To Our Shareholders, Clients and Employees:

The new world of work is a mosaic of human resource options. As the U.S. and international marketplace compete for talent and profits, your company and our industry have evolved and benefited. Successfully leading change and meeting the challenges it presents, the supplemental staffing industry generated approximately $130 billion in revenue in 2006.

Increasing business demands for maximum staffing flexibility and the management challenges of utilizing multiple staffing vendors have fostered a widespread need to outsource this function. No longer are human capital management and vendor managed services just buzzwords. Staffing vendor managed services (VMS), have become an integral part of business in the 21st century. COMFORCE has been both an innovator and a benefactor in the VMS revolution.

We believe that COMFORCE’s ability to meet changing demands from our clients and temporary workforce coupled with a reasonably good economy, has favorably impacted our 2006 performance. Some of the year’s financial highlights were:

• Record sales of $567.8 million, a 5.2% increase over the year 2005
• 14 consecutive quarters of improved quarter-over-quarter revenue growth
• A 57.0% increase in income from continuing operations before income taxes over the year 2005.
• Gross margin percentage increased by 100 basis points

Going forward, we remain optimistic based on the fact that to date we have been successful in executing our long-range plans for revenue growth and increasing financial stability. Our commitment to improve our balance sheet prompted us to further reduce our long-term public debt by $23.4 million during 2006, and, since 2000, long-term public debt decreased approximately $115 million from $138 million to $22.9 million. The reduction of our public debt in 2006 will result in an annual interest savings of approximately $1 million based on current interest rates on our credit facility.

Adding to the plus side of the equation in 2006 was the extension of the maturity date of the remaining 12% Senior Notes from December 2007 to December 2010. We also increased our line of credit from $85 million to $110 million and extended its maturity date to July 2010 at more favorable rates.

Our subsidiary, PrO® Unlimited, took the lead for growth performance in ‘06. Since 1991 PrO has pioneered and continually expanded a full range of vendor neutral, human capital management services. Effectively offering a host of Fortune 1000 companies with worker classification solutions relative to independent contractors (1099’s), and providing professional payrolling services and vendor neutral management of staffing vendors have earned PrO the reputation of being a leader in its industry. PrO’s revenues grew by 8.4% in 2006. Based on their unparalleled intellectual capital and excellent servicing capabilities we believe PrO will continue to expand its services to existing clients and win new business in the future.

Leading the transition to vendor managed services and discovering an untapped niche in the medical sector, our RightSourcing® Division emerged as a star on the horizon in 2006. Hospitals in particular have embraced RightSourcing as an antidote to the multiple staffing vendor dilemma. We see our innovative approach to VMS and nurse staffing as an important ‘06 event because it provides us with the opportunity to participate even further in the healthcare industry. Healthcare has been the largest contributor to the new job picture, adding 1.7 million new jobs since 2001. This is greater than any other industry and the demand continues to grow.

It is projected that 30% to 40% of all new jobs created over the next 25 years will be in healthcare. For this reason, we have also strongly supported our VMS, medical coding, travel nursing, allied health, LabForce and medical office support divisions as important pieces in our mosaic of service offerings. And, in spite of recruiting difficulties due to acute skill shortages, particularly in nursing, they are moving ahead.

We believe the ability to attract and retain skilled workers in every discipline will be the separator for success in the coming years. Realizing the potential of 21st century technology, we have invested over $500,000 in WebPAS®. This front office recruiting, tracking and sales support software is integrated into our PeopleSoft® Human Resource system. WebPAS maximizes recruitment and placement efficiency and accelerates and streamlines processes throughout our business cycle, including sales, billing and receivables. Our accounts receivable collection rate and days sales outstanding remain one of the best in the industry.

With companies realizing that intellectual capital is still one of their most valuable and difficult to replace assets even in a technology driven workplace, Information Technology has reemerged as a profitable and growing division for COMFORCE. Here again, the recruiting challenge for consultants with cutting edge skills has become competitive and expensive. In spite of that, we are regrowing this division and are able to maintain acceptable margins as our customers reinvest profits into new systems for accelerating business needs.

This year we continued to spearhead services into 35 foreign countries through our Government Services division and the PrO Unlimited subsidiary. The complexities of foreign business make us cautious, but optimistic about growing these markets. However, as our current clients and U.S. companies in general expand globally we envision that there will be additional opportunities abroad for COMFORCE.

Domestically, accelerated government spending has also benefited our Aerospace Division. This division has been in existence for many decades with a reputation for service excellence which it continues to uphold both in the private and public sectors making expansion promising.

With the certainty of an uncertain future, you can be assured of one thing: our commitment to you our shareholders. We will continue to work vigorously to promote growth, financial strength and excellence of service. We want to thank you, our clients, employees and vendors who have shown us support each day of our journey to building COMFORCE.

Sincerely,


John Fanning
Chief Executive Officer