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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(Mark One)

For the quarterly period ended July 3, 2005

OR

For the transition period from              to             

Commission file number 000-27792

COMSYS IT PARTNERS, INC.

(Exact name of Registrant as specified in its charter)

4400 Post Oak Parkway, Suite 1800

Houston, TX 77027

(Address, including zip code, of

Registrant’s principal executive offices)

(713) 386-1400

(Registrant’s telephone number, including area code)

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 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  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes  ¨    No  x

As of August 16, 2005, 15,666,304 shares of the registrant’s Common Stock, $.01 par value, were outstanding.

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COMSYS IT PARTNERS, INC.

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ITEM 1. FINANCIAL STATEMENTS

COMSYS IT Partners, Inc. and Subsidiaries

Unaudited Consolidated Statements of Operations

For the Three and Six Months Ended July 3, 2005 and June 30, 2004

(in thousands, except per share data)

The accompanying notes are an integral part of these statements.

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COMSYS IT Partners, Inc. and Subsidiaries

Unaudited Consolidated Balance Sheets

At July 3, 2005 and January 2, 2005

(in thousands, except shares and par value)

The accompanying notes are an integral part of these balance sheets.

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COMSYS IT Partners, Inc. and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

For the Six Months Ended July 3, 2005 and June 30, 2004

(in thousands)

The accompanying notes are an integral part of these statements.

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COMSYS IT Partners, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(1) General

The unaudited consolidated financial statements included herein have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and footnotes required by generally accepted accounting principles; however, they do include all adjustments of a normal recurring nature that, in the opinion of management, are necessary to present fairly the results of operations of COMSYS IT Partners, Inc. and its subsidiaries (collectively, the “Company”) for the interim periods presented. These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended January 2, 2005. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the entire year.

On September 30, 2004, COMSYS Holding, Inc. (“COMSYS Holding”) completed a merger transaction with Venturi Partners, Inc. (“Venturi”), a publicly-traded 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. Also on September 30, 2004, Venturi sold its commercial staffing business.

Accounting principles generally accepted in the United States of America require that one of the two companies in the transaction be designated as the acquirer for accounting purposes. Because former COMSYS Holding stockholders now own a majority of the outstanding common stock as a result of the merger, COMSYS Holding is deemed the acquiring company for accounting and financial reporting purposes. A majority of the initial board of directors of the Company are COMSYS Holding designees and most members of management are former COMSYS Holding employees. References to “Old COMSYS” refer to COMSYS Holding and its consolidated subsidiaries prior to the merger and references to “COMSYS” or “the Company” refer to COMSYS IT Partners, Inc. and its consolidated subsidiaries after the merger. References to “Venturi” refer to Venturi and its consolidated subsidiaries prior to the merger.

The financial results included in this report include only the historical results of Old COMSYS for the three and six months ended June 30, 2004. Financial results for the three and six months ended July 3, 2005 include the combined operations of Old COMSYS and Venturi. Following the merger, COMSYS adopted the fiscal accounting periods of Venturi. As a result, the Company’s fiscal year ends on the Sunday closest to December 31^st and its first three fiscal quarters are each equal to 13 calendar weeks (ending on a Sunday). Prior to the merger, Old COMSYS’ fiscal quarters were consistent with calendar quarters and its fiscal year-end was December 31^st.

All references to common stock, share and per share amounts have been retroactively restated to reflect the exchange ratio of .0001 of a share of COMSYS common stock for each share of COMSYS Holding common stock outstanding immediately prior to the merger as if the exchange had taken place as of the beginning of the earliest period presented.

Certain reclassifications of prior year’s balances have been made to conform to the current period presentation.

(2) Restructuring and Other Charges

In connection with the merger in 2004, the Company recorded reserves amounting to $17.2 million for severance payouts and the costs to exit duplicate office space. Of this amount, $12.5 million was related to the termination of Venturi employees and leases and was included in the purchase price allocation in accordance with Emerging Issues Task Force Issue No. 95-3, and $4.7 million was related primarily to terminated employees and leases of Old COMSYS and was charged to integration and restructuring expense in 2004. At July 3, 2005, $5.7 million remained of the reserves.

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COMSYS IT Partners, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—Continued

The following is a summary of the liability for integration and restructuring costs for the six months ended July 3, 2005 (in thousands):

Of the remaining balance at July 3, 2005, COMSYS expects to pay approximately $2.4 million in the remainder of fiscal 2005 and the balance, which consists primarily of lease payments, over the following seven years. The Company recorded an adjustment in the second quarter of 2005 in the amount of $1.3 million, of which $584,000 was included as an offset in integration and restructuring expense and $762,000 was recorded as an adjustment to goodwill. These adjustments resulted from the sublease of three offices and the termination of two leases.

For the six months ended July 3, 2005, the Company recorded restructuring and integration costs of $3.9 million, reflecting integration services provided by third parties and transition costs related to duplicative leases and integration of back-office systems.

In connection with the merger in 2004, the Company recorded an aggregate of $14.2 million for restructuring and integration costs during the fiscal quarters ended January 2, 2005, April 3, 2005 and July 3, 2005. This amount includes $424,000 recorded in the second quarter of 2005, comprised of expenses of $1.0 million net of the aforementioned adjustment to the reserve for lease termination costs in the amount of $584,000. Included in restructuring and integration costs in the second quarter of 2005 are expenses of $236,000 and $164,000 that pertain to the quarters ended January 2, 2005 and April 3, 2005, respectively.

(3) Long-Term Debt

Long-term debt consisted of the following:

Effective September 30, 2004, in conjunction with the merger, COMSYS entered into a new senior credit facility with Merrill Lynch Capital and a syndicate of lenders (the “senior credit agreement”) that replaced Old COMSYS’ prior credit arrangements. The senior credit agreement provides for borrowings of up to $100.0 million under a revolving line of credit (the “revolver”) and a $15 million term loan payable in eight quarterly installments (the “senior term loan”). At the same time, COMSYS borrowed $70 million under a second lien term loan credit agreement (the “second lien term loan credit agreement”) with Merrill Lynch Capital, Heritage Bank, SSB and a syndicate of lenders (the “second lien term loan”).

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COMSYS IT Partners, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—Continued

Borrowings under the revolver are limited to 85% of eligible accounts receivable, as defined in the senior credit agreement, reduced by the amount of outstanding letters of credit and designated reserves. Interest on the revolver and senior term loan is based on LIBOR plus a margin, which on the revolver is 2.25% or 2.50%, depending upon the Company’s ratio of total debt to adjusted EBITDA, as defined in the senior credit agreement, and which is 3.00% for the senior term loan. At our election, the interest on the revolver and senior term loan may be based on the prime rate plus a margin, which on the revolver is 1.25% or 1.50% depending upon the Company’s ratio of total debt to adjusted EBITDA, and which is 2.00% for the senior term loan. The borrowings under the senior credit agreement are secured by a pledge of the stock of the Company’s subsidiaries and a lien on the assets of the Company’s subsidiaries. The senior credit agreement expires in September 2009.

At July 3, 2005, the Company had outstanding borrowings of $63.7 million under the revolver at interest rates ranging from 5.81% to 7.5% per annum (5.91% weighted average). The principal balance of the senior term loan was $9.4 million with tranches bearing interest rates ranging from 6.31% to 6.5% per annum (6.46% weighted average). At July 3, 2005, the Company had available borrowing capacity under the revolver in the amount of $28.0 million.

The second lien term loan bears interest at the prime rate plus a margin of 6.50% or, at our election, LIBOR plus a margin of 7.50%. The Company had outstanding borrowings of $70.0 million under the second lien term loan as of July 3, 2005, with interest rates ranging from 10.69% to 11.0% per annum (10.89% weighted average). The second lien term loan is secured by a second lien position in the stock and assets of the Company’s subsidiaries and matures on April 30, 2010.

The Company pays a fee on outstanding letters of credit equal to the LIBOR margin then applicable to the revolver. As of July 3, 2005, the Company’s outstanding letters of credit totaled $3.3 million and the fee was 2.50% per annum. The Company also pays commitment fees of 0.50% per annum on the unused portion of the revolver commitment.

Both the senior credit agreement and second lien term loan credit agreement contain customary covenants and events of default, including the maintenance of fixed charge coverage ratios, total debt to adjusted EBITDA ratios and minimum levels of EBITDA, all as defined in the agreements. As of July 3, 2005, COMSYS was in compliance with all covenant requirements and believes it will be able to comply with these covenants during the remainder of fiscal year 2005. These agreements also place restrictions on the Company’s ability to enter into certain transactions without the approval of the lenders, such as the payment of dividends, disposition and acquisition of assets and the assumption of contingent obligations.

Effective February 22, 2005, the Company entered into an interest rate swap and an interest rate cap that together effectively convert $40.0 million of variable rate debt to modified fixed rate debt through September 20, 2009, thus potentially reducing the impact of changes in interest rates on future interest expense. The swap and the cap are designated as cash flow hedges of the variable LIBOR-based interest payments on $40.0 million of borrowings under the senior credit agreement and, as such, are carried at fair value. The swap is based on a $20.0 million notional amount at a rate of 4.59%, and the cap is based on a $20.0 million notional amount at a rate of 4.50%. The net fair value of the interest rate swap and cap is reflected in the Company’s consolidated balance sheet at July 3, 2005 as a noncurrent asset with an offset to accumulated other comprehensive income of $4,000.

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COMSYS IT Partners, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—Continued

(4) Stock Based Compensation

Effective with the merger, 1,000 shares of Class D Preferred Stock that were issued as of July 1, 2004 under the 2004 Management Incentive Plan (the “Plan”), which was adopted by Old COMSYS effective January 1, 2004, were exchanged for a total of 1,405,844 restricted shares of COMSYS common stock. One-third of these shares, or 468,615 shares, were vested at the merger date. Another 468,615 shares vest in equal installments of 156,205 shares on January 1^st of each of the years 2005, 2006 and 2007, and the remaining 468,614 shares vest in equal annual installments if specified earnings targets are met for fiscal years 2004, 2005 and 2006, in each case subject to earlier vesting as discussed below. A total of 624,820 shares vested in fiscal 2004. The fair value of shares that will vest automatically with the passage of time, which amounted to $3.5 million at January 2, 2005, is recorded in stockholders’ equity as deferred stock compensation and is charged to expense throughout the vesting periods. The stock based compensation expense recognized during the six months ended July 3, 2005 was $876,000.

Upon the occurrence of certain events, including the sale or transfer of more than 50% of the Company’s assets, a merger or consolidation in which the Company is not the surviving corporation, the liquidation or dissolution of the Company, a “change in ownership” (as defined in the Plan) or the completion of an equity offering resulting in gross proceeds of $35 million (a “Qualified Offering”), all outstanding shares of restricted stock issued under the Plan will immediately vest in full other than shares that vest subject to the satisfaction of specified earnings targets. The shares subject to specified earnings targets are also subject to immediate vesting if the aggregate value of the securities issued in the merger to the stockholders of Old COMSYS exceed $175 million over a 30-day period beginning after a Qualified Offering and ending on or prior to December 31, 2006.

As of July 3, 2005, there were 995,596 options outstanding to purchase COMSYS stock under the Company’s various stock incentive plans with a fair value of approximately $13.2 million. Additionally, the 1,405,844 restricted common shares described above are outstanding at July 3, 2005 with a fair value of $24.1 million. The Company determined the fair value of these shares using the Black-Scholes option pricing model based on the following weighted average assumptions: risk-free interest rate of 3.8%; dividend yield of 0%; expected volatility of 81.38%; and a weighted average expected life of five years.

Had compensation expense been determined consistent with the fair value method, utilizing the assumptions set forth above and amortized over the vesting period, the Company’s pro forma net income (loss) would have been reported as follows:

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COMSYS IT Partners, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—Continued

(5) Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that would occur if options or other contracts to issue common stock were exercised or converted into common stock.

The computation of basic and diluted earnings (loss) per share is as follows:

Stock options to purchase 4,296 and 84 shares of common stock are excluded from the computation of diluted earnings (loss) per share in the 2005 and 2004 periods, respectively, because their effect is antidilutive.

In July of 2005, the Company issued 96,649 shares of its common stock to Bank of America Strategic Solutions, Inc. in connection with Bank of America Strategic Solution’s cashless exercise as of May 9, 2005 of warrants to purchase 211,474 shares of the Company’s common stock at the exercise price of $7.8025 per share. These shares are included in weighted average basic and diluted shares outstanding for the three months and six months ended July 3, 2005.

(6) Commitments and Contingencies

The Company leases various office space and equipment under noncancelable operating leases expiring through 2015. The Company has also 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 in control of the Company.

In connection with the merger and the sale of Venturi’s commercial staffing business, the Company placed $2.5 million in cash and 187,556 shares of its common stock in escrow pending the final determination of certain state tax and unclaimed property assessments. Management cannot ascertain at this time what the final outcome of those assessments will be in the aggregate. Accordingly, the purchase price allocation related to the merger is subject to finalization. The cash in escrow is reflected in the unaudited consolidated balance sheets as restricted cash.

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.

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COMSYS IT Partners, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—Continued

(7) Comprehensive Income

The following sets forth the amount of comprehensive income of the Company for the periods indicated.

(8) Subsequent Event

In July of 2005, the Company announced to its employees that it was reorganizing its management team as a final step in the process of integrating Venturi’s operations into COMSYS. This reorganization will result in the elimination of approximately 20 staff positions and, as a result, the Company will record a restructuring charge in its fiscal third quarter of $750,000 to accrue for severance payments.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes appearing elsewhere in this report, as well our audited consolidated financial statements and related notes appearing in our Annual Report on Form 10-K for the fiscal year ended January 2, 2005. 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 section entitled “Forward-Looking Information” elsewhere in this report and in the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2005. For accounting purposes, the merger of Old COMSYS with Venturi was treated as a reverse merger in which Old COMSYS was deemed to be the acquirer. The financial data and discussion and analysis set forth below relating to all periods prior to the merger on September 30, 2004 reflect the historical results of Old COMSYS. The financial data and discussion and analysis set forth below relating to periods subsequent to September 30, 2004 reflect the financial results of COMSYS after giving effect to the merger and include Venturi’s results of operations from the effective date of the merger. In light of the merger of Old COMSYS and Venturi, the historical data presented below is not necessarily indicative of future results.

Introduction

We are a leading information technology, or IT, staffing services company that provides a full range of specialized staffing and project implementation services and products. The staffing services we provide allow our clients to focus their resources on their core businesses rather than on recruiting, training and managing IT professionals. We contract with our customers to provide both short- and long-term IT staffing services at client locations throughout the U.S. 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.

Overview

Our business strategy is to become the leading provider of IT staffing services in the United States. Among our immediate peer group, we are the only staffing provider focused exclusively on the IT sector. We intend to continue implementing our business strategy through a combination of internal growth and strategic acquisitions that complement or enhance our business.

Industry trends that affect our business include:

The Merger

On September 30, 2004, Old COMSYS completed a merger transaction with Venturi, a publicly traded IT and commercial staffing company, in which COMSYS Holding was merged with a wholly owned subsidiary of Venturi. Concurrent with the merger, we sold Venturi’s commercial staffing business for $30.3 million in cash and the assumption of approximately $700,000 in liabilities. At the effective time of the merger, we changed our name to COMSYS IT Partners, Inc. and issued new shares of our common stock to the stockholders of Old COMSYS, resulting in such stockholders owning approximately 55.4% of our outstanding common stock on a fully diluted basis. Since former Old COMSYS stockholders owned a majority of our outstanding common stock as a result of the merger, Old COMSYS is deemed the acquiring company for accounting and financial reporting purposes.

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The key elements of the integration of the legacy businesses of Old COMSYS and Venturi have been completed on or ahead of the original schedule. We believe this diminishes the business risks associated with the integration and accelerates the recognition of cost savings. Further, we have created a corporate infrastructure capable of supporting our internal growth strategy and future acquisitions. Since the closing of the merger, we have substantially completed the integration of the businesses of Old COMSYS and Venturi, resulting in:

services operation located in Phoenix, Arizona, together resulting in the consolidation of all of our back office operations for COMSYS, including payroll, billing, accounts payable, collections and financial reporting; and

In connection with the integration of the information systems, we continue to refine and correct processes related to billing, accounts payable, collections and financial reporting, which we expect to complete in the third fiscal quarter of 2005. Until such processes are fully refined and corrected, we may experience a delay in billing our customers and collections of accounts receivable, which could adversely affect our revenue and results of operations.

Results of Operations

The following table sets forth the percentage relationship to revenues of certain items included in our unaudited consolidated statements of operations:

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Our billable consultant headcount increased from approximately 2,800 for Old COMSYS at June 30, 2003 to approximately 3,000 for Old COMSYS prior to the merger on September 30, 2004. Our billable consultant headcount was approximately 4,900 at January 3, 2005 and approximately 4,700 at July 3, 2005. The decrease from the beginning of the year was due to a seasonal reduction that occurred in January 2005, our decision not to renew an arrangement with a particular client that provided for lower gross margins and a higher than anticipated turnover rate with respect to our consultants.

Quarter Ended July 3, 2005 versus Quarter Ended June 30, 2004

We recorded operating income of $5.1 million and net income of $729,000 in the second quarter ended July 3, 2005 compared to operating income of $2.9 million and a net loss of $12.7 million in the second quarter ended June 30, 2004. The increase in operating income was due primarily to the merger with Venturi as well as a general improvement in the Company’s operating results subsequent to the second quarter of 2004. A decrease in net interest expense of $11.3 million from the second quarter ended June 30, 2004 to the second quarter ended July 3, 2005, which was due primarily to the redemption of Old COMSYS mandatorily redeemable preferred stock in connection with the merger, also contributed to the improvement in our results of operations. See “—Interest Expense.”

Revenues. Revenues for the second quarter ended July 3, 2005 and the second quarter ended June 30, 2004 were $162.2 million and $90.5 million, respectively, representing an increase of 79.1%. The increase for the second quarter ended July 3, 2005 was due to revenues from our combined operations following the merger and overall economic growth. Billable headcount was 4,705 as of July 3, 2005 compared to Old COMSYS’ billable head count of 2,933 as of June 30, 2004. In addition, fee revenues from our vendor management services increased to $3.2 million for the second quarter ended July 3, 2005 from $1.4 million for Old COMSYS for the second quarter ended June 30, 2004. This increase was due to the merger and growth in vendor management programs.

Our revenue growth was driven by our clients in the financial services and telecommunications industry sectors. Revenues from the financial services sector increased by $13.6 million, or 42.9% in the second quarter ended July 3, 2005 compared to the second quarter ended June 30, 2004 and accounted for 28.0% of our revenues in the second quarter ended July 3, 2005 compared to 35.2% of Old COMSYS’ revenues in the second quarter ended June 30, 2004. Revenues from the telecommunications sector increased over the same period by $3.8 million, or 18.8%, but declined as a percentage of total revenues from 22.0% of Old COMSYS’ second quarter 2004 revenues to 14.6% of our second quarter 2005 revenues. The declines in revenues from the financial services and telecommunications industries as a percentage of our total revenues reflect the diversification of our client base following the merger.

Cost of Services. Cost of services for the second quarter of 2005 and for the second quarter of 2004 were $124.6 million and $68.9 million, respectively, representing an increase of 80.8%. The increase for the second quarter of 2005 was due to our combined operations following the merger. Cost of services as a percentage of revenue increased to 76.9% in the second quarter of 2005 from 76.1% in the second quarter of 2004. The increase in cost of services as a percentage of revenue was primarily due to increases in state unemployment taxes and health care expenses.

Selling, General and Administrative Expenses. Selling, general and administrative expenses in the second quarter ended July 3, 2005 and for the second quarter ended June 30, 2004 were $28.1 million and $14.8 million, respectively, representing an increase of 90.1%. The increase was due to our combined operations following the merger. As a percentage of revenue, selling, general and administrative expenses increased to 17.3% in the second quarter of 2005 from 16.3% in the second quarter of 2004. This increase as a percentage of revenue was due to an increase in bad debt expense. In the second quarter of 2004, we collected $1.8 million of accounts receivable that had previously been fully reserved for due to the bankruptcy of the client and therefore recorded this amount as a reduction of expense.

Restructuring and Integration Costs. For the three months ended July 3, 2005, we recorded restructuring and integration costs of $424,000, which represents integration services provided by third parties and transition costs related to duplicative leases and integration of back-office systems.

In connection with the merger in 2004, we recorded an aggregate of $14.2 million for restructuring and integration costs during the fiscal quarters ended January 2, 2005, April 3, 2005 and July 3, 2005. This amount includes the $424,000 recorded in the second quarter of 2005, comprised of expenses of $1.0 million net of adjustments to the reserve for lease termination costs in the amount of $584,000 (see Note 2). Included in restructuring and integration costs in the second quarter of 2005 are expenses of $236,000 and $164,000 that pertain to the quarters ended January 2, 2005 and April 3, 2005, respectively.

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The following is an analysis of the restructuring reserve for the quarter ended July 3, 2005 (in thousands):

Stock Based Compensation. Stock based compensation expense in the second quarter of 2005 was $439,000, which represents amortization of deferred stock based compensation related to restricted stock. In connection with the merger, all of the outstanding shares of Old COMSYS Class D redeemable preferred stock, which were issued as of July 1, 2004 under the Old COMSYS 2004 Management Incentive Plan, were exchanged for 1.4 million shares of our common stock. Of these shares, 468,615 shares were vested at the closing of the merger, and on January 1, 2005, an additional 156,205 shares vested. On January 1, 2006, 156,205 shares will vest, and another 156,205 shares will vest on January 1, 2007, resulting in compensation expense of $1.7 million in each of fiscal 2005 and 2006 when these unvested shares fully vest, which expense is accrued throughout the year. The remaining 468,614 shares will vest if certain performance based criteria specified in the 2004 Management Incentive Plan are met. To the extent any of these shares vest, stock based compensation expense will be recognized in accordance with SFAS No. 123(R), Share-Based Payment, a revision of SFAS No. 123, Accounting for Stock-Based Compensation. The vesting of all unvested shares will be accelerated upon the occurrence of certain events as specified in the 2004 Management Incentive Plan, and the associated stock based compensation expense will be recognized at the time of such accelerated vesting. See Note 4 to the unaudited consolidated financial statements included elsewhere in this report.

Registration Statement Fees and Expenses. On April 4, 2005, we filed a Registration Statement on Form S-1, as amended on May 11, 2005, with the Securities and Exchange Commission relating to a proposed public offering of our common stock. We intended to use the net proceeds from such offering to redeem all of COMSYS’ outstanding Series A-1 redeemable preferred stock and to repay approximately $25.0 million of outstanding principal and interest under the second lien term loan. On June 17, 2005, we announced our decision to withdraw the proposed equity offering due to market conditions. As a result, we recorded expense of $950,000 in the second quarter of 2005 related to the costs incurred in connection with the proposed equity offering and the registration statement.

Depreciation and Amortization. Depreciation and amortization expense consists primarily of depreciation of our fixed assets and amortization of our customer base and contract cost intangible assets. For the second quarter ended July 3, 2005 and for the second quarter ended June 30, 2004, depreciation and amortization expense was $2.5 million and $4.0 million, respectively, representing a decrease of 36.4%. This decline was due primarily to certain intangible assets becoming fully amortized subsequent to June 30, 2004.

Interest Expense. Interest expense was $4.3 million and $15.6 million in the second quarter of 2005 and the second quarter of 2004, respectively, a decrease of $11.3 million which was due to the redemption of Old COMSYS preferred stock in connection with the merger. On July 1, 2003, we adopted SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity, which requires that dividends on mandatorily redeemable preferred stock be recorded as interest expense. SFAS No. 150 applies to both COMSYS’ and Old COMSYS’ redeemable preferred stock and, as a result, interest expense includes dividends in the amount of $11.1 million in the second quarter of 2004 compared to $843,000 in the second quarter of 2005. Net interest expense on borrowings under our credit facilities was $3.2 million in the second quarter of 2005 compared to $4.0 million in the second quarter of 2004. The decrease was due to the repayment of $64.8 million of senior subordinated notes in the third quarter of 2004 with a weighted average interest rate of 16.6% at June 30, 2004 and the repayment of a $7.8 million interest deferred note with an interest rate of 11.0%, compounded quarterly. The increase in borrowings under the new senior credit facility entered into in connection with the merger was offset by more favorable interest rates on this facility. See “Liquidity and Capital Resources—Overview.”

Provision for Income Taxes. As of January 2, 2005 and July 3, 2005, we had $82.2 million in net deferred tax assets and had recorded a reserve against those net assets due to the uncertainty related to the realization of these amounts. Net operating loss carryforwards from prior years will offset any projected tax provision generated during the current year.

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Six Months Ended July 3, 2005 Versus Six Months Ended June 30, 2004

We recorded operating income of $8.8 million and net income of $523,000 in the first six months of fiscal 2005 compared to operating income of $3.1 million and a net loss of $27.7 million in the same fiscal period of 2004. The increase in operating income was due primarily to the merger with Venturi as well as a general improvement in the Company’s operating results subsequent to the first half of 2004. A decrease in net interest expense of $22.5 million from the first six months of fiscal 2004 compared to the same fiscal period of 2005, which was due primarily to the redemption of Old COMSYS mandatorily redeemable preferred stock in connection with the merger, also contributed to the improvement in our results of operations. See “—Interest Expense”.

Revenues. Revenues for the first six months of fiscal 2005 and for the first six months of fiscal 2004 were $327.1 million and $179.4 million, respectively, representing an increase of 82.4%. The increase for the first half of 2005 was due to revenues from our combined operations following the merger and overall economic growth. Billable headcount was 4,705 as of July 3, 2005 compared to Old COMSYS’ billable headcount of 2,933 as of June 30, 2004. In addition, fee revenues from our vendor management services increased to $5.8 million for the six-month period ended July 3, 2005 from $2.8 million for Old COMSYS for the six-month period ended June 30, 2004. This increase was due to the merger and growth in vendor management programs.

Our revenue growth was driven by our clients in the financial services and telecommunications industry sectors. Revenues from the financial services sector increased by $30.5 million, or 49.2%, in the first half of 2005 compared to the first half of 2004 and accounted for 28.3% of our revenues in the first half of 2005 compared to 34.6% of Old COMSYS’ revenues in the first half of 2004. Revenues from the telecommunications sector increased over the same period by $5.8 million, or 14.5%, but declined as a percentage of total revenues from 22.4% of Old COMSYS’ revenues for the six months ended June 30, 2004 to 14.1% of our revenues for the six months ended July 3, 2005. The declines in revenues from the financial services and telecommunications industries as a percentage of our total revenues reflect the diversification of our client base following the merger.

Cost of Services. Cost of services for the first six months of fiscal 2005 and for the same six-month period of 2004 were $252.0 million and $136.9 million, respectively, representing an increase of 84.0%. The increase for the first half of 2005 was due to our combined operations following the merger. Cost of services as a percentage of revenue increased to 77.0% in the first six months of fiscal 2005 from 76.3% in the first six months of fiscal 2004. The increase in cost of services as a percentage of revenue was primarily due to increases in state unemployment taxes and health care expenses.

Selling, General and Administrative Expenses. Selling, general and administrative expenses in the first six months of fiscal 2005 and the first six months of fiscal 2004 were $55.6 million and $31.4 million, respectively, representing an increase of 77.2%. The increase was due to our combined operations following the merger. As a percentage of revenue, selling, general and administrative expenses decreased to 17.0% in the first half of 2005 from 17.5% in the first half of 2004. The decrease as a percentage of revenue was due to the elimination of duplicative office space and staff positions following the merger and our ability to leverage fixed overhead costs over an expanding revenue base.

Restructuring and Integration Costs. For the first six months of fiscal 2005, we recorded restructuring and integration costs of $3.9 million, which represent integration services provided by third parties and transition costs related to duplicative leases and integration of back-office systems.

In connection with the merger in 2004, we recorded an aggregate of $14.2 million for restructuring and integration costs during the fiscal quarters ended January 2, 2005, April 3, 2005 and July 3, 2005. This amount includes the $424,000 recorded in the second quarter of 2005, comprised of expenses of $1.0 million net of adjustments to the reserve for lease termination costs in the amount of $584,000 (see Note 2). Included in restructuring and integration costs in the second quarter of 2005 are expenses of $236,000 and $164,000 that pertain to the quarters ended January 2, 2005 and April 3, 2005, respectively.

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The following is an analysis of the restructuring reserve for the six-month period ended July 3, 2005 (in thousands):

Stock Based Compensation. Stock based compensation expense for the first six months of fiscal 2005 was $876,000, which represents amortization of deferred stock based compensation. In connection with the merger, all of the outstanding shares of Old COMSYS Class D redeemable preferred stock, which were issued as of July 1, 2004 under the Old COMSYS 2004 Management Incentive Plan, were exchanged for 1.4 million shares of our common stock. Of these shares, 468,615 shares were vested at the closing of the merger, and on January 1, 2005, an additional 156,205 shares vested. On January 1, 2006, 156,205 shares will vest, and another 156,205 shares will vest on January 1, 2007, resulting in compensation expense of $1.7 million in each of fiscal 2005 and 2006 when these unvested shares fully vest, which expense is accrued throughout the year. The remaining 468,614 shares will vest if certain performance based criteria specified in the 2004 Management Incentive Plan are met. To the extent any of these shares vest, stock based compensation expense will be recognized in accordance with SFAS No. 123(R), Share-Based Payment, a revision of SFAS No. 123, Accounting for Stock-Based Compensation. The vesting of all unvested shares will be accelerated upon the occurrence of certain events as specified in the 2004 Management Incentive Plan, and the associated stock based compensation expense will be recognized at the time of such accelerated vesting. See Note 4 to the unaudited consolidated financial statements included elsewhere in this report.

Registration Statement Fees and Expenses. On April 4, 2005, we filed a Registration Statement on Form S-1, as amended on May 11, 2005, with the Securities and Exchange Commission relating to a proposed public offering of our common stock. We intended to use the net proceeds from the offering to redeem all of COMSYS’ outstanding Series A-1 redeemable preferred stock and to repay approximately $25.0 million of outstanding principal and interest under the second lien term loan. On June 17, 2005, we announced our decision to withdraw the proposed equity offering due to market conditions. As a result, we recorded expense of $950,000 in the second quarter of 2005 related to the costs incurred in connection with the proposed equity offering and the registration statement.

Depreciation and Amortization. Depreciation and amortization expense consists primarily of depreciation of our fixed assets and amortization of our customer base and contract cost intangible assets. For the first six months of fiscal 2005 and for the same six-month period of 2004, depreciation and amortization expense was $5.0 million and $7.9 million, respectively, representing a decrease of 37.2%. This decline was due primarily to certain intangible assets becoming fully amortized subsequent to June 30, 2004.

Interest Expense. Interest expense was $8.4 million and $30.8 million for the first six months of fiscal 2005 and for the first six months of fiscal 2004, respectively, a decrease of $22.5 million, which was due to the redemption of Old COMSYS preferred stock in connection with the merger. On July 1, 2003, we adopted SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity, which requires that dividends on mandatorily redeemable preferred stock be recorded as interest expense. SFAS No. 150 applies to both COMSYS’ and Old COMSYS’ redeemable preferred stock and, as a result, interest expense includes dividends in the amount of $21.8 million in the first half of 2004 compared to $1.7 million in the first half of 2005. Net interest expense on borrowings under our credit facilities was $6.1 million in the first six months of fiscal 2005 compared to $9.0 million in the same six month period of 2004. The decrease was due to the repayment of $64.8 million of senior subordinated notes in the third quarter of 2004 with a weighted average interest rate of 16.6% at June 30, 2004 and the repayment of a $7.8 million interest deferred note with an interest rate of 11.0%, compounded quarterly. The increase in borrowings under the new senior credit facility entered into in connection with the merger was offset by more favorable interest rates on this facility. See “Liquidity and Capital Resources—Overview.”

Provision for Income Taxes. As of January 2, 2005 and July 3, 2005, we had $82.2 million in net deferred tax assets and had recorded a reserve against those net assets due to the uncertainty related to the realization of these amounts. Net operating loss carryforwards from prior years will offset any projected tax provision generated during the current year.

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Liquidity and Capital Resources

Overview

Old COMSYS had historically financed its operations through internally generated funds, the issuance of preferred stock and borrowings under its credit facilities. At July 3, 2005, we had net working capital of $22.4 million compared to net working capital of $16.6 million at January 2, 2005.

On September 30, 2004, in conjunction with the merger with Venturi, we issued $22.4 million of mandatorily redeemable preferred stock and entered into a new senior credit facility with Merrill Lynch Capital and a syndicate of lenders (the “senior credit agreement”) that replaced our prior credit facility. The senior credit agreement provides for borrowings of up to $100.0 million under a revolving line of credit (the “revolver”) and a $15.0 million term loan payable in eight quarterly installments (the “senior term loan”). At the same time, we borrowed $70.0 million under a second lien term loan credit agreement with Merrill Lynch Capital, Heritage Bank, SSB and a syndicate of lenders (the “second lien term loan”).

Borrowings under the revolver are limited to 85% of eligible accounts receivable, as defined, reduced by the amount of outstanding letters of credit and designated reserves. At September 30, 2004, these designated reserves were a minimum availability reserve of $5.0 million and a restructuring reserve of $22.9 million intended to fund certain liabilities of Venturi as of September 30, 2004, purchase accounting reserves established in connection with the merger and the estimated cash outlays related to restructuring and transition costs associated with the merger that were not eligible for accrual in the purchase price allocation (comprised primarily of expenses related to duplicative leases, redundant headcount, severance arrangements, asset write-offs and integration services provided by third parties). As of July 3, 2005, the $5.0 million minimum availability reserve remained and the restructuring reserve was reduced to $0.0. Interest on the revolver and senior term loan is based on LIBOR plus a margin, which on the revolver is 2.25% or 2.50%, depending upon our ratio of total debt to adjusted EBITDA, as defined in the senior credit agreement, and which is 3.00% for the senior term loan. At our election, interest on the revolver and senior term loan may be based on the prime rate plus a margin, which on the revolver is 1.25% or 1.50%, depending upon our ratio of total debt to adjusted EBITDA, and which is 2.00% for the senior term loan. The senior credit agreement is secured by a pledge of the stock of our subsidiaries and a lien on the assets of our subsidiaries and expires in September 2009. At July 3, 2005, we had outstanding borrowings of $63.7 million under the revolver at interest rates ranging from 5.81% to 7.5% per annum (weighted average rate of 5.91%) and borrowing availability under the revolver of $28.0 million for general corporate purposes. The principal balance of the senior term loan on that date was $9.4 million with tranches bearing interest rates ranging from 6.31% to 6.5% per annum (weighted average rate of 6.46%).

The second lien term loan bears interest at the prime rate plus a margin of 6.50% or, at our election, LIBOR plus a margin of 7.50%. The principal balance of the second lien term loan was $70.0 million as of July 3, 2005, and had interest rates ranging from 10.69% to 11.0% (weighted average rate of 10.89%). The second lien term loan is secured by a second lien position in the stock and assets of our subsidiaries and matures on April 30, 2010. Prepayment of principal will be required under the senior term loan, the revolver and the second lien term loan in certain circumstances.

We pay a fee on outstanding letters of credit equal to the LIBOR margin then applicable to the revolver. As of July 3, 2005, our outstanding letters of credit totaled $3.3 million and the fee was 2.50% per annum. We also pay commitment fees of 0.50% per annum on the unused portion of the revolver.

Effective February 22, 2005, we entered into an interest rate swap and an interest rate cap that together effectively convert $40.0 million of variable rate debt to modified fixed rate debt through September 20, 2009, thus potentially reducing the impact of changes in interest rates on future interest expense. The swap and the cap are designated as cash flow hedges of the variable LIBOR-based interest payments on $40.0 million of borrowings under the senior credit agreement and, as such, are carried at fair value. The swap is based on a $20.0 million notional amount at a rate of 4.59%, and the cap is based on a $20.0 million notional amount at a rate of 4.50%. The net fair value of the interest rate swap and cap is reflected in the our consolidated balance sheet at July 3, 2005 as a noncurrent asset with an offset to accumulated other comprehensive income of $4,000.

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The following table summarizes our cash flow activity during the periods indicated (in thousands):

Cash provided by operating activities in the first six months of fiscal 2005 was $1.0 million compared to $2.7 million in the first half of 2004. Our positive cash flows from operating activities in the 2005 period reflect higher operating income than in the previous year, offset by increased working capital requirements due to the costs associated with the integration of Venturi’s operations and the transition of the Old COMSYS back office functions to Venturi’s PeopleSoft system. Cash flows from operating activities were also affected by the timing of cash receipts and disbursements.

Cash used in investing activities in the first six months of fiscal 2005 was $4.3 million compared to $1.8 million for the same period in 2004. The increase was due to an increase in capital expenditures related to computer systems and leasehold improvements.

Cash provided by financing activities was $3.3 million for the first six months of fiscal 2005 representing primarily net borrowings under the revolver of $6.6 million to fund operating and investing activities less the payment of $3.8 million of the senior term loan. For the six months ended June 30, 2004, net cash used in financing activities was $891,000, which represented financing costs and advances to stockholders.

In the six months ended July 3, 2005, we incurred $3.9 million for merger integration costs. Capital expenditure requirements, primarily for software upgrades for our PeopleSoft system, hardware for our internal information systems and leasehold improvements, are currently expected to be approximately $2.5 million for the remainder of 2005. We anticipate that our capital requirements for at least the next 12 months will be satisfied through a combination of cash flow from operations and borrowings under our revolver.

Pursuant to the terms of the revolver, we maintain a zero balance in our 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.

Since May 13, 2004, our common stock has traded on the NASDAQ National Market. Following our name change in connection with our merger with Old COMSYS in September 2004, our common stock has traded under the symbol “CITP.”

Debt Compliance

Our ability to continue operating is largely dependent upon our ability to maintain compliance with the financial covenants of our credit facilities. Both the senior credit agreement and second lien term loan contain customary covenants and events of default, including the maintenance of fixed charge coverage ratios, total debt to adjusted EBITDA ratios and minimum levels of EBITDA, all as defined in the agreements. As of July 3, 2005, we were in compliance with all covenant requirements under the senior credit agreement and the second lien term loan, and we believe we will be able to comply with these covenants during the remainder of fiscal year 2005.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, also referred to as 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 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.

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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.

Revenue Recognition

Revenue under time-and-materials contracts is recorded at the time services are performed. Revenue from fixed-price contracts is recognized using the units of production method based on the ratio of time incurred to total estimated time to complete the project. Provisions for estimated losses on incomplete contracts are made on a contract-by-contract basis and are recorded in the period the losses are determinable. Estimated losses on incomplete projects are determined by comparing the revenue remaining to be recognized on fixed-price contracts to judgments as to estimated time and cost required to complete the project. If the estimated cost to complete the project exceeds the remaining revenue to be recognized, the excess cost is recorded as a loss provision on the contract.

We report revenues from vendor management services net of the related pass-through labor costs. We also report revenues net of payrolling activity. “Payrolling” is defined as a situation in which we accept a client-identified IT consultant for payroll processing in exchange for a fee. Revenue generated by payrollees is recorded net of labor costs. In our permanent placement business, we recognize revenue when employment candidates accept offers of permanent employment.

Recoverability of Goodwill and Other Intangible Assets

Effective at the beginning of 2002, Old COMSYS adopted SFAS No. 142, Goodwill and Other Intangible Assets, which established a new method for testing goodwill and other intangible assets for impairment using a fair value based approach. Under the new standard, goodwill and other intangible assets with indefinite lives are no longer amortized as was previously required, but are 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. The annual test, which COMSYS performs on October 1^st, requires estimates and judgments by management to determine valuations for each 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 an impairment charge, which would be recognized as a non-cash charge to operating income and a reduction in asset values on our balance sheet. The Company recorded impairment charges in 2002 totaling $152.7 million and recorded no impairment charges in 2003 or 2004. At July 3, 2005 and January 2, 2005, total goodwill was $154.2 million and $153.7 million, respectively.

Our intangible assets other than goodwill represent contract costs and a customer base and are amortized over the respective contract terms or estimated life of the customer base, ranging from two to five years. At July 3, 2005 and January 2, 2005, net intangible assets were $5.5 million and $7.1 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. The estimated future undiscounted cash flows associated with the assets are compared to the assets’ carrying amount to determine if a write-down to fair value is necessary. We believe that all of our long-lived assets are fully realizable as of July 3, 2005.

Collectibility of Accounts Receivable

We make ongoing estimates relating to the collectibility of our accounts receivable and maintain allowances for estimated losses resulting from the inability of our customers to make required payments. In determining the amount of the allowance, we consider our historical level of credit losses and make judgments 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 July 3, 2005 and January 2, 2005, the allowance for uncollectible accounts receivable was $4.4 million and $3.2 million, respectively.

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Income Tax Assets and Liabilities

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 differs from the recorded amount.

Derivatives

We are party to an interest rate swap and an interest rate cap that mature in September 2009 and are designated as cash flow hedges under the provisions of SFAS No. 133, Accounting for Derivative Financial Instruments and Hedging Activities. The combined net fair value of the swap and cap is recorded on our consolidated balance sheet at July 3, 2005 as an asset in the amount of $4,000. The estimated fair values of derivatives used to hedge our interest rate risk, which have been provided to us by Merrill Lynch Capital, fluctuate over time and should be viewed in relation to the underlying hedging transaction and the overall management of our exposure to fluctuations in the underlying risk.

The offsetting amount for the net fair value of our interest rate swap and cap is recorded in accumulated other comprehensive income within the equity section of our consolidated balance sheet. Upon termination, the associated balance in accumulated other comprehensive income is amortized to earnings as the hedged cash flows occur. Any ineffectiveness present in our cash flow hedges will be recognized immediately in earnings without offset. There was no significant ineffectiveness in the first six months of 2005.

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS 123(R) will require us to, among other things, measure all employee stock-based compensation awards using a fair value method and record such expense in our consolidated financial statements. The provisions of SFAS 123(R) are effective for the first annual reporting period that begins after June 15, 2005; therefore, we will adopt the new requirements no later than the beginning of our first quarter of fiscal 2006. Adoption of the expensing requirements may reduce our reported earnings. Management is currently evaluating the specific impacts of adoption, which include whether we should adopt the requirements on a retrospective basis and which valuation model is most appropriate.

FORWARD-LOOKING INFORMATION

Our disclosure and analysis in this report, including information incorporated by reference, may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, Section 21E of the Securities Exchange Act of 1934, as amended, or 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 and its subsidiaries, as well as those relating to the merger on September 30, 2004 of Old COMSYS and Venturi. 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.

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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:

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 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 the factors listed in this section and elsewhere in this report, as well as the factors listed in the “Risk Factors” section and elsewhere in our Annual Report on Form 10-K for the fiscal year ended January 2, 2005. 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Outstanding debt under our senior and term loan credit agreements at July 3, 2005 was $143.0 million. Interest on borrowings under these facilities is based on the prime rate or LIBOR plus a variable margin. Based on the outstanding balance at July 3, 2005, a change of 1% in the interest rate would cause a change in interest expense of approximately $1.43 million on an annual basis.

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

The interest rate swap and cap are recorded at fair value, based on an amount estimated by Merrill Lynch Capital, which represents the amount that Merrill Lynch Capital would have paid us at July 3, 2005 if the swap and cap had been terminated at that date. The combined net fair value at July 3, 2005 is $4,000, which is included in our consolidated balance sheet in noncurrent assets, with an offset to accumulated other comprehensive income.

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ITEM 4. CONTROLS AND PROCEDURES

As of July 3, 2005, our management, including our Chief Executive Officer and our Chief Financial Officer (our principal executive officer and principal financial officer, respectively), conducted an evaluation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial 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.

Following the merger of Venturi and Old COMSYS on September 30, 2004, as part of our integration of the two businesses, we began the process of transitioning Old COMSYS’ back office information system to Venturi’s PeopleSoft system and consolidating Venturi’s disparate back office operations, including payroll, billing, accounts payable, collections and financial reporting, to Old COMSYS’ shared services center located in Phoenix, Arizona. This transition has continued throughout the second quarter of fiscal 2005. Other than changes relating to this transition, there has been no change in our internal control over financial reporting during the quarter ended July 3, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are defendants in various lawsuits and claims arising in the normal course of business and are 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 our consolidated financial position, results of operations or cash flows.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

In July of 2005, we issued 96,649 shares of our common stock to Bank of America Strategic Solutions, Inc. in connection with Bank of America Strategic Solution’s cashless exercise as of May 9, 2005 of warrants to purchase 211,474 shares of our common stock at the exercise price of $7.8025 per share. Such shares of our common stock were not registered under the Securities Act of 1933, as amended, and were issued in reliance on the exemption from registration available under Section 4(2) of the Securities Act. The transaction did not involve any public offering and the requirements of the exemption were otherwise complied with.

On July 20, 2005, the SEC declared effective our shelf registration statement on Form S-3 (File No. 333-120163), filed with the SEC on November 2, 2004, as amended on July 18, 2005, pursuant to which certain selling stockholders listed therein may, from time to time, offer and sell up to 14,925,700 shares of our common stock at prices to be determined at the time of the sale. Solely for purposes of determining the registration fee in connection with such offering, we estimated that the maximum aggregate offering price for the shares of our common stock offered by the selling stockholders pursuant to the shelf registration statement will be $118,115,205. We also estimated that our total expenses in connection with the registration of such common stock will not exceed $175,000. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders under such registration statement, although we may receive consideration upon the exercise of outstanding warrants to acquire an aggregate of 557,523 shares of our common stock registered for resale under such registration statement. If all outstanding warrants are exercised in full for cash, we will receive aggregate proceeds of approximately $4,350,000. Such proceeds may be reduced or not realized at all if some or all outstanding warrants are exercised by means of cashless exercise.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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

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Proposal No. 1—Election of Directors.

Proposal No. 2—To ratify the appointment of Ernst & Young LLP as the Company’s independent auditor for the fiscal year ending January 1, 2006.

ITEM 5. Other Information.

Effective as of July 21, 2005, we entered into (i) the Consent and Fourth Amendment to Credit Agreement among COMSYS Services LLC, COMSYS Information Technology Services, Inc., the Company, PFI Corp., Merrill Lynch Capital, as Administrative Agent, ING Capital LLC, as Documentation Agent, GMAC Commercial Finance LLC, as Syndication Agent, and the lenders from time to time party thereto, and (ii) the Consent and Third Amendment to Term Loan Credit Agreement among COMSYS Services LLC, COMSYS Information Technology Services, Inc., the Company, PFI Corp., Merrill Lynch Capital, as Administrative Agent, Heritage Bank, SSB, as Collateral Agent, and the lenders from time to time party thereto. Pursuant to the amendments to these credit facilities, the lenders and agents thereunder consented to the changes in the definition of EBITDA described in more detail below and the related changes with respect to the compliance covenants set forth therein. Under these amendments, the lenders and agents consented that for purposes of calculating EBITDA for any defined period, the following items will be added back to net income (loss) in the computation of EBITDA, in each case, to the extent deducted in the determination of net income for such defined period: (i) costs incurred during the period commencing January 3, 2005 through and including July 3, 2005 by us and our subsidiaries in connection with the proposed equity offering pursuant to the registration statement on Form S-1, filed with the SEC on April 4, 2005, as amended, in an aggregate amount not to exceed $1,250,000; (ii) costs incurred during the fiscal year ending January 1, 2006 by us and our subsidiaries in connection with required Sarbanes-Oxley compliance, to the extent such costs are in excess of $650,000, provided, that such costs added back will not exceed $1,350,000 in the aggregate; and (iii) severance costs accrued during the period commencing on July 1, 2005 through and including September 30, 2005, in an aggregate amount not to exceed $1,500,000.

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ITEM 6. Exhibits.

Each exhibit identified below is filed as part of this report. Exhibits designated with an “*” are filed as an exhibit to this Quarterly Report on Form 10-Q. Exhibits designated with a “+” are identified as management contracts or compensatory plans or arrangements. Exhibits previously filed as indicated below are incorporated by reference.

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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.