##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

|                                             |  |                                                                                         
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------
|[X]                                          |  | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
|                                             |  |                                                                                         
|For the quarterly period ended June 30, 2002
|                                             |  |                                                                                         
|OR                                          
|                                             |  |                                                                                         
|[   ]                                        |  | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________to____________

Commission File Number 001-13956

PERSONNEL GROUP OF AMERICA, INC.
(Exact name of registrant as specified in its charter)

|                                         |  |                    
|---------------------------------------- |  | -------------------
|Delaware                                 |  | 56-1930691         
|                                         |  |                    
|(State or other jurisdiction of          |  | (IRS Employer      
|incorporation or organization)           |  | Identification No.)
|                                         |  |                    
|Five LakePointe Plaza, 2nd Floor         |  |                    
|2709 Water Ridge Parkway                 |  |                    
|Charlotte, NC                            |  | 28217              
|                                         |  |                    
|(Address of principal executive offices) |  | (Zip Code)         

(704) 442-5100
(Registrants telephone number including area code)

None
(Former name, former address and former fiscal year, if changed since last report)

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.

[X]   Yes     
        [   ]   No

As of July 29, 2002, there were 26,741,857 shares of outstanding common stock,
par value $.01 per share.





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PERSONNEL GROUP OF AMERICA, INC.
TABLE OF CONTENTS

|                                                                                                |                                                      |  |      |   | 
|----------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  | ---- | - | 
|                                                                                                |                                                      |  | Page
|                                                                                                |                                                      |  |     
|PART I  FINANCIAL INFORMATION                                                                  |                                                      |  |      |  
|Item 1.   Financial Statements (unaudited)                                                      |                                                      |  |      |  
|                                                                                                | Unaudited Consolidated Statements of Operations      |  |      | 3 | 
|                                                                                                | Unaudited Consolidated Balance Sheets                |  |      | 4 | 
|                                                                                                | Unaudited Consolidated Statements of Cash Flows      |  |      | 5 | 
|                                                                                                | Notes to Unaudited Consolidated Financial Statements |  |      | 6 | 
|Item 2.   Managements Discussion and Analysis of
Financial Condition and Results of Operations |                                                      |  | 12   |  
|Item 3.   Quantitative and Qualitative Disclosures
About Market Risk                            |                                                      |  | 20   |  
|PART II  OTHER INFORMATION                                                                     |                                                      |  |      |  
|Item 4.   Submission of Matters to Vote of Security Holders                                     |                                                      |  | 20   |  
|Item 6.   Exhibits and Reports on Form 8-K                                                      |                                                      |  | 21   |  
|Signatures                                                                                      |                                                      |  | 22   |  
|Exhibit Index                                                                                   |                                                      |  | 23   |  

2



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##### 



PERSONNEL GROUP OF AMERICA, INC.

Unaudited Consolidated Statements of Operations


For the periods ended June 30, 2002 and July 1, 2001
(in thousands, except per share data)


|                                                                                 |                                                               |   |                    |        |                  |   |          |        |         |   |          |        |   |   |         |        | 
|-------------------------------------------------------------------------------- | ------------------------------------------------------------- | - | ------------------ | ------ | ---------------- | - | -------- | ------ | ------- | - | -------- | ------ | - | - | ------- | ------ | 
|                                                                                 |                                                               |   | Three Months Ended |        | Six Months Ended
|                                                                                 |                                                               |   |                    |        |                 
|                                                                                 |                                                               |   | June 30,           |        | July 1,          |   | June 30, |        | July 1,
|                                                                                 |                                                               |   | 2002               |        | 2001             |   | 2002     |        | 2001   
|                                                                                 |                                                               |   |                    |        |                  |   |          |        |        
|Revenues                                                                         |                                                               | $ | 141,732            |        |                  | $ | 194,370  |        |         | $ | 283,785  |        |   | $ | 403,993 |       
|Direct costs of services                                                         |                                                               |   | 108,383            |        |                  |   | 142,427  |        |         |   | 216,675  |        |   |   | 295,301 |       
|                                                                                 |                                                               |   |                    |        |                  |   |          |        |         |   |          |        |   |   |         |       
|Gross profit                                                                     |                                                               |   | 33,349             |        |                  |   | 51,943   |        |         |   | 67,110   |        |   |   | 108,692 |       
|Operating expenses:                                                              |                                                               |   |                    |        |                  |   |          |        |         |   |          |        |   |   |         |       
|                                                                                 | Selling, general and administrative                           |   |                    | 29,151 |                  |   |          | 40,202 |         |   |          | 59,204 |   |   |         | 83,788 | 
|                                                                                 | Depreciation and amortization                                 |   |                    | 1,718  |                  |   |          | 6,071  |         |   |          | 3,558  |   |   |         | 12,139 | 
|                                                                                 | Restructuring and rationalization charges                     |   |                    | 1,472  |                  |   |          | 3,913  |         |   |          | 1,845  |   |   |         | 4,359  | 
|                                                                                 |                                                               |   |                    |        |                  |   |          |        |         |   |          |        |   |   |         |       
|Operating income                                                                 |                                                               |   | 1,008              |        |                  |   | 1,757    |        |         |   | 2,503    |        |   |   | 8,406   |       
|Interest expense                                                                 |                                                               |   | 4,409              |        |                  |   | 5,077    |        |         |   | 8,697    |        |   |   | 9,828   |       
|                                                                                 |                                                               |   |                    |        |                  |   |          |        |         |   |          |        |   |   |         |       
|Loss
before income taxes and cumulative effect of change in accounting
principle |                                                               |   | (3,401             | )      |                  |   | (3,320   | )      |         |   | (6,194   | )      |   |   | (1,422  | )     
|Provision (benefit) for income taxes                                             |                                                               |   | (680               | )      |                  |   | (2,261   | )      |         |   | 3,662    |        |   |   | (1,293  | )     
|                                                                                 |                                                               |   |                    |        |                  |   |          |        |         |   |          |        |   |   |         |       
|Loss before cumulative effect of change in accounting principle                  |                                                               |   | (2,721             | )      |                  |   | (1,059   | )      |         |   | (9,856   | )      |   |   | (129    | )     
|Cumulative effect of change in accounting principle, net of taxes                |                                                               |   |                   |        |                  |   |         |        |         |   | (242,497 | )      |   |   |        |       
|                                                                                 |                                                               |   |                    |        |                  |   |          |        |         |   |          |        |   |   |         |       
|Net loss                                                                         |                                                               | $ | (2,721             | )      |                  | $ | (1,059   | )      |         | $ | (252,353 | )      |   | $ | (129    | )     
|                                                                                 |                                                               |   |                    |        |                  |   |          |        |         |   |          |        |   |   |         |       
|Basic and diluted earnings per common share:                                     |                                                               |   |                    |        |                  |   |          |        |         |   |          |        |   |   |         |       
|                                                                                 | Income (loss) from continuing operations                      |   | $                  | (0.10  | )                |   | $        | (0.04  | )       |   | $        | (0.37  | ) |   | $       |       | 
|                                                                                 | Loss from cumulative effect of change in accounting principle |   |                    |       |                  |   |          |       |         |   |          | (9.08  | ) |   |         |       | 
|                                                                                 |                                                               |   |                    |        |                  |   |          |        |         |   |          |        |   |   |         |       
|                                                                                 | Net loss                                                      |   | $                  | (0.10  | )                |   | $        | (0.04  | )       |   | $        | (9.45  | ) |   | $       |       | 
|                                                                                 |                                                               |   |                    |        |                  |   |          |        |         |   |          |        |   |   |         |       

The accompanying notes are an integral part of these balance sheets.

3



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##### 



PERSONNEL GROUP OF AMERICA, INC.

Unaudited Consolidated Balance Sheets


June 30, 2002 and December 30, 2001
(in thousands, except per share data)


|                                     |                                                                                                                  |                                            |         |          |         |              |         |         |         | 
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | -------- | ------- | ------------ | ------- | ------- | ------- | 
|                                     |                                                                                                                  |                                            |         | June 30, |         | December 30,
|                                     |                                                                                                                  |                                            |         | 2002     |         | 2001        
|                                     |                                                                                                                  |                                            |         |          |         |             
|Assets                               |                                                                                                                  |                                            |         |          |         |              |         |        
|Current Assets:                      |                                                                                                                  |                                            |         |          |         |              |         |        
|                                     | Cash and cash equivalents                                                                                        |                                            | $       | 25,280   |         |              | $       | 17,557  |        
|                                     | Accounts receivable, net                                                                                         |                                            |         | 86,122   |         |              |         | 87,088  |        
|                                     | Prepaid expenses and other current assets                                                                        |                                            |         | 3,742    |         |              |         | 7,975   |        
|                                     | Recoverable income taxes                                                                                         |                                            |         | 7,169    |         |              |         | 6,470   |        
|                                     | Deferred income taxes                                                                                            |                                            |         | 1,573    |         |              |         | 11,896  |        
|                                     |                                                                                                                  |                                            |         |          |         |              |         |        
|                                     |                                                                                                                  | Total current assets                       |         |          | 123,886 |              |         |         | 130,986 | 
|Property and equipment, net          |                                                                                                                  |                                            | 15,576  |          |         |              | 18,061  |        
|Intangible assets, net               |                                                                                                                  |                                            | 193,892 |          |         |              | 478,836 |        
|Other assets                         |                                                                                                                  |                                            | 3,699   |          |         |              | 2,705   |        
|                                     |                                                                                                                  |                                            |         |          |         |              |         |        
|                                     |                                                                                                                  | Total assets                               |         | $        | 337,053 |              |         | $       | 630,588 | 
|                                     |                                                                                                                  |                                            |         |          |         |              |         |        
|Liabilities and Shareholders Equity |                                                                                                                  |                                            |         |          |         |              |         |        
|Current liabilities:                 |                                                                                                                  |                                            |         |          |         |              |         |        
|                                     | Current portion of long-term debt                                                                                |                                            | $       | 410      |         |              | $       | 882     |        
|                                     | Accounts payable                                                                                                 |                                            |         | 10,535   |         |              |         | 9,598   |        
|                                     | Accrued wages, benefits and other                                                                                |                                            |         | 49,417   |         |              |         | 48,265  |        
|                                     |                                                                                                                  |                                            |         |          |         |              |         |        
|                                     |                                                                                                                  | Total current liabilities                  |         |          | 60,362  |              |         |         | 58,745  | 
|                                     | Long-term debt                                                                                                   |                                            |         | 219,700  |         |              |         | 234,000 |        
|                                     | Other long-term liabilities                                                                                      |                                            |         | 11,194   |         |              |         | 39,750  |        
|                                     |                                                                                                                  |                                            |         |          |         |              |         |        
|                                     |                                                                                                                  | Total liabilities                          |         |          | 291,256 |              |         |         | 332,495 | 
|Commitments and contingencies        |                                                                                                                  |                                            |         |          |         |              |         |        
|Shareholders equity:                |                                                                                                                  |                                            |         |          |         |              |         |        
|                                     | Preferred stock, $.01 par value; shares authorized 5,000;
no shares issued and outstanding                       |                                            |         |         |         |              |         |        |        
|                                     | Common stock, $.01 par value; shares authorized 95,000;
33,065 shares issued and outstanding                     |                                            |         | 331      |         |              |         | 331     |        
|                                     | Additional paid-in capital                                                                                       |                                            |         | 316,399  |         |              |         | 316,694 |        
|                                     | Retained earnings (accumulated deficit)                                                                          |                                            |         | (226,370 | )       |              |         | 25,983  |        
|                                     |                                                                                                                  |                                            |         |          |         |              |         |        
|                                     |                                                                                                                  |                                            | 90,360  |          |         |              | 343,008 |        
|                                     | Less common stock held in treasury at cost -
6,323 shares at June 30, 2002 and 6,371 shares at December 30, 2001 |                                            |         | (44,563  | )       |              |         | (44,915 | )      
|                                     |                                                                                                                  |                                            |         |          |         |              |         |        
|                                     |                                                                                                                  | Total shareholders equity                 |         |          | 45,797  |              |         |         | 298,093 | 
|                                     |                                                                                                                  |                                            |         |          |         |              |         |        
|                                     |                                                                                                                  | Total liabilities and shareholders equity |         | $        | 337,053 |              |         | $       | 630,588 | 
|                                     |                                                                                                                  |                                            |         |          |         |              |         |        

The accompanying notes are an integral part of these balance sheets.

4



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PERSONNEL GROUP OF AMERICA, INC.

Unaudited Consolidated Statements of Cash Flows


For the periods ended June 30, 2002 and July 1, 2001
(In thousands)


|                                                     |                                                                             |                                                                                                                                                            |                                                     |                                           |         |          |        |         |        |         |        | 
|---------------------------------------------------- | --------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ----------------------------------------- | ------- | -------- | ------ | ------- | ------ | ------- | ------ | 
|                                                     |                                                                             |                                                                                                                                                            |                                                     |                                           |         | June 30, |        | July 1,
|                                                     |                                                                             |                                                                                                                                                            |                                                     |                                           |         | 2002     |        | 2001   
|                                                     |                                                                             |                                                                                                                                                            |                                                     |                                           |         |          |        |        
|Cash flows from operating activities:                |                                                                             |                                                                                                                                                            |                                                     |                                           |         |          |        |        
|                                                     | Net loss                                                                    |                                                                                                                                                            | $                                                   | (252,353                                  | )       |          | $      | (129    | )     
|                                                     | Adjustments to reconcile loss to net cash provided
by operating activities: |                                                                                                                                                            |                                                     |                                           |         |          |        |         |       
|                                                     |                                                                             | Depreciation and amortization                                                                                                                              |                                                     |                                           | 3,558   |          |        |         | 12,139 |        
|                                                     |                                                                             | Cumulative effect of change in accounting principle, net of deferred tax benefit of $42,198                                                                |                                                     |                                           | 242,497 |          |        |         |       |        
|                                                     |                                                                             | Loss on abandonment and disposals                                                                                                                          |                                                     |                                           |        |          |        |         | 950    |        
|                                                     |                                                                             | Deferred income taxes on income before cumulative effect of change in accounting principle, net
(including $19,217 of income tax refunds received in 2002) |                                                     |                                           | 23,675  |          |        |         | 329    |        
|                                                     |                                                                             | Changes in assets and liabilities:                                                                                                                         |                                                     |                                           |         |          |        |         |        |        
|                                                     |                                                                             |                                                                                                                                                            | Accounts receivable                                 |                                           |         | 966      |        |         |        | 11,366  |       
|                                                     |                                                                             |                                                                                                                                                            | Accounts payable and accrued liabilities            |                                           |         | 2,554    |        |         |        | (8,560  | )     
|                                                     |                                                                             |                                                                                                                                                            | Other, net                                          |                                           |         | 197      |        |         |        | 4,190   |       
|                                                     |                                                                             |                                                                                                                                                            |                                                     |                                           |         |          |        |        
|                                                     |                                                                             |                                                                                                                                                            |                                                     | Net cash provided by operating activities |         |          | 21,094 |         |        |         | 20,285 | 
|Cash flows from investing activities:                |                                                                             |                                                                                                                                                            |                                                     |                                           |         |          |        |        
|                                                     | Proceeds from sale of business                                              |                                                                                                                                                            |                                                     | 3,825                                     |         |          |        |        |       
|                                                     | Acquisition-related payments                                                |                                                                                                                                                            |                                                     |                                          |         |          |        | (6,575  | )     
|                                                     | Purchase of property and equipment, net                                     |                                                                                                                                                            |                                                     | (824                                      | )       |          |        | (1,590  | )     
|                                                     |                                                                             |                                                                                                                                                            |                                                     |                                           |         |          |        |        
|                                                     |                                                                             |                                                                                                                                                            | Net cash provided by (used in) investing activities |                                           |         | 3,001    |        |         |        | (8,165  | )     
|Cash flows from financing activities:                |                                                                             |                                                                                                                                                            |                                                     |                                           |         |          |        |        
|                                                     | Repayments under credit facility                                            |                                                                                                                                                            |                                                     | (19,300                                   | )       |          |        | (24,000 | )     
|                                                     | Borrowings under credit facility                                            |                                                                                                                                                            |                                                     | 5,000                                     |         |          |        | 12,000  |       
|                                                     | Credit facility amendment fees                                              |                                                                                                                                                            |                                                     | (1,657                                    | )       |          |        | (1,227  | )     
|                                                     | Repayments of other debt, net                                               |                                                                                                                                                            |                                                     | (472                                      | )       |          |        | (297    | )     
|                                                     | Proceeds from employee stock purchase plan                                  |                                                                                                                                                            |                                                     | 57                                        |         |          |        | 406     |       
|                                                     |                                                                             |                                                                                                                                                            |                                                     |                                           |         |          |        |        
|                                                     |                                                                             |                                                                                                                                                            | Net cash used in financing activities               |                                           |         | (16,372  | )      |         |        | (13,118 | )     
|                                                     |                                                                             |                                                                                                                                                            |                                                     |                                           |         |          |        |        
|Net increase (decrease) in cash and cash equivalents |                                                                             |                                                                                                                                                            | 7,723                                               |                                           |         |          | (998   | )      
|Cash and cash equivalents at beginning of period     |                                                                             |                                                                                                                                                            | 17,557                                              |                                           |         |          | 6,233  |        
|                                                     |                                                                             |                                                                                                                                                            |                                                     |                                           |         |          |        |        
|Cash and cash equivalents at end of period           |                                                                             | $                                                                                                                                                          | 25,280                                              |                                           |         | $        | 5,235  |        
|                                                     |                                                                             |                                                                                                                                                            |                                                     |                                           |         |          |        |        

The accompanying notes are an integral part of these balance sheets.

5



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PERSONNEL GROUP OF AMERICA, INC.

Notes to Unaudited Consolidated Financial Statements


(Dollars in thousands, except per share data)




|(1) |  | General
|--- |  | -------

The unaudited consolidated financial statements included herein have been
prepared in accordance with the instructions to Form 10-Q and do not include
all the information and footnotes required by generally accepted accounting
principles; however, they do include all adjustments of a normal recurring
nature that, in the opinion of management, are necessary to present fairly the
results of operations of the Company for the interim periods presented. These
interim financial statements should be read in conjunction with the Companys
audited consolidated financial statements and related notes included in the
Companys Annual Report on Form 10-K for the year ended December 30, 2001. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.

The Company has adopted Statement of Financial Accounting Standards No.
142 (SFAS 142), Goodwill and Other Intangible Assets, as of the beginning of
2002. As permitted by SFAS 142, the Company completed its impairment
analysis during the second quarter and has restated the first quarter
results to record the intangibles
impairment as a cumulative effect of the change in accounting principle as of
the beginning of the year, see Note 2, Intangible Assets and Change in
Accounting Principle. Additionally, the Company has restated its first
quarter results to increase the loss before cumulative effect of change in
accounting principle due to an adjustment to the provision for income taxes of
$5,222, or $0.20 per share. This adjustment, which was also required as a result of
adopting SFAS 142, reduced deferred tax assets due to the
establishment of a valuation allowance against certain deferred tax
assets, but had no effect on the Companys cash flows. The impact of
these restatements on the Companys first quarter operating results is
shown below:

|                                                                                 |                                                               |   |          |       |          |   |          |       |  
|-------------------------------------------------------------------------------- | ------------------------------------------------------------- | - | -------- | ----- | -------- | - | -------- | ----- | -
|                                                                                 |                                                               |   | As       |       | As      
|                                                                                 |                                                               |   | Reported |       | Adjusted
|                                                                                 |                                                               |   |          |       |         
|Loss
before income taxes and cumulative effect of change in accounting
principle |                                                               | $ | (2,792   | )     |          | $ | (2,792   | )    
|Provision
(benefit) for income taxes                                             |                                                               |   | (880     | )     |          |   | 4,342    |      
|                                                                                 |                                                               |   |          |       |          |   |          |      
|Loss
before cumulative effect of change in accounting principle                  |                                                               |   | (1,912   | )     |          |   | (7,134   | )    
|Cumulative effect of change in accounting principle                              |                                                               |   |         |       |          |   | (242,497 | )    
|                                                                                 |                                                               |   |          |       |          |   |          |      
|Net
loss                                                                         |                                                               | $ | (1,912   | )     |          | $ | (249,631 | )    
|                                                                                 |                                                               |   |          |       |          |   |          |      
|Basic
and diluted earnings per common share:                                    
|                                                                                 | Income
(loss) from continuing operations                      |   | $        | (0.07 | )        |   | $        | (0.27 | )
|                                                                                 | Loss
from cumulative effect of change in accounting principle |   |          |      |          |   |          | (9.08 | )
|                                                                                 |                                                               |   |          |       |          |   |          |      
|                                                                                 | Net
loss                                                      |   | $        | (0.07 | )        |   | $        | (9.35 | )
|                                                                                 |                                                               |   |          |       |          |   |          |      

Debt Compliance

The Company experienced declines in operating results for the year ended
December 30, 2001 and the first half of 2002 as compared in each case to prior
year due to the weak economic environment. In response to the deterioration in
operating performance, the Company undertook several initiatives beginning in
2001, including the following:



| |  |  | A number of restructuring actions, including a permanent workforce
reduction of approximately 36% and office space rationalization
efforts. Management expects further headcount and infrastructure
rationalization over the balance of 2002;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | The divesture of an under-performing business on December 31, 2001;                                                                                                                                                                          
| |  |  | An amendment to its revolving credit facility extending the
facilitys maturity to January 2003, with additional extensions to
January 2004 assuming certain conditions are met; and                                                         
| |  |  | A concerted effort to reduce accounts receivable, which resulted in
substantial cash flow that was used to reduce debt.                                                                                                                      

The Companys ability to continue operating is largely dependent upon its
ability to maintain compliance with the financial covenants in the Companys
amended revolving credit facility (the Credit Facility). The Company was
able to maintain compliance with its Credit Facility as of December 30, 2001
after obtaining a waiver in December 2001 of an anticipated default under
certain financial ratios for the fourth quarter of 2001. The Credit Facility
was then amended in February and March 2002, with modification of the financial
covenants to reflect the weak economic environment beginning with the fourth
quarter of 2001 and extending through the new maturity date of the Credit
Facility, January 2003 (with extensions to January 2004 assuming certain
conditions are met). As a result of these amendments, the Credit Facility,
which had an outstanding balance of $104,700 at June 30, 2002, is classified as
long-term in the consolidated balance sheet. For further discussion of the
Companys Credit Facility and debt compliance matters, see Managements
Discussion and Analysis of Financial Condition and Results of
OperationsLiquidity and Capital Resources.

6



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##### 





|(2) |  | Intangible Assets and Change in Accounting Principle
|--- |  | ----------------------------------------------------

Intangible assets are principally comprised of goodwill. The Companys
businesses have been acquired from unrelated third parties for cash and other
consideration and have been accounted for using the purchase method of
accounting. The assets and liabilities of the entities acquired were recorded
at their estimated fair values at the dates of the acquisitions. Excess of
cost over fair value of net assets acquired resulting from such acquisitions
has been recorded at historical cost. Other intangible assets consist mainly
of covenants not to compete.

Effective at the beginning of 2002, the Company adopted SFAS 142. The
provisions of SFAS 142 prohibit the amortization of goodwill for
indefinite-lived intangible assets and require that goodwill and
indefinite-lived intangibles assets be tested annually for impairment. In
order to assess the fair value of its goodwill as of the adoption date, the
Company engaged an independent valuation firm to assist in determining the fair
value. The fair value of each of the Companys two reporting units was
calculated as of December 31, 2001, on an enterprise value basis using the
following approaches: (i) market multiple approach and (ii) discounted cash
flow approach. Under the market multiple approach, market ratios and
performance fundamentals relating to similar public companies stock prices or
enterprise values were applied to the reporting units to determine their
enterprise value. Under the discounted cash flow (DCF) approach, the
indicated enterprise value was determined using the present value of the
projected future cash flows to be generated considering appropriate discount
rates. The discount rates used in the calculation reflected all associated
risks of realizing the projected future cash flows. Certain of the valuation
assumptions are based on managements expectations for future performance of
the IT Services and Commercial Staffing reporting units. These assumptions
include expected time frame of technology spending and broader economic
recoveries as well as future growth rates in the IT Services and Commercial
Staffing businesses. A relatively high discount rate of 17% was utilized in
the discounted cash flow valuation approach due principally to the inherent
uncertainties associated with these assumptions. While current year to date
performance and outlook is generally consistent with the assumptions used in
the valuation, any significant adverse changes would likely result in further
impairment of the Companys intangible assets. Based upon the results of the
valuation, which was completed in the second quarter, the Company recorded an
intangibles impairment charge of $284,695 ($242,497 net of an income tax
benefit of $42,198) as a cumulative effect of the change in accounting
principle. A reconciliation of intangible assets from December 30, 2001 to
June 30, 2002 is as follows:

|                                                 |  |             |          |          |  |            |         |   |  |   |          |  
|------------------------------------------------ |  | ----------- | -------- | -------- |  | ---------- | ------- | - |  | - | -------- | -
|                                                 |  |             |          |          |  | Commercial |         |   |  |  
|                                                 |  | IT Services |          | Staffing |  |            |         |  
|                                                 |  | Division    |          | Division |  | Total     
|                                                 |  |             |          |          |  |           
|Balance, December 30, 2001                       |  | $           | 377,045  |          |  | $          | 101,791 |   |  | $ | 478,836  |  
|Impairment loss resulting from SFAS 142 adoption |  |             | (245,373 | )        |  |            | (39,322 | ) |  |   | (284,695 | )
|Amortization of finite-lived intangible assets   |  |             | (182     | )        |  |            | (67     | ) |  |   | (249     | )
|                                                 |  |             |          |          |  |            |         |   |  |   |          |  
|Balance, June 30, 2002                           |  | $           | 131,490  |          |  | $          | 62,402  |   |  | $ | 193,892  |  
|                                                 |  |             |          |          |  |            |         |   |  |   |          |  

7



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##### 



The following table sets forth a reconciliation of net loss and earnings
per share information for the periods ended June 30, 2002 and July 1, 2001,
adjusted for the non-amortization provisions of SFAS 142:

|                                                                         |                                                                          |   |                    |       |                  |   |          |       |         |   |          |       |   |   |       |      | 
|------------------------------------------------------------------------ | ------------------------------------------------------------------------ | - | ------------------ | ----- | ---------------- | - | -------- | ----- | ------- | - | -------- | ----- | - | - | ----- | ---- | 
|                                                                         |                                                                          |   | Three Months Ended |       | Six Months Ended
|                                                                         |                                                                          |   |                    |       |                 
|                                                                         |                                                                          |   | June 30,           |       | July 1,          |   | June 30, |       | July 1,
|                                                                         |                                                                          |   | 2002               |       | 2001             |   | 2002     |       | 2001   
|                                                                         |                                                                          |   |                    |       |                  |   |          |       |        
|Net loss before cumulative effect of
accounting change, as reported      |                                                                          | $ | (2,721             | )     |                  | $ | (1,059   | )     |         | $ | (9,856   | )     |   | $ | (129  | )   
|Add: Goodwill amortization, net of tax                                   |                                                                          |   |                   |       |                  |   | 2,836    |       |         |   |         |       |   |   | 5,681 |     
|                                                                         |                                                                          |   |                    |       |                  |   |          |       |         |   |          |       |   |   |       |     
|Adjusted net income (loss) before
cumulative effect of accounting change |                                                                          |   | (2,721             | )     |                  |   | 1,777    |       |         |   | (9,856   | )     |   |   | 5,552 |     
|Cumulative effect of accounting
change, net of tax                       |                                                                          |   |                   |       |                  |   |         |       |         |   | (242,497 | )     |   |   |      |     
|                                                                         |                                                                          |   |                    |       |                  |   |          |       |         |   |          |       |   |   |       |     
|Adjusted net income (loss)                                               |                                                                          | $ | (2,721             | )     |                  | $ | 1,777    |       |         | $ | (252,353 | )     |   | $ | 5,552 |     
|                                                                         |                                                                          |   |                    |       |                  |   |          |       |         |   |          |       |   |   |       |     
|Basic
and diluted earnings per share:                                   
|                                                                         | Net loss before cumulative effect of
accounting change, as reported      |   | $                  | (0.10 | )                |   | $        | (0.04 | )       |   | $        | (0.37 | ) |   | $     |     | 
|                                                                         | Add: Goodwill amortization, net of
tax                                   |   |                    |      |                  |   |          | 0.11  |         |   |          |      |   |   |       | 0.21 | 
|                                                                         |                                                                          |   |                    |       |                  |   |          |       |         |   |          |       |   |   |       |     
|                                                                         | Adjusted net income (loss) before
cumulative effect of accounting
change |   | $                  | (0.10 | )                |   | $        | 0.07  |         |   | $        | (0.37 | ) |   | $     | 0.21 | 
|                                                                         | Cumulative effect of accounting
change, net of tax                       |   |                    |      |                  |   |          |      |         |   |          | (9.08 | ) |   |       |     | 
|                                                                         |                                                                          |   |                    |       |                  |   |          |       |         |   |          |       |   |   |       |     
|                                                                         | Adjusted net income                                                      |   | $                  | (0.10 | )                |   | $        | 0.07  |         |   | $        | (9.45 | ) |   | $     | 0.21 | 
|                                                                         |                                                                          |   |                    |       |                  |   |          |       |         |   |          |       |   |   |       |     



|(3) |  | Long-term Debt
|--- |  | --------------

Long-term debt consisted of the following at June 30, 2002 and December
30, 2001:

|                                                                  |                      |   |          |     |              |   |         |     | 
|----------------------------------------------------------------- | -------------------- | - | -------- | --- | ------------ | - | ------- | --- | 
|                                                                  |                      |   | June 30, |     | December 30,
|                                                                  |                      |   | 2002     |     | 2001        
|                                                                  |                      |   |          |     |             
|5-3/4% Convertible Subordinated Notes
due July 2004 (the Notes) |                      | $ | 115,000  |     |              | $ | 115,000 |    
|Bank revolving credit facility                                    |                      |   | 104,700  |     |              |   | 119,000 |    
|Other                                                             |                      |   | 410      |     |              |   | 882     |    
|                                                                  |                      |   |          |     |              |   |         |    
|                                                                  |                      |   | 220,110  |     |              |   | 234,882 |    
|                                                                  | Less current portion |   |          | 410 |              |   |         | 882 | 
|                                                                  |                      |   |          |     |              |   |         |    
|                                                                  |                      | $ | 219,700  |     |              | $ | 234,000 |    
|                                                                  |                      |   |          |     |              |   |         |    

The Companys 5-3/4% Convertible Subordinated Notes (the Notes) are due
July 2004. Interest on the Notes is payable semi-annually. The Notes are
convertible into Common Stock of the Company at any time before maturity at an
initial conversion price of $17.81 per share. Beginning in July 2000, the
Company was permitted to redeem the Notes initially at 103.29% and at
decreasing prices thereafter to 100% at maturity, in each case together with
accrued interest. The Notes are subordinated to all present and future senior
indebtedness of the Company (as defined), including indebtedness under the
Companys Credit Facility.

The Credit Facility was amended in February and March 2002 to provide for
a $136,000 revolving line of credit due January 2003. Assuming the Company is
in compliance with the financial covenants set forth in the agreement and the
payment of an extension fee, the Company at its option may further extend the
maturity of the facility in six-month increments up through January 2004. As a
result of these amendments, the outstanding balance under the Credit Facility,

8



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##### 



which was $104,700 at June 30, 2002, is classified as long-term in the
consolidated balance sheet.
The amended Credit Facility contains customary covenants that require
quarterly maintenance of certain financial ratios, minimum tangible net worth
and a restriction on the payment of cash dividends on the Common Stock. It
also places additional limitations on share repurchases, acquisitions and
capital expenditures and includes an Equity Appreciation Rights agreement (the
EAR) whereby the Company must pay a fee (the Rights Fee) to the lenders in
the event of default under the Credit Facility or if the Credit Facility has
not been paid in full by January 1, 2004. The Rights Fee is the greater of 10%
of the fair market value of the Company (as defined in the EAR) as of the
exercise date of the EAR or $3,000. Interest rates payable under the amended
Credit Facility are currently set at prime plus 250 basis points through
December 2002, with increases during each six-month period thereafter through
January 2004.

The principal financial covenants in the Credit Facility are highly
dependent upon the Companys EBITDA levels, as measured at each quarter end on
a rolling four-quarter basis, and include an interest coverage ratio and a
leverage ratio. The amended Credit Facility provides for certain adjustments
that increase EBITDA, including certain restructuring and rationalization
charges and certain other charges. The adjusted EBITDA for the trailing four
quarters ended June 30, 2002 were $8,817, $6,800, $3,709 and $4,198,
respectively. In addition to the quarterly covenants, the amended agreement
includes EBITDA and liquidity requirements to be measured based on the
six-month periods ending November 2002 and May 2003. The Company believes its
margin for compliance throughout 2002 is at its lowest level for the November
2002 EBITDA covenant. In order to stay in compliance with this covenant, the
Company will need to generate adjusted EBITDA of at least $7,207 for the
six-month period ending November 2002.

Based on the Companys fiscal 2002 projections, which reflect the
declining demand for the Companys services, offset by reductions in costs
principally resulting from reduced revenues and the Companys restructuring and
rationalization activities, management believes the Company will be able to
maintain compliance with the modified financial covenants for the remaining
term of the Credit Facility. The Company also believes that the operating
results in the first half of 2002 support the key assumptions in its 2002
operating plan. However, there can be no assurance that the economy or the
Company will perform as expected or that further economic declines will not
adversely impact the Companys ability to comply with its covenants. If actual
results of operations do not meet current forecasts, covenant violations could
occur. If the Company does violate covenants in the future, it would seek
further waivers and amendments from its lenders, but can give no assurance that
any such necessary waivers and amendments would be available at all or
otherwise on acceptable terms. If the Company were unable to obtain a waiver
of future covenant violations, the lenders would be entitled to require
immediate repayment of all amounts outstanding under the Credit Facility and,
as described above, payment of the Rights Fee. An acceleration of outstanding
amounts under the Credit Facility could also cause a default under, and permit
acceleration of, the Notes. In the event of one or more such defaults, the
Companys ongoing viability would be seriously threatened, and it would be
forced to evaluate a number of strategic alternatives, including a debt
restructuring or other reorganization, the closure of certain locations or the
sale of certain or all of its assets in order to continue to fund its
operations. In the current economic environment, management believes that
asset sales, if any, would be at depressed prices that could be significantly
lower than the net book value of assets sold and may not be sufficient to
satisfy the Companys liabilities.

9



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##### 





|(4) |  | Earnings Per Share
|--- |  | ------------------

The following table reconciles net income (loss) and weighted average
common shares outstanding to the amounts used to calculate basic and diluted
earnings per share for each of the periods ended June 30, 2002 and July 1,
2001:

|                            |                                                            |                                                    |                                                        |        |        |                    |   |                  |        |          |   |          |          |       |   |        |        |   |  | 
|--------------------------- | ---------------------------------------------------------- | -------------------------------------------------- | ------------------------------------------------------ | ------ | ------ | ------------------ | - | ---------------- | ------ | -------- | - | -------- | -------- | ----- | - | ------ | ------ | - |  | 
|                            |                                                            |                                                    |                                                        |        |        | Three Months Ended |   | Six Months Ended
|                            |                                                            |                                                    |                                                        |        |        |                    |   |                 
|                            |                                                            |                                                    |                                                        |        |        | June 30,           |   | July 1,          |        | June 30, |   | July 1, 
|                            |                                                            |                                                    |                                                        |        |        | 2002               |   | 2001             |        | 2002     |   | 2001    
|                            |                                                            |                                                    |                                                        |        |        |                    |   |                  |        |          |   |         
|Basic earnings per share:   |                                                            |                                                    |                                                        |        |        |                    |   |                  |        |          |   |          |          |       |   |       
|                            | Net loss before cumulative effect of accounting
change     |                                                    | $                                                      | (2,721 | )      |                    | $ | (1,059           | )      |          | $ | (9,856   | )        |       | $ | (129   | )     
|                            |                                                            | Cumulative effect of accounting change, net of tax |                                                        |        |       |                    |   |                  |       |          |   |          | (242,497 | )     |   |        |       |  
|                            |                                                            |                                                    |                                                        |        |        |                    |   |                  |        |          |   |          |          |       |   |       
|                            |                                                            | Net loss                                           |                                                        | $      | (2,721 | )                  |   | $                | (1,059 | )        |   | $        | (252,353 | )     |   | $      | (129   | )
|                            |                                                            |                                                    |                                                        |        |        |                    |   |                  |        |          |   |          |          |       |   |       
|                            |                                                            | Weighted average common shares outstanding         |                                                        |        | 26,728 |                    |   |                  | 26,540 |          |   |          | 26,716   |       |   |        | 26,362 |  
|                            |                                                            | Basic earnings per share:                          |                                                        |        |        |                    |   |                  |        |          |   |          |          |       |   |        |        |  
|                            |                                                            |                                                    | Net loss before cumulative effect of
accounting change |        | $      | (0.10              | ) |                  | $      | (0.04    | ) |          | $        | (0.37 | ) |        | $      |  | 
|                            |                                                            |                                                    | Cumulative effect of accounting change, net
of tax     |        |        |                   |   |                  |        |         |   |          |          | (9.08 | ) |        |        |  | 
|                            |                                                            |                                                    |                                                        |        |        |                    |   |                  |        |          |   |          |          |       |   |       
|                            |                                                            |                                                    | Basic earnings per share                               |        | $      | (0.10              | ) |                  | $      | (0.04    | ) |          | $        | (9.45 | ) |        | $      |  | 
|                            |                                                            |                                                    |                                                        |        |        |                    |   |                  |        |          |   |          |          |       |   |       
|Diluted earnings per share: |                                                            |                                                    |                                                        |        |        |                    |   |                  |        |          |   |          |          |       |   |       
|                            | Net loss before cumulative effect of accounting
change     |                                                    | $                                                      | (2,721 | )      |                    | $ | (1,059           | )      |          | $ | (9,856   | )        |       | $ | (129   | )     
|                            |                                                            |                                                    | Add: Interest expense on Notes, net of tax             |        |        |                   |   |                  |        |         |   |          |          |      |   |        |        |  | 
|                            |                                                            |                                                    |                                                        |        |        |                    |   |                  |        |          |   |          |          |       |   |       
|                            | Diluted loss before cumulative effect of
accounting change |                                                    | $                                                      | (2,721 | )      |                    | $ | (1,059           | )      |          | $ | (9,856   | )        |       | $ | (129   | )     
|                            | Cumulative effect of accounting change, net of tax         |                                                    |                                                        |       |        |                    |   |                 |        |          |   | (242,497 | )        |       |   |       |       
|                            |                                                            |                                                    |                                                        |        |        |                    |   |                  |        |          |   |          |          |       |   |       
|                            | Diluted net loss                                           |                                                    | $                                                      | (2,721 | )      |                    | $ | (1,059           | )      |          | $ | (252,353 | )        |       | $ | (129   | )     
|                            |                                                            |                                                    |                                                        |        |        |                    |   |                  |        |          |   |          |          |       |   |       
|                            | Weighted average common shares outstanding                 |                                                    |                                                        | 26,728 |        |                    |   | 26,540           |        |          |   | 26,716   |          |       |   | 26,362 |       
|                            |                                                            |                                                    | Add: Dilutive employee stock options                   |        |        |                   |   |                  |        |         |   |          |          |      |   |        |        |  | 
|                            |                                                            |                                                    | Add: Assumed conversion of Notes                       |        |        |                   |   |                  |        |         |   |          |          |      |   |        |        |  | 
|                            |                                                            |                                                    |                                                        |        |        |                    |   |                  |        |          |   |          |          |       |   |       
|                            | Diluted weighted average common shares
outstanding         |                                                    |                                                        | 26,728 |        |                    |   | 26,540           |        |          |   | 26,716   |          |       |   | 26,362 |       
|                            | Diluted earnings per share:                                |                                                    |                                                        |        |        |                    |   |                  |        |          |   |          |          |       |   |        |       
|                            | Net loss before cumulative effect of accounting
change     |                                                    | $                                                      | (0.10  | )      |                    | $ | (0.04            | )      |          | $ | (0.37    | )        |       | $ |       |       
|                            | Cumulative effect of accounting change, net of tax         |                                                    |                                                        |       |        |                    |   |                 |        |          |   | (9.08    | )        |       |   |       |       
|                            |                                                            |                                                    |                                                        |        |        |                    |   |                  |        |          |   |          |          |       |   |       
|                            | Diluted earnings per share                                 |                                                    | $                                                      | (0.10  | )      |                    | $ | (0.04            | )      |          | $ | (9.45    | )        |       | $ |       |       
|                            |                                                            |                                                    |                                                        |        |        |                    |   |                  |        |          |   |          |          |       |   |       

Stock options to purchase 4,195,296 and 4,532,183 shares of Common Stock
were outstanding during the quarters ended June 30, 2002 and July 1, 2001,
respectively, but were excluded from the computation of earnings per diluted
share because their effect was antidilutive. The conversion of the Notes into
6,456,140 common shares was also excluded from the computation of earnings per
diluted share because their effect was antidilutive.

10



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|(5) |  | Segment Information
|--- |  | -------------------

The Company is organized in two segments: Information Technology Services
(IT Services) and Commercial Staffing Services (Commercial Staffing). IT
Services provides technical staffing, training and information technology
consulting services and technology tools for human capital management.
Commercial Staffing provides temporary staffing services, placement of
full-time employees and on-site management of temporary employees. The
Company evaluates segment performance based on income from operations before
corporate expenses, restructuring, rationalization and intangibles impairment
charges, amortization of intangible assets, interest and income taxes. Because
of the Companys substantial intangible assets, management does not consider
total assets by segment an important management tool and, accordingly, the
Company does not report this information separately.

The table below presents segment information for the quarters ended June
30, 2002 and July 1, 2001:

|                                                                                 |                     |                                |        |                    |         |                  |        |          |         |         |        |         |         |   |        |         |         | 
|-------------------------------------------------------------------------------- | ------------------- | ------------------------------ | ------ | ------------------ | ------- | ---------------- | ------ | -------- | ------- | ------- | ------ | ------- | ------- | - | ------ | ------- | ------- | 
|                                                                                 |                     |                                |        | Three Months Ended |         | Six Months Ended
|                                                                                 |                     |                                |        |                    |         |                 
|                                                                                 |                     |                                |        | June 30,           |         | July 1,          |        | June 30, |         | July 1,
|                                                                                 |                     |                                |        | 2002               |         | 2001             |        | 2002     |         | 2001   
|                                                                                 |                     |                                |        |                    |         |                  |        |          |         |        
|Revenues                                                                         |                     |                                |        |                    |         |                  |        |          |         |         |        |         |         |   |        |        
|                                                                                 | IT Services         |                                | $      | 77,632             |         |                  | $      | 120,833  |         |         | $      | 159,940 |         |   | $      | 253,038 |        
|                                                                                 | Commercial Staffing |                                |        | 64,100             |         |                  |        | 73,537   |         |         |        | 123,845 |         |   |        | 150,955 |        
|                                                                                 |                     |                                |        |                    |         |                  |        |          |         |         |        |         |         |   |        |        
|                                                                                 |                     | Total revenues                 |        |                    | 141,732 |                  |        |          | 194,370 |         |        |         | 283,785 |   |        |         | 403,993 | 
|                                                                                 |                     |                                |        |                    |         |                  |        |          |         |         |        |         |         |   |        |        
|Operating income                                                                 |                     |                                |        |                    |         |                  |        |          |         |         |        |         |         |   |        |        
|                                                                                 | IT Services         |                                |        | 3,734              |         |                  |        | 8,570    |         |         |        | 7,810   |         |   |        | 17,976  |        
|                                                                                 | Commercial Staffing |                                |        | 2,694              |         |                  |        | 5,348    |         |         |        | 4,533   |         |   |        | 11,235  |        
|                                                                                 |                     |                                |        |                    |         |                  |        |          |         |         |        |         |         |   |        |        
|                                                                                 |                     | Total segment operating
income |        |                    | 6,428   |                  |        |          | 13,918  |         |        |         | 12,343  |   |        |         | 29,211  | 
|Corporate expenses                                                               |                     |                                | 3,825  |                    |         |                  | 4,160  |          |         |         | 7,745  |         |         |   | 8,252  |        
|Amortization of intangible assets                                                |                     |                                | 123    |                    |         |                  | 4,088  |          |         |         | 250    |         |         |   | 8,194  |        
|Restructuring and
rationalization charges                                        |                     |                                | 1,472  |                    |         |                  | 3,913  |          |         |         | 1,845  |         |         |   | 4,359  |        
|Interest expense                                                                 |                     |                                | 4,409  |                    |         |                  | 5,077  |          |         |         | 8,697  |         |         |   | 9,828  |        
|                                                                                 |                     |                                |        |                    |         |                  |        |          |         |         |        |         |         |   |        |        
|Loss
before income taxes and cumulative effect of change in accounting
principle |                     | $                              | (3,401 | )                  |         | $                | (3,320 | )        |         | $       | (6,194 | )       |         | $ | (1,422 | )      
|                                                                                 |                     |                                |        |                    |         |                  |        |          |         |         |        |         |         |   |        |        

The following table sets forth selected identifiable assets by segment at
June 30, 2002 and December 30, 2001:

|                         |                     |                                |   |          |        |              |   |        |        | 
|------------------------ | ------------------- | ------------------------------ | - | -------- | ------ | ------------ | - | ------ | ------ | 
|                         |                     |                                |   | June 30, |        | December 30,
|                         |                     |                                |   | 2002     |        | 2001        
|                         |                     |                                |   |          |        |             
|Accounts receivable, net |                     |                                |   |          |        |              |   |       
|                         | IT Services         |                                | $ | 58,409   |        |              | $ | 59,313 |       
|                         | Commercial Staffing |                                |   | 27,648   |        |              |   | 27,775 |       
|                         | Corporate           |                                |   | 65       |        |              |   |       |       
|                         |                     |                                |   |          |        |              |   |       
|                         |                     | Total accounts receivable, net |   | $        | 86,122 |              |   | $      | 87,088 | 
|                         |                     |                                |   |          |        |              |   |       

11



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ITEM 2.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The following discussion and analysis should be read in conjunction with
the Companys unaudited consolidated financial statements and related notes
appearing elsewhere in this report. The Companys fiscal year ends on the
Sunday nearest to December 31.

FORWARD-LOOKING INFORMATION

In addition to historical information, this report, including
Managements Discussion and Analysis of Financial Condition and Results of
Operations, contains certain information that may be deemed forward-looking
statements, within the meaning of Section 21E of the Securities Exchange Act of
1934, regarding events and financial trends, that may affect the Companys
future operating results or financial position and that are based on
managements belief and assumptions, as well as information currently available
to management. These statements may be identified by words such as estimate,
forecast, plan, intend, believe, should, expect, anticipate, or
variations or negatives thereof, or by similar or comparable words or phrases.
Forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed in such
statements. These risks and uncertainties include, but are not limited to, the
following: the risk of further violations of New York Stock Exchange continued
listing standards or of New York Stock Exchange delisting based on existing or
future violations; changes in levels of unemployment and other economic
conditions in the United States, or in particular regions or industries;
adverse changes in credit and capital markets conditions that may affect the
Companys ability to obtain financing or refinancing on favorable terms;
economic declines that affect the Companys liquidity or ability to comply with
its loan covenants; reductions in corporate information technology spending
levels; adverse changes to managements periodic estimates of future cash flows
that may affect managements assessment of its ability to fully recover its
intangible assets; reductions in the supply of qualified candidates for
temporary employment or the Companys ability to attract qualified candidates;
the entry of new competitors into the marketplace or expansion by existing
competitors; the ability of the Company to maintain existing client
relationships and attract new clients in the context of changing economic or
competitive conditions; the impact of competitive pressures, including any
change in the demand for its services, or the Companys ability to maintain its
profit margins; the possibility of the Company incurring liability for the
activities of its temporary employees or for events impacting its temporary
employees on clients premises; the Companys success in attracting, training
and retaining qualified management personnel and other staff employees; whether
governments will impose additional regulations or licensing requirements on
personnel services businesses in particular or on employer/employee
relationships in general, and other matters discussed in this report and the
Companys other filings with the Securities and Exchange Commission. Because
long-term contracts are not a significant part of the Companys business,
future results cannot be reliably predicted by considering past trends or
extrapolating past results. The Company undertakes no obligation to update
information contained in this report.

OVERVIEW

The Company is organized into two Divisions: the Information Technology
Services Division (IT Services), which provides information technology
staffing and consulting services in a range of computer-related disciplines and
technology tools for human capital management, and the Commercial Staffing
Services Division (Commercial Staffing), which provides a variety of
temporary office, clerical, accounting and finance, light technical and light
industrial staffing services.

12



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##### 



Approximately 55% of the Companys second quarter 2002 revenues came from IT
Services and 45% came from Commercial Staffing.

The Information Technology Services business is affected by the timing of
holidays and seasonal vacation patterns, generally resulting in lower IT
revenues and gross margins in the fourth quarter of each year. The Commercial
Staffing business is subject to the seasonal impact of summer and holiday
employment trends. Typically, the Commercial Staffing business is stronger in
the second half of each calendar year than in the first half, subject to
general economic conditions.

RESULTS OF OPERATIONS

Quarter Ended June 30, 2002 Versus Quarter Ended July 1, 2001

Revenues.Total revenues decreased 27.1% to $141.7 million in the second
quarter of 2002 from $194.4 million in the second quarter of 2001. IT Services
revenues decreased 35.8% primarily as the result of the continuing
industry-wide slowdown in customer demand for IT staffing services. IT
Services billable consultants on assignment declined from approximately 2,300
at the end of the first quarter of 2002 to approximately 2,200 at the end of
the second quarter. Commercial Staffing revenues declined 12.8% to $64.1
million in the second quarter of 2002 primarily due to the weak economic
climate, which resulted in declines in permanent placement revenues and the
retail component of the Companys temporary staffing business. Permanent
placement revenues were 4.0% of Commercial Staffing revenues in the second
quarter of 2002, down from 7.1% in 2001, and the retail component of temporary
staffing declined to 68.2% of Commercial Staffing temporary revenues in the
second quarter of 2002, down from 79.1% in 2001. The Company does not expect
improvements in demand for its services until later in 2002 due to expected
ongoing uncertain economic conditions, particularly in the technology sectors.
In addition, there can be no assurance that IT Services revenues will increase
as the broader economy increases.

Direct Costs of Services and Gross Profit.Direct costs, consisting of
payroll and related expenses of consultants and temporary workers, decreased
23.9% to $108.4 million in the second quarter of 2002 on the lower revenues.
Gross profit decreased 35.8% to $33.3 million on the lower revenues. Gross
profit as a percentage of revenue decreased 320 basis points to 23.5% in the
second quarter of 2002 from 26.7% in the second quarter of 2001. This decrease
primarily was the result of the continued softening in the higher margin
sectors of the staffing and consulting businesses, the significant decline in
the retail component of temporary staffing and permanent placement services in
Commercial Staffing and downward bill rate pressure imposed by many of the
Companys larger customers, which are expected to negatively impact gross
profit for the foreseeable future.

Operating Expenses.Operating expenses, consisting of selling, general
and administrative expenses, before restructuring and rationalization charges
and depreciation and amortization expense, decreased 33.3% to $30.9 million in
the second quarter of 2002 from $46.3 million in 2001. The decrease was
primarily due to the Companys aggressive cost containment program, including
its workforce reduction and office consolidation initiatives. Approximately
36% of the Companys permanent workforce has been eliminated since the
beginning of 2001. Also, variable or incentive compensation declined due to
lower revenues and operating margins. As a percentage of revenues, selling,
general and administrative expenses decreased to 20.6% in the second quarter of
2002 from 20.7% in 2001. In addition, depreciation and amortization expense
decreased to 1.2% of revenues in the second quarter of 2002 from 3.1% in 2001
primarily due to the change in accounting principle eliminating goodwill
amortization in 2002. Goodwill amortization expense was $3.9 million in the
second quarter of 2001.

13



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Restructuring and Rationalization Charges.Beginning in 2001, the Company
implemented a plan to restructure and rationalize certain operations. Pursuant
to this plan, the Company recorded charges totaling $1.5 million in the second
quarter of 2002. These charges were comprised of the following components:
employee severance of $0.7 million and other charges of $0.8 million.

Following is a summary of the accrued liability for cash restructuring and
rationalization charges for the quarter ended June 30, 2002:

|                                    |  |           |      |             |  |       |       |       |  |   |      |   |  |   |        |  
|----------------------------------- |  | --------- | ---- | ----------- |  | ----- | ----- | ----- |  | - | ---- | - |  | - | ------ | -
|                                    |  | Employee  |      | Lease       |  |       |       |       |  |   |      |  
|                                    |  | Severance |      | Termination |  | Other |       | Total
|                                    |  |           |      |             |  |       |       |      
|Accrued liability
at March 31,
2002 |  | $         |     |             |  | $     | 3,006 |       |  | $ | 181  |   |  | $ | 3,187  |  
|Additions                           |  |           | 665  |             |  |       | 3     |       |  |   | 804  |   |  |   | 1,472  |  
|Cash payments                       |  |           | (611 | )           |  |       | (304  | )     |  |   | (674 | ) |  |   | (1,589 | )
|                                    |  |           |      |             |  |       |       |       |  |   |      |   |  |   |        |  
|Accrued liability
at June 30, 2002  |  | $         | 54   |             |  | $     | 2,705 |       |  | $ | 311  |   |  | $ | 3,070  |  
|                                    |  |           |      |             |  |       |       |       |  |   |      |   |  |   |        |  

Employee severance-related costs include the elimination of both
administrative and income-producing employees. Under the workforce reduction
plan, the Company terminated 78 employees in the second quarter of 2002,
increasing the total workforce reduction to approximately 36%, or 538
employees, since the beginning of 2001. Lease termination costs relate
primarily to office closures, branch consolidations and lease space reductions.
Other rationalization expenses of $0.8 million were recorded in the second
quarter of 2002 associated with professional services expenses and branding
costs.

Of the remaining accrued liability at June 30, 2002, the Company expects
to pay approximately $1.3 million over the next 12 months and the balance,
primarily lease termination payments, over the next eight years.

The Company expects to continue consolidating certain administrative
functions and operations in other geographic markets in which the Company
currently operates multiple branches and to downsize in selected other existing
locations, which will result in additional restructuring and rationalization
charges throughout 2002; however, the amount of such additional charges is not
currently determinable.

Interest Expense.Interest expense decreased 13.2% to $4.4 million in the
second quarter of 2002 from $5.1 million in 2001 due to lower borrowing levels
under the Companys bank revolving credit facility (the Credit Facility) and
decreases in interest rates. The average interest rate on borrowings was 7.3%
in the second quarter of 2002, down 110 basis points from 2001. See  
Liquidity and Capital Resources.

14



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Provision (Benefit) for Income Taxes.The effective tax benefit rate of
20% in the second quarter of 2002 was lower than the U.S. federal statutory
rate of 35% primarily due to the impact of non-deductible expenses and the
provision of valuation allowances against deferred income tax assets. The
Company currently expects the effective tax benefit rate to continue at
approximately 20% for the balance of 2002. Because the Company is providing a
valuation allowance against certain deferred tax assets, the effective tax
benefit rate could change if actual 2002 temporary differences vary from
current estimates. The income tax benefit recorded in the second quarter of
2001 was comprised of the tax benefit related to the operating loss for the
period and the $1.4 million tax benefit related to the diminution in value in
the Companys investment in CareerShop.com, which was sold during the second
quarter of 2001.

RESULTS OF OPERATIONS

Six Months Ended June 30, 2002 Versus Six Months Ended July 1, 2001

Revenues.Total revenues decreased 29.8% to $283.8 million in the first
six months of 2002 from $404.0 million in the first six months of 2001. IT
Services revenues decreased 36.8% to $159.9 million in the first six months of
2002 primarily as the result of the continuing industry-wide slowdown in
customer demand for IT staffing services. IT Services billable consultants on
assignment declined from approximately 2,500 at the end of 2001 to
approximately 2,200 at the end of the second quarter of 2002. Commercial
Staffing revenues declined 18.0% to $123.8 million in the first six months of
2002 primarily due to the weak economic climate, which resulted in declines in
permanent placement revenues and the retail component of the Companys
temporary staffing business. Permanent placement revenues were 3.7% of
Commercial Staffing revenues in the first six months of 2002, down from 7.8% in
2001, and the retail component of temporary staffing declined to 68.5% of
Commercial Staffing temporary revenues in the first six months of 2002, down
from 81.0% in 2001. The Company does not expect improvements in demand for its
services until later in 2002 due to expected ongoing uncertain economic
conditions, particularly in the technology sectors. In addition, there can be
no assurance that IT Services revenues will increase as the broader economy
increases.

Direct Costs of Services and Gross Profit.Direct costs, consisting of
payroll and related expenses of consultants and temporary workers, decreased
26.6% to $216.7 million in the first six months of 2002 on the lower revenues.
Gross profit decreased 38.3% to $67.1 million on the lower revenues. Gross
profit as a percentage of revenue decreased 320 basis points to 23.7% in the
first six months of 2002 from 26.9% in the first six months of 2001. This
decrease primarily was the result of the continued softening in the higher
margin sectors of the staffing and consulting businesses, the significant
decline in the retail component of temporary staffing and permanent placement
services in Commercial Staffing and downward bill rate pressure imposed by many
of the Companys larger customers, which are expected to negatively impact
gross profit for the foreseeable future.

Operating Expenses.Operating expenses, consisting of selling, general
and administrative expenses, before restructuring and rationalization charges
and depreciation and amortization expense, decreased 34.6% to $62.8 million in
the first six months of 2002 from $95.9 million in 2001. The decrease was
primarily due to the Companys aggressive cost containment program, including
its workforce reduction and office consolidation initiatives. Approximately
36% of the Companys permanent workforce has been eliminated since the
beginning of 2001. Also, variable or incentive compensation declined due to
lower revenues and operating margins. As a percentage of revenues, selling,
general and administrative expenses increased to 20.9% in the first six months
of 2002 from 20.7% in 2001. In addition, depreciation and amortization expense
decreased to 1.3% of revenues in the first six months of 2002 from 3.0% in 2001
primarily due to the change in accounting principles
eliminating goodwill amortization in 2002. Goodwill amortization expense was
$7.7 million in the first six months of 2001.

15



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Restructuring and Rationalization Charges.Beginning in 2001 the Company
implemented a plan to restructure and rationalize certain operations. Pursuant
to this plan, the Company recorded charges totaling $1.8 million in the first
six months of 2002. These charges were comprised of the following components:
employee severance of $0.8 million, lease termination charges of $0.2 million
and other charges of $0.8 million.

Following is a summary of the accrued liability for cash restructuring and
rationalization charges for the six months ended June 30, 2002:

|                                       |  |           |      |             |  |       |       |       |  |   |        |   |  |   |        |  
|-------------------------------------- |  | --------- | ---- | ----------- |  | ----- | ----- | ----- |  | - | ------ | - |  | - | ------ | -
|                                       |  | Employee  |      | Lease       |  |       |       |       |  |   |        |  
|                                       |  | Severance |      | Termination |  | Other |       | Total
|                                       |  |           |      |             |  |       |       |      
|Accrued liability
at December 30,
2001 |  | $         | 42   |             |  | $     | 3,109 |       |  | $ | 583    |   |  | $ | 3,734  |  
|Additions                              |  |           | 851  |             |  |       | 201   |       |  |   | 808    |   |  |   | 1,860  |  
|Cash payments                          |  |           | (839 | )           |  |       | (605  | )     |  |   | (1,080 | ) |  |   | (2,524 | )
|                                       |  |           |      |             |  |       |       |       |  |   |        |   |  |   |        |  
|Accrued liability
at June 30, 2002     |  | $         | 54   |             |  | $     | 2,705 |       |  | $ | 311    |   |  | $ | 3,070  |  
|                                       |  |           |      |             |  |       |       |       |  |   |        |   |  |   |        |  

Employee severance-related costs include the elimination of both
administrative and income-producing employees. Under the workforce reduction
plan, the Company terminated 143 employees in the first six months of 2002,
increasing the total workforce reduction to approximately 36%, or 538
employees, since the beginning of 2001. Lease termination costs relate
primarily to office closures, branch consolidations and lease space reductions.
Other rationalization expenses of $0.8 million were recorded in the first six
months of 2002 associated with professional services expenses and branding
costs.

Of the remaining accrued liability at June 30, 2002, the Company expects
to pay approximately $1.3 million over the next 12 months and the balance,
primarily lease termination payments, over the next eight years.

The Company expects to continue consolidating certain administrative
functions and operations in other geographic markets in which the Company
currently operates multiple branches and to downsize in selected other existing
locations, which will result in additional restructuring and rationalization
charges throughout 2002; however, the amount of such additional charges is not
currently determinable.

Interest Expense.Interest expense decreased 11.5% to $8.7 million in the
first six months of 2002 from $9.8 million in 2001 due to lower borrowing
levels under the Companys bank revolving credit facility (the Credit
Facility) and decreases in interest rates. The average interest rate on
borrowings was 7.2% in the first six months of 2002, down 80 basis points from
2001. See   Liquidity and Capital Resources.

16



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Provision (Benefit) for Income Taxes.The income tax provision recorded
for the six months ended June 30, 2002 reflects an income tax benefit of $1.2
million related to its operating losses, computed at an effective rate of
approximately 20%. This benefit was offset by the charge of
approximately $5.2 million related to the adoption of SFAS 142, which has been
recorded in the restated first quarter results as discussed in Note 1 to these
financial statements. The income tax benefit recorded for the six months ended
July 1, 2001 included the tax benefit related to the operating loss for the
period and the $1.4 million tax benefit related to the diminution in value in
the Companys investment in CareerShop.com, which was sold during the second
quarter of 2001.

LIQUIDITY AND CAPITAL RESOURCES

The Companys primary sources of cash are from operations and borrowings
under the Companys Credit Facility. The Companys principal uses of cash are
to repay debt and to fund working capital and capital expenditures. The Company
believes, subject to the conditions and contingencies described below, that
cash flow from operations, cash on hand and borrowing capacity under the Credit
Facility will be adequate to meet its diminished needs for working capital and
its capital expenditures.

For the six months ended June 30, 2002, cash provided by operating
activities was $21.1 million, primarily due to the receipt of $19.2 million in
recoverable income taxes in June 2002, compared with $20.3 million last year.
The Company had $25.3 million of cash on hand as of June 30, 2002. In the
aggregate, days sales outstanding increased slightly to 52 days at June 30,
2002 from 50 days at December 30, 2001. Cash provided by investing activities
was $3.0 million during the first six months of 2002 due primarily to the cash
proceeds received from the sale of a business. Cash used for investing
activities of $8.2 million in the first six months of 2001 related primarily to
the Companys contingent earn-out obligations and capital spending. The
Company completed its obligation to make additional earn-out payments in
October 2001. The Company has reduced its capital spending, and expects to
spend less than $2.5 million on management information systems and other
capital expenditures in 2002. Capital spending in the first six months of 2002
was $0.8 million, down from $1.6 million in the first six months of 2001. Cash
used for financing activities was $16.4 million in the first six months of
2002, up from $13.1 million last year, as the Company continued to focus on
debt reduction under the Credit Facility.

New tax legislation was passed by Congress in 2002 that allows the Company
to carryback federal net operating losses for five years, substantially
increasing the Companys ability to recover income taxes previously paid. As
of June 30, 2002, the Company had recorded $7.2 million of recoverable income
taxes. The Company is subject to periodic review by federal, state and local
taxing authorities in the ordinary course of business. Upon review, certain
tax positions taken by the Company could be challenged and adjustments proposed
that could result in additional taxes currently payable or a reduction in the
recoverable income taxes the Company expects to receive.
Additionally, there can be no assurance that proposed adjustments, if
any, would not also include assessments for penalties and interest.

The Credit Facility was amended in February and March 2002 to provide for
a $136.0 million revolving line of credit due January 2003. Assuming the
Company is in compliance with the financial covenants set forth in the
agreement and the payment of an extension fee, the Company at its option may
further extend the maturity of the facility in six-month increments up through
January 2004. As a result of these amendments, the outstanding balance under
the Credit Facility, which was $104.7 million at June 30, 2002, is classified
as long-term in the consolidated balance sheet. The amended Credit Facility
contains customary covenants that require quarterly maintenance of certain
financial ratios, minimum tangible net worth and a restriction on the payment
of cash dividends on the Common Stock. It also places additional limitations
on share repurchases, acquisitions and capital expenditures and includes an
Equity Appreciation Rights

17



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agreement (the EAR) whereby the Company must pay a fee (the Rights
Fee) to the lenders in the event of default under the Credit Facility or if
the Credit Facility has not been paid in full by January 1, 2004. The Rights
Fee is the greater of 10% of the fair market value of the Company (as defined
in the EAR) as of the exercise date of the EAR or $3.0 million. Interest rates
payable under the amended Credit Facility are currently set at prime plus 250
basis points through December 2002, with increases during each six-month period
thereafter through January 2004. As of July 29, 2002, the interest rate
payable under the amended Credit Facility was 7.25%.

The principal financial covenants in the Credit Facility are highly
dependent upon the Companys EBITDA levels, as measured at each quarter end
based on a rolling four-quarter basis, and include an interest coverage ratio
and a leverage ratio. The amended Credit Facility provides for certain
adjustments that increase EBITDA, including certain restructuring and
rationalization charges and certain other charges. The adjusted EBITDA for the
trailing four quarters ended June 30, 2002 were $8.8 million, $6.8 million,
$3.7 million and $4.2 million, respectively. In addition to the quarterly
covenants, the amended agreement includes EBITDA and liquidity requirements to
be measured based on the six-month periods ending November 2002 and May 2003.
The Company believes its margin for compliance throughout 2002 is at its lowest
level for the November 2002 EBITDA covenant. In order to stay in compliance
with this covenant, the Company will need to generate adjusted EBITDA of at
least $7.2 million for the six-month period ending November 2002.

The Companys business is highly dependent on trends in the US economy
overall, as well as other factors such as unemployment levels and trends in
corporate information technology spending. Several other factors that can
affect the Companys operating results and accordingly, its ability to generate
cash from operations, are discussed further under  Forward Looking
Information. The already weak economic environment in the US was further
weakened by the events of September 11, 2001. As a result of these negative
economic conditions, the Company has experienced a substantial decline in
revenues in both the IT Services and Commercial Staffing businesses over the
past 18 months. The reduced demand for IT Services and Commercial Staffing
services will continue to affect the Companys business in 2002, and the
Company anticipates further reductions in revenue as compared to 2001. The
Company expects improvement in demand for its services beginning later in 2002
based on expected improvements in the broader economy, although there can be no
assurance as to the timing of any improvement in demand for the Companys
services or that such improvement will coincide with improvements in the
broader economy. While the Company has implemented substantial cost
reductions through its restructuring activities in 2001, the reduced level of
revenues is expected to have an adverse affect on its operating income, EBITDA
and net earnings for several quarters.

Based on the Companys fiscal 2002 projections, which reflect the
declining demand for the Companys services, offset by reductions in costs
principally resulting from reduced revenues the Companys restructuring and
rationalization activities, management believes the Company will be able to
maintain compliance with the modified financial covenants for the remaining
term of the Credit Facility. The Company also believes that the operating
trends in first half of 2002 support the key assumptions in its 2002 operating
plan. However, there can be no assurance that the economy or the Company will
perform as expected or that further economic declines will not adversely impact
the Companys ability to comply with its covenants. If actual results of
operations do not meet current forecasts, covenant violations could occur. If
the Company does violate covenants in the future, it would seek further
waivers and amendments from its lenders, but can give no assurance that any
such necessary waivers and amendments would be available at all or otherwise on
acceptable terms. If the Company were unable to obtain a waiver of future
covenant violations, the lenders would be entitled to require immediate
repayment of all amounts outstanding under the Credit Facility and, as
described above, payment of the Rights Fee. An acceleration of outstanding
amounts under the Credit Facility could also cause a default under, and permit
acceleration of, the

18



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Notes. In the event of one or more such defaults, the Companys ongoing
viability would be seriously threatened, and it would be forced to evaluate a
number of strategic alternatives, including a debt restructuring or other
reorganization, the closure of certain locations or the sale of certain or all
of its assets in order to continue to fund its operations. In the current
economic environment, management believes that asset sales, if any, would be at
depressed prices that could be significantly lower than the net book value of
assets sold and may not be sufficient to satisfy the Companys liabilities.

In any event, the Company intends to continually monitor market conditions
and its anticipated financial performance against its financial covenants.
Additionally, as previously announced, a group including a Matlin Patterson LLC
affiliate (as successor to Credit Suisse First Boston and its
CSFB Global Opportunities Fund, MP), and others filed a Schedule 13D with the
Securities and Exchange Commission on April 5, 2002, which amended a previously
filed Schedule 13G and expressed interest in discussions with the Company on
deleveraging strategies, including the potential conversion of certain of the
Companys debt into equity. Additionally, after the Schedule 13D filing, the
Company has been advised of the sale by one of the existing lenders of its
entire position in the Credit Facility to the MP group. This position consisted of $30.6
million of commitment, or 22.5% of the total commitments provided under the
Credit Facility. The Company has retained a financial advisor to assist in
discussions with the MP group, if any, and in the evaluation of other
constructive alternatives to reduce its long-term debt obligations and improve
its financial position. The Company expects, as part of these discussions, to
consider a possible debt restructuring that could include the conversion of
certain debt into equity and may discuss such a restructuring with its lenders,
but can give no assurance regarding the form of any such potential debt
restructuring or that such a restructuring will be formally proposed or
consummated.

The Company was advised in December 2001 by the New York Stock Exchange
(NYSE) that the Company had fallen below NYSE continued listing standards,
which require a minimum share price of not less than $1.00 and total market
capitalization of not less than $15.0 million. As required by the NYSE, the
Company submitted a plan to the Listings and Compliance Committee of the NYSE
demonstrating how the Company planned to comply with the listing standards by
the June 2002 deadline set by the NYSE. The NYSE accepted the plan and the
Company returned to compliance with the listing standards by the June deadline,
but remains subject to quarterly monitoring for compliance with the plan.

The adoption of SFAS 142 does not impact the Companys cash flow or its
continued compliance with the financial covenants in its Credit Facility;
however, the goodwill impairment charge has caused the Companys shareholders
equity to fall below the NYSE continued listing standard of $50.0 million. In
addition, a decline in the trading price of the Companys Common Stock has
resulted in a second failure to comply with the NYSEs $1.00 per share minimum
trading price requirement. The Company expects to receive written notification
from the NYSE in the near future concerning these listing standards violations
and would be required under NYSE rules to issue a press release announcing such
notification within 45 days after receipt. Although NYSE rules typically would
provide the Company six months from the date of notification to cure the
minimum share price violation and 18 months to cure the minimum shareholders
equity violation, because the Companys minimum share price violation is a
second violation there can be no assurance as to the terms of any notification
that may be provided to the Company by the NYSE or that the NYSE would not
exercise discretion in any such notification to shorten the time periods within
which to restore compliance. The Company intends to continue discussions with
NYSE officials regarding its plan to restore compliance with all listing
standards, including potentially seeking approval from its shareholders for a
reverse stock split. Although the Company believes it can restore compliance
with the NYSEs continued listing standards through its ongoing efforts, or

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alternatively obtain listing of its shares on another national securities
exchange or established over-the-counter trading market, there can be no
assurance that the Company will be able to maintain its listing on the NYSE or
effect a new listing on another national securities exchange or established
over-the-counter trading market. Failure to maintain or effect such listings
would constitute a repurchase event under the Companys Notes and entitle each
noteholder to demand repayment of its Notes in full. In the event that the
Company is unable to repay any noteholder who makes such a demand following a
repurchase event and also unable to obtain waivers of such repurchase event
from each affected noteholder, events of default could occur under the Notes
and the Credit Facility and the noteholders and Credit Facility lenders could
demand repayment of their respective debt obligations in full. Additionally,
the Credit Facility lenders could demand immediate repayment of the
Rights Fee.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146 (SFAS 146), Accounting for Costs
Associated with Exit or Disposal Activities which nullifies Emerging Issues
Task Force Issue No. 94-3 (Issue 94-3), Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). SFAS 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under Issue 94-3, a liability for an exit cost
as defined in Issue 94-3 was recognized at the date of an entitys commitment
to an exit plan. The provisions of SFAS 146 are effective for exit or disposal
activities that are initiated after December 31, 2002, with early application
encouraged. The Company does not expect that adoption of this statement to have a
material impact on the Companys results of operations, financial position or
cash flows.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Companys outstanding debt under the Credit Facility at June 30, 2002,
was $104.7 million. Interest on borrowings under the Credit Facility is based
on the prime rate plus a variable margin. Based on the outstanding balance at
June 30, 2002, a change of 1% in the interest rate would cause a change in
interest expense of approximately $1.0 million on an annual basis.

The Company also is subject to market risk associated with the EAR
agreement as discussed above.

PART II  OTHER INFORMATION

ITEM 4.     SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

The Companys annual meeting of shareholders was held on May 23, 2002.
The matters voted on at the meeting were proposals: (1) to elect one director
to serve a term of three years, (2) to approve an amendment to the Companys
Certificate of Incorporation changing the Companys name from Personnel Group
of America, Inc. to Venturi Partners, Inc. and (3) to ratify the selection
of PricewaterhouseCoopers LLP as the Companys independent public accountant
for fiscal 2002. Each of these proposals was approved by the following
margins:

|                      |               |           |  |                |  |  |  |        | 
|--------------------- | ------------- | --------- |  | -------------- |  |  |  | ------ | 
|Proposal 1            |               | Votes For |  | Votes Withheld
|                      |               |           |  |               
|Election of Directors |               |           |  |                |  |  |  |       
|                      | James C. Hunt |           |  | 22,019,945     |  |  |  | 95,459 | 

20



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|                                                       |  |           |            |               |  |             |         |  |  |  |        | 
|------------------------------------------------------ |  | --------- | ---------- | ------------- |  | ----------- | ------- |  |  |  | ------ | 
|Proposal 2                                             |  | Votes For |            | Votes Against |  | Abstentions
|                                                       |  |           |            |               |  |            
|Approval of charter amendment
to change Companys name |  |           | 21,918,738 |               |  |             | 177,214 |  |  |  | 19,452 | 



|                                                            |  |           |            |               |  |             |        |  |  |  |        | 
|----------------------------------------------------------- |  | --------- | ---------- | ------------- |  | ----------- | ------ |  |  |  | ------ | 
|Proposal 3                                                  |  | Votes For |            | Votes Against |  | Abstentions
|                                                            |  |           |            |               |  |            
|Ratification of Selection of
Independent Public Accountants |  |           | 22,037,972 |               |  |             | 63,190 |  |  |  | 14,242 | 

ITEM 6.  Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits  The exhibits filed with or incorporated by reference into
this Form 10-Q are set forth in the Exhibit Index, which immediately precedes the
exhibits to this report.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Reports on Form 8-K  None.                                                                                                                                                    

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##### 



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                     |  |                                               |  |                                                     | 
|-------------------- |  | --------------------------------------------- |  | --------------------------------------------------- | 
|                     |  | PERSONNEL GROUP OF AMERICA, INC.
(Registrant)
|                     |  |                                               |  |                                                    
|Date: August 7, 2002 |  | By:                                           |  | /s/ Larry L. Enterline                             
|                     |  |                                               |  |                                                    
|                     |  |                                               |  | Larry L. Enterline
Chief Executive Officer         
|                     |  |                                               |  |                                                    
|Date: August 7, 2002 |  | By:                                           |  | /s/ James C. Hunt                                  
|                     |  |                                               |  |                                                    
|                     |  |                                               |  | James C. Hunt
President and Chief Financial Officer

22



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##### 



EXHIBIT INDEX

|        |        |             |  |                                                                                           |  |                  |      |  |  |                             
|------- | ------ | ----------- |  | ----------------------------------------------------------------------------------------- |  | ---------------- | ---- |  |  | ----------------------------
|        |        |             |  |                                                                                           |  | Filed            |      | 
|        |        |             |  |                                                                                           |  | Herewith(*), or  |      | 
|        |        |             |  |                                                                                           |  | Incorporated by  |      | 
|        |        |             |  |                                                                                           |  | Reference from   |      | 
|Exhibit |        |             |  | Previous Exhibit                                                                          |  | Company Reg. No.
|Number  |        | Description |  | Number                                                                                    |  | or Report       
|        |        |             |  |                                                                                           |  |                 
|        | 3.1    |             |  | Restated Certificate of
Incorporation of the Company, as
amended                          |  |                  | 3.1  |  |  | 333-31863                   
|        |        |             |  |                                                                                           |  |                  |      |  |  |                             
|        | 3.2    |             |  | Amended and Restated Bylaws of the
Company                                                |  |                  | 3.2  |  |  | 33-95228                    
|        |        |             |  |                                                                                           |  |                  |      |  |  |                             
|        | 4.0    |             |  | Specimen Stock Certificate                                                                |  |                  | 4.0  |  |  | 33-95228                    
|        |        |             |  |                                                                                           |  |                  |      |  |  |                             
|        | 4.1    |             |  | Rights Agreement between the
Company and First Union National
Bank (as Successor Trustee) |  |                  | 1    |  |  | 0-27792                     
|        |        |             |  |                                                                                           |  |                  |      |  |  |                             
|        | 4.2    |             |  | First Amendment to Rights Agreement                                                       |  |                  | 4.1  |  |  | 8-K filed 12/31/01          
|        |        |             |  |                                                                                           |  |                  |      |  |  |                             
|        | 4.3    |             |  | Indenture between the Company and
HSBC Bank USA, as Successor
Trustee                     |  |                  | 4.2  |  |  | 333-31863                   
|        |        |             |  |                                                                                           |  |                  |      |  |  |                             
|        | 4.4    |             |  | Form of Note Certificate for
5-3/4% Convertible Subordinated
Notes                        |  |                  | 4.3  |  |  | 333-31863                   
|        |        |             |  |                                                                                           |  |                  |      |  |  |                             
|        | 10.1+  |             |  | 1995 Equity Participation Plan, as
amended                                                |  |                  | 10.1 |  |  | 333-31863                   
|        |        |             |  |                                                                                           |  |                  |      |  |  |                             
|        | 10.2+  |             |  | Amended and Restated Management
Incentive Compensation Plan                               |  |                  | 10.2 |  |  | 10-K for year
ended 1/3/99  
|        |        |             |  |                                                                                           |  |                  |      |  |  |                             
|        | 10.3+  |             |  | 2001 Non-Qualified Employee Stock
Purchase Plan                                           |  |                  | 4.1  |  |  | 333-66334                   
|        |        |             |  |                                                                                           |  |                  |      |  |  |                             
|        | 10.4#+ |             |  | Director and Officer
Indemnification Agreement of James
V. Napier                         |  |                  | 10.3 |  |  | 10-K for year
ended 12/31/95
|        |        |             |  |                                                                                           |  |                  |      |  |  |                             
|        | 10.5+  |             |  | Letter of Employment between the
Company and Larry L. Enterline                           |  |                  | 10.5 |  |  | 10-K for year
ended 12/31/00
|        |        |             |  |                                                                                           |  |                  |      |  |  |                             
|        | 10.6+  |             |  | Supplemental Retirement Plan for
Edward P. Drudge, Jr.                                    |  |                  | 10.7 |  |  | 10-K for year
ended 1/2/00  
|        |        |             |  |                                                                                           |  |                  |      |  |  |                             
|        | 10.7+  |             |  | Form of Retirement Agreement
between the Company and Edward P.
Drudge, Jr.                |  |                  | 10.8 |  |  | 10-K for year
ended 1/2/00  

23



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##### 



|        |        |             |  |                                                                                                                                                          |  |                  |       |  |  |                             
|------- | ------ | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ----- |  |  | ----------------------------
|        |        |             |  |                                                                                                                                                          |  | Filed            |       | 
|        |        |             |  |                                                                                                                                                          |  | Herewith(*), or  |       | 
|        |        |             |  |                                                                                                                                                          |  | Incorporated by  |       | 
|        |        |             |  |                                                                                                                                                          |  | Reference from   |       | 
|Exhibit |        |             |  | Previous Exhibit                                                                                                                                         |  | Company Reg. No.
|Number  |        | Description |  | Number                                                                                                                                                   |  | or Report       
|        |        |             |  |                                                                                                                                                          |  |                 
|        | 10.8+  |             |  | Employment Agreement between the
Company and James C. Hunt                                                                                               |  |                  | 10.10 |  |  | 10-K for year
ended 12/29/96
|        |        |             |  |                                                                                                                                                          |  |                  |       |  |  |                             
|        | 10.9+  |             |  | Employment Agreement between the
Company and Ken R. Bramlett, Jr.                                                                                        |  |                  | 10.13 |  |  | 10-K for year
ended 12/29/96
|        |        |             |  |                                                                                                                                                          |  |                  |       |  |  |                             
|        | 10.10+ |             |  | Employment Agreement between the
Company and Michael H. Barker                                                                                           |  |                  | 10.9  |  |  | 10-K for year
ended 1/3/99  
|        |        |             |  |                                                                                                                                                          |  |                  |       |  |  |                             
|        | 10.11+ |             |  | Employment Agreement between the
Company and Thomas M.
Wittenschlaeger                                                                                   |  |                  | 10.11 |  |  | 10-K for year ended
12/30/01
|        |        |             |  |                                                                                                                                                          |  |                  |       |  |  |                             
|        | 10.12  |             |  | Amended and Restated Non-Qualified
Profit-Sharing Plan                                                                                                   |  |                  | 10.16 |  |  | 10-K for year
ended 12/29/96
|        |        |             |  |                                                                                                                                                          |  |                  |       |  |  |                             
|        | 10.13+ |             |  | Directors Non-Qualified Deferred
Fee Plan                                                                                                               |  |                  | 10.12 |  |  | 10-K for year
ended 12/28/97
|        |        |             |  |                                                                                                                                                          |  |                  |       |  |  |                             
|        | 10.14  |             |  | Amendment No. 4 to Amended and
Restated Credit Agreement among the
Company and its subsidiaries, the
lenders party thereto and Bank of
America, as Agent |  |                  | 99.2  |  |  | 8-K filed 2/12/02           
|        |        |             |  |                                                                                                                                                          |  |                  |       |  |  |                             
|        | 10.15  |             |  | Equity Appreciation Rights Agreement                                                                                                                     |  |                  | 10.15 |  |  | 8-K filed 2/12/02           
|        |        |             |  |                                                                                                                                                          |  |                  |       |  |  |                             
|        | 10.16  |             |  | Registration Rights Agreement
between the Company and the Initial
Purchasers                                                                             |  |                  | 10.17 |  |  | 333-31863                   
|        |        |             |  |                                                                                                                                                          |  |                  |       |  |  |                             
|        | 99.1   |             |  | Amendment to the Companys Amended
and Restated Credit Agreement                                                                                         |  |                  | 99.1  |  |  | 10-K for year ended
12/30/01
|        |        |             |  |                                                                                                                                                          |  |                  |       |  |  |                             
|        | 99.2   |             |  | Section 906 Certification of Larry
L. Enterline, Chief Executive
Officer of the Company                                                                  |  |                  | *     |  |  |                             
|        |        |             |  |                                                                                                                                                          |  |                  |       |  |  |                             
|        | 99.3   |             |  | Section 906 Certification of James
C. Hunt, Chief Financial Officer of
the Company                                                                       |  |                  | *     |  |  |                             



---

|# |  | This Exhibit is substantially identical to Director and Officer Indemnification Agreements (i) of the same date between the
Company and the following individuals: Kevin P. Egan, J. Roger King and William Simione, Jr.; (ii) dated April 17, 1998
between the Company and each of James C. Hunt and Ken R. Bramlett, Jr.; and (iii) dated August 9, 1999 between the Company
and Janice L. Scites.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|+ |  | Management contract or compensatory plan required to be filed under Item 14(c) of this
report and Item 601 of Regulation S-K of the Securities and Exchange
Commission.                                                                                                                                                                                                                             

24