##### 



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 March 31, 2002

OR

o   
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
incorporation or organization) |  | (IRS Employer
Identification No.)
|                                                              
|Five LakePointe Plaza
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
   o   No

As of May 13, 2002, there were 26,727,466 shares of outstanding common stock,
par value $.01 per share.





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##### 



PERSONNEL GROUP OF AMERICA, INC.
TABLE OF CONTENTS

PART I  FINANCIAL INFORMATION

|                                                                                              |                                                      |  |      |   | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  | ---- | - | 
|                                                                                              |                                                      |  | Page
|                                                                                              |                                                      |  |     
|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 |                                                      |  | 11   |  
|Item 3. Quantitative and Qualitative Disclosures
About Market Risk                            |                                                      |  | 17   |  
|PART II  OTHER INFORMATION                                                                   |                                                      |  |      |  
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                      |  | 17   |  
|Signatures                                                                                    |                                                      |  | 18   |  
|Exhibit Index                                                                                 |                                                      |  | 19   |  

2



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##### 



PERSONNEL GROUP OF AMERICA, INC.

Unaudited Consolidated Statements of
Operations
For the periods ended March 31, 2002 and April 1,
2001
(In thousands, except per share data)

|                                     |                                           |   |                    |        |          |   |         |        | 
|------------------------------------ | ----------------------------------------- | - | ------------------ | ------ | -------- | - | ------- | ------ | 
|                                     |                                           |   | Three months ended
|                                     |                                           |   |                   
|                                     |                                           |   | March 31,          |        | April 1,
|                                     |                                           |   | 2002               |        | 2001    
|                                     |                                           |   |                    |        |         
|Revenues                             |                                           | $ | 142,053            |        |          | $ | 209,624 |       
|Direct costs of services             |                                           |   | 108,292            |        |          |   | 152,950 |       
|                                     |                                           |   |                    |        |          |   |         |       
|Gross profit                         |                                           |   | 33,761             |        |          |   | 56,674  |       
|Operating expenses                   |                                           |   |                    |        |          |   |         |       
|                                     | Selling, general and administrative       |   |                    | 30,052 |          |   |         | 43,510 | 
|                                     | Depreciation and amortization             |   |                    | 1,841  |          |   |         | 6,068  | 
|                                     | Restructuring and rationalization charges |   |                    | 372    |          |   |         | 447    | 
|                                     |                                           |   |                    |        |          |   |         |       
|Operating income                     |                                           |   | 1,496              |        |          |   | 6,649   |       
|Interest expense                     |                                           |   | 4,288              |        |          |   | 4,751   |       
|                                     |                                           |   |                    |        |          |   |         |       
|Income (loss) before income taxes    |                                           |   | (2,792             | )      |          |   | 1,898   |       
|Provision (benefit) for income taxes |                                           |   | (880               | )      |          |   | 968     |       
|                                     |                                           |   |                    |        |          |   |         |       
|Net income (loss)                    |                                           | $ | (1,912             | )      |          | $ | 930     |       
|                                     |                                           |   |                    |        |          |   |         |       
|Earnings per basic share             |                                           | $ | (0.07              | )      |          | $ | 0.04    |       
|Earnings per diluted share           |                                           | $ | (0.07              | )      |          | $ | 0.04    |       

The accompanying notes are an integral part of these statements.

3



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##### 



PERSONNEL GROUP OF AMERICA, INC.Unaudited Consolidated Balance SheetsMarch 31, 2002 and December 30, 2001
(In thousands, except share data)

|                                     |                                                                                              |                                                                                                                   |                           |                                            |         |           |         |              |         |         |         | 
|------------------------------------ | -------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ------------------------- | ------------------------------------------ | ------- | --------- | ------- | ------------ | ------- | ------- | ------- | 
|                                     |                                                                                              |                                                                                                                   |                           |                                            |         | March 31, |         | December 30,
|                                     |                                                                                              |                                                                                                                   |                           |                                            |         | 2002      |         | 2001        
|                                     |                                                                                              |                                                                                                                   |                           |                                            |         |           |         |             
|ASSETS                               |                                                                                              |                                                                                                                   |                           |                                            |         |           |         |             
|Current assets:                      |                                                                                              |                                                                                                                   |                           |                                            |         |           |         |             
|                                     | Cash and cash equivalents                                                                    |                                                                                                                   | $                         | 5,705                                      |         |           | $       | 17,557       |        
|                                     | Accounts receivable, net                                                                     |                                                                                                                   |                           | 89,018                                     |         |           |         | 87,088       |        
|                                     | Prepaid expenses and other current assets                                                    |                                                                                                                   |                           | 6,142                                      |         |           |         | 7,975        |        
|                                     | Recoverable income taxes                                                                     |                                                                                                                   |                           | 19,201                                     |         |           |         | 6,470        |        
|                                     | Deferred income taxes                                                                        |                                                                                                                   |                           | 2,596                                      |         |           |         | 11,896       |        
|                                     |                                                                                              |                                                                                                                   |                           |                                            |         |           |         |             
|                                     |                                                                                              |                                                                                                                   | Total current assets      |                                            |         | 122,662   |         |              |         | 130,986 |        
|Property and equipment, net          |                                                                                              |                                                                                                                   | 16,654                    |                                            |         |           | 18,061  |             
|Intangible assets, net               |                                                                                              |                                                                                                                   | 478,709                   |                                            |         |           | 478,836 |             
|Other assets                         |                                                                                              |                                                                                                                   | 4,110                     |                                            |         |           | 2,705   |             
|                                     |                                                                                              |                                                                                                                   |                           |                                            |         |           |         |             
|                                     |                                                                                              |                                                                                                                   | Total assets              |                                            | $       | 622,135   |         |              | $       | 630,588 |        
|                                     |                                                                                              |                                                                                                                   |                           |                                            |         |           |         |             
|LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                              |                                                                                                                   |                           |                                            |         |           |         |             
|Current liabilities:                 |                                                                                              |                                                                                                                   |                           |                                            |         |           |         |             
|                                     | Current portion of long-term debt                                                            |                                                                                                                   | $                         | 634                                        |         |           | $       | 882          |        
|                                     | Accounts payable                                                                             |                                                                                                                   |                           | 7,553                                      |         |           |         | 9,598        |        
|                                     | Accrued wages, benefits and other                                                            |                                                                                                                   |                           | 49,188                                     |         |           |         | 48,265       |        
|                                     |                                                                                              |                                                                                                                   |                           |                                            |         |           |         |             
|                                     |                                                                                              |                                                                                                                   | Total current liabilities |                                            |         | 57,375    |         |              |         | 58,745  |        
|Long-term debt                       |                                                                                              |                                                                                                                   | 226,000                   |                                            |         |           | 234,000 |             
|Other long-term liabilities          |                                                                                              |                                                                                                                   | 42,545                    |                                            |         |           | 39,750  |             
|                                     |                                                                                              |                                                                                                                   |                           |                                            |         |           |         |             
|                                     |                                                                                              |                                                                                                                   | Total liabilities         |                                            |         | 325,920   |         |              |         | 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                                                                   |                                                                                                                   |                           | 316,531                                    |         |           |         | 316,694      |        
|                                     | Retained earnings                                                                            |                                                                                                                   |                           | 24,071                                     |         |           |         | 25,983       |        
|                                     |                                                                                              |                                                                                                                   |                           |                                            |         |           |         |             
|                                     |                                                                                              |                                                                                                                   | 340,933                   |                                            |         |           | 343,008 |             
|                                     |                                                                                              | Less common stock held in treasury at cost -
6,344 shares at March 31, 2002 and 6,371 shares at
December 30, 2001 |                           |                                            | (44,718 | )         |         |              | (44,915 | )      
|                                     |                                                                                              |                                                                                                                   |                           |                                            |         |           |         |             
|                                     |                                                                                              |                                                                                                                   |                           | Total shareholders equity                 |         |           | 296,215 |              |         |         | 298,093 | 
|                                     |                                                                                              |                                                                                                                   |                           |                                            |         |           |         |             
|                                     |                                                                                              |                                                                                                                   |                           | Total liabilities and shareholders equity |         | $         | 622,135 |              |         | $       | 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 March 31, 2002 and
April 1, 2001
(In thousands)

|                                                 |                                                                                          |                                    |                                          |         |                    |        |          |         |       |        |  
|------------------------------------------------ | ---------------------------------------------------------------------------------------- | ---------------------------------- | ---------------------------------------- | ------- | ------------------ | ------ | -------- | ------- | ----- | ------ | -
|                                                 |                                                                                          |                                    |                                          |         | Three months ended
|                                                 |                                                                                          |                                    |                                          |         |                   
|                                                 |                                                                                          |                                    |                                          |         | March 31,          |        | April 1,
|                                                 |                                                                                          |                                    |                                          |         | 2002               |        | 2001    
|                                                 |                                                                                          |                                    |                                          |         |                    |        |         
|Cash flows from operating activities:            |                                                                                          |                                    |                                          |         |                    |        |          |        
|                                                 | Net income (loss)                                                                        |                                    | $                                        | (1,912  | )                  |        | $        | 930     |      
|                                                 | Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                    |                                          |         |                    |        |          |         |      
|                                                 |                                                                                          | Depreciation and amortization      |                                          |         | 1,841              |        |          |         | 6,068 |       
|                                                 |                                                                                          | Deferred income taxes, net         |                                          |         | (804               | )      |          |         | 736   |       
|                                                 |                                                                                          | Changes in assets and liabilities: |                                          |         |                    |        |          |         |       |       
|                                                 |                                                                                          |                                    | Accounts receivable                      |         |                    | (1,930 | )        |         |       | 2,749  |  
|                                                 |                                                                                          |                                    | Accounts payable and accrued liabilities |         |                    | (931   | )        |         |       | (129   | )
|                                                 |                                                                                          |                                    | Other, net                               |         |                    | 237    |          |         |       | (1,168 | )
|                                                 |                                                                                          |                                    |                                          |         |                    |        |          |        
|                                                 | Net cash provided by (used in) operating activities                                      |                                    |                                          | (3,499  | )                  |        |          | 9,186   |      
|Cash flows from investing activities:            |                                                                                          |                                    |                                          |         |                    |        |          |        
|                                                 | Proceeds from sale of business                                                           |                                    |                                          | 1,825   |                    |        |          |        |      
|                                                 | Acquisition-related payments                                                             |                                    |                                          |        |                    |        |          | (525    | )    
|                                                 | Purchases of property and equipment, net                                                 |                                    |                                          | (307    | )                  |        |          | (1,153  | )    
|                                                 |                                                                                          |                                    |                                          |         |                    |        |          |        
|                                                 | Net cash provided by (used in) investing activities                                      |                                    |                                          | 1,518   |                    |        |          | (1,678  | )    
|Cash flows from financing activities:            |                                                                                          |                                    |                                          |         |                    |        |          |        
|                                                 | Repayments under credit facility                                                         |                                    |                                          | (13,000 | )                  |        |          | (11,000 | )    
|                                                 | Borrowings under credit facility                                                         |                                    |                                          | 5,000   |                    |        |          | 1,000   |      
|                                                 | Credit facility amendment fees                                                           |                                    |                                          | (1,657  | )                  |        |          | (1,227  | )    
|                                                 | Repayments of seller notes and other borrowings                                          |                                    |                                          | (248    | )                  |        |          | (149    | )    
|                                                 | Proceeds from employee stock purchase plan                                               |                                    |                                          | 34      |                    |        |          | 282     |      
|                                                 |                                                                                          |                                    |                                          |         |                    |        |          |        
|                                                 | Net cash used in financing activities                                                    |                                    |                                          | (9,871  | )                  |        |          | (11,094 | )    
|                                                 | Net decrease in cash and cash equivalents                                                |                                    |                                          | (11,852 | )                  |        |          | (3,586  | )    
|Cash and cash equivalents at beginning of period |                                                                                          |                                    | 17,557                                   |         |                    |        | 6,233    |        
|                                                 |                                                                                          |                                    |                                          |         |                    |        |          |        
|Cash and cash equivalents at end of period       |                                                                                          | $                                  | 5,705                                    |         |                    | $      | 2,647    |        
|                                                 |                                                                                          |                                    |                                          |         |                    |        |          |        

The accompanying notes are an integral part of these statements.

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.

Debt Compliance

The Company experienced a decline in operating results for the year ended
December 30, 2001 and the first quarter of 2002 as compared to the prior year
due to the weak economic environment, which weakened further following the
events of September 11, 2001. In response to the deterioration in operating
performance, the Company undertook several initiatives beginning in 2001
including the following:



| |  |  | Restructuring actions including the reduction of approximately 31%
of the Companys permanent workforce and office space rationalization
with further headcount and infrastructure rationalization planned in
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                               
|
| |  |  | Reduction in accounts receivable resulting in substantial cash flow
which 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,
with an outstanding balance of $111,000 at March 31, 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.

(2)   Intangible Assets

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

6



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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.

Total intangible assets and accumulated amortization of intangible assets
were $617,259 and $138,550 at March 31, 2002, respectively, and $617,259 and
$138,423 at December 30, 2001, respectively.

The Company adopted Statement of Financial Accounting Standards No. 142
(SFAS 142), Goodwill and Other Intangible Assets, on the first day of fiscal
2002. The provisions of SFAS 142 prohibit the amortization of goodwill and
indefinite-lived intangible assets, require that goodwill and indefinite-lived
intangibles assets be tested annually for impairment (and in interim periods if
certain events occur indicating that the carrying value of goodwill and/or
indefinite-lived intangible assets may be impaired), require that reporting
units be identified for the purpose of assessing potential future impairments
of goodwill, and remove the forty-year limitation on the amortization period of
intangible assets that have finite lives.

SFAS 142 requires that goodwill be tested annually for impairment using a
two-step process. The first step is to identify a potential impairment and, in
transition, this step must be measured as of the beginning of the fiscal year.
However, a company has six months from the date of adoption to complete the
first step. The Company currently expects to complete that first step of the
goodwill impairment test during the second quarter of 2002. The second step of
the goodwill impairment test measures the amount of the impairment loss
(measured as of the beginning of the year of adoption), if any, and must be
completed by the end of the Companys fiscal year. The Company currently
expects that approximately $300,000 to $350,000 of its goodwill will likely be
impaired. While the exact amount of that impairment loss has not been
determined, the Company expects to complete that analysis during the second
quarter of 2002.

The following table sets forth a reconciliation of net income (loss) and
earnings per share information for the quarters ended March 31, 2002 and April
1, 2001, adjusted for the non-amortization provisions of SFAS 142:

|                                       |                                   |   |                |               |   |   |       |      | 
|-------------------------------------- | --------------------------------- | - | -------------- | ------------- | - | - | ----- | ---- | 
|                                       |                                   |   | March 31, 2002 | April 1, 2001
|                                       |                                   |   |                |              
|Net income (loss)                      |                                   | $ | (1,912         | )             |   | $ | 930   |     
|Add: Goodwill amortization, net of tax |                                   |   |               |               |   |   | 2,846 |     
|Adjusted net income (loss)             |                                   | $ | (1,912         | )             |   | $ | 3,776 |     
|Basic earnings per share:              |                                   |   |                |               |   |   |       |     
|                                       | Net income                        |   | $              | (0.07         | ) |   | $     | 0.04 | 
|                                       | Goodwill amortization, net of tax |   |                |              |   |   |       | 0.10 | 
|                                       | Adjusted net income               |   | $              | (0.07         | ) |   | $     | 0.14 | 
|Diluted earnings per share:            |                                   |   |                |               |   |   |       |     
|                                       | Net income                        |   | $              | (0.07         | ) |   | $     | 0.04 | 
|                                       | Goodwill amortization, net of tax |   |                |              |   |   |       | 0.10 | 
|                                       | Adjusted net income               |   | $              | (0.07         | ) |   | $     | 0.14 | 

7



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(3)   Long-term Debt

Long-term debt consisted of the following at March 31, 2002 and December
30, 2001:

|                                                                  |                      |   |           |     |              |   |         |     | 
|----------------------------------------------------------------- | -------------------- | - | --------- | --- | ------------ | - | ------- | --- | 
|                                                                  |                      |   | March 31, |     | December 30,
|                                                                  |                      |   | 2002      |     | 2001        
|                                                                  |                      |   |           |     |             
|5-3/4% Convertible Subordinated Notes due July
2004 (the Notes) |                      | $ | 115,000   |     |              | $ | 115,000 |    
|Bank revolving credit facility                                    |                      |   | 111,000   |     |              |   | 119,000 |    
|Other                                                             |                      |   | 634       |     |              |   | 882     |    
|                                                                  |                      |   |           |     |              |   |         |    
|                                                                  |                      |   | 226,634   |     |              |   | 234,882 |    
|                                                                  | Less current portion |   |           | 634 |              |   |         | 882 | 
|                                                                  |                      |   |           |     |              |   |         |    
|                                                                  |                      | $ | 226,000   |     |              | $ | 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 and provides
for a $136,000 revolving line of credit due January 2003 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. After
January 2003, the Company at its option and provided certain conditions,
including compliance with financial covenants, are met, can further extend the
maturity of the facility in six-month increments up through January 2004. As a
result of these amendments, the Credit Facility, with an outstanding balance of
$111,000 at March 31, 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 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 may have to pay a fee (the Rights Fee) to the
banks in the event of default on the Credit Facility or if the Credit Facility
has not been paid in full by January 1, 2004. The Rights Fee shall be 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 were increased to reflect current market and credit
conditions, and are currently set at prime plus 200 basis points through June
2002, with increases during each six-month period through January 2004.

The principal financial covenants are highly dependent upon the Companys
EBITDA levels, as measured at each quarter end based on the 12-month period
then ended, including 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
non-cash charges. The adjusted EBITDA for the trailing four quarters were
$12,023, $8,817, $6,800, and $3,709, respectively. In addition to the
quarterly covenants, the amended agreement includes EBITDA and liquidity
requirements to be measured based on the five-month period ending May 2002 and
the six-month periods ending November 2002 and May 2003. The Company believes
its margin for compliance is at its lowest level for the November 2002 EBITDA

8



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##### 



covenant. In order to stay in compliance, the Company will need to
generate adjusted EBITDA of at least $3,321 and $7,207 for the five-month
period ending May 2002 and the six-month period ending November 2002,
respectively.

Based on the Companys fiscal 2002 projections, which reflect the
declining demand for the Companys services, offset by reductions in costs
associated with the reduced revenues and lower costs due to 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 quarter 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 future covenants, 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 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 Companys Notes due July 2004. 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.

(4)   Earnings Per Share

The following table reconciles net income (loss) and weighted average
shares outstanding to the amounts used to calculate basic and diluted earnings
per share for each of the quarters ended March 31, 2002 and April 1, 2001:

|                            |                                                    |                                            |   |           |   |          |   |        |     | 
|--------------------------- | -------------------------------------------------- | ------------------------------------------ | - | --------- | - | -------- | - | ------ | --- | 
|                            |                                                    |                                            |   | March 31, |   | April 1,
|                            |                                                    |                                            |   | 2002      |   | 2001    
|                            |                                                    |                                            |   |           |   |         
|Basic earnings per share:   |                                                    |                                            |   |           |   |          |   |       
|                            | Net income (loss)                                  |                                            | $ | (1,912    | ) |          | $ | 930    |    
|                            |                                                    |                                            |   |           |   |          |   |       
|                            | Weighted average common shares outstanding         |                                            |   | 26,704    |   |          |   | 26,183 |    
|                            | Basic earnings per share                           |                                            | $ | (0.07     | ) |          | $ | 0.04   |    
|                            |                                                    |                                            |   |           |   |          |   |       
|Diluted earnings per share: |                                                    |                                            |   |           |   |          |   |       
|                            | Net income (loss)                                  |                                            | $ | (1,912    | ) |          | $ | 930    |    
|                            |                                                    | Add: Interest expense on Notes, net of tax |   |           |  |          |   |        |    | 
|                            |                                                    |                                            |   |           |   |          |   |       
|                            | Diluted net income (loss)                          |                                            | $ | (1,912    | ) |          | $ | 930    |    
|                            | Weighted average common shares outstanding         |                                            |   | 26,704    |   |          |   | 26,183 |    
|                            |                                                    | Add: Dilutive employee stock options       |   |           |  |          |   |        | 165 | 
|                            |                                                    | Add: Assumed conversion of Notes           |   |           |  |          |   |        |    | 
|                            |                                                    |                                            |   |           |   |          |   |       
|                            | Diluted weighted average common shares outstanding |                                            |   | 26,704    |   |          |   | 26,348 |    
|                            | Diluted earnings per share                         |                                            | $ | (0.07     | ) |          | $ | 0.04   |    
|                            |                                                    |                                            |   |           |   |          |   |       

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Stock options to purchase 4,284,821 and 3,715,432 shares of Common Stock
were outstanding during the three months ended March 31, 2002 and April 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.

(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 March
31, 2002 and April 1, 2001:

|                                          |                     |                                |        |                |         |               |       |         |         | 
|----------------------------------------- | ------------------- | ------------------------------ | ------ | -------------- | ------- | ------------- | ----- | ------- | ------- | 
|                                          |                     |                                |        | March 31, 2002 |         | April 1, 2001
|                                          |                     |                                |        |                |         |              
|Revenues                                  |                     |                                |        |                |         |               |       |        
|                                          | IT Services         |                                | $      | 82,308         |         |               | $     | 132,205 |        
|                                          | Commercial Staffing |                                |        | 59,745         |         |               |       | 77,419  |        
|                                          |                     |                                |        |                |         |               |       |        
|                                          |                     | Total revenues                 |        |                | 142,053 |               |       |         | 209,624 | 
|                                          |                     |                                |        |                |         |               |       |        
|Operating income                          |                     |                                |        |                |         |               |       |        
|                                          | IT Services         |                                |        | 4,076          |         |               |       | 9,386   |        
|                                          | Commercial Staffing |                                |        | 1,839          |         |               |       | 5,889   |        
|                                          |                     |                                |        |                |         |               |       |        
|                                          |                     | Total segment operating income |        |                | 5,915   |               |       |         | 15,275  | 
|Corporate expenses                        |                     |                                | 3,920  |                |         |               | 4,074 |        
|Restructuring and rationalization charges |                     |                                | 372    |                |         |               | 447   |        
|Amortization of intangible assets         |                     |                                | 127    |                |         |               | 4,105 |        
|Interest expense                          |                     |                                | 4,288  |                |         |               | 4,751 |        
|                                          |                     |                                |        |                |         |               |       |        
|Income (loss) before income taxes         |                     | $                              | (2,792 | )              |         | $             | 1,898 |        
|                                          |                     |                                |        |                |         |               |       |        

The following table sets forth identifiable assets by segment at March 31,
2002 and December 30, 2001:

|                         |                     |                                |   |           |        |              |   |        |        | 
|------------------------ | ------------------- | ------------------------------ | - | --------- | ------ | ------------ | - | ------ | ------ | 
|                         |                     |                                |   | March 31, |        | December 30,
|                         |                     |                                |   | 2002      |        | 2001        
|                         |                     |                                |   |           |        |             
|Accounts receivable, net |                     |                                |   |           |        |              |   |       
|                         | IT Services         |                                | $ | 61,910    |        |              | $ | 59,313 |       
|                         | Commercial Staffing |                                |   | 27,104    |        |              |   | 27,775 |       
|                         | Corporate           |                                |   | 4         |        |              |   |       |       
|                         |                     |                                |   |           |        |              |   |       
|                         |                     | Total accounts receivable, net |   | $         | 89,018 |              |   | $      | 87,088 | 
|                         |                     |                                |   |           |        |              |   |       

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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 regarding events and financial trends, that may affect the Companys
future operating results or financial position within the meaning of Section
21E of the Securities Exchange Act of 1934 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: 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;
the risk of further violations of New York Stock Exchange continued listing
standards or of New York Stock Exchange delisting; 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.

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Approximately 58% of the Companys first quarter 2002 revenues came from IT
Services and 42% 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.

RESULTS OF OPERATIONS

Quarter Ended March 31, 2002 Versus Quarter Ended April 1, 2001

Revenues.Total revenues decreased 32.2% to $142.1 million in the first
quarter of 2002 from $209.6 million in the first quarter of 2001. IT Services
revenues decreased 37.7% 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 year-end to approximately 2,300 at the end of the first quarter. Commercial
Staffing revenues declined 22.8% to $59.7 million in the first 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 3.3% of
Commercial Staffing revenues in the first quarter of 2002, down from 8.4% in
2001, while the retail component of temporary staffing declined to 68.8% of
Commercial Staffing temporary revenues in the first quarter of 2002, down from
82.9% in 2001. The Company does not expect significant improvements in demand
for its services until the second half of 2002 due to expected ongoing weak
economic conditions. In addition, there can be no guarantee 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
29.2% to $108.3 million in the first quarter of 2002 on the lower revenues.
Gross profit decreased 40.4% to $33.8 million on the lower revenues. Gross
profit as a percentage of revenue decreased 320 basis points to 23.8% in the
first quarter of 2002 from 27.0% in the first 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 will 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 35.7% to $31.9 million in
the first quarter of 2002 from $49.6 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
31% 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 21.2% in the first quarter of
2002 from 20.8% in 2001. In addition, depreciation and amortization expense
decreased to 1.3% of revenues in the first quarter of 2002 from 2.9% in 2001
primarily due to the change in accounting principles eliminating goodwill
amortization in 2002. Goodwill amortization expense was $3.9 million in the
first quarter of 2001.

Restructuring and Rationalization Charges.Beginning in 2001 the Company
implemented a plan to restructure and rationalize certain operations. As a
result, the Company recorded charges totaling $0.4 million
in the first quarter of 2002. These charges were comprised of the
following components: employee severance of $0.2 million and lease termination
charges of $0.2 million.

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Following is a summary of the accrued liability for cash restructuring and
rationalization charges for the quarter ended March 31, 2002:

|                                       |  |           |      |             |  |       |       |       |  |   |      |   |  |   |       |  
|-------------------------------------- |  | --------- | ---- | ----------- |  | ----- | ----- | ----- |  | - | ---- | - |  | - | ----- | -
|                                       |  | Employee  |      | Lease       |  |       |       |       |  |   |      |  
|                                       |  | Severance |      | Termination |  | Other |       | Total
|                                       |  |           |      |             |  |       |       |      
|Accrued liability at December 30,
2001 |  | $         | 42   |             |  | $     | 3,109 |       |  | $ | 583  |   |  | $ | 3,734 |  
|Additions                              |  |           | 186  |             |  |       | 198   |       |  |   | 4    |   |  |   | 388   |  
|Cash payments                          |  |           | (228 | )           |  |       | (301  | )     |  |   | (406 | ) |  |   | (935  | )
|                                       |  |           |      |             |  |       |       |       |  |   |      |   |  |   |       |  
|Accrued liability
at March 31, 2002    |  | $         |     |             |  | $     | 3,006 |       |  | $ | 181  |   |  | $ | 3,187 |  
|                                       |  |           |      |             |  |       |       |       |  |   |      |   |  |   |       |  

Employee severance-related costs include the elimination of both
administrative and income-producing employees. Under the workforce reduction
plan, the Company terminated 65 employees in the first quarter of 2002,
increasing the total workforce reduction to approximately 31% or 460 employees
since the beginning of 2001. Lease termination costs relate primarily to
office closures, branch consolidations and lease space reductions. Other
rationalization expenses of $0.1 million were recorded in the first quarter of
2002 associated with professional services expenses and branding costs.

Of the remaining accrued liability at March 31, 2002, the Company expects
to pay approximately $1.2 million over the next 12 months and the balance,
primarily lease termination payments, over the next eight years.

The Company expects to continue consolidating 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 9.7% to $4.3 million in the
first quarter of 2002 from $4.8 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 7.0%
in the first quarter of 2002, down 60 basis points from 2001. See  
Liquidity and Capital Resources.

Provision (Benefit) for Income Taxes.The effective tax benefit rate of
31.5% in the first quarter of 2002 was lower than the U.S. federal statutory
rate of 35% primarily due to the impact of non-deductible expenses. The
effective tax rate was 51.0% in 2001, higher than the U.S. federal statutory
rate of 35%, primarily due to non-deductible amortization expense and state
income taxes.

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, anticipated tax refunds in 2002 and borrowing
capacity under the Credit Facility will be adequate to meet its diminished
needs for working capital and its capital expenditures.

13



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For the quarter ended March 31, 2002, cash used in operating activities
was $3.5 million compared with cash provided by operating activities of $9.2
million last year. Lower operating cash flows in 2002 resulted primarily as a
result of an increase in accounts receivables since the end of 2001 and lower
operating earnings. In the aggregate, days sales outstanding increased
slightly to 51 days at March 31, 2002 from 50 days at December 30, 2001. Cash
provided by investing activities was $1.5 million during the first quarter of
2002 due primarily to the cash proceeds received from the sale of a business.
Cash used for investing activities of $1.7 million in the first quarter 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 quarter of
2002 was $0.3 million, down from $1.2 million in the first quarter of 2001.
Cash used for financing activities was $9.9 million in the first quarter of
2002, down from $11.1 million last year, as the Company continued to focus on
debt reduction under the Credit Facility.

At March 31, 2002, the Company increased its recorded recoverable income
taxes to $19.2 million based on new tax legislation 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. The Company currently expects to recover approximately $15.0
to $18.0 million of Federal taxes in 2002.

The Credit Facility was amended in February and March 2002 and provides
for a $136.0 million revolving line of credit due January 2003 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. After January 2003, the Company at its option and provided
certain conditions, including compliance with financial covenants, are met, can
further extend the maturity of the facility in six-month increments up through
January 2004. As a result of these amendments, the Credit Facility, with an
outstanding balance of $111.0 million at March 31, 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 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 may have to pay a
fee (the Rights Fee) to the banks in the event of default on the Credit
Facility or if the Credit Facility has not been paid in full by January 1,
2004. The Rights Fee shall be 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 were
increased to reflect current market and credit conditions, and are currently
set at prime plus 200 basis points through June 2002, with increases during
each six-month period through January 2004. As of May 10, 2002, the interest
rate payable under the amended Credit Facility was 6.75%.

The principal financial covenants are highly dependent upon the Companys
EBITDA levels, as measured at each quarter end based on the 12-month period
then ended, including 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
non-cash charges. The adjusted EBITDA for the trailing four quarters were
$12.0 million, $8.8 million, $6.8 million, and $3.7 million, respectively. In
addition to the quarterly covenants, the amended agreement includes EBITDA and
liquidity requirements to be measured based on the five-month period ending May
2002 and the six-month periods ending November 2002 and May 2003. The Company
believes its margin for compliance is at its lowest level for the

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November 2002 EBITDA covenant. In order to stay in compliance, the
Company will need to generate adjusted EBITDA of at least $3.3 million and $7.2
million for the five-month period ending May 2002 and the six-month period
ending November 2002, respectively.

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 15 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 in the second
half of 2002 based on expected 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 current expectations, which reflect the continued
declining demand for the Companys IT services, offset by increasing demand for
its Commercial Staffing services, reductions in costs associated with the
reduced revenues and lower costs due to 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 quarter 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 future covenants, 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 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.

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 Credit Suisse First
Boston affiliate (CSFB) 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 and approved the sale by one of the existing
lenders of its entire position in the Credit Facility to CSFB. This

15



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position consisted of $30.6 million of commitment, or 22.5% of the total
commitments provided under the Credit Facility, and approximately $25.0 million
of outstanding loans as of March 31, 2002. The Company has retained a
financial advisor to assist in discussions with the CSFB 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 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. At the market close on May 10,
2002, the Companys share price closed at $1.39 and total market capitalization
was approximately $37.2 million. As required by the NYSE, the Company has
submitted a plan to the Listings and Compliance Committee of the NYSE
demonstrating how the Company plans to comply with the listing standards by the
June 2002 deadline set by the NYSE. After reviewing the plan, the NYSE has
accepted the plan and the Company is subject to quarterly monitoring for
compliance with the plan. Based upon internal estimates, the Company believes
it will satisfy the listing standards by the NYSE deadline, although it can
give no assurance that it will be able to do so or that it will not violate
other continued listing standards in the future. Should the Company fail to
maintain eligibility for the continued listing of its shares on the NYSE, the
Company believes, although can provide no assurance, that an alternative
trading venue will be available. If the Company were unable to secure an
alternative trading venue that was either a US national securities exchange or
established over-the-counter US trading market, the holders of the Notes would
have the right to require repayment of the Notes, which could lead to a default
under the Notes and a further default and acceleration of outstanding amounts
under the Credit Facility.

RECENT ACCOUNTING PRONOUNCEMENTS

The Company adopted Statement of Financial Accounting Standards No. 142
(SFAS 142), Goodwill and Other Intangible Assets, on the first day of fiscal
2002. The provisions of SFAS 142 prohibit the amortization of goodwill and
indefinite-lived intangible assets, require that goodwill and indefinite-lived
intangibles assets be tested annually for impairment (and in interim periods if
certain events occur indicating that the carrying value of goodwill and/or
indefinite-lived intangible assets may be impaired), require that reporting
units be identified for the purpose of assessing potential future impairments
of goodwill, and remove the forty-year limitation on the amortization period of
intangible assets that have finite lives.

SFAS 142 requires that goodwill be tested annually for impairment using a
two-step process. The first step is to identify a potential impairment and, in
transition, this step must be measured as of the beginning of the fiscal year.
However, a company has six months from the date of adoption to complete the
first step. The Company currently expects to complete that first step of the
goodwill impairment test during the second quarter of 2002. The second step of
the goodwill impairment test measures the amount of the impairment loss
(measured as of the beginning of the year of adoption), if any, and must be
completed by the end of the Companys fiscal year. The Company currently
expects that approximately $300.0 million to $350.0 million of its goodwill
will likely be impaired. While the exact amount of that impairment loss has
not been determined, the Company expects to complete that analysis during the
second quarter of 2002.

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ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Companys outstanding debt under the Credit Facility at March 31,
2002, was $111.0 million. Interest on borrowings under the Credit Facility is
based on the prime rate plus a variable margin. Based on the outstanding
balance at March 31, 2002, a change of 1% in the interest rate would cause a
change in interest expense of approximately $1.1 million on an annual basis.

PART II  OTHER INFORMATION

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  The Company filed two reports on Form 8-K
during the quarter ended March 31, 2001; one such report, filed on
December 31, 2001, included certain exhibits relating to an amendment
to the Companys shareholders. The other, filed on February 12, 2002,
announced extensions to the Companys revolving credit facility.

17



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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: May 15, 2002 |  | By:                                           |  | /s/ Larry L. Enterline                             
|                   |  |                                               |  |                                                    
|                   |  |                                               |  | Larry L. Enterline
Chief Executive Officer         
|                  
|Date: May 15, 2002 |  | By:                                           |  | /s/ James C. Hunt                                  
|                   |  |                                               |  |                                                    
|                   |  |                                               |  | James C. Hunt
President and Chief Financial Officer

18



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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  

19



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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



|# |  | 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.                                                                                                                                                                                                                             

20