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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549







Form 10-Q





(Mark One)


|  |  |                                                                                        
|- |  | ---------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ending September 28, 2003


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

VENTURI PARTNERS, INC.

(Exact name of Registrant as specified in its charter)


|                                |  |                              |  |                       
|------------------------------- |  | ---------------------------- |  | ----------------------
|Delaware                        |  | 7363                         |  | 56-1930691            
|(State or other jurisdiction of |  | (Primary Standard Industrial |  | (I.R.S. employer      
|incorporation or organization)  |  | Classification Code number)  |  | identification number)

Five LakePointe Plaza
2709 Water Ridge Parkway, 2nd Floor
Charlotte, North Carolina 28217
(Address, including zip code, of
Registrants principal executive offices)



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(704) 442-5100




(Registrants telephone number, including area code)




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Personnel Group of America, Inc.




(Former name)




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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 such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of
1934).
Yes o No
x


As of November 7, 2003, 6,089,938 shares of the registrants Common Stock,
$.01 par value, were outstanding.




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VENTURI PARTNERS, INC.
TABLE OF CONTENTS

|                               |  |                                                                                       |  |                                                                     |  |     
|------------------------------ |  | ------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------- |  | ----
|                               |  |                                                                                       |  |                                                                     |  | Page
|PART
I - FINANCIAL INFORMATION |  |                                                                                      
|Item 1.                        |  | Financial Statements (unaudited)                                                      |  |                                                                    
|                               |  |                                                                                       |  | Unaudited Consolidated Statements of Operations                     |  | 3   
|                               |  |                                                                                       |  | Unaudited Consolidated Balance Sheets                               |  | 4   
|                               |  |                                                                                       |  | Unaudited Consolidated Statements of Shareholders Equity
(Deficit) |  | 5   
|                               |  |                                                                                       |  | Unaudited Consolidated Statements of Cash Flows                     |  | 6   
|                               |  |                                                                                       |  | Notes to Unaudited Consolidated Financial Statements                |  | 7   
|Item 2.                        |  | Managements Discussion and Analysis of
Financial Condition and Results of Operations |  | 17                                                                 
|Item 3.                        |  | Quantitative and Qualitative Disclosures
About Market Risk                            |  | 26                                                                 
|Item 4.                        |  | Controls and Procedures                                                               |  | 26                                                                 
|PART
II - OTHER INFORMATION    |  |                                                                                      
|Item 2.                        |  | Changes in Securities and Use of Proceeds                                             |  | 27                                                                 
|Item 4.                        |  | Submission of Matters to Vote of Security Holders                                     |  | 27                                                                 
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                      |  | 29                                                                 
|Signatures                     |  | 30                                                                                   
|Exhibit Index                  |  | 31                                                                                   

2



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##### 



Venturi Partners, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
For the Periods Ended September 28, 2003 and September 29, 2002
(in thousands, except per share data)

|                                                                                          |                                                                          |   |                    |        |                   |   |           |        |           |   |         |        |  |   |          |         |  
|----------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | - | ------------------ | ------ | ----------------- | - | --------- | ------ | --------- | - | ------- | ------ |  | - | -------- | ------- | -
|                                                                                          |                                                                          |   | Three Months Ended |        | Nine Months Ended
|                                                                                          |                                                                          |   | Sept. 28,          |        | Sept. 29,         |   | Sept. 28, |        | Sept. 29,
|                                                                                          |                                                                          |   | 2003               |        | 2002              |   | 2003      |        | 2002     
|                                                                                          |                                                                          |   |                    |        |                   |   |           |        |          
|Revenues                                                                                  |                                                                          | $ | 124,222            |        |                   | $ | 137,681   |        |           | $ | 367,447 |        |  | $ | 421,466  |        
|Direct costs of services                                                                  |                                                                          |   | 96,957             |        |                   |   | 105,965   |        |           |   | 288,469 |        |  |   | 322,640  |        
|                                                                                          |                                                                          |   |                    |        |                   |   |           |        |           |   |         |        |  |   |          |        
|Gross profit                                                                              |                                                                          |   | 27,265             |        |                   |   | 31,716    |        |           |   | 78,978  |        |  |   | 98,826   |        
|Operating expenses:                                                                       |                                                                          |   |                    |        |                   |   |           |        |           |   |         |        |  |   |          |        
|                                                                                          | Selling, general and administrative                                      |   |                    | 23,253 |                   |   |           | 27,488 |           |   |         | 72,749 |  |   |          | 86,925  |  
|                                                                                          | Depreciation and amortization                                            |   |                    | 1,227  |                   |   |           | 1,645  |           |   |         | 3,980  |  |   |          | 5,204   |  
|                                                                                          | Restructuring and rationalization charges                                |   |                    | 236    |                   |   |           | 452    |           |   |         | 2,351  |  |   |          | 1,377   |  
|                                                                                          | Stock option compensation                                                |   |                    | 267    |                   |   |           |       |           |   |         | 267    |  |   |          |        |  
|                                                                                          |                                                                          |   |                    |        |                   |   |           |        |           |   |         |        |  |   |          |        
|Operating income (loss)                                                                   |                                                                          |   | 2,282              |        |                   |   | 2,131     |        |           |   | (369    | )      |  |   | 5,320    |        
|Interest expense                                                                          |                                                                          |   | 196                |        |                   |   | 4,275     |        |           |   | 5,332   |        |  |   | 12,972   |        
|Gain (loss) on financial restructuring, net                                               |                                                                          |   | (28                | )      |                   |   | (549      | )      |           |   | 83,105  |        |  |   | (1,235   | )      
|                                                                                          |                                                                          |   |                    |        |                   |   |           |        |           |   |         |        |  |   |          |        
|Income (loss) before income taxes and cumulative
effect of change in accounting principle |                                                                          |   | 2,058              |        |                   |   | (2,693    | )      |           |   | 77,404  |        |  |   | (8,887   | )      
|Provision (benefit) for income taxes                                                      |                                                                          |   |                   |        |                   |   | (534      | )      |           |   |        |        |  |   | 3,127    |        
|                                                                                          |                                                                          |   |                    |        |                   |   |           |        |           |   |         |        |  |   |          |        
|Income (loss) before cumulative effect of change in
accounting principle                  |                                                                          |   | 2,058              |        |                   |   | (2,159    | )      |           |   | 77,404  |        |  |   | (12,014  | )      
|Cumulative effect of change in accounting principle,
net of taxes                         |                                                                          |   |                   |        |                   |   |          |        |           |   |        |        |  |   | (242,497 | )      
|                                                                                          |                                                                          |   |                    |        |                   |   |           |        |           |   |         |        |  |   |          |        
|Net income (loss)                                                                         |                                                                          | $ | 2,058              |        |                   | $ | (2,159    | )      |           | $ | 77,404  |        |  | $ | (254,511 | )      
|                                                                                          |                                                                          |   |                    |        |                   |   |           |        |           |   |         |        |  |   |          |        
|Basic earnings per common share:                                                          |                                                                          |   |                    |        |                   |   |           |        |           |   |         |        |  |   |          |        
|                                                                                          | Income (loss) before cumulative effect of change in
accounting principle |   | $                  | 0.34   |                   |   | $         | (2.02  | )         |   | $       | 18.60  |  |   | $        | (11.24  | )
|                                                                                          | Cumulative effect of change in accounting principle                      |   |                    |       |                   |   |           |       |           |   |         |       |  |   |          | (226.82 | )
|                                                                                          |                                                                          |   |                    |        |                   |   |           |        |           |   |         |        |  |   |          |        
|                                                                                          | Net income (loss)                                                        |   | $                  | 0.34   |                   |   | $         | (2.02  | )         |   | $       | 18.60  |  |   | $        | (238.06 | )
|                                                                                          |                                                                          |   |                    |        |                   |   |           |        |           |   |         |        |  |   |          |        
|Diluted earnings per common share:                                                        |                                                                          |   |                    |        |                   |   |           |        |           |   |         |        |  |   |          |        
|                                                                                          | Income (loss) before cumulative effect of change in
accounting principle |   | $                  | 0.33   |                   |   | $         | (2.02  | )         |   | $       | 18.60  |  |   | $        | (11.24  | )
|                                                                                          | Cumulative effect of change in accounting principle                      |   |                    |       |                   |   |           |       |           |   |         |       |  |   |          | (226.82 | )
|                                                                                          |                                                                          |   |                    |        |                   |   |           |        |           |   |         |        |  |   |          |        
|                                                                                          | Net income (loss)                                                        |   | $                  | 0.33   |                   |   | $         | (2.02  | )         |   | $       | 18.60  |  |   | $        | (238.06 | )
|                                                                                          |                                                                          |   |                    |        |                   |   |           |        |           |   |         |        |  |   |          |        

The accompanying notes are an integral part of these statements.

3



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##### 



Venturi Partners, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets
September 28, 2003 and December 29, 2002
(in thousands, except per share data)

|                                               |                                                                                                                                      |                                                                                           |                                                      |          |               |         |              |          |         |         |  
|---------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------- | ---------------------------------------------------- | -------- | ------------- | ------- | ------------ | -------- | ------- | ------- | -
|                                               |                                                                                                                                      |                                                                                           |                                                      |          | September 28, |         | December 29,
|                                               |                                                                                                                                      |                                                                                           |                                                      |          | 2003          |         | 2002        
|                                               |                                                                                                                                      |                                                                                           |                                                      |          |               |         |             
|Assets                                         |                                                                                                                                      |                                                                                           |                                                      |          |               |         |              |         
|Current Assets:                                |                                                                                                                                      |                                                                                           |                                                      |          |               |         |              |         
|                                               | Cash and cash equivalents                                                                                                            |                                                                                           | $                                                    | 3,735    |               |         | $            | 22,623   |        
|                                               | Accounts receivable, net of allowance for doubtful accounts of
$3,420 and $2,956 in 2003 and 2002, respectively                      |                                                                                           |                                                      | 72,393   |               |         |              | 76,178   |        
|                                               | Prepaid expenses and other current assets                                                                                            |                                                                                           |                                                      | 3,630    |               |         |              | 3,940    |        
|                                               | Recoverable income taxes                                                                                                             |                                                                                           |                                                      | 125      |               |         |              | 25,476   |        
|                                               |                                                                                                                                      |                                                                                           |                                                      |          |               |         |              |         
|                                               |                                                                                                                                      |                                                                                           | Total current assets                                 |          |               | 79,883  |              |          |         | 128,217 |  
|Property and equipment, net                    |                                                                                                                                      |                                                                                           | 10,074                                               |          |               |         | 13,240       |         
|Goodwill                                       |                                                                                                                                      |                                                                                           | 103,532                                              |          |               |         | 103,532      |         
|Other assets                                   |                                                                                                                                      |                                                                                           | 1,278                                                |          |               |         | 2,417        |         
|                                               |                                                                                                                                      |                                                                                           |                                                      |          |               |         |              |         
|                                               |                                                                                                                                      |                                                                                           | Total assets                                         |          | $             | 194,767 |              |          | $       | 247,406 |  
|                                               |                                                                                                                                      |                                                                                           |                                                      |          |               |         |              |         
|Liabilities and Shareholders Equity (Deficit) |                                                                                                                                      |                                                                                           |                                                      |          |               |         |              |         
|Current liabilities:                           |                                                                                                                                      |                                                                                           |                                                      |          |               |         |              |         
|                                               | Current portion of long-term debt                                                                                                    |                                                                                           | $                                                    |         |               |         | $            | 38,633   |        
|                                               | Accounts payable                                                                                                                     |                                                                                           |                                                      | 10,359   |               |         |              | 9,887    |        
|                                               | Accrued wages, benefits and other                                                                                                    |                                                                                           |                                                      | 63,621   |               |         |              | 62,203   |        
|                                               |                                                                                                                                      |                                                                                           |                                                      |          |               |         |              |         
|                                               |                                                                                                                                      |                                                                                           | Total current liabilities                            |          |               | 73,980  |              |          |         | 110,723 |  
|                                               | Long-term debt -                                                                                                                     |                                                                                           |                                                      |          |               |         |              |          |        
|                                               |                                                                                                                                      | Convertible subordinated notes                                                            |                                                      |          | 5,339         |         |              |          | 115,000 |        
|                                               |                                                                                                                                      | Revolving credit facility (including $6,252 of deferred gain on
debt forgiveness in 2003) |                                                      |          | 57,252        |         |              |          | 65,015  |        
|                                               | Other long-term liabilities                                                                                                          |                                                                                           |                                                      | 9,297    |               |         |              | 9,016    |        
|                                               |                                                                                                                                      |                                                                                           |                                                      |          |               |         |              |         
|                                               |                                                                                                                                      |                                                                                           | Total liabilities                                    |          |               | 145,868 |              |          |         | 299,754 |  
|Commitments and contingencies                  |                                                                                                                                      |                                                                                           |                                                      |          |               |         |              |         
|Shareholders equity (deficit):                |                                                                                                                                      |                                                                                           |                                                      |          |               |         |              |         
|                                               | Preferred stock, $.01 par value; shares authorized 5,000;
no shares issued and outstanding                                           |                                                                                           |                                                      |         |               |         |              |         |        
|                                               | Common stock, $.01 par value; shares authorized 95,000; 6,090 and
1,323 shares issued and outstanding in 2003 and 2002, respectively |                                                                                           |                                                      | 61       |               |         |              | 13       |        
|                                               | Additional paid-in capital                                                                                                           |                                                                                           |                                                      | 295,978  |               |         |              | 315,722  |        
|                                               | Retained earnings (accumulated deficit)                                                                                              |                                                                                           |                                                      | (247,140 | )             |         |              | (324,544 | )      
|                                               | Less common stock held in treasury at cost - no shares and 247 shares
at September 28, 2003 and December 29, 2002, respectively      |                                                                                           |                                                      |         |               |         |              | (43,539  | )      
|                                               |                                                                                                                                      |                                                                                           |                                                      |          |               |         |              |         
|                                               |                                                                                                                                      |                                                                                           | Total shareholders equity (deficit)                 |          |               | 48,899  |              |          |         | (52,348 | )
|                                               |                                                                                                                                      |                                                                                           |                                                      |          |               |         |              |         
|                                               |                                                                                                                                      |                                                                                           | Total liabilities and shareholders equity (deficit) |          | $             | 194,767 |              |          | $       | 247,406 |  
|                                               |                                                                                                                                      |                                                                                           |                                                      |          |               |         |              |         

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

4



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##### 



Venturi Partners, Inc. and Subsidiaries
Consolidated Statements of Shareholders Equity (Deficit)
For the Period Ended September 28, 2003
(in thousands)

|                            |                                                           |  |                 |        |              |   |         |     |              |  |         |         |          |   |          |      |       |   |            |         |          |    |          |        |        |    |        |        |  |    |        |        |  
|--------------------------- | --------------------------------------------------------- |  | --------------- | ------ | ------------ | - | ------- | --- | ------------ |  | ------- | ------- | -------- | - | -------- | ---- | ----- | - | ---------- | ------- | -------- | -- | -------- | ------ | ------ | -- | ------ | ------ |  | -- | ------ | ------ | -
|                            |                                                           |  |                 |        |              |   |         |     |              |  |         |         |          |   |          |      |       |   |            |         |          |    | Retained |        | Common |    |        |        | 
|                            |                                                           |  |                 |        |              |   |         |     |              |  |         |         |          |   |          |      |       |   | Additional |         | Earnings |    | Stock    |        |        |    |       
|                            |                                                           |  | Preferred Stock |        | Common Stock |   | Paid-In |     | (Accumulated |  | Held in |         |          |   |         
|                            |                                                           |  | Shares          |        | Amount       |   | Shares  |     | Amount       |  | Capital |         | Deficit) |   | Treasury |      | Total
|                            |                                                           |  |                 |        |              |   |         |     |              |  |         |         |          |   |          |      |      
|Balance, December 29, 2002  |                                                           |  |                |        |              | $ |        |     |              |  | 33,065  |         |          | $ | 331      |      |       | $ | 315,404    |         |          | ($ | 324,544  | )      |        | ($ | 43,539 | )      |  | ($ | 52,348 | )     
|                            | Non-cash exchange of stock
to 5.75% noteholders           |  |                 | 1,044  |              |   |         | 10  |              |  |         | 20,940  |          |   |          | 209  |       |   |            | 21,823  |          |    |          |       |        |    |        |       |  |    |        | 22,042 |  
|                            | Issuance of common stock
purchase warrants                |  |                 |       |              |   |         |    |              |  |         |        |          |   |          |     |       |   |            | 1,538   |          |    |          |       |        |    |        |       |  |    |        | 1,538  |  
|                            | Cancellation of treasury shares                           |  |                 |       |              |   |         |    |              |  |         | (6,184  | )        |   |          | (62  | )     |   |            | (43,477 | )        |    |          |        |        |    |        | 43,539 |  |    |        |       |  
|                            | 1-for-25 reverse stock split                              |  |                 |       |              |   |         |    |              |  |         | (45,909 | )        |   |          | (459 | )     |   |            | 459     |          |    |          |       |        |    |        |       |  |    |        |       |  
|                            | Cash payment for fractional shares
in reverse stock split |  |                 |       |              |   |         |    |              |  |         |        |          |   |          |     |       |   |            | (4      | )        |    |          |       |        |    |        |       |  |    |        | (4     | )
|                            | Stock option compensation                                 |  |                 |       |              |   |         |    |              |  |         |        |          |   |          |     |       |   |            | 267     |          |    |          |       |        |    |        |       |  |    |        | 267    |  
|                            | Conversion of preferred shares to
common shares           |  |                 | (1,044 | )            |   |         | (10 | )            |  |         | 4,178   |          |   |          | 42   |       |   |            | (32     | )        |    |          |       |        |    |        |       |  |    |        |       |  
|                            | Net income                                                |  |                 |       |              |   |         |    |              |  |         |        |          |   |          |     |       |   |            |        |          |    |          | 77,404 |        |    |        |       |  |    |        | 77,404 |  
|                            |                                                           |  |                 |        |              |   |         |     |              |  |         |         |          |   |          |      |       |   |            |         |          |    |          |        |        |    |        |        |  |    |        |       
|Balance, September 28, 2003 |                                                           |  |                |        |              | $ |        |     |              |  | 6,090   |         |          | $ | 61       |      |       | $ | 295,978    |         |          | ($ | 247,140  | )      |        | $  |       |        |  | $  | 48,899 |       
|                            |                                                           |  |                 |        |              |   |         |     |              |  |         |         |          |   |          |      |       |   |            |         |          |    |          |        |        |    |        |        |  |    |        |       

The accompanying notes are an integral part of these statements.

5



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##### 



Venturi Partners, Inc. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
For the Nine Months Ended September 28, 2003 and September 29, 2002
(in thousands)

|                                                     |                                                                                          |                                                                                                 |                                                     |         |         |           |        |           |         |         |   | 
|---------------------------------------------------- | ---------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | --------------------------------------------------- | ------- | ------- | --------- | ------ | --------- | ------- | ------- | - | 
|                                                     |                                                                                          |                                                                                                 |                                                     |         |         | Sept. 28, |        | Sept. 29,
|                                                     |                                                                                          |                                                                                                 |                                                     |         |         | 2003      |        | 2002     
|                                                     |                                                                                          |                                                                                                 |                                                     |         |         |           |        |          
|Cash flows from operating activities:                |                                                                                          |                                                                                                 |                                                     |         |         |           |        |          
|                                                     | Net income (loss)                                                                        |                                                                                                 | $                                                   | 77,404  |         |           | $      | (254,511  | )      
|                                                     | Adjustments to reconcile net income (loss) to net cash provided
by operating activities: |                                                                                                 |                                                     |         |         |           |        |           |        
|                                                     |                                                                                          | Depreciation and amortization                                                                   |                                                     |         | 3,980   |           |        |           | 5,204   |        
|                                                     |                                                                                          | Amortization of deferred gain on financial restructuring, net                                   |                                                     |         | (1,811  | )         |        |           |        |        
|                                                     |                                                                                          | Stock option compensation                                                                       |                                                     |         | 267     |           |        |           |        |        
|                                                     |                                                                                          | (Gain) loss on financial restructuring, net                                                     |                                                     |         | (83,105 | )         |        |           | 1,235   |        
|                                                     |                                                                                          | Cumulative effect of change in accounting principle, net of deferred tax
benefit of $42,198     |                                                     |         |        |           |        |           | 242,497 |        
|                                                     |                                                                                          | Deferred income taxes on income before cumulative effect of change in
accounting principle, net |                                                     |         |        |           |        |           | 3,287   |        
|                                                     |                                                                                          | Changes in assets and liabilities:                                                              |                                                     |         |         |           |        |           |         |        
|                                                     |                                                                                          |                                                                                                 | Accounts receivable                                 |         |         | 3,785     |        |           |         | 4,535   |  
|                                                     |                                                                                          |                                                                                                 | Recoverable income taxes                            |         |         | 25,351    |        |           |         | 19,217  |  
|                                                     |                                                                                          |                                                                                                 | Accounts payable and accrued liabilities            |         |         | 273       |        |           |         | (361    | )
|                                                     |                                                                                          |                                                                                                 | Other, net                                          |         |         | 956       |        |           |         | 2,239   |  
|                                                     |                                                                                          |                                                                                                 |                                                     |         |         |           |        |          
|                                                     |                                                                                          |                                                                                                 | Net cash provided by operating activities           |         |         | 27,100    |        |           |         | 23,342  |  
|Cash flows from investing activities:                |                                                                                          |                                                                                                 |                                                     |         |         |           |        |          
|                                                     | Purchase of property and equipment, net                                                  |                                                                                                 |                                                     | (642    | )       |           |        | (1,244    | )      
|                                                     | Proceeds from sale of business                                                           |                                                                                                 |                                                     |        |         |           |        | 3,825     |        
|                                                     |                                                                                          |                                                                                                 |                                                     |         |         |           |        |          
|                                                     |                                                                                          |                                                                                                 | Net cash provided by (used in) investing activities |         |         | (642      | )      |           |         | 2,581   |  
|Cash flows from financing activities:                |                                                                                          |                                                                                                 |                                                     |         |         |           |        |          
|                                                     | Repayments under credit facility                                                         |                                                                                                 |                                                     | (47,700 | )       |           |        | (22,000   | )      
|                                                     | Borrowings under credit facility                                                         |                                                                                                 |                                                     | 6,000   |         |           |        | 6,000     |        
|                                                     | Credit facility amendment fees paid                                                      |                                                                                                 |                                                     | (1,680  | )       |           |        | (1,657    | )      
|                                                     | Repayments of other debt, net                                                            |                                                                                                 |                                                     | (648    | )       |           |        | (772      | )      
|                                                     | Restructuring payment to bondholders                                                     |                                                                                                 |                                                     | (1,314  | )       |           |        |          |        
|                                                     | Payment for fractional shares in reverse stock split                                     |                                                                                                 |                                                     | (4      | )       |           |        |          |        
|                                                     | Proceeds from employee stock purchase plan                                               |                                                                                                 |                                                     |        |         |           |        | 72        |        
|                                                     |                                                                                          |                                                                                                 |                                                     |         |         |           |        |          
|                                                     |                                                                                          |                                                                                                 | Net cash used in financing activities               |         |         | (45,346   | )      |           |         | (18,357 | )
|                                                     |                                                                                          |                                                                                                 |                                                     |         |         |           |        |          
|Net increase (decrease) in cash and cash equivalents |                                                                                          |                                                                                                 | (18,888                                             | )       |         |           | 7,566  |          
|Cash and cash equivalents at beginning of period     |                                                                                          |                                                                                                 | 22,623                                              |         |         |           | 17,557 |          
|                                                     |                                                                                          |                                                                                                 |                                                     |         |         |           |        |          
|Cash and cash equivalents at end of period           |                                                                                          | $                                                                                               | 3,735                                               |         |         | $         | 25,123 |          
|                                                     |                                                                                          |                                                                                                 |                                                     |         |         |           |        |          
|Supplemental cash flow information:                  |                                                                                          |                                                                                                 |                                                     |         |         |           |        |          
|                                                     | Cash payments during the period for                                                     |                                                                                                 |                                                     |         |         |           |        |           |        
|                                                     |                                                                                          | Interest                                                                                        |                                                     | $       | 9,507   |           |        | $         | 13,332  |        
|                                                     |                                                                                          | Income taxes                                                                                    |                                                     |         | 2       |           |        |           | 23      |        

The accompanying notes are an integral part of these statements.

6



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##### 



VENTURI PARTNERS, 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 29, 2002. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.

Certain amounts in prior periods have been reclassified to conform to the
2003 presentation, including reclassifying professional fees paid in connection
with the Companys recently completed financial restructuring (See Note 3,
Comprehensive Financial Restructuring) from restructuring and rationalization
charges to gain (loss) on financial restructuring, net.

(2)  Name Change and Reverse Stock Split; Conversion of Preferred Shares

On August 5, 2003, the Company amended and restated its charter as
contemplated in its recently completed financial restructuring. See Note 3,
Comprehensive Financial Restructuring. Among other provisions, the charter
amendment changed the Companys corporate name to Venturi Partners, Inc., and
effected a 1-for-25 reverse split of the Companys Common Stock. The par value
of the Common Stock remained at $0.01 per share. Shareholders equity has been
restated by reclassifying the reduction in par value arising from the reverse
stock split from Common Stock to additional paid-in capital. All references in
the accompanying consolidated financial statements to the number of common
shares, except for authorized share and per share amounts have been restated to
reflect the reverse stock split.

On September 26, 2003, all outstanding shares of the Companys Series B
Convertible Participating Preferred Stock (the Series B Preferred Stock) were
converted into shares of Common Stock in accordance with their terms.

(3) Comprehensive Financial Restructuring

On April 14, 2003, the Company completed a comprehensive financial
restructuring with its senior lenders and the holders of $109,661 outstanding
principal amount of its 5.75% Convertible Subordinated Notes due 2004 (the
5.75% Notes) in which it issued shares of the Companys Common Stock and
Series B Preferred Stock to the participating noteholders in exchange for their
5.75% Notes (the Exchange Transaction).

In the Exchange Transaction, the participating noteholders in the
aggregate were issued 837,617 shares of Common Stock and 1,044,433 shares of
Series B Preferred Stock (which were subsequently converted into 4,177,732
additional shares of Common Stock). These shares of Common Stock and Series B
Preferred Stock represented approximately 82% of the Companys outstanding
capital stock immediately after the Exchange Transaction. The Companys
existing shareholders retained ownership of their outstanding 1,075,248 shares
of Common Stock, which represented approximately 18% of the outstanding capital
stock. In connection with this ownership change, the Company also
reconstituted its Board of Directors to provide for a seven-person Board. The
new Board consists of two representatives designated by the new major
shareholders, the Companys Chief Executive Officer, one incumbent independent
Board member designated by the Company with the consent of the participating
noteholders and three other independent Board members, two of whom were
incumbents, also designated by the participating noteholders. One of these
incumbent directors subsequently retired from the Board; as a result, the Board
currently consists of six members.

7



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##### 



In order to permit the closing of the Exchange Transaction and to provide
for the terms on which the
existing senior lenders would continue to finance the Companys working
capital needs, the Company and its existing senior lenders also executed
definitive loan agreements that provided for certain amendments and maturity
date extensions to the Companys senior revolving credit facility (the Credit
Facility) and eliminated the Equity Appreciation Right (the EAR) held by the
senior lenders (the Senior Debt Restructuring). The Senior Debt
Restructuring provided for the forgiveness of indebtedness in the amount of
$10,300. As a result of the Exchange Transaction and the Senior Debt
Restructuring, the Company used substantially all of its cash on hand, after
payment of transaction expenses, to repay $37,985 of its outstanding credit
facility and eliminated an additional $119,961 of its outstanding indebtedness,
which has resulted in substantial reductions in the Companys interest expense.
No provision or benefit for income taxes was recorded in the second or third
quarters of 2003 since the gain from financial restructuring will not be
subject to income tax and the Company has incurred operating losses for income
tax reporting purposes in 2003 for which no tax benefit has been recognized.

The amended Credit Facility provides for a $70,700 revolving line of
credit due May 1, 2004 and is subject to certain maturity date extensions,
assuming the Company is in compliance with its covenants, in six-month
increments through May 1, 2005. Availability of borrowings under the Credit
Facility is subject to a borrowing base calculated as specified percentages of
the Companys eligible accounts receivable (as defined) in the aggregate. The
Credit Facilitys financial covenants include monthly maintenance of cumulative
EBITDA levels and an interest and subordinated indebtedness coverage ratio
(both as defined in the amended agreement). The Credit Facility also contains
restrictions on the payment of cash dividends on the Companys capital stock
and places additional limitations on share repurchases, acquisitions and
capital expenditures. Finally, to replace the EAR previously included as part
of the Credit Facility, the Company issued common stock purchase warrants to
the lenders under the Credit Facility entitling them to purchase a total of
768,997 shares of Common Stock, or 10% of the outstanding Common Stock on a
fully diluted basis as of the closing date of the financial restructuring.
These warrants are exercisable in whole or part over a 10-year period and their
exercise price is $7.8025 per share, which was based on an assumed equity
valuation for the Company of $60,000. The exercise price for these warrants
exceeded the estimated fair value of the underlying equity at the issuance
date. Interest rates payable under the Credit Facility were set at prime plus
375 basis points through December 2003, with increases during each six-month
period through May 1, 2005.

The Company entered into an agreement with each of the former noteholders
participating in the Exchange Transaction and each of its senior lenders to
provide them with registration rights with respect to the shares of Common
Stock issued in the financial restructuring or acquired upon conversion of the
Series B Preferred Stock, or the shares issuable upon exercise of the warrants,
as applicable.

In connection with the financial restructuring the Company agreed to seek
shareholder approval at the 2003 Annual Meeting of Shareholders to amend and
restate its certificate of incorporation, and on July 24, 2003, the
shareholders approved each of the proposed amendments. In addition to the name
change and reverse stock split described in Note 2 above, the amendments to the
certificate of incorporation, which became effective August 5, 2003, included
the following:



| |  |  | the elimination of provisions that separated the Board of
Directors into three classes and that prohibited action by consent
of shareholders without a meeting;                                                                                                                                               
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | an election by the Company not to be governed by Section 203
of the Delaware General Corporation Law, which restricted the
ability of the Company to engage, directly or indirectly, in a
business combination transaction with a holder of 15% or more of its
voting stock;                                  
|
| |  |  | the addition of provisions requiring a supermajority vote of
the Board of Directors or shareholders to adopt changes to the
certificate of incorporation or bylaws; and                                                                                                                                       
|
| |  |  | the addition of a provision to protect minority shareholders
in connection with certain transactions with a shareholder that
beneficially owns 20% or more of the shares of the Companys capital
stock that are entitled to vote on matters submitted to a vote of
the shareholders (a Significant Holder).

8



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##### 



The Company also amended and restated the shareholder rights agreement
that governs the terms of preferred share purchase rights that currently
accompany the Common Stock. These amendments included, among other things,
exemptions preventing the following from triggering separation of the rights
from the Common Stock: (i) beneficial ownership of capital stock by persons and
entities that beneficially owned 15% or more of the Companys capital stock as
of the date of the financial restructuring or the date that the Series B
Preferred Stock first became convertible into shares of the Companys Common
Stock, and their affiliates; (ii) beneficial ownership by any Significant
Holder of capital stock of the Company acquired in accordance with the amended
and restated certificate of incorporation and with the new tag-along rights
that were also added to the rights agreement as part of the amendment and
restatement; and (iii) beneficial ownership by any third party of capital stock
of the Company acquired in a transfer from a Significant Holder that complied
with the amended and restated certificate of incorporation and the tag-along
rights. Under the tag-along rights, any holder (including certain holders of
more than 2% acting together as a group) of 5% or more of the voting stock of
the Company will be entitled to participate pro rata, for the same amount and
form of consideration and otherwise on substantially the same terms and
conditions, in any transfer by any Significant Holders of capital stock of the
Company of 20% or more of the voting stock of the Company.

The Company also terminated its 1995 Stock Option Plan in connection with
the financial restructuring. Additionally, a number of the Companys employees,
including each of the Companys executive officers at the end of 2002 and all
but one of the Companys 2002 Directors, irrevocably cancelled any and all
rights that they had to exercise any and all stock options that were previously
granted and agreed that all such options would be forfeited to the Company.
These directors and employees held in the aggregate 87,601 of the stock options
that were outstanding under the 1995 Stock Option Plan as of December 29, 2002.
As a result of these voluntary forfeitures, other voluntary forfeitures by
other participants and the expiration of other outstanding options in the
ordinary course of business pursuant to their terms, only 13,975 stock options
remained outstanding under the 1995 Stock Option Plan as of September 28, 2003,
and these options had a weighted average exercise price of $230.58 per share.
Although the 1995 Stock Option Plan has been terminated and no future option
issuances thereunder will be made, these remaining outstanding stock options
will continue to be exercisable in accordance with their terms.

The Companys Board of Directors adopted the 2003 Equity Incentive Plan
(the 2003 Equity Plan) simultaneously with the completion of the Companys
financial restructuring. The 2003 Equity Plan authorizes grants of stock
options, stock appreciation rights (or SARs), restricted stock, deferred
stock awards and performance awards (and dividend equivalent rights relating to
options, SARs, deferred stock and performance awards), in the case of stock or
option awards, for up to 794,835 shares, or 10.3%, of the Companys fully
diluted Common Stock. Awards under the 2003 Equity Plan are to be made to key
employees, directors and consultants as selected by the Board of Directors or
the Compensation Committee, but only if and to the extent that award recipients
have cancelled all remaining stock options that they may have held under the
1995 Stock Option Plan. The duration of any option or SAR granted under the
2003 Equity Plan will not exceed ten years. Awards will generally vest monthly
on a pro rata basis at an annual rate of 25% unless either the Board of
Directors or Compensation Committee approves or a participants employment
agreement provides otherwise. Following a termination of employment, vested
options and/or SARs must be exercised within 3 months (12 months in the case of
death or disability), except that options and SARs terminate immediately upon a
termination for cause as defined in the relevant participants employment
agreement, or as determined in the discretion of the Board of Directors or the
Compensation Committee if no employment agreement exists. Any non-vested
options, SARs or other awards issued under the 2003 Equity Plan will be
forfeited upon any termination. The Board of Directors and Compensation
Committee retain the discretion to extend the post-employment exercise period
of an option or SAR and to accelerate vesting of awards under the 2003 Equity
Plan.

At the time of the restructuring, the Board of Directors approved the
granting of stock options for 503,400 shares, representing 6.5% of the
Companys fully diluted Common Stock, to certain of the Companys executive
officers. Of these initial grants, 348,000 options have an exercise price of
$7.8025 per share, and the other 155,400 options have an exercise price of
$11.7025 per share. The initial stock option grants to these officers vest
monthly at an annual rate of 25%, and each will have 12 months following the
termination of his employment (other than for cause) to exercise vested stock
options held as of the termination date. In addition, the Company granted
4,000 stock options to certain Directors at an exercise price of $7.8025.
These options are fully vested and exercisable upon grant, and the term of each
such option is 10 years. The $7.8025 exercise price

9



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##### 



was based on an aggregate assumed equity value of the Company of $60,000,
and the $11.7025 exercise price was based on an aggregate assumed equity value
of $90,000. The exercise price for these stock options exceeded the estimated
fair value of the underlying equity at the issuance date. Following these
initial grants, 291,435 shares, or 3.8%, of the Companys fully diluted Common
Stock remained authorized for issuance under the 2003 Equity Plan and are
reserved for future grants. The majority of these options granted under the
2003 Equity Plan to date will be subject to variable accounting because they
were granted within six months after the date that options under the 1995 Stock
Option Plan were cancelled. This will result in non-cash compensation expense
in future periods to the extent the fair value of the stock price exceeds the
option exercise price.

Accounting for Financial Restructuring Transactions

The Company recorded the issuance of its equity securities in exchange for
outstanding 5.75% Notes at the fair value of the newly issued equity
securities, with the excess of the debt carrying value over the fair value of
equity securities recorded as a gain. The forgiveness of $10,300 in senior
debt will reduce future interest expense over the term of the amended Credit
Facility, and the $1,110 of fees paid to the senior lenders was reflected as a
reduction in the principal balances outstanding as required under accounting
for troubled debt restructuring. The Company engaged an independent valuation
firm to assist in the determination of fair value of the warrants issued in
connection with the Senior Debt Restructuring and recorded this amount as
additional shareholders equity with a corresponding reduction in the
outstanding senior debt, with such amount recognized as a component of interest
expense over the term of the senior debt. The net gain on financial
restructuring was not classified as an extraordinary item in accordance with
the recently issued Statement of Financial Accounting Standards No. 145,
Recission of FASB Statements No. 4, 44, 64, Amendment of FASB Statement No.
13, and Technical Corrections.

Debt Compliance

The Companys ability to continue operating is largely dependent upon its
ability to maintain compliance with the financial covenants of the Credit
Facility. The financial covenants include a cumulative monthly EBITDA
requirement and a monthly interest and subordinated indebtedness coverage ratio
(both as defined). The amended Credit Facility defines consolidated EBITDA as
consolidated net income before interest expense, income taxes, depreciation and
amortization, non-cash impairment charges, restructuring and rationalization
charges, professional fees relating to the debt restructuring and non-cash
compensation expense for the stock options. These covenants require the
Company to generate EBITDA, as defined, measured on a cumulative monthly basis
in the aggregate amount of $5,946 from April through December 2003. For the
six-month period through September 28, 2003, the Company exceeded the level of
earnings required in the bank covenant. Based on the Companys fiscal 2003 and
2004 projections, which reflect slightly improving economic conditions,
management believes the Company will be able to maintain compliance with the
financial covenants for the next twelve months. The Company also believes that
the operating trends in the first nine months of 2003 support the key
assumptions in its 2003 and 2004 operating plans. 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 the financial covenants. In addition, the interest coverage ratio
adjusts from an interest coverage ratio to an interest and subordinated
indebtedness coverage ratio on May 31, 2004, and while the Company believes it
will be in compliance with its financial covenants, there can be no assurance
that the Company will be able to satisfy this enhanced financial covenant. If
the Company does violate future covenants, it would seek waivers and amendments
from its lenders, but can give no assurance that any such 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. An acceleration of outstanding amounts under the Credit
Facility would also cause a default under, and permit acceleration of, the
Companys remaining outstanding 5.75% 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
further debt restructuring or other reorganization, the closure of certain
operating 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 any such sale of assets would be at depressed prices
that could be significantly lower than the net book value of assets sold and
might not be sufficient to satisfy the Companys liabilities.

10



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##### 



(4) Stock Options

In September 2003, the Company granted an additional 172,700 options under
the 2003 Equity Plan to key employees. These options vest 25% on each
anniversary of the date of grant and have a term of 10 years.

The Company has adopted Statement of Financial Accounting Standards No.
148, Accounting for Stock-Based Compensation  Transition and Disclosure.
The Company plans to continue using the intrinsic-value method of accounting
for stock-based awards granted to employees and, accordingly, does not
currently recognize compensation expense for its stock-based awards to
employees in the Consolidated Statements of Operations, except primarily for
the variable options described below.

In March 2000, the FASB issued Financial Accounting Interpretation No. 44
(FIN 44), Accounting for Certain Transactions involving Stock Compensation,
an interpretation of APB Opinion No. 25, Accounting for Stock Issued to
Employees. FIN 44 requires that stock options issued within six months of the
cancellation date of prior options be accounted for as variable. The majority
of the options granted under the 2003 Equity Plan prior to September 28, 2003
were granted within six months from the date that options granted to the same
recipients under the 1995 Stock Option Plan were cancelled, and therefore,
these new stock options will be subject to variable accounting until they are
exercised, forfeited or expire unexercised.

The following disclosures are presented to reflect the Companys pro forma
net income (loss) for the periods ended September 28, 2003 and September 29,
2002 as if the Company had applied the fair value recognition provision of FASB
Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation. In preparing these disclosures, the Company has
determined the value of all stock options granted under the 1995 Stock Option
Plan, which has been terminated, and the Companys newly adopted 2003 Equity
Plan using the Black-Scholes model and based on the following weighted average
assumptions used for grants:

|                        |  |                    |      |                    |  |  |      |  
|----------------------- |  | ------------------ | ---- | ------------------ |  |  | ---- | -
|                        |  | Period Ended       |      | Period Ended      
|                        |  | September 28, 2003 |      | September 29, 2002
|                        |  |                    |      |                   
|Risk-free interest rate |  |                    | 3.1  | %                  |  |  | 4.1  | %
|Expected dividend yield |  |                    | 0.0  | %                  |  |  | 0.0  | %
|Expected life           |  |                    | 5    |                    |  |  | 5    |  
|Expected volatility     |  |                    | 84.4 | %                  |  |  | 80.3 | %

The fair value of the stock options granted under the 2003 Equity Plan in
the first nine months of 2003 was approximately $2,556. No options were
granted under the 1995 Stock Option Plan in the first nine months of 2003 as
that plan was terminated in connection with the financial restructuring. The
fair value of the stock options granted under the 1995 Stock Option Plan and
the Companys Stock Purchase Plan (which was cancelled effective December 31,
2002) issuances in the first nine months of 2002 was approximately $35. Had
compensation expense been determined consistent with the fair value method,
utilizing the assumptions set forth above and amortized over the vesting
period, the Companys net income (loss) would have been reduced to the
following pro forma amounts:

11



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##### 



|                                                                                          |         |   |                    |      |                   |   |           |       |           |   |        |       |  |   |          |         |  
|----------------------------------------------------------------------------------------- | ------- | - | ------------------ | ---- | ----------------- | - | --------- | ----- | --------- | - | ------ | ----- |  | - | -------- | ------- | -
|                                                                                          |         |   | Three Months Ended |      | Nine Months Ended
|                                                                                          |         |   |                    |      |                  
|                                                                                          |         |   | Sept. 28,          |      | Sept. 29,         |   | Sept. 28, |       | Sept. 29,
|                                                                                          |         |   | 2003               |      | 2002              |   | 2003      |       | 2002     
|                                                                                          |         |   |                    |      |                   |   |           |       |          
|Net income (loss), as reported                                                            |         | $ | 2,058              |      |                   | $ | (2,159    | )     |           | $ | 77,404 |       |  | $ | (254,511 | )      
|Add: Stock option compensation included
in reported net income                            |         |   | 267                |      |                   |   |          |       |           |   | 267    |       |  |   |         |        
|Deduct: Stock option compensation
determined under fair value based method
for all awards |         |   | (272               | )    |                   |   | (24       | )     |           |   | (508   | )     |  |   | (73      | )      
|Tax effect                                                                                |         |   | 2                  |      |                   |   | 10        |       |           |   | 97     |       |  |   | 29       |        
|                                                                                          |         |   |                    |      |                   |   |           |       |           |   |        |       |  |   |          |        
|Pro forma net income (loss)                                                               |         | $ | 2,055              |      |                   | $ | (2,173    | )     |           | $ | 77,260 |       |  | $ | (254,555 | )      
|                                                                                          |         |   |                    |      |                   |   |           |       |           |   |        |       |  |   |          |        
|Earnings per share, as reported:                                                          |         |   |                    |      |                   |   |           |       |           |   |        |       |  |   |          |        
|                                                                                          | Basic   |   | $                  | 0.34 |                   |   | $         | (2.02 | )         |   | $      | 18.60 |  |   | $        | (238.06 | )
|                                                                                          | Diluted |   | $                  | 0.33 |                   |   | $         | (2.02 | )         |   | $      | 18.60 |  |   | $        | (238.06 | )
|Pro forma earnings per share:                                                             |         |   |                    |      |                   |   |           |       |           |   |        |       |  |   |          |        
|                                                                                          | Basic   |   | $                  | 0.34 |                   |   | $         | (2.03 | )         |   | $      | 18.57 |  |   | $        | (238.10 | )
|                                                                                          | Diluted |   | $                  | 0.33 |                   |   | $         | (2.03 | )         |   | $      | 18.57 |  |   | $        | (238.10 | )

(5) Restructuring and Rationalization Charges

Beginning in 2001, the Company implemented a plan to restructure and
rationalize certain operations. As a result, the Company recorded the
following charges:

|                                                |  |                    |     |                   |  |           |     |           |  |   |       |  |  |   |       | 
|----------------------------------------------- |  | ------------------ | --- | ----------------- |  | --------- | --- | --------- |  | - | ----- |  |  | - | ----- | 
|                                                |  | Three Months Ended |     | Nine Months Ended
|                                                |  | Sept. 28,          |     | Sept. 29,         |  | Sept. 28, |     | Sept. 29,
|                                                |  | 2003               |     | 2002              |  | 2003      |     | 2002     
|                                                |  |                    |     |                   |  |           |     |          
|Employee severance                              |  | $                  | 90  |                   |  | $         | 389 |           |  | $ | 405   |  |  | $ | 1,240 | 
|Lease abandonment and termination costs         |  |                    | 129 |                   |  |           |    |           |  |   | 1,751 |  |  |   | 90    | 
|Property abandonment charges                    |  |                    |    |                   |  |           | 63  |           |  |   | 130   |  |  |   | 47    | 
|Other                                           |  |                    | 17  |                   |  |           |    |           |  |   | 65    |  |  |   |      | 
|                                                |  |                    |     |                   |  |           |     |           |  |   |       |  |  |   |       | 
|Total restructuring and rationalization charges |  | $                  | 236 |                   |  | $         | 452 |           |  | $ | 2,351 |  |  | $ | 1,377 | 
|                                                |  |                    |     |                   |  |           |     |           |  |   |       |  |  |   |       | 

Following is a summary of the accrued liability for cash restructuring and
rationalization charges for the nine months ended September 28, 2003:

|                                        |  |           |      |       |  |       |        |       |  |   |      |   |  |   |        |  
|--------------------------------------- |  | --------- | ---- | ----- |  | ----- | ------ | ----- |  | - | ---- | - |  | - | ------ | -
|                                        |  | Employee  |      | Lease |  |       |        |       |  |   |      |  
|                                        |  | Severance |      | Costs |  | Other |        | Total
|                                        |  |           |      |       |  |       |        |      
|Accrued liability at December 29, 2002  |  | $         | 559  |       |  | $     | 4,658  |       |  | $ | 84   |   |  | $ | 5,301  |  
|Charges                                 |  |           | 405  |       |  |       | 1,751  |       |  |   | 65   |   |  |   | 2,221  |  
|Cash payments                           |  |           | (786 | )     |  |       | (1,195 | )     |  |   | (149 | ) |  |   | (2,130 | )
|                                        |  |           |      |       |  |       |        |       |  |   |      |   |  |   |        |  
|Accrued liability at September 28, 2003 |  | $         | 178  |       |  | $     | 5,214  |       |  | $ |     |   |  | $ | 5,392  |  
|                                        |  |           |      |       |  |       |        |       |  |   |      |   |  |   |        |  

Employee severance-related costs included the elimination of both
administrative and income-producing employees. Under the workforce reduction
plan, approximately 13.4% of the Companys permanent workforce, or 123
employees, was eliminated during the first nine months of 2003. Lease
abandonment and termination costs related primarily to office closures, branch
consolidations and leased space reductions.

Of the remaining accrued liability at September 28, 2003, the Company
expects to pay approximately $1,868 over the next twelve months and the
balance, primarily lease payments, over the following seven years.

12



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##### 



(6) Goodwill and Other Intangible Assets

Effective at the beginning of 2002, the Company adopted Statement of
Financial Accounting Standards No. 142. The provisions of SFAS No. 142
prohibit the amortization of goodwill and indefinite-lived intangible assets
and require that goodwill and indefinite-lived intangibles assets be tested at
least annually for impairment. In the second quarter of 2002, the Company
completed its initial valuation as of the adoption date, December 31, 2001, and
in the fourth quarter of 2002 completed its annual test for impairment. In
order to assess the fair value of its goodwill, the Company engaged an
independent valuation firm to assist in determining the fair value. The fair
value of each of the Companys two reporting units was calculated as of
December 31, 2001 and December 29, 2002, on an enterprise value basis using the
market multiple approach and discounted cash flow approach. Under the market
multiple approach, market ratios and performance fundamentals relating to
similar public companies stock prices or enterprise values were applied to the
reporting units to determine their enterprise value. Under the discounted cash
flow approach, the indicated enterprise value was determined using the present
value of the projected future cash flows to be generated considering
appropriate discount rates. The discount rates used in the calculation
reflected all associated risks of realizing the projected future cash flows.
Certain of the valuation assumptions were based on managements expectations
for future performance of the Technology Services and Staffing Services
reporting units. These assumptions include expected time frame of technology
spending and broader economic recoveries as well as future growth rates in the
Technology Services and Staffing Services businesses. A relatively high
discount rate of 17% was utilized in the discounted cash flow valuation
approach due principally to the inherent uncertainties associated with these
assumptions.

Based upon the results of the initial valuation, which was completed in
the second quarter of 2002, the Company recorded a goodwill impairment charge
of $284,695 ($242,497 net of an income tax benefit of $42,198) as a cumulative
effect of the change in accounting principle.

In the fourth quarter of 2002, the Company performed its annual impairment
test and recorded an impairment charge of $89,935 for goodwill associated with
its Technology Services operations. The Company experienced lower than
expected operating profits and cash flows in 2002 for the Technology Services
reporting unit. As a result of this trend and the overall industry
expectations, the projected operating profits and cash flows for Technology
Services operations were reduced for the next five years resulting in a
reduction in the fair value of the Companys goodwill. These projections
reflect expectation of further declines in corporate information technology
spending levels through 2003 with recovery beginning in 2004. The decrease in
fair value resulted in the recognition of the $89,935 impairment loss. The
Companys impairment assessment as of December 29, 2002 and related impairment
provision for the Technology Services division reflected the decline in the
business and outlook as of that date and contemplated the completion of the
financial restructuring originally agreed upon in November 2002. As the
financial restructuring was completed as planned in April 2003 and the business
environment in which we operate has not changed significantly from December 29,
2002, the Company presently is not required to perform an updated formal
impairment analysis until the annual test required in the fourth quarter of
2003.

The following table sets forth a reconciliation of intangible assets
subject to amortization, which are included in other assets on the Consolidated
Balance Sheets, by intangible asset class as of September 28, 2003 and December
29, 2002:

|                       |                                                 |   |                    |     |                   |   |      |      |        |   |              |    |             |   |       |       |  |   |        |        |   |   |     |     | 
|---------------------- | ----------------------------------------------- | - | ------------------ | --- | ----------------- | - | ---- | ---- | ------ | - | ------------ | -- | ----------- | - | ----- | ----- |  | - | ------ | ------ | - | - | --- | --- | 
|                       |                                                 |   | September 28, 2003 |     | December 29, 2002
|                       |                                                 |   |                    |     |                  
|                       |                                                 |   | Gross              |     |                   |   |      |      |        |   |              |    | Gross       |   |       |       |  |   |        |        |  
|                       |                                                 |   | Carrying           |     | Accumulated       |   |      |      |        |   | Carrying     |    | Accumulated |   |       |       | 
|                       |                                                 |   | Amount             |     | Amortization      |   | Net  |      | Amount |   | Amortization |    | Net        
|                       |                                                 |   |                    |     |                   |   |      |      |        |   |              |    |            
|Non-compete agreements |                                                 | $ | 517                |     |                   | $ | (496 | )    |        | $ | 21           |    |             | $ | 2,413 |       |  | $ | (2,223 | )      |   | $ | 190 |    
|Trade names            |                                                 |   | 29                 |     |                   |   | (19  | )    |        |   | 10           |    |             |   | 29    |       |  |   | (17    | )      |   |   | 12  |    
|                       |                                                 |   |                    |     |                   |   |      |      |        |   |              |    |             |   |       |       |  |   |        |        |   |   |     |    
|                       | Total intangible assets
subject to amortization |   | $                  | 546 |                   |   | $    | (515 | )      |   | $            | 31 |             |   | $     | 2,442 |  |   | $      | (2,240 | ) |   | $   | 202 | 
|                       |                                                 |   |                    |     |                   |   |      |      |        |   |              |    |             |   |       |       |  |   |        |        |   |   |     |    

Non-compete agreements are amortized over a period of five years and trade
names are amortized over a period of 10 years. Amortization expense for the
nine months ended September 28, 2003 and September 29, 2002 was $172 and $369,
respectively.

13



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##### 



(7) Long-term Debt

Long-term debt consisted of the following at September 28, 2003 and
December 29, 2002:

|                                              |  |           |        |          |  |   |         | 
|--------------------------------------------- |  | --------- | ------ | -------- |  | - | ------- | 
|                                              |  | Sept. 28, |        | Dec. 29,
|                                              |  | 2003      |        | 2002    
|                                              |  |           |        |         
|5.75% Notes due July 2004                     |  | $         | 5,339  |          |  | $ | 115,000 | 
|Revolving credit facility                     |  |           | 51,000 |          |  |   | 103,000 | 
|Deferred gain on financial restructuring, net |  |           | 6,252  |          |  |   |        | 
|Other                                         |  |           |       |          |  |   | 648     | 
|                                              |  |           |        |          |  |   |         | 
|                                              |  |           | 62,591 |          |  |   | 218,648 | 
|Less current portion                          |  |           |       |          |  |   | 38,633  | 
|                                              |  |           |        |          |  |   |         | 
|                                              |  | $         | 62,591 |          |  | $ | 180,015 | 
|                                              |  |           |        |          |  |   |         | 

The remaining 5.75% Notes not exchanged are due July 2004. Interest on the
5.75% Notes is payable semi-annually. The 5.75% Notes are convertible into
Common Stock of the Company at any time before maturity at an initial
conversion price of $445.31 per share. Beginning in July 2000, the Company was
permitted to redeem the 5.75% Notes initially at 103.29% and at decreasing
prices thereafter to 100% at maturity, in each case together with accrued
interest. The 5.75% Notes are subordinated to all present and future senior
indebtedness of the Company (as defined), including indebtedness under the
Companys Credit Facility.

As a result of the completion of the Companys financial restructuring and
the execution of amendments and maturity date extensions, the Credit Facility
provides for a $70,700 revolving line of credit due May 1, 2004 and is subject
to certain maturity date extensions through May 1, 2005. The Company believes
it will satisfy the requirements for extension beyond September 2004;
therefore, the outstanding balance under the Credit Facility, which was $51,000
at September 28, 2003, was classified as long-term in the consolidated balance
sheet. In addition, the Company intends to refinance the 5.75% Notes with
borrowings under its Credit Facility and therefore, has classified the 5.75%
Notes as long-term at September 28, 2003. See Note 3, Comprehensive Financial
Restructuring.

The deferred gain on financial restructuring, net is comprised of the
$10,300 senior debt forgiven, offset by certain fees paid and common stock
purchase warrants issued to the senior lenders. The Company accounted for this
transaction in accordance with Statement of Financial Accounting Standards No.
15, Accounting by Debtors and Creditors for Troubled Debt Restructurings,
which requires the deferred gain on financial restructuring, net to be
amortized, reducing future interest expense, over the term of the amended
Credit Facility. For the quarter ended September 28, 2003, interest expense
was $196, which is net of amortization of deferred gain on financial
restructuring of $987. Interest rates payable under the Credit Facility are
currently set at prime plus 375 basis points through December 31, 2003.

Four former noteholders, now significant shareholders, also are senior
lenders under the Credit Facility, holding 52.5% of the facility commitments as
of October 31, 2003.

14



---



##### 



(8) 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 periods ended September 28, 2003 and September 29,
2002:

|                                                   |                                                                                  |  |                    |        |                   |  |           |        |           |  |           |        |  |  |           |          |  
|-------------------------------------------------- | -------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | --------- | ------ | --------- |  | --------- | ------ |  |  | --------- | -------- | -
|                                                   |                                                                                  |  | Three Months Ended |        | Nine Months Ended
|                                                   |                                                                                  |  | Sept. 28,          |        | Sept. 29,         |  | Sept. 28, |        | Sept. 29,
|                                                   |                                                                                  |  | 2003               |        | 2002              |  | 2003      |        | 2002     
|                                                   |                                                                                  |  |                    |        |                   |  |           |        |          
|Basic earnings per share:                          |                                                                                  |  |                    |        |                   |  |           |        |           |  |           |        |  |  |           |         
|                                                   | Income (loss) before cumulative effect of change
in accounting principle         |  | $                  | 2,058  |                   |  | $         | (2,159 | )         |  | $         | 77,404 |  |  | $         | (12,014  | )
|                                                   | Cumulative effect of change in accounting principle                              |  |                    |       |                   |  |           |       |           |  |           |       |  |  |           | (242,497 | )
|                                                   |                                                                                  |  |                    |        |                   |  |           |        |           |  |           |        |  |  |           |          |  
|                                                   | Net income (loss)                                                                |  | $                  | 2,058  |                   |  | $         | (2,159 | )         |  | $         | 77,404 |  |  | $         | (254,511 | )
|                                                   |                                                                                  |  |                    |        |                   |  |           |        |           |  |           |        |  |  |           |          |  
|Weighted average common shares outstanding         |                                                                                  |  | 6,090,199          |        |                   |  | 1,070,119 |        |           |  | 4,161,484 |        |  |  | 1,069,123 |         
|                                                   |                                                                                  |  |                    |        |                   |  |           |        |           |  |           |        |  |  |           |          |  
|Basic earnings per share:                          |                                                                                  |  |                    |        |                   |  |           |        |           |  |           |        |  |  |           |         
|                                                   | Income (loss) before cumulative effect of change
in accounting principle         |  | $                  | 0.34   |                   |  | $         | (2.02  | )         |  | $         | 18.60  |  |  | $         | (11.24   | )
|                                                   | Cumulative effect of change in accounting principle                              |  |                    |       |                   |  |           |       |           |  |           |       |  |  |           | (226.82  | )
|                                                   |                                                                                  |  |                    |        |                   |  |           |        |           |  |           |        |  |  |           |          |  
|                                                   | Net income (loss)                                                                |  | $                  | 0.34   |                   |  | $         | (2.02  | )         |  | $         | 18.60  |  |  | $         | (238.06  | )
|                                                   |                                                                                  |  |                    |        |                   |  |           |        |           |  |           |        |  |  |           |          |  
|Diluted earnings per share:                        |                                                                                  |  |                    |        |                   |  |           |        |           |  |           |        |  |  |           |         
|                                                   | Income (loss) before cumulative effect of change
in accounting principle         |  | $                  | 2,058  |                   |  | $         | (2,159 | )         |  | $         | 77,404 |  |  | $         | (12,014  | )
|                                                   | Add: Interest expense on 5.75% Notes, net of tax                                 |  |                    |       |                   |  |           |       |           |  |           |       |  |  |           |         |  
|                                                   |                                                                                  |  |                    |        |                   |  |           |        |           |  |           |        |  |  |           |          |  
|                                                   | Diluted income (loss) before cumulative effect of
change in accounting principle |  |                    | 2,058  |                   |  |           | (2,159 | )         |  |           | 77,404 |  |  |           | (12,014  | )
|                                                   | Cumulative effect of change in accounting principle                              |  |                    |       |                   |  |           |       |           |  |           |       |  |  |           | (242,497 | )
|                                                   |                                                                                  |  |                    |        |                   |  |           |        |           |  |           |        |  |  |           |          |  
|                                                   | Diluted net income (loss)                                                        |  | $                  | 2,058  |                   |  | $         | (2,159 | )         |  | $         | 77,404 |  |  | $         | (254,511 | )
|                                                   |                                                                                  |  |                    |        |                   |  |           |        |           |  |           |        |  |  |           |          |  
|Weighted average common shares outstanding         |                                                                                  |  | 6,090,199          |        |                   |  | 1,070,119 |        |           |  | 4,161,484 |        |  |  | 1,069,123 |         
|                                                   | Add: Dilutive stock options and warrants                                         |  |                    | 81,233 |                   |  |           |       |           |  |           |       |  |  |           |         |  
|                                                   | Add: Assumed conversion of 5.75% Notes                                           |  |                    |       |                   |  |           |       |           |  |           |       |  |  |           |         |  
|                                                   |                                                                                  |  |                    |        |                   |  |           |        |           |  |           |        |  |  |           |          |  
|Diluted weighted average common shares outstanding |                                                                                  |  | 6,171,432          |        |                   |  | 1,070,119 |        |           |  | 4,161,484 |        |  |  | 1,069,123 |         
|                                                   |                                                                                  |  |                    |        |                   |  |           |        |           |  |           |        |  |  |           |          |  
|Diluted earnings per share:                        |                                                                                  |  |                    |        |                   |  |           |        |           |  |           |        |  |  |           |         
|                                                   | Income (loss) before cumulative effect of change
in accounting principle         |  | $                  | 0.33   |                   |  | $         | (2.02  | )         |  | $         | 18.60  |  |  | $         | (11.24   | )
|                                                   | Cumulative effect of change in accounting principle                              |  |                    |       |                   |  |           |       |           |  |           |       |  |  |           | (226.82  | )
|                                                   |                                                                                  |  |                    |        |                   |  |           |        |           |  |           |        |  |  |           |          |  
|                                                   | Net income (loss)                                                                |  | $                  | 0.33   |                   |  | $         | (2.02  | )         |  | $         | 18.60  |  |  | $         | (238.06  | )
|                                                   |                                                                                  |  |                    |        |                   |  |           |        |           |  |           |        |  |  |           |          |  

Net income (loss) per common share is based on the weighted average number
of common and common equivalent shares outstanding in each period. The gain
(loss) on financial restructuring, net of ($28) and $83,105, for the three
months and nine months ended September 28, 2003, respectively, had a $0.00 and
$19.97 per share impact, respectively.

Stock options to purchase 339,075 and 116,817 shares of Common Stock were
outstanding under the 2003 Equity Plan and the 1995 Stock Option Plan during
the quarters ended September 28, 2003 and September 29, 2002, respectively, but
were excluded from the computation of earnings per diluted share because their
effect was antidilutive. The conversion of the remaining outstanding 5.75%
Notes into 11,989 common shares was also excluded from the computation of
earnings per diluted share because its effect was antidilutive.

15



---



##### 



(9) Segment Information:

The Company is organized in two segments: Technology Services and
Staffing Services. Technology Services provides technical staffing, training
and information technology consulting services and technology tools for human
capital management. Staffing Services 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 unallocated corporate expenses, restructuring and rationalization
charges, stock option compensation, amortization of intangible assets, interest
expense, gain (loss) on financial restructuring, net and income taxes. Because
of the Companys substantial goodwill, 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 Technology Services and Staffing Services for the periods ended
September 28, 2003 and September 29, 2002:

|                                                 |                                          |                                            |       |                    |         |                   |       |           |         |           |        |         |         |  |        |         |         | 
|------------------------------------------------ | ---------------------------------------- | ------------------------------------------ | ----- | ------------------ | ------- | ----------------- | ----- | --------- | ------- | --------- | ------ | ------- | ------- |  | ------ | ------- | ------- | 
|                                                 |                                          |                                            |       | Three Months Ended |         | Nine Months Ended
|                                                 |                                          |                                            |       | Sept. 28,          |         | Sept. 29,         |       | Sept. 28, |         | Sept. 29,
|                                                 |                                          |                                            |       | 2003               |         | 2002              |       | 2003      |         | 2002     
|                                                 |                                          |                                            |       |                    |         |                   |       |           |         |          
|Total revenues                                   |                                          |                                            |       |                    |         |                   |       |           |         |           |        |         |         |  |        |        
|                                                 | Technology services                      |                                            | $     | 60,914             |         |                   | $     | 70,041    |         |           | $      | 181,302 |         |  | $      | 229,980 |        
|                                                 | Staffing services                        |                                            |       | 63,308             |         |                   |       | 67,640    |         |           |        | 186,145 |         |  |        | 191,486 |        
|                                                 |                                          |                                            |       |                    |         |                   |       |           |         |           |        |         |         |  |        |         |        
|                                                 |                                          | Total revenues                             |       |                    | 124,222 |                   |       |           | 137,681 |           |        |         | 367,447 |  |        |         | 421,466 | 
|Gross profit                                     |                                          |                                            |       |                    |         |                   |       |           |         |           |        |         |         |  |        |        
|                                                 | Technology services                      |                                            |       | 14,463             |         |                   |       | 16,560    |         |           |        | 42,038  |         |  |        | 56,063  |        
|                                                 | Staffing services                        |                                            |       | 12,802             |         |                   |       | 15,156    |         |           |        | 36,940  |         |  |        | 42,763  |        
|                                                 |                                          |                                            |       |                    |         |                   |       |           |         |           |        |         |         |  |        |         |        
|                                                 |                                          | Total gross profit                         |       |                    | 27,265  |                   |       |           | 31,716  |           |        |         | 78,978  |  |        |         | 98,826  | 
|Operating income                                 |                                          |                                            |       |                    |         |                   |       |           |         |           |        |         |         |  |        |        
|                                                 | Technology services                      |                                            |       | 3,092              |         |                   |       | 3,210     |         |           |        | 6,872   |         |  |        | 11,020  |        
|                                                 | Staffing services                        |                                            |       | 3,238              |         |                   |       | 3,683     |         |           |        | 6,452   |         |  |        | 8,215   |        
|                                                 |                                          |                                            |       |                    |         |                   |       |           |         |           |        |         |         |  |        |         |        
|                                                 |                                          | Total segment operating income, as defined |       |                    | 6,330   |                   |       |           | 6,893   |           |        |         | 13,324  |  |        |         | 19,235  | 
|Unallocated corporate expenses                   |                                          |                                            | 3,513 |                    |         |                   | 4,191 |           |         |           | 10,903 |         |         |  | 12,169 |        
|Restructuring and rationalization charges        |                                          |                                            | 236   |                    |         |                   | 452   |           |         |           | 2,351  |         |         |  | 1,377  |        
|Stock option compensation                        |                                          |                                            | 267   |                    |         |                   |      |           |         |           | 267    |         |         |  |       |        
|Amortization of intangible assets                |                                          |                                            | 32    |                    |         |                   | 119   |           |         |           | 172    |         |         |  | 369    |        
|Interest expense                                 |                                          |                                            | 196   |                    |         |                   | 4,275 |           |         |           | 5,332  |         |         |  | 12,972 |        
|Gain (loss) on financial restructuring, net      |                                          |                                            | (28   | )                  |         |                   | (549  | )         |         |           | 83,105 |         |         |  | (1,235 | )      
|                                                 |                                          |                                            |       |                    |         |                   |       |           |         |           |        |         |         |  |        |         |        
|Income (loss) before income taxes and cumulative |                                          |                                            |       |                    |         |                   |       |           |         |           |        |         |         |  |        |        
|                                                 | effect of change in accounting principle |                                            | $     | 2,058              |         |                   | $     | (2,693    | )       |           | $      | 77,404  |         |  | $      | (8,887  | )      
|                                                 |                                          |                                            |       |                    |         |                   |       |           |         |           |        |         |         |  |        |         |        

The following table sets forth identifiable assets by segment at September
28, 2003 and December 29, 2002:

|                         |                     |                                |   |           |        |              |   |        |        | 
|------------------------ | ------------------- | ------------------------------ | - | --------- | ------ | ------------ | - | ------ | ------ | 
|                         |                     |                                |   | Sept. 28, |        | December 29,
|                         |                     |                                |   | 2003      |        | 2002        
|                         |                     |                                |   |           |        |             
|Accounts receivable, net |                     |                                |   |           |        |              |   |       
|                         | Technology services |                                | $ | 47,046    |        |              | $ | 46,318 |       
|                         | Staffing services   |                                |   | 25,347    |        |              |   | 29,860 |       
|                         |                     |                                |   |           |        |              |   |        |       
|                         |                     | Total accounts receivable, net |   | $         | 72,393 |              |   | $      | 76,178 | 
|                         |                     |                                |   |           |        |              |   |        |       

16



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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 statements that are forward-looking statements
regarding events and financial trends that may affect the Companys future
operating results or financial position. 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 expected 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;                                                                                                                                                                                                                                                
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | continuing weakness or further reductions in corporate information
technology spending levels;                                                                                                                                                                                                                                                                               
|
| |  |  | 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 the Companys services, on the Companys ability to maintain
or improve its operating margins;                                                                                                                                                                                                   
|
| |  |  | an Internal Revenue Service, State or local government audit of the
Companys income and other tax returns and the risk that assessments
for additional taxes, penalties and interest could be levied against
the Company; and that we may have insufficient capital resources to
fund the payment of additional taxes, penalties and interest if this
amount is substantial;
|
| |  |  | the entry of new competitors into the marketplace or expansion by
existing competitors;                                                                                                                                                                                                                                                                                      
|
| |  |  | the Companys success in attracting, training and retaining
qualified management personnel and other staff employees;                                                                                                                                                                                                                                                        
|
| |  |  | reductions in the supply of qualified candidates for temporary
employment or the Companys ability to attract qualified candidates;                                                                                                                                                                                                                                          
|
| |  |  | 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 risk in an uncertain economic environment of increased
incidences of employment disputes, employment litigation and workers
compensation claims;                                                                                                                                                                                                                        
|
| |  |  | the risk that further cost cutting or restructuring activities
undertaken by the Company could cause an adverse impact on certain of
the Companys operations;                                                                                                                                                                                                               
|
| |  |  | economic declines that affect the Companys liquidity or ability to
comply with its loan covenants;                                                                                                                                                                                                                                                                          
|
| |  |  | the risks of defaults under the Companys credit agreements or the
demand by any holder of the Companys remaining outstanding 5.75% Notes
for repayment following the occurrence of a repurchase event under the
indenture applicable to the 5.75% Notes;                                                                                                                   
|
| |  |  | adverse changes in credit and capital markets conditions that may
affect the Companys ability to obtain financing or refinancing on
favorable terms;                                                                                                                                                                                                                        
|
| |  |  | adverse changes to managements periodic estimates of future cash
flows that may affect managements assessment of its ability to fully
recover its goodwill;                                                                                                                                                                                                                
|
| |  |  | whether governments will impose additional regulations or licensing
requirements on staffing services businesses in particular or on
employer/employee relationships in general; and                                                                                                                                                                                         
|
| |  |  | other matters discussed in this report and the Companys other SEC
filings.                                                                                                                                                                                                                                                                                                  

17



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##### 



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

General

The Company is organized into two Divisions: the Technology Services
division (Technology 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 Staffing Services
division (Staffing Services), which provides a variety of temporary office,
clerical, accounting and finance, light technical and light industrial staffing
services. Approximately 49% of the Companys third quarter 2003 revenues came
from Technology Services and 51% came from Staffing Services.

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

Comprehensive Financial Restructuring

On April 14, 2003, the Company completed a comprehensive financial
restructuring with its senior lenders and the holders of $109.7 million
outstanding principal amount of its 5.75% Convertible Subordinated Notes due
2004 (the 5.75% Notes) in which it issued shares of the Companys Common
Stock and Series B Convertible Participating Preferred Stock (the Series B
Preferred Stock) to the participating noteholders in exchange for their 5.75%
Notes (the Exchange Transaction).

In the Exchange Transaction, the participating noteholders in the
aggregate were issued 837,617 shares of Common Stock and 1,044,433 shares of
Series B Preferred Stock (which were subsequently converted into 4,177,732
additional shares of Common Stock). These shares of Common Stock and Series B
Preferred Stock represented approximately 82% of the Companys outstanding
capital stock immediately after the Exchange Transaction. The Companys
existing shareholders retained ownership of their outstanding 1,075,248 shares
of Common Stock, which represented approximately 18% of the outstanding capital
stock. In connection with this ownership change, the Company also
reconstituted its Board of Directors to provide for a seven-person Board. The
new Board consists of two representatives designated by the new major
shareholders, the Companys Chief Executive Officer, one incumbent independent
Board member designated by the Company with the consent of the participating
noteholders and three other independent Board members, two of whom were
incumbents, also designated by the participating noteholders. One of these
incumbent directors subsequently retired from the Board; as a result, the Board
currently consists of six members.

In order to permit the closing of the Exchange Transaction and to provide
for the terms on which the existing senior lenders would continue to finance
the Companys working capital needs, the Company and its existing senior
lenders also executed definitive loan agreements that provided for certain
amendments and maturity date extensions to the Companys senior revolving
credit facility (the Credit Facility) and eliminated the Equity Appreciation Right (the
EAR) held by the senior lenders (the Senior Debt Restructuring). The
Senior Debt Restructuring provided for the forgiveness of indebtedness in the
amount of $10.3 million. As a result of the Exchange Transaction and the
Senior Debt Restructuring, the Company used substantially all of its cash on
hand, after payment of transaction expenses, to repay $38.0 million of its
outstanding credit facility and eliminated an additional $120.0 million of its
outstanding indebtedness, which has resulted in substantial reductions in the
Companys interest expense. No provision or benefit for income taxes was
recorded in the second or third quarters of 2003 since the gain from financial
restructuring will not be subject to income tax and the Company has incurred
operating losses for income tax reporting purposes in 2003 for which no tax
benefit has been recognized.

18



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The amended Credit Facility provides for a $70.7 million revolving line of
credit due May 1, 2004 and is subject to certain maturity date extensions,
assuming the Company is in compliance with its covenants, in six-month
increments through May 1, 2005. Availability of borrowings under the Credit
Facility is subject to a borrowing base calculated as specified percentages of
the Companys eligible accounts receivable (as defined) in the aggregate. The
Credit Facilitys financial covenants include monthly maintenance of cumulative
EBITDA levels and an interest and subordinated indebtedness coverage ratio
(both as defined in the amended agreement). The Credit Facility also contains
restrictions on the payment of cash dividends on the Companys capital stock
and places additional limitations on share repurchases, acquisitions and
capital expenditures. Finally, to replace the EAR formerly included as part of
the Credit Facility, the Company issued common stock purchase warrants to the
lenders under the Credit Facility entitling them to purchase a total of 768,997
shares of Common Stock, or 10% of the outstanding Common Stock on a fully
diluted basis as of the closing date of the financial restructuring. These
warrants are exercisable in whole or part over a 10-year period, and their
exercise price is $7.8025 per share, which was based on an assumed equity
valuation for the Company of $60.0 million. The exercise price for these
warrants exceeded the estimated fair value of the underlying equity at the
issuance date. Interest rates payable under the Credit Facility are set at
prime plus 375 basis points through December 2003 with increases during each
six-month period through May 1, 2005.

The Company entered into an agreement with each of the former noteholders
participating in the Exchange Transaction and each of its senior lenders to
provide them with registration rights with respect to the shares of Common
Stock issued in the financial restructuring or acquired upon conversion of the
Series B Preferred Stock or the shares of Common Stock issuable upon exercise
of the warrants, as applicable.

In connection with the financial restructuring, the Company agreed to seek
shareholder approval at its 2003 Annual Meeting of Shareholders of a number of
amendments to its certificate of incorporation. The shareholders approved each
of the proposed amendments at the Annual Meeting on July 24, 2003, and the
Company filed an amended and restated certificate of incorporation effective
August 5, 2003. The amendments included the following:



| |  |  | a reverse stock split of the Companys Common Stock at a
one-for-twenty-five ratio;                                                                                                                                                                                                                           
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the elimination of provisions that separated the Board of
Directors into three classes and that prohibited action by consent of
shareholders without a meeting;                                                                                                                                               
|
| |  |  | an election by the Company not to be governed by Section 203 of
the Delaware General Corporation Law, which restricted the ability of
the Company to engage, directly or indirectly, in a business
combination transaction with a holder of 15% or more of its voting
stock;                                  
|
| |  |  | the addition of provisions requiring a supermajority vote of the
Board of Directors or shareholders to adopt changes to the certificate
of incorporation or bylaws; and                                                                                                                                       
|
| |  |  | the addition of a provision to protect minority shareholders in
connection with certain transactions with a shareholder that
beneficially owns 20% or more of the shares of the Companys capital
stock that are entitled to vote on matters submitted to a vote of the
shareholders (a Significant Holder).

In addition, in connection with the financial restructuring, the Board of
Directors also amended and restated the Companys bylaws and shareholder rights
agreement, terminated its 1995 Stock Option Plan and adopted a new 2003 Equity
Incentive Plan, and entered into new employment agreements with certain
executive officers.

The Company recorded the issuance of its equity securities in exchange for
outstanding 5.75% Notes at the fair value of the newly issued equity
securities, with the excess of the debt carrying value over the fair value of
equity securities recorded as a gain. The forgiveness of $10.3 million in
senior debt will reduce future interest expense over the term of the amended
Credit Facility, and the $1.1 million of fees paid to the senior lenders was
reflected as a reduction in the principal balances outstanding as required
under accounting for troubled debt

19



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##### 



restructuring. The Company engaged an
independent valuation firm to assist in the determination of the fair value of
the warrants issued in connection with the Senior Debt Restructuring and
recorded this amount as additional shareholders equity with a corresponding
reduction in the outstanding senior debt, with such amount recognized as a
component of interest expense over the term of the senior debt. The net gain
on financial restructuring was not classified as an extraordinary item in
accordance with the recently issued SFAS No. 145.

RESULTS OF OPERATIONS

Quarter Ended September 28, 2003 Versus Quarter Ended September 29, 2002

Revenues.Total revenues decreased 9.8% to $124.2 million in the third
quarter of 2003 from $137.7 million in the third quarter of 2002 due to the
weak economic environment, including a continued decline in corporate
technology spending from prior year levels. Technology Services revenues
decreased 13.0% primarily as the result of the multi-year, industry-wide
slowdown in customer demand for technology staffing services. Technology
Services billable consultants on assignment increased, however, from
approximately 1,800 at the end of the second quarter to approximately 1,900 at
the end of the third quarter and Technology Services showed sequential revenue
growth as compared to the second quarter of 2003. Staffing Services revenues
decreased 6.4%, to $63.3 million, in the third quarter of 2003 as compared to
last year primarily due to declines in the retail component of the Companys
temporary staffing business and permanent placement revenues, offset by growth
in the Companys vendor-on-premise (VOP) business. Permanent placement
revenues were 2.2% of Staffing Services revenues in the third quarter of 2003,
down from 3.1% in the third quarter of 2002, while the retail component of
temporary staffing also declined to 62.2% of Staffing Services revenues in the
third quarter of 2003, down from 63.0% in the third quarter of 2002. VOP
revenues totaled 35.6% of Staffing Services revenues in the third quarter of
2003, up from 33.9% in the third quarter of 2002. Like Technology Services,
revenues for Staffing Services also increased sequentially over the second
quarter of 2003. The Company expects slight improvements in demand for its
services in 2004 in light of moderately improving economic conditions.
However, there can be no assurance that Technology Services revenues will
increase as the broader economy strengthens or other uncertainties subside.

Direct Costs of Services and Gross Profit.Direct costs, consisting of
payroll and related expenses of consultants and temporary workers, decreased
8.5% to $97.0 million in the third quarter of 2003 on the lower revenues.
Gross profit decreased 14.0% to $27.3 million on the lower revenues. Gross
profit as a percentage of revenue also decreased to 21.9% in the third quarter
of 2003 from 23.0% in the third quarter of 2002, primarily as the result of the
continued softening in the higher margin sectors of the staffing and consulting
businesses, the significant decline in permanent placement services, continuing
downward bill rate pressure imposed by many of the Companys larger customers
and higher payroll taxes.

Operating Expenses.Operating expenses, consisting primarily of selling,
general and administrative expenses and depreciation and amortization expense,
decreased 16.0% to $24.5 million in the third quarter of 2003 from $29.1
million in the third quarter of 2002. The decrease was primarily due to the
Companys aggressive cost reduction program, including its workforce reduction
and office consolidation initiatives. Approximately 1.6% of the Companys
permanent workforce was eliminated during the third quarter of 2003. Also,
variable or incentive compensation declined due to lower revenues and operating
margins. As a percentage of revenues, selling, general and administrative
expenses decreased to 18.7% in the third quarter of 2003 from 20.0% in the
third quarter of 2002. In addition, depreciation and amortization expense
decreased to 1.0% of revenues in the third quarter of 2003 from 1.2% in the
third quarter of 2002.

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 $0.2 million and $0.5 million in
the third quarters of 2003 and 2002, respectively. These charges were
comprised of the following components (in thousands):

20



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|                                                |  |                    |     |           |  |   |     | 
|----------------------------------------------- |  | ------------------ | --- | --------- |  | - | --- | 
|                                                |  | Three Months Ended
|                                                |  |                   
|                                                |  | Sept. 28,          |     | Sept. 29,
|                                                |  | 2003               |     | 2002     
|                                                |  |                    |     |          
|Employee severance                              |  | $                  | 90  |           |  | $ | 389 | 
|Lease abandonment and termination costs         |  |                    | 129 |           |  |   |    | 
|Property abandonment charges                    |  |                    |    |           |  |   | 63  | 
|Other                                           |  |                    | 17  |           |  |   |    | 
|                                                |  |                    |     |           |  |   |     | 
|Total restructuring and rationalization charges |  | $                  | 236 |           |  | $ | 452 | 
|                                                |  |                    |     |           |  |   |     | 

Following is a summary of the accrued liability for cash restructuring and
rationalization charges for the quarter ended September 28, 2003 (in
thousands):

|                                        |  |           |      |       |  |       |       |       |  |   |     |   |  |   |       |  
|--------------------------------------- |  | --------- | ---- | ----- |  | ----- | ----- | ----- |  | - | --- | - |  | - | ----- | -
|                                        |  | Employee  |      | Lease |  |       |       |       |  |   |     |  
|                                        |  | Severance |      | Costs |  | Other |       | Total
|                                        |  |           |      |       |  |       |       |      
|Accrued liability at June 29, 2003      |  | $         | 307  |       |  | $     | 5,688 |       |  | $ | 31  |   |  | $ | 6,026 |  
|Charges                                 |  |           | 90   |       |  |       | 129   |       |  |   | 17  |   |  |   | 236   |  
|Cash payments                           |  |           | (219 | )     |  |       | (603  | )     |  |   | (48 | ) |  |   | (870  | )
|                                        |  |           |      |       |  |       |       |       |  |   |     |   |  |   |       |  
|Accrued liability at September 28, 2003 |  | $         | 178  |       |  | $     | 5,214 |       |  | $ |    |   |  | $ | 5,392 |  
|                                        |  |           |      |       |  |       |       |       |  |   |     |   |  |   |       |  

Employee severance-related costs included the elimination of both
administrative and income-producing employees. Under the workforce reduction
plan, approximately 1.6% of the Companys permanent workforce, or 13 employees,
was eliminated during the quarter. Lease abandonment and termination costs
related primarily to office closures, branch consolidations and leased space
reductions.

Of the remaining accrued liability at September 28, 2003, the Company
expects to pay approximately $1.9 million over the next twelve months and the
balance, primarily lease payments, over the following seven years.

Stock Option Compensation. Stock option compensation expense represents
the non-cash charge associated with certain stock options that were issued
within a six month period after cancellation of old stock options and
subsequently are accounted for as variable stock options under FIN 44. The
Company expects to continue to record adjustments to income from stock option
compensation in future periods due to subsequent changes in the price of the
Companys Common Stock.

Interest Expense.Interest expense decreased 95.4% to $0.2 million in the
third quarter of 2003 from $4.3 million in the third quarter of 2002 primarily
as a result of the comprehensive financial restructuring completed in April
2003 and the GAAP accounting treatment requiring the deferred gain on financial
restructuring, net, to be amortized into interest over the term of the
facility. The reported interest expense of $0.2 million for the quarter ended
September 28, 2003 is net of amortization of deferred gain on financial
restructuring of $1.0 million. The average interest rate on borrowings was
8.4% in the third quarter of 2003, up 110 basis points from the third quarter
of 2002. See   Liquidity and Capital Resources.

Gain on Financial Restructuring.The gain on financial restructuring that
resulted from the conversion of $109.7 million of the Companys subordinated
notes to equity is net of professional fees incurred in connection with the
financial restructuring. Fees incurred in the third quarter of 2003 and 2002
totaled $0.03 million and $0.5 million, respectively, and all prior year costs
were previously classified in restructuring and rationalization charges. These
fees have been reclassified for all periods presented. See   Overview 
Comprehensive Financial Restructuring.

21



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##### 



Provision (Benefit) for Income Taxes. No provision or benefit for income
taxes was recorded in the third quarter of 2003 as the Company has incurred
operating losses for income tax reporting purposes in 2003 for which no tax
benefit has been recognized. Because of the changes in ownership of the Company
that occurred in connection with the financial restructuring on April 14, 2003,
the utilization of net operating losses generated prior to that date will not
be available to offset future taxable income. The Company has deferred tax
assets relating to deductible temporary differences and NOL carryforwards
generated since April 14, 2003 which are fully reserved through a valuation
allowance to the extent they are not offset by deferred tax liabilities. The
effective tax benefit rate of 20% in the third quarter of 2002 was lower than
the U.S. federal statutory rate of 35% primarily due to the impact of
non-deductible expenses and the provision of valuation allowances against
deferred income tax assets.

Nine Months Ended September 28, 2003 Versus Nine Months Ended September 29, 2002

Revenues.Total revenues decreased 12.8% to $367.4 million in the first
nine months of 2003 from $421.5 million in the first nine months of 2002 due to
the weak economic environment, including a decline in corporate technology
spending from prior year levels. Technology Services revenues decreased 21.2%
primarily as the result of the multi-year, industry-wide slowdown in customer
demand for technology staffing services. Technology Services billable
consultants on assignment declined from approximately 1,970 at year-end 2002 to
approximately 1,900 at the end of the third quarter. Staffing Services
revenues decreased 2.8%, to $186.1 million, in the first nine months of 2003
primarily due to declines in the retail component of the Companys temporary
staffing business and permanent placement revenues, offset by growth in the
Companys VOP business. Permanent placement revenues were 2.2% of Staffing
Services revenues in the first nine months of 2003, down from 3.5% in the first
nine months of 2002, while the retail component of temporary staffing also
declined to 61.2% of Staffing Services revenues in the first nine months of
2003, down from 63.9% in the first nine months of 2002. VOP revenues totaled
36.6% of Staffing Services revenues in the first nine months of 2003, up from
32.6% in the first nine months of 2002. The Company expects slight
improvements in demand for its services in 2004 in light of moderately
improving economic conditions. However, there can be no assurance that
Technology Services revenues will increase as the broader economy strengthens
or other uncertainties subside.

Direct Costs of Services and Gross Profit.Direct costs, consisting of
payroll and related expenses of consultants and temporary workers, decreased
10.6% to $288.5 million in the first nine months of 2003 on the lower revenues.
Gross profit decreased 20.1% to $79.0 million on the lower revenues. Gross
profit as a percentage of revenue also decreased to 21.5% in the first nine
months of 2003 from 23.4% in the first nine months of 2002, primarily as the
result of the continued softening in the higher margin sectors of the staffing
and consulting businesses, the significant decline in permanent placement
services, continuing downward bill rate pressure imposed by many of the
Companys larger customers and higher payroll taxes.

Operating Expenses.Operating expenses, consisting primarily of selling,
general and administrative expenses and depreciation and amortization expense,
decreased 16.7% to $76.7 million in the first nine months of 2003 from $92.1
million in the first nine months of 2002. The decrease was primarily due to
the Companys aggressive cost reduction program, including its workforce
reduction and office consolidation initiatives. Approximately 13.4% of the
Companys permanent workforce was eliminated during the first nine months of
2003. Also, variable or incentive compensation declined due to lower revenues
and operating margins. As a percentage of revenues, selling, general and
administrative expenses decreased to 19.8% in the first nine months of 2003
from 20.6% in the first nine months of 2002. In addition, depreciation and
amortization expense decreased to 1.1% of revenues in the first nine months of
2003 from 1.2% in the first nine months of 2002.

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 $2.4 million and $1.4 million in
the first nine months of 2003 and 2002, respectively. These charges were
comprised of the following components (in thousands):

22



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|                                                |  |                   |       |           |  |   |       | 
|----------------------------------------------- |  | ----------------- | ----- | --------- |  | - | ----- | 
|                                                |  | Nine Months Ended
|                                                |  |                  
|                                                |  | Sept. 28,         |       | Sept. 29,
|                                                |  | 2003              |       | 2002     
|                                                |  |                   |       |          
|Employee severance                              |  | $                 | 405   |           |  | $ | 1,240 | 
|Lease abandonment and termination costs         |  |                   | 1,751 |           |  |   | 90    | 
|Property abandonment charges                    |  |                   | 130   |           |  |   | 47    | 
|Other                                           |  |                   | 65    |           |  |   |      | 
|                                                |  |                   |       |           |  |   |       | 
|Total restructuring and rationalization charges |  | $                 | 2,351 |           |  | $ | 1,377 | 
|                                                |  |                   |       |           |  |   |       | 

Following is a summary of the accrued liability for cash restructuring and
rationalization charges for the nine months ended September 28, 2003 (in
thousands):

|                                        |  |           |      |       |  |       |        |       |  |   |      |   |  |   |        |  
|--------------------------------------- |  | --------- | ---- | ----- |  | ----- | ------ | ----- |  | - | ---- | - |  | - | ------ | -
|                                        |  | Employee  |      | Lease |  |       |        |       |  |   |      |  
|                                        |  | Severance |      | Costs |  | Other |        | Total
|                                        |  |           |      |       |  |       |        |      
|Accrued liability at December 29, 2002  |  | $         | 559  |       |  | $     | 4,658  |       |  | $ | 84   |   |  | $ | 5,301  |  
|Charges                                 |  |           | 405  |       |  |       | 1,751  |       |  |   | 65   |   |  |   | 2,221  |  
|Cash payments                           |  |           | (786 | )     |  |       | (1,195 | )     |  |   | (149 | ) |  |   | (2,130 | )
|                                        |  |           |      |       |  |       |        |       |  |   |      |   |  |   |        |  
|Accrued liability at September 28, 2003 |  | $         | 178  |       |  | $     | 5,214  |       |  | $ |     |   |  | $ | 5,392  |  
|                                        |  |           |      |       |  |       |        |       |  |   |      |   |  |   |        |  

Employee severance-related costs included the elimination of both
administrative and income-producing employees. Under the workforce reduction
plan, approximately 13.4% of the Companys permanent workforce, or 123
employees, was eliminated during the first nine months of 2003. Lease
abandonment and termination costs related primarily to office closures, branch
consolidations and leased space reductions.

Interest Expense.Interest expense decreased 58.9% to $5.3 million in the
first nine months of 2003 from $13.0 million in the first nine months of 2002
primarily as a result of the comprehensive financial restructuring completed in
April 2003 and the GAAP accounting treatment requiring the deferred gain on
financial restructuring, net, to be amortized into interest over the term of
the Credit Facility. The reported interest expense of $5.3 million for the
nine months ended September 28, 2003 is net of amortization of deferred gain on
financial restructuring of $1.8 million. The average interest rate on
borrowings was 7.6% in the first nine months of 2003, up 40 basis points from
the first nine months of 2002. See   Liquidity and Capital Resources.

Gain on Financial Restructuring.The Company recorded a gain of $83.1
million in the first nine months of 2003 as a result of the conversion of
$109.7 million of subordinated notes to equity. The gain on financial
restructuring is net of professional fees incurred in connection with the
financial restructuring of $3.0 million in the first nine months of 2003. Fees
incurred in the first nine months of 2002 totaled $1.2 million and were
previously classified in restructuring and rationalization charges. These fees
have been reclassified for all periods presented. See Overview 
Comprehensive Financial Restructuring.

Provision (Benefit) for Income Taxes.No provision or benefit for income
taxes was recorded in the first nine months of 2003 since the gain from the
financial restructuring will not be subject to income tax and the Company has
incurred operating losses which can be carried forward to offset future taxable
income. Because of the changes in ownership of the Company that occurred in
connection with the financial restructuring on April 14, 2003, the utilization
of net operating losses generated prior to that date will not be available to
offset future taxable income. The Company has deferred tax assets relating to
deductible temporary differences and NOL carryforwards generated since April
14, 2003 which are fully reserved through a valuation allowance to the extent
they are not offset by deferred tax liabilities. The income tax provision
recorded for the nine months ended September 29, 2002 reflects an income tax
benefit of $2.1 million related to its operating losses, computed at an
effective rate of approximately 20%, which was offset by the charge of
approximately $5.2 million related to the adoption of SFAS 142.

23



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LIQUIDITY AND CAPITAL RESOURCES

Overview

While the Company has seen moderate increases in revenues recently, the
Company has experienced declines in revenues over the last two years as the
result of weak economic conditions and expects only slight improvements in
demand for its services in 2004. In light of the uncertain economic climate,
the Company has focused on reducing expenses generally, limiting capital
expenditures to only the highest priority projects and managing its accounts
receivable very closely. As a result of the reduced need for working capital
and these priorities, the Companys cash needs have been lower in 2003 than in
prior years.

Prior to its comprehensive financial restructuring in April 2003, the
Companys primary sources of cash were cash from operations and income tax
refunds. As a result of the completion of the financial restructuring and the
execution of amendments and maturity date extensions to the Credit Facility in
connection therewith, the Companys sources of cash in 2003 also have included
available borrowings under the Credit Facility. The Companys principal uses
of cash are to repay debt, fund working capital and meet its diminished
requirements for capital expenditures. Additionally, the Company may use cash
to fund a portion or all of any acquisition expenditures, as described below.
The Company believes, subject to the conditions and contingencies described
above in Forward-Looking Information, that cash flow from operations,
borrowings under the Credit Facility and the proceeds of additional debt or
equity offerings will be adequate to meet its debt repayment objectives, its
diminished needs for working capital and capital expenditures and any
acquisition funding needs that may arise.

Now that its financial restructuring has been completed, the Company
intends to consider acquisition opportunities again in the ordinary course of
its business and believes that attractive acquisition opportunities will arise
in the staffing services sectors as the economy improves. The Company intends
to seek additional capital as necessary to fund potential acquisitions through
sources that may include borrowings under its senior revolving credit facility
or additional debt or equity offerings. Cash flow from operations, to the
extent available, may also be used to fund a portion of any acquisition
expenditures.

In connection with its financial restructuring, the Company used
substantially all of its cash on hand, after payment of transaction expenses,
to repay $38.0 million outstanding under its Credit Facility and eliminated an
additional $120.0 million of its outstanding indebtedness. See
OverviewComprehensive Financial Restructuring. These actions resulted in
substantial reductions in the Companys interest expense. The Credit Facility,
as amended in connection with the financial restructuring, now provides for a
$70.7 million revolving line of credit due May 1, 2004, subject to certain
maturity date extensions in six-month increments through May 1, 2005 if the
Company is in compliance with its covenants. Availability of borrowings under
the Credit Facility is subject to a borrowing base calculated as specified
percentages of the Companys eligible accounts receivable (as defined) in the
aggregate. The Credit Facilitys covenants include a requirement for monthly
maintenance of cumulative EBITDA levels and an interest and subordinated
indebtedness coverage ratio (both as defined in the amended agreement). The
Credit Facility also contains restrictions on the payment of cash dividends on
the Companys capital stock and places additional limitations on share
repurchases, acquisitions and capital expenditures. Interest rates payable
under the Credit Facility are set at prime plus 375 basis points through
December 2003 with increases during each six-month period through May 1, 2005.

The Company received notification in November 2003 that its federal income
tax returns for the 1996 through 2002 tax years have been accepted as filed. As
a result, in the fourth quarter of 2003 the Company will perform an analysis of
its tax positions and may recognize certain additional tax benefits resulting
from the favorable resolution of uncertainties associated with those tax years.

While the Company has received this favorable notification, the statute of
limitations is still open for certain tax years and there can be no assurance
that no further audits will be performed. The Company is subject to periodic
review by federal, state and local taxing authorities in the ordinary course of
business, and is currently engaged in certain audits that may result in
assessments for certain deficiencies. The Company is in final settlement
discussions under one such audit and expects to pay approximately $0.6 million
in the fourth quarter of 2003, which was previously reserved. If any of the
Companys income or other tax returns are audited, the

24



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##### 



appropriate authority
could challenge certain tax positions taken by the Company and propose
adjustments that could result in assessments for additional taxes payable,
together with penalties and interest. The Company believes that its tax
positions comply with applicable tax laws and the Company would vigorously
defend these positions if challenged. In addition, although the Company
believes that it has adequately accrued for any foreseeable payments resulting
from tax examinations, there can be no assurance that any such additional
taxes, penalties or interest payable would not have a material effect on the
Companys liquidity or financial condition.

Nine Months Ended September 28, 2003 Versus September 29, 2002

For the nine months ended September 28, 2003, cash provided by operating
activities was $27.1 million compared with $23.3 million in the first nine
months of 2002, primarily as the result of a larger income tax refund received
in 2003 than in 2002. In the aggregate, days sales outstanding increased to
50 days at September 28, 2003 from 48 days at December 29, 2002. Cash used in
investing activities was $0.6 million in the first nine months of 2003 compared
to cash provided by investing activities of $2.6 million during the first nine
months of 2002 due primarily to the cash proceeds received from the sale of a
business in the prior year. Cash used for investing activities related
primarily to the Companys capital spending. Capital spending in the first
nine months of 2003 was $0.6 million, down from $1.2 million in the first nine
months of 2002. Cash used for financing activities was $45.3 million in the
first nine months of 2003, up from $18.4 million in the first nine months of
2002 as the company used substantially all of its cash on hand to pay down the
Credit Facility in connection with the April 2003 financial restructuring.

The Company has accrued restructuring and rationalization charges of $5.4
million at September 28, 2003 and expects to pay approximately $1.9 million
over the next twelve months and the balance, primarily lease payments, over the
following seven years. In addition, the Company intends to refinance the 5.75%
Notes with borrowings under its Credit Facility and therefore, has classified
the 5.75% Notes as long-term at September 28, 2003.

Debt Compliance

The Companys ability to continue operating is largely dependent upon its
ability to maintain compliance with the financial covenants of the Credit
Facility. The financial covenants include a cumulative monthly EBITDA
requirement and a monthly interest and subordinated indebtedness coverage ratio
(both as defined). The amended Credit Facility defines consolidated EBITDA as
consolidated net income before interest expense, income taxes, depreciation and
amortization, non-cash impairment charges, restructuring and rationalization
charges, professional fees relating to the debt restructuring and non-cash
compensation expense for stock options. These covenants require the Company to
generate EBITDA, as defined, measured on a cumulative monthly basis in the
aggregate amount of $5.9 million from April through December 2003. For the
six-month period through September 28, 2003, the Company has exceeded the level of
earnings required in the bank covenant. Based on the Companys fiscal 2003 and
2004 projections, which reflect slightly improving economic conditions,
management believes the Company will be able to maintain compliance with the
financial covenants for the next twelve months. The Company also believes that
the operating trends in the first nine months of 2003 support the key
assumptions in its 2003 and 2004 operating plans. 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 the financial covenants. In
addition, the interest coverage ratio adjusts from an interest coverage ratio
to an interest and subordinated indebtedness coverage ratio on May 31, 2004,
and while the Company believes it will be in compliance with its financial
covenants, there can be no assurance that the Company will be able to satisfy
this enhanced financial covenant. If the Company does violate future
covenants, it would seek waivers and amendments from its lenders, but can give
no assurance that any such 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. An
acceleration of outstanding amounts under the Credit Facility would also cause
a default under, and permit acceleration of, the Companys remaining
outstanding 5.75% Convertible Subordinated 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 further debt restructuring or other reorganization, the closure of
certain operating 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

25



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##### 



believes that any such sale of assets
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.

The Companys Common Stock has traded since November 2002 on the Over the
Counter Bulletin Board (the OTC Bulletin Board). The restructuring agreement
for the Companys recently completed financial restructuring contemplates that
the Company will use its best efforts to procure a new stock exchange listing
for its Common Stock, but in the meantime the Company expects that the Common
Stock will continue to trade on the OTC Bulletin Board under the symbol VPTR.

As a result of the financial restructuring, the aggregate outstanding
principal amount of the 5.75% Notes was reduced to approximately $5.3 million.
As of September 28, 2003, the Company believes it is in compliance with the
indenture related to the 5.75% Notes. Failure to maintain or effect the
listing of the Common Stock on a national securities exchange or an established
automated over-the-counter trading market in the United States would constitute
a repurchase event under the 5.75% Notes and entitle each remaining noteholder
to demand repayment of its Notes in full. Under the terms of the Credit
Facility, the Company is prohibited from repaying any of the 5.75% Notes prior
to their scheduled maturity in July 2004. If the Company were unable to obtain
a waiver under the Credit Facility to permit repayment of any noteholder who
made such a demand following a repurchase event, and were also unable to obtain
waivers of such repurchase event from each demanding noteholder, events of
default could occur under the 5.75% Notes and the Credit Facility. The
noteholders could accelerate the payment of all of the debt obligations
evidenced by the remaining outstanding Notes, and the Credit Facility lenders
could demand repayment of the Credit Facility in full.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, which nullifies Emerging Issues Task Force Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred.
Under Issue No. 94-3, a liability for an exit cost as defined in Issue 94-3
was recognized at the date of an entitys commitment to an exit plan. Although
the Company adopted SFAS No. 146 as of December 30, 2002, the adoption did not
have a material effect on the Companys financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Companys outstanding debt under the Credit Facility at September 28,
2003, was $51.0 million. Interest on borrowings under the Credit Facility is
based on the prime rate plus a variable margin. Based on the outstanding
balance at September 28, 2003, a change of 1% in the interest rate would cause
a change in interest expense of approximately $0.5 million on an annual basis.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this quarterly report on Form 10-Q,
the Company evaluated the effectiveness of the design and operation of its
disclosure controls and procedures. This evaluation was performed under the
supervision and with the participation of management, including the Companys
Chief Executive Officer and Chief Financial Officer. Based on this evaluation,
the Companys Chief Executive Officer and Chief Financial Officer have
concluded that these disclosure controls and procedures are effective to
provide reasonable assurance that information required to be disclosed in the
Companys reports filed under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
SECs rules and forms.

26



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##### 



PART II - OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS



| | (a) |  | On August 5, 2003, the Company filed an amended and restated
certificate of incorporation with the Secretary of State of
Delaware. The amended and restated certificate of incorporation
implemented a number of changes affecting the Companys
securities, all of which the stockholders had approved at the Annual
Meeting on July 24, 2003. See the Companys Definitive Schedule 14A
Proxy Statement, filed June 24, 2003, and Managements Discussion
and Analysis of Financial Condition and Results of
OperationsOverviewComprehensive Financial Restructuring for more
information about the changes to the Companys certificate of
incorporation. For more information about the stockholders
approval of these changes, see Part II, Item 4, Submission of
Matters to Vote of Security Holders.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Effective September 26, 2003, the Company elected to convert
all 1,044,433 of its outstanding shares of Series B Preferred Stock
to shares of its Common Stock. In accordance with the four-for-one
ratio established under the Certificate of Designation for the
Series B Preferred Stock, the Company issued 4,177,732 shares of
Common Stock to effect the conversion.                                                                                                                                                                                                                                                                                                                                                                                                                                        

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

The Companys annual meeting of shareholders was held on July 24, 2003.
The matters voted on at the meeting were proposals: (1) to elect three
directors each to serve until his successor is duly elected and qualified, (2)
to adopt a new incentive plan to replace the Companys existing stock option
plan, (3) to amend the Companys certificate of incorporation to effect a
reverse stock split of the Companys common stock at a one-for-twenty-five
ration, (4) to amend the Companys certificate of incorporation to eliminate
the provision separating the Board of Directors into three classes, (5) to
amend the Companys certificate of incorporation to eliminate the provision
prohibiting action by consent of the Companys common stockholders without a
meeting, (6) to amend the Companys certificate of incorporation to elect that
the Company not be governed by Section 203 of the Delaware General Corporation
Law, (7) to amend the Companys certificate of incorporation to require
approval by disinterested stockholders of transactions that would increase the
proportionate ownership of a stockholder that beneficially owns 20% or more of
the shares of the Companys capital stock, (8) to amend the Companys
certificate of incorporation to require approval by 5% stockholders and 80% of
the Board of Directors of corporate transactions involving a stockholder that
beneficially owns 20% or more of the shares of the Companys capital stock, (9)
to amend the Companys certificate of incorporation to add provisions
requiring a supermajority vote of the Board of Directors or stockholders to
adopt changes to the Companys certificate of incorporation or bylaws, (10) to
amend the Companys certificate of incorporation to set the number of directors
between seven and nine, with the exact number to be set in accordance with the
bylaws, (11) to amend the Companys certificate of incorporation to provide
indemnification rights, including rights to advancement of expenses, to
directors and officers to the fullest extent permitted by law and to permit the
Board of Directors to authorize indemnification of employees and agents, (12)
to amend and restate the Companys certificate of incorporation to include the
foregoing amendments in the event they were approved by the stockholders and to
make other amendments set forth in the form of the Companys proposed restated
certificate of incorporation, and (13) to ratify the selection of
PricewaterhouseCoopers LLP as the Companys independent public accountant for
fiscal 2003. Each of these proposals was approved by the following margins:

27



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##### 



|                      |                         |           |  |                |  |  |  |         | 
|--------------------- | ----------------------- | --------- |  | -------------- |  |  |  | ------- | 
|Proposal 1            |                         | Votes For |  | Votes Withheld
|                      |                         |           |  |               
|Election of Directors |                         |           |  |                |  |  |  |        
|                      | Victor E. Mandel        |           |  | 111,640,785    |  |  |  | 309,554 | 
|                      | James V. Napier         |           |  | 111,657,741    |  |  |  | 292,598 | 
|                      | William J. Simione, Jr. |           |  | 111,615,485    |  |  |  | 334,854 | 

|                                                                                                     |  |           |             |               |  |             |           |                  |  |  |         |  |  |  |            | 
|---------------------------------------------------------------------------------------------------- |  | --------- | ----------- | ------------- |  | ----------- | --------- | ---------------- |  |  | ------- |  |  |  | ---------- | 
|Proposal 2                                                                                           |  | Votes For |             | Votes Against |  | Abstentions |           | Broker Non-Votes
|                                                                                                     |  |           |             |               |  |             |           |                 
|Adoption of the 2003
Equity Incentive Plan                                                           |  |           | 95,785,913  |               |  |             | 1,092,990 |                  |  |  | 107,651 |  |  |  | 14,963,785 | 
|                                                                                                     |  |           |             |               |  |             |           |                  |  |  |         |  |  |  |            | 
|Proposal 3                                                                                           |  | Votes For |             | Votes Against |  | Abstentions |           |                  |  | 
|                                                                                                     |  |           |             |               |  |             |           |                 
|Effect a 1-for-25
reverse stock split                                                                |  |           | 111,458,628 |               |  |             | 425,205   |                  |  |  | 66,506  |  |  |  |            | 
|                                                                                                     |  |           |             |               |  |             |           |                  |  |  |         |  |  |  |            | 
|Proposal 4                                                                                           |  | Votes For |             | Votes Against |  | Abstentions |           |                  |  | 
|                                                                                                     |  |           |             |               |  |             |           |                 
|Eliminate
classification of the
Board of Directors                                                   |  |           | 111,493,533 |               |  |             | 376,850   |                  |  |  | 79,956  |  |  |  |            | 
|                                                                                                     |  |           |             |               |  |             |           |                  |  |  |         |  |  |  |            | 
|Proposal 5                                                                                           |  | Votes For |             | Votes Against |  | Abstentions |           | Broker Non-Votes
|                                                                                                     |  |           |             |               |  |             |           |                 
|Permit stockholder
action without a
meeting                                                          |  |           | 96,292,344  |               |  |             | 599,754   |                  |  |  | 94,456  |  |  |  | 14,963,785 | 
|                                                                                                     |  |           |             |               |  |             |           |                  |  |  |         |  |  |  |            | 
|Proposal 6                                                                                           |  | Votes For |             | Votes Against |  | Abstentions |           | Broker Non-Votes
|                                                                                                     |  |           |             |               |  |             |           |                 
|Opt out of Delaware
General Corporation Law
Section 203                                              |  |           | 96,274,674  |               |  |             | 588,440   |                  |  |  | 123,440 |  |  |  | 14,963,785 | 
|                                                                                                     |  |           |             |               |  |             |           |                  |  |  |         |  |  |  |            | 
|Proposal 7                                                                                           |  | Votes For |             | Votes Against |  | Abstentions |           | Broker Non-Votes
|                                                                                                     |  |           |             |               |  |             |           |                 
|Require disinterested
stockholder approval
for certain
transactions with 20%
stockholders            |  |           | 96,330,679  |               |  |             | 581,717   |                  |  |  | 74,158  |  |  |  | 14,963,785 | 
|                                                                                                     |  |           |             |               |  |             |           |                  |  |  |         |  |  |  |            | 
|Proposal 8                                                                                           |  | Votes For |             | Votes Against |  | Abstentions |           | Broker Non-Votes
|                                                                                                     |  |           |             |               |  |             |           |                 
|Require approval by 5%
stockholders and 80% of
directors for
transactions involving
20% stockholders |  |           | 96,072,631  |               |  |             | 850,412   |                  |  |  | 63,511  |  |  |  | 14,963,785 | 
|                                                                                                     |  |           |             |               |  |             |           |                  |  |  |         |  |  |  |            | 
|Proposal 9                                                                                           |  | Votes For |             | Votes Against |  | Abstentions |           | Broker Non-Votes
|                                                                                                     |  |           |             |               |  |             |           |                 
|Require a supermajority
vote for charter and
bylaw amendments                                        |  |           | 96,363,444  |               |  |             | 553,395   |                  |  |  | 69,715  |  |  |  | 14,963,785 | 
|                                                                                                     |  |           |             |               |  |             |           |                  |  |  |         |  |  |  |            | 
|Proposal 10                                                                                          |  | Votes For |             | Votes Against |  | Abstentions |           |                  |  | 
|                                                                                                     |  |           |             |               |  |             |           |                 
|Set number of directors
between seven and nine                                                       |  |           | 111,464,327 |               |  |             | 390,090   |                  |  |  | 95,922  |  |  |  |            | 

28



---



##### 



|                                                            |  |           |             |               |  |             |         |  |  |  |         |  |  |  |  | 
|----------------------------------------------------------- |  | --------- | ----------- | ------------- |  | ----------- | ------- |  |  |  | ------- |  |  |  |  | 
|Proposal 11                                                 |  | Votes For |             | Votes Against |  | Abstentions |         |  |  | 
|                                                            |  |           |             |               |  |             |         | 
|Provide indemnification
rights for directors
and officers   |  |           | 110,923,105 |               |  |             | 919,865 |  |  |  | 107,369 |  |  |  |  | 
|                                                            |  |           |             |               |  |             |         |  |  |  |         |  |  |  |  | 
|Proposal 12                                                 |  | Votes For |             | Votes Against |  | Abstentions |         |  |  | 
|                                                            |  |           |             |               |  |             |         | 
|Restate the certificate
of incorporation                    |  |           | 111,561,888 |               |  |             | 288,791 |  |  |  | 99,660  |  |  |  |  | 
|                                                            |  |           |             |               |  |             |         |  |  |  |         |  |  |  |  | 
|Proposal 13                                                 |  | Votes For |             | Votes Against |  | Abstentions |         |  |  | 
|                                                            |  |           |             |               |  |             |         | 
|Ratification of
selection of
independent public
accountants |  |           | 111,713,883 |               |  |             | 147,293 |  |  |  | 89,163  |  |  |  |  | 

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 or furnished, as applicable, the following reports on
Form 8-K during the third quarter:                                                                     



| | (i)  |  | August 5, 2003, announcing a name change to Venturi
Partners, Inc. and completion of the reverse stock split.
| | ---- |  | -------------------------------------------------------------------------------------------------------------
|
| | (ii) |  | August 7, 2003, announcing the Companys financial
results for the quarter ended June 29, 2003.              

29



---



##### 



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.

|                        |  |                        |  |                                      
|----------------------- |  | ---------------------- |  | -------------------------------------
|                        |  | VENTURI PARTNERS, INC.
|                        |  | (Registrant)          
|                        |  |                        |  |                                      
|Date: November 10, 2003 |  | By:                    |  | /s/ Larry L. Enterline               
|                        |  |                        |  |                                      
|                        |  |                        |  | Larry L. Enterline                   
|                        |  |                        |  | Chief Executive Officer              
|                        |  |                        |  |                                      
|Date: November 10, 2003 |  | By:                    |  | /s/ James C. Hunt                    
|                        |  |                        |  |                                      
|                        |  |                        |  | James C. Hunt                        
|                        |  |                        |  | President and Chief Financial Officer

30



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##### 



EXHIBIT INDEX

|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ------- | ---------------- |  | -------------------------------------
|        |  |                                                                                                                          |  | Filed or Furnished |         |                 
|        |  |                                                                                                                          |  | 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                                                                     |  |                    | 99.2    |                  |  | 8-K filed 8/5/03                     
|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|3.2     |  | Certificate of
Designation, Preferences
and Rights of Series A
Junior Participating
Preferred Stock                      |  |                    | 99.6    |                  |  | 8-K filed 4/25/03                    
|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|3.3     |  | Certificate of
Designation for Series B
Convertible Participating
Preferred Stock                                        |  |                    | 99.3    |                  |  | 8-K filed 4/25/03                    
|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|3.4     |  | Amended and Restated
Bylaws of the Company                                                                               |  |                    | 99.7    |                  |  | 8-K filed 4/25/03                    
|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|4.1     |  | Specimen Stock Certificate                                                                                               |  |                    | 4.0     |                  |  | 10-Q for the
quarter ended
6/29/03   
|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|4.2     |  | Amended and Restated
Rights Agreement, dated
April 14, 2003, between
the Company and Wachovia
Bank, N.A. as Rights
Agent |  |                    | 1       |                  |  | 8-A12B/A filed
4/16/03               
|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|4.3     |  | Amendment to Amended and
Restated Rights
Agreement, dated August
18, 2003, between the
Company and the Rights
Agent      |  |                    | 1       |                  |  | 8-A12B/A filed
10/14/03              
|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|4.4     |  | Indenture between the
Company and HSBC Bank
USA, as Successor Trustee                                                    |  |                    | 4.2     |                  |  | 333-31863                            
|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|4.5     |  | 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#   |  | Director and Officer
Indemnification Agreement
of Victor E. Mandel                                                       |  |                    | *       |                  |  |                                      
|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|10.3    |  | Supplemental Retirement
Plan for Edward P.
Drudge, Jr.                                                                   |  |                    | 10.7    |                  |  | 10K for year ended
1/2/00            
|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|10.4    |  | Amended and Restated
Non-Qualified
Profit-Sharing Plan                                                                   |  |                    | 10.16   |                  |  | 10-K for year ended
12/29/96         
|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|10.5    |  | Board of Directors
Deferred Compensation
Plan                                                                            |  |                    | 10.12   |                  |  | 10-K for year ended
12/28/97         
|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|10.6    |  | Restructuring Agreement
dated March 14, 2003                                                                             |  |                    | 99.2    |                  |  | 8-K filed 3/17/03                    
|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|10.7    |  | Participation Agreement
dated March 14, 2003                                                                             |  |                    | 99.2    |                  |  | 8-K filed 3/17/03                    
|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|10.8    |  | Registration Rights
Agreement dated April 14,
2003                                                                       |  |                    | 99.4    |                  |  | 8-K filed 4/25/03                    
|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|10.9    |  | 2003 Equity Incentive Plan                                                                                               |  |                    | Annex C |                  |  | Definitive Schedule
14A filed 6/24/03
|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|10.10   |  | Employment Agreement
dated April 14, 2003
between the Company and
Larry L. Enterline                                     |  |                    | 99.10   |                  |  | 8-K filed 4/25/03                    
|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|10.11   |  | Employment Agreement
dated April 14, 2003
between the Company and
James C. Hunt                                          |  |                    | 99.11   |                  |  | 8-K filed 4/25/03                    
|        |  |                                                                                                                          |  |                    |         |                  |  |                                      
|10.12   |  | Employment Agreement
dated April 14, 2003
between the Company and
Michael H. Barker                                      |  |                    | 99.12   |                  |  | 8-K filed 4/25/03                    

31



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##### 



|        |  |                                                                                                      |  |                    |       |                  |  |                  
|------- |  | ---------------------------------------------------------------------------------------------------- |  | ------------------ | ----- | ---------------- |  | -----------------
|        |  |                                                                                                      |  | Filed or Furnished |       |                 
|        |  |                                                                                                      |  | Herewith(*), or    |       |                 
|        |  |                                                                                                      |  | Incorporated by    |       |                 
|        |  |                                                                                                      |  | Reference from     |       |                 
|Exhibit |  |                                                                                                      |  | Previous Exhibit   |       | Company Reg. No.
|Number  |  | Description                                                                                          |  | Number             |       | or Report       
|        |  |                                                                                                      |  |                    |       |                 
|10.13   |  | Employment Agreement
dated April 14, 2003
between the Company and
Kenneth R. Bramlett, Jr.           |  |                    | 99.13 |                  |  | 8-K filed 4/25/03
|        |  |                                                                                                      |  |                    |       |                  |  |                  
|10.14   |  | Employment Agreement
dated July 24, 2003
between the Company and
Thomas E. Stafford                  |  |                    | *     |                  |  |                  
|        |  |                                                                                                      |  |                    |       |                  |  |                  
|10.15   |  | Restructure Agreement
dated April 14, 2003                                                           |  |                    | 99.14 |                  |  | 8-K filed 4/25/03
|        |  |                                                                                                      |  |                    |       |                  |  |                  
|10.16   |  | Second Amended and
Restated Credit Agreement                                                         |  |                    | 99.15 |                  |  | 8-K filed 4/25/03
|        |  |                                                                                                      |  |                    |       |                  |  |                  
|31.1    |  | Rule 13a-14(a)/15d-14(a)
Certification of Larry L.
Enterline, Chief
Executive Officer of the
Company |  |                    | *     |                  |  |                  
|        |  |                                                                                                      |  |                    |       |                  |  |                  
|31.2    |  | Rule 13a-14(a)/15d-14(a)
Certification of James C.
Hunt, Chief Financial
Officer of the Company      |  |                    | *     |                  |  |                  
|        |  |                                                                                                      |  |                    |       |                  |  |                  
|32.1    |  | Section 1350
Certification of Larry L.
Enterline, Chief
Executive Officer of the
Company             |  |                    | *     |                  |  |                  
|        |  |                                                                                                      |  |                    |       |                  |  |                  
|32.2    |  | Section 1350
Certification of James C.
Hunt, Chief Financial
Officer of the Company                  |  |                    | *     |                  |  |                  

# This Exhibit is substantially identical to Director and Officer
Indemnification Agreements (i) dated August 17, 1995 between the Company 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.

32