OR

For the transition period from _______________ to _____________

Commission file number 001-13956

VENTURI PARTNERS, INC.

(Exact name of Registrant as specified in its charter)

Five LakePointe Plaza
2709 Water Ridge Parkway, 2nd Floor
Charlotte, North Carolina 28217
(Address, including zip code, of
Registrant’s principal executive offices)

(704) 442-5100

     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 o No x

     As of July 31, 2004, 6,089,938 shares of the registrant’s Common Stock, $.01 par value, were outstanding.

VENTURI PARTNERS, INC.

TABLE OF CONTENTS

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ITEM 1. FINANCIAL STATEMENTS

Venturi Partners, Inc. and Subsidiaries

The accompanying notes are an integral part of these statements.

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Venturi Partners, Inc. and Subsidiaries

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

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Venturi Partners, Inc. and Subsidiaries

The accompanying notes are an integral part of these statements.

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Venturi Partners, Inc. and Subsidiaries

The accompanying notes are an integral part of these statements.

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Venturi Partners, Inc. and Subsidiaries

(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 Venturi 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 December 28, 2003. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the entire year.

(2) Subsequent Events

     On July 19, 2004, the Company and certain of its subsidiaries entered into an agreement and plan of merger (the “Merger Agreement”) with COMSYS Information Technology Services, Inc., its parent corporation, COMSYS Holding, Inc. (together with its subsidiaries, “COMSYS”), and each holder of capital stock of COMSYS Holding, Inc. party thereto (the “COMSYS Stockholders”). The Merger Agreement contemplates that a subsidiary of the Company will merge with and into COMSYS Holding, Inc. (the “Merger”), and COMSYS will continue as the surviving entity and will be a wholly owned subsidiary of the Company. In the Merger, the COMSYS Stockholders will receive new shares of the Company’s common stock, and holders of shares of Company common stock held immediately prior to the Merger will continue to hold their shares immediately after the Merger. The completion of the Merger is subject to several conditions, including approval by the Company’s stockholders, the availability of financing for the combined company, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the sale of the Company’s Staffing Services business, either on the terms described below or on other terms acceptable to COMSYS. Upon completion of the Merger, the COMSYS Stockholders will own in the aggregate approximately 55.4% of the common stock of the combined company, on a fully diluted basis, subject to certain adjustments set forth in the Merger Agreement. The Merger is intended to qualify as a tax-free reorganization under the Internal Revenue Code of 1986, as amended. The Company may be required to pay certain termination fees if the transactions are not consummated as planned.

     In addition, on July 19, 2004, the Company, one of its subsidiaries and Compass CS Inc. (“Compass”) entered into a stock purchase agreement (the “Stock Purchase Agreement”) pursuant to which the Company agreed to sell its Staffing Services business to Compass for $30,300 in cash. The Company expects the sale transaction to yield approximately $25,500 in cash proceeds, after expenses of the transaction and payment of certain retained liabilities of the Staffing Services business. The completion of the sale of the Staffing Services business is subject to several conditions, including the simultaneous completion of the Merger and the approval of the sale by the Company’s stockholders as well as each beneficial owner of 5% or more of the Company’s common stock. The purchaser in this transaction, Compass, is affiliated with The Compass Group International LLC, the parent entity of two significant stockholders of the Company. A member of the Company’s board of directors is a director of Compass CS, as well as a principal of The Compass Group International LLC.

     The Company’s unaudited financial statements as of June 27, 2004 do not reflect any adjustments relating to the Merger Agreement or the Stock Purchase Agreement except as relates to the interim goodwill impairment provision for Staffing Services discussed further in Note 6, “Goodwill.”

     In connection with the Merger Agreement, the Company entered into a second amendment (the “Second Rights Agreement Amendment”) to its Amended and Restated Rights Agreement dated as of April 14, 2003 (the

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“Rights Agreement”). The Second Rights Agreement Amendment generally provides that the Rights (as defined in the Rights Agreement) will not become exercisable as a result of execution of the Merger Agreement and completion of the transactions contemplated thereby. The Second Rights Agreement Amendment also provides that the Rights Agreement will terminate immediately prior to the effective time of the Merger.

(3) Comprehensive Financial Restructuring

     In April 2003, the Company completed a comprehensive financial restructuring with its senior lenders and the holders of $109,661 outstanding principal amount of its 5.75% Convertible Subordinated Notes due 2004 (the “5.75% Notes”) in which it issued new shares of the Company’s capital stock to the participating noteholders in exchange for their 5.75% Notes (the “Exchange Transaction”). In the Exchange Transaction, the participating noteholders in the aggregate received $3,153 in cash and 5,015,349 shares of common stock (after conversion of preferred stock initially issued in the Exchange Transaction), which represented approximately 82% of the Company’s outstanding capital stock immediately after the Exchange Transaction. The Company’s existing shareholders retained ownership of their outstanding 1,075,248 shares of common stock, which represented approximately 18% of the outstanding capital stock.

     To facilitate the closing of the Exchange Transaction, the Company also restructured its senior debt (the “Senior Debt Restructuring”). In the Senior Debt Restructuring, the senior lenders forgave indebtedness in the amount of $10,300, eliminated existing equity appreciation rights associated with the revolving credit facility and agreed to certain further amendments. As a result of the Exchange Transaction and the Senior Debt Restructuring, the Company used substantially all of its cash on hand, after payment of transaction expenses, to repay $37,985 of its outstanding credit facility and eliminated an additional $119,961 of its outstanding indebtedness, which resulted in substantial reductions in the Company’s interest expense. No provision for income taxes was recorded in 2003 since the gain from financial restructuring was not subject to income tax.

     The amended revolving credit facility (the “Credit Facility”) provides for a $70,700 revolving line of credit due November 1, 2004 and may be extended for an additional six-month period through May 1, 2005, assuming the Company is in compliance with its covenants. Availability of borrowings under the Credit Facility is subject to a borrowing base calculated as specified percentages of the Company’s eligible accounts receivable (as defined) in the aggregate. The Credit Facility’s financial covenants include monthly maintenance of cumulative EBITDA levels and an interest coverage ratio (both as defined in the amended agreement). The Credit Facility also contains restrictions on the payment of cash dividends on the Company’s capital stock and places additional limitations on share repurchases, acquisitions and capital expenditures. Finally, the Company issued common stock purchase warrants to the lenders under the Credit Facility entitling them to purchase a total of 768,997 shares of common stock, or 10% of the outstanding common stock on a fully diluted basis as of the closing date of the financial restructuring. The Company engaged an independent valuation firm to assist in the determination of the fair value of these warrants and recorded $1,538 as additional shareholders’ equity with a corresponding reduction in the related outstanding senior debt. These warrants are exercisable in whole or part over a 10-year period at an exercise price of $7.8025 per share, which was based on an assumed equity valuation for the Company of $60,000. The exercise price for these warrants exceeded the estimated fair value of the underlying equity at the issuance date. Interest rates payable under the Credit Facility are set at prime plus 450 basis points through December 2004 and at prime plus 500 basis points through May 1, 2005.

     The Company entered into an agreement with each of the former noteholders participating in the Exchange Transaction and each of its senior lenders to provide them with registration rights with respect to the shares of common stock issued in the financial restructuring and the shares of common stock issuable upon exercise of the warrants, as applicable.

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(4) Stock Options

     The Company has adopted Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” The Company plans to continue using the intrinsic-value method of accounting for stock-based awards granted to employees and, accordingly, does not currently recognize compensation expense for its stock-based awards to employees in the Consolidated Statements of Operations, except primarily for the variable options described below.

     In March 2000, the FASB issued Financial Accounting Interpretation No. 44 (“FIN 44”), “Accounting for Certain Transactions involving Stock Compensation,” an interpretation of APB Opinion No. 25, “Accounting for Stock Issued to Employees.” FIN 44 requires that stock options issued within six months of the cancellation date of prior options be accounted for as variable stock options. Because most of the options granted by the Company under the 2003 Equity Incentive Plan prior to December 28, 2003 were granted within six months from the date that options granted to the same recipients under the 1995 Stock Option Plan were cancelled, these new stock options are subject to variable accounting until they are exercised, forfeited or expire unexercised.

     The following disclosures are presented to reflect the Company’s pro forma net income (loss) for the periods ended June 27, 2004 and June 29, 2003 as if the Company had applied the fair value recognition provision of FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation. In preparing these disclosures, the Company has determined the value of all outstanding stock options granted under the 1995 Stock Option Plan, which was terminated, and the Company’s 2003 Equity Incentive Plan, in each case using the Black-Scholes model and based on the following weighted average assumptions used for grants:

     The fair value of stock options granted under the 2003 Equity Plan in the first half of 2004 and the first half of 2003 was approximately $24 and $1,274, respectively. Had compensation expense been determined consistent with the fair value method, utilizing the assumptions set forth above and the straight-line amortization method over the vesting period, the Company’s net income (loss) would have reflected the following pro forma amounts:

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(5) Restructuring and Rationalization Charges

     During the years 2001 through 2003, the Company implemented a plan to restructure and rationalize certain operations. In the second quarter of 2003, the Company recorded charges totaling $2,016, primarily related to lease termination and employee severance costs.

     Following is a summary of the accrued liability for cash restructuring and rationalization charges for the period ended June 27, 2004:

     Of the remaining accrued liability at June 27, 2004, the Company expects to pay approximately $1,563 over the next 12 months and the balance, primarily lease payments, over the following seven years.

(6) Goodwill

     The Company completed its annual impairment assessment in the fourth quarter of 2003 and determined there was no further impairment at that time. In order to assess the fair value of its goodwill, the Company engaged an independent valuation firm to assist in determining the fair value. The fair value of each of the Company’s two reporting units was calculated as of December 28, 2003 on an enterprise value basis using the market multiple and discounted cash flow approaches. Under the market multiple approach, market ratios and performance fundamentals relating to similar public companies’ stock prices or enterprise values were applied to the reporting units to determine their enterprise value. Under the discounted cash flow approach, the indicated enterprise value was determined using the present value of the projected future cash flows to be generated considering appropriate discount rates. The discount rates used in the calculation reflected all associated risks of realizing the projected future cash flows. Certain of the valuation assumptions were based on management’s expectations for future performance of the Technology Services and Staffing Services reporting units. These assumptions include the expected time frame of technology spending and broader economic recoveries as well as future growth rates in the Technology Services and Staffing Services businesses. A discount rate of 16-17% was

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utilized in the discounted cash flow valuation approach due principally to the inherent uncertainties associated with these assumptions.

     Subsequent to March 28, 2004, the Company entered into substantive negotiations with Compass for the sale of its Staffing Services division. The negotiations were concluded in July 2004. As discussed in Note 2, the sale of Staffing Services pursuant to the Stock Purchase Agreement will occur only if the Company’s Merger transaction with COMSYS is consummated. Based on the estimated proceeds to be received in connection with the Stock Purchase Agreement, the Company recognized an impairment loss of $41,700 associated with Staffing Service’s goodwill in the second fiscal quarter of 2004. The primary reasons for impairment were, among other factors, the downward adjustment in projected results of the Staffing Services division, caused in part by the loss of certain key customers, and increased discounting of those future results based on the current assessment of risk inherent in the business.

(7) Debt

     The Company’s debt consisted of the following at June 27, 2004 and December 28, 2003:

     The 5.75% Notes were due in July 2004, and were paid in full at their stated maturity subsequent to period end.

     As a result of the completion of the Company’s financial restructuring and the execution of amendments and maturity date extensions, the Credit Facility provides for a $70,700 revolving line of credit due November 1, 2004 and may be extended through May 1, 2005 subject to specified conditions.

     The Company’s ability to continue operating is largely dependent upon its ability to maintain compliance with the financial covenants of the Credit Facility. The financial covenants include a cumulative monthly EBITDA requirement and a monthly interest coverage ratio (both as defined). The amended Credit Facility defines consolidated EBITDA as consolidated net income before interest expense, income taxes, depreciation and amortization, non-cash impairment charges, restructuring and rationalization charges, professional fees relating to the debt restructuring and non-cash compensation expense for the stock options. For 2003 and the first six months of 2004, the Company complied with these covenants. Based on the Company’s fiscal 2004 projections, which reflect slightly improving economic conditions, management believes the Company will be able to maintain compliance with the financial covenants for the remainder of the credit facility term. The Company also believes that the operating trends in the first six months of 2004 support the key assumptions in its operating plan. However, there can be no assurance that the economy or the Company will perform as expected or that further economic declines will not adversely impact the Company’s results of operations or its ability to comply with the financial covenants. Additionally, while the Company believes financial results in 2004 will be better than 2003 results, in the event that economic conditions weaken and/or the Company’s 2004 results fall below 2003 levels, the Company may not meet these financial covenants. If the Company does violate future covenants, it would seek waivers and amendments from its lenders, but can give no assurance that any such waivers and amendments would be available at all or on acceptable terms. If the Company were unable to obtain a waiver of future covenant violations, the lenders

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would be entitled to require immediate repayment of all amounts outstanding under the Credit Facility. In the event of a default, the Company’s ongoing viability would be seriously threatened, and it would be forced to evaluate a number of strategic alternatives, including a further debt restructuring or other reorganization, the closure of certain operating locations or the sale of certain or all of its assets in order to continue to fund its operations. In the event that we attempted to sell assets in order to continue to fund our operations, there can be no assurance that the proceeds of any such sales would be sufficient to satisfy the Company’s liabilities

     For the three months and six months ended June 27, 2004, interest expense was $300 and $491, respectively, which was net of amortization of deferred gain on financial restructuring of $987 and $1,974, respectively. Interest rates payable under the Credit Facility are currently set at prime plus 450 basis points through December 31, 2004.

     Four former noteholders, now significant shareholders, also are senior lenders under the Credit Facility, and held 90% of the facility commitments as of August 5, 2004.

(8) Earnings Per Share

     The following table reconciles net income (loss) and weighted average shares outstanding to the amounts used to calculate basic and diluted earnings per share for each of the three- and six-month periods ended June 27, 2004 and June 29, 2003:

     Stock options to purchase 684,033 and 526,083 shares of Common Stock were outstanding under the 2003 Equity Incentive Plan and the 1995 Stock Option Plan during the quarters ended June 27, 2004 and June 29, 2003, respectively, but were excluded from the computation of earnings per diluted share because their effect was antidilutive. The conversion of the remaining outstanding 5.75% Notes into 11,989 common shares was also excluded from the computation of earnings per diluted share because its effect was antidilutive. The common stock purchase warrants issued in 2003, which entitle the lenders under the Credit Facility to purchase a total of 768,997 shares of common stock, were also excluded from the computation of earnings per diluted shares because their effect was antidilutive.

(9) Commitments and Contingencies

     The Company is involved in various legal actions and claims. In the opinion of management, after considering appropriate legal advice, the future resolutions of all actions and claims are not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

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     During the first quarter of 2004, the Company entered into a significant new lease agreement for its Corporate offices with rent (approximately $257 per year and escalating annually) commencing December 1, 2004 and ending December 31, 2014.

(10) Segment Information:

     The Company is organized in two segments: Technology Services and Staffing Services. Technology Services provides technical staffing, training and information technology consulting services and technology tools for human capital management. Staffing Services provides temporary staffing services, placement of full-time employees and on-site management of temporary employees. The Company evaluates segment performance based on income from operations before unallocated corporate expenses, restructuring and rationalization charges, stock option compensation, amortization of goodwill and intangible assets, interest expense, gain (loss) on financial restructuring, net, and income taxes. Because of the Company’s substantial goodwill, management does not consider total assets by segment an important management tool and, accordingly, the Company does not report this information separately. The table below presents segment information for Technology Services and Staffing Services for the three- and six-month periods ended June 27, 2004 and June 29, 2003: