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

Overview

The Company provides contract and placement staffing services for business and industry, specializing in the placement of information technology, engineering and accounting professionals. As of December 31, 2004, the Company operated 19 offices located in 10 states.

The Company's business is highly dependent on national employment trends in general and on the demand for information technology and other professional staff in particular. The Company experienced an increase in the demand for

its placement services during the three months ended December 31, 2004, compared with the same period of the prior year, as the U.S. jobs market improved. The national unemployment rate decreased to 5.4% in December 2004 from 5.7% in December 2003.

As a result of the increased demand for the Company's services, consolidated net revenues for the three months ended December 31, 2004 were up 15% compared with the prior year. The number of placements, average placement fee and billable contract hours were all up for the period. However, filling lower-paid positions and competitive market conditions resulted in a lower average hourly billing rate for contract services.

Due to the growth in revenues, the Company achieved income from operations of $99,000 this year, which was a significant improvement from the $450,000 operating loss last year.

The Company had a net cash outflow of $213,000 for the three- month period, due to working capital requirements, and the balance of cash and cash equivalents was $4,224,000 as of December 31, 2004.

                                                               Three Months
                                                          Ended December 31

                                                             2004      2003
Net revenues:
Contract services                                            60.6%     72.3%
Placement services                                           39.4      27.7

Net revenues                                                100.0     100.0

Operating expenses:
Cost of contract services                                    42.7      50.6
Selling                                                      23.6      18.6
General and administrative                                   31.7      41.5

Total operating expenses                                     98.0     110.6

Income (loss) from operations                                 2.0%    (10.6)%

Net Revenues
Consolidated net revenues for the three months ended December 31, 2004 were up $652,000 (15%) from the prior year. That was due to the combination of a $100,000 (3%) decrease in contract service revenues and a $752,000 (64%) increase in placement service revenues.

The decrease in contract service revenues occurred because of an 8% decrease in the average hourly billing rate, which was partially offset by a 5% increase in the number of billable hours. Placement service revenues were up for the period because of a 34% increase in the number of placements and a 26% increase in the average placement fee.

Operating Expenses
Total operating expenses for the three months ended December 31, 2004 were up $103,000 (2%) compared with the prior year.

The cost of contract services was down $58,000 (3%), as a result of the lower contract service revenues. The gross profit margin on contract services declined slightly to 29.6% for the three months ended December 31, 2004, compared with 30.0% the prior year.

Selling expenses increased $369,000 (47%) for the period. Commission expense was up 62% due to the higher placement service revenues, and recruitment advertising expense was 34% higher than the prior year. Selling expenses represented 23.6% of consolidated net revenues, which was up 5.0 points from the prior year.

General and administrative expenses decreased $208,000 (12%) for the three months ended December 31, 2004. Compensation in the operating divisions decreased 14% due to lower commission advances to consultants. Office rent and occupancy costs were down 13% for the period, and all other general and administrative expenses were down 10%. General and administrative expenses represented 31.7% of consolidated revenues, and that was down 9.8 points from the prior year.

There was no provision for income taxes for the three months ended December 31, 2004, because of the utilization of losses carried forward from prior years. There was no credit for income taxes as a result of the pretax losses for the three months ended December 31, 2003, because the losses were carried forward and there was not sufficient assurance that a future tax benefit would be realized.

Outlook

The improvement in national hiring patterns and the improved demand for the Company's services resulted in improved operating performance for the Company in the first three months of fiscal 2005. Management believes that the Company is well positioned for growth in the future. In recent years, many unprofitable branch operations were closed, and general and administrative expenses were reduced significantly. Existing branch offices have the capacity to accommodate additional consulting staff and higher volumes of business. Management believes that continued improvement for the Company will depend on continued improvement in the U.S. jobs market.

Financial Condition

As of December 31, 2004, the Company had cash and cash equivalents of $4,224,000, which was a decrease of $213,000 from September 30, 2004. Net working capital at December 31, 2004 was $4,823,000, which was an increase of $193,000 from September 30, 2004, and the current ratio was 3.8 to 1. The Company had no long-term debt. Shareholders' equity as of December 31, 2004 was $5,292,000, which represented 75% of total assets.

During the three months ended December 31, 2004, the net cash used by operating activities was $218,000. Net income for the period, together with depreciation and other non-cash charges, provided $188,000, while working capital items used $406,000.

The Company's primary source of liquidity is normally from its operating activities. Management believes that existing cash balances will be adequate to finance current operations for the foreseeable future.

As of September 30, 2004 there were approximately $4,300,000 of losses available to reduce federal taxable income in future years through 2024, and

there were approximately $7,000,000 of losses available to reduce state and local taxable income in future years, expiring from 2006 through 2024.

Off-Balance Sheet Arrangements

As of December 31, 2004, and during the three months then ended, there were no transactions, agreements or other contractual arrangements to which an unconsolidated entity was a party, under which the Company (a) had any direct or contingent obligation under a guarantee contract, derivative instrument or variable interest in the unconsolidated entity, or (b) had a retained or contingent interest in assets transferred to the unconsolidated entity.

Forward-Looking Statements

As a matter of policy, the Company does not provide forecasts of future financial performance. However, the Company and its representatives may from time to time make written or verbal forward-looking statements, including statements contained in press announcements, reports to shareholders and filings with the Securities and Exchange Commission. All statements which address expectations about future operating performance and cash flows, future events and business developments, and future economic conditions are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's then-current expectations and assumptions. Actual outcomes could differ significantly. The Company and its representatives do not assume any obligation to provide updated information.

Some of the factors that could affect the Company's future performance include, but are not limited to, general business conditions, the demand for the Company's services, competitive market pressures, the ability of the Company to attract and retain qualified personnel for regular full-time placement and contract project assignments, and the ability to attract and retain qualified corporate and branch management.