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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

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

For the fiscal year ended January 3, 2009

Commission File number 0-4090

ANALYSTS INTERNATIONAL CORPORATION(Exact name of registrant as specified in its charter)

Minnesota(State of incorporation)

41-0905408(I.R.S. Employer Identification No.)3601 West 76th Street, Minneapolis, Minnesota(Address of principal executive offices)

55435(Zip Code)


Registrant's
telephone number, including area code:(952) 835-5900

Securities
registered pursuant to Section 12(b) of the Act:

Common Stock, par value $.10 per share(Title of class)

Common Share Purchase Rights(Title of class)

Securities
registered pursuant to Section 12(g) of the Act:NONE

Indicate
by check mark if the registrant is a well-known seasonal issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o

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 the
definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company ý


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

The aggregate market value of the voting stock (Common Stock) held by non-affiliates of the registrant as of the last business day of the registrant's
most recently completed second fiscal quarter (June 28, 2008) was $33,632,653 based upon the closing price as reported by Nasdaq.

As
of March 25, 2009, there were 24,925,076 shares of the registrant's common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The
information called for by Part III of the Form 10-K is incorporated by reference from the registrant's definitive proxy statement which will be filed
pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.



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TABLE OF CONTENTS



PART IItem 1.

Business

3Item 1A.

Risk Factors

8Item 1B.

Unresolved Staff Comments

11Item 2.

Properties

11Item 3.

Legal Proceedings

11Item 4.

Submission of Matters to a Vote of Security Holders

11PART IIItem 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

12Item 6.

Selected Financial Data

13Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

13Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

28Item 8.

Financial Statements and Supplementary Data

29Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

49Item 9A(T).

Controls and Procedures

49Item 9B.

Other Information

50PART IIIItem 10.

Directors, Executive Officers and Corporate Governance

51Item 11.

Executive Compensation

52Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

52Item 13.

Certain Relationships and Related Transactions, and Director Independence

52Item 14.

Principal Accounting Fees and Services

52PART IVItem 15.

Exhibits, Financial Statement Schedules

53SIGNATURES

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PART I

Item 1.    Business.

Company Overview

Analysts International Corporation ("AIC," "Company," "we," "us," or "our") is an information technology ("IT") services company that
is focused on providing configured solutions for our clients. We provide IT staffing and project based services, including application development and integration, systems integration, portals and
collaboration solutions, network and infrastructure solutions, and managed services. We were incorporated under Minnesota law in 1966 and our corporate headquarters are located in Minneapolis,
Minnesota.

Our
clients rely on IT to work seamlessly behind the scenes. This requires technical and intellectual resources that most organizations cannot or do not want to employ themselves. We
provide our clients with just-in-time skills, knowledge and talent to deliver value specifically focused on their unique requirements. Our people are personally committed to
delivering value by leveraging our collective experience, by performing to defined specifications and by operating with integrity. Our industry-specific knowledge coupled with key strategic
partnerships allows our employees to work in concert with clients to transform their business.

We
recruit talented IT professionals to provide temporary, permanent and supplemental staffing to our broad portfolio of clients throughout the United States and Canada. We serve
requirements ranging from the placement of highly specialized consultants at medium sized companies to high-volume temporary staffing at large clients. Our workforce is configured to meet
the demands of our clients and the demands of an ever-changing IT industry. Our clients benefit from:



We
contract with our customers to provide both short- and long-term IT staffing services primarily at client locations throughout the United States. Our typical clients are
large, sophisticated organizations with complex requirements that call for knowledgeable and experienced IT people as well as highly configured and repeatable solutions. We employ dedicated account
teams and consultants to work with our clients from needs assessment and business requirements, through technical design, development, implementation and support of the IT solution.

Service Offerings



We recruit talented IT professionals to provide temporary, permanent and supplemental staffing for our clients. We serve requirements
ranging from the placement of highly specialized consultants at medium sized companies to high-volume temporary staffing at large clients. We hire qualified employees, work to keep our
people trained on the latest technology and stress the importance of forging long-lasting, personal connections with our clients. Our consulting teams are comprised of

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full-time,
permanent employees, temporary and contract professionals, as well as a network of high quality subsuppliers.



In addition to our commercial application solutions client base, we serve state and local governments through our public sector
business. Our Justice and Public Safety practice helps law enforcement professionals make more informed decisions, solve crimes, combat terrorism and protect our nation's communities. Our government
solutions include the following:



We are committed to our strategic partnership with Lawson Software. Since 1995, we have provided a full suite of enterprise resource
planning ("ERP") enhancement, implementation and management services so that our clients can customize offerings to address specific technical, functional or business requirements across their
enterprise.



We are committed to our strategic partnership with Microsoft. We are a Microsoft Gold Certified Partner serving enterprise to
mid-size clients, as well as a National Systems Integrator ("NSI") partner. These designations signify our commitment to excellence in designing and implementing Microsoft technology.



We deliver to our clients end-to-end infrastructure solutions that enhance productivity and better enable
client-facing applications for secure, collaborative and instant communications. Our field-proven approach and integration methodology allow our clients to get more value from their investment in IT
infrastructure and help them create a distinct advantage over their competition. Our core competencies include providing our clients with unified communications, data center, wireless, security and
virtualization solutions.



Our local, national and global managed services delivery capabilities provide our clients with the service levels required to operate
their IT infrastructure.

Symmetry Workforce Solutions Divestiture

On July 1, 2008, we completed the sale of our vendor management systems business to COMSYS Information Technology
Services, Inc. and received $0.2 million in initial cash proceeds with the potential for future earn-out payments depending on the future performance of the business.

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Our Strategic Plan

In January 2008, we announced a strategic plan (the "Plan") designed to restore the Company to profitability and increase shareholder
value. We believe certain aspects of the Plan have been successful despite the sharp downturn in the overall economy. The Plan outlined our objectives on restructuring and refocusing the Company. The
following provides an update on our progress:

Objective

ProgressIncrease revenue, improve margins and add sales personnel in higher-margin service areas

We experienced increased revenue in our Lawson and Application Solutions service offerings and our overall total gross margin percentage increased 160 basis points in fiscal 2008 when compared to fiscal 2007Expand our value-added services in key metro markets and strengthen relationships with technology partners

We launched Microsoft consulting practices in Colorado and Minnesota which helped strengthen our relationship with Microsoft.Reduce corporate expenses through consolidation of back-office and other corporate overhead functions

We reduced our selling, administrative and other expenses by more than $8.3 millionExit non-strategic, non-core lines of business

We exited our Symmetry Workforce Solutions business and we discontinued our staffing relationship with one of our largest accountsInvest in our IT systems in order to simplify, streamline and automate our business process

We significantly improved our client billing process, installed new operational management and tools for performance management, launched a new website, created and installed collaboration tools and have begun to
invest in our sales and recruiting technology infrastructure.Attracting and retaining top talent

We have installed talented leaders in senior management, sales, service delivery, operations and back office functions throughout the organization to implement the objectives of the Plan.


In
2009, we expanded our Plan to include additional defined goals related to our business strategy and continue to focus on key areas such as the public sector, Lawson and Microsoft
Solutions. Our additional Plan objectives for 2009 include:



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We
believe the global economic downturn will continue throughout 2009, but we also believe that executing on the objectives listed above should allow us to emerge from the current
economic downturn as a stronger, more institutionally mature business that can serve as a platform for future growth.

Client Information

Approximately 90 percent of our annual revenue is from services and products provided to our existing client base, which
consists primarily of Fortune 500® companies. This high percentage of repeat business demonstrates our emphasis on client satisfaction and the development of long-term
relationships with clients who have an ongoing need for the types of services we provide.

We
provide services to a wide range of industries. Our revenue for fiscal 2008 was derived from services rendered to clients in the following industry groups:

Approximate
Percent of FY
2008 RevenueElectronics/Manufacturing


31.4
%Government/Public Administration


15.7Professional/Business Services


10.7Financial/Insurance Services


9.1Oil and Chemical


6.9Telecommunications


6.0Health Care


5.8Merchandising


5.2Other


9.2


We
provided services to more than 850 clients during fiscal 2008. Consistent with practices in prior years, we rendered these services predominantly on a time and materials hourly rate
basis under which invoices for services rendered were typically submitted no less frequently than monthly.

International
Business Machines Corporation ("IBM") has been a significant client of ours for many years, and represents the only client relationship we have that exceeds 10% of our
total revenue. The services we provide to IBM are predominantly in the area of IT staffing. The IBM business accounted for approximately 13%, 14% and 19% of our total revenue for fiscal 2008, 2007 and
2006, respectively. This decline in revenues is consistent with management's strategic plan to focus on higher value IT services.

Sales and Operations

We provide our services principally at client locations with the support from local and regional sales and support offices. Our sales
personnel serve clients in local markets as well as accounts on a national basis and generally have over ten years of experience in our industry. For our national staffing accounts, dedicated teams
are assembled to serve our clients needs. For our local accounts, individuals within the region are primarily utilized to serve our clients needs. These teams are supported by a centralized sales
support and administrative functions.

Our
compensation programs for sales and recruiting personnel are intended to provide incentives for higher-margin business and the delivery against our designated strategic business
development goals.

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During
the year ended January 3, 2009, we maintained a sales and support presence in the following locations: Austin, TX; Chicago, IL; Dallas, TX;
Denver, CO; Detroit, MI; Frankfort, KY; Houston, TX; Indianapolis, IN; Iselin, NJ; Kansas City, MO; Lansing, MI;
Las Vegas, NV; Lexington, KY; Minneapolis, MN; Omaha, NE; Phoenix, AZ; Raleigh/Durham, NC; Richmond, VA; Rochester, MN;
St. Louis, MO; and Seattle, WA.

Personnel

Our business is dependent on our ability to attract and retain talented personnel to serve our clients. Our staff consists of
approximately 1,700 personnel. Of these, approximately 1,350 are IT professionals, 100 are medical professionals and 250 are individuals who work in sales, recruiting, delivery, administrative and
support positions. We believe that our relationship with our employees is good. No employees are covered by a collective bargaining agreement or are represented by a labor union. AIC is an equal
opportunity employer.

Competition

We compete with the computer consulting and/or IT staffing divisions of several large companies (including Adecco (Ajilon), MPS Group
(Modis), TEKsystems, Wipro Technologies and Spherion) on a national basis. These organizations are substantially larger than us in terms of sales volume and personnel and have substantially greater
financial resources.

We
also compete with other national IT services companies such as Computer Task Group, Comforce, Ciber, Inc., Comsys IT Partners, Tech Team Global and RCM
Technologies, Inc.

Our
branch offices compete in local markets with numerous regional and local IT services firms. Most of these competitors are approximately the same size as or smaller than our local
office, although in certain market areas they are larger than our local office.

Principal
competitive factors in the IT services business include technical expertise, the ability to hire quality technical personnel on a timely basis, responsiveness to clients'
staffing needs in a broad spectrum of skill sets, reputation, credibility, service delivery models and tools, and bill rates. We believe we are competitive in all these respects.

Available Information

We maintain our website at www.analysts.com and make available, free of charge, our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports, in the Investor Relations section of the website as soon as
reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission ("SEC").

Other Matters

Our principal executive office is located in Minneapolis, Minnesota. Raw materials, seasonality, compliance with environmental
protection laws, and patents, trademarks, licenses, franchises, research and development and other concessions are not material to an understanding of our business. No portion of our business is
subject to re-negotiation of profits at the election of the government. No material governmental approval is required for any of our principal products and services and no existing or
probable governmental regulations are material to an understanding of our business. Backlog is not material because nearly all of the Company's contracts for services, including contracts with the
government (which in the aggregate are not material), are terminable by either the client or the Company on notice of 30 days or less.

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Item 1A.    Risk Factors

If the economic downturn worsens or is prolonged, it would likely have a negative affect on our clients and their levels of spending, cause our revenues to decline,
adversely affect our results of operations, cash flows and financial condition and negatively affect our ability to execute the Plan.

The U.S. and global economies have entered into a recession as a result of deterioration in the credit markets and the related
financial crises, as well as a variety of other factors. The economic downturn has resulted in and is likely to continue to result in reductions in technology and other discretionary spending by some
of our clients, which has resulted in and is likely to continue to result in reductions in our business. Our results of operations are affected by the level of business activity of our clients, which
in turn, is affected by the regional and global economic conditions in which they operate. If our customers delay or cancel spending on the IT projects, that decision could
result in reduction in sales of our services and products, longer sales cycles and increased price competition. There can be no assurances that government responses to the disruptions in the financial
markets will restore spending to previous levels. Any continued or prolonged economic downturn could negatively impact our results of operations, cash flows and financial condition, as well as our
ability to execute the Plan.

Our
business depends on our ability to successfully obtain payment from our clients. We evaluate the financial condition of our clients, bill the clients, and typically collect within a
reasonable time period. We maintain allowances against receivables, but actual losses on client balances could differ from those estimates. The current financial crisis has made it more difficult and
there is no guarantee that we will accurately assess the creditworthiness of our clients. In addition, timely collection of client balances depends on the business health of our client. As a result,
any continued or prolonged economic downturn could result in our clients seeking to extend payment terms, delay payments, to enter into bankruptcy or liquidation, any of which would negatively impact
our ability to collect client balances on a timely basis which would negatively impact our results of operations, cash flows and financial condition.

Intense competition within the IT staffing industry may result in a loss of market share and could adversely affect our business.

The market for our services is extremely competitive. Intense price competition in the area of IT staffing, continued pressure on
billing rates, and customers' continued requests for lower cost models for IT staffing services will continue to pressure and, in some cases, could adversely impact our operating results. Management
expects that clients will continue, for the foreseeable future, to request lower cost offerings for IT staffing services through e-procurement systems, extremely competitive bidding
processes, the granting of various types of discounts and the use of offshore resources. Our ability to respond to customer requests for lower pricing or to provide other low-cost
solutions in this area of our business will have a direct effect on our performance. We are also experiencing pressure from some clients who desire to utilize companies with larger market
capitalization than ours for their IT staffing needs, requiring us to look for internal and external revenue growth opportunities. We expect competitive conditions in the area of IT staffing services
to continue for the foreseeable future.

Additionally,
many of our current and potential competitors have significantly greater financial, technical, marketing and other resources than we do and as a result, they may be able to
adjust to changing market conditions and respond to customer demands more effectively than we are able. They may also have greater resources to devote to the development of new technologies, products
and services. It is possible that new competitors, alliances among competitors or alliances between competitors and third parties may emerge and acquire significant market share. If this were to
occur, it could have an adverse effect on our business, results of operations and financial condition.

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Our success is directly dependent on our ability to attract and retain qualified technical consultant personnel. Increased competition for these individuals may adversely
affect our business.

Our ability to quickly identify, attract and retain qualified technical consultant personnel, especially during an economic recovery,
will affect our results of operations and our ability to grow in the future. Competition for qualified personnel is intense. If we are unable to hire the talent required by our clients in a timely,
cost-effective manner and with mutually beneficial pay rates and benefit packages, it will affect our ability to grow the business and improve our financial performance.

We may be unsuccessful in executing the Plan and restoring the company profitability and increasing shareholder value.

We announced the Plan in January 2008 to restore profitability and increase shareholder value. The Plan requires us to achieve several
objectives such as:



Our
ability to increase revenues, improve margins, and increase higher-margin services areas may be limited as long as our clients continue to be impacted by the economic downturn. In
addition, we may
be unsuccessful in our ability to expand into key metro markets, strengthen relationships with technology partners and successfully exit non-strategic, non-core lines of
businesses. If we are unable to achieve one or more of objectives listed above, we may fail to restore profitability and increase shareholder value.

Our ability to manage our working capital and our credit facility is critical to our success.

From time to time, our operations may require more cash than is available from operations. In these circumstances, it may be necessary
to borrow from credit facilities. Our ability to obtain financing in the future through credit facilities will be affected by several factors including our creditworthiness, our ability to operate in
a profitable manner and general market and credit conditions. An inability to obtain additional working capital on terms reasonably acceptable to us or access to our existing credit facility, should
it be required, could have an adverse material effect on our business. We believe our working capital and the availability under our existing credit facility will be sufficient for the foreseeable
needs of our business. Significant changes in our business or cash outflows from operations could create a need for additional working capital. We may be unable to obtain necessary financing on terms
reasonably acceptable to us. Reflecting the concern about the stability of the financial markets generally, many lenders and institutional investors have reduced, and in some cases ceased to provide,
funding to borrowers. The resulting lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity could materially
and adversely affect our business, financial condition, results of operations and our ability to obtain and manage our liquidity. Our ability to maintain and invest in our business requires sufficient
bank credit lines to

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support
short-term borrowings. If we are unable to continue to access the capital markets through short-term borrowings, we could experience a material adverse effect on our
business and financial results. Our $45.0 million credit line, which expires on January 20, 2010, includes a number of financial and operating restrictions. These provisions may limit
our ability to conduct our business, take advantage of business opportunities and respond to changing business, market and economic conditions. In addition, they may place us at a competitive
disadvantage relative to other companies that may be subject to fewer, if any, restrictions on may otherwise adversely affect our business. Further, there is no assurance we will be able to obtain a
replacement line of credit and financing on acceptable terms, if at all. Failure to comply with the requirements of our credit agreement could have a material adverse effect on our business. A failure
to obtain a replacement line of credit on acceptable or commercially reasonable terms would also have a material adverse effect on our business.

The loss of the services of one or more of our key personnel or the inability to attract key personnel could weaken our ability to deliver quality services and could
adversely affect our business.

We are substantially dependent on certain key employees. We are dependent on the services of our executive management team to direct
efforts related to execution of the Plan. We are also dependent on certain personnel to maintain critical existing client relationships and attract new business. The loss of one or more of these key
personnel could have an adverse effect on our operations, including our ability to execute the Plan, maintain existing client relationships and attract new clients in the context of changing economic
or competitive conditions. If we are unable to attract and retain key personnel to perform these services, our business, results of operations and financial condition could be adversely affected.

If we are unable to satisfy the Nasdaq Global Market's continued listing requirements, including a minimum price per share of $1.00, our common stock may be delisted, which
would likely impair the liquidity and the value of our common stock.

As of March 25, 2009, the closing bid price of our common stock on the Nasdaq Global Market was $0.41, which is below the
minimum $1.00 bid price requirement for continued listing on the Nasdaq Global Market pursuant to Nasdaq Marketplace Rule 4450(a)(5), or the Rule. Given the current extraordinary market
conditions, Nasdaq has announced a temporary moratorium on enforcement of the Rule. This moratorium is in effect until July 20, 2009 but there can be no assurance that Nasdaq will extend it.

If
we are not able to regain compliance by the time the Rule is reinstated, Nasdaq will provide us with an initial notice that our common stock will be delisted unless the bid price of
our common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days within 180 calendar days from such notification. If we were to fail to regain compliance within 180
calendar days, we would receive written notice of delisting from Nasdaq, which we could then appeal to a Nasdaq Listings Qualifications Panel pursuant to applicable Nasdaq rules. Alternatively, we
might be permitted under Nasdaq rules to transfer the listing of our common stock to the Nasdaq Capital Market if our common stock satisfies all criteria, other than compliance with the minimum bid
price requirement, for initial inclusion on such market. In the event of such a transfer, the Nasdaq Marketplace Rules provide that we would be afforded an additional 180 calendar days to comply with
the minimum bid price requirement while listed on the Nasdaq Capital Market.

If
our common stock is delisted from the Nasdaq Global Market and the Nasdaq Capital Market, trading in our common stock would likely be conducted on the OTC Bulletin Board, a regulated
quotation service. If our common stock is delisted from Nasdaq, the liquidity of our common stock may be reduced, not only in terms of the number of shares that can be bought and sold at a given
price, but also through delays in the timing of transactions and reduction in security analysts' and the media's coverage of us. This may result in lower prices for our common stock than might
otherwise be obtained
and could also result in a larger spread between the bid and asked prices for our common stock. Delisting could also result in a loss of confidence by our suppliers, customers and employees.

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Forward-Looking Statements

This Form 10-K contains forward-looking statements (within the meaning of the Private Securities Litigation Reform
Act of 1995) about: (i) our expectations and beliefs with respect to the recession, the volatility of the capital markets, the tightening of lending standards in the credit markets, and the
general downturn in the global economy, as well as our assumptions with respect to the impact these economic conditions will have on our business, including an expectation of a reduction in business
volume, (ii) our Plan and the objectives of the Plan, including certain expense reduction initiatives and the planned expansion into new geographic markets, (iii) our expectations with
respect to growing our business and achieving profitability, (iv) our expectations with respect to demand for our services and continuing pressure from clients to request lower cost offerings
for IT staffing services, (v) our expectations with respect to competition in our industry and our ability to compete, (vi) our beliefs regarding the adequacy of our working capital and
our ability to meet the requirements of our credit facility or to obtain a replacement credit facility on commercially reasonable terms, and (vii) our expectations with respect to our financial
results and operating performance. You can identify these statements by the use of words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "will," and other words and
terms of similar meaning or import in connection with any discussion of future operating or financial performance. Among the factors that could cause actual results to differ materially are:
(i) our inability, in whole or in part, to implement or execute the Plan, (ii) our inability to successfully recruit and hire qualified technical personnel, (iii) our inability to
successfully compete on a national basis with other companies in our industry by responding to our customers' varied staffing needs, (iv) our inability to maintain key client relationships,
(v) our inability to attract or retain key personnel (vi) our inability to reduce operating costs, (vii) our inability to comply with the covenants in our credit facilities or
inability to obtain a credit facility on commercially reasonable terms, (viii) a prolonged or worsened downturn in the national or global economy, and (ix) our inability to effectively
manage accounts receivable, as well as other economic, business, competitive and/or regulatory factors affecting our business generally, including those set forth in this Annual Report on
Form 10-K for fiscal year 2008, especially in the Management's Discussion and Analysis section, our most recent Quarterly Report on Form 10-Q and our Current
Reports on Form 8-K. All forward-looking statements included in this Form 10-K are based on information available to us as of the date hereof. We undertake no
obligation (and expressly disclaim any such obligation) to update forward-looking statements made in this Form 10-K to reflect events or circumstances after the date of this
Form 10-K or to update reasons why actual results would differ from those anticipated in any such forward-looking statements, other than as required by law.

Item 1B.    Unresolved Staff Comments.

None.

Item 2.    Properties.

Our principal executive offices are located at 3601 West 76th Street, Minneapolis, Minnesota 55435, in a 134,000 square foot
office building in which we lease approximately 53,000 square feet. This lease is set to expire in May 2012. All other locations are held under leases with varying expiration dates ranging from
1 month to 6 years.

Item 3.    Legal Proceedings.

There are no material pending legal proceedings to which the Company is a party or to which any of its property is subject, other than
routine litigation and other matters incidental to the business.

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

No matters were submitted to a vote of the Company's shareholders during the fourth quarter of fiscal 2008.

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

a)Market Information

Our
common shares are traded on The Nasdaq Global Market under the symbol ANLY. The table below sets forth for the periods indicated the high and low intraday
sales prices for our common stock as reported by Nasdaq.

Market RangeHigh

LowFiscal Year Ended January 3, 2009Fourth Quarter

$
1.50

$
0.32Third Quarter


1.64


1.00Second Quarter


1.80


1.30First Quarter


1.70


1.08Fiscal Year Ended December 29, 2007Fourth Quarter

$
1.75

$
1.05Third Quarter


1.91


1.50Second Quarter


1.96


1.55First Quarter


1.99


1.66


b)Holders of our Common Equity

As
of March 25, 2009, there were approximately 988 shareholders of record of our common stock.

c)Dividends

Our
credit agreement with GE Capital Corporation prohibits the payment of dividends. We have not declared or paid dividends on our common stock during the last
five fiscal years and currently have no intention of initiating a dividend paying policy.

d)Stock Performance

Not applicable.

e)Issuer Purchases of Equity Securities

We
did not engage in any repurchases of our common stock during the fourth quarter of the fiscal year ended January 3, 2009.

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Item 6.    Selected Financial Data.

Not applicable.

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our consolidated financial statements and related notes. This discussion
contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated due to various factors discussed under "Forward-Looking
Statements" and elsewhere in this Annual Report on Form 10-K, including the "Risk Factors" described in Item 1A.



We are an IT services company that is focused on providing configured solutions for our clients. We provide IT staffing and project
based services, including application development and integration, systems integration, portals and collaboration solutions, network and infrastructure solutions, and managed services.

The
demand for our services is heavily dependent on IT spending by major corporations, organizations and government entities in the markets and locations that we serve. The pace of
technological change and changes in business requirements and practices of our clients all have a significant impact on the demand for our services. Competition for new engagements and pricing
pressure has been strong. During the second half of 2008, we noticed a decrease in the demand for our services, primarily in our high volume IT staffing clients and our value-added reseller business.
We also have noticed that our solutions related projects have longer sales cycles and are being deferred by our clients. We anticipate this weakness in market demand to continue for most of if not all
of 2009.

We
are determined to become a more focused IT professional services organization. We are intentionally eliminating or divesting non-strategic, non-core service
offerings and lines of business. In 2009, we intend to operate as a smaller enterprise that is focused on returning to operating profitability. We continue to execute on our Plan which we believe will
allow us to emerge from the current economic downturn as a stronger, more institutionally mature business that can serve as a platform for future growth.

The
success of our business depends primarily on the volume of assignments and projects we secure, the bill and contract rates for those assignments and projects, the costs of the
consultants that provide the services and the quality and efficiency of our sales, recruiting and administrative functions. We are also dependent on the client demand for infrastructure solutions
which impacts our value added reseller business and acceptable pricing and terms from our channel partners. Our extensive network of qualified IT professionals, our over 40 years of IT industry
experience, our recruiting process, our ability to deliver on demand, our value-added technology industry partnerships and our overall commitment to quality are factors that we believe are key to the
success of our business. Factors outside of our control, such as the demand for IT staffing and solutions, available credit and capital for our clients, general economic conditions and the supply of
qualified consultants, will also affect our success.

Our
revenue is primarily driven by bill rates and billable hours. Most of our billings for our staffing and solutions services are on a time-and-materials basis,
which means we bill our clients based on contracted bill rates for the number of hours that each of our consultant's works on a project. Hourly bill rates are typically determined based on the level
of skill and experience of the consultants assigned and the supply and demand in the current market for those qualifications. General economic conditions, macro IT and professional service expenditure
trends and competition may create pressure on our pricing. Increasingly, large customers, including those with preferred supplier arrangements,

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have
been seeking pricing discounts in exchange for higher volumes of business or maintaining existing levels of business. Billable hours are affected by numerous factors, such as the quality and
scope of our service offerings and competition at the national and local levels. We also generate revenue from product sales which are generally recorded when the product is delivered and revenue from
fixed price engagements which are generally recorded on a percentage of completion basis over the life of the project.

Our
principal operating expenses are the cost of providing our services through the use of our employee consultants or subsupplier consultants, product costs and selling, administrative
and other operating costs. Cost of services is comprised primarily of the costs of consultant labor, including employees, subsuppliers and independent suppliers, and related employee benefits. We
compensate most of our consultants only for the hours that we bill to our clients, which allows us to better match our labor costs with our revenue generation. For certain of our service offerings,
our consultant employees are retained on a salaried basis which requires us to maintain effective utilization of those consultants. With respect to our consultant employees, we are responsible for
employment-related taxes, medical and health care costs and workers' compensation. Labor costs are sensitive to shifts in the supply and demand of our consultants, as well as increases in the costs of
benefits and taxes.

The
principal components of selling, administrative and other operating costs are management, administrative staff, sales and recruiting salaries, sales and recruiting commissions,
facility rent and related costs and depreciation expense. We maintain centralized support functions for our local and regional locations including sales support, financial, internal technology, human
resources, and legal.

Our
fiscal year ends on the Saturday closest to December 31st. Therefore, the fiscal year-ends for 2008, 2007 and 2006 were January 3, 2009,
December 29, 2007, and December 30, 2006, respectively. Fiscal year 2008 contains 53 weeks, whereas fiscal years 2007 and 2006 contain 52 weeks. The additional week in
fiscal 2008 did not have a material impact on our results of operations.



During fiscal 2008, we focused on increasing our mix of higher-margin services, exiting out of low-margin,
non-core lines of business and reducing our selling, administrative and other expenses. The sale of Symmetry, the discontinuation of our staffing relationship with one of our largest
staffing accounts and the expected annualized reduction of over $8.0 million in our selling, administrative and other expenses are consistent with the Plan to restore us to profitability. We
also launched Microsoft practice offerings in select locations and invested our technology infrastructure, sales team and leadership. We believe all of these items are important steps in the continued
transformation of our business. Our results of operations, however, have been negatively impacted in fiscal 2008 by the uncertain economic environment.

The
decrease in revenue in fiscal 2008 is a result of the negative impact the economic environment has had on the demand for IT professional services, staffing and products and our
planned exit from non-core and low-margin lines of business. Early in the third quarter of fiscal 2008, we sold Symmetry, our managed staffing business, to Comsys and
discontinued our staffing relationship with one of our large staffing accounts. Together, business through Symmetry and the large staffing account represented approximately $15 million in
quarterly revenue and $60 million in annualized revenue.

Gross
margins as a percent of revenue increased due to the impact of implementing our strategy of exiting low margin lines of business and accounts and the reduction in lower margin
product sales.

Selling,
administrative and other operating ("SG&A") expenses declined in fiscal 2008 due largely to reducing our operating costs as part of the Plan and the reduction in business
volume.

The
fiscal 2008 loss also include a non-cash charge of $6.3 million to write-off goodwill and a $3.3 million charge for restructuring, severance and
other consulting costs.

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We
generated cash from operations of $5.4 million for fiscal 2008. As of January 3, 2009, we had a cash balance of $2.3 million and no borrowings under our revolving
credit facility.

RESULTS OF OPERATIONS FOR FISCAL 2008 AS COMPARED TO FISCAL 2007

The following table illustrates the relationship between revenue and expense categories and provides a count of employees and technical
consultants for fiscal 2008 versus fiscal 2007.

Year Ended Fiscal 2008

Year Ended Fiscal 2007Increase (Decrease)% of
Revenue



% of
Revenue(Dollars in thousands)

Amount

Amount

Amount

%Revenue:Professional services provided directly

$
216,492


76.2
%
$
243,372


67.7
%
$
(26,880
)

(11.0
)%Professional services provided through subsuppliers


32,674


11.5


58,339


16.2


(25,665
)

(44.0
)Product sales


35,037


12.3


57,959


16.1


(22,922
)

(39.5
)Total revenue


284,203


100.0


359,670


100.0


(75,467
)

(21.0
)Expenses:Cost of services provided directly


170,745


60.1


194,297


54.0


(23,552
)

(12.1
)Cost of services provided through subsuppliers


31,494


11.1


55,989


15.6


(24,495
)

(43.7
)Cost of product sales


31,653


11.1


51,338


14.3


(19,685
)

(38.3
)Selling, administrative and other operating costs


50,087


17.6


58,347


16.2


(8,260
)

(14.2
)Restructuring costs and other severance related costs


2,861


1.0


3,604


1.0


(743
)

(20.6
)Intangible assets impairment








3,049


0.9


(3,049
)

(100.0
)Goodwill impairment


6,299


2.2


5,500


1.5


799


14.5Amortization of intangible assets


1,027


0.4


1,065


0.3


(38
)

(3.6
)Total expenses


294,166


103.5


373,189


103.8


(79,023
)

(21.2
)Operating loss


(9,963
)

(3.5
)

(13,519
)

(3.8
)

(3,556
)

(26.3
)Non-operating income


121


0.0


297


0.1


(176
)

(59.3
)Interest expense


(156
)

0.0


(384
)

(0.1
)

(228
)

(59.4
)Loss before income taxes


(9,998
)

(3.5
)

(13,606
)

(3.8
)

(3,608
)

(26.5
)Income tax expense


136


0.1


2,606


0.7


(2,470
)

(94.8
)Net loss

$
(10,134
)

(3.6
)%
$
(16,212
)

(4.5
)%
$
(6,078
)

(37.5
)%Personnel:Management and Administrative


259





378





(119
)

(31.5
)%Technical Consultants


1,348





2,093





(745
)

(35.6
)%


15

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Revenue from services provided directly declined 11.0% from the comparable period a year ago. The decline in revenue was primarily due
to our decision to discontinue our relationship with one of our large staffing accounts and a reduction in the number of billable technical consultants which was partially offset by an 8.0% increase
in overall billing rates over the prior year. Our subsupplier revenue, which is mainly pass-through revenue with associated fees, declined by 44.0% over the prior year primarily due to the
sale of Symmetry early in the third quarter of fiscal 2008. Product sales during fiscal 2008 declined by 39.5% over the prior year due to an overall reduction in business volume.



Cost of services provided directly represents our payroll and benefit costs associated with our billable consultants. This category of
expense as a percentage of direct services revenue was 78.9% in fiscal 2008 compared to 79.8% in the prior year. The decrease in expense as a percentage of direct services revenue is a result of our
focus on delivering a greater level of higher value services. These services are delivered at higher rates which enable us to better leverage the cost of service delivery.



Cost of services provided through subsuppliers represents our cost when we utilize third parties to fulfill our obligations to our
large staffing clients. This category of expense as a percentage of revenue for services provided through subsuppliers was 96.4% in fiscal 2008 as compared to 96.0% in the prior year. The increase in
the expense as a percentage of subsupplier revenue is a result of increased rates from our subsuppliers.



Cost of product sales represents our cost when we resell hardware and software products. This category of expense, as a percentage of
product sales, was 90.3% in fiscal 2008 compared to 88.6% in the prior year. The increase in expense as a percentage of revenue is a result of the mix of product sales between the comparable periods.



SG&A costs include management and administrative salaries, commissions paid to sales representatives and recruiters, location costs,
and other administrative costs. This category of costs decreased approximately $8.3 million from fiscal 2007 and represented 17.6% of total revenue for fiscal 2008, compared to 16.2% in fiscal
2007. SG&A expenses decreased primarily as a result of our execution of the cost reduction aspects of our Plan and a reduction of sales and recruiting expense due to the decrease in business volume.



During fiscal 2008, we recorded restructuring and severance related expenses totaling $2.9 million. Of this amount,
$2.6 million related to workforce reductions and severance. The remaining $0.3 million related to lease obligations and abandonment costs (net of anticipated sub-lease
income) for locations where we have chosen to downsize or exit completely.

We
recorded restructuring and severance related expenses of $3.6 million during fiscal 2007. Of this amount, $3.3 million related to workforce reductions and severance. The
remaining $0.3 million related to lease obligations and abandonment costs (net of anticipated sub-lease income) for locations where we have chosen to downsize or exit completely.

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During fiscal 2007 and following the termination of the principals of Redwood Solutions Corporation ("Redwood"), a company we acquired
in 2005, we experienced a gradual decline in revenue associated with a major client relationship acquired as part of that transaction. During the fourth quarter of fiscal 2007, revenue from this
client relationship continued to decline, and management determined it would not attempt to re-engage with this relationship. We determined the intangible customer-based asset, which had
been established when Redwood was acquired, had become impaired. As such, the asset, originally valued at $1.7 million, net of $0.3 million of accumulated amortization, was written off.
This write-off resulted in an impairment charge of $1.4 million.

On
December 11, 2007, our board of directors adopted the Plan to refocus our business. As such, a decision was made to aggressively cease using the SequoiaNet.com trade name
acquired in 2000. Following this decision, the SequoiaNet.com trade name, originally valued at $1.7 million, with a net recorded value of $1.6 million, was written down to its fair
value. This write-down resulted in an impairment charge of $1.5 million. The remaining fair value of this trade name ($0.1 million) was amortized over the first six months of
fiscal 2008, the period of time during which the trade name was expected to continue to bring value.



In the fourth quarter of 2008, we determined that events and changes in circumstances had occurred in our business that would indicate
that the goodwill on our consolidated balance sheet as of January 3, 2009 may be impaired. Our forecast for operating results for future periods had declined and we experienced a significant
reduction in the price of our publicly traded shares. As a result of these two events, we determined it was likely that a reduction in fair value of our reporting units had occurred. Given these
indicators of potential impairment, we performed an impairment evaluation as of January 3, 2009 which considered these changes in circumstances. Based upon the results of this analysis, we
recorded goodwill impairment charges totaling $6.3 million.

In
December 2007, we significantly changed our key business strategies assumed in the September 1, 2007 goodwill evaluation. Also during the fourth quarter of fiscal 2007, we
experienced a significant drop in the price of our publicly traded shares. As a result of these two events, we determined it was likely that a reduction in fair value of our reporting units had
occurred. Given these indicators of potential impairment, we performed another impairment evaluation at December 29, 2007 which considered these changes in circumstances. Based upon the results
of this analysis, we recorded goodwill impairment charges totaling $5.5 million for fiscal 2007.



Amortization of intangible assets relates primarily to our customer lists. This category of expense decreased due to the
write-off of certain intangible assets in fiscal 2007 that were no longer amortized in fiscal 2008.



Non-operating income decreased by $0.2 million during fiscal 2008 as compared to fiscal 2007. The prior year
included a $0.2 million non-cash item resulting from the return of 124,654 shares of our common stock from an escrow account following the departure of two of the principals of
Redwood.



Interest expense decreased by approximately $0.2 million for fiscal 2008 due to a decrease in average borrowings to
$2.4 million from $4.8 million in fiscal 2007. Additionally, a reduction in interest

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rates
from 7.25% at the end of fiscal 2007 to 3.25% at the end of fiscal 2008 reduced the amount of interest expense.



During fiscal 2008, we recorded a provision for income taxes for amounts due for certain state income taxes and changes in our reserves
for tax obligations. We recorded no additional income tax expense associated with our net operating losses because any tax expense that would otherwise have been recorded has been negated by adjusting
the valuation allowance against our deferred tax asset. If, however, we successfully return to profitability to a point where future realization of deferred tax assets, which are currently reserved,
become "more likely than not," we may be required to reverse our existing valuation allowances to realize the benefit of those assets.

During
fiscal 2007, we recorded $2.6 million of income tax expense, which relates to a $2.6 million increase to the valuation allowance to fully reserve our remaining
deferred tax assets at the end of fiscal 2007.



Our technical consulting staff levels finished the year at approximately 1,348, a 35.6% reduction from the prior year. The decline in
technical consulting staff levels is due to a reduction of approximately 320 billable consultants as a result of the transfer of our existing contract with one of our largest staffing accounts to
other suppliers and an overall decline in business volume. The decline in management and administrative personnel is due to our focus on reducing the number of management and administrative personnel
that are necessary to support the business operations. The
reported technical consulting staff levels exclude our Medical Concepts Staffing, our medical staffing business, due to the separate industry focus of that business.



As of January 3, 2009, we did not have any relationships with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. We are, therefore, not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

18

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Table of Contents

RESULTS OF OPERATIONS FOR FISCAL 2007 AS COMPARED TO FISCAL 2006

The following table illustrates the relationship between revenue and expense categories and provides a count of employees and technical
consultants for fiscal 2007 versus fiscal 2006.

Year Ended Fiscal 2007

Year Ended Fiscal 2006Increase (Decrease)% of
Revenue



% of
Revenue(Dollars in thousands)

Amount

Amount

Amount

%Revenue:Professional services provided directly

$
243,372


67.7
%
$
261,489


75.4
%
$
(18,117
)

(6.9
)%Professional services provided through subsuppliers


58,339


16.2


54,902


15.8


3,437


6.3Product sales


57,959


16.1


30,596


8.8


27,363


89.4Total revenue


359,670


100.0


346,987


100.0


12,683


3.7Expenses:Cost of services provided directly


194,297


54.0


207,693


59.9


(13,396
)

(6.4
)Cost of services provided through subsuppliers


55,989


15.6


52,926


15.2


3,063


5.8Cost of product sales


51,338


14.3


27,149


7.8


24,189


89.1Selling, administrative and other operating costs


58,347


16.2


58,520


16.9


(173
)

(0.3
)Restructuring costs and other severance related costs


3,604


1.0


(51
)

0.0


3,655


NMImpairment of intangible assets


3,049


0.9








3,049


NMGoodwill impairment


5,500


1.5








5,500


NMAmortization of intangible assets


1,065


0.3


1,053


0.3


12


1.1Total expenses


373,189


103.8


347,290


100.1


25,899


(7.5
)Operating loss


(13,519
)

(3.8
)

(303
)

(0.1
)

13,216


NMNon-operating income


297


0.1


20


0.0


277


NMInterest expense


(384
)

(0.1
)

(736
)

(0.2
)

(352
)

(47.8
)Loss before income taxes


(13,606
)

(3.8
)

(1,019
)

(0.3
)

12,587


NMIncome tax expense


2,606


0.7


41


0.0


2,565


NMNet loss

$
(16,212
)

(4.5
)%
$
(1,060
)

(0.3
)%
$
15,152


NMPersonnel:Management and Administrative


378





403





(25
)

(6.2
)%Technical Consultants


2,093





2,277





(184
)

(8.1
)%


19

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Services revenue provided directly by our employees during fiscal 2007 decreased 6.9% from fiscal 2006, while revenue from subsuppliers
and product sales increased 6.3% and 89.4%, respectively, during the same period. Early in fiscal 2007, we experienced a significant decline in the number of billable technical staff due to a high
number of purchase order expirations. This is typical for our business. We made some progress during fiscal 2007 on improving average bill rates and regaining some of the headcount we lost early in
the year. By the end of fiscal 2007, however, we had not returned to our beginning headcount numbers, and we had not managed to return our direct services revenue to fiscal 2006 levels.

During
fiscal 2007, a higher percentage of our total revenue came from subsuppliers compared to fiscal 2006. Our subsupplier revenue is mainly pass-through revenue with
associated fees for management and administration providing minimal profit. In October 2006, we began providing managed services to a significant new client. As a result of this new relationship,
subsupplier revenue grew in fiscal 2007.

Product
sales increased in fiscal 2007 over fiscal 2006. The increase in product sales occurred largely in our IP Communications business where we resell a significant amount of Cisco IP
telephony products.



Cost of services provided directly primarily represents the direct payroll and benefit costs associated with billable consultants. As a
percent of service revenue, these costs increased from 79.4% in fiscal 2006 to 79.8% in fiscal 2007. This decrease in fiscal 2007 direct service margins was driven by a higher concentration of
national accounts where margins are lower than our other direct business and a continuing decline in the margins we generate from our largest client.



Cost of services provided through subsuppliers represents the cost when we utilize third parties to fulfill our obligations to our
large staffing clients. This category of expense as a percentage of revenue for services provided through subsuppliers was 96.0% in fiscal 2007 as
compared to 96.4% in the prior year. The decrease in expense as a percentage of subsupplier revenue is due to an improvement in the rates charged by our subsuppliers.



Cost of product sales represents our cost of the hardware and software products we sell. These costs, as a percentage of product sales,
decreased from 88.7% in fiscal 2006 to 88.6% in fiscal 2007. Although a change in policy at one of our technology partners enabled us to drive product revenue higher during much of fiscal 2007, the
products comprising much of this increased volume was sold at lower margins than we have seen in previous periods. These lower margins during much of the year were offset by very favorable margins on
products sold during the fourth quarter. Vendor pricing and promotional programs change regularly causing the margins we realize when selling product to fluctuate from quarter to quarter.



SG&A costs include management and administrative salaries, commissions paid to sales representatives and recruiters, location costs,
and other administrative costs. This category of costs represented 16.2% of total revenue for fiscal 2007, down slightly from 16.9% in fiscal 2006. The decline in these costs is reflective of the cost
reduction measures implemented early in fiscal 2007.

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In connection with the implementation of our new business plan and other executive management changes, we recorded restructuring and
severance related costs of $3.6 million for fiscal 2007. Of this amount, $3.3 million related to workforce reductions and severance. The remaining $0.3 million related to lease
obligations and abandonment costs (net of anticipated sub-lease income) for locations where we have chosen to downsize or exit completely.



During fiscal 2007 and following the termination of the principals of Redwood, we experienced a gradual decline in revenue associated
with a major client relationship acquired as part of that transaction. During the fourth quarter of fiscal 2007, revenue from this client relationship continued to decline, and management determined
it would not attempt to re-engage with this relationship. We determined the intangible customer based asset, which had been established when Redwood was acquired, had become impaired. As
such, the asset, originally valued at $1.7 million, net of $0.3 million of accumulated amortization, was written off. This write-off resulted in an impairment charge of
$1.4 million.

On
December 11, 2007, our board of directors adopted the Plan to refocus our business. As such, a decision was made to cease using the SequoiaNet.com trade name acquired in fiscal
2000. Following this decision, the SequoiaNet.com trade name, originally valued at $1.7 million, with a net recorded value of $1.6 million, was written down to its fair value. This
write-down resulted in an impairment charge of $1.5 million. The remaining fair value of this trade name ($0.1 million) was amortized over the first six months of fiscal
2008, the period of time during which the trade name was expected to continue to bring value.



In December 2007, we significantly changed our key business strategies assumed in the September 1, 2007 goodwill evaluation.
Also during the fourth quarter of fiscal 2007, we experienced a significant drop in the price of our publicly traded shares. As a result of these two events, we determined it was likely that a
reduction in fair value of our reporting units had occurred. Given these indicators of potential impairment, we performed another impairment evaluation at December 29, 2007 which considered
these changes in circumstances. Based upon the results of this analysis, we recorded goodwill impairment charges totaling $5.5 million for fiscal 2007.



Amortization of intangible assets is related primarily to our customer lists and is relatively constant due to no significant changes
in the intangible assets being amortized.



Non-operating income during fiscal 2007 consisted primarily of a non-cash item resulting from the return of
124,654 shares of common stock from an escrow account following the departure of two principals of a company we acquired in 2005. These shares were valued at $0.2 million.



Interest expense during fiscal 2007 decreased by $0.4 million as compared to fiscal 2006 due to a decrease in average borrowings
under the line of credit from $9.4 million to $4.8 million and a decrease in interest rates.

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During fiscal 2007, we recorded $2.6 million of income tax expense. The majority of this expense relates to a
$2.6 million increase to the valuation allowance to fully reserve our remaining deferred tax assets at the end of 2007.

During
fiscal 2007, we continued our practice of recording no income tax benefit associated with our net losses because the benefit created by our operating losses have been negated by
the establishment of additional reserves against our deferred assets. If we successfully return to profitability to a point where future realization of deferred tax assets which are currently
reserved, becomes "more likely than not," we may be required to reverse our existing valuation allowances resulting in an income tax benefit.



Our billable technical consulting staff levels at the end of fiscal 2007 finished the year down by approximately 184 consultants from
the end of fiscal 2006. This number excludes headcount of our subsuppliers and headcount from Medical Concepts Staffing, our medical staffing business, due to the separate industry focus of that
business.



As of December 29, 2007, we did not have any relationships with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. We are, therefore, not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

Liquidity and Capital Resources

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

(In thousands)

January 3,
2009

December 29,
2007

Increase
(Decrease)

Percentage
Increase
(Decrease)Cash and cash equivalents

$
2,288

$
91

$
2,197


NMAccounts receivable


40,814


66,074


(25,260
)

(38.2
)%Other current assets


1,521


2,101


(580
)

(27.6
)Total current assets


44,623


68,266


(23,643
)

(34.6
)Accounts payable


15,581


27,780


(12,199
)

(43.9
)Salaries and vacations


2,648


6,885


(4,237
)

(61.5
)Line of credit





1,587


(1,587
)

(100.0
)Restructuring accrualscurrent


184


1,900


(1,716
)

(90.3
)Other current liabilities


3,374


5,327


(1,953
)

(36.7
)Total current liabilities


21,787


43,479


(21,692
)

(49.9
)Working capital

$
22,836

$
24,787

$
(1,951
)

(7.9
)%Current ratio


2.05


1.57


0.48


30.6Total shareholders' equity

$
30,395

$
40,035

$
(9,640
)

(24.1
)%


22

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Working capital was $22.8 million at January 3, 2009, down approximately $2.0 million from December 29,
2007. The ratio of current assets to current liabilities increased by 30.6% at January 3, 2009, compared to December 29, 2007.

Our
total current assets decreased approximately $23.6 million in 2008 compared to the prior year as a result of significantly lower accounts receivable offset slightly by an
increase in our cash and cash equivalents. Our accounts receivable decreased primarily due to the sale of Symmetry and the discontinuation of our staffing relationship with one of our largest staffing
accounts in the third quarter and the general decline in business volume.

Our
total current liabilities decreased approximately $21.7 million in 2008 compared to the prior year primarily due to a decline in subsupplier activity, fewer personnel, and the
timing of our fiscal year end as it relates to salary accruals. In 2008, accounts payable declined approximately $12.2 million due to the impact of eliminating the subsuppliers involved with
Symmetry and a decline in subsupplier volume. The timing of our fiscal year end and the reduction in personnel during 2008 is primarily responsible for the lower salaries and vacations payable balance
while current year cash flows from operations enabled us to repay the outstanding line of credit balance. In addition, severance payments associated with restructuring and payments made to previous
participants of our deferred compensation plans contributed in reducing our total current liabilities for the year ended January 3, 2009 compared to the prior year.

We
believe our working capital and availability under our GE Capital credit agreement will be sufficient to support the cash flow needs of our business in fiscal 2009. Continuing
operating losses, a significant increase in bad debt experience, a significant lengthening of payment terms, or significant costs associated with restructuring activities could create a need for
additional working capital. An inability to obtain additional working capital, should it be required, could have a material adverse effect on our business. We expect to be able to comply with the
requirements of our credit agreement; however, failure to do so could affect our ability to obtain necessary working capital and could have a material adverse effect on our business. In addition, the
current GE Capital credit agreement expires on January 20, 2010. We expect to either renew or obtain a new credit facility during fiscal 2009.



Cash and cash equivalents increased by $2.2 million from December 29, 2007 to January 3, 2009. Our primary need
for working capital is to support accounts receivable and to fund the time lag between payroll and vendor disbursements and receipt of fees billed to clients. Historically, we have been able to
support internal growth in our business with internally generated funds and the use of our credit facility.

Our
asset-based revolving credit agreement provides up to $45.0 million of availability. At January 3, 2009, our borrowing availability under this credit facility, which
fluctuates based on our level of eligible accounts receivable, was $19.4 million and we had no amounts outstanding. Borrowings under the credit agreement are secured by all of our assets. This
line of credit is available to us to fund working capital needs and other investments such as acquisitions as these needs arise. We believe we will be able to continue to meet the requirements of this
agreement.

The
revolving credit agreement requires us to take advances or pay down the outstanding balance on the line of credit daily. However, we can request fixed-term advances of
one, two or three months for a portion of the outstanding balance on the line of credit. Effective August 5, 2004, we amended our credit agreement and modified certain terms of the agreement.
The amendment reduced the annual commitment fee to 0.25% of the unused portion of the line, reduced the annual administration fee to $25,000, and reduced the interest rates on daily advances to the
Wall Street Journal's "Prime

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Rate",
or 3.25% as of January 3, 2009, and fixed-term advances to the applicable LIBOR rate plus 2.0%. The agreement continues, among other things, to prohibit the payment of
dividends and to restrict capital expenditures. Effective January 20, 2006, we again amended the credit agreement extending the expiration date from October 31, 2006 to
January 20, 2010. The amendment eliminated certain reserves in calculating the amount we can borrow under the facility and changed the definition of eligible accounts receivable in calculating
our borrowing capacity. The effect of the modifications was to increase the borrowing capacity under the line by approximately $3.5 million.

During
fiscal 2008, we made capital expenditures totaling $1.4 million compared to $1.3 million in fiscal 2007.

On
July 25, 2007, we announced that our Board of Directors authorized the repurchase of up to one million shares of our common stock. On July 26, 2007, we amended our
credit agreement with GE Capital to allow us to repurchase up to $5,000,000 of our common stock. Timing of repurchases will be based on several factors, including the price of the common stock,
general market conditions,
corporate and regulatory requirements and alternate investment opportunities. Repurchases may be made in the open market or through private transactions, in accordance with SEC requirements.
Repurchases may be suspended at any time and are subject to the terms and conditions of our credit agreement with GE Capital which includes restrictions based on our borrowing availability
under the credit agreement and a maximum dollar expenditure for repurchases. In fiscal 2007, we repurchased 109,000 shares of our common stock at an average price of $1.72. In fiscal 2008, we
did not engage in any repurchases of our common stock.

As
of January 3, 2009, we had federal and state net operating loss carry forwards of approximately $11.0 million and $1.5 million, respectively. If we are successful in reaching
profitability, we expect our net operating loss carry forwards to offset approximately $30.0 million of pre tax earnings from federal and state income taxes.



We have entered into arrangements that represent certain commitments and have arrangements with certain contingencies. We lease office
facilities under non-cancelable operating leases, are engaged in license agreements with future commitments, and have deferred compensation that is payable to participants in accordance
with the terms of our Restated Special Executive Retirement Plan and other agreements. Our line of credit that was paid in full as of January 3, 2009, expires on January 20, 2010. Our
line of credit balance is treated as a current liability on our balance sheet as our agreement requires us to take advances or pay down the outstanding balance daily. We incur interest expense on all
amounts outstanding on our line of credit at a variable interest rate. We incur interest expense on certain portions of our deferred compensation obligation. Minimum future obligations on operating
leases, license agreements, deferred compensation and the line of credit outstanding at January 3, 2009, are as follows:

(In thousands)

1 Year

2-3 Years

4-5 Years

Over 5 Years

TotalLine of credit

$


$


$


$


$
Operating leases


3,394


6,383


2,915


452


13,144Maintenance agreements


267


333








600Capital lease obligations


192


240








432Deferred compensation


290


430


275


1,113


2,108Total

$
4,143

$
7,386

$
3,190

$
1,565

$
16,284


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Table of Contents

Critical Accounting Estimates

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



Realization of certain assets recorded in our consolidated balance sheet is dependent upon our ability to achieve and maintain
profitability. In evaluating the recorded value of our intangible assets and deferred tax assets, we are required to make critical accounting estimates regarding our future operating results. These
estimates are based on management's current expectations but involve risks, uncertainties and other factors that could cause actual results to differ materially from these estimates.

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

To
assess the recorded value of our deferred tax assets for possible impairment, we must predict the likelihood of future taxable income generation. Realization of any net deferred tax
assets requires the generation of future taxable income prior to the expiration of the federal and state net operating loss carry forward benefits.



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



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

Critical Accounting Policies

Critical accounting policies are defined as those that involve significant judgments and uncertainties or affect significant line items
within our financial statements and potentially result in

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Table of Contents

materially
different outcomes under different assumptions and conditions. Application of these policies is particularly important to the portrayal of our financial condition and results of operations.
We believe the accounting policies described below meet these characteristics.



Statements of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" prohibits companies from
amortizing purchased goodwill. Instead, we examine our goodwill at least annually to determine if impairment has occurred. In accordance with SFAS No. 142, the Company is required to evaluate
its goodwill and indefinite-lived intangible assets for impairment at least annually and whenever events or changes in circumstances indicate that the assets might be impaired. The Company currently
performs the annual evaluation of goodwill as of the last day of its monthly accounting period for August.



Intangible assets consist of trade names and customer lists. We evaluate our trade names and client lists for possible impairment
whenever indicators of impairment exist. SFAS No. 144 "Accounting for the Impairment or the Disposal of Long-Lived Assets" requires that if the sum of the undiscounted cash flows is
less than the carrying value of the asset, impairment must be recognized in the financial statements. If an asset is deemed to be impaired, then the amount of the impairment loss recognized represents
the excess of the asset's carrying value as compared to its estimated fair value, based on management's assumptions and projections.



We account for income taxes in accordance with SFAS No. 109,Accounting for Income
Taxes, which requires that deferred tax assets and liabilities be recognized for the effect of temporary differences between reported income and income considered taxable by
the taxing authorities. SFAS No. 109 also requires the resulting deferred tax assets to be reduced by a valuation allowance if some portion or all of the deferred tax assets are not expected to
be realized.



We account for our sales tax and any other taxes that are collected from our clients and remitted to governmental authorities on a net
basis. The assessment, collection and payment of these taxes are not reflected on our income statement.



While we believe our current estimates regarding lease obligations are adequate, our inability to sublet the remaining space, negotiate
early termination agreements or obtain payments from sub-lessees could necessitate significant adjustments to these estimates in the future.



We generally recognize revenue as services are performed. This includes staffing services, technology integration services, and
outsourcing and advisory services that are billed on an hourly basis. For product sales, except in rare circumstances, we act as the primary obligor in the transaction. Accordingly, except for those
rare situations where net revenue reporting is appropriate because we are acting as an agent in the sale of product, product revenue is recorded for the gross amount of the transaction when the
products are delivered. Certain of our outsourcing and help desk engagements provide for a specific level of service each month for which we bill a standard monthly fee. Revenue for these engagements
is recognized in monthly installments over the period of the contract. In some such

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Table of Contents

contracts
we invoice in advance for two or more months of service. When we do this, the revenue is deferred and recognized over the term of the contractual agreement.

In
certain situations, we will contract to sell both product (including third party software and/or hardware) and services in a single client arrangement with multiple deliverables.
These arrangements are generally to resell certain products and to provide the service necessary to install such products and optimize functionality of such products. We account for multiple
deliverable arrangements involving
third party software products under the provisions of SOP 97-2, "Software Revenue Recognition" and have established vendor specific objective evidence of each deliverable. Other
non-software related multiple deliverable arrangements are accounted for utilizing the guidelines of ETIF 00-21, Revenue Arrangements with Multiple Deliverables. We
account for each of the components of multiple deliverable arrangements separately by using the identified fair values of each component to allocate the total consideration of the arrangement to the
separate components.

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

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



We file a consolidated income tax return in the US federal jurisdiction. We also file consolidated or separate company income
tax returns in most states, Canada federal, Ontario province and the United Kingdom. As of January 3, 2009, there are no federal, state, and foreign income tax audits in progress. We are no
longer subject to US federal audits for tax years before 2005, and with few exceptions, the same for state and local audits.

We
account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of
assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is
recognized in income in the period that includes the enactment date.

We
record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and
negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to
determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would
reduce the provision for income taxes.

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Table of Contents

We
adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on December 31, 2006. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109,Accounting for Income
Taxes. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
FIN 48 was effective for the Company beginning December 31, 2006. Upon implementation, we determined our positions will more-likely-than-not be
sustained if challenged. Therefore, no cumulative effect relating to the adoption of FIN 48 resulted.

We
recognize interest and penalties related to uncertain tax positions within interest and penalties expense.

New Accounting Pronouncements and Interpretations

In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 157,Fair Value
Measurements. This statement establishes a consistent framework for measuring fair value and expands disclosures on fair value measurements. The provisions of SFAS
No. 157 became effective for us beginning December 30, 2007. The adoption of SFAS No. 157 did not have a material effect on our consolidated results of operations and financial
condition.

In
February 2007, the FASB issued SFAS No. 159,Fair Value Option for Financial Assets and Financial Liabilities. This Statement
permits entities to choose to measure many financial instruments and certain other items at fair value. The provisions of SFAS No. 159 became effective for us beginning December 30,
2007. We have assessed the provisions of the statement and elected not to apply fair value accounting to our eligible financial instruments. As a result, adoption of this statement had no impact on
our consolidated results of operations and financial condition.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations(SFAS No. 141R), which replaced FASB
Statement No. 141. SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. The Statement also establishes disclosure requirements, which will enable users to evaluate the
nature and financial effects of the business combination. SFAS No. 141R applies prospectively to 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, and interim periods within those fiscal years. We will apply the provisions of SFAS 141R to any applicable business
combinations after the effective date.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

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Item 8.    Financial Statements and Supplementary Data.



ANALYSTS INTERNATIONAL CORPORATION        Consolidated Balance Sheets

(In thousands except per share amounts)

January 3, 2009

December 29, 2007ASSETSCurrent assets:Cash and cash equivalents

$
2,288

$
91Accounts receivable, less allowance for doubtful accounts of $1,092 and $1,545, respectively


40,814


66,074Prepaid expenses and other current assets


1,521


2,101Total current assets


44,623


68,266Property and equipment, net


3,081


2,711Intangible assets, net of accumulated amortization of $7,155 and $6,128, respectively


6,104


7,131Goodwill





6,299Other assets


446


864Total assets

$
54,254

$
85,271LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
15,581

$
27,780Salaries and vacations


2,648


6,885Line of credit





1,587Deferred revenue


1,473


1,943Restructuring accrual


184


1,900Health care reserves and other amounts


1,684


1,516Deferred compensation


217


1,868Total current liabilities


21,787


43,479Non-current liabilities:Deferred compensation


1,068


927Other long-term liabilities


939


692Restructuring accrual


65


138Total non-current liabilities


2,072


1,757Commitments (Note J)Shareholders' equity:Common stock, par value $.10 a share; authorized 120,000,000 shares; issued and outstanding 24,913,076 and 24,904,076 shares, respectively


2,491


2,490Additional capital


23,145


22,652Retained earnings


4,759


14,893Total shareholders' equity


30,395


40,035Total liabilities and shareholders' equity

$
54,254

$
85,271


See
notes to consolidated financial statements.

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Table of Contents



ANALYSTS INTERNATIONAL CORPORATION        Consolidated Statements of Operations

Fiscal Year Ended(In thousands except per share amounts)

2008

2007

2006Revenue:Professional services provided directly

$
216,492

$
243,372

$
261,489Professional services provided through subsuppliers


32,674


58,339


54,902Product sales


35,037


57,959


30,596Total revenue


284,203


359,670


346,987Expenses:Cost of services provided directly


170,745


194,297


207,693Cost of services provided through subsuppliers


31,494


55,989


52,926Cost of product sales


31,653


51,338


27,149Selling, administrative and other operating costs


50,087


58,347


58,520Restructuring costs and other severance related costs


2,861


3,604


(51
)Intangible assets impairment





3,049


Goodwill impairment


6,299


5,500


Amortization of intangible assets


1,027


1,065


1,053Total expenses


294,166


373,189


347,290Operating loss


(9,963
)

(13,519
)

(303
)Non-operating income


121


297


20Interest expense


(156
)

(384
)

(736
)Loss before income taxes


(9,998
)

(13,606
)

(1,019
)Income tax expense


136


2,606


41Net loss

$
(10,134
)
$
(16,212
)
$
(1,060
)Per common share (basic):Net loss

$
(0.41
)
$
(0.65
)
$
(0.04
)Per common share (diluted):Net loss

$
(0.41
)
$
(0.65
)
$
(0.04
)Average common shares outstanding


24,913


24,908


24,645Average common and common equivalent shares outstanding


24,913


24,908


24,645


See
notes to consolidated financial statements.

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ANALYSTS INTERNATIONAL CORPORATION        Consolidated Statements of Cash Flows

Fiscal Year Ended(In thousands)

2008

2007

2006Cash flows from operating activities:Net loss

$
(10,134
)
$
(16,212
)
$
(1,060
)Adjustments to net loss:Depreciation


1,592


1,699


2,411Amortization of intangible assets


1,027


1,065


1,053Stock based compensation


494


902


482Loss on asset disposal


54


19


42Goodwill impairment


6,299


5,500


Intangibles impairment





3,049


Deferred taxes





2,596


Settlement of pre-acquisition contingency





(198
)

Changes in:Accounts receivable


25,538


(2,016
)

2,772Accounts payable


(11,955
)

3,151


(174
)Salaries and vacations


(4,237
)

(531
)

(844
)Restructuring accrual


(1,789
)

1,493


(1,007
)Deferred compensation


(1,510
)

268


115Prepaid expenses and other assets


720


464


932Deferred revenue


(695
)

1,012


(378
)Other accrued expenses


(37
)

202


(572
)Net cash provided by operating activities


5,367


2,463


3,772Cash flows from investing activities:Expended for property and equipment additions


(1,449
)

(1,287
)

(1,335
)Proceeds from property and equipment sales





1


17Net cash used in investing activities


(1,449
)

(1,286
)

(1,318
)Cash flows from financing activities:Net change in line of credit


(1,587
)

(1,074
)

(2,339
)Payment of capital lease obligations


(134
)




Purchase of common stock





(191
)

Net cash used in financing activities


(1,721
)

(1,265
)

(2,339
)Net increase (decrease) in cash and equivalents


2,197


(88
)

115Cash and equivalents at beginning of year


91


179


64Cash and equivalents at end of year

$
2,288

$
91

$
179Supplemental cash flow information:Cash paid during the year for:Income taxes

$
102

$
55

$
22Interest

$
173

$
399

$
795Non-cash investing and financing activities:Capital expenditures included in accounts payable

$
330

$
270

$
53Capital lease

$
507

$


$



See
notes to consolidated financial statements.

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ANALYSTS INTERNATIONAL CORPORATION        Consolidated Statements of Shareholders' Equity

(In thousands)

Common
Stock

Additional
Capital

Retained
Earnings

Total
Shareholders'
EquityBalances as of December 31, 2005

$
2,460

$
21,606

$
32,246

$
56,312Common stock issued8,000 shares as stock grants


1


19





20SFAS No. 123R stock option expense





134





134Restricted shares amortization


8


320





328Net loss (Comprehensive loss)








(1,060
)

(1,060
)Balance as of December 30, 2006


2,469


22,079


31,186


55,734Common stock issued59,000 shares as stock grants


6


108





114SFAS No. 123R stock option expense





57





57Common Stock repurchased109,000 shares


(11
)

(99
)

(81
)

(191
)Common stock returned in settlement of pre-acquisition contingency


(12
)

(186
)




(198
)Restricted shares amortization


38


693





731Net loss (Comprehensive loss)








(16,212
)

(16,212
)Balance as of December 29, 2007


2,490


22,652


14,893


40,035Common stock issued9,000 shares as stock grants


1


12





13SFAS No. 123R stock option expense





481





481Net loss (Comprehensive loss)








(10,134
)

(10,134
)Balance as of January 3, 2009

$
2,491

$
23,145

$
4,759

$
30,395


See
notes to consolidated financial statements.

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Table of Contents



ANALYSTS INTERNATIONAL CORPORATION        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.    Summary of Significant Accounting Policies



Analysts International Corporation ("AIC" or the "Company," "we," "us," and "our") is a diversified information technology ("IT")
services company that's focused on providing configured solutions for its clients. We serve a broad portfolio of clients throughout the United States and Canada with technology staffing, collaboration
solutions, infrastructure solutions, project and application solutions and managed services offerings. We have been in business since 1966 and our corporate headquarters are based in Minneapolis,
Minnesota.



The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts
and transactions have been eliminated in consolidation.



Our fiscal year ends on the Saturday closest to December 31. References to fiscal years 2008, 2007 and 2006 refer to the fiscal
years ended January 3, 2009, December 29, 2007, and December 30, 2006, respectively. Fiscal year 2008 contains 53 weeks, whereas fiscal years 2007 and 2006 contain
52 weeks. The additional week in fiscal 2008 did not have a material impact on our results of operations.



The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.



Effective January 1, 2008, we adopted Statements of Financial Accounting Standards ("SFAS") No. 157,
which:



The
adoption of SFAS No. 157 had no impact on our consolidated financial statements or the valuation methods consistently followed by the Company.

The
fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). A

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Table of Contents

ANALYSTS INTERNATIONAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A.    Summary of Significant Accounting Policies (Continued)

financial
instrument's level within the hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The levels of the fair value hierarchy are defined as
follows:



We
also adopted the provisions of SFAS No. 159, "The Fair Value Option for Financial Assets and Liabilities" at the beginning of 2008. This statement permits entities to choose to
measure many financial instruments and certain other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge
accounting provisions. We did not elect the fair value measurement option for any items that are not already required to be measured at fair value.



Short-term cash investments in money market accounts are considered to be cash equivalents. The estimated fair values for
cash equivalents approximate their carrying values due to the short-term maturities of these instruments. Accordingly, cash equivalents are classified as Level 1.



Intangible assets consist of trade names and customer lists. We evaluate our trade names and client lists for possible impairment
whenever indicators of impairment exist. SFAS No. 144 "Accounting for the Impairment or the Disposal of Long-Lived Assets" requires that if the sum of the undiscounted cash flows is
less than the carrying value of the asset, impairment must be recognized in the financial statements. If an asset is deemed to be impaired, then the amount of the impairment loss recognized represents
the excess of the asset's carrying value as compared to its estimated fair value, based on management's assumptions and projections.



SFAS No. 142, "Goodwill and Other Intangible Assets" prohibits companies from amortizing purchased goodwill. Instead, we examine
our goodwill at least annually to determine if impairment has occurred. In accordance with SFAS No. 142, the Company is required to evaluate its goodwill and indefinite-lived intangible assets
for impairment at least annually and whenever events or changes in circumstances indicate that the assets might be impaired. The Company currently performs the annual evaluation of goodwill as of the
last day of its monthly accounting period for August.

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Table of Contents

ANALYSTS INTERNATIONAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A.    Summary of Significant Accounting Policies (Continued)



Effective January 1, 2006, we adopted SFAS No. 123 (revised 2004), Share-Based Payment ("SFAS No. 123R"), which
required us to recognize expense related to the fair value of our stock-based compensation awards. We elected the modified prospective transition method as permitted by SFAS No. 123R.
Accordingly, results from prior periods have not been restated. Under this transition method, stock-based compensation expense for fiscal years 2008, 2007, and 2006 include:



In
accordance with SFAS No. 123R, the presentation of our consolidated statement of cash flows changed to report the excess tax benefits from the exercise of stock options as
financing cash flows.



We generally recognize revenue as services are performed. This includes staffing services, technology integration services, and
outsourcing and advisory services that are billed on an hourly basis. For product sales, except in rare circumstances, we act as the primary obligor in the transaction. Accordingly, except for those
rare situations where net revenue reporting is appropriate
because we are acting as an agent in the sale of product, product revenue is recorded for the gross amount of the transaction when the products are delivered. Certain of our outsourcing and help desk
engagements provide for a specific level of service each month for which we bill a standard monthly fee. Revenue for these engagements is recognized in monthly installments over the period of the
contract. In some such contracts we invoice in advance for two or more months of service. When we do this, the revenue is deferred and recognized over the term of the contractual agreement.

In
certain situations, we will contract to sell both product (including third party software and/or hardware) and services in a single client arrangement with multiple deliverables.
These arrangements are generally to resell certain products and to provide the service necessary to install such products and optimize functionality of such products. We account for multiple
deliverable arrangements involving third party software products under the provisions of SOP 97-2, "Software Revenue Recognition" and have established vendor specific objective
evidence of each deliverable. Other non-software related multiple deliverable arrangements are accounted for utilizing the guidelines of ETIF 00-21, Revenue Arrangements
with Multiple Deliverables. We account for each of the components of multiple deliverable arrangements separately by using the identified fair values of each component to allocate the total
consideration of the arrangement to the separate components.

In
certain client situations, where the nature of the engagement requires it, we utilize the services of other companies in our industry. If these services are provided under an
arrangement whereby we agree to retain only a fixed portion of the amount billed to the client to cover our management and administrative costs, we classify the amount billed to the client as
subsupplier revenue. These revenues, however, are recorded on a gross versus net basis because we retain credit risk and are the primary

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ANALYSTS INTERNATIONAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A.    Summary of Significant Accounting Policies (Continued)

obligor
to our client. All revenue derived from services provided by our employees or other independent contractors working directly for us are recorded as direct revenue.

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



Property and equipment is being depreciated using the straight-line method over the estimated useful lives of the assets
for financial statement purposes and accelerated methods for income tax purposes. See table below for estimated useful lives used in the financial statements.

Useful lives
in yearsLeasehold improvements

VariesOffice furniture & equipment

5 - 10Computer hardware

2 - 5Software

2 - 5


The
useful lives of leasehold improvements are amortized over the life of the related operating lease.



We account for our sales tax and any other taxes that are collected from our clients and remitted to governmental authorities on a net
basis. The assessment collection and payment of these taxes are not reflected on our statement of operations.



Basic and diluted losses per share are presented in accordance with SFAS No. 128,Earnings per
Share. Basic loss per share excludes dilution and is computed by dividing the loss available to common stockholders by the weighted-average number of common shares outstanding
for the period. Options to purchase 2,443,000, 1,921,000, and 2,115,000 shares of common stock were outstanding at the end of fiscal periods 2008, 2007 and 2006, respectively. All such options were
excluded from the computation of common stock equivalents in fiscal years 2008, 2007 and 2006 because they were anti-dilutive.



Our largest customer, International Business Machines Corporation, represented approximately 13%, 14% and 19% of our fiscal 2008, 2007
and 2006 revenue, respectively.

36

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ANALYSTS INTERNATIONAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A.    Summary of Significant Accounting Policies (Continued)



In December 2007, the FASB issued SFAS No. 141 (revised 2007),Business
Combinations("SFAS No. 141R"), which replaced SFAS No. 141. SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures
in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. The Statement also
establishes disclosure requirements, which will enable users to evaluate the nature and financial effects of the business combination. SFAS No. 141R applies prospectively to 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, and interim periods within those fiscal
years. We will apply the provisions of SFAS No. 141R to any applicable future business combinations.

B.    Property and Equipment

Property and equipment consisted of the following:

(In thousands)

January 3, 2009

December 29, 2007Leasehold improvements

$
2,239

$
2,395Office furniture & equipment


5,558


5,636Computer hardware


4,708


4,607Software


6,299


5,32418,804


17,962Accumulated depreciation


(15,723
)

(15,251
)$
3,081

$
2,711


C.    Intangible Assets

Intangible assets consisted of the following:

January 3, 2009

December 29, 2007(In thousands)

Gross
Carrying
Amount

Accumulated
Amortization

Other
Intangibles,
Net

Gross
Carrying
Amount

Accumulated
Amortization

Other
Intangibles,
NetCustomer lists

$
13,169

$
(7,065
)
$
6,104

$
13,169

$
(6,128
)
$
7,041Trade names


90


(90
)




90





90$
13,259

$
(7,155
)
$
6,104

$
13,259

$
(6,128
)
$
7,131


SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" requires that long-lived assets and intangible assets subject to
amortization are reviewed for impairment when certain indicators of impairment are present. Impairment exists if estimated future undiscounted cash flows associated with long-lived assets
are not sufficient to recover the carrying value of such assets. Generally, when impairment exists the long-lived assets are adjusted to their respective fair values.

During
fiscal 2007 and following the termination of the principals of Redwood Solutions Corporation, a company acquired in 2005, we experienced a gradual decline in revenue associated
with a major customer relationship acquired as part of that transaction. During the fourth quarter of 2007,

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ANALYSTS INTERNATIONAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

C.    Intangible Assets (Continued)

with
revenue from this customer relationship declining, management determined it would not attempt to re-engage with this relationship. As such, we determined the intangible client-based
asset, which had been established when Redwood Solutions Corporation was acquired, had become impaired. We then utilized a present value cash flow valuation technique to measure the fair value of such
assets and determined that the assets, originally valued at $1.7 million net of $0.3 million of accumulated amortization, should be written down to zero because the future expected cash
flows were negligible. This write-off resulted in an impairment charge of $1.4 million, which is recorded within Intangible Assets Impairment in the consolidated statement of
operations.

The
remaining customer lists are amortized on a straight-line basis over their estimated useful live and are scheduled to be fully amortized by 2015. Amortization expense is
estimated to be approximately $0.9 million per year from 2009 through 2014 and $0.7 in 2015.

Trade
names with indefinite lives are not amortized but instead are evaluated for impairment annually or more frequently if events or circumstances indicate that the intangible asset
might be impaired. In December of 2007, we adopted a new business plan which significantly changed our key business strategies. We determined that the trade name was no longer going to be used and
therefore determined the trade name to have a finite life. In accordance with SFAS No. 142, if an intangible asset that is not being amortized is subsequently determined to have a finite life,
the asset shall be tested for impairment. In addition, the asset shall then be amortized prospectively over its estimated remaining useful life. As use of the trade name ceased entirely during fiscal
2008, an impairment charge of approximately $1.5 million was recognized in fiscal 2007 which represented the excess of the book value over its remaining fair value at the end of fiscal 2007. In
determining the fair value of its trade name, we applied the income approach, using the relief from royalty method. This charge is recorded within Intangible Assets Impairment in the consolidated
statement of operations. The remaining carrying value of $0.1 million as of December 29, 2007 was fully amortized during fiscal 2008.

No
intangible assets were acquired during the fiscal 2008 and 2007.

D.    Goodwill

We performed the annual impairment test on August 30, 2008 and determined the fair value of our reporting units was sufficient to support the recorded goodwill. In making this
determination, we utilized income and market comparable methodologies to determine the fair values of the reporting units.

In
the fourth quarter of 2008, we determined that events and changes in circumstances had occurred in our business that would indicate the goodwill on our consolidated balance sheet as
of January 3, 2009 may be impaired. Our forecast for operating results for future periods had declined and we experienced a significant drop in the price of our publicly traded shares. As a
result of these two events, we determined it was likely that a reduction in fair value of our reporting units had occurred. Given these indicators of potential impairment, we performed an impairment
evaluation as of January 3, 2009 which considered these changes in circumstances. Based upon the results of this analysis, we recorded goodwill impairment charges totaling $6.3 million.

In
December 2007, we significantly changed our key business strategies assumed in the September 1, 2007 goodwill evaluation. Also during the fourth quarter of fiscal 2007, we
experienced a

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ANALYSTS INTERNATIONAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

D.    Goodwill (Continued)

significant
drop in the price of our publicly traded shares. As a result of these two events, we determined it was likely that a reduction in fair value of our reporting units had occurred. Given
these indicators of potential impairment, we performed another impairment evaluation at December 29, 2007 which considered these changes in circumstances. Based upon the results of this
analysis, we recorded goodwill impairment charges totaling $5.5 million for fiscal 2007.

E.    Financing Agreements



Effective April 11, 2002, we consummated an asset-based revolving credit facility with GE Capital Corporation which provides us
with up to $45.0 million of availability. As of January 3, 2009, total availability under this credit facility, which fluctuates based on our level of eligible accounts receivable, was
$19.4 million. As of January 3, 2009, we had no borrowings under the credit facility. Borrowings under this credit agreement are secured by all of our assets. We must take advances or
pay down the outstanding balance daily. We can, however, choose to request fixed-term advances of one, two, or three months for a portion of the outstanding balance on the line of credit.
The credit facility, as amended, requires a commitment fee of 0.25% of the unused portion of the facility, and an annual administration fee of $25,000. The facility carries an interest rate on daily
advances equal to the Wall Street Journal's "Prime Rate" (3.25% on January 3, 2009) and on fixed-term advances equal to the LIBOR rate plus 2.0%. The agreement restricts, among
other things, the payment of dividends and capital expenditures.

Effective
January 20, 2006, we amended the revolving credit agreement extending the expiration date from October 31, 2006 to January 20, 2010. The modifications
included the elimination of certain reserves in calculating the amount we can borrow under the facility and changes to the definition of eligible receivables. As of January 3, 2009, we are in
compliance with all the requirements of the credit facility.



Effective July 1, 2008, we entered into a three-year software enterprise license agreement. The license agreement
qualifies for capital lease accounting treatment which resulted in the establishment of a $0.5 million software asset and related financing liability, of which $0.4 million remains as a
present value liability on the consolidated balance sheet as of January 3, 2009.

The
breakdown of the future minimum lease payments as of the end of fiscal 2008 are as follows:

Fiscal Year Ended(In thousands)

2009

2010

2011

TotalMinimum lease payments

$
192

$
192

$
48

$
432Less executory costs:Sales tax


(12
)

(12
)

(3
)

(27
)Imputed interest


(16
)

(7
)




(23
)Present value of minumum payments

$
164

$
173

$
45

$
382


39

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ANALYSTS INTERNATIONAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

F.    Restructuring Costs and Other Severance Related Costs

A summary of the restructuring charge and subsequent activity in the restructuring accrual account, which is included in other current and other non-current liabilities, is
as follows:

(In thousands)

Workforce
Reduction

Office Closure/
Consolidation

TotalBalance as of December 31, 2005

$
44

$
1,508

$
1,552Cash expenditures


(44
)

(896
)

(940
)Non-cash charges





(67
)

(67
)Balance as of December 30, 2006





545


545Restructuring charge


3,263


341


3,604Cash expenditures and transfers


(1,001
)

(546
)

(1,547
)Non-cash charges


(564
)




(564
)Balance as of December 29, 2007


1,698


340


2,038Restructuring charge


2,602


259


2,861Cash expenditures


(4,272
)

(378
)

(4,650
)Balance as of January 3, 2009

$
28

$
221

$
249


During
fiscal 2008, we recorded workforce reduction expenses of $2.6 million in the Restructuring Costs and Other Severance Related Costs line on the consolidated statement of
operations. As of January 3, 2009, all individuals affected by these workforce reductions had either been terminated or been notified of their pending termination and such pending termination
payments were contractually payable to the individuals at a termination dated within 60 days of the date the individuals were notified.

Also
during fiscal 2008, we recorded a net charge of $0.3 million related to future rent obligations, net of anticipated sublease income, on locations closed or vacated prior to
January 3, 2009.

During
fiscal 2007, we recorded workforce reduction expenses related to the resignation of our former CEO, the termination of two additional senior officers, and other terminations
totaling $3.3 million and have been included in the Restructuring Costs and Other Severance Related Costs line on the consolidated statement of operations. As of December 29, 2007, all
individuals affected by these workforce reductions had either been terminated or been notified of their pending termination and such pending termination payments were contractually payable to the
individuals at a termination dated within 60 days of the date the individuals were notified.

Also
during fiscal 2007, we recorded a net charge of $0.3 million related to future rent obligations on locations it closed prior to December 29, 2007.

We
believe all reserves for both workforce reductions and office closures and consolidations remaining at January 3, 2009 are adequate; however, differences in actual expenses
related to our workforce reduction as well as unfavorable sublease activity in the future, including any defaults of existing subleases or an inability to negotiate anticipated lease restructurings
with the landlords, could create the need for future adjustments to these reserves.

G.    Deferred Compensation

Effective December 30, 2005, in response to changes required by the American Jobs Creation Act of 2004, our Board of Directors restated our unfunded deferred compensation plan for
executives,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

G.    Deferred Compensation (Continued)

referred
to by us as the Restated Special Executive Retirement Plan (hereinafter the "Deferred Plan"). The material terms of the amendment call for us to credit the employees' account balance at an
agreed upon percentage of base pay for all participants. Employee account balances will be subject to a crediting rate equivalent to the 10-year treasury rate plus one to three percent as
determined each year by the Board of Directors.

The
Deferred Plan allows participant contributions of up to fifty percent of annual base pay and one hundred percent of incentive bonus, if any. Employer accruals and employee
contributions are one hundred percent vested. Additionally, the amended Deferred Plan allows for discretionary employer contributions with separate vesting schedules if approved by the Compensation
Committee. Participants are allowed to choose between lump sum distribution or one hundred twenty months of payments and a date of distribution for employee and employer contributions, subject to the
"one-year, five-year" rule and other deferred compensation rules issued by the Internal Revenue Service. Key employees are not allowed to take distribution for six months after
separation from service. Hardship distributions from the Deferred Plan are not allowed, and deferral elections will be canceled following any participant's hardship distribution from his or her 401(k)
account. The Deferred Plan provides that upon a change in control, a rabbi trust will be funded, and payments will be made if the Deferred Plan is subsequently terminated within twelve months of a
change in control or due to a participant's right to take distribution upon a separation from service.

As
of January 3, 2009 and December 29, 2007, our liability to active and former employees under the Deferred Plan, post-retirement medical benefits and other
deferred compensation arrangements was $1.7 million and $3.2 million, respectively. Deferred compensation expense for fiscal 2008, 2007, and 2006 was $0.5 million,
$1.0 million, and $0.8 million, respectively.

H.    Income Taxes

The provision for income tax expense (benefit) was as follows:

Fiscal Year Ended(In thousands)

2008

2007

2006Currently payable:Federal

$


$


$
State


136


10


41Deferred:Federal


(2,826
)

(4,703
)

(169
)State


(416
)

(692
)

(25
)(3,242
)

(5,395
)

(194
)Valuation allowance for deferred tax asset


3,242


7,991


194Deferred provision





2,596


Total

$
136

$
2,606

$
41


41

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Table of Contents

ANALYSTS INTERNATIONAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

H.    Income Taxes (Continued)

Net
deferred tax assets (liabilities) are comprised of the following:

(In thousands)

January 3,
2009

December 29,
2007Deferred compensation

$
501

$
1,090Depreciation


1,103


1,111Goodwill and other intangible assets


7,492


6,115State net operating loss carry forwards


1,456


1,387Federal net operating loss carry forward


10,974


7,365Other


1,133


2,349Valuation allowance


(22,659
)

(19,417
)Net deferred tax assets

$


$
Current

$


$
Non-current





$


$



SFAS
No. 109 requires deferred tax assets to be reduced by a valuation allowance if some portion or all of the deferred tax assets are not expected to be realized. Accordingly, at
December 29, 2007, we concluded that we could no longer demonstrate that it was "more likely than not" as defined by SFAS No. 109 to realize the net deferred tax asset of
$2.6 million. As a result, we recorded an additional valuation allowance to fully reserve the remaining deferred tax assets, resulting in an income tax expense of $2.6 million in fiscal
2007. As of January 3, 2009, we continue to fully reserve any deferred
tax assets by offsetting changes in the deferred tax assets with a valuation allowance adjustment. After such time we believe realization of these assets is "more likely than not", we will adjust the
valuation allowance which will create a benefit for income taxes.

As
of January 3, 2009, we had federal and state net operating loss carry forwards of approximately $11.0 million and $1.5 million, respectively. If we are successful in reaching
profitability, we expect our net operating loss carry forwards to offset approximately $30.0 million of pre tax earnings from federal and state income taxes. The federal net operating loss carry
forward benefits of $0.9 million, $0.1 million, $3.5 million, $1.1 million, $1.7 million, and $3.7 million expire in 2023, 2024, 2025, 2026, 2027, and 2028,
respectively. The state net operating loss carry forward benefits expire as follows: $29,000 in 2008, $0.1 million in 2009 through 2010, $0.8 million in 2011 through 2020, and
$0.6 million in 2021 and beyond.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

H.    Income Taxes (Continued)

The
provision for income taxes differs from the amount of income tax determined by applying the federal statutory income tax rates to pretax (loss) income as a result of the following
differences:

Fiscal Year Ended(In thousands)

2008

2007

2006Income tax at statutory federal rate

$
(3,427
)
$
(4,620
)
$
(346
)State and local taxes, net of federal benefit


(475
)

(670
)

(34
)Valuation allowance for deferred tax assets


3,242


7,991


194Meals and entertainment


109


123


176Goodwill


(22
)

(22
)

(22
)Other


709


(196
)

73Total tax provision

$
136

$
2,606

$
41


We
adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on December 31, 2006. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109,Accounting for Income
Taxes. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
FIN 48 was effective for us beginning December 31, 2006. Upon implementation, we determined our positions will more-likely-than-not be sustained if
challenged. Therefore, no cumulative effect relating to the adoption of FIN 48 resulted.

We
recognize interest and penalties related to uncertain tax positions within interest and penalties expense. During fiscal years 2008 and 2007, we have not recognized expense for
interest and penalties, and, do not have any amounts accrued as of January 3, 2009 and December 29, 2007 respectively, for the payment of interest and penalties.

We
file a consolidated income tax return in the US federal jurisdiction. We also file consolidated or separate company income tax returns in most states, Canada federal, Ontario province
and the United Kingdom. As of January 3, 2009, there are no federal, state, and foreign income tax audits in progress. We are no longer subject to US federal audits for tax years before 2005,
and with few exceptions, the same for state and local audits.

I.    Equity



We have options outstanding under five equity-based plans. New options may be granted under three of these plans. Under the 1999 Stock
Option Plan, the Company may grant options to its employees for up to 1,000,000 shares of common stock. Under the 2000 Stock Option Plan, the Company may grant non-qualified options to its
employees for up to 225,000 shares of common stock. Under the 2004 Equity Incentive Plan, the Company may grant incentive options, non-qualified options or restricted stock awards to its
employees and non-qualified options or restricted stock awards to its directors for up to 2,000,000 shares of common stock. The Company also has outstanding options under the 1994
Incentive Stock Option Plan and the 1996 Stock Option Plan for Non-Employee

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

I.    Equity (Continued)

Directors.
The maximum term for options is 10 years; the exercise price of each option is equal to the closing market price of the Company's stock on the date of grant; and the options and
awards become exercisable or vest in one of two vesting schedules that comprise nearly all of the current outstanding options. The first vesting schedule is in annual increments of 25% beginning one
year after the grant date and the second schedule is to vest 25% of the option awards immediately and 25% each year
thereafter, beginning one year after the date of grant. Upon the exercise of stock options, new shares are issued from the authorized, unissued common stock.

On
February 14, 2007, Jeffrey P. Baker, our President and Chief Executive Officer at that time resigned from the Company. As part of Mr. Baker's resignation, all unvested
restricted shares granted to him in January 2006, along with 100,000 unvested shares granted to him at other times, became fully vested on May 14, 2007, the date his employment terminated.
Also, at that time, all outstanding options held by Mr. Baker, and restricted stock granted in January 2007 were forfeited without vesting according to their terms.

Prior
to the adoption of SFAS No. 123R, we reported all tax benefits resulting from the exercise of stock options as operating cash flows in our consolidated statements of cash
flows. In accordance with SFAS No. 123R, the presentation of our consolidated statement of cash flows changed to report the excess tax benefits from the exercise of stock options as financing
cash flows.

The
following table summarizes the stock option activity for the fiscal year ended January 3, 2009:

Options

Weighted
Average Exercise
Price Per Share

Weighted
Average Remaining
Contractual Term
(in years)

Aggregate
Intrinsic ValueOutstanding on December 29, 2007


1,920,601

$
4.97


5.98

$
Granted


1,313,000


1.33Exercised





Forfeited/Cancelled


(791,063
)

6.12Outstanding on January 3, 2009


2,442,538

$
2.64


7.61

$
Vested or expected to vest at
January 3, 2009


2,241,045

$
2.74


7.41

$
Exercisable on January 3, 2009


1,259,045

$
3.79


6.07

$



The
total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) was $0 during each of the
fiscal years 2008, 2007 and 2006.

As
of January 3, 2009, there was $0.4 million of unrecognized compensation expense related to unvested option awards that were expected to vest over a weighted average
period of 1.41 years.

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ANALYSTS INTERNATIONAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

I.    Equity (Continued)

The
fair value of each stock option was estimated on the date of the grant using the Black-Scholes option-pricing model. The weighted-average grant date fair value of stock options
granted during fiscal 2008, 2007 and 2006 was $0.58, $0.81 and $1.62, respectively.

Fiscal Year EndedBlack-Scholes Option Valuation Assumptions(1)

January 3,
2009

December 29,
2007

December 30,
2006Risk-free interest rate(2)


0.4 - 2.2
%

3.2 - 4.2
%

4.7 - 5.0
%Expected dividend yield


0


0


0Expected stock price volatility(3)


62.0 - 106.0


43.2 - 71.0


43.0 - 74.3Expected life of stock options (in years)(4)


4.1


4.1


5.8


No
options were exercised during fiscal 2008, 2007 and 2006. The actual income tax benefit realized from stock option exercises totaled $0 in fiscal years 2008, 2007 and 2006.

Total
stock option expense included in our consolidated statements of operations for the fiscal years 2008, 2007, and 2006 was $0.5 million, $0.1 million, and
$0.1 million, respectively. The tax benefit
recorded for these same periods was $51,000, $8,000, and $48,000, respectively. This tax benefit is offset against our valuation allowance for our deferred tax asset.



On June 18, 2004, Jeffrey P. Baker, our President at that time was awarded 200,000 shares of restricted stock vesting in annual
increments of 25% over four years. On January 3, 2006, Mr. Baker was awarded 250,000 restricted shares vesting over five years in the following manner: 25,000 shares were to vest in each
of the first two years, 50,000 shares in the third year and 75,000 shares in each of years four and five. As part of Mr. Baker's resignation on February 14, 2007, all remaining unvested
restricted shares became fully vested 90 days from the effective date of his resignation (May 14, 2007).

On
October 21, 2004, Michael J. LaVelle, our Chairman and CEO at that time and interim President and CEO until November 1, 2007, was awarded 100,000 shares of restricted
stock vesting in annual increments of 33% over three years. Mr. LaVelle remained employed as a consultant to us after his retirement as CEO in December 2005 until June 30, 2006. On
June 30, 2006, the Compensation Committee of the board of directors of the Company amended the October 21, 2004 restricted stock agreement (the "Agreement") to provide for the shares to
continue to vest as set forth in the Agreement after termination of Mr. LaVelle's employment, but was contingent upon continued service on our board of directors. This change was treated as a
modification under SFAS No. 123R.

On
February 15, 2007, Michael J. LaVelle, our Interim President and CEO at that time, was granted a fully vested stock award of 50,000 shares of common stock.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

I.    Equity (Continued)

Annually
on or about the first business day of the fiscal year, each of the non-chair independent members of the Board of Directors is awarded 1,000 shares of fully vested
common stock, whereas our independent board chair is awarded 2,000 shares of fully vested common stock.

The
following table summarizes the restricted stock activity for fiscal 2008:

Shares

Weighted Average
Grant Date
Fair ValueNon-vested at December 29, 2007


22,474

$
1.91Granted


9,000

$
1.38Vested


(9,000
)
$
1.38Forfeited


(20,106
)
$
1.91Non-vested at January 3, 2009


2,368

$
1.91


As
of January 3, 2009, there was approximately $4,500 of unrecognized compensation cost related to non-vested restricted stock granted under the 2004 plan. The total
fair value of shares vested during fiscal years 2008, 2007, and 2006 was approximately $13,000, $0.8 million, and $0.2 million, respectively.



On June 15, 1989, the Board of Directors adopted a common stock shareholder rights plan. Under this plan, the Board of Directors
declared a dividend of one common share purchase right for each outstanding share of common stock and stock options granted and available for grant. The Board of Directors amended the plan on
April 29, 1996 and April 16, 1998. The rights, which were extended by the Board of Directors on February 26, 2008 to expire on February 27, 2018, are exercisable only under
certain conditions, and when exercisable the holder will be entitled to purchase from us one share of common stock at a price of $15.00, subject to certain adjustments. The rights will become
exercisable after a person or group acquires beneficial ownership of 15% or more of our common stock or after a person or group announces an offer, the consummation of which would result in such
person or group owning 15% or more of the common stock.

If
we are acquired at any time after the rights become exercisable, the rights will be adjusted so as to entitle a holder to purchase a number of shares of common stock of the acquiring
company equal to $15.00 divided by one-half the then-current market price of the acquirer's stock for each right owned by a holder. If any person or group acquires beneficial
ownership of 15% or more of our shares, the rights will be adjusted so as to entitle a holder (other than such person or group whose rights become void) to purchase a number of shares of common stock
of Analysts International Corporation equal to $15.00 divided by one-half the then-current market price of Analysts International's common stock or the Board of Directors may
exchange the rights, in whole or in part, at an exchange ratio of one common share per right (subject to adjustment).

At
any time prior to an acquisition by a person or group of beneficial ownership of 15% or more of our shares, the Board of Directors may redeem the rights at $.001 per right.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

I.    Equity (Continued)



On July 25, 2007, we announced that our Board of Directors authorized the repurchase of up to one million shares of our common
stock. On July 26, 2007, we amended our credit agreement with GE Capital to allow us to repurchase up to $5,000,000 of our common stock. Timing of repurchases will be based on several
factors, including the price of the common stock, general market conditions, corporate and regulatory requirements and alternate investment opportunities. Repurchases may be made in the open market or
through private transactions, in accordance with Securities and Exchange Commission requirements. Repurchases may be suspended at any time and are subject to the terms and conditions of our credit
agreement with GE Capital which includes restrictions based on our borrowing availability under the credit agreement and a maximum dollar expenditure for repurchases. In fiscal 2007, we
repurchased 109,000 shares of our common stock at an average price of $1.72. In fiscal 2008, we did not engage in any repurchases of our common stock.

J.    Commitments

As of January 3, 2009, aggregate net minimum lease commitments under non-cancelable operating leases having an initial or remaining term of more than one year are
payable as follows:

(In thousands)

Lease
CommitmentsFiscal year ending2009

$
3,4092010


3,3112011


3,0722012


1,8882013


1,027Later


452Less: sublease contracts


(15
)Total minimum obligation

$
13,144


Rent
expense, primarily for office facilities, for fiscal 2008, 2007 and 2006 was $3.4 million, $4.0 million, and $4.0 million, respectively.

We
have compensation arrangements with our corporate officers and certain other key employees which provide for certain payments in the event of a change of control of the Company.

We
also sponsor a 401(k) plan. Substantially all employees are eligible to participate and may contribute up to 50% of their pre-tax earnings, subject to Internal Revenue
Service maximum annual contribution amounts. After one year of employment, we make matching contributions for non-highly compensated participants in the form of Company stock of 18% of a
participant's first 15% of pre-tax contributions. Matching contributions vest at the rate of 20% per year and are fully vested after five years of service. We made matching contributions
for fiscal 2008, 2007 and 2006, in the amount of $0.4 million, $0.5 million, and $0.5 million, respectively.

47

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Shareholders of
Analysts International Corporation
Minneapolis, Minnesota

We
have audited the accompanying consolidated balance sheets of Analysts International Corporation and subsidiaries (the "Company") as of January 3, 2009 and December 29,
2007, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years ended January 3, 2009, December 29, 2007, and
December 30, 2006. Our audits also included the financial statement schedule listed in the Index at Item 15. These consolidated financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Analysts International Corporation and subsidiaries as of
January 3, 2009 and December 29, 2007, and the results of their operations and their cash flows for the years ended January 3, 2009, December 29, 2007, and
December 30, 2006, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in
relation to the consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As
discussed in Note A to the consolidated financial statements, in 2006 the Company changed its method of accounting for stock-based compensation.

/s/ Deloitte & Touche LLP Minneapolis, Minnesota
March 31, 2009


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Table of Contents

Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

There have been no disagreements with or changes in the Company's independent auditors within the past two fiscal years.

Item 9A(T).    Controls and Procedures.

(a)    Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures that are designed to provide reasonable assurance that information, which is
required to be disclosed timely, is accumulated and communicated to management in a timely fashion. An evaluation of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") ("Disclosure Controls") was performed as of the end of the period
covered by this report. This evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Office, Elmer N. Baldwin and Chief
Financial Officer, Randy W. Strobel. Based upon that evaluation, our Chief Executive Officer and the Chief Financial Officer concluded that these Disclosure Controls are effective to provide
reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is
recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms.

(b)    Management's Annual Report on Internal Control Over Financial Reporting

Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in
Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of our principal executive and principal financial
officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles in the United States. Such internal control includes those policies and procedures
that:



Our
management assessed the effectiveness of our internal control over financial reporting as of January 3, 2009. In making this assessment, it used the criteria set forth in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that, as of
January 3, 2009, our internal control over financial reporting is effective based on those criteria.

This
annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was
not

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Table of Contents

subject
to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's
report in this annual report.

(c)    Changes in Internal Controls

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

Item 9B.    Other Information.

None.

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Table of Contents

PART III

Item 10.    Directors, Executive Officers and Corporate Governance.

The information regarding executive officers and significant employees as required by Item 10 is set forth below.

Executive Officers and Significant Employees

Age

TitleElmer N. Baldwin


48

President and Chief Executive OfficerRobert E. Woods


56

Senior Vice President, General Counsel and SecretaryRandy W. Strobel


42

Senior Vice President and Chief Financial OfficerMicheal W. Souders


54

Senior Vice President, SolutionsCraig J. Andrie


47

Vice President, Professional Services Western RegionMichael A. Gange


45

Vice President, Professional Services Eastern RegionBrittany B. McKinney


37

Vice President of Strategy and Operations


Elmer
N. Baldwin is our President and Chief Executive Officer since November 2007. Previously, Mr. Baldwin was the principal of Nutmann Baldwin Consulting, a business advisory
firm, from April 2006 to November 2007. From January 2006 through April 2006, Mr. Baldwin served as a Senior Vice President at Fujitsu Consulting, the North American information technology
consulting services business of Fujitsu, a worldwide IT services and products company. Prior to his position at Fujitsu Consulting, Mr. Baldwin served first as the acting Chief Executive
Officer at BORN Information Services, Inc. ("BORN"), an information technology services company, from July 2003 until January 2004. From January 2004 until January 2006, Mr. Baldwin was
the Chairman and Chief Executive Officer of BORN after its acquisition by Fujitsu Consulting in May 2005. From June 2002 until December 2003, Mr. Baldwin was President and Chief Operating
Officer/Partner at Manchester Companies, a private investment banking, corporate renewal and management advisory services firm specializing in working with distressed companies. He has been a member
of the Board of Directors since December 2007.

Robert
E. Woods is our Senior Vice President, General Counsel and Secretary since January 2008. Previously, Mr. Woods was in the private practice of law from November 2004 to
December 2007. Prior to his private practice, Mr. Woods provided legal services to Fujitsu Consulting Information Services, Inc. from 2003 to 2004 and served as the General Counsel for
BORN from September 2000 to November 2004. Mr. Woods previously held executive positions with InsWeb Corporation of Redwood City, California (now located in Sacramento) and before then
was a shareholder with Briggs and Morgan, P.A. in Minneapolis, Minnesota.

Randy
W. Strobel is our Senior Vice President and Chief Financial Officer since August 2008. Previously, Mr. Strobel was the Vice President of Finance, Chief Accounting Officer
and Controller of Ceridian Corporation, an international business services company, from June 2005 to August 2008. Prior to his position at Ceridian Corporation, Mr. Strobel was the Vice
President of Finance at Mesaba Aviation, Inc., a regional airline, from September 2001 to June 2005.

Michael
W. Souders joined the Company in 2000 and is now our Senior Vice President of the Solutions group.

Craig
J. Andrie is our Vice President, Professional Services Western Region since November 2007. Previously Mr. Andrie served as Vice President for Fujitsu Consulting from 2005 to
2007. Prior to his position at Fujitsu Consulting, Mr. Andrie served eleven years with BORN in executive roles including Branch/General Manager, Vice President and Partner.

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Table of Contents

Michael
A. Gange is our Vice President, Professional Services Eastern Region since March 2006. Previously, Mr. Gange was employed by Computer Horizons Corporation from June 1988
to February 2006 where he held various business development and management positions, most recently the position of Vice President.

Brittany
B. McKinney is our Vice President of Strategy and Operations since November 2007. Ms. McKinney joins us from Alliant Techsystems Inc. where she held the role of Director
of Finance. Previously, Ms. McKinney was a management consultant from April 2006 to August 2007, the Director of Operations for Fujitsu Consulting from March 2004 to March 2006, and a Product
Manager at Best Buy from November 2003 to March 2004.

Our
principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions (the "Principal Officers"), are subject
to our Code of Ethics for Senior Financial Executives. Our Code of Ethics for Senior Financial Executives are posted on our website atwww.analysts.comin the Investor Relations section, and are available in print free of charge to any stockholder who requests them.

We
will disclose any amendments to, or waivers of, our Code of Ethics for Senior Financial Executives on our website. We will satisfy the disclosure requirement under Item 5.05 of
Form 8-K regarding any amendment to, or waiver from, a provision of this code of ethics by posting such information on our website at the address and location specified above.

Other
information called for in Part III, including information regarding directors, executive officers and corporate governance of the registrant (Item 10), executive
compensation (Item 11), security ownership of certain beneficial owners and management and related stockholder matters (Item 12), certain relationships and related transactions, and
director independence (Item 13) and principal accountant fees and services (Item 14), is hereby incorporated by reference from our definitive proxy statement or amendments thereto to be
filed pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered by this report.

Items in
Form 10-K

Caption in Definitive Proxy Statement10

Election of Directors10

Corporate Governance11

Executive Compensation12

Security Ownership of Certain Beneficial Owners and Management13

Certain Relationships and Related Transactions and Director Independence14

Independent Auditor Fees


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Table of Contents

PART IV

Item 15.    Exhibits and Financial Statement Schedules.

(a).(1)Consolidated Financial Statements

The
consolidated financial statements of Analysts International Corporation and its subsidiaries and the related independent registered public accounting
firm's reports are included in the following pages of its annual report to shareholders for the fiscal year ended January 3, 2009.



Description

Page HereinConsolidated Balance Sheets at January 3, 2009 and December 29, 2007

29Consolidated Statements of Operations for the Fiscal Years Ended January 3, 2009, December 29,
2007, and December 30, 2006

30Consolidated Statements of Cash Flows for the Fiscal Years Ended January 3, 2009, December 29, 2007, and
December 30, 2006

31Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended January 3, 2009,
December 29, 2007, and December 30, 2006

32Notes to Consolidated Financial Statements

33Report of Independent Registered Public Accounting Firm

48(a).(2)    Consolidated Financial Statement SchedulesDescription

Page HereinReport of Independent Registered Public Accounting Firm

48Schedule II. Valuation and Qualifying Accounts

59


Other
consolidated financial statement schedules are omitted because they are not required or the information is presented in the consolidated financial statements or notes thereto.

(b)Exhibits

Exhibit No.

Description^ 3.1

Articles of Incorporation, as amended (Exhibit 3-a to Annual Report on Form 10-K for fiscal year 1988, Commission File No. 0-4090, incorporated by reference).^ 3.2

Restated Bylaws (Exhibit 3-b to Annual Report on Form 10-K for fiscal year 2000, Commission File No. 0-4090, incorporated by reference).^ 3.3

Amendment to Articles of Incorporation to increase authorized shares to 40 million (Exhibit A to Definitive Proxy Statement dated September 5, 1996, Commission File No. 0-4090, incorporated by
reference).^ 3.4

Amendment to Articles of Incorporation to increase authorized shares to 60 million (Exhibit 3-d to Annual Report on Form 10-K for fiscal year 1998, Commission File No. 0-4090, incorporated by
reference).^ 3.5

Amendment to Articles of Incorporation to increase authorized shares to 120 million (Exhibit A to Definitive Proxy Statement dated September 8, 1998, Commission File No. 0-4090, incorporated by
reference).^ 4.1

Specimen Common Stock Certificate (Exhibit 4(a) to Annual Report on Form 10-K for fiscal year 1989, Commission File No. 0-4090, incorporated by reference).


53

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Exhibit No.

Description^ 4.2

Amended and Restated Rights Agreement dated as of February 27, 2008 between the Company and Wells Fargo Bank N.A. and Form of Right Certificate (Exhibit 4.1 to the Registrant's Form 8-A12B dated
February 27, 2008, Commission File No. 0-4090, incorporated by reference).*^ 10.1

1994 Stock Option Plan (Exhibit A to Definitive Proxy Statement dated September 6, 1994 for registrant's 1994 Annual Meeting of Shareholders, Commission File No. 0-4090, incorporated by
reference).*^ 10.2

1996 Stock Option Plan for Non-employee Directors (Exhibit B to Definitive Proxy Statement dated September 5, 1996, Commission File No. 0-4090, incorporated by reference).*^ 10.3

1999 Stock Option Plan (Exhibit A to Definitive Proxy Statement dated September 13, 1999, Commission File No. 0-4090, incorporated by reference).*^ 10.4

2000 Non-Qualified Stock Option Plan (Exhibit 6(d) to Quarterly Report on Form 10-Q for period ended March 31, 2001, Commission File No. 0-4090, incorporated by reference).^ 10.5

Credit Agreement dated April 11, 2002 between the Company and General Electric Capital Corporation (Exhibit 2.1 to Current Report on Form 8-K dated April 26, 2002, Commission File No. 0-4090,
incorporated by reference).^ 10.6

Lease Agreement by and between the Company and Centennial Lakes III, LLC dated May 15, 2002 (Exhibit 2.4 to Current Report on Form 8-K, filed May 28, 2002, Commission File No. 0-4090,
incorporated by reference).^ 10.7

First Amendment to Credit Agreement dated as of July 24, 2002 (Exhibit 10-l to Annual Report on Form 10-K for fiscal year 2002, Commission File No. 0-4090, incorporated by reference).^ 10.8

Waiver and Second Amendment to Credit Agreement dated as of April 7, 2003 (Exhibit 10-m to Annual Report on Form 10-K for fiscal year 2003, Commission File No. 0-4090, incorporated by
reference).^ 10.9

Third Amendment to Credit Agreement dated as of April 28, 2003 (Exhibit 10-n to Annual Report on Form 10-K for fiscal year 2003, Commission File No. 0-4090, incorporated by reference).^ 10.10

Consent and Fourth Amendment to Credit Agreement dated as of December 31, 2003 (Exhibit 10-o to Annual Report on Form 10-K for fiscal year 2003, Commission File No. 0-4090, incorporated by
reference).*^ 10.11

Fifth Amendment to Credit Agreement dated as of August 5, 2004 (Exhibit 10-r to Quarterly Report on Form 10-Q for period ended October 2, 2004, Commission File No. 0-4090, incorporated by
reference).^ 10.12

Consent and Sixth Amendment to Credit Agreement dated as of January 6, 2005 (Exhibit 10-t to Annual Report on Form 10-K for fiscal year 2004, Commission File No. 0-4090, incorporated by
reference).*^ 10.13

Standard Nonqualified Stock Option Agreement for Board Members under 2004 Equity Incentive Plan (Exhibit 10-u to Annual Report on Form 10-K for fiscal year 2004, Commission File No. 0-4090, incorporated
by reference).


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Exhibit No.

Description*^ 10.14

Standard Restricted Stock Agreement for Board Members under 2004 Equity Incentive Plan (Exhibit 10-v to Annual Report on Form 10-K for fiscal year 2004, Commission File No. 0-4090, incorporated by
reference).*^ 10.15

Standard Nonqualified Stock Option Agreement for Certain Employees under 2004 Equity Incentive Plan (Exhibit 10-w to Annual Report on Form 10-K for fiscal year 2004, Commission File No. 0-4090,
incorporated by reference).*^ 10.16

Standard Restricted Stock Agreement for Certain Employees under 2004 Equity Incentive Plan (Exhibit 10-x to Annual Report on Form 10-K for fiscal year 2004, Commission File No. 0-4090, incorporated by
reference).*^ 10.17

Standard Incentive Stock Option Agreement for Certain Employees under 2004 Equity Incentive Plan (Exhibit 10-y to Annual Report on Form 10-K for fiscal year 2004, Commission File No. 0-4090,
incorporated by reference).^ 10.18

Eighth Amendment to Credit Agreement dated January 20, 2006 (Exhibit 99.2 to Current Report on Form 8-K, filed January 26, 2006, Commission File No. 0-4090, incorporated by
reference).^ 10.19

Amendment to Lease Agreement by and between the Company and Centennial Lakes III, LLC dated March 24, 2006 (Exhibit 10.1 to Current Report on Form 8-K, filed March 28, 2006, Commission
File No. 0-4090, incorporated by reference).*^ 10.20

Restated Special Executive Retirement Plan, dated December 27, 2006 (Exhibit 10-jj to Annual Report on Form 10-K for fiscal year 2006, Commission File No. 0-4090, incorporated by
reference).^ 10.21

Waiver, Consent and Ninth Amendment to Credit Agreement, dated February 1, 2007 (Exhibit 10.2 to Current Report on Form 8-K, filed February 7, 2007, Commission File No. 0-4090, incorporated by
reference).^ 10.22

Trust Agreement between the Company and Wachovia Bank, dated February 15, 2007, under the Restated Special Executive Retirement Plan (Exhibit 10.1 to Current Report on Form 8-K, filed February 15,
2007, Commission File No. 0-4090, incorporated by reference).*^ 10.23

2004 Equity Incentive Plan, as amended through May 25, 2006 (Exhibit 10.1 to Quarterly Report on Form 10-Q for period ended July 1, 2006, Commission File No. 0-4090, incorporated by
reference).*^ 10.24

Form of incentive stock option agreement for long term incentive option grants for fiscal year 2007 (Exhibit 10-kk to Annual Report on Form 10-K for fiscal year 2006, Commission File No. 0-4090,
incorporated by reference).*^ 10.25

Form of restricted stock award agreement for long-term incentive restricted stock awards in January 2007 for fiscal year 2007 (Exhibit 10-ll to Annual Report on Form 10-K for fiscal year 2006, Commission
File No. 0-4090, incorporated by reference).^ 10.26

Waiver and Tenth Amendment to Credit Agreement, dated May 1, 2007 (Exhibit 10.1 to Current Report on Form 8-K, filed May 7, 2007, Commission File No. 0-4090, incorporated by
reference).^ 10.27

Waiver and Eleventh Amendment to Credit Agreement, dated July 26, 2007 (Exhibit 10.1 to Current Report on Form 8-K, filed August 1, 2007, Commission File No. 0-4090, incorporated by
reference).


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Exhibit No.

Description*^ 10.28

Elmer Baldwin Incentive Stock Option Agreement (2004 Equity Incentive Plan), effective November 1, 2007 (Exhibit 10.2 to Current Report on Form 8-K, filed November 5, 2007, Commission File
No. 0-4090, incorporated by reference).*^ 10.29

Elmer Baldwin Nonqualified Stock Option Agreement (2004 Equity Incentive Plan), effective November 1, 2007 (Exhibit 10.3 to Current Report on Form 8-K, filed November 5, 2007, Commission File
No. 0-4090, incorporated by reference).*^ 10.30

Elmer Baldwin Nonqualified Stock Option Agreement (2000 Nonqualified Stock Option Plan), effective November 1, 2007 (Exhibit 10.3 to Current Report on Form 8-K, filed November 5, 2007, Commission
File No. 0-4090, incorporated by reference).*^ 10.31

Summary of Terms and Conditions of Severance Policy for executive officers and other senior management personnel (contained in Current Report on Form 8-K, filed October 25, 2007, Commission File
No. 0-4090, incorporated by reference).*^ 10.32

Severance Agreement and Release of Claims between the Company and Colleen M. Davenport dated January 4, 2008 (Exhibit 10.4 to Current Report on Form 8-K, filed January 8, 2008, Commission File
No. 0-4090, incorporated by reference).*^ 10.33

Severance Agreement and Release of Claims between the Company and David J. Steichen dated January 22, 2008 (Exhibit 10.1 to Current Report on Form 8-K, filed January 8, 2008, Commission File
No. 0-4090, incorporated by reference).* 10.34

Amendment No. 1 to Restated Special Executive Retirement Plan as of September 1, 2007 (Exhibit 10-mm to Annual Report on Form 10-K, filed March 5, 2008, incorporated by reference).*^ 10.35

Non-Compete and Confidentiality Agreement between the Company and Robert E. Woods dated January 3, 2008 (Exhibit 10.2 to Current Report on Form 8-K, filed January 8, 2008, Commission File
No. 0-4090, incorporated by reference).*^ 10.36

Form of Change of Control Agreement between the Company and management personnel M. Gange, L. Gilmore and A. Wise (Exhibit 10.5 to Current Report on Form 8-K, filed January 8, 2008, Commission File
No. 0-4090, incorporated by reference).*^ 10.37

Incentive Stock Option Agreement (2004 Equity Incentive Plan) dated January 16, 2008 between the Company and Robert E. Woods (Exhibit 10.1 to Current Report on Form 8-K, filed January 17, 2008,
Commission File No. 0-4090, incorporated by reference).*^ 10.38

Letter Agreement between the Company and Walter Michels dated February 12, 2008 (Exhibit 99.2 to Current Report on Form 8-K, filed April 22, 2008, Commission File No. 0-4090, incorporated by
reference).*^ 10.39

Employment Agreement between the Company and Michael W. Souders, executed on June 27, 2008, effective July 1, 2008 (Exhibit 10.1 to Current Report on Form 8-K, filed July 3, 2008, Commission
File No. 0-4090, incorporated by reference).*^ 10.40

Change in Control Agreement between the Company and Michael W. Souders, executed on June 27, 2008, effective July 1, 2008 (Exhibit A to the Souders Employment Agreement) (Exhibit 10.2 to Current
Report on Form 8-K, filed July 3, 2008, Commission File No. 0-4090, incorporated by reference).


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Exhibit No.

Description*^ 10.41

Annual Management Incentive Plan (AMIP) between the Company and Michael W. Souders, executed on June 27, 2008 (Exhibit B to the Souders Employment Agreement) (Exhibit 10.3 to Current Report on Form 8-K,
 filed July 3, 2008, Commission File No. 0-4090, incorporated by reference).*^ 10.42

Incentive Stock Option Agreement (2004 Equity Incentive Plan) between the Company and Michael W. Souders, executed on June 27, 2008 (Exhibit C-1 to the Souders Employment Agreement) (Exhibit 10.4 to
Current Report on Form 8-K, filed July 3, 2008, Commission File No. 0-4090, incorporated by reference).*^ 10.43

Incentive Stock Option Agreement (1999 Stock Option Plan) between the Company and Michael W. Souders, executed on June 27, 2008 (Exhibit C-2 to the Souders Employment Agreement) (Exhibit 10.5 to Current
Report on Form 8-K, filed July 3, 2008, Commission File No. 0-4090, incorporated by reference).*^ 10.44

Employee Agreement between the Company and Brittany McKinney, executed on June 27, 2008, effective June 23, 2008 (without Exhibits) (Exhibit 10.6 to Current Report on Form 8-K, filed July 3,
2008, Commission File No. 0-4090, incorporated by reference).*^ 10.45

Amendment No. 2 to Restated Special Executive Compensation Plan (Exhibit 10.7 to Current Report on Form 8-K, filed July 3, 2008, Commission File No. 0-4090, incorporated by
reference).*^ 10.46

Exhibit A to Amendment No. 2 to Restated Special Executive Compensation Plan (Exhibit 10.8 to Current Report on Form 8-K, filed July 3, 2008, Commission File No. 0-4090, incorporated by
reference).*^ 10.47

Employment Agreement between the Company and Randy W. Strobel, executed on August 8, 2008, effective August 25, 2008 (Exhibit 10.1 to Current Report on Form 8-K, filed August 12, 2008,
Commission File No. 1-33981, incorporated by reference).*^ 10.48

Change in Control Agreement between the Company and Randy W. Strobel, executed on August 8, 2008, effective August 25, 2008 (Exhibit 10.2 to Current Report on Form 8-K, filed August 12, 2008,
Commission File No. 1-33981, incorporated by reference).*^ 10.49

Annual Management Incentive Plan (AMIP) between the Company and Randy W. Strobel, executed on August 8, 2008, effective August 25, 2008 (Exhibit 10.3 to Current Report on Form 8-K, filed
August 12, 2008, Commission File No. 1-33981, incorporated by reference).*^ 10.50

Amended and Restated Employment Agreement between the Company and Elmer Baldwin, executed on August 19, 2008, effective November 1, 2007 (Exhibit 10.1 to Current Report on Form 8-K, filed
August 22, 2008, Commission File No. 1-33981, incorporated by reference).*^ 10.51

Change in Control Agreement between the Company and Elmer Baldwin, executed on August 19, 2008, effective November 1, 2007 (Exhibit 10.2 to Current Report on Form 8-K, filed August 22, 2008,
Commission File No. 1-33981, incorporated by reference).*^ 10.52

Amended and Restated Employment Agreement between the Company and Robert E. Woods, executed on August 19, 2008, effective January 1, 2008 (Exhibit 10.1 to Current Report on Form 8-K, filed
August 22, 2008, Commission File No. 1-33981, incorporated by reference).


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Exhibit No.

Description*^ 10.53

Change in Control Agreement between the Company and Robert E. Woods, executed on August 19, 2008, effective January 1, 2008 (Exhibit 10.2 to Current Report on Form 8-K, filed August 22, 2008,
Commission File No. 1-33981, incorporated by reference).+21

Subsidiaries of Registrant.+23

Consent of Independent Registered Public Accounting Firm.+24

Powers of Attorney.+31.1

Certification of CEO under section 302 of the Sarbanes-Oxley Act of 2002.+31.2

Certification of CFO under section 302 of the Sarbanes-Oxley Act of 2002.++ 32

Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.


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Schedule II

Analysts International Corporation
Valuation and Qualifying Accounts

Allowance for doubtful accounts(In thousands)

Beginning
balance

Charged to
costs and
expenses

Write-offs, net
of recoveries

Ending
balanceTwelve months ended January 3, 2009

$
1,545

$
29

$
482

$
1,092Twelve months ended December 29, 2007

$
1,423

$
835

$
713

$
1,545Twelve months ended December 30, 2006

$
2,106

$
750

$
1,433

$
1,423


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SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) 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.

ANALYSTS INTERNATIONAL CORPORATIONDate: March 31, 2009

By:

/s/ Elmer N. Baldwin Elmer N. Baldwin,
President and Chief Executive Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

Signature

Title

Date/s/ Elmer N. Baldwin Elmer N. Baldwin

President and Chief Executive Officer
(Principal Executive Officer)

March 31, 2009/s/ Randy W. Strobel Randy W. Strobel

Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)

March 31, 2009Brigid A. Bonner*

DirectorAndrew K. Borgstrom*

DirectorWillard W. Brittain*

DirectorKrzysztof K. Burhardt*

DirectorJoseph T. Dunsmore*

Director


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Signature

Title

DateMichael B. Esstman *

DirectorGalen G. Johnson*

DirectorDouglas C. Neve*

Director


/s/ Elmer N. Baldwin Elmer N. Baldwin,
President and Chief Executive Officer


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EXHIBIT INDEX

Exhibit 21

Subsidiaries of RegistrantExhibit 23

Consent of Independent Registered Public Accounting FirmExhibit 24

Powers of AttorneyExhibit 31.1

Certification of CEO pursuant to Section302 of the Sarbanes-Oxley Act of 2002Exhibit 31.2

Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 32

Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


62

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