Corporate Profile
-----------------

Founded in 1973, SOS Staffing Services,  Inc. offers a broad range of commercial
staffingservices,  as well as information technology (IT) staffing,  outsourcing
and consulting. In the twoand one-half years since SOS' initial public offering,
the company has more than doubled in size and scope.  In July 1995,  the company
had 42 offices in five states;  as of year end 1997,  SOS operated more than 130
offices  in 18  states.SOS  is  dedicated  to the  principles  of  ISO-9000,  an
internationally  recognized  standard for quality  products and  services.  Each
office and the special  talents of each  employee are  committed  toproviding  a
quality system of support to SOS customers.

Contents
--------

Financial Highlights ......................................................    1
Letter to Shareholders ....................................................    2
25 Years of Excellence ....................................................    4
Commercial Division .......................................................    5
Information Technology Division ...........................................    6
Board of Directors and Executive Officers .................................    7
Management's Discussion and Analysis
     of Financial Condition and Results of Operations .....................    9
Consolidated Financial Statements and Notes ...............................   13
Report of Independent Public Accountants ..................................   32


                                                                NASDAQ/NMS: SOSS

                                                               [Graphic Omitted]


Statements  contained in this Annual Report that are not purely  historical  are
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934,  as amended.  The Company  assumes no obligation to update
any  such   forward-looking   statements.   Readers  are   cautioned   that  all
forward-looking  statements involve risks,  uncertainties and other factors that
could  cause the  Company's  actual  results  to differ  materially  from  those
anticipated  in such  statements,  including  but not  limited to the  Company's
efforts to expand its offering of services,  the Company's  acquisition  efforts
and its ability to integrate the operations of acquired  businesses,  the recent
transition within the Company's management, economic fluctuations,  existing and
emerging  competition,  and demand for the Company's  services.  Other  factors,
including economic,  competitive,  governmental,  and technological factors, are
discussed in the  Company's  Annual Report on Form 10-K and other reports to the
Securities and Exchange Commission.

<PAGE>

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

                                             Fiscal Year (52/53 Weeks) Ended
                                             -------------------------------
                                     1997       1996       1995(1)   1994(1)     1993
                                     ----       ----       -------   -------     ----

Statement of Income  Data:
<S>                                <C>        <C>        <C>        <C>        <C>
Service revenues                   $209,251   $136,164   $ 87,533   $ 63,740   $ 49,433
Gross profit                         46,711     27,575     18,180     12,418     8,349O
Operating income                     12,351      6,707      4,321      2,372      1,033
Net income(1)                      $  7,526   $  4,029   $  2,940   $  2,427   $  1,113
Earnings per share
     Basic                                    $   0.78   $   0.59   $   0.54   $   0.44
     Diluted                                      0.77       0.59       0.43       0.35
Weighted average common shares
     Basic                            9,654      6,780      4,985      4,500
     Diluted(2)                       9,781      6,838      6,229      5,731

Balance Sheet Data:
Working capital                    $ 42,790   $ 17,012   $  9,645   $  5,057   $  4,330
Total assets                        118,290     47,293     19,327     11,597      7,458
Total debt                             --         --        1,450      2,780        806
Shareholders' equity               $104,335   $ 36,834   $ 14,668   $  7,098   $  5,171
</TABLE>

(1) The Company  completed its initial public offering (IPO) in July 1995 and in
connection  therewith  terminated  its S  Corporation  election.  Net income for
fiscal  1995 and 1994 has been  adjusted  to reflect a pro forma  provision  for
income taxes. In addition,  prior to the IPO, the Company compensated Richard D.
Reinhold,  its former CEO, at levels  sufficient to pay income taxes  associated
with its S  Corporation  status.  For fiscal 1995,  the Company  entered into an
employment  contract with Mr. Reinhold which provided for annual compensation of
$195,000.  Net  income  for  fiscal  1994  has  been  adjusted  to  reflect  CEO
compensation  in  such  amount,  resulting  in an  increase  to  net  income  of
approximately $787,000.

(2) Prior to the  completion of its IPO, the Company  distributed  approximately
$8.0 million of its accounts  receivable to itsS Corporation  shareholders.  The
weighted  average common shares  outstanding for diluted  earnings per share for
1995 and 1994 reflects the issuance of 1,230,769  shares at an offering price of
$6.50 per share, as if the  distribution had occurred at the beginning of fiscal
1994.




[Graphic Omitted]          [Graphic Omitted]         [Graphic Omitted]


                                       1
<PAGE>
Dear Shareholder,

In 1997, SOS Staffing  Services  enjoyed  another solid year,  characterized  by
record  revenues and earnings.  For the year ended December 28, 1997, net income
increased 87 percent to $7.5 million, or $0.77 per share, on service revenues of
$209.3 million,  up 54 percent.  For the comparable  period in 1996, the company
posted net income of $4.0 million,  or $0.59 per share,  on service  revenues of
$136.2 million.  Net income per common share increased 31 percent and reflects a
43 percent  increase in diluted  weighted  average common shares  resulting from
equity offerings completed in December 1996 and October 1997.

SOS expanded  its business in 1997,  with 14  acquisitions  and internal  growth
exceeding 22 percent.  The number of branches  increased from 87 offices located
in 11 states at the end of 1996 to more  than 130  located  in 18 states at year
end 1997.

Capitalizing on Favorable Industry Trends

SOS'  growth  in  1997  reflected  the  increasing  popularity  among  companies
nationwide of  incorporating  staffing and consulting  services as part of their
competitive strategies. These companies seek greater control over organizational
growth and risk, and have discovered the value and flexibility that our services
afford.

Changing  attitudes in the  workforce  continue to shape the staffing  industry.
Among many  individuals in today's labor market,  becoming a temporary  employee
has become a popular  means of getting  one's foot in the door with a particular
company or industry.  An increasing number of  professionals,  especially in the
information  technology arena,  prefer to offer their  specialized  talents as a
consultant or on a temporary basis. These employees enjoy a career characterized
by  job  satisfaction,   personal  and  professional   mobility,   work-schedule
flexibility,  and the  freedom to utilize  and hone skills in a variety of tasks
and projects.

SOS account managers and customer service  representatives  facilitate  customer
and employee  relationships.  Through  commitment to customer  satisfaction  and
attention  to detail,  SOS has  strengthened  its  reputation  as a  top-quality
provider of employment staffing and consulting  solutions to corporate customers
and employees alike.

Adding to the Mix

As the needs of our  customers  expand to include  new  geographic  regions  and
employee skill sets,  SOS has enhanced its position as a  full-service  staffing
company,  a concept  that is being  fostered  through our  program of  strategic
acquisitions.

During 1997,  acquisition activity yielded SOS a number of solid commercial,  IT
and specialty staffing organizations.  The purchase of Century Personnel,  Inc.,
completed in October,  was the largest in SOS history,  exemplifying the type of
enterprise  that we have sought to add to our operating mix throughout the year.
Specifically,   these  are  companies   that  offer   dynamic,   entrepreneurial
management;  a strong  market  position  in key  geographic  regions  or service
niches;  a  proven  commitment  to  customer  service;  and  the  potential  for
operational  synergies with existing SOS operations.  This strategy  facilitated
our  penetration  into new markets in 1997 and helped us expand those  positions
already  established.


                                       2
<PAGE>


The  balance  sheetremains  strong and  positions  SOS to
effectively  pursue its acquisition  strategy in 1998.Cash  balances and working
capital were bolstered by a secondary common stock offering in October.  Coupled
with an available  credit facility of over $30 million,  these balances help SOS
enter the new year capitalized to consider new acquisition opportunities.

SOS Leadership Positioned for the Future

During 1997 and the first  quarter of 1998,  SOS  witnessed a transition  in its
core of organizational  leadership, as the company prepared itself to compete in
the next decade.  JoAnn W. Wagner,  who has served as an SOS director since 1995
and executive  vice  president  since August 1997,  was named as chairman of the
board in February 1998.

In August 1997, Howard W. Scott, Jr. was appointed chief executive officer after
serving  more than two years as SOS'  president  and  chief  operating  officer.
Assuming  the  roles  of  president  and  chief  operating  officer  is Peter R.
Sollenne,  who in February 1998 was appointed to serve on the board of directors
in the seat left  vacant by  retired  chairman  Richard  D.  Reinhold.  And,  in
November 1997, two seats were added to the board with the appointments of Samuel
C. Freitag, senior managing director of a multimillion-dollar capital management
firm, and former Dallas mayor Annette Strauss.

Later in this  report we  highlight  each member of SOS'  executive  management.
These   directors  and  officers   represent  a  diverse  group  of  experienced
individuals.  Together,  this team  extends its thanks to retired  chairman  and
founder Dick Reinhold for his tireless  service and unwavering  commitment  over
the last 25 years.  His energy,  leadership  and vision have prepared us well to
enhance our position, as we compete throughout the next decade.

Reaching the Silver, Going for Gold

This  year,  SOS  celebrates  its  silver  anniversary.  We take  pride  in this
accomplishment,  as achieving this 25-year  milestone in the highly  competitive
staffing  industry  has  proven  to be every bit as  challenging  as it has been
rewarding.  It has taken the concerted efforts of many to make SOS as strong and
sound  as it is  today,  and  we  express  our  appreciation  to  all  who  have
contributed along the way. We applaud SOS' staff, consultants and dedicated team
of  temporary  employees,  whose  efforts  have added so much in the  pursuit of
company goals.

Having briefly recognized the past, we now turn our focus to SOS' future,  which
continues  to shine as brightly  as ever.  And,  as we look to that  future,  we
remain  convinced  that only by renewing our  commitment  to  excellence  may we
expect to celebrate a golden  anniversary  in another 25 years.  Having  readied
ourselves to capitalize on new opportunities in a consolidating industry, SOS is
indeed  "going  for  gold,"  as we pledge  our best  efforts  toward  maximizing
long-term shareholder value in 1998. We appreciate your support and look forward
to reporting to you in future months.

Sincerely,


/s/Joann W. Wagner         /s/Howard W. Scott, Jr.    /s/Peter R. Solenne
JoAnn W. Wagner            Howard W. Scott, Jr.       Peter R. Sollenne
Chairman of the Board      Chief Executive Officer    President and Chief
                                                      Operating Officer



                                       3
<PAGE>


25 Years of  Excellence

When Dick Reinhold and Russ  Christen  started  SOSStaffing  Services in January
1973, the temporary  staffing industry was far different from what it has become
today. In 1973, most businesses  viewed temporary  staffing merely as "emergency
help." Since then,  however,  economic forces and changing attitudes toward work
have created an atmosphere where temporary  staffing has become an integral part
of doing business, and one in which SOSStaffing Services has thrived.

SOS offers a broad range of staffing and  consulting  solutions  through its two
divisions.  The commercial  division  offers  staffing  services in a variety of
clerical,  industrial, light industrial,  technical and professional fields. The
information   technology  (IT)  division  provides  staffing,   outsourcing  and
consulting  services,  all designed to help businesses  become more  competitive
technologically. In 25 years, SOS has grown from one office in Salt Lake City to
more than 130 offices today,  located in 18 states throughout the western United
States.

As SOS has expanded,  both operationally and  geographically,  its dedication to
quality service and responsiveness has remained constant.  "For 25 years, SOShas
built its reputation on the strength of face-to-face  customer  relationships in
all  aspects  of our  business,"  says CEO  Howard W.  Scott,  Jr. "As a service
company,  we recognize that relationships are one of the most important products
we sell, and by empowering our field  organization  to develop and service these
relationships   locally,  we  are  more  effective  in  tailoring  our  business
partnership to suit the needs of each customer."

The results speak for themselves.  In 1997, for the second consecutive year, SOS
received national  recognition in the international  periodical Forbes Magazine.
The magazine listed SOS Staffing Services among its "200 Best Small Companies in
America." SOS'  commitment to excellence was further  reflected in 1997 when the
company was granted ISO-9002  registration,  a globally  recognized standard for
quality products and services.

"It is amazing  how far SOS and the  staffing  industry  have come in 25 years,"
says Scott,  "and I'm proud to have been a part of the team that has made it all
happen."



                                       4
<PAGE>



Commercial  Division

The largest SOS business  division is its commercial  staffing  division,  which
provides  staffing  solutions  to companies  by  providing  temporary  clerical,
industrial, light industrial, technical and professional services.

SOS operates  under several  different  service-specific  names,  reflecting the
broad  variety  of  niche  markets  that the  company  serves.  Examples  in the
commercial  division  include  AccountStaff  (accounting and finance),  Mortgage
Staffing, Inc. (mortgage services), SkillStaff (construction and manufacturing),
and Patient Account Management Services (medical administrative support) to name
a few. Each  enterprise  leverages its own strengths and marketing  expertise to
most  effectively  service its target  market.  At the same time,  the  segments
benefit from being connected to a larger network that shares resources,  as well
as important  market  intelligence.

The commercial  division is separated into three geographic  operating  regions.
Richard J. Tripp is the senior vice  president  of the Pacific  division,  which
includes U.S.  states along the West Coast as well as Arizona and Nevada.  Steve
Whitworth serves as vice president of the Central division,  comprised of Texas,
Louisiana and the Mountain  States.  And,  Michael Jones oversees  operations as
vice president of the Midwest  division.  The Midwest division  includes Century
Personnel  in Kansas  and  Missouri.  Before  its  acquisition  by SOS,  Century
Personnel  had been  named to Inc.  Magazine's  list of  America's  100  fastest
growing companies for three consecutive years.

"The geographic distribution of these divisions reflects the strategic expansion
that took place during 1997," says JoAnn W. Wagner,  chairman of the board.  "By
determining  those  opportunities  that facilitate SOS' entry into key, untapped
markets,  we have  established  footholds  in locations  throughout  the western
United  States."  Seven of SOS' 14  acquisitions  in 1997 were  additions to its
commercial  division,  while the  division's  internal  growth was also  strong,
exceeding 22 percent.


                                       5
<PAGE>

Information Technology Division

As technology  continues to change the way the world does  business,  demand for
information-technology (IT) specialists, both temporary staffing and consulting,
has grown substantially.

"The rapid evolution of information  technologies has forced  businesses to `get
smart'  fast or  risk  competing  at a  disadvantage,"  says  Curtis  L.  Wolfe,
president of the information technology division. "For many businesses, however,
accurately  determining IT needs and integrating their systems effectively is an
inexact science at best. That's where SOS comes in."

SOS' IT division is subdivided by function to include staffing,  outsourcing and
consulting  services.  Because customers have become  increasingly  reliant upon
quality IT  assistance,  these services  offer higher growth  opportunities  and
profit  margins  relative to commercial  staffing  services.  Consequently,  SOS
focused  much  of  its  acquisition   efforts  in  1997  on  identifying  solid,
well-managed  IT  staffing  and  consulting  companies  to  complement  existing
operations.

IT revenue as a percentage of total revenue  increased from 5 percent in 1996 to
approximately  22  percent  by  the  end  of  1997.  Many  of  these  IT-related
acquisitions  have already begun to contribute to the bottom line, and SOS seeks
to achieve even greater  economies of scale in 1998 as the company  continues to
integrate IT back-office operations.

"Over the next five years," says President and Chief Operating  Officer Peter R.
Sollenne,  "we plan to achieve a better balance between our commercial  staffing
and information  technology  business segments.  This mix enables us to maintain
our position as a full-service  staffing  enterprise while increasing the number
of opportunities to enhance the bottom line with high-margin IT revenue."




                                       6
<PAGE>

Board of Directors & Executive Officers

Richard D. Reinhold,  chairman emeritus,  founded SOS Staffing Services in 1973.
For 25 years, Dick served as chairman,  and, in February of this year, announced
his  retirement.  Prior  to his  two-and-a-half  decades  with  SOS,  Dick  held
management  positions in a number of national  temporary staffing service firms,
including Greyhound Temporary Services, where he served as vice president.  Dick
is proud to have served a term as the president of the National  Association  of
Temporary Services (NATSS) and two terms as president of the Utah Association of
Temporary Services.

JoAnn W. Wagner has served on the board since 1995 and,  in February  1998,  was
named as  chairman  of the  board.  JoAnn,  also the  company's  executive  vice
president,  has held a number of  positions  while at SOS,  including  director,
consultant and vice chairman.  JoAnn has more than 25 years of staffing industry
experience  and  has  added  tremendous  value  toward  the  execution  of  SOS'
acquisition  strategy.  Throughout  her  career,  she has served in a variety of
executive management roles and on a number of boards of directors.
JoAnn was elected the president of NATSS from 1991 to 1992.

Howard W. Scott, Jr., chief executive officer and a director, enjoys 35 years of
experience in the staffing industry.  Howard joined SOSas vice president in 1994
and served as  president  and chief  operating  officer  from 1995 to 1997.  The
company has benefited from his executive management  experience,  which includes
three years as  president  of Dunhill  Personnel  System,  Inc.  and 13 years as
president of CDI Temporary Services, a subsidiary of CDI Corp. Howard served two
terms as the president of NATSS,  and in 1993 was awarded its highest honor, the
NATSS Leadership Hall of Fame Award.

Peter R. Sollenne,  who joined SOS as president and chief  operating  officer in
August  1997,  was  named as a  director  in 1998.  Peter's  diverse  background
includes  experience in a number of operations,  marketing and finance roles. He
most  recently  served as  president  of the  commercial  staffing  division  at
Personnel Group of America, Inc. (PGA). Peter's experience includes more than 10
years with national  automobile fleet leasing  companies,  serving five years as
senior  vice  president  of sales and  marketing  and five years as senior  vice
president of finance.

Stanley  R.  deWaal  was  elected a  director  in 1995.  Stan is  currently  the
president  and a director  of DeWaal,  Keeler & Co., a  Utah-based  professional
corporation of certified  public  accountants  which Stan co-founded in 1975. He
has been a licensed  certified public accountant since 1967 and currently serves
on  the  board  of  directors  for  the  Hansen  Planetarium,  a  not-for-profit
organization in Salt Lake City.

Samuel C.  Freitag,  director,  is currently  the senior  managing  director for
George K. Baum  Merchant  Banc,  L.L.C.  Sam has served  George K. Baum & Co. in
various roles, including as vice chairman,  director of investment banking, vice
president  of  corporate  finance  and a  member  of  the  company's  management
committee,  where he was responsible  for overseeing all investment  activities.
SOS is pleased to have added Sam and his solid  finance  background to the board
of directors during 1997.



                                       7
<PAGE>


Board of Directors & Executive Officers - Continued

R. Thayne Robson, a director since 1995,  enjoys more than 20 years' tenure as a
professor in the economics  department and management and research department of
the University of Utah. In addition to serving on the boards of many  Utah-based
companies,  Thayne is currently  the director of the Utah Bureau of Economic and
Business  Research.  He is actively  involved with numerous  civic and community
endeavors,  including as a member of the Utah Governor's  Economic  Coordinating
Committee and the executive committee of the Economic Development Corporation of
Utah.

Randolph K. Rolf has been a director since 1995. He is currently the chairman of
the board,  president and chief executive  officer of Unitog  Company.  Based in
Kansas City,  Missouri,  Unitog is a publicly traded company that  manufactures,
sells and rents industrial uniforms. Randy has served as its chairman since 1991
and as its president and chief executive officer since 1988.

Annette Strauss, director, joined the board of directors during 1997. Annette is
the former  Mayor of  Dallas,  Texas,  and is  currently  active as a  director,
officer  or  trustee  with a  number  of  business,  government,  education  and
philanthropic  organizations.  SOSis  delighted  to add  Annette and her diverse
background to the board this year.

Richard J. Tripp has been with SOS since 1973. Richard is a director, as well as
senior vice  president of the  company's  Pacific  Division.  In addition to his
roles as a director and  executive  officer,  he has honed his  knowledge of the
staffing industry by serving in positions  company-wide,  including as an office
and area manager.  Richard's  background includes serving two terms as president
of the Utah Association of Temporary  Services,  a position he held from 1987 to
1989.

Gary B. Crook,  executive vice president,  chief financial officer and treasurer
joined SOS Staffing Services in 1995. Gary's career spans more than two decades,
during which he has served in a number of managerial  and advisory  roles.  Such
roles have  included  tenure as vice  president and  controller  of  Food-4-Less
Supermarkets,  Inc.; vice president - administration  and controller of American
Stores'  subsidiary  Alpha Beta  Company;  and  consultant  and acting CFO to Al
Azizia  - Panda  United,  Inc.,  a Saudi  Arabian-based  grocery  retailing  and
distribution company.



                                       8
<PAGE>



















                      Management's Discussion and Analysis
                of Financial Condition and Results of Operations













                                       9
<PAGE>



The following  discussion  should be read in conjunction  with the  consolidated
financial  statements of SOS Staffing  Services,  Inc. (the "Company") and notes
thereto appearing  elsewhere in this report.  The Company's fiscal year consists
of a 52 or 53-week period ending on the Sunday closest to December 31.

General - The  Company  provides a full  range of  staffing  services  through a
network of offices in 18 states.  Since the completion of the Company's  initial
public  offering (the "IPO") in July 1995,  the network has grown from 42 to 134
offices as of December 28,  1997.  The Company  expanded  its office  network by
acquiring   existing   staffing  service  companies  and  opening  new  offices,
principally  in the  western  states.  Generally,  the  Company  has entered key
metropolitan areas by initially  acquiring or opening a central or "hub" office,
and subsequently  developing  additional offices in smaller surrounding markets.
As offices reach certain thresholds,  the Company often divides them into one or
more  additional  offices  resulting in greater  efficiency,  profitability  and
market penetration.

During the period from the IPO through  December 28, 1997, the Company  acquired
34 staffing and  consulting  companies,  representing  56 offices.  The purchase
prices of these  acquisitions  have ranged  from  $15,000 to  $15,000,000,  plus
contingent  earnouts.  The Company often negotiates an earnout  component of the
purchase  price  paid  for  acquisitions,   when  the  Company  believes  future
consideration may more accurately reflect the appropriate value for the acquired
business,  aligns the  interests of the Company and the sellers and enhances the
likelihood of successfully integrating the acquired company into SOS.

During the period from the IPO  through  December  28,  1997,  the Company  also
opened 36 new offices through  internal  expansion.  Capital costs of new office
openings,  excluding  working capital  requirements,  have typically ranged from
$10,000 to $50,000. To date, most of the Company's  internally developed offices
have achieved  profitability  within six to 12 months,  while offices  resulting
from the  division of an existing  larger  office are  usually  profitable  from
inception.

Results  of  Operations  - The  following  table  sets  forth,  for the  periods
indicated,  the percentage relationship to service revenues of selected items in
the Company's income statement:

                                                 Fiscal Year (52/53 Weeks) Ended
                                                 -------------------------------
                                                     1997     1996     1995
                                                 -------------------------------
Service revenues                                    100.0%   100.0%   100.0%
Direct cost of services                              77.7     79.7     79.3
                                                 -------------------------------
Gross profit                                         22.3     20.3     20.7
                                                 -------------------------------
Operating expenses:
   Selling, general and administrative expenses      15.7     15.1     15.8
   Intangible amortization                            0.7      0.3       --
                                                 -------------------------------
     Total operating expenses                        16.4     15.4     15.8
                                                 -------------------------------
Operating income                                      5.9%     4.9%     4.9%
                                                 ===============================


Fiscal 1997 Compared to Fiscal 1996

Service Revenues - Substantially all of the Company's service revenues are based
on the time  worked  by its  temporary  staffing  and  consulting  employees  on
customer  assignments.  Service  revenues are  recognized  as income at the time
services are provided.  Service revenues for fiscal 1997 were $209.3 million, an
increase of $73.1  million,  or 54% from $136.2  million in fiscal 1996.  Of the
$73.1 million  increase,  $45.7 million was attributable to acquisitions,  $19.0
million was attributable to comparable offices and $8.4 million was attributable
to new  offices.  The  increase in service  revenues of  comparable  offices was
generally  consistent with increases in hours billed.


                                       10
<PAGE>


Gross Profit -

The Company defines gross profit as service  revenues less the cost of providing
services,  which includes wages of temporary staffing and consulting  employees,
employer payroll taxes (FICA,  unemployment and other general payroll costs) and
workers'  compensation costs. Gross profit for fiscal 1997 was $46.7 million, an
increase of $19.1  million,  or 69%,  compared to $27.6  million in fiscal 1996.
Gross profit margin for fiscal 1997 was 22.3%  compared to 20.3% in fiscal 1996,
reflecting the increased mix of higher margin information  technology  business.
Gross profit margin varies depending on the types of services provided.

Operating   Expenses  -  Operating   expenses   include   (among  other  things)
compensation of staff,  rent,  recruitment  and retention of temporary  staffing
employees and consultants, costs associated with opening new offices, unbillable
consultant time, depreciation,  amortization and advertising. Operating expenses
amounted  to $34.4  million,  or 16.4% of  service  revenues,  in  fiscal  1997,
compared  to $20.9  million,  or 15.4% of  service  revenues,  in  fiscal  1996.
Expenses have generally  increased as service revenues and the number of offices
have increased.  The increase in operating  expenses as a percentage of revenues
was attributable to higher  intangible  amortization  from  acquisitions and the
higher  mix of  information  technology  business  where  selling,  general  and
administrative expenses are higher.

Operating  Income -  Operating  income for  fiscal  1997 was $12.4  million,  an
increase of $5.7 million,  or 84%,  from $6.7 million in fiscal 1996.  Operating
margin for fiscal  1997 was 5.9%,  compared  to 4.9% in 1996.  The  increase  in
operating  margin was due  largely to the  increase  in  information  technology
business.

Income  Taxes - The  effective  combined  federal and state  income tax rate was
40.4% in fiscal  1997  compared  to 38.1% in fiscal  1996.  The  increase in the
combined tax rate was due to an increase in non-deductible amortization relating
to certain  acquisitions and increased  operations in states which assess higher
state tax rates.


Fiscal 1996 Compared to Fiscal 1995

Service  Revenues - Service  revenues  for fiscal 1996 were $136.2  million,  an
increase of $48.7  million,  or 56%,  from $87.5  million in fiscal 1995. Of the
$48.7 million  increase,  $24.1 million was attributable to acquisitions,  $20.1
million was attributable to comparable offices and $4.5 million was attributable
to new offices.

Gross  Profit - Gross profit for fiscal 1996 was $27.6  million,  an increase of
$9.4 million, or 52%, compared to $18.2 million in 1995. Gross profit margin for
fiscal 1996 was 20.3%  compared to 20.7% in fiscal  1995,  reflecting,  in part,
upward  pressure  on wages  due to  lower  unemployment  rates in the  Company's
service areas.

Operating Expenses - Operating  expenses amounted to $20.9 million,  or 15.4% of
service revenues, in fiscal 1996, compared to $13.9 million, or 15.8% of service
revenues,  in fiscal 1995. The decrease in operating expenses as a percentage of
service  revenues  resulted from improved  operating  leverage  attributable  to
revenue growth  partially  offset by an increase in  amortization  of intangible
assets.

Operating  Income -  Operating  income  for  fiscal  1996 was $6.7  million,  an
increase of $2.4 million,  or 55%,  from $4.3 million in fiscal 1995.  Operating
margin for both fiscal 1996 and fiscal 1995 was 4.9%.

Income  Taxes - The  effective  combined  federal and state income tax rates for
fiscal 1996 and fiscal 1995 were 38.1% and 39.2%, respectively.


                                       11
<PAGE>


Liquidity and Capital Resources

For fiscal 1997 net cash used in operating  activities was $0.9 million compared
to net cash used in operating  activities  of $2.4 million for fiscal 1996.  The
decrease in cash used in operating  activities was a result of higher net income
and increased depreciation and amortization.

The  Company's  investing  activities  during  fiscal 1997 used $1.8  million to
purchase  property and equipment,  $38.6 million to purchase  assets of acquired
businesses  and $4.0 million to pay earnouts on  acquisitions.  See the Notes to
the Company's Consolidated Financial Statements for a summary description of the
material terms of the acquisitions completed during fiscal 1997.

The Company's financing activities during fiscal 1997 included proceeds from two
equity offerings.  Net proceeds of a 3.6 million new share offering completed in
October 1997  amounted to $56.8  million.  Net proceeds  from the exercise of an
overallotment option to purchase 330,000 shares in January 1997 amounted to $3.0
million.  As of December  28,  1997,  the Company had used  approximately  $23.1
million of the offering  proceeds to pay down long-term and short-term debt, and
the remainder of the proceeds to fund  acquisitions,  which included the payment
of acquisition earnouts, and for working capital and general corporate purposes.

The Company's  primary  sources of short term  liquidity  and capital  resources
during fiscal 1997 were cash flows from operating  activities and a secured line
of credit with a bank. The Company's line of credit currently allows for maximum
borrowings of $35 million.  At December 28, 1997, the Company had no outstanding
borrowings  on the line of credit.  Short-term  borrowings  bear interest at the
prime rate  charged from time to time by the  Company's  lender (at December 28,
1997, 8.5%). Long-term borrowings bear interest at LIBOR plus 1.75% (at December
28,  1997,  approximately  7.5%).  The rate related to the amount over LIBOR may
increase based upon certain  financial  ratios.  The Company also had letters of
credit of $3.0  million  outstanding  at  December  28,  1997,  for  purposes of
securing its workers'  compensation premium obligation.  The aggregate amount of
such letters of credit reduces the borrowing availability on the line of credit.
At December 28, 1997,  $32.0 million was available for  borrowings or additional
letters of credit under the line of credit.  Management believes that the credit
facility,  together  with  cash  reserves  (including  remaining  cash  from the
recently  completed  equity  offering)  and cash flow from  operations,  will be
sufficient  to  fund  the  Company's  operations,   capital  expenditures,   and
acquisitions for at least the next 12 months.

Seasonality

The Company's  business follows the seasonal trends of its customers'  business.
Historically,  the Company has  experienced  lower revenues in the first quarter
due to seasonal trends of its customers and lower overall economic activity.

Impact of Inflation

The  Company  believes  that over the past three years  inflation  has not had a
significant impact on the Company's results of operations.

Year-2000 Compliance

The  Company  has  substantially  completed  the  required  changes  to make its
information systems Year-2000 compliant.  The Company is now beginning to review
the compliance status of its key vendors. The process is ongoing with no results
having yet been determined.



                                       12
<PAGE>












                  Consolidated Financial Statements and Notes















                                       13
<PAGE>

<TABLE>

                           SOS STAFFING SERVICES, INC.
                           CONSOLIDATED BALANCE SHEETS
                  As of December 28, 1997 and December 29, 1996


                                     ASSETS
<CAPTION>

                                                                1997              1996
                                                       ----------------------------------------
<S>                                                     <C>               <C>
CURRENT ASSETS:
     Cash and cash equivalents                          $     20,462,647  $     5,784,651
     Accounts receivable, less allowances of
       $678,000 and $459,000, respectively                    32,982,075       19,114,117
     Current portion of workers' compensation deposit            475,549          610,473
     Prepaid expenses and other                                  729,697          305,151
     Deferred tax asset                                        1,238,955          661,645
     Amounts due from related parties                               --            406,376
                                                       ----------------------------------------
         Total current assets                                 55,888,923       26,882,413
                                                        ----------------------------------------

PROPERTY AND EQUIPMENT, at cost:
     Computer equipment                                        2,852,320        1,399,408
     Office equipment                                          2,241,392        1,461,945
     Leasehold improvements and other                          1,286,134          969,208
                                                        ----------------------------------------
                                                               6,379,846        3,830,561

     Less accumulated depreciation and amortization           (2,353,511)      (1,698,080)
                                                        ----------------------------------------
         Total property and equipment, net                     4,026,335        2,132,481
                                                         ----------------------------------------


OTHER ASSETS:
     Workers' compensation deposit, less current portion         106,369          106,369
     Intangible assets, less accumulated amortization
     of $1,941,000 and $457,000, respectively                 57,456,417       17,798,588
     Deposits and other assets                                   811,527          372,973
                                                        ----------------------------------------
         Total other assets                                   58,374,313       18,277,930
                                                        ----------------------------------------

         Total assets                                      $ 118,289,571    $  47,292,824
                                                        ========================================
</TABLE>

          The accompanying notes to consolidated financial statements
           are an integral part of these consolidated balance sheets.

                                       14
<PAGE>


<TABLE>


                           SOS STAFFING SERVICES, INC.
                           CONSOLIDATED BALANCE SHEETS
                  As of December 28, 1997 and December 29, 1996


                      LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>

                                                                       1997           1996
                                                                 --------------------------------
<S>                                                               <C>            <C>
CURRENT LIABILITIES:
     Accounts payable                                             $    971,775   $    600,504
     Accrued payroll costs                                           3,566,859      2,110,554
     Current portion of workers' compensation reserve                2,537,995      1,501,669
     Accrued liabilities                                               663,042        408,027
     Income taxes payable                                              946,611        466,726
     Accrued acquisition earnouts                                    4,412,658      4,782,689
                                                                 --------------------------------
       Total current liabilities                                    13,098,940      9,870,169
                                                                 --------------------------------

LONG-TERM LIABILITIES:
     Workers' compensation reserve, less current portion               535,580        375,418
     Deferred income tax liability                                     193,762        213,056
     Deferred compensation liability                                   126,206           --
                                                                 --------------------------------
       Total long-term liabilities                                     855,548        588,474
                                                                 --------------------------------

COMMITMENTS AND CONTINGENCIES (Notes 2, 3, and 5)

SHAREHOLDERS' EQUITY:
     Common stock $0.01 par value 20,000,000 shares authorized;
       12,653,002 and 8,706,020 shares issued
       and outstanding, respectively                                   126,530         87,060
     Additional paid-in capital                                     91,152,122     31,216,917
     Retained earnings                                              13,056,431      5,530,204
                                                                 --------------------------------
       Total shareholders' equity                                  104,335,083     36,834,181
                                                                 --------------------------------

       Total liabilities and shareholders' equity                 $118,289,571   $ 47,292,824
                                                                 ================================
</TABLE>

          The accompanying notes to consolidated financial statements
           are an integral part of these consolidated balance sheets.


                                       15
<PAGE>

<TABLE>

                           SOS STAFFING SERVICES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
 For the Fiscal Years Ended December 28, 1997, December 29, 1996 and December 31, 1995
<CAPTION>


                                                            Fiscal Year (52 Weeks) Ended
                                                ----------------------------------------------------
                                                       1997             1996             1995
                                                ----------------------------------------------------

<S>                                               <C>              <C>              <C>
SERVICE REVENUES                                  $ 209,250,847    $ 136,163,973    $  87,532,903
DIRECT COST OF SERVICES                             162,539,859      108,589,322       69,353,212
                                                ----------------------------------------------------
     Gross profit                                    46,710,988       27,574,651       18,179,691
                                                ----------------------------------------------------
OPERATING EXPENSES:
     Selling, general and administrative             32,867,550       20,397,240       13,826,034
     Intangibles and amortization                     1,492,637          470,119           32,566
                                                ----------------------------------------------------
       Total operating expenses                      34,360,187       20,867,359       13,858,600
                                                ----------------------------------------------------
INCOME FROM OPERATIONS                               12,350,801        6,707,292        4,321,091
                                                ----------------------------------------------------

OTHER INCOME (EXPENSE):
     Interest expense                                  (368,145)        (301,207)        (145,646)
     Interest income                                    497,661           90,793          109,684
     Other, net                                         145,386           13,695          120,604
                                                ----------------------------------------------------
       Total, net                                       274,902         (196,719)          84,642
                                                ----------------------------------------------------

INCOME BEFORE PROVISION
     FOR INCOME TAXES                                12,625,703        6,510,573        4,405,733
PROVISION FOR INCOME TAXES
     (including pro forma for 1995; see Note 8)      (5,099,476)      (2,481,413)      (1,728,653)
                                                ----------------------------------------------------


NET INCOME                                        $   7,526,277    $   4,029,160    $   2,677,080
                                                ====================================================

NET INCOME PER COMMON SHARE:
     Basic                                        $        0.78    $        0.59    $        0.54
     Diluted                                      $        0.77    $        0.59    $        0.43

WEIGHTED AVERAGE COMMON SHARES:
     Basic                                            9,654,204        6,780,400        4,984,616
     Diluted                                          9,780,505        6,838,479        6,229,021
</TABLE>

          The accompanying notes to consolidated financial statements
           are an integral part of these consolidated balance sheets.


                                       16
<PAGE>

<TABLE>

                           SOS STAFFING SERVICES, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<CAPTION>

                                                  Common Stock            Additional
                                        -------------------------------    Paid-in        Retained
                                            Shares           Amount        Capital        Earnings           Total
                                        --------------------------------------------------------------------------------

<S>                                        <C>         <C>             <C>             <C>              <C>
BALANCE, January 1, 1995                   4,500,000   $      45,000   $        --     $   7,053,277    $   7,098,277
     Distributions to shareholders              --              --              --        (8,750,023)      (8,750,023)
     Contributions from shareholders            --              --              --           750,000          750,000
     Change in tax status                       --              --           492,152        (492,152)            --
     Sale of common stock, net             2,200,000          22,000      12,607,345            --         12,629,345
     Net income                                 --              --              --         2,939,942        2,939,942
                                        --------------------------------------------------------------------------------

BALANCE, December 31, 1995                 6,700,000          67,000      13,099,497       1,501,044       14,667,541
     Exercise of stock options                 6,020              60          39,070            --             39,130
     Sale of common stock, net             2,000,000          20,000      18,078,350            --         18,098,350
     Net income                                 --              --              --         4,029,160        4,029,160
                                        --------------------------------------------------------------------------------

BALANCE, December 29, 1996                 8,706,020          87,060      31,216,917       5,530,204       36,834,181
     Exercise of stock options                16,982             170         142,630            --            142,800
     Sale of common stock, net             3,930,000          39,300      59,792,575            --         59,831,875
     Net income                                 --              --              --         7,526,227        7,526,227
                                        --------------------------------------------------------------------------------

BALANCE, December 28, 1997                12,653,002   $     126,530   $  91,152,122   $  13,056,431    $ 104,335,083
                                        ================================================================================
</TABLE>











          The accompanying notes to consolidated financial statements
           are an integral part of these consolidated balance sheets.


                                       17
<PAGE>

<TABLE>


                           SOS STAFFING SERVICES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Fiscal Years Ended December 28, 1997, December 29, 1996 and December 31, 1995
                Increase (Decrease) in Cash and Cash Equivalents
<CAPTION>

                                                                  Fiscal Year (52 Weeks) Ended
                                                       -----------------------------------------------
                                                              1997            1996            1995
                                                       -----------------------------------------------

<S>                                                      <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                          $  7,526,227    $  4,029,160    $  2,939,942
     Adjustments to reconcile net income to net
       cash used in operating activities:
         Depreciation and amortization                      2,156,882         854,902         374,114
         Deferred income taxes                               (596,604)       (825,941)        274,352
         Loss on disposition of assets                         26,927          63,030           3,554
         Changes in operating assets and liabilities:
           Accounts receivable, net                       (12,448,572)     (8,785,524)    (10,740,788)
           Workers' compensation deposit                      134,924          (6,021)      1,277,178
           Prepaid expenses and other                        (288,556)       (127,943)       (128,033)
           Amounts due from related parties                   (17,521)         54,521        (445,881)
           Deposits and other assets                         (312,348)        (84,969)          7,667
           Accounts payable                                   371,271         391,177          29,742
           Accrued payroll costs                            1,456,305         529,247         685,683
           Workers' compensation reserve                    1,196,488         957,338         (35,989)
           Accrued liabilities                               (624,956)        219,439          57,650
           Income taxes payable                               479,885         301,961          74,576
                                                       -----------------------------------------------
              Net cash used in operating activities          (939,648)     (2,429,623)     (5,626,233)
                                                       -----------------------------------------------


CASH FLOWS FROM INVESTING ACTIVITIES:
     Cash paid for acquisition of businesses              (38,574,952)    (10,162,026)     (1,340,707)
     Principal payment of note related to acquisition            --        (1,450,000)           --
     Purchases of property and equipment                   (1,829,547)       (683,889)       (684,092)
     Payments on acquisition earnouts                      (3,955,275)       (239,139)        (29,800)
     Deposits related to acquisition of certain assets           --              --           236,078
     Proceeds from sale of property and equipment               2,743            --              --
                                                       -----------------------------------------------
         Net cash used in investing activities            (44,357,031)    (12,535,054)     (1,818,521)
                                                       -----------------------------------------------
</TABLE>


          The accompanying notes to consolidated financial statements
           are an integral part of these consolidated balance sheets.


                                       18
<PAGE>
<TABLE>

                           SOS STAFFING SERVICES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Fiscal Years Ended December 28, 1997, December 29, 1996 and December 31, 1995
<CAPTION>


                                                                                   Fiscal Year (52 Weeks) Ended
                                                                         ----------------------------------------------
                                                                               1997            1996            1995
                                                                         ----------------------------------------------
<S>                                                                       <C>             <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of common stock, net                            $ 59,831,875    $ 18,098,350    $ 12,629,345
   Proceeds from exercise of employee stock options                            142,800          39,130            --
   Repayments on line of credit, net                                              --              --        (2,530,251)
   Proceeds from long-term debt                                             13,000,000      11,000,000            --
   Principal payments on long-term debt                                    (13,000,000)    (11,105,541)       (550,000)
   Capital contribution from shareholders                                         --              --           750,000
   Distributions to shareholders                                                  --              --          (750,000)
                                                                         ----------------------------------------------
     Net cash provided by financing activities                              59,974,675      18,031,939       9,549,094
                                                                         ----------------------------------------------

NET INCREASE IN CASH AND CASH
     EQUIVALENTS                                                            14,677,996       3,067,262       2,104,340

CASH AND CASH EQUIVALENTS
     AT BEGINNING OF YEAR                                                    5,784,651       2,717,389         613,049
                                                                         ----------------------------------------------

CASH AND CASH EQUIVALENTS
     AT END OF YEAR                                                       $ 20,462,647    $  5,784,651    $  2,717,389
                                                                         ==============================================

SUPPLEMENTAL CASH FLOW INFORMATION:
   Cash paid during the year for:
     Income taxes                                                         $  5,168,820    $  2,902,393    $  1,117,214
     Interest                                                                  225,776         280,018         134,917

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

The following table sets for information relating to the Company's  acquisitions
of certain business (see Note 3):

   Fair value of assets acquired                                          $ 39,553,495    $ 14,980,167    $  3,433,773
   Liabilities assumed                                                         879,971         139,379            --
   Notes payable issued in connection with acquisition                         797,837            --         1,750,000
   Accrued acquisition earnouts                                              3,412,816       4,678,762         343,066
</TABLE>

During fiscal year 1997, amounts receivable from TSI totaling approximately $0.6
million were offset against the acquisition note payable (see Note 11).

During fiscal year 1995 the Company  distributed  approximately  $8.0 million of
its accounts receivable to its S Corporation shareholders (see Note 7).


          The accompanying notes to consolidated financial statements
           are an integral part of these consolidated balance sheets.


                                       19
<PAGE>


                   Notes to Consolidated Financial Statements

(1)  Nature of Operations
     SOS Staffing Services,  Inc. and subsidiaries  (collectively the "Company")
     is a provider of temporary  staffing  services in 18 western  states of the
     U.S.  The  Company  provides  a broad  range  of  commercial  staffing  and
     information  technology  ("IT")  services.   Commercial  staffing  services
     include  light  industrial,   clerical,  industrial,  technical  and  other
     professional  services.  IT services  consist of staffing,  consulting  and
     outsourcing  services  such as  system  design,  programming,  network  and
     systems management and business consulting.

(2)  Summary of Significant Accounting Policies
     Fiscal  Year - The  Company's  fiscal  year ends on the  Sunday  closest to
     December 31, which results in a 52- or 53-week year. The fiscal years ended
     December  28, 1997  (fiscal  1997),  December  29, 1996  (fiscal  1996) and
     December 31, 1995 (fiscal 1995) each contained 52 weeks.

     Principles of Consolidation - The consolidated financial statements include
     the  accounts  of  SOS  Staffing  Services,   Inc.  and  its  wholly  owned
     subsidiaries,  Bedford Consultants,  Inc., ServCom Staff Management,  Inc.,
     SOS Collection  Services,  Inc.  (d.b.a.  National Collex  Corporation) and
     Wolfe & Associates,  Inc. All significant  intercompany  transactions  have
     been eliminated in consolidation.

     Use of Estimates - The  preparation  of financial  statements in conformity
     with generally accepted  accounting  principles requires management to make
     estimates and  assumptions  that affect the reported  amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of the  financial  statements  and the  reported  amounts of  revenues  and
     expenses  during the reported  periods.  Actual  results  could differ from
     those estimates.

     Revenue  Recognition  - Revenues are  recognized  at the time  services are
     provided.

     Cash and Cash Equivalents - The Company considers highly liquid investments
     with an  original  maturity  of  three  months  or less to be cash and cash
     equivalents.  Cash and cash  equivalents  consist of various  money  market
     accounts and  short-term  municipal  bonds and are recorded at cost,  which
     approximates market value.

     Property  and  Equipment - Property  and  equipment  are stated at cost and
     depreciated  using the  straight-line  method over their  estimated  useful
     lives.   Leasehold  improvements  are  amortized  over  the  terms  of  the
     respective leases or the estimated economic lives of the assets,  whichever
     is shorter. The depreciation and amortization periods are as follows:

                  Computer equipment                   2 - 5 years
                  Office equipment                     3 - 7 years
                  Leasehold improvements and other    5 - 17 years

     Upon  retirement or other  disposition of property and equipment,  the cost
     and related accumulated  depreciation and amortization are removed from the
     accounts. The resulting gain or loss is reflected in income. Major renewals
     and betterments are capitalized  while minor  expenditures  for maintenance
     and repairs are charged to expense as incurred.


                                       20
<PAGE>


     Workers'  Compensation  - For  fiscal  years  1997 and  1996,  the  Company
     maintained workers' compensation insurance with CIGNA Property and Casualty
     ("CIGNA")  for  claims in excess of a loss cap of  $200,000  per  incident,
     except  with  respect  to  certain  divisions  which are  covered  by state
     insurance funds in states where private  insurance is not permitted.  Under
     the terms of the CIGNA  agreement,  the  Company is required to fund into a
     deposit  account an amount for payment of claims.  The fund is  replenished
     monthly based on actual payments made by CIGNA during the previous month.

     For  fiscal  year  1995,  the  Company  had  a  paid  loss  retro  workers'
     compensation  insurance  arrangement with a unit of American  International
     Group, Inc. ("AIG").  All of the Company's  business divisions were insured
     by AIG for losses over  $250,000  per  occurrence,  except with  respect to
     certain  divisions  which  were  covered  by a  separate  policy  providing
     coverage for losses over  $100,000 per  occurrence.  Under the terms of the
     arrangement,  the Company was required to fund an estimated  premium amount
     into a deposit  account  from which  claims were paid.  AIG was required to
     refund to the Company 60% of the unused deposit  account balance six months
     following the policy year with the remaining  balance to be refunded evenly
     over the succeeding four years.

     The Company has established reserve amounts based upon information provided
     by the  insurance  companies  as to the status of claims  plus  development
     factors for  incurred but not yet reported  claims and  anticipated  future
     changes  in  underlying  case  reserves.  Such  reserve  amounts  are  only
     estimates and there can be no assurance that the Company's  future workers'
     compensation  obligations  will not  exceed  the  amount  of its  reserves.
     However,  management  believes  that the  difference  between  the  amounts
     recorded for its  estimated  liability and the costs of settling the actual
     claims will not be material to the results of operations.

     Intangible  Assets - Intangible  assets consist of the following amounts as
     of December 28, 1997 and December 29, 1996:

                                                   1997                1996
                                           -------------------------------------
         Goodwill                          $     56,551,253     $    16,648,361
         Non-compete agreements                  2,013,187            1,393,187
         Employee and customer lists             832,837                214,435
                                           -------------------------------------
         Total                                   59,397,277          18,255,983
         Less accumulated amortization           (1,940,860)           (457,395)
                                           -------------------------------------
                                           $     57,456,417     $    17,798,588
                                           =====================================


     Goodwill is amortized  using the  straight-line  method over 30 years.  The
     non-compete  agreements and employee and customer lists are being amortized
     using the straight-line method over three to six years.

     Accounting  for the Impairment of Long-Lived  Assets -The Company  accounts
     for  impairment  of  long-lived  assets in  accordance  with  Statement  of
     Financial  Accounting  Standards  ("SFAS")  No.  121,  "Accounting  for the
     Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed
     of."  SFAS  No.  121  requires  that  long-lived  assets  be  reviewed  for
     impairment  whenever events or changes in  circumstances  indicate that the
     book value of the asset may not be  recoverable.  The Company  evaluates at
     each balance sheet date whether events and circumstances have occurred that
     indicate possible impairment.  In accordance with SFAS No. 121, the Company
     uses an estimate of the future  undiscounted  net cash flows of the related
     asset  over  the  remaining  life  in  measuring  whether  the  assets  are
     recoverable.


                                       21
<PAGE>


     Income Taxes - The Company  recognizes  deferred tax assets or  liabilities
     for expected future tax consequences of events that have been recognized in
     the financial  statements or tax returns.  Under this method,  deferred tax
     assets or liabilities are determined based upon the difference  between the
     financial and income tax bases of assets and liabilities  using enacted tax
     rates  expected  to apply when  differences  are  expected to be settled or
     realized.

     Prior to June 26,  1995,  the  Company  had  elected  for federal and state
     income  tax  purposes  to  include  its  taxable  income  with  that of its
     shareholders (an S Corporation election).

     Net  Income Per Common  Stock - Basic net income per common  share  ("Basic
     EPS")  excludes  dilution  and is computed  by  dividing  net income by the
     weighted-average  number  of common  shares  outstanding  during  the year.
     Diluted net income per common share  ("Diluted EPS") reflects the potential
     dilution   that  could  occur  if  stock  options  or  other  common  stock
     equivalents  were exercised or converted into common stock. The computation
     of Diluted EPS does not assume  exercise or conversion  of securities  that
     would have an  antidilutive  effect on net income  per  common  share.  Net
     income per common share  amounts and share data have been  restated for all
     years presented to reflect Basic and Diluted EPS.

     Following is a reconciliation of the numerator and denominator of Basic EPS
     to the numerator and denominator of Diluted EPS for all years presented:
<TABLE>
<CAPTION>

                                                              Net Income           Shares         Per-Share
                                                              (Numerator)       (Denominator)       Amount
                                                            ---------------------------------------------------
<S>                                                         <C>                     <C>            <C>
     Fiscal 1997:
       Basic EPS                                            $   7,526,227           9,654,204      $  0.78
         Effect of stock options                                        -             126,301
                                                            ----------------------------------
       Diluted EPS                                          $   7,526,227           9,780,505      $  0.77
                                                            ----------------------------------

     Fiscal 1996:
       Basic EPS                                            $   4,029,160           6,780,400      $  0.59
         Effect of stock options                                        -              58,079
                                                            ----------------------------------
       Diluted EPS                                          $   4,029,160           6,838,479      $  0.59
                                                            ----------------------------------

     Fiscal 1995:
       Basic EPS                                            $   2,677,080           4,984,616      $  0.54
         Effect of stock options                                        -              13,636
         Effect of shareholder distribution (see Note 7)                -           1,230,769
                                                            ----------------------------------
       Diluted EPS                                          $   2,677,080           6,229,021      $  0.43
                                                            ==================================
</TABLE>

     At the end of fiscal 1997, 1996 and 1995, there were outstanding options to
     purchase  284,000,  39,000 and 13,500 shares of common stock,  respectively
     that were not  included  in the  computation  of Diluted  EPS  because  the
     options'  exercise prices were greater than the average market price of the
     common shares.

     Stock Split and Authorized  Common Stock - In connection with the Company's
     initial  public   offering  in  July  1995,  the  Board  of  Directors  and
     shareholders  approved  a 225  for  1  stock  split  and a  change  in  the
     authorized  common stock to 20,000,000  shares at $.01 par value per share.
     This  stock  split has been  retroactively  reflected  in the  consolidated
     financial  statements.


                                       22
<PAGE>


     Concentrations  of Credit Risk - The Company's  financial  instruments that
     potentially  subject the Company to  concentrations  of credit risk consist
     principally  of  cash  and  trade  receivables.  In the  normal  course  of
     business,  the Company provides credit terms to its customers.  The Company
     believes its portfolio of accounts  receivable is well diversified and as a
     result its concentrations of credit risk are minimal.  The Company performs
     ongoing credit  evaluations  of its customers and maintains  allowances for
     possible losses, but typically does not require collateral.

     Recent  Accounting  Pronouncement - In June 1997, the Financial  Accounting
     Standards Board issued Statement of Financial Accounting Standards No. 131,
     "Disclosures About Segments of an Enterprise and Related Information." This
     statement   establishes  new  standards  for  public  companies  to  report
     information  about operating  segments,  products and services,  geographic
     areas  and  major  customers.  This  statement  is  effective  for  periods
     beginning after December 15, 1997.

     Reclassifications - Certain  reclassifications have been made to the fiscal
     1996  consolidated  financial  statements to conform to the current  year's
     presentation.

(3)  Acquisitions
     All of the  Company's  acquisitions  have  been  accounted  for  using  the
     purchase  method,  and the excess of the purchase  price over the estimated
     fair  value  of the  acquired  assets  less  liabilities  assumed  has been
     allocated to goodwill and other  intangible  assets.  Certain  acquisitions
     have contingent earnout  components of the purchase price.  Earnout amounts
     accrued  increase the amount of goodwill  related to the  acquisition.  The
     following is a summary of  acquisitions  during fiscal years 1997, 1996 and
     1995:

<TABLE>
<CAPTION>
                                                                                        Max. Earnout        Amt. Allocated
                                                         Date            Purchase         Remaining          to Intangible
                                                       Acquired          Price(1)      As of 12/28/97            Assets
                                                       -------------------------------------------------------------------
<S>                                                    <C>             <C>              <C>                 <C>
     1997 Acquisitions:
       Computer Group, Inc.(2)                         January         $   2,747,000    $   1,300,000       $    2,647,000
       Bedford Consultants, Inc.(2)                      July              3,803,000        1,900,000            3,184,000
       Telecom Project Assistance, Inc.                  July              2,005,000        4,000,000            1,911,000
       Execusoft, Inc.                                  August             5,005,000        5,000,000            4,947,000
       JesCo Technical Services, Inc.                  October             4,851,000        7,000,000            4,816,000
       Century Personnel, Inc.,
          M.A. Jones Enterprises, Inc.                 October            15,030,000       10,000,000           14,928,000
       Others                                           Various            6,113,000          625,000            5,170,000
                                                       -------------------------------------------------------------------
                                                                       $  39,554,000    $  29,825,000       $   37,603,000
                                                       ===================================================================
     1996 Acquisitions:
       Abacus Consulting Group, Inc.
          Abacus Consultants, Inc.,
          The Performance Professionals                  July          $   5,063,000    $          --       $    5,043,000
       Wolfe & Associates, Inc.(2)                     November            8,185,000            4,000            8,228,000
       Others                                           Various            4,367,000               --            4,203,000
                                                       -------------------------------------------------------------------
                                                                       $  17,615,000    $       4,000       $   17,474,000
                                                       ===================================================================
     1995 Acquisitions:
       PAMS Temporary Employment Service
          Inc., National Collex Corporation            December        $   2,591,000    $          --       $    2,545,000
       Others                                           Various            1,415,000               --            1,356,000
                                                       -------------------------------------------------------------------
                                                                       $   4,006,000    $          --       $    3,901,000
                                                       ===================================================================
</TABLE>


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

     (1)  Includes earnout amounts  paid or accrued as of December  28, 1997 and
          direct acquisition costs

     (2)  Stock acquisitions


                                       23

<PAGE>

     Pro Forma  Acquisition  Information  - Unaudited - The  unaudited pro forma
     acquisition information for fiscal years 1997 and 1996 presents the results
     of  operations  as if the 1997 and 1996  acquisitions  has  occurred at the
     beginning of fiscal 1996. The results of operations  give effect to certain
     adjustments,  including amortization of intangible assets, interest expense
     on acquisition  debt, the reduction in expenses for the difference  between
     compensation of employees  prior to the acquisition and their  compensation
     following the  acquisition,  income taxes and the additional  common shares
     deemed to be outstanding as the result of the Company's  public  offerings.
     The pro forma results have been prepared for comparative  purposes only and
     do not  purport  to be  indicative  of what  would  have  occurred  had the
     acquisitions  been  made  at the  beginning  of  the  applicable  years  as
     described above or of the results which may occur in the future.


                                    Unaudited Pro Forma Results of Operations
                                      (in thousands, except per share data)

                                            1997                1996
                                       -----------------------------------

         Service Revenues              $      253,667        $     192,315
         Income from operations                16,383                8,576
         Net income                             9,807                4,842
         Diluted EPS                             0.88                 0.45

(4)  Line of Credit
     The Company has a secured line of credit agreement with certain banks which
     provides  for maximum  borrowings  of $35  million.  The  agreement,  which
     provides for both short-term and long-term  borrowings,  expires in October
     2000.  Short-term  borrowings bear interest at a bank's prime rate (8.5% at
     December 28, 1997) and  long-term  borrowings  bear  interest at LIBOR plus
     1.75%  (7.5% at December  28,  1997).  The rate  related to the amount over
     LIBOR may  increase  based upon certain  financial  ratios.  The  agreement
     contains a  commitment  fee of  three-eighths  of one percent on the unused
     portion  which is payable  quarterly.  Borrowings  under the  agreement are
     secured by  substantially  all of the assets of the Company.  The agreement
     provides for letters of credit of $7 million,  which  reduces the borrowing
     availability  under the line of credit. As of December 28, 1997, there were
     outstanding  letters of credit of $3 million for  purposes of securing  the
     Company's  workers'  compensation  premium  obligation.  As of December 28,
     1997,  total  availability  under the line of credit was $32 million and no
     borrowings were  outstanding.  During fiscal 1997, the maximum  outstanding
     balances of short-term  and long-term  borrowings  under the agreement were
     $10.0  million  and  $13.0  million,  respectively.  The  weighted  average
     interest  rates of the short-term  and long-term  borrowings  were 8.5% and
     7.5%, respectively.

     The agreement contains certain restrictive  covenants including maintenance
     of a minimum  tangible net worth and  restrictions on the amount of capital
     expenditures.  As of December 28, 1997, the Company was in compliance  with
     the covenants.

(5)  Commitments and Contingencies
     Noncancelable Operating Leases - The Company leases office facilities under
     noncancelable  operating  leases.  Management  expects  that, in the normal
     course of business, leases that expire will be renewed or replaced by other
     leases. The Company leases certain of these facilities from various related
     parties. (See Note 11.)


                                       24
<PAGE>

     Future minimum lease payments under  noncancelable  operating leases are as
     follows:

              Fiscal Year Ending
              1998                                   $        2,493,565
              1999                                            2,069,370
              2000                                            1,237,444
              2001                                              611,583
              2002                                              414,909
              Thereafter                                        483,025
                                                     ------------------
                                                     $        7,309,896
                                                     ==================

     Facility  rental  expense for the fiscal years 1997,  1996 and 1995 totaled
     approximately $2,154,000, $1,110,000 and $649,000 respectively.

     Legal  Matters - In June 1997, a former  customer of the Company  commenced
     litigation  against the Company  alleging  breach of contract,  negligence,
     fraud and  misrepresentation.  The  allegations  are based upon the alleged
     theft of surplus military goods from the former  customer's  warehouse by a
     former temporary employee of the Company.  The plaintiff is seeking damages
     in excess of $7 million.  In September  1997, the Company filed a motion to
     dismiss the negligence claim and filed an answer to the complaints  denying
     the material  allegations and asserting several  affirmative  defenses.  In
     December  1997,  the judge denied the Company's  motion to dismiss  without
     prejudice.  The  Company  believes  the claim is without  merit and has not
     recorded any amounts in the accompanying  financial  statements  related to
     this claim.

     From  time to time the  Company  is  involved  in legal  matters  generally
     incident to its business. It is the opinion of management after discussions
     with legal counsel,  that the ultimate  dispositions  of these matters will
     not have a  material  impact  on the  financial  condition  or  results  of
     operations of the Company.

(6)  Public Offerings
     In October 1997, the Company  completed a secondary  public offering of its
     common stock and issued 3,000,000  shares of common stock. In addition,  at
     this same time, the underwriters  exercised their  overallotment  option to
     purchase an additional  600,000 common shares.  The proceeds  received from
     the  offering  and  the  exercise  of  the  overallotment  option,  net  of
     underwriting   commissions  and  offering  costs,   totaled   approximately
     $56,832,000.

     In December 1996,  the Company  completed a secondary  public  offering and
     issued  2,000,000  shares of common stock.  The proceeds  received from the
     offering  net of  underwriting  commissions  and  offering  costs,  totaled
     approximately  $18,098,000.  In connection with the December 1996 secondary
     offering, the underwriters exercised their overallotment option to purchase
     330,000 common shares in January 1997. The Company received net proceeds of
     approximately $3,000,000 from the exercise of the overallotment option.

     In July 1995, the Company  completed an initial public  offering and issued
     2,200,000 shares of common stock. The proceeds  received from the offering,
     net of underwriting  commissions  and offering costs totaled  approximately
     $12,629,000.


                                       25
<PAGE>

(7)  Distribution to Shareholders
     During fiscal year 1995, the Company distributed approximately $8.0 million
     of  its  accounts  receivable  to  its  S  Corporation  shareholders.  This
     distribution  increased the taxable income of the Company, the tax on which
     was payable by the S  Corporation  shareholders.  In addition,  the Company
     made  distributions to shareholders  totaling  $750,000 for the anticipated
     tax applicable to the S Corporation  earnings.  Prior to the termination of
     the S Corporation  election,  it was  determined  that the $750,000 was not
     needed  for  such  income   taxes  and  the   shareholders   returned   the
     distributions  by  contributing  capital  to the  Company.  The  pro  forma
     weighted  average  common  shares  outstanding  reflects  the effect of the
     issuance of 1,230,769  shares at the initial public offering price of $6.50
     per share, as if the accounts  receivable  distribution of $8.0 million had
     occurred at the beginning of 1995.

(8)  Income Taxes
     Effective  June  26,  1995,  the  Company's  S  Corporation   election  was
     terminated.  In  accordance  with SFAS No. 109, the Company  recorded a net
     deferred tax liability  and the related  deferred tax provision of $445,000
     for the tax  effect of the  differences  between  financial  statement  and
     income tax bases of assets and liabilities  that existed at the termination
     date of the S  Corporation  election.  For fiscal year 1995,  the Company's
     provision  for income  taxes is  presented  on a pro forma  basis as if the
     election had been terminated at the beginning of fiscal 1995.

     The  components  of the  provision  for income taxes for fiscal years 1997,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>

                                                      1997                  1996               1995
                                             -----------------------------------------------------------

<S>                                           <C>                   <C>                   <C>
       Current provision -
         Federal                              $      4,796,915      $      2,859,353      $   1,030,662
         State                                         899,165               448,001            160,777
                                             -----------------------------------------------------------
                                                     5,696,080             3,307,354          1,191,439
                                             -----------------------------------------------------------

       Deferred provision (benefit) -
         Federal                                      (502,710)             (714,062)          (152,956)
         State                                         (93,894)             (111,879)           (17,692)
         Change from S Corporation status                 --                    --              445,000
                                             -----------------------------------------------------------
                                                      (596,604)             (825,941)           274,352
                                             -----------------------------------------------------------
       Pro forma adjustment                               --                    --              262,862
                                             -----------------------------------------------------------

       Total provision for income taxes       $      5,099,476      $      2,481,413      $   1,728,653
                                             ===========================================================


     The following is a reconciliation  between the statutory federal income tax
     rate and the  Company's  effective  income  tax rate  which is  derived  by
     dividing the  provision  for income taxes by income  before  provision  for
     income taxes for the fiscal years 1997, 1996 and 1995:
<CAPTION>

                                                          1997                  1996               1995
                                             -----------------------------------------------------------

       Statutory federal income tax rate                  34.3%                 34.0%              34.0%
       State income taxes, net of federal benefit          3.9                   3.4                3.3
       Other                                               2.2                   0.7                1.9
                                             -----------------------------------------------------------
                                                          40.4%                 38.1%              39.2%
                                             -----------------------------------------------------------
</TABLE>


                                       26
<PAGE>

     The  components of the deferred tax assets and  liabilities at December 28,
1997 and December 29, 1996 are as follows:

                                                   1997              1996
                                             ----------------------------------
       Deferred income tax assets -
         Workers' compensation reserves      $    1,159,917      $   713,293
         Allowance for doubtful accounts            283,138          200,336
         Other                                      208,611          148,822
                                             ----------------------------------
                                                  1,651,666        1,062,451
                                             ==================================

       Deferred income tax liabilities -
         Cash to accrual adjustments               (301,212)        (559,360)
         Depreciation                              (105,769)         (37,758)
         Other                                     (199,492)         (16,744)
                                             ----------------------------------
                                                   (606,473)        (613,862)
                                             ----------------------------------
       Net deferred income tax asset         $    1,045,193      $   448,589
                                             ==================================

       Balance sheet classification -
         Current asset                       $    1,238,955      $   661,645
         Long-term liability                       (193,762)        (213,056)
                                             ----------------------------------
                                             $    1,045,193      $   448,589
                                             ==================================

(9)  Stock Based Compensation
     As of December 28, 1997,  the Company had a stock  incentive  plan which is
     described  below. The Company applies  Accounting  Principles Board ("APB")
     Opinion No. 25 and related interpretations in accounting for its plan under
     which no compensation cost has been recognized.  Had compensation cost been
     determined  consistent  with  SFAS No.  123,  "Accounting  for  Stock-Based
     Compensation,"  the  Company's net income and earnings per share for fiscal
     1997,  1996 and 1995  would  approximate  the pro forma  amounts  below (in
     thousands except per share data):

                                   1997           1996           1995
                              -------------------------------------------
     Net income
       As reported            $     7,526    $     4,029    $     2,677
       Pro forma                    6,081          3,735          2,563

     Diluted EPS
       As reported            $      0.77    $      0.59    $      0.43
       Pro forma                     0.62           0.55           0.41

     Because  the SFAS No.  123  method of  accounting  has not been  applied to
     options  granted prior to January 1, 1995, and due to the nature and timing
     of the options grants, the resulting pro forma compensation cost may not be
     indicative of future years.

     Stock  Price  Assumptions  - The fair value of each  option  grant has been
     estimated on the grant date using the  Black-Scholes  option-pricing  model
     with the following  assumptions  used for grants in fiscal years 1997, 1996
     and 1995, in calculating compensation cost: expected stock price volatility
     of 56 percent for 1997,  47 percent  for both fiscal 1996 and 1995,  and an
     average  risk-free  interest  rate of 6.2  percent  for all  years,  and an
     expected  life of five  years for  director  options  and  seven  years for
     employee options for fiscal 1997, 1996 and 1995.



                                       27
<PAGE>


     Stock Incentive Plan - The Company  established a stock incentive plan (the
     "Plan")  which  allows for the  issuance of a maximum of 800,000  shares of
     common stock to officers,  directors,  consultants and other key employees.
     The Plan allows for the grant of incentive or nonqualified  options,  stock
     appreciation  rights,  restricted shares of common stock or stock units and
     is  administered  by  the  Board  of  Directors.   Incentive   options  and
     nonqualified  options  are granted at not less than 100 percent of the fair
     market value of the underlying common stock on the date of grant.

     The Board of Directors  determines the number,  type of award and terms and
     conditions,  including any vesting  conditions.  For fiscal 1997,  1996 and
     1995 only  incentive  and  nonqualified  options had been granted under the
     Plan. Employee stock options generally vest 20 percent at the date of grant
     and 20 percent on each of the next four anniversaries thereafter.  The Plan
     also  provides  for an  annual  grant to  non-employee  directors  of 1,000
     options  which are  immediately  exercisable  on the date of  grant.  Stock
     options  granted to employees  expire no later than ten years from the date
     of grant and stock options  granted to directors  expire no later than five
     years from the date of grant.

      A summary of the stock option activity is as follows:
<TABLE>
<CAPTION>
                                                                            Weighted
                                                                               Avg.
                                                                             Exercise
                                                                            Price Per
                                                Employees      Directors      Share
                                             -------------------------------------------
<S>                                              <C>             <C>       <C>
     Outstanding at January 1, 1995                 --             --            --
         Granted                                 129,000         20,000    $    6.50
                                             -------------------------------------------
     Outstanding at December 31, 1995            129,000         20,000         6.50
         Granted                                 132,200         24,000        10.36
         Exercised                                (5,020)        (1,000)        6.50
         Forfeited                                (7,040)          --           6.50
                                             -------------------------------------------
     Outstanding at December 29, 1996            249,140         43,000         8.68
         Granted                                 270,000         14,000        16.95
         Exercised                               (16,982)          --           8.41
         Forfeited                                (5,280)          --           9.69
                                             -------------------------------------------
     Outstanding at December 28, 1997            496,878         57,000        12.92
                                             ===========================================

     Exercisable at December 28, 1997            147,816         29,000    $   11.46
                                             ===========================================
</TABLE>


                                       28
<PAGE>

     The weighted  average fair value of options granted was $10.73,  $5.91, and
     $3.82  for  grants  made  during   fiscal   years  1997,   1996  and  1995,
     respectively.  The following is additional  information with respect to the
     stock options:
<TABLE>
<CAPTION>

                                                      Weighted-
                               Outstanding            Average
                                  as of               Remaining        Weighted-          Exercisable          Weighted-
       Exercise Price         December  28,          Contractual        Average         At December 28,         Average
            Range                 1997                  Life         Exercise Price          1997            Exercise Price
-----------------------------------------------------------------------------------------------------------------------------

<S>    <C>     <C>                 <C>                     <C>         <C>                    <C>              <C>
       $6.50 - $9.50               199,478                 7.5         $    7.77              85,748           $    7.57
        9.51 - 13.56                74,400                 7.0             11.32              30,400               11.43
       13.57 - 19.38               280,000                 8.9             17.02              60,668               16.96
                              -----------------------------------------------------------------------------------------------
                                   553,878                 8.1         $   12.92             176,816           $   11.46
                              -----------------------------------------------------------------------------------------------
</TABLE>


(10) Employee Benefit Plans
     The Company has a 401(k) defined contribution plan. Employee  contributions
     may be invested in several alternatives. Company contributions to the plan,
     including  matching  contributions,  may be made at the  discretion  of the
     Company.  The  Company's  contributions  to  the  plan  were  approximately
     $60,000,  $48,000  and $30,000  for the fiscal  years  1997,  1996 and 1995
     respectively.

     During  1997,  the Company  established  a deferred  compensation  plan for
     certain key officers and employees that provides the opportunity to defer a
     portion of their  compensation.  Amounts deferred are held in a Rabbi Trust
     which invests in various mutual funds as directed by the participants.  The
     trust  assets are recorded as a long-term  other asset on the  accompanying
     consolidated balance sheet because such amounts are subject to the claim of
     creditors. The Company's deferred compensation liability represents amounts
     deferred by participants plus any earnings on the trust assets. This amount
     totaled approximately $126,000 at December 28, 1997.

(11) Related Party Transactions
     In December 1997, the Company  purchased  certain assets and  substantially
     all of the business of TSI of Utah, Inc. ("TSIU"),  a company that provides
     industrial temporary staffing services and was incorporated by an adult son
     of certain  significant  shareholders  of the  Company,  for  approximately
     $1,285,000,  of which $600,000 was paid in cash with the remaining $685,000
     in a note  payable.  The  excess of the  initial  purchase  price  over the
     estimated  fair value of the  acquired  tangible  assets was  approximately
     $1,270,000  of  which   $1,190,000  has  been  allocated  to  goodwill  and
     approximately $80,000 has been allocated to other intangible assets.


                                       29
<PAGE>

     Prior to the acquisition,  TSIU had entered into a franchise agreement with
     the Company to use the TSI name. Under the franchise  agreement the Company
     agreed to fund employee  costs and collect  customer  billings on behalf of
     TSIU. The Company  received a service fee based upon a percentage of TSIU's
     gross profit. As of the date of acquisition, the Company had receivables of
     approximately  $625,000  due from TSIU  that  were used to reduce  the note
     payable to TSIU.  As of December 29, 1996 the Company had  receivables  due
     from TSIU of  approximately  $462,000  which were  secured  by  outstanding
     receivables of TSIU of  approximately  $472,000.  During fiscal years 1997,
     1996 and 1995, the Company  recorded  service fee revenues of approximately
     $133,000, $126,000 and $43,000 respectively, relating to the agreement. The
     Company believes that the terms of the franchise agreement were at least as
     favorable as the terms that could have been obtained  from an  unaffiliated
     third party in a similar transaction.

     The Company leases its corporate office building from the adult children of
     certain  significant  shareholders  of the Company  under a ten-year  lease
     agreement with an option to renew for ten additional years.  Rental expense
     during  fiscal  1997,  1996 and 1995  amounted  to  approximately  $86,000,
     $77,000 and $65,000 respectively.  Future minimum lease payments related to
     this lease will average approximately $97,000 each fiscal year. The Company
     believes that the terms of the lease are at least as favorable as the terms
     that could have been obtained from an unaffiliated third party in a similar
     transaction.

     As of  December  29, 1996 the  Company  had a note  receivable  due from an
     employee  and  officer  of  one  of  its  subsidiaries  in  the  amount  of
     approximately  $91,100.  During  1997 this  note,  along  with all  accrued
     interest,  was  repaid  to the  Company.  The note was  unsecured,  accrued
     interest  at ten  percent  per  annum  and  was  due on  demand.  The  note
     receivable  was  included  in other  long-term  assets in the  accompanying
     consolidated balance sheet.

     During 1997, the Company  entered into an employment  agreement with one of
     its directors to assist and advise the Company with respect to  identifying
     and evaluating potential acquisitions. Prior to her employment, the Company
     had  a  consulting  agreement  with  this  director  to  perform  the  same
     functions.  Compensation  under the  consulting  agreement  was  $3,500 per
     month,  which includes the $1,000 per board meeting fee otherwise  payable.
     For the fiscal years 1997, 1996 and 1995,  consulting  expense was $24,500,
     $42,000 and $21,000 respectively.

(12) Subsequent Events
     Subsequent to year-end 1997, the Company purchased two commercial  staffing
     and one IT consulting  company for approximately  $6,110,000 and contingent
     future  earnouts.  The  Company  intends  to  account  for  each  of  these
     acquisitions as a purchase.


                                       30
<PAGE>


(13) Selected Quarterly Financial Data (Unaudited)
     A summary of quarterly financial information for fiscal years 1997 and 1996
     is as follows (dollars in thousands except per share date):
<TABLE>
<CAPTION>

                                                        First        Second         Third        Fourth
                                                       Quarter       Quarter       Quarter       Quarter
                                                  -------------------------------------------------------
<S>                                                <C>           <C>            <C>           <C>            1997:

     Service revenues                              $    40,846   $    46,518    $   54,389    $   67,498
     Gross profit                                        8,707        10,210        12,353        15,441
     Net income                                          1,318         1,639         2,115         2,454
     Net income per common share:
       Basic                                              0.15          0.18          0.23          0.21
       Diluted                                            0.15          0.18          0.23          0.21

     1996:
     Service revenues                              $    25,034   $    29,954    $   37,846    $   43,330
     Gross profit                                        5,241         6,104         7,754         8,476
     Net income                                            729           890         1,328         1,082
     Net income per common share:
       Basic                                              0.11          0.13          0.20          0.15
       Diluted                                            0.11          0.13          0.20          0.15
</TABLE>



                                       31
<PAGE>

                    Report of Independent Public Accountants


     To SOS Staffing Services, Inc.:

     We  have  audited  the  accompanying  consolidated  balance  sheets  of SOS
     Staffing  Services,  Inc.  (a  Utah  Corporation)  and  subsidiaries  as of
     December  28, 1997 and  December  29,  1996,  and the related  consolidated
     statements of income, shareholders' equity and cash flows for each of three
     fiscal  years in the  period  ended  December  28,  1997.  These  financial
     statements  are  the  responsibility  of  the  Company's  management.   Our
     responsibility is to express an opinion on these financial statements based
     on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
     standards.  Those  standards  require that we plan and perform the audit to
     obtain reasonable assurance about whether the financial statements are free
     of material  misstatement.  An audit includes  examining,  on a test basis,
     evidence   supporting   the  amounts  and   disclosures  in  the  financial
     statements. An audit also includes assessing the accounting principles used
     and  significant  estimates made by  management,  as well as evaluating the
     overall  financial  statement  presentation.  We  believe  that our  audits
     provide a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
     in all  material  respects,  the  consolidated  financial  position  of SOS
     Staffing  Services,  Inc.  and  subsidiaries  as of  December  28, 1997 and
     December 29, 1996, and the results of their operations and their cash flows
     for each of the three fiscal years in the period ended December 28, 1997 in
     conformity with generally accepted accounting principles.


     /s/Arthur Andersen LLP
     ARTHUR ANDERSEN LLP

     Salt Lake City, Utah
     January 30, 1998



                                       32
<PAGE>


Corporate Information
---------------------

Shareholder inquiries should be directed to:
Investor Relations
SOS Staffing Services, Inc.
1415 South Main Street
Salt Lake City, Utah  84115
Telephone:  (801) 484-4400
www.sosstaffing.com
e-mail: webmaster@sosstaffing.com

Transfer Agent and Registrar
----------------------------

Zions First National Bank, N.A.
Stock Transfer Services
1 South Main Street
Salt Lake City, Utah  84101
Telephone:  (801) 524-4812

Independent Accountants
-----------------------

Arthur Andersen LLP
36 South State Street
Suite 1260
Salt Lake City, Utah  84111
Telephone:  (801) 533-0820

Investor Relations
------------------

Jordan Richard Assoc.
350 South 400 East
Suite 206
Salt Lake City, Utah 84111
Telephone: (801) 595-8611

Stock Listing
-------------

SOS Staffing  Services,  Inc.'s  common  stock is traded on the Nasdaq  National
Market tier of The Nasdaq Stock Market under the Symbol: "SOSS". The stock table
abbreviation is "SOS Stffg".

Form 10-K
---------

Copies of the Company's annual report to the Securities and Exchange  Commission
on Form  10-K may be  obtained,  without  charge,  by  contacting  the  Investor
Relations Department at SOS Staffing Services, Inc.

Common Stock Data
-----------------

As of March 2, 1998,  the  Company  had 66  stockholders  of record.  Based upon
shareholder  mailings,  the Company  believes  that there are in excess of 2,000
shareholders of beneficial interest.

The  following  table sets forth the high and low sales prices of the  Company's
common stock, beginning June 28, 1995, for the periods indicated:

                         High         Low
1995
Second Quarter
  (beginning June 28)   7 1/8       6 1/2
Third Quarter           8 1/2       9 3/4
Fourth Quarter          9 3/4       7 5/8

1996
First Quarter          13 1/8       8 3/8
Second Quarter         15          10 7/8
Third Quarter          12 7/8       8 3/4
Fourth Quarter         12 7/8       9 1/4

1997
First Quarter          13 3/8      10
Second Quarter         15 3/4      10 7/8
Third Quarter          19 1/2      14 5/8
Fourth Quarter         24          16 1/2

On March 2, 1998, the closing price of the Company's  common stock,  as reported
on the NASDAQ National Market was 20 13/16.

There have been no cash dividends paid. The Company  currently intends to retain
future  earnings for its  operations  and expansion of its business and does not
anticipate paying any cash dividends in the future.

Annual Meeting
--------------

Shareholders  and other  interested  parties  are  invited  to attend the Annual
Meeting  of  Shareholders  on  Wednesday,  May 13,  1998 at 1:30 p.m.  (Mountain
Daylight Time). The meeting will be held at the DoubleTree Hotel, located at 255
South West Temple (Seminar Theater) in Salt Lake City, Utah.

Directors and Officers
----------------------

JoAnn W. Wagner
Chairman of the Board
Executive Vice President

Howard W. Scott, Jr.
Director
Chief Executive Officer

Peter R. Sollenne
Director
President and Chief Operating Officer

Stanley R. deWaal(1)
Director
President, DeWaal Keeler & Co., P.C.
Salt Lake City, Utah

Samuel C. Freitag(1)
Director
Senior Managing Director
George K. Baum Merchant Banc, L.L.C.
Kansas City, Missouri

R. Thayne Robson(1,2)
Director
Professor of Management and Research &
Professor of Economics, Univ. of Utah
Salt Lake City, Utah

Randolph K. Rolf(2)
Director
Chief Executive Officer, Unitog Company
Kansas City, Missouri

Annette Strauss(2)
Director
Dallas, Texas

Richard J. Tripp
Director
Senior Vice President

Gary B. Crook
Executive Vice President,
Chief Financial Officer & Treasurer

W.B. Collings
Vice President, Controller & Asst. Secretary

John K. Morrison
General Counsel and Secretary

(1) Member, Audit Committee
(2) Member, Compensation Committee