EXHIBIT 13

 SELECTED FINANCIAL AND OPERATING DATA (UNAUDITED)
 (in thousands, except per share and operating data)
<TABLE>
<CAPTION>


                                         1997        1996        1995        1994        1993
                                         ----        ----        ----        ----        ----

<S>                                  <C>         <C>         <C>         <C>         <C>     
PER SHARE (1)
Net income                           $   0.67    $   0.50    $   0.37    $   0.68    $   1.09
Pro forma net income (2)                   --          --          --        0.65        0.68
Book value at year-end                   5.35        4.65        4.13        3.76        1.58

FOR THE YEAR
Revenues                              $ 75,802    $ 67,101    $ 61,413    $ 39,650    $ 23,431
Income from operations                   2,713       2,211       1,750       1,970       1,484
Income before income taxes               2,506       1,950       1,442       2,008       1,471
Net income                               1,381       1,015         749       1,236       1,471
Pro forma net income (2)                   --          --          --        1,180         920
Weighted average shares outstanding (1)  2,059       2,031       2,038       1,822       1,353

AT YEAR-END
Total assets                          $ 20,271    $ 16,935    $ 14,586    $ 14,046    $  4,111
Long-term debt                           3,350       2,508       3,738       3,072        --
Redeemable common stock (3)                --          --          --          --          232
Shareholders' equity                    10,860       9,400       8,222       7,320       2,018
Working capital                          5,163       3,596       4,540       3,649       1,246

OPERATING DATA
Operating margin(4)                        1.8%        1.5%        1.2%        3.0%        3.9%
Offices at period-end                       42          35          33          32           7
Clients served during the period         2,480       2,330       1,890       1,350         500
Total temporary personnel utilized      34,400      32,900      27,500      16,600       8,500
Staffing hours billed                7,618,500   6,699,400   6,315,800   4,013,800   2,515,500
</TABLE>


1    The Company  declared a ten percent stock  dividend in March 1995 and a 135
     to 1 stock  split in December  1993.  Per share data and  weighted  average
     shares outstanding have been adjusted for this stock dividend and split.

2    During the year ended  October 31, 1993 and the quarter  ended  January 31,
     1994,  the Company was treated for income tax purposes as an S Corporation.
     Consequently,  no  income  tax  provision  was made  for 1993 or the  first
     quarter  of 1994.  Pro forma net  income  includes  pro  forma  income  tax
     adjustments.

3    Represents  shares of common stock purchased by two Company  officers prior
     to the  initial  public  offering  with the  proceeds of bank debt that was
     guaranteed  by the Company.  These shares were  repurchased  by the Company
     during the year ended October 31, 1994.

4    Represents  net  income  (pro  forma  net  income  for 1994 and  1993) as a
     percentage of revenues.

Since  January  1994,  the  Company  has  purchased  twelve  temporary  staffing
companies and completed an initial  public  offering of its common stock.  These
events  affect  the  comparability  of the  Company's  finanacial  data for 1994
through  1997.  The Selected  Financial and  Operating  Data are qualified  with
reference to, and should be read in conjunction with, the consolidated financial
statements and "Management's Discussion and Analysis of Financial" Condition and
Results of Operations" contained herein.

<PAGE> 2

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS
Personnel Management, Inc and subsidiaries

The following  discussion and analysis  should be read in  conjunction  with the
Company's Consolidated Financial Statements and accompanying notes.

OVERVIEW

The  Company  provides  staffing  and  human  resource  services  to  businesses
throughout most of Indiana, portions of northern Kentucky,  Atlanta, Georgia and
Jacksonville  and Tampa,  Florida.  The Company's  business  primarily  involves
providing temporary  employees to industrial clients,  although it also provides
clerical,  technical and professional temporary staffing and long-term placement
services.

The  Company has  expanded  its  operations  through  the  acquisition  of other
staffing  companies and opening new offices.  In July 1994, the Company acquired
the assets of the four Porter  Temporary  Companies  with six  offices  based in
Tampa,  Florida.  In September  1994,  the Company  acquired the assets of Human
Resource  Services,  Inc. and Human Resources,  Inc. with 13 offices in northern
Indiana.  On October 18, 1994, the Company acquired the common stock of Southern
Indiana Temporaries, Inc. and Quest Personnel Search, Inc. with eight offices in
southern  Indiana and  northern  Kentucky.  The Company  acquired  the assets of
Temporaries  of Atlanta,  Inc.  with one office in Atlanta,  Georgia in November
1995. In February 1996, the Company acquired the assets of Progressive Personnel
II, Inc. with three offices in Jacksonville, Florida.

During fiscal 1997, the Company opened five new staffing  offices,  and acquired
two staffing  businesses  and a minority  equity  investment  in a  professional
employer  organization.  The  Company  acquired  on March 17, 1997 the assets of
Garner-Scott  Enterprises,  Inc., a staffing  business with two offices based in
Madison,  Indiana and Carrolton,  Kentucky, and on March 24, 1997, the assets of
First In  Temporaries,  Inc.'s one office  staffing  operations  in  Louisville,
Kentucky.  A  minority  equity  investment  was  acquired  on April 25,  1997 in
Adminiserve,  Inc., a  professional  employer  organization  based in Greenwood,
Indiana.  Management  intends  to pursue a  strategy  of  opening  new  staffing
offices,  acquiring  other  staffing  businesses  and  expanding its services to
client companies.

All  temporary  employees  are placed on the  Company's  payroll and the Company
therefore assumes  responsibility for all employee-related  expenses,  including
workers' compensation,  payroll taxes,  unemployment  compensation insurance and
general  payroll  expenses.  The Company  bills its clients for the hourly wages
paid to the temporary employee placed with the client, plus a negotiated markup.
Because the Company pays its  temporary  employees  only for the hours  actually
worked,  these wages are a variable cost that increase or decrease in proportion
to revenues.  The Company also  generates fee income from the placement of staff
in long-term positions with clients.

RESULTS OF OPERATIONS

Revenues
<TABLE>

--------------------------- --------------- ---------------- ---------------- --------------- ----------------
<S>                                   <C>             <C>             <C>            <C>              <C>
(in thousands)                        1997           Change            1996          Change             1995
--------------------------- --------------- ---------------- ---------------- --------------- ----------------
Revenues                           $75,802            13.0%          $67,101            9.3%          $61,413
--------------------------- --------------- ---------------- ---------------- --------------- ----------------
</TABLE>

Revenues are recognized as income at the time staffing  services are provided to
customers.  The  increase  in  revenues  of  $8,701,000  or 13.0% in fiscal 1997
compared to the prior year  period was a result of  internal  growth of 7.3% and
revenues from acquired companies. Staffing services volume, as measured by hours
billed,  increased  13.7% while prices  decreased  0.7%.  Revenue  growth in the
Company's Indiana and northern Kentucky operations was 11.5% while revenues grew
17.3% in its southeastern U.S. operations. Staffing services to light industrial
customers  accounted for 85% of total  revenues in the current fiscal year while
clerical  staffing  services and  placement  fees  accounted  for the  remaining
portion of revenues.

The increase in revenues of  $5,688,000  or 9.3% in fiscal 1996  compared to the
prior year period was due entirely to revenues from the  Company's  southeastern
U.S.  operations,  which  accounted  for  approximately  26.0%  of  consolidated
revenues  for the year.  As noted  above,  the Company  acquired  two  temporary
staffing  companies in the  southeastern  U.S. in fiscal 1996 and experienced an
11.9% increase in revenues in its Tampa operations.  Revenues from the Company's
Indiana and  northern  Kentucky  customer  base for fiscal 1996  decreased  4.9%
compared to the previous year as a result of  competitive  pressures and reduced
demand.  This decrease in revenues  occurred in the first two quarters of fiscal
1996,  since  revenues  from the last two quarters of the fiscal year  increased
5.2% compared to the corresponding previous year period.

<PAGE> 3

Gross Margin

<TABLE>
--------------------------- --------------- ---------------- ---------------- --------------- ----------------
<S>                                <C>               <C>             <C>             <C>            <C>
(in thousands)                        1997           Change             1996          Change             1995
--------------------------- --------------- ---------------- ---------------- --------------- ----------------
Gross margin                       $15,077            10.2%          $13,684           12.6%          $12,152
Percentage of revenues               19.9%                             20.4%                            19.8%
--------------------------- --------------- ---------------- ---------------- --------------- ----------------
</TABLE>

Gross  margin is defined by the Company as revenues  less the cost of  providing
services,  which includes hourly wages of temporary employees,  employer payroll
taxes, benefits for temporary employees and workers' compensation costs. Between
fiscal 1996 and 1997 gross margin  improved  $1,393,000 or 10.2%  primarily as a
result of an  increased  volume of  services  to  customers.  Gross  margin as a
percentage  of revenues  decreased  from 20.4% in fiscal 1996 to 19.9% in fiscal
1997 due to a new temporary  employee  benefit program and  competitive  pricing
pressures.  In order to attract and retain  qualified  employees,  a new benefit
program was  introduced in January 1997 that  provided the  Company's  temporary
employees with health, life insurance, vacation and holiday benefits.

Gross  margin  improved  $1,532,000  or 12.6%  between  fiscal  1995  and  1996.
Approximately  $1,125,000 or 73.4% of this  improvement  was due to an increased
volume of  services  provided  to  customers,  while the  remaining  amount  was
attributable  to lower workers  compensation  costs and higher  margin  business
acquired  in  fiscal  1996  from  the  acquisitions  in  Atlanta,  Georgia,  and
Jacksonville,  Florida.  The  lower  workers'  compensation  costs  were  due to
favorable  results from claims  management  practices and safety  programs,  and
favorable overall workers' compensation cost trends.

Operating Expenses
<TABLE>

------------------------------ -------------- -------------- -------------- -------------- --------------
<S>                                     <C>          <C>             <C>           <C>             <C>
(in thousands)                          1997         Change           1996         Change           1995
------------------------------ -------------- -------------- -------------- -------------- --------------
Selling, general and
   administrative                    $11,969           7.6%        $11,126           9.9%        $10,126
Percentage of revenues                 15.8%                         16.6%                         16.5%
Amortization of goodwill                $395          13.8%           $347          25.7%           $276
Percentage of revenues                  0.5%                          0.5%                          0.5%
------------------------------ -------------- -------------- -------------- -------------- --------------
</TABLE>

Selling,  general and  administrative  expenses  increased $843,000 or 7.6% from
fiscal 1996 to 1997 due to $616,000 of expenses from businesses  acquired in the
current fiscal year and $953,000 of expenses  incurred by the Company to achieve
the higher  revenue  volume.  These  expenses were related to expanded sales and
marketing programs, five new branch office start-ups,  six new Vendor-on-Premise
locations, and an overall inflationary increase in expenses. The Company expects
to continue these types of  expenditures  in personnel,  systems and programs to
better  meet its  customers'  needs and to  increase  revenues.  Offsetting  the
increase in selling, general and administrative expenses was a $726,000 decrease
in bad debt expense and  professional  fees as a result of  strengthened  credit
policies and procedures and reduced demand for professional services.

Selling,  general and administrative  expenses increased $1,000,000 or 9.9% from
fiscal  1995 to 1996  due  entirely  to the  expenses  associated  with  the new
businesses  acquired by the Company in 1996.  Expenses for the Indiana and Tampa
operations  decreased  approximately  $536,000  primarily as a result of reduced
compensation  expense  and the  Company's  ongoing  expense  reduction  program.
Offsetting  this decrease in selling,  general and  administrative  expenses was
higher bad debt  expense of  approximately  $421,000  compared to the prior year
period.

Goodwill  represents the unamortized  cost in excess of fair value of net assets
acquired in the purchase of the  previously  mentioned  companies,  and is being
amortized  on a  straight-line  basis over 20 years.  The  increase  in goodwill
amortization  between fiscal years was a result of additional  acquisitions  and
the  amortization  of  payments  of  additional  purchase  price  under  earnout
provisions of prior acquisition agreements.

<PAGE> 4

Other Income (expense)
<TABLE>

--------------------------- --------------- ---------------- ---------------- --------------- ----------------
<S>                                   <C>            <C>               <C>            <C>               <C>
(in thousands)                        1997           Change             1996          Change             1995
--------------------------- --------------- ---------------- ---------------- --------------- ----------------
Other income (expense)              $(207)            20.7%           $(261)           15.3%           $(308)
Percentage of revenues                0.3%                              0.4%                             0.5%
--------------------------- --------------- ---------------- ---------------- --------------- ----------------
</TABLE>

Other income  (expense)  consists  primarily of interest expense net of interest
income.  The $54,000 or 20.7%  improvement in other income (expense) from fiscal
1996 to 1997 was due primarily to lower  borrowing  costs.  Lower overall market
interest  rates and reduced  interest  rate spreads on borrowings as a result of
refinancing the Company's  credit facility in January 1997 reduced the Company's
average borrowing costs from 8.41% in fiscal 1996 to 7.16% in fiscal 1997.

The $47,000 or 15.3%  improvement in other income  (expense) from fiscal 1995 to
1996 was due to increased  interest income on outstanding  notes  receivable and
reduced interest expense from lower interest rates on outstanding borrowings.

Income Tax Expense
<TABLE>

--------------------------- --------------- ---------------- ---------------- --------------- ----------------
<S>                                   <C>            <C>               <C>            <C>               <C>
(in thousands)                        1997           Change             1996          Change             1995
--------------------------- --------------- ---------------- ---------------- --------------- ----------------
Income tax expense                  $1,125            20.3%             $935           34.9%             $693
Percentage of revenue                 1.5%                              1.4%                             1.1%
Effective tax rate                   44.9%                             48.0%                            48.0%
--------------------------- --------------- ---------------- ---------------- --------------- ----------------
</TABLE>

The $190,000 or 20.3%  increase in income tax expense in fiscal 1997 compared to
the prior year period was due to higher income  before  income taxes.  Partially
offsetting  this  increase was a reduction in the  Company's  effective tax rate
from 48.0% in fiscal 1996 to 44.9% in the current  fiscal year due  primarily to
lower state income tax expense.

The increase in income tax expense of $242,000 or 34.9% in fiscal 1996  compared
to the prior year period was due  entirely to  increased  income  before  income
taxes. The effective tax rate in both years remained constant at 48.0%.

Net Income and Income Per Share
<TABLE>

--------------------------- --------------- ---------------- ---------------- --------------- ----------------
<S>                                   <C>            <C>               <C>            <C>               <C>
(in thousands, except per share            1997         Change          1996         Change           1995
   data)
--------------------------------- -------------- -------------- ------------- -------------- --------------
Net income                               $1,381          36.1%        $1,015          35.5%           $749
Percentage of revenue                      1.8%                         1.5%                          1.2%
Net income per share                      $0.67          34.0%         $0.50          35.1%          $0.37
--------------------------------- -------------- -------------- ------------- -------------- --------------
</TABLE>

Factors  contributing  to the changes in net income for fiscal 1996 and 1997 are
discussed in the detail above.

Inflation
The effects of inflation on the Company's operations were not significant during
the periods presented in the financial statements.

Seasonality

The  Company's  revenues and  quarterly  results have  typically  been  seasonal
because of the Company's  concentration  towards staffing the personnel needs of
industrial clients.  Industrial production is typically seasonal due to year-end
inventory reduction goals of many of the Company's manufacturing clients and the
holiday season from Thanksgiving  through New Year's Day. This seasonal downtime
in industrial  operations greatly reduces the needs for the Company's  temporary
personnel  during  winter  months.  As a result,  the Company  historically  has
experienced  its highest  revenues of each fiscal year during its fiscal  fourth
quarter that ends  October 31 and has  experienced  its weakest  revenues in the
first quarter, which ends January 31.

<PAGE> 5
Financial Condition, Liquidity and Capital Resources
<TABLE>

----------------------------------------------------- ---------------- ----------------- -----------------
<CAPTION>
<S>                                                          <C>               <C>              <C>

(in thousands)                                                   1997              1996              1995
----------------------------------------------------- ---------------- ----------------- -----------------
Working capital                                              $  5,163          $  3,596          $  4,540
Notes payable                                                   3,883             3,008             3,855
Cash provided (used) by operating activities                    (438)             2,494               767
Cash used by investing activities                             (1,497)           (1,788)           (1,003)
Cash provided (used) by financing activities                    1,938             (698)               170
----------------------------------------------------- ---------------- ----------------- -----------------
</TABLE>

The  Company's  primary  sources of funds  over the past  three  years were from
operations and borrowings  under its credit  facility.  The Company's  principal
uses of cash were to fund working capital,  capital  expenditures,  acquisitions
(including payments under the earnout provisions of acquisition agreements), and
the repayment of outstanding borrowings.  Temporary employees are generally paid
weekly for their services  while payments from customers are generally  received
within 30 to 45 days from the date of invoice. As new offices are established or
acquired,  or as existing offices expand, there will be increasing  requirements
for cash resources to fund current operations.

Net income and related non-cash  adjustments provided $2,105,000 in fiscal 1997,
while  net  borrowings  on the bank line of credit  provided  $1,375,000.  Other
sources of cash included $69,000 from the exercise of stock options.

Uses of cash in the current  fiscal year were  $2,543,000 for changes in working
capital,  $600,000 for  acquisitions of other staffing  companies,  $406,000 for
payments under the earnout provisions of prior acquisition agreements,  $491,000
for capital expenditures,  and $500,000 for payments on outstanding  borrowings.
The use of cash for changes in working capital was due primarily to a $2,429,000
increase  in  accounts  and note  receivable  as a  result  of the  increase  in
revenues.  The Company's  accounts  receivable days sales  outstanding  slightly
increased to 36.9 days from 35.1 days in the prior fiscal year.

Total  capitalization  at  October  31,  1997  was  $14,743,000,   comprised  of
$3,883,000  of debt and  $10,860,000  of equity.  Debt as a percentage  of total
capitalization increased from 24.2% in fiscal 1996 to 26.3% in fiscal 1997.

On January 21,  1997,  the Company  refinanced  its bank  credit  facility  with
KeyBank,  NA. The refinanced bank credit facility  provides the Company with the
ability  to borrow up to  $11,000,000  for  general  working  capital  purposes,
acquisition  financing,  letters of credit and the  refinancing  of  outstanding
borrowings.  The facility  consists of a two year  $8,500,000  revolving line of
credit and a five-year $2,500,000 term loan. Borrowings under the line of credit
are subject to meeting certain borrowing base requirements. Upon maturity, up to
$4,000,000 of borrowings for acquisition  financing under this line convert to a
five-year term loan. At October 31, 1997, the Company's  availability  under the
line of credit was approximately $5,900,000. The $2,500,000 term loan is payable
in equal  monthly  principal  installments  of $42,000.  The credit  facility is
secured and  collateralized  by account  receivable,  equipment,  cash,  general
intangibles, contract rights, and proceeds thereof. In addition, the Company has
agreed  with the bank  under  the  credit  facility  to  certain  financial  and
non-financial restrictive covenants,  which include, among other things, minimum
levels of tangible net worth,  minimum cash flow coverage ratios,  maximum ratio
of indebtedness to earnings, restrictions on capital expenditures,  restrictions
on   capital   stock   repurchases,   and   restrictions   on  future   mergers,
consolidations, acquisitions or joint ventures. At October 31, 1997, the Company
was in compliance with its covenants.

The Company has issued  irrevocable  letters of credit in the amount of $900,000
on behalf of the Company's workers' compensation insurance carriers to pay third
parties  in  accordance  with state  workers'  compensation  regulations.  These
letters of credit  reduce the amount  available to the Company  under its credit
facility.

The Company  believes that cash provided by operations,  augmented by borrowings
for working capital  purposes under its credit  facility,  will be sufficient to
cover its capital expenditures and working capital needs in fiscal year 1998.

OTHER MATTERS

In 1995, the Financial  Accounting  Standards Board ("FASB") issued SFAS No. 123
"Accounting  for Stock  Based  Compensation",  which  became  effective  for the
Company for the fiscal year ended October 31, 1997. The Company adopted only the
disclosure  provisions  of the  statement.  Adoption of this  statement  did not
materially affect the consolidated results of operations.

In 1997,  the FASB  issued  SFAS No. 128  "Earnings  per Share" and SFAS No. 129
"Disclosure of Information  about Capital  Structure".  Both  statements  become
effective for the Company for the first quarter ended January 31, 1998. Adoption
of  these  statements  will  not  materially   affect  the  disclosures  in  the
consolidated financial statements.

In 1997,  the FASB  issued  SFAS  No.  131  "Disclosures  about  Segments  of an
Enterprise  and Related  Information",  which does not become  effective for the
Company until the fiscal year ended October 31, 1999. Adoption of this statement
will  not  materially  affect  the  disclosures  in the  consolidated  financial
statements.

<PAGE> 6

FORWARD-LOOKING STATEMENTS

From time to time, the Company may publish or otherwise disclose forward-looking
statements  relating  to such  matters  as (a) the  Company's  expectations  for
continued growth of the temporary staffing industry,  (b) the Company's plans to
achieve increased  revenues and earnings through internal growth, the opening of
new  offices,  the  introduction  of new  products  and  programs,  and  expense
reductions,  and (c) the  Company's  plans to expand and  diversify its revenues
through the  acquisition  of other  temporary  staffing  companies.  In order to
comply with the terms of a "safe  harbor"  provided  by the  Private  Securities
Litigation  Reform Act of 1995 that protects the making of such  forward-looking
statements from liability under certain circumstances,  the Company notes that a
variety of factors  could cause the  Company's  actual  results or experience to
differ materially from the anticipated  results or other expectations  described
or implied by these forward-looking statements. The risks and uncertainties that
may affect the operations, performance, development and results of the Company's
business  include the following:  (a) the risk of adverse  changes in the future
level of business  activity of the  Company's  clients and  prospective  clients
caused by geographic or  industry-specific  economic downturns which might cause
such clients and prospective clients to require fewer temporary  employees,  (b)
the potential for adverse  shifts in demand for temporary  employees  nationwide
that might be caused by future  national  economic  downturns,  adverse legal or
regulatory  developments,  or other staffing industry  factors,  (c) the risk of
adverse  changes in the  availability  of qualified  temporary  employees in the
geographic areas in which the Company  operates,  (d) the possible  inability of
the Company to identify,  finance and complete  suitable  acquisitions  of other
staffing companies upon reasonable  acquisition terms and conditions on a timely
basis, and the potential that such  acquisitions  might prove to be unprofitable
due to undisclosed  liabilities,  loss of customers,  management of the acquired
businesses, or other risks generally associated with business acquisitions,  and
(e) other risks  detailed  from time to time in the  Company's  filings with the
Securities and Exchange Commission.


<PAGE> 7

Report of Independent Auditors
Shareholders and Board of Directors
Personnel Management, Inc.



         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Personnel  Management,  Inc. as of October  31,  1997 and 1996,  and the related
consolidated statements of income,  shareholders' equity and cash flows for each
of the three  years in the  period  ended  October  31,  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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Personnel  Management,  Inc. at October 31, 1997 and 1996, and the  consolidated
results of its  operations and its cash flows for each of the three years in the
period ended October 31, 1997, in conformity with generally accepted  accounting
principles.



                                                     /s/ Ernst & Young LLP



Indianapolis, Indiana
December 5, 1997



<PAGE> 8



<TABLE>
<CAPTION>


Consolidated Balance Sheets
(in thousands, except share data)                                                           October 31,
                                                                               --------------------------------------
                                   Assets                                             1997               1996
                                                                                      ----               ----
<S>                                                                            <C>                   <C> 
Current Assets:
     Cash                                                                      $            183      $           180
     Accounts receivable, net of allowance of $153 in 1997 and 1996                      10,005                7,549
     Current portion of notes receivable                                                     72                   99
     Income taxes receivable                                                                 17                   25
     Prepaid expenses                                                                       180                  110
     Deferred tax asset                                                                     515                  434
     Other current assets                                                                    79                   71
                                                                               ----------------        -------------
         Total current assets                                                            11,051                8,468

Property and equipment, net                                                               1,301                1,209

Notes receivable, shareholder                                                               553                  508
Goodwill, net                                                                             7,220                6,636
Other                                                                                       146                  114
                                                                               ----------------        -------------
                                                                                          7,919                7,258
                                                                               ----------------         ------------
                                                                                              
         Total assets                                                          $         20,271      $        16,935
                                                                               ================        =============


                    Liabilities and Shareholders' Equity
Current Liabilities:
     Cash overdraft                                                            $          1,100      $           106
     Accounts payable                                                                       332                  285
     Accrued compensation and benefits                                                    2,537                2,822
     Accrued workers' compensation claims                                                 1,024                  752
     Income taxes payable                                                                   125                  160
     Other current liabilities                                                              237                  247
     Current portion of notes payable                                                       533                  500
                                                                               ----------------        -------------
         Total current liabilities                                                        5,888                4,872

Notes payable, less current portion                                                       3,350                2,508
Deferred tax liability                                                                      173                  155

Commitments and contingencies

Shareholders' equity:
     Preferred stock, without par value, authorized 4,000,000 shares, no
         shares issued or outstanding                                                         -                    -
     Common stock, without par value, authorized 20,000,000 shares, issued
         and outstanding 2,028,918 and 2,020,156 shares in 1997 and 1996,
         respectively                                                                     7,925                7,846
     Retained earnings                                                                    2,935                1,554
                                                                               ----------------        -------------
         Total shareholders' equity                                                      10,860                9,400
                                                                               ----------------        -------------
         Total liabilities and shareholders' equity                            $         20,271      $        16,935
                                                                               ================        =============

See accompanying notes.

</TABLE>

<PAGE> 9

<TABLE>
<CAPTION>


Consolidated Statements of Income
(in thousands, except per share data)                                       Year ended October 31,
                                                          -----------------------------------------------------------
                                                                1997                 1996                 1995
                                                                ----                 ----                 ----

<S>                                                       <C>                  <C>                   <C>            
Revenues                                                  $         75,802     $         67,101      $        61,413

Cost of services                                                    60,725               53,417               49,261
                                                              -------------        -------------        -------------

Gross margin                                                        15,077               13,684               12,152

Operating expenses:
     General and administrative                                     11,562               10,770                9,691
     Selling                                                           407                  356                  435
     Amortization of goodwill                                          395                  347                  276
                                                              -------------        -------------        -------------
                                                                    12,364               11,473               10,402

Income from operations                                               2,713                2,211                1,750

Other income (expense):
     Interest expense                                                (260)                (319)                (341)
     Interest and other income                                          53                   58                   33
                                                              -------------        -------------        -------------
                                                                     (207)                (261)                (308)
                                                              -------------        -------------        -------------

Income before income taxes                                           2,506                1,950                1,442

Income taxes                                                         1,125                  935                  693
                                                              -------------        -------------        -------------

Net income                                                $          1,381     $          1,015      $           749
                                                              =============        =============        =============

Net income per share                                      $           0.67     $           0.50      $          0.37
                                                              =============        =============        =============

Weighted average shares outstanding                                  2,059                2,031                2,038
                                                              =============        =============        =============

See accompanying notes.


</TABLE>

<PAGE> 10


<TABLE>
<CAPTION>

Consolidated Statements of Cash Flows
(in thousands)                                                           Year ended October 31,
                                                     ----------------------------------------------------------------
                                                           1997                   1996                   1995
                                                           ----                   ----                   ----
<S>                                                  <C>                    <C>                    <C> 
Operating activities:
Net income                                           $           1,381      $           1,015      $             749
Adjustments to reconcile net income to net cash
     provided (used) by operating activities:
       Amortization of goodwill                                    395                    347                    276
       Depreciation                                                417                    364                    281
       Deferred income taxes                                      (63)                  (114)                   (13)
       Shareholder loan activity, net                             (35)                   (39)                   (22)
       Loss on disposal of property and equipment
                                                                    10                     14                      -
       Changes in operating assets and
       liabilities, net of purchases of businesses
       and additions to goodwill:
           Accounts and notes receivable                       (2,429)                (1,251)                     23
           Prepaid expenses and other assets                     (103)                    204                  (141)
           Accounts payable                                         47                     55                  (306)
           Accrued liabilities and other payables                 (58)                  1,899                   (80)
                                                         --------------        ---------------        ---------------
Net cash provided (used) by operating activities                 (438)                  2,494                    767

Investing activities:
Purchases of businesses and additions to goodwill              (1,006)                (1,517)                  (583)
Purchases of property and equipment                              (491)                  (271)                  (420)
                                                         --------------        ---------------        ---------------
Net cash used by investing activities                          (1,497)                (1,788)                (1,003)

Financing activities:
Proceeds from the exercise of stock options                         69                    225                      -
Loan to officer, net of repayment                                    -                   (62)                      -
Tax benefit resulting from exercise of stock
     options                                                         -                      -                    153
Net change in bank overdrafts                                      994                   (15)                     16
Payments on notes payable                                        (500)                  (116)                  (779)
Net borrowings (payments) on bank line of credit                 1,375                  (730)                    780
                                                         --------------        ---------------        ---------------
Net cash provided (used) by financing activities                 1,938                  (698)                    170
                                                         --------------        ---------------        ---------------
Increase (decrease) in cash                                          3                      8                   (66)
Cash at beginning of period                                        180                    172                    238
                                                         ==============        ===============        ===============
Cash at end of period                                $             183      $             180      $             172
                                                         ==============        ===============        ===============


See accompanying notes.

</TABLE>


<PAGE> 11


<TABLE>
<CAPTION>

Consolidated Statements of Shareholders' Equity
(in thousands, except share data)                    Common Stock                   Retained
                                            --------------------------------
                                              Shares            Amount              Earnings              Total

<S>                                        <C>              <C>                 <C>                  <C>            
Balance at October 31, 1994                $  1,771,172     $         4,564     $          2,756     $         7,320
     Net income                                       -                   -                  749                 749
     Exercise of stock options                   40,122                   -                    -                   -
     Stock dividend                             179,793               2,966              (2,966)                   -
     Tax benefit resulting from exercise
         of stock options                             -                 153                    -                 153
                                            ------------        ------------       --------------        ------------
Balance at October 31, 1995                   1,991,087               7,683                  539               8,222
                                             
     Net income                                       -                   -                1,015               1,015
     Exercise of stock options                   29,069                 225                    -                 225
     Loan to officer, net of repayment                -                (62)                    -                (62)
                                            ------------        ------------       --------------        ------------
Balance at October 31, 1996                   2,020,156               7,846                1,554               9,400
     Net income                                       -                   -                1,381               1,381
     Exercise of stock options                    8,762                  69                    -                  69
     Reduction in loan to officer                     -                  10                    -                  10
                                            ============        ============       ==============        ============
Balance at October 31, 1997                   2,028,918     $         7,925     $          2,935     $        10,860
                                            ============        ============       ==============        ============


See accompanying notes.

</TABLE>


<PAGE> 12


Notes to the Consolidated Financial Statements
October 31, 1997

1.       Basis of Presentation and Significant Accounting Policies

Personnel  Management,  Inc. was founded in 1986 to provide  temporary  help and
human resource services in areas of industrial,  clerical and technical support.
The Company services customers in Indiana,  Florida,  Georgia and Kentucky.  The
accompanying  financial  statements  include the accounts of the Company and its
wholly owned subsidiaries.  All material  intercompany balances and transactions
have been eliminated in consolidation.  Certain reclassifications have been made
to conform prior years' information to the current year's presentation.


ACCOUNTS RECEIVABLE

Due to the nature of the business,  accounts  receivable  are due primarily from
manufacturing and distribution  companies located in Indiana,  Florida,  Georgia
and Kentucky. Collateral is generally not required.


PROPERTY AND EQUIPMENT

Property and equipment is carried at cost and depreciation is computed using the
straight-line  method over the estimated useful lives of the respective  assets,
ranging from 3 to 7 years.

GOODWILL

Goodwill  consists of the amount of  purchase  price above the fair value of net
assets acquired and is being amortized on a straight-line basis over a period of
20 years. Additional purchase price arising from earnout provisions as stated in
Note 2 is also  allocated  to  goodwill.  Management  periodically  reviews  the
potential impairment of goodwill using expected cash flows in order to determine
its proper  carrying value as of each balance sheet date  presented.  At October
31, 1997 and 1996,  accumulated  amortization  of goodwill  was  $1,040,000  and
$645,000, respectively.

CASH OVERDRAFT

Cash  overdraft  includes  checks drawn on various  disbursement  accounts  that
exceed net book cash balances at each financial  institution.  Such disbursement
accounts are  subsequently  replenished  upon  presentation  of these checks for
payment.

ACCRUED WORKERS' COMPENSATION CLAIMS

The Company is  self-insured  for  certain  workers'  compensation  risks and is
covered by insurance  policies  for certain  other  risks.  The Company  records
liabilities  for  losses  and  premium  adjustments  using  various  case  basis
evaluations.   The  liabilities  for  losses  and  premium  adjustments  include
estimates of future  trends in claim  severity and  frequency  and other factors
that can vary as losses and premium  adjustments are ultimately  settled.  These
estimates  are  continually  reviewed and  adjustments  are reflected in current
operations.  Although it is not  possible  to measure the degree of  variability
inherent in such  estimates,  management  believes  the  recorded  liability  is
adequate.



<PAGE> 13


REVENUE RECOGNITION

Revenues  and the  related  costs  are  recognized  as  temporary  services  are
provided.

PER SHARE DISCLOSURES

Per share amounts have been  calculated  based on the average  common and common
equivalent  shares  outstanding  for the respective  periods.  Stock options and
warrants are considered common stock equivalents.

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 amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates.

Management  has  estimated  that the fair  value of  cash,  accounts  and  notes
receivable, prepaid expenses, other current assets, accounts payable and accrued
liabilities  approximates  the carrying value due to the relatively short period
of time until  expected  realization.  The aggregate fair value of notes payable
approximates  its carrying  amount because of the recent and frequent  repricing
based on market conditions.

ACCOUNTING PRINCIPLES PENDING ADOPTION

In February 1997, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards  ("SFAS") No. 128,  "Earnings per Share (EPS)".
This  statement  simplifies  the  standards  for  computing  earnings  per share
previously found in Accounting Principles Board Opinion ("APB") No. 15 "Earnings
per Share".  The Company will adopt the  Statement in fiscal 1998 as required by
SFAS No.  128.  The  Company  does not expect the  statement  to have a material
impact  on the  earnings  per  share  calculations  given  the  current  capital
structure of the Company.

2.       Acquisitions

The Company acquired the assets of Temporaries of Atlanta,  Inc. on November 13,
1995 for $600,000,  plus 42% of future income before taxes and other adjustments
derived from the areas served by the business through October 31, 2000.

Effective  February 5, 1996,  the  Company  acquired  the assets of  Progressive
Personnel  II, Inc. for  $250,000,  plus 71% of future  income  before taxes and
other adjustments  derived from one significant  customer served by the business
through January 31, 2001.

On March 17, 1997, the Company  acquired the assets of Garner-Scott  Enterprise,
Inc. for $250,000 plus 33.3% of income before income taxes and other adjustments
derived from the areas served by the businesses through February 28, 2002.

The Company  acquired the assets of the  Louisville,  Kentucky  branch office of
First In Temporaries, Inc. on March 24, 1997 for $311,000.



<PAGE> 14


These  acquisitions  were recorded using the purchase method of accounting which
allocates the purchase price to the assets and liabilities acquired,  based upon
the fair value at the time of acquisition.  The Company has recorded  $2,100,000
of goodwill  related to these  acquisitions.  The results of operations of these
acquired  companies have been included in the Company's  consolidated  financial
statements since the respective dates of acquisition.

The impact of these  acquisitions  was not material in relation to the Company's
results of operations. Consequently, pro forma information is not presented.

3.       Property and Equipment

The composition of property and equipment was as follows:
<TABLE>
<CAPTION>


                                                October 31,
                            ----------------------------------------------------
(in thousands)                            1997                   1996
                                          ----                   ----

<S>                                  <C>                     <C>                    
Equipment, furniture and fixtures    $             2,233     $            1,793
Leasehold improvements                               353                    320
Vehicles                                             113                     96
                                     -------------------     ------------------
                                                   2,699                  2,209
Accumulated depreciation                         (1,398)                (1,000)
                                     -------------------     ------------------
  
                                     $            1,301     $            1,209
                                     ===================    ===================

</TABLE>

4. Credit Arrangements The composition of notes payable was as follows:
<TABLE>
<CAPTION>

                                                October 31,
                            ----------------------------------------------------
(in thousands)                            1997                   1996
                                          ----                   ----

<S>                                  <C>                     <C>               
Bank line of credit                  $             1,725     $              350
Bank term loan                                     2,125                  2,500
Note payable - seller                                 33                    158
                                     -------------------    -------------------
                                                   3,883                  3,008
Less current portion:
     Bank term loan                                  500                    375
     Note payable - seller                            33                    125
                                     -------------------     ------------------
                                                     533                    500
                                     -------------------     ------------------

Notes payable beyond one year        $             3,350     $            2,508
                                     ===================     ==================

</TABLE>


<PAGE> 15



The Company's  credit facility  provides the ability to borrow up to $11,000,000
for general  working  capital  purposes,  acquisition  financing  and letters of
credit. The facility consists of a two year $8,500,000  revolving line of credit
and a five year  $2,500,000 term loan.  Borrowings  under the line of credit are
subject to  certain  borrowing  base  requirements.  Interest  is charged on the
outstanding  balance of the line of credit at rates  reflecting the bank's prime
rate or the London  Interbank  Offered Rate (LIBOR) plus a margin of up to 2.75%
depending upon certain financial  ratios.  The Company also pays fees of 1/8% on
the unused portion of the line during the term of this agreement.  The revolving
line of credit terminates on January 31, 1999. Upon termination,  borrowings for
acquisition  financing  under this line  convert  to a five year term  loan.  At
October  31,  1997,  the  Company's  availability  under the line of credit  was
$5,875,000 at an interest rate of LIBOR plus 1.25%.  The term loan is payable in
equal monthly  principal  installments of $42,000  beginning  February 1997. The
term loan matures on January 31, 2002,  and bears  interest at rates  reflecting
the  bank's  prime  rate or LIBOR  plus a margin  of up to 3.0%  depending  upon
certain  financial ratios. At October 31, 1997, the interest rate was LIBOR plus
1.50%.


Amounts due to the bank under the credit facility are secured and collateralized
by the Company's accounts  receivable,  equipment,  cash,  general  intangibles,
contract rights,  and proceeds thereof.  In addition,  the Company is subject to
certain financial and non-financial restrictive covenants,  which include, among
other things,  minimum levels of tangible net worth,  minimum cash flow coverage
ratios,  maximum  ratio of  indebtedness  to earnings,  restrictions  on capital
expenditures,  restrictions  on common stock  repurchases,  and  restrictions on
future mergers, consolidations, acquisitions or joint ventures.

The  sellers  of  entities   previously  acquired  by  the  Company  accepted  a
non-interest  bearing  note in the amount of  $400,000,  payable in twelve equal
quarterly  installments  beginning on March 31, 1995.  The $400,000 note payable
has been discounted at 7.28%.

The Company has issued  irrevocable  letters of credit in the amount of $900,000
on behalf of the Company's workers' compensation insurance carriers to pay third
parties  in  accordance  with state  workers'  compensation  regulations.  These
letters of credit  reduce the amount  available to the Company  under its credit
facility.

Cash paid for interest during 1997, 1996, and 1995 was $260,000,  $328,000,  and
$309,000, respectively.

At October 31, 1997, aggregate future principal payments are as follows:

         During the year ending October 31,
                                           (in thousands)
                  1998                    $             533
                  1999                                2,225
                  2000                                  500
                  2001                                  500
                  2002                                  125
                                          =================
                                          $           3,883
                                          =================


<PAGE> 16


5.       Shareholders' Equity

On April 15, 1997, the Company forgave  $10,000 of the outstanding  loan balance
to an officer of the Company. The remaining loan balance of $52,000 is reflected
as a  deduction  from  common  stock and  interest  is  credited to income as it
accrues. The loan matures in January 1998.

On April 15, 1996,  the Company  extended a loan to an officer of the Company in
the amount of $123,000 for the purpose of paying income taxes in connection with
the  officer's  December 29, 1994  exercise of  non-qualified  stock  options to
purchase  49,486 shares of common stock of the Company.  The loan bears interest
at 8.25% and is secured by 24,670  shares of common  stock of the  Company.  The
loan is reflected  as a deduction  from common stock and interest is credited to
income as it  accrues.  On June 6,  1996,  $61,000 of the loan was repaid by the
officer.

EMPLOYEE STOCK OPTION AND STOCK PURCHASE PLANS

On April 30,  1995,  the Company  adopted the 1994  Directors  Stock Option Plan
which authorizes the grant of stock options to non-employee directors in lieu of
fees. This plan reserves 44,000 shares of common stock for future issuance.

Concurrent  with an  acquisition  in 1994,  the Company  issued an option to the
principal  shareholder of the sellers to buy cumulatively up to 43,757 shares of
common stock at $8.23 per share, subject to certain conditions.  No options have
been exercised as of October 31, 1997.

Effective with the Company's 1994 initial public  offering,  the Company adopted
the 1994  Stock  Option  Plan  which  authorizes  the grant of stock  options to
employees.  This  Plan  reserves  198,000  shares of  common  stock  for  future
issuance. The Plan terminates on December 1, 2003.

At the time of the offering,  the Company also granted  warrants to the managing
underwriter  and its  assignees  to purchase an  aggregate  of 52,416  shares of
common  stock  at an  exercise  price of  $9.27  per  share.  The  warrants  are
exercisable through January 26, 1999.

In February 1993, the Company adopted a Stock Option Plan which provides for the
granting  of stock  options to certain  salaried  employees.  A total of 178,717
shares of common stock have been reserved for issuance  under the Plan.  Options
under the Plan are to be granted at no less than the estimated fair market value
of the underlying shares at the date of the grant (calculated in accordance with
a  formula  set  forth  in the  plan  document).  The  Plan  also  provided  for
replacement  options to be granted at current  market  prices to replace  shares
tendered in lieu of cash to exercise  options.  The Plan  terminates in February
2003.



<PAGE> 17


Information  pertaining  to  employee  and  director  stock  option  plans is as
follows:

<TABLE>
<CAPTION>
                                                      Stock Option Plans
                                      ----------------------------------------------------
                                           1994               1993               1994              Weighted average
                                       Employee Plan      Employee Plan     Directors Plan     exercise price per share

<S>                                    <C>                 <C>              <C>                      <C>        
Outstanding  at October 31, 1994                     -          178,717                 -            $      7.54
Granted                                          7,040           62,252            13,200                  12.44
Exercised                                            -        (105,055)                 -                   7.41
Canceled                                             -         (45,104)                 -                  12.05
                                           ------------    ------------      ------------              ---------
Outstanding  at October 31, 1995                 7,040           90,810            13,200                   9.47
Granted                                        113,000                -            11,825                   7.56
Exercised                                            -         (29,069)                 -                   7.73
Canceled                                             -         (17,148)                 -                  13.73
                                           ------------    ------------      ------------              ---------
Outstanding  at October 31, 1996               120,040           44,593            25,025                   8.09
Granted                                         42,125                -            10,450                  10.09
Exercised                                      (1,000)          (7,762)                 -                   7.83
Canceled                                       (8,000)         (29,069)                 -                   7.92
                                           ============     ===========      ============              =========
Outstanding  at October 31, 1997               153,165            7,762            35,475             $     8.68
                                           ============     ===========      ============              =========

Options exercisable at:
          October 31, 1995                       7,040           90,810                 -             $     9.09
          October 31, 1996                      30,040           44,593             6,600             $     8.43
          October 31, 1997                      61,665            7,762            19,113             $     8.94

</TABLE>

The Company adopted SFAS No. 123,  "Accounting for Stock-Based  Compensation" in
1997 which  establishes a fair value based method of accounting for  stock-based
compensation  plans.  As  permitted  by SFAS No. 123, the Company has elected to
continue to account for employee stock options following APB No. 25, "Accounting
for Stock Issued to Employees"  and related  Interpretations.  Under APB No. 25,
because the exercise  price of the Company's  employee stock options is equal or
greater than the market price of the underlying  stock on the date of grant,  no
compensation  expense  has  been  recognized  in the  1997  and  1996  financial
statements.

The weighted  average fair value of the options  granted during 1997 and 1996 is
estimated at $2.60 and $1.92 per share,  respectively,  on the grant date. These
estimates  were made  using the  Black-Scholes  option  pricing  model  with the
following weighted average assumptions used for valuing option grants: risk-free
interest rate of 6.0%,  expected  dividend yield of zero,  expected lives of 3-5
years,  and expected  volatility of 22.7%.  SFAS No. 123 is  applicable  only to
options  granted  subsequent  to October  31,  1995.  For  purposes of pro forma
disclosure, the estimated fair value of the options is amortized to expense over
the options' vesting periods (1 - 4 years). As a result, the pro forma effect of
options granted will not be fully reflected until 2000. Pro forma information is
as follows:



<PAGE> 18



                                                          Year ended October 31,
       (in thousands, except per share data)               1997        1996
                                                           ----        ----
Net income:
         As reported                                       $1,381      $1,015
         Pro forma                                          1,274         941

Net income per share:
         As reported                                        $0.67       $0.50
         Pro forma                                           0.62        0.46

Options  outstanding  at October 31, 1997 expire from  February  1999 to October
2007. A total of 52,360  shares are reserved for future grants as of October 31,
1997  under  the  option  plans.  The  following  table  summarizes  information
concerning outstanding and exercisable options and warrants at October 31, 1997:

<TABLE>
<CAPTION>

Range of Exercise Prices                                          $5 - 9           $9 - 13             $13 - 17
                                                                  ------           -------             --------

<S>                                                               <C>              <C>                 <C>
Options outstanding:
     Weighted average remaining contractual life                  6.1 years         4.1 years          2.6 years
     Weighted average exercise price                                  $7.68             $9.94             $15.74
     Number                                                         171,344           116,281              4,950

Options exercisable:
     Weighted average exercise price                                  $7.56             $9.78             $15.74
     Number                                                          58,675            77,331              4,950

</TABLE>

6.       Income Taxes


<PAGE> 19


<TABLE>
<CAPTION>

The provision for income taxes is as follows:
                                                                 Year ended October 31,
                                     --------------------------------------------------------------------------------
          (in thousands)                      1997                        1996                         1995
                                              ----                        ----                         ----
<S>     <C>    <C>    <C>    <C>    <C>    <C>
         Current:
              Federal                $                943     $                787      $               424
              State                                   245                      262                      170
                                      --------------------    --------------------     --------------------
                                                    1,188                    1,049                      594

         Deferred:
              Federal                                 (49)                     (87)                      85
              State                                   (14)                     (27)                      14
                                      --------------------     --------------------     --------------------
                                                      (63)                    (114)                      99
                                      ====================     ====================     ====================
                                      $             1,125     $                935      $               693
                                      ====================     ====================     ====================


</TABLE>

<PAGE> 20



The  reconciliation  of the statutory  federal  income tax rate to the Company's
effective tax rate is as follows:

<TABLE>
<CAPTION>

                                                                 Year ended October 31,
                                     --------------------------------------------------------------------------------
                                              1997                        1996                         1995
                                              ----                        ----                         ----

<S>                                             <C>                         <C>                         <C>  
Tax at US statutory rates                       34.0%                       34.0%                       34.0%
State income tax, net of federal
     tax benefit                                 6.1                         8.0                         6.3
Amortization of nondeductible
     goodwill                                    2.5                         3.2                         4.0
Targeted jobs tax credit                        (0.7)                         -                         (2.5)
Other, net                                       3.0                         2.8                         6.2
                                         ====================        ====================        ====================
                                                44.9%                       48.0%                       48.0%
                                         ====================        ====================        ====================

</TABLE>

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between  carrying  amounts of assets and  liabilities  for  financial  reporting
purposes  and the  amounts  used for  income  tax  purposes.  The  deferred  tax
liabilities  relate  primarily to amortization  of goodwill and  depreciation of
property and equipment  over longer  periods for financial  reporting  purposes.
Deferred tax assets relate  primarily to the recording of workers'  compensation
claims and provision for doubtful accounts for financial  reporting  purposes in
advance of tax treatment. Deferred income tax components are as follows:

<TABLE>
<CAPTION>

                                                                           October 31,
                                                               ------------------------------------
                       (in thousands)                               1997                1996
                                                                    ----                ----
<S>                                                            <C>                <C> 
Deferred tax liabilities:
     Tax depreciation in excess of book depreciation           $        92      $        108
     Tax amortization in excess of book amortization                    81                47
                                                               ============     =============
         Noncurrent deferred tax liability                     $       173      $         155
                                                               ============     =============

Deferred tax assets:
     Accrued workers' compensation claims                      $       409      $         303
     Allowance for bad debts                                            61                 62
     Other deductible temporary differences                             45                 69
                                                               ============     =============
         Current deferred tax asset                            $       515      $         434
                                                               ============     =============

</TABLE>

Payments for income taxes during 1997, 1996 and 1995 were $1,220,000,  $993,000,
and $618,000, respectively.

7.       Leases

The Company  leases  vehicles  and office  space under  noncancelable  operating
leases  which  terminate  at various  dates  through  2001.  Rental  expense was
approximately  $725,000,   $628,000  and  $506,000  for  1997,  1996  and  1995,
respectively.

Certain of the office space is leased from an entity  owned by certain  officers
and  directors of the  Company.  Rental  expense  under these  leases,  which is
included in the above  amounts,  aggregated  $123,000,  $123,000 and $106,000 in
1997, 1996 and 1995, respectively.



<PAGE> 21



At October 31, 1997,  aggregate future minimum  noncancelable lease payments are
as follows:

         During the year ending October 31,
                                           (in thousands)
                  1998                    $             753
                  1999                                  554
                  2000                                  248
                  2001                                   46
                                          =================
                                          $           1,601
                                          =================
8.       Notes Receivable, Shareholder

The Company has  unsecured  notes  receivable  from an  officer,  director,  and
shareholder  maturing December 1999 with an outstanding  balance of $553,000 and
$508,000 at October 31, 1997 and 1996,  respectively.  At October 31, 1997 these
notes accrued interest at a rate of 8.75%.

9.       Major Customers

The  Company  derives  a  significant  amount  of  revenue  from  several  major
customers.  In 1997, three customers accounted for 15% of revenues. In 1996, two
customers accounted for 11% of revenues.  In 1995, no one customer accounted for
more than 5% of total revenues.

10.      Commitments and Contingencies

In the ordinary  course of  business,  the Company  may,  from time to time,  be
charged for allegations of discrimination or other employment  related claims by
temporary  employees.  There are no cases of this nature  pending or threatened,
individually  or in the  aggregate,  that  management  believes will result in a
material loss.

In January  1997,  the  Company was named in a lawsuit by an  insurance  carrier
against certain Florida staffing  companies acquired by the Company in 1994. The
Plaintiff  alleges breach of contract and tort causes of action for underpayment
of workers'  compensation  insurance  premiums in the amount of $1,402,000  plus
unspecified  damages. The Company denies the validity of the Plaintiff's claims.
The agreement by which the Company acquired the staffing companies  specifically
disclaims any obligation with regard to undisclosed  liabilities of the acquired
staffing  companies.  Management  regards as  unlikely  that the outcome of this
action  will have a material  adverse  effect on the  financial  position of the
Company.



<PAGE> 22


11.      Quarterly Results of Operations (Unaudited)

The following table presents the quarterly results of operations for each period
presented.

<TABLE>
<CAPTION>

                   Condensed Consolidated Statements of Income
  (in thousands, except per share                                  Three Months ended
               data)
                                       January 31,           April 30,             July 31,            October 31,
                                           1997                 1997                 1997                 1997
                                     -----------------    -----------------    -----------------     ----------------

<S>                                  <C>                  <C>                  <C>                   <C> 

Revenues                             $         16,627     $         17,954     $         19,075      $        22,146

Gross margin                                    3,239                3,641                3,819                4,378

Income from operations                            370                  758                  701                  884

Income before income taxes                        323                  710                  651                  822

Net income                                        168                  369                  381                  463

Net income per share                 $           0.08     $           0.18     $           0.19      $          0.22

</TABLE>

<TABLE>
<CAPTION>


                                                                   Three Months ended
                                       January 31,           April 30,             July 31,            October 31,
                                           1996                 1996                 1996                 1996
                                     -----------------    -----------------    -----------------     ----------------

<S>                                  <C>                  <C>                  <C>                   <C>            
Revenues                             $         14,030     $         16,388     $         17,145      $        19,538

Gross margin                                    2,802                3,407                3,475                4,000

Income from operations                            216                  568                  601                  826

Income before income taxes                        146                  503                  539                  762

Net income                                         82                  282                  252                  399

Net income per share                 $           0.04     $           0.14     $           0.12      $          0.20

</TABLE>



<PAGE> 23
CORPORATE DATA
Personnel Management, Inc. and subsidiaries



Executive Officers and Directors     
Don R. Taylor, Director   
Chief Executive Officer   
Personnel Management, Inc.
                       
Gary F. Hentschel      
President & Chief Operating Officer 
Personnel Management, Inc.       

Robert R. Millard
Vice President of Finance and Administration, 
Secretary and Treasurer
Personnel Management, Inc.

Joseph C. Cook, Jr., Director
President, Cambrian Associates LLC, 
a consulting firm

Max K. DeJonge, Director
President and Chief Executive Officer
O'Neal Steel, Inc., a steel distributor


David L.  Swider,  Director  1,2 
Partner,  Bose McKinney & Evans,
an Indianapolis law firm

Richard L. VonDerHaar, Director 1,2
Senior Vice President of Municipal Finance
David A. Noyes & Company,
an investment banking firm

1. Member of the Compensation Committee
2. Member of the Audit Committee

Independent Auditors 
Ernst & Young LLP
Indianapolis, Indiana

Legal Counsel 
Leagre Chandler & Millard
Bose McKinney and Evans
Indianapolis, Indiana

Form 10-K
PMI's annual report to the SEC is available  without charge upon written request
to Robert R. Millard, Vice President, at our corporate offices.


<PAGE> 24
Registrar and Transfer Agent
National City Bank
Cleveland, Ohio

Common Stock
The Company's common stock trades on the Nasdaq
National Market tier of the Nasdaq Stock Market under
the symbol:  TPMI.  The following are the high and low
id prices by fiscal quarters, as reported by Nasdaq.


                   1997            1996
               -------------- -----------------
Quarter ended   High    Low     High     Low

 Jan. 31         $9.25  $6.75   $ 9.75    $5.25
 April 30        10.00   9.25     8.50     5.75
 July 31          9.75   9.25     9.00     6.25
 Oct. 31         12.50   9.75     8.75     6.00

These bid quotations reflect  interdealer prices, do not include retail markups,
markdowns or commissions,  and do not necessarily represent actual transactions.
The Company's  common stock is held by  approximately  1,000 holders  (including
those whose shares are held in "street name").

The Company has not declared or paid any cash dividends,  and presently does not
intend to do so in the foreseeable future.

Annual Meeting of Shareholders
March 5, 1998
Bank One Center/Tower
3rd Floor, Conference Room A
Indianapolis, Indiana

Investor Relations
Robert R. Millard
Vice President of Finance and Administration
Personnel Management, Inc.
1499 Windhorst Way, Suite 100
Greenwood, Indiana 46143
(317) 888-4400