UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
                                    ---------

  [X]    Annual  Report  Pursuant  to  Section  13 or  15(d)  of the  Securities
         Exchange Act of 1934 for the fiscal year ended December 30, 2001.

  [ ]    Transition  Report  Pursuant  to Section 13 or 15(d) of the  Securities
         Exchange Act of 1934

                         Commission File Number: 0-26094

                           SOS STAFFING SERVICES, INC.
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

              Utah                                            87-0295503
--------------------------------                          ---------------------
(State or other jurisdiction of                           (I.R.S. Employer
of incorporation or organization)                         Identification No.)

1415 South Main Street, Salt Lake City, Utah                    84115
--------------------------------------------              ----------------
(Address of principal executive offices)                     (Zip Code)

       Registrant's telephone number, including area code: (801) 484-4400

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

          Securities registered pursuant to Section 12(g) of the Act:

                          Common stock, $0.01 par value
                                (Title of class)

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.        Yes [ X ] No [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ X ]

The  aggregate  market value of the Common Stock held by  non-affiliates  of the
registrant,  on March 8, 2002,  based upon the closing sales price of the Common
Stock of $0.90  per  share on that  date as  reported  on the  NASDAQ/NNM  Stock
Market,  was  approximately  $7,047,412.  Shares  of Common  Stock  held by each
officer and director  and by each person who owns 5% or more of the  outstanding
Common  Stock  have  been  excluded  in that  such  persons  may be deemed to be
affiliates.  This  determination  of  affiliate  status  is  not  necessarily  a
conclusive determination for other purposes.

As of March 8, 2002, the registrant had outstanding  12,691,398 shares of Common
Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy  Statement  for the  registrant's  2002 Annual  Meeting of
Shareholders  to be held May 16, 2002 are  incorporated by reference in Part III
of this Report.



<PAGE>




                                     PART I

         This Annual Report on Form 10-K (the "Report") contains forward-looking
statements  within the meaning of Section 27A of the  Securities Act of 1933, as
amended (the "Securities  Act"), and Section 21E of the Securities  Exchange Act
of 1934, as amended (the "Exchange Act"), that involve risks and  uncertainties.
The reader is cautioned that the actual results of SOS Staffing  Services,  Inc.
may differ  (and may  differ  materially)  from the  results  discussed  in such
forward-looking  statements.  Factors  that could  cause or  contribute  to such
differences  include  those  factors  discussed  herein under  "Factors That May
Affect Future Results" and elsewhere in this Report generally.

ITEM 1.  BUSINESS
         --------
Development of Business

          SOS Staffing Services,  Inc. ("SOS" or the "Company") is a provider of
staffing services throughout the western United States. As of December 30, 2001,
SOS operated a network of 100 offices located in 15 states. Services the Company
provides include light industrial,  clerical,  industrial,  technical, specialty
and other professional services.

         The  Company's  offices are  supported  by  centralized  administrative
functions at corporate headquarters that include marketing,  human resources and
training,   insurance  services  including   workers'   compensation,   accounts
receivable  and  accounts   payable,   purchasing,   credit,   legal  and  other
administrative support services.  Generally,  each staffing office has access to
the Company's central management information system and its proprietary software
that  provides  information  on  customer  requirements,  available  applicants,
temporary  associates  on  assignment  and other  information  that  facilitates
efficient response to customer job orders and the financial  performance of each
unit.

Discontinued Operations

         On December 29, 2000,  Inteliant  Corporation  ("Inteliant"),  a wholly
owned  subsidiary  of the Company,  sold to Herrick  Douglass,  Inc.  ("HD") its
consulting  division and related tangible and intangible  assets. The consulting
division  sold  to HD  consisted  of a  full  suite  of  information  technology
consulting,  e-business  and  telecommunication  services,  which  services were
marketed  to  Fortune  1000,  mid-tier  and early  stage  companies,  government
agencies and educational institutions.  As part of this transaction, the Company
retained   accounts   receivable  of  approximately   $9.0  million,   of  which
approximately  $7.6 million was  collected  during fiscal 2001 and the remaining
$1.4 million was  uncollectable  and was written off as bad debt. As part of the
sale of the  consulting  division,  the  Company  agreed  to  extend a  one-year
subordinated  loan  to HD of up to a  maximum  of  $3.5  million  to  meet  HD's
operating  needs.  The promissory note from HD evidencing the loan bore interest
at 10% per annum on  outstanding  principal and was due and payable on or before
December  31,  2001.  The  note  was  amended  in May  2001  to  provide  for an
accumulated interest payment on December 31, 2001, with the principal balance to
be paid in 36  monthly  installments  beginning  in  January  2002 at an  annual
interest  rate of 12%. As of December 30,  2001,  the Company had advanced to HD
approximately  $3.4  million.  As of the  date  of  this  filing,  HD  has  been
liquidated  and the  Company  has been  unable  to  collect  against  the  note.
Accordingly,  the Company  has  written off the entire note to reflect  that the
Company  will not  receive  the balance due on the note issued by HD. For fiscal
2000, the Company recorded an estimated loss on the disposition,  net of tax, of
approximately $28 million.  For fiscal 2001, an additional loss of approximately
$5.0 million was recorded as a result of the greater than expected  write-off of
receivables  and the write-off of the note. The Company does not expect to incur
any additional loss related to this discontinued operation.

         In November 2001, the Company resolved to sell or abandon the assets of
its IT staffing business, which represented the remaining assets and business of
Inteliant. The Company currently is negotiating with various parties,  including
former owners of some of the IT  businesses,  for the sale of these assets.  The
Company  believes that the dispositions of these assets will be completed by the
end of the second quarter of fiscal 2002. The Company recorded an estimated loss
on disposal of these  businesses of approximately  $12.5 million,  including the
write-off of all of the  remaining  goodwill and  intangible  assets  associated
therewith of approximately $10.0 million.  Also included in the loss on disposal
of the  Company's  IT  staffing  business  is an  estimated  $367,000  loss from
operations  from December 31, 2001 through the  anticipated  disposition  dates.
These  projected  losses  represent  management's  best estimates based upon all
available  information.  However,  estimates  generally  are subject to inherent
uncertainties and, accordingly,  the ultimate loss may differ from estimates and
the difference could be significant.

                                       2
<PAGE>


         Subsequent  to December  30,  2001,  the Company  entered into an asset
purchase agreement with Abacab Software, Inc. ("Abacab"),  pursuant to which the
Company sold certain assets of Inteliant's  Northern  California  operations for
contingent  payments not to exceed  $600,000 in the  aggregate  over three years
following the closing date of the transaction,  based on the gross profit of the
business  acquired by Abacab.  Abacab also assumed  liabilities of approximately
$40,000. The Company retained accounts receivable of approximately $1.1 million.
The Company originally  acquired a portion of the assets sold in the transaction
from  Abacab.  The  principal  of  Abacab  was  engaged  by  the  Company  as an
independent  contractor  and was  managing  the  Company's  Northern  California
operations at the time of the closing of the  transaction.  The Company believes
that the terms of the  transaction  were no less  favorable  than it would  have
received from an unrelated third party.

         On December 5, 2001,  the Company  formalized a plan to sell its wholly
owned  subsidiary,  ServCom  Staff  Management,  Inc., a  professional  employee
organization.  On December 31, 2001, the Company sold  substantially  all of the
assets of this business to an unrelated  entity.  The Company retained  accounts
receivable  of  approximately  $480,000.  The  terms  of  the  transaction  were
immaterial to the financial results of the Company.  The Company recorded a loss
on disposal as part of discontinued operations of approximately $107,000.

         Subsequent  to December  30, 2001,  the Company  settled a dispute with
NeoSoft,  Inc.  ("NeoSoft"),  which had been acquired by Inteliant in July 1998.
Neosoft and its  principal had alleged that the Company owed more than the final
earnout  payment  paid by the Company  pursuant to the purchase  agreement  with
Neosoft.  As a result of  Neosoft's  allegations,  as of  December  30, 2001 the
Company had accrued  approximately  $625,000  for defense  costs and  additional
earnout payments to settle the dispute. Pursuant to the terms of the settlement,
the Company paid NeoSoft $550,000 and transferred the NeoSoft operations back to
NeoSoft.  In return,  the Company  retains all of the  accounts  receivable  and
unbilled  revenue of  approximately  $639,000;  however,  the  Company  will pay
NeoSoft 15% of all accounts receivable  collected as consideration for NeoSoft's
assistance  in collecting  the  receivables.  Additionally,  NeoSoft will assume
approximately  $53,000 in accrued  paid time off  liability  and will assume all
operating  leases.  Furthermore,  the parties will release all claims including,
without  limitation,  any  claims  arising  under the  original  asset  purchase
agreement and under the principal's original employment agreement.

Continuing Operations

         Financial  information  concerning the Company is included in Item 8 in
Part II of this report.

Description of Business

         Principal services and markets:  Historically,  the Company's customers
have  consisted  primarily  of  small  to  mid-sized  companies.  Sales to these
businesses are developed  either locally or regionally.  Generally,  the Company
provides clerical, light industrial and industrial services through SOS Staffing
Services,  Skill  Staff,  Industrial  Specialists,  TOPS  Staffing  and  Century
Personnel offices.  The Company also offers other specialized  services provided
by  other  divisions  such  as SOS  Technical  Services  (engineers,  designers,
drafters, illustrators, artists, writers and other technical personnel); Devon &
Devon and Truex  (administrative  staffing  and  permanent  placement);  and CGS
Personnel   (mining   and  mineral   exploration   engineers,   geologists   and
hydrologists).

         The Company also  provides  services such as  payrolling,  outsourcing,
on-site and other professional services:

o        Payrolling  typically involves the transfer of a customer's  short-term
         seasonal  or special  use  employees  to the  Company's  payroll  for a
         designated period.

o       Outsourcing  represents a growing  trend among  businesses  to contract
         with  third  parties  to  provide a  particular  function  or  business
         department for an agreed price over a designated period.

o        On-site  services  involve  locating SOS  manager(s) at the  customer's
         place of business to manage the customer's  entire  temporary  staffing
         requirements.

o        Other  professional  services offer SOS customers  skills  assessments,
         drug testing and risk management services:

         o        Skills assessments  available to SOS customers include,  among
                  others,    dexterity   analysis,    technical   literacy   and
                  job-specific competencies.

                                       3
<PAGE>

         o        Drug  testing  includes  comprehensive  testing,  with results
                  processed through an independent certified laboratory.

         o        Risk management services include on-site safety inspection and
                  consulting services.

         The Company has traditionally  focused on initially opening hub offices
in key  metropolitan  areas,  followed by  establishing  offices in  surrounding
markets.  This decentralized office management strategy locates multiple offices
in close proximity to customers and temporary  associates.  The Company believes
that this  strategy  has allowed it to rapidly  gain market share with low entry
costs. Once a hub office has been established, the Company focuses on leveraging
hub office  resources  in order to market and deliver  services  to  surrounding
smaller markets and to cross-sell other specialty staffing services.

         Additionally,  the Company targets large multi-state  companies through
its  national  marketing  team.  The contacts  for these  national  accounts are
centralized at the Company's  headquarters in Salt Lake City, Utah. The accounts
are serviced by local offices in markets in which the Company has an established
presence and by subcontractors where the Company has not established an office.

         The Company provides  services through a network of 100 offices located
in 15 states. The Company currently services major markets in Arizona, Colorado,
Idaho,  Nevada,  Utah and  Wyoming.  In larger  markets,  the Company  generally
provides light industrial and clerical  personnel  through SOS Staffing Services
offices, while  service-specific  offices provide specialty services. In smaller
markets,  SOS  offices  offer a  broader  variety  of  commercial  staffing  and
specialty services.  The Company also has commercial staffing offices in Alaska,
California, Hawaii, Kansas, Missouri, New Mexico, Oregon, Texas and Washington.

         Management  believes that the Company has substantial  opportunities to
expand its office  network and the range of services it offers to its customers.
The  Company  intends to  evaluate  continuing  operations  and develop its core
competencies  while  divesting  non-core  operations.  Furthermore,  the Company
intends,  for the foreseeable future, to concentrate on strengthening its office
network by capitalizing on its present  infrastructure  and leveraging  existing
resources to develop internal growth.

         Seasonality:  The Company's business follows the seasonal trends of its
customers' businesses.  Historically, the Company has experienced lower revenues
in the first  quarter,  with revenues  accelerating  during the second and third
quarters and then slowing again during the fourth quarter.

         Trademarks:  The Company uses a variety of  trademarks  and trade names
that  generally are  descriptive  of the temporary  staffing  services  offered,
including SOS Staffing  Services(R),  Century  Personnel,  Devon & Devon,  Skill
Staff, Industrial Specialists, SOS Technical Services, PAMS Employment Services,
CGS Personnel,  Mortgage  Staffing,  TOPS Staffing  Services(R)  and Truex.  The
Company  has  registered  or  reserved  the  majority  of  these  names  in  the
appropriate states.

         Customers: Management believes that significant opportunities remain to
deliver  profitable   commercial   staffing  services  to  small  and  mid-sized
customers. However, as the Company expands its network and develops its national
sales force,  the Company  anticipates  that it will  provide  more  services to
larger customers.

         No customer  accounted  for more than ten percent of the  Company's net
service  revenues  during  fiscal  2001,  and the  Company's  top ten  customers
accounted for less than eight percent of the Company's  service  revenues during
the same period.

         Competition:  The Company's  competitors consist of national,  regional
and local companies operating offices throughout the nation, making the industry
highly  competitive and highly  fragmented,  with limited barriers to entry. The
Company  faces  intense   competition  from  large  national  and  international
companies with substantially greater financial and marketing resources,  as well
as strong local and regional staffing companies.

         The  Company  competes  for  qualified  temporary  associates  and  for
customers who require the services of such employees.  The principal competitive
factors  in  attracting  and  retaining  qualified   temporary   associates  are
competitive  salaries and  benefits,  quality and frequency of  assignments  and
responsiveness  to employee  needs.  The Company  believes that many persons who
seek  temporary  employment  also are seeking  regular  employment  and that the
availability  of  temporary  staffing  assignments,  which  may lead to  regular
employment, is an important factor in its ability to attract qualified temporary
associates.

         The principal  competitive  factors in obtaining customers are a strong
sales and marketing program,  having qualified temporary associates to assign in
a timely manner,  matching of customer  requirements  with available  resources,


                                       4
<PAGE>

competitive pricing and satisfactory work production.  The Company believes that
its  strong  emphasis  on  providing  service  and  value to its  customers  and
employees are important competitive advantages.

Staff Employees

         At December 30, 2001, the Company had approximately 418 staff employees
in its continuing  operations.  As of March 8, 2002, the Company had reduced its
staff by an additional 36 full-time equivalent employees. The Company's training
department  provides general and  job-specific  training to all staff employees,
including continuing training with experienced counterparts,  and leadership and
management  development.  None of the Company's  staff  employees are covered by
collective  bargaining  agreements.  The Company considers its relationship with
its staff employees to be good.

Sales and Marketing

         SOS generally markets its services through its network of offices whose
managers,   supported  by  the  Company's   marketing  and  sales  staff,   make
sales/service visits to accounts as well as to prospects. The Company emphasizes
long-term  professional  relationships  with its  customers  and develops  these
relationships   through  regular  contact,   periodic   assessment  of  customer
requirements and consistent  monitoring of employee  performance.  New customers
are  obtained  through  customer  referrals,   telemarketing,   cold  calls  and
advertising  in a variety of local and  regional  media,  including  television,
radio, direct mail, yellow pages, newspapers,  magazines and trade publications.
The  Company  also is a sponsor  of job fairs and  other  community  events.  In
addition,  the  Company  increasingly  is using  the  Internet  to  support  its
marketing  efforts  and  clients can  research  the  Company and order  staffing
services on-line.

Recruiting

         The Company believes that a key element of its growth and profitability
is its  ability to recruit  and retain  qualified  temporary  associates.  In an
effort to attract quality  personnel,  the Company's  employees  regularly visit
schools and professional associations and present career development programs to
various  organizations.   In  addition,  the  Company  obtains  applicants  from
referrals by its temporary associates and from advertising on radio, television,
in the yellow pages and through other print media. The Company actively utilizes
the Internet to recruit professional and technical staffing and other employees.
Each  applicant  is  interviewed  with  emphasis  on past  work  experience  and
individual skills.  The Company utilizes the Dictionary of Occupational  Titles,
published by the U.S.  Department  of Labor,  to evaluate  and assign  temporary
associates. The Company maintains  software-training programs at its offices for
applicants and employees.

         To promote  loyalty and retention among its temporary  associates,  the
Company offers  certain  employee  benefits,  including a Section 401(k) defined
contribution plan, a cafeteria plan, vacation pay and health insurance programs.
In  addition,  the  Company  has the  ability to issue  paychecks  to  temporary
associates on a daily basis for work performed.

Risk Management

         SOS is responsible for all employee-related  expenses for its staff and
temporary employees,  including workers' compensation,  unemployment  insurance,
social security taxes, state and local taxes and other general payroll expenses.
The Company has implemented a deductible workers'  compensation  program through
ACE USA ("ACE"), an insurer, with a deductible of $300,000 per occurrence and an
aggregate cap of approximately $10.8 million,  adjusted based on actual payroll.
The  Company  also is  required  to provide  letters of credit to ACE to provide
security for the Company's  performance  under the insurance plan.  Employees in
Washington and Wyoming are insured through those states' insurance funds because
private  insurance  is not  permitted  in those  states.  The Company  employs a
full-time  professional  risk  manager  and  staff  who  work  closely  with the
insurance carrier to manage claims.

         The Company  also has  developed  workers'  compensation  loss  control
programs that seek to limit claims  through  employee  training and avoidance of
high-risk  job  assignments  such as  underground  mining,  roofing or  logging.
Additionally,   the  Company  has  implemented   back-to-work  programs  whereby
temporary  associates  who have been injured are placed in other less  demanding
jobs until they are able to resume full  employment.  Except where prohibited by


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<PAGE>

law, all  employees  are required to agree in advance to drug testing  following
any work-related accident and all major accidents are investigated. The Company,
in cooperation with its insurer,  monitors all claims and regularly  reviews the
claims with an emphasis on early closure.

Information Systems

         The Company's central  management  information system is linked to most
of the  Company's  offices.  The  centralized  system  is  designed  to  support
Company-wide   operations  such  as  job  skill  matching,   payroll,   billing,
accounting,  sales and  management  reports.  The Company  has some  operations,
obtained through acquisition,  that have their own centralized systems in place.
Systems have been implemented to automate the reporting of these entities to the
Company.

Factors that May Affect Future Results

         The statements  contained in this Report that are not purely historical
are  "forward-looking  statements"  within the  meaning  of  Section  27A of the
Securities  Act  and  Section  21E  of the  Exchange  Act.  All  forward-looking
statements involve various risks and uncertainties.  Forward-looking  statements
contained  in  this  Report   include   statements   regarding   the   Company's
opportunities,  existing and proposed service offerings,  market  opportunities,
expectations, goals, revenues, financial performance,  strategies and intentions
for the future and are indicated by the use of the words "estimate,"  "believe,"
"expect,"   "anticipate,"   "plan"   or   other   similar   expressions.    Such
forward-looking  statements  are  included  under  Item 1.  "Business",  Item 2.
"Properties",  Item 3. "Legal Proceedings" and Item 7. "Management's  Discussion
and  Analysis  of  Financial   Condition   and  Results  of   Operations."   All
forward-looking  statements  included  in this  Report  are  made as of the date
hereof,  based on information  available to the Company as of such date, and the
Company assumes no obligation to update any  forward-looking  statements.  It is
important to note that such  statements  may not prove to be accurate,  and that
the  Company's  actual  results and future events could differ  materially  from
those anticipated in such statements. Many factors could cause actual results to
differ   materially  from  the  Company's   expectations,   including,   without
limitation, the factors identified below.

         The Company's  future  results may be impacted by, among other factors,
the  Company's  ability to implement  its growth  strategy,  which,  in turn, is
dependent  upon a number of  factors,  including:  the  availability  of working
capital to support such growth;  management's ability and resources to implement
the  growth  strategy;  the  Company's  ability to  attract  and retain  skilled
employees  needed to implement  the  Company's  business  plan and meet customer
needs;  and the  successful  hiring,  training and retention of qualified  field
management.  Future  results also will be affected by other  factors  associated
with the operation of the Company's  business,  including the Company's response
to existing and emerging  competition,  demand for the Company's  services,  the
Company's  ability to maintain  profit margins in the face of increased  pricing
pressures,  the Company's  efforts to develop and maintain customer and employee
relationships,  economic fluctuations,  employee-related risks and expenses, and
the unanticipated results of pending or future litigation.

         As of December 30, 2001, the Company was out of compliance with minimum
EBITDA   requirements  under  its  note  purchase  agreements  with  its  senior
noteholders  and its  revolving  credit  agreement  with its  lenders.  However,
subsequent to December 30, 2001, the Company  entered into a Fifth  Amendment to
Amended and Restated  Credit  Agreement and Waiver,  dated as of April 15, 2002,
with its lenders and an Amendment No. 3 to Note Purchase Agreement,  dated as of
April 15, 2002, with its senior noteholders,  whereby the lenders and the senior
noteholders waived such covenant violations in the revolving credit facility and
senior notes, respectively (see "Liquidity and Capital Resources" in Item 7. for
further discussion on these recent events).

         As of December 30,  2001,  the Company was not in  compliance  with the
minimum requirements for net tangible assets for continued listing on the Nasdaq
National  Market (the  "NNM").  Although the Company has not received any notice
from the NNM regarding such  non-compliance,  the Company's securities may, as a
result, be delisted from the NNM. Delisting would adversely affect the liquidity
of the  Company's  common  stock and its  ability  to raise  additional  capital
through a sale of its common  stock.  Additionally,  in order to have its common
stock  relisted on the NNM,  the Company  would be required to meet the criteria
for initial listing,  which are more stringent than the maintenance  criteria to
which the Company currently is subject.

         As of December 30,  2001,  the  Company's  consolidated  balance  sheet
reflected approximately $48.1 million of goodwill and other intangible assets, a
substantial  portion of total  assets at such  date.  The  Company  continuously
evaluates whether events and circumstances  have occurred that indicate that the
remaining  balance of  intangible  assets may not be  recoverable.  When factors


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<PAGE>

indicate that assets should be evaluated  for possible  impairment,  the Company
may be required to reduce the carrying value of intangible  assets,  which could
harm  operating  results  during  the  periods  in  which  such a  reduction  is
recognized.  The Company is required to adopt Statement of Financial  Accounting
Standards  ("SFAS") No. 142,  "Goodwill and Other Intangible  Assets" for fiscal
2002. As of March 8, 2002, the Company's market capitalization was approximately
$11.4  million,  significantly  lower than the carrying  value of  approximately
$48.1 million for intangible assets.  Consequently,  the Company expects that it
will be required to write down a significant  portion of the  intangible  assets
during fiscal 2002 as a result of adopting SFAS No. 142.

         The Company maintains workers' compensation  insurance with ACE, with a
deductible  of $300,000  per incident  and an  aggregate  cap of $10.8  million,
adjusted  based on actual  payroll.  The  Company  also is  required  to provide
letters of credit to ACE to provide security for the Company's performance under
the insurance  plan. As of December 30, 2001,  letters of credit provided to ACE
were  approximately  $6.7 million.  The Company has established  reserve amounts
based  upon  information  provided  by ACE  as to  the  status  of  claims  plus
development  factors for incurred but not yet  reported  claims and  anticipated
future changes in underlying  case reserves.  On an annual basis,  the Company's
claims  history is subjected  to an  independent  actuarial  review to determine
appropriate  development  factors,  which are used in  developing  the Company's
reserve  estimates.  Such reserve amounts are only estimates and there can be no
assurance that the Company's future workers'  compensation  obligations will not
exceed the amount of its reserves.

         The Company has renewed its workers' compensation  insurance for fiscal
2002.  As part of the  renewal,  the Company is  required to pay higher  premium
costs and to provide an additional $3.3 million in letters of credit to ACE. The
Company  believes  that some of the increase in costs will be passed  through as
price increases to its customers.  However,  given the competitive nature of the
staffing  industry,  the  Company  is unsure  whether it will be  successful  in
passing through all cost increases.  Accordingly,  the Company believes that its
gross margin could be negatively impacted in fiscal 2002.

         All written and oral  forward-looking  statements  attributable  to the
Company  or  persons  acting on its  behalf  are  expressly  qualified  in their
entirety by this section and other factors included elsewhere in this report, as
well as by other factors  identified from time to time in the Company's periodic
reports to the Securities and Exchange Commission.

ITEM 2.  PROPERTIES
         ----------
         As of December  30, 2001,  the Company  provided  services  through 100
offices in 15 states.  These offices are typically 1,000 to 5,000 square feet in
size and  generally  are leased by the Company for terms of three to five years.
Offices in larger or smaller  markets may vary in size from the typical  office.
The Company does not expect that  maintaining or finding suitable lease space at
reasonable  rates in its  markets  or in areas  where the  Company  contemplates
expansion will be difficult.

         During the 52-week  period ended  December 30, 2001, the Company closed
and/or  consolidated  35 branch  offices.  The Company is  endeavoring to reduce
potential  future lease payments by subleasing  these  facilities or negotiating
discounted buyouts of the lease contracts.

         The Company's executive and administrative  offices are located in Salt
Lake City, Utah. The premises  consist of  approximately  15,600 square feet and
are leased from the adult children of certain  significant  shareholders  of the
Company  for a term  ending  on March 31,  2005,  with an option to renew for 10
additional  years. The Company believes that the terms of the lease are at least
as favorable as could be obtained from any unrelated third party.

ITEM 3.  LEGAL PROCEEDINGS
         -----------------
         In the ordinary  course of its  business,  the Company is  periodically
threatened  with or named as a defendant in various  lawsuits or  administrative
proceedings.  The  Company  maintains  insurance  in such  amounts and with such
coverage and  deductibles  as management  believes to be reasonable and prudent.
The principal risks covered by insurance include workers' compensation, personal
injury, bodily injury,  property damage, errors and omissions,  fidelity losses,
employer practices liability and general liability.

         On April 11, 2001,  Royalty  Carpet  Mills,  Inc.  ("Royalty")  filed a
complaint  against  Inteliant for breach of contract for services to be provided
by Inteliant and for professional  negligence (the  "Complaint") in the state of
California.  The Complaint requests unspecified damages,  consequential damages,
and attorneys' fees and costs.  To date,  Royalty has not quantified the precise


                                       7
<PAGE>

amount of damages it is seeking from Inteliant,  but has informed Inteliant that
it will be seeking damages of approximately  $1.9 million.  Inteliant denies the
allegations  set forth in the  Complaint  and is seeking to recover in excess of
$150,000 that Inteliant claims Royalty owes to Inteliant. The case is proceeding
with discovery, with the trial currently set to commence in August 2002.

         Inteliant  believes that it is insured against any potential  liability
for the claims  filed by Royalty  under its general  liability  coverage and has
tendered  defense of  Royalty's  lawsuit  to its  insurance  carrier.  While its
insurance  carrier has reserved its right to assert  certain  policy  exclusions
against  Inteliant,  which the insurance  carrier  contends exclude claims based
upon (i) an express or implied  warranty or  guarantee,  (ii) breach of contract
with respect to any  agreement  to perform  work for a specified  fee, and (iii)
claims for bodily injury or property damage,  Inteliant  presently believes that
the claims asserted by Royalty against Inteliant are not only without merit, but
that any judgment that potentially might be entered against Inteliant is covered
in whole or in substantial part by its policy with the insurance carrier.

         There  is no  other  pending  litigation  that  the  Company  currently
anticipates  will have a  material  adverse  effect on the  Company's  financial
condition or results of operations.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
           ---------------------------------------------------
         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of the 52 weeks ended December 30, 2001.



                                       8
<PAGE>

PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Stock Listing
-------------
         The  Company's  common  stock,  par value $0.01 per share (the  "Common
Stock"), is traded on the Nasdaq National Market tier of The Nasdaq Stock Market
under the symbol: "SOSS". The stock table abbreviation is "SOS Stffg".

         As of March 8, 2002, the Company had 71 stockholders  of record.  Based
upon  shareholder  mailings,  the Company  believes  that there are in excess of
4,000 shareholders of beneficial interest.

         The  following  table  sets  forth  the high and low bid  prices of the
Common Stock for the periods indicated:

                                                  High        Low
                                                  ----        ---
         1999
              First Quarter-----------------   $  10.938     $ 7.000
              Second Quarter----------------       8.125       5.000
              Third Quarter-----------------       6.938       5.000
              Fourth Quarter----------------       7.000       3.750

         2000
              First Quarter-----------------       5.688       4.000
              Second Quarter----------------       4.750       2.625
              Third Quarter-----------------       3.188       2.000
              Fourth Quarter----------------       3.625       1.000

         2001
              First Quarter-----------------       2.188       1.125
              Second Quarter----------------       1.700       1.110
              Third Quarter-----------------       1.940       1.100
              Fourth Quarter----------------       1.250       1.000

         On March 8, 2002, the closing price of the Company's  Common Stock,  as
reported on the Nasdaq National Market, was $0.90.

         The Company has never paid any dividends. The Company currently intends
to retain future  earnings for its  operations and expansion of its business and
does not anticipate paying any cash dividends in the future.





                                       9
<PAGE>



ITEM 6.  SELECTED FINANCIAL DATA

         The following table sets forth selected  financial data for the Company
derived  from the  Company's  consolidated  financial  statements.  The selected
financial  data  should  be  read in  conjunction  with  Item  7.  "Management's
Discussion and Analysis of Financial  Condition and Results of Operations,"  the
consolidated  financial  statements  and the  related  notes  thereto,  included
elsewhere in this report.
<TABLE>
<CAPTION>

                                                                  Fiscal Year (52/53 Weeks) Ended
                                           --------------- -------------- --------------- --------------- ---------------
                                                2001          2000(1)       1999(1,2)       1998(1,2)       1997(1,2)
                                           --------------- -------------- --------------- --------------- ---------------
Statement of Operations Data:                                  (in thousands, except per share data)
<S>                                          <C>             <C>           <C>              <C>             <C>
Service revenues                             $  216,358      $  262,822    $  249,803       $  240,980      $   170,177
Gross profit                                     47,082          58,489        56,358           53,157           36,394
Income from operations                            2,785           4,755         7,485            9,210            9,077
(Loss) income from continuing operations
                                                 (5,300)            160         2,508            5,206            5,737
(Loss) income from discontinued
   operations, net of tax                       (52,044)        (29,361)        2,843            4,563            1,791
Net (loss) income                               (57,344)        (29,201)        5,351            9,858            7,526


(Loss) income from continuing operations
   per common share
    Basic                                    $   (0.42)      $     0.01    $     0.20       $     0.41      $      0.59
    Diluted                                      (0.42)            0.01          0.20             0.41             0.59

Net (loss) income per common share
    Basic                                    $    (4.52)     $    (2.30)   $     0.42       $     0.78      $      0.78
    Diluted                                       (4.52)          (2.30)         0.42             0.77             0.77

Weighted average common shares
    Basic                                        12,691          12,691        12,691           12,675            9,654
    Diluted                                      12,691          12,692        12,699           12,810            9,780

Balance Sheet Data:
Working capital                              $    4,353  $   20,012    $   37,969       $   26,989      $    42,791
Total assets                                     78,743         161,388       200,624          182,909          118,290
Total debt                                       29,095          44,273        55,687           39,925                -
Shareholders' equity                             33,541          90,885       120,086          114,606          104,336

</TABLE>

(1)  In fiscal  2001,  the  Company  adopted a plan to dispose  of the  staffing
     divisions of Inteliant,  as well as the Company's wholly owned  subsidiary,
     ServCom Staff Management,  Inc. The related statement of operations data is
     reflected as discontinued operations for all years presented.
(2)  In fiscal 2000,  the Company sold the IT consulting  division of Inteliant.
     The  statement  of  operations  data  for this  division  is  reflected  as
     discontinued operations for all years presented.


                                       10
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
         -----------------------------------------------------------------------
         The  following  discussion  should  be read  in  conjunction  with  the
consolidated  financial  statements  of SOS  Staffing  Services,  Inc. and notes
thereto appearing  elsewhere in this report.  The Company's fiscal year consists
of a 52- or 53-week period ending on the Sunday closest to December 31.

         The Company provides staffing services through a network of 100 offices
located in 15 states. The Company discontinued its information technology ("IT")
consulting  business  in  fiscal  2000  and  adopted  a plan to  dispose  of its
remaining IT staffing  businesses in fiscal 2001. These IT businesses  represent
all of the  Company's  IT  segment.  In  addition,  in fiscal  2001 the  Company
discontinued some of its non-core commercial staffing businesses.  The Company's
remaining  business  provides  supplemental  staffing to companies by furnishing
temporary  clerical,  light-industrial,  industrial,  technical and professional
services.

Recent Developments

         As of December 30,  2001,  the Company was out of  compliance  with the
minimum EBITDA  requirements under its note purchase  agreements with its senior
noteholders  and its  revolving  credit  agreement  with its  lenders.  However,
subsequent to December 30, 2001, the Company  entered into a Fifth  Amendment to
Amended and Restated  Credit  Agreement and Waiver,  dated as of April 15, 2002,
with its lenders and an Amendment No. 3 to Note Purchase Agreement,  dated as of
April 15, 2002, with its senior noteholders,  whereby the lenders and the senior
note holders waived such covenant  violations in the revolving  credit  facility
and senior notes, respectively (see "Liquidity and Capital Resources" in Item 7.
for further discussion on these recent events).

         As of December 30,  2001,  the Company was not in  compliance  with the
minimum requirements for net tangible assets for continued listing on the Nasdaq
National  Market (the  "NNM").  Although the Company has not received any notice
from the NNM regarding such  non-compliance,  the Company's securities may, as a
result, be delisted from the NNM. Delisting would adversely affect the liquidity
of the  Company's  common  stock and its  ability  to raise  additional  capital
through a sale of its common  stock.  Additionally,  in order to have the common
stock  relisted on the NNM,  the Company  would be required to meet the criteria
for initial listing,  which are more stringent than the maintenance  criteria to
which the Company currently is subject.

         On March 9, 2002, the Job Creation and Work Assistance Act of 2002 (the
"2002 Job Act") was signed into law, which includes certain  provisions that the
Company  believes will provide  favorable  tax treatment for the Company.  Among
such provisions is the extension of the net operating loss carryback period from
two years to five years for net operating  losses arising in tax years ending in
2001 and 2002.  These  provisions  also allow companies to use the net operating
loss carrybacks and  carryforwards to offset 100 percent of alternative  minimum
taxable income.  The Company has not yet determined the impact these  provisions
of the 2002 Job Act will have on its  operations,  nor whether the tax treatment
provided  thereby to the Company would allow it to regain  compliance  under the
NNM listing  requirements  for continued  listing.  In fiscal 1996, the earliest
year to which the  carryback  provisions  of the 2002 Job Act would  apply,  the
Company paid  approximately  $2.8 million in federal income tax. In fiscal 1997,
the Company paid approximately $4.5 million in federal income tax.

         The Company's  financial  situation  presents risks to investors during
fiscal  2002.  See  "Liquidity  and  Capital  Resources"  within this Item 7 for
further information on these recent developments.

Discontinued Operations

         On December  29,  2000,  Inteliant  Corporation  ("Inteliant")  sold to
Herrick Douglass,  Inc. ("HD") its consulting  division and related tangible and
intangible assets. The consulting  division sold to HD consisted of a full suite
of information technology consulting, e-business and telecommunication services,
which  services  were  marketed  to  Fortune  1000,  mid-tier  and  early  stage
companies,  government  agencies and educational  institutions.  As part of this
transaction,  the Company retained  accounts  receivable of  approximately  $9.0
million,  of which  approximately  $7.6 million was collected during fiscal 2001
and the  remaining  $1.4  million was  uncollectable  and was written off as bad
debt.  As part of the sale of the  consulting  division,  the Company  agreed to
extend a one-year  subordinated loan to HD of up to a maximum of $3.5 million to
meet HD's operating  needs. The promissory note from HD evidencing the loan bore
interest at 10% per annum on outstanding principal and was due and payable on or
before  December  31,  2001.  The note was amended in May 2001 to provide for an


                                       11
<PAGE>

accumulated interest payment on December 31, 2001, with the principal balance to
be paid in 36  monthly  installments  beginning  in  January  2002 at an  annual
interest  rate of 12%. As of December 30,  2001,  the Company had advanced to HD
approximately  $3.4  million.  As of the  date  of  this  filing,  HD  has  been
liquidated  and the  Company  has been  unable  to  collect  against  the  note.
Accordingly,  the Company  has  written off the entire note to reflect  that the
Company  will not  receive  the balance due on the note issued by HD. For fiscal
2000, the Company recorded an estimated loss on the disposition,  net of tax, of
approximately $28 million.  For fiscal 2001, an additional loss of approximately
$5.0 million was recorded as a result of the greater than expected  write-off of
receivables  and the write-off of the note. The Company does not expect to incur
any additional loss related to this discontinued operation.

         In November 2001, the Company resolved to sell or abandon the assets of
its IT staffing business, which represented the remaining assets and business of
Inteliant. The Company currently is negotiating with various parties,  including
former owners of some of the IT  businesses,  for the sale of these assets.  The
Company  believes that the dispositions of these assets will be completed by the
end of the second quarter of fiscal 2002. The Company recorded an estimated loss
on disposal of these  businesses of approximately  $12.5 million,  including the
write-off of all of the  remaining  goodwill and  intangible  assets  associated
therewith of approximately $10.0 million.  Also included in the loss on disposal
of the  Company's  IT  staffing  business  is an  estimated  $367,000  loss from
operations  from December 31, 2001 through the  anticipated  disposition  dates.
These  projected  losses  represent  management's  best estimates based upon all
available  information.  However,  estimates  generally  are subject to inherent
uncertainties and, accordingly,  the ultimate loss may differ from estimates and
the difference could be significant.

         Subsequent  to December  30,  2001,  the Company  entered into an asset
purchase agreement with Abacab Software, Inc. ("Abacab"),  pursuant to which the
Company sold certain assets of Inteliant's  Northern  California  operations for
contingent  payments not to exceed  $600,000 in the  aggregate  over three years
following the closing date of the  transaction  based on the gross profit of the
business  acquired by Abacab.  Abacab also assumed  liabilities of approximately
$40,000. The Company retained accounts receivable of approximately $1.1 million.
The Company originally  acquired a portion of the assets sold in the transaction
from  Abacab.  The  principal  of  Abacab  was  engaged  by  the  Company  as an
independent  contractor  and was  managing  the  Company's  Northern  California
operations at the time of the closing of the  transaction.  The Company believes
that the terms of the  transaction  were no less  favorable  than it would  have
received from an unrelated third party.

         On December 5, 2001,  the Company  formalized a plan to sell its wholly
owned  subsidiary,  ServCom  Staff  Management,  Inc., a  professional  employee
organization.  On December 31, 2001, the Company sold  substantially  all of the
assets of this business to an unrelated  entity.  The Company retained  accounts
receivable  of  approximately  $480,000.  The  terms  of  the  transaction  were
immaterial to the financial results of the Company.  The Company recorded a loss
on disposal as part of discontinued operations of approximately $107,000.

         Subsequent  to December  30, 2001,  the Company  settled a dispute with
NeoSoft,  Inc.  ("NeoSoft"),  which had been acquired by Inteliant in July 1998.
Neosoft and its  principal had alleged that the Company owed more than the final
earnout  payment  paid by the Company  pursuant to the purchase  agreement  with
Neosoft.  As a result of  Neosoft's  allegations,  as of  December  30, 2001 the
Company had accrued  approximately  $625,000  for defense  costs and  additional
earnout payments to settle the dispute. Pursuant to the terms of the settlement,
the Company paid NeoSoft $550,000 and transferred the NeoSoft operations back to
NeoSoft.  In return,  the Company  retains all of the  accounts  receivable  and
unbilled  revenue of  approximately  $639,000;  however,  the  Company  will pay
NeoSoft 15% of all accounts receivable  collected as consideration for NeoSoft's
assistance  in collecting  the  receivables.  Additionally,  NeoSoft will assume
approximately  $53,000 in accrued  paid time off  liability  and will assume all
operating  leases.  Furthermore,  the parties will release all claims including,
without  limitation,  any  claims  arising  under the  original  asset  purchase
agreement and under the principal's original employment agreement.

Critical Accounting Policies

         The  Company's   critical   accounting   policies  for  its  continuing
operations include the following:

o        revenue recognition;

o        allowance for doubtful accounts receivable;

o        reserves for workers' compensation costs;

o        impairment of goodwill and intangibles;

o        restructuring charges; and

                                       12
<PAGE>

o        valuation allowances against deferred income tax assets.

         Service  revenues  generated  from  temporary  associates  on  customer
assignments  are  recognized  as income  at the time the  service  is  provided.
Service   revenues  from   permanent   placement   services,   which   represent
approximately  1.3% of fiscal  2001  revenues,  are  recognized  at the time the
customer agrees to hire a candidate supplied by the Company.

         The  Company  provides  customary  credit  terms to its  customers  and
generally  does not require  collateral.  The Company  performs  ongoing  credit
evaluations  of the  financial  condition  of its  customers  and  maintains  an
allowance for doubtful  accounts  receivable  based upon  historical  collection
experience and expected collectibility of accounts. As of December 30, 2001, the
Company had recorded an allowance for doubtful  accounts of  approximately  $2.3
million. The actual bad debts may differ from estimates and the difference could
be significant.

         The Company  maintains  workers'  compensation  insurance  with ACE USA
("ACE"),  an independent  insurance  company,  with a deductible of $300,000 per
incident.  The Company  also is required to provide  letters of credit to ACE to
provide security for the Company's  performance  under the insurance plan. As of
December 30, 2001,  letters of credit  provided to ACE were  approximately  $6.7
million. Subsequent to December 30, 2001, the Company was required to provide an
additional   $3.3  million  in  letters  of  credit  as  part  of  its  workers'
compensation insurance renewal for fiscal 2002. Under the terms of the insurance
policy with ACE,  the  Company is required to deposit  into an account an amount
equal to the amount of actual  payments made by ACE during the previous month as
reimbursement  to ACE for such  deductibles.  If claims payments on any specific
claim exceed the deductible  amount of $300,000,  the Company is not required to
reimburse the fund for those payments over and above the deductible. Some states
in which the  Company  operates do not permit  private  insurance  for  workers'
compensation;  where this is the case,  the  Company  is covered by  appropriate
state insurance funds.

         The Company has  established  reserve  amounts  based upon  information
provided by ACE as to the status of claims plus development factors for incurred
but not yet reported  claims and  anticipated  future changes in underlying case
reserves.  On an annual basis,  the Company's  claims history is subjected to an
independent actuarial review to determine appropriate development factors, which
are used in developing the Company's reserve estimates. As of December 30, 2001,
the workers'  compensation  reserve  totaled  approximately  $5.5 million.  Such
reserve  amounts  are only  estimates  and  there can be no  assurance  that the
Company's future workers' compensation obligations will not exceed the amount of
its  reserves.  However,  management  believes that any  difference  between the
amounts  recorded  for its  estimated  liability  and the costs of settling  the
actual claims would not be material to the results of operations.

         Intangible  assets  less  amortization  were  $48.1  million  and $92.0
million as of December 30, 2001 and December  31, 2000,  respectively.  Goodwill
and trademarks and tradenames are amortized using the straight-line  method over
30 years;  non-competition  agreements and other intangible assets generally are
being amortized using the straight-line method over three to six years.

        Goodwill and other  intangibles  are reviewed  for  impairment  whenever
events or changes in  circumstances  indicate  that the book value of the assets
may not be  recoverable.  The  Company  determines  at each  balance  sheet date
whether  events  or   circumstances   have  occurred  that  indicates   possible
impairment.  The Company  uses an estimate of the future  undiscounted  net cash
flows of the related  asset over the  remaining  life of the asset in  measuring
whether  the  assets  are  recoverable.   Where  such  estimate  of  the  future
undiscounted  cash  flows is less  than  the  carrying  amount  of  goodwill,  a
potential  impairment  exists.  The  Company is  required to adopt SFAS No. 142,
"Goodwill and Other  Intangible  Assets" for fiscal 2002.  See "Impact of Recent
Accounting  Pronouncements"  for further  discussion  on how this  standard will
impact the Company.

         To align  staff  costs and branch  office  requirements  with  existing
revenue,  the Company is streamlining its corporate  structure and consolidating
or closing branch offices in under-performing markets. During the 52-week period
ended  December  30,  2001,  the  Company  recorded  a  restructuring  charge of
approximately $1.3 million, primarily related to the consolidation or closure of
35 branch  offices,  as well as severance  charges related to the elimination of
various  operational and senior level  positions.  The Company is endeavoring to
reduce potential future lease payments by subleasing the abandoned facilities or
negotiating  discounted  buyouts  of  the  lease  contracts.  Consequently,  the
Company's  estimates may change based on its ability to effectively  reduce such
future  lease  payments.  Of the  approximately  $1.3  million  the  Company has
incurred in restructuring charges,  approximately $0.8 million has been paid out
in the form of severance and benefits,  lease payments and refinancing  costs on
the  Company's  revolving  credit  facility  and note  purchase  agreements.  At


                                       13
<PAGE>

December  30, 2001,  the  remaining  accrued  estimated  net lease  payments and
accrued severance payments were  approximately $0.5 million.  Since December 30,
2001, the Company has reduced its staff by an additional 36 full-time equivalent
employees.

         The Company has recorded a valuation  allowance of approximately  $24.6
million to offset the entire  balance of the  deferred  tax asset as of December
30,  2001.  The  valuation  allowance  was  recorded  as a result of the  losses
incurred by the Company and the Company's belief that it is more likely than not
that the  Company  will be  unable  to  recover  the net  deferred  tax  assets.
Subsequent  to December  30,  2001,  certain tax law changes  will result in the
Company obtaining a refund from carrybacks of net operating losses.  See "Recent
Developments."  Accordingly,  the Company  will reduce the  valuation  allowance
during the first quarter of fiscal 2002 as a result of these tax law changes.

Results of Continuing Operations

     The following table sets forth, for the periods  indicated,  the percentage
relationship to service revenues of selected continuing operations items for the
Company on a consolidated basis:

<TABLE>
<CAPTION>
                                                                          Fiscal Year 52 Weeks Ended
                                                                 ----------------------------------------------
                                                                      2001             2000           1999
                                                                 ---------------- --------------- -------------
<S>                                                                     <C>               <C>          <C>
   Service revenues                                                     100.0%            100.0%       100.0%
   Direct cost of services                                               78.2              77.8         77.4
                                                                 ---------------- --------------- -------------
   Gross profit                                                          21.8              22.3         22.6
                                                                 ---------------- --------------- -------------
   Operating expenses:
     Selling, general and administrative expenses                        18.9              18.3         18.6
     Intangibles amortization                                             1.0               1.0          1.0
     Loss on impairment of goodwill and intangibles                      --                 1.2         --
     Restructuring charges                                                0.6              --           --
                                                                 ---------------- --------------- -------------
       Total operating expenses                                          20.5              20.5         19.6
                                                                 ---------------- --------------- -------------
   Income from operations                                                 1.3%              1.8%         3.0%
                                                                 ---------------- --------------- -------------
</TABLE>

Fiscal 2001 Compared to Fiscal 2000 from Continuing Operations

Service  Revenues:  Substantially  all of the service  revenues are based on the
time worked by temporary  associates on customer  assignments and from permanent
placement  of  personnel  with   customers.   Service   revenues   decreased  by
approximately  $46.5 million, or 17.7%, to $216.4 million for the 52-week period
ended December 30, 2001, compared to $262.8 million for the 52-week period ended
December  31,  2000.  The  decrease  was due  primarily  to  reduced  demand for
temporary services as a result of the broad downturn in the economy. The Company
also has seen a significant decrease in permanent placement revenues.

Gross Profit: The Company defines gross profit as service revenues less the cost
of providing services, which includes wages and permanent placement commissions,
employer  payroll taxes (FICA,  unemployment  and other general  payroll taxes),
workers'  compensation  costs  related to  temporary  associates  and  permanent
placement  counselors,  other temporary  payroll benefits and other direct costs
related to staffing  engagements.  Gross  profit  margin for the 52-week  period
ended  December  30, 2001 was 21.8%,  compared  to 22.3% for the 52-week  period
ended December 31, 2000.  The margin  decline from the comparable  period of the
prior year was primarily a result of increased pricing  competition for staffing
services  coupled  with a reduction  in the higher  margin  permanent  placement
business. The Company has renewed its workers' compensation insurance for fiscal
2002.  As part of the  renewal,  the Company is  required to pay higher  premium
costs.  The Company  believes  that some of the increase in costs will be passed
through as price  increases to its  customers.  However,  given the  competitive
nature of the  staffing  industry,  the  Company  is unsure  whether  it will be
successful  in passing  through  all cost  increases.  Accordingly,  the Company
believes that its gross margin could be negatively impacted in fiscal 2002.

Operating  Expenses:  Operating  expenses  include,  among other  things,  staff
employee compensation,  rent, recruitment and retention of temporary associates,
costs   associated   with   opening  new  offices,   depreciation,   intangibles
amortization  and  advertising.  Total  operating  expenses as a  percentage  of
service  revenues were 20.5% for both the 52-week period ended December 30, 2001
and the 52-week period ended December 31, 2000.

                                       14
<PAGE>

         Selling,  general  and  administrative  expenses,  as a  percentage  of
service  revenues,  for the 52-week  period ended  December 30, 2001 were 18.9%,
compared to 18.3% for the 52-week  period ended  December 31, 2000. The increase
as a percentage of service  revenues is due primarily to the Company's  revenues
declining  faster  than the  corresponding  reduction  in  selling,  general and
administrative expenses.

         Restructuring  charges for the 52-week  period ended  December 30, 2001
added  approximately 0.6% in additional  operating  expenses.  The restructuring
charges were the result of the closure or consolidation  of unprofitable  branch
offices and related  costs,  the Company's  estimate of future lease costs to be
incurred  in  relation  to  those  offices,  severance  charges  related  to the
elimination of various  operational  and senior level  management  positions and
certain legal costs related to  refinancing  of the Company's  revolving  credit
facility and senior note  agreements.  During the 52-week  period ended December
30,  2001,  excluding  the  remaining  Inteliant  offices to be disposed of, the
Company  has  reduced  its  staff by  approximately  142,  or  25.4%,  full-time
equivalent  employees and had closed or consolidated 35 offices.  As of March 8,
2002, the Company has reduced its staff by an additional 36 full-time equivalent
employees.

Income from  Operations:  Income from  operations  for the 52-week  period ended
December 30, 2001 was  approximately  $2.8 million,  a decrease of approximately
$2.0 million, compared to $4.8 million for the 52-week period ended December 31,
2000.  Operating margin was 1.3%,  compared to 1.8% for the comparable period of
the prior year. The decrease in operating margin was due largely to the decrease
in gross profit.

Income  Taxes:  For the 52-week  period ended  December  30,  2001,  the Company
recognized  a tax  provision  of  approximately  $5.2  million.  The  income tax
provision was caused  primarily by  recognition  of $5.2 million of deferred tax
asset  valuation  allowances.  The valuation  allowance  was recorded  given the
losses incurred and the uncertainties  regarding future operating  profitability
and taxable income.

Fiscal 2000 Compared to Fiscal 1999 from Continuing Operations

Service  Revenues:  Service  revenues  increased by $13.0  million,  or 5.2%, to
$262.8  million for the 52-week  period ended  December  31,  2000,  compared to
$249.8  million  for the  52-week  period  ended  January 2, 2000.  Of the $13.0
million  increase,  approximately  $5.6  million  was  attributable  to revenues
generated  by new  offices  (offset by office  closures)  and $7.4  million  was
attributable to increased revenues from existing offices.

Gross Profit:  Gross profit for the 52-week  period ended  December 31, 2000 was
$58.5 million, compared to $56.4 million for the 52-week period ended January 2,
2000,  an increase  of $2.1  million,  or 3.7%.  For the  52-week  period  ended
December 31,  2000,  gross  profit  margin was 22.3%,  compared to 22.6% for the
comparable period of the prior year. The decrease in gross profit margin was due
primarily to a reduction in the higher margin permanent placement business.

 Operating  Expenses:  Total  operating  expenses,  as a percentage of revenues,
increased to 20.5% for the 52-week period ended December 31, 2000 from 19.6% for
the 52-week  period ended January 2, 2000. As discussed  below,  the increase is
due  primarily  to  a  loss  on  impairment  of  goodwill   related  to  certain
intangibles.

         During  the  52-week  period  ended   December  31,  2000,   management
determined  to  eliminate  certain  specialty  lines  of  business  in  order to
concentrate on core services  provided by SOS in those  markets.  As a result of
the change in the Company's  operational  focus in these markets,  the projected
cash  flows  were less than the  carrying  amount of the  associated  intangible
asset.  Therefore,  goodwill and other intangibles of approximately $3.1 million
relating to those specific  acquisitions were determined to be impaired and were
written off.

Income from  Operations:  Income from operations  decreased  approximately  $2.7
million,  or 36.0%,  to $4.8 million for the 52-week  period ended  December 31,
2000,  compared to $7.5 million for the 52-week  period  ended  January 2, 2000.
Operating margin was 1.8% for the fiscal year ended December 31, 2000,  compared
to 3.0% for the fiscal year ended  January 2, 2000.  The  decrease in  operating
margin was  primarily  due to the  increase in operating  expenses  coupled with
decrease in gross profit margin.

Income Taxes: The effective combined federal and state income tax rate on income
from  continuing  operations was 34.7% for the 52-week period ended December 31,
2000,  compared  to 27.0% for the  52-week  period  ended  January 2, 2000.  The
decrease in the  effective  tax rate was due  primarily to an increase in income
tax credits earned through specific government-sponsored hiring incentives.

                                       15
<PAGE>

Liquidity and Capital Resources

         For the 52-week  period ended  December 30, 2001,  net cash provided by
operating  activities  was $21.1  million,  compared  to $17.5  million  for the
52-week  period ended  December 31, 2000.  The change in operating cash flow was
primarily  a result of a net  increase in cash  provided  from  certain  working
capital components, primarily accounts receivable and income tax receivable.

         The  Company's  investing  activities  for  the  52-week  period  ended
December 30, 2001 used approximately $6.2 million,  compared to $7.5 million for
the 52-week period ended December 31, 2000. The Company's  investing  activities
used   approximately   $1.5  million  to  purchase   property   and   equipment,
approximately  $2.2  million in  acquisition  earnouts  and  approximately  $2.4
million for notes receivable issued during the 52-week period ended December 30,
2001. By comparison,  the Company used  approximately $1.2 million to purchase a
12.5% equity interest in BioLynx,  Inc.  common stock,  $2.9 million to purchase
property and equipment and approximately  $3.3 million for acquisition  earnouts
during the 52-week  period ended  December 31,  2000.  Additionally,  during the
52-week  period ended  December 31, 2000,  the Company  received $1.0 million in
cash relating to the sale of the IT  consulting  division.  Also in  conjunction
with the sale of the consulting  division,  the Company extended $1.0 million in
the form of a note receivable to the purchasers in that transaction.

         The  Company's  financing  activities  for  the  52-week  period  ended
December 30, 2001 used  approximately  $15.2 million,  compared to $11.4 million
for the 52-week period ended December 31, 2000,  primarily for payments,  net of
borrowings, on the Company's debt instruments.

         During  fiscal  2001,  the Company  entered  into a Third  Amendment to
Amended and Restated Credit Agreement (the "Credit  Amendment") with Wells Fargo
Bank   Northwest,   N.A.   ("Wells   Fargo")  and  Bank  One,  NA  ("Bank  One")
(collectively,  the  "Lenders")  to extend the Company's  line of credit,  which
expired July 1, 2001.  Pursuant to the Credit  Amendment,  the Company's line of
credit was reduced from $30.0 million to $18.0 million, $8.0 million of which is
available  for  borrowing in cash,  with a maturity  date of June 30, 2002,  and
$10.0 million of which is available  under letters of credit to be issued solely
as required by the Company's workers' compensation  insurance providers,  with a
maturity date of January 1, 2003. Also pursuant to the Credit Amendment, certain
financial  covenants of the credit facility were modified.  The Credit Amendment
provides for  borrowings  at the prime rate (4.75% as of December 30, 2001) plus
2.5  percentage  points.  Additionally,  the  credit  facility  provides  for an
additional fee of $250,000  unless the Lenders are paid in full and their credit
commitment  is  terminated  on or before June 15, 2002. As of December 30, 2001,
the Company  had no  outstanding  borrowings  under the credit  facility.  As of
December 30, 2001, the Company had letters of credit of $6.7 million outstanding
to secure its workers'  compensation premium obligation.  Subsequent to December
30, 2001, the Company issued an additional $3.2 million in letters of credit and
an  additional  $1.0 million  cash  deposit to secure its workers'  compensation
insurance program.

         On September 5, 2001,  the Company  entered into an Amendment  No. 2 to
Note Purchase Agreement (the  "Amendment"),  dated as of July 30, 2001, with the
holders of its $5.0 million aggregate  principal amount of Senior Notes,  Series
A, due  September  1,  2003  and the  holders  of its  $30.0  million  aggregate
principal amount of Senior Notes, Series B, due September 1, 2008 (collectively,
the  "Noteholders"),  whereby the  Noteholders  waived the  Company's  temporary
noncompliance  with certain financial  covenants under the Company's bank credit
facility and the existing note purchase  agreements with the Noteholders  during
the Company's fiscal quarter ended June 30, 2001.

         Pursuant to the Amendment, the Series A Notes bear interest at the rate
of 8.72% per annum and any  overdue  payments  bear  interest  at the greater of
10.72% and 2% over the prime rate of The First  National Bank of Chicago,  while
the Series B Notes bear  interest at the rate of 8.95% per annum and any overdue
payments  bear  interest  at the greater of 10.95% and 2% over the prime rate of
The First  National Bank of Chicago.  The change in the interest rate charged on
the senior  notes is estimated to have an annual  impact of  approximately  $0.6
million on the Company's financial operations.

         In addition,  as consideration for the Amendment,  the Company and each
of its subsidiaries  entered into a security agreement dated as of July 30, 2001
with State Street Bank and Trust Company,  as collateral  agent (the "Collateral
Agent"), on behalf of Wells Fargo Bank, National Association,  as administration
agent under the Company's bank credit facility,  the financial institutions that
from time to time are  parties to the  credit  facility  as  lenders  thereunder
(collectively, the "Lenders") and the Noteholders, pursuant to which the Company
offered as collateral  security for the senior notes the pledge and grant by the
Company and each  subsidiary of a security  interest in and lien upon all of its


                                       16
<PAGE>

personal property assets including, without limitation, all accounts receivable,
intellectual  property  rights  and  shares of  capital  stock of the  Company's
subsidiaries. Such security interests have a first priority security interest to
the extent such  interests  cover  accounts  receivable  of the Company and each
subsidiary  and,  as to other items of  collateral,  have a priority as mutually
agreed by the Noteholders and the Lenders pursuant to an intercreditor agreement
among such  parties  and the  Collateral  Agent  dated as of July 30,  2001.  In
addition,  all obligations of the Company under the credit facility and the note
purchase agreements are to be guaranteed by the subsidiaries.

         The Amendment also provides for optional or mandatory  prepayments,  as
the case may be,  upon the  occurrence  of  certain  events  including,  but not
limited  to, a change in  control,  transfer  of  property or issuance of equity
securities of the Company. In addition,  the Amendment provides that the Company
shall deliver  certain  financial  statements  within 30 days of the end of each
calendar  month  as well as an  officer's  certificate  in  connection  with the
delivery of financial  statements  for the last month of each fiscal  quarter of
the  Company.  Also  as  consideration  for  the  Amendment  and  waiver  by the
Noteholders, the Company paid an amendment fee to the Noteholders of $200,000 in
the aggregate, as well as fees and expenses of the Noteholders' special counsel.
The Company also is required to pay on June 15, 2002 a supplemental  note fee of
$250,000,  which  amount  will be waived if the Company has paid all amounts due
and  outstanding  under the note purchase  agreements  prior to such date.  Also
pursuant to the  Amendment,  certain  financial  covenants  of the Company  were
modified.

         Also in  conjunction  with the  Amendment,  the Company  entered into a
Fourth Amendment to Amended and Restated Credit Agreement with the Lenders dated
as of September 4, 2001 in order to make conforming  changes with respect to the
collateralization transaction described above.

         The Company's  revolving  credit facility and note purchase  agreements
contain  certain  restrictive  covenants,  including  certain  debt  ratios  and
restrictions on the sale of capital assets. As of December 30, 2001, the Company
was out of compliance with minimum EBITDA  requirements  under its note purchase
agreements  with its  Noteholders  and its revolving  credit  agreement with its
Lenders.  On April 15,  2002,  the Company  entered  into a Fifth  Amendment  to
Amended and Restated Credit Agreement and Waiver (the "Fifth Credit  Amendment")
with the Lenders to extend the Company's  line of credit.  Pursuant to the Fifth
Crecit Amendment, the Company's line of credit was reduced from $18.0 million to
$16.0 million, $6.0 million of which is available for borrowing in cash, reduced
as provided below,  with a maturity date of September 1, 2003, and $10.0 million
of which is available under letters of credit to be issued solely as required by
the Company's workers' compensation insurance providers, with a maturity date of
January 1, 2004. The Fifth Credit Amendment provides for borrowings at the prime
rate (4.75% as of December  30,  2001) plus 3.0  percentage  points  through and
including June 30, 2002,  after which time borrowings under the facility will be
charged  an  interest  rate  equal  to the  then  current  prime  rate  plus 3.5
percentage  points.  Additionally,  the Fifth Credit  Amendment  provides for an
amendment fee of approximately $78,000, payable to the Lenders upon execution of
the Fifth  Credit  Amendment,  plus a  supplemental  fee of $250,000  payable on
September  1,  2003,  unless  the  Lenders  are  paid in full and  their  credit
commitment is  terminated on or before such date. In addition,  the Company paid
$313,000 of the outstanding  borrowings under the revolving credit facility upon
execution of the Fifth  Credit  Amendment.  The Company  will pay an  additional
$469,500 and $558,929 of the outstanding  borrowings  under the revolving credit
facility on  September  15,  2002 and  December  15,  2002,  respectively.  Such
payments will permanently reduce the line of credit available to the Company for
borrowing in cash to less than the $6.0 million stated  above. The  Fifth Credit
Amendment  also waives any  violations of financial  covenants  under the credit
facility that may have existed at December 30, 2001 and any such violations that
may exist as of March 31, 2002. In addition,  certain financial covenants of the
Company have been modified.  As of April 11, 2002,  the Company had  outstanding
borrowings under the revolving credit facility of approximately $7.3 million.

         Also on April 15, 2002, the Company  entered into an Amendment No. 3 to
Note Purchase  Agreement  ("Amendment No. 3") with the Noteholders,  whereby the
Noteholders waived the Company's  noncompliance with certain financial covenants
under  the  Company's  bank  credit  facility  and the  existing  note  purchase
agreements with the Noteholders as of December 30, 2001 and any noncompliance of
such  covenants  that may  exist as of March  31,  2002.  The  Noteholders  also
consented  to the Company  entering  into the Fifth Credit  Amendment  described
above. Pursuant to Amendment No. 3, the Series A Notes bear interest at the rate
of 9.22% per annum  beginning as of April 1, 2002 through,  but excluding,  June
30, 2003, and at the rate of 9.72% per annum from June 30, 2003 until the Series
A Notes become due and payable.  The Series B Notes bear interest at the rate of
9.45% per annum beginning as of April 1, 2002 through,  but excluding,  June 30,
2003,  and at the rate of 9.95% per annum from June 30,  2003 until the Series B
Notes become due and payable.

         Pursuant to Amendment No. 3, any overdue payments on the Series A Notes
bear interest at the greater of 2% over the interest rate currently in effect as
stated  above or 2% over the prime rate of The First  National  Bank of Chicago.
The change in the interest rate charged on the senior notes is estimated to have
an  annual  impact  of  approximately   $142,000  on  the  Company's   financial
operations.  In addition,  the Company paid $687,000 of the principal  amount of
the senior  notes upon  execution  of  Amendment  No. 3. The Company will pay an
additional $1,030,500 and $1,227,600 of the principal amount of the senior notes
on September 15, 2002 and December 15, 2002, respectively.

                                       17
<PAGE>

         Amendment No. 3 also provides for optional or mandatory prepayments, as
the case may be,  upon the  occurrence  of  certain  events  including,  but not
limited  to, a change of  control,  transfer  of  property or issuance of equity
securities  of the  Company.  In  addition,  Amendment  No. 3 provides  that the
Company pay to the Lenders and the Noteholders  any federal,  state or local tax
refund or repayment,  which amount shall be distributed  pursuant to the Amended
and  Restated  Intercreditor  Agreement  dated as of April  15,  2002  among the
Collateral  Agent,  the Lenders  and the  Noteholders;  however,  if the Company
receives any refund arising from the 2002 Job Act relating to net operating loss
carryforwards,  the Company will be able to retain for working capital  purposes
the lesser of $2,000,000 or 50% of the refund.  Any such prepayments paid to the
Lenders  also will be treated  as a  permanent  reduction  in the line of credit
available  to the  Company  for  borrowing  in cash under the  revolving  credit
facility.

         Pursuant  to  Amendment  No.  3,  the  Company  shall  deliver  to  the
Noteholders  certain  financial  statements  within  30  days of the end of each
calendar  month  certified by the senior  financial  officer of the Company.  As
consideration for Amendment No. 3 and the waiver by the Noteholders, the Company
paid an  amendment  fee to the  Noteholders  of  $145,475,  as well as fees  and
expenses of the Noteholders'  special counsel. In addition,  the Company paid to
each  Noteholder  accrued  but unpaid  interest on such  holder's  notes for the
period  beginning  March 1, 2002  through and  including  March 31,  2002.  Also
pursuant to Amendment No. 3, the Company is required to pay on September 1, 2003
a supplemental note fee of $250,000,  which amount will be waived if the Company
has paid all  amounts due and  outstanding  under the note  purchase  agreements
prior to such date.  Also,  certain  financial  covenants  of the  Company  were
modified.  In the  event the  Company  fails to comply  with such  covenants  as
modified, Amendment No. 3 provides that the Noteholders may, at their discretion
and at the expense of the  Company,  retain a financial  advisor to review,  and
advise  the  Noteholders  and the  Company  upon,  the  financial  status of the
Company.  The security agreement dated as of July 30, 2001 previously  discussed
herein remains in place pursuant to Amendment No. 3.

         The following  tables provide  information on future payments under the
Company's  debt  agreements  and capital  commitments,  including  maturities on
borrowings  and future minimum lease  payments  under  non-cancelable  operating
leases (in thousands):

<TABLE>
<CAPTION>
                                                                        Payments due by period
                                             -----------------------------------------------------------------------------
Contractual Obligations
                                Total         Less than 1 year       1-3 years          4-5 years         After 5 years
<S>                        <C>                 <C>                 <C>               <C>                  <C>
Long-Term Debt(1)           $       29,095      $5,668              $      13,680     $       8,571       $        1,175
Operating Leases                     4,844              2,620               2,003               221                   --
                          ------------------ ------------------- ------------------ ------------------- ------------------
Total Contractual Cash
    Obligations             $       33,939      $       8,288       $      15,683     $       8,792       $       1,175
                          ------------------ ------------------- ------------------ ------------------- ------------------

                                                                Amount of Commitment Expiration Period
                                             -----------------------------------------------------------------------------
Other Commercial            Total Amounts
Commitments                   Committed       Less than 1 year       1-3 years          4-5 years         After 5 years
                          ------------------ ------------------- ------------------ ------------------- ------------------
Lines of Credit             $        8,000      $       8,000       $          --     $          --        $          --
Letters of Credit                   10,000             10,000                  --                --                   --
                          ------------------ ------------------- ------------------ ------------------- ------------------
Total Commercial
    Commitments             $       18,000      $      18,000       $          --      $          --       $          --
                          ------------------ ------------------- ------------------ ------------------- ------------------
</TABLE>


         On March 9, 2002, the Job Creation and Work Assistance Act of 2002 (the
"2002 Job Act") was signed into law, which includes certain  provisions that the
Company  believes will provide  favorable  tax treatment for the Company.  Among
such provisions is the extension of the net operating loss carryback period from
two years to five years for net operating  losses arising in tax years ending in
2001 and 2002.  These  provisions  also allow companies to use the net operating
loss carrybacks and  carryforwards to offset 100 percent of alternative  minimum
taxable income. In accordance with SFAS No. 109,  "Accounting for Income Taxes,"
the effect of the change in the law will be accounted  for in the first  quarter
of fiscal 2002.  The Company is currently  assessing the impact the new law will


                                       18
<PAGE>

have on the Company's financial position and results of operations.  The Company
paid  approximately  $4.5 million and $2.8  million in federal  income taxes for
fiscal 1997 and fiscal 1996, respectively.

Seasonality

         The Company's  business  follows the seasonal  trends of its customers'
business.  Historically, the Company has experienced lower revenues in the first
quarter,  with revenues  accelerating  during the second and third  quarters and
then slowing again during the fourth quarter.

Impact of Inflation

         The Company  believes that over the past three years  inflation has not
had a significant impact on the Company's results of operations.

Impact of Recent Accounting Pronouncements

        In June 2001 the  Financial  Accounting  Standards  Board  (the  "FASB")
issued SFAS No. 141,  "Business  Combinations,"  and SFAS No. 142, "Goodwill and
Other Intangible  Assets," effective for the Company's fiscal years ending after
December 30, 2001.  SFAS No. 141  requires all business  combinations  initiated
after June 30, 2001 to be accounted for using the purchase method of accounting.
Additionally,  under the new  rules,  an  acquired  intangible  asset  should be
separately recognized if the benefit of the intangible asset is obtained through
contractual  or other  legal  rights,  or if the  intangible  asset can be sold,
transferred,  licensed,  rented  or  exchanged;  unless  the  intangible  assets
identified  have an indefinite  life,  those assets will be amortized over their
useful life. Assets of the Company that have been separately identified include,
but are not limited to,  trademarks and tradenames,  non-competition  agreements
and customer lists.

        During fiscal 2001, the Company  continued to amortize existing goodwill
and  intangible  assets.  Under  SFAS No.  142,  the  Company  will  discontinue
amortization of existing  goodwill and other  intangible  assets with indefinite
lives in fiscal 2002. The Company anticipates that adoption of SFAS No. 142 will
result in an impairment of a  significant  portion of the existing  goodwill and
other intangible assets with an indefinite life currently carried on the balance
sheet, as goodwill and intangible  assets with indefinite  lives will be subject
to assessment for impairment by applying a fair-value-based  test rather than an
undiscounted  cash flow approach  currently used by the Company.  As of December
30, 2001,  the net book value of intangible  assets carried on the balance sheet
was  approximately  $48.1  million,  of which  approximately  $32.5  million was
attributable to goodwill. The Company estimates that it may be required to write
off in excess of $20.0  million of  goodwill  and  intangibles  during the first
quarter of fiscal 2002. However,  the Company has not completed yet its analysis
of the total  impact of  adopting  SFAS No. 142 and this  initial  estimate  may
change. For the 52-week period ended December 30, 2001,  amortization related to
goodwill was approximately $1.2 million.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment
of Long-lived Assets." The new standard supercedes SFAS No. 121, "Accounting for
the  Impairment of Long-lived  Assets and for  Long-lived  Assets to be Disposed
of." The new standard also  supercedes the  provisions of Accounting  Principles
Board No. 30,  "Reporting  the Results of  Operations--Reporting  the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and  Transactions,"  and will require expected future operating
losses from discontinued  operations to be displayed in discontinued  operations
in the  period(s)  in which  the  losses  are  incurred,  rather  than as of the
measurement  date as  presently  required.  The  provisions  of SFAS No. 144 are
effective for financial  statements  beginning after December 15, 2001 but allow
for earlier  application.  The Company  currently  is  assessing  the impact the
adoption of these provisions will have on the Company's  financial  position and
results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company is exposed to interest  rate changes  primarily in relation
to its revolving  credit  facility and its senior secured  notes.  The Company's
interest rate risk management  objective is to limit the impact of interest rate
changes on earnings and cash flows and to lower its overall borrowing costs. The
Company's  senior debt  placement  bears  interest at a fixed interest rate. For
fixed rate debt,  interest rate changes  generally  affect the fair value of the
debt,  but not the  earnings or cash flows of the  Company.  Changes in the fair
market value of fixed rate debt generally will not have a significant  impact on
the Company unless the Company is required to refinance such debt.

                                       19
<PAGE>

Revolving  Credit  Facility:  The  Company's  revolving  credit  facility  bears
interest at the prime rate plus 2.5%; at December 30, 2001,  such prime rate was
4.75%.  For the 52-week  period  ended  December  30,  2001,  the Company had no
advances outstanding under the revolving credit facility.

Senior  Notes:  For the 52-week  period ended  December 30, 2001,  the Company's
outstanding  borrowings on the senior notes were $29.1 million,  with a weighted
average fixed interest rate of 8.92%.  As stated above,  any changes in the fair
value of the senior notes  generally  will not have a significant  impact on the
Company  unless the Company is required to refinance the senior notes.  The fair
value of the Company's  senior notes is estimated by  discounting  expected cash
flows at the prime  rate,  4.75% at December  30,  2001,  plus 2.5%.  Using such
discount  rate over the expected  maturities  of the senior  notes,  the Company
calculates that the estimated fair value of the obligations on the senior notes,
using a discount rate of 7.25% over the expected  maturities of the obligations,
is approximately  $30.3 million. If the discount rate were to increase by 10% to
8.0%, the estimated fair value of the obligation on the unsecured notes would be
approximately  $29.8  million.  If the discount  rate were to decrease by 10% to
6.5%, the estimated fair value of the obligation on the unsecured notes would be
approximately $30.9 million.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

         Consolidated   Financial   Statements   of  the  Company   meeting  the
requirements of Regulation S-X are filed on the succeeding  pages of this Item 8
of this Annual Report on Form 10-K, as listed below:

<TABLE>
<CAPTION>
                                                                                                Page
                                                                                                ----
<S>                                                                                             <C>

Report of Independent Public Accountants.........................................................21
Consolidated Balance Sheets as of December 30, 2001 and December 31, 2000........................22
Consolidated Statements of Operations for the 52 weeks ended
     December 30, 2001, December 31, 2000 and January 2, 2000....................................24
Consolidated Statements of Shareholders' Equity for the 52 weeks ended
     December 30, 2001, December 31, 2000 and January 2, 2000....................................26
Consolidated Statements of Cash Flows for the 52 weeks ended
     December 30, 2001, December 31, 2000 and January 2, 2000....................................27
Notes to Consolidated Financial Statements.......................................................29
</TABLE>

         Other schedules  required under Regulation S-X are listed in Item 14 of
this Annual Report on Form 10-K.



                                       20
<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To SOS Staffing Services, Inc.:

We have audited the  accompanying  consolidated  balance  sheets of SOS Staffing
Services, Inc. (a Utah Corporation) and its subsidiaries as of December 30, 2001
and December 31, 2000,  and the related  consolidated  statements of operations,
shareholders'  equity and cash  flows for each of the three  years in the period
ended December 30, 2001. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position  of SOS  Staffing
Services,  Inc.  and its  subsidiaries  as of December 30, 2001 and December 31,
2000,  and the results of their  operations and their cash flows for each of the
three years in the period ended December 30, 2001 in conformity  with accounting
principles generally accepted in the United States.





/s/ARTHUR ANDERSEN LLP
----------------------------
   ARTHUR ANDERSEN LLP
   Salt Lake City, Utah
   February 8, 2002 (except with respect to Note 13, "Subsequent Events," as to
                     which the date is April 15, 2002.)



                                       21
<PAGE>



                           SOS STAFFING SERVICES, INC.
                           CONSOLIDATED BALANCE SHEETS
                  As of December 30, 2001 and December 31, 2000

<TABLE>
<CAPTION>

                                     ASSETS
                                 (in thousands)
                                                                      December 30,            December 31,
                                                                         2001                     2000
                                                                   ------------------       -----------------
CURRENT ASSETS
<S>                                                                   <C>                      <C>
      Cash and cash equivalents                                       $        879             $      1,185
      Accounts receivable, less allowances of
          $2,267 and $2,916, respectively                                   21,995                   44,488
      Current portion of workers' compensation deposit                         273                      213
      Prepaid expenses and other                                               853                    1,032
      Deferred income tax asset                                                 --                    5,852
      Income tax receivable                                                    367                    8,088
                                                                   ------------------       -----------------
          Total current assets                                              24,367                   60,858
                                                                   ------------------       -----------------

PROPERTY AND EQUIPMENT, at cost
      Computer equipment                                                     6,082                    3,935
      Office equipment                                                       3,808                    4,009
      Leasehold improvements and other                                       1,887                    1,834
                                                                   ------------------       -----------------
                                                                            11,777                    9,778
      Less accumulated depreciation and amortization                       (7,269)                  (5,456)
                                                                   ------------------       -----------------
          Total property and equipment, net                                  4,508                    4,322
                                                                   ------------------       -----------------

OTHER ASSETS
      Intangible assets, less accumulated amortization
          of $12,853 and $14,979, respectively                              48,060                   92,007
      Deposits and other assets                                              1,808                    4,201
                                                                   ------------------       -----------------
          Total other assets                                                49,868                   96,208
                                                                   ------------------       -----------------

                                                                      $     78,743             $    161,388
                                                                   ==================       =================
</TABLE>

        The accompanying notes to consolidated financial statements are
             an integral part of these consolidated balance sheets.


                                       22
<PAGE>

<TABLE>
<CAPTION>

                           SOS STAFFING SERVICES, INC.
                     CONSOLIDATED BALANCE SHEETS (continued)
                  As of December 30, 2001 and December 31, 2000


                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      (in thousands, except per share data)

                                                                       December 30,             December 31,
                                                                           2001                     2000
                                                                     -----------------        -----------------
CURRENT LIABILITIES
<S>                                                                   <C>                      <C>
      Line of credit                                                  $            --          $         9,000
      Current portion of notes payable                                          5,668                    8,273
      Accounts payable                                                          1,571                    2,667
      Accrued payroll costs                                                     3,492                   10,196
      Current portion of workers' compensation reserve                          4,484                    4,689
      Accrued liabilities                                                       4,799                    6,021
                                                                     -----------------        -----------------
          Total current liabilities                                            20,014                   40,846
                                                                     -----------------        -----------------

LONG-TERM LIABILITIES
      Notes payable, less current portion                                      23,427                   27,000
      Workers' compensation reserve, less current portion                       1,018                    1,064
      Deferred income tax liability                                                --                      652
      Deferred compensation liabilities                                           743                      941
                                                                     -----------------        -----------------
          Total long-term liabilities                                          25,188                   29,657
                                                                     -----------------        -----------------

COMMITMENTS AND CONTINGENCIES
      (Notes 1, 3, 5 and 6)

SHAREHOLDERS' EQUITY
      Common stock $0.01 par value, 20,000 shares authorized,
          12,691 shares issued and outstanding                                   127                       127
      Additional paid-in capital                                              91,693                    91,693
      Accumulated deficit                                                    (58,279)                     (935)
                                                                     -----------------        -----------------
          Total shareholders' equity                                          33,541                    90,885
                                                                     -----------------        -----------------

                                                                      $       78,743          $        161,388
                                                                     =================        =================

</TABLE>
        The accompanying notes to consolidated financial statements are
             an integral part of these consolidated balance sheets.



                                       23
<PAGE>



                           SOS STAFFING SERVICES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 For the Fiscal Years Ended December 30, 2001,
                     December 31, 2000 and January 2, 2000

                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                         Fiscal Year (52/53 Weeks)
                                                        -------------------------------------------------------------
                                                              2001                  2000                  1999
                                                        ------------------    ------------------    -----------------
<S>                                                         <C>                    <C>                 <C>
SERVICE REVENUES                                            $  216,358             $  262,822          $   249,803
DIRECT COST OF SERVICES                                        169,276                204,333              193,445
                                                        ------------------    ------------------    -----------------
     Gross Profit                                               47,082                 58,489               56,358
                                                        ------------------    ------------------    -----------------

OPERATING EXPENSES:
     Selling, general and administrative                        40,810                 48,085               46,260
     Intangibles amortization                                    2,153                  2,547                2,613
     Loss on impairment of goodwill and intangibles                 --                  3,102                   --
     Restructuring charges                                       1,334                     --                   --
                                                        ------------------    ------------------    -----------------
       Total operating expenses                                 44,297                 53,734               48,873
                                                        ------------------    ------------------    -----------------

INCOME FROM OPERATIONS                                           2,785                  4,755                7,485
                                                        ------------------    ------------------    -----------------

OTHER INCOME (EXPENSE):
     Interest expense                                           (3,040)                (4,069)              (4,101)
     Interest income                                               153                    181                   88
     Other, net                                                      2                   (622)                 (36)
                                                        ------------------    ------------------    -----------------
       Total, net                                               (2,885)                (4,510)              (4,049)
                                                        ------------------    ------------------    -----------------

(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE
    PROVISION FOR INCOME TAXES
                                                                  (100)                   245                3,436

PROVISION FOR INCOME TAXES                                      (5,200)                   (85)                (928)
                                                        ------------------    ------------------    -----------------

(LOSS) INCOME FROM CONTINUING OPERATIONS
                                                                (5,300)                   160                2,508
                                                        ------------------    ------------------    -----------------
</TABLE>

(Continued on next page)

         The accompanying notes to consolidated financial statements are
             an integral part of these consolidated balance sheets.


                                       24
<PAGE>


                           SOS STAFFING SERVICES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
            (continued) For the Fiscal Years Ended December 30, 2001,
                      December 31, 2000 and January 2, 2000

                      (in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                         Fiscal Year (52/53 Weeks)
                                                        -------------------------------------------------------------
                                                              2001                  2000                  1999
                                                        ------------------    ------------------    -----------------
DISCONTINUED OPERATIONS:
<S>                                                         <C>                   <C>                   <C>
     (Loss) income from discontinued operations (net
        of income tax (benefit) provision of $0,
        ($439) and $2,305, respectively)                     $  (34,429)           $    (1,407)          $   2,843
     Loss from sale of discontinued operations (net of
        income tax benefit of $0 and $11,225,
        respectively)                                           (17,615)               (27,954)                 --
                                                        ------------------    ------------------    -----------------
           Total discontinued operations                        (52,044)               (29,361)              2,843

NET (LOSS) INCOME                                            $  (57,344)           $   (29,201)          $   5,351
                                                        ------------------    ------------------    -----------------


BASIC (LOSS) INCOME PER COMMON SHARE:
     (Loss) income from continuing operations                $    (0.42)           $      0.01           $    0.20
     (Loss) income from discontinued operations                   (4.10)                (2.31)                0.22
                                                        ------------------    ------------------    -----------------
     Net (loss) income                                       $    (4.52)           $    (2.30)           $    0.42
                                                        ------------------    ------------------    -----------------

DILUTED (LOSS) INCOME PER COMMON SHARE:
     (Loss) income from continuing operations                $    (0.42)           $      0.01           $    0.20
     (Loss) income from discontinued operations                   (4.10)                 (2.31)               0.22
                                                        ------------------    ------------------    -----------------
     Net (loss) income                                       $    (4.52)           $     (2.30)          $    0.42
                                                        ------------------    ------------------    -----------------

WEIGHTED AVERAGE COMMON SHARES:
     Basic                                                       12,691                 12,691              12,691
     Diluted                                                     12,691                 12,692              12,699

</TABLE>

        The accompanying notes to consolidated financial statements are
             an integral part of these consolidated balance sheets.



                                       25
<PAGE>



                           SOS STAFFING SERVICES, INC.
                    CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
          EQUITY For the Fiscal Years Ended December 30, 2001, December
                          31, 2000 and January 2, 2000

                                 (in thousands)

<TABLE>
<CAPTION>
                                                                      Additional   Accumulated
                                                Common Stock           Paid-in       Earnings
                                         ---------------------------
                                            Shares        Amount       Capital      (Deficit)        Total
                                         ----------------------------------------------------------------------
<S>                                          <C>      <C>            <C>           <C>            <C>
BALANCE, January 3, 1999                      12,689   $       127    $   91,564    $   22,915     $   114,606
      Exercise of stock options                    2            --            22            --              22
      Tax benefit of disqualifying
         dispositions of stock                     --           --           107            --             107
      Net income                                   --           --            --         5,351           5,351
                                         ----------------------------------------------------------------------

BALANCE, January 2,  2000                      12,691          127        91,693        28,266         120,086
      Net loss                                     --           --            --       (29,201)        (29,201)
                                         ----------------------------------------------------------------------

BALANCE, December 31, 2000                     12,691          127        91,693         ( 935)         90,885
      Net loss                                     --           --            --       (57,344)        (57,344)
                                         ----------------------------------------------------------------------

BALANCE, December 30, 2001                     12,691  $       127    $   91,693    $  (58,279)    $    33,541
                                         ----------------------------------------------------------------------

</TABLE>
        The accompanying notes to consolidated financial statements are
             an integral part of these consolidated balance sheets.

                                       26
<PAGE>



                           SOS STAFFING SERVICES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  For the Fiscal Years Ended December 30, 2001,
                     December 31, 2000 and January 2, 2000

                                 (in thousands)
<TABLE>
<CAPTION>
                                                                               Fiscal Year (52/53 Weeks)
                                                               ----------------------------------------------------------
                                                                     2001                2000                 1999
                                                               -----------------   ------------------   -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                               <C>                 <C>                   <C>
   Net (loss) income                                              $   (57,344)        $   (29,201)          $     5,351
   Adjustments to reconcile net (loss) income
       to net cash provided by operating activities:
      Depreciation and amortization                                     3,877              11,727                 8,094
      Deferred income taxes                                             5,424              (2,965)                  179
      Loss on disposition of assets                                        37                  27                    19
      Loss on disposition of discontinued operations                   51,711              39,179                    --
      Changes in operating assets and liabilities:
        Accounts receivable, net                                       21,694               5,180                (5,720)
        Workers' compensation deposit                                     (60)                493                  (138)
        Prepaid expenses and other                                        132                (189)                   81
        Deposits and other assets                                         (54)                308                   (18)
        Accounts payable                                               (1,096)                146                  (829)
        Accrued payroll costs                                          (6,779)              1,834                   409
        Workers' compensation reserve                                    (250)                557                 2,360
        Accrued liabilities                                            (3,737)               (665)                3,255
        Income taxes                                                    7,497              (8,904)                 (105)
                                                               -----------------   ------------------   -----------------
         Net cash provided by operating activities                     21,052              17,527                12,938
                                                               -----------------   ------------------   -----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Investment in equity securities                                         --              (1,250)                   --
   Cash paid for acquisitions of businesses                                --                  --                   (32)
   Purchases of property and equipment                                 (1,543)             (2,918)               (4,346)
   Payments on acquisition earnouts                                    (2,217)             (3,358)              (28,611)
   Proceeds from sale of property and equipment                            --                  22                 1,598
   Proceeds from sale of the IT consulting division                        --               1,000                    --
   Issuance of note receivable                                         (2,421)             (1,000)                   --
                                                               -----------------   ------------------   -----------------
         Net cash used in investing activities                         (6,181)             (7,504)              (31,391)
                                                               -----------------   ------------------   -----------------
</TABLE>

         The accompanying notes to consolidated financial statements are
             an integral part of these consolidated balance sheets.




                                       27
<PAGE>


                           SOS STAFFING SERVICES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
            (continued) For the Fiscal Years Ended December 30, 2001,
                      December 31, 2000 and January 2, 2000

                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                  Fiscal Year (52/53 Weeks)
                                                                -------------------------------------------------------------
                                                                       2001                  2000                 1999
                                                                -------------------   -------------------   -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S>                                                                <C>                   <C>                    <C>
   Proceeds from exercise of employee stock options                $       --            $       --             $       129
   Proceeds from borrowings                                             26,992                13,288                22,000
   Principal payments on borrowings                                    (42,169)              (24,703)                (6,414)
                                                                -------------------   -------------------   -----------------
         Net cash (used in) provided by financing                      (15,177)              (11,415)                15,715
   activities
                                                                -------------------   -------------------   -----------------

NET DECREASE IN CASH
   AND CASH EQUIVALENTS                                                   (306)               (1,392)                (2,738)

CASH AND CASH EQUIVALENTS AT
   BEGINNING OF PERIOD                                                   1,185                 2,577                  5,315
                                                                -------------------   -------------------   -----------------

CASH AND CASH EQUIVALENTS AT
   END OF PERIOD                                                   $       879           $     1,185           $      2,577
                                                                -------------------   -------------------   -----------------


SUPPLEMENTAL  CASH FLOW INFORMATION:
   Cash paid (received) during the period for:
     Interest                                                       $    3,297           $    4,004            $    3,908
     Income taxes                                                       (7,721)                 290                 3,332

</TABLE>


SUPPLEMENTAL NON CASH INVESTING AND FINANCING INFORMATION

During fiscal 2001, the Company exchanged its investment in BioLynx common stock
valued at  approximately  $1.3 million for a perpetual  royalty free license for
certain BioLynx technology (see Note 2).



        The accompanying notes to consolidated financial statements are
             an integral part of these consolidated balance sheets.



                                       28
<PAGE>



                           SOS STAFFING SERVICES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       Nature of Operations

         SOS  Staffing  Services,  Inc.  ("SOS" or the  "Company")  is a leading
provider of staffing and  consulting  services  primarily in the western  United
States.  As of December 30, 2001, SOS operated a network of 100 offices  located
in 15 states.  The Company  provides a broad range of services  including  light
industrial, clerical, industrial, technical and other professional services.


2.       Summary of Significant Accounting Policies

Fiscal Year - The Company's  fiscal year ends on the Sunday  closest to December
31, which results in a 52- or 53-week year.  The fiscal year ended  December 30,
2001 ("fiscal  2001"),  the fiscal year ended December 31, 2000 ("fiscal  2000")
and the fiscal year ended  January 2, 2000  ("fiscal  1999") each  contained  52
weeks.

Principles of Consolidation - The consolidated  financial statements include the
accounts of SOS Staffing Services, Inc. and its wholly owned subsidiaries, Devon
& Devon Personnel Services, Inc., ServCom Staff Management, Inc., SOS Collection
Services,  Inc.  and  Inteliant  Corporation   ("Inteliant").   All  significant
intercompany transactions have been eliminated in consolidation.

Use of Estimates - The  preparation of financial  statements in conformity  with
accounting   principles   generally  accepted  in  the  United  States  requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities,  and disclosure of contingent  assets and liabilities at
the date of the financial  statements,  and the reported amounts of revenues and
expenses  during the reported  periods.  Actual  results could differ from those
estimates.

Revenue  Recognition - Service  revenues  generated  from  employees on customer
assignments  are  recognized  as income at the time service is  provided,  while
service revenues  generated from permanent  placement services are recognized at
the time the customer agrees to hire a candidate supplied by the Company.

Cash and Cash Equivalents - The Company considers highly liquid investments with
an original  maturity of three  months or less to be cash and cash  equivalents.
Cash and cash  equivalents  consist of various  money  market  accounts  and are
recorded at cost, which approximates market value.

Property  and  Equipment  - Property  and  equipment  are stated at cost and are
depreciated  using the  straight-line  method over their estimated useful lives.
Leasehold  improvements are amortized over the terms of the respective leases or
the estimated  economic lives of the assets,  whichever is shorter.  The Company
capitalizes  internal and external costs incurred in connection  with developing
or  obtaining  internal use software in  accordance  with  Statement of Position
("SOP")  98-1  "Accounting  for the  Costs of  Computer  Software  Developed  or
Obtained for Internal Use". The  depreciation  and  amortization  periods are as
follows:

           Computer equipment---------------------     2 - 7 years
           Office equipment-----------------------     3 - 7 years
           Leasehold improvements and other-------     5 - 17 years

                                       29
<PAGE>

         Upon  retirement or other  disposition of property and  equipment,  the
cost and related accumulated  depreciation and amortization are removed from the
accounts.  The resulting gain or loss is reflected in income. Major renewals and
improvements  are  capitalized  while minor  expenditures  for  maintenance  and
repairs are charged to expense as incurred.

Deposits and Other Assets - The Company's  deposits and other assets at December
30,  2001 and  December  31,  2000  consisted  primarily  of the  following  (in
thousands):
<TABLE>
<CAPTION>

                                                                     2001            2000
                                                                --------------- ---------------
<S>                                                               <C>             <C>
                Investment in Biolynx, Inc. common stock          $       --      $    1,250
                Notes receivable, less allowance of $500                  --           1,000
                Restricted investments                                   743             941
                Deposits and other                                     1,065           1,010
                                                                --------------- ---------------
                                                                  $    1,808      $    4,201
                                                                --------------- ---------------
</TABLE>


         In April 2000,  the Company  purchased a 12.5%  interest in a privately
held company,  Biolynx, Inc., for approximately $1.3 million in cash. During the
52-week  period ended  December 30,  2001,  as a result of a strategic  shift in
market  development  by the  management  of BioLynx,  the Company  determined to
divest its  investment  in BioLynx.  In exchange  and as  consideration  for the
Company's  common stock  holdings,  BioLynx  agreed to a perpetual  royalty-free
license for certain technology  (including all proprietary  software and related
intellectual  property and all source and object  codes  utilized to develop the
product) used by the Company.  Management has estimated the technology  value to
approximate its investment in BioLynx.  As such, the investment was reclassified
from  other  long-term  assets to  property,  plant and  equipment  and is being
amortized over three years.

         Notes  receivable at December 30, 2001  consisted of a note  receivable
from  Bency &  Associates,  LLP for $0.5  million,  net of  allowance  for notes
receivable of $0.5 million.  Notes receivable at December 31, 2000, consisted of
notes  receivable  issued to HD for $1.0 million as part of a subordinated  loan
agreement  (see Note 3) and a note  receivable to Bency and  Associates for $0.5
million, net of allowance for notes receivable of $0.5 million.

         Restricted  investments are comprised of mutual fund securities held in
a "Rabbi  Trust"  for  payment to the  participants  of the  Company's  deferred
compensation  plan  (see  Note  9).  The  Company  accounts  for its  restricted
investments  as trading  securities  in accordance  with  Statement of Financial
Accounting  Standards ("SFAS") No. 115,  "Accounting for Certain  Investments in
Debt and Equity Securities." The Company determines the proper classification of
investments at the time of purchase and  reassesses  such  designations  at each
balance sheet date.

Intangible  Assets - Intangible  assets  consist of the following  amounts as of
December 30, 2001 and December 31, 2000 (in thousands):

<TABLE>
<CAPTION>

                                                                        2001                 2000
                                                                 -------------------- --------------------

<S>                                                                 <C>                  <C>
    Goodwill                                                        $     37,119         $     84,365
    Trademarks and tradenames                                             18,046               19,260
    Non-compete agreements                                                 1,828                2,507
    Other intangible assets                                                  598                  854
                                                                 -------------------- --------------------
                                                                          57,591              106,986
    Less:
        Accumulated amortization goodwill                                 (4,639)             (10,361)
        Accumulated amortization trademarks and tradenames                (2,613)              (2,135)
        Accumulated amortization non-compete agreements                   (1,685)              (1,744)
        Accumulated amortization other intangible assets                    (594)                (739)
                                                                 -------------------- --------------------
    Net intangible assets                                            $    48,060         $     92,007
                                                                 -------------------- --------------------
</TABLE>

         Goodwill  and  trademarks  and  tradenames  are  amortized   using  the
straight-line method over 30 years;  non-compete agreements and other intangible
assets are generally being amortized using the  straight-line  method over three
to six years.  During fiscal 2001,  the Company  determined to dispose of all of


                                       30
<PAGE>

the  assets  related  to its  Inteliant  operations  (see Note 3). As such,  the
Company  determined that all of these intangible assets related to Inteliant are
impaired. See accounting for long-lived assets below.

Accounting  for  the  Impairment  of  Long-Lived  Assets  -  Long-lived  assets,
including  goodwill and other  intangible  assets,  are reviewed for  impairment
whenever events or changes in circumstances  indicate that the book value of the
asset may not be recoverable. The Company evaluates, at each balance sheet date,
whether events or circumstances have occurred that indicate possible impairment.
The Company  uses an estimate of the future  undiscounted  net cash flows of the
related  asset  over the  remaining  life in  measuring  whether  the assets are
recoverable.  When such estimate of the future  undiscounted  cash flows is less
than the carrying amount of the related asset, a potential impairment exists.

         During  fiscal 2001,  the Company  determined  to dispose of all of the
assets  related to its Inteliant  operations  (see Note 3). As such,  intangible
assets   relating  to  the  Inteliant   operations  with  a  carrying  value  of
approximately  $42.5 million have been impaired and the carrying  value has been
reduced to zero. During fiscal 2000, executive management  determined to abandon
certain   specialty  lines  of  business  in  certain  markets,   including  the
specialized  mortgage  staffing  business,  and  concentrate on developing  more
traditional  services  supplied by the Company in those markets.  New management
was put in place at these  locations,  recruiting was modified to find temporary
employees  to compete in more  traditional  markets  and the  emphasis  has been
changed to attract  clients more in line with the core  business of the Company.
As a result of the change in  operational  focus in these  markets,  the revised
projected  cash  flows  were less  than the  carrying  amount of the  associated
intangible asset.  Therefore,  assets of approximately  $3.1 million relating to
those specific acquisitions were determined to be impaired and were written-off.

         Due  to  recent  accounting   pronouncements   (see  Note  12.  "Recent
Accounting  Pronouncements"),  the Company  estimates that it may be required to
write off in excess of $20.0  million of  goodwill  and  intangibles  during the
first  quarter  of fiscal  2002  related  to SFAS No.  142  "Goodwill  and Other
Intangibles"  ("SFAS No. 142").  However,  the Company has not completed yet its
analysis of the total impact of adopting SFAS No. 142 and this initial  estimate
may change. For the 52-week period ended December 30, 2001, amortization related
to goodwill was approximately $1.2 million.

Workers'  Compensation - For fiscal 2001 and fiscal 2000, the Company maintained
workers'  compensation  insurance  with  ACE USA  ("ACE"),  an  insurer,  with a
deductible of $300,000 per incident, and an aggregate cap of approximately $10.8
million,  adjusted  based on actual  payroll.  The  Company  also is required to
provide  letters  of  credit  to ACE  to  provide  security  for  the  Company's
performance under the insurance plan. As of December 30, 2001, letters of credit
provided to ACE were  approximately  $6.7  million.  Subsequent  to December 30,
2001, the Company was required to provide an additional  $3.3 million in letters
of credit,  as part of its workers'  compensation  insurance  renewal for fiscal
2002. Under the terms of the ACE agreement, the Company is required to fund into
a deposit  account an amount equal to the actual payments made by ACE during the
previous month as reimbursement to ACE for such deductibles.  If claims payments
on any specific claim exceed the deductible  amount of $300,000,  the Company is
not  required  to  reimburse  the fund for  those  payments  over and  above the
deductible.   Some  states  do  not  permit   private   insurance  for  workers'
compensation;  where this is the case,  the  Company  is covered by  appropriate
state insurance funds.

         The Company has  established  reserve  amounts  based upon  information
provided  ACE as to the status of claims plus  development  factors for incurred
but not yet reported  claims and  anticipated  future changes in underlying case
reserves.  Such reserve amounts are only estimates and there can be no assurance
that the Company's future workers' compensation  obligations will not exceed the
amount of its reserves. However, management believes that the difference between
the amounts  recorded for its estimated  liability and the costs of settling the
actual claims will not be material to the results of operations.

Income Taxes - The Company  records  income  taxes using an asset and  liability
approach that requires the  recognition  of deferred tax assets and  liabilities
for the expected future tax  consequences of events that have been recognized in
the  Company's  financial  statements or tax returns.  A valuation  allowance is
established  when it is more  likely  than not that a deferred  tax asset is not
realizable in the foreseeable future on a tax entity by entity basis.

                                       31
<PAGE>

Accounting for stock based compensation - The Company measures compensation cost
for employee  stock options and similar equity  instruments  using the intrinsic
value-based  method of  accounting  prescribed by  Accounting  Principles  Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees."

Income From  Continuing  Operations  Per Common Share - Basic income (loss) from
continuing  operations per common share ("Basic EPS")  excludes  dilution and is
computed  by dividing  income  (loss) by the  weighted-average  number of common
shares  outstanding  during the year.  Diluted  income  (loss)  from  continuing
operations per common share ("Diluted EPS") reflects the potential dilution that
could occur if stock options or other common stock equivalents were exercised or
converted  into common  stock.  The  computation  of Diluted EPS does not assume
exercise or conversion of securities that would have an  antidilutive  effect on
income (loss) from continuing operations per common share.

         Following is a reconciliation of the numerator and denominator of Basic
EPS to the numerator and  denominator of Diluted EPS for all years presented (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                  (Loss) Income
                                 from Continuing
                                   Operations
                                                      (Numerator)           Shares          Per-Share
                                                                        (Denominator)        Amount
                                                    ----------------- ------------------- --------------
                 Fiscal 2001
<S>                                                     <C>                    <C>            <C>
                    Basic EPS                           $  (5,300)             12,691         $  (0.42)
                      Effect of stock options                                      --


                                                    ----------------- -------------------
                    Diluted EPS                         $  (5,300)             12,691         $  (0.42)
                                                    ================= ===================

                 Fiscal 2000
                    Basic EPS                           $     160              12,691         $   0.01
                      Effect of stock options                                       1


                                                    ----------------- -------------------
                    Diluted EPS                         $     160              12,692         $   0.01
                                                    ================= ===================

                 Fiscal 1999
                    Basic EPS                           $   2,508              12,691         $   0.20
                      Effect of stock options                                       8


                                                    ----------------- -------------------
                    Diluted EPS                         $   2,508              12,699         $   0.20
                                                    ================= ===================
</TABLE>

         At the end of fiscal 2001, there were  outstanding  options to purchase
1,179,000  shares of common stock that were not included in the  computation  of
diluted loss from operations per common share because of the Company's loss from
continuing  operations.  At the end of fiscal 2000 and fiscal  1999,  there were
outstanding 824,000 and 931,000 shares of common stock, respectively,  that were
not included in the  computation  of diluted  income from  operations per common
share because the options'  exercise prices were greater than the average market
price of the common shares.

Concentrations  of  Credit  Risk  - The  Company's  financial  instruments  that
potentially  subject  the  Company  to  concentrations  of credit  risk  consist
principally of trade receivables.  In the normal course of business, the Company
provides  credit terms to its customers.  The Company  believes its portfolio of
accounts receivable is well diversified,  and as a result, its concentrations of
credit risks are minimal. The Company performs ongoing credit evaluations of its
customers and maintains  allowances for possible losses,  but typically does not
require collateral.

Fair  Value of  Financial  Instruments  - The  Company's  financial  instruments
consist primarily of debt obligations. The estimated fair value of the unsecured
notes,  using a  discount  rate of 7.25%  over the  expected  maturities  of the
obligations,  is  approximately  $30.3 million.  The fair value of the Company's
long-term debt is estimated by discounting expected cash flows at the prime rate
(4.75% at December 30, 2001) plus 2.5%. At December 30, 2001 the carrying amount
of $29.1 million is reflected in the consolidated balance sheets.

                                       32
<PAGE>

3.       Discontinued Operations

         On December  29,  2000,  Inteliant  Corporation  ("Inteliant")  sold to
Herrick Douglass,  Inc. ("HD") its consulting  division and related tangible and
intangible assets. The consulting  division sold to HD consisted of a full suite
of information technology consulting, e-business and telecommunication services,
which  services  were  marketed  to  Fortune  1000,  mid-tier  and  early  stage
companies,  government  agencies and educational  institutions.  As part of this
transaction,  the Company retained  accounts  receivable of  approximately  $9.0
million,  of which  approximately  $7.6 million was collected during fiscal 2001
and the  remaining  $1.4  million was  uncollectable  and was written off as bad
debt.  As part of the sale of the  consulting  division,  the Company  agreed to
extend a one-year  subordinated loan to HD of up to a maximum of $3.5 million to
meet HD's operating  needs. The promissory note from HD evidencing the loan bore
interest at 10% per annum on outstanding principal and was due and payable on or
before  December  31,  2001.  The note was amended in May 2001 to provide for an
accumulated interest payment on December 31, 2001, with the principal balance to
be paid in 36  monthly  installments  beginning  in  January  2002 at an  annual
interest  rate of 12%. As of December 30,  2001,  the Company had advanced to HD
approximately  $3.4  million.  As of the  date  of  this  filing,  HD  has  been
liquidated  and the  Company  has been  unable  to  collect  against  the  note.
Accordingly,  the Company  has  written off the entire note to reflect  that the
Company  will not  receive  the balance due on the note issued by HD. For fiscal
2000, the Company recorded an estimated loss on the disposition,  net of tax, of
approximately $28 million.  For fiscal 2001, an additional loss of approximately
$5.0 million was recorded as a result of the greater than expected  write-off of
receivables  and the reserve on the note.  The Company  does not expect to incur
any additional loss related to this discontinued operation.

         In November 2001, the Company resolved to sell or abandon the assets of
its IT staffing business, which represented the remaining assets and business of
Inteliant. The Company currently is negotiating with various parties,  including
former owners of some of the IT  businesses,  for the sale of these assets.  The
Company  believes that the dispositions of these assets will be completed by the
end of the second quarter of fiscal 2002. The Company recorded an estimated loss
on disposal of these  businesses of approximately  $12.5 million,  including the
write-off of all of the  remaining  goodwill and  intangible  assets  associated
therewith of approximately $10.0 million.  Also included in the loss on disposal
of the  Company's  IT  staffing  business  is an  estimated  $367,000  loss from
operations  from December 31, 2001 through the  anticipated  disposition  dates.
These  projected  losses  represent  management's  best estimates based upon all
available  information.  However,  estimates  generally  are subject to inherent
uncertainties and, accordingly,  the ultimate loss may differ from estimates and
the difference could be significant.

         Subsequent  to December  30,  2001,  the Company  entered into an asset
purchase agreement with Abacab Software, Inc. ("Abacab"),  pursuant to which the
Company sold certain assets of Inteliant's  Northern  California  operations for
contingent  payments not to exceed  $600,000 in the  aggregate  over three years
following the closing date of the  transaction  based on the gross profit of the
business  acquired by Abacab.  Abacab also assumed  liabilities of approximately
$40,000. The Company retained accounts receivable of approximately $1.1 million.
The Company originally  acquired a portion of the assets sold in the transaction
from  Abacab.  The  principal  of  Abacab  was  engaged  by  the  Company  as an
independent  contractor  and was  managing  the  Company's  Northern  California
operations at the time of the closing of the transaction.

         On December 5, 2001,  the Company  formalized a plan to sell its wholly
owned  subsidiary,  ServCom  Staff  Management,  Inc., a  professional  employee
organization.  On December 31, 2001, the Company sold  substantially  all of the
assets of this business to an unrelated  entity.  The Company retained  accounts
receivable  of  approximately  $480,000.  The  terms  of  the  transaction  were
immaterial to the financial results of the Company.  The Company recorded a loss
on disposal as part of discontinued operations of approximately $107,000.

         Subsequent  to December  30, 2001,  the Company  settled a dispute with
NeoSoft,  Inc.  ("NeoSoft"),  which had been acquired by Inteliant in July 1998.
Neosoft and its  principal had alleged that the Company owed more than the final
earnout  payment  paid by the Company  pursuant to the purchase  agreement  with
Neosoft.  As a result of  Neosoft's  allegations,  as of  December  30, 2001 the
Company had accrued  approximately  $625,000  for defense  costs and  additional
earnout payments to settle the dispute. Pursuant to the terms of the settlement,
the Company paid NeoSoft $550,000 and transferred the NeoSoft operations back to
NeoSoft.  In return,  the Company  retains all of the  accounts  receivable  and
unbilled  revenue of  approximately  $639,000;  however,  the  Company  will pay
NeoSoft  15% of the all  accounts  receivable  collected  as  consideration  for
NeoSoft's assistance in collecting the receivables.  Additionally,  NeoSoft will
assume approximately  $53,000 in accrued paid time off liability and will assume
all  operating  leases.  Furthermore,   the  parties  will  release  all  claims
including,  without  limitation,  any claims  arising  under the original  asset
purchase agreement and under the principal's original employment agreement.

                                       33
<PAGE>

         Operating  results of the  discontinued  operations  for  fiscal  2001,
fiscal 2000 and fiscal 1999 have been classified as  discontinued  operations in
the accompanying consolidated financial statements as follows (in thousands):
<TABLE>
<CAPTION>

                                                               2001             2000              1999
                                                         ----------------- ---------------- -----------------
<S>                                                          <C>               <C>              <C>
    Revenues                                                 $  45,986         $ 108,738        $121,251
    Cost of sales                                               38,441            82,061          91,804
                                                         ----------------- ---------------- -----------------
    Gross profit                                                 7,545            26,677          29,447
    Loss on impairment of goodwill and intangibles              32,526                --              --
    Operating and other expenses                                 9,448            28,523          24,299
                                                         ----------------- ---------------- -----------------
         (Loss) income from discontinued operations            (34,429)           (1,846)          5,148
           before income tax
         Income tax benefit (provision)                             --               439          (2,305)
                                                         ----------------- ---------------- -----------------
         (Loss) income from discontinued operations          $ (34,429)        $  (1,407)       $  2,843
                                                         ================= ================ =================
</TABLE>

         The  loss on  disposal  of  discontinued  operations  for  fiscal  2001
consisted  primarily of the  elimination  of net assets of  approximately  $15.4
million including:  (i) intangible assets, net of accumulated  amortization,  of
approximately  $10.0  million;  (ii) the write-off of the HD note  receivable of
approximately $3.4 million;  (iii) uncollectible accounts receivable retained in
the sale of the IT consulting division of approximately $1.4 million,  which was
greater than  originally  estimated;  and (iv) the write-off of net property and
equipment and other assets of approximately $0.6 million. Additional expenses of
approximately  $2.2 million,  primarily change of control bonuses,  professional
and legal fees and other transaction-related charges (including an expected $0.4
million  loss  from  operations  from  January  1,  2001  through  the  expected
disposition  dates),  were  incurred  as part of the  transaction.  The  loss on
disposal for fiscal 2000 consisted primarily of the elimination of net assets of
approximately  $37.8 million  (including  intangible  assets net of  accumulated
amortization  of  approximately  $34.3  million,  net property and equipment and
other assets of approximately $3.5 million), offset by proceeds of $1.0 million.
Additional  expenses of approximately $2.4 million,  primarily change of control
bonuses, professional and legal fees and other transaction related charges, were
incurred as part of the transaction. These amounts are included in the loss from
the sale of discontinued  operations in the accompanying  consolidated financial
statements.  These losses represent  management's  best estimates based upon all
available  information.  However,  estimates  generally  are subject to inherent
uncertainties and, accordingly,  the ultimate loss may differ from estimates and
the difference could be significant.

4.       Restructuring Charges

         To align  staff  costs and branch  office  requirements  with  existing
revenue  volume,  the  Company  is  streamlining  its  corporate  structure  and
consolidating or closing branch offices in under-performing  markets. During the
52-week  period ended December 30, 2001,  the Company  recorded a  restructuring
charge of approximately  $1.3 million  primarily related to the consolidation or
closure  of 35 branch  offices,  as well as  severance  charges  related  to the
elimination of various  operational and senior level  positions.  The Company is
endeavoring  to  reduce  potential  future  lease  payments  by  subleasing  the
abandoned  facilities or negotiating  discounted buyouts of the lease contracts.
Consequently,  the  Company's  estimates  may  change  based on its  ability  to
effectively  reduce such  future  lease  payments.  At December  31,  2001,  the
remaining accrued  restructuring charges totaled approximately $0.6 million, and
are  recorded  in the  balance  sheet  as an  accrued  liability.  The  activity
impacting the accrual for restructuring charges is summarized in the table below
(in thousands):

<TABLE>
<CAPTION>
                                                                                         Balance at
                                               Charges to                             December 30, 2001
                                               Operations        Charges Utilized
                                           -------------------- -------------------- --------------------
<S>                                            <C>                  <C>                  <C>
         Contractual lease obligations         $        589         $       (28)         $       561
         Reductions in workforce                        586                (586)                  --
         Other costs                                    159                (159)                  --
                                           -------------------- -------------------- --------------------
         Total                                 $      1,334         $      (773)         $       561
                                           ==================== ==================== ====================
</TABLE>

                                       34
<PAGE>

5.       Credit Facilities and Notes Payable

         During  fiscal  2001,  the Company  entered  into a Third  Amendment to
Amended and Restated Credit Agreement (the "Credit  Amendment") with Wells Fargo
Bank   Northwest,   N.A.   ("Wells   Fargo")  and  Bank  One,  NA  ("Bank  One")
(collectively,  the  "Lenders")  to extend the Company's  line of credit,  which
expired July 1, 2001.  Pursuant to the Credit  Amendment,  the Company's line of
credit was reduced from $30.0 million to $18.0 million, $8.0 million of which is
available  for  borrowing in cash,  with a maturity  date of June 30, 2002,  and
$10.0 million of which is available  under letters of credit to be issued solely
as required by the Company's workers' compensation  insurance providers,  with a
maturity date of January 1, 2003. Also pursuant to the Credit Amendment, certain
financial  covenants of the credit facility were modified.  The Credit Amendment
provides for  borrowings  at the prime rate (4.75% as of December 30, 2001) plus
2.5  percentage  points.  Additionally,  the  credit  facility  provides  for an
additional fee of $250,000  unless the Lenders are paid in full and their credit
commitment  is  terminated  on or before June 15, 2002. As of December 30, 2001,
the Company  had no  outstanding  borrowings  under the credit  facility.  As of
December 30, 2001, the Company had letters of credit of $6.7 million outstanding
to secure its workers'  compensation premium obligation.  Subsequent to December
30, 2001, the Company issued an additional $3.2 million in letters of credit and
an  additional  $1.0 million  cash  deposit to secure its workers'  compensation
insurance program.  As of March 8, 2002, the Company had outstanding  borrowings
under the revolving credit facility of approximately $6.7 million.

         The  following  table  summarizes  information  regarding the Company's
outstanding senior secured notes (in thousands, except interest rates):
<TABLE>
<CAPTION>

                                                                 Beginning                                     Outstanding
                                                 Note Amount    Balance at      Additional     Payments on     Balance at
                   Rate        Default Rate                      12/31/00       Borrowings        Notes         12/30/01
                 ---------- -------------------- ------------- -------------- --------------- -------------- ----------------
<S>              <C>       <C>                  <C>           <C>            <C>            <C>             <C>
Series A                    Greater  of  10.72%
Due 9/1/03        8.72%(1)  or prime plus 2%      $    5,000    $    5,000     $       --      $     (844)    $     4,156
                            Greater  of  10.95%
Series B          8.95(1)   or prime plus 2%          30,000        30,000             --          (5,061)         24,939
Due 9/1/08
                                                 ------------- -------------- --------------- -------------- ----------------
                                                  $   35,000    $   35,000     $       --      $   (5,905)    $    29,095
                                                 ============= ============== =============== ============== ================
</TABLE>

(1)  Pursuant to Amendment No. 2 to the Note Purchase Agreement (see below), the
     interest  rate on the  series A senior  notes was  increased  from 6.72% to
     8.72% and the interest rate on the series B senior notes was increased from
     6.95% to 8.95%. The change in the interest rate charged on the senior notes
     is estimated to have an annual impact of approximately  $0.6 million on the
     Company's financial operations.

         On September 5, 2001, the Company  entered into Amendment No. 2 to Note
Purchase  Agreement  (the  "Amendment"),  dated  as of July 30,  2001,  with its
noteholders,   whereby   the   noteholders   waived  the   Company's   temporary
noncompliance  with certain financial  covenants under the Company's bank credit
facility and the existing note purchase  agreements with the noteholders  during
the Company's fiscal quarter ended June 30, 2001.

         As  consideration  for  the  Amendment,  the  Company  and  each of its
subsidiaries  entered  into a  security  agreement  dated as of July  30,  2001,
whereby  the  Company  offered as  collateral  security  for the senior  notes a
security  interest  in  and  lien  upon  all  of its  personal  property  assets
including,  without limitation,  all accounts receivable,  intellectual property
rights and shares of capital stock of the Company's subsidiaries.  Such security
interests have a first priority  security  interest to the extent such interests
cover accounts  receivable of the Company and each  subsidiary  and, as to other
items of collateral,  have a priority as mutually  agreed by the Noteholders and
the Lenders  pursuant to an  intercreditor  agreement  among such  parties and a
collateral agent dated as of July 30, 2001. In addition,  all obligations of the
Company  under the credit  facility and the note purchase  agreements  are to be
guaranteed by the subsidiaries.

         The Amendment also provides for optional or mandatory  prepayments,  as
the case may be,  upon the  occurrence  of  certain  events  including,  but not
limited  to, a change in  control,  transfer  of  property or issuance of equity
securities of the Company. In addition,  the Amendment provides that the Company
shall deliver  certain  financial  statements  within 30 days of the end of each
calendar  month  as well as an  officer's  certificate  in  connection  with the
delivery of financial  statements  for the last month of each fiscal  quarter of
the  Company.  Also  as  consideration  for  the  Amendment  and  waiver  by the
Noteholders, the Company paid an amendment fee to the Noteholders of $200,000 in
the aggregate, as well as fees and expenses of the Noteholders' special counsel.
The Company also is required to pay on June 15, 2002 a supplemental  note fee of


                                       35
<PAGE>

$250,000,  which  amount  will be waived if the Company has paid all amounts due
and  outstanding  under the note purchase  agreements  prior to such date.  Also
pursuant to the  Amendment,  certain  financial  covenants  of the Company  were
modified.

         Also in  conjunction  with the  Amendment,  the Company  entered into a
Fourth Amendment to Amended and Restated Credit Agreement with the Lenders dated
as of September 4, 2001 in order to make conforming  changes with respect to the
collateralization transaction described above.

         The Company's  revolving  credit facility and note purchase  agreements
contain  certain  restrictive  covenants,  including  certain  debt  ratios  and
restrictions on the sale of capital assets. As of December 30, 2001, the Company
was out of compliance with minimum EBITDA  requirements  under its note purchase
agreements  with its  Noteholders  and its revolving  credit  agreement with its
Lenders.  However,  as further  discussed in Note 13.  "Subsequent  Events," the
Company  has entered  into an amended and  restated  credit  agreement  with its
lenders,  pursuant to which the covenant violations are waived. The Company also
has amended its senior note purchase  agreements with its noteholders,  pursuant
to which the noteholders  consented to the amended and restated credit agreement
and also waived any  violations  of  financial  covenants  contained in the note
purchase agreements.

         The maturities on borrowings are as follows (in thousands):

                                 Fiscal Year Ending
                                    2002                        $     5,668
                                    2003                              9,394
                                    2004                              4,286
                                    2005                              4,286
                                    2006                              4,286
                                    Beyond                            1,175
                                                                -------------
                                                                $    29,095
                                                                =============


6.       Commitments and Contingencies

Noncancelable  Operating  Leases - The Company  leases office  facilities  under
noncancelable  operating  leases.  Some of these leases have renewal options for
periods  ranging from one to five years and contain  provisions  for  escalation
based on  increases  in certain  costs  incurred by the landlord and on Consumer
Price  Index  adjustments.  Management  expects  that,  in the normal  course of
business,  leases that expire will be renewed or replaced by other  leases.  The
Company leases certain of these  facilities  from various  related  parties (See
Note 10).

         Future minimum lease payments under non-cancelable operating leases are
as follows (in thousands):

                                 Fiscal Year Ending
                                    2002                         $    2,620
                                    2003                              1,374
                                    2004                                629
                                    2005                                221
                                                                -------------
                                                                 $    4,844
                                                                =============

         Facility  rental  expense for  continuing  operations  for fiscal 2001,
fiscal 2000 and fiscal 1999 totaled  approximately  $3.9 million,  $4.0 million,
and $3.7 million, respectively.

         Legal Matters - In the ordinary course of its business,  the Company is
periodically  threatened  with or named as a  defendant  in various  lawsuits or
administrative proceedings.  The Company maintains insurance in such amounts and
with such coverage and  deductibles as management  believes to be reasonable and
prudent. The principal risks covered by insurance include workers' compensation,
personal injury, bodily injury, property damage, errors and omissions,  fidelity
losses, employer practices liability and general liability.

         On April 11, 2001,  Royalty  Carpet  Mills,  Inc.  ("Royalty")  filed a
complaint  against  Inteliant for breach of contract for services to be provided
by Inteliant and for professional  negligence (the  "Complaint") in the state of
California.  The Complaint requests unspecified damages,  consequential damages,
and attorneys' fees and costs.  To date,  Royalty has not quantified the precise
amount of damages it is seeking from Inteliant,  but has informed Inteliant that
it will be seeking damages of approximately  $1.9 million.  Inteliant denies the


                                       36
<PAGE>

allegations  set forth in the  Complaint  and is seeking to recover in excess of
$150,000 that Inteliant claims Royalty owes to Inteliant. The case is proceeding
with discovery, with the trial currently set to commence in August 2002.

         Inteliant  believes that it is insured against any potential  liability
for the claims  filed by Royalty  under its general  liability  coverage and has
tendered  defense of  Royalty's  lawsuit  to its  insurance  carrier.  While its
insurance  carrier has reserved its right to assert  certain  policy  exclusions
against  Inteliant,  which the insurance  carrier  contends exclude claims based
upon an (i) express or implied  warranty or  guarantee,  (ii) breach of contract
with respect to any  agreement  to perform  work for a specified  fee, and (iii)
claims for bodily injury or property damage,  Inteliant  presently believes that
the claims asserted by Royalty against Inteliant are not only without merit, but
that any judgment that potentially might be entered against Inteliant is covered
in whole or in substantial part by its policy with the insurance carrier.

         There  is no  other  pending  litigation  that  the  Company  currently
anticipates  will have a  material  adverse  effect on the  Company's  financial
condition or results of operations.

7.       Income Taxes

         The  components  of the  provision  for income  taxes  from  continuing
operations  for fiscal  2001,  fiscal  2000 and fiscal  1999 are as follows  (in
thousands):
<TABLE>
<CAPTION>

                                                            2001             2000              1999
                                                      ----------------- ---------------- -----------------
     Current (benefit) provision:
<S>                                                     <C>               <C>                <C>
        Federal                                         $     (234)       $    2,630         $     615
        State                                                   10               420               134
                                                      ----------------- ---------------- -----------------
                                                              (224)            3,050               749
                                                      ----------------- ---------------- -----------------
     Deferred (benefit) provision:
        Federal                                              4,815            (2,557)              150
        State                                                  609              (408)               29
                                                      ----------------- ---------------- -----------------
                                                             5,424            (2,965)              179
                                                      ----------------- ---------------- -----------------

     Total provision for income taxes                   $    5,200        $       85         $     928
                                                      ================= ================ =================
</TABLE>

         The following is a reconciliation  between the statutory federal income
tax rate on income from continuing operations and the Company's effective income
tax rate on income from continuing  operations  which is derived by dividing the
provision  for income  taxes by income  before  provision  for income  taxes for
fiscal 2001, fiscal 2000 and fiscal 1999 (in thousands):
<TABLE>
<CAPTION>

                                                            2001             2000              1999
                                                      ----------------- ---------------- -----------------
<S>                                                           <C>                <C>           <C>
     Federal income tax at statutory rate                     (34)               83            1,168
     State income taxes net of federal benefit                 (6)                8              148
     Government sponsored hiring incentives                  (475)             (728)            (861)
     Non-deductible meals and entertainment                    45                68               69
     Non-deductible intangible amortization                    48                47               47
     Increase in  valuation  allowance  for deferred
     tax assets                                             5,424                --               --
     Other                                                    198               607              357
                                                      ----------------- ---------------- -----------------
                                                            5,200                85              928
                                                      ================= ================ =================
</TABLE>

         The  components of the deferred  income tax assets and  liabilities  at
December 30, 2001 and December 31, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>

                                                                 2001              2000
                                                            ---------------- -----------------
     Deferred income tax assets:
<S>                                                             <C>              <C>
        Intangible amortization                                 $  12,139        $      --
        Depreciation                                                  682              534
        Workers' compensation reserves                              2,133            2,068
        Allowance for doubtful accounts                             2,423            1,339
        Government sponsored tax credits carryforward               2,048            1,600
        Accrued liabilities                                         1,576            1,309

</TABLE>

                                       37
<PAGE>

<TABLE>
<CAPTION>

                                                                 2001              2000
                                                            ---------------- -----------------

<S>                                                                 <C>                <C>
        Net operating loss carryforwards                            4,299              900
                                                            ---------------- -----------------
                                                                   25,300            7,750

     Less: Income tax valuation allowance                         (24,585)              --
                                                            ---------------- -----------------
                                                                      715            7,750

     Deferred income tax liabilities:
        Intangible amortization                                        --            (2,050)
        Other                                                        (715)             (500)
                                                            ---------------- -----------------
                                                                     (715)           (2,550)
                                                            ---------------- -----------------

     Net deferred income tax asset                              $      --        $   5,200
                                                            ================ =================

     Balance sheet classification:
        Current asset                                           $      --        $   5,852
        Long-term liability                                            --              (652)
                                                            ---------------- -----------------
                                                                $      --        $   5,200
                                                            ================ =================
</TABLE>

         The Company has provided a valuation  allowance of approximately  $24.6
million  to  offset  the  entire  balance  of the net  deferred  tax asset as of
December  30,  2001.  The  valuation  allowance  was  recorded  given the losses
incurred by the Company and the Company's belief that it is more likely than not
that the Company will be unable to recover the net deferred tax assets.

8.       Stock-Based Compensation

Stock  Incentive  Plan - The Company  established  a stock  incentive  plan (the
"Plan")  which  allows for the  issuance of a maximum of 1.8  million  shares of
common stock to officers,  directors,  consultants and other key employees.  The
Plan  allows  for  the  grant  of  incentive  or  nonqualified  options,   stock
appreciation  rights,  restricted  shares of common  stock or stock units and is
administered by the compensation  committee of the Company's board of directors.
Incentive options and nonqualified  options are granted at not less than 100% of
the fair market value of the  underlying  common stock on the date of grant.  At
December 30, 2001 the Plan had approximately 733,000 options available to grant.

         The Company's board of directors  determines the number,  type of award
and terms and  conditions,  including any vesting  conditions.  For fiscal 2001,
fiscal 2000 and fiscal 1999 only incentive and nonqualified options were granted
under the Plan. Generally,  employee stock options partially vest at the date of
grant and on each of the next four or five  anniversary  dates  thereafter.  The
Plan  also  provides  for an annual  grant to  non-employee  directors  of 1,000
options,  which are immediately  exercisable on the date of grant. Stock options
granted to  employees  expire no later than ten years from the date of grant and
stock options granted to directors expire no later than five years from the date
of grant.

         A summary of the stock  option  activity is as follows  (in  thousands,
except per share data):

<TABLE>
<CAPTION>
                                                                                         Weighted
                                                                                          Average
                                                                                      Exercise Price
                                                      Employees        Directors         Per Share
                                                   ---------------- ----------------- ----------------
<S>                                                    <C>                <C>          <C>
     Outstanding at January 3, 1999                       1,026              108          $    12.29
       Granted                                              434               24                5.40
       Exercised                                             (3)              --                7.82
       Forfeited                                           (224)              (4)              12.60
                                                   ---------------- ----------------- ----------------
     Outstanding at January 2, 2000                       1,233              128               10.08
       Granted                                              276               10                3.30
       Forfeited                                           (556)             (86)               9.63
                                                   ---------------- ----------------- ----------------
     Outstanding at December 31, 2000                       953               52                8.42
       Granted                                              439               55                1.16
       Forfeited                                           (288)             (32)               7.10
                                                   ---------------- ----------------- ----------------
     Outstanding at December 30, 2001                     1,104               75          $     5.20
                                                   ================ ================= ================

     Exercisable at December 30, 2001                       462               77          $     7.49
                                                   ================ ================= ================
</TABLE>

                                       38
<PAGE>

         The  following  is  additional  information  with  respect to the stock
options (shares in thousands):

<TABLE>
<CAPTION>

                                             Weighted-
                                              Average
                      Outstanding as of      Remaining       Weighted-Average      Exercisable At     Weighted-Average
Exercise Price Range  December 30, 2001     Contractual       Exercise Price     December 30, 2001     Exercise Price
                                            Yearly Life
--------------------- ------------------- ----------------- -------------------- ------------------- --------------------
<S>        <C>                 <C>                   <C>         <C>                         <C>           <C>
 $  1.08 - $ 8.35              1,011                 8.4         $      3.05                 405           $    4.09
    8.36 -  15.65                 29                 4.6               10.62                  27               10.46
   15.66 -  22.90                139                 5.6               19.69                 107               19.60
                      ------------------- ----------------- -------------------- ------------------- --------------------
                               1,179                 8.0         $      5.20                 539           $    7.49
                      =================== ================= ==================== =================== ====================
</TABLE>

Stock Price  Assumptions - SOS Options:  The fair value of each option grant has
been estimated on the grant date using the  Black-Scholes  option-pricing  model
with the following  assumptions used for grants in fiscal 2001,  fiscal 2000 and
fiscal 1999, in calculating  compensation cost:  expected stock price volatility
of 80% for fiscal 2001, 73% for fiscal 2000, and 63% for fiscal 1999; an average
risk-free  interest rate of 4.8% for fiscal 2001,  6.0% for fiscal 2000 and 6.4%
for fiscal 1999;  and an expected  life of five years for  director  options and
seven years for employee  options for fiscal 2001,  fiscal 2000 and fiscal 1999.
The  weighted-average  fair value of options granted was $0.77, $1.89, and $3.67
for grants made during fiscal 2001, fiscal 2000 and fiscal 1999, respectively.

Inteliant  Stock Option Plan - During  fiscal 2000,  the Company had adopted the
Inteliant  Corporation  Stock Option Plan (the "Inteliant Plan") for the benefit
of  Inteliant's   employees,   officers  and  directors.   The  Inteliant  Plan,
administered by Inteliant's board of directors,  allows for the grant of options
to purchase a maximum of 10,000,000  shares of  Inteliant's  common  stock.  The
number of  options  granted,  the  vesting  schedule  of such  grants  and other
conditions of each grant is established by Inteliant's  board of directors.  The
grants are issued at fair value as determined by  independent  valuation.  As of
December 30, 2001 only non-qualified options have been granted.

         A summary of the stock  option  activity for the  Inteliant  Plan is as
follows (in thousands, except per share data):

                                                                 Weighted
                                                                 Average
                                                              Exercise Price
                                                Options         Per Share
                                            ---------------- -----------------
       Granted                                     4,052         $     2.00
       Forfeited                                  (2,449)              2.00
                                            ---------------- -----------------
     Outstanding at December 31, 2000              1,603               2.00
       Granted                                        --               2.00
       Forfeited                                    (891)              2.00
                                            ---------------- -----------------
     Outstanding at December 30, 2001                712         $     2.00
                                            ================ =================

     Exercisable at December 31, 2000                356         $     2.00
                                            ================ =================

Pro forma  Compensation  Expense - The  Company  applies  APB No. 25 and related
interpretations  in accounting for its options issued under the Plan under which
no compensation cost has been recognized.  Had compensation cost been determined
consistent with SFAS No. 123,  "Accounting for  Stock-Based  Compensation,"  the
Company's  income from  continuing  operations and earnings per share for fiscal
2001,  fiscal 2000 and fiscal 1999 would approximate the pro forma amounts below
(in thousands, except per share data):

                                       39
<PAGE>

<TABLE>
<CAPTION>

                                                            2001             2000              1999
                                                      ----------------- ---------------- -----------------
     (Loss) income from Continuing Operations-
<S>                                                       <C>             <C>              <C>
       As reported                                        $    (5,300)    $       160      $       2,508
       Pro forma                                               (6,923)         (1,117)             1,050
     Diluted EPS -
       As reported                                        $    (0.42)     $       0.01     $        0.20
       Pro forma                                               (0.55)            (0.09)             0.08
</TABLE>

         The Company has determined to sell or abandon the remaining  operations
of Inteliant and, consequently,  has reclassified all operations of Inteliant as
discontinued.  As the  operations of Inteliant have been or will be disposed of,
options issued to the employees of those  operations  will be canceled.  Because
ongoing  operations  of  Inteliant  will  not  have an  impact  on  income  from
continuing  operations for the Company,  and because the Company anticipates the
cancellation of all outstanding options related to Inteliant,  no option expense
has been  considered  for the  Inteliant  options  in  calculating  income  from
continuing operations.  However, for fiscal 2001 and fiscal 2002, option expense
related  to the  Inteliant  options  was  approximately  $1.0  million  and $1.2
million, respectively.

9.       Employee Benefit Plans

         The  Company  has  a  401(k)  defined   contribution   plan.   Employee
contributions may be invested in several alternatives.  Company contributions to
the plan, including matching contributions, may be made at the discretion of the
Company.  The  Company's  contributions  to  the  plan  were  approximately  $0,
$348,000,   and  $440,000  for  fiscal  2001,   fiscal  2000  and  fiscal  1999,
respectively.

         The  Company  also has a deferred  compensation  plan for  certain  key
officers and employees that provide the  opportunity to defer a portion of their
compensation.  Amounts  deferred are held in a "Rabbi  Trust,"  which invests in
various  mutual  funds  and/or the  Company's  common  stock as  directed by the
participants.  The  trust  assets  are  recorded  as a  long-term  asset  in the
accompanying  consolidated balance sheet because such amounts are subject to the
claims  of  creditors.   The  corresponding   deferred  compensation   liability
represents  amounts  deferred  by  participants  plus any  earnings on the trust
assets.  At December 30, 2001 and December 31, 2000,  the deferred  compensation
liabilities were approximately $743,000 and $941,000, respectively.

         The Company also  maintains  an Employee  Stock  Purchase  Plan whereby
employees  may  designate  a portion of their  salaries  to be used to  purchase
shares of the Company.  Employees purchase shares at the average market price of
all shares bought for all employees  participating  during a designated  period.
All shares are purchased through an independent  broker off the open market. The
Company pays all brokerage and transactional  fees related to the purchase.  The
fees paid by the Company have not been and are not expected to be significant.

10.      Related Party Transactions

         The  Company  leases  its  corporate  office  building  from the  adult
children of certain  significant  shareholders  of the Company  under a ten-year
lease  agreement  through March 2005, with an option to renew for ten additional
years.  Rental expense during fiscal 2001,  fiscal 2000 and fiscal 1999 amounted
to  approximately  $86,000,  $83,000 and $81,000,  respectively.  Future minimum
lease  payments  related to this lease will average  approximately  $89,000 each
fiscal year.

         During  fiscal 2001,  the Company  entered into an agreement to provide
payrolling  services to  Underground  Staffing  Connection,  Inc.  ("Underground
Staffing"),  a  business  owned  by  one  of the  Company's  staffing  managers.
Underground Staffing provides staffing services to companies which have staffing
needs in high risk areas  such as  underground  mining.  For  fiscal  2001,  the
Company  realized  approximately  $1.1  million in revenue  from the  agreement.
Additionally,  the Company had accounts receivable of approximately  $94,000 due
from Underground Staffing at December 30, 2001.

                                       40
<PAGE>

11.

<PAGE>


Selected Quarterly Financial Data (Unaudited)

         A summary of quarterly financial information for fiscal 2001 and fiscal
2000 is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>

                                                      First Quarter   Second Quarter  Third Quarter  Fourth Quarter
                                                      --------------- --------------- -------------- ---------------
    Fiscal 2001:
<S>                                                     <C>             <C>             <C>           <C>
    Service revenues                                    $   52,720      $   53,897      $    58,165   $    51,576
    Gross profit                                            11,452          11,963           12,598        11,069
    (Loss) income from continuing operations                  (324)            170              680        (5,826)
    Loss from discontinued operations                         (510)         (2,249)         (33,058)      (16,227)
    Net loss                                                  (834)         (2,078)         (32,378)      (22,054)

    Basic and diluted (loss) income per common share:
      (Loss) income from continuing operations          $    (0.03)     $     0.01      $     0.05    $     (0.46)
      Loss from discontinued operations                      (0.04)          (0.17)          (2.60)         (1.28)
                                                      --------------- --------------- -------------- ---------------
      Net loss                                          $    (0.07)     $    (0.16)     $    (2.55)   $     (1.74)
                                                      =============== =============== ============== ===============


    Fiscal 2000:
    Service revenues                                    $   62,568      $   66,865      $    68,579   $    64,810
    Gross profit                                            14,173          14,873           15,422        14,021
    Income (loss) from continuing operations(1)                 72             727            1,123        (1,762)
    (Loss) income from discontinued operations                (353)           (646)             367       (28,729)
    Net (loss) income                                         (281)             81            1,490       (30,491)

    Basic and diluted (loss) income per common share:
      Income (loss) from continuing operations          $     0.01      $     0.06      $     0.09    $     (0.14)
      (Loss) income from discontinued operations             (0.03)          (0.05)           0.03          (2.26)
                                                      --------------- --------------- -------------- ---------------
      Net (loss) income                                 $    (0.02)     $      0.01     $     0.12    $     (2.40)
                                                      =============== =============== ============== ===============
</TABLE>

(1)      Income  (loss)  from  continuing  operations  includes  a write  off of
         goodwill and  intangibles  of $3.1 million during the fourth quarter of
         fiscal 2000.


12.      Recent Accounting Pronouncements

        In June 2001 the  Financial  Accounting  Standards  Board  (the  "FASB")
issued SFAS No. 141,  "Business  Combinations,"  and SFAS No. 142, effective for
the Company's fiscal years ending after December 30, 2001. SFAS No. 141 requires
all business  combinations  initiated  after June 30, 2001 to be  accounted  for
using the purchase method of accounting.  Additionally,  under the new rules, an
acquired intangible asset should be separately  recognized if the benefit of the
intangible  asset is obtained through  contractual or other legal rights,  or if
the intangible asset can be sold,  transferred,  licensed,  rented or exchanged;
unless the intangible  assets  identified have an indefinite  life, those assets
will be amortized  over their useful life.  Assets of the Company that have been
separately   identified  include,   but  are  not  limited  to,  trademarks  and
tradenames, non-competition agreements and customer lists.

        During fiscal 2001, the Company  continued to amortize existing goodwill
and  intangible  assets.  Under  SFAS No.  142,  the  Company  will  discontinue
amortization of existing  goodwill and other  intangible  assets with indefinite
lives in fiscal 2002. The Company anticipates that adoption of SFAS No. 142 will
result in an impairment of a  significant  portion of the existing  goodwill and
other intangible assets with an indefinite life currently carried on the balance
sheet, as goodwill and intangible  assets with indefinite  lives will be subject
to assessment for impairment by applying a fair-value-based  test rather than an
undiscounted  cash flow approach  currently used by the Company.  As of December
30, 2001,  the net book value of intangible  assets carried on the balance sheet


                                       41
<PAGE>

was approximately  $48.1 million,  of which  approximately  $32.0 million is was
attributable to goodwill. The Company estimates that it may be required to write
off in excess of $20.0  million of  goodwill  and  intangibles  during the first
quarter of fiscal 2002. However,  the Company has not completed yet its analysis
of the total  impact of  adopting  SFAS No. 142 and this  initial  estimate  may
change. For the 52-week period ended December 30, 2001,  amortization related to
goodwill was approximately $1.2 million.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment
of Long-lived Assets." The new standard supercedes SFAS No. 121, "Accounting for
the  Impairment of Long-lived  Assets and for  Long-lived  Assets to be Disposed
of." The new standard also  supercedes the  provisions of Accounting  Principles
Board No. 30,  "Reporting  the Results of  Operations--Reporting  the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and  Transactions,"  and will require expected future operating
losses from discontinued  operations to be displayed in discontinued  operations
in the  period(s)  in which  the  losses  are  incurred,  rather  than as of the
measurement  date as  presently  required.  The  provisions  of SFAS No. 144 are
effective for financial  statements  beginning after December 15, 2001 but allow
for earlier  application.  The Company  currently  is  assessing  the impact the
adoption of these provisions will have on the Company's  financial  position and
results of operations.

13.      Subsequent Events

         On April 15,  2002,  the  Company  entered  into a Fifth  Amendment  to
Amended and Restated Credit Agreement and Waiver (the "Fifth Credit  Amendment")
with the Lenders to extend the Company's  line of credit.  Pursuant to the Fifth
Credit Amendment, the Company's line of credit was reduced from $18.0 million to
$16.0 million,  $6.0 million of which is available for borrowing in cash, with a
maturity  date of  September  1, 2003,  and $10.0  million of which is available
under  letters  of credit  to be issued  solely  as  required  by the  Company's
workers'  compensation  insurance providers,  with a maturity date of January 1,
2004.  The Fifth  Credit  Amendment  provides for  borrowings  at the prime rate
(4.75% as of December 30, 2001) plus 3.0 percentage points through and including
June 30, 2002, after which time borrowings under the facility will be charged an
interest rate equal to the then current prime rate plus 3.5  percentage  points.
Additionally,  the Fifth  Credit  Amendment  provides for an  aamendment  fee of
$78.000,  payable to the Lenders upon  execution  of the Fifth Credit  Amendment
plus a  supplemental  fee of $250,000  payable on September 1, 2003,  unless the
Lenders are paid in full and their credit  commitment is terminated on or before
such date. In addition,  the Company paid $313,000 of the outstanding borrowings
under the revolving  cerdit  facility on  Septemberup  15, 2002 and December 15,
2002,  respectively.  Sych payments will  permanently  reduce the line of credit
available  to the Company for  borrowing  in cash to less than the $6.0  million
stated above. The Fifth Credit Amendment also waives any violations of financial
covenants  under the credit  facility that may have existed at December 30, 2001
and any such  violations  that may  exist as of March  31,  2002.  In  addition,
certain financial  covenants of the Company have been modified.  As of April 11,
2002, the Company had outstanding borrowings under the revolving credit facility
of approximately $7.3 million.

         Also on April 15, 2002, the Company  entered into an Amendment No. 3 to
Note Purchase  Agreement  ("Amendment No. 3") with the Noteholders,  whereby the
Noteholders waived the Company's  noncompliance with certain financial covenants
under  the  Company's  bank  credit  facility  and the  existing  note  purchase
agreements with the Noteholders as of December 30, 2001 and any noncompliance of
such  covenants  that may  exist as of March  31,  2002.  The  Noteholders  also
consented  to the Company  entering  into the Fifth Credit  Amendment  described
above. Pursuant to Amendment No. 3, the Series A Notes bear interest at the rate
of 9.22% per annum  beginning as of April 1, 2002 through,  but excluding,  June
30, 2003, and at the rate of 9.72% per annum from June 30, 2003 until the Series
A Notes become due and payable.  The Series B Notes bear interest at the rate of
9.45% per annum beginning as of April 1, 2002 through,  but excluding,  June 30,
2003,  and at the rate of 9.95% per annum from June 30,  2003 until the Series B
Notes become due and payable.

         Pursuant to Amendment No. 3, any overdue payments on the Series A Notes
bear interest at the greater of 2% over the interest rate currently in effect as
stated  above or 2% over the prime rate of The First  National  Bank of Chicago.
The change in the interest rate charged on the senior notes is estimated to have
an  annual  impact  of  approximately   $142,000  on  the  Company's   financial
operations.  In addition,  the Company paid $687,000 of the principal  amount of
the senior  notes upon  execution  of  Amendment  No. 3. The Company will pay an
additional $1,030,500 and $1,227,000 of the principal amount of the senior notes
on September 15, 2002 and December 15, 2002, respectively.

         Amendment No. 3 also provides for optional or mandatory prepayments, as
the case may be,  upon the  occurrence  of  certain  events  including,  but not
limited  to, a change of  control,  transfer  of  property or issuance of equity
securities  of the  Company.  In  addition,  Amendment  No. 3 provides  that the
Company pay to the Lenders and the Noteholders  any federal,  state or local tax
refund or repayment,  which amount shall be distributed  pursuant to the Amended
and  Restated  Intercreditor  Agreement  dated as of April  15,  2002  among the
Collateral  Agent,  the Lenders  and the  Noteholders;  however,  if the Company


                                       42
<PAGE>

receives any refund arising from the 2002 Job Act relating to net operating loss
carryforwards,  the Company will be able to retain for working capital  purposes
the lesser of $2,000,000 or 50% of the refund.  Any such prepayments paid to the
Lenders  also will be treated  as a  permanent  reduction  in the line of credit
available  to the  Company  for  borrowing  in cash under the  revolving  credit
facility.

        Pursuant  to  Amendment  No.  3,  the  Company  shall  deliver  to  the
Noteholders  certain  financial  statements  within  30  days of the end of each
calendar  month  certified by the senior  financial  officer of the Company.  As
consideration for Amendment No. 3 and the waiver by the Noteholders, the Company
paid an  amendment  fee to the  Noteholders  of  $145,475,  as well as fees  and
expenses of the Noteholders'  special counsel. In addition,  the Company paid to
each  Noteholder  accrued  but unpaid  interest on such  holder's  notes for the
period  beginning  March 1, 2002  through and  including  March 31,  2002.  Also
pursuant to Amendment No. 3, the Company is required to pay on September 1, 2003
a supplemental note fee of $250,000,  which amount will be waived if the Company
has paid all  amounts due and  outstanding  under the note  purchase  agreements
prior to such date.  Also,  certain  financial  covenants  of the  Company  were
modified.  In the  event the  Company  fails to comply  with such  covenants  as
modified, Amendment No. 3 provides that the Noteholders may, at their discretion
and at the expense of the  Company,  retain a financial  advisor to review,  and
advise  the  Noteholders  and the  Company  upon,  the  financial  status of the
Company.  The security agreement dated as of July 30, 2001 previously  discussed
herein remains in place pursuant to Amendment No. 3.





ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE
         -----------------------------------------------------------------------
         None




                                       43
<PAGE>

PART III

         The  information  required by this Part III is omitted from this Report
in that the Company  will file with the  Securities  and  Exchange  Commission a
definitive proxy statement for the Annual Meeting of Shareholders of the Company
to be held on May 16,  2002 (the  "Proxy  Statement"),  not later  than 120 days
after  December  30,  2001,  and  certain   information   included   therein  is
incorporated  herein by reference.  Only those  sections of the Proxy  Statement
specifically  identified  below  which  address  the items set forth  herein are
incorporated by reference.


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
         --------------------------------------------------
         The  information  required by this Item is incorporated by reference to
the sections  entitled  "Election of Directors" and "Executive  Officers" in the
Proxy Statement.


ITEM 11. EXECUTIVE COMPENSATION
         ----------------------
         The  information  required by this Item is incorporated by reference to
the  sections  entitled  "Election  of   Directors-Director   Compensation"  and
"Executive Officers-Executive Compensation" in the Proxy Statement.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         --------------------------------------------------------------
         The  information  required by this Item is incorporated by reference to
the  section  entitled  "Principal  Holders of Voting  Securities"  in the Proxy
Statement.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
         ----------------------------------------------
         The  information  required by this item is incorporated by reference to
the section entitled  "Certain  Relationships  and Related  Transactions" in the
Proxy Statement.


PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
         ---------------------------------------------------------------
(a)      Financial Statements, Financial Statement Schedules and Exhibits:

      1. Consolidated Financial Statements:
         ---------------------------------
             The  Consolidated  Financial  Statements  of the  Company  and  its
             subsidiaries filed as a part of this Annual Report on Form 10-K are
             listed in Item 8 of the Annual  Report on Form 10-K,  which listing
             is hereby incorporated herein by reference.

      2. Financial Statement Schedules
         -----------------------------

             The following  financial  consolidated  statement  schedules of SOS
             Staffing Services, Inc. are included in Item 14(d) hereof:

             o Report of independent public  accountants on financial  statement
             schedule.

             o Schedule II - Valuation and qualifying accounts.

             All other  schedules for which  provision is made in the applicable
             accounting  regulations of the  Securities and Exchange  Commission
             are  not  required  under  the  related  instructions  or  are  not
             applicable, and therefore have been omitted.


                                       44
<PAGE>

(b)      Reports on Form 8-K

         The Company's  current  report on Form 8-K filed on July 13, 2001.  The
         Company's current report on Form 8-K filed on October 5, 2001.

(c)      Exhibits:

<TABLE>
<CAPTION>

    Exhibit                                                               Incorporated by    Filed Herewith
      No.                               Exhibit                              Reference
---------------- ------------------------------------------------------ -------------------- ----------------

<C>              <C>                                                           <C>
3.1              Amended and  Restated  Articles of  Incorporation  of          (1)
                 the Company

3.2              Amended and Restated Bylaws of the Company                     (1)


4.2              Amended and  Restated  Articles of  Incorporation  of          (1)
                 the Company

4.3              Amended and Restated Bylaws of the Company                     (1)

10.1             SOS Staffing  Services,  Inc.  Stock  Incentive  Plan          (3)
                 dated May 4, 1995, as amended

10.2             Form  of  Employment  Agreement  entered  into by the          (1)
                 Company and each of Messrs.  Richard J.  Tripp,  John
                 E. Schaffer, Thomas K. Sansom, and Brad L. Stewart.

10.3             Form of  Consulting  Agreement  between  the  Company          (2)
                 and Ms. JoAnn W. Wagner, effective as of July 1, 1995

10.4             Lease  Agreement  between  the  Company  and  Reed F.          (1)
                 Reinhold,  Rand F. Reinhold,  Rena R. Qualls and Robb
                 F.  Reinhold,  dated  April  1,  1995,  covering  the
                 Company's corporate office building

10.5             Credit  Agreement  dated as of July  11,  1996 by and          (4)
                 among the Company,  First Security Bank, N.A. and NBD
                 Bank,  together with Security Agreement and Revolving
                 Credit Notes

10.6             Note Purchase Agreement dated September 1, 1999.               (5)

10.7             Amended Credit  Agreement  dated July 27, 1998 by and          (5)
                 among  the  Company,   The  First  National  Bank  of
                 Chicago and First Security Bank, N.A.,  together with
                 Security Agreement and Revolving Credit Notes

10.8             First Amendment of Employment  Agreement  between the          (6)
                 Company and JoAnn W. Wagner.

</TABLE>


                                       45
<PAGE>

<TABLE>
<CAPTION>

   Exhibit                                                                        Incorporated by     Filed Herewith
     No.                                    Exhibit                                  Reference
--------------- ---------------------------------------------------------------- ------------------- -----------------
<C>             <C>                                                                    <C>
10.9            First Amendment to Amended and Restated Credit  Agreement dated         (6)
                June 3, 1999 by and among the Company and certain banks

10.10           Inteliant Stock Option Plan                                             (7)

10.11           Asset Purchase  Agreement  dated as of December 29, 2000 by and         (8)
                between Inteliant Corporation,  SOS Staffing Services, Inc. and
                Herrick Douglas

10.12           Amendment to Note  Purchase  Agreement  dated  January 12, 2001         (8)
                with  effect as of  December  22,  2000  between  SOS  Staffing
                Services,  Inc. and certain  entities  listed as  Purchasers on
                the signature pages thereto

10.13           Second  Amendment  to Amended  and  Restated  Credit  Agreement         (8)
                dated  as of  December  29,  2000  by and  among  SOS  Staffing
                Services,  Inc., certain Lenders, First Security Bank, N.A., as
                administrative  agent,  and Bank One,  N.A.,  as  documentation
                agent

10.14           Third Amendment to Amended and Restated Credit  Agreement dated         (9)
                as of June 29, 2001 by and among SOS Staffing  Services,  Inc.,
                certain Lenders,  First Security Bank, N.A., as  administrative
                agent, and Bank One, N.A., as documentation agent

10.15           Second  Amendment to Note Purchase  Agreement dated January 12,         (10)
                2001 with effect as of December  22, 2000  between SOS Staffing
                Services,  Inc. and certain  entities  listed as  Purchasers on
                the signature pages thereto

10.16           Fourth  Amendment  to Amended  and  Restated  Credit  Agreement         (10)
                dated  as of  September  4,  2001  by and  among  SOS  Staffing
                Services,  Inc., certain Lenders, First Security Bank, N.A., as
                administrative  agent,  and Bank One,  N.A.,  as  documentation
                agent

10.17           Security  Agreement dated as of July 30, 2001 among the Company         (10)
                and its subsidiaries,  and the Collateral Agent for the benefit
                of Wells Fargo Bank,  National  Association,  as administration
                agent under the Company's bank credit agreement,  the financial
                institutions  which from time to time are  parties to such bank
                credit agreement as lenders thereunder, and the Noteholders

10.18           Trademark  Collateral Security and Pledge Agreement dated as of         (10)
                July 30, 2001 by and  between  the  Company and the  Collateral
                Agent  for  the   benefit  of  Wells   Fargo   Bank,   National
                Association,  as administration  agent under the Company's bank
                credit agreement,  the financial  institutions  which from time
                to time are  parties to such bank credit  agreement  as lenders
                thereunder, and the Noteholders

</TABLE>


                                       46
<PAGE>

<TABLE>
<CAPTION>

   Exhibit                                                                        Incorporated by     Filed Herewith
     No.                                    Exhibit                                  Reference
--------------- ---------------------------------------------------------------- ------------------- -----------------
<C>             <C>                                                                     <C>               <C>
10.19           Stock  Pledge  Agreement  dated  as of  July  30,  2001  by and         (10)
                between the Company  and the  Collateral  Agent for the benefit
                of Wells Fargo Bank,  National  Association,  as administration
                agent under the Company's bank credit agreement,  the financial
                institutions  which from time to time are  parties to such bank
                credit agreement as lenders thereunder, and the Noteholders

10.20           Intercreditor  Agreement  dated as of July 30,  2001 among State                           (10)
                Street Bank and Trust Company (10) Collateral Agent, Wells Fargo
                Bank, National  Association,  as administrative  agent under the
                Company's  bank  credit  agreement  and  the   Noteholders,   as
                acknowledged by the Company and its subsidiaries, as guarantors

10.21           Fifth  Amendment to Amended and Restated  Credit  Agreement  and                           (11)
                Waiver  dated as of  April  15,  2002,  by and  among  SOS
                Staffing  Services,  Inc.,  certain  Lenders,  Wells Fargo Bank,
                National  Associaiton,  as  administrative  agent, and Bank One,
                N.A., as documentation agent

21              Subsidiaries of the Company                                                                (11)

23.2            Consent of Independent Public Accountants                                                  (11)

99.1            Letter of the  Company to SEC  regarding  Arthur  Andersen  LLP                            (11)
                representations.
</TABLE>


(1)      Incorporated  by reference to the exhibits to a Registration  Statement
         on Form S-1 filed by the  Company  on May 17,  1995,  Registration  No.
         33-92268.

(2)      Incorporated  by  reference  to the  exhibits to  Amendment  No. 1 to a
         Registration Statement on Form S-1 filed on June 22, 1995, Registration
         No. 33-92268.

(3)      Incorporated  by  reference  to the  exhibits to the  Company's  Annual
         Report of Form 10-K for the year ended  December  31, 1995 filed by the
         Company on March 29, 1996.

(4)      Incorporated by reference to the exhibits to a Quarterly Report on Form
         10-Q for the quarter  ended  September 26, 1996 filed by the Company on
         November 14, 1996.

                                       47
<PAGE>

(5)      Incorporated  by reference to the exhibits to an Annual  Report on Form
         10-K for the year ended  January 3, 1999 filed by the  Company on April
         2, 1999.

(6)      Incorporated  by reference to the exhibits to a Current  Report on Form
         8-K for the  quarter  ended July 4, 1999 filed by the Company on August
         18, 1999.

(7)      Incorporated  by reference to the exhibits to an Annual  Report on Form
         10-KA for the year ended  December  31,  2000  filed by the  Company on
         April 3, 2000.

(8)      Incorporated  by reference to the exhibits to a Current  Report on From
         8-K for the  quarter  ended  December  31, 2000 filed by the Company on
         January 12, 2001.

(9)      Incorporated  by reference to the exhibits to a Current  Report on Form
         8-K for the quarter  ended  September  30, 2001 filed by the Company on
         July 13, 2001.

(10)     Incorporated  by reference to the exhibits to a Current  Report on Form
         8-K for the  quarter  ended  December  31, 2001 filed by the Company on
         October 5, 2001.

(11)     Filed herewith and attached to this Report following page 52 hereof.

(d)      Financial Statement Schedules:
         -----------------------------
         Schedule II




                                       48
<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                         ON FINANCIAL STATEMENT SCHEDULE





To SOS Staffing Services:

         We  have  audited  in  accordance  with  auditing  standards  generally
accepted in the United States, the consolidated financial statements included in
SOS Staffing Services,  Inc. Form 10-K, and have issued our report thereon dated
February 8, 2002.  Our audits were made for the purpose of forming an opinion on
those  statements  taken as a whole.  The  schedule  listed in Item 14(d) is the
responsibility  of the Company's  management and is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements.  The schedule has been subjected to the auditing
procedures  applied in the audit of the basic  financial  statements and, in our
opinion,  fairly states in all material  respects the financial data required to
be set forth therein in relation to the basic  financial  statements  taken as a
whole.




/s/ARTHUR ANDERSEN LLP
   -----------------------
   ARTHUR ANDERSEN LLP
   Salt Lake City, Utah
   February 8, 2002














                                       49
<PAGE>



                           SOS STAFFING SERVICES, INC.
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                 (In Thousands)
<TABLE>
<CAPTION>

ALLOWANCE FOR DOUBTFUL ACCOUNTS

                                   Balance at    Charged to bad                     Deductions
                                  beginning of    debt expense                     (Write off of  Balance at end
                                     period                           Other         bad debts)       of period
                                 ---------------------------------------------------------------------------------
<S>                                 <C>             <C>             <C>              <C>             <C>
December 30, 2001-------------       $   2,916       $   1,462       $      --        $  (2,111)      $   2,267
December 31, 2000-------------           1,606           2,618              --           (1,308)          2,916
January 2, 2000---------------             762           2,385              --           (1,541)          1,606


ALLOWANCE FOR NOTES RECEIVABLE

                                   Charged to
                                   Balance at         other
                                  beginning of    non-operating                                   Balance at end
                                     period          expense          Other         Deductions       of period
                                 ---------------------------------------------------------------------------------
December 30, 2001-------------       $     500       $   3,415       $      --        $  (3,415)      $     500
December 31, 2000-------------              --             500              --               --             500


RESERVES FOR COSTS OF DISCONTINUING OPERATIONS

                                                   Charged to
                                   Balance at       loss from
                                  beginning of    discontinued                                    Balance at end
                                     period        operations         Other         Deductions       of period
                                 ---------------------------------------------------------------------------------
December 30, 2001-------------       $   1,991       $   1,779       $      --        $  (2,065)      $   1,705
December 31, 2000-------------              --           1,991              --               --           1,991

RESERVES FOR RESTRUCTURING COSTS

                                   Balance at
                                  beginning of     Charged to                                     Balance at end
                                     period        operations         Other         Deductions       of period
                                 ---------------------------------------------------------------------------------
December 30, 2001-------------       $      --     $    1,334        $      --      $      (773)    $       561

</TABLE>



                                       50
<PAGE>



                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereto duly authorized.

                                              SOS STAFFING SERVICES, INC.

Date:    April 15, 2002                       By: /s/ Kevin Hardy
                                                  -------------------------
                                                  Kevin Hardy
                                                  Senior Vice President and
                                                  Chief Financial Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.

Name                        Title                            Date

/s/ JoAnn W. Wagner         Chairman of the Board and        April 15, 2002
------------------------    Chief Executive Officer
JoAnn W. Wagner             (principal executive officer)


/s/ Kevin Hardy             Senior Vice  President
------------------------    and Chief  Financial             April 15, 2002
Kevin Hardy                 Officer
                            (principal accounting officer)

/s/ Thomas K. Sansom        Director and                     April 15, 2002
------------------------     Senior Vice President
Thomas K. Sansom

/s/ Stanley R. deWaal       Director                         April 15, 2002
------------------------
Stanley R. deWaal

/s/ Jack A. Henry           Director                         April 15, 2002
------------------------
Jack A. Henry

/s/ R. Thayne Robson        Director                         April 15, 2002
------------------------
R. Thayne Robson

/s/ Randolph K. Rolf        Director                         April 15, 2002
------------------------
Randolph K. Rolf

/s/ Brad L. Stewart         Director                         April 15, 2002
------------------------
Brad L. Stewart






                                       51
<PAGE>



               SUBSIDIARY COMPANIES OF SOS STAFFING SERVICES, INC.

                               Name of Subsidiary      State of Incorporation
                               ------------------      ----------------------

Devon & Devon Personnel Services, Inc.------------     California
Inteliant Corporation-----------------------------     Delaware
ServCom Staff Management, Inc.--------------------
                                                       Utah
SOS Collection Services, Inc.---------------------     Arizona




                                       52
<PAGE>



                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


As independent public accountants, we hereby consent to the incorporation of our
reports  included  in this  Form  10-K,  into  the  Company's  previously  filed
Registration Statements on Form S-8, File Nos. 33-96362 and 333-1422.





/s/ARTHUR ANDERSEN LLP
---------------------------
   ARTHUR ANDERSEN LLP

   Salt Lake City, Utah
   April 15, 2002







                                       53
<PAGE>