----

**EXHIBIT      13**

----

----

**Financial      Highlights**

|  ***(Dollars                in thousands except per share amounts)***                                           |   | **Year                Ended****December                31, 2005** |    | **Year                Ended****January                1, 2005** |   |
|----------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|---------|-----------------------------------------------------------------|--------|
|                                                                                                                 |   |                                                              |    |                                                            |   |
| Revenue:                                                                                                             |   |                                                              |    |                                                            |   |
| Professional                services provided directly                                                               |   | $                                                                 | 263,121 |                                                            | $      | 269,610 |   |
| Professional                services provided through subsuppliers                                                   |   |                                                              | 34,431  |                                                            |   | 55,806 |   |
| Product                sales                                                                                         |   |                                                              | 24,746  |                                                            |   | 16,196 |   |
| Total                revenue                                                                                         |   |                                                              | 322,298 |                                                            |   | 341,612 |   |
|                                                                                                                 |   |                                                              |    |                                                            |   |   |   |
| Income                (loss) before income taxes                                                                     |   |                                                              | (17,649 | )                                                               |   | 3,852 |   |
| Net                income (loss)                                                                                     |   |                                                              | (17,699 | )                                                               |   | 3,852 |   |
|                                                                                                                 |   |                                                              |    |                                                            |   |   |   |
| Per                share of common stock:                                                                            |   |                                                              |    |                                                            |   |   |   |
| Net                income (loss) *(diluted)*                                                                         |   |                                                              | (.72    | )                                                               |   | .16 |   |
| Shareholders’                equity                                                                            |   |                                                              | 2.29    |                                                            |   | 3.00 |   |
| Dividends                declared                                                                                    |   |                                                              | .00     |                                                            |   | .00 |   |
|                                                                                                                 |   |                                                              |    |                                                            |   |   |   |
| Average                common and common equivalentshares                outstanding *(in                thousands)* |   |                                                              | 24,495  |                                                            |   | 24,398 |   |
|                                                                                                                 |   |                                                              |    |                                                            |   |   |   |
| Number                of personnel                                                                                   |   |                                                              | 3,095   |                                                            |   | 3,015 |   |
|                                                                                                                 |   |                                                              |    |                                                            |   |   |   |
| Working                capital                                                                                       |   | $                                                                 | 26,182  |                                                            | $      | 39,439 |   |
| Current                ratio                                                                                         |   |                                                              | 1.61    |                                                            |   | 2.34 |   |

----

----

----

----

**Management’s      Discussion and Analysis of Financial Condition and Results of      Operations**

*Introduction      and Overview of 2005 Events*

*Market      Conditions and Economics of Our Business*

----

*Strategy*

----

| -   | IP                Communications which includes Wireless, IP Telecommunictions, Call                Center                and Security Services |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | Storage                Solutions which includes storage product support and VMware                services |
|---------------|------------------------------------------------------------------------------------------------------------|

| -   | Lawson                Services which includes integration, customization, and administration                of                Lawson Software applications |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | IT                Outsourcing which includes Application Outsourcing, Help Desk, Hosting,                and Field Engineering services |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------------|

*Other      Factors*

*Overview      of Results of 2005 Operations*

----

*Estimates      of Future Operating Results*

*Allowance      for Doubtful Accounts*

----

*Accrual      of Unreported Medical Claims*

*Revenue      Recognition*

*Subsupplier      Revenue*

*Goodwill      and Other Intangible Impairment*

----

*Deferred      Taxes*

*Restructuring      and other severance related costs*

----

**RESULTS      OF OPERATIONS, YEAR ENDED DECEMBER 31,      2005 VS. YEAR ENDED JANUARY 1, 2005**

|                                                                 |   | Year                EndedDecember                31, 2005 |    | Year                EndedJanuary                1, 2005 |   |  Increase                (Decrease) |   |
|----------------------------------------------------------------------|--------|-----------------------------------------------------------|---------|---------------------------------------------------------|--------|------------------------------------------|--------|
|  *(Dollars                in thousands)*                        |   |  Amount                                              |    | %                ofRevenue                              |   |  Amount                             |   | %                ofRevenue |   |  Amount |   | %Inc                (Dec) |   | As                %of                Revenue |   |
| Revenue:                                                             |   |                                                      |    |                                                    |   |                                     |   |   |   |   |   |   |   |   |   |
| Professional                services provided directly               |   | $                                                         | 263,121 |                                                    |   | 81.6                                     | %      | $ | 269,610 |   |   | 78.9 | % | $ | (6,489 | ) |   | (2.4 | %) |   | 2.7 | % |
| Professional                services provided through subsuppliers   |   |                                                      | 34,431  |                                                    |   | 10.7                                     |   |   | 55,806 |   |   | 16.3 |   |   | (21,375 | ) |   | (38.3 | ) |   | (5.6 | ) |
| Product                sales                                         |   |                                                      | 24,746  |                                                    |   | 7.7                                      |   |   | 16,196 |   |   | 4.8 |   |   | 8,550 |   |   | 52.8 |   |   | 2.9 |   |
| Total                revenue                                         |   |                                                      | 322,298 |                                                    |   | 100.0                                    |   |   | 341,612 |   |   | 100.0 |   |   | (19,314 | ) |   | (5.7 | ) |   | .0 |   |
|                                                                 |   |                                                      |    |                                                    |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Salaries,                contracted services and direct charges      |   |                                                      | 240,100 |                                                    |   | 74.5                                     |   |   | 261,005 |   |   | 76.4 |   |   | (20,905 | ) |   | (8.0 | ) |   | (1.9 | ) |
| Cost                of product sales                                 |   |                                                      | 22,550  |                                                    |   | 7.0                                      |   |   | 14,964 |   |   | 4.4 |   |   | 7,586 |   |   | 50.7 |   |   | 2.6 |   |
| Selling,                administrative and other operating costs     |   |                                                      | 61,053  |                                                    |   | 18.9                                     |   |   | 61,015 |   |   | 17.9 |   |   | 38 |   |   | .1 |   |   | 1.0 |   |
| Amortization                of intangible assets                     |   |                                                      | 982     |                                                    |   | .3                                       |   |   | 774 |   |   | .2 |   |   | 208 |   |   | 26.9 |   |   | .1 |   |
| Restructuring                costs and other severance related costs |   |                                                      | 3,914   |                                                    |   | .9                                       |   |   | -- |   |   | -- |   |   | 3,914 |   |   | 100.0 |   |   | 1.1 |   |
| Loss                on asset disposal                                |   |                                                      | 1,825   |                                                    |   | .6                                       |   |   | -- |   |   | -- |   |   | 1,825 |   |   | 100.0 |   |   | .6 |   |
| Goodwill                Impairment                                   |   |                                                      | 7,050   |                                                    |   | 2.2                                      |   |   | -- |   |   | -- |   |   | 7,050 |   |   | 100.0 |   |   | 2.2 |   |
| Expenses                related to attempted merger                  |   |                                                      | 2,129   |                                                    |   | 1.0                                      |   |   | -- |   |   | -- |   |   | 2,129 |   |   | 100.0 |   |   | .6 |   |
| Non-operating                income                                  |   |                                                      | (50     | )                                                       |   | .0                                       |   |   | (39 | ) |   | (.0 | ) |   | 11 |   |   | 28.2 |   |   | .0 |   |
| Interest                expense                                      |   |                                                      | 394     |                                                    |   | .1                                       |   |   | 41 |   |   | .0 |   |   | 353 |   |   | 861.0 |   |   | .1 |   |
| Net                income before taxes                               |   |                                                      | (17,649 | )                                                       |   | (5.5                                     | )      |   | 3,852 |   |   | 1.1 |   |   | (21,501 | ) |   | (558.2 | ) |   | (6.6 | ) |
|                                                                 |   |                                                      |    |                                                    |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                taxes                                          |   |                                                      | 50      |                                                    |   | --                                       |   |   | -- |   |   | -- |   |   | 50 |   |   | 100.0 |   |   | .0 |   |
| Net                income (loss)                                     |   | $                                                         | (17,699 | )                                                       |   | (5.5                                     | %)     | $ | 3,852 |   |   | 1.1 | % | $ | (21,551 | ) |   | (559.5 | %) |   | (6.6 | %) |
|                                                                 |   |                                                      |    |                                                    |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Personnel:                                                           |   |                                                      |    |                                                    |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Management                and Administrative                         |   |                                                      | 400     |                                                    |   |                                     |   |   | 430 |   |   |   |   |   | (30 | ) |   | (7.0 | %) |   |   |   |
| Technical                Consultants                                 |   |                                                      | 2,449   |                                                    |   |                                     |   |   | 2,448 |   |   |   |   |   | 1 |   |   | 0.0 | %  |   |   |   |

----

*Revenue*

*Salaries,      Contracted Services and Direct Charges*

*Cost      of Product Sales*

*Selling,      Administrative and Other Operating Costs*

----

*Amortization      of Intangible Assets*

*Non-Operating      Income*

*Interest      Expense*

*Expenses      Related to Attempted Merger*

*Restructuring      Costs and Other Severance Related Costs*

*Loss      on Asset Disposal*

*Goodwill      Impairment*

*Income      Taxes*

*Personnel*

----

**RESULTS      OF OPERATIONS, YEAR ENDED JANUARY 1, 2005 VS. YEAR ENDED JANUARY 3,      2004**

|                                                               |   | Year                EndedJanuary                1, 2005 |    | Year                EndedJanuary                3, 2004 |   |  Increase                (Decrease) |   |
|--------------------------------------------------------------------|--------|---------------------------------------------------------|---------|---------------------------------------------------------|--------|------------------------------------------|--------|
|  *(Dollars                in thousands)*                      |   |  Amount                                            |    | %                ofRevenue                              |   |  Amount                             |   | %                ofRevenue |   |  Amount |   | %Inc                (Dec) |   | As                %of                Revenue |   |
| Revenue:                                                           |   |                                                    |    |                                                    |   |                                     |   |   |   |   |   |   |   |   |   |
| Professional                services provided directly             |   | $                                                       | 269,610 |                                                    |   | 78.9                                     | %      | $ | 266,175 |   |   | 80.2 | % | $ | 3,435 |   |   | 1.3 | % |   | (1.3 | %) |
| Professional                services provided through subsuppliers |   |                                                    | 55,806  |                                                    |   | 16.3                                     |   |   | 50,543 |   |   | 15.2 |   |   | 5,263 |   |   | 10.4 |   |   | 1.1 |   |
| Product                sales                                       |   |                                                    | 16,196  |                                                    |   | 4.8                                      |   |   | 15,181 |   |   | 4.6 |   |   | 1,015 |   |   | 6.7 |   |   | .2 |   |
| Total                revenue                                       |   |                                                    | 341,612 |                                                    |   | 100.0                                    |   |   | 331,899 |   |   | 100.0 |   |   | 9,713 |   |   | 2.9 |   |   | .0 |   |
|                                                               |   |                                                    |    |                                                    |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Salaries,                contracted services and direct charges    |   |                                                    | 261,005 |                                                    |   | 76.4                                     |   |   | 256,643 |   |   | 77.3 |   |   | 4,362 |   |   | 1.7 |   |   | (.9 | ) |
| Cost                of product sales                               |   |                                                    | 14,964  |                                                    |   | 4.4                                      |   |   | 14,562 |   |   | 4.4 |   |   | 402 |   |   | 2.8 |   |   | .0 |   |
| Selling,                administrative and other operating costs   |   |                                                    | 61,015  |                                                    |   | 17.9                                     |   |   | 61,511 |   |   | 18.6 |   |   | (496 | ) |   | (.8 | ) |   | (.7 | ) |
| Amortization                of intangible assets                   |   |                                                    | 774     |                                                    |   | .2                                       |   |   | 773 |   |   | .2 |   |   | 1 |   |   | .0 |   |   | .0 |   |
| Non-operating                income                                |   |                                                    | (39     | )                                                       |   | (.0                                      | )      |   | (79 | ) |   | (.0 | ) |   | 40 |   |   | (50.6 | ) |   | .0 |   |
| Interest                expense                                    |   |                                                    | 41      |                                                    |   | .0                                       |   |   | 13 |   |   | .0 |   |   | 28 |   |   | 215.4 |   |   | .0 |   |
|                                                               |   |                                                    |    |                                                    |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                (loss) before income taxes                   |   |                                                    | 3,852   |                                                    |   | 1.1                                      |   |   | (1,524 | ) |   | (.5 | ) |   | 5,376 |   |   | 352.8 |   |   | 1.6 |   |
| Income                taxes (benefit)                              |   |                                                    | --      |                                                    |   | --                                       |   |   | -- |   |   | -- |   |   | -- |   |   | .0 |   |   | .0 |   |
|                                                               |   |                                                    |    |                                                    |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                income (loss)                                   |   | $                                                       | 3,852   |                                                    |   | 1.1                                      | %      | $ | (1,524 | ) |   | (.5 | )% | $ | 5,376 |   |   | 352.8 | % |   | 1.6 | % |
|                                                               |   |                                                    |    |                                                    |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Personnel:                                                         |   |                                                    |    |                                                    |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Management                and Administrative                       |   |                                                    | 430     |                                                    |   |                                     |   |   | 425 |   |   |   |   |   | 5 |   |   | 1.2 | % |   |   |   |
| Technical                Consultants                               |   |                                                    | 2,448   |                                                    |   |                                     |   |   | 2,504 |   |   |   |   |   | (56 | ) |   | (2.2 | %) |   |   |   |

*Revenue*

*Salaries,      Contracted Services and Direct Charges*

----

*Cost      of Product Sales*

*Selling,      Administrative and Other Operating Costs*

*Non-Operating      Income*

*Interest      Expense*

*Income      Taxes*

*Personnel*

**Liquidity      and Capital Resources**

|   ***(Dollars                  in thousands)*** |   | **December                  31,****2005** |   |  **January                  1, 2005** |   |  **Increase****(Decrease)** |   | **Percentage****Increase****(Decrease)** |    |
|-----------------------------------------------------------|--------|-------------------------------------------|--------|--------------------------------------------|--------|----------------------------------|--------|------------------------------------------|---------|
|                                                      |   |                                      |   |                                       |   |                             |   |                                     |    |
| Cash                  and cash equivalents                |   | $                                         | 64     |                                       | $      | 7,889                            |   | $                                        | (7,825  | ) |   | (99.2 | %) |
| Accounts                  receivable                      |   |                                      | 66,968 |                                       |   | 57,764                           |   |                                     | 9,204   |   |   | 15.9 |   |
| Other                  current assets                     |   |                                      | 2,383  |                                       |   | 3,208                            |   |                                     | (825    | ) |   | (25.7 | ) |
| Total                  current assets                     |   |                                      | 69,415 |                                       |   | 68,861                           |   |                                     | 554     |   |   | .8 |   |
|                                                      |   |                                      |   |                                       |   |                             |   |                                     |    |   |   |   |   |
| Accounts                  payable                         |   |                                      | 24,581 |                                       |   | 16,366                           |   |                                     | 8,215   |   |   | 50.2 |   |
| Salaries                  and vacations                   |   |                                      | 8,260  |                                       |   | 8,828                            |   |                                     | (568    | ) |   | (6.4 | ) |
| Line                  of credit                           |   |                                      | 5,000  |                                       |   | --                               |   |                                     | 5,000   |   |   | 100.0 |   |
| Restructuring                  accruals - current         |   |                                      | 971    |                                       |   | 251                              |   |                                     | 720     |   |   | 286.9 |   |
| Other                  current liabilities                |   |                                      | 4,421  |                                       |   | 3,977                            |   |                                     | 444     |   |   | 11.2 |   |
| Total                  current liabilities                |   |                                      | 43,233 |                                       |   | 29,422                           |   |                                     | 13,811  |   |   | 46.9 | % |
|                                                      |   |                                      |   |                                       |   |                             |   |                                     |    |   |   |   |   |
| Working                  capital                          |   | $                                         | 26,182 |                                       | $      | 39,439                           |   | $                                        | (13,257 | ) |   | (33.6 | %) |
| Current                  ratio                            |   |                                      | 1.61   |                                       |   | 2.34                             |   |                                     | (.73    | ) |   | (31.2 | %) |
|                                                      |   |                                      |   |                                       |   |                             |   |                                     |    |   |   |   |   |
| Total                  shareholders’ equity         |   | $                                         | 56,312 |                                       | $      | 72,618                           |   | $                                        | (16,306 | ) |   | (22.5 | %) |

----

*Cash      Requirements*

*Sources      and Uses of Cash/Credit Facility*

----

| ***(In                thousands)***  |   | **1                Year** |   | **2-3                Years** |   | **4-5                Years** |   | **Over                5 Years** |   | **Total** |   |
|--------------------------------------|--------|---------------------------|--------|------------------------------|--------|------------------------------|--------|---------------------------------|--------|-----------|--------|
|                                 |   |                      |   |                         |   |                         |   |                            |   |      |   |
| Operating                Leases      |   | $                         | 4,836  |                         | $      | 5,273                        |   | $                               | 383    |      | $      | -- |   | $ | 10,492 |   |
|                                 |   |                      |   |                         |   |                         |   |                            |   |      |   |   |   |   |   |   |
| Deferred                Compensation |   |                      | 534    |                         |   | 909                          |   |                            | 271    |      |   | 698 |   |   | 2,412 |   |
|                                 |   |                      |   |                         |   |                         |   |                            |   |      |   |   |   |   |   |   |
| Total                                |   | $                         | 5,370  |                         | $      | 6,182                        |   | $                               | 654    |      | $      | 698 |   | $ | 12,904 |   |

* *

----

**Consolidated      Balance Sheets**

| ***(Dollars                in thousands except per share amounts)***                                                                                                                  |   | **December                31,****2005** |    | **January                1,****2005** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|---------|---------------------------------------|--------|
|                                                                                                                                                                                  |   |                                    |    |                                  |   |
| **ASSETS**                                                                                                                                                                            |   |                                    |    |                                  |   |
|                                                                                                                                                                                  |   |                                    |    |                                  |   |
| Current                assets:                                                                                                                                                        |   |                                    |    |                                  |   |
| Cash                and cash equivalents                                                                                                                                              |   | $                                       | 64      |                                  | $      | 7,889 |   |
| Accounts                receivable, less allowance for doubtfulaccounts                of $2,106 and $1,809, respectively                                                             |   |                                    | 66,968  |                                  |   | 57,764 |   |
| Prepaid                expenses and other current assets                                                                                                                              |   |                                    | 2,383   |                                  |   | 3,208 |   |
| Total                current assets                                                                                                                                                   |   |                                    | 69,415  |                                  |   | 68,861 |   |
|                                                                                                                                                                                  |   |                                    |    |                                  |   |   |   |
| Property                and equipment, net                                                                                                                                            |   |                                    | 4,056   |                                  |   | 5,658 |   |
| Intangible                assets other than goodwill, net of accumulatedamortization                of $4,497 and $3,515, respectively                                                |   |                                    | 12,298  |                                  |   | 10,475 |   |
| Goodwill                                                                                                                                                                              |   |                                    | 11,799  |                                  |   | 16,460 |   |
| Other                assets                                                                                                                                                           |   |                                    | 4,436   |                                  |   | 4,223 |   |
|                                                                                                                                                                                  |   | $                                       | 102,004 |                                  | $      | 105,677 |   |
|                                                                                                                                                                                  |   |                                    |    |                                  |   |   |   |
|                                                                                                                                                                                  |   |                                    |    |                                  |   |   |   |
| **LIABILITIES                AND SHAREHOLDERS' EQUITY**                                                                                                                               |   |                                    |    |                                  |   |   |   |
|                                                                                                                                                                                  |   |                                    |    |                                  |   |   |   |
| Current                liabilities:                                                                                                                                                   |   |                                    |    |                                  |   |   |   |
| Accounts                payable                                                                                                                                                       |   | $                                       | 24,581  |                                  | $      | 16,366 |   |
| Salaries                and vacations                                                                                                                                                 |   |                                    | 8,260   |                                  |   | 8,828 |   |
| Line                of credit                                                                                                                                                         |   |                                    | 5,000   |                                  |   | -- |   |
| Deferred                revenue                                                                                                                                                       |   |                                    | 1,645   |                                  |   | 1,658 |   |
| Restructuring                accrual                                                                                                                                                  |   |                                    | 971     |                                  |   | 251 |   |
| Health                care reserves and other                                                                                                                                         |   |                                    | 2,242   |                                  |   | 1,759 |   |
| Deferred                compensation                                                                                                                                                  |   |                                    | 534     |                                  |   | 560 |   |
| Total                current liabilities                                                                                                                                              |   |                                    | 43,233  |                                  |   | 29,422 |   |
|                                                                                                                                                                                  |   |                                    |    |                                  |   |   |   |
| Non-current                liabilities:                                                                                                                                               |   |                                    |    |                                  |   |   |   |
|                    Deferred compensation                                                                                                                               |   |                                    | 1,878   |                                  |   | 3,570 |   |
|                    Restructuring accrual                                                                                                                               |   |                                    | 581     |                                  |   | 67 |   |
|                        Total non-current liabilities                                                                                               |   |                                    | 2,459   |                                  |   | 3,637 |   |
|                                                                                                                                                                                  |   |                                    |    |                                  |   |   |   |
| Commitments                (Note H)                                                                                                                                                   |   |                                    |    |                                  |   |   |   |
| Shareholders'                equity:                                                                                                                                                  |   |                                    |    |                                  |   |   |   |
| Common                stock, par value $.10 a share; authorized120,000,000                shares; issued and outstanding 24,604,063and                24,212,457 shares, respectively |   |                                    | 2,460   |                                  |   | 2,421 |   |
| Additional                capital                                                                                                                                                     |   |                                    | 22,182  |                                  |   | 21,095 |   |
| Unearned                deferred stock compensation                                                                                                                                   |   |                                    | (576    | )                                     |   | (843 | ) |
| Retained                earnings                                                                                                                                                      |   |                                    | 32,246  |                                  |   | 49,945 |   |
| Total                shareholders' equity                                                                                                                                             |   |                                    | 56,312  |                                  |   | 72,618 |   |
|                                                                                                                                                                                  |   | $                                       | 102,004 |                                  | $      | 105,677 |   |

----

**Consolidated      Statements of Operations**

|                                                                              |   | **Fiscal                Year** |    |
|-----------------------------------------------------------------------------------|--------|--------------------------------|---------|
| ***(In                thousands except per share amounts)***                      |   | **2005**                       |    | **2004** |   | **2003** |   |
|                                                                              |   |                           |    |   |   |   |   |
| Revenue:                                                                          |   |                           |    |   |   |   |   |
| Professional                services provided directly                            |   | $                              | 263,121 |   | $ | 269,610 |   | $ | 266,175 |   |
| Professional                services provided through subsuppliers                |   |                           | 34,431  |   |   | 55,806 |   |   | 50,543 |   |
| Product                sales                                                      |   |                           | 24,746  |   |   | 16,196 |   |   | 15,181 |   |
| Total                revenue                                                      |   |                           | 322,298 |   |   | 341,612 |   |   | 331,899 |   |
|                                                                              |   |                           |    |   |   |   |   |   |   |   |
| Operating                expenses:                                                |   |                           |    |   |   |   |   |   |   |   |
| Salaries,                contracted services and direct charges                   |   |                           | 240,100 |   |   | 261,005 |   |   | 256,643 |   |
| Cost                of product sales                                              |   |                           | 22,550  |   |   | 14,964 |   |   | 14,562 |   |
| Selling,                administrative and other operating costs                  |   |                           | 61,053  |   |   | 61,015 |   |   | 61,511 |   |
| Amortization                of intangible assets                                  |   |                           | 982     |   |   | 774 |   |   | 773 |   |
|                    Restructuring and other severance related costs |   |                           | 3,914   |   |   | -- |   |   | -- |   |
|                    Loss on asset disposal                          |   |                           | 1,825   |   |   | -- |   |   | -- |   |
|                    Goodwill impairment                             |   |                           | 7,050   |   |   | -- |   |   | -- |   |
|                    Expenses related to attempted merger            |   |                           | 2,129   |   |   | -- |   |   | -- |   |
|                                                                              |   |                           |    |   |   |   |   |   |   |   |
| Operating                (loss) income                                            |   |                           | (17,305 | ) |   | 3,854 |   |   | (1,590 | ) |
|                                                                              |   |                           |    |   |   |   |   |   |   |   |
| Non-operating                income                                               |   |                           | 50      |   |   | 39 |   |   | 79 |   |
| Interest                expense                                                   |   |                           | 394     |   |   | 41 |   |   | 13 |   |
|                                                                              |   |                           |    |   |   |   |   |   |   |   |
| (Loss)                income before income taxes                                  |   |                           | (17,649 | ) |   | 3,852 |   |   | (1,524 | ) |
|                                                                              |   |                           |    |   |   |   |   |   |   |   |
| Income                taxes                                                       |   |                           | 50      |   |   | -- |   |   | -- |   |
|                                                                              |   |                           |    |   |   |   |   |   |   |   |
| Net                (loss) income                                                  |   | $                              | (17,699 | ) | $ | 3,852 |   | $ | (1,524 | ) |
|                                                                              |   |                           |    |   |   |   |   |   |   |   |
| Per                common share (basic):                                          |   |                           |    |   |   |   |   |   |   |   |
| Net                (loss) income:                                                 |   | $                              | (.72    | ) | $ | .16 |   | $ | (.06 | ) |
|                                                                              |   |                           |    |   |   |   |   |   |   |   |
| Per                common share (diluted):                                        |   |                           |    |   |   |   |   |   |   |   |
| Net                (loss) income:                                                 |   | $                              | (.72    | ) | $ | .16 |   | $ | (.06 | ) |
|                                                                              |   |                           |    |   |   |   |   |   |   |   |
| Average                common shares outstanding                                  |   |                           | 24,495  |   |   | 24,212 |   |   | 24,201 |   |
| Average                common and common equivalent shares outstanding            |   |                           | 24,495  |   |   | 24,398 |   |   | 24,201 |   |

----

**Consolidated      Statements of Cash Flows**

|                                                                                                                  |   | **Fiscal                Year** |    |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|---------|
| ***(In                thousands)***                                                                                   |   | **2005**                       |    | **2004** |   | **2003** |   |
|                                                                                                                  |   |                           |    |   |   |   |   |
| Cash                flows from operating activities:                                                                  |   |                           |    |   |   |   |   |
| Net                (loss) income                                                                                      |   | $                              | (17,699 | ) | $ | 3,852 |   | $ | (1,524 | ) |
|                                                                                                                  |   |                           |    |   |   |   |   |   |   |   |
| Adjustments                to reconcile net (loss) income to net cash providedby                operating activities: |   |                           |    |   |   |   |   |   |   |   |
| Depreciation                                                                                                          |   |                           | 2,763   |   |   | 2,918 |   |   | 2,883 |   |
| Amortization                of intangible assets                                                                      |   |                           | 982     |   |   | 774 |   |   | 773 |   |
| Goodwill                impairment                                                                                    |   |                           | 7,050   |   |   | -- |   |   | -- |   |
| Loss                on asset disposal                                                                                 |   |                           | 1,867   |   |   | 211 |   |   | 202 |   |
| Change                in deferred income tax assets                                                                   |   |                           | --      |   |   | -- |   |   | (330 | ) |
| Amortization                of deferred stock compensation                                                            |   |                           | 267     |   |   | 101 |   |   | -- |   |
|                                                                                                                  |   |                           |    |   |   |   |   |   |   |   |
| Change                in:                                                                                             |   |                           |    |   |   |   |   |   |   |   |
| Accounts                receivable                                                                                    |   |                           | (8,012  | ) |   | (2,141 | ) |   | 4,153 |   |
| Prepaid                expenses                                                                                       |   |                           | 604     |   |   | 451 |   |   | (706 | ) |
| Other                assets                                                                                           |   |                           | 290     |   |   | (115 | ) |   | (214 | ) |
| Accounts                payable                                                                                       |   |                           | 7,424   |   |   | 541 |   |   | (3,141 | ) |
| Salaries                and vacations                                                                                 |   |                           | (580    | ) |   | 1,054 |   |   | 1,738 |   |
| Other                accrued expenses                                                                                 |   |                           | 483     |   |   | (781 | ) |   | (119 | ) |
| Deferred                revenue                                                                                       |   |                           | (13     | ) |   | (1,108 | ) |   | (1,574 | ) |
| Income                tax refund receivable                                                                           |   |                           | --      |   |   | -- |   |   | 4,844 |   |
| Restructuring                accrual                                                                                  |   |                           | 1,234   |   |   | (293 | ) |   | (587 | ) |
| Deferred                compensation                                                                                  |   |                           | (1,718  | ) |   | 414 |   |   | 661 |   |
| Net                cash (used in) provided by operating activities                                                    |   |                           | (5,058  | ) |   | 5,878 |   |   | 7,059 |   |
|                                                                                                                  |   |                           |    |   |   |   |   |   |   |   |
| Cash                flows from investing activities:                                                                  |   |                           |    |   |   |   |   |   |   |   |
| Property                and equipment additions                                                                       |   |                           | (2,873  | ) |   | (2,508 | ) |   | (2,334 | ) |
| Payments                for acquisitions, net of cash acquired                                                        |   |                           | (5,010  | ) |   | -- |   |   | -- |   |
| Proceeds                from property and equipment sales                                                             |   |                           | 18      |   |   | 18 |   |   | 23 |   |
| Net                cash used in investing activities                                                                  |   |                           | (7,865  | ) |   | (2,490 | ) |   | (2,311 | ) |
|                                                                                                                  |   |                           |    |   |   |   |   |   |   |   |
| Cash                flows from financing activities:                                                                  |   |                           |    |   |   |   |   |   |   |   |
| Net                change in line of credit                                                                           |   |                           | 5,000   |   |   | -- |   |   | (324 | ) |
| Proceeds                from exercise of stock options                                                                |   |                           | 98      |   |   | 2 |   |   | 21 |   |
| Net                cash provided by (used in) financing activities                                                    |   |                           | 5,098   |   |   | 2 |   |   | (303 | ) |
|                                                                                                                  |   |                           |    |   |   |   |   |   |   |   |
| Net                (decrease) increase in cash and equivalents                                                        |   |                           | (7,825  | ) |   | 3,390 |   |   | 4,445 |   |
|                                                                                                                  |   |                           |    |   |   |   |   |   |   |   |
| Cash                and equivalents at beginning of year                                                              |   |                           | 7,889   |   |   | 4,499 |   |   | 54 |   |
|                                                                                                                  |   |                           |    |   |   |   |   |   |   |   |
| Cash                and equivalents at end of year                                                                    |   | $                              | 64      |   | $ | 7,889 |   | $ | 4,499 |   |
|                                                                                                                  |   |                           |    |   |   |   |   |   |   |   |
| Supplemental                cash flow information:                                                                    |   |                           |    |   |   |   |   |   |   |   |
| Cash                paid (refunded) during the year for:                                                              |   |                           |    |   |   |   |   |   |   |   |
| Income                taxes                                                                                           |   | $                              | 181     |   | $ | 35 |   | $ | (4,515 | ) |
| Interest                                                                                                              |   | $                              | 528     |   | $ | 41 |   | $ | 13 |   |
|                                                                                                                  |   |                           |    |   |   |   |   |   |   |   |
| Non-cash                Activities:                                                                                   |   |                           |    |   |   |   |   |   |   |   |
| Value                of common stock issued for acquisitions                                                          |   | $                              | 1,000   |   |   |   |   |   |   |   |
| Value                of common stock issued for stock awards                                                          |   | $                              | 28      |   |   |   |   |   |   |   |

----

**Consolidated      Statements of Shareholders' Equity**

|    ***(Dollars                in thousands)***                                    |   |   **Common****Stock** |   |   **Additional****Capital** |   |   **Deferred****Compensation** |   |   **Retained****Earnings** |   |  **Total****Shareholders’****Equity** |   |
|--------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|---------------------------------------|--------|------------------------------------------|--------|--------------------------------------|--------|--------------------------------------------------|--------|
|                                                                                             |   |                            |   |                                  |   |                                     |   |                                 |   |                                             |   |
| Balances                at December 28, 2002                                                     |   | $                               | 2,420  |                                  | $      | 20,129                                   |   |                                 |   |                                             | $      | 47,617 |   | $ | 70,166 |   |
|                                                                                             |   |                            |   |                                  |   |                                     |   |                                 |   |                                             |   |   |   |   |   |   |
| Common                stock issued - 12,500 shares upon exercise of stock                options |   |                            | 1      |                                  |   | 20                                       |   |                                 |   |                                             |   |   |   |   | 21 |   |
| Net                loss (Comprehensive loss)                                                     |   |                            |   |                                  |   |                                     |   |                                 |   |                                             |   | (1,524 | ) |   | (1,524 | ) |
| Balances                at January 3, 2004                                                       |   |                            | 2,421  |                                  |   | 20,149                                   |   |                                 |   |                                             |   | 46,093 |   |   | 68,663 |   |
|                                                                                             |   |                            |   |                                  |   |                                     |   |                                 |   |                                             |   |   |   |   |   |   |
| Common                stock issued - 650 shares upon exercise of stock options                   |   |                            |   |                                  |   | 2                                        |   |                                 |   |                                             |   |   |   |   | 2 |   |
| Issuance                of restricted stock - 300,000 shares                                     |   |                            |   |                                  |   | 944                                      |   | $                                    | (944   | )                                                |   |   |   |   | -- |   |
| Amortization                of deferred compensation                                             |   |                            |   |                                  |   |                                     |   |                                 | 101    |                                             |   |   |   |   | 101 |   |
| Net                income (Comprehensive                income)                                  |   |                            |   |                                  |   |                                     |   |                                 |   |                                             |   | 3,852 |   |   | 3,852 |   |
| Balances                at January 1, 2005                                                       |   |                            | 2,421  |                                  |   | 21,095                                   |   |                                 | (843   | )                                                |   | 49,945 |   |   | 72,618 |   |
|                                                                                             |   |                            |   |                                  |   |                                     |   |                                 |   |                                             |   |   |   |   |   |   |
| Common                stock issued - 31,975 shares upon exercise of stock                options |   |                            | 3      |                                  |   | 95                                       |   |                                 |   |                                             |   |   |   |   | 98 |   |
| Common                stock issued - 269,298 shares for acquisitions                             |   |                            | 27     |                                  |   | 973                                      |   |                                 |   |                                             |   |   |   |   | 1,000 |   |
| Common                stock issued - 7,000 shares as stock grants                                |   |                            | 1      |                                  |   | 27                                       |   |                                 |   |                                             |   |   |   |   | 28 |   |
| Amortization                of deferred Compensation                                             |   |                            | 8      |                                  |   | (8                                       | )      |                                 | 267    |                                             |   |   |   |   | 267 |   |
| Net                loss (Comprehensive loss)                                                     |   |                            |   |                                  |   |                                     |   |                                 |   |                                             |   | (17,699 | ) |   | (17,699 | ) |
| Balance                at December 31, 2005                                                      |   | $                               | 2,460  |                                  | $      | 22,182                                   |   | $                                    | (576   | )                                                | $      | 32,246 |   | $ | 56,312 |   |

----

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**A.      Summary of Significant Accounting Policies**

*Description      of business - *

*Basis      of presentation - *

*Fiscal      year -*

*Depreciation      - *

*Financial      instruments - *

*Revenue      recognition - *

*Net      (loss) income per share - *

*Cash      equivalents - *

*Allowance      for doubtful accounts*

----

**Notes          to Consolidated Financial Statements (continued)**

*Shares      reserve - *

*Estimates*

*Other      intangible assets*

*Goodwill      assets*

*Derivatives*

*Stock      Option Plans*

|                                                                                                                                                                          |   | **Year                Ended**          |    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|---------|
| ***(In                thousands except per share amounts)***                                                                                                                  |   | **December                31****2005** |    | **January                1,****2005** |   | **January                3,****2004** |   |
|                                                                                                                                                                          |   |                                   |    |   |   |   |   |
| Net                (loss) income as reported*:*                                                                                                                               |   | $                                      | (17,699 | ) | $ | 3,852 |   | $ | (1,524 | ) |
| Deduct:                Total stock-based employee compensation expense determined under                the fair                value based method, net of related tax effects |   |                                   | (1,055  | ) |   | (567 | ) |   | (542 | ) |
| Pro                forma net (loss) income                                                                                                                                    |   | $                                      | (18,754 | ) | $ | 3,285 |   | $ | (2,066 | ) |
|                                                                                                                                                                          |   |                                   |    |   |   |   |   |   |   |   |
| Net                (loss) income per share:                                                                                                                                   |   |                                   |    |   |   |   |   |   |   |   |
| Basic                - as reported                                                                                                                                            |   | $                                      | (.72    | ) | $ | .16 |   | $ | (.06 | ) |
| Basic                - pro forma                                                                                                                                              |   |                                   | (.77    | ) |   | .14 |   |   | (.09 | ) |
|                                                                                                                                                                          |   |                                   |    |   |   |   |   |   |   |   |
| Diluted                - as reported                                                                                                                                          |   | $                                      | (.72    | ) | $ | .16 |   | $ | (.06 | ) |
| Diluted                - pro forma                                                                                                                                            |   |                                   | (.77    | ) |   | .13 |   |   | (.09 | ) |

----

**Notes      to Consolidated Financial Statements (continued)**

|                                   |   | **Year                Ended**           |                   |
|----------------------------------------|--------|-----------------------------------------|------------------------|
|                                   |   | **December                31,****2005** |                   | **January                1,****2005** |   | **January                3,****2004** |   |
|                                   |   |                                    |                   |   |   |   |   |
| Expected                life           |   |                                    | 6                years |   |   | 8                years |   |   | 5                years |   |
| Expected                volatility     |   |                                    | 74                     | % |   | 72 | % |   | 79 | % |
| Expected                dividend yield |   |                                    | 0.0                    | % |   | 0.0 | % |   | 0.0 | % |
| Risk-free                interest rate |   |                                    | 4.0                    | % |   | 2.7 | % |   | 2.6 | % |

** **

|                                            |   |  **Shares** |      | **Weighted-Average****Exercise                Price** |   |
|-------------------------------------------------|--------|------------------|-----------|-------------------------------------------------------|--------|
| Outstanding                at December 28, 2002 |   |             | 2,067,412 |                                                  | $      | 8.18 |   |
|                                            |   |             |      |                                                  |   |   |   |
| Granted                                         |   |             | 287,000   |                                                  |   | 2.85 |   |
| Exercised                                       |   |             | (12,500   | )                                                     |   | 1.68 |   |
| Expired                                         |   |             | (216,230  | )                                                     |   | 4.88 |   |
| Outstanding                at January 3, 2004   |   |             | 2,125,682 |                                                  |   | 7.83 |   |
|                                            |   |             |      |                                                  |   |   |   |
| Granted                                         |   |             | 445,000   |                                                  |   | 3.10 |   |
| Exercised                                       |   |             | (650      | )                                                     |   | 3.19 |   |
| Expired                                         |   |             | (178,748  | )                                                     |   | 8.69 |   |
| Outstanding                at January 1, 2005   |   |             | 2,391,284 |                                                  |   | 6.88 |   |
|                                            |   |             |      |                                                  |   |   |   |
| Granted                                         |   |             | 391,000   |                                                  |   | 3.72 |   |
| Exercised                                       |   |             | (31,975   | )                                                     |   | 3.03 |   |
| Expired                                         |   |             | (401,528  | )                                                     |   | 7.16 |   |
| Outstanding                at December 31, 2005 |   |             | 2,348,781 |                                                  | $      | 6.36 |   |

----

**Notes      to Consolidated Financial Statements (continued)**

|                                                                |   | **Options                Outstanding**                  |      | **Options                Exercisable**                               |   |
|---------------------------------------------------------------------|--------|---------------------------------------------------------|-----------|----------------------------------------------------------------------|--------|
|  **Range                of****Exercise                Prices** |   | **Number****Outstanding****at                12/31/05** |      | **Weighted-Average****Remaining****Contractual                Life** |   |  **Weighted-Average****Exercise                Price** |   | **Number****Exercisable****At                12/31/05** |   |  **Weighted-Average****Exercise                Price** |   |
| $2.00                - $3.00                                        |   |                                                    | 707,500   |                                                                 |   | 7.92 |   | $ | 2.90 |   |   | 407,500 |   | $ | 2.83 |   |
| $3.03                - $4.40                                        |   |                                                    | 891,870   |                                                                 |   | 7.22 |   |   | 3.84 |   |   | 791,870 |   |   | 3.85 |   |
| $5.01                - $10.38                                       |   |                                                    | 434,750   |                                                                 |   | 4.70 |   |   | 9.05 |   |   | 434,750 |   |   | 9.05 |   |
| $10.81                - $34.94                                      |   |                                                    | 314,661   |                                                                 |   | 2.82 |   |   | 17.59 |   |   | 314,661 |   |   | 17.59 |   |
|                                                                |   |                                                    |      |                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| $2.00                - $34.94                                       |   |                                                    | 2,348,781 |                                                                 |   | 6.38 |   | $ | 6.36 |   |   | 1,948,781 |   | $ | 7.01 |   |

*Accounting      Pronouncements *
* *

*Reclassifications*

| **B.  ** | **Property                and Equipment** |
|--------------------|-------------------------------------------|

|  ***(In                thouands)***        |   | **December                31,****2005** |    | **January                1,****2005** |   |
|-------------------------------------------------|--------|-----------------------------------------|---------|---------------------------------------|--------|
|                                            |   |                                    |    |                                  |   |
| Leasehold                improvements           |   | $                                       | 2,846   |                                  | $      | 3,133 |   |
| Office                furniture & equipment |   |                                    | 27,789  |                                  |   | 30,785 |   |
|                                            |   |                                    | 30,635  |                                  |   | 33,918 |   |
| Accumulated                depreciation         |   |                                    | (26,579 | )                                     |   | (28,260 | ) |
|                                            |   | $                                       | 4,056   |                                  | $      | 5,658 |   |

----

**Notes        to Consolidated Financial Statements (continued)**

**C.      Other Intangible Assets**

|                                            |   | **December                31, 2005** |   | **January                1, 2005**    |   |
|-------------------------------------------------|--------|--------------------------------------|--------|---------------------------------------|--------|
|   ***(In                thousands)*** |   | **Gross****Carrying****Amount**      |   |  **Accumulated****Amortization** |   | **Other                Intangibles,****Net** |   | **Gross                Carrying****Amount** |   |  **Accumulated****Amortization** |   | **Other****Intangibles,****Net** |   |
|                                            |   |                                 |   |                                  |   |   |   |   |   |   |   |   |   |
| Customer                list                    |   | $                                    | 15,075 |                                  | $      | (4,364 | ) | $ | 10,711 |   | $ | 12,270 |   | $ | (3,382 | ) | $ | 8,888 |   |
| Trade                name                       |   |                                 | 1,720  |                                  |   | (133 | ) |   | 1,587 |   |   | 1,720 |   |   | (133 | ) |   | 1,587 |   |
|                                            |   |                                 |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                            |   | $                                    | 16,795 |                                  | $      | (4,497 | ) | $ | 12,298 |   | $ | 13,990 |   | $ | (3,515 | ) | $ | 10,475 |   |

**D.      Deferred Compensation **

** **

**E.      Line of Credit**

----

**Notes        to Consolidated Financial Statements (continued)**

**F.      Shareholders' Rights Plan**

**G.**
**Income      Taxes**

|                                                      |   | **Fiscal                Year** |   |
|-----------------------------------------------------------|--------|--------------------------------|--------|
| ***(In                thousands)***                       |   | **2005**                       |   | **2004** |   | **2003** |   |
|                                                      |   |                           |   |   |   |   |   |
| Currently                payable:                         |   |                           |   |   |   |   |   |
| Federal                                                   |   | $                              | --     |   | $ | -- |   | $ | 277 |   |
| State                                                     |   |                           | 50     |   |   | -- |   |   | 53 |   |
|                                                      |   |                           | 50     |   |   | 0 |   |   | 330 |   |
|                                                      |   |                           |   |   |   |   |   |   |   |   |
| Deferred:                                                 |   |                           |   |   |   |   |   |   |   |   |
| Federal                                                   |   |                           | (5,360 | ) |   | (1,581 | ) |   | (296 | ) |
| State                                                     |   |                           | (788   | ) |   | (233 | ) |   | (34 | ) |
|                                                      |   |                           | (6,148 | ) |   | (1,814 | ) |   | (330 | ) |
| Valuation                allowance for deferred tax asset |   |                           | 6,148  |   |   | 1,814 |   |   | -- |   |
|                                                      |   |                           | 0      |   |   | 0 |   |   | (330 | ) |
|                                                      |   |                           |   |   |   |   |   |   |   |   |
| Total:                                                    |   | $                              | 50     |   | $ | 0 |   | $ | 0 |   |
|                                                      |   |                           |   |   |   |   |   |   |   |   |

----

**Notes      to Consolidated Financial Statements (continued)**

|  ***(In                thousands)***                     |   | **December                31,****2005** |    | **January                1,****2005** |   |
|---------------------------------------------------------------|--------|-----------------------------------------|---------|---------------------------------------|--------|
|                                                          |   |                                    |    |                                  |   |
| Deferred                compensation                          |   | $                                       | 941     |                                  | $      | 1,611 |   |
| Accrued                vacation and compensatory time         |   |                                    | 465     |                                  |   | 400 |   |
| Accrued                reorganization costs                   |   |                                    | 605     |                                  |   | 124 |   |
| Allowance                for doubtful accounts                |   |                                    | 889     |                                  |   | 773 |   |
| Depreciation                                                  |   |                                    | 625     |                                  |   | 287 |   |
| Capital                loss carry forward                     |   |                                    | 1,148   |                                  |   | 1,148 |   |
| Goodwill                and other intangibles                 |   |                                    | 4,904   |                                  |   | 3,050 |   |
| State                net operating loss carry forwards        |   |                                    | 767     |                                  |   | 764 |   |
| Federal                net operating loss (NOL) carry forward |   |                                    | 4,614   |                                  |   | 806 |   |
| Other                                                         |   |                                    | 264     |                                  |   | 111 |   |
| Valuation                allowance                            |   |                                    | (12,626 | )                                     |   | (6,478 | ) |
|                                                          |   |                                    |    |                                  |   |   |   |
| Net                deferred tax assets                        |   | $                                       | 2,596   |                                  | $      | 2,596 |   |
|                                                          |   |                                    |    |                                  |   |   |   |
| Whereof:                                                      |   |                                    |    |                                  |   |   |   |
| Current                                                       |   | $                                       | 261     |                                  | $      | 366 |   |
| Non-current                                                   |   |                                    | 2,335   |                                  |   | 2,230 |   |
|                                                          |   | $                                       | 2,596   |                                  | $      | 2,596 |   |

|                                                          |   | **Fiscal                Year** |   |
|---------------------------------------------------------------|--------|--------------------------------|--------|
| ***(In                thousands)***                           |   | **2005**                       |   | **2004** |   | **2003** |   |
|                                                          |   |                           |   |   |   |   |   |
| Income                (benefit) tax at statutory federal rate |   | $                              | (6,177 | ) | $ | 1,349 |   | $ | (533 | ) |
| State                and local taxes, net of federal benefit  |   |                           | (459   | ) |   | 100 |   |   | (59 | ) |
| Valuation                allowance for deferred tax asset     |   |                           | 6,148  |   |   | (1,814 | ) |   | -- |   |
| Meals                and Entertainment                        |   |                           | 192    |   |   | 215 |   |   | 232 |   |
| Other                                                         |   |                           | 346    |   |   | 150 |   |   | 360 |   |
|                                                          |   |                           |   |   |   |   |   |   |   |   |
| Total                tax provision                            |   | $                              | 50     |   | $ | 0 |   | $ | 0 |   |

**H.      Commitments**

| ***(In                thousands)***     |   |   |        |   |   |
|-----------------------------------------|--------|--------|-------------|--------|--------|
|                                    |   |   |        |   |   |
| Year                ending December 31, |   |   | 2006        |   | $      | 6,105 |   |
|                                    |   |   | 2007        |   |   | 3,717 |   |
|                                    |   |   | 2008        |   |   | 1,948 |   |
|                                    |   |   | 2009        |   |   | 222 |   |
|                                    |   |   | Later  |   |   | 161 |   |
|                                    |   |   |        |   |   | 12,153 |   |
|                                    |   |   |        |   |   |   |   |
| Less:                sublease contracts |   |   |        |   |   | (1,661 | ) |
|                                    |   |   |        |   |   |   |   |
| Total                minimum obligation |   |   |        |   | $      | 10,492 |   |

----

**Notes        to Consolidated Financial Statements (continued)**

**I.      Restructuring and Other Severance Related Costs**

|  ***(In                thousands)***            |   | **Workforce****Reduction** |   | **Office                Closure/****Consolidation** |   |  **Total** |    |
|------------------------------------------------------|--------|----------------------------|--------|-----------------------------------------------------|--------|-----------------|---------|
|                                                 |   |                       |   |                                                |   |            |    |
| Balance                at December 28, 2002          |   | $                          | --     |                                                | $      | 1,198           |    | $ | 1,198 |   |
|                                                 |   |                       |   |                                                |   |            |    |   |   |   |
| Cash                expenditures                     |   |                       |   |                                                |   | (587            | )       |   | (587 | )  |
| Non-cash                charges                      |   |                       | --     |                                                |   | -               |    |   | -- |   |
| Balance                at January 3, 2004            |   | $                          | --     |                                                | $      | 611             |    | $ | 611 |   |
|                                                 |   |                       |   |                                                |   |            |    |   |   |   |
| Cash                expenditures                     |   |                       | --     |                                                |   | (293            | )  |   | (293 | )  |
| Non-cash                charges                      |   |                       | --     |                                                |   | --              |    |   | -- |   |
| Balance                at January 1, 2005            |   | $                          | --     |                                                | $      | 318             |    | $ | 318 |   |
|                                                 |   |                       |   |                                                |   |            |    |   |   |   |
| Additional                restructuring charge       |   |                       | 1,656  |                                                |   | 2,258           |    |   | 3,914 |   |
| Cash                expenditures                     |   |                       | (1,612 | )                                                   |   | (429            | )       |   | (2,041 | ) |
| Write-off                of deferred leasehold costs |   |                       |   |                                                |   | (578            | )       |   | (578 | ) |
| Non-cash                charges                      |   |                       |   |                                                |   | (61             | )       |   | (61 | ) |
| Balance                at December 31, 2005          |   | $                          | 44     |                                                | $      | 1,508           |    | $ | 1,552 |   |

** **

** **

**J.      Goodwill**

----

**Notes        to Consolidated Financial Statements (continued)**

**K.      Restricted Stock**

**L.         Business Acquisitions**

*    WireSpeed        Networks, LLC - *

*    Redwood        Solutions Corporation - *

**M.      Subsequent Events**

----

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

| /s/                Deloitte & Touche LLP |
|----------------------------------------------|
| Minneapolis,                Minnesota        |
| March                15, 2006                |

----

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

| /s/                Deloitte & Touche LLP |
|----------------------------------------------|
| Minneapolis,                Minnesota        |
| March                15, 2006                |

----

**Report      of Management**

| Dated:                March 16, 2006 | By:    | /s/                Jeffrey P. Baker    |
|--------------------------------------|--------|----------------------------------------|
|                                 |   | Jeffrey                P. Baker        |
|                                 |   | Chief                Executive Officer |
|                                 |   |                                   |
| Dated:                March 16, 2006 | By:    | /s/                David J. Steichen   |
|                                 |   | David                J. Steichen       |
|                                 |   | Chief                Financial Officer |

**Management’s      Report on Internal Control Over Financial Reporting**

*Internal      Control - Integrated Framework*
*Internal      Control - Integrated Framework*

| Dated:                  March 16, 2006 | By:    | /s/                  Jeffrey P. Baker    |
|----------------------------------------|--------|------------------------------------------|
|                                   |   | Jeffrey                  P. Baker        |
|                                   |   | Chief                  Executive Officer |
|                                   |   |                                     |
| Dated:                  March 16, 2006 | By:    | /s/                  David J. Steichen   |
|                                   |   | David                  J. Steichen       |
|                                   |   | Chief                  Financial Officer |

----

**Stock      Data**

|                                                   |   | Market                Range |   |
|--------------------------------------------------------|--------|-----------------------------|--------|
| **Fiscal                Year Ended December 31, 2005** |   | High                        |   | Low |   | Close |   |
|                                                   |   |                        |   |   |   |   |   |
| Fourth                Quarter                          |   | $                           | 2.74   |   | $ | 2.24 |   | $ | 2.40 |   |
| Third                Quarter                           |   |                        | 4.00   |   |   | 2.56 |   |   | 2.65 |   |
| Second                Quarter                          |   |                        | 3.91   |   |   | 2.75 |   |   | 3.41 |   |
| First                Quarter                           |   |                        | 4.10   |   |   | 3.33 |   |   | 3.75 |   |
|                                                   |   |                        |   |   |   |   |   |   |   |   |
| **Fiscal                Year Ended January 1, 2005**   |   |                        |   |   |   |   |   |   |   |   |
|                                                   |   |                        |   |   |   |   |   |   |   |   |
| Fourth                Quarter                          |   | $                           | 4.26   |   | $ | 3.20 |   | $ | 4.00 |   |
| Third                Quarter                           |   |                        | 4.63   |   |   | 2.81 |   |   | 3.78 |   |
| Second                Quarter                          |   |                        | 3.50   |   |   | 2.68 |   |   | 3.14 |   |
| First                Quarter                           |   |                        | 3.59   |   |   | 2.71 |   |   | 3.05 |   |

*Sales      of Unregistered Securities*

----

**Five      Year Financial Summary**

|   ***(In                thousands except per share amounts***                                                 |   |   Fiscal                Year |    |
|-------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|---------|
| ***and                number of personnel)***                                                                           |   | 2005                                   |    | 2004 |   | 2003 |   | 2002 |   | 2001 |   |
|                                                                                                                    |   |                                   |    |   |   |   |   |   |   |   |   |
| Revenue:                                                                                                                |   |                                   |    |   |   |   |   |   |   |   |   |
| Professional                services provided directly                                                                  |   | $                                      | 263,121 |   | $ | 269,610 |   | $ | 266,175 |   | $ | 312,085 |   | $ | 390,320 |   |
| Professional                services provided through subsuppliers                                                      |   |                                   | 34,431  |   |   | 55,806 |   |   | 50,543 |   |   | 98,578 |   |   | 140,340 |   |
| Product                sales                                                                                            |   |                                   | 24,746  |   |   | 16,196 |   |   | 15,181 |   |   | 15,497 |   |   | 21,067 |   |
| Total                revenue                                                                                            |   |                                   | 322,298 |   |   | 341,612 |   |   | 331,899 |   |   | 426,160 |   |   | 551,727 |   |
|                                                                                                                    |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Salaries,                contracted services and direct charges                                                         |   |                                   | 240,100 |   |   | 261,005 |   |   | 256,643 |   |   | 339,016 |   |   | 438,420 |   |
| Cost                of product sales                                                                                    |   |                                   | 22,550  |   |   | 14,964 |   |   | 14,562 |   |   | 14,699 |   |   | 19,286 |   |
| Selling,                administrative and other operating costs                                                        |   |                                   | 61,053  |   |   | 61,015 |   |   | 61,511 |   |   | 73,694 |   |   | 87,909 |   |
| Amortization                of goodwill and other intangible assets                                                     |   |                                   | 982     |   |   | 774 |   |   | 773 |   |   | 785 |   |   | 3,212 |   |
| Loss                on sale of corporate headquarters (See                Note B)                                  |   |                                   | --      |   |   | -- |   |   | -- |   |   | 1,860 |   |   | -- |   |
| Restructuring                and other severance related costs (See Note I)                                             |   |                                   | 3,914   |   |   | -- |   |   | -- |   |   | -- |   |   | -- |   |
| Loss                on Disposal (See Note B)                                                                            |   |                                   | 1,825   |   |   | -- |   |   | -- |   |   | -- |   |   | -- |   |
| Goodwill                Impairment (See Note J)                                                                         |   |                                   | 7,050   |   |   | -- |   |   | -- |   |   | -- |   |   | -- |   |
| Merger                Related Expenses                                                                                  |   |                                   | 2,129   |   |   | -- |   |   | -- |   |   | -- |   |   | -- |   |
| Non-operating                income                                                                                     |   |                                   | 50      |   |   | 39 |   |   | 79 |   |   | 122 |   |   | 247 |   |
| Loss                on investment                                                                                       |   |                                   | --      |   |   | -- |   |   | -- |   |   | 190 |   |   | 3,012 |   |
| Interest                expense                                                                                         |   |                                   | 394     |   |   | 41 |   |   | 13 |   |   | 1,042 |   |   | 2,899 |   |
| Loss                on debt extinguishment (See Note E)                                                                 |   |                                   | --      |   |   | -- |   |   | -- |   |   | 744 |   |   | -- |   |
| Income                taxes (benefit) and minority interest                                                             |   |                                   | 50      |   |   | -- |   |   | -- |   |   | (1,106 | ) |   | 216 |   |
| Net                income (loss) before cumulative effect of change in accounting for                goodwill           |   |                                   | (17,699 | ) |   | 3,852 |   |   | (1,524 | ) |   | (4,642 | ) |   | (2,980 | ) |
|                                                                                                                    |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative                effect of change in accounting for goodwill (See Note J)                                      |   |                                   | --      |   |   | -- |   |   | -- |   |   | 16,389 |   |   | -- |   |
|                                                                                                                    |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                assets                                                                                             |   |                                   | 102,004 |   |   | 105,677 |   |   | 101,895 |   |   | 106,744 |   |   | 192,884 |   |
| Long-term                liabilities                                                                                    |   |                                   | 2,459   |   |   | 3,637 |   |   | 4,038 |   |   | 3,605 |   |   | 7,588 |   |
| Shareholders’                equity                                                                               |   |                                   | 56,312  |   |   | 72,618 |   |   | 68,663 |   |   | 70,166 |   |   | 91,083 |   |
|                                                                                                                    |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per                share data:                                                                                          |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                income (loss) before cumulative effect of change in accounting for                goodwill (basic)   |   |                                   | (.72    | ) |   | .16 |   |   | (.06 | ) |   | (.19 | ) |   | (.12 | ) |
| Net                income (loss) before cumulative effect of change in accounting for                goodwill (diluted) |   |                                   | (.72    | ) |   | .16 |   |   | (.06 | ) |   | (.19 | ) |   | (.12 | ) |
| Cash                dividends                                                                                           |   |                                   | .00     |   |   | .00 |   |   | .00 |   |   | .00 |   |   | .10 |   |
| Shareholders’                equity                                                                               |   |                                   | 2.29    |   |   | 3.00 |   |   | 2.84 |   |   | 2.90 |   |   | 3.76 |   |
|                                                                                                                    |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average                common shares outstanding                                                                        |   |                                   | 24,495  |   |   | 24,212 |   |   | 24,201 |   |   | 24,198 |   |   | 24,196 |   |
| Average                common and common equivalent shares outstanding                                                  |   |                                   | 24,495  |   |   | 24,398 |   |   | 24,201 |   |   | 24,198 |   |   | 24,196 |   |
|                                                                                                                    |   |                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Number                of Personnel                                                                                      |   |                                   | 3,095   |   |   | 3,015 |   |   | 3,000 |   |   | 3,075 |   |   | 3,800 |   |

----

**Quarterly      Revenues and Income**

|                                                           |   | **Quarter                Ended** |   |                      |   |
|----------------------------------------------------------------|--------|----------------------------------|--------|---------------------------|--------|
| ***(In                thousands except per share amounts)***   |   | **April                2**       |   | **July                2** |   | **October                1** |   | **December                31** |   | **Total** |   |
|                                                           |   |                             |   |                      |   |   |   |   |   |   |   |
| **Fiscal                2005**                                 |   |                             |   |                      |   |   |   |   |   |   |   |
|                                                           |   |                             |   |                      |   |   |   |   |   |   |   |
| Total                revenue                                   |   | $                                | 79,099 |                      | $      | 79,104 |   | $ | 78,244 |   | $ | 85,851 |   | $ | 322,298 |   |
| Gross                margin                                    |   |                             | 14,925 |                      |   | 15,408 |   |   | 14,163 |   |   | 15,152 |   |   | 59,648 |   |
| (Loss)                income before income taxes               |   |                             | (706   | )                         |   | (2,375 | ) |   | (15,584 | ) |   | 1,016 |   |   | (17,649 | ) |
| Income                taxes (benefit)                          |   |                             | --     |                      |   | -- |   |   | -- |   |   | 50 |   |   | 50 |   |
| Net                (loss) income                               |   |                             | (706   | )                         |   | (2,375 | ) |   | (15,584 | ) |   | 966 |   |   | (17,699 | ) |
| Net                (loss) income per share (basic and diluted) |   |                             | (.03   | )                         |   | (.10 | ) |   | (.63 | ) |   | .04 |   |   | (.72 | ) |

|                                                         |   | **Quarter                Ended** |   |                      |   |
|--------------------------------------------------------------|--------|----------------------------------|--------|---------------------------|--------|
| ***(In                thousands except per share amounts)*** |   | **April                3**       |   | **July                3** |   | **October                2** |   | **January                1** |   | **Total** |   |
|                                                         |   |                             |   |                      |   |   |   |   |   |   |   |
| **Fiscal                2004**                               |   |                             |   |                      |   |   |   |   |   |   |   |
|                                                         |   |                             |   |                      |   |   |   |   |   |   |   |
| Total                revenue                                 |   | $                                | 85,394 |                      | $      | 86,865 |   | $ | 86,380 |   | $ | 82,973 |   | $ | 341,612 |   |
| Gross                margin                                  |   |                             | 15,730 |                      |   | 16,071 |   |   | 16,385 |   |   | 17,457 |   |   | 65,643 |   |
| Income                before income taxes                    |   |                             | 454    |                      |   | 706 |   |   | 1,284 |   |   | 1,408 |   |   | 3,852 |   |
| Income                taxes (benefit)                        |   |                             | --     |                      |   | -- |   |   | -- |   |   | -- |   |   | -- |   |
| Net                income                                    |   |                             | 454    |                      |   | 706 |   |   | 1,284 |   |   | 1,408 |   |   | 3,852 |   |
| Net                income per share (basic)                  |   |                             | .02    |                      |   | .03 |   |   | .05 |   |   | .06 |   |   | .16 |   |
| Net                income per share (diluted)                |   |                             | .02    |                      |   | .03 |   |   | .05 |   |   | .06 |   |   | .16 |   |

----

**Corporate      Information**

| **Board                of Directors**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | **Officers**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | **10-K                and Other Reports Available**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| ***Inside                Directors*** Michael                J. LaVelleChairman                of the Board  ***Outside                Directors*** Frederick                W. LangChairman                Emeritus of the Board Krzysztof                K. BurhardtPartner,                Clotho & Associates  Michael                B. EsstmanGeneral                Partner,Esstman                Investments, Ltd. and Retired                Senior Vice President,GTE                Corporation  Margaret                A. LoftusPrincipal,                Loftus Brown-Wescott, Inc. Edward                M. MahoneyRetired                Chairman and Chief                Executive Officer,Fortis                Investors, Inc. and Fortis Advisers, Inc. Robb                L. Prince Retired                Vice President and Treasurer,Jostens,                Inc. Willard                W. BrittainChairman                & Chief Executive Officer,Professional                Resources on Demand    | Jeffrey                P. BakerPresident                and Chief Executive Officer David                J. SteichenChief                Financial Officer and Treasurer Colleen                M. DavenportSecretary                and General Counsel  John                D. BambergerExecutive                Vice President Paulette                M. QuistSenior                Vice President, Business                Development and Strategy David                H. JenkinsChief                Information Officer       | A                copy of the Company's 2005 Annual Report on Form 10-K and other reports,                filed with the Securities and Exchange Commission, is available to                security holders without charge upon request to the Treasurer                at: Analysts                International Corporation3601                West 76th StreetMinneapolis,                Minnesota 55435-3000or                the Investor Relations page of the Company's                website. **Stock                Transfer Agent** Computershare                Investor ServicesP.O.                Box 43023Providence,                Rhode Island 02940-3023 Shareholder                Inquiries:800-254-5196http://www-us.computershare.com **Independent                Auditors** Deloitte                & Touche LLPMinneapolis,                Minnesota **World                Wide Web Address** http://www.analysts.com |

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