10-Q

UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 30, 2013

or

oTransition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from             to            

Commission File Number: 1-33981

ANALYSTS INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

Minnesota	41-0905408
(State of Incorporation)	(IRS Employer Identification No.)
7700 France Avenue S
Minneapolis, MN	55435
(Address of Principal Executive Offices)	(Zip Code)

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

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

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

Large accelerated filero	Accelerated Filero
Non-accelerated Filero	Smaller Reporting Companyx

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

As of May 8, 2013, 5,110,127 shares of the registrant’s common stock were outstanding.

ANALYSTS INTERNATIONAL CORPORATION

INDEX

Part I.	FINANCIAL INFORMATION.	3
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets as of March 30, 2013 and December 29, 2012	3
	Consolidated Statements of Operations for the Three Months Ended March 30, 2013 and March 31, 2012	4
	Consolidated Statements of Cash Flows for the Three Months Ended March 30, 2013 and March 31, 2012	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
Item 4.	Controls and Procedures	15
Part II.	OTHER INFORMATION	16
Item 1.	Legal Proceedings	16
Item 1A.	Risk Factors	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.	Defaults Upon Senior Securities	16
Item 4.	Mine Safety Disclosures	16
Item 5.	Other Information	16
Item 6.	Exhibits	17
Signatures		18
Exhibit Index		19

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Analysts International Corporation

Consolidated Balance Sheets

(Unaudited)

	March 30,			December 29,
(In thousands, except share and per share amounts)	2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	5,654		$	5,792
Accounts receivable, less allowance for doubtful accounts of $688 and $671, respectively	17,451			16,095
Prepaid expenses and other current assets	924			281
Total current assets	24,029			22,168
Property and equipment, net of accumulated depreciation of $7,659 and $7,492, respectively	2,333			2,366
Other assets	124			185
Total assets	$	26,486		$	24,719
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,419		$	2,651
Salaries and benefits	3,150			1,724
Deferred revenue	591			331
Deferred compensation	60			62
Other current liabilities	535			529
Total current liabilities	6,755			5,297
Non-current liabilities:
Deferred compensation	249			270
Other long-term liabilities	—			4
Total non-current liabilities	249			274
Shareholders’ equity:
Common stock, par value $0.10 a share; authorized 24,000,000 shares; issued and outstanding 5,110,127 and 5,084,155, respectively	511			508
Additional capital	26,746			26,644
Accumulated deficit	(7,775		)	(8,004		)
Total shareholders’ equity	19,482			19,148
Total liabilities and shareholders’ equity	$	26,486		$	24,719

See notes to consolidated financial statements.

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Analysts International Corporation

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended
	March 30,			March 31,
(In thousands, except per share amounts)	2013			2012
Revenues	$	24,563		$	26,723
Cost of revenues	18,995			20,347
Gross profit	5,568			6,376
Selling, administrative and other operating costs	5,321			6,186
Total operating expenses	5,321			6,186
Operating income	247			190
Interest expense	(1		)	(1		)
Income before income taxes	246			189
Income tax expense (benefit)	17			(9		)
Net income (comprehensive income)	$	229		$	198
Per common share (basic):
Net income (comprehensive income)	$	0.04		$	0.04
Per common share (diluted):
Net income (comprehensive income)	$	0.04		$	0.04
Weighted-average shares outstanding:
Basic	5,092			5,044
Diluted	5,109			5,114

See notes to consolidated financial statements.

4

Analysts International Corporation

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended
	March 30,			March 31,
(In thousands)	2013			2012
Cash flows from operating activities:
Net income	$	229		$	198
Adjustments to net income:
Depreciation	168			151
Share based compensation	120			191
Changes in:
Accounts receivable	(1,356		)	(3,150		)
Prepaid expenses and other assets	(582		)	16
Accounts payable	(238		)	(473		)
Salaries and benefits	1,411			657
Deferred revenue	260			112
Deferred compensation	(23		)	(108		)
Restructuring accrual	—			(207		)
Other accrued liabilities	2			(6		)
Net cash used in operating activities	(9		)	(2,619		)
Cash flows from investing activities:
Expended for property and equipment additions	(129		)	(543		)
Net cash used in investing activities	(129		)	(543		)
Cash flows from financing activities:
Proceeds from line of credit	—			1,500
Payments on line of credit	—			(1,500		)
Proceeds from stock option exercises	—			41
Net cash provided by financing activities	—			41
Net decrease in cash and cash equivalents	(138		)	(3,121		)
Cash and cash equivalents at beginning of period	5,792			5,135
Cash and cash equivalents at end of period	$	5,654		$	2,014
Cash paid during the year for:
Income taxes refunded	$	(10	)	$	—
Interest	$	1		$	1
Non-cash investing and financing activities:
Capital expenditures included in accounts payable	$	59		$	181

See notes to consolidated financial statements.

5

Analysts International Corporation

Notes to Consolidated Financial Statements

(Unaudited)

1.   Organization and Nature of Business

Analysts International Corporation (“AIC,” “Company,” “we,” “us,” or “our”) is an information technology (“IT”) services company. We employ approximately 850 IT professionals, management and administrative staff and are focused on serving the IT needs of mid-market to Fortune 500 companies and government agencies across North America. AIC was incorporated in Minnesota in 1966 and our corporate headquarters is located in Minneapolis, Minnesota. For a more complete description of our Company, please refer to our Annual Report on Form 10-K for the fiscal year ended December 29, 2012.

We operate on a fiscal year ending on the Saturday closest to December 31. Accordingly, fiscal 2013 will end on Saturday, December 28, 2013. The first quarter of fiscal 2013 ended on March 30, 2013 and the first quarter of fiscal 2012 ended on March 31, 2012.

2.   Summary of Significant Accounting Policies

Basis of Consolidation

The accompanying unaudited Consolidated Financial Statements of AIC have been prepared on the accrual basis of accounting and in accordance with the requirements of the Securities and Exchange Commission (“SEC”) for interim financial reporting. As permitted under these rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States (“U.S. GAAP”) can be condensed or omitted. The Consolidated Financial Statements included in this document reflect, in the opinion of our management, all adjustments (consisting of only normal recurring adjustments, except as noted elsewhere in the Notes to Consolidated Financial Statements) necessary for fair presentation of the results of operations for the interim periods presented. The following notes should be read in conjunction with the accounting policies and other disclosures in the Notes to the Consolidated Financial Statements incorporated by reference in our Annual Report on Form 10-K for the fiscal year ended December 29, 2012. Revenues, expenses, cash flows, assets and liabilities can and do vary during the year. Therefore, interim results are not necessarily indicative of the results to be expected for the full fiscal year.

Estimates

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

Fringe Benefits Expenses

A component of our Cost of revenues and Selling, administrative and other operating costs are employer benefit costs associated with our employees. These benefit expenses include employer taxes, paid time off, group insurance expense (health, dental, life), holiday time and other employer related expenses, referred to in total as “Fringe Benefits Expenses”. We recognize Fringe Benefits Expenses associated with our employees ratably over each of our fiscal quarters during the year based on full year estimates of our employee labor expenses and Fringe Benefits Expenses which most accurately matches expenses with our revenues.

3.  Financing Agreement

Revolving Credit Facility

On February 20, 2013, we entered into the Fourth Amendment to the Credit and Security Agreement (“Amended Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”). The Fourth Amendment adjusted certain collateral borrowing base calculations associated with our eligible unbilled accounts receivable and is expected to increase our borrowing availability in periods in which our fiscal period ends prior to the calendar month end, which affects our unbilled accounts receivable levels for clients on a calendar month billing cycle. In addition, the Fourth Amendment extended the term of the Amended Credit Facility from September 30, 2014 to September 30, 2016. Finally, the Fourth Amendment adjusted our minimum trailing twelve months earnings before taxes financial covenant to a loss of $0.1 million for the period ending March 30, 2013, a loss of $0.3 million for the period ending June 29, 2013 and earnings of $0.25 million for periods thereafter through the expiration of the credit agreement ending on September 30, 2016.

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Under the Amended Credit Facility, Wells Fargo will continue to advance up to $15.0 million to us for working capital purposes and to facilitate the issuance of letters of credit. The total amount available for borrowing under the Amended Credit Facility will fluctuate based on our level of eligible accounts receivable.

The Amended Credit Facility carries an interest rate equal to the three-month LIBOR rate plus 1.50% - 2.50%, depending on our operating results. The credit facility had a one-time origination fee of $150,000, the balance of which is being amortized over the new term of the Amended Credit Facility. The annual unused line fee varies between 0.25% - 0.375%, depending on our operating results, on the daily average unused amount. The interest rate effective at the end of fiscal year 2012 was 2.375% and the unused line fee rate was 0.25%. The maturity date of the Amended Credit Facility is September 30, 2016 and may be terminated or reduced by us on 90 days notice in exchange for a termination fee of 0.25% of the maximum line amount or reduction of the maximum line amount through September 30, 2015 and no fee in the final year of the agreement ending on September 30, 2016. Borrowings under the Amended Credit Facility are secured by all of our assets.

The Amended Credit Facility limits our annual capital expenditures to $2.0 million. We are required to maintain a minimum excess borrowing base availability of not less than $3.0 million. The Amended Credit Facility contains customary affirmative covenants, including covenants regarding annual, quarterly and projected financial reporting requirements, collateral and insurance maintenance, and compliance with applicable laws and regulations. Further, the facility contains customary negative covenants limiting our ability to grant liens, incur indebtedness, make investments, repurchase our stock, create new subsidiaries, sell assets or engage in any change of control transaction without the consent of Wells Fargo.

Upon an event of default, Wells Fargo may terminate the facility or declare the entire amount outstanding under the facility to be immediately due and payable and exercise other rights under the agreement. The events of default under the facility include, among other things, payment defaults, breaches of covenants, a change in control and bankruptcy events.

As of March 30, 2013, we were in compliance with all the requirements and had no outstanding borrowings under the Amended Credit Facility. Total availability under the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, was $12.1 million as of March 30, 2013.

4.   Shareholders’ Equity

										Total
	Outstanding	Common		Additional			Accumulated			Shareholders’
(In thousands, except share amounts)	Shares	Stock		Capital			Deficit			Equity
Balance as of December 29, 2012	5,084,155	$	508	$	26,644		$	(8,004	)	$	19,148
Common stock issued	25,972	3		127			—			130
Share based compensation expense	—	—		(25		)	—			(25		)
Stock option exercises	—	—		—			—			—
Net income	—	—		—			229			229
Balance as of March 30, 2013	5,110,127	$	511	$	26,746		$	(7,775	)	$	19,482

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5.  Share Based Compensation

Total share based compensation expense for the three month period ended March 30, 2013 and March 31, 2012 was approximately $0.1 million and $0.2 million, respectively, and includes compensation expense related to both stock options and stock awards.

In the first quarter of 2013, we recorded a reduction of the tax benefit of $25,000 and for the first quarter of fiscal 2012, we recorded a reduction of the tax benefit of $13,000. The tax benefit is offset against our valuation allowance for our deferred tax asset.

Stock Options

The following table summarizes the stock option activity for the three months ended March 30, 2013:

	Options		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding on December 29, 2012	335,650		$	5.31	7.26	$	34,124
Granted	8,800		3.24
Exercised	—		—
Forfeited/Cancelled	(2,400	)	10.00
Outstanding on March 30, 2013	342,050		$	5.23	7.13	$	81,896
Vested or expected to vest at March 30, 2013	326,678		5.26		7.04	$	79,961
Exercisable on March 30, 2013	250,359		5.48		6.53	$	69,065

The total fair value of the stock options that vested during the three months ended March 30, 2013 was approximately $121,000.

For the three month period ended March 30, 2013, no options were exercised; therefore the total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) and the income tax benefit realized from stock option exercises were both $0.

For the three month period ended March 31, 2012, 13,250 options were exercised and the total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) was approximately $30,000. The income tax benefit realized from stock option exercises was $0.

Total stock option expense for the three months ended March 30, 2013 was approximately $53,000. As of March 30, 2013, there was approximately $0.1 million of unrecognized share based compensation expense related to unvested stock options that are expected to vest over a weighted-average period of approximately 1.4 years. Options to purchase 342,050 shares were outstanding at March 30, 2013.

Stock Awards

The following table summarizes the stock award activity for the three months ended March 30, 2013:

8

	Shares		Weighted Average Grant Date Fair Value
Non-vested at December 29, 2012	98,753		$	4.78
Granted	1,200		3.24
Vested	(30,261	)	(4.79		)
Forfeited	—		—
Non-vested at March 30, 2013	69,692		$	4.75

The total fair value of stock awards that vested during the three months ended March 30, 2013 was approximately $145,000 respectively.

Total stock award expense for the three months ended March 30, 2013 was $70,000.

As of March 30, 2013, there was $0.1 million of unrecognized compensation expense related to unvested stock awards that were expected to vest over a weighted average period of 1.2 years.

6.   Net Income Per Share

Basic and diluted income per share is presented in accordance with ASC Topic 260, Earnings Per Share. Basic income per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted income per share includes dilutive potential common shares outstanding and is computed by dividing income available to common stockholders by the weighted-average number of common and common equivalent shares outstanding for the period.

For the three-month period ended March 30, 2013, anti-dilutive weighted average shares of 372,000 were excluded from the calculation of weighted average number of common equivalent shares outstanding. For the three-month period ended March 31, 2012, anti-dilutive weighted average shares of 124,000 were excluded from the calculation of weighted average number of common equivalent shares outstanding. The computation of basic and diluted income per share for the three months ended March 30, 2013 and March 31, 2012 is as follows:

	Three Months Ended
	March 30,		March 31,
(In thousands except per share amounts)	2013		2012
Net income	$	229	$	198
Weighted-average number of common shares outstanding	5,092		5,044
Dilutive effect of potential common shares outstanding	17		70
Weighted-average number of common and common equivalent shares outstanding	5,109		5,114
Net income per share:
Basic	$	0.04	$	0.04
Diluted	$	0.04	$	0.04

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our consolidated financial statements and related notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated due to various factors discussed under “Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q, including the “Risk Factors” described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 29, 2012.

A.            Our Business

Analysts International Corporation (“AIC,” “Company,” “we,” “us,” or “our”) is a national information technology (“IT”) services company. We employ approximately 850 IT professionals, management and administrative staff and are focused on serving the IT needs of mid-market to Fortune 500 companies and government agencies across North America. AIC was incorporated in Minnesota in 1966 and our corporate headquarters is located in Minneapolis, Minnesota. For a more complete description of our Company, please refer to our Annual Report on Form 10-K for the fiscal year ended December 29, 2012.

We operate on a fiscal year ending on the Saturday closest to December 31. Accordingly, fiscal 2013 will end on Saturday, December 28, 2013. The first quarter of fiscal 2013 ended on March 30, 2013 and the first quarter of fiscal 2012 ended on March 31, 2012.

B.            Business Developments

Revolving Credit Facility

On February 22, 2012, we entered into the Third Amendment to the Credit and Security Agreement (“Amended Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”). The Third Amendment increased the total availability of the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, by approximately $4.0 million. In addition, the Third Amendment increased our minimum trailing twelve months earnings before taxes financial covenant from a loss of $0.8 million to earnings of $0.25 million. Finally, the Third Amendment added an additional financial covenant which will require us to maintain a minimum excess borrowing base availability of not less than $3.0 million for each reporting period in fiscal 2012 and thereafter.

On February 20, 2013, we entered into the Fourth Amendment to the Amended Credit Facility (“Fourth Amendment”) with Wells Fargo. The Fourth Amendment adjusted certain collateral borrowing base calculations associated with our eligible unbilled accounts receivable and is expected to increase our borrowing availability in periods in which our fiscal period ends prior to the calendar month end, which affects our unbilled accounts receivable levels for clients on a calendar month billing cycle. In addition, the Fourth Amendment extended the term of the Amended Credit Facility from September 30, 2014 to September 30, 2016. Finally, the Fourth Amendment adjusted our minimum trailing twelve months earnings before taxes financial covenant to a loss of $0.1 million for the period ending March 30, 2013, a loss of $0.3 million for the period ending June 29, 2013 and earnings of $0.25 million for periods thereafter through the expiration of the credit agreement ending on September 30, 2016.

Under the Amended Credit Facility, Wells Fargo will continue to advance up to $15.0 million to us for working capital purposes and to facilitate the issuance of letters of credit.

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C.            Overview of First Quarter Fiscal 2013 Results of Operations

Our revenues decreased $2.2 million, or 8.1%, compared to the first quarter of fiscal 2012. When compared to the prior year quarter, the number of billable hours decreased 8.6% and was partially offset by a 1.9% increase in our average billing rates.

The gross margin rate decreased to 22.7% from the prior year quarter rate of 23.9% primarily due to changes in our revenue mix from the prior year period.

Selling, Administrative and Other Operating Costs (“SG&A”) expenses decreased $0.9 million, or 14.0%, in the first quarter of fiscal 2013 over the prior year quarter primarily due to lower sales, recruiting, management incentive and other general expenses which are variable to our revenue levels.

We used cash from operations of $9,000 during the first quarter of fiscal 2013. As of March 30, 2013, we had a cash balance of $5.7 million and no outstanding borrowings under our revolving line of credit.

RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 30, 2013 VS. MARCH 31, 2012

The following table illustrates the relationship between revenue and expense categories and number of management and administrative personnel and IT professionals for the three months ended March 30, 2013 and March 31, 2012.

	Three Months Ended March 30, 2013					Three Months Ended March 31, 2012					Increase (Decrease)
				% of					% of
(Dollars in thousands)	Amount			Revenue		Amount			Revenue		Amount			%
Revenues	$	24,563		100.0	%	$	26,723		100.0	%	$	(2,160	)	(8.1	)%
Cost of revenues	18,995			77.3		20,347			76.1		(1,352		)	(6.6	)
Gross profit	5,568			22.7		6,376			23.9		(808		)	(12.7	)
Selling, administrative and other operating costs	5,321			21.7		6,186			23.1		(865		)	(14.0	)
Total operating expenses	5,321			21.7		6,186			23.1		(865		)	(14.0	)
Operating income	247			1.0		190			0.7		57			30.0
Interest expense	(1		)	(0.0	)	(1		)	(0.0	)	—			0.0
Income before income taxes	246			1.0		189			0.7		57			30.2
Income tax expense (benefit)	17			0.1		(9		)	(0.0	)	26			288.9
Net income (comprehensive income)	$	229		0.9	%	$	198		0.7	%	$	31		15.7	%
Personnel:
Management and Administrative	105					116					(11		)	(9.5	)%
Consultants	755					794					(39		)	(4.9	)%

Revenues

Revenues decreased $2.2 million, or 8.1%, from the comparable period a year ago. The decrease in first quarter of fiscal 2013 revenues over the prior year is primarily due to a 8.6% ($2.3 million) decrease in the number of hours billed, a decrease of $0.4 million in our permanent placement and other revenues, and an increase of 1.9% ($0.5 million) increase in average billing rates.

There were 64 billing days in the first quarters of both fiscal years 2013 and 2012.

Cost of Revenues

Cost of revenues represents our payroll and benefits costs associated with our billable consultants and our cost of using subcontractors. This category of expense decreased $1.4 million from the prior year period and was 77.3% of revenue for first quarter of fiscal 2013 compared to 76.1% the prior comparable period. The increase in cost as a percentage of revenue from the prior year quarter is primarily due to a change in our revenue mix.

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Selling, Administrative and Other Operating Costs

SG&A costs include management and administrative salaries, salaries and commissions paid to account executives and recruiters, benefits, location costs, and other administrative costs. This category of costs decreased approximately $0.9 million from the first quarter of 2012 and represented 21.7% of revenue for the first quarter of fiscal 2013 compared to 23.1% in fiscal 2012. In the first quarter of 2013, SG&A expenses decreased as a result of a decrease in sales and recruiting personnel expenses of $0.6 million, a decrease in management incentives of $0.2 million and general expense reductions of $0.1 million.

Interest Expense

We had no borrowings during the first quarter of fiscal 2013 under our Amended Credit Facility. In the first quarter of 2012, the implementation of the Enterprise Resource Planning “ERP” system caused a delay in our normal billing cycles, which caused an increase in our operating working capital. As a result, we borrowed and repaid $1.5 million on our Amended Credit Facility. Our average borrowings for the first quarter of 2012 were approximately $49,000.

Income Taxes

In the first quarter of 2013, our income tax expense reflects the utilization of net operating loss carry-forwards to offset taxable income. In the first quarter of 2012, our income tax benefit was the result of a foreign tax refund and more than offset our income tax expense, which reflects the utilization of net operating loss carryforwards to offset taxable income.

We currently have approximately $24.3 million of tax benefits associated with net operating loss carry-forwards available to offset federal and state taxes. For the first quarter of both fiscal years 2013 and 2012, we recorded accruals for amounts due for certain state income taxes and changes in our reserves for tax obligations. We recorded no additional income tax expense or benefit associated with our net operating income or loss because any tax expense or benefit that would otherwise have been recorded has been negated by adjusting the valuation allowance against our deferred tax asset.

We record a valuation allowance to reduce our deferred tax assets to an amount we believe will more likely than not be realized based on the consideration of all available evidence that can be objectively verified. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, historical and projected future taxable income, tax planning strategies and recent financial operations. Our three-year historical cumulative loss has historically been a significant negative factor in recent fiscal years in determining that a valuation allowance on these assets continued to be appropriate.

Since the fourth quarter of fiscal year ending December 29, 2012, we are no longer in a three-year cumulative loss position. However, the realization of tax benefits of deductible temporary differences and operating loss or tax credit carry-forwards will depend on whether we have sufficient taxable income of an appropriate character within the carry-back and carry-forward periods permitted by the tax law to allow for utilization of the deductible amounts and carry-forwards. Significant management judgment is required in determining if a valuation allowance should continue to be recorded against deferred tax assets. We evaluate our ability to recover the deferred tax assets and weighed all available positive and negative evidence based on its objectivity and subjectivity. Such evidence includes the lack of long-term, sustained positive operating results and trends, our ability to carry back losses against prior taxable income and uncertainty around projections of future taxable income. In estimating future taxable income, we develop assumptions which include the amount of future federal and state pre-tax operating income and the reversal of temporary differences. Our plans and projections require us to make estimates about a number of factors, including future revenues, prices, inflation, and expenses. Giving consideration to all relevant facts and circumstances, we continue to conclude that the weight of the positive evidence is not sufficient to overcome the negative evidence and conclude it is appropriate to maintain a full valuation allowance of $24.3 million against our deferred tax assets.

In the event we were to determine that we would be able to realize a portion, or all, of our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance, which could materially impact our financial position and results of operations.

Personnel

Our IT professional staff levels, which include subcontractors, finished the first quarter of fiscal 2013 at 755, a 4.9% decrease against the comparable period last year and is primarily due to decreases in our exited markets. The 9.5% decrease in management and administrative personnel from the comparable period last year is primarily due to adjusting our sales, recruiting, and administrative personnel levels in alignment with our current business volume.

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Certain Information Concerning Off-Balance Sheet Arrangements

As of March 30, 2013, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

Liquidity and Capital Resources

At March 30, 2013, we had $5.7 million of cash and cash equivalents on hand. In addition to our cash balances, we have access to our Amended Credit Facility with $15.0 million of maximum availability, under which our borrowing availability was $12.1 million as of March 30, 2013. Working capital was $17.3 million at March 30, 2013, up approximately $0.4 million from December 29, 2012. The ratio of current assets to current liabilities decreased to 3.69 at March 30, 2013 compared to 4.19 at December 29, 2012.

Historically, we have been able to support internal growth in our business with internally generated funds and through the use of our credit facility. We believe our existing working capital and availability under our Amended Credit Facility with Wells Fargo will be sufficient to support the cash flow needs of our business. We expect to be able to comply with the requirements of our credit agreement; however, failure to do so could affect our ability to obtain necessary working capital and could have a material adverse effect on our business.

The following table summarizes the major captions from our Consolidated Statements of Cash Flows:

	Three Months Ended
	March 30,			March 31,
(In thousands)	2013			2012
Cash provided by (used in):
Net cash used in operating activities	$	(9	)	$	(2,619	)
Net cash used in investing activities	(129		)	(543		)
Net cash provided by financing activities	—			41
Net decrease in cash and cash equivalents	$	(138	)	$	(3,121	)

Operating Activities

Cash used in operating activities for the three months ended March 30, 2013 was $9,000 compared to cash used in operating activities of $2.6 million for the three months ended March 31, 2012.

The elements of cash used in operations for the three months ended March 30, 2013 are as follows: net income of $0.2 million and non-cash charges of $0.3 million, which were offset by an increase in operating working capital of approximately $0.5 million.

The major components of the increase in operating working capital during the first quarter of 2013 were increases of $1.4 million and $0.6 million in our accounts receivable and prepaid expenses balances, respectively, offset by a decrease to our operating cash needs of $1.4 million due to a timing difference in our payroll and benefits payments. The increase in accounts receivable from the end of fiscal 2012 is primarily due the timing of a payment of our largest customer that was delayed until the first week of our second quarter of fiscal 2013. Our days sales outstanding at the end of fiscal 2012 was 62 compared to 61 at the end of fiscal 2013 first quarter.

In the prior year quarter, the elements of cash provided by operating activities were as follows: net income of $0.2 million and non-cash charges of $0.3 million, which were more than offset by an increase in operating working capital of approximately $3.1 million. In the prior year quarter, the implementation of the ERP system caused a delay in our normal billing cycles, which increased our days sales outstanding to 68 days at the end of fiscal 2012 first quarter.

Investing Activities

Cash used in investing activities for the three months ended March 30, 2013 was $0.1 million compared to $0.5 million for the three months ended March 31, 2012.

In the first quarter of fiscal 2013, we made capital expenditures of $0.1 million. In the first quarter of 2012, we made capital expenditures of $0.5 million, the majority of which related to the ERP system that we implemented in early 2012. These capital expenditures have been recorded in our Property and equipment, net of accumulated depreciation balance as reported in our Consolidated Balance Sheets.

13

Financing Activities

Cash provided by financing activities for the three months ended March 30, 2013 was $0 compared to $41,000 for the three months ended March 31, 2012.

In the first quarter of 2012, we borrowed and repaid $1.5 million on our Amended Credit Facility. Our average borrowings for the first quarter of 2012 were approximately $49,000.

On February 20, 2013, we entered into the Fourth Amendment to the Amended Credit Facility (“Fourth Amendment”) with Wells Fargo. The Fourth Amendment adjusted certain collateral borrowing base calculations associated with our eligible unbilled accounts receivable and is expected to increase our borrowing availability in periods in which our fiscal period ends prior to the calendar month end, which affects our unbilled accounts receivable levels for clients on a calendar month billing cycle. In addition, the Fourth Amendment extended the term of the Amended Credit Facility from September 30, 2014 to September 30, 2016. Finally, the Fourth Amendment adjusted our minimum trailing twelve months earnings before taxes financial covenant to a loss of $0.1 million for the period ending March 30, 2013, a loss of $0.3 million for the period ending June 29, 2013 and earnings of $0.25 million for periods thereafter through the expiration of the credit agreement ending on September 30, 2016.

Under the Amended Credit Facility, Wells Fargo will continue to advance up to $15.0 million to us for working capital purposes and to facilitate the issuance of letters of credit. The total amount available for borrowing under the Amended Credit Facility will fluctuate based on our level of eligible accounts receivable.

The Amended Credit Facility carries an interest rate equal to the three-month LIBOR rate plus 1.50% - 2.50%, depending on our operating results. The credit facility had a one-time origination fee of $150,000, the balance of which is being amortized over the new term of the Amended Credit Facility. The annual unused line fee varies between 0.25% - 0.375%, depending on our operating results, on the daily average unused amount. The interest rate effective at the end of fiscal year 2012 was 2.375% and the unused line fee rate was 0.25%. The maturity date of the Amended Credit Facility is September 30, 2016 and may be terminated or reduced by us on 90 days notice in exchange for a termination fee of 0.25% of the maximum line amount or reduction of the maximum line amount through September 30, 2015 and no fee in the final year of the agreement ending on September 30, 2016. Borrowings under the Amended Credit Facility are secured by all of our assets.

The Amended Credit Facility limits our annual capital expenditures to $2.0 million. For 2012 and thereafter, we will also be required to maintain a minimum excess borrowing base availability of not less than $3.0 million. The Amended Credit Facility contains customary affirmative covenants, including covenants regarding annual, quarterly and projected financial reporting requirements, collateral and insurance maintenance, and compliance with applicable laws and regulations. Further, the facility contains customary negative covenants limiting our ability to grant liens, incur indebtedness, make investments, repurchase our stock, create new subsidiaries, sell assets or engage in any change of control transaction without the consent of Wells Fargo.

Upon an event of default, Wells Fargo may terminate the facility or declare the entire amount outstanding under the facility to be immediately due and payable and exercise other rights under the agreement. The events of default under the facility include, among other things, payment defaults, breaches of covenants, a change in control and bankruptcy events.

As of March 30, 2013, we were in compliance with all the requirements and had no outstanding borrowings under the Amended Credit Facility. Total availability under the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, was $12.1 million as of March 30, 2013.

Forward-Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements include, for example, statements expressing the intent, belief or current expectations of AIC and members of our management team and involve certain risks and uncertainties, including (i) the risk that management may not fully or successfully implement its strategic and business plans or maintain profitability in the future; (ii) the risk that AIC will not be able to realize the benefits of its investments or exploit other opportunities of the business in a timely manner or on favorable terms; (iii) prevailing market conditions in the IT services industry, including intense competition for billable technical personnel at competitive rates, strong pricing pressures from many of our largest clients and difficulty in identifying, attracting and retaining qualified billable technical personnel; (iv) potentially incorrect assumptions by management with respect to the financial effect of prior cost reduction initiatives and current strategic decisions; and (v) other economic, business, market, financial, competitive and/or regulatory factors affecting AIC’s business generally. This Form 10-Q also includes forward-looking statements about: (i) our strategic plans, the objectives of those strategic plans and our ability to successfully implement our strategic plans, (ii) our expectations with respect to the demand for our services and continuing pressure from clients to request lower cost offerings for IT staffing services, (iii) our expectations with respect to competition in our industry and our ability to compete, and (iv) our expectations with respect to our

14

financial results and operating performance. Any statements made in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “should,” project,” “forecast,” “plan” or “continue,” or comparable terminology including other words and terms of similar meaning or import, or variations thereof, or in connection with any discussion of future operating or financial performance, are intended to identify forward-looking statements.

Among the factors that could cause our estimates and assumptions as to future performance, and our actual results to differ materially, are: (i) our inability, in whole or in part, to implement or execute our strategic plans, (ii) our inability to successfully recruit and hire qualified technical personnel, (iii) our inability to successfully compete on a local and national basis with other companies in our industry or with new competitors who face limited barriers to entry in the markets we serve, (iv) our inability to maintain key client relationships or to attract new clients, (v) our inability to attract, retain or motivate key personnel, (vi) our inability to continue to reduce or leverage our operating costs, (vii) the possibility that we may incur liability for the errors or omissions of our consultants providing IT services for clients or the risk that we may be subject to claims for indemnification under contracts with our clients, (viii) our inability to comply with the requirements in our line of credit or to obtain a replacement line of credit on commercially reasonable terms, and (ix) as well as other economic, business, competitive and/or regulatory factors affecting our business generally, including those set forth in this Quarterly Report on Form 10-Q for 2013 (especially in the Management’s Discussion and Analysis and Risk Factors section thereof) and our Current Reports on Form 8-K. All forward-looking statements included in this Form 10-Q are based on information available to us as of the date hereof and largely reflect estimates and assumptions made by our management, which may be difficult to predict and beyond our control. We undertake no obligation (and expressly disclaim any such obligation) to update forward-looking statements made in this Form 10-Q to reflect events or circumstances after the date of this Form 10-Q or to update reasons why actual results would differ from those anticipated in any such forward-looking statements, other than as required by law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

(a)           Evaluation of Disclosure Controls and Procedures

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

(b)           Changes in Internal Controls

The Company reviews the effectiveness of its internal controls on a continuous basis, and makes changes as necessary. There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report, which ended on March 30, 2013, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

15

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

There are no pending legal proceedings to which we are a party or to which any of our property is subject, other than routine litigation incidental to the business.

Item 1A.Risk Factors

There were no material changes in the Company’s risk factors from those previously disclosed in the Company’s Form 10-K for the period ended December 29, 2012.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.Defaults Upon Senior Securities.

None.

Item 4.Mine Safety Disclosures

None.

Item 5.Other Information.

None.

16

Item 6.          Exhibits.

Exhibit No.	Description
^2.1	Asset Purchase Agreement, dated August 4, 2009, by and between Netarx LLC and the Company (with Ex. K, Form of Promissory Note) (Exhibit 2.1 to Current Report on Form 8-K, filed August 5, 2009, Commission File No. 1-33981, incorporated by reference).
^ 3.1	Articles of Incorporation, as amended (Exhibit 3-a to Annual Report on Form 10-K for fiscal year 1988, Commission File No. 0-4090, incorporated by reference).
^ 3.2	Restated Bylaws (Exhibit 3-b to Annual Report on Form 10-K for fiscal year 2000, Commission File No. 0-4090, incorporated by reference).
^ 3.3	Amendment to Articles of Incorporation to increase authorized shares to 40 million (Exhibit A to Definitive Proxy Statement dated September 5, 1996, Commission File No. 0-4090, incorporated by reference).
^ 3.4	Amendment to Articles of Incorporation to increase authorized shares to 60 million (Exhibit 3-d to Annual Report on Form 10-K for fiscal year 1998, Commission File No. 0-4090, incorporated by reference).
^ 3.5	Amendment to Articles of Incorporation to increase authorized shares to 120 million (Exhibit A to Definitive Proxy Statement dated September 8, 1998, Commission File No. 0-4090, incorporated by reference).
^3.6	Amendment to Articles of Incorporation to reduce authorized shares to 24 million (Exhibit 3.6 to Quarterly Report on Form 10-Q dated May 5, 2010, Commission File No. 0-4090, incorporated by reference).
^3.7	Amendment No. 1 to Restated Bylaws of Analysts International Corporation (Exhibit 3.1 to the Registrant’s Form 8-K filed May 25, 2010, Commission File No. 0-4090, incorporated by reference).
^3.8	Articles of Incorporation, as amended (Exhibit 3.1 to the Registrant’s Form 8-K filed December 17, 2010, Commission File No. 1-33981, incorporated by reference).
^3.9	Amendment to Bylaws of Analysts International Corporation (Exhibit 3.2 to the Registrant’s Form 8-K filed December 17, 2010, Commission File No. 1-33981, incorporated by reference).
^4.1	Specimen Common Stock Certificate (previously filed as Exhibit 4.2 to Quarterly Report on Form 10-Q for period ended October 3, 2009, Commission File No. 1-33981, incorporated by reference).
^ 4.2	Amended and Restated Rights Agreement dated as of February 27, 2008 between the Company and Wells Fargo Bank N.A. and Form of Right Certificate (Exhibit 4.1 to the Registrant’s Form 8-A12B dated February 27, 2008, Commission File No. 0-4090, incorporated by reference).
^ 4.3	Amendment No. 1 to Amended and Restated Rights Agreement dated as of May 25, 2010 by and between Analysts International Corporation and Wells Fargo Bank, N.A. (Exhibit 4.1 to the Registrant’s Form 8-K filed May 25, 2010, Commission File No. 0-4090, incorporated by reference).
^10.75	Fourth Amendment to Credit and Security Agreement dated as of February 20, 2013 by and between Analysts International Corporation and Wells Fargo Bank, N.A. (Exhibit 10.75 to Annual Report on Form 10-K for the period ended December 29, 2012, Commission File No. 1-33981, incorporated by reference).
+ 31.1	Certification of CEO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
+ 31.2	Certification of CFO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
++ 32	Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
++101.1	The following materials from Analysts International Corporation’s Quarterly Report on Form 10-Q are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statement of Cash Flows, and (iv) Notes to Consolidated Financial Statements.

^	Denotes an exhibit previously filed with the Securities and Exchange Commission and incorporated herein by reference.
+	Filed herewith.
++	Furnished herewith.

17

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ANALYSTS INTERNATIONAL CORPORATION
	(Registrant)
Date: May 9, 2013	By:	/s/ Brittany B. McKinney
		Brittany B. McKinney
		President and Chief Executive Officer
		(Principal Executive Officer)
Date:  May 9, 2013	By:	/s/ Lynn L. Blake
		Lynn L. Blake
		Senior Vice President, Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)

18

EXHIBIT INDEX

Exhibit No.	Description
^2.1	Asset Purchase Agreement, dated August 4, 2009, by and between Netarx LLC and the Company (with Ex. K, Form of Promissory Note) (Exhibit 2.1 to Current Report on Form 8-K, filed August 5, 2009, Commission File No. 1-33981, incorporated by reference).
^ 3.1	Articles of Incorporation, as amended (Exhibit 3-a to Annual Report on Form 10-K for fiscal year 1988, Commission File No. 0-4090, incorporated by reference).
^ 3.2	Restated Bylaws (Exhibit 3-b to Annual Report on Form 10-K for fiscal year 2000, Commission File No. 0-4090, incorporated by reference).
^ 3.3	Amendment to Articles of Incorporation to increase authorized shares to 40 million (Exhibit A to Definitive Proxy Statement dated September 5, 1996, Commission File No. 0-4090, incorporated by reference).
^ 3.4	Amendment to Articles of Incorporation to increase authorized shares to 60 million (Exhibit 3-d to Annual Report on Form 10-K for fiscal year 1998, Commission File No. 0-4090, incorporated by reference).
^ 3.5	Amendment to Articles of Incorporation to increase authorized shares to 120 million (Exhibit A to Definitive Proxy Statement dated September 8, 1998, Commission File No. 0-4090, incorporated by reference).
^3.6	Amendment to Articles of Incorporation to reduce authorized shares to 24 million (Exhibit 3.6 to Quarterly Report on Form 10-Q dated May 5, 2010, Commission File No. 0-4090, incorporated by reference).
^3.7	Amendment No. 1 to Restated Bylaws of Analysts International Corporation (Exhibit 3.1 to the Registrant’s Form 8-K filed May 25, 2010, Commission File No. 0-4090, incorporated by reference).
^3.8	Articles of Incorporation, as amended (Exhibit 3.1 to the Registrant’s Form 8-K filed December 17, 2010, Commission File No. 1-33981, incorporated by reference).
^3.9	Amendment to Bylaws of Analysts International Corporation (Exhibit 3.2 to the Registrant’s Form 8-K filed December 17, 2010, Commission File No. 1-33981, incorporated by reference).
^4.1	Specimen Common Stock Certificate (previously filed as Exhibit 4.2 to Quarterly Report on Form 10-Q for period ended October 3, 2009, Commission File No. 1-33981, incorporated by reference).
^ 4.2	Amended and Restated Rights Agreement dated as of February 27, 2008 between the Company and Wells Fargo Bank N.A. and Form of Right Certificate (Exhibit 4.1 to the Registrant’s Form 8-A12B dated February 27, 2008, Commission File No. 0-4090, incorporated by reference).
^ 4.3	Amendment No. 1 to Amended and Restated Rights Agreement dated as of May 25, 2010 by and between Analysts International Corporation and Wells Fargo Bank, N.A. (Exhibit 4.1 to the Registrant’s Form 8-K filed May 25, 2010, Commission File No. 0-4090, incorporated by reference).
^10.75	Fourth Amendment to Credit and Security Agreement dated as of February 20, 2013 by and between Analysts International Corporation and Wells Fargo Bank, N.A. (Exhibit 10.75 to Annual Report on Form 10-K for the period ended December 29, 2012, Commission File No. 1-33981, incorporated by reference).
+ 31.1	Certification of CEO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
+ 31.2	Certification of CFO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
++ 32	Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
++ 101.1	The following materials from Analysts International Corporation’s Quarterly Report on Form 10-Q are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statement of Cash Flows, and (iv) Notes to Consolidated Financial Statements.

^	Denotes an exhibit previously filed with the Securities and Exchange Commission and incorporated herein by reference.
+	Filed herewith.
++	Furnished herewith.

19

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Brittany B. McKinney, certify that:

1.           I have reviewed this quarterly report on Form 10-Q of Analysts International Corporation;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)       Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)       Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c)       Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)       Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)       All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)       Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 9, 2013	By:	/s/ Brittany B. McKinney
		Brittany B. McKinney
		President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Lynn L. Blake, certify that:

1.            I have reviewed this quarterly report on Form 10-Q of Analysts International Corporation;

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.            The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d - 15(f)) for the registrant and have:

a)       Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)       Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c)       Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)       Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and

5.            The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)       All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)       Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 9, 2013	By:	/s/ Lynn L. Blake
		Lynn L. Blake
		Senior Vice President, Chief Financial Officer and Treasurer

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Analysts International Corporation (the “Company”) on Form 10-Q for the period ended March 30, 2013 as filed with the Securities and Exchange Commission (the “Report”), the undersigned, Brittany B. McKinney, President and Chief Executive Officer of the Company, and Lynn L. Blake, Senior Vice President, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)         The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)         The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 9, 2013	By:	/s/ Brittany B. McKinney
		Brittany B. McKinney
		President and Chief Executive Officer
Dated: May 9, 2013	By:	/s/ Lynn L. Blake
		Lynn L. Blake
		Senior Vice President, Chief Financial Officer and Treasurer

XML

Shareholders' Equity

3 Months Ended

Mar. 30, 2013

Shareholders' Equity

Shareholders' Equity

4.   Shareholders’ Equity

										Total
	Outstanding	Common		Additional			Accumulated			Shareholders’
(In thousands, except share amounts)	Shares	Stock		Capital			Deficit			Equity
Balance as of December 29, 2012	5,084,155	$	508	$	26,644		$	(8,004	)	$	19,148
Common stock issued	25,972	3		127			—			130
Share based compensation expense	—	—		(25		)	—			(25		)
Stock option exercises	—	—		—			—			—
Net income	—	—		—			229			229
Balance as of March 30, 2013	5,110,127	$	511	$	26,746		$	(7,775	)	$	19,482

XML

Financing Agreement

3 Months Ended

Mar. 30, 2013

Financing Agreement

Financing Agreement

3.  Financing Agreement

Revolving Credit Facility

On February 20, 2013, we entered into the Fourth Amendment to the Credit and Security Agreement (“Amended Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”). The Fourth Amendment adjusted certain collateral borrowing base calculations associated with our eligible unbilled accounts receivable and is expected to increase our borrowing availability in periods in which our fiscal period ends prior to the calendar month end, which affects our unbilled accounts receivable levels for clients on a calendar month billing cycle. In addition, the Fourth Amendment extended the term of the Amended Credit Facility from September 30, 2014 to September 30, 2016. Finally, the Fourth Amendment adjusted our minimum trailing twelve months earnings before taxes financial covenant to a loss of $0.1 million for the period ending March 30, 2013, a loss of $0.3 million for the period ending June 29, 2013 and earnings of $0.25 million for periods thereafter through the expiration of the credit agreement ending on September 30, 2016.

Under the Amended Credit Facility, Wells Fargo will continue to advance up to $15.0 million to us for working capital purposes and to facilitate the issuance of letters of credit. The total amount available for borrowing under the Amended Credit Facility will fluctuate based on our level of eligible accounts receivable.

The Amended Credit Facility carries an interest rate equal to the three-month LIBOR rate plus 1.50% - 2.50%, depending on our operating results. The credit facility had a one-time origination fee of $150,000, the balance of which is being amortized over the new term of the Amended Credit Facility. The annual unused line fee varies between 0.25% - 0.375%, depending on our operating results, on the daily average unused amount. The interest rate effective at the end of fiscal year 2012 was 2.375% and the unused line fee rate was 0.25%. The maturity date of the Amended Credit Facility is September 30, 2016 and may be terminated or reduced by us on 90 days notice in exchange for a termination fee of 0.25% of the maximum line amount or reduction of the maximum line amount through September 30, 2015 and no fee in the final year of the agreement ending on September 30, 2016. Borrowings under the Amended Credit Facility are secured by all of our assets.

The Amended Credit Facility limits our annual capital expenditures to $2.0 million. We are required to maintain a minimum excess borrowing base availability of not less than $3.0 million. The Amended Credit Facility contains customary affirmative covenants, including covenants regarding annual, quarterly and projected financial reporting requirements, collateral and insurance maintenance, and compliance with applicable laws and regulations. Further, the facility contains customary negative covenants limiting our ability to grant liens, incur indebtedness, make investments, repurchase our stock, create new subsidiaries, sell assets or engage in any change of control transaction without the consent of Wells Fargo.

Upon an event of default, Wells Fargo may terminate the facility or declare the entire amount outstanding under the facility to be immediately due and payable and exercise other rights under the agreement. The events of default under the facility include, among other things, payment defaults, breaches of covenants, a change in control and bankruptcy events.

As of March 30, 2013, we were in compliance with all the requirements and had no outstanding borrowings under the Amended Credit Facility. Total availability under the Amended Credit Facility, which fluctuates based on our level of eligible accounts receivable, was $12.1 million as of March 30, 2013.

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 30, 2013	Dec. 29, 2012
Current assets:
Cash and cash equivalents	$ 5,654	$ 5,792
Accounts receivable, less allowance for doubtful accounts of $688 and $671, respectively	17,451	16,095
Prepaid expenses and other current assets	924	281
Total current assets	24,029	22,168
Property and equipment, net of accumulated depreciation of $7,659 and $7,492, respectively	2,333	2,366
Other assets	124	185
Total assets	26,486	24,719
Current liabilities:
Accounts payable	2,419	2,651
Salaries and benefits	3,150	1,724
Deferred revenue	591	331
Deferred compensation	60	62
Other current liabilities	535	529
Total current liabilities	6,755	5,297
Non-current liabilities:
Deferred compensation	249	270
Other long-term liabilities		4
Total non-current liabilities	249	274
Shareholders' equity:
Common stock, par value $0.10 a share; authorized 24,000,000 shares; issued and outstanding 5,110,127 and 5,084,155, respectively	511	508
Additional capital	26,746	26,644
Accumulated deficit	(7,775)	(8,004)
Total shareholders' equity	19,482	19,148
Total liabilities and shareholders' equity	$ 26,486	$ 24,719

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Organization and Nature of Business

3 Months Ended

Mar. 30, 2013

Organization and Nature of Business

Organization and Nature of Business

1.   Organization and Nature of Business

Analysts International Corporation (“AIC,” “Company,” “we,” “us,” or “our”) is an information technology (“IT”) services company. We employ approximately 850 IT professionals, management and administrative staff and are focused on serving the IT needs of mid-market to Fortune 500 companies and government agencies across North America. AIC was incorporated in Minnesota in 1966 and our corporate headquarters is located in Minneapolis, Minnesota. For a more complete description of our Company, please refer to our Annual Report on Form 10-K for the fiscal year ended December 29, 2012.

We operate on a fiscal year ending on the Saturday closest to December 31. Accordingly, fiscal 2013 will end on Saturday, December 28, 2013. The first quarter of fiscal 2013 ended on March 30, 2013 and the first quarter of fiscal 2012 ended on March 31, 2012.

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 30, 2013

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2.   Summary of Significant Accounting Policies

Basis of Consolidation

The accompanying unaudited Consolidated Financial Statements of AIC have been prepared on the accrual basis of accounting and in accordance with the requirements of the Securities and Exchange Commission (“SEC”) for interim financial reporting. As permitted under these rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States (“U.S. GAAP”) can be condensed or omitted. The Consolidated Financial Statements included in this document reflect, in the opinion of our management, all adjustments (consisting of only normal recurring adjustments, except as noted elsewhere in the Notes to Consolidated Financial Statements) necessary for fair presentation of the results of operations for the interim periods presented. The following notes should be read in conjunction with the accounting policies and other disclosures in the Notes to the Consolidated Financial Statements incorporated by reference in our Annual Report on Form 10-K for the fiscal year ended December 29, 2012. Revenues, expenses, cash flows, assets and liabilities can and do vary during the year. Therefore, interim results are not necessarily indicative of the results to be expected for the full fiscal year.

Estimates

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

Fringe Benefits Expenses

A component of our Cost of revenues and Selling, administrative and other operating costs are employer benefit costs associated with our employees. These benefit expenses include employer taxes, paid time off, group insurance expense (health, dental, life), holiday time and other employer related expenses, referred to in total as “Fringe Benefits Expenses”. We recognize Fringe Benefits Expenses associated with our employees ratably over each of our fiscal quarters during the year based on full year estimates of our employee labor expenses and Fringe Benefits Expenses which most accurately matches expenses with our revenues.

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 30, 2013	Dec. 29, 2012
Consolidated Balance Sheets
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 688	$ 671
Property and equipment, accumulated depreciation (in dollars)	$ 7,659	$ 7,492
Common stock, par value (in dollars per share)	$ 0.10	$ 0.10
Common stock, shares authorized	24,000,000	24,000,000
Common stock, shares issued	5,110,127	5,084,155
Common stock, shares outstanding	5,110,127	5,084,155

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Financing Agreement (Details) (USD $)	3 Months Ended	12 Months Ended	3 Months Ended				0 Months Ended	3 Months Ended
	Mar. 30, 2013 Amended Credit Facility	Dec. 29, 2012 Amended Credit Facility	Mar. 30, 2013 Amended Credit Facility Period through September 30, 2015	Mar. 30, 2013 Amended Credit Facility Period ending September 30, 2016	Mar. 30, 2013 Amended Credit Facility Minimum	Mar. 30, 2013 Amended Credit Facility Maximum	Feb. 20, 2013 Fourth Amendment	Mar. 30, 2013 Fourth Amendment Period ending March 30, 2013	Mar. 30, 2013 Fourth Amendment Period ending June 29, 2013	Mar. 30, 2013 Fourth Amendment Period through ending on September 30, 2016
Financing agreement
Annual capital expenditure allowed under credit facility	$ 2,000,000
Trailing period under financial covenants							12 months
Trailing twelve months earnings before taxes financial covenant, subsequent to amendment								(100,000)	(300,000)	250,000
Maximum borrowing capacity	15,000,000
Excess borrowing base availability each year as per financial covenant					3,000,000
Base rate	three-month LIBOR
Spread over base rate (as a percent)					1.50%	2.50%
One-time origination fee	150,000
Unused line fee (as a percent)		0.25%			0.25%	0.375%
Effective interest rate (as a percent)		2.375%
Period of notice for termination or reduction of credit facility	90 days
Termination fee as percentage of maximum line amount			0.25%	0.00%
Borrowings outstanding	0
Total availability under credit facility	$ 12,100,000

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Document and Entity Information	3 Months Ended
	Mar. 30, 2013	May 08, 2013
Document and Entity Information
Entity Registrant Name	ANALYSTS INTERNATIONAL CORP
Entity Central Index Key	0000006292
Document Type	10-Q
Document Period End Date	Mar. 30, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-28
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		5,110,127
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1

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Shareholders' Equity (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 30, 2013	Mar. 31, 2012
Changes in shareholders' equity
Balance	$ 19,148
Common stock issued	130
Share based compensation expense	(25)
Net income	229	198
Balance	19,482
Common Stock
Changes in shareholders' equity
Balance at the beginning of the period, shares	5,084,155
Balance	508
Common stock issued (in shares)	25,972
Common stock issued	3
Balance at the end of the period, shares	5,110,127
Balance	511
Additional Capital
Changes in shareholders' equity
Balance	26,644
Common stock issued	127
Share based compensation expense	(25)
Balance	26,746
Accumulated Deficit
Changes in shareholders' equity
Balance	(8,004)
Net income	229
Balance	$ (7,775)

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Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 30, 2013	Mar. 31, 2012
Consolidated Statements of Operations
Revenues	$ 24,563	$ 26,723
Cost of revenues	18,995	20,347
Gross profit	5,568	6,376
Selling, administrative and other operating costs	5,321	6,186
Total operating expenses	5,321	6,186
Operating income	247	190
Interest expense	(1)	(1)
Income before income taxes	246	189
Income tax expense (benefit)	17	(9)
Net income (comprehensive income)	$ 229	$ 198
Per common share (basic):
Net income (comprehensive income) (in dollars per share)	$ 0.04	$ 0.04
Per common share (diluted):
Net income (comprehensive income) (in dollars per share)	$ 0.04	$ 0.04
Weighted-average shares outstanding:
Basic (in shares)	5,092	5,044
Diluted (in shares)	5,109	5,114

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 30, 2013

Summary of Significant Accounting Policies

Basis of Consolidation

Basis of Consolidation

The accompanying unaudited Consolidated Financial Statements of AIC have been prepared on the accrual basis of accounting and in accordance with the requirements of the Securities and Exchange Commission (“SEC”) for interim financial reporting. As permitted under these rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States (“U.S. GAAP”) can be condensed or omitted. The Consolidated Financial Statements included in this document reflect, in the opinion of our management, all adjustments (consisting of only normal recurring adjustments, except as noted elsewhere in the Notes to Consolidated Financial Statements) necessary for fair presentation of the results of operations for the interim periods presented. The following notes should be read in conjunction with the accounting policies and other disclosures in the Notes to the Consolidated Financial Statements incorporated by reference in our Annual Report on Form 10-K for the fiscal year ended December 29, 2012. Revenues, expenses, cash flows, assets and liabilities can and do vary during the year. Therefore, interim results are not necessarily indicative of the results to be expected for the full fiscal year.

Estimates

Estimates

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

Fringe Benefits Expenses

Fringe Benefits Expenses

A component of our Cost of revenues and Selling, administrative and other operating costs are employer benefit costs associated with our employees. These benefit expenses include employer taxes, paid time off, group insurance expense (health, dental, life), holiday time and other employer related expenses, referred to in total as “Fringe Benefits Expenses”. We recognize Fringe Benefits Expenses associated with our employees ratably over each of our fiscal quarters during the year based on full year estimates of our employee labor expenses and Fringe Benefits Expenses which most accurately matches expenses with our revenues.

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Net Income Per Share

3 Months Ended

Mar. 30, 2013

Net Income Per Share

Net Income Per Share

6.   Net Income Per Share

Basic and diluted income per share is presented in accordance with ASC Topic 260, Earnings Per Share. Basic income per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted income per share includes dilutive potential common shares outstanding and is computed by dividing income available to common stockholders by the weighted-average number of common and common equivalent shares outstanding for the period.

For the three-month period ended March 30, 2013, anti-dilutive weighted average shares of 372,000 were excluded from the calculation of weighted average number of common equivalent shares outstanding. For the three-month period ended March 31, 2012, anti-dilutive weighted average shares of 124,000 were excluded from the calculation of weighted average number of common equivalent shares outstanding. The computation of basic and diluted income per share for the three months ended March 30, 2013 and March 31, 2012 is as follows:

	Three Months Ended
	March 30,		March 31,
(In thousands except per share amounts)	2013		2012
Net income	$	229	$	198
Weighted-average number of common shares outstanding	5,092		5,044
Dilutive effect of potential common shares outstanding	17		70
Weighted-average number of common and common equivalent shares outstanding	5,109		5,114
Net income per share:
Basic	$	0.04	$	0.04
Diluted	$	0.04	$	0.04

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Share Based Compensation (Details) (USD $)	3 Months Ended		12 Months Ended
	Mar. 30, 2013	Mar. 31, 2012	Dec. 29, 2012
Share Based Compensation
Share based compensation expense	$ 100,000	$ 200,000
Tax benefit on share based compensation expense	(25,000)	(13,000)
Stock Options
Share Based Compensation
Share based compensation expense	53,000
Options
Outstanding at the beginning of the period (in shares)	335,650
Granted (in shares)	8,800
Forfeited/Cancelled (in shares)	(2,400)
Outstanding at the end of the period (in shares)	342,050		335,650
Vested and expected to vest (in shares)	326,678
Exercisable (in shares)	250,359
Weighted Average Exercise Price Per Share
Outstanding at the beginning of the period (in dollars per share)	$ 5.31
Granted (in dollars per share)	$ 3.24
Forfeited/Cancelled (in dollars per share)	$ 10.00
Outstanding at the end of the period (in dollars per share)	$ 5.23		$ 5.31
Vested and expected to vest (in dollars per share)	$ 5.26
Exercisable (in dollars per share)	$ 5.48
Weighted Average Remaining Contractual Term
Outstanding	7 years 1 month 17 days		7 years 3 months 4 days
Vested and expected to vest	7 years 14 days
Exercisable	6 years 6 months 11 days
Aggregate Intrinsic Value
Outstanding (in dollars)	81,896		34,124
Vested and expected to vest (in dollars)	79,961
Exercisable (in dollars)	69,065
Additional disclosure
Total fair value of the awards vested	121,000
Exercised (in shares)	0	13,250
Total intrinsic value of awards exercised	0	30,000
Income tax benefit from stock option exercises	0	0
Unrecognized compensation expense related to unvested stock options	100,000
Additional disclosure
Weighted-average period for recognizing unrecognized share based compensation expense related to unvested stock	1 year 4 months 24 days
Stock Awards
Share Based Compensation
Share based compensation expense	70,000
Shares
Non-vested at the beginning of the period (in shares)	98,753
Granted (in shares)	1,200
Vested (in shares)	(30,261)
Non-vested at the end of the period (in shares)	69,692
Weighted Average Grant Date Fair Value
Non-vested at the beginning of the period (in dollars per share)	$ 4.78
Granted (in dollars per share)	$ 3.24
Vested (in dollars per share)	$ (4.79)
Non-vested at the beginning of the period (in dollars per share)	$ 4.75
Additional disclosure
Total fair value of the awards vested	145,000
Unrecognized compensation expense related to unvested stock awards	$ 100,000
Weighted-average period for recognizing unrecognized share based compensation expense related to unvested stock	1 year 2 months 12 days

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Net Income Per Share (Tables)

3 Months Ended

Mar. 30, 2013

Net Income Per Share

Schedule of computation of basic and diluted income per share

	Three Months Ended
	March 30,		March 31,
(In thousands except per share amounts)	2013		2012
Net income	$	229	$	198
Weighted-average number of common shares outstanding	5,092		5,044
Dilutive effect of potential common shares outstanding	17		70
Weighted-average number of common and common equivalent shares outstanding	5,109		5,114
Net income per share:
Basic	$	0.04	$	0.04
Diluted	$	0.04	$	0.04

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Shareholders' Equity (Tables)

3 Months Ended

Mar. 30, 2013

Shareholders' Equity

Shareholders' Equity

										Total
	Outstanding	Common		Additional			Accumulated			Shareholders’
(In thousands, except share amounts)	Shares	Stock		Capital			Deficit			Equity
Balance as of December 29, 2012	5,084,155	$	508	$	26,644		$	(8,004	)	$	19,148
Common stock issued	25,972	3		127			—			130
Share based compensation expense	—	—		(25		)	—			(25		)
Stock option exercises	—	—		—			—			—
Net income	—	—		—			229			229
Balance as of March 30, 2013	5,110,127	$	511	$	26,746		$	(7,775	)	$	19,482

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Share Based Compensation (Tables)

3 Months Ended

Mar. 30, 2013

Share Based Compensation

Summary of stock option activity

	Options		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding on December 29, 2012	335,650		$	5.31	7.26	$	34,124
Granted	8,800		3.24
Exercised	—		—
Forfeited/Cancelled	(2,400	)	10.00
Outstanding on March 30, 2013	342,050		$	5.23	7.13	$	81,896
Vested or expected to vest at March 30, 2013	326,678		5.26		7.04	$	79,961
Exercisable on March 30, 2013	250,359		5.48		6.53	$	69,065

Summary of stock award activity

	Shares		Weighted Average Grant Date Fair Value
Non-vested at December 29, 2012	98,753		$	4.78
Granted	1,200		3.24
Vested	(30,261	)	(4.79		)
Forfeited	—		—
Non-vested at March 30, 2013	69,692		$	4.75

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Organization and Nature of Business (Details)	Mar. 30, 2013 staff
Organization and Nature of Business
Number of IT professionals, management and administrative staff employed	850

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 30, 2013	Mar. 31, 2012
Cash flows from operating activities:
Net income	$ 229	$ 198
Adjustments to net income:
Depreciation	168	151
Share based compensation	120	191
Changes in:
Accounts receivable	(1,356)	(3,150)
Prepaid expenses and other assets	(582)	16
Accounts payable	(238)	(473)
Salaries and benefits	1,411	657
Deferred revenue	260	112
Deferred compensation	(23)	(108)
Restructuring accrual		(207)
Other accrued liabilities	2	(6)
Net cash used in operating activities	(9)	(2,619)
Cash flows from investing activities:
Expended for property and equipment additions	(129)	(543)
Net cash used in investing activities	(129)	(543)
Cash flows from financing activities:
Proceeds from line of credit		1,500
Payments on line of credit		(1,500)
Proceeds from stock option exercises		41
Net cash provided by financing activities		41
Net decrease in cash and cash equivalents	(138)	(3,121)
Cash and cash equivalents at beginning of period	5,792	5,135
Cash and cash equivalents at end of period	5,654	2,014
Cash paid during the year for:
Income taxes refunded	(10)
Interest	1	1
Non-cash investing and financing activities:
Capital expenditures included in accounts payable	$ 59	$ 181

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Share Based Compensation

3 Months Ended

Mar. 30, 2013

Share Based Compensation

Share Based Compensation

5.  Share Based Compensation

Total share based compensation expense for the three month period ended March 30, 2013 and March 31, 2012 was approximately $0.1 million and $0.2 million, respectively, and includes compensation expense related to both stock options and stock awards.

In the first quarter of 2013, we recorded a reduction of the tax benefit of $25,000 and for the first quarter of fiscal 2012, we recorded a reduction of the tax benefit of $13,000. The tax benefit is offset against our valuation allowance for our deferred tax asset.

Stock Options

The following table summarizes the stock option activity for the three months ended March 30, 2013:

	Options		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding on December 29, 2012	335,650		$	5.31	7.26	$	34,124
Granted	8,800		3.24
Exercised	—		—
Forfeited/Cancelled	(2,400	)	10.00
Outstanding on March 30, 2013	342,050		$	5.23	7.13	$	81,896
Vested or expected to vest at March 30, 2013	326,678		5.26		7.04	$	79,961
Exercisable on March 30, 2013	250,359		5.48		6.53	$	69,065

The total fair value of the stock options that vested during the three months ended March 30, 2013 was approximately $121,000.

For the three month period ended March 30, 2013, no options were exercised; therefore the total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) and the income tax benefit realized from stock option exercises were both $0.

For the three month period ended March 31, 2012, 13,250 options were exercised and the total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) was approximately $30,000. The income tax benefit realized from stock option exercises was $0.

Total stock option expense for the three months ended March 30, 2013 was approximately $53,000. As of March 30, 2013, there was approximately $0.1 million of unrecognized share based compensation expense related to unvested stock options that are expected to vest over a weighted-average period of approximately 1.4 years. Options to purchase 342,050 shares were outstanding at March 30, 2013.

Stock Awards

The following table summarizes the stock award activity for the three months ended March 30, 2013:

	Shares		Weighted Average Grant Date Fair Value
Non-vested at December 29, 2012	98,753		$	4.78
Granted	1,200		3.24
Vested	(30,261	)	(4.79		)
Forfeited	—		—
Non-vested at March 30, 2013	69,692		$	4.75

The total fair value of stock awards that vested during the three months ended March 30, 2013 was approximately $145,000 respectively.

Total stock award expense for the three months ended March 30, 2013 was $70,000.

As of March 30, 2013, there was $0.1 million of unrecognized compensation expense related to unvested stock awards that were expected to vest over a weighted average period of 1.2 years.

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Net Income Per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 30, 2013	Mar. 31, 2012
Net Income Per Share
Anti-dilutive weighted average shares excluded from calculation of weighted average number of common and common equivalent shares outstanding	372,000	124,000
Net income	$ 229	$ 198
Weighted-average number of common shares outstanding	5,092,000	5,044,000
Dilutive effect of potential common share outstanding	17,000	70,000
Weighted-average number of common and common equivalent shares outstanding	5,109,000	5,114,000
Net income per share:
Basic (in dollars per share)	$ 0.04	$ 0.04
Diluted (in dollars per share)	$ 0.04	$ 0.04