-looking statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." All written or oral forward-looking statements attributable to the
Company are expressly qualified in their entirety by such
factors.


15


Item
2-Management’s Discussion and Analysis of Financial Condition and Results of
Operations





RESULTS
OF OPERATIONS


The
following table sets forth for the periods presented information derived from
our consolidated statements of operations expressed as a percentage of net
product and service revenues:





(in
      thousands)For
      the Three Months Ended April 5,2009
                                      
                                      
                                      %
      of
                                        Revenues
                                      
                                      
                                      2008
                                      
                                      
                                      %
      of
                                        RevenuesNet
      revenues:Product
                                      
                                      $
                                      53,161
                                      
                                      
                                      
                                      59.4
                                      %
                                      
                                      $
                                      81,477
                                      
                                      
                                      
                                      56.1
                                      %Service
                                      
                                      
                                      36,299
                                      
                                      
                                      
                                      40.6
                                      %
                                      
                                      
                                      63,692
                                      
                                      
                                      
                                      43.9
                                      %Total
      net revenues
                                      
                                      
                                      89,460
                                      
                                      
                                      
                                      100.0
                                      %
                                      
                                      
                                      145,169
                                      
                                      
                                      
                                      100.0
                                      %Gross
      profitProduct
                                      
                                      
                                      5,517
                                      
                                      
                                      
                                      6.2
                                      %
                                      
                                      
                                      8,406
                                      
                                      
                                      
                                      5.8
                                      %Service
                                      
                                      
                                      7,443
                                      
                                      
                                      
                                      8.3
                                      %
                                      
                                      
                                      7,270
                                      
                                      
                                      
                                      5.0
                                      %Total
      gross profit
                                      
                                      
                                      12,960
                                      
                                      
                                      
                                      14.5
                                      %
                                      
                                      
                                      15,676
                                      
                                      
                                      
                                      10.8
                                      %Gross
      profit %Product
      %
                                      
                                      
                                      10.4
                                      %
                                      
                                      
                                      
                                      
                                      
                                      
                                      10.3
                                      %Service
      %
                                      
                                      
                                      20.5
                                      %
                                      
                                      
                                      
                                      
                                      
                                      
                                      11.4
                                      %Operating
      expenses:Selling,
      general and administrative
                                      
                                      
                                      12,771
                                      
                                      
                                      
                                      14.3
                                      %
                                      
                                      
                                      18,396
                                      
                                      
                                      
                                      12.7
                                      %Depreciation
      and amortization
                                      
                                      
                                      703
                                      
                                      
                                      
                                      0.8
                                      %
                                      
                                      
                                      1,216
                                      
                                      
                                      
                                      0.8
                                      %Total
      operating expenses
                                      
                                      
                                      13,474
                                      
                                      
                                      
                                      15.1
                                      %
                                      
                                      
                                      19,612
                                      
                                      
                                      
                                      13.5
                                      %Loss
      from operations
                                      
                                      
                                      (514
                                      )
                                      
                                      
                                      -0.6
                                      %
                                      
                                      
                                      (3,936
                                      )
                                      
                                      
                                      -2.7
                                      %Other
      income (expense):Interest
      income
                                      
                                      
                                      86
                                      
                                      
                                      
                                      0.1
                                      %
                                      
                                      
                                      85
                                      
                                      
                                      
                                      0.1
                                      %Interest
      expense
                                      
                                      
                                      (160
                                      )
                                      
                                      
                                      -0.2
                                      %
                                      
                                      
                                      (351
                                      )
                                      
                                      
                                      -0.2
                                      %Other
                                      
                                      
                                      (4
                                      )
                                      
                                      
                                      0.0
                                      %
                                      
                                      
                                      -
                                      
                                      
                                      
                                      0.0
                                      %Other
      income (expense), net
                                      
                                      
                                      (78
                                      )
                                      
                                      
                                      -0.1
                                      %
                                      
                                      
                                      (266
                                      )
                                      
                                      
                                      -0.1
                                      %Loss
      before income tax
                                      
                                      
                                      (592
                                      )
                                      
                                      
                                      -0.7
                                      %
                                      
                                      
                                      (4,202
                                      )
                                      
                                      
                                      -2.8
                                      %Income
      tax expense (benefit)
                                      
                                      
                                      -
                                      
                                      
                                      
                                      0.0
                                      %
                                      
                                      
                                      -
                                      
                                      
                                      
                                      0.0
                                      %Net
      loss
                                      
                                      $
                                      (592
                                      )
                                      
                                      
                                      -0.7
                                      %
                                      
                                      $
                                      (4,202
                                      )
                                      
                                      
                                      -2.8
                                      %


16


POMEROY
IT SOLUTIONS, INC.


MANAGEMENT'S
DISCUSSION AND ANALYSIS OF


FINANCIAL
CONDITION AND RESULTS OF OPERATIONS





First
Quarter 2009 versus First Quarter 2008





Total Net Revenues:
  Total net revenues decreased $55.7 million or 38.4% in the first
quarter of fiscal 2009, compared to the first quarter of fiscal 2008. For the
first quarters of fiscal 2009 and fiscal 2008, the net revenues were $89.5
million and $145.2 million, respectively.





Product
revenues were $53.2 million in the first quarter of fiscal 2009, a decrease of
$28.3 million or 34.8% from the first quarter of fiscal 2008. The decrease in
revenue was primarily generated by a reduction in capital expenditures of large
customers within the Financial, Manufacturing and Retail markets.  These
expenditures were previously approved in the current year budgets but were
delayed due to ongoing economic uncertainty.





Service
revenues were $36.3 million in the first quarter of fiscal 2009, a decrease of
$27.4 million or 43.0% from the first quarter of fiscal 2008. The Company groups
services sales into Technical Staffing and Infrastructure Services. Technical
Staffing Services support clients’ project requirements, ensures regulatory and
customer compliance requirements and fulfills interim and permanent staffing
requirements of the staffing projects.  Infrastructure Services help
clients optimize the various elements of distributed computing
environments.  Encompassing the complete IT lifecycle, these
services include desktop and mobile computing, server and network
environments.




(in millions)Quarter ended April 5,Service Revenue
                      
                      2009
                      
                      
                      2008Technical
      Staffing
                      
                      $
                      7.6
                      
                      
                      $
                      32.5Infrastructure
      Services
                      
                      
                      28.7
                      
                      
                      
                      31.2Total
      Service Revenue
                      
                      $
                      36.3
                      
                      
                      $
                      63.7





Technical
Staffing revenue decreased $24.9 million, or 76.6%, in the first quarter of
fiscal 2009. In June 2008, the Company elected not to renew a technical services
contract with a major customer because the proposed terms would have been
unprofitable for the Company. As a result of the loss of this business, we
expect a decline of approximately $80 million in technical staffing revenue for
the full year in fiscal 2009. Technical Staffing revenue accounted for
approximately 21.0% of total service revenues in the first quarter of fiscal
2009 compared to 51.0% in the first quarter of fiscal 2008.





Infrastructure
Service revenues decreased $2.5 million, or 8.0%, in the first quarter of fiscal
2009, primarily due to a decline in short-term project engagements and a loss
contract which was exited at the end of the second quarter of fiscal
2008.  Infrastructure Service revenues accounted for approximately
79.0% of total service revenues in the first quarter of fiscal 2009 compared to
49.0% in the first quarter of fiscal 2008.





Gross Profit
:  Gross profit was $13.0 million in the first quarter of fiscal 2009,
compared to $15.7 million in the first quarter of fiscal 2008. Gross profit
margin, as a percentage of revenue, was 14.5% in the first quarter of fiscal
2009, compared to 10.8% in the first quarter of fiscal 2008.





Product
gross profit was $5.5 million in the first quarter of fiscal 2009, compared to
$8.4 million in the first quarter of fiscal 2008. Product gross profit margin as
a percentage of product revenues increased slightly to 10.4% in the first
quarter of fiscal 2009, compared to 10.3% in the first quarter of fiscal
2008.





Service
gross profit was $7.4 million in the first quarter of fiscal 2009, compared to
$7.3 million in the first quarter of fiscal 2008.  Service gross
profit margins were 20.5% in the first quarter of fiscal 2009, compared to 11.4%
in the first quarter of fiscal 2008.


17


POMEROY
IT SOLUTIONS, INC.


MANAGEMENT'S
DISCUSSION AND ANALYSIS OF


FINANCIAL
CONDITION AND RESULTS OF OPERATIONS




(in millions)Quarter ended April 5,Service Gross Profit
                      
                      2009
                      
                      
                      2008Technical
      Staffing
                      
                      $
                      1.2
                      
                      
                      $
                      2.6Infrastructure
      Services
                      
                      
                      6.2
                      
                      
                      
                      4.7Total
      Service Gross Profit
                      
                      $
                      7.4
                      
                      
                      $
                      7.3





Gross
profit from Technical Staffing Services was $1.2 million for the first quarter
of fiscal 2009, compared to $2.6 million for the first quarter of fiscal
2008.  Gross profit margin increased to 16.1% in the first quarter of
fiscal 2009 from 8.0% in the first quarter of fiscal 2008.  The
decrease in gross profit dollars and increase in gross margin is primarily the
result of the non-renewal of the technical services contract with a major
customer in June 2008 which would have been unprofitable for the Company. We
expect a decline in technical staffing gross profit of approximately $6.2
million for the full year in fiscal 2009.





Gross
profit from Infrastructure Services was $6.2 million for the first quarter of
fiscal 2009 compared to $4.7 million for the first quarter of fiscal
2008.  Gross profit margin increased to 21.7% in the first quarter of
fiscal 2009 from 15.0% in the first quarter of fiscal 2008.  The
increase in gross profit margin is the result of engagements during the first
quarter of fiscal 2008 that generated revenue of approximately $1.4 million at
zero gross profit and cost reductions in the second and third quarters of fiscal
2008 resulting in improved utilization and productivity of the technical
resources.





Operating
Expenses: Total operating expenses were $13.5 million in the
first quarter of fiscal 2009, compared to $19.6 million in the first quarter of
fiscal 2008, a decrease of $6.1 million or 31.3%. The decrease is primarily the
result of the following:





·
            In the first quarter of fiscal
      2008, the Company recorded a $1.0 million charge to reserve against the
      collection of Technical Staffing Services revenues that were overbilled by
      subcontractors in 2005 and 2006. During the first quarter of fiscal 2009,
      the Company reversed $0.2 million of this charge after reevaluating the
      amounts overbilled.


·
            Severance charges for the first
      quarter of fiscal 2009 totaled $0.1 million compared to severance charges
      of $0.5 million for the first quarter of fiscal
    2008.


·
            The provision for bad debts
      decreased from $0.3 million in the first quarter of fiscal 2008 to $0.1
      million in the first quarter of fiscal
  2009.


·
            Selling expenses were reduced by
      $0.9 million in the first quarter of fiscal 2009 as a result of decreased
      revenues.


·
            During the first quarter of
      fiscal 2008, the Company recorded accruals for loss contracts of $0.3
      million, as well as a $0.3 million start-up penalty for a new
      contract.


·
            Payroll and payroll related
      expenses decreased approximately $3.2 million in the first quarter of
      fiscal 2009 as compared to the first quarter of fiscal 2008 due to
      reductions in staffing support resources which were made as a result of
      the non-renewal of the Technical Services contract with a major customer
      in June 2008. In addition the Company made changes in order to right-size
      the business as a result of the overall decline in
      revenues.





The
decreases in operating expenses described above were partially offset by a $0.4
million charge in the first quarter of fiscal 2009 associated with the Company’s
leased aircraft.





Loss from Operations:
  Loss from operations decreased $3.4 million, to a loss of $0.5
million in the first quarter of fiscal 2009 from a loss of $3.9 million in the
first quarter of fiscal 2008. The decrease in loss from operations is the result
of the decrease in operating expenses offset by the decrease in revenues, as
described above.


18


POMEROY
IT SOLUTIONS, INC.


MANAGEMENT'S
DISCUSSION AND ANALYSIS OF


FINANCIAL
CONDITION AND RESULTS OF OPERATIONS





Other income (expense):
  Net other expense was $0.1 million in the first quarter of fiscal
2009 compared to $0.3 million during the first quarter of fiscal 2008. Although
the Company has significant cash balances, the Company’s interest expense
exceeds its interest income due primarily to outstanding balances under its
floor plan and credit facilities at rates that exceed those rates earned on the
Company’s cash and cash equivalents. The decrease in net other expense is
primarily the result of a $0.2 million decrease in interest expense for
outstanding borrowings under the Company’s credit facility during the first
quarter of fiscal 2009 compared to the first quarter of fiscal 2008 resulting
from the timing of payments of accounts payable and payroll, as well as a lower
outstanding floor plan liability during the first quarter of fiscal 2009 as
compared to the first quarter of fiscal 2008.





Income Taxes:   For
the first quarters of fiscal 2009 and fiscal 2008, the Company had no income tax
expense or benefit.  During the first quarters of fiscal 2009 and
2008, the Company increased its tax valuation allowance by $200 thousand and
$1.6 million, respectively, due to the future uncertainty of the Company’s
ability to utilize its deferred tax assets.





Net Loss:   Net
loss was $0.6 million in the first quarter of fiscal 2009, compared to $4.2
million in the first quarter of fiscal 2008.  The decrease in net loss
is a result of the factors described above.


19


POMEROY
IT SOLUTIONS, INC.


MANAGEMENT'S
DISCUSSION AND ANALYSIS OF


FINANCIAL
CONDITION AND RESULTS OF OPERATIONS





LIQUIDITY
AND CAPITAL RESOURCES





Cash
generated by operating activities was $12.9 million for the first quarter of
fiscal 2009. Cash used in investing activities was $0.2 million, consisting
solely of capital expenditures.  Cash used in financing activities was
$4.4 million, which includes a $4.3 million net reduction in floor plan
financing liability, $0.2 million for the purchase of treasury stock, offset by
$0.1 million for the issuance of common shares.





The
amount of cash derived from or used by operating activities will vary based on a
number of business factors which may change from time to time, including terms
of available financing from vendors, up or down turns in the Company’s business
and or up or down turns in the businesses of the Company’s
customers.  However, a growth or decline in services revenue in
conjunction with a change in the proportion of services revenue to total revenue
is an underlying driver of operating cash flow during a period of growth because
a majority of the Company’s service revenue is generated based upon the billings
of the Company’s technicians.  The cash outlay for these labor/payroll
costs is incurred bi-weekly with each pay period.  The invoicing for
the service is generated on various billing cycles as dictated by the customers,
and the respective cash inflow typically follows within 30 to 60 days of invoice
date, which may be as long as 60 to 120 days from the time the services are
performed.  Product revenue has a shorter cash outlay period, as the
time difference between paying vendors for products purchased and receiving cash
from customers is typically 0 to 60 days. In addition, certain services,
primarily outsourcing contracts for the Company’s Life Cycle Services, require
that the Company maintain a specific parts inventory for servicing the customer;
thus, an increase or decrease in the type of services provided can impact
inventory levels and operating cash flows.





Cash
flows generated by operating activities in the first quarter of fiscal 2009 was
$12.9 million, compared to cash flows used by operating activities of $4.3
million, for the same period of fiscal 2008.  A reduction in accounts
receivable and inventories generated $28.8 million and $1.5 million,
respectively, in operating cash flows during the first quarter of fiscal 2009
compared to $18.8 million and $0.3 million, respectively, for the first quarter
of fiscal 2008.  Reductions in accounts payable, liabilities for
employee compensation and benefits and other assets and liabilities utilized
cash of $14.2 million, $2.0 million and $1.6 million, respectively, during the
first quarter of fiscal 2009 compared to $15.2 million, $3.8 million and $2.5
million, respectively, in the first quarter of fiscal 2008.  The
reduction in receivables is associated with the decline in revenues during the
first quarter of fiscal 2009 compared to the first quarter of fiscal 2008, and
the reduction in inventories is due to timing of shipments.





The
Company has a Syndicated Credit Facility Agreement with GE Commercial
Distribution Finance (“GECDF”), which became effective June 25, 2004 (the
“Credit Facility”). The Credit Facility, which has been the subject of
subsequent modifications, provides for a floor plan loan facility and a
revolving loan commitment. The Credit Facility also provides for a letter of
credit facility. The funds available for borrowing by the Company under the
Credit Facility are reduced by an amount equal to outstanding advances made to
the Company to finance inventory under the floor plan loan facility and the
aggregate amount of letters of credit outstanding at any given
time.





The
maximum available borrowings under the Credit Facility total $80.0 million for
inventory financing and the revolving loan. The Credit Facility permits
distributions up to a maximum of $18 million for the period June 25, 2008
through June 25, 2009 only if specified criteria are met.  The term
distribution is defined in the Credit Facility and includes dividends,
acquisitions of outstanding stock, reinvestment of debt securities and
compensation to a shareholder in excess of normal compensation including
performance bonuses. The agreement provides for a termination fee of up to $250
thousand to be paid by the Company in the event the Company terminates the
agreement prior to the maturity date of the revolving loan
commitment.  The Credit Facility expires on June 25,
2009.


20


POMEROY
IT SOLUTIONS, INC.


MANAGEMENT'S
DISCUSSION AND ANALYSIS OF


FINANCIAL
CONDITION AND RESULTS OF OPERATIONS





LIQUIDITY
AND CAPITAL RESOURCES





A
significant part of the Company’s inventories are financed by floor plan
arrangements with third parties. At April 5, 2009 and January 5, 2009, these
lines of credit totaled $88.0 million, including $80.0 million with GE
Commercial Distribution Finance (“GECDF”) and $8.0 million with IBM Credit
Corporation (“ICC”). Borrowings under the GECDF floor plan arrangements are made
on 30 day notes. Borrowings under the ICC floor plan arrangement are made on 15
day notes. All such borrowings are secured by the related inventory. The Company
classifies amounts outstanding under the floor plan arrangements as floor plan
financing liability which is a current liability in the consolidated balance
sheets. Payments made under floor plan arrangements are classified as financing
activities in the consolidated statements of cash flows. Outstanding amounts
under the floor plan financing arrangements totaled $7.4 million at April 5,
2009 and $11.7 million at January 5, 2009. Interest was imputed on these
borrowings at a rate of 6.0% per annum for the three month periods ended April
5, 2009 and 2008. Related interest expense totaled $101 thousand and $196
thousand for the three month periods ended April 5, 2009 and 2008,
respectively.





As of
April 5, 2009 and January 5, 2009, there was no balance outstanding under the
Credit Facility other than the floor plan financing liability.  At
April 5, 2009 and January 5, 2009, the amounts available under the Credit
Facility were $29.9 million and $50.2 million, respectively. Interest on
outstanding borrowings under the credit facility is payable monthly based on the
LIBOR rate and a pricing grid.  As of April 5, 2009, the adjusted
LIBOR rate was 3.01%.  The credit facility is collateralized by
substantially all the assets of Pomeroy, except those assets that collateralize
certain other financing arrangements.  Under the terms of the credit
facility, the Company is subject to various financial covenants. As of April 5,
2009, Pomeroy was not in compliance with these financial covenants due to the
$5.0 million cumulative current liability for aged trade credits, and has
obtained a waiver from GECDF.





The
Company previously reported in its Form 10-K for the year ended January 5, 2009
that the Company had entered into an Aircraft Purchase Agreement, dated March
17, 2009, to sell the Company’s aircraft to an unrelated third party (the
“Agreement”). The Company’s sale of the aircraft was completed on April 21,
2009, in accordance with the Agreement.





The
Company’s aircraft was leased under an agreement for which the Company provided
the lessor with a residual value guarantee on the aircraft. The lease also
provided the Company with the right and option to terminate the lease prior to
the end of its term and purchase the aircraft from the lessor. Therefore, the
Company effectively terminated the lease agreement on April 21, 2009, and
exercised its right and option to purchase the aircraft from the lessor in order
to simultaneously close on the sale of the aircraft on April 21, 2009, as
contemplated under the Agreement.  The net cash outflow from this
transaction is $6.4 million which will be reflected in the Company’s cash flows
during second quarter of fiscal 2009.





The
Company believes that the anticipated cash flow from operations and current
financing arrangements will be sufficient to satisfy the Company’s capital
requirements for the next twelve months. The Company’s credit facility expires
June 25, 2009. The Company intends to negotiate a new credit facility with terms
sufficient for its financing needs and does not anticipate any problems securing
a new credit facility before June 25, 2009. However, if the Company is unable to
negotiate a new credit facility, it could adversely affect the Company’s ability
to operate.





Following
an internal review, we identified errors in the Company’s historical accounting
treatment since 1991 of certain aged trade credits created in the ordinary
course of business. The errors relate primarily to the recognition in the
Company’s income statement of certain aged trade credits affecting accounts
receivable, accounts payable and selling, general and administrative
expenses.





The
aggregate liability recorded to the Company’s consolidated balance sheets
approximates $5.0 million as of April 5, 2009.  The Company expects
that the final settlement of this liability may take several months or possibly
years as the Company remediates these credits with customers and vendors. The
Company anticipates that the liability may ultimately be settled for less than
$5.0 million. However, the Company cannot provide any assurance that the final
settlement will be materially lower.


21


POMEROY
IT SOLUTIONS, INC.


MANAGEMENT'S
DISCUSSION AND ANALYSIS OF


FINANCIAL
CONDITION AND RESULTS OF OPERATIONS





LIQUIDITY
AND CAPITAL RESOURCES





On
November 14, 2008, the Board of Directors of the Company authorized a program to
repurchase up to $5.0 million of its outstanding common stock.  On
November 19, 2008, the Board of Directors of the Company authorized a $5.0
million increase in its stock repurchase program, therefore authorizing the
Company to purchase up to $10.0 million of its outstanding common stock under
the program.  All stock repurchases are to be made through open market
purchases, block purchases or privately negotiated transactions as deemed
appropriate by the Company within a period of one year from the date of the
first purchase under the program.  The Company has no obligation to
repurchase shares under the program, and the timing, manner and actual number of
shares repurchased will depend on a variety of factors including price,
corporate and regulatory requirements and other market conditions. The Company
intends to utilize available working capital to fund the stock repurchase
program. The acquired shares will be held in treasury or
cancelled.  During fiscal 2008, the Company purchased 2,656,155 shares
at a total cost of $7.9 million under this program.  During the three
month period ended April 5, 2009, the Company purchased an additional 55,804
shares at a total cost of $185 thousand under this program.


22


Item
3-Quantitative and Qualitative Disclosures about Market Risk





The
Company is exposed to interest rate risk primarily through its credit facility
with GECDF.  The Company did not experience a material impact from
interest rate risk for the first three months of fiscal 2009.





Currently,
the Company does not have any significant financial investments for trading or
other speculative purposes or to manage interest rate exposure.





The
recent global financial crisis affecting the banking system and financial
markets and the going concern threats to investment banks and other financial
institutions have resulted in a tightening in the credit markets. There could be
a number of follow-on effects from the global financial crisis and resulting
economic slowdown on our business, including lower overall demand, insolvency of
suppliers resulting in product delays, inability of customers to obtain credit
to finance purchases of our projects, payment delays by customers and/or
customer insolvencies, more onerous credit and commercial terms from our
suppliers, delays in accessing our current credit facilities or obtaining new
credit facilities on terms we deem commercially reasonable or at all and an
inability of GECDF to fulfill their funding obligations. In an extreme case of
banking instability, we might not be able to access our cash accounts or money
market investments. Any further deterioration of economic conditions would
likely exacerbate these adverse effects and could result in a wide-ranging and
prolonged impact on general business conditions, thereby negatively impacting
our operations, financial results and/or liquidity.





Item
4-Controls and Procedures





Management’s
Evaluation of Disclosure Controls and Procedures





Our
management, with the participation of our principal executive and principal
financial officers, has evaluated the effectiveness of our disclosure controls
and procedures over financial reporting designed to ensure that the information
required to be disclosed in our filings under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and forms, and to
ensure that such information is accumulated and communicated to management,
including our principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required disclosure. Based on
such evaluation, our principal executive and principal financial officers have
concluded that such disclosure controls and procedures were not effective, as of
April 5, 2009 (the end of the period covered by this Quarterly Report on Form
10-Q/A) due to the material weakness discussed below.





On July
31, 2009, the Audit Committee of the Company’s Board of Directors (the “Audit
Committee”) concluded that the Company’s financial statements and related audit
reports thereon in the Company’s most recently filed Annual Report on Form 10-K
for the year ended  January 5, 2009 and the interim financial
statements in the Quarterly Report on Form 10-Q for the quarter ended April 5,
2009 should no longer be relied upon.





Changes
in Internal Control Over Financial Reporting





The
Company’s Chief Executive Officer and Chief Financial Officer previously
concluded in the Company’s Annual Report on Form 10-K filed on March 20, 2009
that material weaknesses existed in the Company’s internal control over
financial reporting at January 5, 2009. The specific material weaknesses
identified were as follows:





1.
            The Company did not maintain
      effective internal control over the financial reporting and close function
      to appropriately apply generally accepted accounting principles ensuring
      the adequacy of amounts and completeness of disclosures in the
      consolidated financial statements, resulting in the previous
      misclassification of cash flows from floor plan
      financing.





2.
            The Company did not maintain
      effective internal control over financial reporting to ensure that all
      costs such as payroll costs and vendor incentive payments are
      appropriately classified in the proper financial statement category. As a
      result, certain cost of revenues were previously classified improperly in
      the financial statements.





In the
first quarter of fiscal 2009, the following steps were taken, which remediated
these material weaknesses:





1.
            All finance agreements including
      floor plan arrangements are reviewed by the finance group upon execution
      of such agreements and on a quarterly basis to ensure activity under these
      agreements is being properly recorded and reported in the consolidated
      financial statements.





2.
            The Company has implemented a
      more detailed budgeting process and has carefully reviewed the financial
      statement classification of all significant costs as part of this
      process.  The Company now performs more detailed budget to
      actual comparisons on a quarterly basis as an added control to ensure that
      costs are classified in the appropriate financial statement categories. In
      addition, any changes to general ledger account classification within the
      financial statements will be documented, reviewed and approved by
      qualified accounting personnel on a quarterly
  basis.


Following
an internal review, we identified errors in the Company’s historical accounting
treatment since 1991 of certain aged trade credits created in the ordinary
course of business. The errors relate primarily to the recognition in the
Company’s income statement of certain aged trade credits affecting accounts
receivable, accounts payable and selling, general and administrative
expenses.





The
aggregate liability recorded to the Company’s consolidated balance sheets, with
a corresponding reduction to stockholders’ equity, as a result of this
restatement approximates $5.0 million as of April 5, 2009 and January 5,
2009.  The correction of these errors did not impact the Company’s
consolidated statements of operations, consolidated statements of cash flows or
consolidated statements of cash flows for any period presented within this
Quarterly Report on Form 10-Q/A.





The
identified material weakness in our internal control over financial reporting
related to the proper disposition, reconciliation, monitoring and consequent
accounting of aged trade credits, specifically as follows:





1.
            The Company did not have an
      adequate understanding of its unclaimed property obligations and utilized
      unsupported assumptions regarding trade
  credits.


2.
            Policies
      and procedures were not adequate to timely determine the proper
      disposition of all overpayments and duplicate payments received from
      clients.


3.
            Policies
      and procedures were not adequate to timely reconcile and determine the
      proper disposition of credit memos issued to clients in exchange for
      returned products, billing errors and other customer service
      reasons.


4.
            Policies
      and procedures were not adequate to timely determine the proper
      disposition of outstanding un-cashed client and personnel
      disbursements.





Pomeroy
management has taken action to remediate this material weakness described above,
including identification of the following remediation plan:





1.
            Discontinuing
      the practice of taking certain aged trade credits into the income
      statement unless the Company is released from its obligation or it is
      determined that there is an error (such that no credit or other obligation
      in fact exists).


2.
            Policies
      and procedures have been implemented to research and properly dispose of
      client credit balances or un-cashed
  disbursements.


3.
            System
      enhancements will be identified and implemented to strengthen control
      procedures including the automation of issuance of credit memos and
      statements to clients.


4.
            A
      comprehensive unclaimed property reporting methodology will be implemented
      to timely and accurately comply with applicable state
  laws.





Pomeroy
management will assign the highest priority to the Company’s remediation
efforts, with the goal of remediating the material weakness by the end of 2009.
However, due to the nature of the remediation process and the need to allow
adequate time after implementation to evaluate and test the effectiveness of the
implemented controls, no assurance can be given as to the timing of achievement
of remediation.


23


PART II -
OTHER INFORMATION





Item
1-Legal Proceedings





The
Company is party to various negotiations, customer bankruptcies and legal
proceedings in the normal course of business.  Management believes
these matters will not have a material adverse effect on the Company's financial
position or results of operations.





Item
1A-Risk Factors





There are
no material changes in the risk factors previously disclosed in our annual
report on Form 10-K/A for the fiscal year ended January 5, 2009.





Item
2-Unregistered Sales of Equity Securities and Use of Proceeds





a.      None





b.      None





c.      Repurchase of
Securities





On
November 14, 2008, the Company announced that the Board of Directors of the
Company had authorized a program to repurchase up to $5.0 million of its
outstanding common stock.  On November 19, 2008, the Board of
Directors of the Company authorized a $5.0 million increase in its stock
repurchase program, therefore authorizing the Company to purchase up to $10.0
million of its outstanding common stock under the program.  All stock
repurchases are to be made through open market purchases, block purchases or
privately negotiated transactions as deemed appropriate by the Company within a
period of one year from the date of the first purchase under the
program.  The Company has no obligation to repurchase shares under the
program, and the timing, manner and actual number of shares repurchased will
depend on a variety of factors including price, corporate and regulatory
requirements and other market conditions. The Company intends to utilize
available working capital to fund the stock repurchase program. The acquired
shares will be held in treasury or cancelled.  During fiscal 2008, the
Company purchased 2,656,155 shares at a total cost of $7.9 million under this
program.  During the three month period ended April 5, 2009, the
Company purchased an additional 55,804 shares at a total cost of $185 thousand
under this program. The following table contains information for shares
repurchased under this program:





The maximumTotal number of
                        
                        
                        amountTotal
                        
                        
                        
                        
                        
                        shares purchased
                        
                        
                        that may yet benumber of
                        
                        
                        Average price
                        
                        
                        as part of
                        
                        
                        purchased undershares
                        
                        
                        paid
                        
                        
                        publicly announced
                        
                        
                        the plan (2)Period
                        
                        purchased
                        
                        
                        per share ($)(1)
                        
                        
                        plan (2)
                        
                        
                        ($) (thousands)January
      6, 2009 - February 5, 2009
                        
                        
                        27,032
                        
                        
                        $
                        3.21
                        
                        
                        
                        27,032
                        
                        
                        $
                        1,976February
      6, 2009 - March 5, 2009
                        
                        
                        9,936
                        
                        
                        $
                        3.43
                        
                        
                        
                        9,936
                        
                        
                        $
                        1,942March
      6, 2009 - April 5, 2009
                        
                        
                        18,836
                        
                        
                        $
                        3.42
                        
                        
                        
                        18,836
                        
                        
                        $
                        1,8782,711,959
                        
                        
                        $
                        2.99
                        
                        
                        
                        2,711,959
                        
                        
                        $
                        1,878




(1)      Average
price includes transaction costs.




(2)      All
shares were repurchased pursuant to the repurchase program described
above.




Item
3-Defaults Upon Senior Securities





None


24


PART II -
OTHER INFORMATION





Item
4-Submission of Matters to a Vote of Security Holders





None.





Item
5-Other Information





(a)
            Information
      Required to be Disclosed on Form 8-K that has not been
      reported.





None.





(b)
            Material
      Changes to the Procedures by Which Shareholders May Recommend Nominees to
      the Board of Directors.





None.





(c)
            Other
      Information





None.


25


PART II -
OTHER INFORMATION





Item
6-Exhibits





(a)
            
            Exhibits3(i)(a)1
            
            Certification
      of Incorporation of Pomeroy Computer Resources, dated February, 1992
      (incorporated by reference to Exhibit 3(i)(a)1 of the Company’s Form 10-Q
      filed August 11, 2000)3(i)(a)2
            
            Certificate
      of Amendment to Certificate of Incorporation, dated July 1997
      (incorporated by reference to Exhibit 3(i)(a)2 of the Company’s Form 10-Q
      filed August 11, 2000)3(i)(a)4
            
            Certificate
      of Amendment to Certificate of Incorporation, dated August 2000
      (incorporated by reference to Exhibit 3(i)(a)4 of the Company’s Form 10-Q
      filed August 11, 2000)3(i)(a)5
            
            Certificate
      of Amendment to Certificate of Incorporation for Pomeroy Computer
      Resources, Inc., dated June 19, 2003 (incorporated by reference to Exhibit
      3(i)(a)5 of the Company’s Form 10-Q filed August 19,
  2003)3(i)(a)6
            
            Certificate
      of Amendment to Certificate of Incorporation for Pomeroy Computer
      Resources Sales Company, Inc., dated June 19, 2003 (incorporated by
      reference to Exhibit 3(i)(a)6 of the Company’s Form 10-Q filed August 19,
      2003)3(ii)
            
            Bylaws
      of the Company as amended on January 24, 2008 (incorporated by reference
      to Exhibit 3(ii) of the Company’s Form 10-Q filed on May 15,
      2008)11.1
            
            Statement
      regarding computation of per share earnings (See Note 1 of Notes to
      Consolidated Financial Statements in the Company’s Form 10K for fiscal
      2008, filed on March 20, 2009).31.1
            
            Section
      302 CEO Certification31.2
            
            Section
      302 CFO Certification32.1
            
            Section
      906 CEO Certification32.2
            
            Section
      906 CFO Certification





SIGNATURE





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.





POMEROY IT SOLUTIONS,
  INC.(Registrant)Date:
      August 24, 2009
                  
                  By:  /s/
      Craig J. PropstCraig
      J. PropstSenior
      Vice President, Treasurer and ChiefFinancial
      Officer


26