Three and six-month periods ended July 4, 2009 and June 28, 2008

Company Overview

Analysts International Corporation ("AIC," "Company," "we," "us" or "our") is an information technology ("IT") services company that is focused on providing configured solutions for our clients. We serve a broad portfolio of clients throughout the United States with technology staffing, collaboration solutions, infrastructure solutions, project and application solutions and managed services offerings. We were incorporated under Minnesota law in 1966 and our corporate headquarters are located in Minneapolis, Minnesota. For a more complete description of our Company, please refer to our Annual Report on Form 10-K for the fiscal year ended January 3, 2009.

Consequences and Challenges of the Economic Environment on Our Business and Our Strategic Plan

The sharp contraction in the U.S. economy that began in the second half of fiscal 2008 and continues today has had a significant and continuing impact on our business. The effects of this economic deterioration have presented significantly greater challenges than we previously anticipated, resulting in accelerating downward pressures on our revenues, margins, results of operations and cash flows. We expect the challenges we are facing to continue throughout the remainder of fiscal 2009. We expect operating losses to continue throughout fiscal 2009 and that total operating loss incurred for the fiscal year will be significant. We believe that we are making some progress on executing our strategic plan that should help us to weather the economic downturn and emerge as a stronger, more institutionally mature business that can serve as a platform for future growth. However, the economic downturn has made it more difficult to fulfill some of the stated objectives of our strategic plan, which difficulties we expect to continue. Further, if the economic downturn worsens or extends significantly into the future or we are unsuccessful in executing on our strategic plan, we would expect to incur additional losses from operations and reductions in our cash flows and liquidity.

Our Strategic Plan

In January 2008, we announced a long-term strategic plan (the "Plan") intended to restore AIC to profitability and increase shareholder value. The Plan was built around four strategic goals:

1. Returning the Company to sustained profitability;

2. Focusing on business development and expanding our service offerings in key metro markets;

3. Attracting and retaining top talent; and

4. Aligning with our technology partners.

In our 2008 Annual Report, we communicated our annual objectives in support of our business strategy, placing the highest priority on protecting our business through these economic challenges. Our objectives for fiscal 2009 and our progress towards these objectives are as follows:

† Manage Cash Flow and Maintain a Strong Balance Sheet

We believe managing our cash flow activity and maintaining a strong balance sheet is necessary to mitigate the financial risks during the current economic recession.

† During the first half of fiscal 2009, cash provided by operations was approximately $3.1 million. See "Liquidity and Capital Resources" in this Form 10-Q for further discussion regarding our changes in working capital.

† As of July 4, 2009, our current ratio was substantially unchanged from the end of fiscal 2008.

† As of July 4, 2009, we had no borrowing outstanding under our credit facility.

† Exit Non-Strategic or Non-Core Business

We believe exiting additional lines of business that are non-strategic or non-core to our future will allow us to focus on growing our business, provide the cash to fund our growth and aid in simplifying our business model.

† On August 4, 2009, we sold our value-added reseller ("VAR") assets to Netarx, LLC ("Netarx"). The sale provided us with $3.0 million in cash at closing and may provide up to an additional $0.75 million in contingent cash consideration. In addition, we retained certain

current assets and liabilities related to the VAR business which are expected to provide additional net cash to the Company upon settlement of approximately $2.5 million.

† Strengthen our IT Staffing Business

Strengthening our IT staffing business is essential to the financial stability of the Company; however, we have experienced a further decline in the number of technical consultants and associated billable hours in both the first and second quarters of fiscal 2009.

† On May 5, 2009, we appointed Eric Educate as Senior Vice President of Sales to enhance our sales performance, provide sales leadership and strengthen our brand and our business.

† New systems and tools will be implemented in the third quarter of fiscal 2009 to enhance our sales efforts and delivery processes.

† Expand our Public Sector Practice

The United States government has enacted substantial economic stimulus programs, including programs in practice areas where we provide services. We have experience in Justice & Public Safety engagements as well as existing governmental relationships, and are actively pursuing several opportunities in the public sector.

† Improve Gross Margins

We continue to focus on improving our gross margins. The positive effects of improvement in our gross margin percentage have been attenuated, however, by the lower volumes of business. Our gross margin increased to 19.7% in the second quarter of fiscal 2009 and 19.9% during the first half of fiscal 2009. Our gross margins for the second quarter and first half of fiscal 2008 were 15.8% and 16.7%, respectively. The primary driver of the increase was the elimination or exit from low margin and subsupplier business during fiscal 2008.

† Retain Clients and Develop Business

Retaining gross margins from existing clients as well as attracting new clients and developing business in key markets is vital to delivering long-term operating profits.

† We have increased our sales team by six people during the second quarter of fiscal 2009 and plan to continue to add sales headcount in the third quarter of fiscal 2009 as well.

† Reduce Selling, Administrative and Other Operating Expenses ("SG&A")

Reducing our SG&A as a percentage of revenue through continued process improvements, cost reductions and controls and improved performance management will allow us to provide additional operating capital to support our business and fund future growth.

† We reduced our SG&A expenses in the second quarter and first half of fiscal 2009 by $2.6 million and $5.3 million when compared against the second quarter and first half of fiscal 2008, respectively; however, we expect the rate and amount of future SG&A reductions to decline. As a percentage of revenue, our SG&A expense increased to 25.5% and 24.9% during the second quarter and first half of fiscal 2009 compared to 15.8% and 16.2% in the second quarter and first half of fiscal 2008, respectively, primarily due to a significantly lower revenue base.

† During the first half of fiscal 2009, we reduced our SG&A staff by approximately 19%.

Sale of the Company's VAR Business

In line with our objective of exiting non-strategic or non-core businesses, we entered into and simultaneously closed an asset sale agreement with Netarx on August 4, 2009 for the sale of assets relating to the Company's VAR business.

In consideration for the assets sold, which were primarily customer contracts, and the liabilities transferred, Netarx paid us $3.0 million in cash at closing and will pay us up to an additional $0.75 million in cash contingent on the number of customer contract assignments received prior to December 31, 2009.

We believe the sale of the VAR business will significantly impact our future operations. Through the first six months of fiscal 2009, the VAR business generated revenues of approximately $18.6 million and had an unfavorable

contribution margin of $0.4 million. Over the past 12 months, the VAR business has generated revenues of approximately $48.5 million and had an unfavorable contribution margin of approximately $0.1 million.

We believe the sale of the VAR business will help us achieve several of the objectives in support of our business strategy as outlined above. Exiting the lower margin product reseller business, which is working capital intensive, should allow us to better manage our balance sheet and cash flows as well as improve our margins. The cash provided by the sale allows us to further invest in our core business offerings. In addition, we expect to further reduce our general and administrative costs to align our back office operations with the remaining business operations. We also expect lower capital expenditures and related depreciation expense as a result of the sale.

Overview of Results of Second Quarter Fiscal 2009 Operations

Our revenues decreased $41.5 million, or 50.6%, in the second quarter of fiscal 2009 as compared to the second quarter of fiscal 2008 primarily due to our planned exit from non-core and low-margin lines of business (20.2%), the negative impact the economic environment has had on the demand for our IT professional services (17.7%), a reduction in volume at our largest customer (6.8%) and a reduction in product demand (5.9%). Specifically, our planned exit from non-core and low-margin lines of business caused our revenues to decline $16.6 million, or 20.2%, compared to the second quarter of fiscal 2008. Early in the third quarter of fiscal 2008, we sold Symmetry Workforce Solutions ("Symmetry"), our managed staffing business, to COMSYS Information Technology Services, Inc. and discontinued our staffing relationship with one of our large staffing accounts. Together, business through Symmetry and the large staffing account represented approximately $15 million in quarterly revenue and $60 million in annualized revenue.

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

SG&A expenses declined in the second quarter of fiscal 2009 due largely to the execution of our Plan and the reduction in business volume. During the quarter, we incurred non-cash charges of $4.0 million, including $2.3 million for the impairment of intangible customer lists and $1.7 million for restructuring and other severance related costs.

We generated cash from operations of $0.3 million during the second quarter of fiscal 2009. As of July 4, 2009, we had a cash balance of approximately $4.6 million and no borrowing under our revolving credit facility.

RESULTS OF OPERATIONS, THREE MONTHS ENDED JULY 4, 2009 VS. JUNE 28, 2008



The following table illustrates the relationship between revenue and expense
categories along with a count of employees and technical consultants for the
three months ended July 4, 2009 and June 28, 2008.



                          Three Months Ended       Three Months Ended
                             July 4, 2009             June 28, 2008          Increase (Decrease)
                                        % of                     % of
(Dollars in thousands)     Amount      Revenue      Amount      Revenue       Amount           %
Revenue:
Professional services
provided directly        $    35,053      86.5 %  $    58,162      70.9 %  $     (23,109 )    (39.7 )%
Professional services
provided through
subsuppliers                     678       1.7         14,230      17.4          (13,552 )    (95.2 )
Product sales                  4,797      11.8          9,598      11.7           (4,801 )    (50.0 )
Total revenue                 40,528     100.0         81,990     100.0          (41,462 )    (50.6 )

Expenses:
Cost of services
provided directly             27,821      68.6         46,491      56.7          (18,670 )    (40.2 )
Cost of services
provided through
subsuppliers                     643       1.6         13,730      16.8          (13,087 )    (95.3 )
Cost of product sales          4,079      10.1          8,793      10.7           (4,714 )    (53.6 )
Selling,
administrative and
other operating costs         10,318      25.5         12,940      15.8           (2,622 )    (20.3 )
Restructuring costs
and other severance
related costs                  1,725       4.2            729       0.9              996      136.6
Impairment of
intangible assets              2,268       5.6              -       0.0            2,268      100.0
Amortization of
intangible assets                224       0.6            279       0.3              (55 )    (19.7 )
Total expenses                47,078     116.2         82,962     101.2          (35,884 )    (43.3 )

Operating loss                (6,550 )   (16.2 )         (972 )    (1.2 )          5,578      573.9

Non-operating income              13       0.0             36       0.0              (23 )    (63.9 )
Interest expense                  (3 )     0.0            (43 )    (0.0 )            (40 )    (93.0 )

Loss before income
taxes                         (6,540 )   (16.2 )         (979 )    (1.2 )          5,561      568.0

Income tax expense                12       0.0              5       0.0                7      140.0

Net loss                 $    (6,552 )   (16.2 )% $      (984 )    (1.2 )% $       5,568      565.9 %

Personnel:
Management and
Administrative                   210                      297                        (87 )    (29.3 )%
Technical Consultants          1,079                    1,883                       (804 )    (42.7 )%

Revenue

Revenue from services provided directly for the three months ended July 4, 2009 declined 39.7% from the prior comparable period. The decline in revenue was primarily due to a reduction in the number of billable hours and technical consultants as a result of lower business volumes and our decision to discontinue our relationship with one of our large staffing accounts, partially offset by a 7.1% increase in overall billing rates over the prior year period. Our subsupplier revenue for the three months ended July 4, 2009, which is mainly pass-through revenue with associated fees, declined by 95.2% over the prior year period primarily due to the sale of Symmetry early in the third quarter of fiscal 2008. Product sales in the second quarter of fiscal 2009 declined by 50.0% over the prior year period due to an overall reduction in business volume.

Cost of Services Provided Directly

Cost of services provided directly represents our payroll and benefit costs associated with our billable consultants. This category of expense as a percentage of direct services revenue decreased to 79.4% in the second quarter of fiscal 2009 compared to 79.9% in the prior comparable period.

Cost of Services Provided Through Subsuppliers

Cost of services provided through subsuppliers represents our cost when we utilize third parties to fulfill our obligations to our large staffing clients. This category of expense as a percentage of revenue for services provided through subsuppliers was 94.8% for the second quarter of fiscal 2009 compared to 96.5% for the comparable period in fiscal 2008. The decrease in expense as a percentage of subsupplier revenue was primarily due to exiting lower margin subsupplier business during the second half of fiscal 2008.

Cost of Product Sales

Cost of product sales represents our cost when we resell hardware and software products. This category of expense, as a percentage of product sales, was 85.0% in the second quarter of fiscal 2009 compared to 91.6% in the second quarter of fiscal 2008. The decrease in expense as a percentage of revenue was primarily due to the mix of product sales between the comparable periods.

Selling, Administrative and Other Operating Costs

SG&A costs include management and administrative salaries, commissions paid to sales representatives and recruiters, location costs, and other administrative costs. This category of costs decreased approximately $2.6 million in the second quarter of fiscal 2009 from the comparable period in 2008 and represented 25.5% of total revenue for the second quarter of fiscal 2009 compared to 15.8% for the second quarter in fiscal 2008. SG&A expenses decreased primarily due to the impact of personnel reductions and implementation of non-personnel cost reductions and a reduction of sales and recruiting incentive compensation expense due to the decrease in business volume. As a percentage of revenue, SG&A costs increased due to a significantly lower revenue base in the second quarter of fiscal 2009.

Restructuring Costs and Other Severance Related Costs

During the second quarter of fiscal 2009, we recorded office closure and consolidation charges totaling $1.7 million related to future rent obligations (net of anticipated sub-lease income). The office closure charges are for locations we closed prior to July 4, 2009 and the consolidation charge relates to consolidating our corporate back office.

During the second quarter of fiscal 2008, we recorded workforce reduction and office closure and consolidation charges totaling approximately $0.7 million. Of these charges, approximately $0.7 million related to severance and severance-related charges and approximately $24,000 related to future rent obligations for a location we closed prior to June 28, 2008.

Impairment of Intangible Assets

During the second quarter of fiscal 2009, we reviewed our customer lists in accordance with Statement of Financial Accounting Standards ("SFAS") 144, Accounting for the Impairment or Disposal of Long-Lived Assets, based on the expectation that the business with which the customer lists are associated would be sold significantly before the end of their previously estimated useful life. Based on this measurement, we recorded a $2.3 million impairment loss, which is the amount by which the carrying value of the customer lists exceeds the fair value. In determining fair value, we considered the expected consideration to be received from the sale of net assets.

Amortization of Intangible Assets

Amortization of intangible assets primarily relates to our customer lists. This category of expense decreased during the second quarter of fiscal 2009 compared to the second quarter of fiscal 2008 due to the SequoiaNet.com trade name and a certain customer list becoming fully amortized during fiscal 2008.

Non-operating Income

Non-operating income decreased slightly in the second quarter of fiscal 2009 compared to the second quarter of fiscal 2008 as a result of less interest income earned from our cash balances due to lower interest rates and higher interest income related to a customer equipment lease in the prior year.

Interest Expense

We had no borrowings outstanding in the second quarter of fiscal 2009 compared to average borrowing outstanding under our credit facility of approximately $3.4 million for the second quarter of fiscal 2008 at an average interest rate of 5.00%.

Income Taxes

For both the second quarter of fiscal 2009 and second quarter of fiscal 2008, we recorded a provision for income taxes for amounts due for certain state income taxes and changes in our reserves for tax obligations. We recorded no additional income tax benefit or expense associated with our net operating losses because any tax benefit or expense that would otherwise have been recorded has been negated by adjusting the valuation allowance against our deferred tax asset. If, however, we successfully return to profitability to a point where future realization of deferred tax assets, which are currently reserved, becomes "more likely than not," we may be required to reverse the existing valuation allowance to realize the benefit of these assets.

Personnel

Our technical consulting staff levels finished the second quarter of fiscal 2009 at 1,079, a 42.7% decline against the comparable prior period. The decline in technical consulting staff levels was due to a reduction of approximately 320 billable consultants as a result of the transfer of our existing contract with one of our largest staffing accounts to other suppliers in the third quarter of fiscal 2008 and an overall decline in business volume. The decline in management and administrative personnel was due to our focus on reducing the number of management and administrative personnel that are necessary to support the business operations. The reported technical consulting staff levels exclude Medical Concepts Staffing, our medical staffing business, due to the separate industry focus of that business.

Certain Information Concerning Off-Balance Sheet Arrangements

For the three months ended July 4, 2009, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

RESULTS OF OPERATIONS, SIX MONTHS ENDED JULY 4, 2009 VS. JUNE 28, 2008



The following table illustrates the relationship between revenue and expense
categories along with a count of employees and technical consultants for the six
months ended July 4, 2009 and June 28, 2008.



                         Six Months Ended       Six Months Ended
                           July 4, 2009           June 28, 2008         Increase (Decrease)
                                     % of                   % of
(Dollars in
thousands)               Amount     Revenue     Amount     Revenue       Amount           %
Revenue:
Professional services
provided directly       $  75,876      88.6 %  $ 118,902      72.1 %  $     (43,026 )    (36.2 )%
Professional services
provided through
subsuppliers                1,551       1.8       28,326      17.2          (26,775 )    (94.5 )
Product sales               8,233       9.6       17,565      10.7           (9,332 )    (53.1 )
Total revenue              85,660     100.0      164,793     100.0          (79,133 )    (48.0 )

Expenses:
Cost of services
provided directly          60,109      70.2       94,108      57.1          (33,999 )    (36.1 )
Cost of services
provided through
subsuppliers                1,474       1.7       27,304      16.6          (25,830 )    (94.6 )
Cost of product sales       7,008       8.2       15,783       9.6           (8,775 )    (55.6 )
Selling,
administrative and
other operating costs      21,347      24.9       26,629      16.2           (5,282 )    (19.8 )
Restructuring costs
and other severance
related costs               1,791       2.1        2,368       1.4             (577 )    (24.4 )
Impairment of
intangible assets           2,268       2.7            -       0.0            2,268      100.0
Amortization of
intangible assets             447       0.5          558       0.3             (111 )    (19.9 )
Total expenses             94,444     110.3      166,750     101.2          (72,306 )    (43.4 )

Operating loss             (8,784 )   (10.3 )     (1,957 )    (1.2 )          6,827      348.9

Non-operating income           27       0.0           70       0.0              (43 )    (61.4 )
Interest expense              (11 )     0.0         (135 )     0.0             (124 )    (91.9 )

Loss before income
taxes                      (8,768 )   (10.3 )     (2,022 )    (1.2 )          6,746      333.6

Income tax expense             18       0.0            9       0.0                9      100.0

Net loss                $  (8,786 )   (10.3 )% $  (2,031 )    (1.2 )% $       6,755      332.6 %

Personnel:
Management and
Administrative                210                    297                        (87 )    (29.3 )%
Technical Consultants       1,079                  1,883                       (804 )    (42.7 )%

Revenue

Total revenue from services provided directly declined 36.2% to $75.9 million for the six months ended July 4, 2009 from $118.9 million for the six months ended June 28, 2008. The decline in revenue was primarily due to a reduction in the number of billable hours and technical consultants as a result of lower business volumes and our decision to discontinue our relationship with one of our large staffing accounts, partially offset by an 8.2% increase in overall billing rates over the prior year period. Our subsupplier revenue, which is mainly pass-through revenue with associated fees, declined by 94.5% in 2009 compared to 2008 due to the sale of Symmetry early in the third quarter of fiscal 2008. Product sales declined 53.1 % to $8.2 million for the six months ended July 4, 2009 from $17.6 million for the six months ended June 28, 2008 due to an overall reduction in business volume.

Cost of Services Provided Directly

Cost of services provided directly represents our payroll and benefit costs associated with our billable consultants. This category of expense as a percentage of direct services revenue increased slightly to 79.2% for the six months ended July 4, 2009 from 79.1% for the six months ended June 28, 2008.

Cost of Services Provided Through Subsuppliers

Cost of services provided through subsuppliers represents our cost when we utilize third parties to fulfill our obligations to our large staffing clients. This category of expense as a percentage of revenue for services provided through subsuppliers was 95.0% for the six months ended July 4, 2009 compared to 96.4% for the six months ended June 28, 2008. The decrease in expense as a percentage of subsupplier revenue was primarily due to exiting lower margin subsupplier business during fiscal 2008.

Cost of Product Sales

Cost of product sales represents our cost when we resell hardware and software products. This category of expense, as a percentage of product sales, was 85.1% for the six months ended July 4, 2009 compared to 89.9% for the six months ended June 28, 2008. The decrease in expense as a percentage of revenue was primarily due to the mix of product sales between the comparable periods.

Selling, Administrative and Other Operating Costs

SG&A costs include management and administrative salaries, commissions paid to sales representatives and recruiters, location costs, and other administrative costs. This category of costs decreased 19.8% from $26.6 million for the six months ended June 28, 2008 to $21.3 million for the six months ended July 4, 2009. These amounts represented 16.2% and 24.9% of total revenue for 2008 and 2009, respectively. SG&A expenses decreased primarily due to the impact of personnel reductions and implementation of non-personnel cost reductions and a reduction of sales and recruiting incentive compensation expense due to the decrease in business volume. As a percentage of revenue, SG&A costs increased due to a significantly lower revenue base for the six months ended July 4, 2009.

Restructuring Costs and Other Severance Related Costs

. . .