8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934

Date of Report (date of earliest event reported):  July 26, 2007

Analysts International Corporation
(Exact name of registrant as specified in its charter)
Minnesota	0-4090		41-0905408
(State or other jurisdiction of Incorporation)	(Commission File Number)		(IRS Employer Identification Number)
3601 West 76th Street, Minneapolis, Minnesota		55435-3000
(Address for principal executive offices)		(Zip Code)
Registrant’s telephone number, including area code:   (952) 835-5900

Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-14(c) under the Exchange Act (17 CFR 240.13e-4(c))

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Item 2.02  Results of Operations and Financial Condition.

On July 25, 2007, Analysts International Corporation, a Minnesota corporation (the “Company”), reported earnings for its second quarter ended on June 30, 2007.  The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this Current Report.

The information in this Form 8-K (including Exhibits 99.1 and 99.2) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 7.01 Regulation FD Disclosure.

On July 26, 2007, the Company is holding a conference call in which management will deliver prepared remarks concerning the Company’s financial results for the second quarter ended on June 30, 2007.  The full text of the prepared remarks to be delivered during the conference call is furnished as Exhibit 99.2 to this Current Report.  Instructions for listening to the conference call or its replay are set forth in the Company’s press release issued on July 25, 2007 and furnished as Exhibit 99.1 to this Current Report.

The information in this Form 8-K (including Exhibits 99.1 and 99.2) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Cautionary Statement for the Purpose of Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995

The Transcript of the prepared remarks for the Company’s July 26, 2007 earnings conference call contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  In some cases, forward-looking statements can be identified by words such as “believe,” “expect,” “anticipate,” “plan,” “potential,” “continue” or similar expressions.  Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements.  Such forward-looking statements are based upon current expectations and beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.  Statements made in the prepared remarks for the conference call by the Company, its President and CEO, Michael LaVelle, and its CFO, David Steichen, regarding:  (i) expectations concerning the Company’s quarterly and annual operating results, including but not limited to general expectations about the Company returning to profit, or returning to profit in early 2008 or earlier or that results will exceed plan; (ii) expectations as to future severance costs; (iii) retention of a new chief executive

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officer; (iv) status with its relationships with key technology partners and prospects for associated product revenue and gross margin levels; (v) expectations concerning selling, general and administrative (SG&A); (vi) working capital and need for and uses of cash; (vii) improvement in the Company’s overall gross margin; (viii) expectations for improvement and growth through increased productivity and investment in certain geographical areas; (ix) expectations of continuing sales and recruiting improvements; (x) expectations concerning higher rate business and subsupplier margins in the Company's largest staffing account; (xi) expectations for revenue and margin improvement from the Company’s Technology Solutions practices; (xii) expectations of achieving all objectives of the Company’s business plan and sustained and increasing profitability; (xiii) expectations that the Company will repurchase any of the Company’s shares and that such repurchases will benefit shareholders are forward-looking statements. These statements are not guarantees of future performance, involve certain risks, uncertainties and assumptions that are difficult to predict, and are based upon assumptions as to future events that may not prove accurate.  Therefore, actual outcomes and results may differ materially from what is expressed herein.  In any forward-looking statement in which the Company, Mr. LaVelle or Mr. Steichen expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement or expectation or belief will result or be achieved or accomplished.  The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements:  (i) the risk that the Company will not realize the revenue or profit growth expected from new business opportunities, increased productivity and investments in certain geographical areas or is unable to sustain current profit or revenue levels or growth; (ii) the Company incurs additional severance and related costs; (iii) the Company is unable to identify and retain an acceptable chief executive officer; (iv) deterioration in or loss of key relationships or a decrease in revenue and margins associated with the Company’s hardware and other product sales or the Company’s overall business; (v) inability to achieve continued sales and recruiting performance improvements; (vi) the risk that the Company is unable to capitalize on new business opportunities; (vii) the risk that the Company loses all or a significant portion of a significant client contract; (viii) the Company is unable to repurchase Company shares; and (ix) pricing pressures, labor costs and other economic, business, competitive and/or regulatory factors affecting the Company’s business generally, including those set forth in the Company’s filings with the SEC, including its Annual Report on Form 10-K for its most recent fiscal year, especially in the Management’s Discussion and Analysis section, its most recent Quarterly Report on Form 10-Q and its Current Reports on Form 8-K.  All forward-looking statements included in the conference call are based on information available to the Company on the date of the earnings conference call.  The Company undertakes no obligation (and expressly disclaims any such obligation) to update forward-looking statements made in the conference call to reflect events or circumstances after the date of the conference call or to update reasons why actual results would differ from those anticipated in such forward-looking statements.

Item 8.01 Other Events.

On July 25, 2007, the Company also announced that its Board of Directors has authorized repurchase of up to one million shares of the Company’s common stock.  Timing of repurchases will be based on several factors, including the price of the common stock, general market conditions, corporate and regulatory requirements and alternate investment opportunities. Repurchases may be made in the open market or through private transactions, in accordance with SEC requirements.  Repurchases may be suspended at any time and are subject to the terms and conditions of the Company’s credit agreement with General Electric Capital Corporation which includes restrictions based on the Company’s borrowing availability under the credit agreement and a maximum dollar expenditure for repurchases.  The announcement of the repurchase program is set forth in the Company’s press release issued on July 25, 2007 and furnished as Exhibit 99.1 to this Current Report.

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The information in this Form 8-K (including Exhibits 99.1 and 99.2) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 9.01 Financial Statements and Exhibits

(c) Exhibits.

Exhibit Number	Description
99.1	Press release entitled “Analysts International Reports Q2 2007 Results; Company Ahead of Plan, Reiterates Profitability in Early 2008 Company Announces 1 Million Share Stock Repurchase Program” issued by Analysts International on July 25, 2007.
99.2	Transcript of prepared remarks for Analysts International Corporation’s earnings conference call held on July 26, 2007.

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SIGNATURE

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 hereunto duly authorized.

Date:	July 26, 2007	ANALYSTS INTERNATIONAL CORPORATION
		/s/ Colleen M. Davenport
		Colleen M. Davenport
		Secretary and General Counsel

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EXHIBIT INDEX

Exhibit Number	Description
99.1	Press release entitled “Analysts International Reports Q2 2007 Results; Company Ahead of Plan, Reiterates Profitability in Early 2008 Company Announces 1 Million Share Stock Repurchase Program” issued by Analysts International on July 25, 2007.
99.2	Transcript of prepared remarks for Analysts International’s earnings conference call held on July 26, 2007.

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EX-99.1

EXHIBIT 99.1

Media Contacts:

Marilyn Gerber

Managing Director

Adam Friedman Associates LLC

Phone: 212-981-2529, ext. 11

marilyn@adam-friedman.com

Analysts International Reports Q2 2007 Results; Company Ahead of Plan,

Reiterates Profitability in Early 2008

Company Announces 1 Million Share Stock Repurchase Program

Minneapolis, MN – July 25, 2007– Analysts International (NASDAQ: ANLY) reported the results for its second quarter ended June 30, 2007.  Revenues totaled $89.2 million for the quarter, compared to $87.9 million for the same quarter in 2006.  For the quarter, the Company reported a net loss of $(723,000), or $(.03) per diluted share, including approximately $600,000 of special charges related to employee terminations and consultancy fees, compared to a net loss of  $(258,000) or $(.01) per diluted share during the second quarter of 2006.

For the six months ended June 30, 2007, the Company reported revenues of $178.4 million compared to $174.7 million for the first half of 2006.  The net loss for the period was $(2,750,000) or $(.11) per diluted share compared to a net loss of $(4,000), or $(0.00) per diluted share for the same period in 2006.

“Throughout the second quarter, we have made considerable progress in moving the company forward,” stated Mike LaVelle, President and CEO.  “We have improved operating results, strengthened our balance sheet, installed new management, strengthened key client relationships, implemented daily operating and performance standards and strengthened our sales capabilities.  With these accomplishments, we are positioning the Company to take advantage of an improving IT services market, regain market share and to improve the return to our shareholders going forward.”

Analysts International also announced that its Board of Directors has authorized the repurchase of up to 1 million shares of Analysts International common stock.  The timing of the shares to be repurchased will be based on several factors, including the price of the common stock, general market conditions, corporate and regulatory requirements and alternate investment opportunities. Repurchases may be made in the open market or through private transactions, in accordance with SEC requirements.  The repurchase plan may be modified or suspended at any time.

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“The Board of Directors is confident management will be able to execute on the profitability goals included in our recovery plan while making the investments necessary to position the Company for the future.  With this confidence, the Board believes the use of available liquidity to reduce our outstanding shares will benefit those shareholders who continue to own our Company,” stated Dr. Krzysztof Burhardt, Chairman of the Board.

Analysts will host a conference call tomorrow at 9:30 a.m. CDT to discuss these results in detail and answer questions participants may have.  Interested parties may access the call by dialing 1-888-459-5609 or 1-973-321-1024 for international participants a few minutes before the scheduled start and ask for the Analysts International conference call moderated by Company President and CEO, Mike LaVelle.  The call may also be accessed via the Internet at www.analysts.com, where it will be archived.  Interested parties can also hear a replay of the call from 12:30 p.m. CDT July 26, 2007 until 10:59 p.m. CDT on August 2, 2007, by dialing 1-877-519-4471, or 1-973-341-3080 for international participants and using the access code 9011180.  The Company will also file an 8-K with the Securities and Exchange Commission that will provide a full transcript of the prepared remarks delivered on the call.

About Analysts International

Headquartered in Minneapolis, Analysts International is a diversified IT services company. In business since 1966, the company has sales and customer support offices in the United States and Canada. Lines of business include Full Service Staffing, which provides high demand resources for supporting a client's IT staffing needs; Solutions Services, which provides business solutions and network infrastructure services; Managed IT Services and Government Solutions. The company partners with best-in-class IT organizations, allowing access to a wide range of expertise, resources and expansive geographical reach. For more information, visit www.analysts.com.

Cautionary Statement for the Purpose of Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995

This Press Release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by words such as "believe," "expect," "anticipate," "plan," "potential," "continue" or similar expressions. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements. Such forward-looking statements are based upon current expectations and beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Statements made in this Press Release by the Company, its President and CEO, Michael J. LaVelle, or its Chairman Dr. Krzysztof Burhardt, regarding: (i) the improving IT services market; (ii) management’s expectations with respect to regaining market share and improving operating results, including achieving profitability in early 2008; (iii) implementation of the planned stock repurchase program; and (iv) our ability to successfully implement the Company's new business plan/strategy to achieve profitability goals are forward looking statements. These statements are not guarantees of future performance, involve certain risks, uncertainties and assumptions that are difficult to predict, and are based upon assumptions as to future events that may not prove accurate. Therefore, actual outcomes and results may differ materially from what is expressed herein. In any forward-looking statement in which the Company, Mr. LaVelle or Dr. Burhardt expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement or expectation or belief will result or be achieved or accomplished. The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements: (i) incorrect assumptions by management regarding the state of the IT services market or a downturn in the IT services market or the overall economy in general; (ii) unsuccessful implementation or execution of the Company's new business plan/strategy; (iii) future alternative uses for our cash or alternative competing investment opportunities and (iv) other economic, business, competitive and/or regulatory factors affecting the Company's business generally, including those set forth in Analysts' filings with the SEC, including its Annual Report on Form 10-K for the 2006 fiscal year, especially in the Management's Discussion and Analysis section, its most recent Quarterly Report on Form 10-Q and its Current Reports on Form 8-K. All forward-looking statements included in this Press Release are based on information available to the Company on the date of the Press Release. The Company undertakes no obligation (and expressly disclaims any such obligation) to update forward-looking statements made in the Press Release to reflect events or circumstances after the date of the Press Release or to update reasons why actual results would differ from those anticipated in such forward-looking statements.

 (Financials follow)

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Analysts International Corporation

Consolidated Statements of Operations

(unaudited)

	Three Months Ended						Six Months Ended
(in thousands except per share amounts)	June 30,  2007			July 1, 2006			June 30, 2007			July 1, 2006
Revenue:
Provided directly	$	60,386		$	65,375		$	123,337		$	130,834
Provided through subsuppliers		14,820			14,127			30,942			28,204
Product sales		14,043			8,404			24,077			15,709
Total revenue		89,249			87,906			178,356			174,747
Expenses:
Salaries, contracted services and direct charges		62,315			65,915			128,136			131,110
Cost of product sales		12,790			7,308			21,495			13,752
Selling, administrative and other operating costs		14,545			14,573			30,795			29,065
Amortization of intangible assets		267			266			533			520
Operating (loss) income		(668	)		(156	)		(2,603	)		300
Non-operating income		17			105			24			109
Interest expense		(65	)		(199	)		(143	)		(392	)
(Loss) income before income taxes		(716	)		(250	)		(2,722	)		17
Income tax expense		7			8			28			21
Net loss	$	(723	)	$	(258	)	$	(2,750	)	$	(4	)
Per common share:
Basic loss	$	(.03	)	$	(.01	)	$	(.11	)	$	(.00	)
Diluted loss	$	(.03	)	$	(.01	)	$	(.11	)	$	(.00	)
Average common shares outstanding		24,943			24,620			24,847			24,616
Average common and common equivalent shares outstanding		24,943			24,620			24,847			24,616

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Analysts International Corporation

Consolidated Balance Sheets

(in thousands)	June 30, 2007 (unaudited)		December 30,  2006
Assets
Current assets:
Cash and cash equivalents	$	77	$	179
Accounts receivable, less allowance for doubtful accounts		63,255		64,196
Other current assets		4,717		2,484
Total current assets		68,049		66,859
Property and equipment, net		2,747		2,925
Other assets		25,396		26,447
Total assets	$	96,192	$	96,231
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	27,554	$	24,411
Salaries and vacations		8,442		7,416
Line of credit		1,329		2,661
Deferred revenue		1,053		1,267
Restructuring accrual, current portion		116		385
Self-insured health care reserves and other amounts		910		1,670
Deferred compensation		1,271		208
Total current liabilities		40,675		38,018
Non-current liabilities:
Deferred compensation		1,508		2,319
Restructuring accrual		72		160
Other liabilities		175		--
Shareholders’ equity		53,762		55,734
	$	96,192	$	96,231

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Analysts International Corporation

Reconciliation of non-GAAP Financial Measures

(in thousands)

	Three Months Ended						Six Months Ended
	June 30, 2007			July 1, 2006			June 30, 2007			July 1, 2006
Net loss as reported	$	(723	)	$	(258	)	$	(2,750	)	$	(4	)
Taxes		7			8			28			21
Depreciation		416			572			892			1,180
Amortization		267			266			533			520
Net interest expense (income)		48			193			119			382
Merger related costs		--			(248	)		--			(244	)
Severance and consulting related costs		600			--			1,804			--
Adjusted EBITDA*	$	615		$	535		$	626		$	1,855

*To supplement our consolidated financial statements presented in accordance with GAAP, we use the non-GAAP financial measure of Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) which is adjusted from results based on GAAP to exclude certain items.  For the 2007 periods, we have excluded costs associated with severance payments made as part of our performance improvement plan and the costs associated with outside consultants engaged by the Board of Directors.  For the 2006 periods we have excluded credits resulting from the reversal of certain accruals associated with our attempted merger with Computer Horizons.  We believe these adjustments are helpful in providing a meaningful comparison between current results and prior reported results.  This non-GAAP financial measure is provided to enhance the user’s overall understanding of our current financial performance and our prospects for the future.  This measure should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results.  The non-GAAP financial measure included in this press release has been reconciled to the nearest GAAP measure.

# # #

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EX-99.2

EXHIBIT 99.2

ANALYSTS INTERNATIONAL

Moderator:  Mike LaVelle

July 26, 2007

9:30 a.m. CDT

Good morning.  My name is _______ and I will be your conference facilitator today.  At this time, I would like to welcome everyone to the Analysts International Second Quarter conference call.  All lines have been placed on mute to prevent any background noise.

After the speakers’ remarks, there will be a question and answer session.  If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad.  If you would like to withdraw your question, press the pound key.

This conference call will contain forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.  In some cases, forward-looking statements can be identified by words such as “believe”, “expect”, “anticipate”, “plan”, “potential”, “continue”, or similar expressions.  Forward-looking statements also include the assumptions underlying any of these statements.

Such forward-looking statements include or relate to our expectations concerning quarterly and annual operating results, working capital, expected need for and uses of cash, implementation of our business plan, achieving or exceeding our business objectives ahead of plan, improvement in our gross margin and our overall performance.  These forward-looking statements are based upon current expectations and beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the statements.  For more information concerning the risks associated with our business and economic, business, competitive and/or regulatory factors affecting our business generally, refer to the Company’s filings with the SEC, including its Annual Report on Form 10-K for its most recent fiscal year, especially in the Management’s Discussion and Analysis section, its most recent Quarterly Report on Form 10-Q and its Current Reports on Form 8-K.

All forward-looking statements included in this conference call are based on information available to the Company on the date of the earnings conference call. The Company undertakes no obligation (and expressly disclaims any such obligation) to update forward-looking statements made in this transcript to reflect events or circumstances after the date of this conference call or to update reasons why actual results would differ from those anticipated in such forward-looking statements. In addition, in this call, management will review financial measures such as EBITDA that do not conform to Generally Accepted Accounting Principles.

For a reconciliation of these measures and the Generally Accepted Accounting Principles, participants are directed to the company’s press release which is posted on its website at www.analysts.com.

Thank you.  I will now turn the conference over to Mike LaVelle, President and CEO of Analysts International.  Please go ahead, sir.

Mike LaVelle:

Good morning and welcome to the Analysts International Second Quarter Conference call. Joining me this morning is Dave Steichen, our Chief Financial Officer. Before we discuss the results, I would like to provide you with an update on the progress we are making to return the company to profitability.

Since I last spoke to you in April, we have made considerable progress in moving the company forward.  In April, I expressed our belief that the IT services market was strong and also explained how we were reorganizing the company to take advantage of this market, to regain market share, return to sustained profitability in 2008, and improve the return to our shareholders going forward.

Upon completion of our first full quarter operating under the recovery plan outlined in our 1^st quarter call, I am pleased to report that we are on track to return the company to profitability on or ahead of plan and I am confident in our ability to meet the objectives of the plan.

Since April we have:

·   Improved operating results

·   Strengthened our balance sheet

·   Installed new operating management

·   Strengthened key client relationships

·   Met with all operating teams throughout the country

·   Secured important wins

·   Strengthened our sales capabilities, and

·   Implemented daily operating and performance reporting standards

Although we still have much to do and there are always risks, we are enthusiastic about our people, our markets, and the opportunities ahead of us.

Now, I would like to briefly describe the specific actions we have taken relative to each of the areas just mentioned.

In a few minutes, Dave Steichen will cover the financial results. And when he does you will see the substantial quarter over quarter improvement in operating results, improved collections and a reduction in debt.

We have installed new management throughout the organization with an emphasis on empowering experienced operations managers who have a proven track record. We have structured the organization to match our delivery capabilities and methods, with customer needs.

At this point we do not see additional significant severance charges this year. Since completing our recovery plan in April, our use of consulting services has been minimal, primarily used on a part-time basis for monitoring progress and reporting status to myself and a committee established by the Board of Directors to monitor implementation of the plan.

The search for a new CEO continues and we are making progress. We have identified a number of excellent candidates and I hope to have this issue resolved in the near future.  In the interim, I have engaged Elmer Baldwin to assist me by leading our initiatives around development of our professional services organization. Elmer has a strong industry background and a proven track record in leading successful performance improvement initiatives in our industry. Most recently, he served as the CEO of Born Information Services where he led their restructuring and resurgence.

Throughout the quarter, I was able to visit with many of our key customers and reestablish relationships that were in need of renewed commitment.

We also conducted employee meetings across the country in Minneapolis, Raleigh, Denver, Lexington, Detroit and Dallas. It was invigorating to meet with these talented employees,

to reaffirm the strength of our organization and to share their excitement and commitment to our customers and our company.

This quarter we were able to secure some important wins and pipeline some significant opportunities for the balance of the year.

In our Staffing group we signed a one year extension with our largest managed services customer and second largest staffing customer.

We are also starting to see activity on higher rate business with our largest staffing account and this looks good for the balance of the year.

We began to reduce our dependence on sub suppliers in our largest account and were able to show improvement in sub-supplier margins.

In professional services, a long-time customer, having won significant business, has given us the opportunity to fill approximately 50 new slots; we have already filled 14.  Another middle market customer will be filling 50 to 60 slots and we are one of three vendors competing for the business.

In our solutions business our pipeline is looking strong.  Our second quarter wins demonstrate our ability to beat the competition and achieve new contracts from our existing as well as new clients. Some of our significant wins in the second quarter included:

A Criminal Justice Information Systems replacement project valued at 6 million dollars - making this the eighth state to select us for CJIS design, consulting, and integration services.

Several IP Communications convergence projects using IP to deliver IP Telephony and IP Video surveillance and monitoring capabilities.

A multi-year application design and development contract to design, develop and then manage a client’s “next generation” Internet site valued at 1.5 to 2.0 million dollars annually.

A multi year application management contract valued at 1.0 million dollars.

Several technology refresh projects within our State and Local Government practice valued at over 9.0 million dollars.

Our success in the solutions business has continued into the third quarter. Just yesterday we were awarded two new healthcare contracts totaling over 9.0 million dollars.

During the quarter we implemented a Sales Development and Mentoring Program designed to broaden the reach of our experienced sales force, develop our next generation sales team and expedite expansion of our middle market presence. We are hiring and training highly motivated candidates including some experienced employees who show strong sales potential, putting them through a sales training program and deploying them to work with an experienced sales rep in the field.

We recently completed our first training session and deployed 8 new Sales Associates. Our second group of Sales Associates is scheduled for training in September.  We intend to have 15 to 20 additional sales personnel trained and in the field by the 4^th quarter.  The program has a Director/Trainer who continually monitors performance.

We have also upgraded our recruiter intern program and are pleased with the results. The interns catch on quickly and are performing well.

The first phase of our recovery plan is to re-establish operating discipline, stabilize operations and improve productivity. In order to do this we are focused on managing day to day operations.  We have established operating expectations for our sales and recruiting personnel and have developed the reports to monitor performance on a daily basis. We have seen good improvement.  However, this is an area of intense focus, and I expect to see additional continued significant improvements going forward.

While our numbers do not reflect all these improvements, they are the key building blocks upon which our growth is predicated. Moreover, as I mentioned earlier, we are ahead of plan and tracking well with our short and long term goals.

We stated that we would be investing in building middle market presence in geographic regions over the next two years. That process has already begun. As this is a higher margin business, we believe that this new initiative will have meaningful bottom line impact in the ensuing quarters.

At the same time, we are not abandoning our traditional IT staffing business, and, as mentioned above, we have had several wins in this business in the last quarter. It is, to be sure, a more competitive business, but one we know well and where our reputation is firmly established.

Our Technology Solutions business continues to do well providing technology and resource solutions to mid-market IT customers. This is a part of our business that holds significant promise in terms of growth and margin.

Based on these accomplishments, I am optimistic that we can achieve or exceed the plan laid out in the first quarter call. In addition, we will stay focused on making the investments that will bring us to sustained and increasing profitability. Therefore I will reiterate my projection made in the first quarter call that we expect to return to profitability in early 2008.

As you know from the press release, we announced a share repurchase program.  Under this program we can purchase up to one million shares of our stock.  Given that we are confident in our ability to execute on the recovery plan while making necessary investments to position the company for the future, we believe the use of available liquidity to reduce our outstanding shares will benefit those shareholders who continue to own our stock.

I know that many of you will have follow up questions regarding my remarks and I will be pleased to answer them after Dave Steichen has reviewed the quarter’s performance.

Dave Steichen:

Thanks, Mike.

As announced in our press release last night, total revenue for the second quarter was $89.2 million, up 1.5% from the comparable period one year ago and up slightly from the first quarter of 2007.

From a profitability standpoint our second quarter resulted in a net loss of $(723,000) or (3) cents per share, including approximately $600,000 of charges related to employee terminations and outside consultants.  This compares to a net loss of just over $2 million, or (8) cents per share reported in the first quarter, and a net loss of $(258,000), or (1) cent per share in the comparable period last year.  For the quarter, we reportedEBITDA of $615,000.  This compares to adjusted EBITDA of $535,000 reported for the comparable period last year.

Second quarter direct services revenue, which excludes product and subsupplier revenue was $60.4 million down from $65.4 million in the comparable period last year.

During the second quarter we successfully stopped the steady decline we had been experiencing in the number of billable consultants we had deployed.   Although we finished the quarter with 35 fewer billable consultants than we started with, for the month of June, we experienced a net increase of 25 billable consultants.  For the quarter, the average number of billable staff we had deployed was 2126 compared to 2360 in the comparable period last year.  Our average bill rate increased just over 1% compared to the second quarter of 2006.

Our average gross margin on direct service revenue was 20.3% during the second quarter.  This compares to 19.5% in the comparable period last year.  This increase reflects our focus on improving gross margins across the company.  While a year over year increase of 0.8 percentage points does not represent significant progress, we are pleased with this result given that over the past year our largest clients have continued to force significant price concessions on us.  By focusing on producing higher gross margins where we can, we have been able to overcome the negative impact of these pricing pressures to raise our overall gross margins by a meaningful amount.  We believe this is a positive indicator of future margins and are optimistic the trend will continue.

Product revenue during the second quarter was extremely strong at $14.0 million, compared to $8.4 million in the comparable period last year.

While there will be variability in this revenue number from quarter to quarter based on the timing of large transactions, we believe we are very well positioned with key technology partners and expect our product revenue to remain at historically high levels the remainder of this year.  For the quarter, our average gross margin on product revenue was 8.9% compared to 13.0% in the comparable period last year.  The second quarter product revenue included a number of large transactions where the gross margin we received on the transactions was not at the levels we had seen last year.  In addition, during the second quarter, we saw a decline in the amount of rebate eligible products we sold.  Going forward, we do not expect a further decline in the overall gross margin of our product revenue, and may see some improvement for the remainder of the year, depending on the number and types of deals we are able to close.

Second quarter subsupplier revenue of $14.8 million compared to $16.1 million in the first quarter, and was up from $14.1 million in the comparable period last year.  During the second quarter, outside of our vendor management subsidiary, we saw a significant decline in our dependence on subsupplier relationships to help meet our clients’ needs.

At the end of the second quarter, excluding subsupplier consultants and nurses, total company headcount was 2,505.  Billable headcount represented 85% of that staff.

Our second quarter SG&A expense amounted to $14.5 million or 16.3% of revenue.  As mentioned, this amount included approximately $600,000 related to severance costs and amounts paid to outside consultants.  Absent these expenses, SG&A during the second quarter was $13.9 million or 15.6% of revenue.  During the comparable period of 2006, SG&A expense amounted to $14.6 million, or 16.6% of revenue.  The decline in these numbers is a result of significant cost reduction measures deployed earlier this year.  The performance improvement plan adopted by the company in April called for significant cost reductions, followed by an investment to reinvigorate our branch offices. Moving into the third and fourth quarters, we are beginning to make some of these investments, and accordingly, SG&A expenses are expected to increase slightly.

From a balance sheet perspective, our accounts receivable balance of $63.3 million at the end of the second quarter was down from $65.3 million reported at the end of the first quarter.  Days sales outstanding of 61 days compared to 63 days at the end of the first quarter, and 71 days in the comparable period last year.

We finished the quarter with $1.3 million of debt on our balance sheet.  This compares to $8.3 million at the end of the first quarter.  This decrease was primarily due to the second quarter not ending on a payday and the reduction of our DSO from 63 days to 61.

Our credit facility had total availability of $34 million at the end of the quarter against which only $1.3 million was drawn.  The level of available borrowings under this facility fluctuates as our receivables collateral base fluctuates.  We believe our unused credit facility can support the operating needs of our company.

As we continue to execute under the profit improvement plan adopted in April, we expect to continue our focus on gross margin improvement.  In addition, we intend to reinvigorate growth through increased productivity and targeted geographic investments.  As we make these changes, we continue to believe we are on track to return the company to profitability by the first quarter of 2008.

With that I’ll turn the call back over to Mike.

Mike LaVelle:

Thank you Dave, now we will open it up for questions.

That concludes the call. In closing, I’d like to thank you all for participating in the call this morning. I hope you share my enthusiasm about our future and I will keep you informed periodically.