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

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

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

(in thousands)                      Net Product and Service Revenues                                      Net Product and Service Revenues

                                   For the Three Months Ended July 5,                                     For the Six Months Ended July 5,
                       2008         % of Revenues        2007         % of Revenues          2008         % of Revenues        2007         % of Revenues

Net revenues:
Product              $  92,678                59.8 %   $  91,599                66.3 %     $ 174,155                58.0 %   $ 183,809                65.6 %
Service                 62,315                40.2 %      46,662                33.7 %       126,007                42.0 %      96,445                34.4 %
Total net revenues     154,993               100.0 %     138,261               100.0 %       300,162               100.0 %     280,254               100.0 %

Gross profit
Product                  9,189                 5.9 %       7,319                 5.3 %        17,168                 5.7 %      15,249                 5.4 %
Service                 10,108                 6.5 %       8,289                 6.0 %        17,378                 5.8 %      17,600                 6.3 %
Total gross profit      19,297                12.4 %      15,608                11.3 %        34,546                11.5 %      32,849                11.7 %

Gross profit %
Product %                  9.9 %                             8.0 %                               9.9 %                             8.3 %
Service %                 16.2 %                            17.8 %                              13.8 %                            18.2 %

Operating
expenses:
Selling, general
and administrative      16,512                10.7 %      15,870                11.5 %        34,677                11.6 %      29,149                10.4 %
Depreciation and
amortization             1,218                 0.8 %       1,149                 0.8 %         2,434                 0.8 %       2,269                 0.8 %
Total operating
expenses                17,730                11.5 %      17,019                12.3 %        37,111                12.4 %      31,418                11.2 %

Income (loss) from
operations               1,567                 0.9 %      (1,411 )              -1.0 %        (2,565 )              -0.9 %       1,431                 0.5 %

Interest income             42                 0.0 %         220                 0.2 %           127                 0.0 %         530                 0.2 %
Interest expense          (119 )              -0.1 %        (130 )              -0.1 %          (274 )              -0.1 %        (269 )              -0.1 %
Net interest
income (expense)           (77 )              -0.1 %          90                 0.1 %          (147 )              -0.1 %         261                 0.1 %

Income (loss)
before income tax        1,490                 1.0 %      (1,321 )              -1.0 %        (2,712 )              -0.9 %       1,692                 0.6 %
Income tax expense           -                   -          (468 )              -0.4 %             -                   -           719                 0.3 %

Net income (loss)    $   1,490                 1.0 %   $    (853 )              -0.6 %     $  (2,712 )              -0.9 %   $     973                 0.3 %

See Note 1 to the Consolidated Financial Statements herein for descriptions of reclassifications to financial statements for the three and six months ended July 5, 2007 in order to conform to the current year presentation.

Second Quarter 2008 versus Second Quarter 2007

Total Net Revenues: Total net revenues increased $16.7 million or 12.1% in the second quarter of fiscal 2008 as compared to the second quarter of fiscal 2007. For the second quarters of fiscal 2008 and fiscal 2007, the net revenues were $155.0 million and $138.3 million, respectively.

Product revenue was $92.7 million and $91.6 million, respectively, for the second quarters of fiscal 2008 and fiscal 2007. Product revenue increased $1.1 million, an increase of 1.2% in the second quarter of fiscal 2008 as compared to the second quarter of fiscal 2007. This increase was due primarily to growth in our state, local and education customers and also in our commercial healthcare, retail and financial services accounts offset by continued delays in product deployment.

Service revenue was $62.3 million in the second quarter of fiscal 2008 compared to $46.7 million in the second quarter of fiscal 2007, an increase of $15.6 million or 33.5% from fiscal 2007. The Company groups services revenue into Technical Staffing and Infrastructure Services. Technical Staffing Services support clients' project requirements, ensures regulatory and customer compliance requirements and promotes success of the staffing projects. Infrastructure Services help clients optimize the various elements of distributed computing environments. Encompassing the complete IT lifecycle, these services include desktop and mobile computing, server and network environments.

Technical Staffing revenue was $31.6 million and accounted for approximately 50.6% of total service revenues in the second quarter of fiscal 2008, compared to $18.9 million and 40.5% for the second quarter of fiscal 2007. This increase is primarily the result of recognizing revenue for the gross billings on subcontractor personnel which historically have been recorded as fee based services in our vendor management business. Overall, volume in our staffing business was relatively consistent.

We anticipate technical staffing revenue to decrease in subsequent quarters as a result of the announcement made in June 2008 that we elected to not renew a technical staffing services contract with a major customer because the terms they required meant this business would not be profitable for our company.

Infrastructure Service revenue was $30.7 million and $27.8 million, respectively, for the second quarter of fiscal 2008 and 2007. Infrastructure Service revenues were approximately 49.4% of total service revenues in the second quarter of fiscal 2008, compared to 59.5% for the second quarter of fiscal 2007. The increase in revenue is primarily the result of new service engagements started at the beginning of 2008.

Gross Profit: Gross profit was $19.3 million in the second quarter of fiscal 2008, compared to $15.6 million in the second quarter of 2007. Gross profit, as a percentage of revenue, was 12.4% in second quarter of fiscal 2008, compared to 11.3% in the second quarter of fiscal 2007.

Product gross profit was $9.2 million for the second quarter of fiscal 2008, compared to $7.3 million for the same period of fiscal 2007. Product gross profit as a percentage of product revenue increased to 9.9% in the second quarter of fiscal 2008, compared to 8.0% for the same period of fiscal 2007. The increase in product gross margin is due primarily to margin improvements as a result of increased rebates from improved tracking of OEM partner promotional initiatives and targeting more profitable growth segments such as networking, server, storage and peripherals.

Service gross profit was $10.1 million for the second quarter of fiscal 2008, compared to $8.3 million in the second quarter of fiscal 2007. Service gross profit as a percentage of service revenue decreased to 16.2% in the second quarter of fiscal 2008, compared to 17.8% for the same period of fiscal 2007.

Gross profit from Technical Staffing Services was $3.6 million for the second quarter of fiscal 2008, compared to $3.2 million for the second quarter of fiscal 2007. This increase of $0.4 million is primarily due to increased use of higher-margin Pomeroy employees on staffing projects. Gross profit as a percentage of technical staffing revenues decreased to 11.5% in the second quarter of fiscal 2008 from 17.1% in the second quarter of fiscal 2007. This decrease in gross margin is primarily the result of recognizing revenue at very low incremental margin for billings on subcontractor personnel which historically have been recorded as fee based services in our vendor management business.

Gross profit from Infrastructure Services was $6.5 million for the second quarter of fiscal 2008 compared to $5.1 million for the second quarter of fiscal 2007. Gross profit as a percentage of infrastructure service revenues increased to 21.1% in the second quarter of fiscal 2008 from 18.2% in the second quarter of fiscal 2007. This increase in gross profit and margin is primarily a result of driving higher utilization of personnel, reduction of work force and as a result of renegotiation and termination of unprofitable contracts.

Operating Expenses

Total operating expenses were $17.7 million in the second quarter of 2008, compared to $17.0 million in the second quarter of 2007, an increase of $0.7 million. This increase is primarily driven by an increase of $1.0 million in personnel-related expenditures, and related general and administrative expenses, to support our product and service businesses and investments to improve customer, vendor and back office support functions; severance charges of $0.3 million; offset by a decrease of $0.6 million related to professional and outside service provider fees.

Operating expenses as a percentage of revenue were 11.5% for the second quarter of fiscal 2008 compared to 12.3% for the second quarter of fiscal 2007.

Income (Loss) from Operations

Income from operations was $1.6 million in the second quarter of 2008, as compared to a loss of $1.4 million for the same period of 2007. This increase is a result of the increase in gross profit offset by the increase in operating expenses in the second quarter of 2008, as described above.

Net Interest Income (Expense)

Net interest expense was $77 thousand during the second quarter of 2008 as compared to income of $90 thousand during the second quarter of 2007. During the second quarter of 2008, the Company had amounts outstanding under its credit facility due to the timing of payments of accounts payables and payroll and collections of receivables.

Income Tax

For the second quarter of 2008, the Company had no income tax expense or income tax benefit. During the second quarter of fiscal 2008, the Company decreased its tax valuation allowance by $0.6 million for a total allowance of $15.9 million at July 5, 2008. The tax valuation allowance results from the future uncertainty of the Company's ability to utilize its deferred tax assets. For the second quarter of fiscal 2008, the $0.6 million decrease in tax valuation reserve offset what would have been an income tax expense; the effective income tax rate would have been 43.4% prior to recording the tax valuation reserve. The effective income tax rate for the second quarter of fiscal 2007 was 35.4%.

Net Income (Loss)

Net income was $1.5 million in the second quarter of 2008 as compared to a net loss of $0.9 million in the second quarter of 2007, resulting from the factors described above.

July 5, 2008 YTD versus July 5, 2007 YTD

Total Net Revenues: Total net revenues increased $19.9 million or 7.1% in the first six months of fiscal 2008 as compared to the same period of fiscal 2007. For the first six months of fiscal 2008 and fiscal 2007, the net revenues were $300.2 million and $280.3 million, respectively.

Product revenue was $174.2 million and $183.8 million, respectively, for the first six months of fiscal 2008 and fiscal 2007. Product revenue decreased $9.6 million, a decrease of 5.3% in the first six months of fiscal 2008 as compared to the first six months of fiscal 2007. This decrease was due primarily to continued delays of product deployments.

Service revenue was $126.0 million in the first six months of fiscal 2008 compared to $96.4 million in the first six months of fiscal 2007, an increase of $29.6 million or 30.7% from fiscal 2007. The Company groups services revenue into Technical Staffing and Infrastructure Services. Technical Staffing Services support clients' project requirements, ensures regulatory and customer compliance requirements and promotes success of the staffing projects. Infrastructure Services help clients optimize the various elements of distributed computing environments. Encompassing the complete IT lifecycle, these services include desktop and mobile computing, server and network environments.

Technical Staffing revenue was $64.1 million and accounted for approximately 50.8% of total service revenues in the first six months of fiscal 2008, compared to $39.3 million and 40.8% for the first six months of fiscal 2007. This increase is primarily the result of recognizing revenue for the gross billings on subcontractor personnel which historically have been recorded as fee based services in our vendor management business.

We anticipate technical staffing revenue to decrease in subsequent quarters as a result of the announcement made in June 2008 that we elected to not renew a technical staffing services contract with a major customer because the terms they required meant this business would not be profitable for our company.

Infrastructure Service revenue was $61.9 million and $57.1 million, respectively, for the first six months of fiscal 2008 and 2007. Infrastructure Service revenues were approximately 49.2% of total service revenues in the first six months of fiscal 2008, compared to 59.2% for the first six months of fiscal 2007. The increase in revenue is primarily the result of new service engagements started at the beginning of 2008.

Gross Profit: Gross profit was $34.5 million in the first six months of fiscal 2008, compared to $32.8 million in the first six months of 2007. Gross profit, as a percentage of revenue, was 11.5% in the first six months of fiscal 2008, compared to 11.7% in the first six months of fiscal 2007.

Product gross profit was $17.2 million for the first six months of fiscal 2008, compared to $15.2 million for the same period of fiscal 2007. Product gross profit as a percentage of product revenue increased to 9.9% in the first six months of fiscal 2008, compared to 8.3% for the same period of fiscal 2007. The increase in product gross margin is due primarily to margin improvements as a result of the increased rebates from improved tracking of OEM partner promotional initiatives and targeting more profitable growth segments such as networking, server, storage and peripherals.

Service gross profit was $17.4 million for the first six months of fiscal 2008, compared to $17.6 million in the first six months of fiscal 2007 for a decline in service gross profit of $0.2 million. Service gross profit as a percentage of service revenue decreased to 13.8% in the first six months of fiscal 2008, compared to 18.2% for the same period of fiscal 2007.

Gross profit from Technical Staffing Services was $6.2 million for the first six months of fiscal 2008, compared to $6.7 million for the first six months of fiscal 2007. Gross profit as a percentage of technical staffing revenues decreased to 9.7% in the first six months of fiscal 2008 from 17.1% in the first six months of fiscal 2007. This decrease in gross margin is primarily the result of recognizing revenue at very low incremental margin for billings on subcontractor personnel which historically have been recorded as fee based services in our vendor management business.

Gross profit from Infrastructure Services was $11.2 million for the first six months of fiscal 2008 compared to $10.9 million for the first six months of fiscal 2007 due to the increase in revenue related to new service engagements started at the beginning of 2008. Gross profit as a percentage of infrastructure service revenues decreased to 18.0% in the first six months of fiscal 2008 from 19.0% in the first six months of fiscal 2007. This decrease in gross profit margin is primarily the result of unprofitable customer contracts during the first quarter that were exited during the second quarter and reduced utilization and productivity of infrastructure services technical resources in the first quarter of 2008.

Operating Expenses

Total operating expenses were $37.1 million in the first six months of 2008, compared to $31.4 million in the first six months of 2007, an increase of $5.7 million. This increase is primarily driven by an increase of $0.9 million in sales and marketing costs, primarily related to increased commissions relating to improved product margins; an increase of $2.5 million in personnel-related expenditures, and related general and administrative expenses, to support our product and service businesses and investments to improve customer, vendor and back office support functions; a net charge of approximately $0.9 million to reserve against the collection of amounts incorrectly billed by subcontractors in our technical staffing business for years 2005 and 2006, as a result of an audit by our largest staffing customer; an increase related to severance charges of $0.9 million; an increase of $0.3 million for start up expenses related to new engagements; and an increase of $0.2 million related to costs for the retirement of directors.

Operating expenses as a percentage of revenue were 12.4% for the first six months of fiscal 2008 compared to 11.2% for the first six months of fiscal 2007.

Income (Loss) from Operations

Loss from operations was $2.6 million in the first six months of 2008, as compared to income of $1.4 million for the same period of 2007. This decrease is primarily the result of an increase in operating expenses for the first six months of fiscal 2008, as described above.

Net Interest Income (Expense)

Net interest expense was $147 thousand during the first six months of 2008 as compared to income of $261 thousand during the first six months of 2007. During the first six months of 2008, the Company had amounts outstanding under its credit facility due to the timing of payments of accounts payables and payroll and collections of receivables.

Income Tax

For the first six months of 2008, the Company had no income tax expense or income tax benefit. During the first six months of fiscal 2008, the Company increased its tax valuation allowance by $931 thousand for a total allowance of $15.9 million at July 5, 2008. The tax valuation allowance results from the future uncertainty of the Company's ability to utilize its deferred tax assets. For the first six months of fiscal 2008, the $931 thousand increase in tax valuation reserve offset what would have been an income tax benefit; the effective income tax rate would have been 34.3% prior to recording the tax valuation reserve. The effective income tax rate for the first six months of fiscal 2007 was 42.5%.

Net Income (Loss)

Net loss was $2.7 million in the first six months of 2008 as compared to net income of $1.0 million in the first six months of 2007, resulting from the factors described above.

Cash generated by operating activities was $0.4 million for the first six months of 2008. Cash used in investing activities was $2.4 million, which included $2.4 million for capital expenditures. Cash used in financing activities was $2.1 million, which includes $2.3 million for the purchase of treasury stock, offset by $0.2 million for the issuance of common shares.

The amount of cash derived from or used by operating activities will vary based on a number of business factors which may change from time to time, including terms of available financing from vendors, downturns in the Company's business and/or downturns in the businesses of the Company's customers. However, a growth or decline in services revenue in conjunction with a change in the proportion of services revenue to total revenue is an underlying driver of operating cash flow during the period of growth because a majority of the Company's service revenue is generated based upon the billings of the Company's technicians. The cash outlay for these labor/payroll costs is incurred bi-weekly with each pay period. The invoicing for the service is generated on various billing cycles as dictated by the customers, and the respective cash inflow typically follows within 30 to 60 days of invoice date, which may be as long as 60 to 120 days from the time the services are performed. This differs from product revenue in that the time period between the time that the Company incurs the cost to purchase the products and collects the revenue from its customer is typically shorter, usually from 0 to 60 days, and the Company primarily orders inventory for a particular customer rather than stocking large amounts of inventory. If an increase in service revenue occurs, it may result in a significant decrease in cash flows from operating activities during periods of significant growth or periods of excess technical capacity. In addition, certain services, primarily outsourcing contracts for the Company's Life Cycle Services, require that the Company maintain a specific parts inventory for servicing the customer; thus, an increase or decrease in the type of services provided can impact inventory levels and operating cash flows. The Company's largest services contract for the provision of staffing services expired on June 30, 2008 and the contract is not being renewed as the Company did not feel it was financially prudent to do so under the conditions required by the customer. The expiration of this contract is expected to free up approximately $15 million in annualized working capital for use in more profitable aspects of the business.

Cash flows generated by operating activities in first six months of 2008 was $0.4 million, compared to cash flows used by operating activities of $0.5 million, for the same period of 2007. Increases in stock-based compensation expense, timing of payments on accounts payables and changes in other current assets, primarily resulting from income tax refunds received, accounted for $1.0 million, $5.2 million and $3.1 million, respectively, of the increase in the operating cash flow for the first six months of fiscal 2008, compared to the same period of fiscal 2007. This was largely offset by a $3.7 million reduction in net income for this period, and changes in accounts receivable and other working capital accounts accounted for decreases in operating cash flow of $2.4 million and $2.5 million, respectively.

The Company has a Syndicated Credit Facility Agreement with GE Commercial Distribution Finance, which became effective June 25, 2004 (the "Credit Facility") and was scheduled to expire on June 25, 2008. The Credit Facility, which has been the subject of subsequent modifications, was originally comprised of seven participating lenders, with GE Commercial Distribution Finance ("GECDF") designated as the "agent" for the lenders. The Credit Facility provides for a floor plan loan facility and a revolving loan commitment, both of which are collateralized primarily by the Company's accounts receivable. The Credit Facility also provides for a letter of credit facility. The funds available for borrowing by the Company under the Credit Facility are reduced by an amount equal to outstanding advances made to the Company to finance inventory under the floor plan loan facility and the aggregate amount of letters of credit outstanding at any given time.

Effective April 15, 2008, the Credit Facility was amended. The primary changes made to the Credit Facility by the amendment were as follows: (i) decrease in the total Credit Facility from $100 million to $68.7 million with a maximum of $68.7 million (previously $80.0 million) available under the floor plan loan facility and the revolving loan, both of which are collateralized primarily by the Company's accounts receivable up to a maximum of $68.7 million (previously $80 Million); (ii) memorialize the departure of certain lenders from the Credit Facility and the assignment of their respective commitments under the Credit Facility to the remaining lenders, GECDF and National City Bank, and (iii) revise the tangible net worth covenant on the last day of each fiscal quarter to be no less than $70 million (previously $85.4 million).

The Credit Facility allows for either the Company or GECDF, in its capacity as . . .