UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  ------------
                                   FORM 10-Q

(Mark One)

[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
        THE SECURITIES EXCHANGE ACT OF 1934

        For the quarterly period ended      June 30, 1999


[  ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
        THE SECURITIES EXCHANGE ACT OF 1934

        For the transition period from  _______________ to _______________


        Commission file number      000-23147


                          OUTSOURCE INTERNATIONAL, INC.
                          -----------------------------
             (Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S>                                                                     <C>

                Florida                                                             65-0675628
                -------                                                             ----------
(State or other jurisdiction of incorporation or organization)          (I.R.S. Employer Identification No.)


1144 East Newport Center Drive, Deerfield Beach, Florida                        33442
--------------------------------------------------------                        -----
(Address of principal executive offices)                                      (Zip Code)

</TABLE>

Registrant's Telephone Number, Including Area Code:    (954) 418-6200
                                                       --------------

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


                     APPLICABLE ONLY TO CORPORATE ISSUERS:

        Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:

                Class                              Outstanding at August 9, 1999
                -----                              -----------------------------
Common Stock, par value $.001 per share                    8,657,913
<PAGE>
<TABLE>
<CAPTION>

                         OUTSOURCE INTERNATIONAL, INC.
                               TABLE OF CONTENTS




                         PART I - FINANCIAL INFORMATION

                                                                                      Page
                                                                                      ----

<S>                                                                                     <C>
Item 1 - Financial Statements

         Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 .....    2

         Consolidated Statements of Income for the three months
         ended June 30, 1999 and 1998 ..............................................    3

         Consolidated Statements of Income for the six months
         ended June 30, 1999 and 1998 ..............................................    4

         Consolidated Statements of Cash Flows for the six months
         ended June 30, 1999 and 1998 ..............................................    5

         Notes to Consolidated Financial Statements ................................    6

Item 2 - Management's Discussion and Analysis of Financial
         Condition and Results of Operations .......................................   18

Item 3 - Quantitative and Qualitative Disclosures about Market Risk ................   36


PART II - OTHER INFORMATION

        Item 3 - Defaults Upon Senior Securities ...................................   37

        Item 4 - Submission of Matters to a Vote of Security Holders................   37

        Item 5 - Other Information .................................................   38

        Item 6 - Exhibits and Reports on Form 8-K ..................................   39

Signatures .........................................................................   41
</TABLE>




TANDEM  (r),  SYNADYNE  (r) and OFFICE  OURS (r) are  registered  trademarks  of
OutSource International, Inc. and its subsidiaries.

                                       1
<PAGE>

Part I: Financial Information
Item 1: Financial Statements
        --------------------

                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                June 30, 1999 (UNAUDITED) and December 31, 1998

                             (Amounts in thousands)
<TABLE>
<CAPTION>


ASSETS                                                                               June 30, 1999    December 31, 1998
                                                                                     -------------    -----------------
<S>                                                                                   <C>                <C>
Current Assets:
     Cash ......................................................................      $   2,563          $   5,501
     Trade accounts receivable, net of allowance for doubtful accounts of
          $2,746 and $1,924 ....................................................         17,307             12,946
     Funding advances to franchises ............................................             76                441
     Deferred income taxes and other current assets ............................          9,574              7,795
                                                                                      ---------          ---------

          Total current assets .................................................         29,520             26,683

     Property, improvements and equipment, net .................................         17,081             17,628
     Goodwill and other intangible assets, net .................................         62,520             64,262
     Other assets ..............................................................          3,506              3,429
                                                                                      ---------          ---------

          Total assets .........................................................      $ 112,627          $ 112,002
                                                                                      =========          =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
     Accounts Payable...........................................................      $   8,808          $   5,217
     Accrued expenses:
          Payroll ..............................................................          7,847              4,322
          Payroll taxes ........................................................          5,377              4,067
          Workers' compensation and insurance ..................................          7,861             10,659
          Other ................................................................          2,334              2,482

     Other current liabilities .................................................          1,022              1,312
     Current maturities of long-term debt to related parties ...................          1,204                541
     Current maturities of other long-term debt ................................          6,610              6,782
     Revolving credit facility .................................................         18,216               --
                                                                                      ---------          ---------
     Total current liabilities .................................................         59,279             35,382

Non-Current Liabilities:
     Revolving credit facility .................................................           --               20,980
     Long-term debt to related parties, less current maturities ................           --                  745
     Other long-term debt, less current maturities .............................          9,606              9,257
     Other non-current liabilities .............................................            983              1,050
                                                                                      ---------          ---------

          Total liabilities ....................................................         69,868             67,414
                                                                                      ---------          ---------

Commitments and Contingencies (Notes 3 and 5)
Shareholders' Equity:
     Preferred stock, $.001 par value; 10,000,000 shares authorized, no shares
          issued or outstanding ................................................           --                 --
     Common stock, $.001 par value; 100,000,000 shares authorized; 8,657,913
          issued and outstanding ...............................................              9                  9
     Additional paid-in capital ................................................         53,546             53,546
     Accumulated deficit .......................................................        (10,796)            (8,967)
                                                                                      ---------          ---------

          Total shareholders' equity ...........................................         42,759             44,588
                                                                                      ---------          ---------

          Total liabilities and shareholders' equity ...........................      $ 112,627          $ 112,002
                                                                                      =========          =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       2
<PAGE>

                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME
               For the Three Months Ended June 30, 1999 and 1998

                                  (UNAUDITED)

                 (Amounts in thousands, except per share data)
<TABLE>
<CAPTION>




                                                                               Three Months Ended
                                                                          June 30, 1999   June 30, 1998
                                                                          -------------   -------------

<S>                                                                        <C>            <C>
Net revenues ............................................                  $  143,454     $   134,796
Cost of revenues ........................................                      122,871        113,520
                                                                           -----------    -----------

          Gross profit ..................................                       20,583         21,276
                                                                           -----------    -----------

Selling, general and administrative expenses:
     Amortization of intangible assets ..................                          934            977
     Other selling, general and administrative ..........                       20,152         17,388
                                                                           -----------    -----------

Total selling, general and administrative expenses ......                       21,086         18,365
                                                                           -----------    -----------

Operating (loss) income .................................                         (503)         2,911
                                                                           -----------    -----------

Other expense (income):
     Interest expense (net) .............................                        1,702          1,438
     Other income (net) .................................                          (20)           (33)
                                                                           -----------    -----------
Total other expense (income) ............................                        1,682          1,405
                                                                           -----------    -----------
(Loss) income before (benefit) provision for income taxes                       (2,185)         1,506
(Benefit) provision for income taxes ....................                         (936)           411
                                                                           -----------    -----------

          Net (loss) income .............................                  $    (1,249)   $     1,095
                                                                           ===========    ===========


Weighted average common shares outstanding:
     Basic ..............................................                    8,657,913      8,609,155
                                                                           ===========    ===========

     Diluted ............................................                    8,657,913     10,120,871
                                                                           ===========    ===========

(Loss) earnings per share:
     Basic ..............................................                  $     (0.14)   $      0.13
                                                                           ===========    ===========

     Diluted ............................................                  $     (0.14)   $      0.11
                                                                           ===========    ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       3
<PAGE>

                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME
                For the Six Months Ended June 30, 1999 and 1998

                                  (UNAUDITED)

                 (Amounts in thousands, except per share data)



<TABLE>
<CAPTION>

                                                                                         Six Months Ended
                                                                                 June 30, 1999     June 30, 1998
                                                                                 -------------     -------------


<S>                                                                               <C>                 <C>
Net revenues ............................................................         $   277,568         $   255,782
Cost of revenues ........................................................             237,523             216,468
                                                                                  -----------         -----------

          Gross profit ..................................................              40,045              39,314
                                                                                  -----------         -----------

Selling, general and administrative expenses:
     Amortization of intangible assets ..................................               1,858               1,722
     Other selling, general and administrative ..........................              38,182              32,764
                                                                                  -----------         -----------

          Total selling, general and administrative expenses ............              40,040              34,486
                                                                                  -----------         -----------


Operating income ........................................................                   5               4,828
                                                                                  -----------         -----------

Other expense (income):
     Interest expense (net) .............................................               3,283               2,517
     Other income (net) .................................................                 (64)                (38)
                                                                                  -----------         -----------
          Total other expense (income) ..................................               3,219               2,479
                                                                                  -----------         -----------
(Loss) income before (benefit) provision for income taxes ...............              (3,214)              2,349
(Benefit) provision for income taxes ....................................              (1,385)                581
                                                                                  -----------         -----------

          Net (loss) income .............................................         $    (1,829)        $    1,768
                                                                                  ===========         ===========



Weighted average common shares outstanding:
     Basic ..............................................................           8,657,913           8,546,856
                                                                                  ===========         ===========

     Diluted ............................................................           8,657,913          10,077,485
                                                                                  ===========         ===========

 (Loss) earnings per share:
     Basic ..............................................................         $     (0.21)        $      0.21
                                                                                  ===========         ===========

     Diluted ............................................................         $     (0.21)        $      0.18
                                                                                  ===========         ===========

</TABLE>






See accompanying notes to cosolidated financial statements.

                                       4
<PAGE>

                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 For the Six Months Ended June 30, 1999 and 1998

                                  (UNAUDITED)

                             (Amounts in thousands)
<TABLE>
<CAPTION>

                                                                                                Six Months Ended
                                                                                        June 30, 1999   June 30, 1998
                                                                                        -------------   -------------
<S>                                                                                       <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ....................................................................    $ (1,829)          $  1,768
Adjustments to reconcile net (loss) income to net cash (used in)
     provided by operating activities:
   Depreciation and amortization .....................................................       3,696              3,150
   Deferred income taxes .............................................................      (1,547)               595
   Notes received from franchises.....................................................        (796)                 -
   Changes in assets and liabilities (excluding effects of acquisitions):
        (Increase) decrease in:
            Trade accounts receivable ................................................      (3,747)            (3,081)
            Prepaid expenses and other current assets ................................         116                (66)
            Other assets .............................................................         (90)                 1
        Increase (decrease) in:
            Accounts payable .........................................................       1,773               (417)
            Accrued expenses:
                Payroll ..............................................................       3,525              4,032
                Payroll taxes ........................................................       1,310              1,847
                Workers' compensation and insurance ..................................      (2,798)               811
                Other ................................................................         299               (422)
            Other current liabilities ................................................        (291)              (396)
                                                                                          --------           --------

        Net cash (used in) provided by operating activities ..........................        (379)             7,822
                                                                                          --------           --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Funding repayments from franchises, net ..............................................         366                992
Property and equipment expenditures ..................................................      (1,218)            (2,495)
Proceeds from property and equipment sales ...........................................       1,600               --
Expenditures for acquisitions ........................................................         (40)           (26,892)
                                                                                          --------           --------

        Net cash provided by (used in) investing activities ..........................         708            (28,395)
                                                                                          --------           --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in excess of outstanding checks over bank balance,
     included in accounts payable ....................................................       1,817              2,889
(Repayments) net proceeds from revolving credit facility .............................      (2,764)            20,702
Proceeds from interest collar termination.............................................         250                  -
Related party debt repayments ........................................................        (128)              (229)
Repayment of other long-term debt ....................................................      (2,442)            (2,469)
Exercise of warrants .................................................................        --                    2
                                                                                          --------           --------

        Net cash provided by (used in) financing activities ..........................      (3,267)            20,895
                                                                                          --------           --------

Net (decrease) increase in cash ......................................................      (2,938)               322
Cash, beginning of period ............................................................       5,501              1,685
                                                                                          --------           --------

Cash, end of period ..................................................................    $  2,563           $  2,007
                                                                                          ========           ========

SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid ........................................................................    $  2,799           $  2,391
                                                                                          ========           ========
</TABLE>


See accompanying notes to consolidated financial statements.

                                       5
<PAGE>
                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)

NOTE 1. INTERIM FINANCIAL STATEMENTS

The interim  consolidated  financial  statements and the related  information in
these notes as of June 30, 1999 and for the three and six months  ended June 30,
1999 and 1998 are unaudited. Such interim consolidated financial statements have
been prepared on the same basis as the audited consolidated financial statements
and, in the opinion of management,  reflect all  adjustments  (including  normal
accruals) necessary for a fair presentation of the financial  position,  results
of operations and cash flows for the interim periods  presented.  The results of
operations for the interim periods  presented are not necessarily  indicative of
the results to be expected for the full year. The interim  financial  statements
should be read in conjunction with the audited financial statements for the year
ended  December 31,  1998,  included in the  Company's  Form 10-K filed with the
Securities and Exchange Commission on March 31, 1999.

In June 1998,  Statement of  Financial  Accounting  Standards  ("SFAS") No. 133,
"Accounting for Derivative  Instruments and Hedging Activities" was issued. SFAS
No. 133 defines  derivatives and establishes  accounting and reporting standards
requiring  that  every  derivative   instrument  (including  certain  derivative
instruments  embedded in other  contracts)  be recorded in the balance  sheet as
either an asset or  liability  measured  at its fair  value.  SFAS No.  133 also
requires that changes in the derivative's fair value be recognized  currently in
earnings unless specific hedge accounting  criteria are met. Special  accounting
for qualifying  hedges allows a derivative's  gains and losses to offset related
results on the hedged item in the income statement,  and requires that a company
must formally  document,  designate and assess the effectiveness of transactions
that  receive  hedge  accounting.  SFAS No. 133, as modified by SFAS No. 137, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000,
and cannot be applied  retroactively.  The Company intends to implement SFAS No.
133 in its  consolidated  financial  statements  as of and for the three  months
ended March 31, 2001,  although it has not determined the effects,  if any, that
implementation  will have.  However,  SFAS No. 133 could increase  volatility in
earnings and other comprehensive income.

NOTE 2. ACQUISITIONS

The  Company  has  made no  acquisitions  through  June 30 1999.  The  following
pro-forma  results of operations  for the three months and six months ended June
30, 1998 have been prepared  assuming the acquisitions  completed by the Company
during 1998 (and  described  in the  Company's  audited  consolidated  financial
statements  for that  year) had  occurred  as of the  beginning  of the  periods
presented,  including  adjustments  to the historical  financial  statements for
additional  amortization of intangible assets,  increased interest on borrowings
to  finance  the  acquisitions  and   discontinuance  of  certain   compensation
previously paid by the acquired businesses to their shareholders, as well as the
related income tax effects.


                                       6
<PAGE>
                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)


NOTE 2. ACQUISITIONS (CONTINUED)

The pro forma  operating  results are not  necessarily  indicative of what would
have occurred had these acquisitions been consummated as of the beginning of the
periods  presented,  or of future  operating  results.  In  certain  cases,  the
operating  results  for  periods  prior  to the  acquisitions  are  based on (a)
unaudited  financial  statements  provided  by the seller or (b) an  estimate of
revenues,  cost of revenues and/or selling,  general and administrative expenses
based on  information  provided  by the  seller or  otherwise  available  to the
Company. In these cases, the Company has made a reasonable attempt to obtain the
most complete and reliable financial information and believes that the financial
information  it  used is  reasonably  accurate,  although  the  Company  has not
independently verified such information. The following amounts are in thousands,
except per share data:


<TABLE>
<CAPTION>

                                                     Three Months Ended                   Six Months Ended
                                                     ------------------                   ----------------
                                                          June 30                             June 30
                                                          -------                             -------


                                                   1999             1998               1999               1998
                                                   ----             ----               ----               ----
                                               (Historical)       (Pro Forma)       (Historical)       (Pro Forma)
                                               ------------       -----------       ------------       -----------

<S>                                            <C>                <C>               <C>                <C>
Net revenues                                   $   143,454        $   138,814       $   277,568        $   274,441
Operating (loss) income                               (503)             3,289             5                  5,887
Net (loss) income                                   (1,249)             1,280            (1,829)             2,021
Weighted average common shares outstanding
     Basic                                       8,657,913          8,609,155         8,657,913          8,556,757
                                               ===========        ===========       ===========        ===========
     Diluted                                     8,657,913         10,120,871         8,657,913         10,087,578
                                               ===========        ===========       ===========        ===========
Earnings (loss) per share:

     Basic                                     $     (0.14)       $      0.15       $     (0.21)       $      0.24
                                               ===========        ===========       ===========        ===========
     Diluted                                   $     (0.14)       $      0.13       $     (0.21)       $      0.20
                                               ===========        ===========       ===========        ===========
</TABLE>

Earnings  (loss)  per share  included  in the above  1998  information  has been
prepared  on the same basis as  discussed  in Note 8,  except for an increase by
9,901 basic and 10,088 diluted  shares,  for the three and six months ended June
30, 1998.  Such increase in shares  reflects  adjustments  for the timing of the
issuance of common stock and options in connection with the acquisitions.

Goodwill and other intangible assets consist of the following amounts, which are
presented in thousands:
<TABLE>
<CAPTION>

                                                                As of         As  of
                                                            June 30, 1999  December 31, 1998
                                                            -------------  -----------------

<S>                                                             <C>           <C>
     Goodwill ...........................................       $32,923       $32,806
     Territory rights ...................................        24,743        24,743
     Customer lists .....................................        10,105        10,105
     Covenants not to compete ...........................         2,191         2,191
     Employee lists .....................................           417           417
                                                                -------       -------
     Goodwill and other intangible assets ...............        70,379        70,262
     Less: Accumulated amortization .....................         7,859         6,000
                                                                -------       -------

     Goodwill and other intangible assets, net ..........       $62,520       $64,262
                                                                =======       =======

</TABLE>

                                       7
<PAGE>
                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)


NOTE 3. INCOME TAXES

The Company's effective tax rate differed from the statutory federal rate of 35%
as follows (amounts presented in thousands, except for percentages):

<TABLE>
<CAPTION>

                                                       Three Months Ended June 30,            Six Months Ended June 30,
                                                       ---------------------------            -------------------------
                                                        1999               1998                1999                1998
                                                        ----               ----                ----                ----
                                                 Amount      Rate    Amount     Rate     Amount     Rate     Amount      Rate
                                                 ------      ----    ------     ----     ------     ----     ------      ----
<S>                                             <C>         <C>     <C>          <C>    <C>         <C>     <C>           <C>
Statutory rate applied to income before
     income taxes                               $  (765)    (35.0)% $   527      35.0%  $(1,125)    (35.0)% $   822       35.0%
Increase (decrease) in income taxes
     resulting from:
State income taxes, net of federal benefit          (80)     (3.7)       78       5.2      (110)     (3.4)      127        5.4
Employment tax credits                             (165)     (7.5)     (247)    (16.4)     (290)     (9.0)     (450)     (19.2)
Other                                                74       3.4        53       3.5       140       4.4        82        3.4
                                                -------     -----   -------      ----   -------     -----   -------      -----

Total                                           $  (936)    (42.8)% $   411      27.3%  $(1,385)    (43.0)% $   581       24.6%
                                                =======     =====   =======      ====   =======     =====   =======      =====
</TABLE>

The employment tax credit  carryforward of $1.4 million as of June 30, 1999 will
expire during the years 2012 through 2019. The  employment tax credits  recorded
by the Company from  February  21, 1997  through  June 30, 1999 include  Federal
Empowerment   Zone  ("FEZ")  credits  which  represent  a  net  tax  benefit  of
approximately $0.6 million. Although the Company believes that these FEZ credits
have been reasonably  determined,  the income tax law addressing how FEZ credits
are determined for staffing  companies is evolving.  As a result,  the Company's
position with regards to the  calculation of the FEZ credits has been challenged
by the Internal Revenue Service ("IRS"), as discussed below.

During  April 1999,  the Company  received a report from an IRS agent  proposing
adjustments  to the  previously  reported  taxable  income and tax  credits  for
certain of the  Company's  subsidiaries  for the years ended  December 31, 1994,
1995 and 1996. The Company is currently disputing these proposed adjustments and
as a result, the IRS agent's supervisor has met with the Company's management to
discuss these  adjustments and has agreed to hold more meetings with the Company
before the IRS makes a final determination and assessment,  if any, with respect
to these matters.  Since the subsidiaries  were "S" corporations for the periods
under  examination,  the  proposed  adjustments,  if  ultimately  proven  to  be
appropriate,  would  not  result  in a  materially  unfavorable  effect  on  the
Company's  results of operations  although  shareholder  distributions  of up to
approximately $5.0 million could result as discussed in Note 5.

Deferred  income taxes and other  current  assets at June 30, 1999 includes $1.7
million  which will be available to reduce the tax  liability,  if any,  arising
from the Company's  operating  results  during the  remainder of 1999.  However,
pending those results,  the $1.5 million  portion of that benefit arising in the
first six  months of 1999 has been  reflected  as an  adjustment  to net  income
(loss) in arriving at cash  provided by operating  activities  in the  Company's
Consolidated Financial Statement of Cash Flow for that period.

                                       8
<PAGE>
                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)


NOTE 4. DEBT

The Company's primary sources of funds for working capital and other needs are a
$29.9 million  credit line with a syndicate of lenders led by  BankBoston,  N.A.
(the  "Revolving  Credit  Facility")  and a $50.0  million  accounts  receivable
securitization facility with a BankBoston affiliate.

The  Revolving  Credit  Facility  contains  certain   affirmative  and  negative
covenants relating to the Company's operations, certain of which were amended in
February 1999 in order to provide additional  flexibility to the Company as well
as enabling it to be in compliance  with such  covenants as of December 31, 1998
and March 31, 1999.  These  covenant  modifications  also resulted in a 0.5% per
annum  increase  in the bank  margin  component  of the  interest  rate  charged
thereunder, which was offset by a 0.6% per annum decrease in the Eurodollar base
rate during the first six months of 1999. At June 30, 1999, the Revolving Credit
Facility  was bearing  interest at an  annualized  rate of 7.75%.  In  addition,
subsequent to June 30, 1999, the lenders  syndicate did not allow the Company to
utilize Euro rate based borrowings  under the Revolving  Credit Facility,  which
resulted in an  effective  increase in the  Company's  borrowing  rate under the
facility  of  approximately  0.8%  per  annum.  Commencing  June 30,  1999,  the
Company's lack of compliance  with these covenants as of that date was waived by
the lenders syndicate until August 31, 1999 pending  completion of an agreement,
currently in negotiation,  containing  revised covenants to enable the Company's
compliance  through  December 31, 1999.  Such temporary  waivers were granted in
conjunction  with the  extension  of the  terms of the  Liquidity  Facility,  as
discussed  below,  as well as a reduction of the Revolving  Credit Facility from
$34.0  million  to $29.9  million  and  additional  restrictions  placed  on the
issuance  or renewal of letters  of credit.  As a result of these  changes,  the
Revolving   Credit   Facility  was   classified  as  current  in  the  Company's
consolidated financial statements as of June 30, 1999.

Effective  July  27,  1998,  the  Company  entered  into a five  year  financing
arrangement  under which it can sell up to a $50.0 million  secured  interest in
its eligible accounts receivable to EagleFunding Capital Corporation  ("Eagle"),
which  uses  the  receivables  to  secure  A-1  rated   commercial   paper  (the
"Securitization   Facility").   The  Company's  cost  for  this  arrangement  is
classified as interest expense and is based on the interest paid by Eagle on the
balance of the  outstanding  commercial  paper,  which in turn is  determined by
prevailing  interest rates in the commercial paper market and was  approximately
5.15% as of June 30, 1999. As of June 30, 1999, a $42.4 million  interest in the
Company's  uncollected  accounts  receivable had been sold under this agreement,
which amount is excluded from the accounts  receivable  balance presented in the
Company's consolidated financial statements.

The  Securitization  Facility  requires bank liquidity  commitments  ("Liquidity
Facility") totaling no less than $51.0 million.  The Liquidity Facility has been
provided by the syndicate of lenders that  participate  in the Revolving  Credit
Facility  for a one year term  originally  expiring  July 26, 1999 at 0.375% per
annum,  which term has currently  been  extended to September  27,  1999,pending
completion  of an  extension  to  December  31,  1999 that the  Company  and the
syndicate are currently negotiating.

As of June 30, 1999, the Company had bank standby letters of credit  outstanding
in the aggregate amount of $8.4 million under a letter of credit facility (which
is part of the Revolving Credit Facility) to secure certain workers compensation
obligations  already recorded as a liability on the Company's  balance sheet. In
August  1999,  the  outstanding  letters of credit were  reduced by $2.0 million
based  on  corresponding  payments  made in  previous  months  to the  Company's
insurance carrier, which payments reduced the accrued liability supported by the
letter of credit.

                                       9
<PAGE>
                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)


NOTE 4. DEBT (CONTINUED)

The Company and the lenders syndicate are currently negotiating modifications to
the  Revolving  Credit  Facility,  as  well  as an  extension  of the  Liquidity
Facility.  Although  there can be no  assurances,  the Company  expects that the
lenders  syndicate will extend adequate  financing  through December 31, 1999 to
meet  the  Company's  needs,  based  on the  planned  restructuring  of  Company
operations  (see Note  10).  The  Company  has  already  begun  the  process  of
identifying and evaluating alternative financing sources to replace its existing
financing with the lenders syndicate.

In order to remain in compliance with certain  covenants in its Revolving Credit
Facility,  and to  reduce  the cash  impact  of  scheduled  payments  under  its
subordinated acquisition debt, during 1999 the Company had negotiated extensions
of the payment dates and modified the interest  rates and other terms of certain
of its subordinated acquisition notes payable. As of August 12, 1999 the Company
had not made all  scheduled  payments due and first became in default under this
debt having a total principal outstanding of $8.2 million (not including related
party amounts as discussed in Note 6). Due to the subordinated  status and other
terms of the debt, the payees are unable to take collection  actions against the
Company for at least six months.  Furthermore,  since  acceleration of this debt
requires  prior written notice to the Company by the various  payees,  which has
been received from only three of fifteen payees as of August 16, 1999, no change
has been made in the classification of this debt between current and non-current
as reflected in the Company's  consolidated  financial statements as of June 30,
1999.

During  April  1999,  the  Company   received  $1.6  million  from  a  financial
institution  in  connection  with a  sale/leaseback  transaction,  which  amount
exceeded,  at that time of the  transaction,  the net book value of property and
equipment  previously  purchased by the Company.  The  unrealized  gain is being
deferred and amortized over the life of the assets. The capital lease obligation
is repayable over three years at an imputed interest rate of  approximately  10%
per annum.

Effective  June 30,  1999,  the  Company  terminated  the  interest  rate collar
agreement with  BankBoston,  N.A. which resulted in proceeds of $250,000.  Since
the underlying  debt and receivable  securitization  facility  previously  being
hedged by this agreement are still in place, such proceeds have been recorded as
deferred  income  and will be  amortized,  against  interest  expense,  over the
remaining life of those underlying financing  arrangements.  To the extent those
underlying  financing  arrangements  are  terminated  in the  future  (including
modifications  substantial  enough  so  that  they  would  be  considered  to be
terminated),  the  unamortized  portion of the gain  related  to the  terminated
arrangements  will  be  recognized  in  results  of  operations  at the  time of
termination.


                                       10
<PAGE>
                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)


NOTE 5. COMMITMENTS AND CONTINGENCIES

Shareholder distribution:  Effective February 21, 1997, the Company acquired all
of the outstanding  capital stock of nine companies  under common  ownership and
management,   in  exchange  for  shares  of  the  Company's   common  stock  and
distribution  of  previously   undistributed  taxable  earnings  of  those  nine
companies  (the  "Reorganization").   Such  distribution,   supplemented  by  an
additional  distribution  made in September 1998, is subject to adjustment based
upon the final  determination  of taxable  income  through  February  21,  1997.
Although the Company has  completed  and filed its Federal and state tax returns
for all periods through February 21, 1997, further distributions may be required
in the event the Company's  taxable income for any period  through  February 21,
1997 is adjusted due to audits or any other reason. See Note 3.

Stock options and warrants: As of June 30, 1999, 1,026,851 options and 1,208,988
warrants issued prior to 1999 to purchase  shares of the Company's  common stock
were still  outstanding.  During  January 1999, the Company  granted  options to
purchase 72,500 shares of the Company's  common stock,  vesting over a four year
period from the grant date and with an exercise price of $6.00 per share. During
March  1999,  the Company  granted  options to  purchase  121,825  shares of the
Company's  common stock,  26,150 shares vesting over a four year period from the
grant  date and the  remainder  vesting  immediately  upon grant and all with an
exercise price of $4.125 per share. During May 1999, the Company granted options
to purchase  98,343  shares of the Company's  common stock,  vesting over a four
year period from the grant date and with an exercise  price of $4.563 per share.
All exercise prices for 1999 grants were based on the market price of the shares
at the grant date.

The total number of shares of common stock reserved for issuance under the stock
option plan as of June 30,  1999 was  2,000,000,  as agreed to by the  Company's
Board of Directors in April 1999 and approved by the Company's  shareholders  at
their May 1999 annual meeting.

Availability of working capital  financing:  As discussed in Note 4, the Company
was not in  compliance  with the financial  covenants  included in its Revolving
Credit  Facility  as of June  30,  1999,  although  the  lenders  syndicate  has
temporarily (through August 31, 1999) waived such  non-compliance.  In addition,
the  Liquidity  Facility  required by the terms of the  Securitization  Facility
expired on July 26, 1999,  although it has also been extended through  September
27, 1999. The Company does not expect to be in compliance  with those  covenants
in the  foreseeable  future  and  is  currently  negotiating  with  the  lenders
syndicate to revise the covenants to bring the Company into compliance, although
this revision will also shorten the Revolving Credit Facility's termination date
to December  31,  1999.  The Company is also  negotiating  an  extension  of the
Liquidity  Facility to  December  31,  1999.  Although  the Company  anticipates
successful completion of those negotiations,  there can be no assurance that the
covenants  will be revised or the Liquidity  Facility  will be extended.  In the
event the covenants are not revised,  the Liquidity  Facility is not extended or
waivers  are  required,  but are  not  granted,  the  Company  could  experience
liquidity  problems  depending  on the  ability and  willingness  of the lenders
syndicate to continue  lending to the Company,  and the availability and cost of
financing  from  other  sources.  The  Company  is  identifying  and  evaluating
alternative  financing  sources.  Notwithstanding  the foregoing,  the Revolving
Credit  Facility  was  classified  as  current  in  the  Company's  consolidated
financial statements as of June 30, 1999.

                                       11
<PAGE>
                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)


NOTE 5. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Other assets as of June 30, 1999 includes $1.5 million of  unamortized  deferred
costs  incurred in connection  with the  establishment  of the Revolving  Credit
Facility and the Securitization  Facility,  which would be expensed in the event
those financial arrangements were terminated.

Employment Agreements:  As of June 30, 1999, the Company had certain obligations
under employment agreements it had entered into with its Chief Executive Officer
("CEO") and nine other  officers.  Under the terms of those  agreements,  in the
event that the Company  terminates  any of those  officers  without cause or the
officer  resigns for good reason,  the  terminated  officer will receive,  among
other things,  severance  compensation,  including a portion (ranging from three
months to two years) of the officer's annual base salary and bonus. In addition,
all incentive  stock  options held by such  employees  would become  immediately
exercisable.  More  substantial  severance  provisions  apply  if any  of  those
officers  are  terminated  within two years  (three years for the CEO) after the
occurrence of a "change of control", as defined in the employment agreements. In
July 1999, the Company  entered into a similar  employment  agreement with a new
controller.  In February 1999 and August 1999, two of the nine officers referred
to above resigned their positions,  which resulted in the Company's agreement to
pay those two officers'  salaries for one year, in exchange for their agreement,
among other things, to not compete with the Company during that period.

Significant  Customer:  For the six months  ended June 30,  1999,  approximately
eight  percent  of  the  Company's  revenues  were  from  professional  employer
organization  ("PEO") services performed for individual  insurance agent offices
under a preferred  provider  designation  previously granted to the Company on a
regional basis by the agents' common corporate employer.  The corporate employer
recently  began  granting  that  designation  on a  national  basis only and the
Company has been granted that designation for 1999.

In addition,  the Company is aware of pending  litigation against that corporate
employer  regarding  its use in general of PEO  services.  The  Company  has not
determined what impact,  if any, the ultimate result of these  developments will
have on its financial position or results of operations.

Litigation:  On September 24, 1998, an action was commenced  against the Company
for breach of contract in  connection  with a  purported  services  arrangement,
seeking  damages of  approximately  $0.6  million.  The Company  filed an answer
denying any breach of contract and moved to transfer the action to Florida.  The
motion for removal was granted and the case has been  transferred to, and is now
pending in, the Southern District of Florida, Fort Lauderdale division. No trial
date has been set. The Company  believes that the claim is without merit and the
resolution  of this  lawsuit  will not have a  material  adverse  effect  on its
financial  position or future operating  results;  however,  no assurance can be
given as to the ultimate outcome of this lawsuit.

                                       12
<PAGE>
                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)


NOTE 5. COMMITMENTS AND CONTINGENCIES (CONTINUED)

On November  12, 1997,  an action was  commenced  against the Company,  alleging
state law claims of  pregnancy/maternity  discrimination  and  violations of the
Family and Medical  Leave Act as a result of an alleged  demotion  following the
plaintiff's return from maternity leave. The complaint also asserted a claim for
unpaid  overtime  based on both state law and the Fair Labor  Standards Act. The
case is presently in discovery and the trial date has been set for the September
27, 1999 trial docket.  The Company believes the claims are without merit and is
vigorously defending this action.

Employee  Benefit  Plan:  Pursuant  to the terms of a now  inactive  401(k) plan
(containing  previous  contributions  still  managed  by  the  Company),  highly
compensated employees were not eligible to participate.  However, as a result of
administrative errors in 1996 and prior years, some highly compensated employees
were inadvertently permitted to make elective salary deferral contributions. The
Company has sought IRS  approval  regarding  the proposed  correction  under the
Voluntary Closing Agreement Program ("VCAP"). There will be a penalty payable by
the Company  associated with a correction  under the VCAP,  although the Company
believes this penalty will be insignificant.

Unemployment Taxes: Federal and state unemployment taxes represent a significant
component  of the  Company's  cost of  revenues.  State  unemployment  taxes are
determined as a percentage of covered wages.  Such percentages are determined in
accordance  with the laws of each  state  and  usually  take  into  account  the
unemployment  history of the Company's  employees in that state. The Company has
realized reductions in its state unemployment tax expense as a result of changes
in its organizational structure from time to time. Although the Company believes
that these expense  reductions were achieved in compliance with applicable laws,
taxing  authorities of a particular state have recently  indicated that they may
challenge these  reductions.  The Company is unable, at this time, to reasonably
estimate the effect of such a challenge by this state or by other states.

Workers' Compensation: During 1997 and 1998, the Company's workers' compensation
expense for claims was effectively  capped at a contractually  agreed percentage
of payroll,  which the  Company's  expense was limited to,  since the  estimated
ultimate  cost of the  actual  claims  experience  was  greater  than  the  cap.
Effective January 1, 1999, the cap was increased to 2.7% of payroll,  reflecting
the  inclusion  of  general  and  automobile  liability  coverage  as well as an
adjustment based on the changing business mix of the Company. For the six months
ended June 30, 1999, the estimated ultimate cost of the actual claims experience
was  used as the  basis of the  Company's  expense,  since it was  approximately
$850,000  less than the cap.  The  estimated  ultimate  cost of the 1999  claims
experience was determined based on information  from an independent  third-party
administrator  employed by the Company plus an allowance for claims incurred but
not reported, based on prior experience and other relevant data.

                                       13
<PAGE>
                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)


NOTE 5. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Consulting  contract:  In May  1999,  the  Company  engaged  Crossroads  Capital
Partners,  LLC  ("Crossroads"),  a  consulting  firm  based  in  Newport  Beach,
California,   to  review  the   Company's   existing   business  plan  and  make
recommendations for adjustments to strategy as well as financial and operational
improvements.  In June 1999, the Crossroads  engagement was further  extended to
include its  assistance  in verifying the Company's  cash flow  projections  and
requiring Crossroads to report to management and the lenders syndicate.  In July
1999, the engagement was further modified to add additional services,  including
working  with  management  to  develop  a  revised  business  plan  based on the
restructured  company,  assisting in extending  the  existing  Revolving  Credit
Facility  and  Securitization   Facility,   arranging  for  new  financing,  and
periodically   reporting  to  the  Company's  Board  of  Directors  and  lenders
syndicate.  In August 1999, a representative  of Crossroads was appointed as the
Company's  interim  chief  operating  officer and the interim  President  of the
Tandem  division.  See Note 10. The Company  has paid  Crossroads  $107,078  for
services rendered through June 30, 1999. The Company's  contract with Crossroads
for the four month period ending October 31, 1999, provides for a monthly fee of
$125,000, which fee is subject to renegotiation for the period after October 31,
1999.  In  addition,  the Company is  obligated  to  compensate  Crossroads  for
financing sources found by it, a fee of one percent of senior financing obtained
and four percent of subordinated  financing,  subject to a $150,000 and $300,000
minimum fee, respectively.

NOTE 6. RELATED PARTY TRANSACTIONS

Effective August 31, 1998, certain shareholders of the Company owning franchises
entered into a buyout agreement with the Company.  Buyouts are early termination
of the  franchise  agreements  entered into by the Company in order to allow the
Company to develop  the  related  territories.  At the time of the  buyout,  the
Company  received an initial payment from the former  franchisee and was to have
continued to receive quarterly  payments from the former franchisee based on the
gross  revenues of the  formerly  franchised  locations  for two years after the
termination  date,  which  was  generally  consistent  with the  terms of buyout
agreements between the Company and unrelated third parties.  Effective March 31,
1999,  the  Company  received  another  payment  from the former  franchisee  in
consideration  of the  elimination  of the equivalent of the last five months of
payments under the initial  agreement.  The amount of this payment was generally
consistent  with  the  terms of  similar  agreements  between  the  Company  and
unrelated third parties.  During the six months ended June 30, 1999, the Company
recognized  revenue of $0.9 million  from all  franchises  owned by  significant
shareholders  of the Company,  which  included  royalties and payments under the
buyout agreement.

Effective  February 16, 1998, the Company purchased  certain staffing  locations
and the related  franchise  rights from certain Company  shareholders.  The $6.9
million  purchase  price  included  the  issuance of a $1.7 million note bearing
interest at 7.25% per annum and payable  quarterly  over three years.  Effective
February 1, 1999,  the note was  renegotiated  so that the  remaining  principal
balance  of $1.3  million  would bear  interest  at 8.50% per annum and would be
payable in monthly  payments  totaling  $0.3  million in the first year and $0.6
million in the second year,  plus a $0.4  million  payment at the end of the two
year term.  As discussed  in Note 4, as of August 12, 1999,  the Company had not
made the renegotiated  payments on this and its other  subordinated  acquisition
notes,  and first  became in default of this  note.  Furthermore,  the payee has
provided the required notice to the Company accelerating the entire balance due,
which as a  result  is  classified  as  current  in the  Company's  consolidated
financial statements as of June 30, 1999.

                                       14
<PAGE>
                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)


NOTE 7. SUPPLEMENTAL INFORMATION ON NONCASH INVESTING AND FINANCING ACTIVITIES

The consolidated  statements of cash flows do not include the following  noncash
investing  and  financing  transactions,  except  for  the  net  cash  paid  for
acquisitions. The following amounts are presented in thousands:

                                                       Six Months Ended June 30,
                                                             1999         1998
        Acquisitions:
            Tangible and intangible assets acquired ....   $    117    $ 40,438
            Liabilities assumed ........................       --        (1,367)
            Debt issued ................................        (77)    (11,404)
            Common stock issued ........................       --          (775)
                                                           --------    --------
        Net cash paid for acquisitions .................   $     40    $ 26,892
                                                           ========    ========
        Increase in Notes receivable from franchises
            for buyouts.................................   $    796    $   --
                                                           ========    ========
        Reduction of deferred loss
            on interest rate collar agreement ..........   $    413    $   --
                                                           ========    ========
        Insurance premium financing ....................   $    348    $   --
                                                           ========    ========
        Increase in long term debt, due to sale/leaseback  $  1,600    $   --
                                                           ========    ========
        Decrease in accrued interest due to inclusion in
            renegotiated long term debt ................   $    448    $   --
                                                           ========    ========
        Increase in long term debt due to renegotiation at
            higher interest rate and removal of imputed
            discount ...................................   $    275    $   --
                                                           ========    ========



NOTE 8. EARNINGS (LOSS) PER SHARE

The  Company  calculates  earnings  (loss)  per  share  in  accordance  with the
requirements of SFAS No. 128,  "Earnings Per Share". The weighted average shares
outstanding  used to calculate basic and diluted  earnings (loss) per share were
calculated as follows:

<TABLE>
<CAPTION>

                                                                              Three Months Ended              Six Months Ended
                                                                              ------------------              ----------------
                                                                                  June 30,                          June 30,
                                                                                  --------                          --------

                                                                             1999            1998            1999            1998
                                                                             ----            ----            ----            ----
<S>                                                                        <C>             <C>             <C>             <C>
Shares issued in connection with the Reorganization                        5,448,788       5,448,788       5,448,788       5,448,788
Shares sold by the Company in October 1998                                 3,000,000       3,000,000       3,000,000       3,000,000
Shares issued in connection with a February 1998 acquisition                  57,809          57,809          57,809          47,908
Warrants exercised in May 1998                                               151,316         102,558         151,316          50,160
                                                                          ----------      ----------      ----------      ----------
Weighted average common shares - basic                                     8,657,913       8,609,155       8,657,913       8,546,856
Outstanding options and warrants to purchase common stock
 - remaining shares after assumed repurchase using
 proceeds from exercise                                                         --         1,511,716            --         1,530,629
                                                                          ----------      ----------      ----------      ----------

Weighted average common shares - diluted                                   8,657,913      10,120,871       8,657,913      10,077,485
                                                                          ==========      ==========      ==========      ==========
</TABLE>


Certain of the  outstanding  options and warrants to purchase  common stock were
anti-dilutive  for certain of the periods  presented above and accordingly  were
excluded from the  calculation  of diluted  weighted  average  common shares for
those  periods,  including the  equivalent  of 1,204,270  and  1,208,822  shares
excluded for the three and six months ended June 30, 1999, respectively,  solely
because the results of operations was a net loss instead of net income.

                                       15
<PAGE>
                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)


NOTE 9. OPERATING SEGMENT INFORMATION


The Company's reportable operating segments are as follows:


Industrial Staffing: This segment derives revenues from recruiting, training and
deployment  of  temporary   industrial  personnel  and  from  providing  payroll
administration, risk management and benefits administration services.

PEO: This segment derives revenues from providing a comprehensive package of PEO
services to its  clients  including  payroll  administration,  risk  management,
benefits administration and human resource consultation.

Franchising:  This segment  derives  revenues under  agreements  with industrial
staffing  franchisees  that provide those  franchises  with, among other things,
exclusive  geographical  areas of  operations,  continuing  advisory and support
services and access to the Company's confidential operating manuals. Franchising
revenues also include revenues from early terminations of franchise  agreements,
called  buyouts.  As of June 30, 1999 there was  $796,000 in  outstanding  notes
receivable from these former franchises for buyout revenue recognized during the
six months then ended.

Transactions  between  segments  affecting their reported income are immaterial.
Differences between the reportable segments' operating results and the Company's
consolidated  financial statements relate primarily to other operating divisions
of the Company and items excluded from segment operating  measurements,  such as
corporate  support  center  expenses and interest  expense in excess of interest
charged to the segments based on their outstanding receivables (before deducting
amounts  sold under the  Securitization  Facility).  See Note 5 for  information
regarding  a  significant  customer.  Financial  information  for the  Company's
operating segments,  reconciled to Company totals and presented in thousands, is
as follows:

                                       16
<PAGE>
                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)


NOTE 9. OPERATING SEGMENT INFORMATION (CONTINUED)

<TABLE>
<CAPTION>

                                                                      Three Months Ended                    Six Months Ended
                                                                      ------------------                    ----------------
                                                                           June 30,                              June 30,
                                                                           --------                              --------
                                                                     1999               1998               1999               1998
                                                                     ----               ----               ----               ----
<S>                                                              <C>                <C>                <C>                <C>
REVENUES

Industrial Staffing                                              $  79,855          $  78,230          $ 152,951          $ 144,368
PEO                                                                 55,079             46,509            108,160             91,251
Franchising                                                          2,469              1,829              4,441              2,924
Other Company revenues                                               6,051              8,228             12,016             17,239
                                                                 ---------          ---------          ---------          ---------

Total Company Revenues                                           $ 143,454          $ 134,796          $ 277,568          $ 255,782
                                                                 =========          =========          =========          =========

(LOSS) INCOME BEFORE TAXES
Industrial Staffing                                              $     689          $   3,187          $   1,272          $   5,653
PEO                                                                    522                222                777                595
Franchising                                                          2,191              1,485              3,988              2,310
Other Company (loss) income, net                                    (5,587)            (3,389)            (9,251)            (6,209)
                                                                 ---------          ---------          ---------          ---------

Total Company (loss) income before taxes                         $  (2,185)         $   1,505          $  (3,214)         $   2,349
                                                                 =========          =========          =========          =========
</TABLE>

NOTE 10.     SUBSEQUENT EVENTS

On August 6, 1999,  the Company  announced  the  following  actions  intended to
improve its short-term  liquidity,  better concentrate its operations within one
core segment (industrial  staffing) and improve its operating performance within
that segment:

(i) the sale of Office Ours,  its clerical  staffing  division,  effective on or
about August 30,  1999.  The Company  expects to receive  proceeds at closing of
approximately $2.1 million,  of which approximately $0.5 million will be used to
satisfy obligations under the Securitization  Facility and the remainder will be
applied to the Revolving Credit Facility.

(ii) the engagement of an investment banking firm to assist in the evaluation of
the  possible  sale of,  or  other  strategic  options  for,  Synadyne,  its PEO
division. See Note 9 for additional segment information.

(iii) a  reduction  of its  industrial  staffing  and  support  operations  (the
"Restructuring"),  consisting primarily of: the sale, closure,  consolidation or
franchising,  during the third and fourth quarters of 1999, of  approximately 20
of the 117 Tandem  branch  offices  existing as of June 30,  1999;  an immediate
reduction of its Tandem and  corporate  support  center  employee  work-force by
approximately  15 percent each;  and an  additional 16 percent  reduction of the
corporate  support  center  work-force  by early 2000.  The timing of the latter
work-force  reduction will be affected by the ultimate  disposition of Synadyne.
The 20 branch  offices  subject to the  Restructuring  will be (a) locations not
expected to be adequately  profitable or (b)  locations  which are  inconsistent
with the Company's  operating strategy of clustering offices within a geographic
region.

In connection with the  Restructuring,  the Company will include a restructuring
charge in its third  quarter  1999  results of  operations.  At this  time,  the
Company is unable to estimate the amount of such restructuring charge.

                                       17
<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

The following information should be read in conjunction with  "__Forward-looking
information: certain cautionary statements" below.

The Company is a national  provider of human resource  services  focusing on the
flexible industrial staffing ("staffing") market through its Tandem division and
on the professional  employer  organization  ("PEO") market through its Synadyne
division.   The  Company  provides  its  industrial  staffing  services  through
locations   owned  or  leased  by  the  Company   (collectively   identified  as
"Company-owned")  and  franchise   locations,   and  its  PEO  services  through
Company-owned locations.

Industrial  staffing  services  include  recruiting,  training and deployment of
temporary  industrial  personnel  as  well  as  payroll   administration,   risk
management and benefits  administration  services.  PEO services include payroll
administration,  risk  management,  benefits  administration  and human resource
consultation.

The  Company's  revenues  are  based  on the  salaries  and  wages  of  worksite
employees.  Staffing and PEO  revenues,  and related  costs of wages,  salaries,
employment taxes and benefits related to worksite  employees,  are recognized in
the period in which those employees perform the staffing and PEO services. Since
the  Company  is at risk for all of its  direct  costs,  independent  of whether
payment is received  from its clients,  all amounts  billed to clients for gross
salaries  and wages,  related  employment  taxes,  health  benefits and workers'
compensation  coverage are recognized as revenue by the Company,  net of credits
and  allowances,  which is  consistent  with  industry  practice.  The Company's
primary  direct  costs  are (i) the  salaries  and wages of  worksite  employees
(payroll cost),  (ii) employment  related taxes,  (iii) health benefits and (iv)
workers' compensation benefits and insurance.

The Company's staffing  operations  generate  significantly  higher gross profit
margins  than  its  PEO   operations.   The  higher   staffing  margin  reflects
compensation for recruiting, training and other services not required as part of
many PEO  relationships,  where the employees have already been recruited by the
client and are trained and in place at the beginning of the relationship.

The  Company  acquired 41  industrial  staffing  offices  during 1998 (the "1998
Acquisitions")  and 48 additional offices during the three years prior to that -
see "_Acquisitions"  below. The Company  discontinued its acquisition program in
October  1998  primarily  due to a  desire  to  focus  on and  improve  existing
operations  plus a lack of capital for new  acquisitions.  Up to that time,  the
Company had made a significant investment in new information systems, additional
back  office  capabilities  and other  infrastructure  enhancements  in order to
support the prior growth as well as the future growth that was being anticipated
at that time. The Company does not anticipate making any acquisitions during the
next twelve months.

                                       18
<PAGE>


On August 6, 1999,  the Company  announced  the  following  actions  intended to
improve its short-term  liquidity,  better concentrate its operations within one
core segment (industrial  staffing) and improve its operating performance within
that segment:

(i) the sale of Office Ours,  its clerical  staffing  division,  effective on or
about August 30, 1999.

(ii) the engagement of an investment banking firm to assist in evaluating of the
possible sale of, or other strategic options for, Synadyne, its PEO division.

(iii) a  reduction  of its  industrial  staffing  and  support  operations  (the
"Restructuring"),  consisting primarily of: the sale, closure,  consolidation or
franchising,  during the third and fourth quarters of 1999, of  approximately 20
of the 117 Tandem  branch  offices  existing as of June 30,  1999;  an immediate
reduction of its Tandem and  corporate  support  center  employee  work-force by
approximately  15 percent each;  and an  additional 16 percent  reduction of the
corporate  support  center  work-force  by early 2000.  The timing of the latter
work-force  reduction will be affected by the ultimate  disposition of Synadyne.
The 20 branch  offices  subject to the  Restructuring  will be (a) locations not
expected to be  adequately  profitable or (b)  locations  inconsistent  with the
Company's operating strategy of clustering offices within a geographic region.

In  addition,  the  Company  is not  currently  in  compliance  with  all of the
financial  covenants  contained in its existing  financing  arrangements and, in
cooperation with its current syndicate of lenders,  who have temporarily  waived
the  requirement  for  compliance  with those  covenants,  has already begun the
process  of  identifying  and  evaluating  alternative  financing  arrangements.
Furthermore,   the  Company  is  in  default  of  certain   other   subordinated
indebtedness. See "_Liquidity and Capital Resources" below.

RESULTS OF OPERATIONS

The following  tables set forth the amounts and  percentages  of net revenues of
certain  items  in the  Company's  consolidated  statements  of  income  for the
indicated periods.  The amounts presented are in thousands (except employees and
offices) and are unaudited:

<TABLE>
<CAPTION>

                                                                      Three Months Ended June 30,        Six Months Ended June 30,
                                                                      ---------------------------        -------------------------
                                                                          1999             1998             1999              1998
                                                                          ----             ----             ----              ----
<S>                                                                   <C>               <C>              <C>               <C>
Net revenues:
Flexible industrial staffing (1)                                      $  71,625         $  72,699        $ 136,426         $ 133,331
PEO (1)                                                                  67,287            58,050          132,687           115,363
Franchising                                                               2,469             1,829            4,441             2,924
Other                                                                     2,073             2,218            4,014             4,164
                                                                      ---------         ---------        ---------         ---------

Total net revenues                                                    $ 143,454         $ 134,796        $ 277,568         $ 255,782
                                                                      =========         =========        =========         =========

Gross profit                                                          $  20,583         $  21,276        $  40,045         $  39,314
Selling, general and administrative expenses                             21,086            18,365           40,040            34,486
                                                                      ---------         ---------        ---------         ---------

Operating (loss) income                                                    (503)            2,911                5             4,828
Net interest and other expense                                            1,682             1,405            3,219             2,479
                                                                      ---------         ---------        ---------         ---------

(Loss) income before (benefit) provision for
     income  taxes                                                       (2,185)            1,506           (3,214)            2,349
(Benefit) provision for income taxes                                       (936)              411           (1,385)              581
                                                                      ---------         ---------        ---------         ---------

Net (loss) income                                                     $  (1,249)        $   1,095        $  (1,829)        $   1,768
                                                                      =========         =========        =========         =========
</TABLE>

                                       19
<PAGE>
<TABLE>
<CAPTION>

                                                                  Three Months EndedJune 30,             Six Months EndedJune 30,
                                                                  --------------------------             ------------------------
                                                                     1999               1998              1999               1998
                                                                     ----               ----              ----               ----

<S>                                                              <C>                <C>               <C>                <C>
Other Data:
EBITDA (2)                                                       $    1,406         $    4,677        $    3,765         $    8,017
                                                                 ==========         ==========        ==========         ==========
System Revenues (3)                                              $  159,350         $  156,920        $  306,748         $  296,981
                                                                 ==========         ==========        ==========         ==========
System employees (number at end of period)                           35,000             34,000            35,000             34,000
                                                                 ==========         ==========        ==========         ==========
System offices (number at end of period                                 172                178               172                178
                                                                 ==========         ==========        ==========         ==========

Net revenues:
Flexible industrial staffing (1)                                      49.9%              53.9%             49.2%              52.1%
PEO (1)                                                               46.9               43.1              47.8               45.1
Franchising                                                            1.7                1.4               1.6                1.2
Other                                                                  1.5                1.6               1.4                1.6
                                                                 ----------         ----------        ----------         ----------

Total net revenues                                                   100.0%             100.0%            100.0%             100.0%
                                                                 ==========         ==========        ==========         ==========

Gross profit                                                          14.3%              15.8%             14.4%              15.4%
Selling, general and administrative expenses                          14.7               13.6              14.4               13.5
                                                                 ----------         ----------        ----------         ----------

Operating (loss) income                                               (0.4)               2.2               0.0                1.9
Net interest and other expense                                         1.2                1.1               1.2                1.0
                                                                 ----------         ----------        ----------         ----------

(Loss) income before (benefit) provision for
     income taxes                                                     (1.6)               1.1              (1.2)               0.9
(Benefit) provision for income taxes                                  (0.7)               0.3              (0.5)               0.2
                                                                 ----------         ----------        ----------         ----------

Net (loss) income                                                     (0.9)%              0.8%             (0.7)%              0.7%
                                                                 ==========         ==========        ==========         ==========
</TABLE>
-------------------

(1) SFAS No.  131,  "Disclosures  about  Segments of an  Enterprise  and Related
Information",  establishes  standards for reporting  information about operating
segments in financial  statements.  Operating segments are defined as components
of an enterprise about which separate financial information is available that is
evaluated  regularly by the chief  operating  decision maker, or decision making
group, in deciding how to allocate resources and in assessing  performance.  The
Company's   reportable  operating  segments  under  SFAS  No.  131  include  the
Industrial  Staffing  segment and the PEO  segment.  PEO  revenues,  as reported
above,  include  certain  industrial  revenues  that the  Company  believes  are
operationally  consistent with the PEO business and operational  model,  but are
not  includable  in the PEO  segment  due to the way the  Company is  organized.
Following is a reconciliation of Flexible  Industrial  Staffing net revenues and
the PEO net revenues, as shown above, to the revenues reported by the Company in
accordance  with the  requirements of SFAS No. 131 - see Note 9 to the Company's
Consolidated  Financial  Statements.  The  following  amounts are  presented  in
thousands:

<TABLE>
<CAPTION>

                                                                          Three Months Ended                 Six Months Ended
                                                                          ------------------                 ----------------
                                                                                June 30,                           June 30,
                                                                                --------                           --------
                                                                          1999             1998             1999             1998
                                                                          ----             ----             ----             ----
<S>                                                                    <C>              <C>              <C>              <C>
Flexible Industrial Staffing revenues                                  $  71,625        $  72,699        $ 136,426        $ 133,331
Add: Industrial staffing client payrolling                                 8,230            5,531           16,525           11,037
                                                                       ---------        ---------        ---------        ---------
Industrial Staffing operating segment revenues                         $  79,855        $  78,230        $ 152,951        $ 144,368
                                                                       =========        =========        =========        =========

PEO Revenues                                                           $  67,287        $  58,050        $ 132,687        $ 115,363
Less: Industrial staffing client payrolling                               (8,230)          (5,531)         (16,525)         (11,037)
Less: PEO services to industrial staffing franchises                      (3,979)          (6,010)          (8,003)         (13,075)
                                                                       ---------        ---------        ---------        ---------
PEO operating segment revenues                                         $  55,079        $  46,509        $ 108,159        $  91,251
                                                                       =========        =========        =========        =========
</TABLE>

Gross  profit  amounts and  percentages  discussed  herein are  calculated  on a
consistent basis with the revenues reported herein.

------------------------

(2) EBITDA is earnings  (net  income)  before the effect of interest  income and
expense,  income tax benefit and expense,  depreciation expense and amortization
expense. EBITDA is presented because it is a widely accepted financial indicator
used by many  investors  and  analysts to analyze and compare  companies  on the
basis of operating  performance.  EBITDA is not intended to represent cash flows
for the period,  nor has it been presented as an alternative to operating income
or as an indicator  of operating  performance  and should not be  considered  in
isolation or as a substitute for measures of performance  prepared in accordance
with generally accepted accounting principles.

------------------------

(3)  System  revenues  are  the sum of the  Company's  net  revenues  (excluding
revenues from franchise  royalties and services  performed for the  franchisees)
and the net revenues of the  franchisees.  System revenues  provide  information
regarding the Company's  penetration of the market for its services,  as well as
the scope and size of the Company's  operations,  but are not an  alternative to
revenues determined in accordance with generally accepted accounting  principles
as an indicator of operating performance. The net revenues of franchisees, which
are not earned by or available to the Company, are derived from reports that are
unaudited.  System  revenues  consist  of  the  following  amounts  reported  in
thousands:

                                       20
<PAGE>


<TABLE>
<CAPTION>

                                                                 Three Months Ended                          Six Months Ended
                                                                 ------------------                          ----------------
                                                                      June 30,                                   June 30,
                                                                      --------                                   --------
                                                              1999                 1998                 1999                 1998
                                                              ----                 ----                 ----                 ----
<S>                                                        <C>                  <C>                  <C>                  <C>
Company's Net Revenue                                      $ 143,454            $ 134,796            $ 277,568            $ 255,782
Less: Company revenues from:
     Franchise Royalties                                      (2,469)              (1,829)              (4,441)              (2,924)
     Services to Franchises                                   (3,979)              (6,010)              (8,003)             (13,075)
Add: Franchisee's net revenues                                22,344               29,963               41,624               57,198
                                                           ---------            ---------            ---------            ---------
System revenues                                            $ 159,350            $ 156,920            $ 306,748            $ 296,981
                                                           =========            =========            =========            =========

</TABLE>

Three Months Ended June 30, 1999 as compared to the Three Months Ended June 30,
1998

Net Revenues. Net revenues increased $8.7 million, or 6.4%, to $143.5 million in
the three  months  ended June 30, 1999 ("Q2  1999")  from $134.8  million in the
three months ended June 30, 1998 ("Q2 1998").  This increase resulted  primarily
from growth in PEO revenues in Q2 1999 of $9.2 million, or 15.9%, compared to Q2
1998  which is  partially  offset  by the $1.1  million,  or 1.5%,  decrease  in
staffing  revenues  during the same  periods.  The  increase in PEO revenues was
primarily  due to new PEO  clients,  as well as an  increase  in the  number  of
work-site  employees at certain  existing PEO clients.  The decrease in staffing
revenues was primarily  due to high  employee  turnover and low sales in certain
geographic  markets where Company locations had not been operating  consistently
with the Company's  strategy.  Certain  geographic markets recorded double digit
growth, but those increases were more than offset by declines in other markets.

System revenues,  which include franchise revenues not earned by or available to
the Company,  increased $2.4 million, or 1.5%, to $159.4 million in Q2 1999 from
$156.9 million in Q2 1998. The increase in system  revenues was  attributable to
the $8.7  million  increase  in the  Company's  net  revenues  discussed  above.
Franchise  revenues of franchisees  operating as of June 30, 1999 increased $3.0
million,  or 17.6%, in Q2 1999 as compared to Q2 1998, offset by a $10.6 million
decrease in revenues for the same period  resulting  from other  franchisees  no
longer  operating.  The result is a net decrease of  franchise  revenues of $7.6
million.   The  Company  acquired  and  converted  17  franchise   locations  to
Company-owned  locations  during 1998 and also allowed the early  termination of
franchise  agreements in 1998 and 1999  attributable  to another 18 locations to
enable the Company to develop the related  territories.  At the time the Company
agrees to terminate a franchise agreement, it receives an initial buyout payment
from the former  franchisee.  The Company continues to receive payments from the
former  franchisees  based on a percentage of the gross revenues of the formerly
franchised locations for up to three years after the termination dates. Although
those gross  revenues are not  included in the  Company's  franchisee  or system
revenues totals, the initial buyout payment, as well as subsequent payments from
the former franchisees, is reflected in total royalties reported by the Company.

Gross Profit.  Gross profit (margin)  decreased $0.7 million,  or 3.3%, to $20.6
million in Q2 1999, from $21.3 million in Q2 1998.  Gross profit as a percentage
of net  revenues  decreased  to 14.3%  in Q2 1999  from  15.8% in Q2 1998.  This
decrease was primarily due to (i) decreased  gross profit margin percent for the
Company's  staffing  operations  and (ii) the  lower  growth  rate for  staffing
revenues as compared to the growth rate for PEO revenues,  which  generate lower
gross profit margins. In Q2 1999, PEO operations  generated gross profit margins
of 4.3% as  compared  to gross  profit  margins of 20.5%  generated  by staffing
operations.

                                       21
<PAGE>

Margin percent for the Company's  staffing  operations  decreased to 20.5% in Q2
1999 from 22.5% in Q2 1998.  The decrease was primarily due to the impact of (i)
fewer small contracts of a just-in-time nature or shorter duration for which the
Company  historically  earned  higher  margins  and  (ii)  the  increased  wages
necessary  to  recruit   staffing   employees  in  areas  of  historically   low
unemployment.  The Company  anticipates  stabilization  or some  improvement  in
margin  by  the  end  of  1999  as a  result  of  refocusing  sales  efforts  on
just-in-time  business in those locations where such business is more typical of
the local market.

PEO gross  profit  margin  percent  increased to 4.3% in Q2 1999 from 4.0% in Q2
1998  primarily  due to an  increase in the volume of PEO  services  provided to
industrial  clients  having  higher gross  profit  margins than the more typical
white-collar clients.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses  ("SG&A")  increased $2.7 million,  or 14.8%,  to $21.1
million in Q2 1999 from $18.4 million in Q2 1998.  This increase was primarily a
result  of  operating  costs  related  to the 1998  Acquisitions,  general  wage
increases,   incentive   payments  at  top   performing   locations,   increased
telecommunication   costs  for  the  new  field  operating   system,   increased
professional fees,  increased  allowances for doubtful  accounts,  and increased
costs  associated  with recruiting key management and service  employees.  Total
direct operating costs  associated with the 1998 Acquisition  locations (for the
portion of Q2 1999 for which there was no  corresponding  Q2 1998 activity) were
$0.5 million in Q2 1999.

Net Interest and Other Expense. Net interest and other expense increased by $0.3
million,  to $1.7 million in Q2 1999 from $1.4 million in Q2 1998. This increase
was primarily due to a $0.3 million increase in interest  expense,  arising from
(i) an increase in total debt  outstanding  related to the purchases of the 1998
Acquisitions and (ii) financing costs related to increased  accounts  receivable
arising from those  acquisitions,  partially offset by a decrease in the average
interest rate as a result of the Securitization Facility.

Net (Loss)  Income.  Net (loss)  income  decreased  by $2.3  million,  to a $1.2
million loss in Q2 1999 from $1.1 million net income in Q2 1998.  This  decrease
was primarily  due to a $3.4 million  reduction in operating  income  (resulting
from the $2.7 million  increase in SG&A and the $0.7  million  decrease in gross
profit) and a $0.3 million increase in interest  expense,  both discussed above,
partially offset by a related $1.3 million decrease in income taxes.

Six Months Ended June 30, 1999 as compared to the Six Months Ended June 30, 1998

Net Revenues.  Net revenues increased $21.8 million,  or 8.5%, to $277.6 million
in the six months  ended June 30, 1999 ("YTD  1999") from $255.8  million in the
six months ended June 30, 1998 ("YTD 1998").  This increase  resulted  primarily
from PEO  revenue  growth of $17.3  million,  or 15.0%,  and growth in  staffing
revenues  in YTD  1999 of $3.1  million,  or 2.3%,  compared  to YTD  1998.  The
increase in PEO revenues  was  primarily  due to new PEO clients,  as well as an
increase in the number of work-site  employees at certain  existing PEO clients.
The increase in staffing revenues was primarily due to the 1998 Acquisitions.

                                       22
<PAGE>


System revenues,  which include franchise revenues not earned by or available to
the Company, increased $9.8 million, or 3.3%, to $306.7 million in YTD 1999 from
$297.0 million in YTD 1998. The increase in system revenues was  attributable to
the $21.8  million  increase in the  Company's  net  revenues  discussed  above.
Franchise  revenues of franchisees  operating as of June 30, 1999 increased $4.9
million,  or 17.0%, YTD 1999 as compared to YTD 1998,  offset by a $20.5 million
decrease in revenues for the same period  resulting  from other  franchisees  no
longer  operating.  The result is a net decrease of franchise  revenues of $15.6
million.   The  Company  acquired  and  converted  17  franchise   locations  to
Company-owned  locations  during 1998 and also allowed the early  termination of
franchise  agreements in 1998 and 1999  attributable  to another 18 locations to
enable the Company to develop the related territories.

Gross Profit.  Gross profit (margin)  increased $0.7 million,  or 1.9%, to $40.0
million  in YTD  1999,  from  $39.3  million  in YTD  1998.  Gross  profit  as a
percentage  of net  revenues  decreased  to 14.4 % in YTD 1999 from 15.4% in YTD
1998.  This  decrease was  primarily  due to (i)  decreased  gross profit margin
percent for the Company's staffing operations and (ii) the lower growth rate for
staffing  revenues  as  compared  to the  growth  rate for PEO  revenues,  which
generate lower gross profit margins. In YTD 1999, PEO operations generated gross
profit margins of 4.2% as compared to gross profit margins of 21.2% generated by
staffing operations.

Margin percent for the Company's staffing  operations  decreased to 21.2% in YTD
1999 from 22.8% in YTD 1998. The decrease was primarily due to the impact of (i)
fewer small contracts of a just-in-time nature or shorter duration for which the
Company  historically  earned  higher  margins  and  (ii)  the  increased  wages
necessary  to  recruit   staffing   employees  in  areas  of  historically   low
unemployment.  The Company  anticipates  some  stabilization  or  improvement in
margin  by  the  end  of  1999  as a  result  of  refocusing  sales  efforts  on
just-in-time  business in those locations where such business is more typical of
the local market.

PEO gross profit margin  percent  increased to 4.2% in YTD 1999 from 4.0% in YTD
1998  primarily  due to an  increase in the volume of PEO  services  provided to
industrial  clients at higher gross profit  margins than the more typical  white
collar clients.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses  ("SG&A")  increased $5.5 million,  or 16.1%,  to $40.0
million in YTD 1999 from $34.5 million in YTD 1998.  This increase was primarily
a result of  operating  costs  related to the 1998  Acquisitions,  general  wage
increases,   incentive   payments  at  top   performing   locations,   increased
telecommunication   costs  for  the  new  field  operating   system,   increased
professional fees,  increased  allowances for doubtful  accounts,  and increased
costs  associated  with recruiting key management and service  employees.  Total
direct operating costs  associated with the 1998 Acquisition  locations (for the
portion of YTD 1999 for which there was no corresponding YTD 1998 activity) were
$3.1 million in YTD 1999.

Net Interest and Other Expense. Net interest and other expense increased by $0.8
million,  to $3.3  million  in YTD 1999 from  $2.5  million  in YTD  1998.  This
increase  was  primarily  due to a $0.8  million  increase in interest  expense,
arising from (i) an increase in total debt outstanding  related to the purchases
of the 1998 Acquisitions and (ii) financing costs related to increased  accounts
receivable   arising  from  increased  staffing  revenues  as  discussed  above,
partially  offset by a decrease in the average  interest rate as a result of the
Securitization Facility.

                                       23
<PAGE>

Net (Loss)  Income.  Net (loss)  income  decreased  by $3.6  million,  to a $1.8
million loss in YTD 1999 from $1.8 million net income in YTD 1998. This decrease
was primarily  due to a $4.8 million  reduction in operating  income  (resulting
from the $5.5 million  increase in SG&A offset by the $0.7  million  increase in
gross profit) and a $0.8 million  increase in interest  expense,  both discussed
above, partially offset by a related $2.0 million decrease in income taxes.

ADDITIONAL OPERATING AND SEGMENT INFORMATION

SFAS  No.  131,   "Disclosure  about  Segments  of  an  Enterprise  and  Related
Information",  establishes  standards for reporting  information about operating
segments in financial  statements.  Operating segments are defined as components
of an enterprise about which separate financial information is available that is
evaluated  regularly by the chief  operating  decision maker, or decision making
group, in deciding how to allocate resources and in assessing  performance.  The
Company's  reportable  operating  segments  under SFAS No.  131 differ  from the
operating  information  presented below, as explained in footnote 1 to the table
in "  Results  of  Operations"  above.  Gross  profit  amounts  and  percentages
discussed  below are also  calculated  on a  consistent  basis with the revenues
reported below. See Note 9 to the Company's Consolidated Financial Statements.

Flexible Industrial Staffing:

Net revenues from the Company's  staffing  services  increased $3.1 million,  to
$136.4  million for the six months  ended June 30, 1999 from $133.3  million for
the six months  ended  June 30,  1998,  or an  annualized  growth  rate of 2.3%.
Staffing's share of the Company's total net revenues  decreased to 49.2% for YTD
1999 from  52.1% for YTD  1998,  reflecting  a lower  internal  growth  rate for
staffing   services  as  well  as  the  Company's   discontinuance  of  staffing
acquisitions  since October 1998. The Company expects this lower internal growth
rate and the absence of  acquisition  activity to continue for the  remainder of
1999.  As a result,  the  Company  expects  industrial  staffing's  share of the
Company's total net revenues to continue to decline  throughout 1999, unless and
until Synadyne, the PEO division, is sold.

Gross profit from the Company's  staffing  services  decreased $1.5 million,  to
$28.9  million for YTD 1999 from $30.4  million for YTD 1998,  or an  annualized
decrease  of 4.9%.  Consistent  with the revenue  trend  discussed  above,  this
represented a decreased share of the Company's total gross profit,  to 72.3% for
YTD 1999 from 77.3% for YTD 1998.

PEO:

Net revenues from the Company's PEO services increased $17.3 million,  to $132.7
million for YTD 1999 from $115.4  million for YTD 1998, or an annualized  growth
rate of 15.0%.  Due to a higher internal growth rate for PEO services as well as
the Company's  discontinuance of staffing  acquisitions  since October 1998, PEO
revenues represented an increased share of the Company's total net revenues,  to
47.8% for YTD 1999 from 45.1% for YTD 1998.  The Company  expects that PEO sales
growth  will  continue at its present  rate  during most of 1999,  although  the
Company  may  dispose  of  these  operations  before  the end of the  year.  See
"_General" above.

                                       24
<PAGE>


Approximately  17% of the  Company's  YTD 1999 PEO revenues  were from  services
performed for  individual  insurance  agent  offices under a preferred  provider
designation previously granted to the Company on a regional basis by the agents'
common corporate  employer.  The corporate employer recently began granting that
designation  on a national  basis only and the  Company  has been  granted  that
designation  for 1999. In addition,  the Company is aware of pending  litigation
against that corporate employer  regarding its use of PEO services.  The Company
has not  determined  what  impact,  if any,  that the  ultimate  result of these
developments will have on its financial position or results of operations.

Gross profit from the Company's  PEO services  increased  $0.9 million,  to $5.5
million for YTD 1999 from $4.6  million for YTD 1998,  or an  annualized  growth
rate of 19.5%.  This also  represented an increased share of the Company's total
gross profit, to 13.9% for YTD 1999 from 11.8% for YTD 1998.

Franchising:

Net revenues from the Company's  franchising  operations increased $1.5 million,
to $4.4  million for YTD 1999 from $2.9 million for YTD 1998,  or an  annualized
growth rate of 51.9%.  Franchising  operations represented an increased share of
the Company's  total net  revenues,  to 1.6% in YTD 1999 from 1.2% for YTD 1998,
reflecting buyout payments received in 1999 from former franchisees. The Company
allowed the early termination  (buyout) of certain franchise  agreements in 1998
and 1999,  attributable  to 18  locations,  to enable the Company to develop the
related  territories.  Due to the reduced  number of remaining  franchises,  the
Company does not anticipate buyout payments in the future to be of the magnitude
recorded in YTD 1999, although the Company expects to continue to convert select
franchise  locations  to  Company-owned   locations  after  1999  and  to  allow
terminations of franchise agreements in key markets that the Company believes it
can develop further.  Such  acquisitions and terminations will be subject to the
Company's  ability to  negotiate  them on  acceptable  terms.  The Company  also
expects to continue to sell new franchises in smaller, less populated geographic
areas, and to sell franchise rights to certain existing Company-owned  locations
that the Company  believes are not  sufficiently  profitable or no longer fit in
its  clustering  market  strategy,  that the Company  fees are not  sufficiently
profitable or no longer fit in its clustering  market strategy.  See "__General"
above.  Franchise sales will be subject to, among other factors,  the success of
the Company's marketing efforts in this regard.

Gross profit from the Company's  franchising  operations increased $1.5 million,
to $4.4  million for YTD 1999 from $2.9 million for YTD 1998,  or an  annualized
growth rate of 51.9%.  Consistent with the revenue trend discussed  above,  this
area  represented  an increased  share of the Company's  total gross profit,  to
11.1% for YTD 1999 from 7.4% for YTD 1998.

                                       25
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

Debt and Other Financing

The Company's primary sources of funds for working capital and other needs are a
$29.9 million  credit line with a syndicate of lenders led by  BankBoston,  N.A.
(the  "Revolving  Credit  Facility")  and a $50.0  million  accounts  receivable
securitization facility with a BankBoston affiliate.

Effective  July  27,  1998,  the  Company  entered  into a five  year  financing
arrangement  under which it can sell up to a $50.0 million  secured  interest in
its eligible accounts receivable to EagleFunding Capital Corporation  ("Eagle"),
which  uses  the  receivables  to  secure  A-1  rated   commercial   paper  (the
"Securitization  Facility").  Under this arrangement,  the Company receives cash
equivalent to the gross  outstanding  balance of the accounts  receivable  being
sold,  less  reserves  which are adjusted on a monthly basis based on collection
experience  and other defined  factors.  There is no recourse to the Company for
the initial  funds  received.  Amounts  collected  in excess of the reserves are
retained by the Company.  The Company's cost for this  arrangement is classified
as interest expense and is based on the interest paid by Eagle on the balance of
the  outstanding  commercial  paper,  which in turn is  determined by prevailing
interest rates in the commercial paper market and was approximately  5.15% as of
June 30, 1999.  As of June 30, 1999, a $42.4  million  interest in the Company's
uncollected accounts receivable had been sold under this agreement, which amount
is excluded  from the accounts  receivable  balance  presented in the  Company's
consolidated financial statements.

The  Securitization  Facility contains certain minimum default,  delinquency and
dilution  ratios with respect to the  Company's  receivables  and requires  bank
liquidity  commitments  ("Liquidity  Facility")  totaling  no  less  than  $51.0
million. A default under the Securitization Facility constitutes a default under
the Revolving Credit Facility.  The Liquidity  Facility has been provided by the
syndicate of lenders that participate in the Revolving Credit Facility for a one
year term originally  expiring July 26, 1999 at 0.375% per annum, which term has
currently  been  extended  to  September  27,  1999,  pending  completion  of an
extension to December 31, 1999 that the Company and the  syndicate are currently
negotiating.  Eagle  may  draw  against  the  Liquidity  Facility  to fund  cash
shortfalls caused by an inability for any reason to issue commercial paper based
on the  Company's  receivables.  There is no recourse to the Company for amounts
drawn under the Liquidity  Facility,  although such amounts would be repaid from
and to the extent receivables sold by the Company were collected.  Amounts drawn
under the Liquidity  Facility bear interest at the same rates incurred under the
Revolving Credit Facility.

Concurrent  with the completion of the  Securitization  Facility,  the Revolving
Credit  Facility was amended,  primarily to reduce the maximum amount  available
for  borrowing  from $85.0  million to $34.0 million and to extend the remaining
term of the  Revolving  Credit  Facility  to five  years  from  the date of that
amendment. In conjunction with the extension of the Liquidity Facility discussed
above,  the amount  currently  available under the Revolving Credit Facility has
been reduced to $29.9 million.  As discussed  below, the remaining term for this
facility is expected to be substantially reduced.  Outstanding amounts under the
Revolving  Credit  Facility are secured by  substantially  all of the  Company's
assets and the pledge of all of the  outstanding  shares of Common Stock of each
of its  subsidiaries.  Amounts borrowed under the Revolving Credit Facility bear
interest at the  Eurodollar  rate (prior to June 30, 1999 only, at the Company's
option)  or  BankBoston's  base rate plus a margin  based  upon the ratio of the
Company's  total  indebtedness  to the  Company's  earnings  (as  defined in the
Revolving  Credit  Facility).  As of June 30, 1999, the Company had  outstanding
borrowings

                                       26
<PAGE>

under the Revolving  Credit  Facility of $18.2 million,  bearing  interest at an
annualized  rate of  7.75%.  The  Revolving  Credit  Facility  contains  certain
affirmative and negative covenants relating to the Company's operations, certain
of  which  were  amended  in  February  1999  in  order  to  provide  additional
flexibility to the Company as well as to enable it to be in compliance with such
covenants  as  of  December  31,  1998  and  March   31,1999.   These   covenant
modifications  also  resulted  in a 0.5% per annum  increase  in the bank margin
component of the interest  rate charged  thereunder,  which was offset by a 0.6%
per annum  decrease in the  Eurodollar  base rate during the first six months of
1999.

In addition to the related  changes  made in the  Revolving  Credit  Facility as
discussed  above,  subsequent to June 30, 1999, the bank syndicate did not allow
the Company to utilize Euro rate based  borrowings  under the  Revolving  Credit
Facility,  which  resulted in an effective  increase in the Company's  borrowing
rate under that  facility of  approximately  0.8% per annum.  In  addition,  the
lenders  syndicate placed  restrictions on the issuance or renewal of letters of
credit.

As discussed in Note 4 to the Company's Consolidated  Financial Statements,  the
Company  was not in  compliance  with the  financial  covenants  included in its
Revolving  Credit Facility as of June 30, 1999,  although the lenders  syndicate
has waived such  non-compliance  through  August 31, 1999.  The Company does not
expect to be in compliance with those covenants in the foreseeable future and is
currently  negotiating  with the lenders  syndicate  to revise the  covenants to
enable the  Company's  compliance,  although this revision will also shorten the
facilities  termination  date to December 31, 1999. The Company  anticipates the
negotiations will be completed  successfully,  however there can be no assurance
that the covenants  will be revised.  In the event the covenants are not revised
or waivers are  required,  but are not  granted,  the Company  could  experience
liquidity  problems  depending  on the  ability and  willingness  of the lenders
syndicate to continue  lending to the Company,  and the availability and cost of
financing  from other  sources.  The Company  has  already  begun the process of
identifying  and evaluating  alternative  financing  sources.  Accordingly,  the
Revolving  Credit  Facility  has been  classified  as current  on the  Company's
Consolidated Balance Sheet as of June 30, 1999.

In February  1998,  the Company  entered into a five year notional $42.5 million
interest  rate collar  agreement  with Bank  Boston,  N.A.,  whereby the Company
receives  interest on that  notional  amount to the extent 30 day LIBOR  exceeds
6.25% per annum,  and pays interest on that amount to the extent 30 day LIBOR is
less than 5.43% per annum. This derivative  financial  instrument was being used
by the Company to reduce  interest  rate  volatility  and the  associated  risks
arising from the floating rate  structure of its Revolving  Credit  Facility and
its  Securitization  Facility,  and was not held or issued for trading purposes.
Effective  June 30,  1999,  the  Company  terminated  the  interest  rate collar
agreement with BankBoston, N.A. which resulted in proceeds of $250,000.

In order to remain in compliance with certain  covenants in the Revolving Credit
Facility,  and to  reduce  the cash  impact  of  scheduled  payments  under  its
subordinated acquisition debt, during 1999 the Company had negotiated extensions
of the payment dates and modified the interest  rates and other terms of certain
of its subordinated acquisition notes payable. As of August 12, 1999 the Company
had not made all of the  scheduled  payments  due and first became in default of
this debt  having a total  principal  outstanding  of $9.4  million.  Due to the
subordinated  status and other terms of the debt,  the payees are unable to take
collection actions against the Company for at least six months.  Acceleration of
this debt requires  prior written  notice to the Company by the various  payees,
which has been received from only four of sixteen  payees as of August 16, 1999.
See Notes 4 and 6 to the Company's Consolidated Financial Statements.

                                       27
<PAGE>

As of June  30,  1999,  the  Company  had (i) bank  standby  letters  of  credit
outstanding  in the  aggregate  amount of $8.4 million under a letter of credit
facility  (which is part of the  Revolving  Credit  Facility) to secure  certain
workers'  compensation  obligations  already  recorded  as a  liability  on  the
Company's  balance sheet;  (ii) $9.4 million of promissory notes  outstanding in
connection  with certain  acquisitions,  primarily  bearing  interest at imputed
rates from 8.5% to 12.0% per annum and  payable  during the next two years,  and
subordinated  to  the  repayment  of  the  Revolving  Credit   Facility;   (iii)
obligations  under  capital  leases for property and  equipment in the aggregate
amount of $3.4  million;  and (iv)  obligations  under  mortgages  totaling $4.2
million.

Historical Summary of Cash Flows

The  Company's  principal  uses of cash are for wages and  related  payments  to
temporary and PEO employees, operating costs, acquisitions, capital expenditures
and  repayment  of debt  and  interest  thereon.  For  YTD  1999,  cash  used by
operations was approximately $0.4 million,  compared to $7.8 million provided in
YTD  1998.   Cash  provided  by  investing   activities   during  YTD  1999  was
approximately  $0.7  million,  compared  to  $28.4  million  used  in YTD  1998,
primarily  expenditures of $26.9 million for acquisitions  (primarily intangible
assets).  Cash used in financing  activities  during YTD 1999 was  approximately
$3.3  million,  comprised  primarily  of a $2.8  million  net  repayment  of the
Revolving  Credit  Facility  and $2.6 million of  repayments  of long term debt,
offset by a $1.8 million  increase in the Company's  liability  for  outstanding
payroll  checks  (in excess of the  funded  bank  balances).  Cash  provided  by
financing activities during YTD 1998 was approximately $20.9 million,  primarily
$20.7 million from borrowings under the Revolving Credit Facility.

Workers' Compensation

Prior to 1999, the Company secured its workers' compensation  obligations by the
issuance of bank standby letters of credit to its insurance carriers, minimizing
the required  current cash outflow for such items. In 1999, the Company selected
a pre-funded  deductible  program whereby expected claims expenses are funded in
advance in exchange for reductions in administrative costs. The required advance
funding is provided  through  either cash flows from  operations  or  additional
borrowings  under the Revolving  Credit  Facility.  This new  arrangement  could
adversely  affect the  Company's  ability to meet certain  financial  covenants,
although the Company was successful in reducing the letter of credit outstanding
as of December  31, 1998 by $2.0  million in April 1999 and another $2.0 million
in August 1999 based on  corresponding  payments made in previous  months to the
Company's insurance carrier which reduced the accrued liability supported by the
letter of credit.

In July 1999,  the Company  renegotiated  the schedule of payments due under the
pre-funded  deductible program, in order to improve its liquidity.  Although the
$13.3  million  total of the  1999  payments  was  unchanged  from the  original
agreement,  the  originally  scheduled  May and June  payments were deferred and
incorporated  into revised  monthly  payments for the remainder of the year. The
revised  schedule  calls  for 21% of the  annual  total to be paid in the  third
quarter and 49% of the annual total to be paid in the fourth quarter.

                                       28
<PAGE>

Accounts Receivable

The Company is a service  business  and  therefore  a majority  of its  tangible
assets are customer  accounts  receivable.  Staffing  employees  are paid by the
Company on a daily or weekly basis. The Company,  however, receives payment from
customers for these services,  on average,  45 to 60 days from the  presentation
date of the  invoice.  Beginning  in the  fourth  quarter of 1998,  the  Company
experienced  an increase in the percentage of its staffing  accounts  receivable
that are past due. As a result, the Company has taken several actions including,
among other  things,  increasing  the number of  employees  focusing on accounts
receivable  issues  and  establishing   employee  compensation  plans  based  on
satisfactory  collections,  which it believes will  satisfactorily  address this
issue so that  there is no  adverse  long-term  impact  to the  Company.  As new
staffing  offices are  established or acquired,  or as existing  offices expand,
there will be increasing  requirements for cash to fund operations.  The Company
pays its PEO employees on a weekly, bi-weekly, semi-monthly or monthly basis for
their services,  and currently  receives  payments on a simultaneous  basis from
approximately  80%  (based on  revenues)  of its  existing  customers,  with the
remainder  paying on  average  30 to 45 days from the  presentation  date of the
invoice.

Capital Expenditures

One of the key elements of the  Company's  growth  strategy in 1997 and 1998 had
been  expansion  through  acquisitions,  which  require  significant  sources of
financing.  The Company has decided not to complete further  acquisitions  until
its internal revenue growth rate and the resulting operating  performance of its
existing locations improve.  The financing sources for its acquisitions had been
cash from  operations,  seller  financing,  bank  financing and issuances of the
Company's  Common  Stock.  The  Company's  acquisitions  were  primarily  in the
industrial staffing area, and, if and when it resumes acquisition activity,  the
Company expects this trend to continue,  consistent with a primary  objective of
the current Restructuring, which is to focus the Company's operations within the
industrial staffing area.

The  Company  anticipates  spending  up to $2.0  million  during the next twelve
months to improve its  management  information  and operating  systems,  upgrade
existing locations and other capital expenditures including, but not limited to,
opening new staffing  locations.  This amount does not include  expenditures for
goodwill or other intangible  assets arising from previous  acquisitions,  which
the Company does not expect to be significant during that period.

Future Liquidity

The Company has announced  several  recent  actions that are expected to improve
the  Company's  liquidity,  both  immediately  and over a longer period of time,
including the  divestiture  of certain  Company  operations and reduction of its
workforce (see " General" above and Note 10 the Company's Consolidated Financial
Statements).  Although there can be no assurances,  the Company expects that the
current lenders  syndicate will extend adequate  financing  through December 31,
1999 to meet the Company's needs, based on this planned restructuring of Company
operations.  The Company believes that it will need to find alternative  funding
sources after that date and is identifying and evaluating those alternatives.

                                       29
<PAGE>

The Company  believes  that funds  provided by  operations,  including  sales of
accounts   receivable   under  the   Securitization   Facility  (or  replacement
financing),  plus borrowings under the Revolving Credit Facility (or replacement
financing)  and current cash  balances  will be sufficient to meet its presently
anticipated  needs for working capital and capital  expenditures,  not including
new  acquisitions,  for the next twelve months.  Significant  new  acquisitions,
which the Company does not expect to pursue during the next twelve months, would
require  expanded or new borrowing  facilities,  issuance of Common Stock and/or
additional debt or equity  offerings.  There can be no assurance that additional
capital will be available to the Company on acceptable terms.


ACQUISITIONS

From 1995 to 1998,  the  Company  made 34  staffing  acquisitions  including  65
offices  and  approximately  $180.0  million in revenues  for the twelve  months
preceding each  acquisition.  These  acquisitions have resulted in a significant
increase  in  goodwill  and other  intangible  assets and  correspondingly  have
resulted  and will  continue to result in  increased  amortization  expense.  In
addition, the amount of these intangible assets as a percentage of the Company's
total assets and shareholders' equity has increased significantly. While the net
unamortized  balance of intangible  assets as of June 30, 1999 is not considered
to  be  impaired,  any  future  determination   requiring  the  write-off  of  a
significant  portion of unamortized  intangible  assets including any write-offs
which might be included in the anticipated charge for restructuring in the third
quarter of 1999 (see Note 10 to the Company's Consolidated Financial Statements)
could have a material  adverse effect on the Company's  financial  condition and
results of operations.  As of August 9, 1999, no  acquisitions  were made during
1999 and it is not anticipated  that any  acquisitions  will be made in the next
twelve months.

SEASONALITY

The Company's  quarterly results of operations reflect the seasonality of higher
customer demand for industrial staffing services in the last two quarters of the
year, as compared to the first two quarters.  In 1998, the seasonal  increase in
industrial  staffing  revenue was lower than that  experienced  in prior  years,
which the Company  attributes to slower economic activity in U.S.  manufacturing
and  distribution.  The Company  believes there is evidence that this sector has
begun to improve in 1999,  although  there can be no  assurance  that this trend
exists or will continue.

Though there is a seasonal  reduction  of  industrial  staffing  revenues in the
first two quarters of a year as compared to the third and fourth quarters of the
prior year,  the Company  does not reduce the related core  personnel  and other
operating  expenses  proportionally.   The  related  core  personnel  and  other
operating expenses are not reduced because most of that infrastructure is needed
to support anticipated  increased revenues in subsequent quarters.  PEO revenues
are  generally  not  subject to  seasonality  to the same  degree as  industrial
staffing revenues although the net income contribution of PEO revenues expressed
as a percentage of sales is significantly

                                       30
<PAGE>

lower than the net income  contribution of industrial  staffing  revenues.  As a
result of the above  factors,  the Company  historically  experiences  operating
income in the first two quarters of a year that is  significantly  less than (i)
the third and fourth  quarters  of the  preceding  year and (ii) the  subsequent
quarters of the same year.

INFLATION

The effects of inflation on the Company's operations were not significant during
the  periods  presented  in the  financial  statements.  Throughout  the periods
discussed above,  the increases in revenues have resulted  primarily from higher
volumes, rather than price increases.


NEW ACCOUNTING PRONOUNCEMENTS

In June 1998,  Statement of  Financial  Accounting  Standards  ("SFAS") No. 133,
"Accounting for Derivative  Instruments and Hedging Activities" was issued. SFAS
No. 133 defines  derivatives and establishes  accounting and reporting standards
requiring  that  every  derivative   instrument  (including  certain  derivative
instruments  embedded in other  contracts)  be recorded in the balance  sheet as
either an asset or  liability  measured  at its fair  value.  SFAS No.  133 also
requires that changes in the derivative's fair value be recognized  currently in
earnings unless specific hedge accounting  criteria are met. Special  accounting
for qualifying  hedges allows a derivative's  gains and losses to offset related
results on the hedged item in the income statement,  and requires that a company
must formally  document,  designate and assess the effectiveness of transactions
that  receive  hedge  accounting.  SFAS No. 133, as modified by SFAS No. 137, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000,
and cannot be applied  retroactively.  The Company intends to implement SFAS No.
133 in its  consolidated  financial  statements  as of and for the three  months
ended March 31, 2001,  although it has not determined the effects,  if any, that
implementation  will have.  However,  SFAS No. 133 could increase  volatility in
earnings and other comprehensive income.

YEAR 2000 ISSUE

As many computer  systems,  software  programs and other equipment with embedded
chips or processors  (collectively,  "Information  Systems") use only two digits
rather than four to define the  applicable  year,  they may be unable to process
accurately  certain data,  during or after the year 2000. As a result,  business
and governmental  entities are at risk for possible  miscalculations  or systems
failures  causing  disruptions  in their business  operations.  This is commonly
known  as the  Year  2000  ("Y2K")  issue.  The  Y2K  issue  concerns  not  only
Information  Systems  used  solely  within a  company  but also  concerns  third
parties,  such as customers,  vendors and creditors,  using Information  Systems
that may  interact  with or  affect a  company's  operations.  The Y2K issue can
affect the Company's  flexible staffing and PEO operations,  including,  but not
limited to, payroll processing,  cash and invoicing transactions,  and financial
reporting and wire transfers from and to the Company's banking institutions.  In
1996, the Company  initiated a conversion of the primary  software being used in
its  flexible  staffing  and  PEO  operations,  as  well  as its  corporate-wide
accounting and billing software. Although this conversion was undertaken for the
primary purpose of achieving a common data structure for all significant Company
applications  as well as  enhancing  processing  capacity  and  efficiency,  the
Company

                                       31
<PAGE>

believes  that it also will result in software that  properly  interprets  dates
beyond the year 1999 ("Year 2000 Compliant").

The Company's State of Readiness:

The Company has implemented a Y2K readiness program with the objective of having
all of the Company's  significant  Information Systems functioning properly with
respect to Y2K before  January 1, 2000.  The first  component  of the  Company's
readiness  program  was to  identify  the  internal  Information  Systems of the
Company that are susceptible to system failures or processing errors as a result
of the Y2K issue. This effort is substantially complete. All operating divisions
have  identified  the  Information  Systems  that  may  require  remediation  or
replacement and have  established  priorities for repair or  replacement.  Those
Information Systems considered most critical to continuing  operations have been
given the highest  priority.  The second component of the Y2K readiness  program
involves the actual  remediation  and  replacement of Information  Systems.  The
Company is using both internal and external  resources to complete this process.
Information Systems ranked highest in priority, such as the corporate accounting
and billing  software,  have either been remediated or replaced or scheduled for
remediation  or  replacement.   The  remediation  and  replacement  of  internal
Information  Systems,  including  the final  testing and  certification  for Y2K
readiness, was recently completed. This does not include the Information Systems
utilized in franchise locations, which the Company anticipates will be Year 2000
Compliant  no later  than  September  30,  1999.  The  Company  has  retained  a
consulting  firm to perform a third party review of its software  programs which
will be  completed by September  30,  1999.  The Company  expects that the final
phase of  remediation  for its  desktop-related  hardware  will be  finished  by
October 31, 1999.

As to the  third  component  of the  Y2K  readiness  program,  the  Company  has
identified its significant  customers,  vendors and creditors that are believed,
at this time,  to be critical to business  operations  subsequent  to January 1,
2000, and steps are underway to reasonably  ascertain their respective stages of
Y2K readiness through the use of questionnaires,  interviews, on-site visits and
other available means.  The Company will take appropriate  action based on those
responses,  but there can be no assurance that the Information  Systems provided
by or utilized by other companies which affect the Company's  operations will be
timely  converted  in such a way as to allow them to  continue  normal  business
operations  or  furnish  products,  services  or  data  to the  Company  without
disruption.

                                       32
<PAGE>


Risks:

If needed  remediations and conversions to the Information  Systems are not made
on a timely  basis by the  Company or its  materially-significant  customers  or
vendors,  the Company  could be affected  by  business  disruption,  operational
problems,  financial  loss,  legal liability to third parties and similar risks,
any of which could have a material  adverse effect on the Company's  operations,
liquidity or financial condition.  Although not anticipated, the most reasonably
likely  worst case  scenario  in the event the Company or its key  customers  or
vendors  fail to resolve the Y2K issue would be an  inability on the part of the
Company to perform its core functions of payroll administration,  tax reporting,
unemployment and insurance claims filings,  billing and collections,  and health
benefits  administration.  Factors  which could cause  material  differences  in
results, many of which are outside the control of the Company,  include, but are
not  limited to, the  Company's  ability to  identify  and correct all  relevant
computer  software,  the accuracy of  representations  by  manufacturers  of the
Company's Information Systems that their products are Y2K compliant, the ability
of the  Company's  customers  and vendors to identify and resolve  their own Y2K
issues and the Company's ability to respond to unforeseen Y2K complications.

Contingency Plans:

While the Company continues to focus on solutions for Y2K issues, and expects to
be Y2K  compliant in a timely  manner,  the Company,  concurrently  with the Y2K
readiness  measures  described  above,  has established a Y2K project team whose
mission is to develop  contingency  plans  intended  to  mitigate  the  possible
disruption  in  business  operations  that may result  from the Y2K  issue.  The
Company's Y2K project team, consisting of personnel from management, information
systems/technology  and legal areas,  is in the process of developing such plans
and the  cost  estimates  to  implement  them.  Contingency  plans  may  include
purchasing or developing alternative software programs, the purchase of computer
hardware  and  peripheral  equipment,   and  other  appropriate  measures.  Once
developed,  contingency  plans and related cost  estimates  will be  continually
refined as  additional  information  becomes  available.  The Y2K  project  team
expects to conclude the development of these  contingency plans by September 30,
1999.

Y2K Costs:

The Company's management estimates that the total cost to the Company of its Y2K
compliance activities will not exceed $200,000, which is not considered material
to the Company's  business,  results of operations or financial  condition.  The
costs and time necessary to complete the Y2K modification and testing  processes
are based on management's best estimates,  which were derived utilizing numerous
assumptions  of future events  including the continued  availability  of certain
resources,  third party modification plans and other factors; however, there can
be no assurance  that these  estimates will be achieved and actual results could
differ from the estimates.

                                       33
<PAGE>


The  Company  has  capitalized  and will  continue  to  capitalize  the costs of
purchasing  and  developing  new Y2K  compliant  Information  Systems,  but will
expense the costs of the  modifications  to existing  hardware and software made
solely  for  purposes  of Y2K  compliance.  Most of the  cost of  purchasing  or
modifying  software in this regard had been  incurred as of March 31, 1999.  Any
remaining capitalized balance for Information Systems no longer utilized because
of replacement by Y2K compliant Information Systems will be expensed at the time
such hardware and software is replaced.  The Company's Y2K readiness  program is
an ongoing  process and the estimates of costs and completion  dates for various
components of the Y2K readiness program described above are subject to change.


FORWARD-LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS


Certain statements  contained in this  "Management's  Discussion and Analysis of
Financial  Condition and Results of Operations"  and elsewhere in this Form 10-Q
are forward  looking  statements,  including,  but not  limited  to,  statements
regarding  the  Company's  expectations  or  beliefs  concerning  the  Company's
strategy and objectives,  the Restructuring and related actions,  expected sales
and other  operating  results,  the  effect of changes  in the  Company's  gross
margin, the Company's liquidity,  anticipated capital spending, the availability
and cost of financing,  equity and working capital to meet the Company's  future
needs,  economic conditions in the Company's market areas, the potential for and
effect of future  acquisitions,  the Company's  ability to resolve the Year 2000
issue and the related costs and the tax-qualified status of the Company's 401(k)
and 413(c) plans. The words "aim," "believe," "expect,"  "anticipate," "intend,"
"estimate,"  "will,"  "should,"  "could" and other  expressions  which  indicate
future   events   and  rends   identify   forward   looking   statements.   Such
forward-looking  statements  involve  known and unknown risks and are also based
upon  assumptions  of  future  events,  which  may  not  prove  to be  accurate.
Therefore,  actual  results  may  differ  materially  from  any  future  results
expressed or implied in the forward-looking statements.  These known and unknown
risks  and  uncertainties,  include,  but are not  limited  to  changes  in U.S.
economic  conditions,  particularly in the manufacturing  sector;  the Company's
dependence on regulatory approvals;  its future cash flows, sales, gross margins
and operating  costs;  the effect of changing market and other conditions in the
staffing  industry;  the  ability of the  Company  to  continue  to grow;  legal
proceedings,  including those related to the actions of the Company's  temporary
or leased  employees;  the  availability  and cost of financing;  the ability to
maintain existing banking relationships;  the Company's ability to raise capital
in the  public  equity  markets;  the  availability  of capital  for  additional
acquisitions  and  the  Company's  ability  to  identify  suitable   acquisition
candidates  and to  successfully  negotiate and complete those  acquisitions  on
favorable  terms;  the  ability  to  successfully   integrate  past  and  future
acquisitions into the Company's  operations;  the recoverability of the recorded
value of  goodwill  and other  intangible  assets  arising  from past and future
acquisitions;  the general level of economic  activity and  unemployment  in the
Company's  markets,   specifically   within  the  construction,   manufacturing,
distribution and other light  industrial  trades;  increased price  competition;
changes in government regulations or interpretations thereof, particularly those
related  to  employment;  the  continued  availability  of  qualified  temporary
personnel; the financial condition of the Company's clients and their demand for
the  Company's  services  (which in turn may be  affected by the effects of, and
changes in, U.S. and  worldwide  economic  conditions);  collection  of accounts
receivable; the Company's ability to retain large clients; the Company's ability
to recruit, motivate and retain key management personnel; the costs of complying
with  government   regulations   (including   occupational   safety  and  health
provisions,

                                       34
<PAGE>

wage and hour and minimum wage laws and workers'  compensation  and unemployment
insurance  laws) and the ability of the Company to increase  fees charged to its
clients  to offset  increased  costs  relating  to these  laws and  regulations;
volatility in the workers' compensation,  liability and other insurance markets;
inclement  weather;  interruption,  impairment  or  loss of  data  integrity  or
malfunction of information processing systems; changes in government regulations
or interpretations  thereof,  particularly those related to PEOs,  including the
possible adoption by the IRS of an unfavorable  position as to the tax-qualified
status of employee  benefit plans  maintained by PEOs,  and other risks detailed
from time to time by the Company or in its press releases or in its filings with
the Securities and Exchange Commission.

In addition,  the market price of the  Company's  stock may from time to time be
significantly  volatile  as a result  of,  among  other  things,  the  Company's
operating  results,  the operating  results of other temporary  staffing and PEO
companies,  economic conditions, the proportion of the Company's stock available
for active trading and the performance of the stock market in general.

Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any  forward-looking
statement or statements  to reflect  events or  circumstances  after the date on
which such  statement  is made or to reflect  the  occurrence  of  unanticipated
events.  New  factors  emerge  from  time to time,  and it is not  possible  for
management to predict all of such factors. Further, management cannot assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.

Subsequent  written and oral  forward  looking  statements  attributable  to the
Company  or  persons  acting on its  behalf  are  expressly  qualified  in their
entirety by cautionary  statements in this  paragraph and elsewhere in this Form
10-Q, and in other reports filed by the Company with the Securities and Exchange
Commission,  including, but not limited to, the Company's Registration Statement
on Form S-3 (File No. 333-69125),  including the "Risk Factors" section thereof,
filed with the  Securities  and Exchange  Commission  on December 17, 1998,  and
declared effective on January 6, 1999.


                                       35
<PAGE>

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In seeking to minimize  the risks  and/or costs  associated  with its  borrowing
activities,  the Company  had entered  into a  derivative  financial  instrument
transaction  to maintain  the desired  level of exposure to the risk of interest
rate fluctuations and to minimize interest  expense.  This financial  instrument
was  terminated on June 30, 1999,  resulting in a gain that will be deferred and
amortized  into income over the life of the  financial  transactions  previously
being  hedged  by that  instrument  - See Note 4 to the  Company's  Consolidated
Financial Statements for additional information.  This hedge did not result in a
material  change in the  Company's  recorded  interest  expense  while it was in
effect.

Accordingly,  there has been no material  change in the Company's  assessment of
its  sensitivity  to  market  risk as of  June  30,  1999,  as  compared  to the
information  included  in  Part  II,  Item  7A,  "Quantitative  and  Qualitative
Disclosures  About Market Risk",  of the Company's  Form 10-K for the year ended
December 31, 1998, as filed with the Securities and Exchange Commission on March
31, 1999.

As part of recent changes made to the Revolving  Credit  Facility (See Note 4 to
the Company's Consolidated  Financial  Statements),  subsequent to June 30, 1999
the lenders  syndicate did not allow the Company to choose Euro rate borrowings,
which  resulted in an effective  increase in the Company's  borrowing rate under
that facility of approximately 0.8% per annum.


                                       36
<PAGE>

PART II - OTHER INFORMATION

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

As discussed in Note 4 to the Company's Consolidated  Financial Statements,  the
Company  was not in  compliance  with the  financial  covenants  included in its
Revolving  Credit Facility as of June 30, 1999,  although the lenders  syndicate
has  temporarily  (through  August 31,  1999)  waived  such  non-compliance.  In
addition,  the Liquidity  Facility  required by the terms of the  Securitization
Facility  expired  on July  27,  1999,  although  it has also  been  temporarily
extended  through  September  27,  1999.  The  Company  does not expect to be in
compliance  with those  covenants  in the  foreseeable  future and is  currently
negotiating  with the lenders  syndicate  to revise the  covenants to enable the
Company's compliance although this will also shorten the facility's  termination
date  to  December  31,  1999.  Although  the  Company  anticipates   successful
completion of these  negotiations,  there can be no assurance that the covenants
will be revised or the  Liquidity  Facility  will be extended.  In the event the
covenants are not revised,  the Liquidity  Facility is not extended,  or waivers
are  required,  but are not  granted,  the Company  could  experience  liquidity
problems  depending on the ability and  willingness of the lenders  syndicate to
continue lending to the Company, and the availability and cost of financing from
other sources. The Company is identifying and evaluating  alternative  financing
sources.  Accordingly,  the  Revolving  Credit  Facility has been  classified as
current on the Company's Consolidated Balance Sheet as of June 30, 1999.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The annual meeting of the  shareholders  of the Company (the "Meeting") was held
on May 14, 1999. The Company  solicited proxies for the Meeting and there was no
solicitation  in  opposition  to  management's  nominees for  directors.  At the
Meeting, the shareholders voted:

(1a) To elect director Jay D. Seid for a three-year term:

              Votes For                              7,274,847
              Votes Against                            362,775
              Votes Abstained                             --
              Votes Withheld                              --

(1b) To elect director Richard J. Williams for a three-year term:

              Votes For                              7,274,297
              Votes Against                            363,325
              Votes Abstained                             --
              Votes Withheld                              --

The names of the directors whose term of office  continued after the Meeting are
Paul M. Burrell, Scott R. Francis, Robert A. Lefcort, Dr. Lawrence Chimerine and
David S. Hershberg.

        (2)   To  ratify  the  appointment  of  Deloitte  &  Touche  LLP  as the
              Company's independent auditors for the fiscal year ending December
              31, 1999:

              Votes For                              7,625,757
              Votes Against                              3,400
              Votes Abstained                            8,465
              Votes Withheld                                 0


        (3)   To approve an amendment to the Company's Stock Option Plan, which
              amendment increases the total number of shares of common stock
              reserved for issuance to 2,000,000.

              Votes For                              5,347,229
              Votes Against                            634,592
              Votes Abstained                            6,100
              Votes Withheld                         1,649,701


                                       37
<PAGE>

ITEM 5 - OTHER INFORMATION

Effective  August 2, 1999, J.G.  (Pete) Ball, a principal of Crossroads  Capital
Partners,  LLC,  agreed to serve in the newly created  position of interim chief
operating officer of the Company and President of the Tandem division during the
restructuring process. Mr. Ball will work with the Board of Directors and senior
management  to  ensure  the  Company's  new  business  plan,  as a result of the
restructuring,  is  implemented.  See  Note  5  to  the  Company's  Consolidated
Financial Statements.

Effective  August 5, 1999,  Ronald Blain resigned his position as Tandem's chief
operating  officer.  The Company has contracted with an executive search firm to
identify a new President and CEO of Tandem.

Effective  August 4, 1999,  Carolyn  Noonan joined the Company as Controller and
Chief  Accounting  Officer,  and Robert  Tomlinson,  formerly  Chief  Accounting
Officer, was appointed as the Company's Treasurer.



                                       38
<PAGE>

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

NUMBER   DESCRIPTION

3.1      Amended and Restated Articles of Incorporation of the Company (1)
3.2      Amended and Restated Bylaws of the Company (2)
4.3      Shareholder Protection Rights Agreement (2)
4.6      Warrant Dated February 21, 1997 Issued to  Triumph-Connecticut  Limited
         Partnership (3)
4.7      Warrant Dated  February 21, 1997 Issued to Bachow  Investment  Partners
         III, L.P. (3)
4.8      Warrant  Dated  February 21, 1997 Issued to State Street bank and Trust
         Company of Connecticut, N.A., as Escrow Agent (3)
10.16    Employment Agreement between Carolyn Noonan and the Company dated as of
         July 22, 1999.
10.19    Third   Amended  and  Restated   Credit   Agreement   among   OutSource
         International,  Inc.,  the banks from time to time  parties  hereto and
         BankBoston,  N.A., successor by merger to Bank of Boston,  Connecticut,
         as agent - Revolving Credit Facility dated as of July 27, 1998. (4)
10.34    Receivables  Purchase  and Sale  Agreement  dated  July 27,  1998 among
         OutSource  International,  Inc., OutSource  Franchising,  Inc., Capital
         Staffing Fund, Inc., Synadyne I, Inc., Synadyne II, Inc., Synadyne III,
         Inc., Synadyne IV, Inc., Synadyne V, Inc., and OutSource  International
         of  America,  Inc.,  each  as  an  originator,  and  OutSource  Funding
         Corporation,  as the buyer, and OutSource  International,  Inc., as the
         servicer. (4)
10.35    Receivables  Purchase  Agreement  dated July 27,  1998 among  OutSource
         Funding   Corporation,   as  the  seller,   and  EagleFunding   Capital
         Corporation, as the purchaser, and BancBoston Securities,  Inc., as the
         deal agent and OutSource International, Inc., as the servicer (4)
10.36    Intercreditor  Agreement  dated July 27, 1998 by and among  BankBoston,
         N.A.,  as  lender  agent;  OutSource  Funding  Corporation,   OutSource
         International,  Inc.,  OutSource  Franchising,  Inc.,  Capital Staffing
         Fund, Inc.,  Synadyne I, Inc.,  Synadyne II, Inc.,  Synadyne III, Inc.,
         Synadyne IV,  Inc.,  Synadyne V, Inc. and  OutSource  International  of
         America, Inc., as originators; OutSource International, in its separate
         capacity as servicer;  EagleFunding Capital Corporation,  as purchaser;
         and BancBoston  Securities  Inc.,  individually and as purchaser agent.
         (4)
10.50    First  Amendment to Third Amended and Restated  Credit  Agreement among
         OutSource  International,  Inc.,  each of the banks party to the Credit
         Agreement and  BankBoston,  N.A.,  as agent for the banks,  dated as of
         February 22, 1999. (5)
10.51    Temporary  Waiver and Second  Amendment  to Third  Amended and Restated
         Credit Agreement among OutSource International, Inc., its subsidiaries,
         each of the banks party to the Credit  Agreement and BankBoston,  N.A.,
         as agent for the banks, dated as of June 30, 1999.
10.53    Third Temporary  Waiver to Third Amended and Restated Credit  Agreement
         among  OutSource  International,  Inc., its  subsidiaries,  each of the
         banks party to the Credit Agreement and BankBoston,  N.A., as agent for
         the banks, dated as of August 5, 1999.
10.90    Engagement Letter between OutSource International, Inc. and
         Crossroads  Capital  Partners  LLC,  dated as of May 7,  1999 and three
         addenda dated June 18, July 1 and August 2, 1999.
10.91    Finder Services  Agreement  between OutSource  International,  Inc. and
         Crossroads  Capital  Partners LLC, dated as of June 30, 1999.
27       Financial Data Schedule

--------------------------------------------------------------------------------
(1)      Incorporated  by reference  to the  Exhibits to Amendment  No. 3 to the
         Company's  Registration  Statement on Form S-1 (Registration  Statement
         No. 333-33443) as filed with the Securities and Exchange  Commission on
         October 21, 1997.
(2)      Incorporated  by reference  to the  Exhibits to Amendment  No. 1 to the
         Company's  Registration  Statement on Form S-1 (Registration  Statement
         No. 333-33443) as filed with the Securities and Exchange  Commission on
         September 23, 1997.
(3)      Incorporated by reference to the Exhibits to the Company's Registration
         Statement on Form S-1  (Registration  Statement No. 333-33443) as filed
         with the Securities and Exchange Commission on August 12, 1997.
(4)      Incorporated  by reference to the exhibits to the  Company's  Form 10-Q
         for the  quarterly  period  ended  June 30,  1998,  as  filed  with the
         Securities and Exchange Commission on August 14, 1998.
(5)      Incorporated  by reference to the exhibits to the  Company's  Form 10-K
         for the year ended  December 31, 1998, as filed with the Securities and
         Exchange Commission on March 31, 1999.
--------------------------------------------------------------------------------

(b) Reports on Form 8 - K:

 No reports were filed on Form 8-K during the quarter ended June 30, 1999.



                                       39
<PAGE>

                                   SIGNATURES


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

<TABLE>
<CAPTION>

                                               OUTSOURCE INTERNATIONAL, INC.


<S>                                             <C>
Date: August 16, 1999                           By:   /s/  Paul M. Burrell
                                                      ---------------------------------------
                                                      Paul M. Burrell
                                                      President, Chief Executive Officer and
                                                      Chairman of the Board of Directors


Date: August 16, 1999                           By:   /s/  Scott R. Francis
                                                      ---------------------------------------
                                                      Scott R. Francis
                                                      Chief Financial Officer
                                                      (Principal Financial Officer)


Date: August 16, 1999                           By:   /s/  Robert E. Tomlinson
                                                      ---------------------------------------
                                                      Robert E. Tomlinson
                                                      Treasurer


</TABLE>

                                       40
<PAGE>


        EXHIBIT INDEX


Exhibit No.                     Description


10.16    Employment Agreement between Carolyn Noonan and the Company dated as of
         July 22, 1999.
10.51    Temporary  Waiver and Second  Amendment  to Third  Amended and Restated
         Credit Agreement among OutSource International, Inc., its subsidiaries,
         each of the banks party to the Credit  Agreement and BankBoston,  N.A.,
         as agent for the banks, dated as of June 30, 1999.
10.53    Third Temporary  Waiver to Third Amended and Restated Credit  Agreement
         among  OutSource  International,  Inc., its  subsidiaries,  each of the
         banks party to the Credit Agreement and BankBoston,  N.A., as agent for
         the banks, dated as of August 5, 1999.
10.90    Engagement Letter between OutSource International,  Inc. and Crossroads
         Capital  Partners LLC,  dated as of May 7, 1999 and three addenda dated
         June 18, July 1 and August 2, 1999.
10.91    Finder Services  Agreement  between OutSource  International,  Inc. and
         Crossroads Capital Partners LLC, dated as of June 30, 1999.
27       Financial Data Schedule