e10vk

/s/ Larry L. Enterline

/s/ Amy Bobbitt

Larry L. Enterline
Chief Executive Officer
March 11, 2009

Amy Bobbitt
Senior Vice President and Chief Accounting Officer
March 11, 2009

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)


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

For the fiscal year ended December 28, 2008.


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

For the transition period from to .

Commission file number 000-27792

COMSYS IT PARTNERS, INC.

(Exact name of Registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		56-1930691 (I.R.S. Employer Identification Number)

4400 Post Oak Parkway, Suite 1800
Houston, TX 77027
(Address, including zip code, of
principal executive offices)

(713) 386-1400
(Registrant’s telephone number, including area code)

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


Title of Each Class		Name of Each Exchange on Which Registered
Common Stock $0.01 Par Value per Share		The NASDAQ Stock Market LLC

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

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

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

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

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

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

Large accelerated filer o

Accelerated filer þ

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

Smaller reporting company o

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

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 29, 2008, (the last business day of the registrant’s most recently completed second fiscal quarter) was $141,530,102. For the purpose of calculating this amount only, all stockholders with more than 10% of the total voting power, all directors and all executive officers have been treated as affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The registrant does not have any non-voting common stock. The number of shares of the registrant’s common stock outstanding as of February 28, 2009, was 20,811,626.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the definitive proxy statement for the registrant’s 2009 annual meeting of stockholders are incorporated by reference into Part III of this Form 10-K.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, including information incorporated by reference, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995, that are subject to risks and uncertainties. Forward-looking statements give our current expectations and projections relating to the financial condition, results of operations, plans, objectives, future performance and business of COMSYS IT Partners, Inc. and its subsidiaries. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. All statements other than statements of historical facts included in, or incorporated into, this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements.

These forward-looking statements are largely based on our expectations and beliefs concerning future events, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, including:

	•		economic declines that affect our business, including our profitability, liquidity or the ability to comply with applicable loan covenants;

	•		the financial stability of our lenders and their ability to honor their commitments related to our credit agreements;

	•		adverse changes in credit and capital markets conditions that may affect our ability to obtain financing or refinancing on favorable terms or that may warrant changes to existing credit terms;

	•		the financial stability of our customers and other business partners and their ability to pay their outstanding obligations or provide committed services;

	•		changes in levels of unemployment and other economic conditions in the United States, or in particular regions or industries;

	•		the impact of competitive pressures on our ability to maintain or improve our operating margins, including pricing pressures as well as any change in the demand for our services;

	•		the risk in an uncertain economic environment of increased incidences of employment disputes, employment litigation and workers’ compensation claims;

	•		our success in attracting, training, retaining and motivating billable consultants and key officers and employees;

	•		our ability to shift a larger percentage of our business mix into IT solutions, project management and business process outsourcing and, if successful, our ability to manage those types of business profitably;

	•		weakness or reductions in corporate information technology spending levels;

	•		our ability to maintain existing client relationships and attract new clients in the context of changing economic or competitive conditions;

	•		the entry of new competitors into the U.S. staffing services market due to the limited barriers to entry or the expansion of existing competitors in that market;

	•		increases in employment-related costs such as healthcare and unemployment taxes;

	•		the possibility of our incurring liability for the activities of our billable consultants or for events impacting our billable consultants on our clients’ premises;

	•		the risk that we may be subject to claims for indemnification under our customer contracts;

	•		the risk that cost cutting or restructuring activities could cause an adverse impact on certain of our operations;

	•		adverse changes to management’s periodic estimates of future cash flows that may affect our assessment of our ability to fully recover our goodwill; and

	•		whether governments will amend existing regulations or impose additional regulations or licensing requirements in such a manner as to increase our costs of doing business.

Although we believe our estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this report are not guarantees of future performance, and we cannot assure any reader that those statements will be realized or that the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to various factors, including the factors listed in this section and the “Risk Factors” section contained in this Annual Report on Form 10-K. All forward-looking statements speak only as of the date of this report. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise, except as required by law. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

PART I

ITEM 1. BUSINESS

Unless otherwise indicated or the context otherwise requires, all references in this report to “COMSYS,” the “Company,” “us,” “our” or “we” are to COMSYS IT Partners, Inc., a Delaware corporation formed in July 1995, and its consolidated subsidiaries. Except as otherwise specified, references to “Old COMSYS” are to COMSYS Holding, Inc., its subsidiaries and their respective predecessors prior to its merger with VTP, Inc., a wholly-owned subsidiary of Venturi Partners, Inc., on September 30, 2004, which we refer to as the “merger.” Venturi Partners, Inc. was the surviving entity in the merger and changed its name to “COMSYS IT Partners, Inc.” References to “Venturi” are to Venturi Partners, Inc., its subsidiaries and their respective predecessors prior to the merger, except those subsidiaries relating to Venturi’s commercial staffing business, which were sold simultaneously with the merger on September 30, 2004.

Company Overview

We were incorporated in Delaware in 1995 and are headquartered in Houston, Texas. We completed the merger of Venturi and Old COMSYS on September 30, 2004, and created one of the leading IT staffing and consulting companies in the United States. In connection with the merger, we changed the name of our corporation from “Venturi Partners, Inc.” to “COMSYS IT Partners, Inc.” Concurrent with the merger, we also completed the sale of Venturi’s commercial staffing services division, Venturi Staffing Partners, Inc., to CBS Personnel Services, Inc. (formerly known as Compass CS Inc.).

We are a leading information technology (“IT”) services company and provide a full range of specialized IT staffing and project implementation services, including website development and integration, application programming and development, client/server development, systems software architecture and design, systems engineering and systems integration. We also provide services that complement our core IT staffing services, such as vendor management, process solutions and permanent placement of IT professionals. Our TAPFIN Process Solutions division offers total human capital fulfillment and management solutions within three core service areas: vendor management services, services procurement management and recruitment process outsourcing. These additional services provide us opportunities to build relationships with new clients and enhance our service offerings to our existing clients. We operate through the following wholly-owned subsidiaries:

	•		COMSYS Services, LLC (“COMSYS Services”), an IT staffing services provider,

	•		COMSYS Information Technology Services, Inc. (“CITS”), an IT staffing services provider,

	•		Pure Solutions, Inc. (“Pure Solutions”), an IT services company,

	•		Econometrix, LLC (“Econometrix”), a vendor management systems software provider,

	•		Plum Rhino Consulting LLC (“Plum Rhino”), a specialty staffing services provider to the financial services industry,

	•		Praeos Technologies, Inc. (“Praeos”), a business intelligence and business analytics consulting services provider,

	•		T. Williams Consulting, LLC (“TWC”), a recruitment process outsourcing and human resources consulting provider, and

	•		ASET International Services, Inc. (“ASET”), a globalization, localization and interactive language services provider.

Our comprehensive service offerings allow our clients to focus their resources on their core businesses rather than on recruiting, training and managing IT professionals. In using our staffing services, our clients benefit from:

	•		our extensive recruiting channels, providing our clients ready access to highly-skilled and specialized IT professionals, often within 48 hours of submitting a request;

	•		access to a flexible workforce, allowing our clients to manage their labor costs more effectively without compromising their IT goals; and

	•		our knowledge of the market for IT resources, providing our clients with qualified candidates at competitive prices.

We contract with our customers to provide both short- and long-term IT staffing services primarily at client locations throughout the United States. Our consultants possess a wide range of skills and experience, including website development and integration, application programming and development, client/server development, systems software architecture and design, systems engineering and systems integration.

We had 4,516 consultants on assignment at December 28, 2008. We recruit our consultants through our internal proprietary database that contains information about more than 800,000 candidates, and also through the Internet, local and national advertising and trade shows, as well as through sub-contractors. We have a specialized selection, review and reference process for our IT consultant candidates. This process is an integral part of maintaining the delivery of high quality service to our clients.

We serve a broad and diversified customer base with over 1,000 corporate and government clients, including some of the largest users of IT services in the United States. These clients operate across a wide range of industry sectors, including financial services, telecommunications, manufacturing, information technology, government, pharmaceutical, biotechnology and transportation. Our customer base includes approximately 30% of the Fortune 500 companies and approximately 72% of the Fortune 50 companies. We have long-standing relationships with many of our clients, including relationships of more than a decade with many of our large customers. In 2008, none of our customers represented more than 7% of our revenues and our 15 largest customers represented approximately 38% of our revenues.

Our operations have a coast-to-coast presence in the United States, with 52 offices in 27 states as well as offices in Puerto Rico, Canada and the United Kingdom. This coverage allows us to meet the needs of our clients on a national basis and provides us with a competitive advantage over certain regional and local IT staffing providers.

Our Services

Staffing Services

IT Staffing Services. We provide a wide range of IT staffing services to companies in diversified markets, including financial services, telecommunications, manufacturing, information technology, federal, state and local government, pharmaceutical, biotechnology and transportation. We deliver qualified consultants and project managers for contract assignments and full-time employment across a number of technology disciplines. In light of the time- and location-sensitive nature of our core IT staffing services, offshore application development and maintenance centers have not to date proven critical to our operations or our competitive position.

Specialty Staffing Services. Through Plum Rhino, we provide professional project-based consultants, staff augmentation resources and recruiting support to the functional lines of business within the financial services industry. We deliver professional resources with subject-matter expertise for projects of any size, type or length.

Our staffing services are generally provided on a time-and-materials basis, meaning that we bill our clients for the number of hours worked in providing services to the client. Hourly bill rates are typically determined based on the level of skill and experience of the consultants assigned and the supply and demand in the current market for those qualifications. Alternatively, the bill rates for some assignments are based on a mark-up over compensation and other direct and indirect costs. Assignments generally range from 30 days to over a year, with an average duration of nine months. Certain of our contracts are awarded on the basis of competitive proposals, which can be periodically re-bid by the client.

We maintain a variable cost model in which we compensate most of our consultants only for those hours that we bill to our clients. The consultants who perform IT services for our clients consist of our consultant employees as well as independent contractors and subcontractors. With respect to our consultant employees, we are responsible for all employment-related costs, including medical and health care costs, workers’ compensation and federal social security and state unemployment taxes.

Managed Solutions

We complement our core competency in IT staffing and consulting services by offering our clients specialized project services that include project managers, project teams and turn-key deliverable-based solutions in the application development, integration and re-engineering, maintenance and testing practice areas. We have a number of specialty practice areas, including business intelligence, statistical analysis solutions (“SAS”), enterprise resource applications (“ERP”), infrastructure data solutions and application services. We provide these solutions through a defined IT implementation methodology. We deliver these solutions through teams deployed at a client’s site, offsite at development centers located in Kalamazoo, Michigan; Richmond, Virginia; Somerset, New Jersey and San Francisco, California. Most of our project solutions work is also on a time-and-materials basis, but we do provide services from time to time on a fixed-price basis.

Business Process Outsourcing

Vendor Management Services. Vendor management services (“VMS”) allow our clients to automate and manage their procurement of and expenditures for temporary IT, clerical, finance and accounting personnel services. The largest users of contingent workers may rely on dozens of suppliers to meet their labor needs. VMS provides a mechanism for clients to reduce their expenditures for temporary personnel services by automating and consolidating management of the contracting processes, standardizing pay rates for similar positions and reducing the number of suppliers providing these services. VMS

gives our clients the ability to leverage their purchasing power for these temporary personnel services by standardizing their requisition, contract and procurement processes. Clients also benefit from working with only one supplier, receiving a consolidated invoice and having a single point of contact while retaining access to a full range of resources offered by a diverse portfolio of suppliers.

We use third-party software products and a proprietary software program to provide our VMS. Our VMS implementation processes have been ISO 9001:2000 certified since December 2003, which means that our processes comply with a comprehensive set of international quality standards. We believe that we are one of the few companies in our industry providing vendor management services to have this ISO certification.

Services Procurement Management. Similar to VMS, services procurement management (“SPM”) allows our clients to automate and manage their procurement of and expenditures around various project and deliverable based services, including IT, clerical, finance, accounting and other professional categories. Generally, this spend includes services provided by vendors under a statement of work or service level agreement contract. SPM provides a mechanism for clients to manage their expenditures for these services by automating and consolidating management of the procurement and contracting processes, tracking deliverables and service level agreements and reducing the number of suppliers providing these services. SPM gives our clients the ability to leverage their purchasing power for these services by standardizing their requisition, contract and procurement processes. Clients also benefit from working with only one supplier, receiving a consolidated invoice and having a single point of contact while retaining access to a full range of resources offered by a diverse portfolio of suppliers.

Recruitment Process Outsourcing. We provide recruitment and human resource outsourcing services that enable companies to build competitive advantage through workforce recruitment and retention. With a focus on human capital solutions, we work as an extension of our clients’ internal HR department, providing a wide range of services that include full recruitment process outsourcing (“RPO”), on-demand and project recruitment services, executive search and human resource consulting.

We operate our VMS, SPM and RPO businesses under the brand name TAPFIN^SM. TAPFIN^SM provides a structured approach consisting of process management and a web-based software tool to help organizations more effectively fulfill and manage their workforce, whether that workforce is full-time employees, temporary contractors, or resources working under a statement of work or service level agreement.

Global Enterprise Content Management. We provide a full life-cycle of content management and translation services. Our content management services provide a technology-based approach to centralizing and standardizing the management of an organization’s data, particularly data that is presented externally. We also provide translation services across more than 100 different languages, including localizing such translation to specific regions or dialects. Our global content management and translation services can be engaged under a discrete statement of work, or can include the entire outsourcing of the business processes around this discipline.

Permanent Placement

We also assist our clients in locating IT professionals for full-time positions within their organizations. We assist in recruitment efforts and screening potential hires. If a customer hires our candidate, we are generally compensated based on a percentage of the candidate’s first-year cash compensation. Billing is contingent on the candidate beginning their employment.

Industry Overview

We believe the demand for IT staffing in the United States is highly correlated to economic conditions. We believe overall employment trends and demand will increase with an improving economy. Conversely, demand may contract during a constricting economy. After contraction in the IT staffing industry from late 2000 to 2002 caused by corporate overspending on IT initiatives during the late 1990s and subsequent poor economic conditions, the industry has expanded since the later half of 2003, growing by approximately 10% in 2005, 9% in 2006 and 8% in 2007 according to a July 2008 report by Staffing Industry Analysts, Inc. (“SIA”), an independent, industry-recognized research group. Like us, most of our public-company competitors experienced declining revenue in 2008. We believe that the decline in industry revenue accelerated in the fourth quarter of 2008 and has continued into the first quarter of 2009. Industry analysts are projecting the industry will continue to contract throughout all of 2009. Vendor management services are expected to grow at a much faster pace. According to a June 2007 SIA report, more than 50% of large companies are expected to have VMS programs by 2009, up from 34% in 2007.

SIA estimates North America IT staffing revenue in 2008 to be approximately $21.5 billion. The IT staffing industry is fragmented and highly competitive. Based on SIA data for 2007, only one provider accounted for more than 10% of total IT staffing industry revenues. The top five IT staffing providers accounted for approximately 26% of total industry revenues. We believe the larger competitors in our industry are better positioned to increase their respective market share due, in part, to the fact that many large companies increasingly source their IT staffing and service needs from a list of preferred service providers that meet specific criteria. The criteria typically include the service provider’s (i) geographic coverage relative to the client’s locations, (ii) size and market share, which is often measured by total revenues, (iii) proven ability to quickly fill client requests with qualified candidates, and (iv) pricing structure, including discounts and rebates. As a result, we believe that further consolidation of our industry will continue.

We believe that key elements of successfully competing in the industry include maintaining a strong base of qualified IT professionals to enable quick responses to client requests (often within 48 hours) and ensuring that the candidates are an appropriate fit with the cultural and technical requirements of each assignment. Other key success factors include accurate evaluation of candidates’ technical skills, strong account management to develop and maintain client relationships and efficient and consistent administrative processes to assist in the delivery of quality services.

Our Competitive Strengths

We believe our competitive strengths differentiate us from our competitors and have allowed us to successfully create a sustainable and scalable national IT staffing services business. Our competitive strengths include:

Proven Track Record with a National Footprint. We believe our experienced, tenured workforce, high-quality consultant base and broad geographic presence give us a competitive advantage as corporate and governmental clients continue to consolidate their use of IT staffing providers. We offer a wide range of IT staffing expertise, including website development and integration, application programming and development, client/server development, systems software architecture and design, systems engineering and systems integration. Our coast-to-coast presence of 52 offices in 27 states allows us to meet the needs of our clients on a national basis, as well as build local relationships. For our large customers that have multiple IT centers in the United States, our geographic coverage allows us to provide consistent high-quality service through a single point of contact.

Focus on IT Staffing Services. We believe the IT staffing industry offers a greater opportunity for higher profitability than many other commercial staffing segments because of the value-added nature of IT personnel. Unlike many of our competitors that offer several types of staffing services such as IT, finance, accounting, light industrial and clerical, we are focused on the IT sector. As a result, we are able to commit our resources and capital towards our goal of building the leading IT staffing services business in the U.S. We will; however, consider diversifying into other high-value staffing segments on an opportunistic basis.

Diversified Revenue Base With Long-Term Customer Relationships. We have over 1,000 corporate and government clients, including approximately 30% of the Fortune 500 companies and approximately 72% of the Fortune 50 companies. During 2008, no single client represented more than 7% of our revenues and our 15 largest clients represented approximately 38% of our revenues. Our clients operate across a broad spectrum of markets, with our four largest end-markets consisting of financial services, telecommunications, information technology and pharmaceutical and biotechnology. We have long-standing relationships with many of our clients, including relationships of more than a decade with many of our large customers.

Extensive Recruiting Channels and Effective Hiring Process. We believe our recruiting tools and processes and our depth of knowledge of the markets in which we operate provide us with a competitive advantage in meeting the demanding time-to-market requirements for placement of IT consultants. The placement of highly skilled personnel requires operational and technical knowledge to effectively recruit and screen personnel, match them to client needs, and develop and manage the resulting relationships. To find and place the best candidate with the applicable skill-set, we maintain a proprietary database that contains information about more than 800,000 candidates. We also recruit through the internet, local and national advertising and trade shows and we maintain a national recruiting center. All of these resources assist us in locating qualified candidates quickly, often within 48 hours of a client request.

Complementary Service Offerings. We believe our complementary service offerings help us to build and facilitate expansion of our relationships with new and existing clients. In addition to our core business of IT staffing, we offer our customers vendor management services, project solutions and permanent placement of IT professionals through our business process outsourcing group. We began offering vendor management services in 2000 and now provide these services to 44 clients.

We believe we are one of the leading vendor management businesses in the United States. We also evaluate opportunities to expand our service offerings based on customer demand and technology needs.

Scalable Infrastructure. We have a scalable information technology and transaction processing infrastructure. Our back-office functions, including payroll, billing, accounts payable, collections and financial reporting, are consolidated in our customer service center in Phoenix, Arizona, which operates on a PeopleSoft platform. We also have a proprietary, web-enabled front-office system, which facilitates the identification, qualification and placement of consultants in a timely manner. In addition, we maintain a centralized call center for scheduling sales appointments and a centralized proposals and contract services department. We believe this infrastructure will facilitate our internal growth strategy and allow us to continue to integrate acquisitions rapidly.

Our Business Strategy

Our goal is to become the leading provider of IT staffing and consulting services in the United States and to expand our complementary service offerings. We believe the following are key elements of our business strategy:

Expand Our Services to Our Existing Client Base. We are focused on expanding our market share in IT staffing services through greater penetration of our existing client base and cross-selling of our various service lines. We believe our experienced, tenured workforce and our proven track record with our clients will allow us to become an increasingly significant preferred IT staffing provider to our clients. In order to facilitate our cross-selling opportunities, we have implemented a “storefront model” across our existing branch network wherein each branch offers all of our service lines. We believe that the storefront model will accelerate our ability to provide additional services, such as vendor management and project solutions, to our existing clients.

Increase Our Customer Base within Our Existing Markets. We are focused on increasing our customer base by capitalizing on our broad geographic footprint and expansive and diverse range of services. We also plan to continue developing new customer relationships by leveraging our national and local sales forces through our 52 branch offices in the United States. We believe our reputation as a high quality provider of IT staffing services in our existing markets positions us to grow our share in certain of these markets with limited incremental fixed costs.

Focus on Managed Solutions and Higher-Skills Staffing Opportunities. We plan to continue focusing on the practice areas in our project solutions group and on placements that require more highly-skilled IT professionals, which typically generate higher bill rates and margins. We also remain committed to identifying emerging information technology applications that have the potential to generate substantial demand and yield high margins.

Attract and Retain Highly-Skilled Consultants. We believe one of the keys to our success is our ability to attract and retain highly-skilled consultants. To achieve this, we seek projects that provide our consultants the opportunity to work on complex applications or to learn new technologies. Our client profile, including approximately 30% of the Fortune 500 companies, is also attractive to professionals with more advanced skill-sets. We monitor the IT consultant market continuously and offer competitive compensation and benefits. In addition, we continue to expand our online training offerings to our consultants and also provide consultant resource managers, who assist our consultants in their career development and help maintain a positive work environment.

Further Improve Operating Efficiency. We strive to continuously improve our efficiency in key business processes, especially in our sales and recruiting areas and our front and back office systems infrastructure. We believe that improvement in our business processes can contribute to further operating leverage while improving our service delivery to our clients.

Capitalize on Strategic Acquisition Opportunities. We look for acquisition targets that provide us the opportunity to expand our services to new geographic markets, add new clients to our existing customer base or add new IT practice areas to our existing capabilities. In addition, we believe strategic acquisitions can enhance our internal growth through cross-selling opportunities that can expand our market share and enhance our profitability by capitalizing on our scalable infrastructure. More recently, we have begun to consider entering into other high-value staffing segments through acquisitions. We believe our operating platform enables us to integrate acquisitions efficiently while reducing corporate overhead and other expenses.

Sales and Marketing

We employ a centralized sales and marketing strategy that focuses on both national and local accounts. The marketing strategy is implemented on both national and local levels through each of our branch offices. At the national level, we focus

on attaining preferred supplier status with Fortune 500 companies, a status that would make us one of a few approved service providers to those companies. An integral part of our marketing strategy at the national level is the use of our account management professionals who generally have over five years of experience in our industry. Their industry experience makes them capable of understanding our clients’ business strategies and IT staffing requirements. We are also supported by:

	•		centralized proposals and contract services departments;

	•		a strategic accounts group;

	•		a candidate sourcing operation for larger, high-volume clients that obtain contract IT professionals primarily through procurement departments;

	•		a centralized outbound call center for scheduling sales appointments with key contacts at prospective clients;

	•		a project solutions sales force;

	•		a vendor management sales force; and

	•		national recruiting centers for sourcing IT professionals located in the United States.

All of these assist in the development of responses to requests for proposals from large accounts and support our efforts in new client development activity.

Local accounts are targeted through account managers at the branch office level, permitting us to capitalize on the established local expertise and relationships of our branch office employees. These accounts are solicited through personal sales presentations, telephone and e-mail marketing, direct-mail solicitation, referrals and advertising in a variety of local and national media. Although local offices retain flexibility with regard to local customer and employee issues, these offices adhere to company-wide policies and procedures and a set of best practices designed to ensure quality standards throughout the organization. Local employees are encouraged to be active in civic organizations and industry trade groups to facilitate the development of new customer relationships and develop local contacts with technology user groups for referral of specific technology skills.

Local office employees report to a managing director who is responsible for day-to-day operations and the profitability of the office. Managing directors report to regional vice presidents. Regional vice presidents have substantial autonomy in making decisions regarding the operations in their respective regions, although sales activities directed toward strategic accounts are coordinated at a national level.

Our company-wide compensation program for account managers and recruiters is intended to provide incentives for higher-margin business. One component of compensation for account managers and recruiters is commissions, which increase significantly for placements with higher gross profit contribution.

Employees and Consultants

Of our 4,516 consultants on assignment at December 28, 2008, approximately 65% were employee consultants and approximately 35% were subcontractors and independent contractors. In addition, as of December 28, 2008, we had 831 permanent staff employees consisting primarily of management, administrative staff, account managers and recruiters. None of our employees are covered by collective bargaining agreements, and management believes that our relationships with our employees are good.

We recruit our consultants through both centralized and decentralized recruiting programs. Our recruiters use our internal proprietary database, the Internet, local and national advertisements and trade shows. Our front office system maintains a current database containing information about more than 800,000 candidates, including their skills, education, desired work location and other employment-related information. The system enables us to scan, process and store thousands of resumes, making it easier for recruiters to identify, qualify and place consultants in a timely manner. It also allows billable consultants to electronically review and apply for job openings. In addition, we use our national recruiting center in Houston, Texas for sourcing IT professionals located in the United States. This center enhances our local recruitment effort by providing additional resources to meet clients’ critical timeframes and broadening our capability to deliver resources in areas of the country where no local office exists. We also recruit qualified candidates through our candidate referral program, which pays a referral fee to eligible individuals responsible for attracting new recruits that are successfully placed by us on an assignment.

We have a specialized selection, review and reference process for our IT consultant candidates that is an integral part of maintaining the delivery of high quality service to our clients. This process includes interviewing each candidate to allow us to assess whether that individual will be an appropriate match for a client’s business culture and performing reference checks.

We also conduct a technical competency review of each candidate to determine whether the consultant candidate has the technical capabilities to successfully complete the client assignment. Our technical assessment will often include a formal technology skills assessment through an automated software product. We also undertake additional reviews, including more detailed background checks, at the request of our clients.

In an effort to attract a broad spectrum of qualified billable consultants, we offer a wide variety of employment options and training programs. Through our training and development department, we offer an online training platform to our consultants. This program includes over 2,400 self-paced IT and business-related courses and 16 technical certification paths in course areas such as software development, enterprise data systems, internet and network technologies, web design, project management, operating systems, server technologies and business-related skills. We believe these training initiatives improve consultant recruitment and retention, increase the technical skills of our personnel and result in better service for our clients. We also provide consultant resource managers to assist our consultants in their career development and help maintain a positive work environment.

Competition

We operate in a highly competitive and fragmented industry. There are relatively few barriers to entry into our markets, and the IT staffing industry is served by thousands of competitors, many of which are small, local operations. There are also numerous large national and international competitors that directly compete with us, including TEKsystems, Inc., Ajilon Consulting, MPS Group, Inc., Kforce Inc., Spherion Corporation, CDI Corp., Computer Task Group, Inc., RCM Technologies, Inc. and Robert Half International. Some of our competitors may have greater marketing and financial resources than us.

The competitive factors in obtaining and retaining clients include, among others, an understanding of client-specific job requirements, the ability to provide appropriately skilled IT consultants in a timely manner, the monitoring of job performance quality and the price of services. The primary competitive factors in obtaining qualified candidates for temporary IT assignments are wages, the technologies that will be utilized, the challenges that an assignment presents, the timing of availability of assignments and the types of clients and industries that will be serviced. We believe our nationwide presence, strength in recruiting and account management and the broad range of customers and industries to which we provide services make us highly competitive in obtaining and retaining clients and recruiting highly qualified consultants.

Regulation

We are subject to various types of government regulations, including: employer/employee relationship between a firm and its employees, including tax withholding or reporting, social security or retirement, benefits, workplace compliance, wage and hour, anti-discrimination, immigration and workers’ compensation, registration, licensing, record keeping and reporting requirements; and federal contractor compliance.

Trademarks

We endeavor to protect our intellectual property rights and maintain certain trademarks, trade names, service marks and other intellectual property rights. We also license certain other proprietary rights in connection with our businesses. We are not currently aware of any infringing uses or other conditions that would be reasonably likely to materially and adversely affect our use of our proprietary rights.

Seasonality

Our business is affected by seasonal fluctuations in corporate IT expenditures. Generally, expenditures are lowest during the first quarter of the year when our clients are finalizing their IT budgets. In addition, our quarterly results may fluctuate depending on, among other things, the number of billing days in a quarter and the seasonality of our clients’ businesses. Our business is also affected by the timing of holidays and seasonal vacation patterns, generally resulting in lower revenues and gross margins in the fourth quarter of each year. Extreme weather conditions may also affect demand in the first and fourth quarters of the year as certain of our clients’ facilities are located in geographic areas subject to closure or reduced hours due to inclement weather. In addition, we experience an increase in our cost of sales and a corresponding decrease in gross profit and gross margin in the first fiscal quarter of each year as a result of resetting certain state and federal employment tax rates and related salary limitations.

Available Information

Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are made available free of charge on the Investor Relations page of our website at www.COMSYS.com as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). Information contained on our website, or on other websites linked to our website, is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this report or any other filing that we make with the SEC.

EXECUTIVE OFFICERS

Information regarding the executive officers of COMSYS is as follows:


Name	Age		Position

Larry L. Enterline		56	Chief Executive Officer
Michael H. Barker		54	Executive Vice President and Chief Operating Officer
Ken R. Bramlett, Jr.		49	Senior Vice President, General Counsel and Corporate Secretary
David L. Kerr		56	Senior Vice President—Corporate Development
Amy Bobbitt		47	Senior Vice President and Chief Accounting Officer

Larry L. Enterline. Mr. Enterline was re-appointed as our Chief Executive Officer effective February 2, 2006. Mr. Enterline had previously served as our Chief Executive Officer from December 2000, when our company was known as Venturi Partners, Inc., until September 30, 2004, when we completed our merger with COMSYS Holding, Inc. He has served as a member of our Board since December 2000 and served as Chairman of the Board from December 2000 until the merger. Prior to joining our company, Mr. Enterline served in a number of senior management positions at Scientific-Atlanta, Inc. from 1989 to 2000, the last of which was Corporate Senior Vice President for Worldwide Sales and Service. He also held management positions in the marketing, sales, engineering and products areas with Bailey Controls Company and Reliance Electric Company from 1974 to 1989. He also serves on the boards of directors of Raptor Networks Technology Inc. and Concurrent Computer Corporation.

Michael H. Barker. Mr. Barker has served as our Executive Vice President and Chief Operating Officer since October 2006. Mr. Barker served as our Executive Vice President — Field Operations from the completion of the merger in September 2004 until October 2006. Prior to the merger, Mr. Barker had served as the President of Division Operations of Venturi since January 2003. From January 2001 through January 2003, Mr. Barker served as President of Venturi’s Technology Division. Prior to that time, Mr. Barker served as President of Divisional Operations of Venturi from October 1999 to January 2001 and as President of its Staffing Services Division from January 1998 until October 1999. Prior to joining Venturi, from 1995 to 1997 Mr. Barker served as the Chief Operations Officer for the Computer Group Division of IKON Technology Services, a diversified technology company.

Ken R. Bramlett, Jr. Mr. Bramlett was re-appointed as our Senior Vice President, General Counsel and Corporate Secretary effective January 3, 2006. Mr. Bramlett had previously served in a number of senior management positions with our company from 1996, when our company was known as Venturi Partners, Inc., until September 30, 2004, when we completed our merger with COMSYS Holding, Inc. His last position prior to the merger was Senior Vice President, General Counsel and Secretary. Prior to rejoining the Company, Mr. Bramlett was a partner in the business law department of Kennedy Covington Lobdell & Hickman LLP, a Charlotte, North Carolina law firm, from March 2005 to December 2005. Mr. Bramlett also serves on the boards of directors of World Acceptance Corporation and Raptor Networks Technology, Inc.

David L. Kerr. Mr. Kerr has served as our Senior Vice President — Corporate Development since the completion of the merger in September 2004. Prior to the merger, Mr. Kerr had served as Senior Vice President — Corporate Development of Old COMSYS since July 2004. Mr. Kerr joined Old COMSYS in October 1999 and served as its Chief Financial Officer and a Senior Vice President until December 2001. Old COMSYS retained Mr. Kerr as an independent consultant from January 2002 to July 2004, during which time Old COMSYS sought his advice and counsel on a number of business matters related to the IT staffing industry, including corporate development, mergers and acquisitions, divestitures, sales operations and financial transactions. Prior to joining Old COMSYS, Mr. Kerr was the Founder, Principal Officer, Shareholder and Managing Director of Omni Ventures LLC and Omni Securities LLC. Mr. Kerr was previously a partner with KPMG where he specialized in merger and acquisition transactions.

Amy Bobbitt. Ms. Bobbitt has served as our Senior Vice President and Chief Accounting Officer since September 2007. Prior to that, Ms. Bobbitt served as our Vice President of Finance since June 2006. Previously, Ms. Bobbitt was employed by Amkor Technology, Inc. from February 2005 to June 2006, where she served as Vice President and Corporate Controller. Prior to that, she served as Chief Accounting Officer and Corporate Controller at Rockford Corporation from December 2003 to February 2005. Ms. Bobbitt was the Vice President and Chief Financial Officer of Pima Capital Development Company for approximately eight years and was formerly an audit manager with Deloitte & Touche. Ms. Bobbitt received her Bachelor of Science in Business Administration, majoring in Accounting, from The Ohio State University and also maintains her Certified Public Accountant license.

ITEM 1A. RISK FACTORS

In addition to the other information included in this report, the following risk factors should be considered in evaluating our business and future prospects. The risk factors described below are not necessarily exhaustive and you are encouraged to perform your own investigation with respect to our company and our business. You should also read the other information included in this report, including our financial statements and the related notes.

Risks Related to Our Business

The global financial crisis may harm our business and financial condition.

Many financial and economic analysts are predicting that the world economy may be entering into a prolonged economic downturn characterized by high unemployment, limited availability of credit and decreased consumer and business spending. Given the nature of our business, financial results could be significantly harmed in such a downturn. In the past, our business has suffered during periods of high unemployment as demand for staffing services tends to significantly decrease during such periods. This impact on our business could be further dramatized during the current downturn given the unprecedented impact it has had and may continue to have on the global credit markets.

Any economic downturn, or the perception that such a downturn is possible, may cause our revenues to decline and may adversely affect our results of operations, cash flows and financial condition.

Our results of operations are affected by the level of business activity of our clients, which in turn is affected by local, regional and global economic conditions. Since demand for staffing services is sensitive to changes, as well as perceived changes, in the level of economic activity, our business may suffer during economic downturns. As economic activity slows down, or companies believe that a decline in economic activity is possible, companies frequently cancel, reduce or defer capital investments in new technology systems and platforms and tend to reduce their use of temporary employees and permanent placement services before undertaking layoffs of their regular employees, resulting in decreased demand for staffing services. Also, as businesses reduce their hiring of permanent employees, revenue from our permanent placement services is adversely affected. As a result, any significant economic downturn, or the perception that a downturn is possible, could reduce our revenues and adversely affect our results of operations, cash flow and financial condition.

Our dependence on large customers and the risks we assume under our contracts with them could have a material adverse effect on our revenues and results of operations.

We depend on several large customers for a significant portion of our revenues. Our 15 largest customers represented approximately 38% of our revenues in 2008. Generally, we do not provide services to our customers under long-term contracts. If one or more of our large customers terminated an existing contract or substantially reduced the services they purchase from us, our revenues and results of operations would be adversely affected.

In addition, many customers, including those with preferred supplier arrangements, increasingly have been seeking pricing discounts, rebates or other pricing concessions in exchange for higher volumes of business or maintaining existing levels of business. Furthermore, we may be required to accept less favorable terms regarding risk allocation, including assuming obligations to indemnify our clients for damages sustained in connection with the provision of our services. Additionally, we regularly evaluate the creditworthiness of all our customers and continuously monitor accounts but typically we do not require collateral. Our allowance for doubtful accounts is based on an evaluation of the collectibility of specific accounts and on historical experience. These factors may potentially adversely affect our revenues and results of operations.

Our profitability will suffer if we are not able to maintain current levels of billable hours and bill rates and control our costs or if we are unable to pass bill rate decreases to our consultants.

Our profit margins, and therefore our profitability, are largely dependent on the number of hours billed for our services, utilization rates, the bill rates we charge for these services and the pay rates of our consultants.

Accordingly, if we are unable to maintain these amounts at current levels, our profit margin and our profitability will suffer. Our bill rates are affected by a number of considerations, including:

	•		our clients’ perception of our ability to add value through our services;

	•		competition, including pricing policies of our competitors; and

	•		general economic conditions.

Our billable hours are affected by various factors, including:

	•		the demand for IT staffing services;

	•		the number of billing days in any period;

	•		the quality and scope of our services;

	•		seasonal trends, primarily as a result of holidays, vacations and inclement weather;

	•		our ability to recruit new consultants to fill open orders;

	•		our ability to transition consultants from completed assignments to new engagements;

	•		our ability to forecast demand for our services and thereby maintain an appropriately balanced and sized workforce; and

	•		our ability to manage consultant turnover.

Our pay rates are affected primarily by the supply of and demand for skilled U.S.-based consultants. During periods when demand for consultants exceeds the supply, pay rates may increase. In addition, large customers many times put pressure on us to absorb bill rate decreases and not reduce related pay rates. Competitive pressures impact this process.

Some of our costs, such as office rents, are fixed in the short term, which limits our ability to reduce costs in periods of declining revenues. Our current and future cost-management initiatives may not be sufficient to maintain our margins as our revenue varies.

We compete in a highly competitive market with limited barriers to entry and significant pricing pressures. There can be no assurance that we will continue to successfully compete.

The U.S. IT staffing services market is highly competitive and fragmented. We compete in national, regional and local markets with full-service and specialized staffing agencies, systems integrators, computer systems consultants, search firms and other providers of staffing and consulting services. Although the majority of our competitors are smaller than we are, a number of competitors have greater marketing and financial resources than us. In addition, there are relatively few barriers to entry into our markets and we have faced, and expect to continue to face, competition from new entrants into our markets. We expect that the level of competition will remain high in the future, which could limit our ability to maintain or increase our market share or maintain or increase gross margins, either of which could have a material adverse effect on our financial condition and results of operations. In addition, from time to time we experience pressure from our clients to reduce price levels, and during these periods we may face increased competitive pricing pressures. Competition may also affect our ability to recruit the personnel necessary to fill our clients’ needs. We also face the risk that certain of our current and prospective clients will decide to provide similar services internally. There can be no assurance that we will continue to successfully compete.

We may be unable to attract and retain qualified billable consultants, which could have an adverse effect on our business, financial condition and results of operations.

Our operations depend on our ability to attract and retain the services of qualified billable consultants who possess the technical skills and experience necessary to meet our clients’ specific needs. We are required to continually evaluate, upgrade and supplement our staff in each of our markets to keep pace with changing client needs and technologies and to fill new positions. The IT staffing industry in particular has high turnover rates and is affected by the supply of and demand for IT professionals. This has resulted in intense competition for IT professionals, and we expect such competition to continue. Our customers may also hire our consultants, and direct hiring by customers adversely affects our turnover rate as well. In addition, our consultants’ loyalty to us may be harmed by our decreasing pay rates in order to preserve our profit margin

during a market downturn, which may adversely affect our competitive position. Certain of our IT operations recruit consultants who require H-1B visas, and U.S. immigration policy currently restricts the number of new H-1B petitions that may be granted in each fiscal year. Our failure to attract and retain the services of consultants, or an increase in the turnover rate among our consultants, could have a material adverse effect on our business, operating results or financial condition. If a supply of qualified consultants, particularly IT professionals, is not available to us in sufficient numbers or on economic terms that are, or will continue to be, acceptable to us, our business, operating results or financial condition could be materially adversely affected.

We depend on key personnel, and the loss of the services of one or more of our senior management or a significant portion of our local management personnel could weaken our management team and our ability to deliver quality services and could adversely affect our business.

Our operations historically have been, and continue to be, dependent on the efforts of our executive officers and senior management. In addition, we are dependent on the performance and productivity of our respective regional operations executives, local managing directors and field personnel. The loss of one or more of our senior management or a significant portion of our management team could have an adverse effect on our operations, including our ability to maintain existing client relationships and attract new clients in the context of changing economic or competitive conditions. Our ability to attract and retain business is significantly affected by local relationships and the quality of services rendered by branch managerial personnel. If we are unable to attract and retain key employees to perform these services, our business, financial condition and results of operations could be materially adversely affected.

Our failure to achieve our strategic goal of shifting more of our business into the IT solutions area could adversely impact our growth rate and profitability.

As market factors continue to pressure our revenue growth and margins in the IT staffing area, we have developed a strategy of shifting more of our business mix into the higher growth and higher margin solutions areas to complement our core business. We have committed resources and management attention to our TAPFIN Process Solutions group, which currently offers vendor management services, service procurement management, recruitment process outsourcing and other consulting services. There can be no assurance that we will succeed in our strategy of shifting more of our business mix into these areas, or into other areas within the solutions sector of the IT services industries. Our failure to achieve this strategic objective could adversely impact our growth rate and profitability.

Factors beyond our control may affect our ability to successfully execute our acquisition strategy, which may have an adverse impact on our growth strategy.

Our business strategy includes increasing our market share and presence in the IT staffing and project solutions sectors through strategic acquisitions of companies and assets that complement or enhance our business. Our ability to finance acquisitions depends on the availability under our senior credit agreement as well as the market price of our common stock. We expect to face competition for acquisition opportunities, and some of our competitors may have greater financial resources or access to financing on more favorable terms than us. This competition may limit our acquisition opportunities and our ability to grow through acquisitions or could raise the prices of acquisitions and make them less accretive or possibly non-accretive to us.

We regularly evaluate opportunities for acquisitions that may complement or enhance our business. These acquisitions, if completed, may involve numerous risks, including:

	•		potential loss of key employees or clients of acquired companies;

	•		difficulties integrating acquired personnel and distinct cultures into a single business;

	•		diversion of management attention from existing operations; and

	•		assumption of liabilities and exposure to unforeseen liabilities of acquired companies.

These acquisitions may also involve significant cash expenditures, debt incurrence and integration expenses. Any acquisition may ultimately have a negative impact on our business, financial condition and results of operations.

We may suffer losses due to the conduct of our employees or our clients’ employees during staffing assignments.

We employ and place people generally in the workplaces of other businesses. Attendant risks of this activity include possible claims of discrimination and harassment, employment of illegal aliens, violations of wage and hour requirements, errors and omissions of temporary employees, particularly of professionals, misuse of client proprietary information, misappropriation

of funds, other criminal activity or torts and other similar claims. In some instances we have agreed to indemnify our clients against some or all of the foregoing matters. We will be responsible for these indemnification obligations, to the extent they remain in effect, and may in the future agree to provide similar indemnities to some of our prospective clients. In certain circumstances, we may be held responsible for the actions at a workplace of persons not under our direct control. Although historically we have not suffered any material losses in this area, there can be no assurance that we will not experience such losses in the future or that our insurance, if any, will be sufficient in amount or scope to cover any such liability. The failure of any of our employees or personnel to observe our policies and guidelines, relevant client policies and guidelines, or applicable federal, state or local laws, rules and regulations, and other circumstances that cannot be predicted, could have a material adverse effect on our business, operating results and financial condition.

Additional government regulation and rising health care and unemployment insurance costs and taxes, including increased state and local taxes, could have a material adverse effect on our business, operating results and financial condition.

We are required to pay a number of federal, state and local payroll taxes and related costs, including unemployment and other taxes and insurance, workers’ compensation, FICA and Medicare, among others, for our employees. We also provide various benefits to our employees, including health insurance. Significant increases in the effective rates of any payroll-related costs would likely have a material adverse effect on our results of operations unless we can pass them along to our customers. Our costs could also increase if health care reforms expand the scope of mandated benefits or employee coverage or if regulators impose additional requirements and restrictions related to the placement of personnel. Historically, during an economic downturn, we have seen an increase in our state and local taxes. These increases result from legislation passed by various taxing jurisdictions which have traditionally increased tax rates or decreased our ability to use our net operating loss carryforwards.

We generally seek to increase fees charged to our clients to cover increases in health care, unemployment and other direct costs of services, but our ability to pass these costs to our clients over the last several years has diminished. There can be no assurance that we will be able to increase the fees charged to our clients in a timely manner and in a sufficient amount if these expenses continue to rise. There is also no assurance that we will be able to adapt to future regulatory changes made by the Internal Revenue Service, the Department of Labor or other state and federal regulatory agencies. Our inability to increase our fees or adapt to future regulatory changes could have a material adverse effect on our business, operating results and financial condition.

Due to inherent limitations, there can be no assurance that our system of disclosure and internal controls and procedures will be successful in preventing all errors and fraud, or in making all material information known in a timely manner to management.

Our management, including our Chief Executive Officer and Chief Accounting Officer, does not expect that our disclosure controls and internal controls will prevent all errors and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within COMSYS have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected that could have a material adverse effect on our business, results of operations and financial condition.

Our strategic decision not to pursue a broad-based offshore strategy may adversely impact our revenue growth and profitability.

In the past few years, more companies are using, or are considering using, low cost “offshore” outsourcing centers, particularly in India, to perform technology related work and projects. This trend has contributed to the slowing growth in domestic IT staff augmentation revenue as well as on-site solutions oriented projects. We have strategic alliances with Indian

suppliers to provide our clients with a low cost offshore alternative, but have not, to date, pursued a broad-based offshore strategy. Our strategic decision not to pursue such a broad-based offshore strategy may adversely impact our revenue growth and profitability.

We have substantial intangible assets, have incurred significant impairment charges in the past and may incur further charges if there are significant adverse changes to our operating results, outlook or market conditions.

Our intangible assets consist of goodwill and customer list intangibles resulting from acquisitions of businesses from unrelated third parties for cash and other consideration. We have accounted for these acquisitions using the purchase method of accounting, with the assets and liabilities of the businesses acquired recorded at their estimated fair values as of the dates of the acquisitions. The excess of purchase price over fair value of the net assets acquired was recorded as goodwill. Our other intangible assets consist mainly of customer lists.

Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), prohibits the amortization of goodwill and requires that goodwill and other intangible assets be tested annually for impairment. We perform these tests on an annual basis or more frequently if events or changes in circumstances indicate the asset might be impaired, and any significant adverse changes in our expected future operating results or outlook would likely result in impairment of the affected intangible assets that could have a material adverse impact on our results of operations and financial condition.

The annual test requires estimates and judgments by management to determine a valuation for the reporting unit. Although we believe our assumptions and estimates are reasonable and appropriate, different assumptions and estimates could materially affect our reported financial results. Different assumptions related to future cash flows, operating margins, growth rates and discount rates could result in additional future impairment charges, which would be recognized as a non-cash charge to operating income and a reduction in asset values and shareholders’ equity on the balance sheet.

We recorded a non-cash, goodwill impairment charge of $86.8 million during the fourth quarter of 2008. The impairment was the result of the decline in our trading stock price during the fourth quarter due to current market conditions. Neither our current operating trends nor our financial results for the fourth quarter were factors that led to the charge. The non-cash charge has no impact on our existing cash balances, working capital, debt balances, revolver availability or normal business operations. Further declines in our trading stock price as well as other factors could result in additional impairment charges.

Adverse results in tax audits could require significant cash expenditures or expose us to unforeseen liabilities.

We are subject to periodic federal, state and local income tax audits for various tax years. Although we attempt to comply with all taxing authority regulations, adverse findings or assessments made by the taxing authorities as the result of an audit could have a material adverse affect on our business, financial condition, cash flows and results of operations.

We may be subject to lawsuits and claims, which could have a material adverse effect on our financial condition and results of operations.

A number of lawsuits and claims are pending against us, and additional claims and lawsuits may arise in the future. Litigation is inherently uncertain. If an unfavorable ruling or outcome were to occur, such event could have a material adverse effect on our financial condition, cash flows and results of operations.

Concentration of services in metropolitan areas may adversely affect our revenues in the event of extraordinary events.

A significant portion of our revenues is derived from services provided in major metropolitan areas. A terrorist attack, such as that of September 11, 2001, or other extraordinary events in any of these markets could have a material adverse effect on our revenues and results of operations.

We depend on the proper functioning of our information systems.

We are dependent on the proper functioning of information systems in operating our business. Critical information systems are used in every aspect of our daily operations, most significantly in the identification and matching of staffing resources to client assignments and in the customer billing and consultant payment functions. Our systems are vulnerable to natural disasters, fire, terrorist acts, power loss, telecommunications failures, physical or software break-ins, computer viruses and other similar events. If our critical information systems fail or are otherwise unavailable, we would have to accomplish these functions manually, which could temporarily impact our ability to identify business opportunities quickly, maintain billing

and client records reliably and bill for services efficiently. In addition, we depend on third party vendors for certain functions whose future performance and reliability we cannot control.

Risks Related to our Indebtedness

We have substantial debt obligations that could restrict our operations and adversely affect our business and financial condition.

Our indebtedness could have adverse consequences, including:

	•		increasing our vulnerability to adverse economic and industry conditions;

	•		limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and

	•		limiting our ability to borrow additional funds.

Our outstanding debt is subject to a borrowing base, and our lenders have substantial discretion to impose various reserves against it from time to time. Our outstanding debt bears interest at a variable rate, subjecting us to interest rate risk. Further, we use a substantial portion of our operating cash flow to pay interest on our debt instead of other corporate purposes. If our cash flow and capital resources are insufficient to fund our debt obligations, we may be forced to sell assets, seek additional equity or debt capital or restructure our debt. Our cash flow and capital resources may not be sufficient for payment of interest and principal on our debt in the future, and any such alternative measures may not be successful or may not permit us to meet scheduled debt service obligations. Any failure to meet our debt obligations could harm our business and financial condition.

We will require a significant amount of cash to service our indebtedness and satisfy our other liquidity needs. Our ability to generate cash depends on many factors beyond our control.

Our ability to make payments on our indebtedness and to fund our working capital requirements and other liquidity needs will depend on our ability to generate cash in the future. To a certain extent, this ability is subject to economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our revolving line of credit or otherwise in an amount sufficient to enable us to successfully execute our business strategy, pay our indebtedness and fund our other liquidity needs.

If we are not able to repay our debt obligations on or prior to their maturity, we may need to refinance all or a portion of our indebtedness. Our revolving line of credit will mature in March 2010 and, thus, we may be required to refinance any outstanding amounts under our credit facilities. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. If we are unable to generate sufficient cash flow to pay our indebtedness or to refinance our debt obligations on commercially reasonable terms, our business, financial condition and results of operations could be adversely affected.

Restrictive financing covenants limit the discretion of our management and may inhibit our operating flexibility.

Our credit facilities contain a number of covenants that, among other things, restrict our ability to:

	•		incur additional indebtedness;

	•		repurchase shares;

	•		declare or pay dividends and other distributions;

	•		incur liens;

	•		make capital expenditures;

	•		make certain investments or acquisitions;

	•		repay debt; and

	•		dispose of property.

disadvantage compared to our competitors that are not required to operate under such restrictions or that are subject to less stringent restrictive covenants.

If we default on our obligations to pay our indebtedness, or fail to comply with the covenants and restrictions contained in the agreements governing our indebtedness, our financial condition may be adversely affected by the consequences of any such default.

If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to make required payments on our revolving line of credit or any future debt which we may incur, or if we fail to comply with the various covenants and restrictions contained in the agreements governing our indebtedness, we could be in default under the terms of such agreements governing our indebtedness.

In the event of a default under any of our debt agreements that is not cured or waived, the holders of such indebtedness could elect to declare all amounts outstanding thereunder to be immediately due and payable. In addition, upon an event of default under our credit facilities that is not cured or waived, we would no longer be able to borrow funds under our credit facilities, which would make it difficult to operate our business. Moreover, because our credit facilities contain, and any future debt agreements into which we may enter may contain, customary cross-default provisions, an event of default under our credit facilities or any future debt agreements into which we may enter, if not cured or waived, could also permit some or all of our lenders to declare all outstanding amounts to be immediately due and payable.

If the amounts outstanding under any of our debt agreements are accelerated, we cannot assure you that our assets will be sufficient to repay in full the money owed to our lenders or to our other debt holders. If we are unable to repay or refinance such accelerated amounts, lenders having secured obligations, such as the lenders under our revolving line of credit, could proceed against the collateral securing the debt, and we could be forced into bankruptcy or liquidation.

Risks Related to Investment in Our Common Stock

Shares of our common stock have been thinly traded in the past and the prices at which our common stock will trade in the future could fluctuate significantly.

As of February 28, 2009, there were 20,811,626 shares of our common stock issued and outstanding. Although our common stock is listed on The NASDAQ Global Market and a trading market exists, the trading volume has not been significant and there can be no assurance that an active trading market for our common stock will develop or be sustained in the future. Our average daily trading volume during the twelve months ended February 28, 2009, was approximately 99,540 shares. As a result of the thin trading market, or “float,” for our stock, the market price for our common stock may fluctuate significantly more than the stock market as a whole. Without a large float, our common stock is less liquid than the stock of companies with broader public ownership and, as a result, the trading prices of our common stock may be more volatile. In addition, in the absence of an active public trading market, investors may be unable to liquidate their investment in our stock. Trading of a relatively small volume of our common stock may have a greater impact on the trading price for our stock than would be the case if our public float were larger. The prices at which our common stock will trade in the future could fluctuate significantly.

Ownership of our common stock is concentrated among a small number of major stockholders that have the ability to exercise significant control over us, and whose interests may differ from the interests of other stockholders.

As of February 28, 2009, there were six beneficial owners of more than 5% of our outstanding common stock, excluding the effect of outstanding warrants and/or cash-settled equity swaps:

	•		Wachovia Investors, Inc. — 15.5%,

	•		Amalgamated Gadget, L.P. — 8.0%,

	•		Credit Suisse — 7.2%,

	•		Merrill Lynch & Co., Inc. — 6.7%,

	•		Barclays Global Investors, NA — 5.8%,

	•		Inland Partners, L.P. and Links Partners, L.P., collectively — 5.3%.

As a practical matter, Wachovia Investors acting alone or these stockholders acting collectively will be able to exert significant influence over, or determine, the direction taken by us and the outcome of future matters submitted to our stockholders, including the terms of any proposal to acquire us, subject to some limited protections afforded to minority stockholders under our charter.

Concentrated ownership of large blocks of our common stock may affect the value of shares held by others and our ability to access public equity markets.

Our current degree of share ownership concentration may reduce the market value of common stock held by other investors for several reasons, including the perception of a “market overhang,” which is the existence of a large block of shares readily available for sale that could lead the market to discount the value of shares held by other investors.

We may need to access the public equity markets to secure additional capital to repay debt, pursue our acquisition strategy or meet other financial needs. Our registration obligations to our significant stockholders could limit our ability or make it more difficult for us to raise funds through common stock offerings upon desirable terms or when required. Our failure to raise additional capital when required could:

	•		restrict growth, both internally and through acquisitions;

	•		inhibit our ability to invest in technology and other products and services that we may need; and

	•		adversely affect our ability to compete in our markets.

Future sales of shares may adversely affect the market price of our shares.

Future sales of our shares, or the availability of shares for future sale, may have an adverse effect on the market price of our shares. Sales of substantial amounts of our shares in the public market, or the perception that such sales could occur, could adversely affect the market price of our shares and may make it more difficult for you to sell your shares at a time and price that you deem appropriate.

The market price and marketability of our shares may from time to time be significantly affected by numerous factors beyond our control, which may adversely affect our ability to raise capital through future equity financings or our ability to use equity in acquisitions.

The market price of our shares may fluctuate significantly. In addition to lack of liquidity, many factors that are beyond our control may affect the market price and marketability of our shares and may adversely affect our ability to raise capital through equity financings or our ability to use equity in acquisitions. These factors include the following:

	•		general price and volume fluctuations in the stock markets;

	•		changes in our earnings or variations in operating results;

	•		any shortfall in revenue or net income or any increase in losses from levels expected by securities analysts;

	•		changes in regulatory policies or tax laws;

	•		operating performance of companies comparable to us;

	•		general economic trends and other external factors; and

	•		loss of a major funding source.

We do not intend to pay cash dividends on our common stock in the foreseeable future, and therefore only appreciation of the price of our common stock will provide a return to our stockholders.

We have not historically paid cash dividends on our common stock, and we currently anticipate that we will retain all future earnings, if any, to finance the growth and development of our business. We do not intend to pay cash dividends in the foreseeable future. Any payment of cash dividends will depend upon our financial condition, capital requirements, earnings and other factors deemed relevant by our board of directors. In addition, the terms of our credit facilities prohibit us from paying dividends and making other distributions. As a result, only appreciation of the price of our common stock, which may not occur, will provide a return to our stockholders. Also, holders of warrants to purchase our common stock and holders of unvested restricted stock also participate in dividend payments. As a result, any dividend payments must be allocated to warrant holders and unvested restricted stock holders, as well as common stock holders.

Our certificate of incorporation contains certain provisions that could discourage an acquisition or change of control of COMSYS.

Our certificate of incorporation authorizes the issuance of preferred stock without stockholder approval. Our board of directors has the power to determine the price and terms of any preferred stock. The ability of our board of directors to issue one or more series of preferred stock without stockholder approval could deter or delay unsolicited changes of control by discouraging open market purchases of new common stock or a non-negotiated tender or exchange offer for our common

stock. Discouraging open market purchases may be disadvantageous to our stockholders who may otherwise desire to participate in a transaction in which they would receive a premium for their shares.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We are headquartered in Houston, Texas and maintain 52 offices in 27 states, one in Puerto Rico, one in Toronto, Canada and one in the United Kingdom. Additionally, we have a customer service center in Phoenix, Arizona. We generally lease our office space under leases with initial terms of five to ten years. These leases typically contain such terms and conditions as are customary in each geographic market. Our offices are usually in office buildings, and occasionally in retail buildings, and our headquarters facilities and regional offices are in similar facilities. We believe that our offices are well maintained and suitable for their intended purpose. The lease on our corporate headquarters was renewed in August 2006 for ten years and will expire on February 28, 2017. The lease on our customer service center was entered into in October 2007 for ten years and will expire on April 30, 2018. As of December 28, 2008, we leased approximately 386,000 square feet.

ITEM 3. LEGAL PROCEEDINGS

From time to time we are involved in certain disputes and litigation relating to claims arising out of our operations in the ordinary course of business. Further, we are periodically subject to government audits and inspections. In the opinion of our management, based on the advice of in-house and external legal counsel, matters presently pending will not, individually or in the aggregate, have a material adverse effect on our business, financial position, results of operations or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II


ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Price Range of Common Stock

Our common stock is traded on the NASDAQ Global Market under the symbol “CITP.” The following table includes the high and low sales prices for our common stock as reported on the NASDAQ Global Market for each quarter during the period from January 1, 2007, through December 28, 2008.


	High		Low
2007
First Quarter	$	23.00	$	18.77
Second Quarter		25.36		19.13
Third Quarter		23.22		14.63
Fourth Quarter		18.95		11.60

2008
First Quarter	$	14.80	$	7.37
Second Quarter		12.92		7.82
Third Quarter		12.98		8.12
Fourth Quarter		10.74		1.56

As of February 28, 2009, the closing price of our common stock was $2.54, there were 20,811,626 shares of our common stock outstanding and there were 501 holders of record of our common stock.

Dividend Policy

Because our policy has been to retain earnings for use in our business, we have not historically paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business. In addition, our credit facilities currently prohibit the payment of cash dividends. Also, holders of warrants to purchase our common stock and holders of unvested restricted stock also participate in dividend payments. As a result, any dividend payments must be allocated to warrant holders and unvested restricted stock holders, as well as common stock holders. In the future, our board of directors will determine whether to pay cash dividends based on conditions then existing, including our earnings, financial condition, capital requirements, financing arrangements, the terms of our credit facilities and other contractual obligations and any other factors our board of directors deems relevant.

ITEM 6. SELECTED FINANCIAL DATA

You should read the following selected consolidated financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes appearing elsewhere in this report.

For accounting purposes, the merger of Old COMSYS and Venturi on September 30, 2004, was treated as a reverse merger, in which Old COMSYS was deemed to be the acquirer. The selected financial data for the year ending January 2, 2005, reflects the historical results of Old COMSYS for periods prior to the merger. The selected financial data for periods subsequent to September 30, 2004, reflect financial results of COMSYS after giving effect to the merger and include Venturi’s results of operations from the effective date of the merger.

The consolidated statements of operations data for the fiscal years ended December 28, 2008, December 30, 2007, and December 31, 2006, and the consolidated balance sheets data at December 28, 2008, and December 30, 2007, are derived from the audited consolidated financial statements appearing elsewhere in this report. The historical data presented below is not indicative of future results. We did not pay any cash dividends on our common stock during any of the periods set forth in the following table.


	Year Ended
	December 28,			December 30,		December 31,			January 1,		January 2,
Consolidated Statements of Operations Data:	2008			2007		2006			2006		2005
(In thousands, except per share data)
Revenues from services	$	727,108		$	743,265	$	736,645		$	661,657	$	437,013
Cost of services		550,189			558,074		557,598			505,233		331,474

Gross profit		176,919			185,191		179,047			156,424		105,539

Operating costs and expenses:
Selling, general and administrative		136,648			135,423		135,651			120,357		86,376
Restructuring costs		637			—		—			4,780		10,322
Depreciation and amortization		8,115			6,426		8,717			9,067		14,564
Goodwill impairment		86,800			—		—			—		—

		232,200			141,849		144,368			134,204		111,262

Operating income (loss)		(55,281	)		43,342		34,679			22,220		(5,723	)
Interest expense and other expenses, net		5,253			7,714		15,208			17,061		51,848
Loss on early extinguishment of debt		—			—		3,191			2,227		2,986
Income tax expense (benefit)		4,654			2,279		(4,767	)		783		(5,402	)

Net income (loss)	$	(65,188	)	$	33,349	$	21,047		$	2,149	$	(55,155	)


Basic net income (loss) per common share(1)	$	(3.19	)	$	1.67	$	1.10		$	0.14	$	(14.20	)
Diluted net income (loss) per common share(1)	$	(3.19	)	$	1.66	$	1.10		$	0.14	$	(14.20	)

Weighted average basic and diluted shares outstanding(1):
Basic		19,599			19,255		18,449			15,492		3,884
Diluted		19,599			20,100		19,137			15,809		3,884


					As of
	December 28,		December 30,		December 31,		January 1,		January 2,
Consolidated Balance Sheets Data:	2008		2007		2006		2006		2005

(In thousands)
Total assets(2)	$	351,180	$	402,469	$	375,034	$	366,921	$	322,481
Mandatorily redeemable preferred stock, redeemable common stock and warrant liability(2)		—		—		—		—		23,314
Other debt, including current maturities		69,692		71,903		98,542		142,273		140,123
Stockholders’ equity (2)		83,485		144,632		94,770		71,096		36,025


(1)		The loss per share data and weighted average number of shares outstanding for periods prior to the merger have been retroactively restated to reflect the exchange ratio of 0.0001 of a share of our common stock for each share of Old COMSYS stock outstanding immediately prior to the merger as if such exchange had occurred at the beginning of each of the periods presented.

(2)		Effective July 1, 2003, Old COMSYS adopted SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (“SFAS 150”), which resulted in the reclassification of Old COMSYS’ mandatorily redeemable preferred stock and accrued dividends of $337.7 million and $1.4 million of common stock, to


		noncurrent liabilities. Stockholder notes receivable for the purchase of redeemable securities were reclassified out of equity and recorded as noncurrent assets. Additionally, Old COMSYS reclassified $3.7 million of unamortized issuance costs associated with the mandatorily redeemable preferred stock to other assets. Old COMSYS also began to recognize dividends declared and the amortization of the deferred issuance costs associated with the mandatorily redeemable preferred stock as interest expense.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Organization of Information

Management’s Discussion and Analysis provides a narrative on our financial performance and condition that should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this report. This discussion contains forward-looking statements reflecting our current expectations and estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this report. The historical data presented below is not indicative of future results. Management’s Discussion and Analysis includes the following sections:

	•		Our Business

	•		Overview of 2008 Results

	•		2009 Priorities

	•		Results of Operations

	•		Liquidity and Capital Resources

	•		Seasonality

	•		Off-Balance Sheet Risk Disclosure

	•		Contractual and Commercial Commitments

	•		Critical Accounting Policies and Estimates

	•		Recent Accounting Pronouncements

Our Business

COMSYS IT Partners, Inc. and our wholly-owned subsidiaries (collectively, “us,” “our” or “we”) provide a full range of specialized IT staffing and project implementation services, including website development and integration, application programming and development, client/server development, systems software architecture and design, systems engineering and systems integration. We also provide services that complement our IT staffing services, such as vendor management, project solutions, process solutions and permanent placement of IT professionals. Our TAPFIN Process Solutions division offers total human capital fulfillment and management solutions within three core service areas: vendor management services, services procurement management and recruitment process outsourcing. We operate through the following wholly-owned subsidiaries:

	•		COMSYS Services, LLC (“COMSYS Services”), an IT staffing services provider,

	•		COMSYS Information Technology Services, Inc. (“COMSYS IT”), an IT staffing services provider,

	•		Pure Solutions, Inc. (“Pure Solutions”), an information technology services company,

	•		Econometrix, LLC (“Econometrix”), a vendor management systems software provider,

	•		Plum Rhino Consulting LLC (“Plum Rhino”), a specialty staffing services provider to the financial services industry,

	•		Praeos Technologies, Inc. (“Praeos”), a business intelligence and business analytics consulting services provider,

	•		T. Williams Consulting, LLC (“TWC”), a recruitment process outsourcing and human resources consulting provider, and

	•		ASET International Services, Inc. (“ASET”), a globalization, localization and interactive language services provider.

Our mission is to become a leading company in the IT staffing services industry in the United States. We intend to pursue this mission through a combination of internal growth and strategic acquisitions that complement or enhance our business.

Industry trends that affect our business include:

	•		rate of technological change;

	•		rate of growth in corporate IT and professional services budgets;

	•		penetration of IT and professional services staffing in the general workforce;

	•		outsourcing of the IT and professional services workforce; and

	•		consolidation of supplier bases.

We anticipate our growth will be primarily generated from greater penetration of our service offerings with our current clients, introducing new service offerings to our customers and obtaining new clients. Our strategy for achieving this growth includes cross-selling our vendor management services, project solutions services and process solutions services to existing IT staffing customers, aggressively marketing our services to new clients, expanding our range of value-added services, enhancing brand recognition and making strategic acquisitions.

The success of our business depends primarily on the volume of assignments we secure, the bill rates for those assignments, the costs of the consultants that provide the services and the quality and efficiency of our recruiting, sales and marketing and administrative functions. Our experienced, tenured workforce, our proven track record, our recruiting and candidate screening processes, our strong account management team and our efficient and consistent administrative processes are factors that we believe are key to the success of our business. Factors outside of our control, such as the demand for IT and other professional services, general economic conditions and the supply of qualified professionals, will also affect our success.

Our revenue is primarily driven by bill rates and billable hours. Most of our billings for our staffing and project solutions services are on a time-and-materials basis, which means we bill our customers based on pre-agreed bill rates for the number of hours that each of our consultants works on an assignment. Hourly bill rates are typically determined based on the level of skill and experience of the consultants assigned and the supply and demand in the current market for those qualifications. General economic conditions, macro IT and profession service expenditure trends and competition may create pressure on our pricing. Increasingly, large customers, including those with preferred supplier arrangements, have been seeking pricing discounts in exchange for higher volumes of business or maintaining existing levels of business. Billable hours are affected by numerous factors, such as the quality and scope of our service offerings and competition at the national and local levels. We also generate fee income by providing vendor management and permanent placement services.

Our principal operating expenses are cost of services and selling, general and administrative expenses. Cost of services is comprised primarily of the costs of consultant labor, including employees, subcontractors and independent contractors, and related employee benefits. Approximately 65% of our consultants are employees and the remainder are subcontractors and independent contractors. We compensate most of our consultants only for the hours that we bill to our clients, which allows us to better match our labor costs with our revenue generation. With respect to our consultant employees, we are responsible for employment-related taxes, medical and health care costs and workers’ compensation. Labor costs are sensitive to shifts in the supply and demand of professionals, as well as increases in the costs of benefits and taxes.

The principal components of selling, general and administrative expenses are salaries, selling and recruiting commissions, advertising, lead generation and other marketing costs and branch office expenses. Our branch office network allows us to leverage certain selling, general and administrative expenses, such as advertising and back office functions.

Our back office functions, including payroll, billing, accounts payable, collections and financial reporting, are consolidated in our customer service center in Phoenix, Arizona, which operates on a PeopleSoft platform. We also have a proprietary, web-enabled front-office system that facilitates the identification, qualification and placement of consultants in a timely manner. We maintain a national recruiting center, a centralized call center for scheduling sales appointments and a centralized proposals and contract services department. We believe this scalable infrastructure allows us to provide high quality service to our customers and will facilitate our internal growth strategy and allow us to continue to integrate acquisitions rapidly.

Our fiscal year ends on the Sunday closest to December 31^st. Therefore, the fiscal year-ends for 2008, 2007 and 2006 were December 28, 2008, December 30, 2007, and December 31, 2006, respectively.

Overview of 2008 Results

Our stated priorities for 2008 were internal growth, efficiency improvements, further debt reductions and improved working capital management and expansion of our operations through acquisitions. We made the following progress against each during the year.

Our revenues declined 2.2% in 2008 from 2007. We ended the year with 4,516 billable consultants, which was down over 450 from the end of 2007. The decline was broad-based across our business with no one client or industry driving this trend. As the global economy worsened during 2008, we experienced larger-than-normal bill rate pressures from several clients, and, although we attempt to mitigate the impact by adjusting the pay rates of our consultants, we are experiencing pressure on gross margins. As a result, average bill rates in 2008 decreased slightly from 2007 rates. Our focus on sales, marketing and recruiting efforts to our core customers and on adding new customers has helped as certain sectors have had difficulties. We have seen growth at both existing customers, as well as new clients, and we have continued to expand our middle-market base.

We continued to see the benefits of our efficiency improvements throughout 2008, and these improvements allowed us to redirect resources closer to the point of sale. As part of our continuing efforts to focus on operational efficiencies and process improvements, we have consolidated certain administrative functions into the new Phoenix customer service center. This restructuring was a continuation of our plan to centralize certain operations to enhance our customer service and improve our internal processes.

Due to our ability to generate cash from operations and improved working capital management, our net debt balance declined to $49.7 million at the end of 2008 from $71.9 million at the end of 2007. During 2008, we generated $37.4 million of cash flow from operations and used $7.9 million for acquisitions.

Our final priority was to expand our operations through selected acquisitions. During 2008, we completed the acquisition of ASET, which allowed us to expand our existing globalization practice and complement our traditional staffing and consulting service offerings.

Despite the challenging environment in 2008, we remained profitable throughout the year, when excluding the goodwill impairment charge. Additionally, we reduced our net debt further during the year, resulting in a 34% decrease in our annual net interest expense.

2009 Priorities

Current economic uncertainty is making it more difficult to predict our progress towards the financial goals that have been established by management. We believe that the current economic conditions limit our ability to provide meaningful guidance for the ranges of likely financial performance; therefore, we will not provide revenue or earnings per share guidance until economic conditions stabilize.

As we enter 2009, we have adapted our priorities to deal with the present economic landscape. These priorities are centered on our clients, our employees, the efficiency of our operations and our liquidity.

We plan to continue our focus on TAPFIN and its business model, which has significant advantage to clients who need to gain efficiencies in all aspects of their operations. There is a great deal of potential to cross-market all of TAPFIN’s offerings to more fully serve its clients as we move through this downturn.

Our operating efficiency is of particular importance. We continue to refine our hiring process with the goal of hiring and retaining top talent. At the same time, we are implementing targeted training programs to increase productivity among our existing sales and recruiting forces. We are proud of our existing workforce and want to continue to offer them superior career opportunities as we move forward into an economic recovery.

Our balance sheet is strong, and we will continue to review acquisitions in the normal course of our business; however, due to current market conditions we will be much more selective in pursuing opportunities this year. Our primary balance-sheet focus in 2009 will be on refinancing our credit agreement prior to its expiration in March 2010 and the continued reduction of our debt balance. In the meantime, we expect to continue to reduce our debt levels and we are confident in our ability to comply with any of the provisions of our existing credit agreement.

We have benefited from low tax rates for financial reporting for some time now, but we do not expect that to last indefinitely if we are profitable. If we are profitable in the future, we will continue to evaluate each quarter our estimates of the recoverability of our deferred tax assets based on our assessment of whether any portion of these fully reserved assets become more likely than not recoverable through future taxable income. At such time, if any, that we no longer have a reserve for our deferred tax assets, we will begin to provide for taxes at the full statutory rate. Our actual cash paid for taxes is expected to remain low in 2009. We expect our reported income tax expense to decrease in 2009 as compared to 2008 due to a change in accounting for utilization of previously acquired tax assets which were fully reserved at the date of acquisition as a result of a new accounting pronouncement effective with the start of fiscal 2009.

Results of Operations

The following table sets forth the percentage relationship to revenues of certain items included in our Consolidated Statements of Operations, in thousands, except percentages and headcount amounts:


	Year Ended																		Percent Change
	December 28,			December 30,			December 31,			December 28,			December 30,			December 31,			2008 vs			2007 vs
	2008			2007			2006			2008			2007			2006			2007			2006

Revenues from services	$	727,108		$	743,265		$	736,645			100.0	%		100.0	%		100.0	%		-2.2	%		0.9	%
Cost of services		550,189			558,074			557,598			75.7	%		75.1	%		75.7	%		-1.4	%		0.1	%

Gross profit		176,919			185,191			179,047			24.3	%		24.9	%		24.3	%		-4.5	%		3.4	%

Operating costs and expenses:
Selling, general and administrative		136,648			135,423			135,651			18.8	%		18.2	%		18.4	%		0.9	%		-0.2	%
Restructuring costs		637			—			—			0.1	%		0.0	%		0.0	%		N/A			N/A
Depreciation and amortization		8,115			6,426			8,717			1.1	%		0.9	%		1.2	%		26.3	%		-26.3	%
Goodwill impairment		86,800			—			—			11.9	%		0.0	%		0.0	%		N/A			N/A

		232,200			141,849			144,368			31.9	%		19.1	%		19.6	%		63.7	%		-1.7	%

Operating income (loss)		(55,281	)		43,342			34,679			-7.6	%		5.8	%		4.7	%		-227.5	%		25.0	%
Interest expense, net		5,457			8,250			15,518			0.8	%		1.0	%		2.1	%		-33.9	%		-46.8	%
Loss on early extinguishment of debt		—			—			3,191			0.0	%		0.0	%		0.4	%		N/A			-100.0	%
Other income, net		(204	)		(536	)		(310	)		0.0	%		0.0	%		0.0	%		-61.9	%		72.9	%

Income (loss) before income taxes		(60,534	)		35,628			16,280			-8.4	%		4.8	%		2.2	%		-269.9	%		118.8	%
Income tax expense (benefit)		4,654			2,279			(4,767	)		0.6	%		0.3	%		-0.7	%		104.2	%		-147.8	%

Net income (loss)	$	(65,188	)	$	33,349		$	21,047			-9.0	%		4.5	%		2.9	%		-295.5	%		58.5	%


Billable headcount at end of period		4,516			4,986			4,996

Year Ended December 28, 2008, Compared to Year Ended December 30, 2007

We recorded an operating loss of $55.3 million and a net loss of $65.2 million in 2008. In 2008, we recorded a goodwill impairment charge of $86.8 million, or $86.0 million net of related tax effects. The decrease in operating income, excluding the goodwill impairment, was due primarily to a decrease in revenues as a result of lower billable headcount, slightly lower margins and an increase in selling, general and administrative.

Revenues. Revenues for 2008 and 2007 were $727.1 million and $743.3 million, respectively, representing a decrease of 2.2%. We continued to see bill rate pressures from our customers, particularly among Fortune 500 clients. Our revenue growth was driven primarily by our clients in the pharmaceutical and biotechnology and government sectors. Revenues from the pharmaceutical and biotechnology and government sectors increased by 17.4% and 34.7%, respectively, in 2008 from 2007. These increases were partially offset by revenue decreases of 21.1% and 21.9% from the telecommunications and financial services sectors, respectively, over the same period. Vendor management related fee revenue decreased 18.5% to $23.1 million in 2008 from $28.3 million in 2007 due to declining fee rates at several customers and a change in the mix of our customers. Reimbursable expense revenue increased to $17.1 million in 2008 from $11.1 million in 2007, primarily due to an increase in our services procurement management service offerings. This increase had no impact on gross margin dollars as the related reimbursable expense was recognized in the same period.

Cost of Services. Cost of services for 2008 and 2007 were $550.2 million and $558.1 million, respectively, representing a decrease of 1.4%. Cost of services as a percentage of revenue increased to 75.7% in 2008 from 75.1% in 2007. The increase in cost of services as a percentage of revenue was primarily due to lower revenues being spread over the fixed costs related to consultant labor such as state unemployment taxes and health care expenses.

Selling, General and Administrative. Selling, general and administrative expenses in 2008 and 2007 were $136.6 million and $135.4 million, respectively, representing an increase of 0.9%. The increase was due primarily to the additional selling,

general and administrative expenses at the businesses acquired in December 2007 and June 2008, including a non-cash charge of approximately $3.4 million in 2008 for additional employee compensation relating to the Praeos purchase in December 2007. Additionally, the 2007 amount included $1.0 million in bad debt expense related to the bankruptcy of VMS provider Chimes. Included in these amounts are $4.4 million and $4.5 million of stock-based compensation in 2008 and 2007, respectively. Excluding the 2008 Praeos compensation charge and the 2007 Chimes bad debt charge, selling, general and administrative expenses decreased by 0.8% in 2008 from 2007. As a percentage of revenue, selling, general and administrative expenses increased to 18.8% in 2008 from 18.2% in 2007 primarily due to lower revenue in 2008.

Restructuring Costs. Restructuring costs for 2008 were $0.6 million, or 0.1% of revenue. These costs related primarily to the relocation of certain administrative functions from the Washington DC area and Portland, Oregon into our new Phoenix customer service center facility, employee termination benefits and lease termination costs.

Depreciation and Amortization. Depreciation and amortization expense consists primarily of depreciation of our fixed assets and amortization of our customer list intangible assets. For 2008 and 2007, depreciation and amortization expense was $8.1 million and $6.4 million, respectively, representing an increase of 26.3% between periods. The increase in depreciation and amortization expense was primarily due to the depreciation of our enterprise software system and the amortization of the Plum Rhino, TWC and ASET customer list intangibles and the TWC assembled methodology intangible.

Goodwill Impairment. We recorded a non-cash, pre-tax goodwill impairment charge in 2008 of $86.8 million. The impairment was the result of the decline in our stock price during the fourth quarter of 2008 due to current market conditions. Neither our current operating trends nor our financial results for the fourth quarter were factors that led to the charge. See Note 4 of the Notes to Consolidated Financial Statements included elsewhere in this report.

Interest Expense, Net. Interest expense, net was $5.5 million and $8.3 million in 2008 and 2007, respectively, a decrease of 33.9%. The decrease was due to our overall debt reduction as well as a reduction in our related interest rates.

Provision for Income Taxes. Our 2008 income tax expense was lower than the statutory rates given that income tax expense was in large part offset by an increase in our valuation allowance. The income tax expense of $4.7 million for 2008 contains the following amounts: current expenses in the amount of $0.3 million for federal alternative minimum tax; $1.1 million for the Texas Margin tax, Michigan Gross Receipts tax, California Corporate Income and other miscellaneous state and foreign income tax expenses and a deferred expense in the amount of $3.3 million resulting from the release of a portion of the valuation allowance on Venturi’s acquired net deferred assets from the merger. Although our net deferred tax asset is substantially offset with a valuation allowance, a portion of our fully-reserved deferred tax assets that became realized through operating profits is recognized as a reduction to goodwill to the extent it relates to benefits acquired in the merger. This results in deferred tax expense as the assets are utilized. This portion of deferred tax expense represents the consumption of pre-merger deferred tax assets that were acquired with zero basis. In accordance with the provisions of SFAS No. 109, Accounting for Income Taxes, we calculated a goodwill bifurcation ratio in the year of the merger to determine the amount of deferred tax expense that should be offset to goodwill prospectively.

As of December 28, 2008, we had federal and state net operating loss carryforwards of approximately $100 million and $97 million, respectively, an alternative minimum tax credit carryforward of $0.5 million, and had recorded a reserve against the assets for net operating loss carryforwards due to the uncertainty related to the realization of these amounts.

Our future effective tax rates could be adversely affected by changes in the valuation of our deferred tax assets or liabilities or changes in tax laws or interpretations thereof. We continue to evaluate quarterly our estimates of the recoverability of our deferred tax assets based on our assessment of whether it is more likely than not any portion of these fully reserved are recoverable through future taxable income. At such time that we no longer have a reserve for our deferred tax assets, we will begin to provide for taxes at the full statutory rate. In addition, we are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

Year Ended December 30, 2007, Compared to Year Ended December 31, 2006

Revenues. Revenues for 2007 and 2006 were $743.3 million and $736.6 million, respectively, representing an increase of 0.9%. Reimbursable expense revenue declined to $11.1 million in 2007 from $16.0 million in 2006, primarily due to lower consultant-related expenses at one major customer. This decline had no impact on gross margin dollars as the related reimbursable expense was recognized in the same period. Absent the decline in reimbursable expenses, revenues for 2007 increased 1.6% from the prior year. Although average staffing headcount was down during 2007 as compared to 2006, increases in bill rates caused staffing revenue to increase slightly. Vendor management related fee revenue increased 13.2%

to $28.3 million in 2007 from $25.0 million in 2006 due to expansion and implementation of vendor management programs in response to increasing demand for such services. Our revenue growth was driven primarily by our clients in the pharmaceutical and biotechnology sector. Revenues from the pharmaceutical and biotechnology sector increased by 23% in 2007 from 2006. This increase was partially offset by revenue decreases of 29% and 5% from the telecommunications and financial services sectors, respectively, over the same period.

Cost of Services. Cost of services for 2007 and 2006 were $558.1 million and $557.6 million, respectively, representing an increase of 0.1%. Cost of services as a percentage of revenue decreased slightly to 75.1% in 2007 from 75.7% in 2006. The decrease in cost of services as a percentage of revenue was primarily due to revenues increasing at a faster rate than the costs related to various labor expenses such as pay rates for consultants, state unemployment taxes and health care expenses.

Selling, General and Administrative. Selling, general and administrative expenses in 2007 and 2006 were $135.4 million and $135.7 million, respectively, representing a decrease of 0.2%. Included in these amounts are $4.5 million and $3.3 million of stock-based compensation in 2007 and 2006, respectively. The decrease in total selling, general and administrative expenses was due primarily to the benefits of our efficiency improvements and targeted cost reductions, partially offset by increases in stock-based compensation and rent expense. Additionally, the 2006 amount included $1.9 million in severance-related expenses to two former officers and the 2007 amount included $1.0 million in bad debt expense related to the bankruptcy of VMS provider Chimes. As a percentage of revenue, selling, general and administrative expenses decreased slightly to 18.2% in 2007 from 18.4% in 2006.

Depreciation and Amortization. Depreciation and amortization expense consists primarily of depreciation of our fixed assets and amortization of our customer list intangible assets. For 2007 and 2006, depreciation and amortization expense was $6.4 million and $8.7 million, respectively, representing a decrease of 26.3% between periods. The decline was the result of a large asset becoming fully depreciated at the end of 2006 and lower levels of capital expenditures, partially offset by the depreciation of the Econometrix software and the amortization of the Plum Rhino customer list intangible asset.

Interest Expense, Net. Interest expense, net was $8.3 million and $15.5 million in 2007 and 2006, respectively, a decrease of 46.8% that was due to a reduction in interest payments due to our overall debt reduction during 2006 and 2007 and a reduction in the related interest rates.

Provision for Income Taxes. The 2007 income tax is much lower than typical statutory rates given that income tax expense was in large part offset by a decrease in our valuation allowance. The 2007 expense contains the following amounts: current expenses in the amount of $0.3 million for federal alternative minimum tax; $0.3 million for the Texas Margin tax and other miscellaneous state income tax expenses and $0.1 million for foreign income taxes related to our profitable United Kingdom subsidiary, a deferred expense in the amount of $2.3 million resulting from the release of a portion of the valuation allowance on Venturi’s acquired net deferred assets from the merger and a deferred state tax benefit of $0.7 million related to the conversion of our Texas net operating loss carryforwards into the new Texas Margin tax credit. Although our net deferred tax asset is substantially offset with a valuation allowance, a portion of our fully-reserved deferred tax assets that became realized through operating profits are recognized as adjustments to the purchase price as a reduction to goodwill to the extent they relate to benefits acquired in the merger. This then results in deferred tax expense as the assets are utilized. This portion of deferred tax expense represents the consumption of pre-merger deferred tax assets that were acquired with zero basis. In accordance with the provisions of SFAS No. 109, Accounting for Income Taxes, we calculated a goodwill bifurcation ratio in the year of the merger to determine the amount of deferred tax asset realizable expense that should be offset to goodwill prospectively. The income tax benefit for 2006 is the result of a federal income tax refund of $5.8 million, net of the impact of release of the valuation allowance on acquired net deferred tax assets from the merger and a provision for foreign income taxes related to our profitable foreign operations. The federal income tax refund resulted from legislation that allowed us to carry back a portion of our 2002 net operating loss to prior years. The refund resulted from a loss carryback to periods prior to the current ownership of the Company. In 2007, we paid $0.8 million in taxes, and, in 2006, we received a tax refund, net of taxes paid, of $5.7 million.

As of December 30, 2007, we had combined state and federal net operating loss carryforwards of approximately $217.1 million, an alternative minimum tax credit carryforward of $0.3 million, and had recorded a reserve against the assets for net operating loss carryforwards due to the uncertainty related to the realization of these amounts. As a result of our Section 382 analysis related to the merger of Old COMSYS and Venturi, which may have been an ownership change as defined by the Internal Revenue Code, our federal and state net operating losses were reduced by approximately $0.7 million and $44.4 million, respectively, during the first quarter of 2007.

Liquidity and Capital Resources

Overview

We typically finance our operations through cash flow from operations and borrowings under our credit facilities. Due to the requirements of our revolving credit facility, as discussed in more detail below under the “Cash Flows” section, we do not maintain a significant cash balance in our primary domestic cash accounts. In October 2008, we borrowed an additional $20 million on our revolving credit agreement to insure access to liquidity in the current credit environment. We have invested these additional funds in a US Treasury money market fund. We intend to use these funds to pay down our revolving line of credit when the credit markets stabilize.

Our revolving line of credit will mature in March 2010 and, thus, we may be required to refinance any outstanding amounts under our credit facilities. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. If we are able to refinance, we expect our costs of borrowing to increase. If we are unable to generate sufficient cash flow to pay our indebtedness or to refinance our debt obligations on commercially reasonable terms, our business, financial condition and results of operations could be adversely affected. Excess borrowing availability under our existing revolving credit facility at December 28, 2008, was $73.0 million. We expect this number to decline if we enter into a new debt agreement. Our borrowing availability is impacted by the timing of cash receipts and disbursements. Timing of receipts and disbursements in our vendor management business can have a material impact on the debt levels we report at any period and; therefore, in 2008 we began reporting average daily debt for each quarter, as discussed below in “Credit Facilities and Related Covenants.”

We believe our cash flow provided by operating activities coupled with availability under our revolving credit facility and our US Treasury investments will be sufficient to fund our working capital, debt service and purchases of fixed assets through fiscal 2009. In the event that we make future acquisitions, we may need to seek additional capital from our lenders or the capital markets; there can be no assurance that additional capital will be available when we need it, or, if available, that it will be available on favorable terms.

The performance of our business is dependent on many factors and subject to risks and uncertainties. See “Risks Related to Our Business” and “Risk Related to Our Indebtedness” under “Risk Factors” included elsewhere in this report.

Working Capital

Accounts receivable is a significant component of our working capital. We monitor our accounts receivable through a variety of metrics, including days sales outstanding (“DSO”). We calculate our consolidated DSO by determining average daily revenue based on an annualized three-month analysis and dividing it into the gross accounts receivable balance as of the end of the period. Accounts receivable, net, were $202.3 million and $189.3 million as of December 28, 2008, and December 30, 2007, respectively. Our consolidated DSO was 43 days as of December 28, 2008 and December 30, 2007. As a result of the timing of vendor management receipts and the seasonality in our operations, our consolidated DSO may materially fluctuate. The non-seasonal trends in consolidated DSO for 2008 can be attributed to the timing of certain receipts and disbursements in a large vendor management engagement.

Additionally, we calculate a DSO for vendor management services (“VMS DSO”) by determining average daily vendor management service gross revenue based on an annualized three-month analysis and dividing it into the gross vendor management accounts receivable balance as of the end of the period. Vendor management accounts receivable were $96.7 million and $80.7 million as of December 28, 2008, and December 30, 2007, respectively. As of December 28, 2008, our VMS DSO was 35 days as compared to 34 days as of December 30, 2007. The increase in VMS DSO is primarily due to an increase in accounts receivable, the timing of vendor management receipts and the seasonality we experienced in our fourth quarter of 2007. As a result of the timing of vendor management receipts and the seasonality in our operations, our VMS DSO may materially fluctuate. The non-seasonal trends in VMS DSO for 2008 can be attributed to the timing of certain receipts and disbursements in a large vendor management engagement.

Our total accounts payable were $156.5 million and $145.6 million as of December 28, 2008, and December 30, 2007, respectively. Our vendor management services accounts payable and other liabilities were $104.1 million and $79.2 million as of December 28, 2008, and December 30, 2007, respectively.

Credit Facilities and Related Covenants

On December 14, 2005, we entered into a new senior credit agreement with Merrill Lynch Capital and a syndicate of lenders which replaced all of our then existing credit agreements. This senior credit agreement provided for a two-year term loan of $10.0 million, which was funded on December 14, 2005, and which was originally scheduled to be repaid in eight equal quarterly principal installments commencing on March 31, 2006, and a revolving line of credit (“revolver”) of up to $120.0 million, maturing on March 31, 2010. At the same time, we borrowed $100.0 million under a second lien term loan credit agreement with Merrill Lynch Capital and a syndicate of lenders, which was originally scheduled to mature on October 31, 2010. The proceeds from these borrowings were used to repay all outstanding borrowings under the prior credit agreements with Merrill Lynch Capital.

We made the first scheduled principal payment on the senior term loan in the first quarter of 2006. In May 2006, we received a federal income tax refund, including interest, totaling $6.4 million, which was used to pay down the principal balance of the senior term loan. Under the terms of the senior credit agreement, this principal payment reduced the scheduled quarterly payments to $0.3 million, and the first installment of this reduced amount was paid in the second quarter of 2006.

On September 15, 2006, the senior credit agreement and second lien term loan were amended. Among other things, the amendments provided for an increase in our borrowing capacity under the revolving line of credit to $145.0 million from $120.0 million and an increase in the senior term loan to $10.0 million from $2.1 million, which was the outstanding principal balance prior to the amendments. We used borrowings under the amended senior credit agreement to prepay $70.0 million of the outstanding principal amount of the $100.0 million second lien term loan. We incurred charges of approximately $2.6 million in the third quarter of 2006 related to the early repayment on the second lien term loan, the write-off of certain deferred financing costs and certain expenses incurred in connection with this refinancing, of which $2.5 million was recorded as a loss on early extinguishment of debt and $0.1 million was included in interest expense. In addition, we capitalized certain costs of this refinancing of approximately $0.5 million in the third quarter of 2006.

On December 15, 2006, the senior credit agreement was further amended. Among other things, the amendments provided for an increase in our borrowing capacity under the revolving line of credit to $160.0 million from $145.0 million and the early payoff of the remaining $30.0 million balance of the second lien term loan. Additionally, the maturity date of the agreement was amended to be March 31, 2010. We incurred charges of approximately $0.9 million in the fourth quarter of 2006 related to the early repayment of the second lien term loan, the write-off of certain deferred financing costs and certain expenses incurred in connection with this refinancing, of which $0.7 million was recorded as a loss on early extinguishment of debt and $0.2 million was included in interest expense. In addition, we capitalized certain costs of this refinancing of approximately $0.1 million in the fourth quarter of 2006.

In connection with our purchase of the remaining outstanding common stock of Econometrix in March 2007, we further amended the senior credit agreement to add Econometrix as an additional credit party under the agreement. In connection with our purchase of the issued and outstanding membership interests of Plum Rhino in May 2007, we further amended the senior credit agreement to add Plum Rhino as an additional credit party under the agreement and to increase the aggregate amount permitted for acquisitions from $10.0 million to $50.0 million. In connection with our purchases of Praeos and TWC in December 2007, we further amended the senior credit agreement to add Praeos and TWC as additional credit parties under the agreement.

Borrowings under the revolver bear interest at the prime rate plus a margin that can range from 0.75% to 1.00%, or, at our option, LIBOR plus a margin that can range from 1.75% to 2.00%, each depending on our total debt to adjusted EBITDA ratio, as defined in our senior credit agreement, as amended. We pay a quarterly commitment fee of 0.5% per annum on the unused portion of the revolver. We and certain of our subsidiaries guarantee the loans and other obligations under the senior credit agreement. The obligations under the senior credit agreement are secured by a perfected first priority security interest in substantially all of our assets and those of our U.S. subsidiaries, as well as the shares of capital stock of our direct and indirect U.S. subsidiaries and certain of the capital stock of our foreign subsidiaries. Pursuant to the terms of the senior credit agreement, we maintain a zero balance in our primary domestic cash accounts. Any excess cash in those domestic accounts is swept on a daily basis and applied to repay borrowings under the revolver, and any cash needs are satisfied through borrowings under the revolver. In a separate cash account, we maintain an additional $20 million we borrowed on our revolver in October 2008 to insure access to liquidity in the current credit environment. We have invested these additional funds in a US Treasury money market fund.

Borrowings under the revolver are limited to 85% of eligible accounts receivable, as defined in the senior credit agreement and related amendments, reduced by the amount of outstanding letters of credit and designated reserves. At December 28, 2008, these designated reserves were: a $5.0 million minimum availability reserve, a $1.5 million reserve for outstanding

letters of credit, a $2.0 million reserve for the Pure Solutions acquisition and a $1.0 million reserve for the ASET acquisition. The Pure Solutions reserve will not be required after 2008. At December 28, 2008, we had outstanding borrowings of $69.7 million under the revolver at interest rates ranging from 3.58% to 4.75% per annum (weighted average rate of 4.25%) and excess borrowing availability under the revolver of $73.0 million for general corporate purposes. At December 28, 2008, our debt to adjusted EBITDA ratio resulted in a prime rate margin of 0.75% and a LIBOR margin of 1.75%. Fees paid on outstanding letters of credit are equal to the LIBOR margin then applicable to the revolver, which at December 28, 2008, was 1.75%. At December 28, 2008, outstanding letters of credit totaled $1.5 million. The senior term loan was repaid in full on December 26, 2008. Our average daily net debt balances during 2008 were as follows, in thousands:


	2008
First quarter	$	90,975
Second quarter		82,632
Third quarter		75,974
Fourth quarter		60,692

Debt Compliance

Our credit facilities contain a number of covenants that, among other things, restrict our ability to:

	•		incur additional indebtedness;

	•		repurchase shares;

	•		declare or pay dividends and other distributions;

	•		incur liens;

	•		make capital expenditures;

	•		make certain investments or acquisitions;

	•		repay debt; and

	•		dispose of property.

In addition, our credit facilities have springing financial covenants that would require us to satisfy a minimum fixed charge coverage ratio and a maximum total leverage ratio if our excess availability falls below $25 million. A breach of any covenants governing our debt would permit the acceleration of the related debt and potentially other indebtedness under cross-default provisions, which could harm our business and financial condition. These restrictions may place us at a disadvantage compared to our competitors that are not required to operate under such restrictions or that are subject to less stringent restrictive covenants. As of December 28, 2008, we were in compliance with all covenant requirements and we believe we will be able to comply with these covenants throughout 2009.

The senior credit agreement contains various events of default, including failure to pay principal and interest when due, breach of covenants, materially incorrect representations, default under other agreements, bankruptcy or insolvency, the occurrence of specified ERISA events, entry of enforceable judgments against us in excess of $2.0 million not stayed and the occurrence of a change of control. In the event of a default, all commitments under the revolver may be terminated and all of our obligations under the senior credit agreement could be accelerated by the lenders, causing all loans and borrowings outstanding (including accrued interest and fees payable thereunder) to be declared immediately due and payable. In the case of bankruptcy or insolvency, acceleration of our obligations under our senior credit agreement is automatic.

Interest Rate Swap and Cap

We have historically been subject to market risk on all or a part of our borrowings under our credit facilities, which have variable interest rates. Effective February 22, 2005, we entered into an interest rate swap and an interest rate cap which we terminated October 6, 2006. The swap agreement and cap agreement were contracts to effectively exchange variable interest rate payments for fixed rate payments over the life of the instruments as a means to limit exposure to increases in interest rates on the notional amount of bank borrowings over the term of the swap and cap. The notional amount was used to measure interest to be paid or received and did not represent the exposure to credit loss. The swap was based on a $20.0 million notional amount at a rate of 4.59% and the cap was based on a $20.0 million notional amount at a rate of 4.50%.

At January 1, 2006, the interest rate swap and cap were recorded at fair value, which represents the amount that Merrill Lynch Capital would have paid us at January 1, 2006, if the swap and cap had been terminated at that date. The combined net fair value at January 1, 2006, was $0.5 million, which was included in our Consolidated Balance Sheet in noncurrent assets. Effective with the repayment of our debt on December 14, 2005, the expected cash flows that the swap and cap were

designated to hedge against were no longer probable. As a result, the swap and the cap were no longer designated as cash flow hedges for accounting purposes. As a result, amounts previously recorded in accumulated other comprehensive income associated with changes in fair value of the hedges were reversed to interest expense. Changes in fair value of the swap and cap were recorded in the Consolidated Statement of Operations subsequent to December 14, 2005. We recorded $0.5 million as a reduction of interest expense in the fourth quarter of 2005. On October 6, 2006, we cancelled the swap and cap agreements and received a cash settlement of $0.5 million, which was recorded as a reduction to interest expense in the Consolidated Statement of Operations.

Secondary Offering on Behalf of Selling Stockholders

In January 2007, Inland Partners, L.P. and Links Partners, L.P. (“Inland/Links”) and Wachovia Investors, Inc. sold an aggregate of 2.5 million shares of our common stock in a secondary underwritten public offering for the benefit of such stockholders. The shares were sold by the selling stockholders pursuant to an effective shelf registration statement that was previously filed with the SEC. Both Wachovia Investors, Inc. and Inland/Links have representatives on our board of directors. We did not receive any proceeds from the sale of shares in this offering. We paid approximately $0.1 million of expenses in the first quarter of 2007 related to this offering.

Cash Flows

In accordance with U.S. generally accepted accounting principles (“GAAP”), revenues for our vendor management services are recorded on a net basis (see “Critical Accounting Policies and Estimates — Revenue Recognition” discussion below). Additionally, the related working capital items (i.e. accounts receivable and accounts payable) are recorded separately. As a result, the timing of cash receipts and disbursements can materially impact our cash provided by earnings and cash flows from operating activities in any period.

The following table summarizes our cash flow activity for 2008, 2007 and 2006, in thousands:


	Year ended
	December 28,			December 30,			December 31,
	2008			2007			2006

Net cash provided by operating activities	$	37,351		$	58,810		$	46,474
Net cash used in investing activities		(13,675	)		(34,022	)		(4,030	)
Net cash used in financing activities		(2,128	)		(24,881	)		(44,093	)
Effect of exchange rates on cash		(447	)		82			155

Net increase (decrease) in cash and cash equivalents	$	21,101			($11	)		($1,494	)

Cash provided by operating activities was $37.4 million, $58.8 million and $46.5 million in 2008, 2007 and 2006, respectively. The decrease in 2008 was primarily due to a decrease in net income and a use of cash from working capital. The increase in 2007 was primarily the result of an increase in earnings and improved working capital position compared to the prior-year period. In addition, in 2006, we received a federal income tax refund and related interest totaling $6.4 million. In addition to cash provided by earnings, cash flows from operating activities are affected by the timing of cash receipts and disbursements and the working capital requirements of the business.

Cash used in investing activities was $13.7 million, $34.0 million and $4.0 million in 2008, 2007 and 2006, respectively. Our cash flows associated with investing activities in 2008, 2007 and 2006 included capital expenditures of $5.8 million, $3.1 million and $2.8 million, respectively, and cash paid for acquisitions of $7.9 million, $30.9 million and $1.3 million, respectively. The increase in 2008 capital expenditures was related primarily to the upgrade of our enterprise software system, leasehold improvements related to our new customer service center and the purchase of computer hardware. We expect to pay an additional $3.0 million in cash earnout payments during the next 12 months, and these amounts were fully accrued in the Consolidated Balance Sheet as of December 28, 2008.

Capital expenditures in 2009 are currently expected to be approximately $2.0 million to $3.0 million. This spending level is lower than experienced in 2008 due to the completion of the previously mentioned projects as well as a planned reduction in capital projects.

Cash used in financing activities was $2.1 million, $24.9 million and $44.1 million in 2008, 2007 and 2006, respectively. Cash flows associated with financing activities in 2008, 2007 and 2006 primarily represent borrowings and payments on our revolving credit facility.

Pursuant to the terms of the revolver, we maintain a zero balance in our primary domestic cash accounts. Any excess cash in our accounts is swept on a daily basis and applied to repay borrowings under the revolver, and any cash needs are satisfied through borrowings under the revolver. Cash and cash equivalents recorded on our Consolidated Balance Sheet at December 28, 2008, and December 30, 2007, in the amount of $22.7 million and $1.6 million, respectively, represented cash balances at our Toronto and United Kingdom subsidiaries and $20.0 million we have invested in a US Treasury money market fund. We expect to use these funds to repay a portion of our senior credit agreement during 2009.

We believe the most strategic uses of our cash and cash equivalents are repayment of our long-term debt, making strategic acquisitions, capital expenditures and investments in revenue-producing personnel. There are no transactions, arrangements and other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the availability of our requirements for capital.

Seasonality

Off-Balance Sheet Risk Disclosure

At December 28, 2008, and December 30, 2007, we did not have any transactions, agreements or other contractual arrangements constituting an “off-balance sheet arrangement” as defined in Item 303(a)(4) of Regulation S-K.

Contractual and Commercial Commitments

The following table summarizes our contractual obligations and commercial commitments at December 28, 2008, in thousands:


			Payments Due by Period
			Less than						More than
Contractual Obligations	Total		One Year		1-3 Years		3-5 Years		5 Years

Long-term debt (1)	$	69,692	$	—	$	69,692	$	—	$	—
Notes payable (2)		1,000		—		1,000		—		—
Operating leases		32,251		7,195		10,779		7,171		7,106
Purchase obligations (3)		2,415		1,792		623		—		—
Deferred compensation		1,238		150		300		300		488

Total contractual cash obligations	$	106,596	$	9,137	$	82,394	$	7,471	$	7,594

Commitment Expiration per Period

Less than

More than

Other Commercial Commitments

Total

One Year

1-3 Years

3-5 Years

5 Years

Letters of Credit (4)

1,503


(1)		Long-term debt obligations included in the above table consist solely of principal repayments related to our senior credit agreement. We are also obligated to make interest payments at the applicable interest rates as discussed in Note 5 in the Notes to Consolidated Financial Statements included elsewhere in this report.

(2)		Notes payable included in the above table consist solely of principal repayments related to our acquisition of ASET. We are also obligated to make interest payments at the applicable interest rates as discussed in Note 3 in the Notes to Consolidated Financial Statements included elsewhere in this report.

(3)		Purchase obligations included in the above table consist of purchase commitments primarily related to telecom service agreements and online advertising.


(4)		Letters of credit secure certain office leases and insurance programs.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates include the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. We evaluate these estimates and assumptions on an ongoing basis, including but not limited to those related to revenue recognition, the recoverability of goodwill, collectibility of accounts receivable, reserves for medical costs, tax-related contingencies and realization of deferred tax assets. Estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. The results of these estimates may form the basis of the carrying value of certain assets and liabilities and may not be readily apparent from other sources. Actual results, under conditions and circumstances different from those assumed, may differ materially from these estimates.

We believe the following accounting policies are critical to our business operations and the understanding of our operations and include the more significant judgments and estimates used in the preparation of our consolidated financial statements. The consolidated financial statements include the accounts of COMSYS IT Partners, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Revenue Recognition

We recognize revenue pursuant to Staff Accounting Bulletin Nos. 101 and 104, Revenue Recognition in Financial Statements. Accordingly, we recognize revenue and record sales, net of related discounts, when all of the following criteria are met:

	•		Persuasive evidence of an arrangement exists;

	•		Ownership has transferred to the customer;

	•		The price to the customer is fixed or determinable; and

	•		Collectibility is reasonably assured.

Our core staffing revenues vary from period to period based on several factors that include: 1) the billable headcount during the period; 2) the number of billing days during the period; and 3) the average bill rate during the period.

Revenues under time-and-materials contracts are recorded at the time services are performed. Hourly bill rates are typically determined based on the level of skill and experience of the consultants assigned and the supply and demand in the current market for those qualifications. Alternatively, the bill rates for some assignments are based on a mark-up over compensation and other direct and indirect costs.

Revenues from services are shown net of rebates and discounts relating primarily to volume-related discount structures and prompt-payment discounts under contracts with our clients.

We report revenues from vendor management services net of the related pass-through labor costs. “Vendor management services” are services that allow our clients to automate and consolidated management of their temporary personnel contracting processes. We also report revenues net for payrolling activity. “Payrolling” is defined as a situation in which we accept a client-identified consultant for payroll processing in exchange for a fee. Permanent placement fee revenues are usually determined based on a percentage of the employee’s first year cash compensation and are recorded when candidates begin their employment.

Reimbursable expenses are expenses we pay to our consultants that are reimbursed by our clients. We record reimbursable expenses in revenue with the associated cost recorded in cost of services.

Goodwill and Other Intangible Assets

Goodwill. We assess recoverability of goodwill and other intangible assets in accordance with SFAS 142, Goodwill and Other Intangible Assets, which requires goodwill and other intangible assets with indefinite lives to be tested annually for impairment, unless an event occurs or circumstances change during the year that reduce or may reduce the fair value of the reporting unit below its book value, in which event an impairment charge may be required during the year. We have selected

the last day of the second-to-last month of our fiscal year as the date on which we will perform our annual goodwill impairment test. We performed our annual impairment test as of November 23, 2008. At November 23, 2008, we performed the first step of the two-step impairment test and compared the fair value of the reporting unit (management has previously determined the Company operates as one reporting unit) to its carrying value. In assessing the fair value of the reporting unit, we considered both the market approach and the income approach. Under the market approach, the fair value of the reporting unit is based on the quoted market price of companies comparable to the reporting unit. Under the income approach, the fair value of the reporting unit is based on the present value of estimated cash flows. The income approach is dependent on a number of significant management assumptions, including estimated future revenue growth rates, gross margins on sales, operating margins, capital expenditures and discount rates. Each approach was weighted in order to arrive at the fair value of the reporting unit. We determined the fair value of the reporting unit was less than the carrying value. Thus we performed step two of the impairment test for the reporting unit.

In step two of the impairment test, we are required to determine the implied fair value of the goodwill and compare it to the carrying value of the goodwill. We allocated the fair value of the reporting unit to the respective assets and liabilities of the reporting unit as if the reporting unit had been acquired in a separate business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of the reporting units over the amounts assigned to their respective assets and liabilities is the implied fair value of goodwill. The implied goodwill was less than the carrying value of goodwill, resulting in a non-cash, pre-tax impairment charge of $86.8 million in the fourth quarter of 2008. We then reconciled the fair value of the reporting unit to our market capitalization at November 23, 2008.

At December 28, 2008, and December 30, 2007, total goodwill was $89.1 million and $174.2 million, respectively.

Other intangible assets. Our intangible assets other than goodwill primarily represents acquired customer lists and are amortized over the respective contract terms or estimated life of the customer list, ranging from five to eight years. At December 28, 2008, and December 30, 2007, net intangible assets were $12.0 million and $10.0 million, respectively. In the event that facts and circumstances indicate intangibles or other long-lived assets may be impaired, we evaluate the recoverability and estimated useful lives of such assets. This process requires the use of estimates and assumptions, which are subject to a high degree of judgment. If these assumptions change in the future, we may be required to record impairment charges in the future. We performed an impairment test as of November 23, 2008, and concluded that no impairment charge was required. We believe that all of our long-lived assets are fully realizable as of December 28, 2008.

Collectibility of Accounts Receivable

Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. Estimates are used in determining our allowance for doubtful accounts and are based on our historical level of write-offs and judgments management makes about the creditworthiness of significant customers based on ongoing credit evaluations. Further, we monitor current economic trends that might impact the level of credit losses in the future. Since we cannot predict with certainty future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. Additional allowances may be required if the economy or the financial condition of our customers deteriorates. If we determined that a smaller or larger allowance was appropriate, we would record a credit or a charge to selling, general and administrative expense in the period in which we made such a determination. As of December 28, 2008, and December 30, 2007, the allowance for uncollectible accounts receivable was $3.2 million and $3.4 million, respectively.

Stock-Based Compensation

Effective January 2, 2006, we adopted the provisions of SFAS 123(R) using the modified-prospective transition method. SFAS 123(R) requires companies to recognize the fair-value of stock-based compensation transactions in the statement of operations. At December 28, 2008, we had two types of stock-based employee compensation: stock options and restricted stock. We have only awarded restricted stock since January 2006.

Restricted stock. We measure the fair value of restricted shares based upon the closing market price of our common stock on the date of grant. These grants typically vest over a three-year period and any unvested awards expire at the end of the vesting period. Restricted stock awards that vest in accordance with service conditions are amortized over their applicable

vesting period using the straight-line method adjusted for estimated forfeitures. For nonvested share awards partially or wholly subject to performance conditions, we are required to assess the probability that such performance conditions will be met. If the likelihood of the performance condition being met is deemed probable, we will recognize the expense using the straight-line attribution method. If such performance conditions are not met, no performance-based compensation expense will be recognized and any previously recognized compensation expense will be reversed. We have not historically issued any restricted stock awards subject to market conditions.

Stock options. The fair value of our stock option awards or modifications of these awards is estimated at the date of grant or modification using the Black-Scholes option pricing model. The Black-Scholes valuation requires us to estimate key assumptions such as future stock price volatility, expected terms, risk-free rates and dividend yield. Due to the limited trading history of our common stock following the merger, expected stock price volatility for stock option grants or modifications prior to 2007 was based on an analysis of the actual realized historical volatility of our common stock as well as that of our peers. Beginning in 2007, the expected volatility assumption for stock option grants or modifications was based on actual historical volatility of our common stock from the period after our December 2005 common stock offering through the quarter ended prior to the grant or modification date. We use historical data to estimate option exercises and employee forfeitures within the valuation model. The expected life is derived from an analysis of historical exercises and remaining contractual life of stock options and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. We have never paid cash dividends, and do not currently intend to pay cash dividends, and thus have assumed a 0% dividend yield. If our actual experience differs significantly from the assumptions used to compute our stock-based compensation cost, or if different assumptions had been used, we may have recorded too much or too little stock-based compensation cost.

No excess tax benefit has been recognized related to our stock-based compensation since none were realized due to our loss carryforwards. In addition, for both stock options and nonvested share awards, we are required to estimate the expected forfeiture rate of our stock grants and only recognize the expense for those shares expected to vest. If the actual forfeiture rate is materially different from our estimate, our stock-based compensation expense could be materially different, and we would have to take an additional stock-based compensation charge or credit, which could be material. We had approximately $4.6 million of total unrecognized compensation costs related to nonvested option and restricted stock awards at December 28, 2008, that are expected to be recognized over a weighted-average period of 20 months.

Income Tax Assets and Liabilities

We follow the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial statement and income tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Although our net deferred tax asset is substantially offset with a valuation allowance, a portion of our reserved deferred tax assets that become realized through operating profits are recognized as adjustments to the purchase price as a reduction to goodwill to the extent they relate to benefits acquired in the merger. This then results in deferred tax expense in the year the acquired deferred tax assets are utilized. This portion of deferred tax expense represents the consumption of pre-merger deferred tax assets that were acquired with zero basis. In accordance with the provisions of SFAS No. 109, Accounting for Income Taxes, we calculated a goodwill bifurcation ratio in the year of the merger to determine the amount of deferred tax asset realizable expense that should be offset to goodwill prospectively. Beginning in 2009, we will change our accounting for the remaining reserved deferred tax assets that previously would have been treated as reductions to goodwill. This will result in a decline in our reported income tax expense (see “Recent Accounting Pronouncements” below).

We record an income tax valuation allowance when it is more likely than not that certain deferred tax assets will not be realized. These deferred tax items represent expenses or operating losses recognized for financial reporting purposes, which will result in tax deductions over varying future periods. The judgments, assumptions and estimates that may affect the amount of the valuation allowance include estimates of future taxable income, timing or amount of future reversals of existing deferred tax liabilities and other tax planning strategies that may be available to us.

We record an estimated tax liability or tax benefit for income and other taxes based on what we determine will likely be paid in the various tax jurisdictions in which we operate. We use our best judgment in the determination of these amounts. However, the liabilities ultimately realized and paid are dependent upon various matters, including resolution of tax audits, and may differ from amounts recorded. An adjustment to the estimated liability would be recorded as a provision or benefit to income tax expense in the period in which it becomes probable that the amount of the actual liability or benefit differs from the recorded amount.

Our future effective tax rates could be adversely affected by changes in the valuation of our deferred tax assets or liabilities or changes in tax laws or interpretations thereof. If we continue to be profitable, we will continue to evaluate each quarter our estimates of the recoverability of our deferred tax assets based on our assessment of whether any portion of these fully reserved assets become more likely than not recoverable through future taxable income. At such time, if any, that we no longer have a reserve for our deferred tax assets, we will begin to provide for taxes at the full statutory rate. In addition, we are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

In addition, we adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”), on January 1, 2007. In accordance with the threshold and measurement attributes of FIN 48, uncertainties in accounting for income taxes, if any, are recognized in our financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. The adoption of FIN 48 did not have a material effect on our consolidated financial statements.

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), which provides enhanced guidance for using fair value to measure assets and liabilities. SFAS 157 also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on earnings. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, but does not expand the use of fair value in any new circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and we adopted the new requirements in its fiscal first quarter of 2008. The adoption of SFAS 157 did not have a material effect on our consolidated financial statements.

In February 2008, the FASB issued FASB Staff Position (“FSP”) No. 157-2 (“FSP 157-2”). FSP 157-2 delays the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. In February 2008, the FASB also issued FSP No. 157-1 that would exclude leasing transactions accounted for under SFAS No. 13, Accounting for Leases, and its related interpretive accounting pronouncements. In October 2008, the FASB issued FSP No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active (“FSP 157-3”), which applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with SFAS 157. FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and defines additional key criteria in determining the fair value of a financial asset when the market for that financial asset is not active. We do not expect the SFAS 157 related guidance to have a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS 141(R), which provides new accounting requirements for business combinations. SFAS 141(R) defines a business combination as a transaction or other event in which an acquirer obtains control of one of more businesses. SFAS 141(R) is effective for financial statements issued for fiscal years beginning after December 15, 2008, and we will adopt the new requirements in its fiscal first quarter of 2009. We will apply SFAS 141(R) prospectively to business combinations with an acquisition date on or after December 29, 2008. Additionally, the adoption of SFAS 141(R) will have a material impact on our income tax provision. Any future release of our existing tax valuation allowance related to acquired tax benefits in a purchase business combination when reversed, will be reflected as an income tax benefit in our Consolidated Statement of Operations. Under the previous accounting standards, the reversal would have been recorded to goodwill as well as income tax expense. As a result, we expect our reported income tax expense to decline in 2009.

In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used in determining the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008, and early adoption is prohibited. The impact of FSP FAS 142-3 will depend upon the nature, terms, and size of the acquisitions we consummate after the effective date.

unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. Upon adoption, a company is required to retrospectively adjust its earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform with the provisions of FSP EITF 03-6-1. We do not expect the adoption of FSP EITF 03-6-1 to have a material effect on our consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following assessment of our market risks does not include uncertainties that are either nonfinancial or nonquantifiable, such as political, economic, tax and credit risks.

We are exposed to market risks, primarily related to interest rate, foreign currency and equity price fluctuations. Our use of derivative instruments has historically been insignificant and it is expected that our use of derivative instruments will continue to be minimal.

Interest Rate Risks

Outstanding debt under our senior credit agreement at December 28, 2008, was approximately $69.7 million. Interest on borrowings under the agreement is based on the prime rate or LIBOR plus a variable margin. Based on the outstanding balance at December 28, 2008, a change of 1% in the interest rate would cause a change in interest expense of approximately $0.7 million on an annual basis.

In October 2008, we borrowed an additional $20 million on our revolving credit agreement to insure access to liquidity in the current credit environment. We have invested these additional funds in a US Treasury money market fund. We evaluate our invested funds to respond appropriately to a reduction in the credit rating of any investment issuer or guarantor.

Foreign Currency Risks

Our primary exposures to foreign currency fluctuations are associated with transactions and related assets and liabilities related to our operations in Canada and the United Kingdom. Changes in foreign currency exchange rates impact translations of foreign denominated assets and liabilities into U.S. dollars and future earnings and cash flows from transactions denominated in different currencies. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars at the monthly average exchange rates prevailing during the period. The assets and liabilities on our non-U.S. subsidiaries are translated into U.S. dollars at the exchange rate in effect at the end of a reporting period. The resulting translation adjustments are recorded in Stockholders’ Equity, as a component of accumulated other comprehensive income (loss), in our Consolidated Balance Sheets. These operations are not material to our overall business.

Equity Market Risks

The trading price of our common stock has been and is likely to continue to be highly volatile and could be subject to wide fluctuations. Such fluctuations could impact our decision or ability to utilize the equity markets as a potential source of our funding needs in the future.

As a result of the decline in our trading stock price during the fourth quarter of 2008, we recorded a goodwill impairment charge. Further declines in our stock price could result in additional impairment charges.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


	Page
Report of Independent Registered Public Accounting Firm		38
Consolidated Balance Sheets		39
Consolidated Statements of Operations		40
Consolidated Statements of Comprehensive Income (Loss)		41
Consolidated Statements of Stockholders’ Equity		42
Consolidated Statements of Cash Flows		43
Notes to Consolidated Financial Statements		44

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
COMSYS IT Partners, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of COMSYS IT Partners, Inc. and Subsidiaries (the “Company”) as of December 28, 2008, and December 30, 2007, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 28, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of COMSYS IT Partners, Inc. and Subsidiaries at December 28, 2008, and December 30, 2007, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 28, 2008, in conformity with U.S. generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), COMSYS IT Partners, Inc.’s internal control over financial reporting as of December 28, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2009, expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Phoenix, Arizona
March 10, 2009

COMSYS IT Partners, Inc. and Subsidiaries

Consolidated Balance Sheets


	December 28,			December 30,
(In thousands, except share and par value amounts)	2008			2007

Assets
Current assets:
Cash and cash equivalents	$	22,695		$	1,594
Accounts receivable, net of allowance of $3,232 and $3,389, respectively		202,297			189,317
Prepaid expenses and other		3,116			3,153
Restricted cash		2,489			3,365

Total current assets		230,597			197,429

Fixed assets, net		16,596			13,094
Goodwill		89,064			174,160
Other intangible assets, net		11,962			10,002
Deferred financing costs, net		1,175			2,044
Restricted cash		308			4,218
Other assets		1,478			1,522

Total assets	$	351,180		$	402,469


Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	156,528		$	145,622
Payroll and related taxes		25,975			29,574
Current maturities of long-term debt		—			5,000
Interest payable		337			365
Other current liabilities		9,728			7,897

Total current liabilities		192,568			188,458

Long-term debt		69,692			66,903
Other liabilities		5,435			2,476

Total liabilities		267,695			257,837


Commitments and contingencies

Stockholders’ equity:
Preferred stock, no par value; 5,000,000 shares authorized; none issued		—			—
Common stock, par value $.01; 95,000,000 shares authorized and 20,465,028 shares outstanding in 2008; 95,000,000 shares authorized and 20,180,578 shares outstanding in 2007		203			201
Common stock warrants		1,734			1,734
Accumulated other comprehensive income (loss)		(90	)		57
Additional paid-in capital		227,360			223,174
Accumulated deficit		(145,722	)		(80,534	)

Total stockholders’ equity		83,485			144,632

Total liabilities and stockholders’ equity	$	351,180		$	402,469

See notes to consolidated financial statements

COMSYS IT Partners, Inc. and Subsidiaries

Consolidated Statements of Operations


	Year ended
	December 28,			December 30,			December 31,
(In thousands, except per share amounts)	2008			2007			2006

Revenues from services	$	727,108		$	743,265		$	736,645
Cost of services		550,189			558,074			557,598

Gross profit		176,919			185,191			179,047

Operating costs and expenses:
Selling, general and administrative		136,648			135,423			135,651
Restructuring costs		637			—			—
Depreciation and amortization		8,115			6,426			8,717
Goodwill impairment		86,800			—			—

		232,200			141,849			144,368

Operating income (loss)		(55,281	)		43,342			34,679
Interest expense, net		5,457			8,250			15,518
Loss on early extinguishment of debt		—			—			3,191
Other income, net		(204	)		(536	)		(310	)

Income (loss) before income taxes		(60,534	)		35,628			16,280
Income tax expense (benefit)		4,654			2,279			(4,767	)

Net income (loss)	$	(65,188	)	$	33,349		$	21,047


Basic net income (loss) per common share	$	(3.19	)	$	1.67		$	1.10
Diluted net income (loss) per common share	$	(3.19	)	$	1.66		$	1.10

Weighted average basic and diluted shares outstanding:
Basic		19,599			19,255			18,449
Diluted		19,599			20,100			19,137

See notes to consolidated financial statements

COMSYS IT Partners, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity


									Accumulated
			Common			Deferred			Other			Additional						Total
	Common		Stock			Stock			Comprehensive			Paid-in			Accumulated			Stockholders’
	Stock		Warrants			Compensation			Income (Loss)			Capital			Deficit			Equity
(In thousands, except share data)
Balance as of January 1, 2006	$	187	$	2,815		$	(1,749	)	$	(65	)	$	201,993		$	(132,085	)	$	71,096
Cumulative effect of adjustments resulting from the adoption of SAB 108, net of $0 for taxes		—		—			—			—			—			(2,845	)		(2,845	)
Net income		—		—			—			—			—			21,047			21,047
Foreign currency translations		—		—			—			53			—			—			53
Issuance of 214,000 shares of common stock		2		—			—			—			—			—			2
Exercise of 155,069 warrants for 119,052 shares of common stock		—		(1,081	)		—			—			1,685			—			604
Options exercised for 207,618 shares of common stock		2		—			—			—			1,701			—			1,703
Stock issuance costs		—		—			—			—			(159	)		—			(159	)
Stock-based compensation		—		—			—			—			3,269			—			3,269
Reclassification upon adoption of SFAS 123(R)		—		—			1,749			—			(1,749	)		—			—

Balance as of December 31, 2006		191		1,734			—			(12	)		206,740			(113,883	)		94,770

Net income		—		—			—			—			—			33,349			33,349
Foreign currency translations		—		—			—			69			—			—			69
Issuance of 501,413 shares of common stock for acquistions		5		—			—			—			10,560			—			10,565
Issuance of 244,000 shares of restricted common stock		3		—			—			—			(3	)		—			—
Forfeiture of 28,807 vested shares of restricted common stock		—		—			—			—			(428	)		—			(428	)
Options exercised for 185,683 shares of common stock		2		—			—			—			1,777			—			1,779
Stock issuance costs		—		—			—			—			(19	)		—			(19	)
Stock-based compensation		—		—			—			—			4,547			—			4,547

Balance as of December 30, 2007		201		1,734			—			57			223,174			(80,534	)		144,632

Net loss		—		—			—			—			—			(65,188	)		(65,188	)
Foreign currency translations		—		—			—			(147	)		—			—			(147	)
Issuance of 342,878 shares of restricted common stock		2		—			—			—			(2	)		—			—
Forfeiture of 25,132 vested shares of restricted common stock		—		—			—			—			(332	)		—			(332	)
Options exercised for 8,200 shares of common stock		—		—			—			—			83			—			83
Stock-based compensation		—		—			—			—			4,437			—			4,437

Balance as of December 28, 2008	$	203	$	1,734		$	—		$	(90	)	$	227,360		$	(145,722	)	$	83,485

See notes to consolidated financial statements

COMSYS IT Partners, Inc. and Subsidiaries
Consolidated Statements of Cash Flows


	Year ended
	December 28,			December 30,			December 31,
	2008			2007			2006
(In thousands)
Cash flows from operating activities
Net income (loss)	$	(65,188	)	$	33,349		$	21,047
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		8,115			6,426			8,717
Goodwill impairment		86,800			—			—
Restructuring costs		472			—			—
Provision for doubtful accounts		725			1,158			1,860
Stock-based compensation		4,437			4,547			3,269
Amortization of deferred financing costs		869			876			1,049
Other noncash expense, net		4,654			2,279			1,418
Loss (gain) on asset disposal		—			8			(60	)
Loss on early extinguishment of debt		—			—			3,191
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		(11,523	)		4,260			(20,706	)
Prepaid expenses and other		556			395			1,188
Accounts payable		7,084			13,742			22,871
Payroll and related taxes		(442	)		(4,062	)		6,276
Other liabilities and other assets		792			(4,168	)		(3,646	)

Net cash provided by operating activities		37,351			58,810			46,474

Cash flows from investing activities
Capital expenditures		(5,791	)		(3,088	)		(2,780	)
Cash paid for acquisitions, net of cash acquired		(7,884	)		(30,934	)		(1,250	)

Net cash used in investing activities		(13,675	)		(34,022	)		(4,030	)

Cash flows from financing activities
Borrowings (payments) under revolving credit facility, net		2,789			(21,639	)		64,213
Repayments of long-term debt		(5,000	)		(5,000	)		(107,944	)
Exercise of stock options and warrants		83			1,777			2,307
Stock issuance costs		—			(19	)		(334	)
Cash paid for financing costs		—			—			(2,335	)

Net cash used in financing activities		(2,128	)		(24,881	)		(44,093	)

Effect of exchange rates on cash		(447	)		82			155

Net increase (decrease) in cash and cash equivalents		21,101			(11	)		(1,494	)
Cash and cash equivalents, beginning of period		1,594			1,605			3,099

Cash and cash equivalents, end of period	$	22,695		$	1,594		$	1,605


Supplemental disclosure of cash flow information
Interest paid	$	4,531		$	7,503		$	14,300
Income tax payments (refunds)	$	728		$	757		$	(5,658	)

Supplemental disclosure of non-cash investing activities
Stock issued for acquisitions	$	—		$	10,560		$	—

See notes to consolidated financial statements

COMSYS IT Partners, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

1. Description of Business

COMSYS IT Partners, Inc. and its wholly-owned subsidiaries (“COMSYS” or the “Company”) provide a full range of specialized IT staffing and project implementation services, including website development and integration, application programming and development, client/server development, systems software architecture and design, systems engineering and systems integration. The Company also provides services that complement its IT staffing services, such as vendor management, project solutions, process solutions and permanent placement of IT professionals. The Company’s TAPFIN Process Solutions division offers total human capital fulfillment and management solutions within three core service areas: vendor management services, services procurement management and recruitment process outsourcing.

The Company’s fiscal year ends on the Sunday closest to December 31st and its first three fiscal quarters are 13 calendar weeks each (and each also ends on a Sunday). References to 2008, 2007 and 2006 refer to the fiscal years ending December 28, 2008, December 30, 2007 and December 31, 2006, respectively.

The Company follows Statement of Financial Accounting Standards (“SFAS”) No. 131, Disclosures About Segments of an Enterprise and Related Information. As the Company’s consolidated financial information is reviewed by the chief decision makers, and the business is managed under one operating strategy, the Company operates under one reportable segment. The Company’s principal operations are located in the United States, and the results of operations and long-lived assets in geographic regions outside of the United States are not material. During the years 2008, 2007 and 2006, no individual customer accounted for more than 10% of the Company’s consolidated revenues.

2. Significant Accounting Policies

Principles of Consolidation

The accompanying financial statements present on a consolidated basis the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with a remaining maturity of three months or less at the time of purchase to be cash equivalents. In a separate cash account, the Company maintains an additional $20 million it borrowed on its revolver in October 2008 to insure access to liquidity in the current credit environment. The Company has invested these additional funds in a US Treasury money market fund. The Company considers this money market fund to be a cash equivalent.

Fixed Assets

Fixed assets are recorded at cost less accumulated depreciation. Depreciation is provided on all furniture, equipment and related software using the straight-line method over the estimated useful lives of the related assets, which range from three to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the related assets. Maintenance and repairs are expensed as incurred.

The Company capitalizes certain internal software development costs in accordance with Statement of Position 98-1, Accounting for Costs of Computer Software Developed or Obtained for Internal Use (“SOP 98-1”). Such costs consist primarily of custom-developed and packaged software and the direct labor costs of internally-developed software. Capitalized costs are amortized using the straight-line method over the estimated lives of the software, which range from three to five years. SOP 98-1 describes three stages of software development projects: the preliminary project stage (all costs expensed as incurred), the application development stage (certain costs capitalized, certain costs expensed as incurred), and the post-implementation/operation stage (all costs expensed as incurred). The costs capitalized in the application development stage include the costs of design, coding, installation of hardware and testing. The Company capitalizes costs incurred during the development phase of the project as permitted.

Leases

The Company currently leases all of its administrative facilities under operating lease agreements. Most lease agreements contain tenant improvements allowances, rent holidays and/or rent escalation clauses. In instances where one or more of these items are included in a lease agreement, the Company records or adjusts deferred rent liability on the Consolidated

Balance Sheets to reflect rent expense on a straight-line basis over the term of the lease. Rental deposits are provided for lease agreements that specify payments in advance or scheduled rent decreases over the lease term. Lease terms generally range from five to ten years with one to two renewal options for extended terms. Management expects that as these leases expire, they will be renewed or replaced by other leases in the normal course of business. For leases with renewal options, the Company records rent expense and amortizes the leasehold improvements on a straight-line basis over the initial non-cancelable lease term (in instances where the lease term is shorter than the economic life of the asset) as the Company does not believe that the renewal of the option is reasonably assured. The Company is also required to make additional payments under operating lease terms for taxes, insurance and other operating expenses incurred during the operating lease period.

Allowance for Doubtful Accounts

Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. Estimates are used in determining the allowance for doubtful accounts and are based on the Company’s historical level of write-offs and judgments management makes about the creditworthiness of significant customers based on ongoing credit evaluations. Further, the Company monitors current economic trends that might impact the level of credit losses in the future. As of December 28, 2008, and December 30, 2007, the allowance for uncollectible accounts receivable was $3.2 million and $3.4 million, respectively.

Goodwill and Other Intangible Assets

Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired companies. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill is not amortized but instead is tested for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired.

The Company’s other intangible assets represent customer list intangibles. Other intangible assets are amortized over the respective contract terms or estimated life of the customer list, ranging from five to eight years. In the event that facts and circumstances indicate intangibles or other long-lived assets may be impaired, the Company evaluates the recoverability and estimated useful lives of such assets.

Long-Lived Assets

In the event that facts and circumstances indicate intangibles or other long-lived assets may be impaired, the Company evaluates the recoverability and estimated useful lives of such assets. The estimated future undiscounted cash flows associated with the assets are compared to the assets’ carrying amount to determine if a write-down to market is necessary. The Company believes all long-lived assets are fully realizable as of December 28, 2008.

Fair Value of Financial Instruments

The Company uses fair value measurements in areas that include, but are not limited to: the allocation of purchase price consideration to acquired tangible and identifiable intangible assets, impairment testing of goodwill and long-lived assets and stock-based compensation arrangements. The carrying values of cash, accounts receivable, restricted cash, accounts payable, and payroll and related taxes approximate their fair values due to the short-term maturity of these instruments. The carrying value of the Company’s revolving line of credit, senior term loan and interest payable approximates fair value due to the variable nature of the interest rates under the Company’s senior credit agreement. However, considerable judgment is required in interpreting data to develop the estimates of fair value.

On December 31, 2007, the Company adopted the provisions of SFAS No. 157, Fair Value Measurements (“SFAS 157”), which established a framework for measuring fair value and expands disclosures about fair value measurements. The adoption of SFAS 157 did not have any impact on the Company’s consolidated financial statements.

Revenue Recognition

The Company recognizes revenue pursuant to Staff Accounting Bulletin Nos. 101 and 104, Revenue Recognition in Financial Statements. Accordingly, it recognizes revenue and records sales, net of related discounts, when all of the following criteria are met:

	•		Persuasive evidence of an arrangement exists;

	•		Ownership has transferred to the customer;

	•		The price to the customer is fixed or determinable; and

	•		Collectibility is reasonably assured.

The Company’s core staffing revenues vary from period to period based on several factors that include: 1) the billable headcount during the period; 2) the number of billing days during the period; and 3) the average bill rate during the period.

Revenues from services are shown net of rebates and discounts primarily to volume-related discounts and prompt-payment discounts under contracts with the Company’s clients. Such rebates and discounts totaled $13.1 million (1.8% of gross revenues), $12.0 million (1.5% of gross revenues) and $12.1 million (1.6% of gross revenues) for 2008, 2007 and 2006, respectively.

Revenues from vendor management services are recorded net of the related pass-through labor costs. “Vendor management services” are services that allow the Company’s clients to automate and consolidate management of their temporary personnel contracting processes. Revenues are also reported net for payrolling activity. “Payrolling” is defined as a situation in which the Company accepts a client-identified consultant for payroll processing in exchange for a fee. Permanent placement fee revenues are usually determined based on a percentage of the employee’s first year cash compensation and are recorded when candidates begin their employment.

Reimbursable expenses are expenses the Company pays to its consultants that are reimbursed by the Company’s clients. The Company records reimbursable expenses in revenue with the associated cost recorded in cost of services.

Accrued Bonuses

The Company generally pays bonuses to certain executive management, field management and corporate employees based on, or after giving consideration to, a variety of financial performance measures or individual objectives. Executive management, field management, and certain corporate employees’ bonuses are accrued throughout the year for payment during the first quarter of the following year, based in part upon anticipated annual results compared to annual budgets or individual objective criteria. Variances in actual results versus budgeted amounts can have a significant impact on the calculations and, therefore, the estimates of the required accruals. Accordingly, the actual earned bonuses may be materially different from the estimates used to determine the quarterly accruals.

Commissions

The Company’s associates make placements and earn commissions as a percentage of gross profit pursuant to the associate’s individual commission plan. The amount of commissions paid as a percentage of gross profit increases as volume increases. The Company accrues commissions for actual gross profit at a percentage equal to the percent of total expected commissions payable to total gross profit for the year.

Stock-Based Compensation

The Company recognizes stock-based compensation expense as a component of selling, general and administrative expense in accordance with the provisions of SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”). At December 28, 2008, the Company had two types of stock-based employee compensation: stock options and restricted stock. The Company measures the fair value of restricted shares based upon the closing market price of the Company’s common stock on the date of grant. These grants typically vest over a three-year period and any unvested awards expire at the end of the vesting period. Restricted stock awards that vest in accordance with service conditions are amortized over their applicable vesting period using the straight-line method adjusted for estimated forfeitures. For nonvested share awards subject to service and performance conditions, the Company is required to assess the probability that such performance conditions will be met. If the likelihood of the performance condition being met is deemed probable, the Company will recognize the expense using the straight-line attribution method. If such performance conditions are not met, no performance-based compensation expense will be recognized and any previously recognized compensation expense will be reversed. No excess tax benefit has been recognized related to the Company’s stock-based compensation since none were realized due to the Company’s loss carryforwards. The Company’s stock compensation plans are discussed more fully in Note 10.

Self-Insurance

The Company offers employee benefits, including workers compensation and health insurance, to eligible employees, for which it is self-insured for a portion of the cost. The Company retains liability up to $100,000 for each workers compensation claim and up to $250,000 annually for each health insurance participant for which it is not insured. Beginning

in 2009, the Company will retain liability up to $275,000 annually for each health insurance participant for which it is not insured. These self-insurance costs are accrued using estimates based on historical data to approximate the liability for reported claims and claims incurred but not reported. The Company believes that its estimation processes are adequate and its estimates in these areas have consistently been similar to actual results. However, estimates in this area are highly subjective and future results could be materially different.

Income Taxes

The Company follows the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial statement and income tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

The Company records an income tax valuation allowance when it is more likely than not that certain deferred tax assets will not be realized. The Company carried a valuation allowance against most of its deferred tax assets as of December 28, 2008. These deferred tax items represent expenses or operating losses recognized for financial reporting purposes, which will result in tax deductions over varying future periods. The judgments, assumptions and estimates that may affect the amount of the valuation allowance include estimates of future taxable income, timing or amount of future reversals of existing deferred tax liabilities and other tax planning strategies that may be available to the Company. If the Company continues to be profitable, the Company will continue to evaluate each quarter its estimates of the recoverability of its deferred tax assets based on its assessment of whether any portion of these fully reserved assets become more likely than not recoverable through future taxable income. At such time, if any, that the Company no longer has a reserve for its deferred tax assets, it will begin to provide for taxes at the full statutory rate.

Presentation of Governmental Taxes Other Than Income Taxes

The Company’s business activities are subject to various tax regulations in several taxing jurisdictions. Governmental taxes assessed on the Company’s activities, other than income taxes, are presented in the Consolidated Statements of Operations on a net basis. Upon conclusion of a taxable transaction, the amount of tax collected is accrued in a liability account in the Consolidated Balance Sheets and is subsequently remitted to the taxing jurisdiction.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method.

Dilutive securities at December 28, 2008, include 248,654 warrants to purchase the Company’s common stock (Note 9). The warrant holders are entitled to participate in dividends declared on common stock as if the warrants were exercised for common stock. As a result, for purposes of calculating basic net income (loss) per common share, income (loss) attributable to warrant holders has been excluded from net income (loss).

Additionally, dilutive securities include 606,843 unvested restricted stock shares at December 28, 2008. The unvested restricted stock holders are entitled to participate in dividends declared on common stock as if the shares were fully vested. As a result, for purposes of calculating basic net income (loss) per common share, income (loss) attributable to unvested restricted stock holders has been excluded from net income (loss).

The computation of basic and diluted net income (loss) per share is as follows, in thousands, except per share amounts:


	Year ended
	December 28,			December 30,		December 31,
	2008			2007		2006

Net income (loss) attributable to common stockholders — basic	$	(62,468	)	$	32,161	$	20,354
Net income (loss) attributable to unvested restricted stock holders		(1,938	)		782		420
Net income (loss) attributable to warrant holders		(782	)		406		273

Total net income (loss)	$	(65,188	)	$	33,349	$	21,047


Weighted average common shares outstanding — basic		19,599			19,255		18,449
Add: dilutive restricted stock, stock options and warrants		—			845		688

Diluted weighted average common shares outstanding		19,599			20,100		19,137

Basic net income (loss) per common share	$	(3.19	)	$	1.67	$	1.10
Diluted net income (loss) per common share	$	(3.19	)	$	1.66	$	1.10

For 2008, 2007 and 2006 there were 683,369, 1,289 and 65,273 shares, respectively, attributable to outstanding stock options, warrants and restricted stock excluded from the calculation of diluted net income (loss) per share because their inclusion would have been antidilutive.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The more significant areas requiring the use of management estimates include estimates for uncollectible accounts, useful asset lives for depreciation and amortization, deferred taxes and valuation allowances and stock-based compensation. Actual results could differ from those estimates.

Reclassifications

Certain reclassifications of prior year amounts have been made to the prior year balance sheet to conform to the current year presentation.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS 157, which provides enhanced guidance for using fair value to measure assets and liabilities. SFAS 157 also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on earnings. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, but does not expand the use of fair value in any new circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and the Company adopted the new requirements in its fiscal first quarter of 2008. The adoption of SFAS 157 did not have a material effect on the Company’s consolidated financial statements.

In February 2008, the FASB issued FASB Staff Position (“FSP”) No. 157-2 (“FSP 157-2”). FSP 157-2 delays the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. In February 2008, the FASB also issued FSP No. 157-1 that would exclude leasing transactions accounted for under SFAS No. 13, Accounting for Leases, and its related interpretive accounting pronouncements. In October 2008, the FASB issued FSP No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active (“FSP 157-3”), which applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with SFAS 157. FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and defines additional key criteria in determining the fair value of a financial asset when the market for that financial asset is not active. The Company does not expect the SFAS 157 related guidance to have a material impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141(R)”), which provides new accounting requirements for business combinations. SFAS 141(R) defines a business combination as a transaction or other event in which an acquirer obtains control of one of more businesses. SFAS 141(R) is effective for financial statements issued for fiscal years beginning after December 15, 2008, and the Company will adopt the new requirements in its fiscal first quarter of 2009. The Company will apply SFAS 141(R) prospectively to business

combinations with an acquisition date on or after December 29, 2008. Additionally, the adoption of SFAS 141(R) will have a material impact on its income tax provision. Any future release of the Company’s existing tax valuation allowance related to acquired tax benefits in a purchase business combination when reversed, will be reflected as an income tax benefit in its Consolidated Statement of Operations. Under the previous accounting standards, the reversal would have been recorded to goodwill as well as income tax expense. As a result, the Company expects its reported income tax expense to decline in 2009.

In June 2008, the FASB issued FSP Emerging Issues Task Force 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”). FSP EITF 03-6-1 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. Upon adoption, a company is required to retrospectively adjust its earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform with the provisions of FSP EITF 03-6-1. The Company does not expect the adoption of FSP EITF 03-6-1 to have a material effect on its consolidated financial statements.

3. Mergers and Acquisitions

On September 30, 2004, COMSYS Holding, Inc. (“COMSYS Holding” or “Old COMSYS”) completed a merger transaction with Venturi Partners, Inc. (“Venturi”), a publicly-held IT and commercial staffing company, in which COMSYS Holding merged with a subsidiary of Venturi (the “merger”). At the effective time of the merger, Venturi changed its name to COMSYS IT Partners, Inc. and issued new shares of its common stock to stockholders of COMSYS Holding, resulting in former COMSYS Holding stockholders owning approximately 55.4% of Venturi’s outstanding common stock on a fully-diluted basis. Since former COMSYS Holding stockholders owned a majority of the Company’s outstanding common stock upon consummation of the merger, COMSYS Holding was deemed the acquiring company for accounting and financial reporting purposes. References to “Old COMSYS” are to COMSYS Holding and its consolidated subsidiaries prior to the merger, and references to “COMSYS” or “the Company” are to COMSYS IT Partners, Inc. and its consolidated subsidiaries after the merger. References to “Venturi” are to Venturi and its consolidated subsidiaries prior to the merger.

On October 31, 2005, the Company purchased all of the outstanding stock of Pure Solutions, Inc. (“Pure Solutions”), an information technology services company with operations in California. This acquisition was not material to the Company’s business. The purchase price was comprised of a $7.5 million cash payment at closing plus up to $8.25 million of earnout payments over three years. In connection with the purchase, the Company recorded a customer list intangible asset in the amount of $6.6 million, which was valued using a discounted cash flow analysis. The fair value of Pure Solutions’ net identifiable assets exceeded the initial purchase price by $1.1 million, and this amount was recorded as a liability at the date of purchase. In June 2006, the Company made an earnout payment of $1.25 million, of which $1.1 million was charged to the liability with the remainder to goodwill. Additional earnout payments of $2.5 million were paid in 2007, and an earnout payment of $1.25 million was accrued in October 2007 and paid in January 2008. Additional earnout payments of $3.25 million were accrued during 2008. In July 2008, the Company paid an earnout payment of $1.25 million. The remaining amounts accrued were paid in January 2009 in accordance with the terms of the purchase agreement. These earnouts were recorded to goodwill. The operations of Pure Solutions are included in the Consolidated Statements of Operations for periods subsequent to the purchase.

From 2003 to March 2007, the Company owned a 19.9% equity interest in Econometrix, Inc. (“Econometrix”), a California-based vendor management systems software provider. On March 16, 2007, the Company purchased the remaining 80.1% of the outstanding common stock of Econometrix that it did not own. This acquisition was not material to the Company’s business. Econometrix shareholders received 247,807 shares of the Company’s common stock in the acquisition. The operations of Econometrix are included in the Consolidated Statements of Operations subsequent to the purchase.

On May 31, 2007, the Company purchased all of the issued and outstanding membership interests in Plum Rhino Consulting, LLC (“Plum Rhino”), a specialty staffing services provider to the financial services industry with offices in Georgia, Illinois, Missouri and North Carolina. This acquisition was not material to the Company’s business. The purchase price included the

issuance of 253,606 shares of the Company’s common stock to the Plum Rhino members, debt payments of approximately $0.2 million and up to $3.7 million of earnout payments based on Plum Rhino’s achievement of specified annual EBITDA targets over a three-year period. The former owners of Plum Rhino and the Company have agreed that the earnout target was not met for the first period. In November 2008, the remaining earnout payments were determined by the Company’s Board of Directors to be unattainable. In order to retain the services of Plum Rhino’s former owners and to provide an incentive for their continued contribution to the Company’s long-term success, the Company’s Board of Directors granted 75,000 restricted shares to these former owners which will vest based on Plum Rhino’s achievement of specified annual EBITDA targets over a three-year period in exchange for the former Plum Rhino owners relinquishing their rights to the additional earnout payments under the purchase agreement (Note 10). In connection with the purchase, the Company recorded a customer list intangible asset in the amount of $3.2 million, which was valued using a discounted cash flow analysis, $2.2 million of goodwill and $0.6 million of tangible net assets. The operations of Plum Rhino are included in the Consolidated Statements of Operations subsequent to the purchase.

On December 12, 2007, the Company purchased all of the outstanding stock in Praeos Technologies, Inc. (“Praeos”), an Atlanta-based provider of IT consulting services specializing in the business intelligence and business analytics sectors. This acquisition was not material to the Company’s business. The purchase price was comprised of a $12.0 million cash payment at closing plus up to a $5.5 million earnout payment based on Praeos’ achievement of a specified annual EBITDA target in 2008. The former owners of Praeos and the Company have agreed that the earnout target was not met for the period. In connection with the purchase, the Company recorded $6.2 million of goodwill and $2.4 million of tangible net assets. In addition, the Company escrowed $3.4 million of restricted cash for a payment required to be made to employees or former shareholders in December 2008. In December 2008, the Company paid $3.4 million out of the escrow account to former employees that participated in the Praeos bonus plan that were still employed by the Company at the one-year anniversary of the closing date. The Company has determined that the bonus plan acquired at acquisition was a compensatory arrangement and, accordingly, recognized compensation expense ratably in 2008 in the amount of $3.4 million. In addition, the Company is party to a $1.4 million escrow set up to indemnify the Company for the breach of any representation, covenant or obligation by the seller. This amount will be paid out within 18 months of the closing date of the acquisition to the former owners of Praeos. The operations of Praeos are included in the Consolidated Statements of Operations subsequent to the purchase.

On December 19, 2007, the Company purchased the assets and assumed specified liabilities of T. Williams Consulting, LLC (“TWC”), a Philadelphia-based provider of recruitment process outsourcing and specialty human resources consulting services. This acquisition was not material to the Company’s business. The purchase price was comprised of a $16.5 million cash payment at closing plus up to a $7.5 million earnout payment based on TWC’s achievement of a specified annual EBITDA target in 2008. The former owners of TWC and the Company have agreed that the earnout target was not met for the period. In connection with the purchase, the Company recorded a customer list intangible asset in the amount of $2.8 million, which was valued using a discounted cash flow analysis, an assembled methodology intangible asset in the amount of $0.2 million, which was valued using an estimated development cost analysis, $11.8 million of goodwill and $1.7 million of tangible net assets. The operations of TWC are included in the Consolidated Statements of Operations subsequent to the purchase.

On June 26, 2008, the Company purchased all of the issued and outstanding stock in ASET International Services Corporation (“ASET”), a Virginia-based provider of globalization, localization and interactive language services. This acquisition was not material to the Company’s business. The purchase price was comprised of a $5.0 million cash payment at closing, $1.0 million in notes payable to the former owners and up to a $1.0 million earnout payment based on ASET’s achievement of a specified EBITDA target over the 12 months following the acquisition. As of December 28, 2008, the Company has accrued $1.0 million related to the potential earnout payment, and this amount has been charged to goodwill. The notes accrue interest at the rate of 6% annually. Interest accrued as of June 30, 2009, will be paid on that date, with the remaining interest payable with the note balances on June 30, 2010. The notes are included in other liabilities on the Consolidated Balance Sheets. In connection with the purchase, the Company recorded a customer list intangible asset in the amount of $2.1 million, which was valued using a discounted cash flow analysis, $1.9 million of goodwill and $2.0 million of tangible net assets. The operations of ASET are included in the Consolidated Statements of Operations subsequent to the purchase.

None of these acquisitions, individually or in aggregate, required financial statement filings under Rule 3-05 of Regulation S-X.

4. Selected Balance Sheet Components

Accounts Receivable

Receivables consist of the following, in thousands:


	December 28,			December 30,
	2008			2007

Trade receivables	$	204,532		$	192,011
Other receivables		997			695

		205,529			192,706
Less allowance for doubtful accounts		(3,232	)		(3,389	)

Accounts receivable, net	$	202,297		$	189,317

Bad debt expense was $0.7 million, $1.2 million and $1.9 million in 2008, 2007 and 2006, respectively. Additionally, the allowance for doubtful accounts increased by $0.2 million due to acquired companies. Write-offs, net of recoveries, were $1.1 million, $1.0 million and $2.8 million in 2008, 2007 and 2006, respectively.

Fixed Assets

Fixed assets consist of the following, in thousands:


	December 28,			December 30,
	2008			2007

Computer hardware and software	$	58,371		$	53,864
Furniture and equipment		10,159			7,646
Leasehold improvements		4,437			1,786

		72,967			63,296
Less accumulated depreciation and amortization		(56,371	)		(50,202	)

Fixed assets, net	$	16,596		$	13,094

Depreciation and amortization expense related to fixed assets amounted to $4.6 million, $4.1 million and $6.6 million in 2008, 2007 and 2006, respectively. During 2006, the Company disposed of $9.0 million of computer hardware and related software that was nearly fully depreciated.

Goodwill

The Company performed its annual impairment test as of November 23, 2008. At November 23, 2008, the Company performed the first step of the two-step impairment test and compared the fair value of the reporting unit (management has previously determined the Company operates as one reporting unit) to its carrying value. In assessing the fair value of the reporting unit, the Company considered both the market approach and the income approach. Under the market approach, the fair value of the reporting unit is based on the quoted market price of companies comparable to the reporting unit. Under the income approach, the fair value of the reporting unit is based on the present value of estimated cash flows. The income approach is dependent on a number of significant management assumptions, including estimated future revenue growth rates, gross margins on sales, operating margins, capital expenditures and discount rates. Each approach was weighted in order to arrive at the fair value of the reporting unit. The Company determined the fair value of the reporting unit was less than the carrying value. As a result, the Company performed step two of the impairment test for the reporting unit.

In step two of the impairment test, the Company is required to determine the implied fair value of the goodwill and compare it to the carrying value of the goodwill. The Company allocated the fair value of the reporting unit to the respective assets and liabilities of the reporting unit as if the reporting unit had been acquired in a separate business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of the reporting units over the amounts assigned to their respective assets and liabilities is the implied fair value of goodwill. The implied goodwill was less than the carrying value of goodwill, resulting in a non-cash, pre-tax impairment charge of $86.8 million in the fourth quarter of 2008. The Company then reconciled the fair value of the reporting unit to its market capitalization at November 23, 2008.

The change in the carrying value of goodwill during fiscal years 2008, 2007 and 2006 is set forth below, in thousands:


Balance as of January 1, 2006	$	156,224
Adjustments to previously reported purchase price		(1,240	)

Balance as of December 31, 2006		154,984
Adjustments to previously reported purchase price		(3,497	)
Adjustments related to acquisitions, net		22,673

Balance as of December 30, 2007		174,160
Adjustments to previously reported purchase price		(3,488	)
Adjustments related to acquisitions, net		5,192
Goodwill impairment		(86,800	)

Balance as of December 28, 2008	$	89,064

The decrease in goodwill in 2006 was due to adjustments related to purchase accounting liabilities, partially offset by the earnout payments related to the purchase of Pure Solutions. The increase in 2007 was due primarily to the Company’s purchases of Plum Rhino, Praeos and TWC and the earnout payments related to the purchase of Pure Solutions partially offset by the determination of certain tax and unclaimed property claim amounts related to the merger. The decrease in 2008 was primarily due to the non-cash impairment charge partially offset by the purchase of ASET and earnout payments related to the purchases of Pure Solutions and ASET.

Other Intangible Assets

The Company’s intangible assets other than goodwill consisted of the following, in thousands:


	December 28,			December 30,			Estimated
	2008			2007			Useful Life
							(in years)
Gross carrying amount:
Customer list—Venturi	$	6,407		$	6,407			5
Customer list—Pure Solutions		6,571			6,571			8
Customer list—Plum Rhino		3,207			3,207			8
Customer list—TWC		2,774			—			5
Assembled methodology—TWC		200			—			8
Customer list—ASET		2,082			—			5
Customer list—Symmetry		217			—			5

		21,458			16,185

Accumulated Amortization:
Customer list—Venturi		(5,446	)		(4,165	)
Customer list—Pure Solutions		(2,607	)		(1,784	)
Customer list—Plum Rhino		(635	)		(234	)
Customer list—TWC		(555	)		—
Assembled methodology—TWC		(25	)		—
Customer list—ASET		(208	)		—
Customer list—Symmetry		(20	)		—

		(9,496	)		(6,183	)

Total other intangible assets, net	$	11,962		$	10,002

Aggregate amortization expense for intangibles other than goodwill amounted to $3.3 million, $2.3 million and $2.1 million in 2008, 2007 and 2006, respectively.

Estimated amortization expense after 2008 is as follows, in thousands:


2009	$	3,224
2010		2,264
2011		2,262
2012		2,264
2013		1,324
Thereafter		624

	$	11,962

Restructuring Costs

In November 2008, the Company announced a restructuring plan designed to improve operational efficiencies by relocating certain administrative functions primarily from the Washington DC area and Portland, Oregon into its new Phoenix customer service center facility. The Company expects to record restructuring charges through the second quarter of 2009. All of these charges are expected to result in future cash expenditures. These charges primarily will relate to employee termination benefits and lease termination costs for the Gaithersburg, Maryland facility.

The change in the liability for restructuring costs related to the restructuring in 2008 and to the merger (Note 3) during 2007 and 2006 is set forth below, in thousands:


	Employee
	severance			Lease costs			Total

Balance as of January 1, 2006	$	512		$	2,463		$	2,975
Adjustments		—			(626	)		(626	)
Charges		—			—			—
Cash payments		(512	)		(760	)		(1,272	)

Balance as of December 31, 2006		—			1,077			1,077
Adjustments		—			—			—
Charges		—			—			—
Cash payments		—			(722	)		(722	)

Balance as of December 30, 2007		—			355			355
Adjustments		—			—			—
Charges		453			64			517
Cash payments		(41	)		(177	)		(218	)

Balance as of December 28, 2008	$	412		$	242		$	654

The Company expects to pay the $0.7 million balance shown above during 2009. Additionally, the Company expects to incur additional lease charges in 2009 related to its Washington DC location, and these charges will be paid from 2009 through 2014.

5. Long-Term Debt

Long-term debt consists of the following, in thousands:


	December 28,		December 30,
	2008		2007

Debt outstanding under credit facilities:
Revolver	$	69,692	$	66,903
Senior term loan		—		5,000

		69,692		71,903
Less current maturities		—		5,000

Total long-term debt	$	69,692	$	66,903

Credit Facilities

On December 14, 2005, the Company entered into a new senior credit agreement with Merrill Lynch Capital and a syndicate of lenders which replaced all of the Company’s then existing credit agreements. This senior credit agreement provided for a two-year term loan of $10.0 million, which was funded on December 14, 2005, and which was originally scheduled to be repaid in eight equal quarterly principal installments commencing on March 31, 2006, and a revolving line of credit (“revolver”) of up to $120.0 million, maturing on March 31, 2010. At the same time, the Company borrowed $100.0 million under a second lien term loan credit agreement with Merrill Lynch Capital and a syndicate of lenders, which was originally scheduled to mature on October 31, 2010. The proceeds from these borrowings were used to repay all outstanding borrowings under the prior credit agreements with Merrill Lynch Capital.

The Company made the first scheduled principal payment on the senior term loan in the first quarter of 2006. In May 2006, the Company received a federal income tax refund, including interest, totaling $6.4 million, which was used to pay down the principal balance of the senior term loan. Under the terms of the senior credit agreement, this principal payment reduced the

scheduled quarterly payments to $0.3 million, and the first installment of this reduced amount was paid in the second quarter of 2006.

On September 15, 2006, the senior credit agreement and second lien term loan were amended. Among other things, the amendments provided for an increase in the Company’s borrowing capacity under its revolving line of credit to $145.0 million from $120.0 million and an increase in the senior term loan to $10.0 million from $2.1 million, which was the outstanding principal balance prior to the amendments. The Company used borrowings under the amended senior credit agreement to prepay $70.0 million of the outstanding principal amount of the $100.0 million second lien term loan. The Company incurred charges of approximately $2.6 million in the third quarter of 2006 related to the early repayment on the second lien term loan, the write-off of certain deferred financing costs and certain expenses incurred in connection with this refinancing, of which $2.5 million was recorded as a loss on early extinguishment of debt and $0.1 million was included in interest expense. In addition, the Company capitalized certain costs of this refinancing of approximately $0.5 million in the third quarter of 2006.

On December 15, 2006, the senior credit agreement was further amended. Among other things, the amendments provided for an increase in the Company’s borrowing capacity under its revolving line of credit to $160.0 million from $145.0 million and the early payoff of the remaining $30.0 million balance of the second lien term loan. Additionally, the maturity date of the agreement was amended to be March 31, 2010. The Company incurred charges of approximately $0.9 million in the fourth quarter of 2006 related to the early repayment of the second lien term loan, the write-off of certain deferred financing costs and certain expenses incurred in connection with this refinancing, of which $0.7 million was recorded as a loss on early extinguishment of debt and $0.2 million was included in interest expense. In addition, the Company capitalized certain costs of this refinancing of approximately $0.1 million in the fourth quarter of 2006.

In connection with its purchase of the remaining outstanding common stock of Econometrix in March 2007, the Company further amended the senior credit agreement to add Econometrix as an additional credit party under the agreement. In connection with its purchase of the issued and outstanding membership interests of Plum Rhino in May 2007, the Company further amended the senior credit agreement to add Plum Rhino as an additional credit party under the agreement and to increase the aggregate amount permitted for acquisitions from $10.0 million to $50.0 million. In connection with its purchases of Praeos and TWC in December 2007, the Company further amended the senior credit agreement to add Praeos and TWC as additional credit parties under the agreement.

The Company’s senior credit agreement bears interest at the prime rate plus a margin that can range from 0.75% to 1.00%, or, at the Company’s option, LIBOR plus a margin that can range from 1.75% to 2.00%, each depending on the Company’s total debt to adjusted EBITDA ratio, as defined in the senior credit agreement, as amended. The Company pays a quarterly commitment fee of 0.5% per annum on the unused portion of the revolver. The Company and certain of its subsidiaries guarantee the loans and other obligations under the senior credit agreement. The obligations under the senior credit agreement are secured by a perfected first priority security interest in substantially all of the assets of the Company and its U.S. subsidiaries, as well as the shares of capital stock of its direct and indirect U.S. subsidiaries and certain of the capital stock of its foreign subsidiaries. Pursuant to the terms of the senior credit agreement, the Company maintains a zero balance in its primary domestic cash accounts. Any excess cash in those domestic accounts is swept on a daily basis and applied to repay borrowings under the revolver, and any cash needs are satisfied through borrowings under the revolver. In a separate cash account, the Company maintains an additional $20 million it borrowed on its revolver in October 2008 to insure access to liquidity in the current credit environment. The Company has invested these additional funds in a US Treasury money market fund.

Borrowings under the revolver are limited to 85% of eligible accounts receivable, as defined in the senior credit agreement, as amended, reduced by the amount of outstanding letters of credit and designated reserves. At December 28, 2008, these designated reserves were: a $5.0 million minimum availability reserve, a $1.5 million reserve for outstanding letters of credit, a $2.0 million reserve for the Pure Solutions acquisition and a $1.0 million reserve for the ASET acquisition. At December 28, 2008, the Company had outstanding borrowings of $69.7 million under the revolver at interest rates ranging from 3.58% to 4.75% per annum (weighted average rate of 4.25%) and excess borrowing availability under the revolver of $73.0 million for general corporate purposes. At December 28, 2008, the Company’s debt to adjusted EBITDA ratio resulted in a prime rate margin of 0.75% and a LIBOR margin of 1.75%. Fees paid on outstanding letters of credit are equal to the LIBOR margin then applicable to the revolver, which at December 28, 2008, was 1.75%. At December 28, 2008, outstanding letters of credit totaled $1.5 million. The senior term loan was repaid in full on December 26, 2008.

The Company’s credit facilities contain a number of covenants that, among other things, restrict its ability to:

	•		incur additional indebtedness;

	•		repurchase shares;

	•		declare or pay dividends and other distributions;

	•		incur liens;

	•		make capital expenditures;

	•		make certain investments or acquisitions;

	•		repay debt; and

	•		dispose of property.

In addition, under the credit facilities, there are springing financial covenants that would require the Company to satisfy a minimum fixed charge coverage ratio and a maximum total leverage ratio if our excess availability falls below $25 million. A breach of any covenants governing the Company’s debt would permit the acceleration of the related debt and potentially other indebtedness under cross-default provisions. As of December 28, 2008, we were in compliance with all covenant requirements and we believe we will be able to comply with these covenants throughout 2009.

The senior credit agreement contains various events of default, including failure to pay principal and interest when due, breach of covenants, materially incorrect representations, default under other agreements, bankruptcy or insolvency, the occurrence of specified ERISA events, entry of enforceable judgments against the Company in excess of $2.0 million not stayed and the occurrence of a change of control. In the event of a default, all commitments under the revolver may be terminated and all of the Company’s obligations under the senior credit agreement could be accelerated by the lenders, causing all loans and borrowings outstanding (including accrued interest and fees payable thereunder) to be declared immediately due and payable. In the case of bankruptcy or insolvency, acceleration of obligations under the Company’s senior credit agreement is automatic.

Maturities of long-term debt for the five years succeeding December 28, 2008, and thereafter are as follows, in thousands:


2009	$	—
2010		69,692
2011		—
2012		—
2013		—
Thereafter		—

Total long-term debt	$	69,692

6. Income Taxes

The related components of the provision (benefit) for income taxes are as follows, in thousands:


	Year Ended
	December 28,			December 30,			December 31,
	2008			2007			2006

Current:
Federal	$	280		$	300		$	(5,799	)
State		1,035			254			12
Foreign		13			113			103

Total current		1,328			667			(5,684	)


Deferred:
Federal		3,330			2,047			969
State		(4	)		(435	)		(52	)

Total deferred		3,326			1,612			917

Total provision (benefit) for income taxes	$	4,654		$	2,279		$	(4,767	)

The provision (benefit) for income taxes differs from the tax computed using the statutory U.S. federal income tax rate as a result of the following items, in thousands:


	Year Ended
	December 28,			December 30,			December 31,
	2008			2007			2006

Income tax expense computed at the federal statutory income tax rate	$	(21,187	)	$	12,470		$	5,698
State income tax expense net of federal benefit		(1,192	)		988			1,240
Effect of permanent differences		11,733			518			803
Tax benefit allocated to goodwill		3,326			2,303			1,103
Effect of increase (decrease) in valuation allowance		11,682			(13,884	)		(13,566	)
Other		292			(116	)		(45	)

Total provision (benefit) for income taxes	$	4,654		$	2,279		$	(4,767	)

In the table above, ‘tax benefit allocated to goodwill’ and ‘effect of increase (decrease) in valuation allowance’ include both federal and state tax attributes. The 2008 income tax expense contains the following amounts: current expenses in the amount of $0.3 million for federal alternative minimum tax; $1.1 million for the Texas Margin tax, Michigan Gross Receipts tax, California Corporate Income and other miscellaneous state and foreign income tax expenses and a deferred expense in the amount of $3.3 million resulting from the release of a portion of the valuation allowance on Venturi’s acquired net deferred assets from the merger. Although the Company’s net deferred tax asset is substantially offset with a valuation allowance, a portion of its fully-reserved deferred tax assets that become realized through operating profits are recognized as adjustments to the purchase price as a reduction to goodwill to the extent they relate to benefits acquired in the merger. This then results in deferred tax expense in the year the acquired deferred tax assets are utilized. This portion of deferred tax expense represents the consumption of pre-merger deferred tax assets that were acquired with zero basis. In accordance with the provisions of SFAS No. 109, Accounting for Income Taxes, the Company calculated a goodwill bifurcation ratio in the year of the merger to determine the amount of deferred tax asset realizable expense that should be offset to goodwill prospectively.

In 2008, the Company recognized a non-cash, pre-tax goodwill impairment charge in the amount of $86.8 million. The Company recorded a deferred tax asset related to the deductible portion of the goodwill impairment in the amount of $21.5 million and a corresponding valuation allowance. The tax benefit for the impairment will be realized when the valuation allowance is released, resulting in a benefit recorded to the Consolidated Statement of Operations. The non-deductible portion of the goodwill impairment charge resulted in a permanent difference of $12.7 million.

The impairment charge created a reduction in income tax expense in the amount of $0.8 million. The Company’s deferred tax assets increased, as discussed in the preceding paragraph, due to the goodwill impairment charge; therefore, the Company did not utilize Venturi non-NOL deferred tax assets. If the Company had utilized Venturi non-NOL deferred tax assets, a tax expense for the goodwill bifurcation discussed above would have been necessary.

The 2007 income tax expense contains the following amounts: current expenses in the amount of $0.3 million for federal alternative minimum tax; $0.3 million for the Texas Margin tax and other miscellaneous state income tax expenses and $0.1 million for foreign income taxes related to the Company’s profitable United Kingdom subsidiary, a deferred expense in the amount of $2.3 million resulting from the release of a portion of the valuation allowance on Venturi’s acquired net deferred assets from the merger and a deferred state tax benefit of $0.7 million related to the conversion of the Company’s Texas net operating loss carryforwards into the new Texas Margin tax credit.

The 2006 income tax benefit is the result of a federal income tax refund of $5.8 million resulting from legislation that allowed the Company to carryback a portion of its 2002 net operating loss to prior years. The 2006 income tax benefit also contained an offsetting expense amount of $1.1 million, which was the result of the release of part of the valuation allowance on Venturi’s acquired net deferred assets from the merger with COMSYS, and a provision of $0.1 million for foreign income taxes related to the Company’s profitable United Kingdom subsidiary. Additionally, the provision contained a state tax benefit of $0.2 million related to the conversion of the Company’s Texas net operating loss carryforwards into the new Texas Margin tax credit.

The net deferred tax assets are reflected in the accompanying Consolidated Balance Sheets as follows, in thousands:


	December 28,		December 30,
	2008		2007

Net current asset	$	—	$	—
Net noncurrent asset		862		881
Net noncurrent liability		—		—

Net deferred tax assets	$	862	$	881

Deferred tax assets and liabilities result primarily from temporary differences in book versus tax basis accounting as well as net operating loss carryforwards. Deferred tax assets and liabilities consist of the following, in thousands:


	December 28,			December 30,
	2008			2007

Gross deferred tax assets:
Goodwill and other intangibles	$	21,856		$	7,945
Accrued expenses and other reserves		1,257			1,624
Bad debt allowances		1,035			1,215
Accrued benefits		1,109			1,326
Net operating loss carryforwards		40,267			45,005
Other		1,143			734

Total gross deferred tax assets		66,667			57,849
Valuation allowance		(63,349	)		(53,785	)

Total net deferred tax assets		3,318			4,064
Deferred tax liabilities:
Depreciation expense and property basis differences		(2,456	)		(3,183	)

Total deferred tax liabilities		(2,456	)		(3,183	)

Net deferred tax assets	$	862		$	881

As of December 28, 2008, the Company had $66.7 million in total net deferred tax assets and had recorded a valuation allowance of $63.3 million against those assets as the Company has concluded that it is more likely than not that these deferred tax assets will not be realized based upon the Company’s assessments using the criteria required for accounting for income taxes. The increase in the valuation allowance from December 30, 2007, resulted primarily from pre-tax book loss from operations in 2008 in the amount of $60.5 million and other adjustments made to state net operating loss carryovers and other deferred assets. Approximately $16.2 million of the valuation allowance is attributable to the deferred tax assets of the merger, for which any recognized tax benefits will be allocated to reduce goodwill or other noncurrent intangible assets. The change in the tax valuation allowance for 2008, 2007 and 2006, is as follows, in thousands:


	December 28,			December 30,			December 31,
	2008			2007			2006

Balance at beginning of period	$	53,785		$	72,381		$	84,383
Additions		11,682			—			—
Deductions		—			(13,884	)		(13,566	)
Adjustments		(2,118	)		(4,712	)		1,564

Balance at end of period	$	63,349		$	53,785		$	72,381

At December 28, 2008, the Company had federal and state net operating loss carryforwards of approximately $100 million and $97 million, respectively. The federal net operating losses begin to expire in 2023 and the state net operating losses began to expire in 2005. On September 30, 2004, both Old COMSYS and Venturi experienced an ownership change as defined by the Internal Revenue Code. This subjects the utilization of the Company’s net operating loss carryforwards to an annual limitation, which may cause the carryforwards to expire before they are used. The Company’s ability to use its federal and state net operating loss carryforwards to reduce future taxable income are subject to restrictions attributable to equity transactions that have resulted in a change of ownership as defined by Internal Revenue Code Section 382. Of the $100 million of federal net operating loss carryforwards, $72 million is subject to the limitations of Internal Revenue Code 382. The remaining $28 million of federal net operating loss carryforwards is not subject to this limitation.

The Company has not paid United States federal income tax on the undistributed foreign earnings of its foreign subsidiaries as it is the Company’s intent to reinvest such earnings in its foreign subsidiaries. Pre-tax income attributable to the

Company’s profitable foreign operations amounted to $0.1 million, $0.6 million and $0.4 million in 2008, 2007 and 2006, respectively.

There was no amount recorded for uncertain income tax positions at December 28, 2008, and December 30, 2007.

During 2006, the Internal Revenue Services (“IRS”) commenced a limited-scope examination of Venturi’s final tax return primarily reviewing items related to Venturi’s 2003 restructuring and the merger transaction with COMSYS Holding. The IRS completed this examination in May 2007. No audit adjustments were proposed.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”), on January 1, 2007. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. The Company files U.S. federal and state tax returns and foreign tax returns. As of December 28, 2008, open years for U.S. federal and state tax returns subject to examination by the IRS or state taxing authorities are 2004 through 2007. The Company believes that its income tax filing positions and deductions would be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s financial condition, results of operations or cash flow. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to FIN 48.

The Company may, from time to time, be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to its financial results. In the event it has received an assessment for interest and/or penalties, it has been classified in the financial statements as selling, general and administrative expense. For 2008, 2007 and 2006, the Company has not recorded any interest or penalties.

7. Commitments and Contingencies

The Company leases various office space and equipment under noncancelable operating leases expiring through 2018. Certain leases include free rent periods, rent escalation clauses and renewal options. Rent expense is recorded on a straight-line basis over the term of the lease. Rent expense was $8.2 million, $7.4 million and $6.8 million for 2008, 2007 and 2006, respectively. Sublease income was $0.7 million, $0.6 million and $0.2 million for the years 2008, 2007 and 2006, respectively.

Future minimum annual payments for noncancelable operating leases in effect at December 28, 2008, are shown in the table below, in thousands:


2009	$	8,140
2010		6,517
2011		5,451
2012		4,563
2013		3,906
Thereafter		7,799

		36,376
Sublease income		(4,125	)

	$	32,251

In connection with the merger and the sale of Venturi’s commercial staffing business, the Company placed $2.5 million of cash and 187,556 shares of its common stock in separate escrows pending the final determination of certain state tax and unclaimed property assessments. The shares were released from escrow on September 30, 2006, in accordance with the merger agreement, while the cash remains in escrow. The cash escrow account will terminate on December 31, 2009 (the “Termination Date”), unless certain events occur to accelerate the Termination Date. On the Termination Date, the Company will receive the full amount remaining in the escrow account. The Company has recorded liabilities for amounts management believes are adequate to resolve all of the matters these escrows were intended to cover; however, management cannot ascertain at this time what the final outcome of these assessments will be in the aggregate and it is possible that management’s estimates could change. The escrowed cash is included in restricted cash on the Consolidated Balance Sheets. A final determination of one of these liabilities was made in 2007 after the Company was able to accumulate the required data to finalize the assessment with one of the jurisdictions. The final determination resulted in a $3.8 million reduction to goodwill and other current liabilities.

In connection with the purchase of Praeos in December 2007, $1.4 million was placed in an escrow account to indemnify the Company for the breach of any representation, covenant or obligation by the seller, as specified in the purchase agreement. This amount will be paid out within 18 months of the closing date of the acquisition to the former owners of Praeos.

The Company has agreed to indemnify members of its board of directors and its corporate officers against any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that the individual is or was a director or officer of the Company. The individuals will be indemnified, to the fullest extent permitted by law, against related expenses, judgments, fines and any amounts paid in settlement. The Company also maintains directors and officers insurance coverage in order to mitigate exposure to these indemnification obligations. The maximum amount of future payments is generally unlimited. There was no amount recorded for these indemnification obligations at December 28, 2008, and December 30, 2007. Due to the nature of these obligations, it is not possible to make a reasonable estimate of the maximum potential loss or range of loss. No assets are held as collateral and no specific recourse provisions exist related to these indemnifications.

The Company has entered into employment agreements with certain of its executives covering, among other things, base compensation, incentive bonus determinations and payments in the event of termination or a change of control of the Company.

The Company is a defendant in various lawsuits and claims arising in the normal course of business and is defending them vigorously. While the results of litigation cannot be predicted with certainty, management believes the final outcome of such litigation will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. Any cost to settle litigation will be included in selling, general and administrative expense on the Consolidated Statements of Operations.

8. Defined Contribution Plan

The Company maintains a voluntary defined contribution 401(k) plan for certain qualifying employees, which provides for employee contributions. Participating employees may elect to defer and contribute a percentage of their compensation to the plan, not to exceed the dollar limit set by the Internal Revenue Code. For the years ended December 31, 2008, 2007 and 2006, the maximum deferral amount was 50%, subject to limitations set by the Internal Revenue Code. The Company matches 25% of each employee’s eligible contribution up to 6% of each employee’s gross compensation per paycheck. The Company may, at its discretion, make an additional year-end profit-sharing contribution. No discretionary contributions were made in 2008, 2007 or 2006. Total net expense under the plan amounted to approximately $1.4 million, $1.5 million and $1.4 million in 2008, 2007 and 2006, respectively.

The Company has announced a suspension of the matching contribution to its 401(k) plan effective April 1, 2009. Future matching contributions will be made at the Company’s discretion.

Additionally, Pure Solutions maintains a voluntary defined contribution 401(k) plan for certain qualifying employees, which provides for employee contributions. Participating employees may elect to defer and contribute a percentage of their compensation to the plan, not to exceed the dollar limit set by the Internal Revenue Code. Pure Solutions has the discretion under the plan to match participant deferrals. For 2008, 2007 and 2006, Pure Solutions elected to forego a matching contribution.

During 1999, Venturi established a Supplemental Employee Retirement Plan (the “SERP”) for its then Chief Executive Officer. When this officer retired in February 2000, the annual benefit payable under the SERP was fixed at $150,000 through March 2017. As of December 28, 2008, approximately $0.9 million was accrued for the SERP.

9. Stockholders’ Equity

Common Stock

In the merger, Old COMSYS shareholders exchanged their shares of common stock for shares of Venturi (now COMSYS) common stock. Each share of Old COMSYS outstanding immediately prior to the effective time of the merger was canceled and converted into the right to receive 0.0001 of a share of COMSYS common stock.

Additionally, in the merger each option to acquire shares of Old COMSYS common stock that was outstanding immediately prior to the effective time of the merger remained outstanding and became exercisable for shares of COMSYS common stock at the rate of 0.0001 of a share for each share of Old COMSYS common stock.

Warrants

In the merger, the Company assumed outstanding warrants to purchase 768,997 shares of Venturi (now COMSYS) common stock. The warrants were originally issued on April 14, 2003, in connection with the comprehensive financial restructuring

with Venturi’s subordinated note holders. The warrants are exercisable in whole or in part over a 10-year period, and the exercise price is $7.8025 per share. The warrants may be exercised on a cashless basis at the option of the holder. The holders of the warrants are also entitled to participate in dividends declared on common stock as if the warrants were exercised for common stock. In connection with the purchase accounting for the merger, the warrants were recorded at fair value as a component of shareholders’ equity in accordance with Emerging Issues Task Force No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. At December 28, 2008, warrants to purchase 248,654 shares of the Company’s common stock were outstanding.

10. Stock Compensation Plans

The Company has four stock-based compensation plans with outstanding equity awards: the 1995 Equity Participation Plan (“1995 Plan”), the 2003 Equity Incentive Plan (“2003 Equity Plan”), the Amended and Restated COMSYS IT Partners, Inc. 2004 Stock Incentive Plan (“2004 Equity Plan”) and the 2004 Management Incentive Plan (“2004 Incentive Plan”).

Plan Descriptions

In 2003, Venturi terminated the 1995 Plan in connection with its financial restructuring. As a result of the merger, all outstanding options under the 1995 Plan were vested and are exercisable. Although the 1995 Plan has been terminated and no future option issuances will be made under it, the remaining outstanding stock options will continue to be exercisable in accordance with their terms.

In 2003, Venturi adopted the 2003 Equity Plan under which the Company may grant non-qualified stock options, incentive stock options and other stock-based awards in the Company’s common stock to officers and other key employees. On the date of the merger, all outstanding options under the 2003 Equity Plan at that time vested and became exercisable. Options granted under the 2003 Equity Plan have a term of 10 years.

In connection with the merger, the Company’s Board of Directors adopted and the stockholders approved the 2004 Equity Plan, which was subsequently amended and restated in 2007. Under the 2004 Equity Plan, the Company may grant non-qualified stock options, incentive stock options, restricted stock and other stock-based awards in its common stock to officers, employees, directors and consultants. Options granted under this plan generally vest over a three-year period from the date of grant and have a term of 10 years.

Effective January 1, 2004, Old COMSYS adopted the 2004 Incentive Plan. The 2004 Incentive Plan was structured as a stock issuance program under which certain executive officers and key employees might receive shares of Old COMSYS nonvoting Class D Preferred Stock in exchange for payment at the then current fair market value of these shares. Effective July 1, 2004, 1,000 shares of Class D Preferred Stock were issued by Old COMSYS under the 2004 Incentive Plan. Effective with the merger, these shares were exchanged for a total of 1,405,844 shares of restricted common stock of COMSYS. Of these shares, one-third vested on the date of the merger, one-third vested over a three-year period subsequent to merger, and one-third vested over a three-year period subject to specific performance criteria being met. Effective September 30, 2006, the Compensation Committee of the Company’s Board of Directors (the “Committee”) made certain modifications to the 2004 Incentive Plan after concluding that the performance vesting targets appeared to be unattainable, as noted below. Although there will be no future restricted stock issuances under the 2004 Incentive Plan, the remaining outstanding restricted stock awards will continue to vest in accordance with their terms. In accordance with the terms of the 2004 Incentive Plan, any shares forfeited by participants will be distributed to certain stockholders of Old COMSYS.

Stock Options

A summary of the activity related to stock options granted under the 1995 Plan, the 2003 Equity Plan and the 2004 Equity Plan is as follows:


													Weighted-Average
	1995			2003			2004						Exercise Price
	Plan			Equity Plan			Equity Plan			Total			Per Share

Outstanding at January 1, 2006		2,873			643,400			334,507			980,780		$	9.40
Granted		—			—			256,000			256,000		$	11.07
Exercised		—			(100,202	)		(107,416	)		(207,618	)	$	8.33
Forfeited		(760	)		(3,000	)		(47,507	)		(51,267	)	$	10.95

Outstanding at December 31, 2006		2,113			540,198			435,584			977,895		$	9.98
Granted		—			—			—			—
Exercised		—			(95,198	)		(90,485	)		(185,683	)	$	9.46
Forfeited		(863	)		—			(14,833	)		(15,696	)	$	27.54

Outstanding at December 30, 2007		1,250			445,000			330,266			776,516		$	9.75
Granted		—			—			—			—
Exercised		—			—			(8,200	)		(8,200	)	$	8.55
Forfeited		(527	)		(1,387	)		(18,336	)		(20,250	)	$	17.94

Outstanding at December 28, 2008		723			443,613			303,730			748,066		$	9.54

Exercisable at December 28, 2008		723			411,656			235,064			647,443		$	9.43

Available for issuance at December 28, 2008		—			54,422			524,733			579,155

The following table summarizes information related to stock options outstanding and exercisable at December 28, 2008:


	Options Outstanding						Options Exercisable
			Weighted Average		Weighted Average				Weighted Average
			Contractual Years		Exercise Price per				Exercise Price per
Range of Exercise Prices	Options Outstanding		Remaining		Share		Options Exercisable		Share

$7.80		219,000		4.30	$	7.80		219,000	$	7.80
$8.55 to $8.88		225,348		5.71	$	8.56		193,391	$	8.57
$11.05 to $11.98		302,995		5.90	$	11.32		234,329	$	11.39
$63.25 to $132.75		723		1.11	$	100.64		723	$	100.64

$7.80 to $132.75		748,066		5.37	$	9.54		647,443	$	9.43

During 2007, the Company entered into a modification agreement with Mr. Michael H. Barker, its Chief Operating Officer, effective June 1, 2007, amending the vesting schedule for a portion of Mr. Barker’s 100,000 share stock option award dated October 1, 2004. The Committee determined that the performance targets for the 49,990 shares that were originally scheduled to vest over three years would not be met. Therefore, these shares were rescheduled to vest as follows: two-thirds were rescheduled to vest in substantially equal annual installments over the three-year period ending January 1, 2010, and one-third were rescheduled to vest over the same three-year period based on the attainment of the Company’s annual EBITDA target under its management incentive plan. The purpose of these modifications was to retain the services of the executive and provide an incentive for the executive to contribute to the Company’s long-term success after October 1, 2007, when the initial three-year vesting schedule for these options was originally scheduled to expire. All other terms of the original award remained unchanged. On October 1, 2008, the Committee concluded that the annual EBITDA bonus target for its 2008 management incentive plan (the “Original EBITDA Target”) was unattainable, and replaced the annual target with a new EBITDA bonus target for the final six months of 2008 (the “New EBITDA Target”) that was lower on an annualized basis than the Original EBITDA Target by approximately 22%, therefore, the awards issued to Mr. Barker subject to 2008 performance vesting criteria were reduced by approximately 25% at the date of the modification. If the New EBITDA Target was met, 50% of the original awards would vest. If the New EBITDA Target was exceeded, up to 75% of the original awards would vest. On February 13, 2009, the Committee determined that the New EBITDA Target was met; therefore, 50% of the original awards vested and the remaining 25% were forfeited.

The fair value of options granted in 2006 was estimated on the date of grant using the Black-Scholes option pricing model based on the assumptions noted in the following table. The fair value of options modified in 2008 and 2007 was estimated on the date of modification using the Black-Scholes option pricing model based on the assumptions noted in the following table. There were no new options granted in 2008 or 2007.


	2008			2007			2006

Expected life (in years)		6.0			6.0			6.0
Risk-free interest rate		3.000	%		4.750	%		4.375	%
Expected volatility		55.6	%		46.8	%		45.0	%
Dividend yield		0.0	%		0.0	%		0.0	%
Weighted average fair value of options granted or modified	$	6.31		$	17.29		$	5.47

Option valuation models, including the Black-Scholes model used by the Company, require the input of assumptions, including expected life and expected stock price volatility. Due to the limited trading history of the Company’s common stock following the merger, expected stock price volatility for stock option grants or modifications prior to 2007 was based on an analysis of the actual realized historical volatility of the Company’s common stock as well as that of its peers. Beginning in 2007, the expected volatility assumption for stock option grants or modifications was based on actual historical volatility of the Company’s common stock from the period after its December 2005 common stock offering through the quarter ended prior to the grant or modification date. The Company uses historical data to estimate option exercises and employee forfeitures within the valuation model. The expected life is derived from an analysis of historical exercises and remaining contractual life of stock options and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The Company has never paid cash dividends, and does not currently intend to pay cash dividends, and thus has assumed a 0% dividend yield.

Cash received from option exercises was $0.1 million, $1.8 million and $1.7 million in 2008, 2007 and 2006, respectively, and was included in financing activities in the accompanying Consolidated Statements of Cash Flows. The total intrinsic value of options exercised during 2008, 2007 and 2006 was $24,300, $2.3 million and $2.1 million, respectively. The Company has historically used newly issued shares to satisfy option exercises and restricted stock grants and expects to continue to do so in future periods.

Restricted Stock Awards

Restricted stock awards are grants that entitle the holder to shares of common stock as the awards vest. The Company measures the fair value of restricted shares based upon the closing market price of the Company’s common stock on the date of grant. Restricted stock awards that vest in accordance with service conditions are amortized over their applicable vesting period using the straight-line method. For nonvested share awards subject partially or wholly to performance conditions, the Company is required to assess the probability that such performance conditions will be met. If the likelihood of the performance condition being met is deemed probable, the Company will recognize the expense using the straight-line attribution method.

A summary of the activity related to restricted stock granted under the 2004 Equity Plan and the 2004 Incentive Plan is as follows:


				Weighted
				Average
				Grant Date
	Shares			Fair Value

Nonvested balance at January 1, 2006		312,410		$	11.20
Granted		578,659		$	10.44
Vested		(279,468	)	$	4.13
Forfeited		(258,051	)	$	4.64

Nonvested balance at December 31, 2006		353,550		$	15.56
Granted		244,000		$	21.70
Vested		(87,748	)	$	16.63
Forfeited		(19,167	)	$	13.09

Nonvested balance at December 30, 2007		490,635		$	18.34
Granted		342,878		$	11.09
Vested		(147,227	)	$	17.35
Forfeited		(79,443	)	$	17.30

Nonvested balance at December 28, 2008		606,843		$	14.62

The shares issued to employees under the 2004 Equity Plan and 2004 Incentive Plan are subject to a three-year time-based vesting requirement, except as noted below, and the compensation expense associated with these shares is amortized using the straight-line method. Forfeitures and grants in the 2006 information above include shares held by the Company’s former Chief Executive Officer, the vesting terms of which were modified in connection with his resignation from the Company (Note 13).

Effective September 30, 2006, the Committee made certain modifications to the 2004 Incentive Plan after concluding that the performance vesting targets appeared to be unattainable. The Committee approved modifications to the vesting targets for the performance vesting shares under which two-thirds of the performance vesting shares held by the remaining participants at the time were rescheduled to vest annually with the passage of time over the three-year period ending January 1, 2010, and one-third of the performance vesting shares held by the remaining participants were rescheduled to vest over the same three-year period based on the attainment of the Company’s annual EBITDA target under its management incentive plan. The purpose of these modifications was to retain the services of the remaining participants in this plan and provide an incentive for the participants to contribute to the Company’s long-term success after January 1, 2007, when all of the original unvested restricted shares would have expired. In addition, under the modification agreements, the participants forfeited a portion of their remaining performance vesting shares and waived their reallocation rights with respect to restricted shares that had been or may in the future be forfeited by other participants in the 2004 Incentive Plan who no longer remain in service with the Company. The Company reversed $0.5 million of stock-based compensation expense in the third quarter of 2006 of the $1.1 million that was recorded in the first six months of 2006 related to those participants who were no longer with the Company, due to the waiver by the remaining participants of the reallocation provision. In accordance with the terms of the 2004 Incentive Plan, these shares will be distributed to certain stockholders of Old COMSYS. On October 1, 2008, the Committee concluded that the annual EBITDA bonus target for its 2008 management incentive plan (the “Original EBITDA Target”) was unattainable, and replaced the annual target with a new EBITDA bonus target for the final six months of 2008 (the “New EBITDA Target”) that was lower on an annualized basis than the Original EBITDA Target by approximately 22%, therefore, the awards issued to Mr. Kerr subject to 2008 performance vesting criteria were reduced by approximately 25% at the date of the modification. If the New EBITDA Target was met, 50% of the original awards would vest. If the New EBITDA Target was exceeded, up to 75% of the original awards would vest. On February 13, 2009, the Committee determined that the New EBITDA Target was met; therefore, 50% of the original awards vested and the remaining 25% were forfeited.

Effective July 27, 2006, the Company entered into an employment agreement with its Chief Executive Officer, Larry L. Enterline. Mr. Enterline received a restricted stock award of 150,000 restricted shares of common stock under the 2004 Equity Plan in connection with the execution of his employment agreement. One-third (50,000 shares) was scheduled to vest on the grant date and two-thirds (100,000 shares) were scheduled to vest in substantially equal installments on each of January 1, 2007, January 1, 2008, and January 1, 2009. In accordance with SFAS 123(R), in July 2006, the Company recorded stock-based compensation expense of $0.7 million related to the vested shares. On September 29, 2006, the Company entered into a modification agreement with Mr. Enterline that amended the vesting schedule for Mr. Enterline’s restricted stock award. As a result of this amendment, the 50,000 shares that were originally scheduled to vest on the grant date were rescheduled to vest on the earlier of (i) January 1, 2009, or (ii) the termination of Mr. Enterline’s employment for any reason that would entitle him to severance benefits under Section 6 of his employment agreement (as amended from time

to time). The Company recorded stock-based compensation expense of approximately $0.8 million in the third quarter of 2006 related to Mr. Enterline’s restricted shares, which included the $0.7 million initially recorded at the grant date.

Effective June 1, 2007, the Committee approved restricted stock grants to five executive officers, including the Company’s Chief Executive Officer. Half (50%) of these shares will vest in equal annual installments over three years. The remaining shares will performance vest at the end of the three-year period based on the Company’s earnings per share (“EPS”) growth as against the BMO Staffing Stock Index during the three-year period. The performance shares will fully vest if the Company’s EPS growth is in the top 25% of the index. The performance shares will vest 50% or 25% if the Company’s EPS growth is in the second 25% or third 25% of the index, respectively. No shares will vest if the Company’s EPS growth is in the bottom 25% of the index. The vesting percentages will be prorated within individual tiers, except that no shares will vest for EPS growth in the bottom tier.

Effective January 2, 2008, the Committee approved equity grants to five executive officers, including the Company’s Chief Executive Officer. One-quarter (25%) of these shares will vest in equal annual installments over three years. The remaining shares will performance-vest at the end of the three-year period based on the Company’s EPS growth as compared against the BMO staffing stock index during the three-year period. The performance shares will fully vest if the Company’s EPS growth is in the top 25% of the index. The performance shares will vest 50% or 25% if the Company’s EPS growth is in the second 25% or third 25% of the index, respectively. No shares will vest if the Company’s EPS growth is in the bottom 25% of the index. The vesting percentages will be prorated within individual tiers, except that no shares will vest for EPS growth in the bottom tier.

In November 2008, the Committee together with the Company’s Board of Directors determined that the remaining earnout payments under the Plum Rhino purchase agreement were unattainable (Note 3). In order to retain the services of Plum Rhino’s former owners and to provide an incentive for their continued contribution to the Company’s long-term success, the Company’s Board of Directors granted 75,000 restricted shares to these former owners which will vest 15%, 30% and 55% based on Plum Rhino’s achievement of specified annual EBITDA targets in 2009, 2010 and 2011, respectively. The former Plum Rhino owners relinquished their rights to the potential earnout payments in exchange for these shares of restricted stock.

The expense related to the granted and modified performance options and shares described above were estimated assuming that the performance goals will be reached. If such goals are not met, no compensation expense will be recognized and any previously recognized compensation expense will be reversed.

As of December 28, 2008, there was $4.6 million of total unrecognized compensation costs related to nonvested option and restricted stock awards granted under the plans, which are expected to be recognized over a weighted-average period of 20 months. The total fair value of shares and options that vested during 2008 was $2.9 million.

11. Related Party Transactions

Elias J. Sabo, a member of the Company’s board of directors, also serves on the board of directors of The Compass Group, the parent company of Venturi Staffing Partners (“VSP”), a former Venturi subsidiary. VSP provides commercial staffing services to the Company and its clients in the normal course of its business. During 2008, the Company and its clients purchased approximately $12.9 million of staffing services from VSP for services provided to the Company’s vendor management clients. At December 28, 2008, the Company had approximately $1.1 million in accounts payable to VSP.

Frederick W. Eubank II and Courtney R. McCarthy, members of the Company’s board of directors, are employees of Wachovia Investors, Inc., the Company’s largest shareholder and a subsidiary of Wachovia Corporation (“Wachovia”). Plum Rhino provides staffing services to Wachovia in the normal course of its business. During the year ended December 28, 2008, Plum Rhino recorded revenue of approximately $3.7 million related to Wachovia’s purchase of staffing services. At December 28, 2008, Plum Rhino had approximately $0.2 million in accounts receivable from Wachovia.

In January 2007, Inland Partners, L.P. and Links Partners, L.P. (“Inland/Links”) and Wachovia Investors, Inc. sold an aggregate of 2.5 million shares of the Company’s common stock in a secondary underwritten public offering for the benefit of such stockholders. The shares were sold by the selling stockholders pursuant to an effective shelf registration statement that was previously filed with the Securities and Exchange Commission (“SEC”). Both Wachovia Investors, Inc. and Inland/Links have representatives on the Company’s board of directors. The Company did not receive any proceeds from the sale of shares in this offering. The Company paid approximately $0.1 million of expenses in the first quarter of 2007 related to this offering.

In June 2008, the Company received proceeds from a greater than 10% shareholder equal to the profits realized on sales of the Company’s stock that was purchased and sold within a six month or less time frame. Under Section 16(b) of the

Securities and Exchange Act, the profits realized from these transactions by the greater than 10% shareholder must be disgorged to the Company under certain circumstances. The Company received proceeds of approximately $164,209 related to these transactions.

12. Staff Accounting Bulletin No. 108

In September 2006, the SEC released Staff Accounting Bulletin No. 108, Topic 1N, Financial Statements, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). The transition provisions of SAB 108 permit the Company to adjust for the cumulative effect on retained earnings of immaterial errors relating to prior years. SAB 108 also requires the adjustment of any prior quarterly financial statements within the fiscal year of adoption for the effects of such errors on the quarters when the information is next presented. Such adjustments do not require previously filed reports with the SEC to be amended. Prior to 2006, the Company had used cash accounting to record certain commissions and payroll-related tax expenses. In 2006, the Company evaluated the effect the date the expense was incurred would have had on these income statement expenses and related accruals using the rollover method to determine if the effect of the misstatement would be material in any specific period. The Company determined the adjustment would not be material in any specific period and therefore did not restate historical financial statements. The Company adopted this statement retroactively as of January 2, 2006, as permitted, recognizing an adjustment of $2.8 million to accumulated deficit and commission and certain payroll-related tax accruals in its Consolidated Balance Sheet as of January 2, 2006, and $0.3 million to its Consolidated Statement of Operations for the fiscal year ended December 31, 2006. There was no net tax impact related to these corrections due to the full tax valuation allowance on the Consolidated Balance Sheet at December 31, 2006.

13. Executive Officer Resignations

Margaret G. Reed, a former officer of the Company, resigned in January 2006. Pursuant to a resignation agreement, Ms. Reed received severance payments totaling $0.3 million and certain other specified benefits. Also, the Committee approved the payment of additional severance in the amount of $0.1 million to Ms. Reed. Ms. Reed’s unvested restricted shares were repurchased by the Company at a price equal to the amount of Ms. Reed’s original investment and will be distributed to certain stockholders of COMSYS Holding as contemplated by the 2004 Incentive Plan and the modification agreements discussed in Note 10.

Michael T. Willis resigned as the Company’s Chairman and Chief Executive Officer in February 2006. The Company entered into a resignation agreement with Mr. Willis pursuant to which the Company agreed to pay Mr. Willis cash severance payments over a 24-month period in the aggregate amount of $1.2 million, consulting fees of $0.1 million, an expense allowance of $8,250 per month for 12 months and up to $1,000 per month to reimburse him for the cost of health benefits until he reaches the age of 65 or such time as another employer provides benefits. Beginning in July 2007, Mr. Willis was no longer eligible for these health benefit payments. The agreement also provided that in addition to the 282,703 vested shares of common stock that Mr. Willis held at the time under the 2004 Incentive Plan, 204,109 unvested shares of restricted common stock held by Mr. Willis would vest if the average closing price of the Company’s common stock over any consecutive 30-day period ending on or before December 31, 2006, equaled or exceeded $18.67 per share. These shares vested in October 2006.

The Company recorded a $1.9 million charge in its 2006 Consolidated Statement of Operations related to the severance benefits described above and a $0.2 million charge related to the modification of Mr. Willis’ stock awards, as described in Note 10.

Joseph C. Tusa, Jr. resigned as the Company’s Senior Vice President, Chief Financial Officer and Assistant Secretary effective December 24, 2007. The Company entered into a separation agreement with Mr. Tusa, whose employment with the Company terminated on January 2, 2008, pursuant to which Mr. Tusa received an advance payment against his 2007 bonus at target levels. The balance was paid after the completion of the 2007 audit simultaneously with the payment of other bonuses to executive officers. Additionally, 19,980 restricted shares scheduled to vest on January 1, 2008, which Mr. Tusa was entitled to under the terms of the 2004 Incentive Plan, vested (including 6,660 shares which were eligible to vest based on the Company’s achievement of the 2007 bonus target). All remaining, unvested shares held by Mr. Tusa were forfeited.

14. Summary of Quarterly Financial Information (Unaudited)

The Company’s fiscal year ends on the Sunday closest to December 31st and its first three fiscal quarters are 13 calendar weeks each (and each also ends on a Sunday). The following table sets forth quarterly financial information for each quarter in 2008 and 2007, in thousands, except per share amounts:


	2008
	First			Second			Third		Fourth

Revenues from services	$	183,383		$	184,064		$	183,663	$	175,998
Costs of services		138,727			139,232			138,483		133,747

Gross profit		44,656			44,832			45,180		42,251

Operating costs and expenses
Selling, general and administrative expenses		34,764			34,291			34,579		33,014
Restructuring costs		—			—			—		637
Depreciation and amortization		1,820			1,898			2,185		2,212
Goodwill impairment		—			—			—		86,800

		36,584			36,189			36,764		122,663

Income (loss) from operations		8,072			8,643			8,416		(80,412	)
Interest expense, net		1,603			1,279			1,224		1,351
Other expense (income), net		(53	)		(172	)		40		(19	)

Income (loss) before income taxes		6,522			7,536			7,152		(81,744	)
Income tax expense		1,418			1,324			1,105		807

Net income (loss)	$	5,104		$	6,212		$	6,047	$	(82,551	)

Basic net income (loss) per share	$	0.25		$	0.31		$	0.30	$	(4.03	)
Diluted net income (loss) per share	$	0.25		$	0.30		$	0.30	$	(4.03	)
Basic weighted average shares outstanding		19,579			19,592			19,612		19,614
Diluted weighted average shares outstanding		20,617			20,636			20,455		19,614


	2007
	First			Second			Third			Fourth

Revenues from services	$	186,208		$	186,602		$	187,195		$	183,260
Costs of services		141,207			139,768			139,945			137,154

Gross profit		45,001			46,834			47,250			46,106

Operating costs and expenses
Selling, general and administrative expenses		35,421			33,140			33,064			33,798
Depreciation and amortization		1,458			1,589			1,653			1,726

		36,879			34,729			34,717			35,524

Income from operations		8,122			12,105			12,533			10,582
Interest expense, net		2,420			2,296			1,993			1,541
Other income, net		(228	)		(223	)		(18	)		(67	)

Income before income taxes		5,930			10,032			10,558			9,108
Income tax expense		448			460			941			430

Net income	$	5,482		$	9,572		$	9,617		$	8,678

Basic net income per share	$	0.28		$	0.48		$	0.48		$	0.43
Diluted net income per share	$	0.28		$	0.47		$	0.48		$	0.43
Basic weighted average shares outstanding		18,845			19,243			19,459			19,474
Diluted weighted average shares outstanding		19,754			20,195			20,118			20,392

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management has established and maintains a system of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in those reports is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Accounting Officer (our principal executive officer and principal financial officer, respectively), as appropriate to allow timely decisions regarding required disclosure. As of December 28, 2008, our management, including our Chief Executive Officer and our Chief Accounting Officer, conducted an evaluation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Changes in Internal Controls over Financial Reporting

There has been no change in our internal control over financial reporting during the year ended December 28, 2008, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for the fair presentation of the consolidated financial statements of COMSYS IT Partners, Inc. Management is also responsible for establishing and maintaining a system of internal controls over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of management override or improper acts, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to management override, error or improper acts may occur and not be detected. Any resulting misstatement or loss may have an adverse and material effect on our business, financial condition and results of operations.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 28, 2008. Management has engaged Ernst & Young LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report on Form 10-K, to attest to the Company’s internal control over financial reporting. Its report is included herein..

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
COMSYS IT Partners, Inc. and Subsidiaries

We have audited COMSYS IT Partners, Inc. and Subsidiaries ‘s internal control over financial reporting as of December 28, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). COMSYS IT Partners, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, COMSYS IT Partners, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 28, 2008, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of COMSYS IT Partners, Inc. and Subsidiaries as of December 28, 2008, and December 30, 2007, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 28, 2008 of COMSYS IT Partners, Inc. and our report dated March 10, 2009, expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Phoenix, Arizona
March 10, 2009

ITEM 9B. OTHER INFORMATION

None

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information required by this Item 10 with respect to our code of ethics, compliance with Section 16(a) of the Exchange Act and the directors and nominees for election to our board is incorporated herein by reference to our Proxy Statement for our 2009 Annual Stockholders’ Meeting, which will be filed with the SEC pursuant to Regulation 14A under the Exchange Act. Information regarding our executive officers is contained in this report in Part I, Item 1 “Business—Executive Officers.”

ITEM 11. EXECUTIVE COMPENSATION

Information required by this Item 11 is incorporated herein by reference to our Proxy Statement for our 2009 Annual Stockholders’ Meeting, which will be filed with the SEC pursuant to Regulation 14A under the Exchange Act.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required by this Item 12 is incorporated herein by reference to our Proxy Statement for our 2009 Annual Stockholders’ Meeting, which will be filed with the SEC pursuant to Regulation 14A under the Exchange Act.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Information required by this Item 13 is incorporated herein by reference to our Proxy Statement for our 2009 Annual Stockholders’ Meeting, which will be filed with the SEC pursuant to Regulation 14A under the Exchange Act.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Information required by this Item 14 is incorporated herein by reference to our Proxy Statement for our 2009 Annual Stockholders’ Meeting, which will be filed with the SEC pursuant to Regulation 14A under the Exchange Act.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)

The following documents are filed as part of this Annual Report on Form 10-K:

	1.		Financial Statements:

			Report of Independent Registered Public Accounting Firm

			Consolidated Balance Sheets—Years ended December 28, 2008 and December 30, 2007

			Consolidated Statements of Operations—Years ended December 28, 2008, December 30, 2007 and December 31, 2006

			Consolidated Statements of Comprehensive Income (Loss)—Years ended December 28, 2008, December 30, 2007 and December 31, 2006

			Consolidated Statements of Stockholders’ Equity—Years ended December 28, 2008, December 30, 2007 and December 31, 2006

			Consolidated Statements of Cash Flows—Years ended December 28, 2008, December 30, 2007 and December 31, 2006

			Notes to Consolidated Financial Statements

			Report of Independent Registered Public Accounting Firm

	2.		Financial Statement Schedules: Schedules not filed herewith are either not applicable, the information is not material or the information is set forth in the Consolidated Financial Statements or notes thereto.

	3.		Exhibits: The exhibits identified in the accompanying Exhibit Index are filed with this report or incorporated herein by reference. Exhibits designated with an “*” are attached. Exhibits designated with a “+” are identified as management contracts or compensatory plans or arrangements. Exhibits previously filed as indicated below are incorporated by reference.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Date: March 11, 2009	COMSYS IT PARTNERS, INC.
	By:	/s/ Amy Bobbitt
		Name:	Amy Bobbitt
		Title:	Senior Vice President and Chief Accounting Officer

POWER OF ATTORNEY

The undersigned directors and officers of COMSYS IT Partners, Inc. hereby constitute and appoint Ken R. Bramlett, Jr. and Amy Bobbitt, and each of them, with the power to act without the other and with full power of substitution and resubstitution, our true and lawful attorneys-in-fact and agents with full power to execute in our name and behalf in the capacities indicated below any and all amendments to this report and to file the same, with all exhibits and other documents relating thereto and hereby ratify and confirm all that such attorneys-in-fact, or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Exchange Act, this report has been signed by the following persons in the capacities indicated on March 11, 2009:


/s/ Larry L. Enterline Larry L. Enterline		Chief Executive Officer and Director (principal executive officer)

/s/ Amy Bobbitt Amy Bobbitt		Senior Vice President and Chief Accounting Officer (principal financial and accounting officer)

/s/ Frederick W. Eubank II Frederick W. Eubank II		Director

/s/ Courtney R. McCarthy Courtney R. McCarthy		Director

Victor E. Mandel		Director

/s/ Robert Z. Hensley Robert Z. Hensley		Director

/s/ Robert Fotsch Robert Fotsch		Director

Elias J. Sabo		Director

INDEX TO EXHIBITS


		Incorporated by Reference
Exhibit			Exhibit
Number	Exhibit Description	Form	Number		Filing Date
3.1	Amended and Restated Certificate of Incorporation of COMSYS IT Partners, Inc.	8-K		3.1	October 4, 2004

3.2	Amended and Restated Bylaws of COMSYS IT Partners, Inc.	8-K		3.2	October 4, 2004

3.3	First Amendment to the Amended and Restated Bylaws of COMSYS IT Partners, Inc.	8-K		3.1	May 4, 2005

4.1	Registration Rights Agreement, dated as of September 30, 2004, between COMSYS IT Partners, Inc. and certain of the old COMSYS Holdings stockholders party thereto	8-A/A		4.2	November 2, 2004

4.2	Amendment No. 1 to Registration Rights Agreement dated April 1, 2005 between COMSYS IT Partners, Inc., and certain of the old COMSYS Holdings stockholders party thereto	10-Q		4.2	May 6, 2005

4.3	Amended and Restated Registration Rights Agreement, dated as of September 30, 2004, between COMSYS IT Partners, Inc. and certain of the old Venturi stockholders party thereto	8-A/A		4.3	November 2, 2004

4.4	Amendment No. 1 to Amended and Restated Registration Rights Agreement dated April 1, 2005 between COMSYS IT Partners, Inc., and certain of the old Venturi stockholders party thereto	10-Q		4.4	May 6, 2005

4.7#	Common Stock Purchase Warrant dated as of April 14, 2003, issued by the Company in favor of BNP Paribas	8-K		99.16	April 25, 2003

4.8	Specimen Certificate for Shares of Common Stock	10-K		4.6	April 1, 2005

10.1	Credit Agreement dated as of December 14, 2005, among COMSYS Services LLC, COMSYS Information Technology Services, Inc. and Pure Solutions, Inc., as borrowers, COMSYS IT Partners, Inc. and PFI LLC, as guarantors, COMSYS Services LLC acting in its capacity as borrowing agent and funds administrator for the borrowers, Merrill Lynch Capital, as administrative agent, a lender, sole bookrunner and sole lead arranger, ING Capital LLC, as co-documentation agent and as a lender, Allied Irish Banks PLC, as co-documentation agent and as a lender, GMAC Commercial Finance LLC, as syndication agent and as a lender, and the lenders from time to time party thereto	8-K		10.1	December 15, 2005

10.1a	Consent and First Amendment to Credit Agreement, dated as of March 31, 2006, among COMSYS Services LLC, COMSYS Information Technology Services, Inc. and Pure Solutions, Inc., as borrowers, COMSYS IT Partners, Inc. and PFI LLC, as guarantors, COMSYS Services LLC, acting in its capacity as borrowing agent and funds administrator for the borrowers, Merrill Lynch Capital, as administrative agent, a lender, sole bookrunner and sole lead arranger, ING Capital LLC, as co-documentation agent and as a lender, Allied Irish Banks PLC, as co-documentation agent and as a lender, GMAC Commercial Finance LLC, as syndication agent and as a lender, and the lenders from time to time party thereto	8-K		10.1	September 15, 2006

10.1b	Consent, Waiver and Second Amendment to Credit Agreement, dated as of September 15, 2006, among COMSYS Services LLC, COMSYS Information Technology Services, Inc. and Pure Solutions, Inc., as borrowers, COMSYS IT Partners, Inc., PFI LLC and COMSYS IT Canada, Inc. as guarantors, COMSYS Services LLC, acting in its capacity as borrowing agent and funds administrator for the borrowers, Merrill Lynch Capital, as administrative agent, a lender, sole bookrunner and sole lead arranger, ING Capital LLC, Allied Irish Banks PLC, and BMO Capital Markets Financing, Inc., as co-documentation agents and as lenders, GMAC Commercial Finance LLC, as syndication agent and as a lender, and the lenders from time to time party thereto	8-K		10.2	September 15, 2006

10.1c	Consent and Third Amendment to Credit Agreement, dated as of December 15, 2006, among COMSYS Services LLC, COMSYS Information Technology Services, Inc. and Pure Solutions, Inc., as borrowers, COMSYS IT Partners, Inc., PFI LLC and COMSYS IT Canada, Inc., as guarantors, COMSYS Services LLC, acting in its capacity as borrowing agent and funds administrator for the borrowers, Merrill Lynch Capital, as administrative agent, a lender, sole bookrunner and sole lead arranger, ING Capital LLC, Allied Irish Banks PLC and BMO Capital Markets Financing, Inc., as co-documentation agents and as lenders, GMAC Commercial Finance LLC, as syndication agent and as a lender, and the lenders from time to time party thereto	8-K		10.1	December 18, 2006

10.1d	Consent and Fourth Amendment to Credit Agreement, dated as of March 15, 2007, among COMSYS Services LLC, COMSYS Information Technology Services, Inc. and Pure Solutions, Inc., as borrowers, COMSYS IT Partners, Inc., PFI LLC and COMSYS IT Canada, Inc., as guarantors, COMSYS Services LLC, acting in its capacity as borrowing agent and funds administrator for the borrowers, Merrill Lynch Capital, as administrative agent, a lender, sole bookrunner and sole lead arranger, ING Capital LLC, Allied Irish Banks PLC and BMO Capital Markets Financing, Inc., as co-documentation agents and as lenders, GMAC Commercial Finance LLC, as syndication agent and as a lender, and the lenders from time to time party thereto	10-Q		10.1	May 9, 2007


		Incorporated by Reference
Exhibit			Exhibit
Number	Exhibit Description	Form	Number		Filing Date
10.1e	Consent and Fifth Amendment to Credit Agreement, dated as of May 31, 2007, among COMSYS Services LLC, COMSYS Information Technology Services, Inc. and Pure Solutions, Inc., as borrowers, COMSYS IT Partners, Inc., PFI LLC, COMSYS IT Canada, Inc. and Econometrix, LLC, as guarantors, COMSYS Services LLC, acting in its capacity as borrowing agent and funds administrator for the borrowers, Merrill Lynch Capital, as administrative agent, a lender, sole bookrunner and sole lead arranger, ING Capital LLC, Allied Irish Banks PLC and BMO Capital Markets Financing, Inc., as co-documentation agents and as lenders, GMAC Commercial Finance LLC, as syndication agent and as a lender, and the lenders from time to time party thereto	10-Q		10.1	August 10, 2007

10.1f	Consent and Sixth Amendment to Credit Agreement, dated as of December 12, 2007, among COMSYS Services LLC, COMSYS Information Technology Services, Inc. and Pure Solutions, Inc., as borrowers, COMSYS IT Partners, Inc., PFI LLC, COMSYS IT Canada, Inc., Econometrix, LLC, and Plum Rhino Consulting, LLC, as guarantors, COMSYS Services LLC, acting in its capacity as borrowing agent and funds administrator for the borrowers, Merrill Lynch Capital, as administrative agent, a lender, sole bookrunner and sole lead arranger, ING Capital LLC, Allied Irish Banks PLC and BMO Capital Markets Financing, Inc., as co-documentation agents and as lenders, GMAC Commercial Finance LLC, as syndication agent and as a lender, and the lenders from time to time party thereto	10-K		10.1f	March 12, 2008

10.1g	Consent and Seventh Amendment to Credit Agreement, dated as of December 19, 2007, among COMSYS Services LLC, COMSYS Information Technology Services, Inc. and Pure Solutions, Inc., as borrowers, COMSYS IT Partners, Inc., PFI LLC, COMSYS IT Canada, Inc., Econometrix, LLC, and Plum Rhino Consulting, LLC, as guarantors, COMSYS Services LLC, acting in its capacity as borrowing agent and funds administrator for the borrowers, Merrill Lynch Capital, as administrative agent, a lender, sole bookrunner and sole lead arranger, ING Capital LLC, Allied Irish Banks PLC and BMO Capital Markets Financing, Inc., as co-documentation agents and as lenders, GMAC Commercial Finance LLC, as syndication agent and as a lender, and the lenders from time to time party thereto	10-K		10.1g	March 12, 2008

10.1h	Consent and Eighth Amendment to Credit Agreement, dated as of June 13, 2008, among COMSYS Services LLC, COMSYS Information Technology Services, Inc., Pure Solutions, Inc., Plum Rhino Consulting, LLC, Praeos Technologies, LLC, and TWC Group Consulting, LLC, as borrowers, COMSYS IT Partners, Inc., PFI LLC, COMSYS IT Canada, Inc., Econometrix, LLC, , as guarantors, COMSYS Services LLC, acting in its capacity as borrowing agent and funds administrator for the borrowers, GE Business Financial Services, Inc., as administrative agent, a lender, sole bookrunner and sole lead arranger, ING Capital LLC, Allied Irish Banks PLC and BMO Capital Markets Financing, Inc., as co-documentation agents and as lenders, GMAC Commercial Finance LLC, as syndication agent and as a lender, and the lenders from time to time party thereto	10-Q		10.1	August 6, 2008

10.5	Guaranty, dated as of December 14, 2005, among COMSYS IT Partners, Inc. and PFI LLC, as guarantors, in favor of Merrill Lynch Capital, in its capacity as administrative agent	8-K		10.2	December 15, 2005

10.6	Guaranty, dated as of June 15, 2006, by COMSYS IT Canada, Inc. in favor of Merrill Lynch Capital, in its capacity as administrative agent	8-K		10.3	September 15, 2006

10.7+	2004 Stock Incentive Plan, as Amended and Restated Effective April 13, 2007	Proxy Statement	Appendix A		April 17, 2007

10.8+	2003 Equity Incentive Plan	Proxy Statement	Annex C		June 24, 2003

10.9+	Old COMSYS 2004 Management Incentive Plan	10-K		10.10	April 1, 2005

10.10+*	Second Amended and Restated Employment Agreement dated January 1, 2009, between COMSYS IT Partners, Inc. and Michael H. Barker

10.11+*	First Amended and Restated Employment Agreement dated January 1, 2009, between COMSYS IT Partners, Inc. and Amy Bobbitt


		Incorporated by Reference
Exhibit			Exhibit
Number	Exhibit Description	Form	Number		Filing Date
10.12+*	First Amended and Restated Employment Agreement dated January 1, 2009, between COMSYS IT Partners, Inc. and Ken R. Bramlett, Jr.

10.13+*	First Amended and Restated Employment Agreement dated January 1, 2009, between COMSYS IT Partners, Inc. and Larry L. Enterline

10.14+*	Second Amended and Restated Employment Agreement dated January 1, 2009, between COMSYS IT Partners, Inc. and David L. Kerr

10.25+	Form of Indemnification Agreement between COMSYS IT Partners, Inc. and each of the Company’s directors and executive officers	8-K		10.1	May 4, 2005

14.1	Code of Business Conducts and Ethics for COMSYS IT Partners, Inc.	8-K		14.1	May 4, 2005

21.1*	List of Subsidiaries of the Company

23.1*	Consent of Independent Registered Public Accounting Firm

24.1*	Power of Attorney (included on signature page)

31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*	Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32*	Certification of Chief Executive Officer and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


#		This exhibit is substantially identical to Common Stock Purchase Warrants issued by the Company on the same date to each of Bank of America, N.A. and Bank One, N.A., and to Common Stock Purchase Warrants, reflecting a transfer of a portion of such Common Stock Purchase Warrants, issued by the Company (i) as of the same date to each of Inland Partners, L.P., Links Partners L.P., MatlinPatterson Global Opportunities Partners L.P. and R2 Investments, LDC and (ii) on August 6, 2003 to Mellon HBV SPV LLC.


		Page
Cautionary Note Regarding Forward-Looking Statements		1

	PART I
Item 1.	Business	2
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	18
Item 3.	Legal Proceedings	18
Item 4.	Submission of Matters to a Vote of Security Holders	18

	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
Item 6.	Selected Financial Data	21
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	37
Item 8.	Financial Statements and Supplementary Data	37
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	66
Item 9A.	Controls and Procedures	67
Item 9B.	Other Information	68

	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	69
Item 11.	Executive Compensation	69
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	69
Item 13.	Certain Relationships and Related Transactions, and Director Independence	69
Item 14.	Principal Accounting Fees and Services	69

	PART IV
Item 15.	Exhibits and Financial Statement Schedules	69

	Signatures	70
EX-10.10
EX-10.11
EX-10.12
EX-10.13
EX-10.14
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32