Statements contained in this document, as well as some statements by the Company in periodic press releases and oral statements of Company officials during presentations about the Company constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). Forward-looking statements include statements that are predictive in nature, depend on or refer to future events or conditions, which include words such as "expect," "estimate," "anticipate," "predict," "believe" and similar expressions. These statements are based on the current intent, belief or expectation of the Company with respect to, among other things, trends affecting the Company's financial condition or results of operations. These statements are not guaranties of future performance and the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Actual events and results involve risks and uncertainties and may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. Factors that might cause or contribute to such differences, include, but are not limited to, the risks and uncertainties that are discussed under the heading "Risk Factors" disclosed within Form 10-K for the year ended June 30, 2011. Readers should carefully review the risk factors referred to above and the other documents filed by the Company with the Securities and Exchange Commission.

OVERVIEW

As a holding company we have historically invested in businesses that we believe are undervalued or underperforming, and /or in operations that are poised for significant growth. However, since our transition to a pure play PEO effective November 30, 2008, management's strategic focus has been to support the growth of its operations by increasing revenues and revenue streams, managing costs and creating earnings growth in the PEO market.

Our operations are largely decentralized from the corporate office. Autonomy is given to subsidiary entities, and there are few integrated business functions (i.e. sales, marketing, purchasing and accounting). Day-to-day operating decisions are made by subsidiary management teams. Our Corporate management team assists in operational decisions when deemed necessary, selects subsidiary management teams and handles capital allocation among our operations.

We were incorporated in the state of Delaware in 1988, restructured in 2000 and redomesticated to the state of Indiana in May 2005.

Until November 30, 2008, we classified our businesses under five operating segments: Business Solutions; Wireless Infrastructure; Transportation Infrastructure; Ultraviolet Technologies; and Electronics Integration. Effective November 30, 2008, we approved the sale of all of our remaining operating subsidiaries within four of our five segments (Wireless Infrastructure, Transportation Infrastructure, Ultraviolet Infrastructure, and Electronics Integration). Consequently, as of the effective date of the transaction, our Business Solutions segment is the Company's remaining operating segment. The sales transaction, combined with other significant events disclosed in the Company's Form 10-K for the year ended June 30, 2011, changed the focus of our Company in fiscal 2009 and thereafter. This operational change in our Company impacts our comparability of our financial information compared to historical data presented in past filings.

On March 26, 2012 we announced that our board of directors had approved, and would be submitting to our shareholders for approval, a merger transaction described in further detail in our Form 8-K on that date. (See also Item 5 - Other Information set forth below in this quarterly report.)

CRITICAL ACCOUNTING POLICIES

The Company's accounting policies, which are in compliance with accounting principles generally accepted in the United States, require application of methodologies, estimates and judgments that have a significant impact on the results reported in the Company's financial statements. Those policies that, in the belief of management, are critical and require the use of complex judgment in their application, are disclosed on the Company's Form 10-K for the year ended June 30, 2011. Since June 30, 2011, there have been no material changes to the Company's critical accounting policies, except for the following:

New Accounting Pronouncements

In September 2011, the FASB issued ASU 2011-08, "Testing Goodwill for Impairment". The objective of this ASU is to simplify how an entity tests goodwill for impairment. The new guidance will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity no longer will be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity's financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The Company adopted this amendment on September 15, 2011, and does not anticipate a material effect on its financial position, results of operations or cash flows.

In September 2011, the FASB issued ASU 2011-09, "Disclosures about an Employer's Participation in a Multiemployer Plan". This ASU requires that employers provide additional separate disclosures for multiemployer pension plans and other multiemployer postretirement benefit plans. The amendments in this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years ending after December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012. Early adoption is permitted. The Company does not anticipate that adoption of this amendment will have a material effect on its financial position, results of operations or cash flows.

Other new pronouncements issued but not effective until after March 31, 2012, are not expected to have a significant effect on the Company's consolidated financial statements.

Income Taxes

Deferred tax assets are recognized for taxable temporary differences, tax credit and net operating loss carry forwards. These assets are reduced by a valuation allowance, which is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. For this purpose, management considered evidence, both positive and negative, regarding various uncertainties identified as risk factors to the Company. Recent events, including significant turmoil within the domestic and foreign financial markets, healthcare legislation and increasing unemployment tax rates and taxable wage thresholds, more than likely are expected to contribute to atypical customer attrition and decreased gross profits. Additionally, since the divesture of certain segments in fiscal 2009 unrelated to the Company's current focus of full service human resources, the Company has had positive results for the last four fiscal periods for financial reporting purposes, including the current period. However, the Company has not evidenced a similar trend for income tax reporting purposes, experiencing net operating losses in four of prior six fiscal periods, with the current and 2011 fiscal years as the exception. These taxable losses are primarily the result of permanent timing differences related to the amortization of certain intangible assets for income tax purposes through 2022. The Company's deferred tax assets and liabilities are susceptible to erratic changes due to the inherent unpredictable nature of the Company's insurance claim liabilities and sensitivity to unemployment and wage volatility. Changes in the economy and federal and state legislature, both favorable and unfavorable, will impact management's assumptions and estimates in future periods.

As of March 31, 2012, management has determined that a 87% valuation allowance against the Company's $4.9 million component of deferred tax assets generated by the net operating loss carry forward of $11.8 million is necessary to reduce the deferred tax assets to the amount that will more likely than not be realized. This represents a decrease from the prior fiscal year's 90% allowance as the Company experienced positive taxable earnings in the current year for the second time in six years. As a result, management elected to limit the valuation allowance release to 13% as the Company has not established a significant historical trend of taxable earnings. As of March 31, 2012, management has also determined that a $1.2 million valuation allowance against the Company's $3.3 million of deferred tax assets generated by book versus tax differences of certain assets and liabilities is necessary to reduce the deferred tax assets to the amount that will more likely than not be realized. This 35% valuation allowance represents a decrease from the prior fiscal year's 40% due to the aforementioned earnings trend. The Company released $0.7 million of the valuation allowance in fiscal 2012 due to the positive earnings in the Company's operations and projected earnings for the remainder of fiscal 2012 and 2013.

As of June 30, 2011, management had determined that a 90% valuation allowance against the Company's $5.1 million component of deferred tax assets generated by the net operating loss carry forward of $12.3 million was necessary to reduce the deferred tax assets to the amount that would more likely than not be realized. This represented a decrease from the prior fiscal year's 100% allowance as the Company experienced positive taxable earnings in the 2011 fiscal year for the first time in five years. As a result, management elected to limit the valuation allowance release to 10% as the Company had not established a significant historical trend of taxable earnings. As of June 30, 2011, management had also determined that a $1.6 million valuation allowance against the Company's $3.9 million of deferred tax assets generated by book versus tax differences of certain assets and liabilities was necessary to reduce the deferred tax assets to the amount that would more likely than not be realized. This 40% valuation allowance represented a decrease from the prior fiscal year's 45% due to the aforementioned earnings trend. The Company released $0.8 million of the valuation allowance in fiscal 2011 due to the positive earnings in the Company's operations and projected earnings in fiscal 2012 and 2013.

RESULTS OF OPERATIONS: COMPARISON OF THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 2012 AND MARCH 31, 2011

Executive Overview of Financial Results

Gross billings for the three month periods ended March 31, 2012 and March 31, 2011 were $115.3 million and $114.6 million, respectively.

Results of operations for the three and nine month periods ended March 31, 2012 and March 31, 2011 are as follows:

                                          Revenue for the                 Operating income for the
                                        Three Months Ended                   Three Months Ended
                                    March 31,        March 31,         March 31,             March 31,
                                       2012             2011             2012                  2011
                                                          (Dollars in thousands)
Business Solutions                 $     16,038     $     16,816     $         488         $         419
Holding Company                               0                0                 0                     0
Segment Totals                     $     16,038     $     16,816     $         488         $         419

Net Income Available to Common
Shareholders                                                         $         197         $         265




                                          Revenue for the                Operating income for the
                                         Nine Months Ended                   Nine Months Ended
                                     March 31,        March 31,        March 31,          March 31,
                                       2012              2011             2012               2011
                                                         (Dollars in thousands)
Business Solutions                 $      46,669     $     48,247     $      1,667       $      1,253
Holding Company                                0                0                0                  0
Segment Totals                     $      46,669     $     48,247     $      1,667       $      1,253

Net Income Available to Common
Shareholders                                                          $        667       $        793

Net income available to common stock shareholders was $0.20 million or $0.01 per diluted share on revenue of $16.0 million for the three month period ended March 31, 2012 compared with net income available to common stock shareholders of $0.27 million or $0.02 per diluted share on revenue of $16.8 million for the three month period ended March 31, 2011. This represents a $0.78 million or 4.6% decrease in revenue and a $0.07 million or 25.6% decrease in net income.

Net income available to common stock shareholders was $0.67 million or $0.05 per diluted share on revenue of $46.7 million for the nine month period ended March 31, 2012 compared with net income available to common stock shareholders of $0.79 million or $0.06 per diluted share on revenue of $48.2 million for the nine month period ended March 31, 2011. This represents a $1.6 million decrease or 3.3% in revenue and a $0.13 million decrease or 15.9% in net income.

The decrease in revenue for the three month period ended March 31, 2012 is primarily due to the loss of a major client at both CSM and ESG effective December 31, 2011. Both clients had been with CSM or ESG over ten years and had grown to the size that they could realize some material economies of scale by bringing the service in-house.

The decrease in net income available to common shareholders for the three month period ended March 31, 2012 is due to an increase in preferred stock dividends of $0.191 million or 129%.

The decrease in revenue for the nine month period ended March 31, 2012 is primarily due to the loss of three major clients between December 31, 2010 and December 31, 2011. Total worksite employee count is down by 1,379 or 9.5% since December 31, 2011.

The decrease in net income available to common shareholders for the nine month period ended March 31, 2012 is due to an increase in preferred stock dividends of $0.57 million which was partially offset by a decrease in operating expenses of $0.14 million and an increase in gross profit of $0.19 million.

Results are described in further detail as follows:

Operating results for three and nine month periods ended March 31, 2012 and March 31, 2011 are as follows:

                             Three Month Period Ended                           Nine Month Period Ended
                      March 31, 2012           March 31, 2011           March 31, 2012           March 31, 2011
                              (Dollars in thousands)                            (Dollars in thousands)
Revenues           $ 16,038         100 %   $ 16,816         100 %   $ 46,669         100 %   $ 48,247         100 %
Cost of revenues     12,760        79.6 %     13,713        81.5 %     37,030        79.3 %     38,802        80.4 %
Gross profit          3,278        20.4 %      3,103        18.5 %      9,639        20.7 %      9,445        19.6 %

Operating
expenses
Selling, general
and
administrative        2,659        16.6 %      2,545        15.1 %      7,575        16.2 %      7,712        16.0 %
Depreciation and
amortization            131         0.8 %        139         0.8 %        397         0.9 %        480         1.0 %
Total operating
expenses              2,790        17.4 %      2,684        16.0 %      7,972        17.1 %      8,192        17.0 %

Segment
operating income   $    488         3.0 %   $    419         2.5 %   $  1,667         3.6 %   $  1,253         2.6 %

Revenue

Revenue for the three month period ended March 31, 2012 was $16.0 million, compared to $16.8 million for the three month period ended March 31, 2011, a decrease of $0.78 million or 4.6%. Revenue decreased primarily due to the loss of a major client at both CSM and ESG effective December 31, 2011. Total worksite employee count is down 1,278 employees or 8.8% from March 31, 2011 with approximately 86.0% of the decrease represented in the two major clients that were lost. We continue to focus on growing in our target client size of 5-100 employees.

Revenue for the nine month period ended March 31, 2012 was $46.7 million, compared to $48.2 million for the nine month period ended March 31, 2011, a decrease of $1.6 million or 3.3%. Revenue decreased primarily due to the loss of the three major clients between December 31, 2010 and December 31, 2011. These three clients represented approximately 1,700 worksite employees or 11.8% of total worksite employees as of December 31, 2010. Each of these clients had been with ESG or CSM for over ten years and was a real success story from our perspective. They started with a very small number of employees but sincethe client's management was able to focus on growing their business while we handled all of their human resources needs, they grew at an incredible rate such that they were able to recognize some economies of scale by moving our service in-house.

Gross Profit

Gross profit for the three month period ended March 31, 2012 was $3.3 million, representing 20.4% of revenue, compared to $3.1 million, representing 18.5% of revenue for the three month period ended March 31, 2011. Despite a decrease in revenue, gross profit dollars increased due to $0.2 million increase in profitability in our workers comp program.

Gross profit for the nine month period ended March 31, 2012 was $9.6 million, representing 20.7% of revenue, compared to $9.4 million, representing 19.6% of revenue for the nine month period ended March 31, 2011. Despite a decrease in revenue, gross profit increased due to increases in profitability related to both our benefits and payroll tax programs.

Operating Income

Operating income for the three month period ended March 31, 2012 was $0.5 million, compared to operating income of $0.4 million for the three month period ended March 31, 2011, an increase of $0.1 million or 16.5% due to an increase in profitability in our workers comp program.

Operating income for the nine month period ended March 31, 2012 was $1.7 million, compared to operating income of $1.3 million for the nine month period ended March 31, 2011, an increase of $0.4 million or 33.0% due to a decrease in operating expenses of $0.14 million from downsizing at the corporate level and an increase in profitability in our benefits and payroll tax programs.

Interest Expense

Interest expense was $0.001 million for the three month period ended March 31, 2012, compared to $0.007 million for the three month period ended March 31, 2011, a decrease of $0.006 million due to the continuing payment of the remaining term note.

Interest expense was $0.009 million for the nine month period ended March 31, 2012, compared to $0.035 million for the nine month period ended March 31, 2011, a decrease of $0.026 million due to the continuing payment of the remaining term note. The final payment on the term note was made on April 30, 2012.

Income Taxes

Income tax expense was $0.014 and $0.020 million for the three months ended March 31, 2012 and 2011, respectively.

Income tax expense was $0.054 and $0.057 million for the nine months ended March 31, 2012 and 2011, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity include cash and equivalents and proceeds from debt borrowings. We had cash and equivalents of $6.5 million at March 31, 2012 and $6.0 million at June 30, 2011. The increase is due to net income for the first nine months of $1.7 million less the principal debt payments of $0.3 million and the preferred stock dividends of $1.0 million.

We had working capital of $3.7 million at March 31, 2012 compared with $2.6 million at June 30, 2011. The increase in working capital was a direct result of an additional nine months of profitability and the continued payment of our term debt. Current assets are primarily comprised of cash and equivalents and net accounts receivable. Current liabilities are primarily comprised of accounts payable, workers compensation reserves and accrued expenses.

The Company is required to collateralize its obligations under its workers' compensation and certain general insurance coverage. The Company uses its cash and cash equivalents to collateralize these obligations. Restricted cash was approximately $2.4 million and $2.4 million at March 31, 2012 and June 30, 2011, respectively.

Total debt at March 31, 2012 and June 30, 2011 was $0.08 and $0.42 million, respectively.

Cash Flows

Cash flows provided by operations for the nine month period ended March 31, 2012 and March 31, 2011 were $1.8 million and $5.3 million, respectively. The decrease is due to the timing of client pre-payments at CSM. The majority of CSM's clients make their invoice payment the day before their invoice/pay date. March 31, 2011 was a Thursday which means the clients' payments had been received but the payrolls were disbursed on Friday, April 1, 2011. These pre-payments are classified as customer deposits in the liability section of the balance sheet.

Cash flows provided by (used in) investing activities for the nine month period ended March 31, 2012 and March 31, 2011 were ($0.008) million and $0.005 million, respectively. The change was due to capital expenditures at CSM. There were no sales of assets this fiscal year.

Cash flows used in financing activities was $1.4 million for the nine month period ended March 31, 2012 compared to $1.1 million for the nine month period ended March 31, 2011. The increase was primarily due to the increase in preferred stock dividends paid of $1.0 million for the nine months ended March 31, 2012 as compared to $0.4 million for the nine months ended March 31, 2011 which was partially offset by the repurchase of common stock for treasury in fiscal year 2011 for $0.2 million.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

There have been no material changes to the Company's contractual obligations from those disclosed in the Form 10-K for the year ended June 30, 2011 under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," other than the Merger Agreement discussed under Item 5 - Other Information.

OFF BALANCE SHEET ARRANGEMENTS

As is common in the industry we operate in, we have entered into certain off-balance sheet arrangements in the ordinary course of business that result in risks not directly reflected in our balance sheets. Our significant off-balance sheet transactions include liabilities associated with guarantees and letter of credit obligations.

Guarantees

Significant portions of our debt and letters of credit are personally guaranteed by the Company's Chairman. Future changes to these guarantees would affect financing capacity of the Company.

Restricted Cash

Certain states and vendors require us to post letters of credit to ensure payment of taxes or payments to our vendors under workers' compensation contracts and to guarantee performance under our contracts. Such letters of credit are generally issued by a bank or similar financial institution. The letter of credit commits the issuer to pay specified amounts to the holder of the letter of credit if the holder demonstrates that we have failed to perform specified actions. If this situation were to occur, we would be required to reimburse the issuer of the letter of credit. Depending on the circumstances of such a reimbursement, we may also have to record a charge to earnings for the reimbursement. We do not believe that it is likely that any claims will be made under a letter of credit in the foreseeable future. As of March 31, 2012, we had approximately $2.4 million in restricted cash primarily to secure obligations under our PEO contracts.