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<TITLE>Gevity HR, Inc. Form 10Q September&nbsp;30, 2002</TITLE>
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        <td> <h5 align=left><a href="#toc1">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
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<DIV><FONT SIZE=1>&nbsp;</FONT></DIV>
<DIV><FONT SIZE=1>&nbsp;</FONT></DIV>
<DIV ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=5><B>UNITED STATES</B></FONT></DIV>
<DIV ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=5><B>SECURITIES AND EXCHANGE COMMISSION</B></FONT></DIV>
<DIV ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=3><B>Washington, D.C. 20549 </B></FONT></DIV>
<DIV><FONT SIZE=1>&nbsp;</FONT></DIV>
<DIV ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=4><B>FORM 10-Q </B></FONT></DIV>
<DIV><FONT SIZE=1>&nbsp;</FONT></DIV>
<DIV ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=4><B>QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF </B></FONT></DIV>
<DIV ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=4><B>THE SECURITIES EXCHANGE ACT OF 1934 </B></FONT></DIV>
<DIV><FONT SIZE=1>&nbsp;</FONT></DIV>

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<td>&nbsp;</td>
<td colspan=3 align=left><DIV><FONT FACE="Times New Roman" SIZE=2 COLOR="#000000"><B>(Mark One)</B></FONT></DIV></TD>
<td>&nbsp;</td>
</tr>
<TR>
<td width=15%>&nbsp;</td>
<TD width=2% VALIGN=middle ALIGN="left"><DIV><FONT FACE="WINGDINGS">&#120;</FONT></DIV></TD>
<TD width=1% VALIGN=TOP><DIV><FONT SIZE=1>&nbsp;</FONT></DIV></TD>
<TD width=57% ALIGN=LEFT VALIGN=TOP><DIV><FONT FACE="Times New Roman" SIZE=2 COLOR="#000000"><B>Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 </B></FONT></DIV></TD>
<td width=15%>&nbsp;</td></TR>
<tr>
<td align=center colspan=5><DIV><FONT SIZE=1>&nbsp;</FONT></DIV>
        <DIV ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2 COLOR="#000000"><B>For the quarterly period ended September&nbsp;30, 2002. </B></FONT></DIV> <DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
        <DIV ALIGN=CENTER><FONT FACE="Times New Roman" SIZE=2 COLOR="#000000"><B>or </B></FONT></DIV>
        <DIV><FONT SIZE=1>&nbsp;</FONT></DIV></TD></TR>
<TR>
<td>&nbsp;</td>
<TD VALIGN=middle ALIGN="left"><DIV><FONT FACE="WINGDINGS" SIZE="2" COLOR="#000000"><b>&#168;</b></FONT></DIV></TD>
<TD VALIGN=TOP><DIV><FONT SIZE=1>&nbsp;</FONT></DIV></TD>
<TD ALIGN=LEFT VALIGN=TOP><DIV><FONT FACE="Times New Roman" SIZE=2 COLOR="#000000"><B>Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 </B></FONT></DIV></TD>
<td>&nbsp;</td></TR>
<tr>
<td align=center colspan=5><DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
        <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>For the transition period from<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> to
        <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> </B></FONT></DIV> <DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
        <DIV ALIGN=center><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"> &nbsp;</FONT></DIV>
        <DIV><FONT SIZE=1>&nbsp;</FONT></DIV>
        <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>COMMISSION FILE NO. 0-22701 </B></FONT></DIV>
</TD></TR>
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<DIV ALIGN=CENTEr><IMG SRC=logo.jpg></DIV>
<DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="5" COLOR="#000000"><B><u>GEVITY HR, INC.</u> </B></FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000">(exact name of registrant as specified in its charter) </FONT></DIV> <DIV><FONT SIZE="1">&nbsp;</FONT></DIV>

<DIV ALIGN="center">
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<TD VALIGN="bottom" WIDTH="48%" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><u><B>Florida</B></u></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000">(State or other
jurisdiction of</FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000">incorporation or organization)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="48%" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B><u>65-0735612</u></B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000">(I.R.S.
Employer</FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000">Identification No.)</FONT></DIV></TD>
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</DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>

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<TD VALIGN="bottom" WIDTH="48%" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>600 301 Blvd West, Suite 202</B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000"><B><u>Bradenton, FL</u></B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000">(Address of principal executive offices)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="48%" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B><u>34205</u></B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000">(Zip
Code)</FONT></DIV></TD>
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</DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B><u>(941) 748-4540</u> </B></font></div>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE=1 COLOR="#000000">(Registrant&#146;s Telephone Number, Including Area
Code):</font></div>
<DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE=2 COLOR="#000000"><B><u>STAFF LEASING, INC.</u></B></FONT></DIV>

<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000">(Former name)</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.&nbsp;&nbsp;Yes&nbsp;&nbsp;<FONT FACE="WINGDINGS">&#120;</FONT>&nbsp;&nbsp;No&nbsp;&nbsp;</FONT>
<FONT FACE="WINGDINGS" SIZE="2" COLOR="#000000">&#168;</FONT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"> </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>

<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate the number of shares outstanding of each of the issuer&#146;s classes of
common stock, as of the last practicable date. </FONT></DIV> <DIV><FONT SIZE="1">&nbsp;</FONT></DIV>


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<TD VALIGN=bottom WIDTH=48% ALIGN=center> <DIV ALIGN=center><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>Class of common stock</B></FONT></DIV> <HR SIZE="2" NOSHADE WIDTH="131" COLOR="#000000"></TD>
<TD VALIGN=bottom WIDTH=3%><FONT FACE="Times New Roman" SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN=bottom WIDTH=48% ALIGN=center> <DIV ALIGN=center><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>Outstanding as of November 12, 2002</B></FONT></DIV> <HR SIZE="2" NOSHADE WIDTH="197" COLOR="#000000"></TD> </TR>
<TR>
<TD VALIGN=top ALIGN=center WIDTH=48%> <DIV ALIGN=center><FONT FACE="Times New Roman" SIZE=2 COLOR="#000000">Par value $0.01 per share</FONT></DIV> </TD>
<TD VALIGN=bottom WIDTH=3%><FONT FACE="Times New Roman" SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN=bottom ALIGN=center WIDTH=48%> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">20,760,630</FONT></DIV> </TD> </TR>
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<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
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<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">1 </FONT></DIV>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc2">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>







<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<a name="toc1"></a><A NAME="toc2"></A><A NAME="toc3"></A><A NAME="toc4"></A><A NAME="toc5"></A><A NAME="toc6"></A><A NAME="toc7"></A><A NAME="toc8"></A><A NAME="toc9"></A><A NAME="toc11"></A><A NAME="toc12"></A><A NAME="toc13"></A><A NAME="toc14"></A><A NAME="toc15"></A><A NAME="toc16"></A><A NAME="toc17"></A><A NAME="toc18"></A><A NAME="toc19"></A><A NAME="toc20"></A><A NAME="toc21"></A><A NAME="toc22"></A><A NAME="toc23"></A><A NAME="toc24"></A><A NAME="toc25"></A><A NAME="toc26"></A><A NAME="toc27"></A>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>
TABLE&nbsp;OF&nbsp;CONTENTS </B></FONT></DIV> <DIV><FONT SIZE="1">&nbsp;</FONT></DIV>


<DIV ALIGN=center>
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<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE=2 COLOR="#000000"><B>Page</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="10%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>PART&nbsp;I.</B></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="83%"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>FINANCIAL INFORMATION</B></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD HEIGHT="10"> </TD> </TR>
<TR>
<TD VALIGN="top" COLSPAN="3" WIDTH="83%"> <DIV STYLE="margin-left:4%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">
<A HREF="#FS">ITEM 1.&nbsp;&nbsp;&nbsp;&nbsp;Financial Statements</A></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="5%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">3</FONT></DIV> </TD> </TR>
<TR>
<TD HEIGHT="10"> </TD> </TR>
<TR>
<TD VALIGN="top" COLSPAN="3" WIDTH="83%"> <DIV STYLE="margin-left:8%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">
<A HREF="#IS">Condensed Consolidated Statements of Operations for the three and ended September&nbsp;30, 2001 and 2002 (unaudited) </A></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="5%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">3</FONT></DIV> </TD> </TR>
<TR>
<TD HEIGHT="10"> </TD> </TR>
<TR>
<TD VALIGN="top" COLSPAN="3" WIDTH="83%"> <DIV STYLE="margin-left:8%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">
<A HREF="#BS">Condensed Consolidated Balance Sheets as of December&nbsp;31, 2001 and September&nbsp;30, 2002 (unaudited) </A></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="5%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">4</FONT></DIV> </TD> </TR>
<TR>
<TD HEIGHT="10"> </TD> </TR>
<TR>
<TD VALIGN="top" COLSPAN="3" WIDTH="83%"> <DIV STYLE="margin-left:8%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">
<A HREF="#CF">Condensed Consolidated Statements of Cash Flows for the nine months ended September&nbsp;30, 2001 and 2002 (unaudited) </A></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="5%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">5</FONT></DIV> </TD> </TR>
<TR>
<TD HEIGHT="10"> </TD> </TR>
<TR>
<TD VALIGN="top" COLSPAN="3" WIDTH="83%"> <DIV STYLE="margin-left:8%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">
<A HREF="#NFS">Notes to Condensed Consolidated Financial Statements (unaudited) </A></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="5%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">6</FONT></DIV> </TD> </TR>
<TR>
<TD HEIGHT="10"> </TD> </TR>
<TR>
<TD VALIGN="top" COLSPAN="3" WIDTH="83%"> <DIV STYLE="margin-left:4%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">
<A HREF="#MD">ITEM 2&nbsp;&nbsp;&nbsp;&nbsp;Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations. </A></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="5%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">15</FONT></DIV> </TD> </TR>
<TR>
<TD HEIGHT="10"> </TD> </TR>
<TR>
<TD VALIGN="top" COLSPAN="3" WIDTH="83%"> <DIV STYLE="margin-left:4%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">
<A HREF="#QQ">ITEM 3.&nbsp;&nbsp;&nbsp;&nbsp;Quantitative and Qualitative Disclosures About Market Risk </A></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="5%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">24</FONT></DIV> </TD> </TR>
<TR>
<TD HEIGHT="10"> </TD> </TR>
<TR>
<TD VALIGN="top" COLSPAN="3" WIDTH="83%"> <DIV STYLE="margin-left:4%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">
<A HREF="#CP">ITEM 4.&nbsp;&nbsp;&nbsp;&nbsp;Controls and Procedures </A></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="5%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">24</FONT></DIV> </TD> </TR>
<TR>

<TD HEIGHT="10"> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="10%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>PART&nbsp;II.</B></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="83%"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>OTHER INFORMATION</B></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD HEIGHT="10"> </TD> </TR>
<TR>
<TD VALIGN="top" COLSPAN="3" WIDTH="83%"> <DIV STYLE="margin-left:4%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">
<A HREF="#LP">ITEM 1.&nbsp;&nbsp;&nbsp;&nbsp;Legal Proceedings</A></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="5%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">25</FONT></DIV> </TD> </TR>
<TR>
<TD HEIGHT="10"> </TD> </TR>

<TR>
<TD VALIGN="top" COLSPAN="3" WIDTH="83%"> <DIV STYLE="margin-left:4%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">
<A HREF="#OI">ITEM 5.&nbsp;&nbsp;&nbsp;&nbsp;Other Information </A></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="5%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">25</FONT></DIV> </TD> </TR>
<TR>
<TD HEIGHT="10"> </TD> </TR>
<TR>
<TD VALIGN="top" COLSPAN="3" WIDTH="83%"> <DIV STYLE="margin-left:4%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">
<A HREF="#ER">ITEM 6.&nbsp;&nbsp;&nbsp;&nbsp;Exhibits and Reports on Form 8-K</A></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="5%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">26</FONT></DIV> </TD> </TR>
<TR>
<TD HEIGHT="10"> </TD> </TR>
<TR>
<TD VALIGN="top" COLSPAN="3" WIDTH="83%"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>
<A HREF="#SGN">SIGNATURES </A></B></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="5%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">27</FONT></DIV> </TD> </TR>
 </TABLE> </DIV> <P></P>








 <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2 </FONT></DIV>


<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc3">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>








<DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>PART I.&nbsp;&nbsp;&nbsp;&nbsp;FINANCIAL INFORMATION </B></FONT></DIV> <DIV><FONT
SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B><A NAME="FS"></A>
Item 1.&nbsp;&nbsp;&nbsp;&nbsp;Financial Statements</B></FONT></DIV>
<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>

<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>GEVITY HR, INC. AND SUBSIDIARIES
</B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>
<A NAME="IS"></A>CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS </B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>UNAUDITED </B></FONT></DIV> <DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV ALIGN="center">

<TABLE align=center CELLSPACING=0 CELLPADDING=0 WIDTH=90% BORDER=0>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>For&nbsp;the&nbsp;Three</B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"
COLOR="#000000"><B>Months&nbsp;Ended</B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>September&nbsp;30,</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>For&nbsp;the&nbsp;Nine</B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"
COLOR="#000000"><B>Months&nbsp;Ended</B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>September&nbsp;30,</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>2001</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>2002</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>2001</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>2002</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="13" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>(in $000&#146;s, except per share data)</B></FONT></DIV> </TD> </TR>
<TR>
<TD HEIGHT="2"> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Revenues</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">798,533</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">864,448</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,337,872</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,483,196</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Cost of services:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Salaries, wages and payroll taxes</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">730,292</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">789,735</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,132,656</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,262,052</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Benefits, workers&#146; compensation, state unemployment taxes and other costs</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">67,987</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">52,511</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">158,261</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">153,321</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Total cost of services</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">789,279</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">842,246</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,290,917</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,415,373</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Gross profit</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">254</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">22,202</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">46,955</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">67,823</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Operating expenses:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Salaries, wages and commissions</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">15,505</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">12,996</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">46,210</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">39,738</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Other general and administrative</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">7,173</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">5,833</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">21,153</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">18,498</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Depreciation and amortization</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,093</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">1,950</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">6,212</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">6,010</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Total operating expenses</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">24,771</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">20,779</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">73,575</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">64,246</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Operating (loss) income</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(24,517</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">1,423</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(26,620</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">3,577</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Interest income, net</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">813</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">521</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,761</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">1,477</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Other non operating (expense) income</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(7</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">43</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(13</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">114</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(Loss) income before income taxes</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(23,711</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">1,987</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(23,872</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">5,168</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Income tax (benefit) provision</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(9,207</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">676</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(9,571</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">1,757</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Net (loss) income</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(14,504</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">1,311</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(14,301</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">3,411</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Net (loss) income per share</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&#151;Basic</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(.70</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">.06</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(.69</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">.16</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&#151;Diluted</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(.70</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">.06</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(.69</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">.16</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Weighted average common shares outstanding</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&#151;Basic</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">20,605</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">20,758</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">20,619</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">20,710</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&#151;Diluted</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">20,609</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">21,094</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">20,627</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">21,047</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="55%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Cash dividends per common share</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">.05</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">.05</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">.15</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">.15</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD> </TR>
</TABLE> </DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">See notes to condensed consolidated
financial statements. </FONT></DIV>








<P></P>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">3 </FONT></DIV>
<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc4">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>








 <DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>GEVITY HR, INC. AND SUBSIDIARIES </B></FONT></DIV> <DIV ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>
<A NAME="BS"></A>CONDENSED CONSOLIDATED BALANCE SHEETS </B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>UNAUDITED </B></FONT></DIV> <DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV ALIGN="center">
<TABLE align=center CELLSPACING=0 CELLPADDING=0 WIDTH=90% BORDER=0>

<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>December&nbsp;31, <BR>2001</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>September&nbsp;30, <BR>2002</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="5" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>(in $000&#146;s, except share and per share data)</B></FONT></DIV> </TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD VALIGN="top" ALIGN="center" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>ASSETS</B></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Current assets:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Cash and cash equivalents</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">55,929</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">33,918</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Certificates of deposit&#151;restricted</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">10,183</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">17,181</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Marketable securities</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,701</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">14,000</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Marketable securities&#151;restricted</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">24,079</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">53,623</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Accounts receivable, net</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">79,076</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">80,859</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Deferred tax asset</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">5,920</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">6,972</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Other current assets</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">4,206</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">5,380</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Total current assets</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">182,094</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">211,933</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</TR>

<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Property and equipment, net</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">23,646</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">18,095</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Goodwill, net of accumulated amortization of $5,979</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">8,692</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">8,692</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Deferred tax asset</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">902</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">457</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Other assets</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">4,569</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">5,973</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Total assets</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">219,903</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">245,150</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR>
<TD VALIGN="top" ALIGN="center" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>LIABILITIES AND SHAREHOLDERS&#146; EQUITY</B></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Current liabilities:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Accrued insurance premiums, health and workers&#146; compensation insurance reserves</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">30,203</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">42,012</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Accrued payroll and payroll taxes</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">70,565</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">85,279</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Accounts payable and other accrued liabilities</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">5,986</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">4,017</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Income taxes payable</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,091</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,833</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Customer deposits and prepayments</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">4,203</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">4,545</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Dividends payable</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">1,030</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">1,038</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Total current liabilities</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">114,078</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">139,724</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<tr>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Long-term accrued health and workers&#146; compensation insurance reserves</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">48,049</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">46,774</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Other long-term liabilities</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">265</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">305</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Commitments and contingencies (See notes)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD HEIGHT="8"> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Shareholders&#146; equity:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Common stock, $.01 par value</FONT></DIV> <DIV STYLE="margin-left:8%; text-indent:-2%"><FONT FACE="Times New Roman"
SIZE="2" COLOR="#000000">Shares authorized:&nbsp;&nbsp;&nbsp;100,000,000</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="top"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">206</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="top"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">208</FONT></DIV> </TD>
<TD NOWRAP VALIGN="top"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:8%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Shares issued and outstanding:&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>


<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:8%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;December&nbsp;31, 2001&#151;20,562,562</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:8%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;September&nbsp;30, 2002&#151;20,761,290</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>



<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Additional paid in capital</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">38,726</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">39,250</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Retained earnings</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">18,578</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">18,874</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Accumulated other comprehensive income</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">1</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">15</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Total shareholders&#146; equity</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">57,511</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">58,347</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Total liabilities and shareholders&#146; equity</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">219,903</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">245,150</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
 </TABLE> </DIV> <DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">See notes to condensed consolidated financial statements. </FONT></DIV>







<P></P>
 <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">4 </FONT></DIV>


<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc5">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>






<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>GEVITY HR, INC. AND SUBSIDIARIES </B></FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>
<A NAME="CF"></A>CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS </B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>UNAUDITED </B></FONT></DIV> <DIV><FONT SIZE="1">&nbsp;</FONT></DIV>

<DIV ALIGN="center">
<TABLE align=center CELLSPACING=0 CELLPADDING=0 WIDTH=90% BORDER=0>
<TR>
<TD> <FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN=bottom WIDTH=3><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN=bottom COLSPAN=6 ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>For the Nine Months Ended <BR>September&nbsp;30,</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
<TD VALIGN=bottom><FONT SIZE=1>&nbsp;</FONT></TD> </TR>
<TR>
<TD> <FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>2001</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>2002</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="6" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>(in $000&#146;s)</B></FONT></DIV> </TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B></B>CASH FLOWS FROM OPERATING ACTIVITIES:<B></B></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:4%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Net (loss) income</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(14,301</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">3,411</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:4%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Adjustments to reconcile net (loss) income to net cash provided by operating activities:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Depreciation and amortization</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">6,212</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">6,010</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Deferred tax benefit</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(10,425</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(598</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Provision for bad debts</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">265</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">434</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Other</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(156</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(54</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Changes in operating assets and liabilities:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Certificates of deposit &#150; restricted</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(2</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(6,998</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Accounts receivable</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(2,990</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(2,217</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Other current assets</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">150</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(1,173</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Accounts payable and other accrued liabilities</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(733</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(1,970</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Accrued payroll and payroll taxes</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,415</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">14,714</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Accrued insurance premiums, health and workers&#146; compensation reserves</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,657</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">11,809</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Income taxes payable</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">452</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">742</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Customer deposits and prepayments</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">652</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">342</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Other long-term assets</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">641</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(1,500</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Health and workers&#146; compensation reserves&#151;long term</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">15,047</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(1,275</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Other long-term liabilities</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(84</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">40</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Net cash (used in) provided by operating activities</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(200</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">21,717</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B></B>CASH FLOWS FROM INVESTING ACTIVITIES:<B></B></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:4%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Purchases of marketable securities</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(118,881</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(116,315</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:4%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Maturities of marketable securities</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">117,700</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">75,543</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:4%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Capital expenditures</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(6,315</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(375</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Net cash used in investing activities</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(7,496</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(41,146</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B></B>CASH FLOWS FROM FINANCING ACTIVITIES:<B></B></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:4%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Payment of cash dividend to shareholders</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(2,062</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(3,107</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:4%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Proceeds from issuance of common shares, net</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&#151;&nbsp;&nbsp;</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">623</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:4%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Repurchase and retirement of common stock</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(187</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(98</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Net cash used in financing activities</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(2,249</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(2,582</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Change in cash and cash equivalents</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(9,945</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(22,011</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Cash and cash equivalents&#151;beginning of period</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">51,269</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">55,929</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Cash and cash equivalents&#151;end of period</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">41,324</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">33,918</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Supplemental disclosure of cash flow information:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Income taxes paid</FONT></DIV> </TD>
        <TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">403</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">1,633</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="79%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Interest paid</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&#151;&nbsp;&nbsp;</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&#151;&nbsp;&nbsp;</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
</TABLE> </DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">See notes to condensed consolidated financial statements. </FONT></DIV>








<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">5 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc6">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>






 <DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>GEVITY HR, INC. AND SUBSIDIARIES </B></FONT></DIV> <DIV ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>
<A NAME="NFS"></A>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) </B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>(in $000&#146;s, except share and per share data) </B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>1.&nbsp;&nbsp;&nbsp;&nbsp;GENERAL </B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying unaudited condensed consolidated financial statements of Gevity HR, Inc., and subsidiaries (the &#147;Company&#148;) have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for
the year ended December&nbsp;31, 2001, included in the Company&#146;s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the &#147;Form 10-K&#148;). The financial information furnished reflects all adjustments, consisting only
of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is a professional employer organization, or PEO. PEOs were initially developed to allow small to medium-sized businesses to
procure workers&#146; compensation insurance coverage in a cost-effective manner. As the employment related legal and regulatory environment has become more complex, PEOs have evolved toward providing comprehensive human resource outsourcing
solutions to businesses. This allows client companies to focus on and devote more time to core business issues while the PEO focuses on the client&#146;s employment-related issues. </FONT></DIV>
<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Twenty-two states, including five states where the Company has offices (Florida, Texas, Colorado, Tennessee and Minnesota), have passed laws that have licensing,
registration or other compliance requirements for PEOs and several other states are considering such regulation. Such laws vary from state to state, but generally codify the requirements that the PEO must reserve the right to hire, terminate and
discipline worksite employees and secure workers&#146; compensation insurance. In certain cases, the Company delegates those rights to the client. The laws also generally provide for monitoring the fiscal responsibility of PEOs and, in some cases,
the licensure of the controlling officers of the PEO. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to utilize the Company&#146;s services, the client transfers certain employment-related risks and liabilities to the Company and retains other risks and liabilities. In this context, the client and Company are each viewed as and become a &#147;co-employer&#148; of the client&#146;s worksite employees. </FONT></DIV>
<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>

<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a co-employer, the Company provides its clients with human resources consulting, payroll administration, benefits
administration, risk management and unemployment services. These services are primarily offered to the Company&#146;s clients on a &#147;bundled&#148; or all-inclusive basis. Health benefit plans and retirement programs for the client&#146;s
worksite employees may be elected at the option of the client in consideration of paying a separate service fee to the Company. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employment-related liabilities are contractually allocated between the Company and the client pursuant to a written Professional Services Agreement. Under the Professional Services Agreement, the Company  assumes responsibility for and manages the
risks associated with each client&#146;s worksite employee payroll obligations, including the liability for payment of salaries and wages (including payroll taxes) to each worksite employee and, at the client&#146;s option, responsibility for
providing group health and retirement benefits to such individuals. These obligations of the Company are fixed, whether or not the client makes timely payment of the associated service fee. In this regard, it is important to understand that, unlike
typical payroll processing services, the Company issues to each of the client&#146;s worksite employees Company payroll checks drawn on Company bank accounts. The Company also reports and remits all required employment information and taxes to the
Internal Revenue Service under the Company&#146;s Federal Employer Identification Number (&#147;FEIN&#148;) and issues a Form W-2 to each worksite employee under the Company&#146;s FEIN. In addition, the Company assumes the responsibility for
compliance with those employment-related governmental regulations that can be effectively managed away from the client&#146;s worksite and provides to each worksite employee workers&#146; compensation insurance coverage under the Company&#146;s
policy. The client, on the other hand, contractually retains the general day-to-day responsibility to direct, control and manage each of the client&#146;s worksite employees. The worksite employee&#146; services are for the benefit of the
client&#146;s business. The client also remains responsible for compliance with those employment-related governmental regulations that are more closely related to the day-to-day management of worksite employees. </FONT></DIV>









<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">6 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc7">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>



<DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>GEVITY HR, INC. AND
SUBSIDIARIES </B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) --- (continued)</B></FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>(in $000&#146;s, except share and per share data) </B></FONT></DIV>
<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>










<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company charges its clients a comprehensive service fee to yield a profit to the Company and to cover the
cost of certain employment-related taxes, workers&#146; compensation insurance coverage, and administrative and
field services provided by the Company to the client, including payroll administration, record keeping, safety,
human resources and regulatory compliance consultation. The service fee charged by the Company is invoiced along
with each periodic payroll delivered to the client. The client&#146;s portion of health and retirement plan costs
is charged separately and is not included in the service fee. The component of the service fee related to
administration varies according to the size of the client, the amount and frequency of payroll payments and the
method of delivery of such payments. The component of the service fee related to workers&#146; compensation and
unemployment insurance is based, in part, on the client&#146;s historical claims experience. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company contracts with a licensed carrier, CNA Financial Corporation (&#147;CNA&#148;), for workers&#146; compensation insurance coverage. CNA issues an annual policy that covers the Company and each of its worksite employees. The Company pays the
premiums for this coverage and passes along to its clients some or all of the costs attributable to their respective coverage. The Company does not act as an insurance company and is not licensed in any state as an insurance company. The Company
does assume certain workers&#146; compensation risk as a result of providing its services. For a more detailed analysis of the CNA program, see <a href="#note7">Note 7.</a> </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has an incentive to minimize its workers&#146; compensation and unemployment tax costs because the Company bears the risk that its actual costs will exceed those billed to its clients, and
conversely, the Company profits on these components of its service offerings in the event that it effectively manages such costs. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s operations are
currently conducted through a number of wholly-owned limited partnerships (the &#147;OLPs&#148;) and wholly-owned limited liability
corporations (&#147;LLCs&#148;). The consolidated operations of the Company exclude intercompany accounts and transactions which have been
eliminated in consolidation. Certain reclassifications have been made to the consolidated financial statements of prior periods to conform
to the current period condensed presentation. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;New Accounting Pronouncements&#151;In
June 2001, the Financial Accounting Standards Board (&#147;FASB&#148;) issued Statement of Financial Accounting Standard (&#147;SFAS&#148;)
No. 141, &#147;Business Combinations&#148; and SFAS No. 142 &#147;Goodwill and Other Intangible Assets&#148;. SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated after June&nbsp;30, 2001. The Company adopted this accounting
standard as of July 1, 2001. The Company did not initiate any business combinations after June&nbsp;30, 2001; therefore, there is no effect on the
Company&#146;s financial position or operations related to SFAS 141. SFAS No. 142, changes the accounting for goodwill from an amortization
method to an impairment-only approach. The Company adopted this standard effective January 1, 2002 and ceased amortization of goodwill
in the first quarter of 2002. Application of the non-amortization provisions of the statement is expected to result in a decrease in annual
amortization of $733 in 2002. In accordance with SFAS No. 142, the Company has determined it has one reporting unit. The Company has
conducted a review of goodwill and other intangible assets as of January 1, 2002 and concluded that there is no goodwill impairment.
Subsequent goodwill impairment losses, if any, will be reflected in operating income in the income statement. Pro forma net loss and
earnings per share for the three and nine months ended September&nbsp;30, 2001 adjusted to eliminate historical amortization of goodwill and
related tax effect follows: </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<TABLE ALIGN=CENTER CELLSPACING=0 CELLPADDING=0 WIDTH=90% BORDER=0>
        <TR>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM COLSPAN=3 ALIGN="center"><DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>Three&nbsp;Months&nbsp;Ended<br>September&nbsp;30,&nbsp;2001</B></FONT></DIV></td>
        <TD VALIGN=BOTTOM> <FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM COLSPAN=3 ALIGN="center"><DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>Nine&nbsp;Months&nbsp;Ended<br>September&nbsp;30,&nbsp;2001</B></FONT></DIV></td>
        </TR>
        <TR>
        <td>&nbsp;</TD>
        <TD colspan=3><HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
        <td>&nbsp;</TD>
        <TD colspan=3><HR NOSHADE ALIGN="right" COLOR="#000000"></TD></TR>

        <TR BGCOLOR="#cceeff">
        <TD VALIGN=TOP WIDTH=65%><FONT FACE="Times New Roman" SIZE=2 COLOR="#000000">&nbsp;&nbsp;&nbsp;Previously reported net loss</FONT></TD>
        <TD VALIGN=BOTTOM WIDTH=1% ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM WIDTH=14%><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(14,504</FONT></DIV></TD>
        <TD VALIGN=BOTTOM WIDTH=1%><DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV></TD>
        <TD VALIGN=BOTTOM WIDTH=3%><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM WIDTH=1% ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM WIDTH=14%><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(14,301</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM WIDTH=1%><DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
        </TR>

        <TR>
        <TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;Goodwill amortization, net of tax</FONT></TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">113</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">339</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        </TR>
<TR>
        <TD>&nbsp;&nbsp;</td>
        <TD>&nbsp;&nbsp;</td>
        <TD><HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
        <TD>&nbsp;&nbsp;</td>
        <TD>&nbsp;&nbsp;</td>
        <TD>&nbsp;&nbsp;</td>
        <TD><HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
        <TD>&nbsp;&nbsp;</td>

</TR>

<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;Pro forma net earnings</FONT></DIV> </TD>
<TD VALIGN=BOTTOM ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(14,391</FONT></DIV> </TD>
<TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">)</FONT></TD>
<TD VALIGN=BOTTOM><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN=BOTTOM ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(13,962</FONT></DIV> </TD>
<TD VALIGN=BOTTOM><DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
</tr>

<TR>
        <TD>&nbsp;&nbsp;</td>
        <TD>&nbsp;&nbsp;</td>
        <TD><HR size=4 NOSHADE ALIGN="right" COLOR="#000000"></TD>
        <TD>&nbsp;&nbsp;</td>
        <TD>&nbsp;&nbsp;</td>
       <TD>&nbsp;&nbsp;</td>
        <TD><HR size=4 NOSHADE ALIGN="right" COLOR="#000000"></TD>
        <TD>&nbsp;&nbsp;</td>

</TR>

<TR BGCOLOR="#cceeff">
        <TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;Previously reported EPS</FONT></TD>
        <TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
</TR>

<TR>
        <TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;basic</FONT></TD>
        <TD VALIGN="bottom" ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN="bottom"><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(.70</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">)</FONT></TD>
        <TD VALIGN=BOTTOM><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        <TD VALIGN="bottom" ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN="bottom"><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(.69</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="1">)</FONT></TD>
</TR>

<TR BGCOLOR="#cceeff">
        <TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;diluted</FONT></TD>
        <TD VALIGN="bottom" ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN="bottom"><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(.70</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">)</FONT></TD>
        <TD VALIGN=BOTTOM><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        <TD VALIGN="bottom" ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN="bottom"><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(.69</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="1">)</FONT></TD>
</TR>

<TR>
        <TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;Pro forma net loss EPS</FONT></TD>
        <TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
</TR>

<TR BGCOLOR="#cceeff">
        <TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;basic</FONT></TD>
        <TD VALIGN="bottom" ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN="bottom"><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(.70</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">)</FONT></TD>
        <TD VALIGN=BOTTOM><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        <TD VALIGN="bottom" ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN="bottom"><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(.68</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="1">)</FONT></TD>
</TR>

<TR>
        <TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;diluted</FONT></TD>
        <TD VALIGN="bottom" ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN="bottom"><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(.70</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">)</FONT></TD>
        <TD VALIGN=BOTTOM><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        <TD VALIGN="bottom" ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
                                    <TD VALIGN="bottom"><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(.68</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="1">)</FONT></TD>
</TR>
</TABLE>







<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">7 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc8">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>




<DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>GEVITY HR, INC. AND
SUBSIDIARIES </B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) --- (continued)</B></FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>(in $000&#146;s, except share and per share data) </B></FONT></DIV>
<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>





<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2001, the FASB issued SFAS
No. 143, &#147;Accounting for Asset Retirement Obligations&#148;. This statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The purpose of this statement is
to develop consistent accounting of asset retirement obligations and related costs in financial statements and provide more information about
future cash outflows, leverage and liquidity regarding retirement obligations and the gross investment in long-lived assets. SFAS No. 143 is
effective for financial statements issued for fiscal years beginning after June&nbsp;15, 2002. The Company has not evaluated the effect, if
any, that the adoption of SFAS 143 will have on the Company&#146;s condensed consolidated financial statements. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 2001, the FASB issued SFAS
No. 144, &#147;Accounting for the Impairment or Disposal of Long-Lived Assets&#148;, which is effective for fiscal years beginning after
December 15, 2001. SFAS No. 144 replaces SFAS No. 121, &#147;Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of&#148;. The accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including
discontinued operations, and replaces the provisions of APB Opinion No. 30, &#147;Reporting Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business&#148;, for the disposal of segments of a business. SFAS No. 144 requires that the long-lived assets be
measured at the lower of carrying amount or fair value less costs to sell, whether reported in continued operations or in discontinued
operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses
that have not yet occurred. SFAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a
disposal transaction. The Company has evaluated the provisions of this statement and determined that it does not have any material impact on
the Company&#146;s condensed consolidated financial statements. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In April 2002, the FASB issued SFAS No. 145, &#147;Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections.&#148; SFAS 145 rescinds FASB Statement No. 4, Reporting Gains and Losses
from Extinguishment of Debt, and an amendment of that Statement, FASB Statement No. 64, and Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements.  SFAS 145 also rescinds FASB Statement No. 44, Accounting for
Intangible Assets of Motor Carriers and amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to sale-leaseback transactions.  SFAS 145
also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings,
or describe their applicability under changed conditions.  The provisions of this Statement related to the
rescission of Statement 4 shall be applied in fiscal years beginning after May 15, 2002.  Any gain or loss on
extinguishment of debt that was classified, as an extraordinary item in prior periods presented that does not
meet the criteria in APB Opinion 30 for classification as an extraordinary item shall be reclassified.  All other
provisions of this Statement shall be effective for financial statements issued on or after May 15, 2002. The
Company has evaluated the provisions of this statement and determined that it does not have any material impact
on the Company&#146;s condensed consolidated financial statements. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In June 2002, the FASB issued SFAS No. 146, &#147;Accounting for Costs Associated with Exit or Disposal Activities&#148;,
which is effective for exit or disposal activities that are initiated after December&nbsp;31, 2002.  The Statement
nullifies EITF Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a Restructuring). Under Issue 94-3, a liability for an exit
cost was recognized at the date of an entity&#146;s commitment to an exit plan.  The principal difference between
Issue 94-3 and SFAS 146 is the requirement to recognize a liability associated with an exit or disposal activity
when the liability is incurred.  SFAS 146 also establishes that fair value is the objective for initial
measurement of the liability. The Company has evaluated the provisions of this statement and determined that it
does not have any material impact on the Company&#146;s condensed consolidated financial statements. </FONT></DIV>






<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">8 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc9">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>GEVITY HR, INC. AND
SUBSIDIARIES </B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) --- (continued)</B></FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>(in $000&#146;s, except share and per share data) </B></FONT></DIV>
<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>







<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>2.&nbsp;&nbsp;&nbsp;&nbsp;SUBSEQUENT EVENTS </B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October 23, 2002, the Company
announced that member insurance companies of American International Group, Inc. (&#147;AIG&#148;) will provide workers&#146; compensation
insurance for all of its worksite employees. The one-year program will be effective January 1, 2003. The current workers&#146; compensation
program with CNA will remain in effect through December&nbsp;31, 2002, which is the end of the 2002 plan year.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October 31, 2002, the Company paid
dividends totaling $1.0 million ($.05 per share) to stockholders of record as of October  15, 2002.</FONT></DIV>


<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>3.&nbsp;&nbsp;&nbsp;&nbsp;SEGMENT REPORTING </B></FONT> </DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company operates in one reportable
segment under SFAS No. 131, &#147;Disclosures about Segments of an Enterprise and Related Information&#148;, due to its centralized structure
and the single bundled service offering that it provides to its clients. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>4.&nbsp;&nbsp;&nbsp;&nbsp;CERTIFICATES OF DEPOSIT AND MARKETABLE SECURITIES&#151;RESTRICTED </B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;30, 2002, the Company
had certificates of deposit and marketable securities that serve as collateral for certain standby letters of credit issued in connection
with the Company&#146;s workers&#146; compensation and health benefit programs. Due to the short maturity of these instruments, the carrying
amount approximates fair value. These interest-bearing certificates of deposit and marketable securities have been classified as restricted
in the accompanying condensed consolidated balance sheets. The interest earned on these certificates is recognized as interest income on the
Company&#146;s condensed consolidated statements of operations. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>5.&nbsp;&nbsp;&nbsp;&nbsp;ACCOUNTS RECEIVABLE </B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable consisted of the
following: </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>

<DIV ALIGN="center">
<TABLE align=center CELLSPACING=0 CELLPADDING=0 WIDTH=90% BORDER=0>
<TR>
        <TD> <FONT SIZE="1">&nbsp;</FONT></TD>
        <TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>December&nbsp;31,</B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"
        COLOR="#000000"><B>2001</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
        <TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
        <TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>September&nbsp;30,</B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>2002</B></FONT></DIV>
        <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
        <TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
</TR>

<TR BGCOLOR="#cceeff">
        <TD VALIGN="top" WIDTH="78%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Billed to clients</FONT></DIV> </TD>
        <TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">10,678</FONT></DIV> </TD>
        <TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        <TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">1,657</FONT></DIV> </TD>
        <TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>

<TR>
        <TD VALIGN="top" WIDTH="78%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Unbilled revenues</FONT></DIV> </TD>
        <TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        <TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">69,145</FONT></DIV> </TD>
        <TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        <TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        <TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">80,078</FONT></DIV> </TD>
        <TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
</TR>

<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">79,823</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">81,735</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="78%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Less: Allowance for doubtful accounts</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(747</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(876</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">79,076</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">80,859</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
 </TABLE> </DIV> <P></P>







<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">9 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc10">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>





<DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>GEVITY HR, INC. AND
SUBSIDIARIES </B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) --- (continued)</B></FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>(in $000&#146;s, except share and per share data) </B></FONT></DIV>
<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>










<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>6.&nbsp;&nbsp;&nbsp;&nbsp;PROPERTY AND EQUIPMENT </B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV STYLE="text-indent:4%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Property and equipment consisted of the following: </FONT></DIV> <DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV ALIGN="center">
<TABLE align=center CELLSPACING=0 CELLPADDING=0 WIDTH=90% BORDER=0>

<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>December&nbsp;31, 2001</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>September&nbsp;30, 2002</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Leasehold improvements</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,388</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,401</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Furniture and fixtures</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">3,473</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">3,414</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Vehicles</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">25</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">25</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Equipment</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,044</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,046</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Computer hardware and software</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">47,376</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">46,896</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Total property and equipment</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">55,306</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">54,782</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="77%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Less accumulated depreciation</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(31,660</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(36,687</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">23,646</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">18,095</FONT></DIV> </TD>
<TD NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
</TABLE>
</DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation expense was $5,640 and
$5,914 for the nine months ended September&nbsp;30, 2001 and 2002, respectively. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B><a name="note7"></a>7.&nbsp;&nbsp;&nbsp;&nbsp;WORKERS&#146; COMPENSATION COSTS
</B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has had a loss sensitive
insurance program with CNA since January&nbsp;1, 2000. An annual insurance policy has been written by CNA for the Company for each calendar year
since the inception of the program as of January&nbsp;1, 2000. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The CNA insurance program provides
for a sharing of risk between the Company and CNA whereby CNA assumes risk in at least four areas within the program: (i) individual claim
stop loss insurance risk; (ii) aggregate claim stop loss insurance risk; (iii) claim payment timing risk; and (iv) premium payment credit
risk. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company assumes risk related to
claims not subject to the individual claim stop loss insurance amount, claims not subject to the aggregate claim stop loss insurance amount
or claims not subject to the claim payment timing risk. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With respect to the individual claim
stop loss insurance risk, the Company is responsible for paying, through CNA, claim amounts related to the first $1 million per accident.
Claim amounts in excess of $1 million per accident are insured through the CNA program. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With respect to the aggregate claim
stop loss insurance risk, the Company is responsible for remitting premium payments to CNA sufficient to fund 130% of the insurance
company&#146;s estimate of expected losses for the policy year. The amount of the expected losses is established at the beginning of the
policy year based on an expected volume of payroll. If the payroll volume varies during the year, then the amount of the aggregate claim stop
loss insurance risk changes proportionately. Total claims amounts during the policy year that exceed 130% of the expected loss amount are
insured through the CNA program. The Company generally does not pay additional premiums during the policy year if payroll volume or losses
exceed the estimated amounts established at the beginning of the policy year.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With respect to the claim payment
timing risk, the Company pays premiums to CNA and guarantees a specific investment return on those premium payments. If the premium payments
plus the guaranteed investment returns are not adequate to fund a specific amount of claims due to the payment pattern of those claims being
faster than expected, then CNA is required to fund the additional amounts required. </FONT></DIV>










<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">10 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc11">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>



<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>GEVITY HR, INC. AND
SUBSIDIARIES </B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) --- (continued)</B></FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>(in $000&#146;s, except share and per share data) </B></FONT></DIV>
<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>











<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the 2000 and 2001
programs, the Company guaranteed that the premium paid to CNA would earn an annual rate of return equal to seven percent. For the 2002
program, the Company has guaranteed to CNA that the premium will earn a rate of return equal to four and one-quarter percent. The Company is
required to pay an additional premium to CNA after the close of the calendar year based on the difference between the actual return earned by
the premium paid and the guaranteed annual rate of return. The additional premium paid to CNA is used to pay claims incurred during the policy
year and is included in the amount of accrued insurance premium reserves at December&nbsp;31, 2001. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Finally, with respect
to the premium payment credit risk, since this program is a fully insured policy written by CNA, if the Company were to fail to make premium
payments to CNA as scheduled, then CNA is responsible for the payment of all losses under the terms of the policy. CNA does require the
Company to provide collateral based on the estimate of expected losses for the policy year. The payment of first year claims by the Company
and premium payments to fund claims to be paid in later years by CNA reduce the amount of the total collateral to be provided by the
Company. The required collateral can be provided in the form of deposits paid to CNA, cash and short-term investments placed into a trust
account, letters of credit and surety bond collateral provided by independent surety bond companies. CNA does not receive collateral equal to
the limits of the aggregate claim stop loss insurance amount, which is 130% of the estimate of the expected losses for the policy year. Such
collateral amount is established at the beginning of the policy year and actual payroll volumes may vary,
resulting in a difference in the amount of expected losses and in the amount of collateral provided based on
estimates of expected losses made at the inception of the policy year. Such variances, in addition to not
receiving collateral equal to the aggregate claim stop loss amount, result in credit and premium payment risk to CNA.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company accrues for workers&#146;
compensation costs under the CNA program based upon payroll dollars paid to worksite employees, the specific risks associated with the type
of work performed by the worksite employees, the administrative costs of the program, the expected rate of return earned by premium dollars
paid to CNA as part of the program and the discount rate used to determine the present value of future payments to be made under the program.
Total liabilities for workers&#146; compensation costs at December&nbsp;31, 2001 and September&nbsp;30, 2002, respectively, were $61,917 and
$73,773 of which $47,049 and $45,774, respectively, were classified as long-term. Included in the total liabilities for workers&#146;
compensation costs is the liability related to the expected payment for the investment guarantee provided by the Company to CNA. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has issued $3,750 and
$10,750 in standby letters of credit at December&nbsp;31, 2001 and September&nbsp;30, 2002, respectively, in conjunction with the
Company&#146;s CNA workers&#146; compensation programs. In addition, the Company has pledged $24,079 and $53,623 in restricted marketable
securities at December&nbsp;31, 2001 and September&nbsp;30, 2002, respectively, as collateral for the Company&#146;s CNA workers&#146;
compensation programs. Finally, net surety bonds of $40,200 and $8,250 at December&nbsp;31, 2001 and September&nbsp;30, 2002, respectively, were
outstanding related to the CNA workers&#146; compensation programs. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>8.&nbsp;&nbsp;&nbsp;&nbsp;HEALTH BENEFITS</B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Employee benefit costs are comprised primarily of medical benefit plan costs, but also include the costs of other
employee benefits such as dental, vision, disability and group life insurance. With respect to medical benefit
plans, the Company will continue to enforce minimum rates that apply to worksite employee participation and the
amount each client contributes toward the cost of providing the Company&#146;s health benefit plans to its
worksite employees.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Blue Cross Blue Shield of Florida (&#147;BCBS&#148;) is the primary carrier for Florida and Alabama worksite employees. In
addition, Capital Health Plans provides HMO coverage to worksite employees in the Tallahassee, Florida region.
The Company&#146;s policy with BCBS is a three-year minimum premium arrangement entered into as of January 1, 2000
and ending December 31, 2002. Pursuant to this arrangement, the Company is obligated to reimburse BCBS for the
cost of the claims incurred by participants under the plan, plus the cost of plan administration. The
administrative costs per covered worksite employee associated with this policy are specified for each plan year
and includes the cost of aggregate stop loss coverage at the level of 115% of projected claims. HealthPartners of
Minnesota provides health coverage to Minnesota based worksite employees. Aetna Inc.(&#147;Aetna&#148;) is the primary
health care provider for worksite employees throughout the remainder of the country. The Aetna health plan is a
guaranteed cost contract that caps the Company&#146;s annual liability at </FONT></DIV>







<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">11 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc12">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>


<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
 <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>GEVITY HR, INC. AND
SUBSIDIARIES </B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) --- (continued)</B></FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>(in $000&#146;s, except share and per share data) </B></FONT></DIV>
<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>








<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">fixed amounts. Aetna is also the
provider of the Company&#146;s dental plans that include both a PPO and HMO offering.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In certain instances, the Company opts to make a contribution toward the worksite employees&#146; medical benefit
plan costs. This contribution is referred to as a health plan subsidy. The addition of these selected worksite
employees as participants in  the Company&#146;s medical benefit plans helps to stabilize the risk associated
with those plans.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The amount of the Company&#146;s contribution toward medical benefit plan costs is determined as part of the
annual enrollment pricing process that usually takes place during the third quarter of each year. A health
benefit plan subsidy in excess of a planned amount may occur when medical cost inflation exceeds expected
inflation levels or when medical benefit plan enrollment of those who qualify for a subsidy is greater than
anticipated.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of September&nbsp;30, 2002, the Company has recorded a health benefit subsidy of $3.8 million for the 2002
plan. In 2001, the health benefit plan subsidy was $9,283. Unfavorable experience on the maturation or run-out of
health benefit plan claims for the 2000 year and internal premium billing and collection issues in 2001 resulted
in the Company increasing its health benefit plan subsidy in 2001. The Company has significantly reduced the
internal premium billing and collection issues.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For 2001, year-end liabilities for health benefit loss reserves were based upon actuarial estimates of claims
incurred but not reported under the health plans at December&nbsp;31, 2001. The accrual for these reserves and
for claims reported but not paid at December&nbsp;31, 2001 totaled $16,071, of which $1,000 was classified as
long-term. As of September&nbsp;30, 2002, the reserve liability balance for prior years health benefit claims
incurred but not reported was $2,345, of which $1,000 was classified as long-term.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN=JUSTIFY><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s collateralization obligations under its medical benefit plans are funded through 2002. The
Company has announced that it has renewed its medical benefit plan with Aetna for 2003. The Company anticipates
that $2 million of cash and cash equivalents will be used to collateralize the Aetna program. The final amount of
collateral is subject to determination based on the number of plan participants electing PPO coverage. The
Company has also announced that it has renewed its medical benefit plan with Blue Cross Blue Shield of Florida
(&#147;BCBS&#148;).  The amount of collateral required to be provided to BCBS is expected to increase over the three-year
renewal term, based in part on the increase in plan participation.</FONT></DIV>


<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>9.&nbsp;&nbsp;&nbsp;&nbsp;COMMITMENTS AND CONTINGENCIES </B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On April 30, 1999, a shareholder of the Company brought a class action in the Twelfth Judicial Division, Manatee
County, Florida against the Company and certain of its directors alleging that the directors and senior officers
of the Company breached their fiduciary duty to shareholders by failing to pursue a proposal from Paribas
Principal Partners to acquire the Company in order to entrench themselves in the management of the Company.
Plaintiff seeks injunctive relief and unspecified damages including attorneys&#146;and experts&#146;fees.
Negotiations continue between defendants and counsel for the putative plaintiff class in an effort to finalize a
definitive settlement agreement. Once finalized, any agreed upon settlement is subject to court approval
following notice to the putative class.  Management does not expect any settlement to have a material effect on
the Company&#146;s financial position.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company is a party to certain pending claims that have arisen in the normal course of business, none of
which, in the opinion of management, is expected to have a material adverse effect on the consolidated financial
position or results of operations if adversely resolved. However, the defense and settlement of such claims may
impact the future availability and cost to the Company of applicable insurance coverage.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The  Company&#146;s  employer and health care operations are subject to numerous  Federal,  state and
local laws related to employment,  taxes and benefit plan matters.  Generally, these rules affect all
companies  in the U.S.  However,  the rules that  govern  PEOs  constitute  an  evolving  area due to
uncertainties  resulting  from the  non-traditional  employment  relationship  between  the PEO,  the
client and the worksite </FONT></DIV>





<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">12 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc13">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>


<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>GEVITY HR, INC. AND
SUBSIDIARIES </B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) --- (continued)</B></FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>(in $000&#146;s, except share and per share data) </B></FONT></DIV>
<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>








<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">
employees. Many Federal and state laws relating to tax and employment matters were enacted before the widespread
existence of PEOs and do not specifically address the obligations and responsibilities of these PEO
relationships. If the IRS concludes that PEOs are not &#147;employers&#148; of certain worksite employees for purposes of
the Internal Revenue Code of 1986, as amended (the &#147;Code&#148;), the tax qualified status of the Company&#146;s defined
contributions retirement plan as in effect prior to April 1, 1997 could be revoked, its cafeteria plan may lose
its favorable tax status and the Company, as defined, may no longer be able to assume the client&#146;s Federal
employment tax withholding obligations and certain defined employee benefit plans maintained by the Company may
be denied the ability to deliver benefits on a tax-favored basis as intended.  On May 13, 2002, the IRS released
guidance applicable solely to the tax-qualified status of defined contribution retirement plans maintained by
PEOs.  In that guidance, the IRS declared that it would not assert a violation of the exclusive benefit rule
under Section 401(a) of the Internal Revenue Code if a PEO that maintains a single employer defined contribution
retirement plan for worksite employees takes certain remedial action by the last day of the first plan year
beginning on or after January 1, 2003.  The Company maintains a frozen single employer defined contribution
retirement plan benefiting certain worksite employees and intends to take remedial action to qualify for the
relief provided under the IRS guidance within the applicable deadline.  Since the plan has been frozen since
April 1, 1997 and the assets in the plan are less than $4 million, this change is not expected to have a material
effect on the Company&#146;s financial condition and future results of operations. The Company also maintains an
active defined contribution retirement plan with participants that include worksite employees. The active plan is
designed as a multiple employer plan and, as such, its status is unaffected by the recent IRS guidance.  Any
other adverse developments in the above noted areas could have a material effect on the Company&#146;s financial
condition and future results of operations.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>10.&nbsp;&nbsp;&nbsp;&nbsp;EQUITY </B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January 2002, 33,823 shares of
common stock were issued to employees participating in the Company&#146;s employee stock purchase plan that was adopted on July&nbsp;1,
2001. In June 2002, the Company purchased 23,000 shares of it&#146;s common stock to be used for the Company&#146;s employee stock purchase
plan. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;21, 2002, the Company
sold 165,562 shares of common stock at $3.02 per share, which was the fair market value of the stock at the close of trading on that day, to
the Chief Executive Officer, in connection with his employment by the Company. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July 2002,  23,683  shares of common
stock were issued to employees  participating  in the  Company&#146;s employee  stock  purchase  plan that was adopted on July 1, 2001.  In
September, 2002,  the Company purchased 1,000 shares of it&#146;s common stock to be used for the  Company&#146;s  employee  stock  purchase
plan.
</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>11.&nbsp;&nbsp;&nbsp;&nbsp;INCOME TAXES </B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company records income tax expense using the asset and liability method of accounting for deferred income
taxes.  Under such method, deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the financial statement carrying values and the income tax bases of
the Company&#146;s assets and liabilities. The Company&#146;s effective tax rate provides for federal and state
income taxes. For the nine months ended September&nbsp;30, 2002, the Company&#146;s effective rate was 34.0%. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT>
</DIV> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>12.&nbsp;&nbsp;&nbsp;&nbsp;EARNINGS PER SHARE (&#147;EPS&#148;) </B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Included as common stock equivalents in diluted weighted average shares outstanding were options granted under
the Company&#146;s stock option plans, which totaled 4,185 and 7,761 for the three and nine months ended
September&nbsp;30, 2001, respectively, and 336,732 and 337,487 for the three and nine months ended
September&nbsp;30, 2002, respectively. </FONT></DIV>







<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">13 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc14">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>


<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
 <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>GEVITY HR, INC. AND
SUBSIDIARIES </B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) --- (continued)</B></FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>(in $000&#146;s, except share and per share data) </B></FONT></DIV>
<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>














<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The reconciliation of net income (loss) attributable to common stock and shares outstanding for the purposes of calculating basic and diluted earnings per share for the three and nine months ended September&nbsp;30, 2001 and 2002 is as
follows: </FONT></DIV> <DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV ALIGN="center">

<TABLE align=center CELLSPACING=0 CELLPADDING=0 WIDTH=90% BORDER=0>

<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>Income (Numerator)</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>Shares (Denominator)</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>Per Share</B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"
COLOR="#000000"><B>Amount</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="2" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>(in $000&#146;s)</B></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>(in 000&#146;s)</B></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD COLSPAN="2"> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><U><B>For the Three Months Ended September&nbsp;30,</B> <B>2001:</B></U></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Basic EPS:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Net loss</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(14,504</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="13%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">20,605</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(.70</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD>
 </TR>
<TR>
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Effect of dilutive securities:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Options</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="13%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">4</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Diluted EPS:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Net loss</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(14,504</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="13%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">20,609</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(.70</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><U><B>For the Nine Months Ended September&nbsp;30, 2001:</B></U></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Basic EPS:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Net loss</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(14,301</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="13%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">20,619</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(.69</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>

<TR>
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Effect of dilutive securities:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Options</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="13%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">8</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Diluted EPS:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Net loss</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(14,301</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="2">)</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="13%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">20,627</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(.69</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV> </TD> </TR>

<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><U><B>For the Three Months Ended September&nbsp;30, 2002:</B></U></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Basic EPS:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Net income</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">1,311</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="13%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">20,758</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">0.06</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Effect of dilutive securities:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Options</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="13%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">336</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Diluted EPS:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Net income</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">1,311</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="13%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">21,094</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">0.06</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><U><B>For the Months Months Ended September&nbsp;30, 2002:</B></U></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Basic EPS:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Net income</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">3,411</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="13%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">20,710</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">0.16</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Effect of dilutive securities:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Options</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="13%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">337</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Diluted EPS:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="66%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Net income</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">3,411</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right" WIDTH="13%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">21,047</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
<TD VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">0.16</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD> </TR>
 </TABLE> </DIV> <P></P>








<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">14 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc15">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>









<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B><a name="MD"></a>ITEM 2.&nbsp;&nbsp;&nbsp;&nbsp;Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>CRITICAL ACCOUNTING POLICIES </B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The accounting policies described below are those that the Company considers critical in preparing its financial statements. These policies
include significant estimates made by management using information available at the time the estimates are made. However, as described
below, these estimates could change materially if different information or assumptions were used. The descriptions below are summarized and
have been simplified for clarity. A more detailed description of the significant accounting principles used by the Company in preparing its
financial statements is included in Note 1 of Notes to the Condensed Consolidated Financial Statements and in Item 1 of the Company&#146;s
Form 10-K for the year ended December&nbsp;31, 2001. </FONT></DIV> <DIV><FONT SIZE="1">&nbsp;</FONT></DIV>

<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><b>Revenue Recognition </b></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s revenues consist of comprehensive service fees paid by its clients under its Professional
Services Agreement, which are based upon each worksite employee&#146;s gross wages, a markup computed as a
percentage of gross wages and the client&#146;s portion of health and retirement benefits provided to the
worksite employees based on coverage elected by the client and the worksite employees. The Company includes the
component of its comprehensive service fees related to the gross wages of its worksite employees as revenue.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company records the full amount of its comprehensive service fees, including the portion that represents the
gross wages of its worksite employees, as revenue in accordance with the EITF 99-19,<i> Reporting Revenue Gross as a
Principal versus Net as an Agent</I>. The Company is deemed to be a principal in its human resource consulting
services because it is at risk for the payment of direct costs, whether or not the Company&#146;s clients pay the
Company on a timely basis or at all, and because the Company assumes a significant amount of other risks and
liabilities as a co-employer of its worksite employees. If the Company were deemed to be an agent under its
Clients&#146;Services Agreement, rather than a principal, the Company could be required to record its revenues
net of the gross payroll cost component of its comprehensive service fees. In such an event, there would be no
effect on the Company&#146;s net income.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company accounts for PEO service fees using the accrual method of accounting. Under the accrual method of
accounting, the Company recognizes its service revenue in the period in which the worksite employee performs
work. PEO service fees relating to worksite employees with earned but unpaid wages at the end of each period are
recognized as unbilled revenues and the related direct payroll costs for such wages are accrued as a liability
during the period in which the worksite employee earns wages. Subsequent to the end of each period, such wages
are paid and the related PEO service fees are billed. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><b>Medical Benefit Plan Liabilities </b></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company provides medical benefit plans to its worksite employees through several medical benefit plan providers. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In certain instances, the Company decides to make a contribution to the medical benefit plan providers toward the
cost of the worksite employees medical benefit plan costs. Such contribution together with higher than
anticipated medical cost trend will result in a health benefit plan subsidy by the Company.
</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
With respect to these medical benefit plans, the Company establishes medical benefit plan liabilities for benefit
claims that have been reported but not paid and claims that have been incurred but not reported. These reserves
and the related health benefit plan subsidy are developed using actuarial methods and assumptions selected in
accordance with generally accepted actuarial principles and practices which consider a number of factors,
including historical claim payment patterns. The factor that has the greatest impact on the Company&#146;s
financial results is the medical cost trend, which is the rate of increase in health care costs.
</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For each period, the Company estimates the relevant factors, based primarily on historical data and uses this
information to determine the assumptions underlying the reserve calculations. An extensive degree of judgment is
used in this estimation process. Due to the considerable variability and volatility of health care costs,
adjustments to health reserves and the health benefit plan subsidy are sometimes significant.</FONT></DIV>








<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">15 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc16">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>











<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The  Company&#146;s  financial  statements  reflect the estimates made by the Company within
the  Cost of  Services  on the  Company&#146;s  Statements  of  Operations  and  within  the  accrued
insurance  premiums,  health and  workers&#146;compensation  insurance reserves on the Company&#146;s
Balance Sheet.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><b>Workers&#146; Compensation Plan Liabilities</b></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The Company has maintained an insured loss sensitive  workers&#146;compensation program with
CNA since  January 1, 2000.  Each policy  year runs from  January 1 through  December&nbsp;31.  Under
the CNA program the Company has  individual  stop loss coverage and aggregate  stop loss coverage for
claims that exceed the  individual  stop loss amount and for  individual  claims that in total exceed
the aggregate stop loss amount.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         With respect to the individual  claim stop loss  insurance  risk, the Company is responsible
for paying,  through CNA, claim amounts  related to the first $1 million per accident.  Claim amounts
in excess of $1 million per accident are insured through the CNA program.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         With respect to the aggregate  claim stop loss  insurance  risk,  the Company is responsible
for  remitting  premium  payments  to CNA  sufficient  to fund 130% of the  insurance  company&#146;s
estimate of  expected  losses for the policy  year.  During  each plan year of the CNA  program,  the
Company  makes premium  payments to CNA at an agreed amount that is less than  necessary to fund 130%
of the  estimated  expected  losses  for the  policy  year.  The  amount  of the  expected  losses is
established  at the  beginning  of the policy  year based on an expected  volume of  payroll.  If the
payroll  volume varies during the year,  the amount of the aggregate  claim stop loss  insurance risk
changes  proportionately.  Total  claims  amounts  during the  policy  year that  exceed  130% of the
estimated expected loss amount are insured through the CNA program.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Workers&#146;compensation  claims can remain open for periods  exceeding  twenty years. As a
result of the potential  long life of these claims,  the final cost of the CNA program to the Company
is subject to an extensive degree of judgment and estimation.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         At least annually, the Company obtains an independent  actuarially-determined calculation of
the  range of  estimated  costs  of  claims  incurred  based on the  Company&#146;s  historical  loss
development  trends. The independent  actuary may subsequently revise the range of estimated costs of
claims based on developments  and trends relating to actual claims  incurred.  An extensive degree of
judgment is used in this estimation process.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The  Company&#146;s  financial  statements  reflect the  estimates  made by the  independent
actuaries  as well as other  factors  related to the CNA  program  within the Cost of Services on the
Company&#146;s  Statements  of  Operations  and within the  accrued  insurance  premiums,  health and
workers&#146;compensation insurance reserves on the Company&#146;s Balance Sheet.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         If the actual cost of the claims  incurred is higher than the  estimates  determined  by the
independent  actuaries,  then the  accrual  rate used to  determine  workers&#146;compensation  costs
could increase.  If the actual cost of the claims incurred is lower than the estimates  determined by
the independent actuaries,  then the accrual rate used to determine  workers&#146;compensation  costs
could decrease.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Such  increase or decrease to the accrual rate is reflected  in the  accounting  period that
the change in the amount of  workers&#146;compensation  claims is calculated. Due to the considerable
variability  in the  estimate  of the  amount of  workers&#146;compensation  claims,  adjustments  to
workers&#146;compensation costs are sometimes significant.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         In order to give recognition to those  workers&#146;compensation costs that are not expected
to be paid in the following  year, the Company  classifies a portion of the obligation as a long-term
liability.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><b>Deferred Income Taxes</b></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The Company recognizes  deferred tax assets and liabilities based on the differences between
the financial  statement  carrying amounts and the tax bases of assets and  liabilities.  The Company
regularly  reviews  its  deferred  tax assets for  recoverability  and if  necessary,  establishes  a
valuation  allowance based on historical  taxable income,  projected  future taxable income,  and the
expected  timing  of the  reversals  of  existing  temporary  differences.  If the  Company  does not
continue to operate at a profit or is unable to generate  sufficient  future  taxable  income,  or if
there is a  material  change  in the  actual  effective  tax rate or time  period  within  which  the
underlying  temporary  differences  become  taxable or  deductible,  the Company could be required to
establish a valuation  allowance  against all or a  significant  portion of the  deferred  tax assets
resulting in a substantial increase in the Company&#146;s effective tax rate.</FONT></DIV>










<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">16 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc17">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>






 <DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>RESULTS OF OPERATIONS </B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table presents the
Company&#146;s results of operations for the Three and Nine Months Ended September&nbsp;30, 2001 and 2002, expressed as a percentage of
revenues: </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<TABLE align=center CELLSPACING=0 CELLPADDING=0 WIDTH=95% BORDER=0>

<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="4" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"
COLOR="#000000"><B>For the Three Months Ended September&nbsp;30,</B></FONT></DIV> <HR SIZE="2" NOSHADE
COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="4" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"
COLOR="#000000"><B>For the Nine Months Ended September&nbsp;30,</B></FONT></DIV> <HR SIZE="2" NOSHADE
COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"
COLOR="#000000"><B>2001</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"
COLOR="#000000"><B>2002</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"
COLOR="#000000"><B>2001</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1"
COLOR="#000000"><B>2002</B></FONT></DIV> <HR SIZE="2" NOSHADE COLOR="#000000"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="71%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">Revenues</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">100.0</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">%</FONT></DIV>
</TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">100.0</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">%</FONT></DIV>
</TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">100.0</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">%</FONT></DIV>
</TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">100.0</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">%</FONT></DIV>
</TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="71%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">Cost of services:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="71%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">Salaries, wages and payroll taxes</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">91.5</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">91.3</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">91.2</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">91.1</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="71%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">Benefits, workers&#146; compensation, state&nbsp;unemployment taxes and other costs</FONT></DIV>
</TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">8.5</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">6.1</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">6.8</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">6.2</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="71%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">Total cost of services</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">100.0</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">97.4</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">98.0</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">97.3</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="71%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">Gross profit</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.0</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">2.6</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">2.0</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">2.7</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="71%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">Operating expenses:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="71%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">Salaries, wages and commissions</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">1.9</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">1.5</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">2.0</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">1.6</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="71%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">Other general and administrative</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.9</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.7</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.9</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.7</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="71%"> <DIV STYLE="margin-left:6%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">Depreciation and amortization</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.3</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.2</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.2</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.2</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="71%"> <DIV STYLE="margin-left:10%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">Total operating expenses</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">3.1</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">2.4</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">3.1</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">2.5</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="71%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">Operating (loss) income</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">(3.1</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV>
</TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.2</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">(1.1</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">)</FONT></DIV>
</TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.2</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>

<TR>
<TD VALIGN="top" WIDTH="71%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">Interest income, net</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.1</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.0</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.1</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.0</FONT></DIV> </TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD> </TR>

<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="71%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">Other non-operating income</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.0</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.0</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.0</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.0</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="71%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">(Loss) income before income taxes</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">(3.0</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.2</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">(1.0</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.2</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="71%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">Income tax (benefit) provision</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">(1.2</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.1</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">(0.4</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.1</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR NOSHADE COLOR="#000000"></TD>
<TD> <HR NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" WIDTH="71%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">Net (loss) income</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">(1.8</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.1</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">(.06</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">)</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD ALIGN="right" COLSPAN="1" VALIGN="bottom"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">0.1</FONT></DIV> </TD>
<TD COLSPAN="1" NOWRAP VALIGN="bottom"> <DIV><FONT FACE="Times New Roman" SIZE="2"
COLOR="#000000">&nbsp;</FONT></DIV> </TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD> <HR SIZE="4" NOSHADE COLOR="#000000"></TD>
<TD> <HR SIZE="4" NOSHADE WIDTH="0" ALIGN="left" COLOR="#ffffff"></TD> </TR>
</TABLE>


<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>SIGNIFICANT TRENDS</B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The  Company  decided in 2001 to target new  clients  with a lower  risk  profile  and to no
longer service existing clients in certain  high-risk  industries.  During the first quarter of 2002,
all existing  clients in certain  high-risk  industries such as roofing and trucking were terminated.
However,  the Company will continue to service  existing  clients in other  high-risk  industries and
intends to retain such clients for as long as they remain  profitable  to the  Company.  As a result,
the percentage of total Company  revenue  earned from clients in high-risk  industries is expected to
decrease over time as the revenue earned from new clients added from other industries increases.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The  Company  considers  industries  to be  high-risk  if  there is a  likelihood  of a high
frequency of on-the-job  accidents  involving  worksite  employees or likelihood  that such accidents
will be severe.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         By no longer  selling its services to new high-risk  clients,  the Company  believes that it
will  reduce  the  earnings  volatility  associated  with the  cost of its  workers&#146;compensation
insurance programs.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Volatility  in the dollar amount of  workers&#146;compensation  costs arises when the number
of accidents  and the severity of such  accidents  cannot be easily  projected,  thus  resulting in a
wide range of possible  expected  dollar losses for an insurance  policy year. Such volatility in the
projection  of expected  dollar losses caused by the number of claims and the severity of such claims
is more likely to be associated  with  industries  that have a high-risk  level  associated with them
(e.g., construction, roofing, trucking, etc.) </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Since the Company has historically  sold a significant  amount of its services to clients in
high-risk  industries,  there is a degree  of  uncertainty  as to  whether  it </FONT></DIV>













<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">17 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc18">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>










<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">
can be  successful  in selling  services  to clients in  industries  not  previously  focused  upon.
The  Company  has been selling to the new  target  market  since the first  quarter  of 2001 and the
sales  volume  from new clients has been at a level that leads the Company to believe  that the result
of the  transition  is profitable. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Further, the Company has communicated to its existing clients that the comprehensive
service fees, including the cost of medical benefits, will increase in 2003 to more appropriately
recognize the Company&#146;s cost of providing services and to decrease the health benefit subsidy.
The repricing of the Company&#146;s services is consistent with its strategy to charge service fees
that more accurately reflect current competitive market rates for insurance and benefit related
services. The Company is not able to predict the degree of client attrition that will result from
the increased service fees. </FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><b>
Three Months Ended September&nbsp;30, 2002 Compared to Three Months Ended September&nbsp;30, 2001
</B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Revenues were $864.4 million for the three months ended September&nbsp;30,  2002,  compared
to $798.5 million for the three months ended  September&nbsp;30,  2001,  representing  an increase of
$65.9 million,  or 8.3%.  Revenue  growth was primarily due to the  Company&#146;s  client  selection
strategy of  enrolling  new  clients  with higher wage  employees.  From  September&nbsp;30,  2001 to
September&nbsp;30,  2002 the average  annual wage of paid employees  increased  16.0% from $26,102 to
$30,287.
</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Charges to clients  for  workers&#146;compensation  coverage  as a  percentage  of  worksite
salaries  and  wages for the  third  quarter  of 2002  were  3.26%,  compared  to 4.21% for the third
quarter of 2001 representing a decrease of 22.6%. Such decline is due to the continuing change in the
risk profile of clients serviced.  To the extent the Company continues to increase the number of its
low-risk clients, the Company expects such charges to discontinue to decrease.
</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         From  September&nbsp;30,  2001 to  September&nbsp;30,  2002, the number of clients decreased
7.9% from 8,108 to 7,464 and the number of average  paid  worksite  employees  decreased  6.6%,  from
104,185 to 97,300.  Such decline is a result of the Company&#146;s decision to target new clients with a
lower risk profile and to no longer service existing clients in certain high-risk industries. The
Company counts the number of clients based on each unique account number that the Company issues to
identify each payroll cycle (e.g., weekly, bi-weekly, monthly, etc.) Accordingly,  each  business  the
Company  services  may have  multiple  payroll  cycles and thereby represent  more  than one  client.
The  number of  unique  businesses  serviced  by the  Company  as measured by individualized federal
employer identification numbers is 6,856.
</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The Company&#146;s  revenues include: (i) each worksite  employee&#146;s gross wages; (ii) a
markup which is computed as a percentage of the gross wages;  (iii) related  payroll taxes;  and (iv)
the client company&#146;s  portion of benefits,  including medical and retirement benefits,  provided
to the  worksite  employees,  based  on  elected  coverage  levels  by the  client  and the  worksite
employee.  The Company  includes  the gross wages of its worksite  employees as revenue  based on its
analysis of  Emerging  Issues  Task Force  (&#147;EITF&#148;)  99-19, <i> Reporting  Revenue  Gross as a Principal
versus  Net as an  Agent</i>.  In  accordance  with the EITF  consensus,  the  Company  is deemed to be a
principal in its human resource related  services because it assumes a significant  amount of risk as
a  co-employer  of  its  worksite  employees.  Among  the  more  significant  is  the  Company&#146;s
assumption  of risk for the  payment  of direct  costs,  including  the gross  wages of its  worksite
employees and the related  payroll taxes,  regardless of whether the  Company&#146;s  clients pay the
comprehensive service fees on a timely basis, or at all.
</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The  following  table  presents the amounts of salaries and wages,  payroll related taxes and fees
charged  by the  Company  included  in  the  Company&#146;s  revenues  for  the  three  months  ended
September&nbsp;30, 2001 and 2002, respectively:
</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<TABLE ALIGN=CENTER CELLSPACING=0 CELLPADDING=0 WIDTH=95% BORDER=0>
        <TR>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM COLSPAN=3 ALIGN="center"><DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>September&nbsp;30, 2001</B></FONT></DIV></td>
        <TD VALIGN=BOTTOM> <FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM COLSPAN=3 ALIGN="center"><DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>September&nbsp;30, 2002</B></FONT></DIV></td>
        </TR>
         <TR>
        <TD>&nbsp;&nbsp;</td>
        <TD colspan=2><HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
        <TD>&nbsp;&nbsp;</td>
        <TD>&nbsp;&nbsp;</td>
        <TD colspan=2><HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
        <TD>&nbsp;&nbsp;</td>
             </TR>
       <TR BGCOLOR="#cceeff">
        <TD VALIGN=TOP WIDTH=77%><FONT FACE="Times New Roman" SIZE=2 COLOR="#000000">&nbsp;&nbsp;&nbsp;Salaries and wages</FONT></TD>
        <TD VALIGN=BOTTOM WIDTH=1% ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM WIDTH=8%><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">679,868</FONT></DIV></TD>
        <TD VALIGN=BOTTOM WIDTH=1%><DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV></TD>
        <TD VALIGN=BOTTOM WIDTH=3%><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM WIDTH=1% ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM WIDTH=8%><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">736,739</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM WIDTH=1%><DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        </TR>
        <TR>
        <TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;Payroll related taxes</FONT></TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">50,424</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">52,996</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        </TR>
       <TR BGCOLOR="#cceeff">
        <TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;Fees charged by the Company</FONT></TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">68,241</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">74,713</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        </TR>
<TR>
        <TD>&nbsp;&nbsp;</td>
        <TD colspan=2><HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
        <TD>&nbsp;&nbsp;</td>
        <TD>&nbsp;&nbsp;</td>
        <TD colspan=2><HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
        <TD>&nbsp;&nbsp;</td>
     </TR>
   <TR>
        <TD VALIGN=TOP><FONT FACE="Times New Roman" SIZE=2 COLOR="#000000">&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">798,533</FONT></DIV></TD>
        <TD VALIGN=BOTTOM><DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV></TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">864,448</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        </TR>
<TR>
        <TD>&nbsp;&nbsp;</td>
        <TD colspan=2><HR size=4 NOSHADE ALIGN="right" COLOR="#000000"></TD>
        <TD>&nbsp;&nbsp;</td>
        <TD>&nbsp;&nbsp;</td>
        <TD colspan=2><HR size=4 NOSHADE ALIGN="right" COLOR="#000000"></TD>
</TR>
</TABLE>










<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">18 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc19">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>








<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Costs of services were $842.2  million for the three months ended  September&nbsp;30,  2002,
compared to $798.3  million for the three  months  ended  September&nbsp;30,  2001,  representing  an
increase of $43.9 million,  or 5.5%.  Included in the  Company&#146;s  cost of services for the three
months ended  September&nbsp;30,  2002 were salaries,  wages and payroll taxes of worksite  employees
of $789.7 million as compared to $730.3 million for the three months ended  September&nbsp;30,  2001,
representing  an increase of $59.4 million,  or 8.1%. Each of these increases was primarily due to an
increase in the average wage of worksite employees.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Benefits,  workers&#146;compensation,  state  unemployment  taxes and other costs were $52.5
million for the three months ended  September&nbsp;30,  2002, compared to $68.0 million for the three
months ended September&nbsp;30, 2001, representing a decrease of $15.5 million, or 22.8%.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The  medical   benefit   plan   subsidy  was  $1.7   million  for  the  three  months  ended
September&nbsp;30,  2002,  compared to $3.0  million for the three  months  ended  September&nbsp;30,
2001.  An  unfavorable  experience in the  maturation  or run-out of prior year medical  benefit plan
claims  increased  the amount of the medical  benefit  plan  subsidy  during the three  months  ended
September&nbsp;30, 2001.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Workers&#146;compensation   costs   were  $23.0   million   for  the  three   months   ended
September&nbsp;30,  2002,  compared to $45.2  million for the three  months  ended  September&nbsp;30
2001, representing a decrease of $22.2 million, or 49.0%.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Workers&#146;compensation  costs have  decreased  due to the  continuing  change in the risk
profile of clients  serviced.  To the extent the  Company  continues  to  increase  the number of its
low-risk clients, the Company expects workers&#146;compensation costs will continue to decrease.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Workers&#146; compensation costs for the three months ended September&nbsp;30, 2002 were $23.0 million compared to $45.2
million for the three months ended September&nbsp;30, 2001, representing a decrease of $22.2 million.  Workers&#146;
compensation decreased in the third quarter of 2002 due to the Company&#146;s decision to sell to a target market with
a lower workers&#146; compensation risk profile and higher wages.  Included in workers&#146; compensation costs for the
three months ended September&nbsp;30, 2001, was an adjustment of $19.7 million.  The adjustment was primarily caused
by: (i) a lower than expected rate of return on premium payments made to CNA that reflected the decrease in the
overall securities market, (ii) a higher discounted present value of the unfunded portion of expected premium
payments to be made to CNA which resulted from the decrease in the interest rate environment, and (iii) a change,
identified in a mid-year actuarial review by the Company&#146;s independent actuaries, in the estimate of the ultimate
total workers&#146; compensation claims for the 2000 policy year.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         As of  September&nbsp;30,  2002  and  2001  the  Company  used a  discount  rate  of 4.0% in
determining   the   present   value   of  the   future   payments   to  be   made   under   the   CNA
workers&#146;compensation  program.  Prior to  September&nbsp;30,  2001,  the Company used a discount
rate of 5.5%.  For further  information,  please  refer to the  &#147;Workers&#146;Compensation  Plans&#148; in
Item 1 of the Form 10-K.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The Company believes its  workers&#146;compensation  plan liability is adequate to cover all
probable  claims.  However,  there is an extensive  degree of judgment used in the  estimation of the
amount  of  workers&#146;compensation  claims  amounts,  and  as  such,  there  exists  a  reasonable
possibility  that abnormal claims  experience  could arise.  In addition,  there exists a possibility
that a lower than expected rate of return on premium  payments  made to CNA could  continue.  Each of
these  outcomes  would  result in a  revision  to the  amount of the  workers&#146;compensation  plan
liability recorded.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The Company  evaluates its current and  historical  workers&#146;compensation  cost accruals
based on an  independent  actuarially  developed  estimate of the ultimate  workers&#146;compensation
cost to the Company for each open policy year, which now includes 2000, 2001 and  year-to-date  2002,
and adjusts such accruals as necessary.  These  adjustments could be either increases or decreases to
workers&#146;compensation costs, depending upon the actual loss experience of the Company.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Accruals  of  workers&#146;compensation  costs in  subsequent  periods  will be  affected by
future changes in the risk profile of clients serviced by the Company,  the actual claims  experience
and the discounted  present value of the unfunded  portion of expected  premium  payments.  The final
cost of  workers&#146;compensation  coverage  for each policy year will be  determined  by the actual
claims experience over time as claims close, the final  administrative  costs of the program, and the
final return on investment earned with respect to premium dollars paid to CNA.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         State  unemployment  taxes  were $1.2  million  for each of the three  month  periods  ended
September&nbsp;30, 2002 and 2001.</FONT></DIV>













<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">19 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc20">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>












<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Gross profit was $22.2 million for the three months ended September&nbsp;30,  2002, compared
to $0.3 million for the three  months  ended  September&nbsp;30,  2001,  representing  an increase of
$21.9 million.  Gross profit margin  increased as a percentage of revenues for the three months ended
September&nbsp;30,   2002  primarily  due  to  a  lower  medical  benefit  plan  subsidy  and  higher
workers&#146;compensation    margin   from    clients   in   low-risk    industries.    Included   in
workers&#146;compensation  costs  for  the  three  months  ended  September&nbsp;30,   2001,  was  an
adjustment of $19.7 million.  The adjustment was primarily  caused by: (i) a lower than expected rate
of return on premium  payments  made to CNA that  reflected  the  decrease in the overall  securities
market,  (ii) a higher discounted  present value of the unfunded portion of expected premium payments
to be made to CNA which  resulted  from the decrease in the interest  rate  environment,  and (iii) a
change,  identified in a mid-year actuarial review by the Company&#146;s  independent  actuaries,  in
the estimate of the ultimate total workers&#146;compensation claims for the 2000 policy year.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Operating  expenses were $20.8 million for the three months ended  September&nbsp;30,  2002,
compared  to $24.8  million  for the three  months  ended  September&nbsp;30,  2001,  representing  a
decrease  of  $4.0  million,   or  16.1%.  The  decrease  in  operating   expenses  was  due  to  the
implementation of various cost savings  initiatives,  including a reduction in the number of employees.
</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Salaries,   wages  and   commissions   were  $13.0   million  for  the  three  months  ended
September&nbsp;30,  2002,  compared to $15.5  million for the three months  ended  September&nbsp;30,
2001,  representing  a decrease of $2.5  million,  or 16.1%.  This  decrease  was due  primarily to a
reduction  in the number of employees  during  the  fourth  quarter of 2001 and during the
first quarter of 2002.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Other  general and  administrative  expenses  were $5.8  million for the three  months ended
September&nbsp;30,  2002,  compared to $7.2  million for the three  months  ended  September&nbsp;30,
2001,   representing   a  decrease  of  $1.4  million,   or  19.4%.   The  decrease  in  general  and
administrative  expenses was due to the  implementation of cost savings  initiatives in areas related
to  services   and  outside  fees  during   2002.   In  addition,   during  the  three  months  ended
September&nbsp;30,  2001 the Company  incurred  marketing  and  advertising  expenses  related to the
rebranding of the company name.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Depreciation  and  amortization  expenses  were  $2.0  million  for the three  months  ended
September&nbsp;30,  2002,  compared to $2.1  million for the three  months  ended  September&nbsp;30,
2001. As of January 1, 2002 the Company adopted Financial  Accounting  Standard (&#147;SFAS&#148;) No. 142 that
changes the  accounting  for goodwill from an  amortization  method to an  impairment-only  approach.
Application  of the  non-amortization  provisions of SFAS 142 resulted in a decrease in  amortization
during the three months  ended  September&nbsp;30,  2002 of $0.2  million.  The Company  conducted an
independent  review of goodwill and other intangible  assets as of January 1, 2002 and concluded that
there was no goodwill impairment.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Interest  income was $0.5  million for the three months  ended  September&nbsp;30,  2002 and
$0.8 million for the three  months ended  September&nbsp;30,  2001,  representing  a decrease of $0.3
million due to a general decline in interest rates.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Income tax expense for the three months ended September&nbsp;30,  2002 was $0.7 million. The
Company&#146;s  effective tax rate for financial  reporting purposes was 34.0%. Income tax benefit of
$9.2  million for the three months  ended  September&nbsp;30,  2001 was the result of a net loss from
operations and tax credits.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Net income was $1.3 million for the three months ended September&nbsp;30,  2002, compared to
a net loss of $14.5  million for the three  months ended  September&nbsp;30,  2001,  representing  an
increase in net income of $15.8 million.</FONT></DIV>


<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<b>
Nine Months Ended September&nbsp;30, 2002 Compared to Nine Months Ended September&nbsp;30, 2001</b></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Revenues were $2,483.2 million for the nine months ended September 30, 2002, compared to $2,337.9 million for the
nine months ended September&nbsp;30, 2001, representing an increase of $145.3 million, or 6.2%. Revenue growth was
primarily due to the Company&#146;s new client selection strategy of enrolling clients with higher wage employees.
From September&nbsp;30, 2001 to September&nbsp;30, 2002 the average annual wage of paid employees increased 16.1% from
$24,969 to $28,981.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
        Charges to clients for workers&#146; compensation coverage as a percentage of worksite salaries and
wages for the first nine months of 2002 were 3.42% as compared to 4.50% for the first nine months of
2001, representing a decrease of 24.0%. Such decline is due to the continuing change in the risk profile
of clients serviced.  To the extent the Company continues to increase the number of its low-risk clients,
the Company expects such charges to discontinue to decrease. </FONT></DIV>








<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">20 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc21">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>








<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
        From September&nbsp;30, 2001 to September&nbsp;30, 2002, the number of clients decreased 7.9% from 8,108 to 7,464 and the
number of average paid worksite employees decreased 8.5%, from 105,708 to 96,745. Such decline is a result of the
Company&#146;s decision to target new clients with a lower risk profile and to no longer service existing clients in
certain high-risk industries.</FONT></DIV>


<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The following table presents the amounts of salaries and wages, payroll related taxes, and fees charged by the
Company included in the Company&#146;s revenues for the nine months ended September&nbsp;30, 2001 and 2002,
respectively:</FONT></DIV>

<TABLE ALIGN=CENTER CELLSPACING=0 CELLPADDING=0 WIDTH=90% BORDER=0>
        <TR>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM COLSPAN=3 ALIGN="center"><DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>September&nbsp;30, 2001</B></FONT></DIV></td>
        <TD VALIGN=BOTTOM> <FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM COLSPAN=3 ALIGN="center"><DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>September&nbsp;30, 2002</B></FONT></DIV></td>
        </TR>
         <TR>
        <TD>&nbsp;&nbsp;</td>
        <TD colspan=2><HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
        <TD>&nbsp;&nbsp;</td>
        <TD>&nbsp;&nbsp;</td>
        <TD colspan=2><HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
        <TD>&nbsp;&nbsp;</td>
             </TR>
       <TR BGCOLOR="#cceeff">
        <TD VALIGN=TOP WIDTH=77%><FONT FACE="Times New Roman" SIZE=2 COLOR="#000000">&nbsp;&nbsp;&nbsp;Salaries and wages</FONT></TD>
        <TD VALIGN=BOTTOM WIDTH=1% ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM WIDTH=8%><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">1,979,541</FONT></DIV></TD>
        <TD VALIGN=BOTTOM WIDTH=1%><DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV></TD>
        <TD VALIGN=BOTTOM WIDTH=3%><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM WIDTH=1% ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM WIDTH=8%><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,102,806</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM WIDTH=1%><DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        </TR>
        <TR>
        <TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;Payroll related taxes</FONT></TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">153,115</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">159,246</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        </TR>
       <TR BGCOLOR="#cceeff">
        <TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;Fees charged by the Company</FONT></TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">205,216</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">221,144</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        </TR>
<TR>
        <TD>&nbsp;&nbsp;</td>
        <TD colspan=2><HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
        <TD>&nbsp;&nbsp;</td>
        <TD>&nbsp;&nbsp;</td>
        <TD colspan=2><HR NOSHADE ALIGN="right" COLOR="#000000"></TD>
        <TD>&nbsp;&nbsp;</td>
     </TR>
   <TR>
        <TD VALIGN=TOP><FONT FACE="Times New Roman" SIZE=2 COLOR="#000000">&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,337,872</FONT></DIV></TD>
        <TD VALIGN=BOTTOM><DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV></TD>
        <TD VALIGN=BOTTOM><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
        <TD VALIGN=BOTTOM ALIGN=RIGHT><DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">$</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">2,483,196</FONT></DIV> </TD>
        <TD VALIGN=BOTTOM><DIV ALIGN=LEFT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;</FONT></DIV> </TD>
        </TR>
<TR>
        <TD>&nbsp;&nbsp;</td>
        <TD colspan=2><HR size=4 NOSHADE ALIGN="right" COLOR="#000000"></TD>
        <TD>&nbsp;&nbsp;</td>
        <TD>&nbsp;&nbsp;</td>
        <TD colspan=2><HR size=4 NOSHADE ALIGN="right" COLOR="#000000"></TD>
</TR>
</TABLE>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Costs of services were $2,415.4 million for the nine months ended  September&nbsp;30,  2002,
compared to $2,290.9  million for the nine months  ended  September&nbsp;30,  2001,  representing  an
increase of $124.5 million,  or 5.4%.  Included in the  Company&#146;s  cost of services for the nine
months ended  September&nbsp;30,  2002 were salaries,  wages and payroll taxes of worksite  employees
of $2,262.1  million as compared to  $2,132.7  million for the nine months  ended  September&nbsp;30,
2001,  representing  an increase of $129.4  million,  or 6.1%.  Each of these increases was primarily
due to an increase in the average wage of worksite employees.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Benefits,  workers&#146;compensation,  state  unemployment taxes and other costs were $153.3
million for the nine months ended  September&nbsp;30,  2002,  compared to $158.2 million for the nine
months ended September&nbsp;30, 2001, representing an decrease of $4.9 million, or 3.1%.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The  medical   benefit   plan   subsidy  was  $3.8   million  for  the  nine  months   ended
September&nbsp;30,  2002,  compared  to $4.0  million for the nine  months  ended  September&nbsp;30,
2001, representing a decrease of $0.2 million, or 5.0%.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Workers&#146;compensation   costs   were   $68.7   million   for  the  nine   months   ended
September&nbsp;30,  2002,  compared  to $96.1  million for the nine  months  ended  September&nbsp;30
2001, representing a decrease of $27.4 million, or 28.5%.  Workers&#146;compensation costs decreased
for the first  nine  months in 2002 due to the Company&#146;s  decision  to sell to a target  market
with a lower workers&#146;compensation risk profile and higher wages. Included in workers&#146;
compensation costs for the nine months ended September&nbsp;30, 2001, was an adjustment of $19.7 million.
The adjustment was primarily caused by: (i) a lower than expected rate of return on premium  payments
made to CNA that  reflected  the  decrease in the overall  securities market,  (ii) a higher discounted
present value of the unfunded portion of expected premium payments to be made to CNA which resulted from
the decrease in the interest rate environment, and (iii) a change, identified in a mid-year actuarial
review by the Company&#146;s independent actuaries, in the estimate of the ultimate total workers&#146;
compensation claims for the 2000 policy year.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         State  unemployment  taxes were $5.2  million for the nine months  ended  September&nbsp;30,
2002,  compared to $5.8 million for the nine months ended  September&nbsp;30,  2001,  representing  a
decrease of $0.6  million,  or 10.3%.  This  decrease was  primarily the result of an increase in the
average wage of worksite employees that was not subject to state unemployment taxes.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Gross profit was $67.8 million for the nine months ended  September&nbsp;30,  2002, compared
to $47.0  million for the nine months  ended  September&nbsp;30,  2001,  representing  an increase of
$20.8  million,  or 44.3%.  Gross profit  margin  increased as a percentage  of revenues for the nine
months ended  September&nbsp;30,  2002  primarily due to an adjustment of $19.7 million  recorded for
the nine months ended  September&nbsp;30,  2001. The  adjustment was primarily  caused by (i) a lower
than  expected  rate of return on premium  payments  made to CNA that  reflected  the decrease in the
overall  securities  market,  (ii) a higher  discounted  present  value of the  unfunded  portion  of
expected  premium  payments to be made to CNA which  resulted  from the decrease in the interest rate
environment,  and (iii) a change,  identified in a mid-year  actuarial  review by the  Company&#146;s
independent  actuaries,  in the estimate of the ultimate total  workers&#146;compensation  claims for
the 2000 policy year.</FONT></DIV>









<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">21 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc22">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>









<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Operating  expenses  were $64.2 million for the nine months ended  September&nbsp;30,  2002,
compared  to  $73.6  million  for the nine  months  ended  September&nbsp;30,  2001,  representing  a
decrease  of  $9.4  million,   or  12.7%.  The  decrease  in  operating   expenses  was  due  to  the
implementation  of various cost saving  initiatives,  including a reduction in the number of employees.
</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Salaries,   wages  and   commissions   were  $39.7   million  for  the  nine  months   ended
September&nbsp;30,  2002,  compared to $46.2  million for the nine  months  ended  September&nbsp;30,
2001,  representing  a decrease of $6.5  million,  or 14.0%.  This  decrease  was due  primarily to a
reduction  in the number of employees  during  the  fourth  quarter of 2001 and during the
first quarter of 2002.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Other  general and  administrative  expenses  were $18.5  million for the nine months  ended
September&nbsp;30,  2002,  compared to $21.2  million for the nine  months  ended  September&nbsp;30,
2001,  representing a decrease of $2.7 million,  or 12.7%. The decrease in general and administrative
expenses was due to the  implementation of cost savings  initiatives in areas related to services and
outside fees during  2002.  In addition,  during the nine months  ended  September&nbsp;30,  2001 the
Company  incurred  marketing  and  advertising  expenses  related to the  rebranding  of the  company
name.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Depreciation  and  amortization  expenses  were  $6.0  million  for the  nine  months  ended
September&nbsp;30,  2002,  compared  to $6.2  million for the nine  months  ended  September&nbsp;30,
2001.  Application  of the  non-amortization  provisions  of  SFAS  142  resulted  in a  decrease  in
amortization during the nine months ended September&nbsp;30, 2002 of $0.6 million.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Interest  income  was  $1.5  million  for the nine  months  ended  September&nbsp;30,  2002,
compared  to $2.8  million of  interest  income for the nine months  ended  September&nbsp;30,  2002,
representing a decrease of $1.3 million due to a general decline in interest rates.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Income tax expense was $1.8 million for the nine months ended  September&nbsp;30,  2002. The
Company&#146;s  effective tax rate for financial  reporting purposes was 34.0%. Income tax benefit of
$9.6  million for the nine  months  ended  September&nbsp;30,  2001 was the result of a net loss from
operations and tax credits.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Net income was $3.4 million for the nine months ended  September&nbsp;30,  2002, compared to
a net loss of $14.3  million for the nine  months  ended  September&nbsp;30,  2001,  representing  an
increase in net income of $17.7 million.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>LIQUIDITY AND CAPITAL RESOURCES</B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The Company had  approximately  $118.7 million in cash,  cash  equivalents,  certificates of
deposit  and  marketable  securities  at   September&nbsp;30,   2002.  The  Company  is  required  to
collateralize  its  obligations  under  its   workers&#146;compensation   and  medical  benefit  plan
coverages.  The Company presently uses certificates of deposit and marketable securities,  as well as
surety bonds, to collateralize these obligations, as more fully described below.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         At  September&nbsp;30,  2002,  the Company  had pledged  $70.8  million of  certificates  of
deposit  and  marketable  securities  as  collateral  for  certain  standby  letters  of credit or in
collateral    trust     arrangements     issued    in    connection    with    the     Company&#146;s
workers&#146;compensation  and medical benefit plans.  Once pledged,  the certificates of deposit and
marketable  securities  are deemed to be restricted.  In addition,  at  September&nbsp;30,  2002, the
Company had provided as collateral  $8.2 million in surety bonds,  net of letters of credit,  related
to its 2000 and 2001 workers&#146;compensation policies with CNA.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The  Company  anticipates  that $6.1  million of cash and cash  equivalents  will be used as
collateral  for the  workers&#146;compensation  program  with CNA  during the final  three  months of
2002.  In  addition,  it is  anticipated  that the  remaining  $8.2 million of surety  bonds,  net of
letters  of  credit,  being  used as  collateral  for the  2000  and  2001  workers&#146;compensation
policies  will be  reduced  to zero with a  corresponding  increase  in  restricted  certificates  of
deposit and restricted marketable securities.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The Company has announced that member insurance  companies of American  International  Group
Inc.,  (&#147;AIG&#148;),  will  provide  workers&#146;compensation  insurance  in 2003 for all of its worksite
employees.  As part of the AIG program,  the Company  anticipates that $28.5 million of cash and cash
equivalents will be used as collateral during 2003. For more detailed  information  regarding the AIG
program, please see the Company&#146;s Form 8-K filed on October 23, 2002.</FONT></DIV>








<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">22 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc23">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>







<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The Company&#146;s  collateralization obligations under its medical benefit plans are funded
through 2002. The Company has announced  that it has renewed its medical  benefit plan with Aetna for
2003.  The  Company  anticipates  that  $2  million  of cash  and  cash  equivalents  will be used to
collateralize  the Aetna program.  The final amount of collateral is subject to  determination  based
on the number of plan  participants  electing PPO coverage.  The Company has also  announced  that it
has renewed  its medical  benefit  plan with Blue Cross Blue Shield of Florida  ("BCBS").  The amount
of  collateral  required to be provided to BCBS is expected to increase over the  three-year  renewal
term, based in part on the increase in plan participation.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The Company had no long-term debt outstanding as of September&nbsp;30, 2002.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The Company&#146;s  revenues include:  (i)each worksite  employee&#146;s gross wages; (ii) a
markup which is computed as a percentage of the gross wages;  (iii) related  payroll taxes;  and (iv)
the client company&#146;s  portion of benefits,  including medical and retirement benefits,  provided
to the worksite  employees based on elected coverage levels by the client and the worksite  employee.
Included  in the  Company&#146;s  $2,483.2  million of revenue  during the first nine  months of 2002
were salaries, wages and payroll taxes of worksite employees of $2,262.1 million.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The revenue of the Company derived from salaries,  wages and payroll taxes is managed from a
cash flow  perspective so that a matching  exists between the time that the funds are received from a
client to the time  that the funds are paid to the  worksite  employees  and to the  appropriate  tax
jurisdictions.  As a co-employer,  and under the terms of the Professional  Services  Agreement,  the
Company is  obligated  to make  certain  wage,  tax and  regulatory  payments.  Because of this,  the
objective of the Company is to minimize the credit risk  associated  with  remitting  the payroll and
associated taxes before receiving from the client the service fees charged by the Company.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         In  addition to  yielding a profit to the  Company,  the markup to the client is intended to
cover the Company&#146;s  costs of: (i)  workers&#146;compensation  insurance for worksite employees;
(ii)  medical  and  retirement  benefit  plan  coverage  of  the  worksite  employees;   (iii)  state
unemployment  insurance;  and (iv) human  resource  consulting  services  and  payroll  and  benefits
administration services.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The Company&#146;s cash flow from operating  activities during the first nine months of 2002
was $21.8 million  primarily due to net income of $3.4  million,  an increase in accrued  payroll and
payroll   taxes   of   $14.7   million   and   an   increase   in   accrued    insurance    premiums,
workers&#146;compensation  and health  reserves of $11.8  million.  The timing and amount of payments
for payroll,  payroll taxes and benefit  premiums can vary  significantly  based on various  factors,
including  the  day of the  week  on  which  a  period  ends  and the  existence  of  holidays  on or
immediately following a period end.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The  Company  did not pay any cash  dividends  prior to March 14,  2001.  At that time,  the
Company  instituted a quarterly  dividend  program of $.05 per share,  and pursuant to this  program,
the Board of Directors  declared a cash dividend of $0.05 per share of common stock,  payable October
31, 2002 to holders of record on October 15,  2002.  While this  dividend  declaration  is part of an
intended  regular  quarterly  dividend  program,  any  future  determination  as to  the  payment  of
dividends  will be made at the  discretion  of the Board of  Directors of the Company and will depend
upon the  Company&#146;s  operating  results,  financial  condition,  capital  requirements,  general
business conditions and such other factors as the Board of Directors deems relevant.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The  Company  periodically   evaluates  its  liquidity   requirements,   capital  needs  and
availability of capital resources in view of its plans for expansion,  anticipated  levels of medical
benefit plan subsidies,  collateralization  requirements for insurance  coverage&#146;s and other operating
cash needs.  The Company has in the past  sought,  and may in the future  seek,  to raise  additional
capital or take other  measures  to  increase  its  liquidity  and  capital  resources.  The  Company
believes  that its current cash  balances and cash flow from  operations  will be  sufficient to meet
its  requirements  through  2002.  The Company may rely on these same  sources,  as well as public or
private debt and/or equity  financing to meet its long-term  capital  needs.  If the Company does not
achieve its  profitability  objectives  in 2003 and its cash  balances and cash flow from  operations
are  inadequate  to meet  its  operating  and  collateralization  requirements,  the  Company  may be
required to seek financing from external  sources.  In such event,  the Company will explore external
financing  alternatives,  but there is no assurance  that  financing  from  external  sources will be
available to the Company at prevailing market rates.</FONT></DIV>







<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">23 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc24">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>







<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE=2 COLOR="#000000"><B><A NAME="QQ"></A>ITEM 3.&nbsp;&nbsp;&nbsp;&nbsp;Quantitative and Qualitative
Disclosures About Market Risk</B></FONT></DIV>


<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The  Company is subject to market risk from  exposure to changes in interest  rates based on
its  investing and cash  management  activities.  The Company  utilizes  U.S.  government  agency and
other  corporate  debt with fixed rates to manage its  exposures  to interest  rates.  The Company is
also  subject to market  risk from  exposures  to  changes in  interest  rates  related to  insurance
premiums paid to CNA under its  workers&#146;compensation  programs.  The insurance  premiums paid to
CNA are invested in U. S. government  agency and corporate debt instruments  with fixed rates.  Prior
to  December&nbsp;31,  2001 twenty  percent of the  insurance  premiums  paid to CNA were invested in
equity  instruments.  Such equity  investments  have been  liquidated  and reinvested in fixed income
instruments.  No additional  investments in equity  instruments with premium dollars paid to CNA will
be made. The Company does not expect  changes in interest  rates to have a material  effect on income
or cash flows in fiscal  2002,  although  there can be no  assurances  that  interest  rates will not
change.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B><A NAME="CP"></A>ITEM 4.&nbsp;&nbsp;&nbsp;&nbsp;Controls and Procedures</B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         Within 90 days prior to the date of this  report,  the Company  carried  out an  evaluation,
under the supervision and with the  participation  of the  Company&#146;s  management,  including the
Company&#146;s  Chief Executive Officer and the Chief Financial Officer,  of the effectiveness of the
design and operation of the Company&#146;s  disclosure  controls and procedures  pursuant to Exchange
Act Rule 13a-14.  Based upon that evaluation,  the  Company&#146;s  Chief Executive Officer and Chief
Financial  Officer  concluded  that  the  Company&#146;s   disclosure  controls  and  procedures  are
effective in timely  alerting them to material  information  relating to the Company  (including  its
consolidated  subsidiaries)  that is required to be included in the  Company&#146;s  periodic filings
with  the  Securities  and  Exchange  Commission.  There  have  been no  significant  changes  in the
Company&#146;s  internal controls or, to the  Company&#146;s  knowledge,  in other factors that could
significantly  affect such  internal  controls  subsequent  to the date the  Company  carried out its
evaluation.  In  addition,  there  have  been no  corrective  actions  with  respect  to  significant
deficiencies  and  material  weaknesses  and  there  has been no  fraud  identified,  whether  or not
material,  that  involves  management  or  other  employees  who  have  a  significant  role  in  the
Company&#146;s internal controls.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         It should  be noted  that the  design of any  system of  controls  is based,  in part,  upon
certain  assumptions  about the likelihood of future  events,  and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future  conditions,  regardless
of how remote.</FONT></DIV>



<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>Cautionary
Note Regarding Forward-looking Statements</B></FONT></DIV>


<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         In connection with the safe harbor  provisions of the Private  Securities  Litigation Reform
Act of 1995 (the "Reform Act"), the Company is hereby  providing  cautionary  statements  identifying
important  factors  that could cause the  Company&#146;s  actual  results to differ  materially  from
those  projected in  forward-looking  statements  (as such term is defined in the Reform Act) made by
or on behalf of the Company herein or orally,  whether in presentations,  in response to questions or
otherwise.  Any statements that express, or involve discussions as to, expectations,  beliefs, plans,
objectives,  assumptions or future events or performance  (often, but not always,  through the use of
words  or  phrases  such as  &#147;anticipates,&#148;  &#147;will  result,&#148;  &#147;are  expected  to,&#148;  &#147;will  continue,&#148;
&#147;estimated&#148; and &#147;projection&#148;) are not historical facts and may be forward-looking  and,  accordingly,
such  forward-looking  statements  involve known and unknown risks,  uncertainties  and other factors
that may cause the actual results or  performance of the Company to be materially  different from any
future results or performance  expressed or implied by such  forward-looking  statements.  Such known
and unknown risks, uncertainties and other factors include, but are not limited to, the following:</FONT></DIV>
<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>

<TABLE align=center width=90% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(i)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">increased volatility of costs of workers&#146;compensation coverage and unemployment taxes;</font></div></TD>
</TR>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(ii)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">increased   volatility  of  profit   generated  from  the   workers&#146;compensation   component  of  the
         Company&#146;s    service    offering    under    the    Company&#146;s    loss    sensitive
         workers&#146;compensation programs;</font></div></TD>
</TR>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(iii)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">the
        uncertainties relating to the surety bond market and  collateralization  requirements  related to the
         Company&#146;s medical benefit plan plans and workers&#146;compensation programs;</font></div></TD>
</TR>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(iv)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">uncertainties  as to the  availability  or renewal of  workers&#146;compensation  insurance  coverage  and
         medical benefit plan coverage;</font></div></TD>
</TR>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(v)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">the potential for additional subsidies for medical benefit plans;</font></div></TD>
</TR>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(vi)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">possible adverse  application of certain federal and state laws and the possible  enactment of unfavorable
         laws or regulations;</font></div></TD>
</TR>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(vii)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">litigation  and other claims  against the Company and its clients  including  the impact of such claims on
         the cost of insurance coverage;</font></div></TD>
</TR>
</TABLE>












<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">24 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc25">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>










<TABLE align=center width=90% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(viii)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">impact of competition from existing and new professional employer organizations;</font></div></TD>
</TR>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(ix)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">risks  associated  with  expansion  into  additional  states where the Company does not have a presence or
         significant market penetration;</font></div></TD>
</TR>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(x)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">risks  associated  with the  Company&#146;s  dependence  on key vendors and the ability to obtain or renew
         benefit  contracts  for the  Company&#146;s  worksite  employees at rates  acceptable to the
         Company;</font></div></TD>
</TR>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(xi)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">an unfavorable  determination  by the IRS or Department of Labor regarding the status of the Company as an
         &#147;employer&#148;;</font></div></TD>
</TR>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(xii)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">the  possibility of client  attrition due to the  Company&#146;s  decision to not sell services to clients
         in selected industries;</font></div></TD>
</TR>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(xiii)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">the  possibility  of client  attrition  due to the  Company&#146;s  decision to increase  the price of its
         services, including medical benefits;</font></div></TD>
</TR>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(xiv)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">risks associated with geographic market concentration;</font></div></TD>
</TR>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(xv)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">the financial condition of clients;</font></div></TD>
</TR>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(xvi)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">the failure to properly manage growth and successfully integrate acquired companies and operations;</font></div></TD>
</TR>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(xvii)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">risks associated with new service offerings to  clients;</font></div></TD>
</TR>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(xviii)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">the ability to secure outside financing at rates acceptable to the Company; and</font></div></TD>
</TR>
<TR>
     <TD width=2% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(xix)</font></TD>
     <TD width=1% align=left valign=top><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;</font></TD>
     <TD width=97% align=left valign=top><div align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">other  factors  which are  described in further  detail in this and other  filings by the Company with the
         Securities and Exchange Commission.</font></div></TD>
</TR>
</TABLE>


<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The  Company  cautions  that the factors  described  above  could  cause  actual  results or
outcomes to differ  materially from those expressed in any  forward-looking  statements made by or on
behalf of the Company. 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.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>PART II.&nbsp;&nbsp;&nbsp;&nbsp;OTHER INFORMATION </B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B><A NAME="LP"></A>ITEM 1.&nbsp;&nbsp;&nbsp;&nbsp;Legal Proceedings</B></FONT></DIV>
<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>Lawrence E. Egle v. Staff Leasing,
Inc., et al</u></I>.&nbsp;&nbsp;&nbsp;&nbsp;On April 30, 1999, a shareholder of the Company, brought a class action in the Twelfth Judicial Division, Manatee County, Florida against the Company and certain of its directors alleging that the directors
and senior officers of the Company, in order to entrench themselves in the management of the Company, breached their fiduciary duty to shareholders by failing to pursue a proposal from Paribas Principal Partners to acquire the Company. Plaintiff
seeks injunctive relief and unspecified damages including attorneys&#146; and experts&#146; fees. Negotiations continue between defendants and counsel for the putative plaintiff class in an effort to
finalize a definitive settlement agreement. Once finalized, any agreed upon settlement is subject to court
approval, following notice to the putative class.  Management does not expect any settlement to have a
material effect on the Company&#146;s financial position or results of operations.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
         The Company is a party to certain  pending  claims that have arisen in the normal  course of
business,  none of which,  in the  opinion of  management,  is  expected  to have a material  adverse
effect on the  consolidated  financial  position  or results of  operations  if  adversely  resolved.
However,  the defense and  settlement of such claims may impact the future  availability  and cost to
the Company of applicable insurance coverage.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV><FONT FACE="Times New Roman" SIZE="2"COLOR="#000000"><B> <A NAME="OI"></A>ITEM 5.&nbsp;&nbsp;&nbsp;&nbsp;Other Information</B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Certifications  submitted on August&nbsp;8, 2002,  pursuant to Order No. 4-460, dated June&nbsp;27, 2002 of the
Securities  and Exchange  Commission,  are filed as exhibits to the current  report on Form 8-K filed
on August&nbsp;12, 2002.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On August&nbsp;27, 2002 the Company announced that it had renewed its contract with Blue Cross Blue Shield of Florida
through December&nbsp;31, 2005. In addition, the Company announced that it had extended its contract through
December&nbsp;31, 2003 with Aetna U. S. Healthcare.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On September 5, 2002 Murem Sharpe, Senior Vice President of Sales resigned from the Company. </FONT></DIV>









<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">25 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc26">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>









<DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B><A NAME="ER"></A>ITEM 6.
&nbsp;&nbsp;&nbsp;&nbsp;Exhibits and Reports on Form 8-K</B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV STYLE="text-indent:4%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(a)<I></I>&nbsp;&nbsp;&nbsp;&nbsp;Exhibits<I></I> </FONT></DIV> <DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV ALIGN="center">

<TABLE align=center CELLSPACING=0 CELLPADDING=0 WIDTH=90% BORDER=0>
<TR>
<TD HEIGHT="5"> </TD> </TR>
<TR>
<TD VALIGN="top" ALIGN="right" WIDTH="6%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><a href="exhibit99_1.htm">99.1</a></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="93%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Certification required by Section 906 of the Sarbanes-Oxley Act of 2002 signed by Erik Vonk, Chief Executive
Officer</FONT></DIV> </TD> </TR>
<TR>
<TD HEIGHT="5"> </TD> </TR>
<TR>
<TD VALIGN="top" ALIGN="right" WIDTH="6%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><a href="exhibit99_2.htm">99.2</a></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="93%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Certification required by Section 906 of the Sarbanes-Oxley Act of 2002 signed by John E. Panning, Chief Financial
Officer.</FONT></DIV> </TD> </TR>
<TR>
<TD HEIGHT="5"> </TD> </TR>
<TR>
<TD VALIGN="top" ALIGN="right" WIDTH="6%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><a href="exhibit99_3.htm">99.3</a></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="93%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Certification required by Section 302 of the Sarbanes-Oxley Act of 2002 signed by Erik Vonk, Chief Executive
Officer.</FONT></DIV> </TD> </TR>
<TR>
<TD HEIGHT="5"> </TD> </TR>
<TR>
<TD VALIGN="top" ALIGN="right" WIDTH="6%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><a href="exhibit99_4.htm">99.4</a></FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="93%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Certification required by Section 302 of the Sarbanes-Oxley Act of 2002 signed by John E. Panning, Chief
Financial Officer.</FONT></DIV> </TD> </TR>
 </TABLE> </DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV STYLE="text-indent:4%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">(b)<I></I>&nbsp;&nbsp;&nbsp;&nbsp;Reports on Form 8-K<I></I>
</FONT></DIV> <DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV STYLE="text-indent:4%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">On August&nbsp;12, 2002, a Form 8-K was filed with the Securities and Exchange Commission as a current report that
contained as exhibits thereto: </FONT></DIV> <DIV><FONT SIZE="1">&nbsp;</FONT></DIV>

<DIV ALIGN="center">
<TABLE align=center CELLSPACING=0 CELLPADDING=0 WIDTH=90% BORDER=0>

<TR>
<TD HEIGHT="5"> </TD> </TR>
<TR>
<TD VALIGN="top" ALIGN="right" WIDTH="6%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">99.1</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="93%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Form of Certification dated August&nbsp;8, 2002, of Erik Vonk, as Chief Executive Officer, as filed with the
Securities and Exchange Commission on August&nbsp;8, 2002.</FONT></DIV> </TD> </TR>
<TR>
<TD HEIGHT="5"> </TD> </TR>
<TR>
<TD VALIGN="top" ALIGN="right" WIDTH="6%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">99.2</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="93%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Form of Certification dated August&nbsp;8, 2002, of John E. Panning, as Chief Financial Officer, as filed with the
Securities and Exchange Commission on August&nbsp;8, 2002.</FONT></DIV> </TD> </TR>
 </TABLE> </DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October 23, 2002, a Form 8-K was filed with the Securities and Exchange Commission as a current report that
contained as exhibits thereto:</FONT></DIV>
<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>

<DIV ALIGN="center">
<TABLE align=center CELLSPACING=0 CELLPADDING=0 WIDTH=90% BORDER=0>

<TR>
<TD HEIGHT="5"> </TD> </TR>
<TR>
<TD VALIGN="top" ALIGN="right" WIDTH="6%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">99.1</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="93%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Press release dated October 23, 2002 announcing that AIG will be the carrier of the 2003 Workers&#146;
Compensation Program of Gevity HR, Inc.</FONT></DIV> </TD> </TR>
</table>

<TABLE align=center CELLSPACING=0 CELLPADDING=0 WIDTH=90% BORDER=0>
<TR>
<TD HEIGHT="5"> </TD> </TR>
<TR>
<TD VALIGN="top" ALIGN="right" WIDTH="6%"> <DIV ALIGN="right"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">99.2</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="93%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Final bound proposal of AIG Risk Management, Inc. to be the carrier of the 2003 Workers&#146; Compensation
Program of Gevity HR, Inc.</FONT></DIV> </TD> </TR>
 </TABLE> </DIV>









 <P></P>
 <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">26 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">
<TABLE Style='page-break-before:always' align=center CELLPADDING=0 CELLSPACING=0 width=100% BORDER=0>
<TR>
        <td> <h5 align=left><a href="#toc27">Table of Contents</a></h5></td>
        <td> <h5 align=right><a href="form10q_093002.pdf">Portable Document Format</a></h5></td></tr>
</table>









 <DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"><B>
<A NAME="SGN"></A>SIGNATURE </B></FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV align=justify><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.</FONT></DIV>

<DIV><FONT SIZE="1">&nbsp;</FONT></DIV> <DIV>
<TABLE align=center CELLSPACING=0 CELLPADDING=0 WIDTH=90% BORDER=0>

<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" COLSPAN="3" WIDTH="49%"> <DIV><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">GEVITY HR, INC.</FONT></DIV> </TD> </TR>
<TR>
<TD HEIGHT="16"> </TD> </TR>
<TR>
<TD VALIGN="top" WIDTH="47%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">Dated:&nbsp;&nbsp;&nbsp;&nbsp;November&nbsp;13, 2002</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" WIDTH="3%"> <DIV STYLE="margin-left:2%; text-indent:-2%"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">By:</FONT></DIV> </TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center" WIDTH="49%"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">/s/&nbsp;&nbsp;&nbsp;&nbsp;J<SMALL>OHN</SMALL> E. P<SMALL>ANNING</SMALL>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></DIV> <HR NOSHADE COLOR="#000000" ALIGN="left"></TD> </TR>
<TR>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;</FONT></TD>
<TD> <FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" WIDTH="3%"><FONT FACE="Times New Roman" SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" WIDTH="49%"> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>John E. Panning</B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>Chief
Financial Officer</B></FONT></DIV> <DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><B>(Principal Financial Officer)</B></FONT></DIV> </TD> </TR>
 </TABLE> </DIV> <P></P>








<DIV><FONT SIZE="1">&nbsp;</FONT></DIV>
<DIV ALIGN="center"><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">27 </FONT></DIV>

<HR  SIZE="3" COLOR="#CCEEFF" WIDTH="100%" ALIGN="CENTER">

</BODY>
</HTML>
{"company-data": {"conformed-name": "GEVITY HR", "cik": "0001035185", "assigned-sic": "8741", "irs-number": "650735612", "state-of-incorporation": "FL", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-22701", "film-number": "02820078"}, "business-address": {"street1": "600 301 BLVD W", "street2": "STE 202", "city": "BRADENTON", "state": "FL", "zip": "34205", "phone": "9417484340"}, "mail-address": {"street1": "600 301 BLVD W", "street2": "STE 202", "city": "BRADENTON", "state": "FL", "zip": "34205"}, "former-company": {"former-conformed-name": "STAFF LEASING INC", "date-changed": "19970306"}}
Gevity HR, Inc. Form 10Q September 30, 2002
Table of Contents
Portable Document Format
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2002.
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 NO. 0-22701
GEVITY HR, INC.
(exact name of registrant as specified in its charter)
Florida
(State or other
jurisdiction of
incorporation or organization)
65-0735612
(I.R.S.
Employer
Identification No.)
600 301 Blvd West, Suite 202
Bradenton, FL
(Address of principal executive offices)
34205
(Zip
Code)
(941) 748-4540
(Registrant's Telephone Number, Including Area
Code):
STAFF LEASING, INC.
(Former name)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.  Yes
x
No
¨
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Class of common stock
Outstanding as of November 12, 2002
Par value $0.01 per share
20,760,630
1
Table of Contents
Portable Document Format
TABLE OF CONTENTS
Page
PART I.
FINANCIAL INFORMATION
ITEM 1.    Financial Statements
3
Condensed Consolidated Statements of Operations for the three and ended September 30, 2001 and 2002 (unaudited)
3
Condensed Consolidated Balance Sheets as of December 31, 2001 and September 30, 2002 (unaudited)
4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2002 (unaudited)
5
Notes to Condensed Consolidated Financial Statements (unaudited)
6
ITEM 2    Management's Discussion and Analysis of Financial Condition and Results of Operations.
15
ITEM 3.    Quantitative and Qualitative Disclosures About Market Risk
24
ITEM 4.    Controls and Procedures
24
PART II.
OTHER INFORMATION
ITEM 1.    Legal Proceedings
25
ITEM 5.    Other Information
25
ITEM 6.    Exhibits and Reports on Form 8-K
26
SIGNATURES
27
2
Table of Contents
Portable Document Format
PART I.    FINANCIAL INFORMATION
Item 1.    Financial Statements
GEVITY HR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
For the Three
Months Ended
September 30,
For the Nine
Months Ended
September 30,
2001
2002
2001
2002
(in $000's, except per share data)
Revenues
$
798,533
$
864,448
$
2,337,872
$
2,483,196
Cost of services:
Salaries, wages and payroll taxes
730,292
789,735
2,132,656
2,262,052
Benefits, workers' compensation, state unemployment taxes and other costs
67,987
52,511
158,261
153,321
Total cost of services
789,279
842,246
2,290,917
2,415,373
Gross profit
254
22,202
46,955
67,823
Operating expenses:
Salaries, wages and commissions
15,505
12,996
46,210
39,738
Other general and administrative
7,173
5,833
21,153
18,498
Depreciation and amortization
2,093
1,950
6,212
6,010
Total operating expenses
24,771
20,779
73,575
64,246
Operating (loss) income
(24,517
)
1,423
(26,620
)
3,577
Interest income, net
813
521
2,761
1,477
Other non operating (expense) income
(7
)
43
(13
)
114
(Loss) income before income taxes
(23,711
)
1,987
(23,872
)
5,168
Income tax (benefit) provision
(9,207
)
676
(9,571
)
1,757
Net (loss) income
$
(14,504
)
$
1,311
$
(14,301
)
$
3,411
Net (loss) income per share
—Basic
$
(.70
)
$
.06
$
(.69
)
$
.16
—Diluted
$
(.70
)
$
.06
$
(.69
)
$
.16
Weighted average common shares outstanding
—Basic
20,605
20,758
20,619
20,710
—Diluted
20,609
21,094
20,627
21,047
Cash dividends per common share
$
.05
$
.05
$
.15
$
.15
See notes to condensed consolidated
financial statements.
3
Table of Contents
Portable Document Format
GEVITY HR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
December 31,
2001
September 30,
2002
(in $000's, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents
$
55,929
$
33,918
Certificates of deposit—restricted
10,183
17,181
Marketable securities
2,701
14,000
Marketable securities—restricted
24,079
53,623
Accounts receivable, net
79,076
80,859
Deferred tax asset
5,920
6,972
Other current assets
4,206
5,380
Total current assets
182,094
211,933
Property and equipment, net
23,646
18,095
Goodwill, net of accumulated amortization of $5,979
8,692
8,692
Deferred tax asset
902
457
Other assets
4,569
5,973
Total assets
$
219,903
$
245,150
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued insurance premiums, health and workers' compensation insurance reserves
$
30,203
$
42,012
Accrued payroll and payroll taxes
70,565
85,279
Accounts payable and other accrued liabilities
5,986
4,017
Income taxes payable
2,091
2,833
Customer deposits and prepayments
4,203
4,545
Dividends payable
1,030
1,038
Total current liabilities
114,078
139,724
Long-term accrued health and workers' compensation insurance reserves
48,049
46,774
Other long-term liabilities
265
305
Commitments and contingencies (See notes)
Shareholders' equity:
Common stock, $.01 par value
Shares authorized:   100,000,000
206
208
Shares issued and outstanding:
December 31, 2001—20,562,562
September 30, 2002—20,761,290
Additional paid in capital
38,726
39,250
Retained earnings
18,578
18,874
Accumulated other comprehensive income
1
15
Total shareholders' equity
57,511
58,347
Total liabilities and shareholders' equity
$
219,903
$
245,150
See notes to condensed consolidated financial statements.
4
Table of Contents
Portable Document Format
GEVITY HR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
For the Nine Months Ended
September 30,
2001
2002
(in $000's)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income
$
(14,301
)
$
3,411
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization
6,212
6,010
Deferred tax benefit
(10,425
)
(598
)
Provision for bad debts
265
434
Other
(156
)
(54
)
Changes in operating assets and liabilities:
Certificates of deposit – restricted
(2
)
(6,998
)
Accounts receivable
(2,990
)
(2,217
)
Other current assets
150
(1,173
)
Accounts payable and other accrued liabilities
(733
)
(1,970
)
Accrued payroll and payroll taxes
2,415
14,714
Accrued insurance premiums, health and workers' compensation reserves
2,657
11,809
Income taxes payable
452
742
Customer deposits and prepayments
652
342
Other long-term assets
641
(1,500
)
Health and workers' compensation reserves—long term
15,047
(1,275
)
Other long-term liabilities
(84
)
40
Net cash (used in) provided by operating activities
(200
)
21,717
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities
(118,881
)
(116,315
)
Maturities of marketable securities
117,700
75,543
Capital expenditures
(6,315
)
(375
)
Net cash used in investing activities
(7,496
)
(41,146
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividend to shareholders
(2,062
)
(3,107
)
Proceeds from issuance of common shares, net
—
623
Repurchase and retirement of common stock
(187
)
(98
)
Net cash used in financing activities
(2,249
)
(2,582
)
Change in cash and cash equivalents
(9,945
)
(22,011
)
Cash and cash equivalents—beginning of period
51,269
55,929
Cash and cash equivalents—end of period
$
41,324
$
33,918
Supplemental disclosure of cash flow information:
Income taxes paid
$
403
$
1,633
Interest paid
$
—
$
—
See notes to condensed consolidated financial statements.
5
Table of Contents
Portable Document Format
GEVITY HR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in $000's, except share and per share data)
1.    GENERAL
The accompanying unaudited condensed consolidated financial statements of Gevity HR, Inc., and subsidiaries (the "Company") have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for
the year ended December 31, 2001, included in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the "Form 10-K"). The financial information furnished reflects all adjustments, consisting only
of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented.
The Company is a professional employer organization, or PEO. PEOs were initially developed to allow small to medium-sized businesses to
procure workers' compensation insurance coverage in a cost-effective manner. As the employment related legal and regulatory environment has become more complex, PEOs have evolved toward providing comprehensive human resource outsourcing
solutions to businesses. This allows client companies to focus on and devote more time to core business issues while the PEO focuses on the client's employment-related issues.
Twenty-two states, including five states where the Company has offices (Florida, Texas, Colorado, Tennessee and Minnesota), have passed laws that have licensing,
registration or other compliance requirements for PEOs and several other states are considering such regulation. Such laws vary from state to state, but generally codify the requirements that the PEO must reserve the right to hire, terminate and
discipline worksite employees and secure workers' compensation insurance. In certain cases, the Company delegates those rights to the client. The laws also generally provide for monitoring the fiscal responsibility of PEOs and, in some cases,
the licensure of the controlling officers of the PEO.
In order to utilize the Company's services, the client transfers certain employment-related risks and liabilities to the Company and retains other risks and liabilities. In this context, the client and Company are each viewed as and become a "co-employer" of the client's worksite employees.
As a co-employer, the Company provides its clients with human resources consulting, payroll administration, benefits
administration, risk management and unemployment services. These services are primarily offered to the Company's clients on a "bundled" or all-inclusive basis. Health benefit plans and retirement programs for the client's
worksite employees may be elected at the option of the client in consideration of paying a separate service fee to the Company.
Employment-related liabilities are contractually allocated between the Company and the client pursuant to a written Professional Services Agreement. Under the Professional Services Agreement, the Company  assumes responsibility for and manages the
risks associated with each client's worksite employee payroll obligations, including the liability for payment of salaries and wages (including payroll taxes) to each worksite employee and, at the client's option, responsibility for
providing group health and retirement benefits to such individuals. These obligations of the Company are fixed, whether or not the client makes timely payment of the associated service fee. In this regard, it is important to understand that, unlike
typical payroll processing services, the Company issues to each of the client's worksite employees Company payroll checks drawn on Company bank accounts. The Company also reports and remits all required employment information and taxes to the
Internal Revenue Service under the Company's Federal Employer Identification Number ("FEIN") and issues a Form W-2 to each worksite employee under the Company's FEIN. In addition, the Company assumes the responsibility for
compliance with those employment-related governmental regulations that can be effectively managed away from the client's worksite and provides to each worksite employee workers' compensation insurance coverage under the Company's
policy. The client, on the other hand, contractually retains the general day-to-day responsibility to direct, control and manage each of the client's worksite employees. The worksite employee' services are for the benefit of the
client's business. The client also remains responsible for compliance with those employment-related governmental regulations that are more closely related to the day-to-day management of worksite employees.
6
Table of Contents
Portable Document Format
GEVITY HR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) --- (continued)
(in $000's, except share and per share data)
The
Company charges its clients a comprehensive service fee to yield a profit to the Company and to cover the
cost of certain employment-related taxes, workers' compensation insurance coverage, and administrative and
field services provided by the Company to the client, including payroll administration, record keeping, safety,
human resources and regulatory compliance consultation. The service fee charged by the Company is invoiced along
with each periodic payroll delivered to the client. The client's portion of health and retirement plan costs
is charged separately and is not included in the service fee. The component of the service fee related to
administration varies according to the size of the client, the amount and frequency of payroll payments and the
method of delivery of such payments. The component of the service fee related to workers' compensation and
unemployment insurance is based, in part, on the client's historical claims experience.
The Company contracts with a licensed carrier, CNA Financial Corporation ("CNA"), for workers' compensation insurance coverage. CNA issues an annual policy that covers the Company and each of its worksite employees. The Company pays the
premiums for this coverage and passes along to its clients some or all of the costs attributable to their respective coverage. The Company does not act as an insurance company and is not licensed in any state as an insurance company. The Company
does assume certain workers' compensation risk as a result of providing its services. For a more detailed analysis of the CNA program, see
Note 7.
The Company has an incentive to minimize its workers' compensation and unemployment tax costs because the Company bears the risk that its actual costs will exceed those billed to its clients, and
conversely, the Company profits on these components of its service offerings in the event that it effectively manages such costs.
The Company's operations are
currently conducted through a number of wholly-owned limited partnerships (the "OLPs") and wholly-owned limited liability
corporations ("LLCs"). The consolidated operations of the Company exclude intercompany accounts and transactions which have been
eliminated in consolidation. Certain reclassifications have been made to the consolidated financial statements of prior periods to conform
to the current period condensed presentation.
New Accounting Pronouncements—In
June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS")
No. 141, "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets". SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated after June 30, 2001. The Company adopted this accounting
standard as of July 1, 2001. The Company did not initiate any business combinations after June 30, 2001; therefore, there is no effect on the
Company's financial position or operations related to SFAS 141. SFAS No. 142, changes the accounting for goodwill from an amortization
method to an impairment-only approach. The Company adopted this standard effective January 1, 2002 and ceased amortization of goodwill
in the first quarter of 2002. Application of the non-amortization provisions of the statement is expected to result in a decrease in annual
amortization of $733 in 2002. In accordance with SFAS No. 142, the Company has determined it has one reporting unit. The Company has
conducted a review of goodwill and other intangible assets as of January 1, 2002 and concluded that there is no goodwill impairment.
Subsequent goodwill impairment losses, if any, will be reflected in operating income in the income statement. Pro forma net loss and
earnings per share for the three and nine months ended September 30, 2001 adjusted to eliminate historical amortization of goodwill and
related tax effect follows:
Three Months Ended
September 30, 2001
Nine Months Ended
September 30, 2001
Previously reported net loss
$
(14,504
)
$
(14,301
)
Goodwill amortization, net of tax
113
339
Pro forma net earnings
$
(14,391
)
$
(13,962
)
Previously reported EPS
basic
$
(.70
)
$
(.69
)
diluted
$
(.70
)
$
(.69
)
Pro forma net loss EPS
basic
$
(.70
)
$
(.68
)
diluted
$
(.70
)
$
(.68
)
7
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GEVITY HR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) --- (continued)
(in $000's, except share and per share data)
In June 2001, the FASB issued SFAS
No. 143, "Accounting for Asset Retirement Obligations". This statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The purpose of this statement is
to develop consistent accounting of asset retirement obligations and related costs in financial statements and provide more information about
future cash outflows, leverage and liquidity regarding retirement obligations and the gross investment in long-lived assets. SFAS No. 143 is
effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company has not evaluated the effect, if
any, that the adoption of SFAS 143 will have on the Company's condensed consolidated financial statements.
In August 2001, the FASB issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which is effective for fiscal years beginning after
December 15, 2001. SFAS No. 144 replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of". The accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including
discontinued operations, and replaces the provisions of APB Opinion No. 30, "Reporting Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business", for the disposal of segments of a business. SFAS No. 144 requires that the long-lived assets be
measured at the lower of carrying amount or fair value less costs to sell, whether reported in continued operations or in discontinued
operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses
that have not yet occurred. SFAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a
disposal transaction. The Company has evaluated the provisions of this statement and determined that it does not have any material impact on
the Company's condensed consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." SFAS 145 rescinds FASB Statement No. 4, Reporting Gains and Losses
from Extinguishment of Debt, and an amendment of that Statement, FASB Statement No. 64, and Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements.  SFAS 145 also rescinds FASB Statement No. 44, Accounting for
Intangible Assets of Motor Carriers and amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to sale-leaseback transactions.  SFAS 145
also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings,
or describe their applicability under changed conditions.  The provisions of this Statement related to the
rescission of Statement 4 shall be applied in fiscal years beginning after May 15, 2002.  Any gain or loss on
extinguishment of debt that was classified, as an extraordinary item in prior periods presented that does not
meet the criteria in APB Opinion 30 for classification as an extraordinary item shall be reclassified.  All other
provisions of this Statement shall be effective for financial statements issued on or after May 15, 2002. The
Company has evaluated the provisions of this statement and determined that it does not have any material impact
on the Company's condensed consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities",
which is effective for exit or disposal activities that are initiated after December 31, 2002.  The Statement
nullifies EITF Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a Restructuring). Under Issue 94-3, a liability for an exit
cost was recognized at the date of an entity's commitment to an exit plan.  The principal difference between
Issue 94-3 and SFAS 146 is the requirement to recognize a liability associated with an exit or disposal activity
when the liability is incurred.  SFAS 146 also establishes that fair value is the objective for initial
measurement of the liability. The Company has evaluated the provisions of this statement and determined that it
does not have any material impact on the Company's condensed consolidated financial statements.
8
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GEVITY HR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) --- (continued)
(in $000's, except share and per share data)
2.    SUBSEQUENT EVENTS
On October 23, 2002, the Company
announced that member insurance companies of American International Group, Inc. ("AIG") will provide workers' compensation
insurance for all of its worksite employees. The one-year program will be effective January 1, 2003. The current workers' compensation
program with CNA will remain in effect through December 31, 2002, which is the end of the 2002 plan year.
On October 31, 2002, the Company paid
dividends totaling $1.0 million ($.05 per share) to stockholders of record as of October  15, 2002.
3.    SEGMENT REPORTING
The Company operates in one reportable
segment under SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", due to its centralized structure
and the single bundled service offering that it provides to its clients.
4.    CERTIFICATES OF DEPOSIT AND MARKETABLE SECURITIES—RESTRICTED
As of September 30, 2002, the Company
had certificates of deposit and marketable securities that serve as collateral for certain standby letters of credit issued in connection
with the Company's workers' compensation and health benefit programs. Due to the short maturity of these instruments, the carrying
amount approximates fair value. These interest-bearing certificates of deposit and marketable securities have been classified as restricted
in the accompanying condensed consolidated balance sheets. The interest earned on these certificates is recognized as interest income on the
Company's condensed consolidated statements of operations.
5.    ACCOUNTS RECEIVABLE
Accounts receivable consisted of the
following:
December 31,
2001
September 30,
2002
Billed to clients
$
10,678
$
1,657
Unbilled revenues
69,145
80,078
79,823
81,735
Less: Allowance for doubtful accounts
(747
)
(876
)
$
79,076
$
80,859
9
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GEVITY HR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) --- (continued)
(in $000's, except share and per share data)
6.    PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31, 2001
September 30, 2002
Leasehold improvements
$
2,388
$
2,401
Furniture and fixtures
3,473
3,414
Vehicles
25
25
Equipment
2,044
2,046
Computer hardware and software
47,376
46,896
Total property and equipment
55,306
54,782
Less accumulated depreciation
(31,660
)
(36,687
)
$
23,646
$
18,095
Depreciation expense was $5,640 and
$5,914 for the nine months ended September 30, 2001 and 2002, respectively.
7.    WORKERS' COMPENSATION COSTS
The Company has had a loss sensitive
insurance program with CNA since January 1, 2000. An annual insurance policy has been written by CNA for the Company for each calendar year
since the inception of the program as of January 1, 2000.
The CNA insurance program provides
for a sharing of risk between the Company and CNA whereby CNA assumes risk in at least four areas within the program: (i) individual claim
stop loss insurance risk; (ii) aggregate claim stop loss insurance risk; (iii) claim payment timing risk; and (iv) premium payment credit
risk.
The Company assumes risk related to
claims not subject to the individual claim stop loss insurance amount, claims not subject to the aggregate claim stop loss insurance amount
or claims not subject to the claim payment timing risk.
With respect to the individual claim
stop loss insurance risk, the Company is responsible for paying, through CNA, claim amounts related to the first $1 million per accident.
Claim amounts in excess of $1 million per accident are insured through the CNA program.
With respect to the aggregate claim
stop loss insurance risk, the Company is responsible for remitting premium payments to CNA sufficient to fund 130% of the insurance
company's estimate of expected losses for the policy year. The amount of the expected losses is established at the beginning of the
policy year based on an expected volume of payroll. If the payroll volume varies during the year, then the amount of the aggregate claim stop
loss insurance risk changes proportionately. Total claims amounts during the policy year that exceed 130% of the expected loss amount are
insured through the CNA program. The Company generally does not pay additional premiums during the policy year if payroll volume or losses
exceed the estimated amounts established at the beginning of the policy year.
With respect to the claim payment
timing risk, the Company pays premiums to CNA and guarantees a specific investment return on those premium payments. If the premium payments
plus the guaranteed investment returns are not adequate to fund a specific amount of claims due to the payment pattern of those claims being
faster than expected, then CNA is required to fund the additional amounts required.
10
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GEVITY HR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) --- (continued)
(in $000's, except share and per share data)
For the 2000 and 2001
programs, the Company guaranteed that the premium paid to CNA would earn an annual rate of return equal to seven percent. For the 2002
program, the Company has guaranteed to CNA that the premium will earn a rate of return equal to four and one-quarter percent. The Company is
required to pay an additional premium to CNA after the close of the calendar year based on the difference between the actual return earned by
the premium paid and the guaranteed annual rate of return. The additional premium paid to CNA is used to pay claims incurred during the policy
year and is included in the amount of accrued insurance premium reserves at December 31, 2001.
Finally, with respect
to the premium payment credit risk, since this program is a fully insured policy written by CNA, if the Company were to fail to make premium
payments to CNA as scheduled, then CNA is responsible for the payment of all losses under the terms of the policy. CNA does require the
Company to provide collateral based on the estimate of expected losses for the policy year. The payment of first year claims by the Company
and premium payments to fund claims to be paid in later years by CNA reduce the amount of the total collateral to be provided by the
Company. The required collateral can be provided in the form of deposits paid to CNA, cash and short-term investments placed into a trust
account, letters of credit and surety bond collateral provided by independent surety bond companies. CNA does not receive collateral equal to
the limits of the aggregate claim stop loss insurance amount, which is 130% of the estimate of the expected losses for the policy year. Such
collateral amount is established at the beginning of the policy year and actual payroll volumes may vary,
resulting in a difference in the amount of expected losses and in the amount of collateral provided based on
estimates of expected losses made at the inception of the policy year. Such variances, in addition to not
receiving collateral equal to the aggregate claim stop loss amount, result in credit and premium payment risk to CNA.
The Company accrues for workers'
compensation costs under the CNA program based upon payroll dollars paid to worksite employees, the specific risks associated with the type
of work performed by the worksite employees, the administrative costs of the program, the expected rate of return earned by premium dollars
paid to CNA as part of the program and the discount rate used to determine the present value of future payments to be made under the program.
Total liabilities for workers' compensation costs at December 31, 2001 and September 30, 2002, respectively, were $61,917 and
$73,773 of which $47,049 and $45,774, respectively, were classified as long-term. Included in the total liabilities for workers'
compensation costs is the liability related to the expected payment for the investment guarantee provided by the Company to CNA.
The Company has issued $3,750 and
$10,750 in standby letters of credit at December 31, 2001 and September 30, 2002, respectively, in conjunction with the
Company's CNA workers' compensation programs. In addition, the Company has pledged $24,079 and $53,623 in restricted marketable
securities at December 31, 2001 and September 30, 2002, respectively, as collateral for the Company's CNA workers'
compensation programs. Finally, net surety bonds of $40,200 and $8,250 at December 31, 2001 and September 30, 2002, respectively, were
outstanding related to the CNA workers' compensation programs.
8.    HEALTH BENEFITS
Employee benefit costs are comprised primarily of medical benefit plan costs, but also include the costs of other
employee benefits such as dental, vision, disability and group life insurance. With respect to medical benefit
plans, the Company will continue to enforce minimum rates that apply to worksite employee participation and the
amount each client contributes toward the cost of providing the Company's health benefit plans to its
worksite employees.
Blue Cross Blue Shield of Florida ("BCBS") is the primary carrier for Florida and Alabama worksite employees. In
addition, Capital Health Plans provides HMO coverage to worksite employees in the Tallahassee, Florida region.
The Company's policy with BCBS is a three-year minimum premium arrangement entered into as of January 1, 2000
and ending December 31, 2002. Pursuant to this arrangement, the Company is obligated to reimburse BCBS for the
cost of the claims incurred by participants under the plan, plus the cost of plan administration. The
administrative costs per covered worksite employee associated with this policy are specified for each plan year
and includes the cost of aggregate stop loss coverage at the level of 115% of projected claims. HealthPartners of
Minnesota provides health coverage to Minnesota based worksite employees. Aetna Inc.("Aetna") is the primary
health care provider for worksite employees throughout the remainder of the country. The Aetna health plan is a
guaranteed cost contract that caps the Company's annual liability at
11
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GEVITY HR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) --- (continued)
(in $000's, except share and per share data)
fixed amounts. Aetna is also the
provider of the Company's dental plans that include both a PPO and HMO offering.
In certain instances, the Company opts to make a contribution toward the worksite employees' medical benefit
plan costs. This contribution is referred to as a health plan subsidy. The addition of these selected worksite
employees as participants in  the Company's medical benefit plans helps to stabilize the risk associated
with those plans.
The amount of the Company's contribution toward medical benefit plan costs is determined as part of the
annual enrollment pricing process that usually takes place during the third quarter of each year. A health
benefit plan subsidy in excess of a planned amount may occur when medical cost inflation exceeds expected
inflation levels or when medical benefit plan enrollment of those who qualify for a subsidy is greater than
anticipated.
As of September 30, 2002, the Company has recorded a health benefit subsidy of $3.8 million for the 2002
plan. In 2001, the health benefit plan subsidy was $9,283. Unfavorable experience on the maturation or run-out of
health benefit plan claims for the 2000 year and internal premium billing and collection issues in 2001 resulted
in the Company increasing its health benefit plan subsidy in 2001. The Company has significantly reduced the
internal premium billing and collection issues.
For 2001, year-end liabilities for health benefit loss reserves were based upon actuarial estimates of claims
incurred but not reported under the health plans at December 31, 2001. The accrual for these reserves and
for claims reported but not paid at December 31, 2001 totaled $16,071, of which $1,000 was classified as
long-term. As of September 30, 2002, the reserve liability balance for prior years health benefit claims
incurred but not reported was $2,345, of which $1,000 was classified as long-term.
The Company's collateralization obligations under its medical benefit plans are funded through 2002. The
Company has announced that it has renewed its medical benefit plan with Aetna for 2003. The Company anticipates
that $2 million of cash and cash equivalents will be used to collateralize the Aetna program. The final amount of
collateral is subject to determination based on the number of plan participants electing PPO coverage. The
Company has also announced that it has renewed its medical benefit plan with Blue Cross Blue Shield of Florida
("BCBS").  The amount of collateral required to be provided to BCBS is expected to increase over the three-year
renewal term, based in part on the increase in plan participation.
9.    COMMITMENTS AND CONTINGENCIES
On April 30, 1999, a shareholder of the Company brought a class action in the Twelfth Judicial Division, Manatee
County, Florida against the Company and certain of its directors alleging that the directors and senior officers
of the Company breached their fiduciary duty to shareholders by failing to pursue a proposal from Paribas
Principal Partners to acquire the Company in order to entrench themselves in the management of the Company.
Plaintiff seeks injunctive relief and unspecified damages including attorneys'and experts'fees.
Negotiations continue between defendants and counsel for the putative plaintiff class in an effort to finalize a
definitive settlement agreement. Once finalized, any agreed upon settlement is subject to court approval
following notice to the putative class.  Management does not expect any settlement to have a material effect on
the Company's financial position.
The Company is a party to certain pending claims that have arisen in the normal course of business, none of
which, in the opinion of management, is expected to have a material adverse effect on the consolidated financial
position or results of operations if adversely resolved. However, the defense and settlement of such claims may
impact the future availability and cost to the Company of applicable insurance coverage.
The  Company's  employer and health care operations are subject to numerous  Federal,  state and
local laws related to employment,  taxes and benefit plan matters.  Generally, these rules affect all
companies  in the U.S.  However,  the rules that  govern  PEOs  constitute  an  evolving  area due to
uncertainties  resulting  from the  non-traditional  employment  relationship  between  the PEO,  the
client and the worksite
12
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GEVITY HR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) --- (continued)
(in $000's, except share and per share data)
employees. Many Federal and state laws relating to tax and employment matters were enacted before the widespread
existence of PEOs and do not specifically address the obligations and responsibilities of these PEO
relationships. If the IRS concludes that PEOs are not "employers" of certain worksite employees for purposes of
the Internal Revenue Code of 1986, as amended (the "Code"), the tax qualified status of the Company's defined
contributions retirement plan as in effect prior to April 1, 1997 could be revoked, its cafeteria plan may lose
its favorable tax status and the Company, as defined, may no longer be able to assume the client's Federal
employment tax withholding obligations and certain defined employee benefit plans maintained by the Company may
be denied the ability to deliver benefits on a tax-favored basis as intended.  On May 13, 2002, the IRS released
guidance applicable solely to the tax-qualified status of defined contribution retirement plans maintained by
PEOs.  In that guidance, the IRS declared that it would not assert a violation of the exclusive benefit rule
under Section 401(a) of the Internal Revenue Code if a PEO that maintains a single employer defined contribution
retirement plan for worksite employees takes certain remedial action by the last day of the first plan year
beginning on or after January 1, 2003.  The Company maintains a frozen single employer defined contribution
retirement plan benefiting certain worksite employees and intends to take remedial action to qualify for the
relief provided under the IRS guidance within the applicable deadline.  Since the plan has been frozen since
April 1, 1997 and the assets in the plan are less than $4 million, this change is not expected to have a material
effect on the Company's financial condition and future results of operations. The Company also maintains an
active defined contribution retirement plan with participants that include worksite employees. The active plan is
designed as a multiple employer plan and, as such, its status is unaffected by the recent IRS guidance.  Any
other adverse developments in the above noted areas could have a material effect on the Company's financial
condition and future results of operations.
10.    EQUITY
In January 2002, 33,823 shares of
common stock were issued to employees participating in the Company's employee stock purchase plan that was adopted on July 1,
2001. In June 2002, the Company purchased 23,000 shares of it's common stock to be used for the Company's employee stock purchase
plan.
On March 21, 2002, the Company
sold 165,562 shares of common stock at $3.02 per share, which was the fair market value of the stock at the close of trading on that day, to
the Chief Executive Officer, in connection with his employment by the Company.
In July 2002,  23,683  shares of common
stock were issued to employees  participating  in the  Company's employee  stock  purchase  plan that was adopted on July 1, 2001.  In
September, 2002,  the Company purchased 1,000 shares of it's common stock to be used for the  Company's  employee  stock  purchase
plan.
11.    INCOME TAXES
The Company records income tax expense using the asset and liability method of accounting for deferred income
taxes.  Under such method, deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the financial statement carrying values and the income tax bases of
the Company's assets and liabilities. The Company's effective tax rate provides for federal and state
income taxes. For the nine months ended September 30, 2002, the Company's effective rate was 34.0%.
12.    EARNINGS PER SHARE ("EPS")
Included as common stock equivalents in diluted weighted average shares outstanding were options granted under
the Company's stock option plans, which totaled 4,185 and 7,761 for the three and nine months ended
September 30, 2001, respectively, and 336,732 and 337,487 for the three and nine months ended
September 30, 2002, respectively.
13
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GEVITY HR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (unaudited) --- (continued)
(in $000's, except share and per share data)
The reconciliation of net income (loss) attributable to common stock and shares outstanding for the purposes of calculating basic and diluted earnings per share for the three and nine months ended September 30, 2001 and 2002 is as
follows:
Income (Numerator)
Shares (Denominator)
Per Share
Amount
(in $000's)
(in 000's)
For the Three Months Ended September 30,
2001:
Basic EPS:
Net loss
$
(14,504
)
20,605
$
(.70
)
Effect of dilutive securities:
Options
4
Diluted EPS:
Net loss
$
(14,504
)
20,609
$
(.70
)
For the Nine Months Ended September 30, 2001:
Basic EPS:
Net loss
$
(14,301
)
20,619
$
(.69
)
Effect of dilutive securities:
Options
8
Diluted EPS:
Net loss
$
(14,301
)
20,627
$
(.69
)
For the Three Months Ended September 30, 2002:
Basic EPS:
Net income
$
1,311
20,758
$
0.06
Effect of dilutive securities:
Options
336
Diluted EPS:
Net income
$
1,311
21,094
$
0.06
For the Months Months Ended September 30, 2002:
Basic EPS:
Net income
$
3,411
20,710
$
0.16
Effect of dilutive securities:
Options
337
Diluted EPS:
Net income
$
3,411
21,047
$
0.16
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ITEM 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
CRITICAL ACCOUNTING POLICIES
The accounting policies described below are those that the Company considers critical in preparing its financial statements. These policies
include significant estimates made by management using information available at the time the estimates are made. However, as described
below, these estimates could change materially if different information or assumptions were used. The descriptions below are summarized and
have been simplified for clarity. A more detailed description of the significant accounting principles used by the Company in preparing its
financial statements is included in Note 1 of Notes to the Condensed Consolidated Financial Statements and in Item 1 of the Company's
Form 10-K for the year ended December 31, 2001.
Revenue Recognition
The Company's revenues consist of comprehensive service fees paid by its clients under its Professional
Services Agreement, which are based upon each worksite employee's gross wages, a markup computed as a
percentage of gross wages and the client's portion of health and retirement benefits provided to the
worksite employees based on coverage elected by the client and the worksite employees. The Company includes the
component of its comprehensive service fees related to the gross wages of its worksite employees as revenue.
The Company records the full amount of its comprehensive service fees, including the portion that represents the
gross wages of its worksite employees, as revenue in accordance with the EITF 99-19,
Reporting Revenue Gross as a
Principal versus Net as an Agent
. The Company is deemed to be a principal in its human resource consulting
services because it is at risk for the payment of direct costs, whether or not the Company's clients pay the
Company on a timely basis or at all, and because the Company assumes a significant amount of other risks and
liabilities as a co-employer of its worksite employees. If the Company were deemed to be an agent under its
Clients'Services Agreement, rather than a principal, the Company could be required to record its revenues
net of the gross payroll cost component of its comprehensive service fees. In such an event, there would be no
effect on the Company's net income.
The Company accounts for PEO service fees using the accrual method of accounting. Under the accrual method of
accounting, the Company recognizes its service revenue in the period in which the worksite employee performs
work. PEO service fees relating to worksite employees with earned but unpaid wages at the end of each period are
recognized as unbilled revenues and the related direct payroll costs for such wages are accrued as a liability
during the period in which the worksite employee earns wages. Subsequent to the end of each period, such wages
are paid and the related PEO service fees are billed.
Medical Benefit Plan Liabilities
The Company provides medical benefit plans to its worksite employees through several medical benefit plan providers.
In certain instances, the Company decides to make a contribution to the medical benefit plan providers toward the
cost of the worksite employees medical benefit plan costs. Such contribution together with higher than
anticipated medical cost trend will result in a health benefit plan subsidy by the Company.
With respect to these medical benefit plans, the Company establishes medical benefit plan liabilities for benefit
claims that have been reported but not paid and claims that have been incurred but not reported. These reserves
and the related health benefit plan subsidy are developed using actuarial methods and assumptions selected in
accordance with generally accepted actuarial principles and practices which consider a number of factors,
including historical claim payment patterns. The factor that has the greatest impact on the Company's
financial results is the medical cost trend, which is the rate of increase in health care costs.
For each period, the Company estimates the relevant factors, based primarily on historical data and uses this
information to determine the assumptions underlying the reserve calculations. An extensive degree of judgment is
used in this estimation process. Due to the considerable variability and volatility of health care costs,
adjustments to health reserves and the health benefit plan subsidy are sometimes significant.
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The  Company's  financial  statements  reflect the estimates made by the Company within
the  Cost of  Services  on the  Company's  Statements  of  Operations  and  within  the  accrued
insurance  premiums,  health and  workers'compensation  insurance reserves on the Company's
Balance Sheet.
Workers' Compensation Plan Liabilities
The Company has maintained an insured loss sensitive  workers'compensation program with
CNA since  January 1, 2000.  Each policy  year runs from  January 1 through  December 31.  Under
the CNA program the Company has  individual  stop loss coverage and aggregate  stop loss coverage for
claims that exceed the  individual  stop loss amount and for  individual  claims that in total exceed
the aggregate stop loss amount.
With respect to the individual  claim stop loss  insurance  risk, the Company is responsible
for paying,  through CNA, claim amounts  related to the first $1 million per accident.  Claim amounts
in excess of $1 million per accident are insured through the CNA program.
With respect to the aggregate  claim stop loss  insurance  risk,  the Company is responsible
for  remitting  premium  payments  to CNA  sufficient  to fund 130% of the  insurance  company's
estimate of  expected  losses for the policy  year.  During  each plan year of the CNA  program,  the
Company  makes premium  payments to CNA at an agreed amount that is less than  necessary to fund 130%
of the  estimated  expected  losses  for the  policy  year.  The  amount  of the  expected  losses is
established  at the  beginning  of the policy  year based on an expected  volume of  payroll.  If the
payroll  volume varies during the year,  the amount of the aggregate  claim stop loss  insurance risk
changes  proportionately.  Total  claims  amounts  during the  policy  year that  exceed  130% of the
estimated expected loss amount are insured through the CNA program.
Workers'compensation  claims can remain open for periods  exceeding  twenty years. As a
result of the potential  long life of these claims,  the final cost of the CNA program to the Company
is subject to an extensive degree of judgment and estimation.
At least annually, the Company obtains an independent  actuarially-determined calculation of
the  range of  estimated  costs  of  claims  incurred  based on the  Company's  historical  loss
development  trends. The independent  actuary may subsequently revise the range of estimated costs of
claims based on developments  and trends relating to actual claims  incurred.  An extensive degree of
judgment is used in this estimation process.
The  Company's  financial  statements  reflect the  estimates  made by the  independent
actuaries  as well as other  factors  related to the CNA  program  within the Cost of Services on the
Company's  Statements  of  Operations  and within the  accrued  insurance  premiums,  health and
workers'compensation insurance reserves on the Company's Balance Sheet.
If the actual cost of the claims  incurred is higher than the  estimates  determined  by the
independent  actuaries,  then the  accrual  rate used to  determine  workers'compensation  costs
could increase.  If the actual cost of the claims incurred is lower than the estimates  determined by
the independent actuaries,  then the accrual rate used to determine  workers'compensation  costs
could decrease.
Such  increase or decrease to the accrual rate is reflected  in the  accounting  period that
the change in the amount of  workers'compensation  claims is calculated. Due to the considerable
variability  in the  estimate  of the  amount of  workers'compensation  claims,  adjustments  to
workers'compensation costs are sometimes significant.
In order to give recognition to those  workers'compensation costs that are not expected
to be paid in the following  year, the Company  classifies a portion of the obligation as a long-term
liability.
Deferred Income Taxes
The Company recognizes  deferred tax assets and liabilities based on the differences between
the financial  statement  carrying amounts and the tax bases of assets and  liabilities.  The Company
regularly  reviews  its  deferred  tax assets for  recoverability  and if  necessary,  establishes  a
valuation  allowance based on historical  taxable income,  projected  future taxable income,  and the
expected  timing  of the  reversals  of  existing  temporary  differences.  If the  Company  does not
continue to operate at a profit or is unable to generate  sufficient  future  taxable  income,  or if
there is a  material  change  in the  actual  effective  tax rate or time  period  within  which  the
underlying  temporary  differences  become  taxable or  deductible,  the Company could be required to
establish a valuation  allowance  against all or a  significant  portion of the  deferred  tax assets
resulting in a substantial increase in the Company's effective tax rate.
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RESULTS OF OPERATIONS
The following table presents the
Company's results of operations for the Three and Nine Months Ended September 30, 2001 and 2002, expressed as a percentage of
revenues:
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
2001
2002
2001
2002
Revenues
100.0
%
100.0
%
100.0
%
100.0
%
Cost of services:
Salaries, wages and payroll taxes
91.5
91.3
91.2
91.1
Benefits, workers' compensation, state unemployment taxes and other costs
8.5
6.1
6.8
6.2
Total cost of services
100.0
97.4
98.0
97.3
Gross profit
0.0
2.6
2.0
2.7
Operating expenses:
Salaries, wages and commissions
1.9
1.5
2.0
1.6
Other general and administrative
0.9
0.7
0.9
0.7
Depreciation and amortization
0.3
0.2
0.2
0.2
Total operating expenses
3.1
2.4
3.1
2.5
Operating (loss) income
(3.1
)
0.2
(1.1
)
0.2
Interest income, net
0.1
0.0
0.1
0.0
Other non-operating income
0.0
0.0
0.0
0.0
(Loss) income before income taxes
(3.0
)
0.2
(1.0
)
0.2
Income tax (benefit) provision
(1.2
)
0.1
(0.4
)
0.1
Net (loss) income
(1.8
)
0.1
(.06
)
0.1
SIGNIFICANT TRENDS
The  Company  decided in 2001 to target new  clients  with a lower  risk  profile  and to no
longer service existing clients in certain  high-risk  industries.  During the first quarter of 2002,
all existing  clients in certain  high-risk  industries such as roofing and trucking were terminated.
However,  the Company will continue to service  existing  clients in other  high-risk  industries and
intends to retain such clients for as long as they remain  profitable  to the  Company.  As a result,
the percentage of total Company  revenue  earned from clients in high-risk  industries is expected to
decrease over time as the revenue earned from new clients added from other industries increases.
The  Company  considers  industries  to be  high-risk  if  there is a  likelihood  of a high
frequency of on-the-job  accidents  involving  worksite  employees or likelihood  that such accidents
will be severe.
By no longer  selling its services to new high-risk  clients,  the Company  believes that it
will  reduce  the  earnings  volatility  associated  with the  cost of its  workers'compensation
insurance programs.
Volatility  in the dollar amount of  workers'compensation  costs arises when the number
of accidents  and the severity of such  accidents  cannot be easily  projected,  thus  resulting in a
wide range of possible  expected  dollar losses for an insurance  policy year. Such volatility in the
projection  of expected  dollar losses caused by the number of claims and the severity of such claims
is more likely to be associated  with  industries  that have a high-risk  level  associated with them
(e.g., construction, roofing, trucking, etc.)
Since the Company has historically  sold a significant  amount of its services to clients in
high-risk  industries,  there is a degree  of  uncertainty  as to  whether  it
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can be  successful  in selling  services  to clients in  industries  not  previously  focused  upon.
The  Company  has been selling to the new  target  market  since the first  quarter  of 2001 and the
sales  volume  from new clients has been at a level that leads the Company to believe  that the result
of the  transition  is profitable.
Further, the Company has communicated to its existing clients that the comprehensive
service fees, including the cost of medical benefits, will increase in 2003 to more appropriately
recognize the Company's cost of providing services and to decrease the health benefit subsidy.
The repricing of the Company's services is consistent with its strategy to charge service fees
that more accurately reflect current competitive market rates for insurance and benefit related
services. The Company is not able to predict the degree of client attrition that will result from
the increased service fees.
Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001
Revenues were $864.4 million for the three months ended September 30,  2002,  compared
to $798.5 million for the three months ended  September 30,  2001,  representing  an increase of
$65.9 million,  or 8.3%.  Revenue  growth was primarily due to the  Company's  client  selection
strategy of  enrolling  new  clients  with higher wage  employees.  From  September 30,  2001 to
September 30,  2002 the average  annual wage of paid employees  increased  16.0% from $26,102 to
$30,287.
Charges to clients  for  workers'compensation  coverage  as a  percentage  of  worksite
salaries  and  wages for the  third  quarter  of 2002  were  3.26%,  compared  to 4.21% for the third
quarter of 2001 representing a decrease of 22.6%. Such decline is due to the continuing change in the
risk profile of clients serviced.  To the extent the Company continues to increase the number of its
low-risk clients, the Company expects such charges to discontinue to decrease.
From  September 30,  2001 to  September 30,  2002, the number of clients decreased
7.9% from 8,108 to 7,464 and the number of average  paid  worksite  employees  decreased  6.6%,  from
104,185 to 97,300.  Such decline is a result of the Company's decision to target new clients with a
lower risk profile and to no longer service existing clients in certain high-risk industries. The
Company counts the number of clients based on each unique account number that the Company issues to
identify each payroll cycle (e.g., weekly, bi-weekly, monthly, etc.) Accordingly,  each  business  the
Company  services  may have  multiple  payroll  cycles and thereby represent  more  than one  client.
The  number of  unique  businesses  serviced  by the  Company  as measured by individualized federal
employer identification numbers is 6,856.
The Company's  revenues include: (i) each worksite  employee's gross wages; (ii) a
markup which is computed as a percentage of the gross wages;  (iii) related  payroll taxes;  and (iv)
the client company's  portion of benefits,  including medical and retirement benefits,  provided
to the  worksite  employees,  based  on  elected  coverage  levels  by the  client  and the  worksite
employee.  The Company  includes  the gross wages of its worksite  employees as revenue  based on its
analysis of  Emerging  Issues  Task Force  ("EITF")  99-19,
Reporting  Revenue  Gross as a Principal
versus  Net as an  Agent
.  In  accordance  with the EITF  consensus,  the  Company  is deemed to be a
principal in its human resource related  services because it assumes a significant  amount of risk as
a  co-employer  of  its  worksite  employees.  Among  the  more  significant  is  the  Company's
assumption  of risk for the  payment  of direct  costs,  including  the gross  wages of its  worksite
employees and the related  payroll taxes,  regardless of whether the  Company's  clients pay the
comprehensive service fees on a timely basis, or at all.
The  following  table  presents the amounts of salaries and wages,  payroll related taxes and fees
charged  by the  Company  included  in  the  Company's  revenues  for  the  three  months  ended
September 30, 2001 and 2002, respectively:
September 30, 2001
September 30, 2002
Salaries and wages
$
679,868
$
736,739
Payroll related taxes
50,424
52,996
Fees charged by the Company
68,241
74,713
$
798,533
$
864,448
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Costs of services were $842.2  million for the three months ended  September 30,  2002,
compared to $798.3  million for the three  months  ended  September 30,  2001,  representing  an
increase of $43.9 million,  or 5.5%.  Included in the  Company's  cost of services for the three
months ended  September 30,  2002 were salaries,  wages and payroll taxes of worksite  employees
of $789.7 million as compared to $730.3 million for the three months ended  September 30,  2001,
representing  an increase of $59.4 million,  or 8.1%. Each of these increases was primarily due to an
increase in the average wage of worksite employees.
Benefits,  workers'compensation,  state  unemployment  taxes and other costs were $52.5
million for the three months ended  September 30,  2002, compared to $68.0 million for the three
months ended September 30, 2001, representing a decrease of $15.5 million, or 22.8%.
The  medical   benefit   plan   subsidy  was  $1.7   million  for  the  three  months  ended
September 30,  2002,  compared to $3.0  million for the three  months  ended  September 30,
2001.  An  unfavorable  experience in the  maturation  or run-out of prior year medical  benefit plan
claims  increased  the amount of the medical  benefit  plan  subsidy  during the three  months  ended
September 30, 2001.
Workers'compensation   costs   were  $23.0   million   for  the  three   months   ended
September 30,  2002,  compared to $45.2  million for the three  months  ended  September 30
2001, representing a decrease of $22.2 million, or 49.0%.
Workers'compensation  costs have  decreased  due to the  continuing  change in the risk
profile of clients  serviced.  To the extent the  Company  continues  to  increase  the number of its
low-risk clients, the Company expects workers'compensation costs will continue to decrease.
Workers' compensation costs for the three months ended September 30, 2002 were $23.0 million compared to $45.2
million for the three months ended September 30, 2001, representing a decrease of $22.2 million.  Workers'
compensation decreased in the third quarter of 2002 due to the Company's decision to sell to a target market with
a lower workers' compensation risk profile and higher wages.  Included in workers' compensation costs for the
three months ended September 30, 2001, was an adjustment of $19.7 million.  The adjustment was primarily caused
by: (i) a lower than expected rate of return on premium payments made to CNA that reflected the decrease in the
overall securities market, (ii) a higher discounted present value of the unfunded portion of expected premium
payments to be made to CNA which resulted from the decrease in the interest rate environment, and (iii) a change,
identified in a mid-year actuarial review by the Company's independent actuaries, in the estimate of the ultimate
total workers' compensation claims for the 2000 policy year.
As of  September 30,  2002  and  2001  the  Company  used a  discount  rate  of 4.0% in
determining   the   present   value   of  the   future   payments   to  be   made   under   the   CNA
workers'compensation  program.  Prior to  September 30,  2001,  the Company used a discount
rate of 5.5%.  For further  information,  please  refer to the  "Workers'Compensation  Plans" in
Item 1 of the Form 10-K.
The Company believes its  workers'compensation  plan liability is adequate to cover all
probable  claims.  However,  there is an extensive  degree of judgment used in the  estimation of the
amount  of  workers'compensation  claims  amounts,  and  as  such,  there  exists  a  reasonable
possibility  that abnormal claims  experience  could arise.  In addition,  there exists a possibility
that a lower than expected rate of return on premium  payments  made to CNA could  continue.  Each of
these  outcomes  would  result in a  revision  to the  amount of the  workers'compensation  plan
liability recorded.
The Company  evaluates its current and  historical  workers'compensation  cost accruals
based on an  independent  actuarially  developed  estimate of the ultimate  workers'compensation
cost to the Company for each open policy year, which now includes 2000, 2001 and  year-to-date  2002,
and adjusts such accruals as necessary.  These  adjustments could be either increases or decreases to
workers'compensation costs, depending upon the actual loss experience of the Company.
Accruals  of  workers'compensation  costs in  subsequent  periods  will be  affected by
future changes in the risk profile of clients serviced by the Company,  the actual claims  experience
and the discounted  present value of the unfunded  portion of expected  premium  payments.  The final
cost of  workers'compensation  coverage  for each policy year will be  determined  by the actual
claims experience over time as claims close, the final  administrative  costs of the program, and the
final return on investment earned with respect to premium dollars paid to CNA.
State  unemployment  taxes  were $1.2  million  for each of the three  month  periods  ended
September 30, 2002 and 2001.
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Gross profit was $22.2 million for the three months ended September 30,  2002, compared
to $0.3 million for the three  months  ended  September 30,  2001,  representing  an increase of
$21.9 million.  Gross profit margin  increased as a percentage of revenues for the three months ended
September 30,   2002  primarily  due  to  a  lower  medical  benefit  plan  subsidy  and  higher
workers'compensation    margin   from    clients   in   low-risk    industries.    Included   in
workers'compensation  costs  for  the  three  months  ended  September 30,   2001,  was  an
adjustment of $19.7 million.  The adjustment was primarily  caused by: (i) a lower than expected rate
of return on premium  payments  made to CNA that  reflected  the  decrease in the overall  securities
market,  (ii) a higher discounted  present value of the unfunded portion of expected premium payments
to be made to CNA which  resulted  from the decrease in the interest  rate  environment,  and (iii) a
change,  identified in a mid-year actuarial review by the Company's  independent  actuaries,  in
the estimate of the ultimate total workers'compensation claims for the 2000 policy year.
Operating  expenses were $20.8 million for the three months ended  September 30,  2002,
compared  to $24.8  million  for the three  months  ended  September 30,  2001,  representing  a
decrease  of  $4.0  million,   or  16.1%.  The  decrease  in  operating   expenses  was  due  to  the
implementation of various cost savings  initiatives,  including a reduction in the number of employees.
Salaries,   wages  and   commissions   were  $13.0   million  for  the  three  months  ended
September 30,  2002,  compared to $15.5  million for the three months  ended  September 30,
2001,  representing  a decrease of $2.5  million,  or 16.1%.  This  decrease  was due  primarily to a
reduction  in the number of employees  during  the  fourth  quarter of 2001 and during the
first quarter of 2002.
Other  general and  administrative  expenses  were $5.8  million for the three  months ended
September 30,  2002,  compared to $7.2  million for the three  months  ended  September 30,
2001,   representing   a  decrease  of  $1.4  million,   or  19.4%.   The  decrease  in  general  and
administrative  expenses was due to the  implementation of cost savings  initiatives in areas related
to  services   and  outside  fees  during   2002.   In  addition,   during  the  three  months  ended
September 30,  2001 the Company  incurred  marketing  and  advertising  expenses  related to the
rebranding of the company name.
Depreciation  and  amortization  expenses  were  $2.0  million  for the three  months  ended
September 30,  2002,  compared to $2.1  million for the three  months  ended  September 30,
2001. As of January 1, 2002 the Company adopted Financial  Accounting  Standard ("SFAS") No. 142 that
changes the  accounting  for goodwill from an  amortization  method to an  impairment-only  approach.
Application  of the  non-amortization  provisions of SFAS 142 resulted in a decrease in  amortization
during the three months  ended  September 30,  2002 of $0.2  million.  The Company  conducted an
independent  review of goodwill and other intangible  assets as of January 1, 2002 and concluded that
there was no goodwill impairment.
Interest  income was $0.5  million for the three months  ended  September 30,  2002 and
$0.8 million for the three  months ended  September 30,  2001,  representing  a decrease of $0.3
million due to a general decline in interest rates.
Income tax expense for the three months ended September 30,  2002 was $0.7 million. The
Company's  effective tax rate for financial  reporting purposes was 34.0%. Income tax benefit of
$9.2  million for the three months  ended  September 30,  2001 was the result of a net loss from
operations and tax credits.
Net income was $1.3 million for the three months ended September 30,  2002, compared to
a net loss of $14.5  million for the three  months ended  September 30,  2001,  representing  an
increase in net income of $15.8 million.
Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001
Revenues were $2,483.2 million for the nine months ended September 30, 2002, compared to $2,337.9 million for the
nine months ended September 30, 2001, representing an increase of $145.3 million, or 6.2%. Revenue growth was
primarily due to the Company's new client selection strategy of enrolling clients with higher wage employees.
From September 30, 2001 to September 30, 2002 the average annual wage of paid employees increased 16.1% from
$24,969 to $28,981.
Charges to clients for workers' compensation coverage as a percentage of worksite salaries and
wages for the first nine months of 2002 were 3.42% as compared to 4.50% for the first nine months of
2001, representing a decrease of 24.0%. Such decline is due to the continuing change in the risk profile
of clients serviced.  To the extent the Company continues to increase the number of its low-risk clients,
the Company expects such charges to discontinue to decrease.
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From September 30, 2001 to September 30, 2002, the number of clients decreased 7.9% from 8,108 to 7,464 and the
number of average paid worksite employees decreased 8.5%, from 105,708 to 96,745. Such decline is a result of the
Company's decision to target new clients with a lower risk profile and to no longer service existing clients in
certain high-risk industries.
The following table presents the amounts of salaries and wages, payroll related taxes, and fees charged by the
Company included in the Company's revenues for the nine months ended September 30, 2001 and 2002,
respectively:
September 30, 2001
September 30, 2002
Salaries and wages
$
1,979,541
$
2,102,806
Payroll related taxes
153,115
159,246
Fees charged by the Company
205,216
221,144
$
2,337,872
$
2,483,196
Costs of services were $2,415.4 million for the nine months ended  September 30,  2002,
compared to $2,290.9  million for the nine months  ended  September 30,  2001,  representing  an
increase of $124.5 million,  or 5.4%.  Included in the  Company's  cost of services for the nine
months ended  September 30,  2002 were salaries,  wages and payroll taxes of worksite  employees
of $2,262.1  million as compared to  $2,132.7  million for the nine months  ended  September 30,
2001,  representing  an increase of $129.4  million,  or 6.1%.  Each of these increases was primarily
due to an increase in the average wage of worksite employees.
Benefits,  workers'compensation,  state  unemployment taxes and other costs were $153.3
million for the nine months ended  September 30,  2002,  compared to $158.2 million for the nine
months ended September 30, 2001, representing an decrease of $4.9 million, or 3.1%.
The  medical   benefit   plan   subsidy  was  $3.8   million  for  the  nine  months   ended
September 30,  2002,  compared  to $4.0  million for the nine  months  ended  September 30,
2001, representing a decrease of $0.2 million, or 5.0%.
Workers'compensation   costs   were   $68.7   million   for  the  nine   months   ended
September 30,  2002,  compared  to $96.1  million for the nine  months  ended  September 30
2001, representing a decrease of $27.4 million, or 28.5%.  Workers'compensation costs decreased
for the first  nine  months in 2002 due to the Company's  decision  to sell to a target  market
with a lower workers'compensation risk profile and higher wages. Included in workers'
compensation costs for the nine months ended September 30, 2001, was an adjustment of $19.7 million.
The adjustment was primarily caused by: (i) a lower than expected rate of return on premium  payments
made to CNA that  reflected  the  decrease in the overall  securities market,  (ii) a higher discounted
present value of the unfunded portion of expected premium payments to be made to CNA which resulted from
the decrease in the interest rate environment, and (iii) a change, identified in a mid-year actuarial
review by the Company's independent actuaries, in the estimate of the ultimate total workers'
compensation claims for the 2000 policy year.
State  unemployment  taxes were $5.2  million for the nine months  ended  September 30,
2002,  compared to $5.8 million for the nine months ended  September 30,  2001,  representing  a
decrease of $0.6  million,  or 10.3%.  This  decrease was  primarily the result of an increase in the
average wage of worksite employees that was not subject to state unemployment taxes.
Gross profit was $67.8 million for the nine months ended  September 30,  2002, compared
to $47.0  million for the nine months  ended  September 30,  2001,  representing  an increase of
$20.8  million,  or 44.3%.  Gross profit  margin  increased as a percentage  of revenues for the nine
months ended  September 30,  2002  primarily due to an adjustment of $19.7 million  recorded for
the nine months ended  September 30,  2001. The  adjustment was primarily  caused by (i) a lower
than  expected  rate of return on premium  payments  made to CNA that  reflected  the decrease in the
overall  securities  market,  (ii) a higher  discounted  present  value of the  unfunded  portion  of
expected  premium  payments to be made to CNA which  resulted  from the decrease in the interest rate
environment,  and (iii) a change,  identified in a mid-year  actuarial  review by the  Company's
independent  actuaries,  in the estimate of the ultimate total  workers'compensation  claims for
the 2000 policy year.
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Operating  expenses  were $64.2 million for the nine months ended  September 30,  2002,
compared  to  $73.6  million  for the nine  months  ended  September 30,  2001,  representing  a
decrease  of  $9.4  million,   or  12.7%.  The  decrease  in  operating   expenses  was  due  to  the
implementation  of various cost saving  initiatives,  including a reduction in the number of employees.
Salaries,   wages  and   commissions   were  $39.7   million  for  the  nine  months   ended
September 30,  2002,  compared to $46.2  million for the nine  months  ended  September 30,
2001,  representing  a decrease of $6.5  million,  or 14.0%.  This  decrease  was due  primarily to a
reduction  in the number of employees  during  the  fourth  quarter of 2001 and during the
first quarter of 2002.
Other  general and  administrative  expenses  were $18.5  million for the nine months  ended
September 30,  2002,  compared to $21.2  million for the nine  months  ended  September 30,
2001,  representing a decrease of $2.7 million,  or 12.7%. The decrease in general and administrative
expenses was due to the  implementation of cost savings  initiatives in areas related to services and
outside fees during  2002.  In addition,  during the nine months  ended  September 30,  2001 the
Company  incurred  marketing  and  advertising  expenses  related to the  rebranding  of the  company
name.
Depreciation  and  amortization  expenses  were  $6.0  million  for the  nine  months  ended
September 30,  2002,  compared  to $6.2  million for the nine  months  ended  September 30,
2001.  Application  of the  non-amortization  provisions  of  SFAS  142  resulted  in a  decrease  in
amortization during the nine months ended September 30, 2002 of $0.6 million.
Interest  income  was  $1.5  million  for the nine  months  ended  September 30,  2002,
compared  to $2.8  million of  interest  income for the nine months  ended  September 30,  2002,
representing a decrease of $1.3 million due to a general decline in interest rates.
Income tax expense was $1.8 million for the nine months ended  September 30,  2002. The
Company's  effective tax rate for financial  reporting purposes was 34.0%. Income tax benefit of
$9.6  million for the nine  months  ended  September 30,  2001 was the result of a net loss from
operations and tax credits.
Net income was $3.4 million for the nine months ended  September 30,  2002, compared to
a net loss of $14.3  million for the nine  months  ended  September 30,  2001,  representing  an
increase in net income of $17.7 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company had  approximately  $118.7 million in cash,  cash  equivalents,  certificates of
deposit  and  marketable  securities  at   September 30,   2002.  The  Company  is  required  to
collateralize  its  obligations  under  its   workers'compensation   and  medical  benefit  plan
coverages.  The Company presently uses certificates of deposit and marketable securities,  as well as
surety bonds, to collateralize these obligations, as more fully described below.
At  September 30,  2002,  the Company  had pledged  $70.8  million of  certificates  of
deposit  and  marketable  securities  as  collateral  for  certain  standby  letters  of credit or in
collateral    trust     arrangements     issued    in    connection    with    the     Company's
workers'compensation  and medical benefit plans.  Once pledged,  the certificates of deposit and
marketable  securities  are deemed to be restricted.  In addition,  at  September 30,  2002, the
Company had provided as collateral  $8.2 million in surety bonds,  net of letters of credit,  related
to its 2000 and 2001 workers'compensation policies with CNA.
The  Company  anticipates  that $6.1  million of cash and cash  equivalents  will be used as
collateral  for the  workers'compensation  program  with CNA  during the final  three  months of
2002.  In  addition,  it is  anticipated  that the  remaining  $8.2 million of surety  bonds,  net of
letters  of  credit,  being  used as  collateral  for the  2000  and  2001  workers'compensation
policies  will be  reduced  to zero with a  corresponding  increase  in  restricted  certificates  of
deposit and restricted marketable securities.
The Company has announced that member insurance  companies of American  International  Group
Inc.,  ("AIG"),  will  provide  workers'compensation  insurance  in 2003 for all of its worksite
employees.  As part of the AIG program,  the Company  anticipates that $28.5 million of cash and cash
equivalents will be used as collateral during 2003. For more detailed  information  regarding the AIG
program, please see the Company's Form 8-K filed on October 23, 2002.
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The Company's  collateralization obligations under its medical benefit plans are funded
through 2002. The Company has announced  that it has renewed its medical  benefit plan with Aetna for
2003.  The  Company  anticipates  that  $2  million  of cash  and  cash  equivalents  will be used to
collateralize  the Aetna program.  The final amount of collateral is subject to  determination  based
on the number of plan  participants  electing PPO coverage.  The Company has also  announced  that it
has renewed  its medical  benefit  plan with Blue Cross Blue Shield of Florida  ("BCBS").  The amount
of  collateral  required to be provided to BCBS is expected to increase over the  three-year  renewal
term, based in part on the increase in plan participation.
The Company had no long-term debt outstanding as of September 30, 2002.
The Company's  revenues include:  (i)each worksite  employee's gross wages; (ii) a
markup which is computed as a percentage of the gross wages;  (iii) related  payroll taxes;  and (iv)
the client company's  portion of benefits,  including medical and retirement benefits,  provided
to the worksite  employees based on elected coverage levels by the client and the worksite  employee.
Included  in the  Company's  $2,483.2  million of revenue  during the first nine  months of 2002
were salaries, wages and payroll taxes of worksite employees of $2,262.1 million.
The revenue of the Company derived from salaries,  wages and payroll taxes is managed from a
cash flow  perspective so that a matching  exists between the time that the funds are received from a
client to the time  that the funds are paid to the  worksite  employees  and to the  appropriate  tax
jurisdictions.  As a co-employer,  and under the terms of the Professional  Services  Agreement,  the
Company is  obligated  to make  certain  wage,  tax and  regulatory  payments.  Because of this,  the
objective of the Company is to minimize the credit risk  associated  with  remitting  the payroll and
associated taxes before receiving from the client the service fees charged by the Company.
In  addition to  yielding a profit to the  Company,  the markup to the client is intended to
cover the Company's  costs of: (i)  workers'compensation  insurance for worksite employees;
(ii)  medical  and  retirement  benefit  plan  coverage  of  the  worksite  employees;   (iii)  state
unemployment  insurance;  and (iv) human  resource  consulting  services  and  payroll  and  benefits
administration services.
The Company's cash flow from operating  activities during the first nine months of 2002
was $21.8 million  primarily due to net income of $3.4  million,  an increase in accrued  payroll and
payroll   taxes   of   $14.7   million   and   an   increase   in   accrued    insurance    premiums,
workers'compensation  and health  reserves of $11.8  million.  The timing and amount of payments
for payroll,  payroll taxes and benefit  premiums can vary  significantly  based on various  factors,
including  the  day of the  week  on  which  a  period  ends  and the  existence  of  holidays  on or
immediately following a period end.
The  Company  did not pay any cash  dividends  prior to March 14,  2001.  At that time,  the
Company  instituted a quarterly  dividend  program of $.05 per share,  and pursuant to this  program,
the Board of Directors  declared a cash dividend of $0.05 per share of common stock,  payable October
31, 2002 to holders of record on October 15,  2002.  While this  dividend  declaration  is part of an
intended  regular  quarterly  dividend  program,  any  future  determination  as to  the  payment  of
dividends  will be made at the  discretion  of the Board of  Directors of the Company and will depend
upon the  Company's  operating  results,  financial  condition,  capital  requirements,  general
business conditions and such other factors as the Board of Directors deems relevant.
The  Company  periodically   evaluates  its  liquidity   requirements,   capital  needs  and
availability of capital resources in view of its plans for expansion,  anticipated  levels of medical
benefit plan subsidies,  collateralization  requirements for insurance  coverage's and other operating
cash needs.  The Company has in the past  sought,  and may in the future  seek,  to raise  additional
capital or take other  measures  to  increase  its  liquidity  and  capital  resources.  The  Company
believes  that its current cash  balances and cash flow from  operations  will be  sufficient to meet
its  requirements  through  2002.  The Company may rely on these same  sources,  as well as public or
private debt and/or equity  financing to meet its long-term  capital  needs.  If the Company does not
achieve its  profitability  objectives  in 2003 and its cash  balances and cash flow from  operations
are  inadequate  to meet  its  operating  and  collateralization  requirements,  the  Company  may be
required to seek financing from external  sources.  In such event,  the Company will explore external
financing  alternatives,  but there is no assurance  that  financing  from  external  sources will be
available to the Company at prevailing market rates.
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ITEM 3.    Quantitative and Qualitative
Disclosures About Market Risk
The  Company is subject to market risk from  exposure to changes in interest  rates based on
its  investing and cash  management  activities.  The Company  utilizes  U.S.  government  agency and
other  corporate  debt with fixed rates to manage its  exposures  to interest  rates.  The Company is
also  subject to market  risk from  exposures  to  changes in  interest  rates  related to  insurance
premiums paid to CNA under its  workers'compensation  programs.  The insurance  premiums paid to
CNA are invested in U. S. government  agency and corporate debt instruments  with fixed rates.  Prior
to  December 31,  2001 twenty  percent of the  insurance  premiums  paid to CNA were invested in
equity  instruments.  Such equity  investments  have been  liquidated  and reinvested in fixed income
instruments.  No additional  investments in equity  instruments with premium dollars paid to CNA will
be made. The Company does not expect  changes in interest  rates to have a material  effect on income
or cash flows in fiscal  2002,  although  there can be no  assurances  that  interest  rates will not
change.
ITEM 4.    Controls and Procedures
Within 90 days prior to the date of this  report,  the Company  carried  out an  evaluation,
under the supervision and with the  participation  of the  Company's  management,  including the
Company's  Chief Executive Officer and the Chief Financial Officer,  of the effectiveness of the
design and operation of the Company's  disclosure  controls and procedures  pursuant to Exchange
Act Rule 13a-14.  Based upon that evaluation,  the  Company's  Chief Executive Officer and Chief
Financial  Officer  concluded  that  the  Company's   disclosure  controls  and  procedures  are
effective in timely  alerting them to material  information  relating to the Company  (including  its
consolidated  subsidiaries)  that is required to be included in the  Company's  periodic filings
with  the  Securities  and  Exchange  Commission.  There  have  been no  significant  changes  in the
Company's  internal controls or, to the  Company's  knowledge,  in other factors that could
significantly  affect such  internal  controls  subsequent  to the date the  Company  carried out its
evaluation.  In  addition,  there  have  been no  corrective  actions  with  respect  to  significant
deficiencies  and  material  weaknesses  and  there  has been no  fraud  identified,  whether  or not
material,  that  involves  management  or  other  employees  who  have  a  significant  role  in  the
Company's internal controls.
It should  be noted  that the  design of any  system of  controls  is based,  in part,  upon
certain  assumptions  about the likelihood of future  events,  and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future  conditions,  regardless
of how remote.
Cautionary
Note Regarding Forward-looking Statements
In connection with the safe harbor  provisions of the Private  Securities  Litigation Reform
Act of 1995 (the "Reform Act"), the Company is hereby  providing  cautionary  statements  identifying
important  factors  that could cause the  Company's  actual  results to differ  materially  from
those  projected in  forward-looking  statements  (as such term is defined in the Reform Act) made by
or on behalf of the Company herein or orally,  whether in presentations,  in response to questions or
otherwise.  Any statements that express, or involve discussions as to, expectations,  beliefs, plans,
objectives,  assumptions or future events or performance  (often, but not always,  through the use of
words  or  phrases  such as  "anticipates,"  "will  result,"  "are  expected  to,"  "will  continue,"
"estimated" and "projection") are not historical facts and may be forward-looking  and,  accordingly,
such  forward-looking  statements  involve known and unknown risks,  uncertainties  and other factors
that may cause the actual results or  performance of the Company to be materially  different from any
future results or performance  expressed or implied by such  forward-looking  statements.  Such known
and unknown risks, uncertainties and other factors include, but are not limited to, the following:
(i)
increased volatility of costs of workers'compensation coverage and unemployment taxes;
(ii)
increased   volatility  of  profit   generated  from  the   workers'compensation   component  of  the
         Company's    service    offering    under    the    Company's    loss    sensitive
         workers'compensation programs;
(iii)
the
        uncertainties relating to the surety bond market and  collateralization  requirements  related to the
         Company's medical benefit plan plans and workers'compensation programs;
(iv)
uncertainties  as to the  availability  or renewal of  workers'compensation  insurance  coverage  and
         medical benefit plan coverage;
(v)
the potential for additional subsidies for medical benefit plans;
(vi)
possible adverse  application of certain federal and state laws and the possible  enactment of unfavorable
         laws or regulations;
(vii)
litigation  and other claims  against the Company and its clients  including  the impact of such claims on
         the cost of insurance coverage;
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(viii)
impact of competition from existing and new professional employer organizations;
(ix)
risks  associated  with  expansion  into  additional  states where the Company does not have a presence or
         significant market penetration;
(x)
risks  associated  with the  Company's  dependence  on key vendors and the ability to obtain or renew
         benefit  contracts  for the  Company's  worksite  employees at rates  acceptable to the
         Company;
(xi)
an unfavorable  determination  by the IRS or Department of Labor regarding the status of the Company as an
         "employer";
(xii)
the  possibility of client  attrition due to the  Company's  decision to not sell services to clients
         in selected industries;
(xiii)
the  possibility  of client  attrition  due to the  Company's  decision to increase  the price of its
         services, including medical benefits;
(xiv)
risks associated with geographic market concentration;
(xv)
the financial condition of clients;
(xvi)
the failure to properly manage growth and successfully integrate acquired companies and operations;
(xvii)
risks associated with new service offerings to  clients;
(xviii)
the ability to secure outside financing at rates acceptable to the Company; and
(xix)
other  factors  which are  described in further  detail in this and other  filings by the Company with the
         Securities and Exchange Commission.
The  Company  cautions  that the factors  described  above  could  cause  actual  results or
outcomes to differ  materially from those expressed in any  forward-looking  statements made by or on
behalf of the Company. 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.
PART II.    OTHER INFORMATION
ITEM 1.    Legal Proceedings
Lawrence E. Egle v. Staff Leasing,
Inc., et al
.    On April 30, 1999, a shareholder of the Company, brought a class action in the Twelfth Judicial Division, Manatee County, Florida against the Company and certain of its directors alleging that the directors
and senior officers of the Company, in order to entrench themselves in the management of the Company, breached their fiduciary duty to shareholders by failing to pursue a proposal from Paribas Principal Partners to acquire the Company. Plaintiff
seeks injunctive relief and unspecified damages including attorneys' and experts' fees. Negotiations continue between defendants and counsel for the putative plaintiff class in an effort to
finalize a definitive settlement agreement. Once finalized, any agreed upon settlement is subject to court
approval, following notice to the putative class.  Management does not expect any settlement to have a
material effect on the Company's financial position or results of operations.
The Company is a party to certain  pending  claims that have arisen in the normal  course of
business,  none of which,  in the  opinion of  management,  is  expected  to have a material  adverse
effect on the  consolidated  financial  position  or results of  operations  if  adversely  resolved.
However,  the defense and  settlement of such claims may impact the future  availability  and cost to
the Company of applicable insurance coverage.
ITEM 5.    Other Information
Certifications  submitted on August 8, 2002,  pursuant to Order No. 4-460, dated June 27, 2002 of the
Securities  and Exchange  Commission,  are filed as exhibits to the current  report on Form 8-K filed
on August 12, 2002.
On August 27, 2002 the Company announced that it had renewed its contract with Blue Cross Blue Shield of Florida
through December 31, 2005. In addition, the Company announced that it had extended its contract through
December 31, 2003 with Aetna U. S. Healthcare.
On September 5, 2002 Murem Sharpe, Senior Vice President of Sales resigned from the Company.
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ITEM 6.
    Exhibits and Reports on Form 8-K
(a)
Exhibits
99.1
Certification required by Section 906 of the Sarbanes-Oxley Act of 2002 signed by Erik Vonk, Chief Executive
Officer
99.2
Certification required by Section 906 of the Sarbanes-Oxley Act of 2002 signed by John E. Panning, Chief Financial
Officer.
99.3
Certification required by Section 302 of the Sarbanes-Oxley Act of 2002 signed by Erik Vonk, Chief Executive
Officer.
99.4
Certification required by Section 302 of the Sarbanes-Oxley Act of 2002 signed by John E. Panning, Chief
Financial Officer.
(b)
Reports on Form 8-K
On August 12, 2002, a Form 8-K was filed with the Securities and Exchange Commission as a current report that
contained as exhibits thereto:
99.1
Form of Certification dated August 8, 2002, of Erik Vonk, as Chief Executive Officer, as filed with the
Securities and Exchange Commission on August 8, 2002.
99.2
Form of Certification dated August 8, 2002, of John E. Panning, as Chief Financial Officer, as filed with the
Securities and Exchange Commission on August 8, 2002.
On October 23, 2002, a Form 8-K was filed with the Securities and Exchange Commission as a current report that
contained as exhibits thereto:
99.1
Press release dated October 23, 2002 announcing that AIG will be the carrier of the 2003 Workers'
Compensation Program of Gevity HR, Inc.
99.2
Final bound proposal of AIG Risk Management, Inc. to be the carrier of the 2003 Workers' Compensation
Program of Gevity HR, Inc.
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SIGNATURE
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.
GEVITY HR, INC.
Dated:    November 13, 2002
By:
/s/    J
OHN
E. P
ANNING
John E. Panning
Chief
Financial Officer
(Principal Financial Officer)
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