I would like to welcome everyone to the earnings release conference call. (Operator Instructions) Mr. Miller, you may begin your conference.

Good morning. This is Jim Miller with Bill Sherertz and Mike Elich. Today we will provide you with our comments regarding the company's operating results for the second quarter ended June 30 and our outlook for the third quarter of 2009. At the conclusion of our comments, we will respond to your questions. Our remarks during today's conference call may include forward-looking statements. These statements along with other information presented that are not historical facts are subject to a number of risks and uncertainties. Actual results may differ materially from those implied by the forward-looking statements. Please refer to our recent earnings release and to our quarterly and annual reports filed with the Securities and Exchange Commission for more information about the risks and uncertainties that could cause actual results to differ. Page one of yesterday's earnings release reflecting our operating results summarizes the company's revenues and cost of revenues on a net revenue basis as required by generally accepted accounting principals. Most of our comments today however, will be based upon gross revenues and various relationships to gross revenues because management believes such information is one, more informative as to the level of our business activity, two, more useful in managing and analyzing our operations and three, adds more transparency to the trends within our business. Comments related to gross revenues as compared to a net revenue basis of reporting have no affect on gross margin dollars, SG&A expenses, or net income. Turning now to the second quarter results, as reported, the company experienced a $0.65 loss per diluted in the second quarter as compared to earnings per share of $0.29 for the second quarter of 2008. Without the impact of the additional worker's compensation charge of $11.8 million, net income per diluted share for the 2009 second quarter…

All in all it wasn't a bad quarter. We feel like right now that we're at the bottom of the trough. In fact, my overall feeling is that we started to turn up a little bit. And in that process, we wanted to make sure that our balance sheet was very clean and that we don't have ongoing issues in front of us, and we hired the actuarial firm to come in and look at every year separately, and it was determined that the years '05 and '06 had been misjudged as to the level of expense that we were going to record. I think that represents the same thing that insurance companies and others that are pulling out of California have experienced, is that there was a change in overall plaintiff compensation and medical costs that sometimes doesn't show up for two or three years, and obviously we experienced that along with others in California as well and that's why the rates have gone up 15% and probably will continue to go higher in California. The two biggest issues facing the company are obviously the workman's comp issues, obviously going to be an issue and bad debts. And we continue to see, and I'll talk in a minute about how many customers we've had to cancel as a result of non payment or the inability to pay. But in this environment those are the two main issues that are out in front of us. During the quarter we signed 158 new customers on the PEO basis which is an all time record for us in terms of new customers, and the trend continues to be very solid in signing new customers. We're also seeing a trend in which the hours worked are not going down, and that's a very…

(Operator Instructions) Your first question comes from Josh Vogel – Sidoti & Company. Josh Vogel – Sidoti & Company: I was wondering if there were any reforms or legislation floating around California that you think is either making you nervous or making you more positive on the prospects of the business.

We're not taking IOU's. Business is business and the more the government continues to jump on the backs of small business and require them whether its health insurance or others, it's going to benefit us, and I think we're seeing a direct benefit from that. There's no specific legislation going on that I know of that would have any major impact on us. Josh Vogel – Sidoti & Company: On the last call you mentioned something about California raising the worker's comp rates on July 1, and that was going to be a big positive to you in the back half of the year.

The State went up 15%. They backed it down from the 24%, and a lot of the insurers went up 5% to 10%. So all that kind of plays into our hands as long as we pick carefully. That's the real key to it. Josh Vogel – Sidoti & Company: You also mentioned last quarter that you expect the gross margin to continue to improve throughout the year. Is that still your stance here in the back half?

Yes. One of the things that we really kind of push is what we call preferred payroll and that would be a direct competitor to Pay Checks and ADP. It's a part of the company that's growing and we think it has great potential and will help our margins. Josh Vogel – Sidoti & Company: Looking at your guidance, the decline at the mid point in the range in gross revenue for Q3, it implies a rate of decline that's greater year over year than what we saw in Q2. I was wondering if there's some seasonal stuff going on here or are you just being super conservative.

You've got to give the numbers as you see them. You can't be super conservative or liberal or anything else. You just do them as you see them. Let's just say we've got a month behind us and those are good numbers. We're probably a little better than that. Josh Vogel – Sidoti & Company: Do you have any comments on the first couple of weeks of July, what you're seeing there year over year maybe versus April?

Actually in July we hit a breakeven week so far. I mean its better.

Your next question comes from [Bill Deguire – Private Investor] [Bill Deguire – Private Investor]: The fact that you're in the saddle with such a dire economic situation, I'm convinced you're going to live another 40 years or 50 and I'm glad to hear that. How many shares are there left for repurchase?

There are approximately 1.9 million shares authorized to be repurchased.

Your next question comes from Jeff Martin – Roth Capital Partners. Jeff Martin – Roth Capital Partners: You mentioned hours worked being down a couple of times on the call. How far off the top are we? In other words how much could you grow organically just regaining those hours?

30%. Jeff Martin – Roth Capital Partners: Are you starting to see that pick up?

I think the process you're going to see, and we're going to see it and we've already started to see a little bit of it is the number of hours worked. The unemployment rate will probably still be a little higher, but the average hours worked will go higher as well. So they'll start using up, the process will be people will work more hours. Then they'll start working more overtime. And then they'll start hiring. So in the process, what you look for as the first signs are that the hours are not declining. Jeff Martin – Roth Capital Partners: What's your best guess on how quickly you could get that 30% back?

It will happen very fast if the economy improves. We're still, even though I'm pretty upbeat about the company, we're still fighting issues of people can't pay us and businesses closing their doors. So it's not all a panacea out here yet, but we think, it feels like we've turned the corner on it. It doesn't feel like it's been in the past where it's just going to get worse from here. And I think a lot will just depend, you live in California. You know. You can look around. The new home sales were good. That's very positive. We're operating down in California where some of the places are 13% and 14% unemployment. Jeff Martin – Roth Capital Partners: Could you put into perspective, obviously you're signing a huge number of clients. To put that into perspective, are those all PEO? You mentioned the preferred payroll. Are you doing some things just to get clients on board and then add other PEO services on top of that? Is 158 clients half of them only payroll, or is it all PEO?

That was all PEO. That's a number that if you went back over that we report each quarter, that's all PEO. And no, we are not cutting our prices to bring people on board. We're not trying to gain market share and start a price war. I have no desire to do that. Jeff Martin – Roth Capital Partners: By my account, you're probably adding 7%, 8%, 9% a quarter on a gross basis and two-thirds of that on a net basis here to your existing client base. That's pretty significant.

Look back at what we did in 2001 and 2002 and 2003. It feels very similar to that in that we were adding a lot of customers and then the economy got hot and everybody started doing a lot of overtime and hiring people and then boom. It went pretty fast. I knew that exact date. We'd go into the market and we'd just buy every share we can and we'd run. But I don't know that exact date. Jeff Martin – Roth Capital Partners: On the worker's comp side of things, we seem to be in pretty good shape now that the charges are behind us and if you had to say what kind of time frame this could ever happen again, are we free and clear for a few years now?

I think we have better information. It's always been a struggle trying to get a good number of what these ultimate claims have been. I'm very comfortable with the new actuarial firm that we hired. They're the ones that also do the State of Oregon. I would think that we're good for at least five years. Now that barring that something dramatic doesn't change again. But we certainly don't see that and we have four or five benchmarks that we're using that would have been nice to have been using back in '05 and '06. Our numbers would have been different. We didn't have any problems with '07, '08 and the first part of '09. We had them go through all years, every year since '01 and take a look at where we were. So it primarily was those two years that really kind of got us. Jeff Martin – Roth Capital Partners: To speak to the staffing business a little bit, a lot of your staffing peers are calling a bottom here. Is it time to go out and start looking at acquisition opportunities again?

No. If it were exactly right we certainly would do it, but I think hiring management talent in some of our bigger markets and sort of forcing the market is really going to play better into our hands and it's a lot less expensive way to build. At this level, going into the Denver market, the Phoenix market, and adding a few hundred thousand dollars in management salary I think is going to really give us a great return as opposed to buying a company and the distraction with it, again unless it's just a perfect fit.

Your next question comes from [Sam Kidston – North and Webster] [Sam Kidston – North and Webster]: Could you give us a sense on '05 and '06, you said that you've gone to the actuarial number, but where in the actuarial range are you actually booking those reserves at this point?

I believe we're booking them right at the top end. There isn't a low, high and most likely. We took it right at the high end. If you're going to take the charge, don't screw with it. There's no point in it. [Sam Kidston – North and Webster]: Was it an actuarial issue?

No. It's a real cost issue. We saw in the first six months of the year, particularly in April and May that claims in those years were starting to creep up and that caused us some concerns, and we hired an actuarial firm to come in and start looking at the years to see where the problem was. And the problem was '05 and '06 primarily.

Also coupled with the State of California audit earlier in the year that started to give rise to us wanting to take a closer look at it. [Sam Kidston – North and Webster]: Is the issue the number of claims, the length of the claims, where are you really seeing the issue there?

It's the length and the cost of the claims. We have almost no claims that are unknown. It's an issue of a finger, or an arm or an ankle that you think is going to settle for $10,000 and you find it's not going to settle for $100,000. [Sam Kidston – North and Webster]: How many open claims do you have from those years at this point?

We still have anywhere from 50 to 100 open for those years. They're ones of severity and they have a long tail. [Sam Kidston – North and Webster]: The big question is, does this cause you to cause any change in your ideas of self insuring?

The loss ratio is still very positive. The only thing that makes us change is we want to be a lot more conservative with our comp numbers, that's all. It's just one of those things where you say you're comp can't possibly triple or double. Well, it can. [Sam Kidston – North and Webster]: Does it affect how you're going to buy re-insurance at all?

No. Again, we're looking at an issue that's almost three years old now, three and four years old. We made those changes in '07 and '08 in terms of our re-insurance. So really we're talking about old issues here.

Your next question comes from [Tim Cane – Olstein] [Tim Cane – Olstein]: Do you have a rotating actuarial engagement program, or how does that work exactly when you look for a different actuary?

We were getting numbers from the actuarial that were stupid and couldn't be used. There was no value to us. So through some personal contacts, Rich Sherman's firm here in Oregon, we brought them in and had them take a look and see what they thought. And it was simply having another set of eyes on the numbers to come in and his analysis made a lot of sense to us. Not only did it make sense, it allowed us to run the company as well.

We were looking to get information not only on the past but looking out in the future on a better way of estimating claim costs. [Tim Cane – Olstein]: Then this is like you said in the last three months or so, right?

[Tim Cane – Olstein]: And that hasn't changed your view about this specific self insurance business?

No. Again, the loss ratios are relatively very low, but we just need to be a lot more conservative with our numbers and I think we have that ability with the new firm and how we're looking at it and a sense of payroll and a lot of different ways to come up with numbers that should last over long periods of time. [Tim Cane – Olstein]: Have you implemented any of those types of maybe a little bit more conservatism into your pricing model in terms of new business or anything like that?

Yes. [Tim Cane – Olstein]: Have you seen any change there or no?

I know there's not much change there. Again, if you go back and look at '05 and '06, we made $1.00 something. We shouldn't have made quite that much money if we'd have been using a different methodology. So the model is not broken.

A lot of the pricing issue is more of market driven.

You're going to see our margins over time probably increase with the comp rates going up. Remember, comp rates in California have been going down for the last three years.

Your next question comes from [Frank Magland – The Robbins Group] [Frank Magland – The Robbins Group]: On the PEO's that you're signing up, is there a significant difference in the size of the people or companies that you're signing up now than you were two or three years ago.

To make our numbers look good, we went out and got a whole bunch of one person accounts. Not really. We're not signing any really big ones, but they're nice sized accounts on average. [Frank Magland – The Robbins Group]: Which would be what now in today's environment?

Up 30. [Frank Magland – The Robbins Group]: No material change there and I think beaten up the workman's comp well enough to know that we shouldn't expect any problems for the '07 and '08 estimates.

If we do, shame on me, but we've looked at it with the best set of eyes we know how to look at it and so that's all we can do. [Frank Magland – The Robbins Group]: Since you took the high end of the estimate, if you're lucky you manage those right and bring it back to earnings a little bit later on.

I've had people including our accountants talk about that. Comp being what it is, that's a tough deal to bring it back in.

Your next question comes from Jeff Martin – Roth Capital Partners. Jeff Martin – Roth Capital Partners: I wanted to just get a sense are we going to see Q4 seasonality like we normally do or could Q4 be up over Q3?

If the economy turns, that will be a real harbinger. Q4 will go over Q3. But I would expect there would be some seasonality on a normal basis.

There are no further questions at this time.

Thank you very much and we'll join you next quarter and we look for better and brighter things ahead.