<PAGE>

                                  EXHIBIT 13.1

       PART II EXHIBITS FOR ITEMS 6 THROUGH 8 AND PART IV, ITEM 14(a)(1)


<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                            2001           2000           1999           1998           1997
                                                        ---------     ---------       ----------     ----------       ---------
<S>                                                     <C>           <C>             <C>            <C>              <C>
RESULTS OF OPERATIONS

Revenues                                                 $732,327      $881,992         $918,437       $783,925        $475,620

Operating income before restructuring and
  rationalization charges and intangibles                  15,145        39,892           68,277         66,248          37,751
  impairment

Restructuring and rationalization charges                  16,452         1,960               --             --              --

Intangibles impairment                                     56,779        11,021               --             --              --

Operating income (loss)                                   (58,086)       26,911           68,277         66,248          37,751

Interest expense                                           18,278        20,108           16,447         12,491           6,951

Net income (loss) from continuing operations              (66,678)       (2,175)          29,753         31,017          17,790

Net income (loss)                                       $ (66,678)    $  (2,175)       $  29,753       $ 31,017        $ 20,202

Earnings per diluted share(1)(2):

     Earnings from continuing operations                $   (2.52)    $   (0.09)       $    0.99      $    0.96       $    0.71

     Earnings from discontinued operations, net                --            --               --             --            0.09
                                                        ---------     ---------       ----------     ----------       ---------

     Net income (loss)                                  $   (2.52)    $   (0.09)       $    0.99      $    0.96       $    0.80
                                                        ---------     ---------       ----------     ----------       ---------

Average diluted shares outstanding (1)(2)                  26,503        25,090           34,299         36,752          28,078

FINANCIAL POSITION

Working capital                                         $  72,241     $  82,577        $  86,787      $  84,151       $  69,090

Intangibles, net                                          478,836       563,031          560,113        539,977         316,413

Total assets                                              630,588       743,593          735,350        708,890         451,309

Short- and long-term debt                                 234,882       265,647          254,351        235,406         152,540

Shareholders' equity                                      298,093       364,299          369,843        394,630         205,076
</TABLE>

(1)      The assumed conversion of the Company's Notes into Common Stock was
         excluded from the calculation of earnings per diluted share in 2001 and
         2000 because the effect of conversion was antidilutive.

(2)      All share data has been restated to reflect the two-for-one stock split
         declared by the Company's Board of Directors in March 1998.


<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         The following discussion and analysis should be read in conjunction
with the Company's consolidated financial statements and related notes appearing
elsewhere in this report. The Company's fiscal years end on the Sunday nearest
to each December 31 and its fiscal quarters end on the Sunday nearest to the end
of each calendar quarter.

FORWARD-LOOKING INFORMATION

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

OVERVIEW

         The Company is organized into two Divisions: the Information Technology
Services Division ("IT Services"), which provides information technology
staffing and consulting services in a range of computer-related disciplines and
technology tools for human capital management, and the Commercial Staffing
Services Division ("Commercial Staffing"), which provides a variety of temporary
office, clerical, accounting and finance, light technical and light industrial
staffing services. Approximately 61% of the Company's 2001 revenues came from IT
Services and 39% came from Commercial Staffing.

         The following table sets forth the number and nature of the Company's
offices by Division at the end of the years indicated:


                                       1
<PAGE>

<TABLE>
<CAPTION>

                                             2001               2000           1999
                                             ----               ----           ----
<S>                                          <C>              <C>             <C>
IT Services                                    33                45              43
Commercial Staffing                            92               104             101
           Total offices                      125               149             144
</TABLE>

         The Company experienced a decline in operating results for 2001 as
compared to the prior year due to the weak economic environment, which weakened
further following the events of September 11, 2001. As general economic
conditions have weakened, demand for the Company's services has declined and the
Company does not expect improvements in demand for its services until the second
half of 2002.

         In 2001, the Company implemented a plan to restructure and rationalize
certain operations. As a result, the Company recorded charges totaling $16.5
million primarily related to employee severance, lease termination, and property
abandonment costs in addition to the loss on the sale of one of its IT
businesses. See " -Results of Operation."

         Due to the impact of the economic conditions described above, the
Company recorded an impairment charge of $56.8 million in the fourth quarter of
2001. See "-Results of Operations" and "-Recent Accounting Pronouncements."

         In the fourth quarter of 2000, the Company incurred an impairment
charge of $11.5 million ($11.1 million after tax) related primarily to
CareerShop.com intangibles and other assets. In addition to the Careershop.com
impairment charge, the Company recorded other unusual charges of approximately
$6.7 million ($4.2 million after tax) in the aggregate in the fourth quarter of
2000. These unusual charges related primarily to a tax dispute involving one of
the Company's operations, termination and other payroll related costs associated
with billable consultant reductions in IT Services and certain other early
retirement benefits, higher than expected receivable charge-offs and increases
in its reserves for uncollectable accounts and fixed asset write-offs due to the
replacement of certain equipment. See "-Results of Operations."

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


                                       2
<PAGE>

         The following table summarizes certain income statement information for
the Company for years 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                                  (dollars in thousands)
                                                                   2001                       2000                      1999
<S>                                                      <C>            <C>         <C>            <C>         <C>          <C>
Revenues:
    IT Services                                          $ 447,862        61.2%     $ 537,535        60.9%     $ 584,032      63.6%
    Commercial Staffing                                    284,465        38.8%       344,457        39.1%       334,405      36.4%
                                                         ---------      ------      ---------      ------      ---------    ------

       Total revenues                                      732,327       100.0%       881,992       100.0%       918,437     100.0%

Direct costs of services                                   540,659        73.8%       631,442        71.6%       656,918      71.5%
                                                         ---------      ------      ---------      ------      ---------    ------

Gross profit                                               191,668        26.2%       250,550        28.4%       261,519      28.5%

Operating expenses:
    Selling, general and administrative                    152,610        20.8%       185,743        21.1%       171,950      18.8%
    Depreciation and amortization                           23,913         3.3%        24,915         2.8%        21,292       2.3%
                                                         ---------      ------      ---------      ------      ---------    ------

       Total operating expenses                            176,523        24.1%       210,658        23.9%       193,242      21.1%

Operating income before restructuring and
    rationalization charges and                             15,145         2.1%        39,892         4.5%        68,277       7.4%
    intangibles impairment

Restructuring and rationalization charges
                                                            16,452         2.2%         1,960         0.2%            --       N/A

Intangibles impairment                                      56,779         7.8%        11,021         1.2%            --       N/A
                                                         ---------      ------      ---------      ------      ---------    ------

Operating income (loss)                                    (58,086)       (7.9)%       26,911         3.1%        68,277       7.4%

Interest expense                                            18,278         2.5%        20,108         2.3%        16,447       1.8%
                                                         ---------      ------      ---------      ------      ---------    ------

Income (loss) before income taxes                          (76,364)      (10.4)%        6,803         0.8%        51,830       5.6%

Provision (benefit) for income taxes                        (9,686)       (1.3)%        8,978         1.0%        22,077       2.4%

Net income (loss)                                        $ (66,678)       (9.1)%    $  (2,175)       (0.2%)    $  29,753       3.2%
                                                         =========      ======      =========      ======      =========    ======
</TABLE>

RESULTS OF OPERATIONS

        YEAR ENDED DECEMBER 30, 2001 VERSUS YEAR ENDED DECEMBER 31, 2000

REVENUES

         Total revenues decreased 17.0% to $732.3 million in 2001 from $882.0
million in 2000. IT Services revenues decreased 16.7% primarily as the result of
the continuing industry-wide slowdown in customer demand for IT staffing
services. IT Services billable consultants on assignment declined from
approximately 3,700 at year-end 2000 to approximately 2,500 at yearend 2001.
Commercial Staffing revenues declined 17.4% to $284.5 million in 2001 primarily
due to the weak economic climate, which resulted in declines in permanent
placement revenues and the retail component of the Company's temporary staffing
business. Permanent placement revenues were 6.3% of Commercial Staffing revenues
in 2001, down from 10.0% in 2000, while the retail component of temporary
staffing declined to 77.3% of Commercial Staffing temporary revenues in 2001,
down from 84.4% in 2000. The Company does not expect improvements in demand for
its services until the second half of 2002 due to expected ongoing weak economic
conditions.


                                       3
<PAGE>

DIRECT COSTS OF SERVICES AND GROSS PROFIT

         Direct costs, consisting of payroll and related expenses of consultants
and temporary workers, but before $1.1 million of unusual charges recorded in
the fourth quarter of 2000, decreased 14.2% to $540.6 million in 2001 on lower
revenues. Gross profit, before the unusual charges in 2000, decreased 23.5% to
$191.7 million on the lower revenues. Gross profit as a percentage of revenue
decreased 230 basis points to 26.2% in 2001 from 28.5% in 2000. This decrease
primarily was the result of the continued softening in the higher margin sectors
of the staffing and consulting businesses, the significant decline in permanent
placement services and downward bill rate pressure imposed by many of the
Company's larger customers.

OPERATING EXPENSES

         Operating expenses, consisting of selling, general and administrative
expenses and depreciation and amortization expense, but before $5.0 million of
unusual charges recorded in the fourth quarter of 2000, decreased 14.2% to
$176.5 million in 2001 from $205.6 million in 2000. The decrease was primarily
due to the Company's aggressive cost containment program, including its
workforce reduction and office consolidation initiatives. Approximately 26% of
the Company's permanent workforce has been eliminated since the beginning of
2001. Also, variable or incentive compensation declined due to lower revenues
and operating margins. As a percentage of revenues, selling, general and
administrative expenses, before unusual charges in 2000, increased to 24.1% in
2001 from 20.5% in 2000. In addition, depreciation and amortization expense
increased to 3.3% of revenues in 2001 from 2.8% in 2000 primarily due to the
decline in revenues in 2001.

RESTRUCTURING AND RATIONALIZATION CHARGES

         Throughout 2001 the Company implemented a plan to restructure and
rationalize certain operations. As a result, the Company recorded charges
totaling $16.5 million in 2001. These charges were comprised of the following
components: employee severance of $1.7 million, lease termination charges of
$3.9 million, property abandonment charges of $2.6 million, loss on sale of
business of $7.7 million and other charges of $0.7 million.

         Following is a summary of the accrued liability for cash restructuring
and rationalization charges for the year ended December 30, 2001:

<TABLE>
<CAPTION>
                                                                   Employee            Lease
                                                                  Severance         Termination          Other             Total
                                                                  ---------         -----------         -------           -------
<S>                                                                <C>                <C>               <C>               <C>
Initial accrual                                                    $  1,678           $ 3,869           $ 1,627           $ 7,174

Cash payments                                                        (1,636)             (760)           (1,044)           (3,440)
                                                                   --------           -------           -------           -------

Accrued liability at
December 30, 2001                                                  $     42           $ 3,109           $   583           $ 3,734
                                                                   ========           =======           =======           =======
</TABLE>

         Employee severance-related costs include the elimination of both
administrative and income-producing employees. Under the workforce reduction
plan, approximately 26%, or 395 employees, of the Company's permanent workforce
has been eliminated since the beginning of 2001. Lease termination costs relate
primarily to office closures, branch consolidations and lease space reductions.
Property abandonment costs consist of the write-down of abandoned leasehold
improvements and other equipment. These assets were written down to estimated
fair value, generally zero, as they have been abandoned. The loss on the sale of
business relates to the sale of the Company's Dallas-based Paladin subsidiary,
which was completed December 31, 2001. On the date of the sale, the net book
value of Paladin Consulting was $11.5 million and


                                       4
<PAGE>

consideration of $3.8 million was received, resulting in the write-down of $7.7
million of goodwill in the fourth quarter of 2001. As the transaction occurred
after year-end, the remaining net book value of these operations, equal to the
consideration to be received, is shown as "assets held for sale" on the
Company's Consolidated Balance Sheets. This business is included in the IT
Services segment and contributed $11.5 million in revenues and $0.3 million in
net income for the year ended December 30, 2001. Other rationalization expenses
of $0.7 million were recorded in 2001 associated with incremental costs in
downsizing the business to current operating levels, the loss on the sale of
CareerShop, professional services expenses, changes in estimates for previous
lease terminations of $0.4 million, net of other income of $1.6 million related
to favorably settling certain obligations.

         Of the remaining accrued liability at December 30, 2001, the Company
expects to pay approximately $1.2 million over the next twelve months and the
balance, primarily lease termination payments, over the following eight years.

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

INTANGIBLES IMPAIRMENT

         The Company periodically evaluates the recoverability of its goodwill
and other intangible assets in relation to anticipated future cash flows on an
undiscounted basis. The assumptions used in these cash flow projections are
subject to change. The Company performs the recoverability analysis at the
lowest level at which cash flows are identified, which is generally consistent
with the various geographic market concentrations of the Company's staffing
operations. As general economic conditions have weakened over the last year,
demand for the Company's services has declined. Changes such as a continued
decline in operating results, changes in management's assumptions regarding the
economic recovery, or a requirement to close certain locations or sell assets in
the near term are likely to result in projected cash flows that do not fully
recover existing goodwill resulting in a requirement to record a significant
non-cash impairment provision.

         In the fourth quarter of 2001, the Company conducted a strategic review
of its operations within each business segment. The strategic review triggered
an impairment review of the goodwill related to certain of these operations. The
Company evaluated the recoverability of the goodwill by estimating future
undiscounted cash flows. The estimated future undiscounted cash flows were no
longer deemed adequate to support the value of the goodwill associated with
certain operations. As a result, the Company recorded a goodwill impairment
charge of $56.8 million in the fourth quarter of 2001 based on fair value
determined by discounted cash flows. The impairment charge related to operations
located principally within certain geographic markets for which the operating
performance through the fourth quarter of 2001 had substantially under-performed
the broader operating segment and where management does not anticipate recovery
to profitable levels. The impairment charges for IT Services and Commercial
Staffing were $41.1 million and $15.7 million, respectively.

         In the fourth quarter of 2000, the Company incurred an impairment
charge of $11.5 million related primarily to CareerShop.com intangibles and
certain other assets. At the time of the CareerShop.com acquisition, PGA
expected CareerShop.com's job board and related businesses to become cash
positive by the end of 2000 and break even from a profit standpoint during 2001.
Acquired assets, consisting primarily of $11.2 million of intangibles, were
recorded as a result of the acquisition (total consideration paid, including
assumption of debt, was $11.9 million, of which $9.4 million was cash and the
remainder was stock). However, CareerShop.com's separate businesses failed to
produce expected results. Due to the significance of the change in conditions,
management performed an evaluation of the recoverability of the goodwill related
to these operations and recorded the impairment charge. CareerShop.com was sold
in June 2001, resulting in a loss of $0.7 million.


                                       5
<PAGE>

         The Company expects to recognize additional material impairment charges
as a result of its adoption of changes to accounting for goodwill and other
intangible assets. See "-Recent Accounting Pronouncements."

INTEREST EXPENSE

         Interest expense decreased 9.1% to $18.3 million in 2001 from $20.1
million in 2000 due to lower borrowing levels under the Company's bank revolving
credit facility (the "Credit Facility") and decreases in interest rates
throughout the year. The average interest rate on borrowings was 7.2% in 2001,
down 80 basis points from 2000. See " -- Liquidity and Capital Resources."

PROVISION (BENEFIT) FOR INCOME TAXES

         The effective tax benefit rate of 12.7% in 2001 was lower than the U.S.
federal statutory rate of 35% primarily due to the impact of non-deductible
amortization expense, valuation allowances established during the year, and
certain non-deductible restructuring and rationalization charges, offset in part
by the $1.4 million tax benefit related to the diminution in value in the
Company's investment in CareerShop which was sold during the second quarter of
2001. As a result of the tax law change in early 2002, the Company will
determine the impact of any change on its valuation allowances in 2002. The
effective tax rate before non-recurring and unusual charges was 46% in 2000,
higher than the U.S. federal statutory rate of 35%, primarily due to
nondeductible amortization expense and state income taxes.

         YEAR ENDED DECEMBER 31, 2000 VERSUS YEAR ENDED JANUARY 2, 2000

REVENUES

         Total revenues decreased 4.0% to $882.0 million in 2000 from $918.4
million in 1999. IT Services revenues decreased 8.0% primarily as the result of
the continuing industry-wide slowdown in customer demand for IT staffing
services. IT Services billable consultants on assignment declined from
approximately 3,950 at yearend 1999 to approximately 3,700 at yearend 2000.
Although Commercial Staffing revenue growth slowed in the fourth quarter of 2000
amid signs of economic slowdown in a number of markets, revenues in 2000 overall
grew 3.0% primarily due to growth in permanent placement revenues and the retail
component of the Company's temporary staffing business during the first three
quarters of the year. Permanent placement revenues were 10.0% of Commercial
Staffing revenues in 2000 and 7.5% in 1999.

DIRECT COSTS OF SERVICES AND GROSS PROFIT

         Direct costs, consisting of payroll and related expenses of consultants
and temporary workers, but before $1.1 million of unusual charges recorded in
the fourth quarter of 2000, decreased 4.0% to $630.3 million in 2000 on lower
revenues. Gross profit, before the unusual charges, decreased 3.8% to $251.7
million on the lower revenues. Gross profit as a percentage of revenue was 28.5%
in both 2000 and 1999. Higher gross margin dollars were recorded during 2000
from permanent placement services; however, this was essentially offset by the
Company's weaker than expected performance in the higher margin sectors of the
information technology staffing and consulting business. IT Services revenues
represented 61% of total revenues in 2000, down from 64% in 1999.

OPERATING EXPENSES

         Operating expenses, consisting of selling, general and administrative
expenses and depreciation and amortization expense, but before $5.0 million of
unusual charges recorded in the fourth quarter of 2000, increased 6.4% to $205.6
million in 2000 from $193.2 million in 1999. As a percentage of revenues,
selling, general and administrative expenses before unusual charges increased to
20.5% in 2000 from 18.8% in 1999. These increases were caused primarily by the
strength of the Company's permanent placement business during


                                       6
<PAGE>

the first three quarters of the year (which typically carries higher gross
margins but higher operating expenses than the temporary staffing business) and
the June 2000 acquisition of Careershop.com. Depreciation and amortization
increased to 2.8% of revenues in 2000 from 2.3% in 1999 due to increased
depreciation and amortization expense resulting from the Careershop.com
acquisition and earn-out payments related to prior acquisitions, write-offs in
the fourth quarter due to the replacement of equipment and continuing
investments in management information systems.

RESTRUCTURING AND RATIONALIZATION CHARGES

         During the first quarter of 2000, the Company's then Chief Executive
Officer retired. The Company incurred expense of approximately $1.5 million in
the first quarter relating to severance and other benefits for the departed
executive. Other rationalization expenses of $0.5 million recorded in 2000
consisted primarily of property abandonment and lease termination costs related
to CareerShop.com.

INTEREST EXPENSE

         Interest expense increased to $20.1 million in 2000 from $16.4 million
in 1999 as the Company borrowed additional funds to make earn-out payments and
finance its share repurchase programs during the first five months of the year,
and to complete the Careershop.com acquisition in June 2000. Additionally, the
average interest rate on borrowings rose in 2000 to 8.0%, up 180 basis points
over 1999. See " -- Liquidity and Capital Resources."

PROVISION (BENEFIT) FOR INCOME TAXES

         The effective tax rate before non-recurring and unusual charges
increased to 46.0% in 2000 from 42.6% in 1999 primarily due to increased
nondeductible amortization expense in 2000 as a percentage of the Company's
pretax income. The Company's effective tax rate has historically been higher
than the U.S. federal statutory rate of 35% primarily due to state income taxes
and nondeductible amortization expense.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's primary sources of cash are from operations and
borrowings under the Company's Credit Facility. The Company's principal uses of
cash are to repay debt and to fund working capital and capital expenditures. The
Company believes, subject to the conditions and contingencies described below,
that cash flow from operations, anticipated tax refunds in 2002
and borrowing capacity under the Credit Facility will be adequate to meet its
diminished needs for working capital and its capital expenditures.

         The Company's working capital needs have diminished on the lower
business volumes during 2001. As a result, for the year ended December 30, 2001,
cash provided by operating activities increased to $55.1 million from $48.9
million last year, primarily as a result of a reduction in accounts receivables
since the end of 2000. In the aggregate, days sales outstanding decreased
slightly to 53 days at December 30, 2001, from 54 days at December 31, 2000.
Cash used for investing activities decreased to $12.7 million during 2001 from
$51.1 million in 2000 primarily as a result of lower contingent earn-out
payments relating to previous acquisitions and reduced capital spending.
Earn-out payments made to the former owners of acquired businesses during 2001
were approximately $10.1 million in the aggregate. The Company completed its
obligation to make additional earn-out payments in October 2001. The Company has
reduced its capital spending, and expects to spend less than $2.5 million on
management information systems and other capital expenditures in 2002. Capital
spending in 2001 was $3.0 million, down from $7.9 million in 2000. Cash used for
financing activities increased to $31.5 million primarily as a result of the
Company's emphasis on repayments under the Credit Facility during 2001.

         At December 30, 2001, the Company recorded estimated tax refunds of
$6.5 million based on estimated tax losses for 2001 and the tax laws and
regulations in effect at that time. Subsequent to year-end,


                                       7
<PAGE>

Congress passed new tax legislation that allows the Company to carryback Federal
net operating losses five years, substantially increasing the Company's ability
to recover income taxes previously paid. As a result, the Company currently
expects to recover approximately $15.0 to $18.0 million in 2002.

         The Credit Facility was amended in February and in March 2002. The
amended Credit Facility provides for a $136.0 million revolving line of credit
due January 2003. After January 2003, the Company at its option and provided
certain conditions are met, can further extend the maturity of the facility in
six-month increments up through January 2004. The amended Credit Facility
contains customary covenants that require quarterly maintenance of certain
financial ratios, minimum tangible net worth and a restriction on the payment of
cash dividends on Common Stock. It also places additional limitations on share
repurchases, acquisitions and capital expenditures and includes an Equity
Appreciation Rights agreement (the "EAR") whereby the Company may have to pay a
fee (the "Rights Fee") to the banks in the event of default on the Credit
Facility or if the Credit Facility has not been paid in full by January 1, 2004.
The Rights Fee shall be the greater of 10% of the fair market value of the
Company (as defined in the EAR agreement) as of the exercise date of the EAR or
$3.0 million. Interest rates payable under the amended Credit Facility were
increased to reflect current market and credit conditions, and are currently set
at prime plus 200 basis points through June 2002, with increases during each
six-month period through January 2004. As of February 28, 2002, the interest
rate payable under the amended Credit Facility was 6.75%.

         The Company's business is highly dependent on trends in the US economy
overall, as well as other factors such as unemployment levels and trends in
corporate information technology spending. Several other factors that can affect
the Company's operating results, and accordingly, its ability to generate cash
from operations, are discussed further under "--Forward Looking Information."
The already weak economic environment in the US was further weakened by the
events of September 11, 2001. As a result of these negative economic conditions
in 2001, the Company experienced a substantial decline in revenues in both the
IT Services and Commercial Staffing businesses, as compared to the prior year.
The reduced demand for IT Services and Commercial Staffing services will
continue to affect our business in 2002, and we anticipate further reductions in
revenue as compared to 2001. We expect improvement in demand for our services
beginning in the second half of 2002 based on expected improvements in the
broader economy. While we have implemented substantial cost reductions through
our restructuring activities in 2001, the reduced level of revenues is expected
to have an adverse affect on our operating income, EBITDA and net earnings for
several quarters.

         The Company's ability to continue operating is largely dependent upon
its ability to maintain compliance with the financial covenants in the Credit
Facility. The Company was able to maintain compliance with its Credit Facility
as of December 30, 2001 after obtaining a waiver in December 2001 of an
anticipated default under certain financial ratios for the fourth quarter of
2001. The Credit Facility was then amended in February and March 2002, with
modification of the financial covenants to reflect the weak economic environment
beginning with the fourth quarter of 2001 and extending through the new maturity
date of the Credit Facility, January 2003 (with extensions to January 2004
assuming certain conditions are met). As a result of these amendments, the
Credit Facility, with an outstanding balance of $119 million at December 30,
2001, is classified as long-term in the consolidated balance sheet. The
principal financial covenants are highly dependent upon our EBITDA levels, as
measured at each quarter end based on the 12-month period then ended, including
an interest coverage ratio and a leverage ratio. The amended Credit Facility
provides for certain adjustments that increase EBITDA including certain
restructuring and rationalization charges and certain other non-cash charges.
The adjusted EBITDA for the first quarter through the fourth quarter 2001 were
$13.4 million, $12.0 million, $8.8 million and $6.8 million, respectively. The
Credit Facility also includes a minimum tangible net worth requirement. In
addition to the quarterly covenants, the amended agreement includes EBITDA and
liquidity requirements to be measured based on the five-month period ending May
2002 and the six-month periods ending November 2002 and May 2003. The Company
believes its margin for compliance is at its lowest level for the November 2002
EBITDA covenant. In order to stay in compliance the Company will need to
generate EBITDA of at least $3.3 million and $7.2 million for the five-month
period ending May 2002 and the six-month period ending November 2002,
respectively.


                                       8
<PAGE>

         Based on the Company's expectations, which reflect the declining demand
for the Company's services, offset by reductions in costs associated with the
reduced revenues and lower costs due to the Company's restructuring and
rationalization activities, management believes the Company will be able to
maintain compliance with the modified financial covenants for the remaining term
of the Credit Facility. The Company also believes that the operating trends in
first quarter of 2002 support the key assumptions in its 2002 operating plan.
However, there can be no assurance that the economy or the Company will perform
as expected or that further economic declines will not adversely impact the
Company's ability to comply with its covenants. If actual results of operations
do not meet current forecasts, covenant violations could occur. If the Company
does violate future covenants, it would seek further waivers and amendments from
its lenders, but can give no assurance that any such necessary waivers and
amendments would be available at all or on acceptable terms. If the Company were
unable to obtain a waiver of future covenant violations, the lenders would be
entitled to require immediate repayment of all amounts outstanding under the
Credit Facility and, as described above, payment of the Rights Fee. An
acceleration of outstanding amounts under the Credit Facility could also cause a
default under, and permit acceleration of, the Company's 5 3/4% Convertible
Subordinated Notes (the "Notes") due July 2004. In the event of one or more such
defaults, the Company's ongoing viability would be seriously threatened, and it
would be forced to evaluate a number of strategic alternatives, including a debt
restructuring or other reorganization, the closure of certain locations or the
sale of certain or all of its assets in order to continue to fund its
operations. In the current economic environment, management believes that 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.

         In any event, the Company intends to continually monitor market
conditions and its anticipated financial performance against future covenants
and to seek financial advice regarding its situation. After considering these
factors along with the degree of uncertainty in the macroeconomic environment,
the Company may elect to pursue a debt restructuring or other reorganization to
reduce its long-term debt obligations and improve its financial position.

         Additionally, the Company was advised in December 2001 by the New York
Stock Exchange ("NYSE") that the Company had fallen below NYSE continued listing
standards, which requirie a minimum share price of not less than $1.00 and total
market capitalization of not less than $15.0 million. At the market close on
March 28, 2002, the Company's share price closed at $1.35 and total market
capitalization was approximately $36.0 million. As required by the NYSE, the
Company has submitted a plan to the Listings and Compliance Committee of the
NYSE demonstrating how the Company plans to comply with the listing standards by
the June 2002 deadline set by the NYSE. After reviewing the plan, the NYSE has
accepted the plan and the Company is subject to quarterly monitoring for
compliance with the plan. Based upon internal estimates, the Company believes it
will satisfy the listing standards by the NYSE deadline, although it can give no
assurance that it will be able to do so. Should the Company fail to maintain
eligibility for the continued listing of its shares on the NYSE, the Company
believes, although can provide no assurance, that an alternative trading venue
will be available. If the Company were unable to secure an alternative trading
venue that was either a US national securities exchange or established
over-the-counter US trading market, the holders of the Notes would have the
right to require repayment of the Notes, which could lead to a default under the
Notes and a further default and acceleration of outstanding amounts under the
Credit Facility.

         The following tables summarize contractual obligations and commercial
commitments at December 30, 2001:

<TABLE>
<CAPTION>
                                                                                                 Payments due by period
Contractual obligations                                         Total        Less than 1 Year          1-3 Years         4-9 Years
                                                              ---------      ----------------          ---------         ---------
<S>                                                           <C>            <C>                       <C>               <C>
Long-term debt                                                $ 234,882          $   882               $ 234,000          $    --
Operating Leases                                                 32,919            9,071                  17,309            6,539
                                                              ---------          -------               ---------          -------
Total contractual cash
obligations                                                   $ 267,801          $ 9,953               $ 251,309          $ 6,539
                                                              =========          =======               =========          =======
</TABLE>


                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                                                    Amount of Commitment Expiration Per Period
Other Commercial Commitments                                  Total Amounts
                                                                Committed       Less than 1 Year        1-3 Years       4-5 Years
                                                              -------------     ----------------        ---------       ---------
<S>                                                           <C>               <C>                     <C>             <C>
Letters of Credit                                                $ 8,600              $ --               $ 8,600          $  --
</TABLE>

MARKET RISK DISCLOSURES

         The Company's outstanding debt under the Credit Facility at February
28, 2002 was $111.0 million. Interest on borrowing under the Credit Facility is
based on prime plus a variable margin. Based on the outstanding balance at
February 28, 2002, a change of 1% in the interest rate would cause a change in
interest expense of approximately $1.1 million on an annual basis.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         The Company's analysis and discussion of its financial condition and
results of operations are based upon its consolidated financial statements that
have been prepared in accordance with generally accepted accounting principles
in the United States (US GAAP). The preparation of financial statements in
conformity with US GAAP requires management to make estimates and assumptions.
These estimates include the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
The Company evaluates these estimates and assumptions on an ongoing basis,
including but not limited to those related to the recoverability of intangible
assets, collectibility of accounts receivable, useful lives of property and
equipment, reserves against permanent placement revenues, workers' compensation
costs, restructuring and rationalization reserves and realization of deferred
tax assets. Estimates and assumptions are based on historical and other factors
believed to be reasonable under the circumstances. The results of these
estimates may form the basis of the carrying value of certain assets and
liabilities and may not be readily apparent from other sources. Actual results,
under conditions and circumstances different from those assumed, may differ from
these estimates.

         The Company believes the following accounting policies are critical to
its business operations and the understanding of its results of operations and
include the more significant judgments and estimates used in the preparation of
its consolidated financial statements.

RECOVERABILITY OF INTANGIBLE ASSETS

         The Company periodically reviews intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Assumptions and estimates used in the
determination of the recoverability of intangible assets, such as undiscounted
future cash flows and disposition costs, may affect the carrying value of
intangible assets, and possible impairment expense in the Company's consolidated
financial statements.

COLLECTIBILITY OF ACCOUNTS RECEIVABLE

         The Company maintains accounts receivable allowances for estimated
losses resulting from the inability of its customers to make required payments.
Additional allowances may be required if the financial condition of the
Company's customers deteriorates.

USEFUL LIVES OF PROPERTY AND EQUIPMENT

         The Company records depreciation and amortization based on estimated
useful lives of the property and equipment. If the Company determines that an
asset has a shorter useful life than originally estimated, additional expense
may be required.


                                       10
<PAGE>

RESERVES AGAINST PERMANENT PLACEMENT REVENUES

         The Company recognizes revenue when employment candidates accept offers
of permanent employment. Allowances are established, based on historical data,
to estimate losses due to placed candidates not remaining employed through the
Company's guarantee period, typically 90 days or less. Additional allowances may
be required if a greater percentage of candidates do not fulfill the guarantee
period than historical rates reflect.

WORKERS' COMPENSATION COSTS

         The Company maintains a self-insurance program for workers'
compensation and accrues liabilities under that program based on the loss and
loss adjustment expenses as estimated by an outside administrator. If actual
claims experience deteriorates from historical experience, additional expense
may be required.

RESTRUCTURING AND RATIONALIZATION RESERVES

         The Company records restructuring and rationalization reserves as a
result of its workforce reduction program and cost containment initiative which
resulted in closing and consolidating certain offices. The reserve primarily
relates to lease termination costs that have been reduced by the amount of
subleases expected to be collected. The Company uses current market information
to estimate sublease income. If the sublease income is less than estimated,
additional reserves may be required.

INCOME TAX ASSETS AND LIABILITIES

         The Company records an income tax valuation allowance when the
realization of certain deferred tax assets, net operating losses and capital
loss carryforwards is not more likely than not. These deferred tax items
represent expenses recognized for financial reporting purposes, which will
result in tax deductions over varying future periods. Certain judgments,
assumptions and estimates may affect the carrying value of the deferred tax
assets such as estimates of future taxable income, availability of capital gains
in future periods, timing or amount of future reversals of existing deferred tax
liabilities, and other tax planning strategies that may be available to the
Company.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 2001, the Financial Accounting Standards Board (FASB or the
"Board") issued Statement of Financial Accounting Standards No. 141 (SFAS 141),
Business Combinations, and No. 142 (SFAS 142), Goodwill and Other Intangible
Assets, collectively referred to as the "Standards". SFAS 141 supersedes
Accounting Principles Board Opinion (APB) No. 16, Business Combination. The
provisions of SFAS 141 require that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001, provide specific
criteria for the initial recognition and measurement of intangible assets apart
from goodwill, and require that unamortized negative goodwill be written off
immediately as an extraordinary gain instead of being deferred and amortized.
SFAS 141 also requires that upon adoption of SFAS 142 the Company reclassify the
carrying amounts of certain intangible assets into or out of goodwill, based on
certain criteria. SFAS 142 supersedes APB 17, Intangible Assets, and is
effective for fiscal years beginning after December 15, 2001. SFAS 142 primarily
addresses the accounting for goodwill and intangible assets subsequent to their
initial recognition. The provisions of SFAS 142 prohibit the amortization of
goodwill and indefinite-lived intangible assets, require that goodwill and
indefinite-lived intangibles assets be tested annually for impairment (and in
interim periods if certain events occur indicating that the carrying value of
goodwill and/or indefinite-lived intangible assets may be impaired), require
that reporting units be identified for the purpose of assessing potential future
impairments of goodwill, and remove the forty-year limitation on the
amortization period of intangible assets that have finite lives.


                                       11
<PAGE>

         SFAS 142 is effective for the Company's 2002 fiscal year. The Company
is in the process of preparing for its adoption of SFAS 142. In 2001, the
Company recorded goodwill amortization expense of $15.4 million, which would no
longer be required to be recorded under SFAS 142. The Company is also in the
process of evaluating the useful lives of its existing intangible assets, other
than goodwill, and anticipates that any changes in the useful lives will not
have a material impact on the results of its operations.

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

         In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144), which excludes from the
definition of long-lived assets goodwill and other intangibles that are not
amortized in accordance with SFAS 142. SFAS 144 requires that long-lived assets
to be disposed of by sale be measured at the lower of carrying amount or fair
value less cost to sell, whether reported in continuing operations or in
discontinued operations. SFAS 144 also expands the reporting of discontinued
operations to include components of an entity that have been or will be disposed
of rather than limiting such discontinuance to a segment of a business. This
Statement is effective for the Company's 2002 fiscal year and early adoption is
permitted. The Company is currently evaluating the impact of SFAS 144 to
determine the effect, if any, it may have on the Company's consolidated results
of operations, financial position or cash flows.


                                       12
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT
         ACCOUNTANTS

To the Board of Directors and Shareholders of
Personnel Group of America, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of Personnel
Group of America, Inc. and subsidiaries (collectively, the "Company") at
December 30, 2001 and December 31, 2000, and the results of their operations and
their cash flows for each of the three years in the period ended December 30,
2001, in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.



/s/  PricewaterhouseCoopers LLP

Charlotte, North Carolina
March 28, 2002


                                       13
<PAGE>


PART IV, ITEM 14 (A) (1)  CONSOLIDATED FINANCIAL STATEMENTS

                PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
     CONSOLIDATED BALANCE SHEETS -- DECEMBER 30, 2001 AND DECEMBER 31, 2000
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
ASSETS                                                                            2001            2000
------                                                                          --------       ---------

<S>                                                                            <C>             <C>
CURRENT ASSETS:
    Cash and cash equivalents                                                  $  17,557       $   6,233
    Accounts receivable, net of allowance for doubtful accounts of $2,451
       and $3,799 in 2001 and 2000, respectively                                  87,088         127,292
    Prepaid expenses and other current assets                                      4,150           4,846
    Recoverable income taxes                                                       6,470           1,691
    Deferred income taxes                                                         11,896          10,064
    Notes receivable                                                                  --             885
    Assets held for sale                                                           3,825              --
                                                                               ---------       ---------
          Total current assets                                                   130,986         151,011

Property and equipment, net                                                       18,061          25,986
Intangible assets, net                                                           478,836         563,031
Other assets                                                                       2,705           3,565
                                                                               ---------       ---------
          Total assets                                                         $ 630,588       $ 743,593
                                                                               =========       =========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

CURRENT LIABILITIES:
    Current portion of long-term debt                                          $     882       $     647
    Accounts payable                                                               9,598          13,910
    Accrued liabilities                                                           48,265          53,877
                                                                               ---------       ---------
          Total current liabilities                                               58,745          68,434

Long-term debt                                                                   234,000         265,000
Other long-term liabilities                                                       39,750          45,860
                                                                               ---------       ---------
          Total liabilities                                                      332,495         379,294

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
    Preferred stock, $.01 par value; shares authorized 5,000;
        no shares issued and                                                          --              --
       outstanding
    Common stock, $.01 par value; shares authorized 95,000;
        33,065 shares issued and outstanding                                         331             331
    Additional paid-in capital                                                   316,694         319,910
    Retained earnings                                                             25,983          92,661
                                                                               ---------       ---------
                                                                                 343,008         412,902
     Less common stock held in treasury at cost -
        6,371 and 6,873 shares at December 30, 2001 and December 31,
         2000, respectively                                                      (44,915)        (48,603)
                                                                               ---------       ---------
          Total shareholders' equity                                             298,093         364,299
                                                                               ---------       ---------
          Total liabilities and shareholders' equity                           $ 630,588       $ 743,593
                                                                               =========       =========
</TABLE>


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


                                       14
<PAGE>





               PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
  FOR THE YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                     2001            2000           1999
                                                  ---------       ---------       --------

<S>                                               <C>             <C>             <C>
REVENUES                                          $ 732,327       $ 881,992       $918,437
DIRECT COSTS OF SERVICES                            540,659         631,442        656,918
                                                  ---------       ---------       --------
GROSS PROFIT                                        191,668         250,550        261,519

OPERATING EXPENSES:
   Selling, general and administrative              152,610         185,743        171,950
   Depreciation and amortization                     23,913          24,915         21,292
   Restructuring and rationalization charges         16,452           1,960             --
   Intangibles impairment                            56,779          11,021             --
                                                  ---------       ---------       --------

OPERATING INCOME (LOSS)                             (58,086)         26,911         68,277

INTEREST EXPENSE                                     18,278          20,108         16,447
                                                  ---------       ---------       --------
INCOME (LOSS) BEFORE INCOME TAXES                   (76,364)          6,803         51,830
PROVISION (BENEFIT) FOR INCOME TAXES                 (9,686)          8,978         22,077
                                                  ---------       ---------       --------

NET INCOME (LOSS)                                 $ (66,678)      $  (2,175)      $ 29,753
                                                  =========       =========       ========

EARNINGS PER BASIC SHARE                          $   (2.52)      $   (0.09)      $   1.07

EARNINGS PER DILUTED SHARE                        $   (2.52)      $   (0.09)      $   0.99

WEIGHTED AVERAGE BASIC SHARES OUTSTANDING            26,503          25,090         27,680
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING          26,503          25,090         34,299
</TABLE>


        The accompanying notes are an integral part of these statements.


                                       15
<PAGE>



               PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
  FOR THE YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                                       COMMON
                                             COMMON STOCK      ADDITIONAL                               STOCK          TOTAL
                                           ----------------     PAID-IN       RETAINED     DEFERRED    HELD IN      SHAREHOLDERS'
                                           SHARES    AMOUNT     CAPITAL       EARNINGS   COMPENSATION  TREASURY        EQUITY
                                           ------    ------     -------       --------   ------------  --------        ------

<S>                                        <C>       <C>      <C>             <C>        <C>           <C>          <C>
BALANCE, January 3, 1999                   32,929     $329     $ 329,383      $ 65,083      $(165)     $     --      $ 394,630

 Stock issued for acquisitions                 24       --           605            --         --           539          1,144
 Repurchases of common stock                   --       --            --            --         --       (60,025)       (60,025)
 Stock issued for employee stock
   purchase plan and exercises of
   stock options                              112        2           249            --         --         3,986          4,237
 Amortization of deferred compensation         --       --            --            --        104            --            104
 Net income                                    --       --            --        29,753         --            --         29,753
                                           ------     ----     ---------      --------      -----      --------      ---------

BALANCE, January 2, 2000                   33,065     $331     $ 330,237      $ 94,836      $ (61)     $(55,500)     $ 369,843
                                           ------     ----     ---------      --------      -----      --------      ---------

 Stock issued for acquisitions                 --       --        (6,520)           --         --        11,588          5,068
 Repurchases of common stock                   --       --            --            --         --       (10,584)       (10,584)
 Stock issued for employee stock
   purchase  plan and exercises of
   stock options                               --       --        (3,807)           --         --         5,893          2,086
 Amortization of deferred compensation         --       --            --            --         61            --             61
 Net income (loss)                             --       --            --        (2,175)        --            --         (2,175)
                                           ------     ----     ---------      --------      -----      --------      ---------

BALANCE, December 31, 2000                 33,065     $331     $ 319,910      $ 92,661      $  --      $(48,603)     $ 364,299
                                           ------     ----     ---------      --------      -----      --------      ---------

 Stock issued for employee stock
   purchase plan                               --       --        (3,216)           --         --         3,688            472
 Net income (loss)                             --       --            --       (66,678)        --            --        (66,678)
                                           ------     ----     ---------      --------      -----      --------      ---------

 BALANCE, December 30, 2001                33,065     $331     $ 316,694      $ 25,983      $  --      $(44,915)     $ 298,093
                                           ======     ====     =========      ========      =====      ========      =========
</TABLE>


        The accompanying notes are an integral part of these statements.



                                       16
<PAGE>




                PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
  FOR THE YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000 AND JANUARY 2, 2000
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                      2001          2000          1999
                                                                    --------      --------      --------
<S>                                                                 <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                                 $(66,678)     $ (2,175)     $ 29,753
  Adjustments to reconcile net income (loss) to net
    cash provided by
     operating activities:
        Depreciation and amortization                                 23,913        24,915        21,292
        Loss on abandonment and disposals                             10,743            --            --
        Intangibles impairment charge                                 56,779        11,515            --
        Deferred income taxes, net                                    (2,479)        6,050         8,105
        Changes in assets and liabilities:
            Accounts receivable                                       39,124        (1,324)        5,019
            Accounts payable and accrued liabilities                  (8,690)       10,451         7,833
            Income taxes payable                                          --        (2,443)       (1,763)
            Other, net                                                 2,878         1,950         1,468
                                                                    --------      --------      --------
            Net cash provided by operating activities                 55,590        48,939        71,707

CASH FLOWS FROM INVESTING ACTIVITIES:
  Cash used in acquisitions, net of cash acquired                    (10,120)      (43,127)      (18,715)
  Proceeds from sale of business                                         372            --            --
  Purchase of property and equipment, net                             (2,999)       (7,924)      (11,368)
                                                                    --------      --------      --------
            Net cash used in investing activities                    (12,747)      (51,051)      (30,083)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayments under credit facility                                   (53,000)      (51,500)      (59,500)
  Borrowings under credit facility                                    22,000        63,500        87,500
  Payment of credit facility amendment fees                           (1,227)           --            --
  Repurchases of common stock                                             --       (10,638)      (59,971)
  Proceeds from employee stock purchase plan and stock
    option exercises                                                     472         2,086         4,237
  Repayments of seller notes and other, net                              236          (855)       (9,100)
                                                                    --------      --------      --------
            Net cash provided by (used in) financing activities      (31,519)        2,593       (36,834)
                                                                    --------      --------      --------

Net increase in cash and cash equivalents                             11,324           481         4,790

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                         6,233         5,752           962
                                                                    --------      --------      --------
CASH AND CASH EQUIVALENTS AT END OF YEAR                            $ 17,557      $  6,233      $  5,752
                                                                    ========      ========      ========

SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash payments during the year for --
            Income taxes                                            $    518      $  5,497      $ 15,241
            Interest                                                $ 15,942      $ 18,588      $ 12,673
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
  FINANCING ACTIVITIES:
  Accrued acquisition related earnout payments                      $     --      $ 11,458      $ 27,445
  Accrued repurchases of common stock                               $     --      $     --      $     54
</TABLE>


The accompanying notes are an integral part of these statements.



                                       17
<PAGE>



                PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1.       ORGANIZATION, DEBT COMPLIANCE AND NATURE OF OPERATIONS:


BASIS OF PRESENTATION

         The consolidated financial statements include the accounts of Personnel
Group of America, Inc. and its subsidiaries (collectively, the "Company"). All
significant intercompany transactions have been eliminated.

         The Company's fiscal years ended December 30, 2001, December 31, 2000
and January 2, 2000 are referred to in these financial statements as years 2001,
2000 and 1999, respectively.

DEBT COMPLIANCE

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

         -        Restructuring actions including the reduction of over 25% of
                  the permanent workforce and office space rationalization

         -        Divesture of an under-performing business which was completed
                  on December 31, 2001

         -        Execution of an amended revolving credit facility which
                  extends maturity to January 2003, with additional extensions
                  to January 2004 assuming certain conditions are met

         -        Reduction in accounts receivable resulting in substantial cash
                  flow which was used to reduce debt

         -        Further headcount and infrastructure rationalization is
                  planned in 2002

         The Company's ability to continue operating is largely dependent upon
its ability to maintain compliance with the financial covenants in the Company's
bank revolving credit facility (the "Credit Facility"). The Company was able to
maintain compliance with its Credit Facility as of December 30, 2001 after
obtaining a waiver in December 2001 of an anticipated default under certain
financial ratios for the fourth quarter of 2001. The Credit Facility was then
amended in February and March 2002, with modification of the financial covenants
to reflect the weak economic environment beginning with the fourth quarter of
2001 and extending through the new maturity date of the Credit Facility, January
2003 (with extensions to January 2004 assuming certain conditions are met). As a
result of these amendments, the Credit Facility, with an outstanding balance of
$119 million at December 30, 2001, is classified as long-term in the
consolidated balance sheet. For further discussion of the Company's Credit
Facility and debt compliance matters, see Note 6, "Long-Term Debt."


NATURE OF OPERATIONS

         The Company is organized into two Divisions: the Information Technology
Services Division ("IT Services"), which provides information technology
staffing and consulting services in a range of computer-related disciplines and
technology tools for human capital management, and the Commercial Staffing
Services Division ("Commercial Staffing"), which provides a variety of temporary
office, clerical, accounting and finance, light technical and light industrial
staffing services. All of the IT Services and Commercial Staffing branch offices
are located in the United States, and none are franchised or licensed.


                                       18
<PAGE>

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:


REVENUE RECOGNITION

         The Company recognizes revenue at the time its services are performed.
Permanent placement revenues are recognized when employment candidates accept
offers of permanent employment. Allowances are established, based upon
historical data, to estimate losses due to placed candidates not remaining
employed through the Company's guarantee period, typically 90 days or less.

CASH AND CASH EQUIVALENTS

         Cash and cash equivalents consist of cash on hand and highly liquid
investments with original maturities of three months or less.

PROPERTY AND EQUIPMENT


         Property and equipment are carried at cost and depreciated on a
straight-line basis over their estimated useful lives (generally three to seven
years). Computer software costs consist of costs to purchase and develop
software. The Company capitalizes internally developed software costs based on a
project-by-project analysis of each project's significance to the Company and
its estimated useful life. The majority of capitalized software costs are
depreciated on a straight-line basis over a period of six years. Leasehold
improvements are stated at cost and amortized over the shorter of the lease term
or the useful life of the improvements.


INTANGIBLE ASSETS

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

         Intangible assets are periodically reviewed for impairment. The Company
compares the carrying value of such assets to the estimated undiscounted future
cash flows expected from the use of the assets and their eventual disposition.
An impairment loss, equal to the difference between the assets' estimated fair
value and their carrying value, is recognized when the estimated future cash
flows are less than their carrying value (See Note 3, "Recent Accounting
Pronouncements" and Note 8, "Intangibles Impairment".) Total intangible assets
and accumulated amortization of intangible assets were $617,259 and $138,423 at
December 30, 2001, respectively, and $617,778 and $54,747 at December 31, 2000,
respectively. Amortization expense for 2001, 2000 and 1999 was $16,278, $16,826
and $15,358, respectively.

         Certain of the Company's acquisitions provided for additional purchase
price consideration upon attainment of certain specified targets for various
periods after closing of the acquisition. The Company paid $10,120, $36,555,
$16,162 (of which $2,483 and $717 were paid by the issuance of 784,437 and
73,334 shares of Common Stock in 2000 and 1999, respectively) in contingent
consideration in 2001, 2000 and 1999, respectively. The Company has completed
its obligation to make additional earn-out payments on the acquired businesses.
All consideration was recorded as additional purchase price when earned and
increased the amount of excess of cost over fair value of net assets acquired.

INCOME TAXES

         Income taxes are accounted for under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases,


                                       19
<PAGE>

and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
the Consolidated Statement of Operations in the period that includes the
enactment date. A valuation allowance is recorded to reduce the carrying amounts
of deferred tax assets if it is more likely than not that such assets will not
be realized.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. These estimates include the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual amounts could differ from management's
estimates. Estimates are used for, but not limited to, recoverability of
goodwill, collectibility of accounts receivable, useful lives of property and
equipment, reserves against permanent placement revenues, workers' compensation
costs, restructuring and rationalization reserves and realization of deferred
tax assets.

3.  RECENT ACCOUNTING PRONOUNCEMENTS:

         In June 2001, the Financial Accounting Standards Board (FASB or the
"Board") issued Statement of Financial Accounting Standards No. 141 (SFAS 141),
Business Combinations, and No. 142 (SFAS 142), Goodwill and Other Intangible
Assets, collectively referred to as the "Standards". SFAS 141 supersedes
Accounting Principles Board Opinion (APB) No. 16, Business Combination. The
provisions of SFAS 141 require that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001, provide specific
criteria for the initial recognition and measurement of intangible assets apart
from goodwill, and require that unamortized negative goodwill be written off
immediately as an extraordinary gain instead of being deferred and amortized.
SFAS 141 also requires that upon adoption of SFAS 142 the Company reclassify the
carrying amounts of certain intangible assets into or out of goodwill, based on
certain criteria. SFAS 142 supersedes APB 17, Intangible Assets, and is
effective for fiscal years beginning after December 15, 2001. SFAS 142 primarily
addresses the accounting for goodwill and intangible assets subsequent to their
initial recognition. The provisions of SFAS 142 prohibit the amortization of
goodwill and indefinite-lived intangible assets, require that goodwill and
indefinite-lived intangibles assets be tested annually for impairment (and in
interim periods if certain events occur indicating that the carrying value of
goodwill and/or indefinite-lived intangible assets may be impaired), require
that reporting units be identified for the purpose of assessing potential future
impairments of goodwill, and remove the forty-year limitation on the
amortization period of intangible assets that have finite lives.

         SFAS 142 is effective for the Company's 2002 fiscal year. The Company
is in the process of preparing for its adoption of SFAS 142. In 2001, the
Company recorded goodwill amortization expense of $15,372, which would no longer
be required to be recorded under SFAS 142. The Company is also in the process of
evaluating the useful lives of its existing intangible assets, other than
goodwill, and anticipates that any changes in the useful lives will not have a
material impact on the results of its operations.

         SFAS 142 requires that goodwill be tested annually for impairment using
a two-step process. The first step is to identify a potential impairment and, in
transition, this step must be measured as of the beginning of the fiscal year.
However, a company has six months from the date of adoption to complete the
first step. The Company currently expects to complete that first step of the
goodwill impairment test during the second quarter of 2002. The second step of
the goodwill impairment test measures the amount of the impairment loss
(measured as of the beginning of the year of adoption), if any, and must be
completed by the end of the


                                       20
<PAGE>

Company's fiscal year. While the exact amount of that impairment loss has not
been determined, the Company expects to complete that analysis during the second
quarter of 2002.

         In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144), which excludes from the
definition of long-lived assets goodwill and other intangibles that are not
amortized in accordance with SFAS 142. SFAS 144 requires that long-lived assets
to be disposed of by sale be measured at the lower of carrying amount or fair
value less cost to sell, whether reported in continuing operations or in
discontinued operations. SFAS 144 also expands the reporting of discontinued
operations to include components of an entity that have been or will be disposed
of rather than limiting such discontinuance to a segment of a business. This
Statement is effective for the Company's 2002 fiscal year and early adoption is
permitted. The Company is currently evaluating the impact of SFAS 144 to
determine the effect, if any, it may have on the Company's consolidated results
of operations, financial position or cash flows.

4.  ACCOUNTS RECEIVABLE:

         Accounts receivable consisted of the following at December 30, 2001 and
December 31, 2000:

<TABLE>
<CAPTION>
                                              2001           2000
                                           ---------      ---------
<S>                                        <C>            <C>
Trade accounts receivable                  $  89,539      $ 131,091
Less - Allowance for doubtful accounts        (2,451)        (3,799)
                                           ---------      ---------
                                           $  87,088      $ 127,292
                                           =========      =========
</TABLE>

         The following table sets forth further information on the Company's
allowance for doubtful accounts:

<TABLE>
<CAPTION>
                                   BALANCE AT       CHARGED TO                           BALANCE
                                    BEGINNING       COSTS AND                             AT END
                 YEAR ENDED          OF YEAR         EXPENSES         DEDUCTIONS         OF YEAR
                 ----------          -------         --------         ----------         -------

    <S>                            <C>              <C>               <C>                <C>
    December 30, 2001                 $3,799          $7,077            $(8,425)          $2,451
    December 31, 2000                  2,690           9,159             (8,050)           3,799
    January 2, 2000                    2,031           5,536             (4,877)           2,690
</TABLE>


5.  PROPERTY AND EQUIPMENT, NET:

         Property and equipment, net, consisted of the following at December 30,
2001 and December 31, 2000:

<TABLE>
<CAPTION>
                                               2001          2000
                                             --------      --------
<S>                                          <C>           <C>
Software and computer equipment              $ 35,027      $ 35,131
Furniture and other equipment                   6,822         6,904
Leasehold improvements                          2,567         2,992
                                             --------      --------
                                               44,416        45,027
Less - Accumulated depreciation               (26,355)      (19,041)
                                             --------      --------
                                             $ 18,061      $ 25,986
                                             ========      ========
</TABLE>



                                       21
<PAGE>


6.  LONG-TERM DEBT:

      Long-term debt at December 30, 2001 and December 31, 2000 was as follows:

<TABLE>
<CAPTION>
                                                          2001         2000
                                                        --------     --------
<S>                                                     <C>          <C>
5-3/4% Convertible Subordinated Notes due July 2004     $115,000     $115,000
Bank revolving credit facility due January 2003          119,000      150,000
Other                                                        882          647
                                                        --------     --------
                                                         234,882      265,647
Less current portion                                         882          647
                                                        --------     --------
                                                        $234,000     $265,000
                                                        ========     ========
</TABLE>

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

         The Credit Facility was amended in February and March 2002. These
amendments provide for a $136,000 revolving line of credit due January 2003.
After January 2003, the Company at its option and provided certain conditions,
including compliance with financial covenants, are met, can further extend the
maturity of the facility in six-month increments up through January 2004. The
amended Credit Facility contains customary covenants that require quarterly
maintenance of leverage and interest coverage financial ratios, minimum tangible
net worth and a restriction on the payment of cash dividends on Common Stock. It
also places additional limitations on share repurchases, acquisitions and
capital expenditures and includes an Equity Appreciation Rights agreement (the
"EAR") whereby the Company may have to pay a fee (the "Rights Fee") to the banks
in the event of default on the Credit Facility or if the Credit Facility has not
been paid in full by January 1, 2004. The Rights Fee shall be the greater of 10%
of the fair market value of the Company (as defined in the EAR) as of the
exercise date of the EAR or $3,000. Interest rates payable under the amended
Credit Facility were increased to reflect current market and credit conditions,
and are currently set at prime plus 200 basis points through June 2002, with
increases during each six-month period through January 2004.

         During 2001, the maximum aggregate outstanding borrowing under the
Credit Facility was $151,000 and the average outstanding balance during the year
was $135,150. In addition, approximately $8,600 of the Credit Facility was used
at December 30, 2001 for the issuance of undrawn letters of credit to secure the
Company's workers' compensation program. The daily weighted average interest
rate under the Credit Facility was 7.2% during 2001. The weighted average
interest rate for the Company's borrowings under the Credit Facility was 4.75%
at December 30, 2001. As of February 28, 2002, the interest rate under the
amended Credit Faculty was 6.75%.

         Scheduled maturities of long-term debt at December 30, 2001 were as
follows:

<TABLE>
                           <S>                        <C>
                           2002                        $    882
                           2003                         119,000
                           2004                         115,000
                                                       --------
                                                       $234,882
                                                       ========
</TABLE>

         The Company's ability to continue operating is largely dependent upon
its ability to maintain compliance with the financial covenants in the Credit
Facility. The Company was able to maintain compliance with its Credit Facility
as of December 30, 2001 after obtaining a waiver in December 2001 of


                                       22
<PAGE>

an anticipated default under certain financial ratios for the fourth quarter of
2001. The Credit Facility was then amended in February and March 2002, with
modification of the financial covenants to reflect the weak economic environment
beginning with the fourth quarter of 2001 and extending through the new maturity
date of the Credit Facility, January 2003 (with extensions to January 2004
assuming certain conditions are met). As a result of these amendments, the
Credit Facility, with an outstanding balance of $119,000 at December 30, 2001,
is classified as long-term in the consolidated balance sheet. The principal
financial covenants are highly dependent upon our EBITDA levels, as measured at
each quarter end based on the 12-month period then ended, including an interest
coverage ratio and a leverage ratio. The amended Credit Facility provides for
certain adjustments that increase EBITDA including certain restructuring and
rationalization charges and certain other non-cash charges. The adjusted EBITDA
for the first quarter through the fourth quarter 2001 were $13,410, $12,023,
$8,817 and $6,800, respectively. The Credit Facility also includes a minimum
tangible net worth requirement. In addition to the quarterly covenants, the
amended agreement includes EBITDA and liquidity requirements to be measured
based on the five-month period ending May 2002 and the six-month periods ending
November 2002 and May 2003. The Company believes its margin for compliance is at
its lowest level for the November 2002 EBITDA covenant. In order to stay in
compliance the Company will need to generate EBITDA of at least $3,321 and
$7,207 for the five-month period ending May 2002 and the six-month period ending
November 2002, respectively.

         Based on the Company's fiscal 2002 projections, which reflect the
declining demand for the Company's services, offset by reductions in costs
associated with the reduced revenues and lower costs due to the Company's
restructuring and rationalization activities, management believes the Company
will be able to maintain compliance with the modified financial covenants for
the remaining term of the Credit Facility. The Company also believes that the
operating trends in first quarter of 2002 support the key assumptions in its
2002 operating plan. However, there can be no assurance that the economy or the
Company will perform as expected or that further economic declines will not
adversely impact the Company's ability to comply with its covenants. If actual
results of operations do not meet current forecasts, covenant violations could
occur. If the Company does violate future covenants, it would seek further
waivers and amendments from its lenders, but can give no assurance that any such
necessary waivers and amendments would be available at all or on acceptable
terms. If the Company were unable to obtain a waiver of future covenant
violations, the lenders would be entitled to require immediate repayment of all
amounts outstanding under the Credit Facility and, as described above, payment
of the Rights Fee. An acceleration of outstanding amounts under the Credit
Facility could also cause a default under, and permit acceleration of, the
Company's 5 3/4% Convertible Subordinated Notes due July 2004. In the event of
one or more such defaults, the Company's ongoing viability would be seriously
threatened, and it would be forced to evaluate a number of strategic
alternatives, including a debt restructuring or other reorganization, the
closure of certain locations or the sale of certain or all of its assets in
order to continue to fund its operations. In the current economic environment,
management believes that 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.


7.  RESTRUCTURING AND RATIONALIZATION CHARGES:


         Throughout 2001 the Company implemented a plan to restructure and
rationalize certain operations. As a result, the Company recorded charges
totaling $16,452 in 2001. These charges were comprised of the following
components: employee severance of $1,678; lease termination charges of $3,869;
property abandonment charges of $2,568; loss on sale of business of $7,683 and
other charges of $654.


                                       23
<PAGE>

         Following is a summary of the accrued liability for cash restructuring
and rationalization charges for the year ended December 30, 2001:


<TABLE>
<CAPTION>
                           Employee       Lease
                           Severance   Termination       Other       Total
                           ---------   -----------       -------    -------
<S>                        <C>         <C>               <C>        <C>
Initial Accrual            $ 1,678        $ 3,869        $ 1,627    $ 7,174

Cash Payments               (1,636)          (760)        (1,044)    (3,440)
                           -------        -------        -------    -------
Accrued liability at
December 30, 2001          $    42        $ 3,109        $   583    $ 3,734
                           =======        =======        =======    =======
</TABLE>

         Employee severance-related costs include the elimination of both
administrative and income-producing employees. Under the workforce reduction
plan, approximately 26%, or 395 employees, of the Company's permanent workforce
has been eliminated since the beginning of 2001. Lease termination costs relate
primarily to office closures, branch consolidations and lease space reductions.
Property abandonment costs consist of the write-down of abandoned leasehold
improvements and other equipment. These assets were written down to zero as they
have been abandoned. The loss on the sale of business relates to the sale of the
Company's Dallas-based Paladin subsidiary, which was completed on December 31,
2001. On the date of the sale, the net book value of Paladin Consulting was
$11,508, consideration of $3,825 was received, resulting in the write-down of
$7,683 of goodwill for the year ended December 30, 2001. As the transaction
occurred after year-end, the remaining net book value of these operations, equal
to the consideration to be received, is shown as "assets held for sale" on the
Company's Consolidated Balance Sheets. This business is included in the IT
Services segment and contributed $11,499 in revenues and $310 in net income for
the year ended December 30, 2001. Other rationalization expenses of $654 were
recorded in 2001 associated with incremental costs in downsizing the business to
current operating levels, the loss on the sale of CareerShop, professional
services expenses, changes in estimates for previous lease terminations of $433,
net of other income of $1,633 related to favorably settling certain obligations.

         Of the remaining accrued liability at December 30, 2001, the Company
expects to pay approximately $1,235 over the next twelve months and the balance,
primarily lease termination payments, over the following eight years.

         Restructuring and rationalization charges of $1,960 were recorded in
2000, related primarily to severance and other benefits related to the early
retirement of the former Chief Executive Officer.

8.  INTANGIBLES IMPAIRMENT:

         The Company periodically evaluates the recoverability of its goodwill
and other intangible assets in relation to anticipated future cash flows on an
undiscounted basis. The assumptions used in these cash flow projections are
subject to change. The Company performs the recoverability analysis at the
lowest level at which cash flows are identified which is generally consistent
with the various geographic market concentrations of the Company's staffing
operations. As general economic conditions have weakened over the last year,
demand for the Company's services has declined. Changes such as a continued
decline in operating results,


                                       24
<PAGE>

changes in management's assumptions regarding the economic recovery, or a
requirement to close certain locations or sell assets in the near term are
likely to result in projected cash flows that do not fully recover existing
goodwill resulting in a requirement to record a significant non-cash impairment
provision.

         In the fourth quarter of 2001, the Company conducted a strategic review
of its operations within each business segment. The strategic review triggered
an impairment review of the goodwill related to certain of these operations. The
Company evaluated the recoverability of the goodwill by estimating future
undiscounted cash flows. The estimated future undiscounted cash flows were no
longer deemed adequate to support the carrying value of the goodwill associated
with certain operations. As a result, the Company recorded a goodwill impairment
charge of $56,779 in the fourth quarter of 2001 based on fair value determined
by discounted cash flows. The impairment charge related to operations located
principally within certain geographic markets for which the operating
performance through the fourth quarter of 2001 had substantially under-performed
the broader operating segment and where management does not anticipate recovery
to profitable levels. The impairment charges for IT Services and Commercial
Staffing were $41,059 and $15,720, respectively.

         In the fourth quarter of 2000, the Company incurred an impairment
charge of $11,021 related primarily to CareerShop.com intangibles and certain
other assets. At the time of the CareerShop.com acquisition, PGA expected
CareerShop.com's job board and related businesses to become cash positive by the
end of 2000 and break even from a profit standpoint during 2001. Acquired
assets, consisting primarily of $11,232 of intangibles, were recorded as a
result of the acquisition (total consideration paid, including assumption of
debt, was $11,949, of which $9,365 was cash and the remainder was stock).
However, CareerShop.com's separate businesses failed to produce expected
results. Due to the significance of the change in conditions, management
performed an evaluation of the recoverability of the goodwill related to these
operations and recorded the impairment charge. CareerShop.com was sold in June
2001, resulting in a loss of $660.


9.  ACCRUED LIABILITIES:

         Accrued liabilities consisted of the following at December 30, 2001 and
December 31, 2000:

<TABLE>
<CAPTION>
                                                             2001             2000
                                                           -------          -------
<S>                                                        <C>              <C>
Accrued wages, benefits and other personnel costs          $32,644          $37,561
Accrued interest                                             5,009            6,169
Accrued workers' compensation benefits                       2,652            2,989
Accrued restructuring and rationalization charges            1,235               --
Other                                                        6,725            7,158
                                                           -------          -------
                                                           $48,265          $53,877
                                                           =======          =======
</TABLE>



10.  OTHER LONG-TERM LIABILITIES:


         Other long-term liabilities consisted of the following at December 30,
2001 and December 31, 2000:

<TABLE>
<CAPTION>
                                                             2001             2000
                                                           -------          -------
<S>                                                        <C>              <C>
Deferred tax liabilities                                   $33,068          $28,996
Workers' compensation reserves and other                     4,488            4,956
Accrued restructuring and rationalization charges            2,194               --
Amounts due sellers of acquired businesses                      --           11,908
                                                           -------          -------
                                                           $39,750          $45,860
                                                           =======          =======
</TABLE>


                                       25
<PAGE>

11.  EMPLOYEE BENEFIT PLANS:

         The Company has 401(k) profit sharing and nonqualified profit sharing
plans, which cover substantially all of its employees. Company contributions or
allocations are made on a discretionary basis for these plans (except for
matching contributions made to certain 401(k) profit sharing plans as required
by the terms of such plans). Contributions charged to operating expenses were
$2,288, $2,914 and $3,329 in 2001, 2000 and 1999, respectively.

         The Company does not provide postretirement health care and life
insurance benefits to retired employees or post employment benefits to
terminated employees.

         During 1999, the Company established a Supplemental Employee Retirement
Plan (the "SERP") for its then Chief Executive Officer. The Company announced
the retirement of such officer in February 2000, and in connection therewith the
annual benefit payable under the SERP was fixed at $150. As of December 30,
2001, the Company had accrued approximately $1,378 for the SERP.


12.  CAPITAL STOCK AND STOCK OPTIONS:

         The Company repurchased 1,664,300 shares and 8,202,500 shares of its
Common Stock at an aggregate purchase price of $10,584 and $60,025 in 2000 and
1999, respectively, under two separate repurchase programs.

         The Company's Board of Directors adopted the 2001 Non-Qualified
Employee Stock Purchase Plan (the "2001 Stock Purchase Plan") for the purpose of
encouraging employee participation in the ownership of the Company. This plan
replaces the 1997 Employee Stock Purchase Plan (the "1997 Stock Purchase Plan").
Purchases under the 2001 Stock Purchase Plan are made monthly at the market
price on the last day of the calendar month. Under the 1997 Stock Purchase Plan,
employees could elect to have payroll deductions made to purchase Common Stock
at a discount. At the end of each quarterly purchase period, each participant's
payroll deductions are used to acquire Common Stock of the Company at a price
equal to 85% of the market value on either the first or last day of the
quarterly purchase period, whichever is lower. During 2001, 2000 and 1999,
423,856, 798,978 and 542,280 shares, respectively, of Common Stock were issued
under the 1997 Stock Purchase Plan. During 2001, 77,959 shares of Common Stock
were issued under the 2001 Stock Purchase Plan.

         The Company's Board of Directors adopted its 1995 Equity Participation
Plan (the "Stock Option Plan") to attract and retain officers, key employees,
consultants and directors. The Stock Option Plan has reserved for issuance 15%
of the Common Stock issued and outstanding, as defined, from time to time. The
Stock Option Plan allows for the issuance of options, stock appreciation rights,
restricted or deferred stock awards and other awards. Incentive stock options
may be granted only to employees and, when granted, have an exercise price equal
to at least 100% of the fair market value of the Common Stock on the grant date
and a term not longer than 10 years. As of December 30, 2001, 589,519 shares
were reserved for issuance under the Stock Option Plan.

         In addition, nonemployee directors (including the directors who
administer the Stock Option Plan) receive nondiscretionary grants of
nonqualified stock options ("NQSOs") under the Stock Option Plan pursuant to a
formula specified in the Plan. The NQSOs granted to nonemployee directors are
fully vested and exercisable upon grant, and the term of each such option is 10
years. NQSOs may also be granted to an employee or consultant for any term
specified by the compensation committee of the Board and will provide for the
right to purchase Common Stock at a specified price which, except with respect
to NQSOs intended to qualify as performance-based compensation, may be less than
fair market value on the date of grant (but not


                                       26
<PAGE>

less than par value), and may become exercisable (at the discretion of the
compensation committee) in one or more installments after the grant date. A
summary of stock option activity follows:

<TABLE>
<CAPTION>
                                                            WEIGHTED
                                      SHARES UNDER       AVERAGE PRICE
                                         OPTION            PER SHARE
                                         ------            ---------

<S>                                   <C>                <C>
Outstanding, January 3, 1999            3,123,285          $   12.87
      Granted in 1999                     563,667               6.91
      Exercised                            34,157              10.54
      Canceled                            177,490              13.87
                                        ---------          ---------
Outstanding, January 2, 2000            3,475,305          $   11.88
                                        =========          =========

      Granted in 2000                   1,461,250               2.33
      Exercised                             1,300               6.69
      Canceled                            529,958              12.32
                                        ---------          ---------
Outstanding, December 31, 2000          4,405,297          $    8.68
                                        =========          =========

      Granted in 2001                     321,875               1.75
      Canceled                            344,160               9.07
                                        ---------          ---------
Outstanding, December 31, 2001          4,383,012          $    8.14
                                        =========          =========

Exercisable, January 2, 2000            1,961,394          $   12.25
                                        =========          =========
Exercisable, December 31, 2000          2,286,797          $   11.99
                                        =========          =========
Exercisable, December 30, 2001          2,814,878          $   10.74
                                        =========          =========
</TABLE>


         The following table summarizes options outstanding and options
exercisable as of December 30, 2001, and the related weighted average remaining
contractual life (years) and weighted average exercise price:

<TABLE>
<CAPTION>
                                             OPTIONS OUTSTANDING                          OPTIONS EXERCISABLE
                                             -------------------                          -------------------

                                                   AVERAGE
                                                  REMAINING
           RANGE OF            OPTIONS           CONTRACTUAL       AVERAGE              OPTIONS          AVERAGE
       EXERCISE PRICES       OUTSTANDING            LIFE        EXERCISE PRICE        EXERCISABLE     EXERCISE PRICE
       ---------------       -----------            ----        --------------        -----------     --------------
       <S>                   <C>                 <C>            <C>                   <C>             <C>

       $1.47 - $2.50          1,030,750              9.0            $ 1.57                179,375          $ 1.49
       $2.51 - $5.00            524,697              8.5              2.64                147,889            2.79
       $5.01 - $8.00            708,448              5.3              6.33                570,674            6.58
       $8.01 - $12.00           526,498              6.0             10.67                469,123           10.86
       $12.01 - $18.00        1,430,144              5.8             13.63              1,289,218           13.72
       $18.01 - $23.08          162,475              6.0             19.09                158,599           19.06
                              ---------              ---            ------              ---------          ------
                              4,383,012              6.9            $ 8.14              2,814,878          $10.74
                              =========              ===            ======              =========          ======
</TABLE>

         Pursuant to the requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation," the following disclosures are presented to reflect
the Company's pro forma net income for 2001, 2000 and 1999 as


                                       27
<PAGE>

if the fair value method of accounting prescribed by SFAS 123 had been used. In
preparing these disclosures, the Company has determined the value of all stock
options granted using the Black-Scholes model, as discussed in SFAS 123, and
based on the following weighted average assumptions used for grants:

<TABLE>
<CAPTION>
                                         2001              2000             1999
                                         ----              ----             ----
       <S>                             <C>                <C>               <C>

       Risk-free interest rate           5.7%                6.2%            5.8%
       Expected dividend yield           0.0%                0.0%            0.0%
       Expected life                   5.6 years          6.5 years         5 years
       Expected volatility              68.1%               60.0%           56.1%
</TABLE>

         The fair value of the stock options granted and Stock Purchase Plan
issuances in 2001, 2000 and 1999 was approximately $459, $2,560 and $3,652,
respectively. Had compensation expense been determined consistent with SFAS 123,
utilizing the assumptions set forth above and the straight-line amortization
method over the vesting period, the Company's net income (loss) would have been
reduced (increased) to the following pro forma amounts:

<TABLE>
<CAPTION>
                                                            2001              2000               1999
                                                        ----------         ---------         ----------
<S>                                                     <C>                <C>               <C>
Net income (loss), as reported                          $  (66,678)        $  (2,175)        $   29,753
Net income (loss) per diluted share, as reported             (2.52)             0.09               0.99
                                                        ==========         =========         ==========

Pro forma net income (loss)                             $  (69,041)           (5,400)            26,140
Pro forma net income (loss) per diluted share           $    (2.61)        $   (0.21)        $     0.89
                                                        ==========         =========         ==========
</TABLE>

         On February 6, 1996, as amended in December 2001, the Company declared
a dividend of one nonvoting preferred share purchase right (a "Right") for each
outstanding share of Common Stock. This dividend was paid on February 27, 1996
to the shareholders of record on that date. In the event of an acquisition, or
the announcement of an acquisition, by a party of a beneficial interest of at
least 20% of the Common Stock, each right would become exercisable (the
"Distribution Date"). Each Right entitles the registered holder to purchase from
the Company one one-hundredth of a share of Series A Junior Participating
Preferred Stock, par value $0.01 per share, of the Company at a price of $95.00
per one one-hundredth of a share of Preferred Stock, subject to adjustment. In
addition, each Right entitles the right holder to certain other rights as
specified in the Company's rights agreement. The Rights are not exercisable
prior to a Distribution Date. The Rights will expire on February 6, 2006 (the
"Final Expiration Date"), unless the Final Expiration Date is extended or unless
the Rights are earlier redeemed or exchanged by the Company.


                                       28
<PAGE>

11.  INCOME TAXES:

         The provision (benefit) for income taxes for 2001, 2000 and 1999
consisted of the following:

<TABLE>
<CAPTION>
                                                             2001           2000           1999
                                                          --------         ------        -------
<S>                                                       <C>              <C>           <C>
Income (loss) before income taxes                         $(76,364)        $6,803        $51,830
                                                          ========         ======        =======

Provision (benefit) for income taxes:
  Current provision (benefit)
    Federal                                               $(11,858)        $2,443        $11,191
    State                                                     (169)           485          2,781
                                                          --------         ------        -------
        Total current provision (benefit)                  (12,027)         2,928         13,972
                                                          --------         ------        -------
  Deferred provision
    Federal                                                  2,235          4,840          6,492
    State                                                      106          1,210          1,613
                                                          --------         ------        -------
        Total deferred provision                             2,341          6,050          8,105
                                                          --------         ------        -------

        Total provision (benefit) for income taxes        $ (9,686)        $8,978        $22,077
                                                          ========         ======        =======
</TABLE>


         The reconciliation of the effective tax rate is as follows:

<TABLE>
<CAPTION>
                                                          2001            2000           1999
                                                         ------          ------         ------
<S>                                                      <C>             <C>            <C>
Federal statutory rate                                    35.0%           35.0%          35.0%
State taxes, net of federal benefit                        4.3            13.3            4.8
Effect of increase in valuation allowance                (23.1)             --             --
Effect of nondeductible amortization and other            (3.5)           83.7            2.8
                                                         -----           -----          -----
                 Total                                    12.7%          132.0%          42.6%
                                                         =====           =====          =====
</TABLE>


                                       29
<PAGE>


      The components of the Company's net deferred tax liability were as follows
at December 30, 2001 and December 31, 2000:

<TABLE>
<CAPTION>
                                                    2001             2000
                                                  --------         --------
<S>                                               <C>              <C>
Deferred income tax assets:
   Intangibles impairment                         $ 15,151         $    426
   Accrued workers' compensation and other           2,193            2,414
   Allowance for doubtful accounts                   1,041            1,493
    Accrued benefits                                 1,157            1,644
    Net operating loss carry forward                 2,242            1,021
    Other                                            7,773            3,279
    Valuation allowance                            (17,661)            (213)
                                                  --------         --------

     Total deferred tax assets                    $ 11,896         $ 10,064
                                                  ========         ========

Deferred income tax liabilities:
   Intangible assets                              $ 28,445         $ 23,009
   Property and equipment                            4,251            5,543
   Other                                               372              444
                                                  --------         --------

     Total deferred tax liabilities               $ 33,068         $ 28,996
                                                  ========         ========
</TABLE>

         As of December 30, 2001, the Company had deferred income tax assets of
$15,151 related to the intangibles impairment charge recorded by the Company in
the fourth quarter. The Company also had federal and state net operating loss
carryforwards of $2,242, most of which expire primarily after the year 2012. As
of December 30, 2001, the Company has recorded valuation allowances totaling
$17,661 primarily related to the intangibles impairment, net operating loss
carryforwards and the loss on the sale of the Company's Dallas-based Paladin
subsidiary. These valuation allowances were recorded as the Company concluded it
is more likely than not that these deferred income tax assets would not be
realized. Although realization is not assured, the Company has concluded that it
is more likely than not that the remaining deferred tax assets will be realized
based on the scheduling of deferred tax liabilities and projected taxable
income. The amount of the net deferred tax assets actually realized, however,
could vary if there are differences in the timing or amount of future reversals
of existing deferred tax liabilities or changes in the actual amounts of future
taxable income.


                                       30
<PAGE>

12.  NET EARNINGS PER SHARE

         The following table reconciles net income and weighted average shares
outstanding to the amounts used to calculate basic and diluted earnings per
share for each of 2001, 2000 and 1999 (share amounts in thousands):

<TABLE>
<CAPTION>
                                                               2001             2000            1999
                                                             --------         --------         -------
<S>                                                          <C>              <C>              <C>
BASIC EARNINGS PER SHARE:
   Net income (loss)                                         $(66,678)        $ (2,175)        $29,753
                                                             ========         ========         =======

Weighted average common shares
   outstanding                                                 26,503           25,090          27,680
Basic earnings per share                                     $  (2.52)        $  (0.09)        $  1.07
                                                             ========         ========         =======

DILUTED EARNINGS PER SHARE
   Net income (loss)                                         $(66,678)        $ (2,175)        $29,753
     Add: Interest expense on Notes, net of tax                    --               --           4,257
                                                             --------         --------         -------
    Diluted net income (loss)                                $(66,678)        $ (2,175)        $34,010

    Weighted average common shares outstanding                 26,503           25,090          27,680
    Add:  Dilutive employee stock options                          --               --             163
    Add:  Assumed conversion of Notes                              --               --           6,456
                                                             --------         --------         -------
   Diluted weighted average common shares outstanding          26,503           25,090          34,299
Diluted earnings per share                                   $  (2.52)        $  (0.09)        $  0.99
                                                             ========         ========         =======
</TABLE>


Stock options to purchase 4,383,012, 4,405,297 and 2,519,976 shares of Common
Stock were outstanding for 2001, 2000 and 1999, respectively, but were excluded
from the computation of net income per diluted share because their effect was
antidilutive. The conversion of the Notes into common shares was excluded from
the computation of net loss per diluted share in 2001 and 2000 because their
effect was antidilutive.


13.  FINANCIAL INSTRUMENTS:


FAIR VALUE OF FINANCIAL INSTRUMENTS

         The fair value of the Company's cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities approximated the book value
at December 30, 2001, due to the short-term nature of these instruments. The
fair value of the Company's borrowings under the Credit Facility and other
long-term debt approximated the book value at December 30, 2001, because of the
variable rate associated with the borrowings. The Notes had an estimated fair
value of $48,000 and $45,000 at December 30, 2001 and December 31, 2000,
respectively, as compared to the carrying value of $115,000.

CONCENTRATION OF CREDIT RISK

         The Company maintains cash and cash equivalents with various financial
institutions, which at times exceeds federally insured limits.

         Credit risk with respect to accounts receivable is dispersed due to the
nature of the business, the large number of customers and the diversity of
industries serviced. The Company performs credit evaluations of its customers.


                                       31
<PAGE>

14.  COMMITMENTS AND CONTINGENCIES:

OPERATING LEASES

         The Company leases facilities under operating leases, certain of which
require it to pay property taxes, insurance and maintenance costs. Total rent
expense under operating leases amounted to $10,692, $10,360 and $10,257 for
2001, 2000 and 1999, respectively. Operating leases for facilities are usually
renewable at the Company's option and include escalation clauses linked to
inflation.

         Future minimum annual rentals, net of subleases, for the next five
years are as follows:

<TABLE>
<CAPTION>
                           <S>                                         <C>
                           2002                                        $ 9,072
                           2003                                          7,491
                           2004                                          5,560
                           2005                                          4,258
                           2006                                          2,377
                           Thereafter                                    4,161
                                                                       -------
                                                                       $32,919
                                                                       =======
</TABLE>

INSURANCE

         The Company maintains a self-insurance program for workers'
compensation and medical and dental claims. The Company accrues liabilities
under the workers' compensation program based on the loss and loss adjustment
expenses as estimated by an outside administrator. At December 30, 2001, the
Company had standby letters of credit with a bank in connection with a portion
of its workers' compensation program. Additionally, the Company maintains
certain workers' compensation and medical catastrophic insurance coverages.

         The Company is subject to claims and legal actions in the ordinary
course of business. The Company maintains professional liability insurance for
losses.

EMPLOYMENT AGREEMENTS

         The Company has agreements with several executive officers providing
for cash compensation and other benefits in the event that a change in control
of the Company occurs.

LEGAL PROCEEDINGS

         The Company is involved in various legal actions and claims. In the
opinion of management, after considering appropriate legal advice, the future
resolutions of all actions and claims are not expected to have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows.


                                       32
<PAGE>

15.       SEGMENT INFORMATION:

         The Company is organized in two segments: IT Services and Commercial
Staffing. IT Services provides technical staffing, training and information
technology consulting services and technology tools for human capital
management. Commercial Staffing provides temporary staffing services, placement
of full-time employees and on-site management of temporary employees. The
Company evaluates segment performance based on income from operations before
corporate expenses, amortization of intangible assets, interest and income
taxes. Because of the Company's substantial intangible assets, management does
not consider total assets by segment an important management tool and,
accordingly, the Company does not report this information separately. The table
below presents segment information for IT Services and Commercial Staffing for
2001, 2000 and 1999:

OPERATING RESULTS

<TABLE>
<CAPTION>
                                                    2001             2000            1999
                                                 ---------         --------        --------
<S>                                              <C>               <C>             <C>
Total revenues
    IT Services                                  $ 447,862         $537,535        $584,032
    Commercial Staffing                            284,465          344,457         334,405
                                                 ---------         --------        --------
       Total revenues                              732,327          881,992         918,437
Operating income
    IT Services                                     28,994           38,223          66,329
    Commercial Staffing                             18,161           33,696          31,557
                                                 ---------         --------        --------
       Total segment operating income, as           47,155           71,919          97,886
       defined
Corporate expenses                                  15,732           15,201          14,251
Restructuring and rationalization charges           16,452            1,960              --
Intangibles impairment                              56,779           11,021              --
Amortization of intangible assets                   16,278           16,826          15,358
Interest expense                                    18,278           20,108          16,447
                                                 ---------         --------        --------
Income (loss) before income taxes                $ (76,364)        $  6,803        $ 51,830
                                                 =========         ========        ========

OTHER FINANCIAL INFORMATION

Accounts receivable, net
    IT Services                                  $  59,313         $ 85,344        $ 81,990
    Commercial Staffing                             27,775           41,398          43,602
    Corporate                                           --              550             376
                                                 ---------         --------        --------
       Total accounts receivable, net            $  87,088         $127,292        $125,968
                                                 =========         ========        ========
</TABLE>



                                       33
<PAGE>

16.       SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

      The following table sets forth quarterly financial information for each
quarter in 2001 and 2000:

<TABLE>
<CAPTION>
                                                                      2001
                                          ----------------------------------------------------------------
                                            FIRST             SECOND             THIRD            FOURTH
<S>                                       <C>               <C>               <C>               <C>
Revenues                                  $ 209,624         $ 194,370         $ 173,573         $ 154,760
Restructuring and rationalization
   charges                                     (447)           (3,913)             (474)          (11,618)
Intangibles Impairment                           --                --                --           (56,779)
Operating income (loss)                       6,649             1,757             2,568           (69,060)
Net income (loss)                               930            (1,059)           (1,170)          (65,379)

Diluted earnings per share                $    0.04         $   (0.04)        $   (0.04)        $   (2.45)
</TABLE>



<TABLE>
<CAPTION>
                                                                       2000
                                          ----------------------------------------------------------------
                                            FIRST             SECOND             THIRD            FOURTH
<S>                                       <C>               <C>               <C>               <C>
Revenues                                  $ 216,856         $ 223,006         $ 223,954         $ 218,176
Restructuring and rationalization
   charges                                   (1,452)               --                --              (508)
Intangibles Impairment                           --                --                --           (11,021)
Operating income (loss)                      11,550            12,197            12,322            (9,158)
Net income (loss)                             4,042             3,915             3,742           (13,874)

Diluted earnings per share                $    0.16         $    0.16         $    0.15         $   (0.54)
</TABLE>


                                       34