SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]  Annual  Report  Pursuant  to  Section  13 or  15(d) of the  Securities  and
     Exchange Act of 1934 For the fiscal year ended December 31, 1996

                                       OR

[ ]  Transition  Report  Pursuant to Section 13 or 15(d) of the  Securities  and
     Exchange Act of 1934 For the transition period from _____ to _______

                          Commission file number 1-6081

                              COMFORCE CORPORATION
             (Exact name of registrant as specified in its charter)

        Delaware                                          36-23262248
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)

2001 Marcus Avenue Lake Success, New York                         11042
(Address of principal executive offices)                        (Zip Code)

Registrant's telephone number, including area code: (516) 328-7300

Securities registered pursuant to Section 12(b) of the Act:

                                                       Name of Each Exchange
  Title of Each Class                                  on Which Registered
Common stock, $.01 par value                          American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None.

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  registrant's   knowledge,  in  the  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]

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

State the aggregate  market value of the voting stock held by  nonaffiliates  of
the registrant at March 27, 1997: $76,662,564

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

      Class                                       Outstanding at March 27, 1997
----------------------------                      -----------------------------
Common stock, $.01 par value                                12,819,649

Documents Incorporated by Reference:  The information required under Part III of
Form 10-K will be included in Registrant's  Proxy Statement to be filed with the
Commission on or before April 30, 1997,  which  information is  incorporated  by
reference herein.


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                                     PART I

ITEM 1.  BUSINESS

General

     COMFORCE  Corporation  (the  "Company"  or  "COMFORCE")  is a  provider  of
staffing,  consulting and outsourcing  solutions  focused on the high technology
needs of businesses. The Company provides services to over 725 customers through
a  highly-skilled  labor force that includes  computer  programmers,  engineers,
technicians,   scientists  and  researchers.  The  Company's  customers  include
telecommunication  equipment manufacturers,  telecommunication service providers
(wireline and wireless), computer software and hardware manufacturers, aerospace
and avionics firms,  utilities and national  research  laboratories  such as Los
Alamos National  Laboratory,  Sandia National  Laboratory and Lawrence Livermore
National Laboratory.

     The  Company   serves  its   customers  in  three   principal   sectors  --
telecommunications,  information  technology  and  technical  services  -- which
represent approximately 20%, 25% and 55%, respectively, of current sales. In the
telecommunications  sector,  the Company  provides  staffing  for  wireline  and
wireless  communications  systems  development,   satellite  and  earth  station
deployment,  network  management  and plant  modernization.  In the  information
technology sector, the Company provides staffing for specific projects requiring
highly  specialized  skills such as applications  programming  and  development,
client/server  development,  systems software  architecture and design,  systems
engineering  and systems  integration.  In the technical  services  sector,  the
Company  provides  staffing  for national  laboratory  research in such areas as
environmental   safety,   alternative   energy  source   development  and  laser
technology,  and provides  highly-skilled labor meeting diverse commercial needs
in the  avionics and  aerospace,  architectural,  automotive,  energy and power,
pharmaceutical, marine and petrochemical fields.

     The  Company  was  incorporated  in  Illinois in 1954 and became a Delaware
corporation  through its merger with a Delaware  subsidiary in 1969. The Company
maintains its  headquarters in Lake Success,  NY and has 31 branch offices in 15
states  across the United  States to enable it to meet the needs of  national as
well as local  customers.  The Company employs  approximately  3,900 persons and
maintains a  proprietary  database of over 110,000  prospective  employees  with
expertise in the technical disciplines served by the Company.

Acquisition History

     James L. Paterek,  the Chairman of the Company,  Christopher P. Franco, the
Chief Executive Officer of the Company, and Michael Ferrentino, the President of
the Company,  guided the Company's  entrance into the staffing business with the
October 1995  acquisition by the Company of all of the capital stock of Spectrum
Global  Services,  Inc.  (formerly d/b/a YIELD Global and  subsequently  renamed
COMFORCE Telecom,  Inc.) ("COMFORCE  Telecom").  COMFORCE Telecom, a provider of
technical staffing services  principally to the  telecommunications  sector, had
been  formed in 1987 by Mr.  Paterek  and Mr.  Ferrentino.  In  September  1995,
immediately prior to its entry into the technical staffing business, the Company
discontinued   its   then   existing   jewelry   business   (see   "Discontinued
Operations--History  of  Discontinued  Operations"  in this  Item 1).  Since its
acquisition  of  COMFORCE  Telecom,  the  Company  has  continued  to expand its
presence in the  technical  staffing  industry  through its  acquisition  of six
additional  technical staffing  businesses.  Following is a brief description of
the Company's acquisitions:

     o COMFORCE Telecom: In October 1995, the Company acquired substantially all
of the capital  stock of COMFORCE  Telecom,  a provider  of  technical  staffing
services to the telecommunications sector. The price paid by the Company for the
COMFORCE  Telecom stock and related  acquisition  costs was  approximately  $6.4
million, payable in $5.6 million cash and 500,000 shares of the Company's Common
Stock.

     o  Williams  Communication  Services,  Inc.:  In March  1996,  the  Company
acquired  substantially  all of the assets of Williams  Communication  Services,
Inc. ("Williams"), a regional provider of technical staffing services to the

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telecommunications  sector. The purchase price for the assets of Williams was $2
million in cash, plus a four year contingent  payout based on future earnings of
Williams  payable in cash. The amount of the contingent  payout cannot exceed $2
million,  for a total  purchase  price  not to exceed $4  million.  The  Company
acquired one branch office with the acquisition of Williams.

     o RRA, Inc.,  Project  Staffing  Support Team, Inc. and DataTech  Technical
Services,  Inc.: In May 1996,  the Company  acquired all of the stock of Project
Staffing  Support Team, Inc. and  substantially  all the assets of RRA, Inc. and
DataTech Technical Services, Inc. (collectively,  "RRA") for a purchase price of
$5.1  million,  payable in cash,  plus a three year  contingent  payout based on
future  earnings of RRA  payable in cash.  The amount of the  contingent  payout
cannot exceed $650,000,  for a total purchase price not to exceed $5.75 million.
RRA  provides  specialists  for  supplemental  staffing  assignments  as well as
outsourcing and vendor-on-premises programs, primarily in the technical services
sector. The Company added nine branch offices with the acquisition of RRA.

     o Force Five,  Inc.:  Effective as of July 31, 1996, the Company  purchased
all of the stock of Force Five,  Inc.  ("Force Five") for a purchase price of $2
million,  payable in $1.5 million cash and 27,398 shares of the Company's Common
Stock,  plus a three year  contingent  payout based on future  earnings of Force
Five  payable in cash.  The amount of the  contingent  payout  cannot  exceed $2
million,  for a total  purchase  price  not to  exceed $4  million.  Force  Five
provides  information   technology  consulting  services  to  leading  companies
nationwide.  The  acquisition  of Force  Five  added  one  branch  office to the
Company.

     o AZATAR Computer Systems, Inc.: In November 1996, the Company acquired all
of the  stock of  AZATAR  Computer  Systems,  Inc.  ("AZATAR"),  a  provider  of
information  technology ("IT") services,  for a purchase price of $5.15 million,
payable in $1.03 million cash and 243,211 shares of the Company's  Common Stock,
plus a three year  contingent  payout based on future earnings of AZATAR payable
in stock. The maximum amount of the contingent  payout in any year cannot exceed
$400,000,  which,  if earned in full,  would bring the total  purchase  price to
$6.35 million.  The number of shares to be issued as contingent payouts is based
upon the average  closing  sales  price of the Common  Stock for the 10 business
days immediately preceding December 31st of each earnout year. The Company added
two branch offices with the acquisition of AZATAR.

     o Continental Field Services Corporation and Progressive Telecom,  Inc.: In
November  1996,  the  Company  acquired  substantially  all  of  the  assets  of
Continental Field Services  Corporation and its affiliate,  Progressive Telecom,
Inc. (collectively,  "Continental"), providers of technical staffing services to
the  telecommunications  sector, for a purchase price of $5 million,  payable in
$4.4 million cash and 36,800 shares of the Company's Common Stock,  plus a three
year contingent  payout based on future earnings of Continental  payable in cash
in an aggregate  amount not to exceed $1.02 million,  for a total purchase price
not to exceed  $6.02  million.  The Company  added two branch  offices with this
acquisition.

     o RHO Company  Incorporated:  In February 1997, the Company acquired all of
the stock of RHO Company Incorporated ("RHO") for $14.8 million payable in cash,
plus a  contingent  payout  to be paid over two or three  years  based on future
earnings  of RHO  payable in stock in an  aggregate  amount  not to exceed  $3.3
million.  The maximum amount of the contingent  payout in any year cannot exceed
$1.67 million, which, if earned in full, would bring the total purchase price to
$18.1  million.  The maximum  number of shares  issuable  under the terms of the
contingent payout is 386,249 shares. RHO provides  specialists for its customers
primarily in the technical services and IT sectors. The acquisition of RHO added
nine branch offices.

Strategy

     The  Company's  objective  is to  be  the  leading  provider  of  technical
staffing,  consulting and outsourcing solutions for the high technology needs of
businesses.  The Company  will seek to achieve  its  objective  by pursuing  the
strategy set forth below.  However,  various factors,  including those described
under "Forward Looking Statements" in this Item 1, could cause the Company to be
unable to  continue to pursue such  strategy  or  otherwise  cause it to fail to
realize its objective.
See "Forward Looking Statements" in this Item 1.

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     Focus  on  High  Technology  Markets.  In  the  telecommunications,  IT and
technical service sectors which the Company serves,  dynamic technology needs of
businesses can  effectively  be met through the use of staffing,  consulting and
outsourcing  services.  These services permit a company to access personnel with
experience  in the most current  technologies.  The Company  intends to focus on
servicing high  technology  markets because  management  believes that providing
staffing in the high technology sectors offers greater growth opportunities over
providing staffing in the lower-skilled labor sectors, including a higher growth
in demand for services,  lower turnover rates,  generally  higher profit margins
and more stable  customer and employee  relationships.  In the rapidly  emerging
high  technology  fields  such  as  PCS  network   development  and  information
technology, the Company's employees continually develop new marketable skills by
working on projects that make use of the most advanced technology.  As a result,
these  skills  developed  by  the  Company's  staffing  personnel  while  on  an
assignment  continually expand the Company's ability to service more diverse and
emerging technologies.

     Pursue  Acquisitions  as  Key  Element  of  Growth.  A key  element  of the
Company's  expansion  strategy is to continue  acquiring staffing and consulting
companies  with  profitable  track  records  and  recognized  local or  regional
presence in order to expand the Company's geographic service base, diversify its
capabilities in the high technology  sectors,  strengthen its existing expertise
and  expand  its  proprietary  database  of  highly  skilled  technical  talent.
Management  believes  that such  acquisitions  will  enable the  Company to more
rapidly achieve  significant  economies of scale and maintain greater  financial
resources  which  will  allow it to secure  larger  contracts  and  enhance  its
leverage for negotiating  contracts.  Management believes that its decentralized
management  philosophy  and  operating  strategies  will  make it an  attractive
acquiror to the owners of regional and local staffing businesses.

     Expand Geographic Presence.  The Company will seek to increase revenues and
enhance earnings stability by continuing to expand  geographically in the United
States and internationally. The Company services its customers through a network
of 31 branch  offices  located in 15 states  across  the  United  States and its
corporate  headquarters located in Lake Success,  New York.  Management believes
that  further  increasing  its  geographic  diversity  will better  enable it to
increase its customer base,  weather  regional  economic and business cycles and
provide  an  advantage   when  pursuing   contracts   with  national   accounts,
particularly for customers with a national or international  presence and a wide
variety of staffing needs.

     Develop  Innovative  Staffing  Solutions.  Management  continually seeks to
develop new staffing solutions that provide its customers with maximum value and
flexibility.  By offering innovative and flexible service packages to customers,
management  believes it will be better able to attract new  customers as well as
increase  sales to  existing  customers.  Two  examples of  innovative  staffing
solutions  are  the  Company's   RightSourcing(sm)   and  COMFORCE  Homework(sm)
programs.  Through its  RightSourcing(sm)  program,  the Company  evaluates  the
performance level of a particular department, function or project and recommends
ways to increase  cost-effectiveness  and workforce  efficiency through specific
staffing strategies. The COMFORCE Homework(sm) program, which is currently under
development,   will  allow  the  Company's   highly-skilled   professionals   to
"telecommute,"  thus eliminating  geographic  barriers to meeting its customers'
needs.  The Company  currently  provides  this service to customers on a limited
basis.

     Capitalize on Operational Efficiencies. In the technical staffing industry,
administrative, accounting and other "back office" operations are often provided
on a centralized  basis.  The Company  believes that its management  information
systems  responsible  for these  functions are capable of supporting  additional
levels of business in the future at low incremental  costs. The Company believes
that the administrative  functions of acquired businesses can be integrated into
those  of the  Company  without  proportionally  increasing  overhead  expenses,
resulting in increased profitability, improved operating efficiencies.

Market Opportunities

     In seeking to achieve its  objective  of becoming  the leading  provider of
technical staffing, consulting and outsourcing solutions for the high technology
needs of  businesses,  the  Company  will seek to take  advantage  of the market
opportunities  outlined  below.  However,   various  factors,   including  those
described  under "Forward  Looking  Statements" in this Item 1, could cause such
market  opportunities to cease to be available or otherwise cause the Company to
fail to realize its objective. See "Forward Looking Statements" in this Item 1.

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     The Growing Market for Staffing,  Consulting and Outsourcing Services.  The
staffing services industry, once used predominately as a short-term solution for
peak  production  periods  and to  temporarily  replace  workers  absent  due to
illness,  vacation,  or abrupt  termination,  has evolved  into a permanent  and
significant  component of the  staffing  plans of many  corporations.  Corporate
restructuring,  downsizing,  increased government regulations governing employee
relations,  advances in  technology,  and the desire by many  companies to shift
employee costs from a fixed to a variable  expense have resulted in the use of a
wide range of staffing alternatives by businesses.  In addition,  the reluctance
of  corporations to risk liability upon the discharge of employees has led to an
increase in  companies  using  staffing  services as a means of  evaluating  the
qualifications  of  personnel  before  hiring  them  on a  full-time  basis.  In
addition, entrants into the labor force increasingly look to such assignments as
a way to build experience, make contacts, and get valuable exposure to a variety
of work settings, and as a vehicle to gain full-time employment.

     Organizations   have  also  begun   using   flexible   staffing  to  reduce
administrative  overhead by  strategically  outsourcing  operations that are not
part of their core business functions, such as recruiting, training and benefits
administration.  By utilizing employees from personnel providers, businesses are
able to avoid the  management and  administrative  costs incurred when full-time
personnel are employed. An ancillary benefit of staffing services,  particularly
for smaller  businesses,  is the shifting of certain  employment costs and risks
(e.g.,  workers'  compensation  and  unemployment  insurance)  to the  personnel
provider, which can spread the costs and risks over a larger pool of employees.

     Opportunities  for  Consolidation  in a  Fragmented  Industry.  The Company
believes  that the  staffing  industry  is highly  fragmented  and is  currently
experiencing a trend toward consolidation primarily due to the increasing demand
by large companies for centralized  staffing services and the difficulties faced
by many smaller  staffing  companies in today's staffing  services  market.  The
growth of national and regional  accounts  resulting from the  centralization of
staffing  decisions  by  national  and  regional  companies  has  increased  the
importance  of staffing  companies  being able to offer a wide range of services
over a broad geographic area. In addition,  many smaller staffing  companies are
experiencing  increased  difficulties due to factors such as significant working
capital   requirements,   limited  management   resources  and  an  increasingly
competitive environment.

     Telecommunications  Sector and the Growth of PCS. As  businesses  globalize
and advance technologically,  the demand for telecommunications-related services
has  increased.   The  Company   believes  that  the  recent  enactment  of  the
Telecommunications  Act of 1996, which deregulates  substantial  portions of the
telecommunications  industry,  has been the impetus for the recent and  expected
future growth in the industry.

     The growth of the  telecommunications  industry is being fueled also by the
rising  demand for wireless  telecommunications  services  which have  increased
dramatically since their commercial introduction in 1984. This demand is largely
attributable  to the widespread  availability  and increasing  affordability  of
mobile  telephone,   paging  and  other  emerging  wireless   telecommunications
services.  Technological advances and a regulatory environment more favorable to
competition have also served to stimulate market growth.

     The Company believes that the demand for wireless  telecommunications  will
continue to grow dramatically and that personal  communications services ("PCS")
will  capture a  significant  share of the  wireless  market.  PCS is a wireless
digital system which  translates  telephone calls into computer  language before
transmitting.  Spurred by federal deregulation and the auction of $18 billion of
PCS  licenses in early 1996,  regional and  national  PCS  companies  are making
substantial investments to bring their PCS networks into operation as quickly as
possible.  The Company  believes the  installation of these  networks,  which is
labor-intensive and requires specialized technical personnel, will significantly
increase the demand for staffing and outsourcing services.

     Information  Technology Sector and the Year 2000 Challenge.  The demand for
qualified personnel is increasing significantly in computer-related  disciplines
such as technical  project  support,  software  development  and  documentation,
systems  and  database  management,   and  desktop  publishing.   As  a  result,
information  technology  services is one of the most rapidly  growing sectors of
the staffing services industry.


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     Management  believes that the demand for IT services will continue to grow,
principally as a result of accelerating  technological advances requiring highly
specialized  expertise and the need for enterprise-wide  integration of computer
systems.  The continuing  transition,  particularly by large corporations,  from
legacy systems to computer  networks using  client/server  architecture is a key
factor  contributing  to the  demand  for  technical  staffing  services.  Rapid
technological   change  makes  it  increasingly   difficult  and  expensive  for
businesses  to employ  full-time  technicians  with the leading  edge  expertise
needed to maintain and upgrade advanced and complex computer systems.  Companies
are  increasingly  relying on outsourcing and staffing  services to maintain and
upgrade their systems and to train full-time employees in the use and support of
their systems.

     The  Company  believes  that  the  substantial   increase  in  the  use  of
sophisticated  information technologies has coincided with economic factors that
have led to reductions in corporate  work forces and a return by businesses to a
focus on their core  competencies.  Faced with the challenge of implementing and
operating more complex information systems with substantially  smaller corporate
staffs,  businesses are increasingly using specialty staffing services companies
to  augment  their  information  technology  operations.  At the same  time,  an
increasing  number  of  technical  professionals  are  choosing  to  operate  as
consultants,  motivated  by a desire for more  flexible  work  schedules  and an
opportunity to work with emerging and  challenging  technologies in a variety of
industries  and  work  environments.  Such  consultants  generally  are  able to
maintain  compensation  levels  comparable  to or higher than those of similarly
skilled, full-time employees. These factors have caused IT services to be one of
the fastest growing segments of the specialty staffing services industry.

     With the approach of the Year 2000,  management believes that over the next
several  years  opportunities  in the IT sector will increase as a result of the
need to  correct  the Year  2000  problem.  Virtually  from the  origins  of the
computer,  dates have been  programmed  into computer  applications as six-digit
fields,  with the last two digits  representing  the year.  In many cases  these
fields are encrypted in basic or fundamental  applications,  often in obscure or
obsolete computer languages. As a result, after December 31, 1999, many computer
applications  will lose the  ability  to  distinguish  dates  and will  cease to
function  or  give  erroneous  results  unless  reprogrammed.  Industry  sources
estimate that corporations and government  agencies will spend from $200 to $600
billion to assess and correct this problem. Estimates indicate that up to 90% of
these  projected  costs will be incurred  for  professional  services,  with the
balance  incurred for software  tools. In 1995 only an estimated $50 million was
spent  rectifying  the problem.  However,  the Year 2000  challenge is receiving
increasing  attention.  Many  companies and  organizations  requiring  Year 2000
conversions do not have the internal personnel, resources or expertise that will
be  required  to address  the  problem  and  instead  will rely on the  staffing
industry  to supply  personnel,  including  programmers  with skills in multiple
computer languages or obscure languages that have not been used in many years.

     Technical  Services.  The technical services sector, the traditional market
for staffing  companies  such as the Company,  is a more mature  sector than the
more rapidly emerging  telecommunications  and IT sectors.  However, the Company
believes that this sector has experienced significant growth in recent years due
principally  to the factors that have  contributed to the growth in the staffing
services industry  generally,  including the increasing  prevalence of corporate
restructurings  and  downsizings,  increased  government  regulations  governing
employee relations and the desire by many companies to shift employee costs from
a fixed to a variable expense.

Services

     The Company  provides a wide range of technical  staffing,  consulting  and
outsourcing services.  The Company's extensive proprietary database and national
presence  enable it to draw from a wealth of  resources  to link  highly-trained
telecommunications  and computer  professionals with businesses that need highly
skilled labor. The Company's services are designed to give its customers maximum
flexibility and maximum choice.  The Company's  professionals are available on a
short-term or long-term  basis.  The  Company's  services  permit  businesses to
increase  the  volume  of their  work  without  increasing  fixed  overhead  and
permanent personnel costs.

     The  Company's  employees  provide  services  ranging from basic  equipment
installation   to   sophisticated   engineering   skills  to  customers  in  the
telecommunications  sector,  typically in support of telecommunications  network
expansion  or  modernization  programs.  To  customers  in  the IT  sector,  the
Company's employees provide computer programming


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services  that  include  updating  or  modifying  existing  programs  as well as
developing new programs and integrating new programs with existing systems.  The
Company's   employees  offer  both  manufacturing  and  engineering  support  to
customers  in the  technical  services  sector on research and  development  and
product  design  projects  that  relate to,  inter  alia,  energy  research  and
aerospace design.

     The  Company  offers its  customers  four  staffing  alternatives:  Project
Support, Vendor-on-Premises,  RightSourcing(sm) and Needs Analysis. The staffing
alternatives serve different customer needs,  depending on the nature and length
of the  assignment  and the degree of  management  responsibility  the  customer
wishes to  delegate.  In  addition,  the Company is  currently  developing a new
telecommuting  service,  COMFORCE  Homework(sm),  to offer  its  customers  even
greater flexibility.

     Project Support. Through its Project Support program, the Company contracts
with its customers to provide  staffing for specific  projects  requiring highly
specialized   skills  such  as   applications   programming   and   development,
client/server  development,  systems software  architecture and design,  systems
engineering and systems  integration.  Generally,  project staffing involves the
commitment  of a team of  employees  who  remain at the site  until a project is
completed.  However,  the Company helps its customers complete their development
projects by providing both  short-term and long-term  staffing.  The Company has
the  resources  and  experience  to plan and  manage a project  from  conception
through completion, as well as the ability to enter a project midstream,  assess
its status, develop a plan and successfully complete the project.

     Vendor-on-Premises.  Through its  Vendor-on-Premises  program,  the Company
coordinates  personnel  services by  establishing an on-site office to assist in
the  procurement  and  management  of  the  customer's  workforce.  The  program
facilitates  customer  use of  staffing  personnel  and allows the  customer  to
outsource a portion of its  personnel  responsibility.  The Company  designs and
implements  customized  programs that can include  services such as  specialized
testing, drug screening, selection and monitoring of secondary staffing vendors,
enforcement  of  the  customer's  quality  standards,  and  orientation  of  the
workforce. The program can also provide permanent,  full-time placement services
through traditional staff selection and recruiting services.

     RightSourcing(sm).  Through  the  RightSourcing(sm)  program,  the  Company
evaluates the performance level of a particular department, function, or project
and  recommends  ways to increase  cost-effectiveness  and workforce  efficiency
through specific staffing strategies. The Company then tailors a program to meet
specific staffing needs and established  performance standards.  Through the use
of  RightSourcing(sm)  software,  the customer can access  information  and data
regarding the cost,  management and  productivity  of its contract and permanent
personnel.  The RightSourcing(sm)  program provides the customer with the option
to transfer its workers from its payroll to the Company's payroll.

     Needs Analysis.  Through its Needs Analysis service,  the Company evaluates
the specific objectives and requirements of a project or function and identifies
needed  staff  positions  and  responsibilities.  This  is  accomplished  by the
development  of a work breakdown  structure and other needs analysis  techniques
that define tasks, outputs, and interdependencies,  establish task durations and
milestones,  and identify elements critical to the successful  implementation of
the function or completion of the project.  The resulting  staffing plan defines
an  organizational  structure,  identifies  specific staff  positions,  numbers,
responsibilities,  and  qualifications,  defines  the start and end date of each
position,  and indicates the  employment  category for each position  (permanent
full-time,  temporary  short-term,  or contract).  The staffing requirements can
then be matched  to the  Company's  proprietary  database  of more than  110,000
prospective employees.

     New Telecommuting  Initiative.  The Company's COMFORCE Homework(sm) program
is designed to allow  highly-skilled  professionals  to  telecommute  from their
homes,  eliminating  geographic  barriers in order to provide the most qualified
staff for  specific  customer  requirements.  The  program is also  designed  to
provide  increased  flexibility by allowing  part-time staff to assist more than
one customer  over any given time period and by reducing  overhead  costs to the
customer.  The  Company's  staffing,  consulting  and  outsourcing  services are
particularly  well suited for  telecommuting due to the highly skilled nature of
its employee base.


                                        7

<PAGE>



Customers

     The Company's customers are typically Fortune 500 companies and other large
organizations.  Since January 1, 1996, the Company provided technical  staffing,
consulting   and   outsourcing   solutions  to  over  725  customers   including
telecommunication  equipment manufacturers,  telecommunication service providers
(wireline and wireless), computer software and hardware manufacturers, aerospace
and avionics firms, utilities and national laboratories engaged in such areas as
environmental  safety research and development of alternative energy sources and
laser technology.  The Company believes that its large customer base provides it
with attractive  opportunities  for further  marketing and  cross-selling of its
technical  staffing  solutions  capabilities.  In addition,  the requirements of
these organizations  often provide  opportunities for major projects that extend
for multiple years or generate additional assignments.  Generally, the Company's
contracts  with its  customers  provide  that the  Company  will  have the first
opportunity to supply the personnel  required by that  customer.  Other staffing
companies  not under  contract  with the  customer  are  typically  offered  the
opportunity  to  supply  personnel  only if the  Company  is  unable to meet the
customer's requirements.

     One customer accounted for 19% of the Company's 1996 revenues, but no other
customer accounted for more than 10% of 1996 revenues.  In 1995, three customers
accounted  for 17.3%,  12.6% and 10.1%,  respectively,  of  historical  revenues
during  that year.  Sales to the  Company's  10 largest  customers  account  for
approximately  51% of the Company's  current  revenues,  with sales to Microsoft
Corporation  and The Boeing Company  accounting for  approximately  15% and 13%,
respectively, of the Company's current revenues.

     The  Company  provides  staffing  for  cellular  and  wireless   technology
communications  system  development,  satellite and earth station deployment and
network  management  services  to  customers  engaged in the  telecommunications
industries.  Sales to customers  in the  telecommunications  sector  account for
approximately 20% of the Company's current revenues. Among the customers in this
sector are ALCATEL,  AT&T Wireless Services,  Inc., Lucent  Technologies,  Inc.,
Northern Telecom,  Inc. (NORTEL),  Fujitsu Network Transmission  Systems,  Inc.,
Bell Atlantic  Corporation  and Motorola,  Inc.  Typically,  customers  from the
telecommunications sector obtain the services of the Company on a purchase order
basis and are invoiced weekly.

     Sales to the  Company's  customers  in the  information  technology  sector
represent  approximately  25% of  the  Company's  current  revenues.  The  major
customers in this sector are Microsoft Corporation, Western Digital Corporation,
NEC Technologies, Inc., Oracle Corporation, First Union Bank, Xerox Corporation,
Eastman  Kodak  Company and  Electronic  Data Systems  Corporation.  The Company
expects that revenues  contributed by the IT sector will continue to increase as
a percentage of its total revenues.  IT customers  generally obtain the services
of the Company on a contract and purchase order basis and are typically invoiced
weekly or bi-weekly.

     The customers in the technical services sector are principally quasi-public
organizations,  aerospace,  electronics and  petrochemical  companies and public
utilities.  Sales to technical services customers represent approximately 55% of
the Company's current  revenues.  The major customers in this sector include The
Boeing Company, Cable Systems  International,  Gulfstream Aerospace Corporation,
Honeywell,   Inc.,   Westinghouse   Electric   Corporation,   McDonnell  Douglas
Corporation and National  Department of Energy Research  Laboratories  including
Los Alamos National Laboratory,  Sandia National Laboratory,  Lawrence Livermore
National Laboratory and Battelle Northwest Laboratory.  Typically,  customers in
the technical  services sector obtain the services of the Company on a long-term
contract basis and are invoiced weekly.

Sales and Marketing

     The Company  services its customers  through a network of 31 branch offices
located in 15 states  across the United  States and its  corporate  headquarters
located in Lake Success, New York. The Company's sales and marketing strategy is
focused on expanding its business with existing customers through  cross-selling
and  establishing  relationships  with new  customers.  The strategy  focuses on
national  accounts  that are  primarily  serviced on a local  level  through its
branch locations.


                                        8

<PAGE>


     These  accounts,  as well as local  accounts  serviced by the Company,  are
targeted by account  managers at the branch  offices,  permitting the Company to
capitalize on the local  expertise and established  relationships  of its branch
office   employees.   Such  accounts  are  solicited   through   personal  sales
presentations,  telephone  marketing,  direct mail solicitation,  referrals from
customers,  and  advertising in a variety of local and national media  including
the Yellow Pages,  magazines,  newspapers,  trade  publications  and through the
Company's  home page on the World Wide Web.  The Company  also  sponsors  public
relations  activities  designed to enhance public recognition of the Company and
its services. Local employees are encouraged to be active in civic organizations
and  industry  trade  groups  to  facilitate  the  development  of new  customer
relationships.

     The Company's  international and national sales and marketing effort is and
will continue to be coordinated by management at the corporate  level,  enabling
the Company to develop a  consistent,  focused  strategy to pursue  national and
international  account  opportunities.  This  strategy  allows  the  Company  to
capitalize on the desire of national and international  customers to work with a
limited number of preferred vendors for their staffing  requirements.  As larger
customers consolidate their purchasing of staffing services, management believes
that the  Company's  ability  to provide a full range of  services  to  national
accounts will be a competitive advantage.

     In  certain  markets,  the  Company  intends  to  cross-sell   professional
services.  The Company has established long-term  relationships with many of its
customers.  Most of these  customers are currently  serviced by the Company in a
single  sector in which they operate.  The Company  believes that the access and
goodwill from these existing customer  relationships provide it with significant
advantages in marketing services to these customers in other sectors.

     In order to maximize  its  marketing  effectiveness,  the Company  provides
motivational  training  to  empower  its  employees  and  instill  a  proactive,
solution-based  approach to problem  solving.  In addition,  the Company  offers
additional  compensation,  in the form of cash and stock options,  to certain of
its employees as incentive to maximize their sales efforts.

Recruiting of Billable Employees

     The  Company's  success is dependent  upon its ability to  effectively  and
efficiently   match  skilled   technical   personnel   with  specific   customer
assignments.  As a result of  continuous  recruiting  efforts,  the  Company has
established an extensive  national resume  database of over 110,000  prospective
employees with expertise in the technical disciplines served by the Company. The
Company  continuously  updates its  proprietary  database to reflect  changes in
technical  personnel skill levels and  availability.  Upon receipt of assignment
specifications, the Company searches the database to identify suitable technical
personnel. Once technical skills are matched to the specifications,  the Company
considers other selection  criteria such as interpersonal  skills,  availability
and geographic preferences to ensure there is a proper fit between personnel and
the  assignment  being  staffed.  The Company's  resume  database,  which may be
accessed by appropriate  personnel  throughout the Company, can be searched by a
number of different criteria, including specific skills or qualifications.

     To identify qualified personnel for inclusion in its proprietary  database,
the Company  solicits  referrals  from its existing  personnel and customers and
places advertisements in local newspapers,  trade magazines and on the Company's
home page on the World  Wide  Web.  As  competition  for the  limited  number of
qualified  technical  personnel  with certain  "niche" skills  intensifies,  the
Company  intends to  enhance  its  recruiting  practices  to  attract  technical
personnel in areas of high demand.

     The Company  believes it has a  competitive  advantage  in  attracting  and
retaining  technical  personnel  as it  provides  assignments  that  make use of
advanced technology and offer the employees the opportunity to obtain additional
experience that can enhance their skills and overall marketability. In addition,
in certain instances the Company provides its billable employees the opportunity
to  participate  in a stock option  purchase  plan of the  Company.  The Company
believes this plan distinguishes the Company from most of its competitors.


                                        9

<PAGE>



     The Company also offers flexible schedules,  better-than-competitive  wages
and,  depending on the contract or  assignment,  paid  holidays,  vacation,  and
certain benefit plan  opportunities  to attract and retain  qualified  technical
personnel.  In addition,  the Company offers its billable employees a wide range
of choices for custom  designing a benefit  package  specific to each employee's
needs and an opportunity  for immediate  participation  in the Company's  401(k)
savings plan. The Company also offers health insurance  benefits to its billable
employees  at their  cost  through a  national  trade  association  to which the
Company belongs.

Payroll/Billing/Accounting

     The Company  believes that its management  information  ("MIS") systems are
instrumental to the success of its operations and are technologically  advanced.
Its invoice  customization and electronic billing features enable the Company to
expedite  its billing and  collection  functions  and to meet  payroll in a more
timely and  efficient  manner.  The  Company's  MIS systems  also  retain  coded
information   regarding  employment   candidates'   qualifications  and  skills,
providing the Company with a  competitive  advantage in matching such skills and
qualifications with customer needs.

     The  Company  seeks to increase  its  profitability  by adding  offices and
employees without  proportionately  increasing  overhead  expenses.  The Company
believes  that its MIS systems are well suited to  facilitate  that goal in that
the administrative  functions of the acquired  businesses can be integrated into
those of the Company at low  incremental  costs,  allowing the Company to spread
its fixed costs over a larger revenue base.

Competition

     The  specialty   staffing   services   industry  is  very  competitive  and
fragmented.  There are relatively  limited barriers to entry and new competitors
frequently  enter the  market.  The  Company's  competitors  vary  depending  on
geographic  region and the nature of the service(s) being provided.  The Company
faces  substantial  competition from both larger firms possessing  substantially
greater  financial,  technical  and  marketing  resources  than the  Company and
smaller,  regional  firms  with a  strong  presence  in their  respective  local
markets.  Large national firms that offer specialty  staffing  services  include
AccuStaff  Incorporated,   Corestaff,  Inc.,  Butler  International,  Inc.,  CDI
Corporation   and  TAD   Technical   Services.   Local   firms   are   typically
operator-owned,   and  each  market   generally  has  one  or  more  significant
competitors.  The Company believes that as it grows and expands  geographically,
it may compete with additional national, regional and local service providers.

     Management  believes that the availability  and quality of candidates,  the
effective  monitoring of job  performance,  scope of geographic  service and the
price of service are the principal elements of competition.  The availability of
quality  technical  staffing  personnel  is an  especially  important  facet  of
competition.  In  order to  attract  staffing  candidates,  the  Company  places
emphasis  upon  its  ability  to  provide  permanent  placement   opportunities,
competitive  compensation,   quality  and  varied  assignments,  and  scheduling
flexibility. The Company believes its ability to compete also depends in part on
a number of competitive  factors  outside its control,  including the ability of
its competitors to hire,  retain and motivate  skilled  technical and management
personnel and the extent of its competitors'  responsiveness  to customer needs.
Additionally, in certain markets the Company has experienced significant pricing
pressure from some of its competitors. Although the Company believes it competes
favorably with respect to these factors, it expects competition to increase, and
there can be no assurance that the Company will remain competitive.

Employees

     The Company currently  employs  approximately 200 full-time staff employees
and has  approximately  3,700 billable  employees on assignment.  In addition to
employees on assignment,  the Company  maintains a proprietary  database of over
110,000 prospective employees with expertise in the technical disciplines served
by the Company.  Billable  employees are employed by the Company on an as-needed
basis  dependent  on  customer  demand and are paid only for time they  actually
work.  Non-billable  administrative  personnel  provide  management,  sales  and
marketing and other services in support of the Company's staffing services.


                                       10

<PAGE>


     For its  non-billable  employees,  the Company offers a package of benefits
which it believes to be  competitive,  including  vacation and holiday pay and a
401(k) plan.  All  employees  are covered by workers'  compensation  and general
liability  insurance.  The Company is  responsible  for and pays the  employer's
share of Social  Security taxes (FICA),  federal and state  unemployment  taxes,
workers' compensation  insurance and other costs for all employees.  The Company
also offers its billable  employees the benefits  described under "Recruiting of
Billable Employees" in this Item 1.

Intellectual Property

     The Company has  applications  pending with the Patent and Trademark Office
for federal  registration of the service marks "COMFORCE" and  RightSourcing for
job  placement  services for staffing  personnel  and  permanent  employees  and
telecommunications  and  computer  consultation  services  and the service  mark
COMFORCE  Homework  for intent to use for job  placement  services  for  placing
personnel from traditional work environments into a home environment.

Regulations

     Staffing  services  firms  are  generally  subject  to one or  more  of the
following   types   of   government   regulation:   (i)   registration   of  the
employer/employees;  (ii) licensing,  record keeping and recording requirements;
and (iii) substantive  limitations on its operations.  Staffing services are the
legal  employers of their  workers.  Therefore,  the Company is governed by laws
regulating  the  employer/employee  relationship,  such  as tax  withholding  or
reporting,  social  security  or  retirement,  antidiscrimination  and  workers'
compensation.

Forward Looking Statements

     The statements under "Strategy" and "Market  Opportunities"  in this Item 1
and  elsewhere  in this  Report that  suggest  that the  Company  will  increase
revenues and become  profitable,  achieve  significant  growth through strategic
acquisitions or other means, realize operating efficiencies, and like statements
as to the Company's  objectives  and  management's  beliefs are forward  looking
statements.  The Company's  actual  results could differ  materially  from those
projected  or  suggested in any  forward-looking  statement.  Factors that could
cause or contribute  to such  differences  include,  but are not limited to, the
following important factors:

     The Company's  technical  staffing business has been developed  principally
through the acquisition of established  technical  staffing  businesses,  all of
which have been acquired  since October  1995.  The Company's  officers have had
limited  experience in managing companies as large and as rapidly growing as the
Company.  The  Company's  strategy of continuing  its growth and expansion  will
place additional  demands upon the Company's current management and will require
additional  information systems and management,  operational and other financial
resources. The ability of the Company to achieve growth through acquisition will
depend  on a  number  of  factors,  including  the  availability  of  attractive
acquisition  opportunities,   the  availability  of  funds  needed  to  complete
acquisitions,  the availability of working capital needed to fund the operations
of acquired  businesses  and the effect of existing and emerging  competition on
operations.  Acquisitions also involve special risks, including risks associated
with  unanticipated  liabilities  and  contingencies,  diversion  of  management
attention and possible  adverse  effects on earnings  resulting  from  increased
goodwill  amortization,  increased  interest  costs,  the issuance of additional
securities and difficulties related to the integration of the acquired business.

     Since the fourth  quarter of 1995,  the Company has funded its  strategy of
growth  through   acquisitions   principally  through  private  debt  or  equity
financing,  including  its sale of $25.2  million of  convertible  debentures in
February and March 1997. In March 1997, a portion of these proceeds were used to
retire its $10.0 million credit facility (the "Chase Credit  Facility") with The
Chase  Manhattan Bank  ("Chase").  The Company is presently  seeking to obtain a
credit  facility  providing for term loan and revolving  credit  availability of
from $50 million to $75 million to fund additional  acquisitions  and to finance
working  capital needs.  In this  connection,  the Company can give no assurance
that such a credit facility will be available or, if available,  that it will be
available  on terms  acceptable  to the Company.  A lack of available  funds may
require the Company to delay,  scale back or eliminate all or some of its market
development and acquisition projects

                                       11

<PAGE>


and could have a material  adverse effect on the Company's  business,  financial
condition and results of operations.  See  "Liquidity and Capital  Resources" in
Item 7.

     The staffing services  industry is highly  competitive and has low barriers
to entry. Heightened competition for customers could result in the Company being
unable to maintain its current fee scales,  thus impacting margins. As is common
in the staffing industry,  the Company's  engagements to provide services to its
customers are  generally  non-exclusive,  of a short-term  nature and subject to
termination by the customer with little or no notice.  The loss of or a material
reduction in the revenues from any of the Company's  significant customers could
have an adverse  effect on the Company's  business,  results of  operations  and
financial  condition.  Furthermore,  heightened  competition for personnel could
result in the  Company  being  unable to fulfill its  customers'  needs or being
required to bear higher  personnel costs,  which may not be recoverable  through
its fees to customers. Competition is intense for qualified personnel in certain
areas in which personnel shortages exist, such as in the information  technology
and  telecommunications  sectors and in some  technical  specialties,  and could
occur in other sectors or specialities in the future.  The Company  competes for
such individuals with other providers of technical  staffing  services,  systems
integrators,  providers of outsourcing  services,  computer systems consultants,
customers and personnel agencies.

     Demand for staffing services is significantly affected by the general level
of economic  activity in the country.  Companies use staffing services to manage
personnel costs and changes in staffing needs due to business fluctuations. When
economic activity  increases,  employees from staffing companies are often added
before full-time employees are hired. As economic activity slows, many companies
reduce their usage of  employees  from  staffing  companies  before  undertaking
layoffs of their regular employees. In addition, the Company may experience more
competitive   pricing  pressure  during  such  periods  of  economic   downturn.
Therefore,  any  significant  economic  downturn  could have a material  adverse
effect on the Company's business.

Discontinued Operations

History of Discontinued Operations

     From  1985  until  September  1995,  the  Company,  under the name The Lori
Corporation,  was engaged in the business of designing and distributing  fashion
jewelry (referred to as "Lori" as the context may require). Prior thereto, under
the names  American  Photocopy  Equipment  Company  and APECO  Corporation,  the
Company  engaged in various  business  activities,  including the manufacture of
photocopy  machines.  The Company's  current  management was not involved in the
operation of any of these discontinued businesses.

     Due to  continuing  losses in the jewelry  business  and the erosion of the
markets for its products,  in September 1995, Lori adopted a plan to discontinue
the  jewelry  business  and  determined  to seek to enter into  another  line of
business.  In June 1995, Lori  contracted with current  management to direct its
entry into the technical staffing  business.  On October 17, 1995, Lori acquired
all of the capital stock of Spectrum Global Services, Inc. (formerly d/b/a YIELD
Global and  subsequently  renamed  COMFORCE  Telecom,  Inc.).  In  addition,  in
connection  with its new business  direction,  Lori changed its name to COMFORCE
Corporation. At the time of the acquisition, COMFORCE Telecom was one of several
wholly-owned subsidiaries of Spectrum Information Technologies, Inc., a Delaware
corporation  ("Spectrum"),  which had a Chapter 11 petition pending. The sale of
COMFORCE  Telecom,  which  was not a party to the  Chapter  11  proceeding,  was
approved by the  bankruptcy  court in which  Spectrum's  bankruptcy was pending.
Spectrum had acquired COMFORCE Telecom in 1993.

     In conjunction with the COMFORCE Telecom acquisition, the Company and ARTRA
GROUP Incorporated,  then the Company's majority stockholder ("ARTRA"),  entered
into  an  Assumption   Agreement  as  of  October  17,  1995  (the   "Assumption
Agreement").  Under the Assumption Agreement,  ARTRA agreed to pay and discharge
substantially  all of the  then  existing  liabilities  and  obligations  of the
Company,  including  indebtedness,  corporate  guarantees,  accounts payable and
environmental  liabilities.  ARTRA also agreed to assume  responsibility for all
liabilities of the jewelry business from and after October 17, 1995, and applied
the proceeds of the sale thereof to pay creditors. On April 12, 1996, ARTRA sold
the business and certain of the assets of the Company's Lawrence Jewelry Company
subsidiary

                                       12

<PAGE>


("Lawrence") for a selling price of $252,000 plus certain proceeds  subsequently
realized from the sale of existing inventory, which proceeds were applied to pay
creditors of Lawrence or  deposited in an escrow  account to be applied for such
purpose.  ARTRA has advised the Company that none of the proceeds  from the sale
would remain following the payment of such creditors.

Environmental Matters

     Prior to its entry into the jewelry  business in 1985, the Company operated
in excess of 20  manufacturing  facilities  for the  production  of, inter alia,
photocopy machines,  photographic  chemical and paper coating.  These operations
were sold or  discontinued  in the late 1970s and early 1980s.  Certain of these
facilities  may have used  and/or  generated  hazardous  materials  and may have
disposed of the hazardous substances,  particularly before the enactment of laws
governing the safe disposal of hazardous substances, at an indeterminable number
of sites.  Although the controlling  stockholders and current  management had no
involvement in such prior manufacturing operations, the Company could be held to
be responsible for clean-up costs if any hazardous  substances were deposited at
these manufacturing  sites, or at off-site waste disposal  locations,  under the
Comprehensive  Environmental  Response,  Compensation  and Liability Act of 1980
("CERCLA"),  or under other Federal or state environmental laws now or hereafter
enacted. However, except for the Gary, Indiana site described below, the Company
has not been notified by the Federal Environmental Protection Agency (the "EPA")
that it is a  potentially  responsible  party for,  nor is the Company  aware of
having disposed of hazardous substances at, any site.

     In  December  1994,  the  Company  was  notified  by the  EPA  that it is a
potentially  responsible  party  under  CERCLA  for the  disposal  of  hazardous
substances  at a site in Gary,  Indiana.  The alleged  disposal  occurred in the
mid-1970s at a time when the Company  conducted  operations as APECO Corporation
(see "Discontinued  Operations--History of Discontinued Operations" in this Item
1). In this  connection,  in  December  1994,  the  Company  was named as one of
approximately  80  defendants  in a case brought in the United  States  District
Court  for  the  Northern  District  of  Indiana  by a group  of 14  potentially
responsible  parties who agreed in a consent  order entered into with the EPA to
clean-up this site. The  plaintiffs  have estimated the cost of cleaning up this
site to be $45 million, and have offered to settle the case with the Company for
$991,445.  This amount represents the plaintiffs'  estimate of the Company's pro
rata share of the clean-up costs. At the direction of ARTRA, which, as described
below,  is  contractually   obligated  to  the  Company  for  any  environmental
liabilities,  the Company declined to accept this settlement proposal, which was
subsequently withdrawn.

     The  evidence  produced  by the  plaintiffs  to  date  is the  testamentary
evidence of four former  employees of a waste  disposal  company that  deposited
wastes at the Gary,  Indiana site  identifying the Company as a customer of such
disposal company,  and entries in such disposal  company's  bookkeeping  ledgers
showing invoices to the Company.  The Company,  however,  has neither discovered
any records which indicate, nor located any current or former employees who have
advised, that the Company deposited hazardous substances at the site. Management
and its counsel  cannot state whether a negative  outcome is probable  regarding
the Company's potential liability at this site.

     Under the terms of the  Assumption  Agreement  and a  subsequent  agreement
entered  into  between  ARTRA  and the  Company,  ARTRA  has  agreed  to pay and
discharge  substantially  all  of the  Company's  pre-existing  liabilities  and
obligations,  including  environmental  liabilities  at any  sites at which  the
Company  allegedly  operated  facilities  or disposed of  hazardous  substances,
whether or not the Company is currently identified as a potentially  responsible
party therefor.  Consequently,  the Company is entitled to full  indemnification
from ARTRA for any environmental  liabilities  associated with the Gary, Indiana
site.  In addition,  ARTRA has  deposited  50,000  shares of the Common Stock in
escrow as additional  collateral to satisfy any judgment  adverse to the Company
or to pay any agreed upon  settlement  amount with respect to the Gary,  Indiana
site.  Proceeds  from  the  sale of the  shares  held  in  escrow  might  not be
sufficient to satisfy any such judgment or pay any such settlement amount. While
ARTRA is obligated to indemnify the Company for any  environmental  liabilities,
no assurance can be given that ARTRA will be  financially  capable of satisfying
its  obligations  with  respect to any  liability in  connection  with the Gary,
Indiana site or any other environmental  liabilities.  ARTRA has advised that it
intends to vigorously defend this case.

ITEM 2.  PROPERTIES

     The Company owns no real estate.  It leases its corporate  headquarters  as
well as its 30 branch offices. These leases are for office space ranging in size
from approximately 500 square feet to approximately  21,000 square feet and have
remaining  lease  terms of from less than one year to four  years.  The  Company
believes that its facilities are adequate for

                                       13

<PAGE>


its present and reasonably anticipated future business  requirements,  except to
the extent of future  acquisitions of existing  businesses.  In the case of such
acquisitions,  the Company  expects to assume the leases of businesses  acquired
or, to the extent possible,  consolidate such operations with existing  offices.
The Company does not anticipate  difficulty locating additional  facilities,  if
needed.

ITEM 3. LEGAL PROCEEDINGS

     In  January  1997,  Austin A.  Iodice,  who served as the  Company's  Chief
Executive Officer,  President and Vice Chairman while the Company was engaged in
the jewelry  business,  and Anthony  Giglio,  who performed the functions of the
Company's Chief  Operating  Officer while the Company was engaged in the jewelry
business,  filed separate suits against the Company in the Connecticut  Superior
Court alleging that the Company had breached the terms of management  agreements
entered  into with them by failing to honor  options to  purchase  Common  Stock
awarded to them in connection with the management of the jewelry  business under
the  terms of such  management  agreements  and the  Company's  Long-Term  Stock
Investment  Plan.  The suits  allege  that the  plaintiffs  are  entitled  to an
unspecified amount of damages.  The Company believes that the option to purchase
370,419  shares  granted to Mr.  Iodice  (through  Nitsua,  Ltd., a  corporation
wholly-owned  by him) and the option to purchase  185,210  shares granted to Mr.
Giglio,  each  having an  exercise  price of $1.125 per share,  expired in 1996,
three  months  after  Messrs.  Giglio and Iodice  ceased to be  employed  by the
Company.  Messrs.  Giglio  and  Iodice  maintain  that they were  agents and not
employees  of the Company and that the options  continue to be  exercisable.  In
March 1997,  the  Company  filed  motions to dismiss  each of these  suits.  The
Company intends to vigorously defend these suits.

     In a case filed in U.S.  District  Court,  Central  District of California,
against RHO and Technical Staff Associates,  Inc. ("TSA"), which was acquired by
RHO in 1992,  TSA's  former  insurance  carrier has alleged that TSA and RHO are
obligated to repay to it approximately  $1.6 million that it was required to pay
in  connection  with an injury and death that  occurred  in  November  1992 to a
temporary  employee  of TSA.  The action has been  referred  to RHO's  insurance
carrier,  which is  defending  it with a  reservation  of  rights.  RHO has been
granted  summary  judgment with respect to all claims made in the action,  which
judgment is the subject of an appeal by the plaintiff.  Management believes that
the case is without substantial merit and intends to vigorously defend it.

     The  Company  is  also  involved  in a  proceeding  described  above  under
"Discontinued Operations--Environmental Matters" in Item 1.

     The  Company  is  a  party  to  routine  contract  and   employment-related
litigation  matters in the  ordinary  course of its  business.  No such  pending
matters, individually or in the aggregate, if adversely determined, are believed
by management to be material to the business, results of operations or financial
condition of the Company.  The Company maintains  general  liability  insurance,
property insurance,  automobile insurance, employee benefit liability insurance,
owner's and contractor's  protective insurance and exporter's foreign operations
insurance  with  coverage  of $1  million  on a per claim  basis and $2  million
aggregate  (with $3 million  umbrella  coverage).  The Company  insures  against
workers'  compensation in amounts required under applicable state law and in the
amount of $500,000 in the case of foreign  workers.  The Company also  maintains
fidelity  insurance  in the  amount of  $25,000  per claim  and  directors'  and
officers'  liability  insurance  in the  amount of $2  million.  The  Company is
presently soliciting quotations to obtain errors and omissions coverage.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         On October 28,  1996,  the annual  meeting of the  stockholders  of the
Company was held, at which the stockholders voted on and approved the following,
which  constitute  all of the  matters  presented  to  the  stockholders  at the
meeting: the election of Richard Barber, Michael Ferrentino,  Keith Goldberg and
Dr.  Glen  Miller  to the  Board  of  Directors  for a term  of  one  year;  the
ratification of the Company's issuance of Common Stock to certain individuals in
consideration  of  their  agreement  to  direct  the  Company's  entry  into the
technical staffing business; the ratification of the Company's entering into the
technical  staffing  business and exiting the jewelry  business and transactions
related thereto;

                                       14

<PAGE>


the approval of an amendment to the Company's  Certificate of  Incorporation  to
increase the number of authorized  shares of the Company's  capital  stock;  the
approval of an  amendment  to the  Company's  Certificate  of  Incorporation  to
eliminate  cumulative  voting;  the approval of an  amendment  of the  Company's
Long-Term  Stock  Investment  Plan; and the  ratification  of the appointment of
Coopers & Lybrand LLP as the Company's  independent certified public accountants
for the fiscal year ending December 31, 1996.

                                       15

<PAGE>


                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

     The Company's Common Stock, $.01 par value, is traded on the American Stock
Exchange  (AMEX:CFS).  The high and low sales  prices for the  Company's  Common
Stock,  as  reported  by the  American  Stock  Exchange  in the  Monthly  Market
Statistics during the past two years, were as follows:

                                                               High         Low
     Prior to Acquisition of COMFORCE Telecom:

    Fiscal Year 1995
             First Quarter ..................................   3-7/8    1-15/16
             Second Quarter .................................   3-1/2    2
             Third Quarter ..................................   4-3/4    1-9/16
             Fourth Quarter (through October 16, 1995) ......   4-3/8    3-1/4

Following Acquisition of COMFORCE Telecom:

             Fourth Quarter (commencing October 17, 1995) ...   9-1/4    3-1/4

    Fiscal Year 1996
             First Quarter ..................................   10-3/8   6
             Second Quarter .................................   34-1/8   9-3/8
             Third Quarter ..................................   28-1/2   15-1/2
             Fourth Quarter .................................   18-3/8   11-1/2

     The last  reported  sale price of the Common  Stock on the  American  Stock
Exchange  on March  27,  1997 was  $8.375.  As of March  27,  1997,  there  were
approximately 5,400 shareholders of record.

     The Company  anticipates  that it will not pay cash dividends on the Common
Stock for the foreseeable future and that it will retain its earnings to finance
future  growth.  The  declaration  and payment of  dividends  by the Company are
subject  to the  discretion  of its  Board  of  Directors  and  compliance  with
applicable law. Any  determination  as to the payment of dividends in the future
will depend upon, among other things, general business conditions, the effect of
such  payment  on the  Company's  financial  condition  and  other  factors  the
Company's  Board of Directors  may in the future  consider  relevant.  Under the
Chase  Credit  Facility,  which  was  repaid  in March  1997,  the  Company  was
prohibited from paying cash dividends on its Common Stock or, subject to limited
exceptions,  its Preferred Stock.  The Company is presently  seeking to obtain a
replacement  credit  facility,  which,  if one becomes  available,  is likely to
impose restrictions on the payment of dividends. No dividends have been declared
or paid on the Common Stock during 1995 or 1996.



                                       16

<PAGE>



ITEM 6. SELECTED FINANCIAL DATA

Selected Historical Financial Information




<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                 ------------------------------------------------------------------------
                                                 1996         1995            1994              1993             1992
                                                 ----         ----            ----              ----             ----
                                                                 (in thousands, except per share data)

<S>                                             <C>              <C>           <C>              <C>             <C>
Revenues (1)                                    $  55,867        $2,387        $      --        $       --      $       --
Stock compensation charge (2)                          --         3,425               --                --              --
Earnings (loss) from continuing operations          1,352       (4,332)          (2,282)           (1,456)           (421)
Loss from discontinued operations (3)                  --      (17,211)         (16,220)             (216)        (34,198)
Earnings (loss) before extraordinary credits        1,352      (21,543)         (18,502)           (1,672)        (34,619)
Extraordinary credits (4)                              --         6,657            8,965            22,057              --
Net earnings (loss)                                 1,352      (14,886)          (9,537)            20,385        (34,619)

Dividends on Preferred Stock                          325            --               --                --              --

Accretive Dividends on Series F
Preferred Stock                                       665

Income available for Common Stockholders              362            --               --                --              --
Earnings (loss) per share:
   Continuing operations                              .03         (.95)            (.72)             (.39)           (.13)
   Discontinued operations                             --        (3.74)           (5.08)             (.06)         (10.86)
   Earnings (loss) before extraordinary               .03        (4.69)           (5.80)             (.45)         (10.99)
    credits
   Extraordinary credits                               --          1.45             2.81              6.03              --
   Net earnings (loss)                                .03        (3.24)           (2.99)              5.58         (10.99)
Total assets (5)                                   43,366         8,536           18,704            40,174          42,818
Long-term debt                                         --            --               --                --           6,105
Receivable from (payable to) ARTRA(6)                  --         1,046            (289)                --        (16,025)
Liabilities assumed by ARTRA (6)                       --         4,240               --                --              --
Liabilities subject to compromise                      --            --               --                --          41,500
Debt subsequently discharged                           --            --            7,105                --              --
Cash dividend                                         228            --               --                --              --
----------
</TABLE>

(1)  Revenues  for the year  ended  December  31,  1995  represent  revenues  of
     COMFORCE  Telecom  from  the date of its  acquisition,  October  17,  1995.
     Revenues  for the year  ended  December  31,  1996  represent  revenues  of
     COMFORCE  Telecom for the entire  year,  revenues  from  Williams  from the
     acquisition date of March 3, 1996 through December 31, 1996,  revenues from
     RRA from the  acquisition  date of May 10, 1996 through  December 31, 1996,
     revenues

                                       17

<PAGE>


     from Force Five from the  effective  date of  acquisition  of July 31, 1996
     through December 31, 1996,  revenues from AZATAR from the effective date of
     acquisition  of November 1, 1996 through  December  31, 1996,  and revenues
     from Continental from the effective date of acquisition of November 8, 1996
     through   December  31,  1996.  The  Company's   jewelry   operations  were
     discontinued  effective as of September  30,  1995.  Accordingly,  selected
     financial  data of the Company's  jewelry  operations for each of the three
     years in the  period  ended  December  31,  1994 has been  reclassified  to
     discontinued operations.

(2)  Represents a non-recurring compensation charge related to the issuance of a
     35% common stock  interest in the Company to certain  individuals to manage
     the Company's entry into the technical staffing services business.

(3)  The loss from discontinued  operations for the year ended December 31, 1995
     includes a charge to operations of $12.9 million to write-off the remaining
     goodwill of the Company's  discontinued  jewelry operations  effective June
     30,  1995 and a  provision  of $1.6  million  for loss on disposal of these
     discontinued operations. The loss from discontinued operations for the year
     ended  December 31, 1994  includes a charge to  operations of $10.8 million
     representing a write-off of goodwill of the Company's former New Dimensions
     subsidiary.  The loss  from  discontinued  operations  for the  year  ended
     December  31,  1992   includes   charges  to  operations  of  $8.7  million
     representing  an  impairment  of  goodwill  at  December  31, 1992 and $8.5
     million  representing   increased  reserves  for  markdown  allowances  and
     inventory valuation.

(4)  The 1995 and 1994 extraordinary  credits represent gains from net discharge
     of indebtedness under terms of the Company's debt settlement agreement with
     its  bank  related  to  the  discontinued  jewelry  operations.   The  1993
     extraordinary credit represents a gain from a net discharge of indebtedness
     due  to  the   reorganization   of  the  Company's  former  New  Dimensions
     subsidiary.  See Note 11 to the Company's consolidated financial statements
     for the year ended December 31, 1996.

(5)  As partial consideration for a debt settlement agreement, in December 1994,
     the  Company's  bank  lender  received  all of the assets of the  Company's
     former New Dimensions subsidiary.

(6)  In conjunction with the COMFORCE Telecom acquisition,  ARTRA,  formerly the
     parent of the  Company,  agreed to assume  substantially  all  pre-existing
     liabilities  of the  Company.  During  1995,  ARTRA  received  $399,000  of
     advances from the Company.  Subsequent  to December 31, 1995,  ARTRA repaid
     the above  advances  and made net  payments  of  $647,000  to reduce  these
     pre-existing liabilities. Such payments have been included in the Company's
     consolidated   financial   statements  at  December  31,  1995  as  amounts
     receivable  from ARTRA and as  additional  paid-in  capital.  To the extent
     ARTRA  makes  subsequent  payments,  they will be  recorded  as  additional
     paid-in capital.  In the fourth quarter of 1995, ARTRA exchanged all of its
     shares of the Company's  Series C Preferred  Stock for 100,000 newly issued
     shares of the Company's Common Stock.  During 1994, ARTRA made net advances
     to the  Company  of  $2.5  million.  Effective  December  29,  1994,  ARTRA
     exchanged  $2.2 million of its notes and advances for  additional  Series C
     Preferred  Stock. In February 1993,  ARTRA  transferred all of its notes to
     the  Company's  capital  account.  See Notes 9, 10 and 11 to the  Company's
     consolidated  financial statements for the year ended December 31, 1996 and
     "Discontinued Operations" in Item 1 of this Report.


                                       18


<PAGE>


Selected Pro Forma Financial Information

     The historical financial information for the Company presented under Item 8
of this  Report  for  December  31,  1995 and 1994  relates  principally  to the
Company's former jewelry operations which were discontinued  September 30, 1995.
This historical financial  information includes limited results of the Company's
technical staffing operations,  all of which, except for COMFORCE Telecom,  were
acquired since January 1, 1996. Consequently, a discussion and comparison of the
Company's  historical  results of operations may not be meaningful.  In order to
provide a discussion of results which may be more meaningful than the historical
discussion,  the Company has (i) presented below unaudited pro forma data of the
Company  for the  years  ended  December  31,  1995 and 1994  assuming  that the
acquisition  of COMFORCE  Telecom  (which was acquired by the Company in October
1995) and related financing and capital  transactions had occurred as of January
1, 1994,  and (ii)  presented  under Item 7 of this Report a comparison  of 1996
historical  results of operations  with 1995 pro forma results,  and of 1995 pro
forma results with 1994 pro forma results.


<TABLE>
<CAPTION>
                                                                     Year Ended December 31, 1995
                                                                       (unaudited in thousands)
                                      ------------------------------------------------------------------------------------------
                                                                  COMFORCE                  Pro Forma
                                          Historical              Telecom (1)               Adjustments               ProForma
                                       --------------          --------------             ------------            --------------
<S>                                     <C>                    <C>                        <C>                      <C>
Revenues                                 $      2,387           $       9,568     (2)                              $      11,955
                                        -------------            ------------                                       ------------
Operating costs and expenses:
   Cost of revenues                             1,818                   7,178                                              8,996
   Stock compensation (5)                       3,425                                                                      3,425
   Spectrum corporate management
      fees (4)                                                          1,140                                              1,140
   Other operating costs and expenses             823                   1,397            $          50     (2)             2,270
                                       --------------          --------------             ------------            --------------
                                                6,066                   9,715                       50                    15,831
                                       --------------          --------------             ------------            --------------
   Operating earnings (loss)                  (3,679)                   (147)                     (50)                   (3,876)
                                       --------------          --------------             ------------            --------------
Interest and other non-operating
   expenses                                     (618)                       7                      410     (3)             (201)
                                       --------------          --------------             ------------            --------------
                                                (618)                       7                      410                     (201)
                                       --------------          --------------             ------------            --------------
Earnings (loss) from continuing
   operations before income taxes             (4,297)                   (140)                                            (4,077)
(Provision) credit for income taxes
                                                 (35)                      21                      360                      (14)
                                        ------------           -------------              ------------             ------------
Loss from continuing operations         $     (4,332)          $        (119)             $        460             $     (4,091)
                                        ============           =============              ============             ============
</TABLE>

                                       19

<PAGE>


<TABLE>
<CAPTION>
                                                                           Year Ended December 31, 1994
                                                                             (unaudited in thousands)
                                             -----------------------------------------------------------------------------------
                                                                        COMFORCE                Pro Forma
                                              Historical               Telecom (1)             Adjustments         Pro Forma
                                             --------------           -------------           --------------       ------------
<S>                                          <C>                      <C>                     <C>                  <C>
Revenues                                                              $       8,245                                $      8,245
                                                                      -------------                                ------------
Operating costs and expenses:
   Cost of revenues                                                           6,417                                       6,417
   Spectrum corporate management
      fees (4)                                                                  803                                         803
   Other operating costs and
      expenses                               $          966                   1,134           $           68 (2)          2,168
                                              --------------           -------------           --------------       ------------
                                                        966                   8,354                       68              9,388
                                              --------------           -------------           --------------       ------------
Operating earnings (loss)                              (966)                   (109)                     (68)            (1,143)
                                              --------------           -------------           --------------       ------------
Interest and other non-operating
   expenses                                          (1,316)                      9                                      (1,307)
                                             --------------           -------------                                ------------
                                                     (1,316)                      9                                      (1,307)
                                             --------------           -------------                                ------------
Loss from continuing operations
   before income taxes                               (2,282)                   (100)                     (68)            (2,450)
Provision for income taxes                                                      (15)                                        (15)
                                             --------------           -------------           --------------       ------------
Loss from continuing operations              $       (2,282)          $        (115)          $          (68)      $     (2,465)
                                             ==============           =============           ==============       ============
</TABLE>

----------

Pro forma adjustments to the unaudited condensed consolidated of operations:

     (1)  The pro forma data presented for COMFORCE Telecom's  operations is for
          the periods prior to its  acquisition  on October 17, 1995, or January
          1, 1995 through October 16, 1995 and January 1, 1994 through  December
          31, 1994, respectively.

     (2)  Amortization of goodwill from the COMFORCE  Telecom  acquisition.  The
          table below reflects where amortization goodwill has been recorded.


                                                              1995          1994
                                                          --------      --------
Historical COMFORCE Telecom ........................      $ 51,000      $   --
Historical Telecom .................................       142,000       175,000
Pro Forma Adjustments ..............................        50,000        68,000
                                                          --------      --------
Adjusted pro forma per financial statements ........      $243,000      $243,000
                                                          ========      ========

     (3)  Reverse  interest  expense on notes and other  liabilities  assumed by
          ARTRA.  The  interest  adjustment  in 1995 was for  interest  on notes
          directly related to the jewelry  operations and were incurred in 1995.
          These liabilities were not outstanding during 1994 and, accordingly, a
          similar interest adjustment is not required.

                                       20

<PAGE>


     (4)  Corporate  management  fees from  COMFORCE  Telecom's  former  parent,
          Spectrum Information Technologies, Inc. The amount of these management
          fees may not be  representative  of costs incurred by COMFORCE Telecom
          on a stand alone basis.

     (5)  Represents a non-recurring compensation charge related to the issuance
          of the 35% common stock interest in the Company to certain individuals
          to  manage  the   Company's   entry  into  and   development   of  the
          telecommunications and computer technical staffing business.


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The discussion set forth below  supplements  the  information  found in the
consolidated financial statements and related notes. The matters discussed below
and elsewhere in this Report contain  forward  looking  statements  that involve
risks and uncertainties,  many of which may be beyond the Company's control. See
"Forward  Looking  Statements"  in Item 1 of this  Report  for a  discussion  of
certain of such risks and uncertainties.

Overview

     The October 1995 acquisition of COMFORCE Telecom marked the Company's entry
into  the  technical  staffing  business,  followed  by the  acquisition  of six
additional  technical staffing businesses through February 1997.  Following is a
summary  of these  acquisitions,  which are also  discussed  under  "Acquisition
History" in Item 1 of this Report:

<TABLE>
<CAPTION>
                                                             Fiscal 1995
                               Year         Acquisition        Revenue        Current
 Acquired Company           Founded           Date           (millions)      Offices      Headquarters    Market Served
 ----------------           -------           ----           ----------      -------      ------------    -------------
<S>                            <C>         <C>                   <C>             <C>     <C>               <C>
COMFORCE Telecom               1987        October 1995          $11.4           5       Lake Success,     Telecommunications
                                                                                         NY
Williams                       1991         March 1996           $4.2            1       Englewood,        Telecommunications
                                                                                         FL
RRA                            1964          May 1996            $52.0           8       Tempe, AZ         Technical Services
Force Five                     1993         August 1996          $7.1            4       Dallas, TX        Information Technology
AZATAR                         1980          November            $7.1            2       Rochester,        Information Technology
                                               1996                                      NY
Continental                    1965          November            $9.9            2       Elmsford, NY      Telecommunications
                                               1996
RHO                            1971        February 1997         $83.6           9       Redmond,          Technical Services and
                                                                                         WA                Information Technology
</TABLE>

     All acquisitions  made by the Company have been accounted for on a purchase
basis and the results of operations of each of the businesses acquired have been
included in the Company's  consolidated  financial  statements  from the date of
acquisition.

     The Company's  results of operations  and financial  condition  reflect its
rapid growth through  acquisitions.  Amortization  of  intangibles,  principally
goodwill,  has also increased as a result of acquisitions.  The Company has made
and  continues  to  make   investments  in  connection  with  the  purchase  and
integration   of  its  acquired   businesses  in  order  to  realize   long-term
improvements  in  profitability;  however,  the costs of integration may have an
adverse effect on short-

                                       21
<PAGE>


term operating results.  Management believes that, as the Company integrates its
acquired businesses, the adverse effect of integration expenses on profitability
are expected to decline as are operating  expenses as a percentage of net sales.
However,  to the extent that the Company makes  additional  acquisitions  in the
future,  there can be no assurance that the Company's results of operations will
not be adversely affected by integration costs. See "Forward Looking Statements"
in Item 1 of this Report.

     The   Company   serves   customers   in   three   principal    sectors   --
telecommunications,  information  technology  and  technical  services.  In  the
telecommunications  sector,  the Company  provides  staffing  for  wireline  and
wireless  communications  systems  development,   satellite  and  earth  station
deployment,  network  management  and plant  modernization.  In the  information
technology sector, the Company provides staffing for specific projects requiring
highly  specialized  skills such as applications  programming  and  development,
client/server  development,  systems software  architecture and design,  systems
engineering  and systems  integration.  In the technical  services  sector,  the
Company  provides  staffing  for national  laboratory  research in such areas as
environmental   safety,   alternative   energy  source   development  and  laser
technology,  and provides  highly-skilled labor meeting diverse commercial needs
in the  avionics and  aerospace,  architectural,  automotive,  energy and power,
pharmaceutical, marine and petrochemical fields.

     Gross  margins on staffing  services  can vary  significantly  depending on
factors such as the specific services being performed, the overall contract size
and the amount of recruiting  required.  Margins on the  Company's  sales in the
technical  services sector are typically  significantly  lower than those in the
telecommunications and IT sectors,  although the trend in the IT staffing sector
has been  toward  lower  gross  margins  generally  as this  sector  matures and
consolidates.  Additionally,  in certain  markets the  Company  has  experienced
significant pricing pressure from some of its competitors. Consequently, changes
in the  Company's  sales mix can be expected to impact the overall gross margins
generated by the Company.

     Staffing personnel placed by the Company are Company employees. The Company
is  responsible  for  employee  related  expenses for its  employees,  including
workers' compensation,  unemployment compensation insurance, Medicare and Social
Security taxes and general payroll expenses.  The Company offers health, dental,
disability and life insurance to its billable employees.

     The Company's  quarterly  operating  results are affected  primarily by the
number of billing  days in the quarter  and the  seasonality  of its  customers'
businesses.   Demand  for  services  in  the  technical   services   sector  has
historically  been lower during the  year-end  holidays  through  January of the
following  year,  showing  gradual  improvement  over the remainder of the year.
Although less pronounced than in technical services,  the demand for services of
the  telecommunications  and IT  sectors  is  typically  lower  during the first
quarter until customers'  operating budgets are finalized.  The Company believes
that the  effects of  seasonality  will be less severe in the future as revenues
contributed  by  the  information  technology  and  telecommunications   sectors
continue to increase as a percentage of the Company's consolidated revenues.

Results of Operations

     The historical financial information for the Company presented under Item 8
of this  Report  for  December  31,  1995 and 1994  relates  principally  to the
Company's former jewelry operations which were discontinued  September 30, 1995.
This historical financial  information includes limited results of the Company's
technical staffing operations,  all of which, except for COMFORCE Telecom,  were
acquired since January 1, 1996. Consequently, a discussion and comparison of the
Company's  historical  results of operations may not be meaningful.  In order to
provide a discussion of results which may be more meaningful than the historical
discussion,  the Company has (i) presented under Item 6 of this Report unaudited
pro forma data of the  Company for the years  ended  December  31, 1995 and 1994
assuming that the  acquisition  of COMFORCE  Telecom  (which was acquired by the
Company in October  1995) and related  financing  and capital  transactions  had
occurred as of January 1, 1994,  and (ii)  presented  below a comparison of 1996
historical  results of operations  with 1995 pro forma results,  and of 1995 pro
forma results with 1994 pro forma results.


                                       22
<PAGE>


Year Ended December 31, 1996 Compared to Pro Forma Year Ended December 31, 1995

     Revenues of $55.9  million for the year ended  December 31, 1996 were $43.9
million,  or 367% higher than pro forma revenues for the year ended December 31,
1995. This increase in revenues is attributable  to the  acquisitions  completed
during  1996 and growth in the  telecommunications  and  information  technology
sectors which were served by the Company in 1995 and 1996.

     Cost of revenues for the year ended December 31, 1996 was 85.2% of revenues
compared to pro forma cost of revenues of 75.3% for the year ended  December 31,
1995.  The 1996 cost of revenues  increase of 9.9% is a result of the  Company's
expansion into more mature technical staffing sectors.

     Selling,  general and  administrative  expenses for the year ended December
31, 1996 decreased $1.0 million or 14.0% from the pro forma selling, general and
administrative  expenses for the year ended  December 31, 1995.  The decrease in
selling, general and administrative expense is a result of the absence, in 1996,
of two  nonrecurring  charges that impacted 1995 pro forma selling,  general and
administrative  expenses. These charges included a stock compensation expense of
$3.4 million and management fees of $1.1 million paid by COMFORCE Telecom to its
former parent company prior to its acquisition by the Company.

     Historical  operating  income for the year ended December 31, 1996 was $2.3
million  compared  to a pro forma  operating  loss of $3.9  million for the year
ended  December  31,  1995.  The  improvement  of $6.2  million was  principally
attributable  to the  discontinuance  in the 1996  period  of the  non-recurring
charges of $4.5 million  recorded in 1995.  The 1996  operating  income was also
impacted by  acquisitions  completed  during the year and  increased  margins on
revenue growth in the Company's  telecommunications  and information  technology
sectors.

     The income tax provision for the year ended  December 31, 1996 was $900,000
on income of $2.3  million  compared  with pro forma income taxes of $14,000 (on
pro forma loss before income taxes of $4.1 million) for the year ended  December
31, 1995.

          Pro Forma Year Ended  December  31,  1995  Compared  to Pro Forma Year
          Ended December 31, 1994

     Pro forma  revenues of $12.0  million for the year ended  December 31, 1995
were $3.7  million  or 45%  higher  than pro forma  revenues  for the year ended
December 31, 1994.  The increase in 1995 pro forma revenues is  attributable  to
growth in sectors  serviced by the  Company-telecommunications  and  information
technology services.

     Pro forma cost of revenues  for the year ended  December 31, 1995 was 75.3%
of pro forma  revenues  compared  to pro forma cost of revenues of 77.8% for the
year ended December 31, 1994.  Although the pro forma cost of revenues increased
by $2.6  million  for the year ended  December  31, 1995 as compared to the year
ended December 31, 1994 due to increased  revenues  during 1995, on a percentage
basis,  the 1995 pro forma cost of revenues  decreased  by 2.5% as a result of a
more favorable sales mix in 1995.

     Pro forma selling,  general and administrative  expenses for the year ended
December 31, 1995  increased $3.9 million,  over the pro forma selling,  general
and administrative  expenses for the year ended December 31, 1994. This increase
was principally  related to a non-recurring  stock  compensation  charge of $3.4
million.

     Pro forma  operating  results  for the year ended  December  31,  1994 were
negatively impacted by a non-recurring  charge of $803,000 related to management
fees  paid by  COMFORCE  Telecom  to its  former  parent  company  prior  to its
acquisition  by the  Company.  Pro forma  operating  results  for the year ended
December 31, 1995 included a charge of $1.1 million for management  fees paid by
COMFORCE  Telecom to its former parent  Company prior to its  acquisition by the
Company  as  well  as a $3.4  million  charge  related  to  non-recurring  stock
compensation  expense. The net impact of these non-recurring charges on the 1995
pro forma results was $4.5 million as compared to $803,000 for 1994.


                                       23
<PAGE>


     Pro forma  operating  loss for the year ended  December  31,  1995 was $3.9
million  compared  to a pro forma  operating  loss of $1.1  million for the year
ended  December  31, 1994.  The  increase in operating  loss of $2.8 million was
principally  attributable to increased  management  fees and stock  compensation
charges of $3.8 million  recorded in 1995 as compared to 1994,  partially offset
by increased margin  contributions  resulting from revenue growth experienced in
1995.

     Pro forma other expense,  principally  net interest  expense,  for the year
ended  December  31, 1995  decreased  $1.1 million as compared to the year ended
December 31, 1994.  The 1995  decrease is  principally  due to the 1994 and 1995
discharge of indebtedness under terms of the bank loan agreements related to the
Company's discontinued jewelry operations.

     As a result of the  discontinuance of its jewelry  operations,  it has been
determined  that the  Company  will be  unable  to  utilize  losses  from  those
businesses in the future.

Financial Condition, Liquidity and Capital Resources

     During 1996, the Company's primary sources of funds to meet working capital
needs were from  operations and borrowings  under the $10.0 million Chase Credit
Facility.  In addition, in connection with the RHO acquisition in February 1997,
the  Company  entered  into a  short-term  credit  facility  with  U.S.  Bank of
Washington,  National  Association (the "U.S. Bank Credit Facility"),  providing
for up to $7.5 million in availability for working capital  purposes.  Since the
fourth  quarter of 1995,  the Company has funded its strategy of growth  through
acquisitions principally through private debt or equity financing, including its
sale of $25.2 million of convertible  debentures in February and March 1997. See
note 20 to the Company's  consolidated  financial  statements for the year ended
December 31, 1996.  In March 1997, a portion of the proceeds  from the debenture
offering were used to retire the Chase Credit Facility. The Company is presently
seeking to obtain a credit facility providing for term loan and revolving credit
availability of from $50 million to $75 million to fund additional acquisitions,
to retire the U.S.  Bank  Credit  Facility  (which  matures in July 1997) and to
finance working capital needs (to replace the Chase Credit Facility and the U.S.
Bank Credit  Facility).  In respect of its  working  capital  requirements,  the
Company  typically pays its billable  employees weekly for their services before
receiving  payment  from  its  customers.  As new  offices  are  established  or
acquired,  or as existing offices expand and revenues are increased,  there will
be greater requirements for cash resources to fund current operations.

     Management  believes  that  such a  replacement  credit  facility  will  be
sufficient to meet its anticipated level of business activity in 1997.  However,
the Company can give no assurance that such a credit  facility will be available
or, if available,  that it will be available on terms acceptable to the Company.
Although  management  believes that the funds provided by  operations,  the U.S.
Bank Credit  Facility and funds remaining under the $25.2 million debt placement
will be sufficient to meet its present working capital requirements through July
1997, the Company's  inability to obtain a new credit facility could require the
Company to delay,  scale back or eliminate all or some of its market development
and  acquisition  projects  and  could  have a  material  adverse  effect on the
Company's business, financial condition and results of operations.

     The Company is  obligated  under  various  acquisition  agreements  to make
earn-out payments to the sellers of acquired companies,  subject to the acquired
companies'  achieving  specified  earnings targets.  The maximum amount of these
potential  earn-out  payments is $717,000 in cash payable in 1997 and $5 million
in cash and $4.5 million in stock payable in the three-year  period from 1998 to
2000. The Company cannot currently  estimate whether it will be obligated to pay
the maximum amount;  however, the Company anticipates that the cash generated by
the operations of the acquired  companies will provide all or a substantial part
of the capital required to fund the cash portion of the earn-out payments.

     Cash and cash  equivalents  increased $3 million during 1996. Cash flows of
$25.3  million  provided by  financing  activities  exceeded  cash flows of $5.8
million used in  operating  activities  and cash flows of $16.5  million used by
investing  activities.  Cash flows used by operating activities were principally
attributable  to temporary  need to fund Williams,  RRA, Force Five,  AZATAR and
Continental  accounts receivable and their carrying costs due to the purchase of
Williams in March 1996,  RRA in May 1996,  Force Five in August 1996  (effective
July 31, 1996), AZATAR in



                                       24
<PAGE>


November  1996, and  Continental in November 1996.  Cash flows used in investing
activities are principally related to the purchase of Williams, RRA, Force Five,
AZATAR and Continental for a total of $15.8 million,  including directly related
costs,  as well as loans made to certain  officers  of the  Company  pursuant to
their  employment  contracts in the amount of $373,000 and the purchase of fixed
assets in the amount of  $329,000.  Cash flows from  financing  activities  were
attributable to net borrowings  under the Chase Credit Facility of $3.9 million,
the exercise of warrants in the amount of $2.0  million,  the issuance of Series
D, E and F Preferred Stock in the amount of $6.4 million,  $4.6 million and $3.0
million,  respectively,  and the  proceeds  from the sale of  Common  Stock  and
associated payment rights of $6.4 million, partially offset by dividend payments
of $228,000, repayments on notes of $500,000 and registration costs of $300,000.

     In the technical  staffing industry,  administrative,  accounting and other
"back office"  operations are often provided on a centralized basis. The Company
believes that its management information systems responsible for these functions
are  capable of  supporting  additional  levels of business in the future at low
incremental costs. The Company currently intends to integrate the administrative
functions of its recent and future  acquisitions  into the systems of previously
acquired companies to seek to improve operating efficiencies.

     During the year ended December 31, 1996, the Company eliminated its working
capital deficiency and, at December 31, 1996, had excess working capital of $8.0
million.  The increase in working  capital is  principally  attributable  to the
Company's  increase in accounts  receivable due to the  acquisition of Williams,
RRA, Force Five,  AZATAR and  Continental  and the reduction in the  liabilities
assumed by ARTRA.

     As of  December  31,  1996,  approximately  $24.8  million,  or  57%of  the
Company's total assets were intangible assets, which will increase substantially
with the  inclusion  of RHO's  assets.  These  intangible  assets  substantially
represent  amounts  attributable  to goodwill  recorded in  connection  with the
Company's  acquisitions  and will be amortized over a five to forty year period,
resulting in an annual  charge of in excess of $1 million with the  inclusion of
RHO. Various factors could impact the Company's ability to generate the earnings
necessary to support this amortization  schedule,  including fluctuations in the
economy,  the  degree  and  nature  of  competition,  demand  for the  Company's
services,  and the  Company's  ability to integrate  the  operations of acquired
businesses,  to recruit  and place  staffing  professionals,  to expand into new
markets  and to maintain  gross  margins in the face of pricing  pressures.  The
failure  of  the  Company  to  generate   earnings   necessary  to  support  the
amortization  charge may result in an  impairment  of the asset.  The  resulting
write-off  could  have a  material  adverse  effect on the  Company's  business,
financial condition and results of operations.

Other Matters

     On January 1,1996,  the Company adopted  Statement of Financial  Accounting
Standards No. 121,  "Accounting for the Impairment of Long-Lived  Assets and for
Long-Lived  Assets  to  be  Disposed  Of"  ("SFAS  121"),  which  requires  that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment  whenever  events or changes in  circumstances
indicate that the carrying amount of an asset may not be recoverable. Impairment
is evaluated by comparing future cash flows  (undiscounted  and without interest
charges)  expected to result from the use or sale of the asset and its  eventual
disposition, to the carrying amount of the asset.

     The Company adopted  Statement of Financial  Accounting  Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), in 1996. As permitted by
SFAS 123, the Company continues to measure  compensation cost in accordance with
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees,"  but provides pro forma  disclosures  of net income and earnings per
share as if the fair  value  method (as  defined  in SFAS 123) had been  applied
beginning in 1995.

     The Company  does not believe  that its adoption of either SFAS 121 or SFAS
123 will have a material impact on its financial statements and the Company will
comply with the related disclosure requirements.

     See "Discontinued  Operations" in Item 1 of this Report for a discussion of
the Company's discontinued operations.



                                       25
<PAGE>



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Financial Statements and Schedules as listed on pages F-1 and F-36.

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

     None.


                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The  information  required  by  Item 10 is  incorporated  by  reference  to
"Information  Concerning  Directors and Nominees"  and  "Information  Concerning
Executive  Officers"  in the  Company's  Proxy  Statement  to be filed  with the
Securities and Exchange Commission on or before April 30, 1997.

ITEM 11. EXECUTIVE COMPENSATION

     The  information  required  by  Item 11 is  incorporated  by  reference  to
"Executive  Compensation"  in the Company's Proxy Statement to be filed with the
Securities and Exchange Commission on or before April 30, 1997.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required  by  Item 12 is  incorporated  by  reference  to
"Principal  Stockholders"  in the Company's Proxy Statement to be filed with the
Securities and Exchange Commission on or before April 30, 1997.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required  by  Item 13 is  incorporated  by  reference  to
"Transactions with Management and Others" in the Company's Proxy Statement to be
filed with the Securities and Exchange Commission on or before April 30, 1997.



                                       26
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  1.   Financial Statements as listed on pages F-1 and F-36.

     2.   Financial Statement Schedules as listed on pages F-1 and F-36.

     3.   Exhibits as listed on page E-1.

(b)  Reports on Form 8-K.

     On November 4, 1996, the Company filed,  on Form 8-K/A,  Amendment No. 1 to
its Form 8-K dated  September  3,  1996  reporting  the  purchase,  through  its
subsidiary,  COMFORCE  Information  Technologies,  Inc.,  of all of the stock of
Force Five,  Inc.,  to file the  financial  statements as required in accordance
with  Item  7(a)(4)  of  Form  8-K  and to  file  related  pro  forma  financial
information as required in accordance with Item 7(b) of Form 8-K.

     On November 19,  1996,  the Company  filed a Current  Report on Form 8-K to
report that on November 4, 1996, the Company, through a subsidiary,  had entered
into a  definitive  agreement  with RHO to purchase  all of the stock of RHO and
that on November 8, 1996, the Company, through its subsidiary, COMFORCE Telecom,
purchased  substantially  all  of  the  assets  of  Continental  Field  Services
Corporation and its affiliate, Progressive Telecom, Inc.


                                       27
<PAGE>



                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


COMFORCE Corporation

By:/s/ Michael Ferrentino
   ------------------------
   Michael Ferrentino
   President

Date: March 31, 1997

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.


/s/James L. Paterek              Chairman of the Board           March 31, 1997
------------------------
James L. Paterek

/s/Christopher P. Franco         Chief Executive Officer,        March 31, 1997
------------------------         Secretary and Director
Christopher P. Franco

/s/Michael Ferrentino            President and Director          March 31, 1997
------------------------
Michael Ferrentino

/s/Paul Grillo                   Chief Financial Officer         March 31, 1997
------------------------
Paul Grillo

/s/ Andrew Reiben                Chief Accounting Officer        March 31, 1997
------------------------         and Director of Finance
Andrew Reiben


/s/ Richard Barber                      Director                 March 31, 1997
------------------------
Richard Barber

/s/ Keith Goldberg                      Director                 March 31, 1997
------------------------
Keith Goldberg


/s/ Glen Miller                         Director                 March 31, 1997
------------------------
Glen Miller




                                       28
<PAGE>



Comforce Corporation and Subsidiaries
Index to Financial Statements


                                                                         Page

Report of Independent Accountants                                        F-2

Financial Statements:

 Consolidated Balance Sheets as of December 31, 1996 and 1995            F-3

 Consolidated Statements of Operations for the years ended
     December 31, 1996, 1995 and 1994                                    F-4

 Consolidated Statements of Stockholders' Equity for the years ended
     December 31, 1996, 1995 and 1994                                    F-5

 Consolidated Statements of Cash Flows for the years ended
      December 31, 1996, 1995 and 1994                                   F-7

 Notes to Financial Statements                                           F-9

Schedule II Valuation and Qualifying Accounts                            F-35


                                      F-1


<PAGE>

Report of Independent Accountants


To the Shareholders and Board of Directors of Comforce Corporation, Inc.:

We have  audited the  accompanying  consolidated  financial  statements  and the
financial  statement  schedule of Comforce  Corporation  and  Subsidiaries  (the
"Company")  as listed in the index on page F-1 of this  registration  statement.
These   financial   statements   and  financial   statement   schedule  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial  statements and financial statement schedule 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
Comforce  Corporation  and  Subsidiaries  as of December 31, 1996 and 1995,  and
consolidated  the results of their operations and their cash flows for the three
years in the period ended  December  31,  1996,  in  conformity  with  generally
accepted  accounting  principles.  In addition,  in our opinion,  the  financial
statement  schedule  referred to above, when considered in relation to the basic
financial  statements  taken  as a  whole,  presents  fairly,  in  all  material
respects, the information required to be included therein.


                                                   /s/ COOPERS & LYBRAND L.L.P.



New York, New York
January 30, 1997, except as to Note 20
for which the date is March 21, 1997.

                                       F-2


<PAGE>






Comforce Corporation and Subsidiaries
Consolidated Balance Sheets
as of December 31, 1996 and 1995 (in thousands)


                                     Assets
<TABLE>
<CAPTION>
                                                                                                                   1996        1995
<S>                                                                                                           <C>          <C>
Current assets:
   Cash and cash equivalents                                                                                  $    3608    $    649
   Accounts receivable, net                                                                                       12042        1698
   Prepaid expenses                                                                                                 243
   Other assets                                                                                                     373         117
   Receivable from ARTRA GROUP Incorporated                                                                                    1046
   Deferred income tax                                                                                              278
                                                                                                              ---------    --------
        Total current assets                                                                                     16,544       3,510

Property and equipment, net                                                                                         744          90
Intangible assets, net                                                                                           24,756       4,801
Other assets                                                                                                      1,322         135
                                                                                                              ---------    --------
        Total assets                                                                                          $  43,366    $  8,536
                                                                                                              =========    ========

                    LIABILITIES AND STOCKHOLDERS' EQUITY:

Current liabilities:
  Borrowings under revolving line of credit                                                                   $   3,850
  Notes payable                                                                                                            $    500
  Accounts payable                                                                                                1,398          75
  Accrued expenses                                                                                                2,930         719
  Income taxes                                                                                                      354         214
  Liabilities to be assumed by ARTRA GROUP Incorporated, and
    net liabilities of discontinued operations                                                                                3,699
                                                                                                              ---------    --------
      Total current liabilities                                                                                   8,532       5,207
                                                                                                              ---------    --------

Noncurrent liabilities to be assumed by ARTRA GROUP Incorporated                                                                541
Obligations expected to be settled by the issuance of common stock                                                              550
Deferred income tax                                                                                                  90
                                                                                                              ---------    --------
         Total liabilities                                                                                        8,622       6,298
                                                                                                              ---------    --------

Commitments and contingencies

Stockholders' Equity:
  Series D senior convertible preferred stock, $.01 par value; 15,000 shares authorized,
          7,002 shares issued and outstanding, liquidation value of $1,000 per share
           ($7,002,000)                                                                                             1
  Series F convertible preferred  stock, $.01 par  value; 10,000  shares
          authorized, 3,250 shares issued and outstanding,  liquidation value of
          $1,000 per share ($3,250,000)                                                                               1
Common stock, $.01 par value; 100,000,000 shares authorized, 12,701,934 shares
          issued and outstanding in 1996 and 9,309,000 shares issued and outstanding in 1995                        127          92
Additional paid-in capital                                                                                       34,253      95,993
Accumulated deficit                                                                                                         (93,847)
Retained earnings, since January 1, 1996                                                                            362
                                                                                                              ---------    --------
         Total stockholders' equity                                                                              34,744       2,238
                                                                                                              ---------    --------
         Total liabilities and stockholders' equity                                                           $  43,366    $  8,536
                                                                                                              =========    ========
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                      F-3


<PAGE>

<TABLE>
<CAPTION>

Comforce Corporation and Subsidiaries
Consolidated Statements of Operations
for the years ended December 31, 1996, 1995 and 1994  (in thousands, except per share data)

                                                                    1996        1995        1994

<S>                                                               <C>         <C>         <C>
Net sales                                                         $ 55,867    $  2,387
                                                                  --------    --------
Costs and expenses:
        Cost of goods sold                                          47,574       1,818
        Stock compensation                                                       3,425
        Selling, general and administrative expenses                 5,266         461    $    966
        Depreciation and amortization                                  614         362
                                                                  --------    --------    --------
             Total costs and expenses                               53,454       6,066         966
                                                                  --------    --------    --------

Operating income (loss)                                              2,413      (3,679)       (966)

Other income (expense):
        Interest expense                                              (201)       (585)     (1,316)
        Other income (expense), net                                     40         (33)
                                                                  --------    --------    --------
                                                                      (161)       (618)     (1,316)
Income (loss) from continuing operations before income taxes
        and extraordinary credit                                     2,252      (4,297)     (2,282)
Provision for income taxes                                            (900)        (35)
                                                                  --------    --------    --------

Income (loss) from continuing operations                             1,352      (4,332)     (2,282)
Loss from discontinued operations                                              (17,211)    (16,220)
                                                                  --------    --------    --------
Income (loss) before extraordinary credit                            1,352     (21,543)    (18,502)

Extraordinary credit, net discharge of indebtedness                              6,657       8,965
                                                                  --------    --------    --------
             Net income (loss)                                        1352     (14,886)     (9,537)

Dividends on preferred stock                                           325
                                                                  --------    --------    --------
Accretive dividend on Series F preferred stock                         665
                                                                  --------    --------    --------
             Income (loss) available to common stockholders       $    362    $(14,886)   $ (9,537)
                                                                  ========    ========    ========

Income (loss) per share:
        Continuing operations before accretive dividend           $    .08    $  (0.95)   $  (0.72)
        Discontinued operations                                                  (3.74)      (5.08)
                                                                  --------    --------    --------
        Income (loss) before extraordinary credit and accretive
               dividend                                                .08       (4.69)      (5.80)
        Extraordinary credit                                                      1.45        2.81
        Accretive dividend on Series F preferred stock                (.05)
                                                                  --------    --------    --------
               Net income (loss) per share                        $    .03    $  (3.24)   $  (2.99)
                                                                  ========    ========    ========

Weighted average shares outstanding                                 12,991       4,596       3,195
                                                                  ========    ========    ========
</TABLE>


The accompanying notes are an integral part of the financial statements.

                                      F-4
<PAGE>

<TABLE>
<CAPTION>
Comforce Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994 (in thousands, except share amounts)

                                                                                                                     Restricted
                                                                     Preferred Stock          Common Stock          Common Stock
                                                                   ----------------------------------------------------------------
                                                                    Shares     Amount      Shares      Amount    Shares     Amount
                                                                   -------    -------     ---------    ------   --------   --------
<S>                                                                <C>        <C>         <C>          <C>      <C>          <C>
Balance at December 31, 1993                                         7,459    $17,273     3,162,772       $31
Net loss
ARTRA capital contributions
Lori preferred stock issued in exchange for
   ARTRA notes and advances                                          2,242      2,242
Common stock issued under terms of debt settlement agreement
   settlement agreement                                                                     100,000         1
Restricted common stock                                                                                          100,000      $(700)
Exercise of stock options and warrants                                                        2,500
Fractional shares purchased                                                                    (253)
                                                                   -------    -------     ---------     -----   --------   --------

Balance at December 31, 1994                                         9,701     19,515     3,265,019        32    100,000       (700)
Net earnings
Common stock issued as consideration for debt restructuring                                 150,000         2
Common stock issued as additional consideration for short-term
   borrowings                                                                               141,176         1
Common stock issued to pay liabilities                                                      115,098         1
Common stock sold through private placements                                              1,946,667        19
Common stock issued under compensation agreements with
   individuals to manage the Company's telecommunications and
   computer technical staffing services business                                          3,091,304        31
Common stock issued as additional consideration for Telecom
   purchase guarantee                                                                       350,000         3
Common stock issued as compensation for Telecom acquisition fees                            150,000         2
Common stock issued to ARTRA in exchange for the Company's
   entire preferred stock issue                                     (9,701)   (19,515)      100,000         1
Restricted common stock issued as additional consideration for
   short-term borrowings                                                                                        (100,000)       700
Liabilities assumed by ARTRA
Fractional shares purchased                                                                     (66)
                                                                   -------    -------     ---------     -----   --------   --------

Balance at December 31, 1995                                          --         --       9,309,198        92       --         --

<CAPTION>


                                                                        Additional                    Total
                                                                         Paid-in    Accumulated    Stockholders'
                                                                         Capital      Deficit        Equity
                                                                        --------      --------      -------
<S>                                                                      <C>          <C>           <C>
Balance at December 31, 1993                                             $60,680      $(69,424)      $8,560
Net loss                                                                                (9,537)      (9,537)
ARTRA capital contributions                                                4,000                      4,000
Lori preferred stock issued in exchange for
   ARTRA notes and advances                                                                           2,242
Common stock issued under terms of debt settlement agreement
   settlement agreement                                                      699                        700
Restricted common stock                                                                                (700)
Exercise of stock options and warrants                                        13                         13
Fractional shares purchased
                                                                        --------      --------      -------

Balance at December 31, 1994                                              65,392       (78,961)       5,278
Net earnings                                                                           (14,886)     (14,886)
Common stock issued as consideration for debt restructuring                  335                        337
Common stock issued as additional consideration for short-term
   borrowings                                                                229                        230
Common stock issued to pay liabilities                                       374                        375
Common stock sold through private placements                               5,820                      5,839
Common stock issued under compensation agreements with
   individuals to manage the Company's telecommunications and
   computer technical staffing services business                           2,844                      2,875
Common stock issued as additional consideration for Telecom
   purchase guarantee                                                        587                        590
Common stock issued as compensation for Telecom acquisition fees             251                        253
Common stock issued to ARTRA in exchange for the Company's
   entire preferred stock issue                                           19,514
Restricted common stock issued as additional consideration for
   short-term borrowings                                                                                 700
Liabilities assumed by ARTRA                                                 647                         647
Fractional shares purchased
                                                                        --------      --------      -------

Balance at December 31, 1995                                              95,993       (93,847)       2,238

</TABLE>

                                      F-5

Continued

<PAGE>

<TABLE>
<CAPTION>
Comforce Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity, Continued
for the years ended December 31, 1996, 1995 and 1994 (in thousands, except share amounts)

                                                                                                Series E              Series D
                                                                      Common Stock          Preferred Stock        Preferred Stock
                                                                  Shares        Amount     Shares      Amount      Shares     Amount
                                                               ------------    --------    ------      ------     --------    ------
<S>                                                              <C>                <C>      <C>          <C>        <C>         <C>
Balance at December 31, 1995                                      9,309,198         $92
Quasi-Reorganization as of January 1, 1996
Exercise of stock options                                             4,500           1
Exercise of stock warrants                                          449,445           5
Issuance of Series E convertible preferred stock                                              8,871        $1
Conversion of Series E preferred to common stock                    887,100           9      (8,871)       (1)
Issuance of Series D senior convertible preferred stock                                                              7,002        $1
Issuance of Series F preferred stock
Common stock sold through private placement                         810,000           8
SEC registration fees
Common stock issued as consideration for the
        purchase of Force Five                                       27,398           1
Common stock issued as consideration for the
        purchase of AZATAR                                          243,211           2
Common stock issued as consideration for the purchase
        of Continental                                               36,800           1
Common stock issued to pay liabilities assumed by  ARTRA            137,500           1
Liabilities assumed by ARTRA
Common stock issued to management for anti-dilution provision       796,782           7
Net earnings
Dividends:
        Series E preferred stock
        Series D preferred stock
        Series F preferred stock
        Accretive dividend on Series F preferred stock
                                                               ------------    --------    ------      ------     --------    ------
                                                                 12,701,934        $127        --      $   --        7,002        $1
                                                               ============    ========    ======      ======     ========    ======
<CAPTION>
                                                                                                            Retained
                                                                   Series F                                 Earnings
                                                               Preferred Stock      Additional                Since       Total
                                                               ---------------       Paid-in   Accumulated  January 1, Stockholders'
                                                               Shares   Amount       Capital     Deficit      1996        Equity
                                                               ------   ------     ----------  -----------  ---------- -------------
<S>                                                             <C>       <C>         <C>       <C>          <C>         <C>
Balance at December 31, 1995                                                          $95,993   $(93,847)                $2,238
Quasi-Reorganization as of January 1, 1996                                            (93,847)    93,847
Exercise of stock options                                                                  22                                23
Exercise of stock warrants                                                              2,041                             2,046
Issuance of Series E convertible preferred stock                                        4,635                             4,636
Conversion of Series E preferred to common stock                                           (8)
Issuance of Series D senior convertible preferred stock                                 6,415                             6,416
Issuance of Series F preferred stock                              33       $1           2,957                             2,958
Common stock sold through private placement                                             6,362                             6,370
SEC registration fees                                                                    (300)                             (300)
Common stock issued as consideration for the
        purchase of Force Five                                                            499                               500
Common stock issued as consideration for the
        purchase of AZATAR                                                              4,118                             4,120
Common stock issued as consideration for the purchase
        of Continental                                                                    574                               575
Common stock issued to pay liabilities assumed by  ARTRA                                  275                               276
Liabilities assumed by ARTRA                                                            3,318                             3,318
Common stock issued to management for anti-dilution provision                             534                               541
Net earnings                                                                                                  $1,352      1,352
Dividends:
        Series E preferred stock                                                                                 (18)       (18)
        Series D preferred stock                                                                                (280)      (280)
        Series F preferred stock                                                                                 (27)       (27)
        Accretive dividend on Series F preferred stock                                                           665       (665)

                                                                ----       ---        -------   --------      ------    -------
                                                                  33       $1         $34,253   $     --        $362    $34,744
                                                                ====       ===        =======   ========      ======    =======

</TABLE>

The accompanying notes are an integral part of the financial statements.

                                      F-6
<PAGE>


Comforce Corporation and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995 and 1994 (in thousands)

<TABLE>
<CAPTION>
                                                                                  1996        1995        1994
<S>                                                                             <C>         <C>         <C>
Cash flows from operating activities:
   Net income (loss)                                                            $  1,352    $(14,886)   $ (9,537)
   Adjustments to reconcile net earnings (loss) to cash flows from
           operating activities:
                   Extraordinary gain from net discharge of indebtedness                      (6,657)     (8,965)
                   Provision for disposal of fashion costume jewelry business                  1,600
                   Depreciation of property, plant and equipment                     139         101         438
                   Amortization of excess of cost over net assets acquired           475         261       1,018
                   Impairment of goodwill                                                     12,930      10,800
                   Amortization of other assets                                                  374         648
                   Common stock compensation                                                   3,657
                   Allowance for doubtful accounts                                   212
                   Deferred taxes                                                   (189)
   Changes in assets and liabilities, net of the effects of
           acquisitions and the discontinued fashion costume
           jewelry business (in 1995 and 1994):
                   (Increase) decrease in receivables                            (10,500)        913       2,117
                   Decrease in receivable from ARTRA                                 400
                   Decrease in inventories                                                     2,105       1,098
                   Increase in prepaid expenses and other current assets             (59)        (56)
                   (Increase) decrease in other noncurrent assets                 (1,183)        170         153
                   Increase (decrease) in payables and accrued expenses            3,637      (2,127)       (513)
                   Decrease in income taxes                                          (60)
                   Decrease in other current and noncurrent
                           liabilities                                                          (408)       (468)
                                                                                --------    --------    --------
                                   Net cash used by operating activities          (5,776)     (2,023)     (3,211)
                                                                                --------    --------    --------

Cash flows from investing activities:
   Acquisition of COMFORCE Global, net of cash acquired                                       (5,580)
   Acquisition of Williams, RRA, Force Five, Continental and
           Azatar, net of cash acquired                                          (15,834)
   Additions to property, plant and equipment                                       (329)       (656)       (697)
   Increase in receivable from officers                                             (373)
   Payment of liabilities with restricted cash                                                   550        (550)
                                                                                --------    --------    --------
                                    Net cash used by investing activities        (16,536)     (5,686)     (1,247)
                                                                                --------    --------    --------

</TABLE>

                                      F-7

Continued



<PAGE>


Comforce Corporation and Subsidiaries
Consolidated Statements of Cash Flows, Continued
for the years ended December 31, 1996, 1995 and 1994 (in thousands)

<TABLE>
<CAPTION>
                                                                                1996        1995        1994
<S>                                                                           <C>         <C>         <C>
Cash flows from financing activities:
   Payment of note payable                                                        (500)
   Net increase (decrease) in short-term debt                                                2,486        (138)
   Proceeds from line of credit                                                  4,750
   Repayment on line of credit                                                    (900)
   Proceeds from issuance of preferred stock                                    14,010
   Proceeds from exercise of stock options                                          23
   Proceeds from exercise of warrants                                            2,046
   Payment of registration costs                                                  (300)
   Dividends paid                                                                 (228)
   Proceeds from long-term borrowings                                                                    1,241
   Reduction of long-term debt                                                                (750)       (444)
   Proceeds from private placement of common stock                               6,370       5,839
   ARTRA capital contribution                                                                            1,500
   Notes and advances from ARTRA                                                                         2,531
   Other                                                                                                    11
                                                                              --------    --------    --------
                      Net cash from financing activities                        25,271       7,575       4,701
                                                                              --------    --------    --------
Increase (decrease) in cash and cash equivalents                                 2,959        (134)        243
Cash and cash equivalents, beginning of year                                       649         783         540
                                                                              --------    --------    --------
                      Cash and cash equivalents, end of year                  $  3,608    $    649    $    783
                                                                              ========    ========    ========

Supplemental cash flow information:
   Cash paid during the year for:
       Interest                                                               $    157    $    273    $    435

       Income taxes paid, net                                                      934           7          24
       Supplemental schedule of noncash investing and financing activities:
          Quasi-reorganization                                                 (93,848)
          Common stock issued in connection with acquisitions                    5,195         843
          Accretive dividend on preferred stock                                    665
          Common stock issued to settle liabilities                                550         374
          Amounts assumed by ARTRA                                               3,594
          Accrued dividends                                                         97
          Common stock issued as consideration for debt
                  restructuring and short-term loans                                           567
          ARTRA common stock issued to Lori's bank lender
                  under terms of the debt settlement agreement
                                                                                                         2,500
          Transfer New Dimensions assets, net of cash of $674 to Lori's
                  bank lender under terms of the debt settlement agreement
                                                                                                         6,475
          Lori preferred stock issued in exchange for ARTRA notes
                  and advances                                                                           2,242

</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.

                                      F-8
<PAGE>


Comforce Corporation and Subsidiaries
Notes to Consolidated Financial Statements


1.   Basis of Presentation:

     COMFORCE  Corporation  ("COMFORCE"  or the  "Company"),  formerly  The Lori
     Corporation  ("Lori"),  is a provider of  telecommunications  and  computer
     technical  staffing and  consulting  services  worldwide  and  maintains an
     extensive global database of technical specialists. As discussed in Note 4,
     in September  1995, the Company  adopted a plan to discontinue  its jewelry
     business   ("Jewelry   Business")   conducted   by  its  two   wholly-owned
     subsidiaries, Lawrence Jewelry Corporation ("Lawrence") and Rosecraft, Inc.
     ("Rosecraft").

     Effective  January 1, 1996,  the  Company  effected a  quasi-reorganization
     through  the  application  of  $93,847,000  of its  $95,993,000  additional
     paid-in capital account to eliminate its accumulated deficit. The Company's
     Board  decided  to effect a  quasi-reorganization  given  that the  Company
     achieved  profitability  following  its entry into the  technical  staffing
     business and  discontinuation  of its unprofitable  Jewelry  Business.  The
     Company's  accumulated deficit at December 31, 1995 is primarily related to
     the discontinued operations and is not, in management's view, reflective of
     the Company's current financial condition.

     ARTRA Group  Incorporated  ("ARTRA"),  a public  company  whose  shares are
     traded on the New York Stock  Exchange,  was formerly the Company's  parent
     prior to October 17, 1995. At December 31, 1996,  ARTRA owned less than 20%
     of the  Company's  stock.  ARTRA  owns its  shares of  Common  Stock in the
     Company  through  a  wholly-owned   subsidiary,   Fill-Mor  Holding,   Inc.
     ("Fill-Mor").

     On October 17, 1995, Lori acquired one hundred percent of the capital stock
     of COMFORCE Telecom Inc.  ("COMFORCE  Telecom"),  formerly  Spectrum Global
     Services,  Inc., d/b/a Yield Global, a wholly-owned  subsidiary of Spectrum
     Information  Technologies,   Inc.  ("Spectrum").  In  connection  with  the
     re-focus of Lori's business, Lori changed its name to COMFORCE Corporation.
     Since  October 17, 1995,  the Company has acquired a number of staffing and
     consulting business throughout the United States. See Note 3.


 2.  Summary of Significant Accounting Policies:

     Principles of Consolidation

     The  consolidated  financial  statements  include the  accounts of COMFORCE
     Corporation,  COMFORCE Telecom,  Inc.  COMFORCE  Technical  Services,  Inc.
     ("CTS") and COMFORCE Information Technology,  Inc. ("CIT"). All significant
     intercompany   balances   and   transactions   have  been   eliminated   in
     consolidation.


                                      F-9
<PAGE>

Notes to Consolidated Financial Statements, Continued


     Revenue Recognition

     Revenue for  providing  staffing  services is  recognized  at the time such
     services are rendered.

     Cash and Cash Equivalents

     Cash and cash equivalents include highly liquid short-term investments with
     an original  maturity of three months or less.  Cash  equivalents  consists
     primarily of money market funds.

     Accounts Receivable and Unbilled Accounts Receivable

     Accounts  receivable  consists  of those  amounts  due to the  Company  for
     staffing services rendered to various  customers.  The Company's  allowance
     for  doubtful  accounts  was  $213,000 as of December  31,  1996.  Unbilled
     receivables  consists of revenues  earned and  recoverable  costs for which
     billings  have not yet been  presented  to the  customers as of the balance
     sheet date.  Unbilled accounts receivable was $1,148,000 and $151,000 as of
     December 31, 1996 and 1995, respectively.

     Property and Equipment

     Property  and  equipment  are  stated  at cost.  Depreciation  is  provided
     primarily on a straight-line  basis over the estimated  useful lives of the
     assets.  Leasehold  improvements are amortized over the shorter of the life
     of the lease or of the improvement.  Maintenance and repairs are charged to
     income  as  incurred  and  betterments  that  extend  the  useful  life are
     capitalized. Upon retirement or sale, the cost and accumulated depreciation
     are eliminated from the respective accounts,  and the gain or loss, if any,
     is included in income.

     If events or changes in circumstances  indicate that the carrying amount of
     a long-lived asset may not be recoverable, the Company estimates the future
     cash flows  expected to result  from the use of the asset and its  eventual
     disposition. If the sum of the expected future cash flows (undiscounted and
     without  interest  charges)  is  less  than  the  carrying  amount  of  the
     long-lived asset, an impairment loss is recognized.  To date, no impairment
     losses have been recognized.

     Intangibles

     The net assets of a purchased  business are recorded at their fair value at
     the date of acquisition. At December 31, 1996, the excess of purchase price
     over  the  fair  value  of net  assets  acquired  (primarily  goodwill)  is
     reflected as an  intangible  asset and amortized on a  straight-line  basis
     over a period of 20-40 years. (See Note 5.)

     The  Company  assesses  the  recoverability  of this  intangible  asset  by
     determining  whether the  amortization  of the  goodwill  balance  over its
     remaining  life can be  recovered  through  forecasted  future  operations.
     Impairment is evaluated by comparing  future cash flows  (undiscounted  and
     without  interest  charges)  expected to result from the use or sale of the
     asset and its eventual disposition, to the carrying amount of the asset. To
     date, no impairment losses have been recognized.


                                      F-10
<PAGE>

Notes to Consolidated Financial Statements, Continued


     Income Taxes

     The Company  recognizes  deferred income taxes for the tax  consequences in
     future years of differences between the tax bases of assets and liabilities
     and their financial reporting amounts at each year-end based on enacted tax
     laws and  statutory  tax  rates  applicable  to the  periods  in which  the
     differences are expected to affect taxable income. Valuation allowances are
     established  when  necessary  to reduce  deferred  tax assets to the amount
     expected to be realized. Income tax expense consists of the tax payable for
     the  period and the change  during  the period in  deferred  tax assets and
     liabilities.

     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 reporting period.  The most significant  estimates relate to the
     realizability of accounts  receivable,  long-lived  assets and deferred tax
     assets. Actual results could differ from those estimates.

     Fair Values of Financial Instruments

     Cash and cash  equivalents and fixed rate debt obligations are reflected in
     the  accompanying  consolidated  balance  sheets at amounts  considered  by
     management to reasonably approximate fair value.

     Management is not aware of any factors that would significantly  affect the
     value of these amounts.

     Accounting for Long-Lived Assets

     On January 1, 1996, the Company  adopted SFAS No. 121,  "Accounting for the
     Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed
     Of,"  which  requires  that  long-lived  assets  and  certain  identifiable
     intangibles  to be held and used by an entity be  reviewed  for  impairment
     whenever  events or changes in  circumstances  indicate  that the  carrying
     amount of an asset  may not be  recoverable.  Impairment  is  evaluated  by
     comparing future cash flows  (undiscounted  and without  interest  charges)
     expected  to  result  from the use or sale of the  asset  and its  eventual
     disposition, to the carrying amount of the asset.

     Accounting for Stock-Based Compensation

     The Company adopted  Statement of Financial  Accounting  Standards No. 123,
     "Accounting  for  Stock-Based  Compensation"  ("SFAS  123"),  in  1996.  As
     permitted by SFAS 123, the Company  continues to measure  compensation cost
     in accordance with Accounting  Principles Board Opinion No. 25, "Accounting
     for Stock Issued to Employees,"  but provides pro forma  disclosures of net
     income and  earnings  per share as if the fair value  method (as defined in
     SFAS 123) had been applied beginning in 1995.


                                      F-11
<PAGE>

Notes to Consolidated Financial Statements, Continued


     Earnings Per Share Calculation

     In  February  1997,  the  Financial   Accounting   Standards  Board  issued
     Statements of Financial  Accounting Standards No. 128, "Earnings per Share"
     ("SFAS No. 128"), which establishes  standards for computing and presenting
     earnings per share  (EPS).  SFAS No. 128 will be  effective  for  financial
     statements  issued for periods  ending after  December  15,  1997.  Earlier
     application is not permitted.  Management has not yet evaluated the effects
     of this change on the Company's financial statements.

     Reclassification

     Certain items in the 1995 financial  statements  have been  reclassified to
     conform to the 1996 presentation.

 3.  Certain Acquisitions:

     On October 17, 1995, Lori acquired one hundred percent of the capital stock
     of COMFORCE Telecom. The price paid by the Company for the COMFORCE Telecom
     stock and related acquisition costs was approximately $6.4 million,  net of
     cash  acquired.  This  consideration  consisted  of cash to the  seller  of
     approximately $5.1 million, fees of approximately $950,000, including a fee
     of $750,000 to a related party,  and 500,000 shares of the Company's common
     stock  valued  at  $843,000  (at a price  per  share of  $1.68)  issued  as
     consideration   for  various  fees  and  guarantees   associated  with  the
     transaction.  The 500,000  shares  issued by the Company  consisted  of (i)
     100,000  shares  issued  to a then  unrelated  party for  guaranteeing  the
     purchase price to the seller, (ii) 100,000 shares issued to ARTRA, then the
     majority  stockholder of the Company,  in consideration of its guaranteeing
     the purchase  price to the seller and agreeing to enter into the Assumption
     Agreement,  (iii)  150,000  issued to two  unrelated  parties for  advisory
     services in connection with the acquisition, and (iv) 150,000 shares issued
     to Peter R. Harvey, then a Vice President and director of the Company,  for
     guaranteeing  the  payment  of the  purchase  price to the seller and other
     guarantees to facilitate the transaction. Additionally, in conjunction with
     the COMFORCE Telecom acquisition,  ARTRA agreed to assume substantially all
     pre-existing  Lori  liabilities  and  indemnify  COMFORCE  in the event any
     future liabilities arise concerning pre-existing  environmental matters and
     business related litigation.

     COMFORCE  Telecom  provides   telecommunications   and  computer  technical
     staffing  services  worldwide  to Fortune 500  companies  and  maintains an
     extensive,  global  database of technical  specialists  with an emphasis on
     wireless communications capability. The acquisition of COMFORCE Telecom was
     accounted  for by the  purchase  method  and,  accordingly,  the assets and
     liabilities  of COMFORCE  Telecom were included in the Company's  financial
     statements at their  estimated fair market value at the date of acquisition
     and COMFORCE Telecom's  operations are included in the Company's  statement
     of operations from the date of acquisition. (See Note 5.)

     The acquisition of COMFORCE was funded principally by private placements of
     approximately  1,950,000  shares of the Company's common stock at $3.00 per
     share plus detachable warrants to


                                      F-12
<PAGE>

Notes to Consolidated Financial Statements, Continued

     purchase  approximately  970,000  shares of the  Company's  common stock at
     $3.375 per share. The warrants expire five years from the date of issue.

     On March 3,  1996,  the  Company  acquired  all of the  assets of  Williams
     Communications   Services,  Inc.  ("Williams"),   a  regional  provider  of
     telecommunications  and technical staffing services. The purchase price for
     the assets of Williams  was $2 million with a four year  contingent  payout
     based on earnings of Williams. The value of the contingent payouts will not
     exceed $2 million, for a total purchase price not to exceed $4 million. The
     acquisition  of Williams  was  accounted  for by the  purchase  method and,
     accordingly,  Williams'  operations are included in the Company's statement
     of operations from the date of acquisition. (See Note 5.)

     On May 10, 1996, the Company purchased all of the stock of Project Staffing
     Support  Team,  Inc.  and  substantially  all of the assets of RRA Inc. and
     Datatech Technical Services,  Inc.  (collectively,  "RRA") for an aggregate
     purchase  price  of  $5,100,000,  plus  acquisition  costs  and  contingent
     payments  payable  over three  years in an  aggregate  amount not to exceed
     $650,000.  RRA is in the business of providing  contract employees to other
     businesses.  The Company's  headquarters are located in Tempe, Arizona. The
     acquisition  of RRA enables the  Company,  through its  COMFORCE  Technical
     Services,  Inc. subsidiary ("CTS"), to provide specialists for supplemental
     staffing   assignments  as  well  as  outsourcing  and   vendor-on-premises
     programs,  primarily in the electronics,  avionics,  telecommunications and
     information  technology business sectors. The acquisition was accounted for
     by the purchase method and, accordingly, its operations are included in the
     Company's  statement of operations from the date of acquisition.  (See Note
     5.)

     Effective  July 31, 1996,  the Company  purchased all of the stock of Force
     Five,  Inc.  ("Force Five") for an aggregate  purchase price of $2,000,000,
     payable in $1,500,000 cash, and 27,398 shares of the Company's Common Stock
     valued at  $500,000,  plus a three-year  contingent  payout based on future
     earnings  of Force Five in an  aggregate  amount not to exceed  $2,000,000.
     Force  Five,  renamed  COMFORCE  Information  Technologies,  Inc.  ("CIT"),
     located  in  Dallas,  Texas,  provides  information  technology  consulting
     services to leading companies nationwide. The acquisition of Force Five was
     accounted  for under the  purchase  method and,  accordingly,  Force Five's
     operations are included in the Company's  statement of operations  from the
     date of acquisition. (See Note 5.)

     On  November  1,  1996,  COMFORCE  IT  Acquisition  Corp.,  a  wholly-owned
     subsidiary  of the  Company,  merged with  Azatar  Computer  Systems,  Inc.
     ("Azatar") pursuant to the terms of an Agreement and Plan of Reorganization
     entered into by such parties and W. Mark Holbrook, formerly the controlling
     stockholder  of Azatar  (the  "Merger  Agreement").  Under the terms of the
     Merger  Agreement,  the  stockholders  of Azatar  received cash payments of
     $1.03 million, 243,211 shares of the Company's common stock valued at $4.12
     million,  and contingent  payments payable over three years in an aggregate
     amount  not to exceed  $1.2  million  payable  in  stock.  Azatar is in the
     business of information  technology  consulting.  The acquisition of Azatar
     was  accounted  for under the purchase  method and,  accordingly,  Azatar's
     operations are included in the Company's  statement of operations  from the
     date of acquisition. (See Note 5.)

     On November 8, 1996, the Company, through its subsidiary,  COMFORCE Telecom
     Inc.,  purchased,  substantially  all of the  assets of  Continental  Field
     Services  Corporation  and  its  affiliate,   Progressive  Telecom,   Inc.,
     (collectively  "Continental")  for a  purchase  price of $4.425  million in

                                      F-13
<PAGE>

     cash,  36,800 shares of the Company's common stock valued at $575,000,  and
     contingent  payments payable over three years in an aggregate amount not to
     exceed $1.02 million.  The  acquisition  of  Continental  was accounted for
     under the purchase method and,  accordingly,  Continental's  operations are
     included  in the  Company's  statement  of  operations  from  the  date  of
     acquisition.  (See Note 5.)

     The  aforementioned  acquisitions were acquired through funding raised from
     the issuance of common stock, preferred stock and bank borrowings.

     The following unaudited proforma summary presents the consolidated  results
     of  operations  as if the  acquisition  has occurred on January 1, 1995 and
     does not purport to be an  indication  of what would have  occurred had the
     acquisition  been made as of that date or of results which may occur in the
     future (in thousands).

                                                         Year Ended December 31,
                                                            1996         1995
                                                         (Unaudited) (Unaudited)

Revenue                                                  $   98,692    $ 91,571
Net income (loss) from continuing operations                  2,015      (1,934)
Loss from discontinued operations                              --       (17,211)
Extraordinary credits, net discharge of indebtedness           --         6,657
                                                         ----------    --------
Net income (loss)                                        $    2,015    $(12,488)
                                                         ==========    ========
Income (loss) per share from continuing operations       $      .07    $   (.22)
Income (loss) per share from discontinued operations                      (1.74)
Extraordinary credits                                                       .67
                                                         ----------    --------
Net income (loss) per share                              $      .07    $  (1.29)
                                                         ==========    ========

     The above proforma data assume the issuance of Series F preferred stock and
     the  borrowing  under  the  revolving  line  of  credit  to  finance  these
     transactions.  Proforma  adjustments  include an interest  cost increase of
     $96,000 in 1996,  a  reduction  of  interest  expense of  $126,000 in 1995,
     additional  goodwill  amortization of $290,000 and $619,000 in the 1996 and
     1995 periods, respectively, and the related income tax effect.


                                      F-14
<PAGE>

Notes to Consolidated Financial Statements, Continued

 4.  Fixed Assets:

     Fixed assets consist of (in thousands):

                                                   Estimated
                                                  Useful Lives
                                                     in Years      1996   1995

Office equipment                                        3-5       $ 225    $ 97
Furniture, fixtures and vehicles                        3-7        592
Leasehold improvements                                  3-7         73
                                                                  -----    ----
                                                                    890      97
   Less, accumulated depreciation and amortization                 (146)     (7)
                                                                  -----    ----
                                                                  $ 744    $ 90
                                                                  =====    ====

     Depreciation  expense was  $139,000,  $101,000  and  $438,000 for the years
     ended December 31, 1996, 1995 and 1994, respectively.



 5.  Intangibles:

     Intangibles as of December 31, 1996 and 1995 consisted of (in thousands):

                                                   Estimated
                                                    Useful
                                                     Lives
                                                    in Years    1996       1995

Excess of cost over net assets acquired (goodwill)   20-40   $ 24,547    $4,852
Non-compete covenants                                  5          730
Other                                                  5            5
                                                               25,282     4,852
                                                             --------    ------
   Less accumulated amortization                                 (526)      (51)
                                                             --------    ------
                                                             $ 24,756    $4,801
                                                             ========    ======


Amortization  expense was $475,000,  $261,000 and  $1,081,000 in the years ended
December 31, 1996, 1995 and 1994, respectively.



                                      F-15
<PAGE>

Notes to Consolidated Financial Statements, Continued

 6.  Accrued Expenses:

     Accrued expenses consist of the following (in thousands):

                                                            1996          1995

Payroll and payroll taxes                                  $  969
Pension plan                                                  660
Vacation                                                      324
Professional fees                                             288           $320
Medical insurance                                             171
Management fees                                                              178
Other                                                         518            221
                                                           ------           ----
                                                           $2,930           $719
                                                           ======           ====


 7.  Income Taxes:

     The  provision  (benefit) for income taxes as of December 31, 1996 consists
     of (in thousands):

                                                         1996               1995
Current:
   Federal                                              $ 867
   State                                                  222                 35
Deferred                                                 (189)
                                                        -----               ----
                                                        $ 900               $ 35
                                                        =====               ====

     The 1995 and 1994 extraordinary  credits represent net gains from discharge
     of bank indebtedness under the loan agreements of Lori and its discontinued
     fashion costume jewelry subsidiaries. No income tax expense is reflected in
     the Company's financial statements resulting from the extraordinary credits
     due to the utilization of tax loss carryforwards.

     The  difference  between  the  statutory  Federal  income  tax rate and the
     effective income tax rate is reconciled as follows (in thousands):

                                                      1996     1995      1994

Statutory Federal tax rate provision (benefit)         $34.0    $(34.0)  $(34.0)
State and local taxes, net of Federal benefit            5.0       .3        .1
Current year tax loss not utilized                                4.7
Impairment of goodwill                                           30.0      38.6
Amortization of goodwill                                  .9       .6       3.6
Previously unrecognized benefit from utilizing tax
        loss carryforwards                                                 (8.2)
                                                       -----    -----    ------
                                                       $39.9    $ 1.6    $   .1
                                                       =====    =====    ======


                                      F-16
<PAGE>

Notes to Consolidated Financial Statements, Continued

     The types of  temporary  differences  between  the tax bases of assets  and
     liabilities  and their  financial  reporting  amounts that give rise to the
     deferred tax  liabilities  and deferred tax assets at December 31, 1996 and
     1995 (in thousands) are as follows:

                                                          1996            1995
Deferred tax assets:
   Bad debt reserve                                     $     89
   Accrued liabilities and other                             189        $   800
   Net operating loss                                                    16,400
                                                        --------        --------
        Total deferred tax asset                             278         17,200
                                                        --------        --------
Deferred tax liability:
   Deductible intangibles                                     90
   Machinery and equipment                                                  100
                                                        --------        --------
        Total deferred tax liability                          90            100
                                                        --------        --------
   Valuation allowance                                                  (17,100)
                                                        --------        --------
        Net deferred tax asset                          $    188        $   --
                                                        ========        ========

     At December 31, 1995, the Company and its  subsidiaries  had Federal income
     tax loss carryforwards of approximately $42,000,000 available to be applied
     against future taxable  income.  As a result of the  discontinuance  of the
     Jewelry  business it has been determined that the Company will be unable to
     utilize losses from those businesses in the future.

     In 1995,  the Company  recorded a valuation  allowance  with respect to the
     future tax benefits and the net  operating  loss  reflected in deferred tax
     assets as a result of the uncertainty of their ultimate realization.

 8.  Debt:

     On July 22, 1996, the Company and certain  subsidiaries  entered into a $10
     million Revolving Credit Agreement (the "Credit  Agreement") with the Chase
     Manhattan  Bank  ("Chase")  to provide  working  capital for the  Company's
     operations.  The Company, COMFORCE Telecom and COMFORCE Technical Services,
     Inc.  are  co-borrowers  under the Credit  Agreement  and Project  Staffing
     Support Team, Inc.  ("PSST") is a guarantor of the  obligations.  Principal
     outstanding  under the Credit  Agreement is due June 30, 1998. Chase agreed
     to make  revolving  credit loans  outstanding  as prime rate loans or LIBOR
     loans,  provided that, during the occurrence and continuance of an event of
     default, the Company and its subsidiaries could not elect, and Chase had no
     obligation to make, LIBOR loans.  Interest on LIBOR loans is payable in the
     amount of the LIBOR  rate plus 2.0% per annum.  Interest  on the prime rate
     loans is payable in the amount of Chase's prime rate as announced from time
     to time (8.25% at December 31, 1996).  The amount  outstanding  at December
     31, 1996 was  $3,850,000.  As of December 31, 1996,  the Company was not in
     compliance with certain loan  covenants.  In March 1997, the Company repaid
     its debt to Chase in full. (See Note 20.)


                                      F-17
<PAGE>

Notes to Consolidated Financial Statements, Continued

     At December 31,  1995,  notes  payable and  long-term  debt (in  thousands)
     consisted of:

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                                 -----------------------
                                                                    1996        1995
<S>                                                               <C>        <C>
Outstanding debt:
   Revolving credit borrowings                                    $ 3,850
   Amount due to a former related party, interest at
       the prime rate plus 1%                                                $   750
   Accounts receivable credit facility, discontinued operations                1,535
   Other, interest principally at 15%                                          1,736
Less:
   Liabilities to be assumed by ARTRA                                         (1,986)
   Liabilities included with discontinued operations                          (1,535)
                                                                   -------   -------
                                                                   $ 3,850   $   500
                                                                   =======   =======
</TABLE>

     As discussed in Note 11, ARTRA,  Fill-Mor,  Lori and Lori's fashion costume
     jewelry  subsidiaries  entered into an agreement with Lori's bank lender to
     settle  obligations  due the bank.  As partial  consideration  for the debt
     settlement  agreement  the bank  received a $750,000  Lori note payable due
     March 31, 1995.

     The $750,000 note due the bank was paid and the remaining  indebtedness  of
     Lori and Fill-Mor was discharged,  resulting in an additional extraordinary
     gain to Lori of  $6,657,000  in 1995.  The $750,000 note payment was funded
     with the proceeds of a $850,000  short-term  loan from a former director of
     the Company.  The loan  provided for interest at the prime rate plus 1%. As
     consideration  for  assisting  with  the  debt  restructuring,  the  former
     director  received  150,000 shares of the Company's  common stock valued at
     $337,500 ($2.25 per share) based upon the closing market value on March 30,
     1995.   The  $337,500   represented   additional   compensation   for  debt
     restructuring and, as such, was charged against the extraordinary gain from
     debt restructuring in 1995. The principal amount of the loan was reduced to
     $750,000 at July 31, 1995.  The remaining  loan principal was not repaid on
     its  scheduled  maturity  date of July  31,  1995.  Per  terms  of the loan
     agreement,  the  former  director  received  an  additional  50,000  of the
     Company's  common stock as compensation  for the non-payment of the loan at
     its originally scheduled maturity.  The additional 50,000 shares at a value
     of  approximately  $82,000 has been charged to interest expense in 1995. At
     December  31, 1995,  the  $750,000  note was  classified  in the  Company's
     consolidated  balance sheet as liabilities to be assumed by ARTRA. The loan
     was  paid  in full  in  March  1996 by  ARTRA  pursuant  to the  assumption
     agreement as discussed in Note 9.

     During the second and third quarters of 1995, Lori entered into a series of
     agreements with certain  unaffiliated  lenders that provided for short-term
     loans with  interest at 15%. As  additional  compensation  certain  lenders
     received an aggregate of 91,176 shares of the Company's common stock valued
     at approximately $149,000 (which amount was included in interest expense in
     1995) and certain  lenders  received  warrants to purchase an  aggregate of
     195,000  shares of the Company's  common stock at prices ranging from $2.00
     per share to $2.50 per share,  the fair market value at the dates of grant.
     The warrants  expire five years from the date of issue.  The proceeds  from
     these loans were used to fund the  September  $500,000  down payment on the
     COMFORCE  Global


                                      F-18
<PAGE>


Notes to Consolidated Financial Statements, Continued

     acquisition,  with the remainder used to fund working capital  requirements
     of the  Company's  discontinued  Jewelry  Business.  At December  31, 1995,
     short-term  loans with an aggregate  principal  balance of $1,236,000  were
     classified in the Company's consolidated balance sheet as liabilities to be
     assumed by ARTRA.

     In August 1995,  Lori  obtained a credit  facility for the factoring of the
     accounts  receivable  of its  discontinued  Jewelry  Business.  The  credit
     facility  provides  for  advances  of 80%  of  receivables  assigned,  less
     allowances  for  markdowns  and other  merchandise  credits.  The factoring
     charge,  a minimum of 1.75% of the  receivables  assigned,  increased  on a
     sliding scale if the  receivables  assigned  were not  collected  within 45
     days.  Borrowings  under the credit  facility  were  collateralized  by the
     accounts receivable, inventory and equipment of Lori's discontinued fashion
     costume jewelry  subsidiaries and guaranteed by Lori. At December 31, 1995,
     outstanding borrowings under this credit facility of $1,535,000, along with
     other net liabilities of the discontinued Jewelry Business, were classified
     in the Company's consolidated balance sheet as liabilities to be assumed by
     ARTRA and net liabilities of the discontinued Jewelry Business.

     In 1996,  ARTRA  completed  the  assumption  of the  agreed  upon  recorded
     liabilities (see Note 9).



 9.  Liabilities to be Assumed by ARTRA Group Incorporated:

     Under the  Assumption  Agreement  between  ARTRA and the Company in October
     1995 (the  "Assumption  Agreement")  entered  into in  connection  with the
     COMFORCE  Telecom   acquisition  (see  Note  3),  ARTRA  agreed  to  assume
     substantially all pre-existing  Lori liabilities and indemnify  COMFORCE in
     the  event   any   future   liabilities   arise   concerning   pre-existing
     environmental matters and business related litigation.  Additionally, ARTRA
     agreed to acquire  all of the assets  and  assume  all  liabilities  of the
     Company's  discontinued  Jewelry  Business  aggregating  a net liability of
     $4,240,000 as of December 31, 1995. In April 1996,  ARTRA sold the business
     and certain assets of the Jewelry Business.

     At  December  31,  1995,  liabilities  to  be  assumed  by  ARTRA  and  net
     liabilities of the discontinued Jewelry Business (in thousands) consist of:

Current:
   Liabilities to be assumed by ARTRA
   Notes payable                                                          $1,986
   Court ordered payments                                                    990
   Accrued expenses                                                          349
                                                                          ------
                                                                           3,325
Net liabilities of the discontinued Jewelry Business                         374
                                                                          $3,699
                                                                          ======
Noncurrent:
   Liabilities to be assumed by ARTRA Court ordered payments              $  541
                                                                          ======

     As  of  December  31,  1996,  ARTRA  paid  or  assumed  all  of  the  above
     liabilities.  ARTRA  continues  to assume  certain  contingent  liabilities
     relating to outstanding litigation (see Note 16).

                                      F-19
<PAGE>

Notes to Consolidated Financial Statements, Continued


     On  December 19, 1996,  the  Company  and ARTRA  agreed  to settle  various
     differences in the interpretation of the Assumption Agreement dated October
     1995.  In  addition,  ARTRA has  agreed to deposit  into an escrow  account
     125,000  shares of COMFORCE  common stock to  collateralize  its obligation
     with  respect to (1) a warrant  to a lender to  purchase  50,000  shares of
     common  stock at $5 per share  with a put option  for  $500,000,  which the
     Company and ARTRA believe is no longer effective,  (2) potential  liability
     for clean-up  costs,  if any, or other damages in connection with the Gary,
     Indiana  site as  discussed  in Note  16,  and  (3) the  remaining  assumed
     liabilities of the jewelry operations of $350,000 due to certain creditors.

10.  Discontinued Operations:

     In September  1995, the Company  adopted a plan to discontinue  its Jewelry
     Business.  A provision of $1,000,000  was recorded in September 1995 and an
     additional  provision of $600,000 was recorded during the fourth quarter of
     1995 for the  estimated  costs to  complete  the  disposal  of the  Jewelry
     Business.  The Jewelry Business was disposed of in 1996 with no cost to the
     Company.

     The Company's 1995 consolidated financial statements have been reclassified
     to report  separately  results of  operations of the  discontinued  Jewelry
     Business.   Additionally,   in  conjunction   with  the  Comforce   Telecom
     acquisition  (see  Note  3),  ARTRA  agreed  to  assume  substantially  all
     pre-existing  liabilities  of the  Company  and  its  discontinued  Jewelry
     Business and indemnify  Comforce in the event any future  liabilities arise
     concerning   pre-existing   environmental   matters  and  business  related
     litigation.  Accordingly, the Company's 1995 consolidated balance sheet has
     been  reclassified to report separately the remaining net liabilities to be
     assumed by ARTRA,  including net  liabilities of the  discontinued  Jewelry
     Business. (See Note 9.)

     The operating  results of the  discontinued  Jewelry Business for the years
     ended December 31, 1995 and 1994 (in thousands) consists of:

                                                        Year Ended December 31,
                                                        ------------------------
                                                          1995           1994

Net sales                                               $ 10,588       $ 34,431
                                                        ========       ========
Loss from operations before income taxes                $(15,606)      $(16,210)
Provision for income taxes                                    (5)           (10)
                                                        --------       --------
Loss from operations                                     (15,611)       (16,220)
                                                        --------       --------

Provision for disposal of business                        (1,600)
Provisions for income taxes
                                                        --------       --------
Loss on disposal of business                              (1,600)
                                                        --------       --------
Loss from discontinued operations                       $(17,211)      $(16,220)
                                                        ========       ========


                                      F-20
<PAGE>

Notes to Consolidated Financial Statements, Continued


11.  Extraordinary Gains Related to Discontinued Operations:

     In accordance with the terms of the debt settlement  agreement,  borrowings
     due a bank  under  the  loan  agreements  of Lori and its  fashion  costume
     jewelry subsidiaries and Fill-Mor (approximately $25,000,000 as of December
     23, 1994),  plus amounts due the bank for accrued  interest and fees,  were
     reduced to $10,500,000 (of which $7,855,000  pertained to Lori's obligation
     to the bank and $2,645,000 pertained to Fill-Mor's obligation to the bank).
     Upon the  satisfaction  of certain  conditions  of the  Amended  Settlement
     Agreement in March 1995, the balance of this  indebtedness  was discharged.
     (See Note 12.)

     The Company  recognized  an  extraordinary  gain of  $8,965,000  ($2.81 per
     share) in  December  1994 as a result of the  reduction  of amounts due the
     bank under the loan agreements of Lori and its operating  subsidiaries  and
     Fill-Mor to $10,500,000 (of which $7,855,000 pertained to Lori's obligation
     to the bank and $2,645,000 pertained to Fill-Mor's  obligation to the bank)
     as of December 23, 1994. The 400,000 shares of ARTRA common stock issued as
     consideration  for the debt settlement  agreement (with a fair market value
     of  $2,500,000  based upon the closing  market  price on the date of issue)
     were contributed by ARTRA to Lori's capital account. The extraordinary gain
     was calculated (in thousands) as follows:

<TABLE>
<S>                                                                          <C>
Amounts due the bank under loan agreements of Lori and its fashion
     costume jewelry subsidiaries                                            $ 22,749
Less, amounts due the bank at December 29, 1994                                (7,855)
                                                                             --------
Bank debt discharged                                                           14,894
Accrued interest and fees discharged                                            3,635
Other liabilities discharged                                                    1,985
Less consideration to the bank per terms of the amended
    settlement agreement
        Cash                                                                   (1,900)
        ARTRA common stock (400,000 shares)                                    (2,500)
        New Dimensions assets assigned to the bank at estimated fair value     (7,149)
                                                                             --------
            Net extraordinary gain                                           $  8,965
                                                                             ========
</TABLE>

     On  March  31,  1995,  the  $750,000  note  due the  bank  was paid and the
     remaining indebtedness of Lori and Fill-Mor was discharged, resulting in an
     additional  extraordinary  gain to the  Company  of  $6,657,000  ($1.45 per
     share) in the first  quarter of 1995.  The $750,000 note payment was funded
     with the proceeds of a $850,000  short-term  loan from a former director of
     the Company. As consideration for assisting in the debt restructuring,  the
     former  director  received  150,000  shares of the  Company's  common stock
     valued at  $337,500  ($2.25 per share)  based  upon the  Company's  closing
     market value on March 30, 1995. The first quarter 1995  extraordinary  gain
     was calculated (in thousands) as follows:



                                      F-21
<PAGE>

Notes to Consolidated Financial Statements, Continued

Amounts due the bank under loan agreements of Lori and its
        operating subsidiaries                                          $ 7,855

Less, amounts due the bank applicable to Lori                              (561)
                                                                        -------
Bank debt discharged                                                      7,294
Less fair market value of the Company's common stock issued as
        consideration for the debt restructuring                           (337)
Other fees and expenses                                                    (300)
                                                                        -------

Net extraordinary gain                                                  $ 6,657
                                                                        =======

12.  Related Party Transactions:

     During 1996, the Company made loans of $367,000 in the aggregate to Michael
     Ferrentino,  the  President and a Director of the Company,  Christopher  P.
     Franco,  an Executive Vice President of the Company,  Kevin W. Kiernan,  an
     employee of the Company, and James L. Paterek, a consultant to the Company,
     to cover their tax liabilities resulting from the issuance of the Company's
     common stock to them as inducements to direct the Company's  entry into the
     technical staffing business. Of this amount,  $55,000 was advanced in 1995,
     $38,000 was advanced in February 1996, $238,000 was advanced in April 1996,
     and  $36,000  was  advanced  in  July  1996.  Yield  Industries,   Inc.,  a
     corporation  wholly-owned  by  Messrs.  Paterek  and  Ferrentino,  earned a
     delivery fee of $750,000 in connection  with the Company's  acquisition  of
     COMFORCE  Telecom,  $250,000  of which was paid in 1995 and the  balance of
     which was paid in 1996.

     The Company paid L.H.  Friskoff & Company,  a certified  public  accounting
     firm at which  Richard  Barber,  a Director of the  Company,  is a partner,
     approximately  $104,000  in  fees  during  1996  for  tax-related  advisory
     services.

     Effective  July 4,  1995,  Lori's  management  agreed  to issue up to a 35%
     common stock  interest in the Company to certain  individuals to manage the
     Company's  entry  into  the  technical  staffing  business   (approximately
     3,888,000  after certain  anti-dilutive  provisions).  In October 1995, the
     Company issued  approximately  3,100,000 shares of its common stock to such
     individuals.  The remaining common shares due these individuals were issued
     in  1996  after  shareholder  approval  of an  increase  in  the  Company's
     authorized   common  shares.   The  Company   recognized  a   non-recurring
     compensation  charge of $3,425,0000 in 1995 related to the issuance of this
     stock  since these stock  awards  were 100%  vested when  issued,  and were
     neither  conditioned  upon these  individuals'  service  to the  Company as
     employees nor the consummation of the COMFORCE Telecom's  acquisition.  The
     cost of the  remaining  common  shares of  $500,000  is  classified  in the
     Company's  consolidated  balance sheet at December 31, 1995 as  obligations
     expected to be settled by the issuance of common  stock,  and is classified
     as equity as of December 31, 1996.

     In conjunction  with an agreement (see Note 11) to settle  borrowings due a
     bank under the loan  agreements  of Lori and its  fashion  costume  jewelry
     subsidiaries and Fill-Mor,  ARTRA entered into a $1,850,000 short-term loan
     agreement  with a  non-affiliated  corporation,  the proceeds of which were
     advanced to Lori and used to fund  amounts due Lori's bank.  The loan,  due
     June 30, 1995,


                                      F-22
<PAGE>

Notes to Consolidated Financial Statements, Continued

     was  collateralized  by 100,000 shares of Lori common stock.  These 100,000
     Lori common shares, originally issued to the bank under terms of the August
     18, 1994 Settlement Agreement,  were carried in the Company's  consolidated
     balance  sheet at December 31, 1994 as restricted  common stock.  In August
     1995,  the  loan was  extended  until  September  15,  1995 and the  lender
     received the above  mentioned  100,000 Lori common shares as  consideration
     for the loan  extension.  The loan was repaid by ARTRA in  February,  1996.
     Accordingly,  the carrying  value of these  100,000 Lori common  shares was
     transferred to ARTRA as reduction of amounts due to ARTRA.

     In the fourth quarter of 1995, ARTRA agreed to exchange its interest in the
     entire  issue of the  Company's  Series C  cumulative  preferred  stock for
     100,000  newly issued shares of the  Company's  common stock.  During 1995,
     ARTRA received $399,000 of advances from the Company.  In 1996, the Company
     advanced ARTRA an additional  $54,000.  ARTRA repaid the above advances and
     paid down  $647,000  of the  pre-existing  Lori  liabilities  it assumed in
     conjunction  with the COMFORCE  Global  acquisition as discussed in Note 9.
     The $399,000 advance to ARTRA and the $647,000 payment on pre-existing Lori
     liabilities   made  by  ARTRA  have  been   classified   in  the  Company's
     consolidated   financial   statements  at  December  31,  1995  as  amounts
     receivable from ARTRA.

     Through  1995,  ARTRA  had  provided  certain  financial,   accounting  and
     administrative  services for the Company's corporate entity.  Additionally,
     the Company's  corporate entity had leased its administrative  office space
     from  ARTRA.  During  1995 and 1994,  fees for these  services  amounted to
     $91,000 and $151,000, respectively.

     During 1994,  ARTRA made net advances to Lori of  $2,531,000.  The advances
     consisted  of a  $1,850,000  short-term  note  with  interest  at 10%,  the
     proceeds of which were used to fund the $1,900,000 cash payment to the bank
     in  conjunction  with the  Amended  Settlement  Agreement  with Lori's bank
     lender, and certain non-interest bearing advances used to fund Lori working
     capital requirements.

     Effective  December 29, 1994,  ARTRA exchanged  $2,242,000 of its notes and
     advances for additional Lori Series C preferred  stock.  Additionally,  the
     August 18, 1994 Settlement  Agreement  required ARTRA to contribute cash of
     $1,500,000 and ARTRA common stock with a fair market value of $2,500,000 to
     Lori's capital account.

13.  Equity:

     In March 1996, 4,500 stock options were exercised at an average price of $5
     per share.

     In April 1996, 301,667 warrants were exercised at an average price of $3.12
     per share.

     In April 1996,  in  conjunction  with the purchase of RRA, the Company sold
     8,871  shares of Series E  Preferred  Stock at a selling  price of $550 per
     share for 8,470  shares  and $750 per share for 401  shares.  Each share of
     Series E Preferred Stock will be automatically converted into 100 shares of
     common stock on the date the  Company's  Certificate  of  Incorporation  is
     amended so that the  Company  has a  sufficient  number of  authorized  and
     unissued  shares of common stock to effect the  conversion  and any accrued
     and unpaid dividends have been paid in full.  Holders of shares of Series E
     Preferred  Stock are entitled to dividends  equal to those  declared on the
     common stock, or


                                      F-23
<PAGE>


Notes to Consolidated Financial Statements, Continued


     if no  dividends  are  declared  on the common  stock,  nominal  cumulative
     dividends  payable  only  if the  Series  E  Preferred  Stock  fails  to be
     converted  into common stock by  September 1, 1996.  The Series E Preferred
     Stock  has a  liquidation  preference  of $100 per share  ($887,100  in the
     aggregate for all  outstanding  shares).  Effective as of October 28, 1996,
     each share of Series E Preferred Stock was automatically converted into 100
     shares of common stock.

     In May 1996, the Company sold 7,002 shares of Series D Preferred Stock at a
     selling  price of $1,000  per  share.  The holder of each share of Series D
     Preferred  Stock has the right to convert such shares into 83.33 fully paid
     and nonassessable shares of common stock at any time subsequent to the date
     the  Company's   Certificate  of  Incorporation  is  amended  so  that  the
     Corporation  has sufficient  number of authorized and unissued common stock
     to effect the conversion. Holders of the shares of Series D Preferred Stock
     are entitled to cumulative  dividends of 6% per annum, payable quarterly in
     cash on the first day of February,  May,  August and November in each year.
     The Series D Preferred  Stock has a  liquidation  preference  of $1,000 per
     share ($7,002,000 in the aggregate for all outstanding shares).

     In May 1996,  16,667  warrants  were exercised at an average price of $3.38
     per share.

     In July 1996,  the Company  issued  137,500  shares of common  stock to pay
     certain liabilities.

     In August 1996, 20,000 warrants were exercised at an average price of $2.00
     per share.

     In  September   1996,   27,398   common   shares  were  issued  as  partial
     consideration for the purchase of Force Five. (See Note 3.)

     On October 25,  1996,  the Board  authorized  the  issuance of up to 10,000
     shares of Preferred Stock, par value $0.01 per share, designated the Series
     F Convertible Preferred Stock ("Series F Preferred Stock"). As subsequently
     modified by agreement of the Company and the holders,  each share of Series
     F  Preferred  Stock  will,  (i)  at  the  option  of  the  holder  or  (ii)
     automatically  on the  second  anniversary  of the  date  of  issuance,  be
     converted into such number of shares of Common Stock determined by dividing
     $1,000  plus  all  accrued,  unpaid  dividends  thereon  by the  per  share
     conversion  price.  The conversion  price is 83% of the average closing bid
     price of the Common Stock for the five trading days  immediately  preceding
     the conversion date, subject to certain  limitations.  Holders of shares of
     Series F Preferred  Stock are  entitled to  cumulative  dividends of 5% per
     annum,  payable quarterly on the first day of March, June,  September,  and
     December  in each  year,  payable  in cash or Common  Stock  (valued at the
     closing price on the date of declaration),  at the Company's election.  The
     Series F Preferred Stock has a liquidation preference over the Common Stock
     in the event of any liquidation or sale of the Company. Except as otherwise
     provided  by law,  the  holders  of Series F  Preferred  Stock  will not be
     entitled  to vote.  As of December  31,  1996,  there were 3,250  shares of
     Series F Preferred  Stock  outstanding.  The Company  recorded an accretive
     dividend on Series F Preferred Stock related to the discount noted above of
     $665,000.

     In connection  with the sale of the Series F Preferred  Stock,  the Company
     issued  warrants to purchase  15,000  shares of Common Stock at an exercise
     price of $24.00 per share as a  placement  fee,  which  warrants  expire in
     October 1998.

                                      F-24
<PAGE>

Notes to Consolidated Financial Statements, Continued


     At the  Company's  annual  meeting held on October 28, 1996,  the Company's
     stockholders  ratified or approved,  among other matters, (i) the Company's
     issuance of 3,091,302 shares of its common stock and its agreement to issue
     796,782 additional shares to certain  individuals in consideration of their
     agreement  to  direct  the  Company's  entry  into the  technical  staffing
     business;  (ii) the Company's entering into the technical staffing business
     and exiting the fashion jewelry business and transactions  related thereto,
     including  (a) its  acquisition  of all of the  capital  stock of  Spectrum
     Global  Services,  Inc.  (formerly  d/b/a/Yield  Global and,  following its
     acquisition  by the  Company,  renamed  COMFORCE  Telecom,  Inc.),  (b) its
     issuance of 1,946,667  shares of its common stock plus detachable  warrants
     to purchase 973,333 shares of its common stock in a private placement,  (c)
     its issuance of 100,000  shares and 150,000  shares,  respectively,  of its
     common  stock to ARTRA,  and Peter R.  Harvey,  formerly a director  of the
     Company,  in  consideration  of their  guarantees  in  connection  with the
     transactions,  (d) its  exchange of 100,000  shares of its common  stock to
     ARTRA for the 9,701 shares of the Company's  Series C Preferred  Stock held
     by ARTRA,  and (e) its  disposition  of its  discontinued  fashion  jewelry
     operations;   (iii)  an  amendment   to  the   Company's   Certificate   of
     Incorporation to increase the number of authorized  shares of the Company's
     capital stock from 10,000,000 shares to 100,000,000  shares of common stock
     and from  1,000,000  shares to 10,000,000  shares of Preferred  Stock (upon
     which  approval,  the 8,871  shares of Series E Preferred  Stock which were
     outstanding  automatically  converted to 8,871,000 shares of common stock);
     (iv)  an  amendment  to  the  Company's  Certificate  of  Incorporation  to
     eliminate cumulative voting; (v) and to amend the Company's Long-Term Stock
     Investment  Plan (a) to increase the maximum  number of shares which may be
     issued under such Plan from 1,500,000 to 4,000,000 shares, (b) the grant of
     options  to  non-employee  directors,  and (c) in various  other  respects,
     principally   designed   to  permit  the  Plan   administrator   additional
     flexibility in structuring option grants.

     In November  1996,  111,111  warrants  were  exercised at a price of $9 per
     share.

     In November  1996,  the Company  issued 243,211 shares and 36,800 shares as
     partial consideration for the purchase of Azatar Computer Systems, Inc. and
     Continental Field Services, Inc.

     Effective  December 26, 1996, the Company sold 460,000 shares of its Common
     Stock,  together  with a related  payment  right,  for $3.5  million.  This
     payment  right  requires the Company to make a payment to the  investors in
     either cash or Common Stock, at the Company's option,  equal to the amount,
     if any, by which $10.00 per share exceeds the average closing bid price for
     the ten  trading  days prior to a  specified  payment  date (not later than
     April 1, 1997). See Note 20 for additional rights given to these holders of
     Common Stock.

     In addition,  effective  December 26, 1996, the Company sold 350,000 shares
     of its  Common  Stock,  together  with a related  payment  right,  for $3.5
     million.  This payment right  requires the Company to make a payment to the
     investors in either cash or Common Stock, at the Company's option, equal to
     the amount,  if any, by which $12.05 per share exceeds the average  closing
     bid price for the ten trading  days prior to a specified  payment date (not
     later than May 1,  1997).  In lieu of this  amount,  a payment of $2.05 per
     share will be payable if,  among other  things,  as of April 1, 1997,  such
     average  trading price is between $10.00 and $15.00 and the Company's daily
     trading volume does not meet specified levels.

                                      F-25
<PAGE>

Notes to Consolidated Financial Statements, Continued


     In  connection  with this private  placement of Common  Stock,  the Company
     issued warrants to purchase 198,928 shares of Common Stock at $19 per share
     which  expire on  December  26,  1999.  In  addition,  the  Company  paid a
     placement  fee of 8,000  shares of Common  Stock and  warrants  to purchase
     25,000  shares of Common  Stock at $14.25 per share  (market  price)  which
     expire on December 26, 1999.

     The Company's Series C cumulative  preferred stock,  which was owned in its
     entirety by ARTRA,  accrued  dividends  at the rate of 13% per annum on its
     liquidation  value.  Book value and accumulated  dividends of $7,011,000 on
     this stock  aggregated  $19,515,000  at December  31,  1994.  In the fourth
     quarter of 1995, ARTRA agreed to exchange its Series C cumulative preferred
     stock for 100,000 newly issued shares of the Company's common stock.

14.  Earnings Per Share:

     Earnings per common  share is computed by dividing  net earnings  available
     for common shareholders, by the weighted average number of shares of common
     stock  and  common  stock   equivalents   (stock   options  and  warrants),
     outstanding  during  each  period.   Common  stock  equivalents  relate  to
     outstanding stock options and warrants. For this computation, shares of the
     Series F Preferred Stock are  anti-dilutive  and as such are not considered
     common  stock  equivalents  for this  calculation.  The  shares of Series D
     Preferred  Stock  are  not  considered  common  stock  equivalents  and are
     excluded from primary earnings per share. The dividends  accrued or paid on
     the Series D  Preferred  Stock of  $175,000,  Series E  Preferred  Stock of
     $18,000,  Series F Preferred Stock of $27,000,  and accretive  dividends on
     Series F Preferred  Stock of $665,000,  have been  deducted  for  computing
     earnings available to common shareholders. Fully diluted earnings per share
     have not been presented as the result is  anti-dilutive  or does not differ
     from primary  earnings per share.  Primary earnings per share is calculated
     as follows (in thousands):

<TABLE>
<CAPTION>
                                                       1996       1995        1994
<S>                                                 <C>        <C>         <C>
Earnings (loss) available for common shareholders   $    362  $ (14,886)  $  (9,537)
                                                    ========   ========    ========
Weighted average number of shares outstanding
        for the period                                11,049      4,596       3,195
Dilutive effect of common stock equivalents            1,942
                                                    --------   --------    --------
                                                    $ 12,991   $  4,596    $  3,195
                                                    ========   ========    ========
Primary earnings (loss) per share                   $    .03   $  (3.24)   $  (2.99)
                                                    ========   ========    ========
</TABLE>


15.  Stock Options and Warrants:

     Long-Term Stock Investment Plan

     On December 16, 1993,  Lori's  stockholders  approved the  Long-Term  Stock
     Investment  Plan (the  "1993  Plan"),  effective  January  1,  1993,  which
     authorizes  the grant of options to purchase



                                      F-26
<PAGE>

Notes to Consolidated Financial Statements, Continued


     the Company's  common stock to executives,  key employees and  non-employee
     consultants and agents of the Company and its  subsidiaries.  The 1993 Plan
     authorizes  the  awarding of Stock  Options,  Incentive  Stock  Options and
     Alternative Appreciation Rights. The 1993 Plan reserved 1,500,000 shares of
     the  Company's  common stock for grant on or before  December 31, 2002.  In
     October  1996,  the Stock Option Plan was amended to allow for the issuance
     of an additional  2,500,000 options under the plan for a total of 4,000,000
     shares.

     Incentive Stock Option Plan

     Options to  purchase  common  shares of the  Company  have been  granted to
     certain  officers and key employees  under the 1982 Incentive  Stock Option
     Plan (the "Plan"), which initially reserved 250,000 shares of the Company's
     common stock. On December 19, 1990, the Company's  stockholders approved an
     increase  in the  number of shares  available  for grant  under the plan to
     500,000. The plan expired in 1992.

     Summary of Options

     A summary of stock option transactions for the year ended December 31, 1996
     is as follows:

<TABLE>
<CAPTION>
                                                                  1996                   1995                     1994
 <S>                                                        <C>                     <C>                    <C>
        Outstanding at January 1,
                Shares                                         1,541,378               959,378                 1,098,544
                Prices                                      $1.125 to $6.75         $1.125 to $5.00        $1.125 to $12.19


        Options granted:
                Shares                                         1,120,275               601,250                      --
                Price                                       $6.75 to $27.00         $6.00 to $6.75                  --


        Options exercised:
                Shares                                         (4,500)                    --                     (2,500)
                Price                                           $5.00                     --                      $5.00


        Options cancelled:
                Shares                                       (565,628)                 (19,250)                  (136,666)
                Price                                          $1.125               $3.125 to $5.00          $3.125 to $12.19


    Outstanding at December 31, 1996:
                Shares                                         2,091,525               1,541,378                  959,378
                                                               =========               =========                  =======
                Price                                      $1.125 to $22.75         $1.125 to $6.75           $1.125 to $5.00


        Options exercisable at December 31, 1996               1,537,500                945,128                  940,710
                                                               =========                =======                  =======


        Options available for future grant at
                December 31, 1996                              778,475
                                                               =======
</TABLE>


     Approximately 555,628 of the options shown as cancelled were exercisable as
     of December 31, 1995 at an exercise price of $1.125 per share.  The Company
     maintains that these options


                                      F-27
<PAGE>

Notes to Consolidated Financial Statements, Continued


     terminated in 1996. The former option  holders  maintain that these options
     continue to be  exercisable.  The  Company is  attempting  to resolve  this
     dispute.

     Warrants

     On November 23, 1988, Lori issued warrants to purchase 25,000 of its common
     shares,  at  $4.00  per  share,  to  an  investment  banker  as  additional
     compensation for certain financial and advisory services.  During 1993, the
     warrant holder exercised warrants to purchase 8,750 shares of the Company's
     common stock. At December 31, 1995, such warrants to purchase 16,250 shares
     of the Company's common stock at $4.00 per share remained outstanding.

     Principally during the second and third quarters of 1995, Lori entered into
     a series of agreements  with certain  unaffiliated  investors that provided
     for  $1,800,000  of  short-term  loans that provide for interest at 15%. As
     additional  compensation  certain  lenders  received an aggregate of 91,176
     Lori common shares and certain lenders received warrants to an aggregate of
     195,000  shares of the Company's  common stock at prices ranging from $2.00
     per share to $2.50 per shares, the fair market value at the dates of grant.
     The warrants expire five years from the date of issue.

     The  acquisition  of  COMFORCE  Telecom was funded  principally  by private
     placements of  approximately  1,950,000 of the  Company's  common shares at
     $3.00  per  share  (total  proceeds  of   approximately   $5,800,000)  plus
     detachable  warrants to purchase  973,333 Lori common  shares at $3.375 per
     share. In 1996,  36,667  warrants were exercised for $98,751.  The warrants
     expire five years from the date of issue.

     In April 1996, the Company amended the warrants  included above held by two
     stockholders  to purchase  301,667 shares of the Company's  Common Stock at
     exercise prices ranging from $2.125 to $3.375 per share to permit immediate
     exercise  and to provide  for the  issuance  of  supplemental  warrants  to
     purchase 301,667 at an exercise price of $9.00 per share (market value) for
     each warrant  exercised  on or before April 12, 1996.  Warrants to purchase
     all 301,667  shares were  exercised  in April  1996.  The Company  used the
     proceeds from the exercise of the warrants for working capital purposes.

     In connection  with the sale of the Series F Preferred  Stock,  the Company
     issued  warrants to purchase  15,000  shares of Common Stock at an exercise
     price of $24.00 per share as a  placement  fee,  which  warrants  expire in
     October 1998.

     On December 26, 1996,  the Company  sold 810,000  shares  through a private
     placement.  In connection with this private  placement of common stock, the
     Company issued  warrants to purchase  198,928 shares of common stock at $19
     per share which expire on December 26, 1999 In addition, the Company paid a
     placement  fee of 8,000  shares of common  stock and  warrants  to purchase
     25,000  shares of common  stock at $14.25 per share  (market  price)  which
     expire on December 26, 1999.

     At December 31, 1996 and 1995,  total warrants were outstanding to purchase
     a total of 1,371,844 and 1,184,583 of the Company's common shares at prices
     ranging from $2.00 per share to $24.00 per share. The warrants expire three
     to five years from the date of issue at various dates through 1999.

                                      F-28
<PAGE>

Notes to Consolidated Financial Statements, Continued


     As  discussed  in Note 1,  the  Company  has  applied  the  disclosure-only
     provision SFAS 123. Had compensation cost been determined based on the fair
     value at the grant date  consistent  with the  provisions  of SFAS 123, the
     Company's net income (loss) and earnings (loss) per share would have been
     reduced  to the pro forma  amounts  indicated  below  for the  years  ended
     December 31, 1996 and 1995:

                                                      1996             1995
                                                (in thousands)    (in thousands)

Net income (loss) attributable to common
        shareholders as reported                  $      362        $  (14,886)
                                                  ==========        ==========
Pro forma (loss)                                  $   (1,898)       $  (16,010)
                                                  ==========        ==========
Earnings (loss) per share as reported             $      .03        $    (3.24)
                                                  ==========        ==========
Pro forma                                         $     (.17)       $    (3.48)
                                                  ==========        ==========


     The weighted  average  fair value of each option has been  estimated on the
     date of grant  using  the  Black-Scholes  options  pricing  model  with the
     following  weighted  average  assumptions used for grants in 1996 and 1995,
     respectively:  no dividend  yield;  expected  volatility of 60%;  risk-free
     interest rate (ranging from 5.25% - 6.64%); and expected lives ranging from
     approximately  4.5 to 5.5  years.  Weighted  averages  are used  because of
     varying assumed exercise dates.

     A summary of the status of the Company's  stock option plans as of December
     31,  1996 and 1995,  and  changes  during the years ended on those dates is
     presented below (shares in thousands):

 <TABLE>
<CAPTION>
                                                                    December 31, 1996        December 31, 1995
                                                                   -------------------      --------------------
                                                                               Weighted                 Weighted
                                                                                Average                  Average
                                                                               Exercise                 Exercise
                                                                   Shares       Price       Shares       Price
                                                                   ------       -----       ------       -----
<S>                                                               <C>          <C>        <C>          <C>
Outstanding at beginning of year                                  1,541,378    $  3.24      959,378    $  1.21
        Granted                                                   1,120,275       9.35      601,250       6.48
        Exercised                                                    (4,500)      5.00
        Canceled                                                   (565,628)      1.13      (19,250)      5.00
                                                                -----------             -----------
Outstanding at end of year                                        2,091,525       7.08    1,541,378       3.24
                                                                ===========             ===========

Options exercisable at year end                                   1,537,500                945,128
                                                                ===========             ===========
Weighted average fair value of options granted during the year  $     4.37              $     2.38
                                                                ===========             ===========
</TABLE>

                                      F-29
<PAGE>

Notes to Consolidated Financial Statements, Continued


     The following table summarizes  information about stock options outstanding
     at December 31, 1996 (shares in thousands):

                                Weighted
                                average    Weighted                  Weighted
       Range of                Remaining    Average                   Average
       Exercise     Shares    Contractual  Exercise      Shares     Exercisable
        Prices    Outstanding     Life       Price     Exercisable     Price

          $1              360      6        $   1           360    $      1
          $3               10      6            3            10           3
       $6 to $7         1,431      9            7         1,138           7
      $10 to $12           56      9           12
      $17 to $19          152      9           18            30          17
      $22 to $27            4      9           26
      $14 to $17           79      9           16
                  ------------  -------   -------     ----------  --------
       $1 to $27        2,092      9            7         1,538           6


16.  Litigation:

     Prior to its entry into the Jewelry  Business in 1985, the Company operated
     in excess of 20 manufacturing facilities for the production of, inter alia,
     photocopy  machines,   photographic  chemical  and  paper  coating.   These
     operations  were sold or  discontinued  in the late 1970s and early  1980s.
     Certain  of these  facilities  may have  used  and/or  generated  hazardous
     materials and may have disposed of the hazardous  substances,  particularly
     before the  enactment  of laws  governing  the safe  disposal of  hazardous
     substances,  at an indeterminable number of sites. Although the controlling
     stockholders  and  current  management  had no  involvement  in such  prior
     manufacturing  operations,  the Company could be held to be responsible for
     clean-up  costs  if  any  hazardous  substances  were  deposited  at  these
     manufacturing  sites,  or at off-site waste disposal  locations,  under the
     Comprehensive  Environmental  Response,  Compensation  and Liability Act of
     1980 ("CERCLA"),  or under other Federal or state environmental laws now or
     hereafter  enacted.  However,  except for the Gary,  Indiana site described
     below,  the  Company has not been  notified  by the  Federal  Environmental
     Protection  Agency (the "EPA") that it is a  potentially  responsible-party
     for, nor is the Company  aware of having  disposed of hazardous  substances
     at, any site.

     In  December  1994,  the  Company  was  notified  by the  EPA  that it is a
     potentially  responsible  party under  CERCLA for the disposal of hazardous
     substances at a site in Gary, Indiana. The alleged disposal occurred in the
     mid-1970s  at a  time  when  the  Company  conducted  operations  as  APECO
     Corporation. In this connection, in December 1994, the Company was named as
     one of  approximately  80 defendants in a case brought in the United States
     District  Court  for the  Northern  District  of  Indiana  by a group of 14
     potentially  responsible parties who agreed in a consent order entered into
     with the EPA to clean up this site. The plaintiffs  have estimated the cost
     of cleaning  up this site to be $45 million and have  offered to settle the
     case with the Company for $991,445.  This amount represents the plaintiffs'
     estimate of the  Company's  pro rata share of the  clean-up  costs.  At the
     direction of ARTRA,  which, as described below, is contractually  obligated
     to the Company for any environmental  liabilities,  the Company declined to
     accept this settlement proposal, which was subsequently withdrawn.


                                      F-30
<PAGE>

Notes to Consolidated Financial Statements, Continued


     The  evidence  produced  by the  plaintiffs  to  date  is the  testamentary
     evidence  of  four  former  employees  of a  waste  disposal  company  that
     deposited  wastes at the Gary,  Indiana site  identifying  the Company as a
     customer of such disposal company,  and entries in such disposal  company's
     bookkeeping ledgers showing invoices to the Company. The Company,  however,
     has neither discovered any records which indicate,  nor located any current
     or former employees who have advised,  that the Company deposited hazardous
     substances at the site. Management and its counsel cannot determine whether
     a negative outcome is probable regarding the Company's  potential liability
     at this site.  Accordingly,  no provision  has been made for the  potential
     liability related to this matter.

     Under the terms of the  Assumption  Agreement  and a  subsequent  agreement
     entered  into between  ARTRA and the  Company,  ARTRA has agreed to pay and
     discharge  substantially all of the Company's pre-existing  liabilities and
     obligations,  including environmental liabilities at any sites at which the
     Company allegedly operated facilities or disposed of hazardous  substances,
     whether  or not  the  Company  is  currently  identified  as a  potentially
     responsible  party  therefor.  Consequently,  the  Company is  entitled  to
     indemnification  from ARTRA for any  environmental  liabilities  associated
     with the Gary, Indiana site. In addition, ARTRA has deposited 50,000 shares
     of Common Stock in escrow as additional  collateral to satisfy any judgment
     adverse to the  Company or to pay any agreed  upon  settlement  amount with
     respect to the Gary,  Indiana  site.  Proceeds  from the sale of the shares
     held in escrow might not be  sufficient to satisfy any such judgment or pay
     any such  settlement  amount. While ARTRA is  obligated  to  indemnify  the
     Company for any environmental  liabilities,  no assurance can be given that
     ARTRA  will be  financially  capable of  satisfying  its  obligations  with
     respect to any liability in connection  with the Gary,  Indiana site or any
     other  environmental  liabilities.  ARTRA has  advised  that it  intends to
     vigorously defend this case.

     In  September  1996,  the  Company  received  notice of  litigation  from a
     competitor  who charged  that RRA  obtained  and  benefited  from a list of
     confidential  data provided by a former employee of the competitor prior to
     the  acquisition  of RRA.  RRA has denied  such  charges.  The  Acquisition
     Agreement  provides  for  indemnification  from  any  claims  prior  to the
     acquisition.

     The  Company  is  a  party  to  routine  contract  and   employment-related
     litigation matters in the ordinary course of its business.  No such pending
     matters,  individually or in the aggregate,  if adversely  determined,  are
     believed  by  management  to  be  material  to  the  business,  results  of
     operations or financial condition of the Company.


17.  Savings Incentive and Profit Sharing Plan:

     The Company  participates  in a savings  incentive and profit  sharing plan
     (the "Plan").  All eligible employees may make contributions to the Plan on
     a pre-tax  salary  reduction  basis in  accordance  with the  provisions of
     Section 401(k) of the Internal Revenue Code. No contributions  were made by
     the Company in 1996 and 1995.

     Certain  employees  who work for  governmental  agencies are required to be
     covered under a separate  pension plan.  During 1996, the Company  recorded
     approximately $700,000 of expense related to these benefits.

                                      F-31
<PAGE>

Notes to Consolidated Financial Statements, Continued


18.  Lease Commitments:

     The  Company   leases   certain   office   space  and   equipment   in  its
     telecommunications and computer staffing service business. Rent expense for
     all operating  leases in 1996 and 1995  approximated  $200,000 and $17,000,
     respectively.

     As of December 31, 1996,  future  minimum rent payments due under the terms
     of  noncancelable  operating  leases excluding any amount that will be paid
     for operating costs are:

     Year ending                                 Total
      December                              (in thousands)

        1997                                $        425
        1998                                         410
        1999                                         287
        2000                                         244
        2001                                         218
        Thereafter                                    24
                                            ------------
                                            $      1,608
                                            ============

     The  aggregate  commitment  for  future  salaries  at  December  31,  1996,
     excluding  bonuses,  during  the  remaining  term  of  all  management  and
     employment agreements, are approximately:

      Year ending                               Total
       December                            (in thousands)

        1997                                $      1,372
        1998                                       1,010
        1999                                         602
        2000                                          17
                                            -------------
                                            $      3,001
                                            ============

19.  Concentration of Credit Risk:

     Financial  instruments which potentially subject the Company to credit risk
     consist primarily of cash and cash equivalents and trade receivables.

     The  Company  maintains  cash in bank  accounts  which at times may  exceed
     federally  insured  limits.  The Company has not  experienced any losses in
     such accounts and believes they are not exposed to any  significant  credit
     risk on their cash balances. The Company believes it mitigates such risk by
     investing its cash through major financial institutions.


                                      F-32
<PAGE>

Notes to Consolidated Financial Statements, Continued


     At December 31, 1996, the Company had four  customers,  and at December 31,
     1995, the Company had nine customers with accounts receivable balances that
     aggregated  23%  and  67%  of  the  Company's  total  accounts  receivable,
     respectively.  Percentages of total revenues from significant customers for
     the years ended  December  31,  1996 and from  October 17, 1995 (entry into
     staffing business) to December 31, 1995 are summarized as follows:

                                              December 31,   December 31
                                                  1996         1995

      Customer 1                                  19.0%        17.3%
      Customer 2                                    *          12.6%
      Customer 3                                    *          10.1%

     *Less than 10%.



20.  Subsequent Events:

     On February 28, 1997, the Company purchased all of the stock of RHO Company
     Incorporated  ("RHO") for $14.8 million  payable in cash, plus a contingent
     payout to be paid over three years based on future  earnings of RHO payable
     in stock in an  aggregate  amount  not to exceed  $3.3  million.  The total
     number of  shares  issuable  under the  contingent  payout  can not  exceed
     386,249 shares.  The cash portion of the purchase price paid at closing was
     principally   funded   through  the  Company's   offering  of   convertible
     debentures,  as  described  below.  RHO is a defendant  in a lawsuit by its
     former  insurance  carrier who alleges that RHO is obligated to repay to it
     $1,600,000  that the carrier was required to pay in connection with a claim
     settlement.  The Company is  defending  against  this claim and  management
     believes that the case is without substantial merit.  However, in the event
     of any adverse judgment in the case or if the Company  determines to settle
     the case, any payments relating to this pre-acquisition contingency will be
     added to the purchase price of RHO.

     From  February 27 to March 21, 1997,  the Company sold $25.2 million of its
     Subordinated Convertible Debentures ("Debentures") to certain institutional
     investors  for cash or in  exchange  for shares of the  Company's  Series F
     Preferred Stock (discussed below). The Debentures bear interest at the rate
     of 8% per annum during the 180 day period following  closing and thereafter
     at the rate of 10% per annum  continuing  until  fully  paid or  converted.
     Interest on the Debentures is payable  quarterly in cash or in common stock
     of the Company,  at the Company's option. The Debentures may be redeemed by
     the  Company  in whole or in part at any  time  from the date of  issuance,
     within 360 days after any  disbursement to the Company of net proceeds from
     the sale of  Debentures  at a redemption  price equal to the sum of (i) the
     principal amount thereof,  (ii) all accrued,  unpaid interest thereon,  and
     (iii)  premiums  ranging from 5% (2.5% in the case of Debentures  exchanged
     for Series F Preferred Stock) for Debentures  redeemed within 60 days after
     closing  increasing up to 25% for Debentures  redeemed  between 181 and 360
     days after closing. The Company is currently seeking long-term financing to
     redeem these  Debentures and to provide capital for continued  expansion of
     its operations.

                                      F-33
<PAGE>

Notes to Consolidated Financial Statements, Continued


     From  February 27 to March 21,  1997 the Company  issued or agreed to issue
     three year  warrants  ("Warrants")  to purchase up to 504,000  share of its
     Company's  Common  Stock to the  Debenture  holders.  Warrants  to purchase
     100,800  shares of common stock were issued at the time of the offering and
     become  exercisable six months after closing.  If the debt is not repaid in
     60 days,  the Company will issue  additional  warrants to purchase  100,800
     shares  of common  stock  for each  additional  30 day  period  the debt is
     outstanding  up to issuing an  aggregate  of warrants  to purchase  504,000
     shares of common stock.  The exercise  price of the warrants  issued ranges
     from  $6.85 to $7.65 per  share.  The  Company  is also  required  to issue
     additional warrants  ("Additional  Warrants") to purchase 504,000 shares of
     the Company's  common stock if the Debentures  are not redeemed  within 180
     days following closing. The Additional Warrants will have an exercise price
     equal to the average  closing price of the Company's  common stock over the
     five-day trading period ending 179 days after the closing.

     On  February  27,  1997,  in  connection  with  the sale of $5  million  of
     debentures to various  holders of the Company's  Common Stock  purchased on
     December  26,  1996,  the  Company  issued a put  option  whereby,  if such
     debentures are not repaid by April 28, 1997, May 28, 1997, June 27, 1997 or
     July 27, 1997, such  stockholders  will have the option to put back 115,000
     shares  of Common  Stock at the above  listed  dates,  at $10.00  per share
     payable  in cash,  reduced by the value of any cash or stock  issued  under
     payment rights.

     As part of the issuance of the  Debentures,  the Company has also  effected
     the  repurchase  of 2,750 of the 3,250  outstanding  shares of its Series F
     Preferred Stock by issuing  additional  Debentures in the amount of 115% of
     its  original  principal  amount  ($1,000  per share) for total  Debentures
     issued of  $3,162,500.  Approximately  $3,900,000  of the proceeds from the
     Debenture offering was utilized to repay the Company's bank debt.

<
                                      F-34
<PAGE>

Comforce Corporation and Subsidiaries
Schedule II Valuation and Qualifying Accounts
for the years ended December 31, 1996, 1995 and 1994 (in thousands)



<TABLE>
<CAPTION>

           Column A                                Column B           Column C             Column D       Column E
-----------------------------------------------   ---------     ---------------------     ---------       --------
                                                                   (1)         (2)
                                                  Balance at    Charged to  Charged to                     Balance
          Description                             Beginning     Costs and      Other      Deductions      at end of
                                                  of Period     Expenses     Accounts     (Describe)       Period
                                                  ---------     --------     --------     ----------       ------
<S>                                                 <C>          <C>                      <C>              <C>
For the year ended December 31, 1996:
    Deducted from assets to which they apply:
       Allowance for inventory valuation            $ --         $ --                      $ --             $ --
                                                    ======       ======                    ======           ======
       Allowance for markdowns                      $ --         $ --                      $ --             $ --
       Allowance for doubtful accounts                --            213                           (D)          213
                                                    ------       ------                    ------           ------
                                                    $ --         $  213                    $ --             $  213
                                                    ======       ======                    ======           ======
For the year ended December 31, 1995
    Deducted from assets to which they apply:
       Allowance for inventory valuation            $  207       $   25                    $  232  (A)      $ --
                                                    ======       ======                    ======           ======
       Allowance for markdowns                      $  835       $  291                    $1,126  (A)      $ --
       Allowance for doubtful accounts                 503          424                       927  (A)        --
                                                    ------       ------                    ------           ------
                                                    $1,338       $  715                    $2,053           $ --
                                                    ======       ======                    ======           ======
For the year ended December 31, 1994:
    Deducted from assets to which they apply:
       Allowance for inventory valuation            $4,150       $  218                    $4,161  (B)      $  207
                                                    ======       ======                    ======           ======
       Allowance for markdowns                      $2,499       $4,799                    $6,463  (C)      $  835
       Allowance for doubtful accounts                 432          269                       198  (D)         503
                                                    ------       ------                    ------           ------
                                                    $2,931       $5,068                    $6,661           $1,338
                                                    ======       ======                    ======           ======
</TABLE>


(A) Principally amounts reclassified to discontinued operations.

(B) Principally inventory written off, net of recoveries.

(C) Principally markdowns taken.

(D) Principally uncollectible accounts written off, net of recoveries.

                                      F-35
<PAGE>



RHO Company Incorporated
Index to Financial statements

                                                                 Page

Report of Independent Public Accountants                        F-37
Balance Sheets                                                  F-38
Statements of Income                                            F-39
Statements of Changes in Shareholders,
  Deficit                                                       F-40
Statements of Cash Flows                                        F-41
Notes to Financial Statements                                   F-42




                                      F-36

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




The Board of Directors and Shareholders of
Rho Company Incorporated:

We have audited the accompanying balance sheets of Rho Company Incorporated (a
Washington Corporation) as of December 31, 1995 and 1996, and the related
statements of income, changes in shareholders' deficit and cash flows for the
years then ended. 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 financial position of Rho Company Incorporated as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.



                                             /s/ ARTHUR ANDERSEN LLP


Seattle, Washington,
  January 24, 1997


                                      F-37
<PAGE>

                            RHO COMPANY INCORPORATED

                    BALANCE SHEETS -- DECEMBER 31, 1995 AND 1996
                           (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                     ASSETS

                                                                      1995        1996
                                                                    --------    --------
<S>                                                                 <C>         <C>
CURRENT ASSETS:
   Cash                                                             $    412    $    287
   Restricted cash                                                       705       1,133
   Escrow deposit                                                       --           500
   Accounts receivable, less allowance for doubtful accounts of
     $200 and $180, respectively                                       8,725       7,572
   Prepaid expenses                                                      167         155
                                                                    --------    --------
          Total current assets                                        10,009       9,647
                                                                    --------    --------

FURNITURE AND EQUIPMENT, less accumulated depreciation of $1,065
   and $1,007                                                            513         575
                                                                    --------    --------

OTHER ASSETS                                                             132          51
                                                                    --------    --------
          Total assets                                              $ 10,654    $ 10,273
                                                                    ========    ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Note payable - bank                                              $  6,253    $  6,223
   Current portion of long-term debt, related party                      130         396
   Accounts payable                                                      329         218
   Wages payable                                                         844         647
   Payroll taxes and withholdings payable                              1,167         630
   Accrued interest                                                      147         113
   Accrued vacations, bonuses and other                                  605         625
                                                                    --------    --------
          Total current liabilities                                    9,475       8,852
                                                                    --------    --------

LONG-TERM DEBT, RELATED PARTY                                          9,956       9,268
                                                                    --------    --------
SHAREHOLDERS' EQUITY:
   Common stock; $1.00 par value; authorized 50,000 and 1,000,000
     shares, respectively, issued and outstanding 50,000 shares           50          50
   Other capital                                                        --         2,680
   Deferred stock option charge                                         --        (1,920)
   Retained deficit                                                   (8,827)     (8,657)
                                                                    --------    --------
          Total shareholders' equity                                  (8,777)     (7,847)
                                                                    --------    --------
          Total liabilities and shareholders' equity                $ 10,654    $ 10,273
                                                                    ========    ========
</TABLE>

      The accompanying notes are an integral part of these balance sheets.


                                      F-38
<PAGE>


                            RHO COMPANY INCORPORATED


                              STATEMENTS OF INCOME

              FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
                          (Dollar amounts in thousands)


                                                   1994       1995        1996
                                                 -------     -------     -------

REVENUES                                         $76,170     $83,631     $85,746

COST OF OPERATIONS                                69,157      74,978      76,457
                                                 -------     -------     -------
          Gross profit                             7,013       8,653       9,289

GENERAL AND ADMINISTRATIVE EXPENSES                5,266       6,510       7,512
                                                 -------     -------     -------
          Income from operations                   1,747       2,143       1,777
                                                 -------     -------     -------

OTHER EXPENSES:
   Stock option expense                             --          --           260
   Interest expense, net                           1,435       1,643       1,317
                                                 -------     -------     -------
          Total other expenses                     1,435       1,643       1,577
                                                 -------     -------     -------
          Net income                             $   312     $   500     $   200
                                                 =======     =======     =======




        The accompanying notes are an integral part of these statements.


                                      F-39
<PAGE>


                            RHO COMPANY INCORPORATED

                 STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT

              FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
                          (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                   Deferred
                                                     Stock                   Total
                               Common     Other     Option     Retained  Shareholders'
                                Stock    Capital    Charge     Deficit      Deficit
                               -------   -------    -------    -------      -------
<S>                            <C>       <C>        <C>        <C>          <C>
BALANCE, December 31, 1993     $    50   $  --      $  --      $(9,534)     $(9,484)

   Net income                     --        --         --          312          312
                               -------   -------    -------    -------      -------
BALANCE, December 31, 1994          50      --         --       (9,222)      (9,172)

   Net income                     --        --         --          500          500
   Dividends paid                 --        --         --         (105)        (105)
                               -------   -------    -------    -------      -------
BALANCE, December 31, 1995          50      --         --       (8,827)      (8,777)

   Net income                     --        --         --          200          200
   Dividends paid                 --        --         --          (30)         (30)
   Stock option granted           --       2,180     (2,180)      --           --
   Amortization of deferred
     stock option charge          --        --          260       --            260
   Treasury stock subscribed      --        (567)      --         --           (567)
   Common stock subscribed        --       1,067       --         --          1,067
                               -------   -------    -------    -------      -------
BALANCE, December 31, 1996     $    50   $ 2,680    $(1,920)   $(8,657)     $(7,847)
                               =======   =======    =======    =======      =======

</TABLE>



          The accompanying notes are an integral part of these statements.


                                      F-40
<PAGE>


                            RHO COMPANY INCORPORATED


                            STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
                          (Dollar amounts in thousands)


                                                    1994       1995       1996
                                                  -------    -------    -------
OPERATING ACTIVITIES:
   Net income                                     $   312    $   500    $   200
   Depreciation                                       196        223        268
   Amortization of intangible assets                    4          4         35
   Loss on retirement of furniture and fixtures      --           17          4
   Deferred income taxes                              (37)      --         --
   Stock option expense                              --         --          260
   Net change in current assets and liabilities-
      Accounts receivable and other                (1,559)    (1,778)     1,153
      Prepaid expenses                                214        (70)        12
      Accounts payable                                 60        200       (111)
      Wages payable                                   139          9       (197)
      Payroll taxes and withholdings payable           72        296       (537)
      Accrued interest                                 40         15        (34)
      Accrued vacations, bonuses and other            (56)       110         20
                                                  -------    -------    -------
          Cash flows from operating activities       (615)      (474)     1,073
                                                  -------    -------    -------
INVESTING ACTIVITIES:
   Purchase of furniture and equipment               (136)      (334)      (334)
   Decrease (increase) in other assets                 (8)       (24)        46
                                                  -------    -------    -------
          Cash flows from investing activities       (144)      (358)      (288)
                                                  -------    -------    -------
FINANCING ACTIVITIES:
   Increase in restricted cash                       (591)       (35)      (428)
   (Decrease) increase in bank borrowings           1,482      1,302        (30)
   Borrowings of long-term debt                       114        168       --
   Repayments of long-term debt                      (270)      (266)      (422)
   Dividends paid                                    --         (105)       (30)
                                                  -------    -------    -------
          Cash flows from financing activities        735      1,064       (910)
                                                  -------    -------    -------
(DECREASE) INCREASE IN CASH                           (24)       232       (125)

CASH, beginning of year                               204        180        412
                                                  -------    -------    -------
CASH, end of year                                 $   180    $   412    $   287
                                                  =======    =======    =======

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid during the year for-
     Interest                                     $ 1,395    $ 1,628    $ 1,351
     Income taxes                                       8          8         43




        The accompanying notes are an integral part of these statements.



                                      F-41
<PAGE>


                            RHO COMPANY INCORPORATED


                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1996

                          (Dollar amounts in thousands)



1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Description of Business

The Company markets the services of temporary technical and clerical people to
various industries located primarily in the states of Washington and California.

Furniture and Equipment

Furniture and equipment are recorded at cost less accumulated depreciation.
Depreciation is provided using the straight-line and accelerated methods over
expected useful lives of three to seven years.

Income Taxes

The Company has elected S-corporation status for reporting taxable income. Any
income or loss from the corporation is reportable on the personal returns of the
stockholders.

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 at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates and those
differences could be significant.

Reclassifications

Certain reclassifications have been made to the prior year statements to conform
to the current year format.

2.  RESTRICTED CASH:

Collections of accounts receivable are deposited in a restricted collateral
account used for repayment of advances under the Company's bank line of credit.
The balance in the collateral account at December 31, 1995 and 1996 was $705 and
$1,133, respectively, shown in the accompanying balance sheets. The remaining
cash balance is unrestricted.



                                      F-42
<PAGE>

3.  NOTE PAYABLE - BANK:

The Company has available a line of credit for up to $7.5 million in borrowings,
bearing interest at the bank's prime rate plus .875% (9.125% at December 31,
1996), collateralized by accounts receivable. The line of credit is limited to
75% of eligible accounts receivable and requires collections to be deposited in
a restricted collateral account. The outstanding balance on the line of credit
was $6,223 at December 31, 1996. The loan agreement contains various covenants,
including minimum levels of working capital and net worth. The loan agreement
expires June 15, 1997. Although there can be no assurance, the Company
anticipates it will be able to renew the line of credit. If it were not able to
renew the line of credit or obtain other acceptable financing, it then could
have adverse consequences, including possible cessation of operations.

4.  LONG-TERM DEBT:

Long-term debt as of December 31, 1995 and 1996 consists of the following:

<TABLE>
<CAPTION>
                                                                                   1995        1996
                                                                                 --------    --------
<S>                                                                              <C>         <C>
Subordinated notes payable to former stockholder in monthly installments equal
  to 55% of average monthly net income, as defined, or $50, whichever is
  greater, with total minimum payments of $195 per quarter, including interest
  at 6.6% (10.5% prior to January 1, 1996), collateralized by a stock pledge
  agreement with shareholders of Rho Company Incorporated                        $  6,882    $  6,531

Subordinated note payable to former stockholder, 9.125%, collateralized by
  accounts receivable, subordinate to the bank line of credit. Due on demand,
  but stockholder does not intend to call the note before January 1, 1998           1,548       1,548

Subordinated note payable to stockholder, 9.125%, collateralized by
   accounts receivable, subordinate to the bank line of credit
   Due on demand, but stockholder does not intend to call the note
   before January 1, 1998                                                           1,369       1,369

Subordinated note payable to stockholder, 9.125%, collateralized by
   accounts receivable, subordinate to the bank line of credit
   Due on demand, but stockholder does not intend to call the note
   before January 1, 1998                                                             178         178

Other                                                                                 109          38
                                                                                 --------    --------
                                                                                   10,086       9,664
Less- Current portion                                                                (130)       (396)
                                                                                 --------    --------
                                                                                 $  9,956    $  9,268
                                                                                 ========    ========
</TABLE>

All of the notes payable agreements are with related parties. Total interest
expense related to these notes was $987, $1,038 and $744 for the years ended
December 31, 1994, 1995 and 1996.



                                      F-43
<PAGE>


Effective as of January 1, 1996, the Company's 10.5% subordinated notes were
modified to provide for a new interest rate of 6.6% and for accelerated payments
based on net income. The noteholder was granted an option to purchase up to 25%
of the Company's common stock (after giving effect to the exercise of the
option) at a price based on a formula. The noteholder has the right to use the
interest calculated using the difference between the old interest rate and the
new lower interest rate as a credit toward the option price. The Company has
valued the option using the fair value method. The option was valued at $2,180
based on the present value of the foregone interest payments under the modified
note agreement. This amount is being amortized using the effective interest
method over the life of the note payable.

Debt maturities on these notes are as follows:

      1997                                            $  396
      1998                                             3,478
      1999                                               409
      2000                                               436
      2001                                               466
      Thereafter                                       4,479
                                                      ------
                                                      $9,664
                                                      ======

5.  LEASE COMMITMENTS:

The Company  leases office and storage space and equipment  under  noncancelable
operating leases. Future minimum rentals are as follows:

     Year ending December 31,
     ------------------------
             1997                                   $  608
             1998                                      547
             1999                                      389
             2000                                      337
             2001                                       99
                                                    ------
                                                    $1,980
                                                    ======

Rental expense under operating leases totaled $316, $457 and $659 for the years
ended December 31, 1994, 1995 and 1996, respectively.

6.  COMMITMENTS:

The Company has covenant not-to-compete agreements with the former stockholders
of an acquired/merged company. Payments under the agreements are the greater of:
(a) $50 per year for five years; or (b) 8% of the gross margin (defined as gross
billings minus temporary employee wages) generated by the merged company's
clients.

The minimum future payment under these covenant not-to-compete agreements is $50
for the year ending December 31, 1997.

The Company expensed $236, $167 and $118 under these agreements for the years
ended December 31, 1994, 1995 and 1996, respectively.


                                      F-44
<PAGE>


7.  EMPLOYEE BENEFIT PLAN:

The Company has a qualified 401(k) profit sharing plan covering eligible
employees. The plan provides for contributions by the Company without regard to
current or accumulated earnings at the discretion of the Board of Directors. The
Company did not make any matching contributions to the plan for the years ended
December 31, 1994 and 1995. Matching contributions totaling $44 were made during
the year ended December 31, 1996.

8.  MAJOR CUSTOMERS:

During the year ended December 31, 1996, the Company had two customers with
sales greater than 10% of the Company's revenues. Contracts with one customer in
the software industry accounted for approximately $22,600, $29,000 and $26,100,
of the Company's sales for the years ended December 31, 1994, 1995 and 1996,
respectively. As of December 31, 1995 and 1996, this customer's accounts
receivable balance was $1,540 and $680, respectively. Contracts with one
customer in the aerospace industry accounted for approximately $12,800 of the
Company's sales for the year ended December 31, 1996. As of December 31, 1996,
this customer's accounts receivable balance was $1,484. Contracts with these two
customers can be terminated at any time with 30 days' notice.

9.  PRIOR PERIOD ADJUSTMENT:

During 1995, the Company began accruing for vacations earned but unpaid to its
permanent employees and the portion of bonuses earned but unpaid to its contract
employees. The effect of this correction on the prior year financial statements
was as follows:

Net income, year ended December 31, 1994, as
   previously reported                                   $   364
Less:  Adjustment for correction of error                    (52)
                                                         -------
Net income, year ended December 31, 1994, as restated    $   312
                                                         =======

Retained deficit, as previously reported for
   December 31, 1993                                     $(9,221)
Less:  Adjustment for correction of error                   (313)
                                                         -------
Retained deficit, as restated for December 31, 1993      $(9,534)
                                                         =======

10.  CONTINGENCIES:

The Company is the defendant in litigation with a previous insurer regarding a
settlement paid by the insurer which the insurer alleges should be indemnified
by the Company in the amount of approximately $1.6 million. The Company is
vigorously defending the lawsuit and management, in consultation with legal
counsel, believes it is more likely than not that the Company will prevail. In
November 1996, the Court granted a motion for summary judgment to dismiss the
case in favor of the Company. The plaintiff may still appeal the decision.


                                      F-45
<PAGE>


11.  PURCHASE AGREEMENT:

The stockholders of the Company have signed a definitive purchase agreement
whereby the Company will repurchase their shares concurrent with issuing shares
to COMFORCE Corporation. COMFORCE would then own all of the outstanding shares
of the Company. As part of this agreement, COMFORCE has advanced, on behalf of
the Company, $567 to a shareholder as a prepayment for the purchase of his
shares, which represent 1/3 of the outstanding shares of the Company. This
amount represents treasury stock subscribed and is shown as a reduction of
shareholders' equity. COMFORCE has also placed $500 in an earnest money escrow
account. In the event the stock purchase agreement fails to close as a result of
a breach of or material representative by the Company, the Company would be
required to return the entire $1,067 to COMFORCE, which was advanced as common
stock subscribed.


                                      F-46
<PAGE>






                                  EXHIBIT INDEX

2.1       Stock  Purchase  Agreement  dated  September  11, 1995 among  Spectrum
          Technologies,  Inc., the Company,  COMFORCE  Corporation,  ARTRA Group
          Incorporated,  Peter R.  Harvey,  Marc L.  Werner,  James L.  Paterek,
          Michael  Ferrentino and Christopher P. Franco  (included as an exhibit
          to the Company's  Current Report on Form 8-K dated  September 11, 1995
          and incorporated herein by reference).

2.2       Purchase   Agreement   among   COMFORCE   Telecom,    Inc.,   Williams
          Communications  Services,  Inc.  and Bruce  Anderson  (included  as an
          exhibit to the  Company's  Current  Report on Form 8-K dated March 13,
          1996 and incorporated herein by reference).

2.3       Stock  Purchase  Agreement  effective  as of May 13,  1996  among  the
          Company,  COMFORCE Technical Services,  Inc., Project Staffing Support
          Team,  Inc.,  Raphael  Rashkin and  Stanley  Rashkin  (included  as an
          exhibit to Amendment No. 1 to the Company's  Quarterly  Report on Form
          10-Q/A for the  quarter  ended  March 31,  1996 filed May 16, 1996 and
          incorporated herein by reference).

2.4       Asset  Purchase  Agreement  effective  as of May 13,  1996  among  the
          Company,   COMFORCE  Technical  Services,   Inc.,  DataTech  Technical
          Services,  Inc.,  Raphael Rashkin and Stanley Rashkin  (included as an
          exhibit to Amendment No. 1 to the Company's  Quarterly  Report on Form
          10-Q/A for the  quarter  ended  March 31,  1996 filed May 16, 1996 and
          incorporated herein by reference).

2.5       Asset  Purchase  Agreement  effective  as of May 13,  1996  among  the
          Company, COMFORCE Technical Services, Inc., RRA, Inc., Raphael Rashkin
          and Stanley Rashkin  (included as an exhibit to Amendment No. 1 to the
          Company's  Quarterly Report on Form 10-Q/A for the quarter ended March
          31, 1996 filed May 16, 1996 and incorporated herein by reference).

2.6       Letter  Agreement dated May 6, 1996 amending Asset Purchase  Agreement
          effective  as of May 13, 1996 among the  Company,  COMFORCE  Technical
          Services,  Inc.,  RRA,  Inc.,  Raphael  Rashkin  and  Stanley  Rashkin
          (included as an exhibit to Amendment No. 1 to the Company's  Quarterly
          Report on Form 10-Q/A for the  quarter  ended March 31, 1996 filed May
          16, 1996 and incorporated herein by reference).

2.7       Letter  Agreement  dated April 19, 1996 among CTS  Acquisition  Co. I,
          COMFORCE Technical Services, Inc., Project Staffing Support Team, Inc.
          and RRA,  Inc.  (included  as an  exhibit  to  Amendment  No. 1 to the
          Company's  Quarterly Report on Form 10-Q/A for the quarter ended March
          31, 1996 filed May 16, 1996 and incorporated herein by reference).

2.8       Agreement  and Plan of  Reorganization  dated October 22, 1996 between
          AZATAR Computer Systems,  Inc. and the Company (included as an exhibit
          to the Company's Current Report on Form 8-K dated November 8, 1996 and
          incorporated herein by reference).

2.9       Asset  Purchase   Agreement  dated  October  25,  1996  by  and  among
          Continental  Field  Services  Corporation,  Michael Hill, Roy Hill and
          COMFORCE  Telecom,  Inc.  (included  as an  exhibit  to the  Company's
          Current  Report on Form 8-K dated  November 19, 1996 and  incorporated
          herein by reference).

2.10      Asset Purchase  Agreement  dated October 25, 1996 between  Progressive
          Telecom,  Inc., Beth Wilson Hill and COMFORCE Telecom,  Inc. (included
          as an  exhibit  to the  Company's  Current  Report  on Form 8-K  dated
          November 19, 1996 and incorporated herein by reference).

2.11      Amendment to Escrow  Agreement and Purchase  Agreements dated November
          8,  1996  by  and  among   Continental   Field  Service   Corporation,
          Progressive  Telecom,  Inc., Michael Hill, Roy Hill, Beth Wilson Hill,
          McCarthy,  Fingar, Donovan, Drazen & Smith, and COMFORCE Telecom, Inc.
          (included as an exhibit to the  Company's  Current  Report on Form 8-K
          dated November 19, 1996 and incorporated herein by reference).


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<PAGE>


2.12      Subscription  Agreement  dated  October  28,  1996  by and  among  RHO
          Company,  Inc.,  J. Scott  Erbe,  COMFORCE  Corporation  and  COMFORCE
          Technical  Services,  Inc.  (included  as an exhibit to the  Company's
          Current  Report on Form 8-K dated  November 19, 1996 and  incorporated
          herein by reference).

2.13      Stock Sale and  Termination  Agreement  dated  October 28, 1996 by and
          between  James R.  Ratcliff  and RHO  Company,  Inc.  (included  as an
          exhibit to the Company's Current Report on Form 8-K dated November 19,
          1996 and incorporated herein by reference).

2.14      Letter  Agreement  dated  November  4, 1996  amending  Stock  Sale and
          Termination Agreement between RHO Company, Inc. and James R. Ratcliff.
          (included as an exhibit to the  Company's  Current  Report on Form 8-K
          dated November 19, 1996 and incorporated herein by reference).

3.1       Restated  Certificate of Incorporation  of the Company,  as amended by
          Certificates of Amendment  filed with the Delaware  Secretary of State
          on June 14,  1987 and  February  12, 1992  (included  as an exhibit to
          Amendment  No.  1 to the  Registration  Statement  on Form  S-1 of the
          Company  filed with the  Commission  on May 10, 1996 and  incorporated
          herein by reference).

3.2       Certificate  of Ownership  (Merger) of COMFORCE  Corporation  into the
          Company (included as an exhibit to the Company's Annual Report on Form
          10-K for the year ended December 31, 1995 and  incorporated  herein by
          reference).

3.3       Designation  of Rights and  Preferences  of Series D  Preferred  Stock
          (included as an exhibit to Amendment No. 1 to the Company's  Quarterly
          Report on Form 10-Q/A for the  quarter  ended March 31, 1996 filed May
          16, 1996 and incorporated herein by reference).

3.4       Designation  of Rights and  Preferences  of Series E  Preferred  Stock
          (included as an exhibit to Amendment No. 1 to the Company's  Quarterly
          Report on Form 10-Q/A for the  quarter  ended March 31, 1996 filed May
          16, 1996 and incorporated herein by reference).

3.5*      Designation of Rights and Preferences of Series F Preferred Stock.

3.6       Certificate of Ownership (Merger) of AZATAR into the Company (included
          as an  exhibit  to the  Company's  Current  Report  on Form 8-K  dated
          November 8, 1996 and incorporated herein by reference).

3.7*      Bylaws  of the  Company,  as  amended  and  restated  effective  as of
          February 26, 1997.

3.8*      Certificate  of  Elimination  of  Series E  Convertible  Participating
          Preferred Stock.

10.1      Management Agreement dated as of April 9, 1993 between the Company and
          Nitsua,  Ltd. (a corporation  wholly-owned by Austin Iodice,  formerly
          Lori's Chairman and Chief Executive  Officer)  (included as an exhibit
          to the  Company's  Annual  Report  on Form  10-K  for the  year  ended
          December 31, 1992 and incorporated herein by reference).

10.2      Letter Agreement dated June 29, 1995,  among the Company,  ARTRA Group
          Incorporated,  James L. Paterek, Michael Ferrentino and Christopher P.
          Franco (included as an exhibit to the Company's Current Report on Form
          8-K dated September 11, 1995 and incorporated herein by reference).

10.3      Amendment  dated  October 6, 1995 of Letter  Agreement  dated June 29,
          1995, among the Company,  ARTRA Group Incorporated,  James L. Paterek,
          Michael  Ferrentino and Christopher P. Franco  (included as an exhibit
          to the  Company's  Annual  Report  on Form  10-K  for the  year  ended
          December 31, 1995 and incorporated herein by reference).


                                       E-2

<PAGE>


10.4      Employment  Agreement  dated  December 9, 1995 between the Company and
          Michael  Ferrentino  (included as an exhibit to the  Company's  Annual
          Report  on  Form  10-K  for the  year  ended  December  31,  1995  and
          incorporated herein by reference).

10.5      Employment  Agreement  dated  December 9, 1995 between the Company and
          Christopher  Franco  (included as an exhibit to the  Company's  Annual
          Report  on  Form  10-K  for the  year  ended  December  31,  1995  and
          incorporated herein by reference).

10.6      Assumption  Agreement  dated  October 17, 1995 between the Company and
          ARTRA   GROUP   Incorporated    respecting   ARTRA's   assumption   of
          substantially all of the Company's pre-existing  liabilities (included
          as an exhibit to the Company's Annual Report on Form 10-K for the year
          ended December 31, 1995 and incorporated herein by reference).

10.7      Loan Agreement between COMFORCE Telecom, Inc. and Chase Manhattan Bank
          (included as an exhibit to the  Company's  Current  Report on Form 8-K
          dated March 13, 1996 and incorporated herein by reference).

10.8      Asset  Purchase  Agreement  dated as of April 11, 1996 among  Lawrence
          Jewelry Corporation, ARTRA GROUP Incorporated, the Company and Hanover
          Advisors,  Inc.  respecting  the  disposition  of  the  assets  of the
          Company's  Jewelry  Business  (included as an exhibit to the Company's
          Annual  Report on Form 10-K for the year ended  December  31, 1995 and
          incorporated herein by reference).

21.1*    List of  Subsidiaries

27.1*    Financial Data Schedule
----------

*    Filed herewith.



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