<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                  ------------
                                   FORM 10-Q/A

(Mark One)

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

         For the quarterly period ended October 1, 2000

                                       OR

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

For the transition period from ___________________ to ______________________

                        Commission file number 000-23147

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

          Florida                                             65-0675628
-------------------------------                           -------------------
(State or Other Jurisdiction of                            (I.R.S. Employer
Incorporation or Organization)                            Identification No.)

              1690 SOUTH CONGRESS AVE., DELRAY BEACH, FLORIDA 33445
              -----------------------------------------------------
               (Address of Principal Executive Offices, Zip Code)

Registrant's Telephone Number, Including Area Code:   (561) 454-3500

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

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

         Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] 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 November 10, 2000
                  -----                       --------------------------------
Common Stock, par value $.001 per share                  8,687,488

<PAGE>   2
                          OUTSOURCE INTERNATIONAL, INC.

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>

                                                                                                Page
                                                                                                ----
<S>                                                                                              <C>
                         PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

  Unaudited Condensed Consolidated Balance Sheets as of October 1, 2000
  and April 2, 2000...........................................................................    2

  Unaudited Condensed Consolidated Statements of Operations for the thirteen weeks
  ended October 1, 2000 and three months ended September 30, 1999.............................    3

  Unaudited Condensed Consolidated Statements of Operations for the twenty six
  weeks ended October 1, 2000 and six months ended September 30, 1999.........................    4

  Unaudited Condensed Consolidated Statements of Cash Flows for the twenty six
  weeks ended October 1, 2000 and six months ended September 30, 1999.........................    5

  Notes to Unaudited Condensed Consolidated Financial Statements..............................    6

Item 2 - Management's Discussion and Analysis of Financial
  Condition and Results of Operations.........................................................   17

Item 3 - Quantitative and Qualitative Disclosures about Market Risk...........................   35


                               PART II - OTHER INFORMATION

Item 1 - Legal Proceedings....................................................................   36

Item 2 - Changes in Securities and Use of Proceeds............................................   36

Item 3 - Defaults Upon Senior Securities......................................................   36

Item 6 - Exhibits and Reports on Form 8-K.....................................................   37

Signatures....................................................................................   40

</TABLE>




                                       1
<PAGE>   3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS

                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
                 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                             October 1, 2000     April 2, 2000
                                                                             ---------------     -------------
<S>                                                                            <C>                 <C>
ASSETS

Current Assets:
      Cash                                                                     $   2,030           $   1,546
      Trade accounts receivable, net of allowance
           for doubtful accounts of $1,498 and $1,563                             36,837              42,118
      Funding advances to franchises                                                 696                 206
      Assets held for disposition                                                    215               2,409
      Income tax receivable and other current assets                               6,653               5,043
                                                                               ---------           ---------

           Total current assets                                                   46,431              51,322

Property and equipment, net                                                        7,424               9,154
Goodwill, net                                                                     21,404              21,824
Territory rights, net                                                             18,343              18,642
Customer list, net                                                                 3,780               4,389
Other intangible assets, net                                                         789                 928
Other assets                                                                       6,013               2,310
                                                                               ---------           ---------

           Total assets                                                        $ 104,184           $ 108,569
                                                                               =========           =========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
      Accounts payable                                                         $   7,219           $   8,887
      Accrued expenses:
           Payroll                                                                 4,767              10,518
           Payroll taxes                                                           1,912               4,139
           Workers' compensation and insurance                                     5,285               5,210
           Other                                                                   3,605               4,499
      Accrued restructuring charges                                                1,358               2,255
      Other current liabilities                                                      982                 506
      Current maturities of long-term debt to related parties                         --               1,195
      Current maturities of long-term debt                                         1,690               7,635
      Revolving credit facility                                                       --              50,746
      Current maturities of term loans                                               500                  --
                                                                               ---------           ---------

           Total current liabilities                                              27,318              95,590

Non-Current Liabilities:
      Senior facilities, net of current maturities                                15,321                  --
      Term loans, net of current maturities                                       25,425                  --
      Long term debt, net of current maturities                                    1,204                  --
      Other long-term debt, less current maturities                                6,636               1,934
                                                                               ---------           ---------

          Total liabilities                                                       75,904              97,524
                                                                               ---------           ---------

Commitments and Contingencies (Notes 5, 6 and 7)

Shareholders' Equity:
      Preferred stock, $.001 par value: 10,000,000 shares authorized,
           no shares issued and outstanding                                           --                  --
      Common stock, $.001 par value: 100,000,000 shares authorized,
           8,687,488 shares issued and outstanding                                     9                   9
      Additional paid-in-capital                                                  54,170              53,546
      Accumulated deficit                                                        (25,899)            (42,510)
                                                                               ---------           ---------

           Total shareholders' equity                                             28,280              11,045
                                                                               ---------           ---------

           Total liabilities and shareholders' equity                          $ 104,184           $ 108,569
                                                                               =========           =========


</TABLE>

                See accompanying notes to the unaudited condensed
                       consolidated financial statements




                                       2
<PAGE>   4


                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             FOR THE THIRTEEN WEEKS ENDED OCTOBER 1, 2000 AND THREE
                        MONTHS ENDED SEPTEMBER 30, 1999

                  (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                                                           October 1, 2000       September 30, 1999
                                                                           ---------------       ------------------
<S>                                                                          <C>                    <C>
Net revenues                                                                 $     78,882           $    159,124
Cost of revenues                                                                   62,590                138,352
                                                                             ------------           ------------

Gross profit                                                                       16,292                 20,772
                                                                             ------------           ------------

Selling, general and administrative expenses:
      Amortization of intangible assets                                               704                  1,013
      Other selling, general and administrative expenses                           12,550                 24,211
                                                                             ------------           ------------

      Total selling, general and administrative expenses                           13,254                 25,224
                                                                             ------------           ------------

Restructuring and impairment charges:
      Restructuring charges                                                           940                  5,104
      Impairment of goodwill and other long-lived assets                               --                  2,450
                                                                             ------------           ------------

      Total restructuring and impairment charges                                      940                  7,554
                                                                             ------------           ------------

Operating income (loss)                                                             2,098                (12,006)
                                                                             ------------           ------------

Other expense (income):
      Interest expense (net)                                                        2,456                  1,852
      Gain on the disposition of assets and other income (net)                       (144)                  (541)
                                                                             ------------           ------------

      Total other expense (income)                                                  2,312                  1,311
                                                                             ------------           ------------

Loss before benefit for income taxes and extraordinary item                          (214)               (13,317)

Income tax benefit                                                                 (1,283)                (4,998)
                                                                             ------------           ------------

Income (loss) before extraordinary item                                             1,069                 (8,319)

Extraordinary item - gain on refinancing of senior debt facilities,
      net of provision for income tax of $5,304                                     8,456                     --
                                                                             ------------           ------------

Net income (loss)                                                            $      9,525           $     (8,319)
                                                                             ============           ============

Weighted average common shares outstanding:

      Basic                                                                     8,687,488              8,657,913
                                                                             ============           ============
      Diluted                                                                  10,292,236              8,657,913
                                                                             ============           ============

Earnings per share:
  Basic
      Income (loss) before extraordinary item                                $       0.13           $      (0.96)
      Extraordinary item, net of provision for income tax                            0.97                     --
                                                                             ------------           ------------
      Net income (loss)                                                      $       1.10           $      (0.96)
                                                                             ============           ============

  Diluted
      Income (loss) before extraordinary item                                $       0.11           $      (0.96)
      Extraordinary item, net of provision for income tax                            0.82                     --
                                                                             ------------           ------------
      Net income (loss)                                                      $       0.93           $      (0.96)
                                                                             ============           ============

</TABLE>


                     See accompanying notes to the unaudited
                   condensed consolidated financial statements




                                       3
<PAGE>   5

                 OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES

           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             FOR THE TWENTY SIX WEEKS ENDED OCTOBER 1, 2000 AND SIX
                        MONTHS ENDED SEPTEMBER 30, 1999

                  (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                                                            October 1, 2000      September 30, 1999
                                                                            ---------------      ------------------
<S>                                                                          <C>                    <C>
Net revenues                                                                 $    160,500           $    302,578
Cost of revenues                                                                  128,021                261,461
                                                                             ------------           ------------

Gross profit                                                                       32,479                 41,117
                                                                             ------------           ------------

Selling, general and administrative expenses:
      Amortization of intangible assets                                             1,438                  1,947
      Other selling, general and administrative expenses                           26,539                 44,126
                                                                             ------------           ------------

      Total selling, general and administrative expenses                           27,977                 46,073
                                                                             ------------           ------------

Restructuring and impairment charges:
      Restructuring charges                                                         1,818                  5,104
      Impairment of goodwill and other long-lived assets                               --                  2,450
                                                                             ------------           ------------

      Total restructuring and impairment charges                                    1,818                  7,554
                                                                             ------------           ------------

Operating income (loss)                                                             2,684                (12,510)
                                                                             ------------           ------------

Other expense (income):
      Interest expense (net)                                                        4,369                  3,554
      Gain on disposition of assets and other income (net)                           (867)                  (562)
                                                                             ------------           ------------

      Total other expense (income)                                                  3,502                  2,992
                                                                             ------------           ------------

Loss before benefit for income taxes and extraordinary item                          (818)               (15,502)
Income tax benefit                                                                 (8,973)                (5,934)
                                                                             ------------           ------------

Income (loss) before extraordinary item                                             8,155                 (9,568)

Extraordinary item - gain on refinancing of senior debt facilities,
      net of provision for income tax of $5,304                                     8,456                     --
                                                                             ------------           ------------

Net income (loss)                                                            $     16,611           $     (9,568)
                                                                             ============           ============

Weighted average common shares outstanding:

      Basic                                                                     8,681,172              8,657,913
                                                                             ============           ============
      Diluted                                                                  10,086,221              8,657,913
                                                                             ============           ============

Earnings per share:
  Basic
      Income (loss) before extraordinary item                                $       0.94           $      (1.11)
      Extraordinary item, net of provision for income tax                            0.97                     --
                                                                             ------------           ------------
      Net income (loss)                                                      $       1.91           $      (1.11)
                                                                             ============           ============

  Diluted
      Income (loss) before extraordinary item                                $       0.81           $      (1.11)
      Extraordinary item, net of provision for income tax                            0.84                     --
                                                                             ------------           ------------
      Net income (loss)                                                      $       1.65           $      (1.11)
                                                                             ============           ============
</TABLE>

                     See accompanying notes to the unaudited
                  condensed consolidated financial statements



                                       4
<PAGE>   6






                  OUTSOURCE INTERNATIONAL INC. AND SUBSIDIARIES
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE TWENTY SIX WEEKS ENDED OCTOBER 1, 2000
                    AND SIX MONTHS ENDED SEPTEMBER 30, 1999
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                    October 1, 2000   September 30, 1999
                                                                                    ---------------   ------------------
<S>                                                                                     <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                                       $ 16,611           $ (9,568)
      Adjustments to reconcile net income (loss) to net cash
        (used in) provided by operating activities:
           Depreciation and amortization                                                   2,784              3,741
           Impairment of goodwill                                                             --              2,450
           Write-down and losses from sale of assets held for disposition                    579              2,547
           Extraordinary gain on refinancing, net of income tax                           (8,456)                --
           Deferred income taxes                                                          (9,530)            (4,940)
           Notes received from franchises                                                     --               (107)
           Gain on the sale of the Company's clerical operations                              --               (523)
           Gain on the sale of the Company's PEO operations                                 (684)                --
           Loss on disposal of assets, net                                                   153                 50
                                                                                        --------           --------

                                                                                           1,457             (6,350)
      Changes in assets and liabilities (excluding effects of acquisitions and
        dispositions):
           (Increase) decrease in:
                Trade accounts receivable                                                  5,839              3,966
                Prepaid expenses and other current assets                                    363               (975)
                Other assets                                                                 (62)               756
           Increase (decrease) in:
                Accounts payable                                                            (100)            (1,004)
                Accrued expenses:
                   Payroll                                                                (5,778)             5,378
                   Payroll taxes                                                          (2,227)               818
                   Workers' compensation and insurance                                         6             (1,393)
                   Debt service and other accrued expenses                                (1,846)               934
                Accrued restructuring charges                                               (937)             1,227
                Other current liabilities                                                   (364)               479
                                                                                        --------           --------

      Net cash (used in) provided by operating activities                                 (3,649)             3,836
                                                                                        --------           --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from asset sales as part of the Restructuring and related matters                   880              1,965
Proceeds from the sale of the Company's PEO operations                                     3,314                 --
Funding repayments (advances) from franchises, net                                          (490)               229
Purchases of property and equipment                                                         (301)              (558)
Proceeds from sale of property and equipment                                                  --              1,600
                                                                                        --------           --------

      Net cash provided by investing activities                                            3,403              3,236
                                                                                        --------           --------

CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in excess of outstanding checks over bank balance,
  included in accounts payable                                                            (2,021)            (2,078)
Net proceeds (repayment) of lines of credit and revolving credit facilities                3,922             (2,913)
Proceeds from interest collar termination                                                     --                250
Related party debt repayments                                                                 --               (145)
Repayment of other long-term debt                                                         (1,171)            (2,378)
                                                                                        --------           --------

      Net cash provided by (used in) financing activities                                    730             (7,264)
                                                                                        --------           --------

Net increase (decrease) in cash                                                              484               (192)
Cash, beginning of period                                                                  1,546              1,418
                                                                                        --------           --------

Cash, end of period                                                                     $  2,030           $  1,226
                                                                                        ========           ========

SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid                                                                           $  4,970           $  2,432
                                                                                        ========           ========
</TABLE>

                     See accompanying notes to the unaudited
                  condensed consolidated financial statements




                                       5
<PAGE>   7
                          OUTSOURCE INTERNATIONAL, INC.
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. INTERIM FINANCIAL STATEMENTS

The interim unaudited condensed consolidated financial statements and the
related information in these notes as of October 1, 2000 and for the thirteen
week period ("Q2 2001") and twenty six week period ("YTD 2001") ended October 1,
2000 and the three month period ("Q3 1999") and six month period ("YTD 1999")
ended September 30, 1999 have been prepared on the same basis as the audited
consolidated financial statements and, in the opinion of management, reflect all
adjustments (consisting only of normal and recurring 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. Certain reclassifications have been made to the
presentation of the financial position and results of operations for the three
months and six months ended September 30, 1999 to conform to current
presentation. These reclassifications had no effect on previously reported
results of operations or retained earnings.

The Company filed a Form 8-K with the Securities and Exchange Commission ("SEC")
on October 19, 1999, indicating, among other things, its change for financial
reporting purposes, effective January 1, 2000, from a fiscal year ended December
31 to a fiscal year ending the 52 or 53 week period ending the Sunday closest to
March 31. The interim unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q; therefore they
do not include all information and footnotes normally included in the annual
consolidated financial statements. These interim financial statements should be
read in conjunction with the audited financial statements for the year ended
December 31, 1999, including, but not limited to, those contained in the
Company's Registration Statement on Form S-1 (File No. 333-48926) filed with the
SEC on October 30, 2000 and declared effective January 31, 2001, the Company's
Form 10-K filed with the SEC on April 14, 2000, the financial statements in the
Company's Form 10-Q for the transition period ended April 2, 2000 ("Q1 2000")
filed with the SEC on May 17, 2000, and the financial statements in the
Company's Form 10-Q/A for the quarterly period ended July 2, 2000 ("Q1 2001")
filed with the SEC on September 1, 2000.

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 April 2, 2001. Management
does not believe that the Company is a party to any transactions involving
derivatives as defined by SFAS No. 133. SFAS No. 133 could increase volatility
in earnings and other comprehensive income if the Company enters into any such
transactions in the future.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"), which among other guidance,
clarifies certain conditions to be met in order to recognize revenue. In October
2000, the staff deferred the implementation date of SAB 101 until no later than
the fourth quarter of fiscal years beginning after December 31, 1999. The
Company will adopt SAB 101 in fiscal 2001; however, the Company believes that
such adoption will not impact the Company's Consolidated Financial Statements.

NOTE 2: FUTURE LIQUIDITY

Effective August 15, 2000, the Company entered into a three-year agreement with
a syndicate of lenders led by





                                       6
<PAGE>   8
                          OUTSOURCE INTERNATIONAL, INC.
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2: FUTURE LIQUIDITY (CONTINUED)

Ableco Finance LLC, as agent (the "Lenders"), which replaced the Company's
previous senior credit facility (the ("Fleet Facility") with a $33.4 million
revolving credit facility (the "Ableco Facility") and two term loans of $17.6
million and $9.0 million, respectively. In connection with the repayment of the
Fleet Facility, the Company issued a four-year, $5.3 million subordinated term
note to the lenders of the Fleet Facility. Simultaneously with the closing of
the Ableco Facility, the Company cured the defaults under certain of its
outstanding subordinated acquisition notes payable. These notes were amended to
provide for a five year term, interest only for three years and then two years
of equal monthly payments of principal and interest, at the end of which those
notes will be fully paid and then retired (see Note 5).

NOTE 3: RESTRUCTURING, SALE OF OPERATIONS AND ASSETS HELD FOR DISPOSITION

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

(i) the sale of Office Ours, the Company's clerical staffing division, effective
August 30, 1999. Revenues of Office Ours, for the three months and six months
ended September 30, 1999, were $1.3 million and $3.3 million, respectively, and
the loss before taxes for these operations, on a basis consistent with the
segment information presented in Note 9, was approximately $0.1 million and $0.1
million for those same periods.

(ii) the engagement of an investment banking firm to assist in the evaluation of
strategic options, including the possible sale, of Synadyne, the Company's PEO
division. Effective April 8, 2000, the Company sold the operations of Synadyne
for net proceeds at closing of $3.3 million. In addition, if the Company meets
certain performance criteria for the one-year period subsequent to the sale, it
will receive additional proceeds of $1.25 million. In connection with the sale
of its PEO operations, the Company recorded a pre-tax non-operating gain of $0.7
million in its results of operations for the quarter ended July 2, 2000.
Revenues of Synadyne were $59.3 million during Q3 1999, and $114.4 million and
$0.1 million during YTD 1999 and YTD 2001, respectively. On a basis consistent
with the segment information presented in Note 9, the Company reported net loss
before taxes for the PEO operations of $0.2 million during YTD 2001 and net
income before taxes of $0.8 million during YTD 1999. The Company's net income
before taxes for these operations during Q3 1999 was $0.3 million.

(iii) a reduction of the Company's flexible industrial staffing and support
operations (the "Restructuring") consisting primarily of: the sale, franchise,
closure or consolidation of 47 of the 117 Tandem branch offices existing as of
June 30, 1999; an immediate reduction of the Tandem and corporate headquarters
employee workforce by 110 employees, approximately 11% of the Company's
workforce; and an additional reduction of 59 employees through the second fiscal
quarter of 2001. As of October 31, 2000, 48 branch offices have been eliminated
in connection with our restructuring plan, 41 of which had been sold,
franchised, closed, or consolidated as of October 1, 2000. During Q2 2001 one
office was removed from the held for disposition classification. The Company
also identified two additional offices that would be closed as a result of its
ongoing restructuring activities and the Company recorded the related assets as
held for disposition at that time. These offices were subsequently closed in
October 2000, and when it became apparent to management that these assets would
be abandoned, the Company recorded the write-down of the related assets as
restructuring charges in Q3 2001. In addition, the Company sold the remaining
five offices held for disposition on October 29, 2000. The 48 offices sold,
franchised, closed, or consolidated were not expected to be adequately
profitable or were inconsistent with the Company's operating strategy of
clustering offices within specific geographic regions. In addition, during Q1
2001, when it became apparent that certain employees in offices sold and
franchised to third parties would continue employment with such buyers, the
expected reduction in staff was modified from 59 employees to 32 employees.
Subsequently, in Q2 2001, in connection with the Restructuring, the Company
reduced its workforce by an additional 16 employees.





                                       7
<PAGE>   9
                          OUTSOURCE INTERNATIONAL, INC.
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3: RESTRUCTURING, SALE OF OPERATIONS AND ASSETS HELD FOR DISPOSITION
        (CONTINUED)


     The restructuring charge accrual and its utilization are as follows:

<TABLE>
<CAPTION>

                                                                                       Fiscal Year 2001
                                                                      -----------------------------------------------------
                                                                         Charges to
                                                                        (Reversals Of)
                                                                          Operations             Utilization     Balance At
                                                Original Balance At   -------------------    ------------------  ----------
(Amounts in Thousands)                           Charge    4/2/00     Q1 2001     Q2 2001     Cash     Non-cash    10/1/00
---------------------                           -------    -------    -------     -------    -------   --------    -------
<S>                                             <C>        <C>        <C>         <C>        <C>        <C>        <C>
Employee severance and
    other termination benefits                  $ 4,040    $ 2,139    $   (89)    $   152    $   939    $    --    $ 1,263

Professional fees                                 1,205         34        369         401        764         --         40
Lease termination and write-down of
    leasehold improvements at closed offices        400         49         (2)         36         28         --         55

Other restructuring charges                         146         33        154         218        405         --         --
                                                -------    -------    -------     -------    -------    -------    -------

Accrued restructuring charges                     5,791      2,255        432         807      2,136         --      1,358

Write-down to fair value/loss on sale
    of assets identified for disposition          5,429         --        446         133         --        579         --
                                                -------    -------    -------     -------    -------    -------    -------
Total restructuring and asset
    impairment activity                         $11,220    $ 2,255    $   878     $   940    $ 2,136    $   579    $ 1,358
                                                =======    =======    =======     =======    =======    =======    =======

</TABLE>

SEVERANCE AND OTHER RESTRUCTURING CHARGES

The original $11.2 million restructuring charge (the "Restructuring Charge")
included $4.0 million for severance and other termination benefits, $1.2 million
for professional fees, and $0.6 million in lease termination and other charges.
Severance and other termination benefits were decreased by $0.2 million and $0.1
million during Q1 2000 and Q1 2001, respectively, to reflect the fact that
certain employees of offices sold and franchised to third parties would continue
employment with such buyers or franchisees and would not be paid the severance
amounts that had been accrued. The Company recorded an additional $0.2 million
in severance costs in Q2 2001 due to a reduction of headcount by 16 employees
during the period whose severance payments were not accrued as part of the
Company's original Restructuring Charge. The remaining liability consisted of
$1.3 million for severance and other termination benefits as of October 1, 2000
for ten executive management employees who have been terminated during the
period of August 1999 through August 2000, and will be paid over a period
ranging from one week to 18 months from the balance sheet date. As of December
31, 1999, April 2, 2000 and October 1, 2000, the Company had terminated 107, 110
and 142 employees, respectively, in conjunction with its restructuring
activities.

The Company recorded professional fees of $0.4 million and $0.8 million as
restructuring costs incurred during Q2 2001 and YTD 2001, respectively. These
professional fees were comprised primarily of amounts paid to Crossroads LLC, a
consulting firm based in Newport Beach, California ("Crossroads"), for its
services related to the Restructuring.

The Company utilized $0.2 million and $0.3 million of the Restructuring Charge
during Q1 2001 and Q2 2001, respectively, for the costs of terminating real
estate leases as well as for writing down the carrying value of leasehold
improvements and other assets not usable in other Company operations. The
Company completed its restructuring activities as of October 31, 2000.

ASSETS HELD FOR DISPOSITION

The Restructuring Charge included a $5.4 million write-down of assets, recorded
in the Company's results of operations when these assets were classified as held
for disposition, to their estimated net realizable value based



                                       8
<PAGE>   10
                          OUTSOURCE INTERNATIONAL, INC.
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3: RESTRUCTURING, SALE OF OPERATIONS AND ASSETS HELD FOR DISPOSITION
        (CONTINUED)

on either the actual sales prices negotiated for assets sold as of December 31,
1999, or management's estimate of the ultimate sales prices that would be
negotiated for these assets that were sold after that date. Management's
estimate of the actual sales prices of assets held for disposition as of
December 31, 1999 was based on letters of intent from prospective purchasers of
these assets. Subsequent to December 31, 1999, as actual sales prices of these
assets were negotiated, the charge was increased by $0.1 million in Q1 2000, and
subsequently increased by $0.4 million in Q1 2001. Based on the negotiations of
the actual sales prices of certain assets sold subsequent to October 1, 2000,
the Company recorded an additional charge of $0.1 million during Q2 2001.

During Q1 2001, the Company (i) sold one staffing office and closed another, in
the state of Minnesota, effective April 10, 2000, for cash proceeds of $60,000,
(ii) franchised one of its staffing offices in the state of Ohio, effective
April 10, 2000, for cash proceeds of $20,000, and (iii) effective June 26, 2000,
sold its operations in the states of New Jersey and Pennsylvania, comprising six
staffing offices and two "vendor on premises" locations, for $1.3 million
(comprised of cash proceeds of $0.8 million and two promissory notes totaling
$0.5 million). In connection with the sale of its staffing offices in New Jersey
and Pennsylvania, the Company recorded a $0.4 million loss on the sale, in
addition to the original $2.1 million write-down of these assets to their
estimated net realizable value upon their classification as assets held for
disposition.

No assets were sold in Q2 2001.

Effective October 29, 2000, the Company sold its operations in the states of New
Hampshire and Massachusetts, comprising five offices and two "vendor on
premises" locations, for $125,000, comprised of cash proceeds of $50,000 at
closing and a two year $75,000 promissory note. In addition, the Company will
receive additional amounts equal to 30% of EBITDA of the sold offices during the
next two years. Excluded from the sale were cash, accounts receivable and
deferred income taxes, as well as accrued liabilities and accounts payable. The
Company recorded an additional $133,000 charge to restructuring during Q2 2001
to reduce the carrying value of these assets to their net realizable value.

All of the Company's offices classified as held for disposition were sold or
franchised by October 31, 2000. Upon classification as assets held for
disposition, the Company discontinued the related depreciation and amortization
for these assets, which reduced operating expenses by approximately $0.1 million
in Q2 2001 and $0.2 million YTD 2001.

The Company's assets held for disposition as of October 1, 2000, stated at the
lower of original cost (net of accumulated depreciation or amortization) or fair
value (net of selling and disposition costs), were as follows (amounts are in
thousands):

                                   Net Original Cost
                        ----------------------------------------
                        Property      Goodwill and                     Lower of
                           and           Other                         Cost or
                        Equipment   Intangible Assets     Total       Fair Value
                        ---------   -----------------    -------      ----------

 Tandem branch offices    $ 195          $ 1,045         $ 1,240         $ 215
                          =====          =======         =======         =====




The Tandem operations held for disposition, as well as those sold, franchised or
closed (excluding offices consolidated into existing offices) as part of the
Restructuring as of October 1, 2000, generated revenues and income before taxes
as follows (amounts are in thousands):



                                       9
<PAGE>   11
                          OUTSOURCE INTERNATIONAL, INC.
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3: RESTRUCTURING, SALE OF OPERATIONS AND ASSETS HELD FOR DISPOSITION
        (CONTINUED)

                        Thirteen Weeks Three Months  Twenty Six     Six Months
                            Ended         Ended      Weeks Ended      Ended
                         Oct 1, 2000  Sept 30, 1999  Oct 1, 2000   Sept 30, 1999
                         -----------  -------------  -----------   -------------

Revenues                   $ 2,560      $ 15,183       $ 10,487      $ 28,492
                           =======      ========       ========      ========

Net loss before taxes      $  (151)     $   (251)      $     (6)     $   (880)
                           =======      ========       ========      ========

NOTE 4. INCOME TAXES

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

<TABLE>
<CAPTION>

                                           Thirteen Weeks       Three Months        Twenty Six Weeks       Six Months
                                               Ended               Ended                 Ended                Ended
                                            Oct 1, 2000         Sept 30, 1999         Oct 1, 2000         Sept 30, 1999
                                          ----------------     ---------------     ------------------     ----------------
                                           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 and extraordinary item    $   (75)    (35.0)%  $(4,662)  (35.0)%   $  (286)       (35.0)%  $(5,427)     (35.0)%
Increase (decrease) in income taxes
   resulting from:
   State income taxes, net of federal
     benefit                                  171      79.9       (564)   (4.2)        191         23.4       (644)      (4.2)
   Employment tax credits                    (139)    (65.0)      (106)   (0.8)       (220)       (26.9)      (270)      (1.7)
   Nondeductible expenses                      20       9.3         --      --          49          6.0         --         --
   Other                                     (194)    (90.7)       334     2.5        (343)       (42.0)       407        2.6
                                          -------   -------    -------    ----    --------    ---------    -------     ------
Total before valuation allowance             (217)   (101.4)    (4,998)  (37.5)       (609)       (74.5)    (5,934)     (38.3)
Change in valuation allowance              (1,066)   (498.2)        --      --      (8,364)    (1,023.7)        --         --
                                          -------   -------    -------    ----    --------    ---------    -------     ------
Total                                     $(1,283)   (599.8)%  $(4,998)  (37.5)%  $ (8,973)    (1,098.3)%  $(5,934)     (38.3)%
                                          =======   =======    =======    ====    ========    =========    =======     ======

</TABLE>

During Q1 2001, the Company reduced its deferred tax asset valuation allowance
by a net reduction of $7.3 million, which was expected to be realized through
utilization of the existing net operating loss carryforward, relating to the
extinguishment gain of approximately $8.5 million ($13.8 million less $5.3
million of income tax) that was recorded in Q2 2001 (see Note 5), and through
taxable income from future operations. The Company's expectations of future
taxable income are consistent with past operating history and do not incorporate
operating improvements to achieve such income. The Company's provision for
income taxes may be impacted by adjustments to the valuation allowance that may
be required if management's assessment changes regarding the realizability of
the deferred tax assets in future periods. During Q2 2001, the Company reduced
the deferred tax valuation allowance by an additional $1.1 million based on
improvements in the Company's operating results and through revised estimates of
taxable income from future operations based on actual operating results of Q2
2001 and through taxable income from future operations. The valuation allowance
was established in 1999 and was increased by the tax benefits in the quarter
ended April 2, 2000 because it was not clear that the tax benefits resulting
from operating losses and other temporary differences were "more likely than
not" to be realized, as required by SFAS No. 109, "Accounting for Income Taxes".
As of October 1, 2000, the deferred tax asset of $10.8 million, offset by a
valuation allowance of $6.5 million, was reflected in the Company's Consolidated
Balance Sheets as follows: income tax receivable and other current assets
includes $4.6 million of the deferred tax asset offset by a valuation allowance
of $2.8 million. The other assets classification on the balance sheet includes
$6.2 million of the deferred tax asset offset by a valuation allowance of $3.7
million.

The employment tax credit carryforward of $3.7 million as of October 1, 2000
will expire during the years 2012 through 2020. The employment tax credits
recorded by the Company from February 21, 1997 through December 31, 1999 include
Federal Empowerment Zone ("FEZ") credits which represent a net tax benefit of
$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.



                                       10
<PAGE>   12
                          OUTSOURCE INTERNATIONAL, INC.
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4. INCOME TAXES (CONTINUED)

During 1999, the Company received a preliminary report from the IRS 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. These subsidiaries were "S" corporations for the periods under
examination. Since that time, and as a result of analysis and discussions among
the IRS, the original shareholders of the subsidiaries and the Company, the
proposed adjustments have been modified. The Company is currently evaluating the
merits of these proposed adjustments with the original shareholders. The
proposed adjustments, if ultimately accepted or proven to be appropriate, would
not result in a materially unfavorable effect on the Company's results of
operations, although additional shareholder distributions could result as
discussed in Note 6.

NOTE 5. DEBT

SENIOR DEBT FACILITIES

Effective August 15, 2000, the Company entered into the Ableco Facility, a
three-year financing agreement which replaced the Fleet Facility with a $33.4
million revolving credit facility (the "Revolving Credit Facility"), which
includes a subfacility for the issuance of standby letters of credit, and two
term loans, Term Loan A and Term Loan B ("Term Loans"), of $17.6 million and
$9.0 million, respectively (the "Refinancing"). Both the Revolving Credit
Facility and the Term Loans are secured by all the assets of the Company and its
subsidiaries. The Revolving Credit Facility bears interest at prime or 9.0%,
whichever is greater, plus 2%. The Term Loans bear interest at prime or 9.0%,
whichever is greater, plus 3.5% and 5.0% per annum, respectively. In connection
with the Refinancing, the Company issued warrants to the Lenders to purchase up
to a maximum of 200,000 common shares of the Company, exercisable for a term of
five years, at $0.01 per warrant, but only if any letter of credit issued by the
Lenders on behalf of the Company is drawn upon.

A portion of the Ableco Facility was used to satisfy the Fleet Facility with
FleetNational Bank, for itself and as agent for three other banks (the "Fleet
Group"). Prior to the closing of the Refinancing, the outstanding balance of the
Fleet Facility was approximately $52.0 million. The balance was repaid in full
with a cash payment of approximately $32.3 million and the issuance of a
four-year, $5.3 million subordinated term note (the "Fleet Term Note"). The
Fleet Term Note is subordinated to the Revolving Credit Facility and Term Loans
and includes interest only for four years, followed by a balloon payment for the
entire principal amount. In addition, the Company is entitled to a 60% discount
on the Fleet Term Note if it is satisfied within 18 months. This obligation
bears interest at Fleet's Alternative Prime Rate ("APR") plus 3.5% per annum. In
connection with the Refinancing and in satisfaction of the Company's obligation
to the Fleet Group, the Company has issued 524,265 warrants to the Fleet Group
to purchase common shares of the Company, which constitutes 5.0% of the common
stock of the Company on a fully diluted basis. The warrants are exercisable for
a term of 10 years at $0.001 per warrant. The fair value of the warrants, $0.6
million, was recorded as additional paid-in capital and treated as a debt
discount to be amortized over the life of the Fleet Term Note. In connection
with the Refinancing and the termination of the Fleet Facility, the Company
recorded an extraordinary gain of approximately $8.5 million, net of tax, in the
quarter ending October 1, 2000.

As of October 1, 2000, the Company had gross outstanding borrowings $18.8
million under its Revolving Credit Facility, $26.0 million under the provisions
of the Term Loans, and $5.3 million under the provisions of the Fleet Term Note.
As of the end of the quarter, the Revolving Credit Facility bore interest at
11.5%. Term Loan A and Term Loan B bore interest at 13.0% and 14.5%,
respectively, and the Fleet Term Note bore interest at 13.0%. The weighted
average interest rate payable on the outstanding balances during the period,
exclusive of related fees and expenses, was approximately 12.7% per annum,
compared to approximately 10.8% per annum in Q3 1999. In connection with the
Refinancing on August 15, 2000, the Company recorded a debt discount of $9.0
million, which is being amortized as interest expense over the three year life
of the borrowing agreements. The weighted average interest rate during the
period, including the debt discount was 20.9%.



                                       11
<PAGE>   13
                          OUTSOURCE INTERNATIONAL, INC.
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 5. DEBT (CONTINUED)

In addition to the Revolving Credit Facility indebtedness discussed above, the
Company had bank standby letters of credit outstanding in the aggregate amount
of $2.3 million as of October 1, 2000, of which $1.7 million secured the
pre-1999 portion of the workers' compensation obligations that are recorded as a
current liability on the Company's Consolidated Balance Sheets. The remaining
$0.6 million, which is supported by a $0.6 million cash escrow balance, is to
secure future payments on a capital lease for furniture that was sold along with
the Company's corporate headquarters building.

SUBORDINATED DEBT

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, the Company negotiated extensions of the payment
dates and modified the interest rates and other terms of certain of its
subordinated acquisition notes payable in 1999. The Company had not made
substantially all of the scheduled payments due and, as a result, was in default
on acquisition notes payable having a total outstanding principal balance of
$6.9 million as of August 15, 2000. On August 15, 2000, in connection with the
Refinancing, the acquisition notes payable were amended to provide that the
Company will pay interest only, at a rate of 10.0% per annum, on the debt for
three years following the closing of the Refinancing, followed by two years of
equal monthly payments of interest and principal, which will retire the debt. In
connection with the amendments to the subordinated acquisition notes payable,
the Company paid $0.8 million of accrued interest to the relevant noteholders at
the closing of the Refinancing.

NOTE 6. 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"). This distribution, supplemented by an
additional distribution made in September 1998, may be 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 cash 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. As a result of
the IRS audit of the years 1994 through 1996 (see Note 4), the Company expects
to negotiate a settlement with the Company's original shareholders of at least
$2.0 million, in satisfaction of the Company's outstanding obligations to such
original shareholders.

LITIGATION: On September 13, 2000, a default final judgment in the amount of
$0.8 million was entered against Synadyne III, Inc., a wholly-owned subsidiary
of the Company ("Synadyne III"), in the County Court, Dallas County, Texas. The
action was brought by an employee of an independent agency of the Allstate
Insurance Company claiming that the owner of that agency discriminated against
her in violation of the Texas Commission of Human Rights Act of 1983. Synadyne
III was under contract with this insurance agency to provide PEO services. It is
the Company's contention that the complaint in this action was never properly
served on Synadyne III and; therefore, the Company has filed a motion to vacate
this judgment on the grounds that it was obtained without due process to
Synadyne III. On December 8, 2000, this default judgment was vacated on the
grounds that it was obtained without affording due process to Synadyne III. The
Company has filed its answer in this lawsuit and the Company's employment
practices liability insurance carrier has assumed the defense of the action on
the Company's behalf. The Company believes, based on the advice of counsel, that
the ultimate resolution of this matter will not have a material adverse effect
on its financial position or future operating results. Accordingly, the Company
has not made any adjustments to the financial statements for this matter.

UNEMPLOYMENT TAXES: Federal and state unemployment taxes represent a significant
component of the



                                       12
<PAGE>   14
                          OUTSOURCE INTERNATIONAL, INC.
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6. COMMITMENTS AND CONTINGENCIES (CONTINUED)

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 certain states may elect to challenge these reductions.

FEDERAL EMPLOYMENT TAX REPORTING PENALTIES: During September 1999, the Company
was notified by the IRS of its intent to assess penalties of $500,000 related to
W-2s filed by the Company for 1997 for employees with invalid Social Security
numbers. The Company has requested an abatement of the penalty and does not
currently expect that the penalty ultimately charged will exceed $300,000, which
amount was included in selling, general and administrative expenses in 1999, and
is reflected as a current liability on the Company's October 1, 2000
Consolidated Balance Sheet. However, there can be no assurance that the Company
will not be required to ultimately pay a higher penalty in connection with this
matter.

UNCLAIMED PROPERTY AUDIT: A state in which the Company conducts a significant
portion of its operations has begun and substantially completed an audit of the
Company's compliance with escheat (unclaimed property) statutes. The applicable
state escheat laws cover a wide range of situations and property types and have
a ten-year statute of limitations. In addition, it is common for states to share
information in this area. During Q2 2001, the Company paid $33,000 in settlement
of this liability

WORKERS' COMPENSATION: Since 1997, the Company's workers' compensation expense
was effectively capped at a contractually-agreed percentage of payroll. In 1997
and 1998, the Company's expense was limited to the cap even though the estimated
ultimate cost of the actual claims experience was greater than the cap. In 1999,
the estimated ultimate cost of the actual claims experience was used as the
basis of the Company's workers' compensation expense since it was approximately
$1.7 million less than the cap (3.5% of payroll). 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. The Company's methodology for determining workers' compensation
expense in the fiscal year 2001 is consistent with that used for calendar year
1999 and YTD 2001 workers' compensation expense has been less than the cap.

The Company routinely adjusts the accruals made in prior years for workers'
compensation claims and expenses, based on updated information from its
insurance carriers, its independent third-party administrator and its own
analysis. These adjustments are included as a component of cost of sales in the
period in which it becomes apparent that an adjustment is required.

EMPLOYMENT AGREEMENTS: As of October 1, 2000, the Company had certain
obligations under employment agreements it had entered into with its Chief
Executive Officer ("CEO"), its former CEO and thirteen other officers. Under the
terms of those agreements, in the event that the Company terminates the
employment of 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 prior to termination. 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.

Between February 1999 and August 2000, eleven of the fifteen officers referred
to above separated from the Company, resulting in the Company's obligation to
pay two of those officers' salary for two years, three of those



                                       13
<PAGE>   15
                          OUTSOURCE INTERNATIONAL, INC.
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6. COMMITMENTS AND CONTINGENCIES (CONTINUED)

officers' salaries for one year and six of those officers' salaries for six
months, in exchange for their agreement to, among other things, not compete with
the Company during that period. The aggregate costs of these severance
agreements total $3.1 million, of which $1.8 million has been paid as of October
1, 2000, and $1.3 million is accrued in the Company's October 1, 2000
Consolidated Balance Sheet.

On June 1, 2000, pursuant to the terms of one of the severance agreements
described in the preceding paragraph, the Company provided a $0.2 million
advance on severance, which is being deducted by the Company in bi-monthly
installments payable over two years to a former officer of the Company.

CONSULTING CONTRACT: In May 1999, the Company engaged Crossroads to review the
Company's existing business plan and make recommendations for adjustments to
strategy as well as financial and operational improvements. In July 1999, the
engagement was modified to add additional services, including working with
management to develop the Restructuring plan and a revised business plan based
on the restructured company (see Note 3), assisting in extending the Fleet
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. In
connection with services provided by Crossroads to assist in the Restructuring,
the Company has incurred costs of $2.3 million through October 1, 2000, of which
$0.4 million and $0.8 million was for services provided during Q2 2001 and YTD
2001. These amounts were included in the restructuring charge recorded by the
Company in its results of operations.

In connection with the Refinancing, the Company paid Crossroads $0.9 million for
its assistance in securing the new credit facility. This charge, along with
other costs relating to the Refinancing, is being amortized in the Company's
results of operations over the three-year term of the Refinancing agreements.

STOCK OPTIONS AND WARRANTS: During February 2000, the Company granted options to
purchase 400,000 shares of the Company's common stock to the Company's new CEO
at $2.25 per share. In March 2000, the Company granted options to purchase
473,038 shares of the Company's common stock to various employees at $2.125 per
share, of which 122,277 shares were cancelled due to employee terminations, and
350,761 shares remain outstanding as of October 1, 2000. The Company also
granted options to purchase 60,000 shares of the Company's common stock, at
$1.25 per share, in August 2000. This grant vests over a four-year period from
the grant date. As of October 1, 2000, the Company had in aggregate, 1,716,754
stock options and 1,974,687 warrants to purchase shares of the Company's common
stock outstanding. On October 31, 2000, the Company completed a tender offer to
cancel certain of its outstanding options to purchase the Company's common
stock, resulting in the cancellation of 337,766 options at a cost to the Company
of $103,842 (see Note 10).

The total number of shares of common stock reserved for issuance under the stock
option plan as of October 1, 2000 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.

DELISTING FROM THE NASDAQ NATIONAL MARKET: On August 9, 2000, the Company was
notified by Nasdaq-Amex that the Company was not in compliance with the minimum
$4 million net tangible assets for continued listing on the Nasdaq National
Market, and that the Company's common stock would be delisted effective August
10, 2000. Pursuant to the notification received from Nasdaq-Amex, the Company's
common stock was delisted from the Nasdaq National Market and is now traded on
the OTC Bulletin Board. As a result of completing the Refinancing (see Note 5),
the Company believes it has taken the steps necessary to cure the net tangible
asset deficiency and has appealed the delisting decision to the Nasdaq Listing
and Review Council.



                                       14
<PAGE>   16
                          OUTSOURCE INTERNATIONAL, INC.
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7. RELATED PARTY TRANSACTIONS

The Company recognized revenue, which includes royalties and payments under
buyout agreements, of $0.2 million in Q3 1999 and $0.5 million during YTD 1999,
respectively, from all franchises owned by significant shareholders of the
Company. The Company recognized no revenue in YTD 2001 from these franchises.
Buyouts are early terminations of franchise agreements entered into by the
Company in order to allow the Company to develop the related territories. At the
time of the buyouts, the Company receives an initial payment from the former
franchisee and continues 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.

Effective February 16, 1998, the Company purchased certain staffing locations
and the related franchise rights from certain shareholders for $6.9 million
which included the issuance of a $1.7 million note bearing interest at 7.25% per
annum 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 installments
totaling $0.3 million in the first year and $0.6 million in the second year,
with a $0.4 million balloon payment due at the end of the two year term. As
discussed in Note 5, the Company had not made the renegotiated payments on this
subordinated acquisition note, and, as a result, was in default under this note.
Effective August 15, 2000 this note was amended to provide that the Company will
pay interest only, at a rate of 10.0% per annum, on the principal balance of the
note, for three years, followed by two years of equal monthly payments of
principal and interest, which will retire the note.

NOTE 8. COMPUTATION OF EARNINGS (LOSS) PER SHARE

The Company calculates earnings 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>

                                                       Thirteen             Three              Twenty Six              Six
                                                      Weeks Ended        Months Ended         Weeks Ended          Months Ended
                                                    October 1, 2000   September 30, 1999    October 1, 2000    September 30, 1999
                                                   -----------------  ------------------    ---------------    ------------------
                                                      (Historical)       (Historical)          (Historical)         (Historical)
<S>                                                   <C>               <C>               <C>               <C>
Shares issued  in connection with the
  Reorganization                                        5,448,788           5,448,788           5,448,788           5,448,788

Equivalent shares represented by shares of
   common stock of certain Subsidiaries
   purchased in the Reorganization                             --                  --                  --

Shares sold by the Company in the October 1997          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              57,809

Warrants exercised in 1998 (see Notes 5 and 7)            151,316             151,316             151,316             151,316

Warrants exercised in 2000 (see Notes 5 and 7)             29,575                  --              23,260                  --
                                                       ----------          ----------          ----------          ----------

Weighted average common shares - basic                  8,687,488           8,657,913           8,681,173           8,657,913

Outstanding options and warrants to purchase
   common stock - remaining shares after assumed
   repurchase using proceeds from exercise              1,604,748                  --           1,405,048                  --
                                                       ----------          ----------          ----------          ----------

Weighted average common shares - diluted               10,292,236           8,657,913          10,086,221           8,657,913
                                                       ==========          ==========          ==========          ==========

</TABLE>

Certain of the outstanding options and warrants to purchase common stock of the
Company were anti-dilutive for Q3 1999 and YTD 1999, respectively, and
accordingly were excluded from the calculation of diluted weighted



                                       15
<PAGE>   17
                          OUTSOURCE INTERNATIONAL, INC.
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8. COMPUTATION OF EARNINGS (LOSS) PER SHARE (CONTINUED)

average common shares for that period, solely because the result of operations
was a net loss instead of net income. The Company recognized net income in Q2
2001 and YTD 2001; therefore, the Company included the equivalent of 1,604,747
and 1,405,048 shares, respectively, in its calculation of fully diluted earnings
per share.

NOTE 9. OPERATING SEGMENT INFORMATION

The Company's reportable operating segments are as follows:

TANDEM: This segment derives revenues from recruiting, training and deploying
temporary industrial personnel and from providing payroll administration, risk
management and benefits administration services.

SYNADYNE: This segment derived revenues from providing a comprehensive package
of PEO services to its clients including payroll administration, risk
management, benefits administration and human resource consultation. See Note 3
relating to the Company's disposition of these operations effective April 8,
2000.

FRANCHISING: This segment derives revenues under agreements with industrial
staffing franchisees that provide those franchises with, among other things,
exclusive geographic 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".

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. The Company does
not regularly provide information regarding the reportable segments' net assets
to the chief operating decision-maker. Certain reclassifications have been made
between segments to Income (Loss) Before Taxes in Q3 1999 and YTD 1999 to be
consistent with current period presentation.

<TABLE>
<CAPTION>

                                               Thirteen Weeks        Three Months         Twenty Six           Six Months
                                                   Ended               Ended              Weeks Ended            Ended
                                                Oct 1, 2000         Sept 30, 1999         Oct 1, 2000         Sept 30, 1999
                                               --------------       -------------         -----------          -------------
                                                                           (Amounts in thousands)
<S>                                                   <C>                <C>                   <C>                <C>
REVENUES

Tandem                                          $  78,055             $  93,010             $ 158,914             $ 172,865
Synadyne                                               --                59,325                    71               114,404
Franchising                                           727                 1,036                 1,381                 3,505
Other Company revenues                                100                 5,753                   134                11,804
                                                ---------             ---------             ---------             ---------

TOTAL COMPANY REVENUES                          $  78,882             $ 159,124             $ 160,500             $ 302,578
                                                =========             =========             =========             =========

LOSS BEFORE BENEFIT FOR INCOME TAXES

Tandem                                          $   5,824             $   1,900             $  10,439             $   2,387
Synadyne                                               --                   284                  (198)                  807
Franchising                                           602                   882                 1,098                 3,073
Other Company income (loss), net (1)               (6,640)              (16,383)              (12,157)              (21,769)
                                                ---------             ---------             ---------             ---------

THE COMPANY'S LOSS BEFORE TAXES                 $    (214)            $ (13,317)            $    (818)            $ (15,502)
                                                =========             =========             =========             =========

</TABLE>

(1)  During Q2 2001 and FYTD 2001, the Company recognized restructuring charges
     of $0.9 million and $1.8 million, respectively, and a $0.7 million gain
     on the sale of the Company's PEO operations during YTD 2001.



                                       16
<PAGE>   18
                          OUTSOURCE INTERNATIONAL, INC.
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10. SUBSEQUENT EVENTS

On October 31, 2000, the Company agreed to purchase for cancellation certain of
its outstanding incentive stock options with an exercise price ranging from
$10.38 to $18.88, for $0.1 million.

On November 10, 2000, the Company authorized the issuance of options to purchase
162,503 shares of the Company's common stock at $1.01 per share.



                                       17
<PAGE>   19
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH "FORWARD-LOOKING
INFORMATION: CERTAIN CAUTIONARY STATEMENTS".

GENERAL

We offer our clients flexible industrial staffing services through our Tandem
division, targeting opportunities in a fragmented, growing market which we
believe has, to date, been under-served by large full service staffing
companies. Significant benefits of Tandem's services to clients include
providing clients with the ability to outsource their recruiting and hiring
functions and other logistical aspects of their staffing needs, as well as
converting the fixed cost of employees to the variable cost of outsourced
services.

Flexible industrial staffing services include recruiting, hiring, training and
deploying temporary industrial personnel as well as payroll administration and
risk management services. Tandem delivers its flexible industrial staffing
services through a nationwide network of 84 company-owned recruiting and
dispatch branch offices and 51 franchised offices. We aggregate our
company-owned branches into 12 geographic districts, which we combine into three
geographic zones: East, Midwest and West. We franchise industrial staffing
offices in secondary and tertiary markets in states that are not within our
areas of market concentration. In return for royalty revenues, which average
approximately 3% of our gross revenues, we provide our franchisees with, among
other things, exclusive geographical areas of operations, continuing advisory
and support services, and access to our confidential operating manuals.

Until we sold the operations of our Synadyne division in April 2000, we also
provided professional employer organization, or PEO, services to small and
medium-sized businesses (those with less than 500 employees). PEO services
include payroll administration, risk management, benefits administration and
human resources consultation. In August 1999, we sold the operations of our
Office Ours clerical staffing division that we had started in 1995. This
division, which operated five clerical staffing offices in South Florida, had
revenues of $8.1 million in fiscal year 1998.

Our revenues are based on the salaries and wages of worksite employees. We
recognize revenues, and the associated costs of wages, salaries, employment
taxes and benefits related to worksite employees, in the period during which our
employees perform the services. Since we are at risk for all of our direct
costs, independent of whether we receive payment from our clients, we recognize
as revenue all amounts billed to our clients for gross salaries and wages,
related employment taxes, health benefits and workers' compensation coverage,
net of credits and allowances, which is consistent with industry practice. Our
primary direct costs are (1) the salaries and wages of worksite employees (trade
payroll costs), (2) employment-related taxes, (3) health benefits, (4) workers'
compensation benefits and insurance, and (5) worksite employee transportation.

Our Tandem division generates significantly higher gross profit margins than our
former Synadyne division. The higher staffing margins reflect 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 our relationship with the client.

We commenced operations as an industrial staffing services business in 1974
under the brand name "Labor World." From 1994 to 1997, we formed nine
interrelated operating companies which had common ownership and management, and
expanded our business to include franchising of staffing offices, providing
services to our franchisees, providing PEO services and providing clerical
staffing services. In April 1996, we formed Outsource International, Inc., a
Florida corporation, to become the parent holding company of our nine operating
entities. On February 21, 1997, we completed a reorganization in which our nine
operating entities became wholly-owned subsidiaries of Outsource International,
Inc.

While implementing our growth strategies, we completed 36 acquisitions,
primarily staffing companies, from January 1995 through October 1998. These
acquisitions included 89 offices and collectively generated



                                       18
<PAGE>   20

approximately $189.0 million in revenue for the twelve months preceding these
acquisitions. We acquired 40 of those offices in 1998 and 30 of those offices in
1997. Due to these acquisitions, as well as the opening of new offices, the
number of company-owned flexible staffing and PEO offices increased during this
period from ten to 124 and the number of metropolitan markets, as measured using
the United States Census Bureau's Metropolitan Statistical Areas, served by
company-owned locations increased from one to 50. As of December 31, 1999, we
operated 90 offices. In order to support our growth, we made a significant
investment in new information systems, additional back office capabilities and
in other infrastructure enhancements.

We discontinued our acquisition program as of December 31, 1998, primarily due
to a desire to focus on and improve existing operations, coupled with a lack of
capital for new acquisitions.

On August 6, 1999, we announced the following actions intended to improve our
short-term liquidity, concentrate our operations within our Tandem division and
improve our operating performance within that division:

o        the sale of Office Ours, our clerical staffing division, which was
         completed on August 30, 1999;

o        the engagement of an investment banking firm to assist in the
         evaluation of strategic options for our Synadyne division which
         ultimately resulted in the sale of the operations of Synadyne on April
         8, 2000; and

o        a reduction of our flexible industrial staffing and support operations
         (the "Restructuring") consisting primarily of: the sale, franchise,
         closure or consolidation of 47 of the 117 Tandem branch offices that
         existed as of June 30, 1999; an immediate reduction of the Tandem and
         corporate headquarters employee workforce by 110 employees,
         approximately 11% of our workforce; and an additional reduction of 59
         employees through the second fiscal quarter of 2001. As of October 31,
         2000, 48 branch offices had been eliminated in connection with our
         restructuring plan, 41 of which had been sold, franchised, closed, or
         consolidated as of October 1, 2000. During Q2 2001 one office was
         removed from the assets held for sale classification. We also
         identified two additional offices that would be closed as a result of
         our ongoing restructuring activities and recorded the related assets as
         held for disposition at that time. These offices were subsequently
         closed in October 2000, and when it became apparent to management that
         these offices would be abandoned, we recorded the write-down of the
         related assets as restructuring charges in Q3 2001. In addition, the
         five remaining offices held for disposition were sold in October 2000.
         The 48 offices sold, franchised, closed, or consolidated were not
         expected to be adequately profitable or were inconsistent with our
         operating strategy of clustering offices within specific geographic
         regions.

On October 13, 1999, our board of directors approved a change in our fiscal
year, effective January 1, 2000, from the calendar year ending December 31 to
the 52 or 53 week period ending on the Sunday closest to March 31. Our
transition period is January 1, 2000 through April 2, 2000.




                                       19
<PAGE>   21
RESULTS OF OPERATIONS

The following tables set forth the amounts and percentages of net revenues of
certain items in our consolidated statements of operations for the periods
indicated. Certain reclassifications have been made to the presentation of the
results of operations for the quarter ended and six months ended September 30,
1999 to conform to current presentation. The dollar amounts are presented in
thousands:

<TABLE>
<CAPTION>
                                                       Thirteen Weeks       Three Months        Twenty Six           Six Months
                                                            Ended              Ended            Weeks Ended             Ended
                                                         Oct 1, 2000       Sept 30, 1999        Oct 1, 2000         Sept 30, 1999
                                                       --------------      --------------       -----------         -------------
<S>                                                      <C>                  <C>                  <C>                  <C>
Net revenues:
Tandem                                                   $  78,055            $  93,010            $ 158,914            $ 172,865
Synadyne                                                        --               59,325                   71              114,404
Franchising                                                    727                1,036                1,381                3,505
Other                                                          100                5,753                  134               11,804
                                                         ---------            ---------            ---------            ---------

Total net revenues                                       $  78,882            $ 159,124            $ 160,500            $ 302,578
                                                         =========            =========            =========            =========

Gross profit                                             $  16,292            $  20,772            $  32,479            $  41,117
Selling, general and adminstrative expenses (1)             13,254               25,224               27,977               46,073
Restructuring and asset impairment charges                     940                7,554                1,818                7,554
                                                         ---------            ---------            ---------            ---------

Operating income (loss) (1)                                  2,098              (12,006)               2,684              (12,510)
Net interest and other expense                               2,312                1,311                3,502                2,992
                                                         ---------            ---------            ---------            ---------

Loss before benefit for income taxes (1)                      (214)             (13,317)                (818)             (15,502)
Benefit for income taxes                                    (1,283)              (4,998)              (8,973)              (5,934)
                                                         ---------            ---------            ---------            ---------

Net income (loss) before extraordinary item (1)          $   1,069            $  (8,319)           $   8,155            $  (9,568)
                                                         =========            =========            =========            =========

Other data:
EBITDA (2)                                               $   3,627            $  (9,584)           $   6,335            $  (8,207)
                                                         =========            =========            =========            =========
Net revenues:

Tandem                                                        99.0%                58.5%                99.0%                57.1%
Synadyne                                                       0.0                 37.3                  0.0                 37.8
Franchising                                                    0.9                  0.7                  0.9                  1.2
Other                                                          0.1                  3.6                  0.1                  3.9
                                                         ---------            ---------            ---------            ---------

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

Gross profit                                                  20.7%                13.1%                20.2%                13.6%
Selling, general and adminstrative expenses (1)               16.8                 15.9                 17.4                 15.2
Restructuring and asset impairment charges                     1.2                  4.7                  1.1                  2.5
                                                         ---------            ---------            ---------            ---------

Operating income (loss) (1)                                    2.7                 (7.5)                 1.7                 (4.1)
Net interest and other expense                                 2.9                  0.8                  2.2                  1.0
                                                         ---------            ---------            ---------            ---------

Loss before benefit for income taxes (1)                      (0.3)                (8.4)                (0.5)                (5.1)
Benefit for income taxes                                      (1.6)                (3.1)                (5.6)                (2.0)
                                                         ---------            ---------            ---------            ---------

Net income (loss) (1)                                          1.4%                (5.2)%                5.1%                (3.2)%
                                                         =========            =========            =========            =========

SYSTEM OPERATING DATA:
System Revenues (3)                                      $ 102,854            $ 176,143            $ 205,924            $ 335,494
                                                         =========            =========            =========            =========
System employees (number at the end of period)              23,800               38,200               23,800               38,200
                                                         =========            =========            =========            =========
System offices (number at the end of period)                   135                  161                  135                  161
                                                         =========            =========            =========            =========
</TABLE>
-------------------
(1)      During the twenty six weeks ended October 1, 2000, we recorded an
         increase to our restructuring reserve of $1.8 million (of which $0.9
         million was recorded in the quarter), a non-operating gain of $0.7
         million from the sale of the our PEO operations, a $9.5 million
         decrease to our deferred tax asset valuation allowance (of which $1.8
         million was recorded during Q2 2001) and an extraordinary gain from
         refinancing of $8.5 million (net of $5.3 million of income tax). During
         Q3 1999, we recorded restructuring and asset impairment charges of $7.6
         million and a $2.7 million loss on certain accounts receivable that
         were subsequently sold in Q4 1999.

(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 a widely accepted financial indicator
         used by many investors and analysts to analyze and compare companies on
         the basis of operating performance, and we believe that EBITDA provides
         useful information regarding our ability to service our debt and other
         obligations. However, EBITDA does not represent cash flow from
         operations, nor has it been presented as a substitute to operating
         income or net income as indicators of our operating performance. EBITDA
         should not be considered in isolation or as a substitute for measures
         of performance prepared in accordance with generally accepted
         accounting principles. In addition, our calculation of EBITDA may be
         different from the calculation used by our competitors, and therefore
         comparability may be affected.

                                       20
<PAGE>   22

(3)      System revenues are the sum of our 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 our penetration of the market for our services,
         as well as the scope and size of our 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 us, are derived from reports that are unaudited. System
         revenues consist of the following for the periods presented:

<TABLE>
<CAPTION>

                                     Thirteen Weeks         Three Months          Twenty Six           Six Months
                                         Ended                Ended              Weeks Ended              Ended
                                      Oct 1, 2000          Sept 30, 1999         Oct 1, 2000          Sept 30, 1999
                                     --------------        -------------         ------------         -------------
<S>                                    <C>                   <C>                   <C>                   <C>
Company's net revenues                 $  78,882             $ 159,124             $ 160,500             $ 302,578
Less Company revenues from:
  Franchise royalties                       (727)               (1,036)               (1,381)               (3,505)
  Services to franchises                      --                (4,468)                   --                (8,446)
Add: Franchise net revenues               24,699                22,523                46,805                44,867
                                       ---------             ---------             ---------             ---------

System revenues                        $ 102,854             $ 176,143             $ 205,924             $ 335,494
                                       =========             =========             =========             =========

</TABLE>


                                       21
<PAGE>   23

THIRTEEN WEEKS ENDED OCTOBER 1, 2000 AS COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 NET REVENUES AND GROSS MARGIN:

Revenues were $78.9 million for the quarter ended October 1, 2000 ("Q2 2001"), a
decrease of $80.2 million, or 50.4%, from $159.1 million for the quarter ended
September 30, 1999 ("Q3 1999"). This decrease in revenues resulted primarily
from our restructuring efforts during the last 12 months to focus on industrial
staffing and to improve profitability. The restructuring included the
disposition of Synadyne (our former professional employer organization, or PEO),
Office Ours (our former clerical division) and certain under-performing Tandem
industrial staffing offices, plus the termination of PEO services to certain of
our franchisees.

Our gross profit (margin) decreased by 21.6%, to $16.3 million in Q2 2001, from
$20.8 million for Q3 1999 due primarily to sold or terminated operations. Gross
profit as a percentage of net revenues increased to 20.7% in Q2 2001 from 13.1%
in Q3 1999.

The following table summarizes the change in our net revenues and gross margin
during Q3 1999, as compared to Q2 2001:

<TABLE>
<CAPTION>

                                                                                                           Gross Margin as
                                                                     Net                 Gross             a Percentage of
                                                                   Revenues              Margin              Net Revenues
                                                                  ----------            ---------          ---------------
                                                                               (Amounts in thousands)
<S>                                                               <C>                   <C>                      <C>
Q3 1999                                                           $ 159,124             $  20,772                13.1%
Increase (decrease)
      Tandem - ongoing offices                                       (2,215)                   39                  (2)
      Tandem - sold, franchised and closed offices (1)              (12,740)               (2,310)               18.1%
      Synadyne                                                      (59,325)               (1,645)                2.8%
      Office Ours                                                    (1,269)                 (313)               24.7%
      PEO services                                                   (4,468)                   11                  (2)
      Franchise royalties                                              (308)                 (308)              100.0%
      Other                                                              83                    46                55.4%
                                                                  ---------             ---------
Subtotal                                                            (80,242)               (4,480)                5.6%
                                                                  ---------             ---------

Q2 2001                                                           $  78,882             $  16,292                20.7%
                                                                  =========             =========

</TABLE>

(1)      Includes offices sold, franchised and closed as part of our
         restructuring efforts as of October 1, 2000.

(2)      Not meaningful as presented.

The gross profit percentage increase to 20.7% in Q2 2001 from 13.1% in Q3 1999
is the result of the sale of our Synadyne division at the beginning of Q1 2001
and price increases implemented over the last three quarters in our Tandem
division, partially offset by the effect of the sale of our clerical staffing
division in August 1999 and the decrease in royalties derived from franchise
buyout payments. Synadyne, while generating 37.3% of our revenues in Q3 1999,
produced a gross margin of only 2.8% of revenue, or 7.9% of our consolidated
gross profit margin. Office Ours, our clerical division sold in Q3 1999,
produced a gross margin of 24.7%, or 1.5% of our consolidated gross profit
margin.

TANDEM OPERATIONS

Net revenues from our Tandem division decreased from $93.0 million in Q3 1999 to
$78.1 million in Q2 2001. The decrease in Tandem revenues was primarily due to
the sale, franchise, closure, and consolidation of 41 offices through October 1,
2000. On a same store basis, Tandem revenues decreased by $2.2 million due to
cancellation of certain of our large customers that generated $4.8 million in Q3
1999 revenue and the lack of a ramp-up in revenues traditionally experienced by
the staffing industry during the third calendar quarter of the year. One
customer, which provided welfare to work services, made up $3.0 million of this
decrease due to non-renewal of this customer's contracts with the federal and
state governments. The lack of a sales ramp-up was most evident with from our
manufacturing and distribution customers. Partially offsetting these was revenue
growth from new and existing customers in the construction and retail
industries. We do not expect our revenues from manufacturing and distribution to
improve in Q3 2001.

Gross profit from our Tandem division declined from $17.8 million in Q3 1999 to
$15.5 million during Q2 2001, primarily due to the offices restructured through
October 1, 2000, which generated a gross margin of $2.3 million in Q3 1999.
While gross profit dollars declined, Tandem's gross profit margin percent
improved from 19.1% in Q3 1999 to 19.8% in Q2 2001. This increase in gross
margin percent is due to price increases that we instituted in the past three
quarters to reflect the value of services provided. These price increases have
been partially offset by higher workers' compensation costs resulting from an
increased average cost per claim in YTD 2001. This is in contrast to 1999, when
we experienced a lower average cost per claim and better than anticipated
development of open 1998 claims resulting in a reduction of workers'
compensation costs.

Although revenues generated by Tandem offices decreased by $2.3 million from Q3
1999 to Q2 2001 on a same store basis, gross margin generated by these offices
remained steady at $15.5 million. Gross margin, as a percent



                                       22
<PAGE>   24

of revenue, increased from 19.2% to 19.8%. This improvement in gross margin
percent is primarily due to the price increases instituted over the last three
quarters, partially offset by the higher workers' compensation costs, as
previously discussed.

Tandem's margins are affected by unemployment, competition for workers, the size
of our customers, workers' compensation costs, transportation costs, and
pricing. We were able to mitigate the effect of low unemployment and competition
for workers by better pricing in Q2 2001 as compared to Q3 1999. Although the
average cost per labor hour increased by $0.09 during Q2 2001 as compared to Q3
1999, the average price charged per labor hour increased by $0.35 compared to
this period last year. In addition, beginning in Q1 2001 and continuing into Q2
2001, Tandem began to improve the margins of its large, lower-margin customers.
Although Tandem's 100 largest customers made up 45% of our revenues in Q2 2001
compared to 40% in Q3 1999, the average price charged per labor hour to these
customers has increased by $0.28 while the average cost per labor hour increased
by only $0.10.

Workers' compensation costs have increased more than expected in calendar year
2000 despite our employment of safety specialists because of one open zone
safety manager position in the West during the last half of calendar year 1999.
In addition, branches in California and Colorado did not immediately change
their existing risk management practices, continued to service job assignments
which were excluded by our risk management program, and not all branches were
not performing the on-site client reviews in accordance with our stated policy.
The employment of safety specialists, exclusion of risky job assignments, and
on-site client inspections all reduce the frequency of workers' compensation
claims and therefore minimize workers' compensation costs. Although these
factors have since been addressed by filling the open zone safety manager
position in California, and implementing more consistent training and monitoring
programs for compliance with our risk management policies, our workers'
compensation costs increased in calendar year 2000 because we experienced a
higher average cost per claim in 2000 and greater than anticipated expenses for
claims still open from 1999.

FRANCHISE OPERATIONS

Franchise royalty revenues from our franchising operations decreased from $1.0
million in Q3 1999 to $0.7 million for Q2 2001, due to a decrease in revenues
from buyout payments received in connection with the early termination of
certain franchises and to the same lack of a seasonal ramp-up that corporate
owned stores experienced this year. We allowed the early termination of
franchise agreements for 38 locations in 1998 and 1999 to enable us to develop
the related territories. When we agree to terminate a franchise agreement, we
receive an initial buyout payment from the former franchisee. We continue to
receive payments from some former franchisees based on a percentage of the gross
revenues of the formerly franchised locations for up to three years after the
termination date of the franchise agreement. Although these gross revenues are
not included in our net franchisee or system revenue totals, the initial buyout
payment, as well as subsequent payments from the former franchisees, are
reflected in our total reported royalties.

We receive royalties from our franchisees and do not incur the expense for
payroll and payroll-related taxes. Accordingly, gross profit equals royalties
and gross margin trends are consistent with the revenue trends in franchise
operations discussed above.

Net revenues earned by Tandem franchisees, which are included in our system
revenues, but are not available to us, increased slightly from $22.5 million in
Q3 1999 to $24.7 million in Q2 2001. As of October 1, 2000, we had 51 franchised
locations, compared to 50 franchised locations as of September 30, 1999, and as
part of our growth efforts, we expect to increase franchise net revenues by
continuing to sell new franchises in secondary U.S. markets, subject to, among
other factors, the success of our marketing efforts in this regard. We also
expect to allow few, if any, remaining franchisees to buy out of their franchise
agreements, since nearly all remaining franchises are in secondary U.S. markets.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $12.0 million, or 47.5%, to $13.3 million in
Q2 2001 from $25.2 million in Q3 1999 primarily due to our restructuring efforts
and reduced bad debt expense. Compensation costs decreased $5.8 million due to a
reduction of 420



                                       23
<PAGE>   25

employees, plus we experienced a $3.0 million reduction in our bad debt
provision in Q2 2001 as compared to Q3 1999. In Q3 1999, we recorded a $2.7
million bad debt provision related specifically to $4.3 million of receivables
which were sold to a third party during the fourth quarter of 1999. Other
selling, general and administrative costs, including telecommunications,
professional fees, recruiting, and licensing costs, decreased by an aggregate of
$2.8 million. Depreciation and amortization decreased by $0.5 million, due to
the disposition of the assets sold in connection with our restructuring plan,
and the $2.5 million impairment of goodwill during 1999.

As part of our on-going efforts to improve the support of our customers, branch
offices and service employees, we are currently analyzing the potential of
decentralizing some of our support functions. This would entail setting up
regional field service groups comprised of individuals with specific skill sets,
including business analysis, human resources, billing and collections. We expect
to complete the testing of our pilot concept by April 1, 2001, after which we
may decide to decentralize our branch support services.

RESTRUCTURING AND ASSET IMPAIRMENT CHARGES. During Q2 2001, we recorded
restructuring charges of $0.9 million. As part of the restructuring charges, we
have (i) adjusted the carrying value of assets held for disposition by
approximately $0.1 million to reflect the estimated fair value of those assets,
(ii) increased accrued severance costs by approximately $0.2 million, and (iii)
incurred professional fees and other costs of $0.7 million. During Q3 1999, we
recorded restructuring costs of $5.1 million and asset impairment charges of
$2.5 million, writing down the carrying value of our goodwill. As part of the Q3
1999 restructuring charges we (i) wrote down the carrying value of certain
assets held for sale by $2.5 million to their then estimated net realizable
value, (ii) recorded accrued severance costs of $1.4 million, (iii) incurred
professional fees of $0.7 million, and (iv) wrote down the carrying value of
certain leasehold improvements and other lease obligations by $0.5 million.

NET INTEREST AND OTHER EXPENSE. Net interest and other expense increased from
$1.3 million in Q3 1999 to $2.3 million in Q2 2001. Interest expense increased
by $0.7 million due to (i) higher interest rates paid for our borrowing
facilities in Q2 2001 as compared to Q3 1999, and (ii) increased amortization of
loan fees in Q2 2001, offset by decreased interest accrued on certain
subordinated debt and interest earned on a workers' compensation trust fund. In
addition, net interest and other expense in Q3 1999 included a $0.5 million gain
on the sale of our clerical division in Q3 1999. We have also earned
approximately $0.1 million in other income from providing support services to
the purchaser of our PEO division.

INCOME TAXES. During Q1 2001, we reduced the deferred tax asset valuation
allowance by a net reduction of $7.3 million, which was expected to be realized
through utilization of net operating loss carryforwards, relating to the
extinguishment gain that was recorded in Q2 2001 as well as taxable income from
future operations. During Q2 2001, we reduced the deferred tax valuation
allowance by an additional $1.1 million that we also expect to be able to
utilize against tax on income in the future. The valuation allowance was
established in 1999 and was increased by the tax benefits in the quarter ended
April 2, 2000 because it was not clear that the tax benefits resulting from
operating losses and other temporary differences were "more likely than not" to
be realized, as required by SFAS No. 109, "Accounting for Income Taxes".

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM. Income before extraordinary item for Q2
2001 was $1.1 million, as compared to a net loss of $8.3 million in Q3 1999. As
discussed above, the change in the net loss is primarily due to decreased
selling, general and administrative costs, reduced restructuring and asset
impairment charges, and the recovery of the deferred tax asset valuation
allowance, partially offset by reduced gross profit and increased interest
costs. Adjusted to remove restructuring charges, the non-operating gain from the
sale of our clerical division in Q3 1999, the bad debt provision for certain
accounts receivable which were sold in Q4 1999, and the recovery of the deferred
tax valuation allowance, our net income was $0.3 million in Q2 2001 compared to
a net loss of $2.2 million in Q3 1999.

EBITDA. EBITDA for Q2 2001 was $3.6 million, as compared to ($9.6) million in Q3
1999. EBITDA increased by $13.2 million primarily due to (i) a $11.5 million
decrease in selling, general and administrative costs before depreciation and
amortization comprised of a reduction of compensation costs of $5.8 million and
a reduction of our bad debt provision of $3.0 million, (ii) a $4.2 million
reduction in continued restructuring costs, and (iii) the



                                       24
<PAGE>   26

absence of asset impairment charges in Q2 2001, as compared to $2.5 million
during Q3 1999. These items were primarily offset by a $4.5 million decrease in
our gross profit margin.

TWENTY SIX WEEKS ENDED OCTOBER 1, 2000 AS COMPARED TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1999

NET REVENUES AND GROSS MARGIN: Revenues were $160.5 million for the twenty six
weeks ended October 1, 2000 ("YTD 2001"), a decrease of $142.1 million, or
47.0%, from $302.6 million for the six months ended September 30, 1999 ("YTD
1999"). This decrease in revenues resulted primarily from our restructuring
efforts during the last 12 months to focus on industrial staffing and to improve
profitability. The restructuring included the disposition of Synadyne (our
former professional employer organization, or PEO), Office Ours (our former
clerical division) and certain under-performing Tandem industrial staffing
offices, plus the termination of PEO services to certain of our franchisees.

Our gross profit (margin) decreased by 21.0%, to $32.5 million in YTD 2001, from
$41.1 million in YTD 1999 due primarily to sold or terminated operations. Gross
profit as a percentage of net revenues increased to 20.2% in YTD 2001 from 13.6%
in YTD 1999.

The following table summarizes the change in our net revenues and gross margin
during YTD 1999, as compared to YTD 2001:

<TABLE>
<CAPTION>

                                                                                                       Gross Margin as
                                                                    Net                Gross           a Percentage of
                                                                  Revenues             Margin            Net Revenues
                                                               ---------------     ---------------     -----------------
                                                                                (Amounts in thousands)

<S>                                                                 <C>                  <C>                      <C>
Six Months ended September 30, 1999                                 $ 302,578            $ 41,117                 13.6%
Increase (decrease)
       Tandem - ongoing offices                                         4,331               1,300                 30.0%
       Tandem - sold, franchised and closed offices (1)               (18,282)             (3,389)                18.5%
       Synadyne                                                      (114,334)             (3,651)                 3.2%
       Office Ours                                                     (3,323)               (865)                26.0%
       PEO services                                                    (8,446)                 69                    (2)
       Franchise royalties                                             (2,123)             (2,123)               100.0%
       Other                                                               99                  21                 21.2%
                                                                    ---------            --------
Subtotal                                                             (142,078)             (8,638)                 6.1%
                                                                    ---------            --------

Twenty Six Weeks ended October 1, 2000                              $ 160,500            $ 32,479                 20.2%
                                                                    =========            ========

</TABLE>
------------------

(1)      Includes offices sold, franchised and closed as part of our
         restructuring efforts as of October 1, 2000.

(2)      Not meaningful as presented.

The gross profit percentage increase to 20.2% in YTD 2001 from 13.6% in YTD 1999
is the result of the sale of our Synadyne division at the beginning of Q1 2001
and price increases implemented over the last three quarters in our Tandem
division, partially offset by the effect of the sale of our clerical staffing
division in August 1999 and the decrease in royalties derived from franchise
buyout payments. Synadyne, while generating 37.8% of our revenues in YTD 1999,
produced a gross margin of only 3.2% of revenue, or 8.9% of our consolidated
gross profit margin. Office Ours, our clerical division sold in Q3 1999,
produced a gross margin of 26.0%, or 2.1% of our consolidated gross profit
margin.



                                       25
<PAGE>   27

TANDEM OPERATIONS

Net revenues from our Tandem division decreased from $172.9 million during YTD
1999 to $158.9 million during YTD 2001 primarily because of our restructuring
and the resulting reduction of 41 offices through October 1, 2000. On a same
store basis, Tandem revenues increased by $4.3 million, primarily due to strong
revenue growth from new customers in certain geographical markets in Q1 2001,
offset by the cancellation or decline in revenues of certain of our large
customers and the lack of the ramp-up in revenues traditionally experienced by
the staffing industry during the third calendar quarter. The lack of a sales
ramp-up was most evident with our manufacturing and distribution customers.
Partially offsetting these was revenue growth from new and existing customers in
the construction and retail industries. We do not expect our revenues from
manufacturing and distribution to improve in Q3 2001.

Gross profit for our Tandem division declined to $31.0 million during YTD 2001
from $33.1 million during YTD 1999 primarily due to the offices sold,
franchised, or consolidated through October 1, 2000, which generated gross
margin of $4.4 million in YTD 1999 compared to $1.0 million prior to their
disposition in YTD 2001. While gross profit dollars declined, Tandem's gross
profit margin percent improved from 19.4% last year to 19.5% in YTD 2001. This
increase in gross margin percent is due to price increases that we instituted in
the past three quarters to reflect the value of services provided. These price
increases have been partially offset by higher workers' compensation costs
resulting from an increased average cost per claim in YTD 2001. This is in
contrast to 1999, when we experienced low average cost per claim and better than
anticipated development of open 1998 claims resulting in a reduction of workers'
compensation costs.

On a same store basis, Tandem's gross margin increased from $28.7 million in YTD
1999 to $30.0 million during YTD 2001, while gross margin, as a percent of
revenue, increased from 19.3% to 19.6%. This improvement in gross margin percent
is primarily due to the price increases instituted over the last three quarters,
partially offset by the higher workers' compensation costs, as previously
discussed. The $1.3 million improvement in gross profit margin is due to the
increase in same-store revenues in YTD 2001, as compared to the same period last
year, and the aforementioned improvement in gross profit as a percentage of
revenues.

Tandem's margins are affected by unemployment, competition for workers, the size
of our customers, workers' compensation costs, transportation costs and pricing.
We were able to mitigate the effect of low unemployment and competition for
workers by increasing our margins in YTD 2001 as compared to last year. Although
the average cost per labor hour increased by $0.13 during YTD 2001 as compared
to last year, the average price charged per labor hour increased by $0.35
compared to this period last year. In addition, beginning in Q1 2001 and
continuing throughout Q2 2001, Tandem began to reduce the impact of large,
low-margin customers which typically produce raw margin results (revenues less
direct payroll costs) several hundred basis points below Tandem's average gross
margin percent. Although Tandem's 100 largest customers made up 43.1% of our
revenues in YTD 2001 compared to 39.6% during YTD 1999, the average price
charged per labor hour has increased by $0.28 while the average cost per labor
hour by only $0.14.

Workers' compensation costs have increased more than expected in calendar year
2000 despite our employment of safety specialists because of one open zone
safety manager position in the West during the last half of calendar year 1999.
In addition, branches in California and Colorado did not immediately change
their existing risk management practices, continued to service job assignments
which were excluded by our risk management program, and not all branches were
not performing the on-site client reviews in accordance with our stated policy.
The employment of safety specialists, exclusion of risky job assignments, and
on-site client inspections all reduce the frequency of workers' compensation
claims and therefore minimize workers' compensation costs. Although these
factors have since been addressed by filling the open zone safety manager
position in California, and implementing more consistent training and monitoring
programs for compliance with our risk management policies, our workers'
compensation costs increased in calendar year 2000 because we experienced a
higher average cost per claim in 2000 and greater than anticipated expenses for
claims still open from 1999.




                                       26
<PAGE>   28

FRANCHISE OPERATIONS

Franchise royalty revenues from our franchising operations decreased from $3.5
million last year to $1.4 million for YTD 2001, primarily due to a $2.4 million
decrease in revenues from buyout payments received in connection with the early
termination of certain franchises.

Net revenues earned by Tandem franchisees, which are included in our system
revenues, but are not available to us, increased slightly from $44.9 million in
YTD 1999 to $46.8 million in YTD 2001. As of October 1, 2000, we had 51
franchised locations, compared to 50 franchised locations as of September 30,
1999, and as part of our growth efforts, we expect to increase franchisee net
revenues by continuing to sell new franchises in secondary U.S. markets, subject
to, among other factors, the success of our marketing efforts in this regard.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $18.1 million, or 39.3%, to $28.0 million in
YTD 2001 from $46.1 million during the same period last year. This decrease was
primarily the result of the restructuring we described earlier and reduced bad
debt expenses. Compensation costs decreased $9.3 million due to a reduction of
420 employees, and we experienced a $3.4 million reduction in our bad debt
provision in YTD 2001 as compared to YTD 1999. In Q3 1999, we recorded a $2.7
million bad debt provision related specifically to $4.3 million of receivables
which were sold to a third party during the fourth quarter of 1999. Other
selling, general and administrative costs, including telecommunications,
professional fees, recruiting, and licensing costs, decreased by an aggregate of
$4.1 million. Depreciation and amortization decreased by $1.0 million, due to
the disposition of the assets sold in connection with our restructuring plan,
and the $2.5 million impairment of goodwill during 1999.

As part of our on-going efforts to improve the support of our customers, branch
offices and service employees, we are currently analyzing the potential of
decentralizing some of our support functions. This would entail setting up
regional field service groups comprised of individuals with specific skill sets,
including business analysis, human resources, billing and collections. We expect
to complete the testing of our pilot concept by April 1, 2001, after which we
may decide to decentralize our branch support services.

RESTRUCTURING AND ASSET IMPAIRMENT CHARGES. During YTD 2001, we recorded
restructuring charges of $1.8 million. As part of the restructuring charges, we
have (i) adjusted the carrying value of assets held for disposition by
approximately $0.6 million to reflect the estimated fair value of those assets,
(ii) increased accrued severance costs by approximately $0.1 million and (iii)
incurred $1.1 million in professional fees. During Q3 1999, when we announced
our restructuring plan, we recorded restructuring costs of $5.1 million and
asset impairment charges of $2.5 million. As part of the YTD 1999 restructuring
charges we (i) wrote down the carrying value of certain assets held for sale by
$2.5 million to their then estimated net realizable value, (ii) recorded accrued
severance costs of $1.4 million, (iii) incurred professional fees of $0.7
million, and (iv) wrote down the carrying value of certain leasehold
improvements and other lease obligations by $0.5 million.

NET INTEREST AND OTHER EXPENSE. Net interest and other expense increased from
$3.0 million in YTD 1999 to $3.5 million in YTD 2001. This increase was due to a
$0.8 million increase in interest expense arising from higher interest rates
paid for our borrowing facilities in YTD 2001 as compared to last year, offset
by a $0.7 million gain from the sale of our PEO operations in Q1 2000, compared
to a gain of only $0.5 million from the sale of our clerical division in Q3
1999.

INCOME TAXES. During Q1 2001, we reduced the deferred tax asset valuation
allowance by a net reduction of $7.3 million, which was expected to be realized
through utilization of net operating loss carryforwards, relating to the
extinguishment gain that was recorded in Q2 2001 as well as taxable income from
future operations. During Q2 2001, we reduced the deferred tax valuation
allowance by an additional $1.1 million that we also expect to be able to
utilize against tax on income in the future. The valuation allowance was
established in 1999 and was increased by the tax benefits in the quarter ended
April 2, 2000 because it was not clear that the tax benefits resulting from
operating losses and other temporary differences were "more likely than not" to
be realized, as required by SFAS No. 109, "Accounting for Income Taxes".




                                       27
<PAGE>   29

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM. Income before extraordinary item for
YTD 2001 was $8.2 million, as compared to a net loss of $9.6 million in YTD
1999. As discussed above, the change in the net loss is primarily due to
decreased selling, general and administrative costs, reduced restructuring and
asset impairment charges, and the recovery of the deferred tax asset valuation
allowance, partially offset by reduced gross profit and increased interest
costs.

EBITDA. EBITDA for YTD 2001 was $6.3 million, as compared to ($8.2) million in
YTD 1999. EBITDA increased by $14.5 million primarily due to (i) a $17.1 million
decrease in selling, general and administrative costs before depreciation and
amortization comprised of a reduction of compensation costs of $9.3 million and
a reduction of our bad debt provision of $3.4 million, (ii) a $3.3 million
reduction in continued restructuring costs, and (iii) the absence of asset
impairment charges in YTD 2001, as compared to $2.5 million during YTD 1999.
These items were primarily offset by a $8.6 million decrease in our gross profit
margin.

LIQUIDITY AND CAPITAL RESOURCES

SENIOR DEBT

Effective August 15, 2000, we entered into a three-year agreement with a
syndicate of lenders led by Ableco Finance LLC, an affiliate of Cerberus Capital
Management, L.P., as agent. The lenders' syndicate consists of Ableco Finance
LLC, The CIT Group/Business Credit, Inc., A2 Funding LP and Ableco Holding LLC.
The new agreement replaced our existing credit facility with a $33.4 million
revolving credit facility, which includes a subfacility for the issuance of
standby letters of credit, and a $17.6 million term loan A and a $9.0 million
term loan B. Both the revolving credit facility and the term loans are secured
by all of our assets. The revolving credit facility bears interest at prime or
9.0%, whichever is greater, plus 2% per annum. Term loan A and term loan B bear
interest at prime or 9.0%, whichever is greater, plus 3.5% and 5.0% per annum,
respectively. In connection with the refinancing, we issued warrants to our new
lenders to purchase up to a maximum of 200,000 shares of common stock,
exercisable for a term of five years, at $0.01 per share. The warrants are only
exercisable if any letter of credit issued by the new lenders on our behalf is
drawn, in which event, the number of shares of common stock the lenders will
receive upon exercise of the warrant will be based on the amount drawn under the
letter of credit.

On August 15, 2000, we used a portion of our new credit facility to satisfy our
prior credit facility with Fleet National Bank, for itself and as agent for
three other banks. Prior to the closing of the refinancing, the outstanding
balance of our prior credit facility was approximately $52.0 million. We repaid
the balance in full with a cash payment of approximately $32.3 million and the
issuance of a four-year, $5.3 million subordinated term note. The term note is
subordinated to the new revolving credit facility and term loans and includes
interest only for four years, followed by a balloon payment for the entire
principal amount. In addition, we are entitled to a 60% discount on the term
note if it is satisfied within 18 months. This obligation bears interest at
Fleet's prime rate plus 3.5% per annum. In connection with the refinancing and
in satisfaction of our obligation to our old lenders, we issued 524,265 warrants
to our old lenders to purchase that number of shares of our common stock which
equals 5.0% of our common stock on a fully diluted basis. The warrants are
exercisable for a term of 10 years at $0.001 per share. In connection with the
refinancing and the termination of our prior credit facility, we recorded an
extraordinary gain, net of tax, of approximately $8.5 million in the quarter
ended October 1, 2000.

The financing agreement relating to the new credit facility obligates us to,
among other things:

o        provide the lenders with periodic records and reports, including
         financial statements;
o        keep adequate books and records and maintain our property in good
         working order;
o        permit the lenders to inspect our books and records;
o        maintain adequate insurance on the collateral;
o        operate our property and business in compliance with environmental laws
         and keep our property free from environmental liens;
o        obtain landlord waivers whenever we acquire a leasehold interest in
         real property;




                                       28
<PAGE>   30

o        obtain subordination agreements whenever we incur additional
         indebtedness; and
o        notify the lenders whenever we acquire an ownership interest in real
         property valued at more than $250,000 or a leasehold interest in real
         property where the annual lease payments total more than $200,000, and
         to provide certain documentation relating to the real property.

The financing agreement also limits our ability to:

o        create any liens on our property;
o        incur any additional indebtedness;
o        liquidate, dissolve, merge, consolidate, or sell substantially all of
         our assets, property or business; o change the nature of our business;
o        make loans or advances to, or invest in securities of, any third party;
o        enter into any new leases with aggregate lease payments in excess of
         certain thresholds;
o        make, or commit to make, any capital expenditure in excess of certain
         thresholds;
o        declare or pay dividends, repurchase or redeem our capital stock or
         effect any distributions to our shareholders;
o        effect transactions with our affiliates except in the ordinary course
         of business; and
o        amend any provision of our existing indebtedness or our organizational
         documents.

In addition, we have agreed with our lenders to maintain certain financial
ratios, including fixed coverage, consolidated EBITDA, leverage and tangible net
worth, above or below certain thresholds.

As of October 1, 2000, we had outstanding borrowings of $18.8 million under our
revolving credit facility, $26.0 million under the provisions of our term loans,
and $5.3 million under the provisions of the Fleet term note. As of that date,
the revolving credit facility bore interest at 11.5%, term loan A and term loan
B bore interest at 13.0% and 14.5%, respectively, and the Fleet term note bore
interest at 13.0%. As of December 31, 2000, we had $12.7 million in outstanding
borrowings under our revolving credit facility. The weighted average interest
rate payable on the outstanding balances for all debt year-to-date through
October 1, 2000, exclusive of related fees and expenses, was approximately 16.6%
per annum, compared to approximately 9.0% per annum during the same period in
1999. In connection with the refinancing on August 15, 2000, we recorded a debt
discount of $9.0 million, which is being amortized as interest expense over the
three year life of the borrowing agreements with the syndicate of lenders. The
effective interest including the debt discount was 20.9%.

Before August 15, 2000, our primary sources of funds for working capital and
other needs were a $26.1 million credit line, including existing letters of
credit of $4.8 million plus a $33.0 million credit facility, based on and
secured by our accounts receivable. Prior to their expiration, the receivable
facility, bore interest at Fleet's prime rate plus 2.0% per annum, which was
11.5% as of August 15, 2000 and the revolving credit facility bore interest at
prime plus 5.0% per annum, which was 14.5% as of August 15, 2000.

Our prior credit facility with Fleet National Bank, as agent, which was entered
into on October 5, 1999, to be effective as of October 1, 1999 (a) replaced the
previously existing $50.0 million securitization facility with Eagle Funding
Capital Corporation, an affiliate of Fleet National Bank, and (b) amended the
previously existing $29.9 million revolving credit facility with Fleet National
Bank, as agent (which included letters of credit of $8.4 million) to (i) reduce
the maximum availability to $25.5 million, including existing letters of credit
of $5.0 million, (ii) eliminate certain financial covenants and (iii) add events
of default, including a provision enabling the lenders to accelerate the
maturity date of the credit facility if, in their sole discretion, the lenders
were not satisfied with our business operations or prospects.

The prior securitization facility with Eagle Funding Capital Corporation, which
was terminated as of October 1, 1999, was a financing arrangement under which we
could sell up to a $50.0 million secured interest in our eligible accounts
receivable to Eagle, which used the receivables to secure A-1 rated commercial
paper. Our costs for this arrangement was classified as interest expense and was
based on the interest paid by Eagle on the balance of the outstanding commercial
paper, which in turn was determined by prevailing interest rates in the
commercial paper market and was approximately 5.45% as of September 30, 1999.



                                       29
<PAGE>   31

In addition to the revolving credit facility indebtedness discussed above, as of
October 1, 2000, we had bank standby letters of credit outstanding in the
aggregate amount of $2.3 million. Of that amount, $1.7 million secured the
pre-1999 portion of our workers' compensation obligations that are recorded as a
current liability on our consolidated balance sheet as of October 1, 2000. The
remaining $0.6 million, which is supported by a $0.6 million cash escrow
balance, is to secure future payments on a capital lease for furniture that we
sold as part of our corporate headquarters building. The letters of credit may
be drawn upon in the event that the Company fails to satisfy its payment
obligations under its worker's compensation policies or the furniture capital
lease.

In October 2000, we replaced the trust fund intended to secure any liability for
workers' compensation claims funding for 1999 and 2000 with letters of credit.
The $2.1 million funded to the trust account as of October 1, 2000 was used to
pay down our senior facilities. See "Workers' Compensation Collateral". We issue
new standby letters of credit to our insurance carriers in addition to adjusting
the amounts of previously issued letters of credit to provide collateral for
potential future payments that may be due to our insurers.

OTHER DEBT

In order to remain in compliance with certain covenants in our prior revolving
credit facility, and to reduce the cash impact of scheduled payments under our
subordinated acquisition debt, we negotiated extensions of the payment dates and
modified the interest rates and other terms of certain of our acquisition notes
payable in 1999. We had not made substantially all of the scheduled payments due
and, as a result, we were in default on acquisition notes payable having a total
outstanding principal balance of $6.9 million as of July 2, 2000. The terms of
the acquisition notes payable, which were subordinated to the revolving credit
facility and the receivable facility, allowed the payees to accelerate terms of
payment upon default. Acceleration of this debt required prior written notice by
the various payees, which we received from three payees as of July 2, 2000.
Effective as of August 15, 2000, in connection with the refinancing, we amended
certain acquisition notes payable to provide that we will pay interest only, at
a rate of 10.0% per annum, on the notes for three years following the closing of
the refinancing, followed by two years of equal monthly payments of principal
and interest which will retire the debt by August 2005. In connection with the
amendments to the acquisition notes payable, we paid $0.8 million of accrued
interest to the relevant noteholders at the closing of the refinancing.

In addition to the debt previously discussed, we had, as of October 1, 2000, (i)
obligations under capital leases for property and equipment in the aggregate of
$2.1 million; (ii) obligations under mortgages totaling $0.4 million and (iii)
obligations for annual insurance premiums and other matters totaling $0.2
million, of which a portion represents prepayment for future benefits and would
be refundable to us should the policy be cancelled.

SUMMARY OF CASH FLOWS

Cash used in operating activities in YTD 2001 was $3.6 million, as compared with
$3.8 million provided by operating activities in YTD 1999. The collection of our
accounts receivable related to the sale of Tandem offices in connection with the
restructuring and improved collections of our accounts receivable in this year
generated $5.8 million in operating cash in YTD 2001. This operating cash was
more than offset by the pay down of current liabilities due to (i) the sale of
Tandem offices (ii) funding of our workers' compensation liability, (iii)
payment of accrued interest on our subordinated debt in connection with our
Refinancing on August 15, 2000, and (iv) utilization of our restructuring
reserve. We also terminated our securitization agreement on October 1, 1999
whereby we sold certain accounts receivable to obtain working capital to fund
our operations, which impact is discussed in the table the follows. Cash used in
operating activities in YTD 1999 included increased accounts receivable
associated with the volume increases traditionally experienced in the third
calendar quarter of the year by our Tandem offices plus funding of our
pre-funded workers' compensation program. We anticipate that accounts receivable
will decrease by an additional $1.0 million in Q3 2001 as we collect the
outstanding accounts receivable from the Tandem offices sold in New Hampshire
and Massachusetts on October 29, 2000.

Cash provided by investing activities during YTD 2001 was $3.4 million compared
to $3.2 million during YTD 1999. Cash provided by investing activities in 2001
consisted of primarily of $4.2 million received in conjunction with a sale of
our Synadyne division and Tandem offices, offset by expenditures for property,
plant, and equipment, and funding to our franchisees. Cash provided by investing
activities in 1999 included (i) $2.0 million from the sale of our clerical
division and certain Tandem offices associated with the Restructuring, (ii) $1.6
million from a sale-leaseback transaction during the period, and (iii) a net
decrease in funding provided to our franchisees, partially offset by (iv)
expenditures for property, plant, and equipment.




                                       30
<PAGE>   32

Cash provided by financing activities during YTD 2001 was $0.7 million, as
compared to $7.3 million used in financing activities in the same period last
year. In addition to the impact of the securitization agreement in 1999, as
discussed in the table below, we increased borrowings in 1999 to fund increased
payroll costs arising from seasonal volume increases and the workers'
compensation funding. Cash provided by financing activities in YTD 2001 of $0.7
million includes $3.9 million in funds borrowed from our line of credit
partially offset by a $2.0 million decrease in check float and a $1.2 million
pay down of other debt.

The table below sets forth our cash flows as presented in our consolidated
financial statements for YTD 2001 and YTD 1999, in thousands:

                                       Twenty Six Weeks         Six Months
                                           Ended                  Ended
                                        Oct 1, 2000           Sept 30, 1999
                                       ----------------       -------------
Cash flows (used in) provided by:

HISTORICAL CASH FLOW
Operating activities                      $(3,649)               $ 3,836
Investing activities                        3,403                  3,236
Financing activities                          730                 (7,264)
                                          -------                -------

Net decrease (increase) in cash           $   484                $  (192)
                                          =======                =======
---------------------

(1)      As part of our borrowing facilities, in YTD 1999, we sold certain trade
         accounts receivable to obtain working capital for our operations. Under
         this agreement we had sold $46.9 million and $36.1 million of trade
         accounts receivable as of September 30, 1999 and December 31, 1998,
         respectively, which was excluded from the uncollected accounts
         receivable balance and corresponding borrowings presented in our
         consolidated balance sheet as of September 30, 1999. This agreement was
         subsequently terminated and ultimately replaced with a revolving credit
         facility, and as such all of our uncollected accounts receivable and
         corresponding borrowings are included in our consolidated financial
         statements as of October 1, 1999. The impact of selling our accounts
         receivable in conjunction with our financing arrangements on our cash
         flow was to increase cash from operating activities and decrease cash
         from financing activities by $10.8 million during YTD 1999.

WORKERS' COMPENSATION COLLATERAL

Before 1999, we secured our workers' compensation obligations by the issuance of
bank standby letters of credit to our insurance carriers, minimizing the
required current cash outflow for such items. In 1999, we 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 our revolving credit facility.

In January 2000, we renewed our pre-funded deductible program for one year.
Under the new agreement, we will fund $10.5 million in 12 installments for
projected calendar year 2000 claims expenses. This claim fund requirement will
be adjusted upward or downward periodically based on the projected cost of the
actual claims incurred during calendar year 2000, up to a maximum liability of
$18.0 million. In addition, we agreed to provide extra collateral by
establishing a $3.0 million trust account naming Hartford Insurance Company as
beneficiary to secure any liability for claim funding for 1999 and 2000 that
might exceed the pre-funded amounts up to the aggregate maximum cap for each
year of $13.6 million and $18.0 million, respectively. We had planned to fund
this trust account in 11 installments through December 2000; and as of October
1, 2000, we had funded $2.1 million into the trust account. However, we are
exploring alternatives to the trust fund discussed above, and we expect to
replace the trust fund with letters of credit. Should we finalize this
alternative, the $2.1 million funded to the trust account would be used to pay
down our senior borrowing facilities.




                                       31
<PAGE>   33

ACCOUNTS RECEIVABLE

A majority of our tangible assets are customer accounts receivable. Tandem
employees are paid on a daily or weekly basis. We receive payment from customers
for these services, on average, 30 to 60 days from the date of the invoice.
Beginning in the fourth quarter of 1998, we experienced an increase in the
percentage of our Tandem accounts receivable that were past due. During calendar
1999 and the first two quarters of calendar 2000, we increased our focus on our
accounts receivable collection process. As a result, the average number of days
to collect Tandem accounts receivable from invoice presentation has decreased
from 53 days at December 31, 1998 to 45 days at October 1, 2000. Since we
announced our restructuring plan in August 1999, accounts receivable decreased
by approximately $11 million due to the sale of Tandem offices, our PEO division
and our clerical division to third parties; although the working capital benefit
was substantially less due to the corresponding reduction in liabilities such as
accrued payroll, payroll taxes and workers' compensation.

In addition, during the fourth quarter of 1999, we sold certain trade accounts
receivable, with a face value of approximately $4.4 million, most of which were
more than 180 days past due, to unrelated third parties for approximately
$220,000. In Q3 1999 we increased our reserve for doubtful accounts by $2.7
million to adjust these receivables to their net realizable value. We accounted
for the transfer of these receivables as a sale because we surrendered control
over the receivables on the date the sale was closed. In accordance with FAS 125
since the carrying amount of the accounts receivable, net of the related
reserve, was equal to the sales price, no gain or loss was recognized on the
sale of the accounts receivables ($0.2 million carrying value less net proceeds
of $0.2 million).

We anticipate that our accounts receivable will decrease by an additional $1
million as we collect the outstanding receivables for the branches sold in the
states of New Hampshire, Massachusetts and Pennsylvania on October 29, 2000.

CAPITAL EXPENDITURES

We anticipate spending up to $2 million during the next twelve months to improve
our management information and operating systems, upgrade existing locations and
other capital expenditures including, but not limited to, opening new Tandem
locations.

FUTURE LIQUIDITY

As shown in the 1999 Financials, we incurred a net loss of $30.9 million during
fiscal year 1999, our current liabilities exceeded our current assets by $42.0
million as of December 31, 1999, and we were in default in repayment of certain
acquisition debt subordinated to our bank financing. Our bank facilities and
financial covenants were modified effective October 1, 1999, accelerating the
date of maturity, which was subsequently extended by the syndicate of lenders on
a monthly basis through August 15, 2000.

Effective August 15, 2000, as previously discussed, we entered into a three year
agreement with a syndicate of lenders led by Ableco Finance LLC whereby our
previous credit facility was replaced by a $33.4 million revolving credit
facility and a $17.6 million Term Loan A and a $9.0 Term Loan B. We believe that
funds provided by operations, as disclosed on our statement of cash flows, and
borrowings under our new credit facilities will be sufficient to meet our needs
for working capital, capital expenditures, and debt service for the foreseeable
future.

We finance our operations with cash generated from our operating activities and
with external financing, including revolving and term loans, and standby letters
of credit. We principally use cash to fund our service employee payroll and
workers' compensation insurance, plus pay our core, sales and administrative
employees. We pay our service employees four to six weeks before collecting the
related revenues from our customers. Since our revolving loan eligibility
increases in proportion to the amount of our eligible accounts receivable, we
are able to borrow more when our working capital needs rise. In the short term,
we may experience cash flow deficits from



                                       32
<PAGE>   34

operations during periods when activity is increasing rapidly due to the one to
two-week delay between paying our service employees and our ability to borrow
against the related receivables under our revolving loan. In the long term, any
investing activity would require additional equity or debt financing. We believe
that our borrowing capacity under the current credit facility including our
revolving and term loans and letters of credit, in addition to cash flow from
operations, existing cash and escrow receivable balances, and payments received
under notes receivable related to sales of non-performing assets, will be
sufficient to support our working capital needs for the next year. However,
there can be no assurance that we will be able to satisfy our working capital
needs through these sources. If we are unable to satisfy our cash requirements
through the current credit facility and cash flow from operations, we will
reduce our cash needs to compensate for cash shortfalls by delaying capital
spending, reducing or eliminating marketing and promotional expenses and new
product development, selling other assets or operations, and reducing or
eliminating expenditures for general and administrative expenses.

RESTRUCTURING

On August 6, 1999, we announced actions to improve our short-term liquidity,
concentrate our operations within our Tandem division, and improve our operating
performance. In connection with these actions, we sold our Synadyne and clerical
staffing divisions. In addition, we announced a specific plan to sell,
franchise, close, or consolidate 47 Tandem offices and reduce headcount at 70
Tandem locations and corporate headquarters. The restructuring charge accrual
and its utilization are as follows:

<TABLE>
<CAPTION>


                                                                                             Fiscal Year 2001
                                                                         ----------------------------------------------------------
                                                                             Charges to
                                                                            (Reversals Of)
                                                                              Operations              Utilization
                                                Original    Balance at   --------------------     --------------------   Balance at
(Amounts in Thousands)                           Charge       4/2/00     Q1 2001     Q2 2001       Cash       Non-cash    10/1/00
                                                --------    ----------   -------      -------     -------     --------    -------
<S>                                              <C>         <C>         <C>          <C>         <C>         <C>         <C>
Employee severance and
    other termination benefits                   $ 4,040     $ 2,139     $   (89)     $   152     $   939     $    --     $ 1,263

Professional fees                                  1,205          34         369          401         764          --          40
                                                                                                              -------     -------
Lease termination and write-down of
    leasehold improvements at closed offices         400          49          (2)          36          28          --          55

Other restructuring charges                          146          33         154          218         405          --          --
                                                 -------     -------     -------      -------     -------     -------     -------

Accrued restructuring charges                      5,791       2,255         432          807       2,136          --       1,358

Write-down to fair value/loss on sale
    of assets identified for disposition           5,429          --         446          133          --         579          --
                                                 -------     -------     -------      -------     -------     -------     -------
Total restructuring and asset
    impairment activity                          $11,220     $ 2,255     $   878      $   940     $ 2,136     $   579     $ 1,358
                                                 =======     =======     =======      =======     =======     =======     =======

</TABLE>

SEVERANCE AND OTHER RESTRUCTURING CHARGES

The original $11.2 million restructuring charge includes $4.0 million for
severance and other termination benefits, $1.2 million for professional fees,
and $0.6 million in lease termination and other charges. Severance and other
termination benefits were decreased by $0.2 million and $0.1 million during Q1
2000 and Q1 2001, respectively, to reflect the fact that certain employees of
offices sold and franchised to third parties would continue employment with such
buyers or franchisees and would not be paid the severance that had been accrued.
The Company recorded an additional $0.2 million in severance costs in Q2 2001
due to the additional 16 employees terminated during the period whose severance
payments were not accrued as part of the our original Restructuring plan. The
remaining liability consisted of $1.3 million for severance and other
termination benefits as of October 1, 2000 for ten employees who have been
terminated during the period of August 1999 through August 2000, and will paid
over a period ranging from one week to 18 months from the balance sheet date.

Professional fees of $0.4 million and $0.8 million, recorded as restructuring
costs, were incurred during Q2 2001 and YTD 2001, respectively. These
professional fees were comprised primarily of amounts paid to Crossroads LLC,
for its services related to the Restructuring.

We utilized $0.2 million and $0.3 million of the restructuring charge during Q2
2000 and YTD 2001, respectively, for the costs of terminating leases as well as
for writing down the carrying value of leasehold



                                       33
<PAGE>   35

improvements and other assets not usable in other Company operations. We
completed our restructuring activities as of October 31, 2000.

ASSETS HELD FOR DISPOSITION

The restructuring charge included a $5.4 million write-down of assets, recorded
in our results of operations at such time as these assets were classified as
held for disposition, to their estimated net realizable value based on
management's estimate of the ultimate sales prices that would be negotiated for
these assets. Subsequent to December 31, 1999, when actual sales prices of these
assets were negotiated, the charge was increased by $0.1 million in Q1 2000, and
subsequently increased by $0.4 million in Q1 2001. Based on the negotiations of
the actual sales price of certain assets sold subsequent to October 1, 2000, we
recorded an additional charge of $0.1 million during Q2 2001.

During Q1 2001, we (i) sold one staffing office and closed another, in the state
of Minnesota, effective April 10, 2000, for cash proceeds of $60,000, (ii)
franchised one of our staffing offices in the state of Ohio, effective April 10,
2000, for cash proceeds of $20,000, and (iii) effective June 26, 2000, sold our
operations in the states of New Jersey and Pennsylvania, comprising six staffing
offices and two "vendor on premises" locations, for $1.3 million (comprised of
cash proceeds of $0.8 million and two promissory notes totaling $0.5 million).
In connection with the sale of our staffing offices in New Jersey and
Pennsylvania, we recorded a $0.4 million loss on the sale, in addition to the
original $2.1 million write-down of these assets to their estimated net
realizable value upon their classification as assets held for disposition.

Effective October 29, 2000, we sold our Tandem operations in the states of New
Hampshire and Massachusetts, comprising five offices and two "vendor on premise"
locations, for $125,000, comprised of cash proceeds of $50,000 at closing and a
two year $75,000 promissory note. In addition, we will receive additional
payments equal to 30% of EBITDA of the sold offices during the next two years.
Excluded from the sale were cash, accounts receivable and deferred income taxes,
as well as accrued liabilities and accounts payable. As previously discussed, we
recorded an additional $133,000 charge to restructuring during Q2 2001 to reduce
the carrying value of these assets to their net realizable value.

In addition to the 47 offices identified as held for disposition as part of our
initial restructuring plan, during Q2 2001 we removed one office from the held
for disposition classification. In addition, we identified two additional
offices to be closed as a result of our ongoing restructuring activities and
recorded the related assets as held for disposition at that time. These offices
were subsequently closed in Q3 2001 when it became apparent that they would be
abandoned. All of the assets held for disposition were sold or franchised on or
before October 31, 2000. Upon classification as assets held for disposition, we
discontinued the related depreciation and amortization for these assets, which
reduced operating expenses by approximately $0.2 million in YTD 2001.

Our assets held for disposition as of October 1, 2000, stated at the lower of
original cost (net of accumulated depreciation or amortization) or fair value
(net of selling and disposition costs), are as follows (in thousands):

                                  Net Original Cost
                        ---------------------------------------
                        Property      Goodwill and                   Lower of
                           and           Other                        Cost or
                        Equipment   Intangible Assets    Total       Fair Value
                        ---------   -----------------   -------      ----------

 Tandem branch offices   $ 195          $ 1,045         $ 1,240         $ 215
                         =====          =======         =======         =====

The following table reflects our net revenues and gross profit margin
segregating ongoing operations and operations from assets held for disposition
or sold as part of our restructuring efforts and other disposed operations.
Those operations include: (i) the Synadyne division, sold as of April 8, 2000,
(ii) Office Ours, our clerical division, sold during the third quarter of
calendar 1999, (iii) franchise PEO operations, which ceased operations after
December 31, 1999, and (iv) Tandem branch offices disposed or held for sale as
of October 1,



                                       34
<PAGE>   36

2000. Ongoing operations include (i) the Tandem division, which provides
flexible industrial staffing and (ii) franchising. Dollar amounts are in
thousands, except for percentages:

<TABLE>
<CAPTION>

                                                         Thirteen Weeks    Three Months       Twenty Six          Six Months
                                                              Ended            Ended         Weeks Ended            Ended
                                                          Oct. 1, 2000    Sept. 30, 1999     Oct. 1, 2000      Sept. 30, 2000
                                                          ------------    --------------     ------------      --------------
<S>                                                        <C>               <C>               <C>               <C>
Net revenues:
    Total Company                                          $  78,882         $ 159,124         $ 160,500         $ 302,578
    Less revenues from assets held for sale and
     disposed/ceased operations:
       Synadyne                                                   --           (59,325)              (71)         (114,404)
       Clerical, franchise PEO and other                      (2,560)          (20,920)          (10,487)          (40,262)
                                                           ---------         ---------         ---------         ---------

    Subtotal - revenues from assets held for sale
     and disposed/ceased operations                           (2,560)          (80,245)          (10,558)         (154,666)
                                                           ---------         ---------         ---------         ---------

    Net revenues from ongoing operations                   $  76,322         $  78,879         $ 149,942         $ 147,912
                                                           =========         =========         =========         =========

Gross profit margin:

    Total Company                                          $  16,292         $  20,772         $  32,479         $  41,117
    Less gross profit from assets held for sale
     and disposed/ceased operations:
       Synadyne                                                   --            (1,645)               12            (3,638)
       Clerical, franchise PEO and other                        (281)           (3,045)           (1,486)           (5,949)
                                                           ---------         ---------         ---------         ---------

    Subtotal - gross profit from assets held for
     sale and disposed/ceased operations                        (281)           (4,690)           (1,474)           (9,587)
                                                           ---------         ---------         ---------         ---------

    Gross profit margin from ongoing operations            $  16,011         $  16,082         $  31,005         $  31,530
                                                           =========         =========         =========         =========

Gross profit margin as a percentage of net revenues:

    Ongoing operations - Tandem                                 20.1%             19.3%             19.9%             19.4%
    Ongoing operations - franchising and other                 100.0%            100.0%            100.0%            100.0%
    Operations from assets held for sale and
     disposed/ceased operations                                 11.0%              5.8%             14.0%              6.2%

</TABLE>

Certain reclassifications have been made to previously reported results of
operations for the three months ("Q3 1999") and six months ("YTD 1999") ended
September 30, 1999 in the table above to conform to current period presentation.

Tandem branches sold, franchised or held for sale as of October 1, 2000
generated revenues of $2.6 million, and $15.2 million during Q2 2001 and Q3
1999, respectively, and earned gross profit of $0.3 million and $2.7 million for
those periods. Those same branches incurred SG&A expenses of $0.3 million and
$2.7 million, excluding depreciation and amortization costs, during Q2 2001 and
Q3 1999, respectively, generated revenues of $10.5 million and $28.5 million
during YTD 2001 and YTD 1999, respectively, earned gross profit of $1.5 million
and $5.0 million, and incurred SG&A expenses of $1.4 million and $5.1 million,
excluding depreciation and amortization costs.

Results of flexible industrial staffing offices that were consolidated into
existing offices, as part of our Restructuring efforts, are included in ongoing
operations.

Office Ours, our former clerical division which was sold on August 30, 1999,
generated revenues of $1.3 million and $3.3 million, gross profit of $0.3
million and $0.9 million, and incurred $0.4 million and $1.0 million in SG&A
expense, excluding depreciation and amortization, during Q3 1999 and YTD 1999,
respectively. SG&A for the Synadyne division, excluding depreciation and
amortization, was $1.3 million during Q3 1999 and $0.2 million and $2.7 million
during YTD 2001 and YTD 1999, respectively.

SEASONALITY

Our results of operations reflect the seasonality of higher customer demand for
industrial staffing services in the last two calendar quarters of the year, as
compared to the first two quarters. Even though there is a seasonal reduction of
industrial staffing revenues in the first calendar quarter of a year as compared
to the fourth calendar quarter of the prior year, we do not reduce the related
core personnel and other operating expenses proportionally because most of that
infrastructure is needed to support anticipated increased revenues in subsequent
quarters. As



                                       35
<PAGE>   37

a result of these factors, we historically have earned a significant portion of
our annual operating income in the third and fourth calendar quarter. However,
as previously discussed, we have experienced a slowdown in demand from our
manufacturing and other services customers which may reduce the normal ramp up
of sales volume that we had anticipated in the fourth calendar quarter of 2001
(Q3 2001).

INFLATION

The effects of inflation on our operations were not significant during the
periods presented. Generally, throughout the periods discussed above, the
increases in revenues and expenses have resulted from a combination of volume
increases, price increases, and changes in the customer mix.

NEW ACCOUNTING PRONOUNCEMENTS AND INTERPRETATIONS

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. We intend to implement SFAS No. 133 in our
consolidated financial statements on the first day of fiscal year 2001.
Management does not believe that we are a party to any transactions involving
derivatives as defined by SFAS No. 133. SFAS No. 133 could increase volatility
in earnings and other comprehensive income if we enter into any such
transactions in the future.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"),
which among other guidance, clarifies certain conditions to be met in order to
recognize revenue. In October 2000, the staff deferred the implementation date
of SAB 101 until no later than the fourth quarter of fiscal years beginning
after December 31, 1999. We will adopt SAB 101 in fiscal 2001; however, we
believe that such adoption will not impact the Consolidated Financial
Statements.



                                       36
<PAGE>   38
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, 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 OF FINANCING, EQUITY AND WORKING CAPITAL TO
MEET THE COMPANY'S FUTURE NEEDS, ECONOMIC CONDITIONS IN THE COMPANY'S MARKET
AREAS AND COSTS. THE WORDS "AIM," "BELIEVE," "EXPECT," "ANTICIPATE," "INTEND,"
"ESTIMATE," "WILL," "SHOULD," "COULD" AND OTHER EXPRESSIONS WHICH INDICATE
FUTURE EVENTS AND TRENDS 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
FUTURE CASH FLOWS, SALES, GROSS MARGINS AND OPERATING COSTS, INCLUDING THE
COMPANY'S ABILITY TO IMPLEMENT AND MAINTAIN COST REDUCTIONS IN CONNECTION WITH
THE RESTRUCTURING; 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
EMPLOYEES; THE AVAILABILITY AND COST OF FINANCING; THE ABILITY TO MAINTAIN
EXISTING BANKING RELATIONSHIPS; THE ABILITY TO REMAIN IN COMPLIANCE WITH THE
TERMS AND COVENANTS OF THE COMPANY'S FINANCING AGREEMENTS; THE RECOVERABILITY OF
THE RECORDED VALUE OF GOODWILL AND OTHER INTANGIBLE ASSETS ARISING FROM PAST
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; PRICE COMPETITION; CHANGES IN
AND THE COMPANY'S ABILITY TO COMPLY WITH 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, 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, 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
VOLATILE AS A RESULT OF, AMONG OTHER THINGS, THE COMPANY'S OPERATING RESULTS,
THE OPERATING RESULTS OF OTHER TEMPORARY STAFFING 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/A, AND IN OTHER REPORTS FILED BY THE COMPANY WITH THE SECURITIES AND
EXCHANGE COMMISSION INCLUDING, BUT NOT LIMITED TO, THOSE CONTAINED IN THE
COMPANY'S REGISTRATION STATEMENT ON FORM S-1 (FILE NO. 333-48926) FILED ON
OCTOBER 30, 2000 AND DECLARED EFFECTIVE JANUARY 31, 2001, THE COMPANY'S FORM
10-K FOR THE YEAR ENDED DECEMBER



                                       37
<PAGE>   39

31, 1999, THE FORM 10-Q FOR THE TRANSITION PERIOD ENDED APRIL 2, 2000, AND THE
FORM 10-Q/A FOR THE QUARTERLY PERIOD ENDED JULY 2, 2000.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a result of borrowings associated with our operating and investing
activities, we are exposed to changes in interest rates that may adversely
affect our results of operations and financial position. Of the $50.8 million of
short-term and long-term borrowings on our balance sheet as of October 1, 2000,
approximately 19.8% represented fixed rate instruments. Effective August 15,
2000, we entered into a three-year financing agreement with a syndicate of
lenders led by Ableco Finance LLC, as agent. The financing replaced our existing
credit facility with a $33.4 million revolving credit facility and a $17.6
million Term Loan A and a $9.0 million Term Loan B. Both the revolving credit
facility and the term loans are secured by all of our assets. The revolving
credit facility bears interest at prime or 9.0%, whichever is greater, plus 2%
per annum. Term Loan A and Term Loan B bear interest at prime or 9.0%, whichever
is greater, plus 3.5% and 5.0% per annum, respectively.

In addition, effective August 15, 2000, we renegotiated certain subordinated
acquisition debt whereby we will pay interest only, at a rate of 10% per annum,
on the debt for three years followed by two years of equal monthly payments of
interest and principal, which will retire the debt by August 2005. Our
acquisition debt, prior to its renegotiation on August 15, 2000, had effective
interest rates varying between 8.75% and 12.0%.

A hypothetical 10% (about 123 basis points) adverse move in interest rates along
the entire interest rate yield curve would increase our interest expense over
the next twelve months by approximately $0.7 million, and would decrease net
income after taxes for the same period by $0.5 million, or $0.05 per diluted
share. In addition, the hypothetical 10% adverse move in interest rates would
have an immaterial impact on the fair market value of our fixed-rate debt.



                                       38
<PAGE>   40

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

In September 1998, Sonia Hill, an employee of an independent agency of Allstate
Insurance Company, brought a discrimination lawsuit under the Texas Commission
of Human Rights Act of 1983, naming Synadyne III, Inc., Allstate Insurance, the
independent agency and the agent as defendants. Synadyne III, Inc., is one of
five corporations which comprised our Synadyne division and through which we
provided PEO services. All of the assets of these five corporations were sold in
April 2000. Although the other defendants were served with a summons and
complaint, Synadyne III, Inc., was never served. At the time of the alleged
incident, Synadyne III was under contract with the independent insurance agency
to provide PEO services. The suit was brought in the County Court, Dallas
County, Texas. On September 13, 2000, a final default judgment in the amount of
$807,245 was entered against Synadyne III, Inc. The Company was first informed
of the existence of this judgment when it received notice of the entry of
default judgment on September 18, 2000. On December 8, 2000, this default
judgment was vacated on the grounds that it was obtained without according due
process to Synadyne III, Inc., The Company has filed its answer in this lawsuit
and the Company's employment practices liability insurance carrier has assumed
the defense of this action on Company's behalf.

ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS

On August 15, 2000, in connection with the refinancing, the Company issued
warrants to purchase an aggregate of 524,265 shares of its common stock to the
lenders under the Company's previous credit facility, which constitutes 5% of
the Company's outstanding common stock on a fully-diluted basis. The warrants
were issued in exchange for forgiveness of $14.4 million which the Company owed
to the lenders. The warrants were issued in reliance on Section 4(2) of the
Securities Act.

On August 15, 2000, in connection with the refinancing, the Company issued
warrants to purchase up to 200,000 shares of its common stock to Ableco Holding
LLC. The warrants are only exercisable if any letter of credit issued by the new
lenders on the Company's behalf is drawn, in which event, the number of warrants
the lenders will receive will be based on the amount drawn under the letter of
credit. The warrants were issued in reliance on Section 4(2) of the Securities
Act.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

In order to remain in compliance with certain covenants in the Fleet Facility,
and to reduce the cash impact of scheduled payments under its subordinated
acquisition debt, the Company had negotiated extensions of the payment dates and
modified the interest rates and other terms of certain of its acquisition notes
payable in 1999. The Company had not made substantially all of the scheduled
payments due and, as a result, was in default on these debts having total
principal outstanding of $6.9 million as of August 15, 2000. The terms of these
acquisition notes payable, which were subordinated to the Fleet Facility and the
Receivable Facility, allowed the payees to accelerate terms of payment upon
default. Acceleration of this debt required prior written notice to the Company
by the various payees, which was received from three payees as of August 15,
2000. On August 15, 2000, in connection with the Refinancing, certain of the
subordinated acquisition notes payable were amended to provide for a five year
term, interest only, at a rate of 10.0% per annum, for three years, followed by
two years of equal monthly payments of interest and principal, which will retire
the notes. In connection with the amendments to these subordinated acquisition
notes payable, the Company paid $0.8 million of accrued interest to the relevant
noteholders at the closing.



                                       39
<PAGE>   41

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS:

Exhibit
Number            Description
------            -----------

2.1      Amended and Restated Agreement Among Shareholders dated February 21,
         1997(1)

2.2      Articles of Share Exchange among Outsource International, Inc., Capital
         Staffing Fund, Inc., Outsource Franchising, Inc., Synadyne I, Inc.,
         Synadyne II, Inc., Synadyne III, Inc., Synadyne IV, Inc., Synadyne V,
         Inc., Employees Insurance Services, Inc. and Outsource International of
         America, Inc. dated February 21, 1997(1)

3.1      Amended and Restated Articles of Incorporation of the Company(2)

3.2      Amended and Restated Bylaws of the Company(3)

4.3      Shareholder Protection Rights Agreement(3)

4.6      Warrant Dated February 21, 1997 Issued to Triumph-Connecticut Limited
         Partnership(1)

4.7      Warrant Dated February 21, 1997 Issued to Bachow Investment Partners
         III, L.P.(1)

4.8      Warrant Dated February 21, 1997 Issued to State Street Bank and Trust
         Company of Connecticut, N.A., as Escrow Agent(1)

10.1     Securities Purchase Agreement among Triumph-Connecticut Limited
         Partnership, Bachow Investment Partners III, L.P., Outsource
         International, Inc., Capital Staffing Fund, Inc., Outsource
         Franchising, Inc., Synadyne I, Inc., Synadyne II, Inc., Synadyne III,
         Inc., Synadyne IV, Inc., Synadyne V, Inc., Employees Insurance
         Services, Inc. and Outsource International of America, Inc. dated as of
         February 21, 1997(1)

10.3     Registration Rights Agreement among Outsource International, Inc.,
         Triumph-Connecticut Limited Partnership, Bachow Investment Partners
         III, L.P., and shareholders of Outsource International, Inc. dated as
         of February 21, 1997(1)

10.4     Agreement among Shareholders and Investors in Outsource International,
         Inc. dated as of February 21, 1997(1)

10.11    Employment Agreement between Paul M. Burrell and the Company dated as
         of February 21, 1997(1)

10.12    Employment Agreement between Robert A. Lefcort and the Company dated as
         of March 3, 1997(1)

10.13    Employment Agreement between Robert E. Tomlinson and the Company dated
         as of March 3, 1997(1)

10.15    Employment Agreement between Brian Nugent and the Company dated as of
         March 11, 1997(5)

10.16    Employment Agreement between Carolyn Noonan and the Company dated as of
         July 22, 1999(6)

10.17    Employment Agreement between Scott R. Francis and the Company dated as
         of April 1, 1998(4)

10.18    Stock Option Plan, As Amended, effective May 8, 1998(4)

10.33    Form of Accumulated Adjustments Account Promissory Note dated February
         20, 1997 issued by Capital Staffing Fund, Inc., Outsource Franchising,
         Inc. and Outsource International of America, Inc. to the following
         shareholders of the Company and Schedule of Allocation of AAA
         Distribution to such shareholders: Lawrence H. Schubert Revocable
         Trust; Robert A. Lefcort Irrevocable Trust; Nadya I. Schubert Revocable
         Trust; Louis J. Morelli S Stock Trust; Margaret Ann Janisch S Stock
         Trust; Matthew Schubert Outsource Trust; Jason Schubert Outsource
         Trust; Alan E. Schubert; Louis A. Morelli; Louis J. Morelli; Raymond S.
         Morelli; Matthew B. Schubert; Mindi Wagner; Margaret Morelli Janisch;
         Robert A. Lefcort; and Paul M. Burrell(1)

10.80    Employment agreement between Jon Peterson and the Company dated as of
         February 14, 2000(7)

10.81    Employment agreement between Garry E. Meier and the Company dated as of
         February 7, 2000(7)




                                       40
<PAGE>   42

10.82    Separation Agreement and Release between Paul Burrell and the Company
         effective February 14, 2000(8)

10.83    Separation Agreement and Release between Robert Lefcort and the Company
         effective April 6, 2000(8)

10.84    Separation Agreement and Release between Brian Nugent and the Company
         effective April 21, 2000(8)

10.85    Asset Purchase Agreement by and between Team Staff, Inc., Teamstaff V,
         Inc. and Outsource International, Inc., Synadyne I, Inc., Synadyne II,
         Inc., Synadyne III, Inc., Synadyne IV, Inc., Synadyne V, Inc., Guardian
         Employer East, LLC and Guardian Employer West, LLC, dated as of April
         7, 2000(7)

10.86    Shared Services Agreement by and between Team Staff, Inc. and Outsource
         International, Inc., dated as of April 7, 2000(7)

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(6)

10.91    Finder Services Agreement between Outsource International, Inc. and
         Crossroads Capital Partners LLC, dated as of June 30, 1999(6)

10.92(a) Financing Agreement, dated as of August 15, 2000, among Outsource
         International, Inc., Outsource International of America, Inc.,
         Outsource Franchising, Inc., Guardian Employer East, LLC and Guardian
         Employer West, LLC, as Borrowers, the other subsidiaries of Outsource
         International, Inc., as Guarantors, Ableco Finance LLC, as agent for
         certain Lenders, and The CIT Group/Business Credit, Inc.(9)

10.92(b) Term A Note, dated August 15, 2000, in the amount of $8,800,000, made
         by Outsource International, Inc., Outsource International of America,
         Inc., Outsource Franchising, Inc., Guardian Employer East, LLC and
         Guardian Employer West, LLC, as Borrowers, to the order of Ableco
         Finance LLC(9)

10.92(c) Term A Note, dated August 15, 2000, in the amount of $8,800,000, made
         by Outsource International, Inc., Outsource International of America,
         Inc., Outsource Franchising, Inc., Guardian Employer East, LLC and
         Guardian Employer West, LLC, as Borrowers, to the order of A2 Funding
         LP(9)

10.92(d) Term B Note, dated August 15, 2000, in the amount of $9,000,000, made
         by Outsource International, Inc., Outsource International of America,
         Inc., Outsource Franchising, Inc., Guardian Employer East, LLC and
         Guardian Employer West, LLC, as Borrowers, to the order of Ableco
         Holding LLC(9)

10.92(e) Revolving Credit Note, dated August 15, 2000, in the amount of
         $33,400,000, made by Outsource International, Inc., Outsource
         International of America, Inc., Outsource Franchising, Inc., Guardian
         Employer East, LLC and Guardian Employer West, LLC, as Borrowers, to
         the order of The CIT Group/Business Credit, Inc.(9)

10.92(f) Warrant, dated August 15, 2000, issued to Ableco Holding LLC(10)

10.92(g) Registration Rights Agreement, dated as of August 15, 2000, between
         Outsource International, Inc. and Ableco Holding LLC(9)

10.93(a) Restructuring Agreement, dated as of August 15, 2000, among Outsource
         International, Inc., Fleet National Bank, as agent, and each of the
         banks party thereto(9)

10.93(b) Notes, each dated August 15, 2000, totaling $5,343,262, made by
         Outsource International, Inc., as Borrower, to the order of Fleet
         National Bank ($2,200,168.28); LaSalle Bank National Association
         ($1,257,237.49); Comerica Bank ($1,257,237.49), and SunTrust Bank
         ($628,618.74)(9)

10.93(c) Warrant Purchase Agreement, dated as of August 15, 2000, among
         Outsource International, Inc., Fleet National Bank, Comerica Bank,
         LaSalle Bank National Association and SunTrust Bank(9)

10.93(d) Form of Warrant, dated August 15, 2000, issued to Fleet National Bank
         (215,874 shares), Comerica Bank (123,356), LaSalle Bank National
         Association (123,356) and SunTrust Bank (61,679)(9)

27       Financial Data Schedule**
------------------------

**       Filed herewith





                                       41
<PAGE>   43

(1)      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

(2)      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

(3)      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

(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 30, 1999

(6)      Incorporated by reference to the Exhibits to the Company's Form 10-Q
         for the quarterly period ended June 30, 1999, as filed with the
         Securities and Exchange Commission on August 16, 1999

(7)      Incorporated by reference to the exhibits to the Company's Form 10-K/A
         for the year ended December 31, 1999, as filed with the Securities and
         Exchange Commission on April 20, 2000

(8)      Incorporated by reference to the exhibits to the Company's Form 10-Qf
         or the transition period ended April 2, 2000, as filed with the
         Securities and Exchange Commission on May 17, 2000

(9)      Incorporated by reference to the exhibits to the Company's Form 10-Q
         for the quarterly period ended July 2, 2000, as filed with the
         Securities and Exchange Commission on August 21, 2000

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

(b) REPORTS ON FORM 8-K:

No reports were filed on Form 8-K during the fiscal quarter ended October 1,
2000.



                                       42
<PAGE>   44
                                   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.


                                      OUTSOURCE INTERNATIONAL, INC.

Date: February 13, 2001               By: /s/ Garry E. Meier
                                          --------------------------------------
                                          Garry E. Meier
                                          Chairman of the Board of Directors,
                                          President and Chief Executive Officer




Date: February 13, 2001               By: /s/ Michael A. Sharp
                                          --------------------------------------
                                          Michael A. Sharp
                                          Executive Vice President and Chief
                                          Financial Officer
                                          (Principal Financial Officer)





                                       43
<PAGE>   45
                                 EXHIBIT INDEX


     Exhibit
     Number       Description
     -------      -----------

       27         Financial Data Schedule