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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K


                 ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For The Fiscal Year Ended December 31, 1997


                         Commission file number: 0-21533


                            TEAM AMERICA CORPORATION
                (Name of registrant as specified in its charter)

             OHIO                                      31-1209872
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
 incorporation or organization)


                            110 E. WILSON BRIDGE ROAD
                             WORTHINGTON, OHIO 43085
               (Address of principal executive offices)(Zip Code)

                                 (614) 848-3995
                         (Registrant's telephone number,
                              including area code)

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

    Securities registered pursuant to Section 12(g) of the Act: Common Stock,
                                  no par value


         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, and (2) has been subject to the filing
requirements for at least the past 90 days. YES X  NO
                                               ---   ---

         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 definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]

         Aggregate market value of voting stock held by non-affiliates of
registrant as of March 16, 1998 was approximately $30,761,147.

         There were 4,772,422 shares of the Registrant's Common Stock
outstanding at March 16, 1998.

DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrant's Proxy Statement for the 1998 Annual
Meeting of the Stockholders are incorporated by reference in Part III.





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                                     PART I

ITEM 1.           BUSINESS.

GENERAL

         TEAM America Corporation (the "Company") is a Professional Employer
Organization ("PEO") which was founded in 1986 and incorporated in Ohio in 1987.
The Company through its subsidiaries provides comprehensive and integrated human
resource management services to small and medium-sized businesses, thereby
allowing such businesses to outsource their human resource responsibilities. The
Company offers a broad range of services including human resource
administration, regulatory compliance management, employee benefits
administration, risk management services and employer liability protection,
payroll and payroll tax administration, and placement services. The Company
provides such services by establishing an employment relationship with the
worksite employees of its clients, contractually assuming substantial employer
responsibilities with respect to worksite employees, and instructing its clients
regarding employment practices. While the Company becomes the legal employer for
most purposes, the client remains in operational control of its business. The
Company has expanded its business in 1997 through acquisitions. Four
acquisitions were completed in 1997; one each in Ohio, California, Michigan and
Idaho. These acquisitions added 800 clients and 6,250 worksite employees. As of
December 31, 1997, the Company provided professional employer services to
approximately 1,050 clients and approximately 10,500 worksite employees, located
in the midwestern, northwestern/intermountain and western regions of the United
States. This compares with 241 clients and 3,646 worksite employees, primarily
all located in Ohio at December 31, 1996.

         By entering into an agreement with its clients whereby the Company
participates with the client in the employment of its worksite employees, the
Company is able to take advantage of certain economies of scale in the "business
of employment" and to pass those benefits on to its clients and worksite
employees. As a result of such employment arrangements, the Company is able to
obtain, at an economical cost, services and expertise similar to those provided
by the human resource departments of large companies. The Company's services
provide substantial benefits to both the client and its worksite employees. The
Company believes its services assist business owners by (i) permitting the
managers of the client to concentrate on the client's core business as a result
of the reduced time and effort that they are required to spend dealing with
complex human resource, legal and regulatory compliance issues and employee
administration, and (ii) managing escalating costs associated with unemployment,
workers' compensation, health insurance coverage, worksite safety programs and
employee-related litigation. The Company also believes that its worksite
employees benefit from their relationship with the Company by having access to
better, more affordable benefits, enhanced benefit portability, improved
worksite safety and employment stability.

         The Company believes that there are opportunities for growth in the PEO
industry as a result of the increasing trend of businesses to outsource non-core
activities and functions, the low market penetration of the PEO industry, and
the expanding number of small businesses in the United States. The Company also
believes that growing human resource, legal and regulatory complexities and the
need to invest significant capital in service delivery infrastructures and
management information systems should lead to significant consolidation
opportunities in the PEO industry.

GROWTH STRATEGY

         The Company intends to further strengthen its position in various U.S.
markets by pursuing the following business strategies:

         Deliver High-Quality Services and Expand Client Base. By offering a
broad and increasing range of high-quality services, the Company believes it is
attractive to employers who are seeking a single-source solution to their human
resource needs. The Company intends to continue to focus on providing
high-quality, value-added services as a means to differentiate itself from
competitors. Certain PEOs compete primarily by offering comparatively lower-cost
health and workers' compensation coverage to high risk industries or by
providing principally basic payroll and payroll tax administration with only
limited additional services. In contrast, the Company provides comprehensive and
integrated human resource management to clients who are selected after
performing a risk management assessment. The Company believes that its strategy
of emphasizing the quality and breadth of its services results in lower client
turnover and more consistent growth and profits than the strategy of certain
PEOs which compete by offering comparatively lower-cost coverage or limited
services.

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         Increase Penetration of Existing Markets. The Company believes that
additional market penetration in established markets offers significant growth
potential. The Company believes that less than 2.0% of the total number of
businesses having more than 20 and fewer than 500 employees are in a PEO
relationship. In established markets, the Company's ability to achieve its
growth objectives is enhanced by a larger number of referrals, a higher client
retention rate, a more experienced sales force and greater momentum in its
marketing efforts than in new markets. The Company intends to capitalize on
these advantages and to achieve higher penetration in its existing markets by
hiring additional sales personnel and improving sales productivity. In addition,
the Company intends to increase significantly its advertising and promotional
efforts in order to educate the market place regarding the quality and breadth
of the Company's services and the benefits of "partnering in employment" through
outsourcing the human resource function. The Company believes that increasing
its penetration in existing markets will allow the Company to leverage its
current economies of scale, thereby increasing its cost effectiveness and profit
margins.

         Expand Through Acquisitions. The PEO industry is highly fragmented,
with in excess of 2,300 companies providing PEO services in 1997 according to
the National Association of Professional Employer Organizations ("NAPEO").
Accordingly, the Company believes significant opportunities for consolidation
exist in the PEO industry. The Company believes that this industry consolidation
will be driven by growing human resource, legal and regulatory complexities,
increasing capital requirements, and the significant economies of scale
available to PEOs with a regional concentration of clients. The Company intends
to expand in its current markets in the midwestern United States and possibly to
enter selected new markets by acquiring established high-quality PEOs in order
to provide a platform for future regional consolidation. The Company has
identified certain fundamental attributes which characterize attractive markets
such as (i) proximity to a major metropolitan area, (ii) regulatory receptivity
to PEOs, (iii) prior successful introduction of the PEO concept, (iv) favorable
economic conditions, and (v) a high concentration of small to medium-sized
businesses.

         The Company completed four acquisitions of PEO businesses in 1997 and
three to date in 1998. In addition, as of March 16, 1998, the Company has signed
contracts for the acquisition of two more PEO's. See "Business -- Acquisitions."

         Develop Proprietary Information Systems. The Company will continue to
develop its proprietary information systems which will enable the Company to
integrate all aspects of the administration of payroll, human resources and
employee benefits, thereby providing a significant competitive advantage in
managing costs and delivering a full range of high-quality services.

         Target Selected Clients in Growth Industries. The Company attempts to
target, and tailors its services to meet the needs of, businesses with between 5
and 500 employees in industries which the Company believes have the potential
for significant growth. As of December 31, 1997, the Company's clients had an
average of approximately 10 worksite employees. The Company believes that its
targeted businesses are likely to (i) desire the wide range of employee benefits
offered by the Company, (ii) recognize the burden of their human resource
administration costs, (iii) experience greater employment-related regulatory
burdens, and (iv) be more financially stable. In addition, the Company believes
that targeting such businesses results in greater marketing efficiency, lower
business turnover due to client business failure, and less exposure to credit
risk.

ACQUISITIONS

         On March 21, 1997, the Company acquired Alternative Employee
Management, Inc. ("AEM") for approximately $471,000, consisting of the issuance
of 40,615 shares of the Company's Common Stock valued at $9.75 per share, and
$75,000 in cash (the "AEM Acquisition"). An additional cash payment of $186,000
was made in connection with a related noncompetition agreement. AEM was an PEO
headquartered in Dover, Ohio with approximately 650 worksite employees. AEM
merged with TEAM America of Ohio, Inc., a wholly-owned subsidiary of the
Company, on July 1, 1997.

         On September 8, 1997, the Company acquired Workforce Strategies, Inc.
("Workforce") for approximately $8,081,000, consisting of the issuance of
494,516 shares of the Company's Common Stock valued at $8.50 per share,
$3,877,755 in cash, and options to purchase 176,037 shares of the Company's
Common Stock at $8.50 per share (the "Workforce Acquisition"). Workforce was a
PEO with approximately 1,800 worksite employees and was headquartered

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in Lafayette, California. Workforce merged with and into TEAM America of
California, Inc., a wholly-owned subsidiary of the Company, on September 8,
1997.

         On October 6, 1997, the Company acquired The Personnel Department,
Incorporated ("PDI") for approximately $2,807,000, consisting of the issuance of
68,468 shares of the Company's Common Stock valued at $10.25 per share and
$2,105,400 in cash (the "PDI Acquisition). PDI, and related entities, The
Personnel Department - Midwest, Incorporated, PTM Management Company,
Incorporated, and The Personnel Department of Metropolitan Detroit, Inc., are
PEOs with approximately 500 worksite employees combined located primarily in
Michigan.

         On October 31, 1997, the Company acquired Aspen Consulting Group, Inc.
("Aspen") for approximately $10,000,000, consisting of the issuance of 727,273
shares of the Company's Common Stock valued at $11.00 per share and $2,000,000
in cash (the "Aspen Acquisition"). Aspen was a PEO with approximately 3,000
worksite employees located in Idaho, Montana, Utah and Oregon. TEAM America of
Idaho, Inc., a wholly-owned subsidiary of the Company, merged with and into
Aspen on October 31, 1997. Aspen is also referred to as TEAM America West.

         On January 2, 1998, the Company acquired Staff-Link, Incorporated
("Staff-Link") and The Cardinal Group, Inc. ("Cardinal") for approximately
$1,050,000, consisting of the issuance of 84,050 shares of the Company's Common
Stock valued at $10.00 per share, and $210,000 in cash (the "Staff-Link
Acquisition"). Staff-Link and Cardinal were PEOs located in Tennessee, Alabama,
and Mississippi which combined had a total of approximately 800 worksite
employees. Staff-Link merged with and into TEAM America Mid-South, Inc., a
wholly-owned subsidiary of the Company, and Cardinal merged with and into TEAM
America of Tennessee, Inc., a wholly-owned subsidiary of the Company, on January
2, 1998.

         On March 1, 1998, the Company acquired Paymaster, Inc. ("Paymaster")
for approximately $625,000, consisting of the issuance of 52,500 shares of the
Company's Common Stock valued at $10.00 per share, and $100,000 in cash (the
Paymaster Acquisition"). Paymaster was a PEO located in Utah with approximately
500 worksite employees. Paymaster has been renamed TEAM America of Utah, Inc.

         On March 15, 1998, the Company acquired Company 1, Inc. ("Company 1")
for approximately $115,350, consisting of the issuance of 9,228 shares valued at
$10.00 per share, and $23,070 in cash (the Company 1 Acquisition). Company 1 was
a PEO located in Montana with approximately 200 worksite employees. Company 1
has been renamed TEAM America of Montana, Inc.

CLIENT SERVICES

         Client Service Teams. The Company has client service directors who
oversee a service staff consisting of customer service representatives ("CSRs")
and customer service administrators. A team consisting of a client service
director, a client service representative and a client service administrator is
assigned to each client. The client service team is responsible for
administering the client's personnel and benefits, coordinating the Company's
response to client needs for administrative support and responding to any
questions or problems encountered by the client.

         The CSR acts as the principal client service representative of the
Company and typically is on call and in contact with each client throughout the
week. The CSR serves as the communication link between the Company's various
departments and the Company's on-site supervisor, who in many cases is the
manager of the client's business. Accordingly, the CSR is involved in every
aspect of the Company's delivery of services to the client. For example, the CSR
is responsible for gathering all information necessary to process each payroll
of the client and for all other information needed by the Company's human
resources, accounting and other departments with respect to such client and its
worksite employees. The CSRs also actively participate in hiring, disciplining
and terminating worksite employees, administering employee benefits, and
responding to employee complaints and grievances.

         Core Activities. The Company provides professional employer services
through six core activities: (i) human resource administration, (ii) regulatory
compliance management, (iii) employee benefits administration, (iv) risk
management services and employer liability protection, (v) payroll and payroll
tax administration, and (vi) placement services.

         Human Resource Administration. The Company, as an employer, provides
its clients with a broad range of human resource services including on-going
supervisory education and training regarding risk management and

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employment laws, policies and procedures. In addition, the Company's human
resource department handles sensitive and complicated employment issues such as
employee discipline, termination, sexual harassment, and wage and salary
planning and analysis. The Company is in the process of expanding its human
resource services to assist clients in areas such as employee morale and
worksite employee and on-site supervisor training. The Company provides a
comprehensive employee handbook to all worksite employees which includes
customized, site-specific materials concerning each worksite. In addition, the
Company maintains extensive files and records regarding worksite employees for
compliance with various state and federal laws and regulations. This extensive
record keeping is designed to substantially reduce legal actions arising from
lack of proper documentation.

         Regulatory Compliance Management. The Company, under its standard
client agreement, assumes responsibility for complying with many employment
related regulatory requirements. As an employer, the Company must comply with
numerous federal and state laws, including (i) certain tax, workers'
compensation, unemployment, immigration, civil rights, and wage and hour laws,
(ii) the Americans with Disabilities Act of 1990, (iii) the Family and Medical
Leave Act, (iv) laws administered by the Equal Employment Opportunity
Commission, and (v) employee benefits laws such as ERISA and COBRA. The Company
provides bulletin boards to its clients and maintains them for compliance with
required posters and notices. The Company also assists its clients in their
efforts as employers to comply with and understand certain other laws and
responsibilities with respect to which the Company does not assume liability and
responsibility. For example, while the Company provides significant safety
training and risk management services to its clients, it does not assume
responsibility for compliance with the Occupational Safety and Health Act
because the client controls its worksite facilities and equipment.

         Employee Benefits Administration. The Company offers a broad range of
employee benefit programs to its worksite employees. The Company administers
such benefit programs, thereby reducing the administrative responsibilities of
its clients for maintaining complex and tax-qualified employee benefit plans. By
combining its multiple worksite employees, the Company is able to take advantage
of certain economies of scale in the administration and provision of employee
benefits. As a result, the Company is able to offer to its worksite employees
benefit programs which are comparable to those offered by large corporations. In
fact, some programs offered by the Company would not otherwise be available to
the worksite employees of many clients if such clients were the sole employers.
Eligible worksite and corporate staff employees of the Company are entitled to
participate in the Company's employee benefit programs without discrimination.
Such programs include life insurance coverage as well as the Company's cafeteria
plan which offers a choice of different health plans and dental, vision and
prescription card coverage. In addition, the Company permits each qualified
employee to participate in the Company's 401(k) retirement plan and the
Company's dependent care assistance program. Each worksite employee is given (i)
the opportunity to purchase group-discounted, payroll-deducted auto, homeowners
or renters insurance and long-term disability insurance, and (ii) access to
store discount programs, free checking accounts with participating banks, a
prepaid legal services plan, and various other employee benefits. The Company
believes that by offering its worksite employees a broad range of large
corporation style benefit plans and programs it is able to reduce worksite
employee turnover which results in cost savings for the Company and its clients.
The Company performs regulatory compliance and plan administration in accordance
with state and federal benefit laws.

         Risk Management Services and Employer Liability Protection. The
Company's risk management of the worksite includes policies and procedures
designed to proactively prevent and control costs of lawsuits, fines, penalties,
judgments, settlements and legal and professional fees. In addition, the Company
controls benefit plan costs by attempting to prevent fraud and abuse by closely
monitoring claims. Other risk management programs of the Company include
effectively processing workers' compensation and unemployment claims and
aggressively contesting any suspicious or improper claims. The Company believes
that such risk management efforts increase the profitability of the Company by
reducing the Company's liability exposure and by increasing the value of the
Company's services to its clients.

         Many of the Company's direct competitors in both the public and private
sector are self-insured for health care, workers' compensation and employment
practices risks. The Company, however, maintains insurance for employment
practices risks, including liability for employment discrimination and wrongful
termination. The Company believes that it historically has been able to achieve
a higher level of client satisfaction and security by being insured for such
risks. The Company also believes that being insured has greatly reduced its
liability exposure and, consequently, the potential volatility of its income
from operations because it is not required to rely exclusively on contractual
indemnification from its clients, many of whom do not carry insurance which
covers employment practices liability or do not have sufficient net worth to
support their indemnification obligations. The Company has arranged for a large

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surplus lines insurance company rated A++ (superior) by A.M. Best Company to
provide to the Company and to its clients, as additional insureds, employment
practices liability insurance; however, there can be no assurance that such
insurance will be available to the Company in the future on satisfactory terms,
if at all, or if available, will be sufficient. The Company believes that this
arrangement is better received by clients who are seeking to reduce their
employment liability exposures and also prevents the Company from becoming
involved in adversarial situations with its clients by eliminating the need for
the Company to seek indemnification. The Company continues to study the
possibility of becoming self-insured in the future for selected risks and
believes that significant opportunities to self-insure may arise in the future.

         Payroll and Payroll Tax Administration. The Company provides its
clients with comprehensive payroll and payroll tax administration which
substantially eliminates client responsibility for payroll and payroll taxes
beyond verification of payroll information. Unlike traditional payroll service
providers which do not act as employers, the Company, as the employer, assumes
liability and responsibility for the payroll and payroll taxes of its worksite
employees and the obligations of its client to make federal and state
unemployment and workers' compensation filings, FICA deposits, child support
levies and garnishments, and new hire reports. The Company receives all payroll
information, calculates, processes and records all such information, and issues
payroll checks and/or directly deposits the net pay of worksite employees into
their bank accounts. The Company delivers all payroll checks either to the
on-site supervisor of the worksite or directly to the worksite employees. As
part of the Company's strategic plan of expanding its information technology,
the Company is in the process of developing client-based software interfaces to
make it possible for clients to enter and submit payroll information via
computer modems.

         Placement Services. As a part of its overall employment relationship,
the Company assists its clients in their efforts to hire new employees. The
Company passes the cost of advertising for such positions through to its client.
As a result of the Company's advertising volume and contracts with newspapers
and other media, the Company is able to place such advertisements at
significantly lower prices than those available to the Company's clients. In
addition, in some cases, the Company does not have to place such advertisements
because it already has multiple qualified candidates in a job bank or pool of
candidates. The Company interviews, screens and pre-qualifies candidates based
on criteria established in a job description prepared by the Company with the
client's assistance and performs background checks. In addition, depending on
the needs of the client, the Company tests worksite employees for skills,
health, and drug-use in accordance with state and federal laws. Following the
selection of a candidate, the Company completes all hiring paperwork and, if the
employee is eligible, enrolls the employee in the Company's benefit programs.
The Company believes that its unique approach in providing such services gives
the Company a significant advantage over its competitors. Such services also
enable the Company to reduce its administrative expenses and employee turnover
and to avoid hiring unqualified or problem employees.

CLIENTS

         The Company and its clients are each responsible for certain specified
employer-related obligations. While the Company becomes the legal employer for
most purposes, the client remains in operational control of its business. The
Company appoints an on-site supervisor for each client worksite. In many cases,
such on-site supervisor is the manager of the client's business. The Company
requires each on-site supervisor to enter into a standard on-site supervisor
employment agreement with the Company which specifies the on-site supervisor's
duties, responsibilities and limitations of authority.

         Pursuant to the provisions of its standard client agreement, the
Company is the legal employer of the client's worksite employees for most
purposes and has the right, among others, to hire, supervise, terminate and set
the compensation of such worksite employees. The Company bills its clients on
each payroll date for (i) the actual gross salaries and wages, related
employment taxes and employee benefits of the Company's worksite employees, (ii)
actual advertising costs associated with recruitment, (iii) workers'
compensation and unemployment service fees and (iv) an administrative fee.

         The Company's average annual administrative fee is approximately $1,000
per employee. Such fee is computed based upon either a fixed fee per worksite
employee or an established percentage of gross salaries and wages (subject to a
guaranteed minimum fee per worksite employee), which fixed fee or percentage is
negotiated at the time the client agreement is executed. The Company's
administrative fee varies by client based primarily upon the nature and size of
the client's business and the Company's assessment of the costs and risks
associated with the employment of the client's worksite employees. Accordingly,
the Company's administrative fee income will fluctuate based on the

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number and gross salaries and wages of worksite employees and the mix of client
fee arrangements and terms. In addition to the items noted above, each client
must pay a one-time enrollment fee of $50.00 plus $10.00 per worksite employee.
Consistent with PEO industry practice, the Company recognizes all amounts billed
to its clients as revenue because the Company is at risk for the payment of its
direct costs, whether or not the Company's clients pay the Company on a timely
basis or at all.

         At December 31, 1997, the Company served approximately 1,050 clients
and approximately 10,500 worksite employees resulting in an average of 10
worksite employees per client. No single client accounted for more than 10% of
the Company's revenues for the twelve months ended December 31, 1997. As a
result of acquisitions in 1997, the Company's clientele is more geographically
diverse. In 1996, approximately 94% of the Company's client base was located in
Ohio. At December 31, 1997, less than 50% of the worksite employees are located
in Ohio and the percentage in Ohio has continued and will continue to decline in
1998 as a result of acquisitions announced or completed through March 16, 1998.
The Company's client base is broadly distributed throughout a wide variety of
industries. The Company's clientele is heavily weighted towards professional,
service, light manufacturing and non-profit businesses. The Company's exposure
to higher workers' compensation claims businesses such as construction and
commercial is less than 25% of its total business.

         The Company has benefited from a high level of client retention,
resulting in a significant recurring revenue stream. The infrequent attrition
that the Company has experienced has typically been attributable to a variety of
factors, including (i) sale or acquisition of the client, (ii) termination by
the Company resulting from the client's inability to make timely payments, (iii)
client business failure or downsizing, and (iv) client nonrenewal due to price
or service dissatisfaction. The Company believes that the risk of a client
terminating its relationship with the Company decreases substantially after the
client has been associated with the Company for over one year because of the
client's increased appreciation of the Company's value-added services and the
difficulties associated with a client reassuming the burdens of being the sole
employer. The Company believes that only a small percentage of nonrenewing
clients withdraw due to dissatisfaction with the Company's services or to retain
the services of a competitor.

SALES AND MARKETING

         The Company markets its services through a direct sales force of sales
executives. Each of the Company's sales executives enters into an employment
agreement with the Company which establishes a performance-based compensation
program, which currently includes a base amount, sales commissions and a bonus
for each new worksite employee enlisted. Such employment agreements contain
certain non-competition and non-solicitation provisions which prohibit the sales
executives from competing with the Company. The Company attributes the
productivity of its sales executives in part to their experience in fields
related to one or more of the Company's core services. The background of the
Company's sales executives includes experience in industries such as information
services, health insurance, business consulting and commercial sales. The
Company's sales materials emphasize its broad range of high-quality services and
the resulting benefits to clients and worksite employees.

         The Company's sales and marketing strategy is to achieve higher
penetration in its existing markets by hiring additional sales personnel and
increasing sales productivity. The Company also intends to significantly
increase its advertising and promotional efforts in order to improve awareness
of the PEO industry, the Company and its value-added services. Currently, the
Company generates sales leads from two primary sources, referrals and direct
sales efforts. These leads result in initial presentations to prospective
clients. The Company's sales executives gather information about the prospective
client and its employees, including job classification, workers' compensation
and health insurance claims history, salary and the desired level of employee
benefits. The Company performs a risk management analysis of each prospective
client which involves a review of such factors as the client's credit history,
financial strength and health insurance and unemployment claims history.
Following a review of these factors, a client proposal is prepared for
acceptable clients. Management believes that its stringent underwriting
procedures greatly reduce the controllable costs and liability exposure of the
Company. In addition, the Company believes that the application of such
underwriting guidelines is in part responsible for the Company's high rate of
client retention.

         Once a prospective client accepts the Company's proposal, the new
client is quickly incorporated into the Company's system by a "client service
team" consisting of one of the Company's two client service directors, a CSR and
a client service administrator. The client service team is responsible for
administering the client's personnel and benefits, coordinating the Company's
response to client needs for administrative support and responding to any
questions or problems encountered by the client.

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INFORMATION TECHNOLOGY

         The Company's primary information processing center is located at its
corporate headquarters. The Company's other offices are connected to the
centralized system through network dial-up services. The Company uses
industry-standard software to process its payroll and other commercially
available software to manage standard business functions such as accounting and
finance.

         Since October 1995, the Company has been developing an integrated
information system based on client-server technology using an OracleTM
relational database. The Company's new system will allow clients to enter and
submit payroll data via modem and over the internet. The new system will also be
used to store and retrieve information regarding all aspects of the Company's
business, including human resource administration, regulatory compliance
management, employee benefits administration, risk management services, payroll
and payroll tax administration, and placement services. The Company's
development of such system is in the parallel testing phase and the Company
expects that the new system will be operational in 1998. The Company believes
that this system will be capable of being upgraded and expanded to meet the
needs of the Company for the next five years. This new system is Year 2000
compliant. Accordingly, the Company does not expect to incur material
incremental costs beyond the costs of this planned system implementation and
rollout to be Year 2000 compliant.

COMPETITION

         The PEO industry is highly fragmented, with in excess of 2,300
companies currently providing PEO services, mostly in a single market or region.
The Company's competitors include traditional in-house human resource
departments and other PEOs. The Company also competes with providers of
unbundled employment-related services such as payroll processing firms, human
resource consultants, and workers compensation and unemployment administrators.
Certain of such companies, many of which have greater financial and other
resources than the Company, are seeking to enter the professional employer
services market. The Company believes that the primary elements of competition
are quality of service, choice and quality of benefits, reputation and price.
The Company believes that service quality, name recognition, regulatory
expertise, financial resources, risk management and data processing capability
distinguish leading PEOs from the rest of the industry.

         The Company believes that barriers to entry into the PEO industry are
increasing as a result of several factors, including the following: (i) the
complexity of the PEO business and the need for expertise in multiple
disciplines; (ii) the need to invest significant capital in service delivery
infrastructures and management information systems; (iii) the requirement for
sophisticated management information systems to track all aspects of business in
a high-growth environment; and (iv) the three to five years of experience
required to establish experience ratings in the key cost areas of workers'
compensation, health insurance and unemployment.

CORPORATE EMPLOYEES

         As of December 31, 1997, the Company had 130 corporate employees at its
headquarters in Worthington, Ohio and at its offices around the country.

INDUSTRY REGULATION

         OVERVIEW

         The Company's professional employer operations are subject to extensive
state and federal regulations that include operating, fiscal, licensing and
certification requirements. Adding complexity to the Company's regulatory
environment are (i) uncertainties resulting from the non-traditional employment
relationships created by PEOs, (ii) variations in state regulatory schemes, and
(iii) the ongoing evolution of regulations regarding health care and workers'
compensation.

         Many of the federal and state laws and regulations relating to labor,
tax and employment matters applicable to employers were enacted prior to the
development of non-traditional employment relationships and, accordingly, do not
specifically address the obligations and responsibilities of PEOs. Moreover, the
Company's PEO services are regulated primarily at the state level. Regulatory
requirements regarding the Company's business therefore vary from

                                       -8-

<PAGE>   9



state to state, and as the Company enters new states it will be faced with new
regulatory and licensing environments. There can be no assurance that the
Company will be able to satisfy the licensing requirements or other applicable
regulations of any particular state in which it is not currently operating.

         The application of many laws to the Company's PEO services will depend
on whether the Company is considered an employer under the relevant statutes and
regulations. The common law test of the employment relationship is generally
used to determine employer status for benefit plan purposes under Employee
Retirement Income Security Act of 1974, as amended ("ERISA") the Internal
Revenue Code of 1986, as amended (the "Code"), the workers' compensation laws of
many states and various state unemployment laws. This common law test involves
an examination of approximately 20 factors to ascertain whether an employment
relationship exists between a worker and a purported employer. By contrast,
certain statutes such as those relating to PEO licensing and federal income tax
withholding use differing or more expansive definitions of employer. In
addition, from time to time, there have been proposals to enact a statutory
definition of employer for other purposes of the Code.

         While the Company cannot predict with certainty the development of
federal and state regulations, management will continue to pursue a practice
strategy of educating administrative authorities as to the advantages of PEOs
and assisting in the development of regulation which appropriately accommodates
their legitimate business function.

         PEO SERVICES

         PEO Licensing Requirements. While many states do not explicitly
regulate PEOs, approximately one-third of the states (not including Ohio) have
enacted laws that have licensing or registration requirements for PEOs and
several additional states, including Ohio, are considering such laws. Such laws
vary from state to state but generally provide for the monitoring of the fiscal
responsibility of PEOs. State regulation assists in screening insufficiently
capitalized PEO operations and, in the Company's view, has the effect of
legitimizing the PEO industry generally by resolving interpretative issues
concerning employee status for specific purposes under applicable state law.
However, because existing regulations are relatively new, there is limited
interpretive or enforcement guidance available. The development of additional
regulations and interpretation of existing regulations can be expected to evolve
over time. The Company has actively supported such regulatory efforts, including
certain proposed legislation in Ohio that would require PEOs to be registered
with the state. Such proposed Ohio legislation would not have a material adverse
effect on the Company's business, financial condition or results of operations,
rather the Company believes that such legislation would benefit the Company and
the PEO industry by recognizing the status of PEOs as legal employers.

         Federal and State Employment Taxes. The Company assumes the sole
responsibility and liability for the payment of federal and state employment
taxes with respect to wages and salaries paid to its employees, including
worksite employees. There are essentially three types of federal employment tax
obligations: (i) income tax withholding requirements, (ii) social security
obligations under FICA, and (iii) unemployment obligations under FUTA. Under
these Code sections, the employer has the obligation to withhold and remit the
employer portion and, where applicable, the employee portion of these taxes.

         Employee Benefit Plans. The Company offers various employee benefit
plans to its worksite employees, including a 401(k) plan, a cafeteria plan, a
group health plan, a group life insurance plan, a group disability insurance
plan and an employee assistance plan. Generally, employee benefit plans are
subject to provisions of both the Code and ERISA. In order to qualify for
favorable tax treatment under the Code, the plans must be established and
maintained by an employer for the exclusive benefit of its employees. Most of
these benefit plans are also offered to the Company's corporate employees.

         Representatives of the IRS have publicly stated that a Market Segment
Study Group established by the IRS is examining whether PEOs are the employers
of worksite employees under Code provisions applicable to employee benefit plans
and consequently able to offer to worksite employees benefit plans that qualify
for favorable tax treatment and whether client company owners are employees of
PEOs under Code provisions applicable to employee benefit plans. The Company has
limited knowledge of the nature, scope and status of the Market Segment Study
because it is not a part thereof and the IRS has not publicly released any
information regarding the study to date. In addition, the Company's 401(k) plan
was audited for the year ended December 31, 1992, and as a part of that audit,
the IRS regional office has asked the IRS national office to issue a TAM
regarding whether or not the Company is the employer for benefit plan purposes.
The Company has stated its position in a filing with the IRS that it is the
employer for benefit plan purposes. The Company is unable to predict the timing
or nature of the findings of the Market Segment Study

                                       -9-

<PAGE>   10



Group, the timing or conclusions of the TAM, or the ultimate outcome of such
conclusions or findings. If the IRS study were to conclude that a PEO is not an
employer of its worksite employees for plan purposes, then worksite employees
could not continue to make contributions to the Company's 401(k) plan or
cafeteria plan. The Company believes that, although unfavorable to the Company,
a prospective application by the IRS of an adverse conclusion would not have a
material adverse effect on its financial position and results of operations. If
such conclusion were applied retroactively, then employees' vested account
balances could become taxable immediately, the Company would lose its tax
deduction for deposits to the plan trust which would become a taxable trust, and
penalties could be assessed. In such a scenario, the Company would face the risk
of client dissatisfaction as well as potential litigation. A retroactive
application by the IRS of an adverse conclusion could have a material adverse
effect on the Company's financial position and results of operations. While the
Company believes that a retroactive disqualification is unlikely, there can be
no assurance as to the ultimate resolution of these issues.

         The Staffing Firm Workers Benefits Act of 1997 (H.R. 1891) is proposed
legislation that will clarify and codify who is the employer for benefit plan
purposes, thus eliminating much of the confusion and uncertainty surrounding
these issues currently. It is uncertain at this time whether this legislation
will become law, and if it does, what changes, if any, may be required of the
Company's existing benefit plans in order to comply with its provisions.

         In addition to the employer/employee relationship issues described
above, pension and profit-sharing plans, including the Company's 401(k) plan,
must satisfy certain other requirements under the Code. These other requirements
are generally designed to prevent discrimination in favor of highly compensated
employees to the detriment of non-highly compensated employees with respect to
both the availability of, and the benefits, rights and features offered in,
qualified employee benefit plans. The Company applies the nondiscrimination
requirements of the Code to ensure that its 401(k) plan is in compliance with
the requirements of the Code.

         Workers' Compensation. Workers' compensation is a state mandated,
comprehensive insurance program that requires employers to fund medical
expenses, lost wages and other costs resulting from work-related injuries
illnesses and deaths. In exchange for providing workers' compensation coverage
for employees, employers are not subject to litigation by employees for benefits
in excess of those provided by the relevant state statute. In most states, the
extensive benefits coverage (for both medical cost and lost wages) is provided
through the purchase of commercial insurance from private insurance companies,
participation in state-run insurance funds or employer self-insurance. Workers'
compensation benefits and arrangements vary on a state-by-state basis and are
often highly complex. These laws establish the rights of workers to receive
benefits and to appeal benefit denials.

         As a creation of state law, workers' compensation is subject to change
by the state legislature in each state and is influenced by the political
processes in each state. Several states, such as Ohio, have mandated that
employers receive coverage only from state operated funds. Although Ohio
maintains such a "state fund," it does allow employers of a sufficient size and
with sufficient ties to the state to self-insure for workers' compensation
purposes. Employers granted the privilege of self-insurance must be self-funded
for at least the first $50,000 of cost in every claim but may purchase private
insurance for costs in excess of that amount. Ohio also allows its "state fund"
employers who meet certain criteria as a group to band together for risk pooling
purposes. In addition, Ohio provides safety prevention program premium
discounts. Although workers' compensation in Ohio is mandatory and generally
shields employers from common law civil suits, the Ohio General Assembly has
created an exception for so-called "intentional torts." In 1995, the General
Assembly enacted a law imposing a very strict standard for plaintiffs to bring
such suits. Similar legislative efforts in the past, however, were struck down
by the Ohio Supreme Court.

         Ohio and certain other states have recently adopted legislation
requiring that all workers' compensation injuries be treated through a managed
care program. Ohio's program became effective in March 1997. The Company
believes that such program will not significantly impact the operations of the
Company because all Ohio employers will be subject to such new laws and
regulations.

         Other Employer Related Requirements. As an employer, the Company is
subject to a wide variety of federal and state laws and regulations governing
employer-employee relationships, including the Immigration Reform and Control
Act, the Americans with Disabilities Act of 1990, the Family Medical Leave Act,
the Occupational Safety and Health Act, wage and hour regulations, and
comprehensive state and federal civil rights laws and regulations, including
those prohibiting discrimination and sexual harassment. The definition of
employer may be broadly interpreted under these laws.


                                      -10-

<PAGE>   11



         Responsibility for complying with various state and federal laws and
regulations is allocated by agreement between the Company and its clients, or in
some cases is the joint responsibility of both. Because the Company acts as an
employer of worksite employees for many purposes, it is possible that the
Company could incur liability for violations of laws even though the Company is
not contractually or otherwise responsible for the conduct giving rise to such
liability. The Company's standard client agreement generally provides that the
client will indemnify the Company for liability incurred as a result of an act
of negligence of a worksite employee under the direction and control of the
client or to the extent the liability is attributable to the client's failure to
comply with any law or regulation for which it has specified contractual
responsibility. However, there can be no assurance that the Company will be able
to enforce such indemnification and the Company may therefore be ultimately
responsible for satisfying the liability in question.

FORWARD LOOKING STATEMENTS

         Certain statements contained in this Form 10-K including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects," and words of similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company or the PEO industry to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
(i) potential for unfavorable interpretation, of government regulations relating
to labor, tax, insurance and employment matters; (ii) changes in the laws
regulating collection and payment of payroll taxes and employee benefits,
including 401(k) plans; (iii) potential loss of qualified status for the
Company's 401(k) plan as a result of request by Internal Revenue Service ("IRS")
for Tax Advice Memorandum ("TAM"); (iv) general market conditions, including
demand for the Company's products and services, competition and price levels or
adverse economic developments in states where a substantial portion of the
Company's business is concentrated; (v) the Company's ability to integrate
acquisitions profitably; (vi) higher than expected workers' compensation claims,
increases in rates, or changes in applicable laws or regulations; (vii) the
level and quality of acquisition opportunities available to the Company and the
ability to properly manage growth when acquisitions are made; (viii) short-term
nature of client agreements and the financial condition of the Company's
clients; (ix) liability for employment practices of clients; (x) additional
regulatory requirements affecting the Company; and (xi) risks set forth in
"Business -- Risk Factors" and other risks disclosed from time to time in the
Company's filings with the Securities and Exchange Commission.

RISK FACTORS

         Potential For Unfavorable Government Regulations. The Company's
operations are affected by numerous federal, state and local laws and
regulations relating to labor, tax, insurance and employment matters. By
entering into an employment relationship with employees who work at client
locations ("worksite employees"), the Company assumes certain obligations and
responsibilities of an employer under these laws. Because many of the laws
related to the employment relationship were enacted prior to the development of
alternative employment arrangements, such as those provided by professional
employer organizations and other staffing businesses, many of these laws do not
specifically address the obligations and responsibilities of non-traditional
employers. Interpretive issues concerning such relationships have arisen and
remain unsettled. Uncertainties arising under the Internal Revenue Code of 1986,
as amended (the "Code"), include, but are not limited to, the qualified tax
status and favorable tax status of certain benefit plans provided by the Company
and other alternative employers. The unfavorable resolution of these unsettled
issues could have a material adverse effect on the Company's results of
operations and financial condition.

         The application of many laws to the Company's PEO services will depend
on whether the Company is considered an employer under the relevant statutes and
regulations. The common law test of the employment relationship is generally
used to determine employer status for benefit plan purposes under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Code, the
workers' compensation laws of many states and various state unemployment laws.
This common law test involves an examination of approximately 20 factors to
ascertain whether an employment relationship exists between a worker and a
purported employer. Substantial weight is typically given to the question of
whether the purported employer has the right to direct and control the details
of an individual's work. For a discussion of certain of these factors, see
"Industry Regulation -- Overview." By contrast, certain statutes such as those
relating to PEO licensing and federal income tax withholding use differing or
more expansive definitions of employer. In addition, from time to time, there
have been proposals to enact a statutory definition of employer for other
purposes of the Code.

                                      -11-

<PAGE>   12



         While many states do not explicitly regulate PEOs, approximately
one-third of the states have enacted laws (not including Ohio) that have
licensing or registration requirements for PEOs, and several additional states,
including Ohio, are considering such laws. Such laws vary from state to state
but generally provide for the monitoring of the fiscal responsibility of PEOs
and specify the employer responsibilities assumed by PEOs. There can be no
assurance that the Company will be able to comply with any such regulations
which may be imposed upon it in the future, and the inability of the Company to
comply with any such regulations could have a material adverse effect on the
Company's results of operations and financial condition. See "Industry
Regulation."

         In addition, there can be no assurance that existing laws and
regulations which are not currently applicable to the Company will not be
interpreted more broadly in the future so as to apply to the Company's existing
activities or that new laws and regulations will not be enacted with respect to
the Company's activities, either of which could have a material adverse effect
on the Company's business, financial condition, results of operations and
liquidity. See "Industry Regulation."

         Risk of Loss of Qualified Status for Certain Tax Purposes.
Representatives of the IRS have publicly stated that the IRS is conducting a
Market Segment Study of the PEO industry, focusing on selected PEOs (not
including the Company), in order to examine the relationships among PEOs,
worksite employees and owners of client companies. The Company has limited
knowledge of the nature, scope and status of the Market Segment Study because it
is not a part thereof and the IRS has not publicly released any information
regarding the study to date. In addition, the Company's 401(k) plan was audited
for the year ended December 31, 1992, and as part of that audit, the IRS
regional office has asked the IRS national office to issue a Technical Advice
Memorandum ("TAM") regarding whether or not the Company is the employer for
benefit plan purposes. The Company has stated its position in a filing with the
IRS that it is the employer for benefit plan purposes. If the IRS concludes that
PEOs are not "employers" of certain worksite employees for purposes of the Code
as a result of either the Market Segment Study or the TAM, then the tax
qualified status of the Company's 401(k) plan could be revoked and its cafeteria
plan may lose its favorable tax status. The loss of qualified status for the
401(k) plan and the cafeteria plan could increase the Company's administrative
expenses, increase client dissatisfaction and adversely affect the ability of
the Company to attract and retain clients and worksite employees, and, thereby,
materially adversely affect the Company's financial condition and results of
operations. The Company is unable to predict the timing or nature of the
findings of the Market Segment Study Group, the timing or conclusions of the
TAM, and the ultimate outcome of such conclusions or findings. The Company is
also unable to predict the impact which the foregoing could have on the
Company's administrative expenses, and whether the Company's resulting liability
exposure, if any, will relate to past or future operations. Accordingly, the
Company is unable to make a meaningful estimate of the amount, if any, of such
liability exposure. See "Industry Regulation -- PEO Services (Employee Benefit
Plans)."

         Dependence Upon Key Personnel. The Company is dependent to a
substantial extent upon the continuing efforts and abilities of Richard C.
Schilg, the Company's founder, Chairman of the Board, President and Chief
Executive Officer, and Kevin T. Costello, the Company's Senior Vice President.
The Company has entered into employment agreements with Mr. Schilg and Mr.
Costello. The loss of the services of Messrs. Schilg or Costello could have a
material adverse effect upon the Company's financial condition and results of
operations. The Company maintains key-man life insurance policies on the lives
of Messrs. Schilg and Costello.

         Failure to Manage Growth and Risks Related to Growth Through
Acquisitions. The Company intends to continue its internal growth and to pursue
an acquisition strategy. Such growth may place a significant strain on the
Company's management, financial, operating and technical resources. The Company
has limited acquisition experience, and growth through acquisition involves
substantial risks, including the risk of improper valuation of the acquired
business and the risks inherent in integrating such businesses with the
Company's operations. There can be no assurance that suitable acquisition
candidates will be available, that the Company will be able to acquire or
profitably manage such additional companies, or that future acquisitions will
produce returns that justify the investment or that are comparable to the
Company's past returns. In addition, the Company may compete for acquisition and
expansion opportunities with companies that have significantly greater resources
than the Company. There can be no assurance that management skills and systems
currently in place will be adequate to implement the Company's strategy of
growth through acquisitions and by increased market penetration in Ohio and its
other existing markets, and the failure to manage growth effectively, or to
implement its strategy, could have a material adverse effect on the Company's
results of operations and financial condition. The Company has experienced
significant internal growth since its inception; however, there can be no
assurance that the Company will be able to sustain its past growth rate. There
also can be no

                                      -12-

<PAGE>   13



assurance that the PEO industry as a whole will be able to sustain the growth
rate it has experienced in recent years. See "Business -- Growth Strategy."

         Risks Associated With Expansion Into Additional States. The Company
operates in California, Florida, Idaho, Illinois, Indiana, Michigan, Montana,
Ohio, Tennessee and Utah. In the event that the Company determines to offer its
services to prospective clients in a state in which the Company has not
previously operated, the Company, in order to operate effectively in such new
state, will have to obtain all necessary regulatory approvals, achieve
acceptance in the local market, and adapt its procedures to the state's
regulatory requirements and local market conditions. The length of time required
to obtain regulatory approval to begin operations will vary from state to state,
and there can be no assurance that the Company will be able to satisfy licensing
requirements or other applicable regulations of any particular state in which it
is not currently operating, that it will be able to provide the full range of
services currently offered in its existing markets, or that it will be able to
operate profitably within the regulatory environment of any state in which it
does obtain regulatory approval. The absence of required licenses would require
the Company to restrict the services it offers. See "Industry Regulation."
Moreover, as the Company expands into additional states, there can be no
assurance that the Company will be able to duplicate in other markets the
revenue growth and operating results experienced in its Ohio market.

         Risk of Loss From Client Nonpayment of Direct Costs. For work performed
prior to the termination of a client agreement, the Company may be obligated, as
an employer, to pay the gross salaries and wages of the client's worksite
employees and the related employment taxes and workers' compensation costs,
whether or not the Company's client pays the Company on a timely basis or at
all. To the extent that any client experiences financial difficulty, or is
otherwise unable to meet its obligations as they become due, the Company's
financial condition and results of operations could be adversely affected. The
Company attempts to minimize its credit risk by investigating and monitoring the
credit history and financial strength of its clients and by generally requiring
payments to be made by wire transfer, immediately available funds or Automated
Clearing House ("ACH") transfer. With respect to ACH transfers, the Company is
obligated to pay the client worksite employees if there are insufficient funds
in the client's bank account on the payroll date. The Company's policy, however,
is only to permit clients with a proven credit history with the Company to pay
by ACH transfer. In addition, in the event of nonpayment by a client, the
Company has the ability to terminate immediately its contract with the client.
The Company also protects itself by obtaining unconditional personal guaranties
from the owners of clients and/or a cash security deposit, bank line of credit
or pledge of certificates of deposit. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." Although the Company historically has not incurred significant bad
debt expense, in each payroll, period the Company has a nominal number of
clients who fail to make timely payment prior to the Company's delivery of the
payroll. The Company's bad debt expense for the years ended December 31, 1997,
1996, 1995, 1994 and 1993 was $0, $0, $35,653, $40,773 and $12,522,
respectively, however, there can be no assurance that the Company's bad debt
expense will not increase in the future.

         Risk of Loss From Increased Workers' Compensation and Unemployment
Costs. The Company pays premiums into the Ohio Bureau of Workers' Compensation
state fund with respect to its worksite employees located in Ohio and maintains
workers' compensation insurance, generally with a private insurance company, for
its worksite employees located outside of Ohio. The Company's worksite employees
currently work in approximately 30 states, resulting in the payment by the
Company of unemployment taxes in such states. The Company does not generally
bill its clients for its actual workers' compensation and unemployment costs,
but rather bills its clients for such costs at rates which vary by client based
upon the client's claims and rate history. The amount billed is intended (i) to
cover payments made by the Company for insurance premiums and unemployment
taxes, the Company's cost of contesting workers' compensation and unemployment
claims, and other related administrative costs and (ii) to compensate the
Company for providing such services.

         The Company's workers' compensation and unemployment costs could
increase as a result of many factors, including increases in the rates charged
by the applicable states and private insurance companies and changes in the
applicable laws and regulations. Although the Company believes that historically
it has profited from such services, the Company's results of operations and
financial condition could be materially adversely affected in the event that the
Company's actual workers' compensation and unemployment costs exceed those
billed to its clients. The Company believes that this risk is mitigated by the
fact that its standard client agreement provides that the Company, at its
discretion, may adjust the amount billed to the client to reflect changes in the
Company's direct costs, including, without limitation, statutory increases in
employment taxes and insurance. Any such adjustment which relates to changes in
direct costs is effective as of the date of the changes and all other changes
require thirty days' prior notice. Such a rate

                                      -13-

<PAGE>   14



increase, however, might result in increased client dissatisfaction, which could
adversely affect the ability of the Company to attract and retain clients and
worksite employees, and, thereby, materially adversely affect the Company's
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Overview."

         Short Term Nature of Client Agreements. The Company's standard client
agreement provides for successive one-year terms, subject to termination by the
Company or the client at any time upon 30 days' prior written notice. A
significant number of terminations by clients could have a material adverse
effect on the Company's financial condition, results of operations and
liquidity. See "Business -- Clients."

         Liabilities For Client and Employee Actions. A number of legal issues
remain unresolved with respect to the relationship among PEOs, their clients and
worksite employees, including questions concerning the ultimate liability for
violations of employment and discrimination laws. See "Industry Regulation." The
Company's client agreement establishes a contractual division of
responsibilities between the Company and each client for various human resource
matters, including compliance with and liability under various governmental laws
and regulations. However, the Company may be subject to liability for violations
of these or other laws despite these contractual provisions even if it does not
participate in such violations. Although such client agreements generally
provide that the client indemnify the Company for any liability attributable to
the client's failure to comply with its contractual obligations and the
requirements imposed by law, the Company may not be able to collect on such a
contractual indemnification claim and thus may be responsible for satisfying
such liabilities. See "Risk Factors -- Risk of Loss from Client Nonpayment of
Direct Costs" and "Business -- Clients." In addition, worksite employees may be
deemed to be agents of the Company, subjecting the Company to liability for the
actions of such worksite employees. The Company attempts to mitigate this risk
by maintaining employment practices liability insurance; however, there can be
no assurance that such insurance will be available to the Company in the future
on satisfactory terms, if at all, or if available, will be sufficient. See "Risk
Factors -- Potential Legal Liability; Insurance."

         Potential Legal Liability; Insurance. As an employer, the Company from
time to time may be subject in the ordinary course of its business to a wide
variety of employment-related claims such as claims for injuries, wrongful
death, harassment, discrimination, wage and hours violations and other matters.
Although the Company carries $2 million of general liability insurance and
employment practices liability insurance in the amount of $5 million per
occurrence with a $250,000 deductible, there can be no assurance that any such
insurance carried by the Company or its providers will be sufficient to cover
any judgments, settlements or costs relating to any present or future claims,
suits or complaints or that sufficient insurance will be available to the
Company or such providers in the future on satisfactory terms, if at all. If the
insurance carried by the Company or its providers is not sufficient to cover any
judgments, settlements or costs relating to any present or future claims, suits
or complaints, then the Company's business and financial condition could be
materially adversely affected.

         Competition and New Market Entrants. The PEO industry is highly
fragmented, with in excess of 2,000 companies providing PEO services in 1995
according to the National Association of Professional Employer Organizations
("NAPEO"). The Company encounters competition from other PEOs and from
single-service and "fee-for-service" companies such as payroll processing firms,
insurance companies and human resource consultants. The Company may encounter
substantial competition from new market entrants. Some of the Company's current
and future competitors may be significantly larger, have greater name
recognition and have greater financial, marketing and other resources than the
Company. There can be no assurance that the Company will be able to compete
effectively against such competitors in the future. See "Business --
Competition."

         Control By Principal Shareholders. As of March 16, 1998, Richard C.
Schilg, the Company's Chairman of the Board, President and Chief Executive
Officer, beneficially own an aggregate of 1,142,464 shares of Common Stock
constituting approximately 23.9% of the outstanding Common Stock. Accordingly,
Mr. Schilg will be in a position to effect the management and policies of the
Company in general, and to influence the outcome of corporate transactions or
other matters submitted to the Company's shareholders for approval, including
the election of directors, mergers, acquisitions, consolidations or the sale of
substantially all of the Company's assets.

         Potential Volatility of Stock Price. The market price of the Common
Stock could be highly volatile, fluctuating in response to factors such as
changes in the economy or the financial markets, variations in the Company's
operating results, failure to achieve earnings consistent with analysts'
estimates, announcements of new services or market expansions by the Company or
its competitors, and developments relating to regulatory or other issues
affecting the PEO

                                      -14-

<PAGE>   15



industry. In addition, the Nasdaq National Market generally has experienced and
is likely in the future to experience significant price and volume fluctuations
which could adversely affect the market price of the Company's Common Stock
without regard to the Company's operating performance.

         Quarterly Fluctuations in Operating Results. Historically, the
Company's quarterly operating results have fluctuated significantly as a result
of a number of factors, including the timing and number of new client agreements
and terminations thereof and the timing and amount of executive bonuses, none of
which can be predicted with any degree of certainty. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Quarterly Results of Operations."

         Shares Eligible For Future Sale; Possible Adverse Effect on Market
Price. At March 16, 1998, the Company had 4,772,422 shares of the Company's
Common Stock outstanding. Of these shares, 2,158,677 shares are held by
nonaffiliates of the Company. Of the 2,158,677 shares held by nonaffiliates of
the Company, 490,242 of the shares have not been registered under the Securities
Act of 1933, as amended (the "Securities Act") and are only entitled to be
resold pursuant to a registration statement under the Securities Act or an
applicable exemption from registration thereunder such as an exemption provided
by Rule 144, Rule 145, or Rule 701 under the Securities Act. The holders of the
remaining 2,613,745 shares are entitled to resell them only pursuant to a
registration statement under the Securities Act or an applicable exemption from
registration thereunder such as an exemption provided by Rule 144, Rule 145, or
Rule 701 under the Securities Act. Additionally, as of March 16, 1998, the
Company had outstanding options to purchase 1,298,637 shares of the Company's
Common Stock at a weighted average price of $9.16, of which options for 177,502
shares of the Company's Common Stock were exercisable as of March 16, 1998 at a
weighted average exercise price of $8.52.

         The Company issued 40,615, 494,516, 68,468, 727,273, 84,050, 52,500 and
9,228 shares of the Company's Common Stock in connection with the AEM
Acquisition, Workforce Acquisition, PDI Acquisition, Aspen Acquisition,
Staff-Link Acquisition, Paymaster Acquisition, and Company 1 Acquisition
respectively. None of these shares have been sold by the respective shareholders
and all remain available for resale subject to Rule 144 and Rule 145 under the
Securities Act.

         Sales of substantial amounts of these shares in the public market or
the prospect of such sales could adversely affect the market price of the
Company's Common Stock.

         Anti-Takeover Effect. Certain provisions of the Company's Amended
Articles of Incorporation and Amended Code of Regulations and of the Ohio
Revised Code, together or separately, could discourage potential acquisition
proposals, delay or prevent a change in control of the Company and limit the
price that certain investors might be willing to pay in the future for the
Common Stock. Among other things, these provisions (i) require certain
supermajority votes; (ii) establish certain advance notice procedures for
nomination of candidates for election as directors and for shareholders
proposals to be considered at shareholders' meetings; and (iii) divide the Board
of Directors into two classes of directors serving staggered two-year terms.

         Pursuant to the Company's Amended Articles of Incorporation, the Board
of Directors of the Company has authority to issue up to 1,000,000 preferred
shares without further shareholder approval. Such preferred shares could have
dividend, liquidation, conversion, voting and other rights and privileges that
are superior or senior to the shares Common Stock. Issuance of preferred shares
could result in the dilution of the voting power of the shares of Common Stock,
adversely affect holders of the shares of Common Stock in the event of
liquidation of the Company or delay, defer or prevent a change in control of the
Company. In certain circumstances, such issuance could have the effect of
decreasing the market price of the shares Common Stock.

         In addition, Section 1701.831 of the Ohio Revised Code contains
provisions that require shareholder approval of any proposed "control share
acquisition" of any Ohio corporation at any of three ownership thresholds: 20%,
33 1/3% and 50%; and Chapter 1704 of the Ohio Revised Code contains provisions
that restrict certain business combinations and other transactions between an
Ohio corporation and interested shareholders. See "Description of Capital
Stock."

         Future Capital Needs; Uncertainty of Additional Financing. The Company
currently anticipates that its available cash resources combined with funds from
operations will be sufficient to meet its presently anticipated working capital
and capital expenditures requirements. The Company may need to raise additional
funds through public or private debt or equity financing in order to take
advantage of unanticipated opportunities, including more rapid

                                      -15-

<PAGE>   16



expansion or acquisitions or to respond to unanticipated competitive pressures.
If additional funds are raised through the issuance of equity securities, then
the percentage ownership of the then current shareholders of the Company may be
reduced and such equity securities may have rights, preferences or privileges
senior to those of the holders of the Company's Common Stock. There can be no
assurance that additional financing will be available on terms favorable to the
Company, or at all. If adequate funds are not available or are not available on
acceptable terms, then the Company may not be able to take advantage of
unanticipated opportunities, develop new or enhanced services or otherwise
respond to unanticipated competitive pressures and the Company's business,
operating results and financial condition could be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

ITEM 2.           PROPERTIES.

         The Company leases offices facilities in Ohio, Michigan, Florida,
Illinois, California, Idaho, Utah, and Oregon. The Company's headquarters are
located in a suburb of Columbus, Ohio in a leased building that houses the
Company's executive offices and PEO operations for central Ohio worksite
employees. The Company's other offices are used to service its local PEO
operations and are also leased. The Company believes that its current facilities
are adequate for its current needs and that additional suitable space will be
available as required.

ITEM 3.           LEGAL PROCEEDINGS.

         The Company is not involved in any material pending legal proceedings,
other than ordinary routine litigation incidental to its business. The Company
does not believe that any such pending legal proceedings, individually or in the
aggregate, will have a material adverse effect on the Company's financial
results.

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

         None.


                                     PART II

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

         The Company's Common Stock has been quoted on the Nasdaq National
Market under the symbol "TMAM" since the commencement of its initial public
offering on December 10, 1996. The following table sets forth, for the periods
indicated, the high and low sales prices for the Company's Common Stock, as
reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
                       CALENDAR PERIOD                                        COMPANY COMMON STOCK
-----------------------------------------------------------           ----------------------------------
<S>                                                                     <C>                   <C>
                                                                          High                  Low

   Fiscal 1996:
      Fourth Quarter (December 10 to December 31)                       $12.25                $11.00

   Fiscal 1997:
      First Quarter                                                     $11.25                 $9.25
      Second Quarter                                                    $10.25                 $6.75
      Third Quarter                                                     $11.00                 $7.125
      Fourth Quarter                                                    $11.75                 $9.50

   Fiscal 1998:
      First Quarter (January 2 to March 20)                             $15.875                $9.50
</TABLE>



                                      -16-

<PAGE>   17



         The number of record holders of the Company's Common Stock, as of March
16, 1998, was 133. The closing sales price of the common stock on March 16,
1998, was $14.125.

         The Company has not paid any cash dividends to holders of its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future, but intends instead to retain future earnings for reinvestment in its
business. The payment of any future dividends would be at the discretion of the
Company's Board of Directors and would depend upon, among other things, future
earnings, operations, capital requirements, the general financial condition of
the Company and general business conditions.

ITEM 6.           SELECTED FINANCIAL DATA.

         The following selected historical financial data for the Company should
be read in conjunction with the Company's Consolidated Financial Statements,
including the Notes, thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The statement of operations data
set forth below with the respect to the years ended December 31, 1993, 1994,
1995, 1996 and 1997 and the balance sheet data as of December 31, 1993, 1994,
1995, 1996 and 1997 are derived from audited consolidated financial statements.



                                      -17-

<PAGE>   18



<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31,
                                                   -----------------------------------------------------------------------
                                                     1997           1996           1995            1994            1993
                                                     ----           ----           ----            ----            ----

                                                         (IN THOUSANDS, EXCEPT FOR PER SHARE AND STATISTICAL DATA)

<S>                                                <C>            <C>            <C>             <C>             <C>
Statement of Operations Data:
Revenues                                           $155,864       $ 95,468       $ 74,921        $ 56,070        $ 41,252
Direct costs:
    Salaries and wages                              134,532         81,262         63,502          47,602          34,555
    Payroll taxes, workers' compensation
    premiums, employee benefits and other            13,013          8,763          7,594           5,578           4,018
                                                   --------       --------       --------        --------        --------

Gross profit                                          8,319          5,443          3,825           2,890           2,679

Operating expenses:
    Administrative salaries, wages and
      employment taxes                                4,201          2,741          2,013           1,428           1,284
    Other general and administrative expenses         2,242          1,288          1,039             857             646
    Advertising                                         381            272            116              66              61
    Depreciation and amortization                       433            125             43              50              54
                                                   --------       --------       --------        --------        --------

    Total operating expenses                          7,257          4,426          3,211           2,401           2,045
                                                   --------       --------       --------        --------        --------


Operating income (loss)                               1,062          1,017            614             489             634
Other income (expenses), net                            540             65            (77)            (37)            (47)

Income (loss) before taxes                            1,602          1,082            537             452             587
Income tax expense (benefit)                            672            458            247             182            (172)
                                                   --------       --------       --------        --------        --------

Net income (loss)                                  $    930       $    624       $    290        $    270        $    759
                                                   ========       ========       ========        ========        ========


Earnings per common share
    Basic                                          $   0.26       $   0.29       $   0.14        $   0.14        $   0.46
    Diluted shares                                 $   0.25       $   0.29       $   0.14        $   0.14        $   0.46
Weighted average shares outstanding
    Basic                                             3,641          2,160          2,130           1,920           1,669
    Diluted                                           3,700          2,160          2,130           1,920           1,669

Statistical Data:
Average gross payroll per employee(1)              $ 23,396       $ 23,946       $ 21,566        $ 18,419               *
Worksite employees at period end                     10,500          3,646          3,141           2,748           2,421
Clients at period end                                 1.050            241            184             168             144
Average number of worksite employees per
    client at period end                                 10           15.1           17.1            16.4            16.8

Gross profit margin                                     5.3%           5.7%           5.1%            5.2%            6.5%

                                                                               DECEMBER 31,
                                                   -----------------------------------------------------------------------
                                                     1997           1996           1995            1994            1993
                                                     ----           ----           ----            ----            ----


Balance Sheet Data:
Working capital (deficit)                          $  3,629       $ 13,484       $    (73)       $   (263)       $   (583)
Total assets                                         41,010         19,899          4,986           3,847           2,663
Long-term obligations and
    redeemable preferred sock                           512            386            364             329             245
Total shareholders' equity (deficit)                 28,339         14,147            212            (105)           (405)
</TABLE>

*   Data not available for period indicated.

(1) Based on time weighted average number of employees after taking into account
    the timing of acquisitions during the year.

                                      -18-

<PAGE>   19
ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS.


MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

The table below sets forth results of operations for the years ended December
31, 1997, 1996 and 1995 expressed as a percentage of revenues:

<TABLE>
<CAPTION>
                                                    AS A PERCENT OF REVENUES YEAR ENDED DECEMBER 31,
                                                                1997      1996      1995
-----------------------------------------------------------------------------------------------------
<S>                                                             <C>       <C>       <C>
     REVENUES                                                   100.0%    100.0%    100.0%

     DIRECT COSTS:
       Salaries and wages                                        86.3      85.1      84.8
       Payroll taxes, workers' compensation premiums
       employee benefits and other costs                          8.3       9.2      10.1
           Gross profit                                           5.4       5.7       5.1

     OPERATING EXPENSES:
       Administrative salaries, wages and employment taxes        2.7       2.9       2.6
       Other general and administrative                           1.4       1.3       1.4
       Advertising                                                0.2       0.3       0.2
       Depreciation and amortization                              0.3       0.1       0.1
           Total operating expenses                               4.6       4.6       4.3

     OPERATING INCOME                                             0.8       1.1       0.8
       Other income (expense), net                                0.3       0.1      (0.1)
       Income before taxes                                        1.1       1.2       0.7
       Provision for income taxes                                 0.4       0.5       0.3
     NET INCOME                                                   0.7%      0.7%      0.4%
</TABLE>

OVERVIEW

Reference should be made to the notes to Consolidated Financial Statements for
further information concerning revenue recognition and other related
information.

The Company's primary direct costs are salaries and wages of worksite employees,
federal and state employment taxes, workers' compensation premiums, employee
benefits and other associated costs. The Company may significantly affect its
gross profit margin by effectively managing its employment risks, including
workers' compensation and state unemployment costs, as described below. The
Company's risk management of the worksite includes policies and procedures
designed to proactively prevent and control the costs of lawsuits, fines,
penalties, judgments, settlements and legal and professional fees. In addition,
the Company controls benefit plan costs by attempting to prevent fraud and
abuse. Other risk management programs of the Company include effectively
processing workers' compensation and unemployment claims and aggressively
contesting any suspicious or improper claims. The Company also reduces its
employment related risks by procuring employment practices liability coverage
from an insurance carrier unrelated to the Company. The policy has $5,000,000
per occurrence and aggregate limits and a $250,000 deductible. The Company
believes that such risk management efforts increase the profitability of the
Company by reducing the Company's liability exposure and by increasing the value
of the Company's services to its clients.

Workers' compensation costs include administrative costs and insurance premiums
related to the Company's workers' compensation coverage. With respect to its
worksite employees located in Ohio, the Company pays premiums into the Ohio
Bureau of Workers' Compensation state fund. With respect to its worksite
employees located outside of Ohio, the Company maintains workers' compensation
insurance policies generally with private insurance companies in accordance with
the applicable laws of each state in which the Company has worksite employees.
The cost of contesting workers' compensation claims is borne by the Company and
is not passed through directly to the Company's clients.

Worksite employees of the Company currently reside in approximately 30 states,
resulting in the payment by the Company of unemployment taxes in each of such
states. Such taxes are based on rates which vary from state to state. Employers
are generally subject to established minimum rates, however, the aggregate
rates payable by an employer are affected by the employer's claims history.
The Company controls unemployment claims by aggressively contesting unfounded
claims and placing laid off worksite employees with other clients whenever
possible.

The Company's primary operating expenses are administrative personnel expenses,
other general and administrative expenses, and advertising expenses.
Administrative personnel expenses include compensation, fringe benefits and
other personnel expenses related to internal administrative employees. Other
general and administrative expenses include rent, insurance, general office
expenses, legal and accounting fees and other operating expenses.

                                      -19-
<PAGE>   20


MANAGEMENT'S DISCUSSION & ANALYSIS (CONT'D)
--------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Revenues were $155.9 million for the year ended December 31,1997 compared to
$95.5 million for the year ended December 31, 1996, an increase of over 63%.
Revenues from the four companies acquired in 1997 were approximately $39
million, representing nearly 2/3 of the growth in revenues. The remainder of the
growth in revenues was internally generated growth which equates to
approximately a 22% growth rate. The internal growth in revenues trailed the
internal growth rate in the number of employees, which was nearly 30%, due to
the timing of new client sign-ups, more of which occurred in the second half of
1997.

Salaries and wages of worksite employees were $134.5 million for the year ended
December 31, 1997, a 65% increase over 1996's salaries and wage expense of $81.3
million. Payroll taxes, workers' compensation, etc. rose to $13.0 million for
the year ended December 31, 1997 from $8.8 million in the prior year, a 48%
increase. Salaries and wages expense rose to 86.3% of total revenues in 1997
from 85.1% in 1996 while payroll taxes, workers' compensation and other direct
costs declined to 8.3% of total revenues in 1997 from 9.2% in 1996. Salaries and
wages increased as a percent of revenues in 1997 due to the impact of the
acquired businesses which have a lower margin and fee structure. The other
direct costs declined as a percent of income due to lower workers' compensation
costs in Ohio.

Gross profit declined from 5.7% in 1996 to 5.4% in 1997 due to the lower margins
in the acquired businesses.

Administrative salaries, wages and employment taxes increased to $4.2 million in
1997 from $2.7 million in 1996, a 55% increase. These expenses declined as a
percent of revenues from 2.9% in 1996 to 2.7% in 1997 due to lower personnel
costs in the acquired entities.

Other general and administration expenses increased 74% to $2.2 million in 1997
from $1.3 million in 1996 and increased to 1.5% of revenues in 1997 from 1.3% in
1996. These increases reflect the increase in legal and professional expenses as
a public company and increased expenses to support the acquisition activity.

Depreciation and amortization increased to $433,000 in 1997 from $125,000 in
1996. Amortization of intangibiles related to acquisitions completed in 1997
accounted for nearly $250,000 of the increase in this expense.

Interest income increased to $547,000 in 1997 from $88,000 in 1996. The
investment of the $13.3 million of proceeds from the December 1996 initial
public offering provided most of this increase.

Income tax expense increased from $458,000 in 1996 to $672,000 in 1997 and
declined slightly from 42.3% of pre-tax income to 42% due to the impact of
tax-exempt interest income in 1997 offset by nondeductible goodwill amortization
from acquisitions.

Net income increased 49% to $930,000 in 1997 from $624,000 in 1996 as a result
of the growth in the business and the interest income from the investment of the
IPO proceeds offset by lower margins from acquired businesses. Earnings per
share declined from $.29 per share for basic and diluted earnings per share in
1996 to $.26 for basic earnings per share and $.25 for diluted earnings per
share in 1997 due to the increase in shares outstanding resulting from the
December 1996 IPO and the issuance of 1,252,000 shares in acquisitions in 1997.

--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

The Company's revenues were $95.5 million for the year ended December 31, 1996,
compared to $74.9 million for the year ended December 31,1995, representing an
increase of $20.5 million, or 27.4%. This increase was primarily due to an
increase in the number of clients and worksite employees. The Company had 241
clients and 3,646 worksite employees at December 31, 1996, compared to 184
clients and 3,141 worksite employees at December 31, 1995, representing an
increase of 31.0% in the number of clients and an increase of 16.1% in the
number of worksite employees.

Salaries and wages of worksite employees were $81.3 million for the year ended
December 31, 1996, compared to $63.5 million for the year ended December 31,
1995, representing an increase of $17.8 million, or 28.0%, consistent with
revenue growth. Payroll taxes, workers' compensation premiums, employee benefits
and other direct costs amounted to $8.8 million for the year ended December 31,
1996, compared to $7.6 million for the year ended December 31, 1995,
representing an increase of $1.2 million, or 15.4%. Such expenses as a
percentage of revenues for the twelve month period decreased from 10.1% to 9.2%
due primarily to lower workers' compensation and unemployment expenses.

Gross profit as a percentage of revenues for the year ended December 31, 1996
was 5.7%, compared to 5.1% for the year ended December 31, 1995, primarily as a
result of lower workers' compensation and unemployment expenses. As part of the
Company's risk management system, the Company has established programs designed
to effectively process workers' compensation and unemployment claims and to
aggressively contest any suspicious or improper claims. The results for the year
ended December 31, 1996, included a special 20% premium credit of approximately
$183,000 granted by the State of Ohio workers' compensation fund.

Administrative salaries, wages and employment taxes were $2.7 million for the
year ended December 31, 1996, compared to $2.0 million for the year ended
December 31, 1995, representing an increase of $728,000, or 36.1%. The increase
in these costs was due to discretionary year end bonuses and administrative
salaries, wages and employment taxes related primarily to the hiring of
additional administrative personnel as a result of actual and anticipated
increases in the number of clients and worksite employees. Other general and
administrative costs increased from $1,039,000 to $1,288,000 primarily due to
the general growth of the Company

The provision for income taxes decreased as a percentage of income before income
taxes to 42.3% for the year ended December 31, 1996, compared to 46.0% for the
year ended December 31, 1995. Non deductible life insurance premiums were less
as a percent of pre-tax income in 1996 than in 1995.

                                      -20-
<PAGE>   21


MANAGEMENT'S DISCUSSION & ANALYSIS (CONT'D)
--------------------------------------------------------------------------------

QUARTERLY RESULTS

The following table sets forth certain unaudited operating results of each of
the five consecutive quarters for the period ended December 31, 1997 which
comprise all of the quarterly periods following the Company's initial public
offering of its Common Stock in December 10, 1996.

The information is unaudited, but in the opinion of management, includes all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of operations of such periods. This information
should be read in conjunction with the Company's Consolidated Financial
Statements and the Notes thereto.

<TABLE>
<CAPTION>
                                                              QUARTER ENDED
                               Dec. 31         Mar. 31           June 30          Sept. 30          Dec. 31
                                1996             1997              1997              1997             1997
--------------------------------------------------------------------------------------------------------------
<S>                            <C>               <C>              <C>               <C>               <C>
 REVENUES                      $25,762           $25,542          $31,812           $36,697           $61,812
 DIRECT COSTS:                  24,218            24,143           30,000            35,000            58,402
 NET INCOME:                       167               232              332               173               193
 EARNINGS PER SHARE:
   Basic                         $ .07             $ .07            $ .10             $ .05             $ .04
   Diluted                       $ .07             $ .07            $ .10             $ .05             $ .04

 AMOUNTS IN $OOO'S EXCEPT PER SHARE AMOUNTS
</TABLE>

--------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997, 1996 and 1995, the Company had working capital surplus
(deficits) in the amounts of $3,629,000 and $13,484,000, and $(73,000),
respectively.

The Company's primary source of liquidity and capital resources has historically
been its internal cash flow from operations. In December 1996 net cash of
$13,314,000 was provided from an initial public offering of Company stock. Over
$8,500,000 of the proceeds have been used in 1997 to acquire other PEO
businesses.

Net cash provided by (used in) operating activities was $(562,000), $820,000,
and $761,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
The Company recognizes as revenue and as unbilled receivables, on an accrual
basis, any such amounts which relate to services performed by worksite employees
as of the end of each accounting period which have not yet been billed to the
client because of timing differences between the day the Company's accounting
period ends and its billing dates. The timing of payrolls at year end resulted
in an increase in receivables and unbilled revenue which caused the negative
cash flow from operations. Also the amount of unbilled receivables, as well as
accrued liabilities and client deposits, have increased with the general growth
of the Company and as a result of the acquisitions.

For work performed prior to the termination of a client agreement, the Company
may be obligated, as an employer, to pay the gross salaries and wages of the
client's worksite employees and the related employment taxes and workers'
compensation costs, whether or not the Company's client pays the Company on a
timely basis or at all. The Company, however, historically has not incurred
significant bad debt expenses because the Company generally collects from its
clients all revenues with respect to each payroll period in advance of the
Company's payment of the direct costs associated therewith. The Company attempts
to minimize its credit risk by investigating and monitoring the credit history
and financial strength of its clients and by generally requiring payments to be
made by wire transfer, immediately available funds or ACH transfer. With respect
to ACH transfers, the Company is obligated to pay the client's worksite
employees if there are insufficient funds in the client's bank account on the
payroll date. The Company's policy, however, is only to permit clients with a
proven credit history with the Company to pay by ACH transfer In addition, in
the rare event of nonpayment by a client, the Company has the ability to
terminate immediately its contract with the client. The Company also protects
itself by obtaining unconditional personal guaranties from the owners of its
clients and/or a cash security deposit, bank letter of credit or pledge of
certificates of deposit. As of December 31, 1997 and December 31, 1996, the
Company held cash security deposits in the amounts of $544,000 and $470,000,
respectively. Additional sources of funds to the Company are advance payments of
employment taxes and insurance premiums which the Company holds until they are
due and payable to the respective taxing authorities and insurance providers.

Net cash used in investing activities was $1,496,000, $7,945,000, and
$172,000 for the years ended December 31, 1997, 1996 and 1995 respectively. Over
$8,500,000 of cash was used in 1997 to acquire other PEO businesses. This
represented the liquidation of short-term investments of the December 1996 IPO
proceeds. In addition to the cash paid in acquisitions, over 1,250,000 shares of
TEAM America Common Stock were issued to the owners of the acquired businesses
as well as 176,000 options to acquire shares of TEAM America Common Stock. The
Common Stock issued in these acquisitions is unregistered and is unable to be
sold for a one year period in accordance

                                      -21-
<PAGE>   22


MANAGEMENT'S DISCUSSION & ANALYSIS (CONT'D)
--------------------------------------------------------------------------------

LIQUIDITY AND CAPITAL RESOURCES (CONT'D)

with Rule 144. In addition to the acquisition of other businesses, cash was also
used to acquire additional computer hardware and software for a new internally
developed payroll processing and human resources system. The Company expects
this new system to be in full operation in 1998 and that this system will be
fully year 2000 compliant. Accordingly, the Company does not foresee any future
material costs to conform its operating systems for the year 2000.

The Company's net cash provided by (used in) financing activities was $(93,000),
$13,288,000 and $(7,000) for the years ended December 31, 1997, 1996 and 1995,
respectively. An $80,000 note that was assumed in one acquisition was repaid
before December 31, 1997. Also, in 1997, $ 500,000 was borrowed on the bank line
of credit and repaid one week later following the liquidation of short-term
investments. The primary cash provided by financing activities in 1996 was the
net proceeds from the initial public offering of $13,314,000. Additionally, from
time to time, the Company has used leasing arrangements for equipment purchases.

Presently, the Company has no material commitments for capital expenditures.
Primary uses of cash in the future may include acquisitions, the size and timing
of which cannot be predicted. See Notes to Consolidated Financial Statements for
a discussion of acquisitions which occurred subsequent to December 31, 1997.

The Company has a $5,000,000 credit facility with a bank. The interest rate on
borrowings is the prime rate (8.5% at December 31, 1997) or LIBOR plus 2%. There
were no borrowings outstanding on the facility at December 31, 1997. The Company
is currently renegotiating the terms of the credit facility to restructure
covenants related to collateralization and tangible net worth so that from the
facility can be used, if necessary, to finance acquisitions of other PEO
businesses which result in significant intangible assets.

The Company believes that its cash flow from operations will be sufficient to
meet the Company's presently anticipated working capital needs. The Company's
ability to continue to acquire other PEO businesses is contingent upon available
resources and the acceptance of the Company's Common Stock as part of the
consideration. At December 31, 1997 the Company had approximately $5,000,000 of
cash and investments remaining from the IPO proceeds. The Company intends to
continue to acquire other PEO businesses in 1998. There can be no assurances
that the Company will be able to secure adequate resources to accomplish all
acquisition opportunities available to it. The Company is pursuing revisions to
its credit facility to facilitate short-term borrowings for acquisitions and may
also explore additional public or private equity placements in order to fund
future acquisition activities.

The Company presently has no plans to pay a dividend in the forseeable future.

--------------------------------------------------------------------------------
INFLATION

The Company believes the effects of inflation have not had a significant impact
on its results of operations or financial condition.

                                      -22-
<PAGE>   23
ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         Not Applicable.


ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------

TO THE BOARD OF DIRECTORS OF TEAM AMERICA CORPORATION AND SUBSIDIARIES:

We have audited the accompanying consolidated balance sheets of TEAM AMERICA
CORPORATION (an Ohio corporation) and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TEAM America
Corporation and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.

Columbus, Ohio,
 March 2, 1998.                                        /s/ Arthur Andersen LLP

                                      -23-
<PAGE>   24

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS                                                                                     AS OF DECEMBER 31,
                                                                                          1997          1996
<S>                                                                                   <C>           <C>
CURRENT ASSETS:
   Cash and cash equivalents:
      Cash                                                                            $ 1,465,141   $ 1,383,023
      Temporary cash investments                                                        4,484,367     6,717,497
            Total cash and cash equivalents                                             5,949,508     8,100,520
   Short-term investments                                                                 515,000     7,499,375
   Receivables:
      Trade, net of allowance for doubtful accounts of $50,000 and $0, respectively     1,509,583       263,351
      Related parties                                                                      38,574            --
      Employee advances                                                                   126,945        48,487
      Unbilled revenues                                                                 7,070,588     2,550,854
      Refundable income taxes                                                             253,396            --
            Total receivables                                                           8,999,086     2,862,692
   Prepaid expenses                                                                       216,685       267,784
   Deferred income tax asset                                                              107,000       120,000

            Total current assets                                                       15,787,279    18,850,371

PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization                  991,477       492,335

OTHER ASSETS:
   Intangible assets, primarily goodwill, net of accumulated amortization              23,216,338            --
   Cash surrender value of life insurance policies                                        398,005       259,895
   Mandated benefit/security deposits                                                     329,251       129,500
   Deferred income tax asset                                                              159,000       102,000
   Other assets                                                                           128,585        65,155

            Total other assets                                                         24,231,179       556,550

            Total assets                                                              $41,009,935   $19,899,256
</TABLE>

                                      -24-
<PAGE>   25

CONSOLIDATED BALANCE SHEETS (CONT'D)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY                                    AS OF DECEMBER 31,

                                                                       1997            1996
<S>                                                            <C>             <C>
CURRENT LIABILITIES
 Trade accounts payable                                        $    315,711    $    254,181
 Payable to related parties                                          20,983          24,768
 Accrued compensation                                             6,575,641       2,440,708
 Accrued payroll taxes and insurance                              2,484,735         670,952
 Accrued workers' compensation premiums                           1,255,013         839,117
 Federal and state income taxes payable                             160,000         389,275
 Other accrued expenses                                             791,690         265,433
 Client deposits                                                    544,330         470,135
 Capital lease obligation, current portion                           10,128          11,461

        Total current liabilities                                12,158,231       5,366,030

CAPITAL LEASE OBLIGATION, net of current portion                     18,941              --

DEFERRED RENT                                                        98,832         126,125

DEFERRED COMPENSATION LIABILITY                                     394,687         259,895

        Total liabilities                                        12,670,691       5,752,050

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
 Preferred Stock, no par value:
      Class A, 500,000 shares authorized,
        none issued or outstanding                                       --              --
      Class B, 500,000 shares authorized,
        none issued or outstanding                                       --              --
 Common Stock, no par value:
      Common Stock; 10,000,000 shares authorized;
        4,730,716 and 3,478,976 issued, respectively
        4,613,905 and 3,335,088 outstanding, respectively        26,886,226      13,629,005
Excess purchase price                                               (83,935)        (83,935)
Retained earnings                                                 1,558,966         629,251
                                                                 28,361,257      14,174,321

Less-Treasury stock, 116,811 and 143,888 common stock shares,
    respectively, at cost                                           (22,013)        (27,115)

      Total shareholders' equity                                 28,339,244      14,147,206

      Total liabilities and shareholders' equity               $ 41,009,935    $ 19,899,256
</TABLE>

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

                                      -25-
<PAGE>   26


CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                             FOR THE YEARS ENDED DECEMBER 31,

                                                         1997             1996             1995
<S>                                                 <C>              <C>              <C>
REVENUES                                            $ 155,863,969    $  95,467,814    $  74,921,316

DIRECT COSTS:
   Salaries and wages                                 134,532,369       81,261,584       63,502,407
   Payroll taxes, workers' compensation premiums,
    employee benefits and other                        13,012,446        8,763,075        7,594,264
      Total direct costs                              147,544,815       90,024,659       71,096,671

      Gross profit                                      8,319,154        5,443,155        3,824,645

EXPENSES:
   Administrative salaries, wages and employment
    taxes                                               4,201,210        2,741,253        2,013,481
   Other general and administrative expenses            2,242,314        1,288,272        1,038,564
   Advertising                                            380,732          271,839          116,319
   Depreciation and amortization                          433,278          124,538           42,721
      Total operating expenses                          7,257,534        4,425,902        3,211,085
      Income from operations                            1,061,620        1,017,253          613,560

OTHER INCOME (EXPENSE), net:
   Interest income (expense), net                         546,751           87,855          (11,745)
   Other, net                                              (6,656)         (23,085)         (65,380)
      Other income (expense), net                         540,095           64,770          (77,125)
      Income before income taxes                        1,601,715        1,082,023          536,435

INCOME TAX EXPENSE                                        672,000          458,000          246,862

NET INCOME                                          $     929,715    $     624,023    $     289,573

EARNINGS PER SHARE:
   BASIC                                            $        0.26    $        0.29    $        0.14
   DILUTED                                                   0.25             0.29             0.14

WEIGHTED AVERAGE SHARES OUTSTANDING:
   Basic                                                3,640,699        2,159,502        2,129,616
   Diluted                                              3,699,540        2,159,502        2,129,616
</TABLE>

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

                                      -26-
<PAGE>   27


CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                            CLASS A                  CLASS B                                       CLASS A
                                          COMMON STOCK             COMMON STOCK             COMMON STOCK        PREFERRED STOCK

                                        Number        Value     Number       Value        Number     Value      Number    Value
                                      ......................   .....................   ......................  ..................
<S>                                   <C>          <C>         <C>          <C>        <C>        <C>          <C>       <C>
BALANCE, December 31, 1994             1,047,512   $ 255,494    1,181,464   $ 59,757          --  $        --       --   $     --
  Class A common stock exchanged
    for Class A preferred stock          (39,192)    (21,300)          --         --          --           --   39,192     21,300
  Stock repurchased as treasury, 340
    shares of Class A common, at
    cost and 15 shares of Class A
    preferred stock, at cost                  --          --           --         --                       --       --         --
  Subscriptions received in cash
    subsequent to year end                    --          --           --         --          --           --       --         --
  Net income                                  --          --           --         --          --           --       --         --
BALANCE, DECEMBER 31, 1995             1,008,320   $ 234,194    1,181,464   $ 59,757          --  $        --   39,192   $ 21,300
  8,280 shares of Class A
    Common Stock,
    repurchased, at cost                      --          --           --         --          --           --       --         --
  Split by 184 to 1 and conversion
    of Class A Common Stock,
    Class B Common Stock and
    Class A Preferred Stock
    issued and outstanding or
    held as treasury to
    Common Stock and
    issuance of Common Stock          (1,008,320)   (234,194)  (1,181,464)   (59,757)  3,478,976   13,629,005  (39,192)   (21,300)
  Net income                                  --          --           --         --          --           --       --         --
BALANCE, DECEMBER 31, 1996                    --   $      --           --   $     --   3,478,976  $13,629,005       --   $     --
  Common Stock issued
    for acquisitions                          --          --           --         --   1,251,740   12,729,109       --         --
  Non-Statutory Options granted
    in acquisitions for 176,037
    shares of Common Stock                    --          --           --         --          --      528,112       --         --
  Net income                                  --          --           --         --          --           --       --         --
BALANCE, December 31, 1997                    --   $      --           --   $     --   4,730,716  $26,886,226       --   $     --
</TABLE>


<TABLE>
<CAPTION>
                                                                          TREASURY STOCK
                                                                ...................................
                                         Retained    Excess
                                         Earnings   Purchase    Class A    Class A           Common    Subscriptions
                                        (Deficit)    Price       Common   Preferred           Stock      Receivable        Total
                                      .......................  .....................        ......................... .............
<S>                                   <C>           <C>        <C>        <C>               <C>        <C>            <C>
BALANCE, DECEMBER 31, 1994            $  (284,345)  $(83,935)  $(20,670)  $     --          $     --   $     (31,500) $   (105,199)
  Class A common stock exchanged
    for Class A preferred stock                --         --         --         --                --              --            --
  Stock repurchased as treasury, 340
    shares of Class A common at
    cost and 15 shares of Class A
    preferred stock, at cost                   --         --     (2,670)    (1,175)               --              --        (3,845)
  Subscriptions received in cash
    subsequent to year-end                     --         --         --         --                --          31,500        31,500
  Net income                              289,573         --         --         --                --              --       289,573
BALANCE, December 31, 1995            $     5,228   $(83,935)  $(23,340)  $ (1,175)         $     --   $          --  $    212,029
  8,280 shares of Class A
    Common Stock
    repurchased, at cost                       --         --     (2,600)        --                --              --        (2,600)
  Split by 184 to 1 and conversion
    of Class A Common Stock
    Class B Common Stock and
    Class A Preferred Stock
    issued and outstanding or
    held as treasury to
    Common Stock and
    issuance of Common Stock                   --         --     25,940      1,175           (27,115)             --    13,313,754
  Net income                              624,023         --         --         --                --              --       624,023
BALANCE, December 31, 1996            $   629,251   $(83,935)  $     --   $     --          $(27,115)  $          --  $ 14,147,206
  Common Stock issued
    for acquisitions                           --         --         --         --             5,102              --    12,734,211
  Non-Statutory Options granted
    in acquisitions for 176,037
    shares of Common Stock                     --                    --         --                --              --       523,112
  Net income                              929,715         --         --         --                --              --       929,715
BALANCE, December 31, 1997            $ 1,558,966   $(83,935)  $     --   $(22,013)         $     --                  $ 28,339,244
</TABLE>



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

                                      -27-
<PAGE>   28


CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                          FOR THE YEARS ENDED DECEMBER 31,
                                                                        1997            1996            1995
<S>                                                               <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                     $    929,715    $    624,023    $    289,573
   Adjustments to reconcile net income to cash
   provided by (used in) operating activities:
     Depreciation and amortization                                     433,278         124,538          42,721
     Deferred tax benefit                                              (44,000)       (150,000)             --
     Loss on disposal of assets                                             --              --          14,995
     (Increase) decrease in operating assets:*
       Receivables                                                  (3,741,645)       (562,651)       (398,085)
       Prepaid expenses                                                 54,414        (171,872)        (20,799)
       Mandated benefit/security deposits                                 (915)        (46,071)        (23,522)
     Increase (decrease) in operating liabilities:*
       Accounts payable                                               (540,342)        232,868         (14,533)
       Accrued expenses and other payables                           2,166,049         671,336         724,551
       Client deposits                                                  74,195          42,983         122,724
       Deferred liabilities                                            107,499          54,378          23,146
           Net cash provided by (used in) operating activities        (561,752)        819,532         760,771
CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisitions, net of cash obtained                               (7,759,160)             --              --
   Additions to property and equipment                                (533,829)       (355,848)       (133,870)
   Increase in cash surrender value of life insurance policies        (138,110)        (71,671)        (30,439)
   (Increase) decrease in short-term investments                     6,984,375      (7,499,375)             --
   Increase in other assets                                            (49,356)        (18,370)         (8,000)
           Net cash used in investing activities                    (1,496,080)     (7,945,264)       (172,309)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Payments on note payable and line of credit                        (580,000)        (14,000)        (12,000)
   Payments on capital lease obligation                                (13,180)         (9,155)        (22,853)
   Borrowings on bank line of credit                                   500,000              --              --
   Purchase of treasury stock                                               --          (2,600)         (3,845)
   Subscriptions received in cash subsequent to year-end                    --              --          31,500
   Net proceeds from initial public offering of Common Stock                --      13,313,754              --
           Net cash provided by (used in) financing activities         (93,180)     13,287,999          (7,198)
           Net increase (decrease) in cash and cash equivalents     (2,151,012)      6,162,267         581,264
CASH AND CASH EQUIVALENTS, beginning of year                         8,100,520       1,938,253       1,356,989
CASH AND CASH EQUIVALENTS, end of year                            $  5,949,508    $  8,100,520    $  1,938,253
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid during the year for:
     Interest                                                     $      3,259    $      1,475    $     16,689
     Income taxes                                                 $  1,181,000    $    405,746    $     87,403

<FN>
*Amounts exclude the effects of acquisitions.
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
During 1997, the Company issued 1,251,740 shares of Common Stock 176,037
options to acquire Common Stock and 88,544 shares of Common Stock from treasury
shares held by the Company in connection with acquisitions of PEO businesses.
The shares and options issued for these acquisitions had a value of $13,257,000.
61,467 of the 88,544 shares issued from treasury shares are held in escrow.
These shares have a value of $623,269. During 1995 the Company converted 39,192
shares of Class A Common Stock, valued at $2l,300, into 39,192 shares of Class A
Preferred Stock. The conversion was made pursuant to a preferred stock offering
made to all Class A Common shareholders and was made on a dollar for dollar
basis.

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

                                      -28-
<PAGE>   29


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NATURE AND SCOPE OF BUSINESS

TEAM America Corporation, an Ohio corporation (the Company), is the largest
professional employer organization (PEO) headquartered in Ohio and one of the
oldest PEOs in the United States, having been founded in 1986. The Company
provides, through "partnering" agreements, comprehensive and integrated human
resource management services to small and medium-sized businesses, thereby
allowing such businesses to outsource their human resource responsibilities. The
Company offers a broad range of services including human resource
administration, regulatory compliance management, employee benefits
administration, risk management services and employee liability protection,
payroll and payroll tax administration, and placement services.

The Company provides such services by establishing an employment relationship
with the worksite employees of its clients, contractually assuming substantial
employer responsibilities with respect to worksite employees, and instructing
its clients regarding employment practices. While the Company becomes the legal
employer for most purposes, and consequently assumes a level of liability for
the employment practices of its clients, each client remains in operational
control of its respective business. The Company's operations are affected by
government regulations relating to labor, tax, insurance, benefits and
employment matters. Thus, changes in or unfavorable interpretation of such
regulations although not known or foreseen by management at this time, could
cause future results to be materially different from the results reported
herein.

During 1997 the Company completed four acquisitions, one in Ohio and three in
Michigan, California and Idaho. These acquisitions expanded the geographic reach
of the Company as well as increasing the leased employee base to over 10,000 at
December 31, 1997 from 3,650 at December 31, 1996.

--------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION - The Company's consolidated financial statements are
prepared on the accrual basis of accounting.

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include TEAM
America Corporation and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.

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. Actual results could differ from those estimates.

REVENUE RECOGNITION - Pursuant to the provisions of its standard client
agreement, the Company is the legal employer of the client's worksite employees
for most purposes and has the right, among others, to hire, supervise, terminate
and set the compensation of such worksite employees. The Company bills its
clients on each payroll date for (i) the actual gross salaries and wages,
related employment taxes and employee benefits of the Company's worksite
employees, (ii) actual advertising costs associated with recruitment, (iii)
workers' compensation and unemployment service fees and (iv) an administrative
fee. The Company's administrative fee is computed based upon either a fixed fee
per worksite employee or an established percentage of gross salaries and wages
(subject to a guaranteed minimum fee per worksite employee), negotiated at the
time the client agreement is executed. The Company's administrative fee varies
by client based primarily upon the nature and size of the client's business and
the Company's assessment of the costs and risks associated with the employment
of the clients worksite employees. Accordingly, the Company's administrative fee
income will fluctuate based on the number and gross salaries and wages of
worksite employees and the mix of client fee arrangements and terms. Company
clients generally have the ability to terminate with 30 days' notice.

The Company does not bill its clients for its actual workers' compensation and
unemployment costs, but rather bills for such costs at rates which vary by
client based upon the client's claims and rate history. The amount billed is
intended (i) to cover payments made by the Company for insurance premiums and
unemployment taxes, the Company's cost of contesting workers compensation and
unemployment claims, and other related administrative costs and (ii) to
compensate the Company for providing such services. The Company has an incentive
to minimize its workers' compensation and unemployment costs because the Company
bears the risk that its actual costs will exceed those billed to its clients,
and, conversely, the Company profits in the event that it effectively manages
such costs. The Company believes that this risk is mitigated by the fact that
its standard client agreement provides that the Company, at its discretion, may
adjust the amount billed to the client to reflect changes in the Company's
direct costs, including without limitation, statutory increases in employment
taxes and insurance. Any such adjustment which relates to changes in direct
costs is effective as of the date of the changes and all other changes require
thirty days' prior notice. There is no assurance that the Company will be able
to successfully pass through these increases in the future.

                                      -29-
<PAGE>   30


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Consistent with PEO industry practice, the Company recognizes all amounts billed
to its clients as revenue because the Company is at risk for the payment of its
direct costs, whether or not the Company's clients pay the Company on a timely
basis or at all. The Company also recognizes as revenue and as unbilled
receivables, on an accrual basis, any such amounts which relate to services
performed by worksite employees as of the end of the accounting period which
have not yet been billed to the client because of timing differences between the
day the Company's accounting period ends and its billing dates.

CONCENTRATIONS OF CREDIT RISK - Financial instruments, which potentially subject
the Company to a concentration of credit risk, consist principally of accounts
receivable. The Company provides its services to its clients based upon an
evaluation of the client's financial condition. Exposure to losses on
receivables is principally dependent on each client's financial condition. The
Company mitigates such exposure by requiring deposits, letters of credit or
personal guarantees as well as performing credit checks on the majority of its
clients. Exposure to credit losses is monitored by the Company, and allowances
for anticipated losses maintained when appropriate. It is possible that such
exposure to losses may increase for any number of reasons in the future such as
general economic conditions.

CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of cash and highly
liquid investments with initial maturities of three months or less.

PROPERTY AND EQUIPMENT - Property and equipment is stated at cost with
depreciation and amortization computed on the straight-line method over the
estimated useful lives of the respective assets. Additions and betterments to
property and equipment over certain minimum dollar amounts are capitalized.
Repair and maintenance expenses are expensed as incurred. The accompanying table
summarizes the Company's property and equipment and the associated accumulated
depreciation and amortization at December 31.

<TABLE>
<CAPTION>
     PROPERTY AND EQUIPMENT               1997          1996
--------------------------------------------------------------------------------
<S>                                   <C>          <C>
     Furniture and fixtures           $  550,868   $  419,628
     Computer hardware and software      935,667      379,148
     Leasehold improvements               33,124       30,805

     TOTAL PROPERTY AND EQUIPMENT      1,519,659      829,581

     Less: Accumulated depreciation
           and amortization              528,182      337,246

     PROPERTY AND EQUIPMENT, NET      $  991,477   $  492,335
</TABLE>


<TABLE>
     DEPRECIABLE LIVES                          YEARS
--------------------------------------------------------------------------------
<S>                                         <C>
     Furniture and fixtures                       7
     Computer hardware and software               5
     Leasehold improvements                 life of lease
</TABLE>

Depreciation and amortization is provided over the estimated useful lives of the
assets using the straight-line method. The Company capitalizes and depreciates
purchased software. The estimated useful lives are shown in the accompanying
tables.

INTANGIBLE ASSETS - Intangible assets consist of goodwill and covenants not to
compete. Goodwill is the excess of the purchase price paid for an acquired
business, including liabilities assumed, over the fair market value of the
assets acquired. Goodwill is amortized over 25 years.

The Company continually evaluates whether events and circumstances have occurred
which indicate that the remaining estimated useful life of goodwill may warrant
revision or that the remaining balance of goodwill may not be recoverable. If
such an event has occurred, the Company estimates the sum of the expected future
cash flows, undiscounted and without interest charges, derived from such
goodwill over its remaining life. The Company believes that no such impairment
existed at December, 1997.

The amounts recorded as covenants not to compete are payments contained in
business acquisition agreements to compensate the former owners for refraining
from competing with the acquired business for a period of years. The covenants
not to compete are amortized over the lives of the agreements which are five to
seven years.

<TABLE>
<CAPTION>
     INTANGIBLE ASSETS                     1997      1996
--------------------------------------------------------------------------------
<S>                                   <C>           <C>
     Goodwill                         $22,975,731   $  --
     Covenants not to compete             486,000      --
                                      $23,461,731   $  --
     Less: Accumulated amortization       245,393      --

     INTANGIBLE ASSETS, NET           $23,216,338   $  --
</TABLE>


OTHER ASSETS - Other assets primarily consist of investments in securities and
real estate which are stated at cost as no readily ascertainable market values
are available.

DEFERRED RENT - The Company entered into the lease of its corporate headquarters
in 1990. This lease included inducements in the early periods of the lease,
including an initial six month rent free period, with following years' payments
having scheduled increases. In accordance with generally accepted accounting
principles, rent expense is recognized on a straight-line basis over the life of
the lease. Consequently, a deferred credit has been recorded, which will be
amortized over the remaining years of the lease (through the year 2000).

ADVERTISING - Advertising expenses related to promotional materials and media
placements are expensed as incurred.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount of current assets and
liabilities approximate their fair value because of the immediate or short-term
maturity of these financial instruments. Other assets principally include
investments in privately-held non-traded equity securities and real estate for
which there is no readily ascertainable market value.

                                      -30-
<PAGE>   31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

EARNINGS PER SHARE - Earnings per share were determined in accordance with SFAS
No. 128 which the Company adopted in 1997. There was no impact on prior year
earnings per share calculations as a result of restating them to conform to SFAS
No. 128. The following table is provided to reconcile the shares used for the
basic and diluted earnings per share calculations. There was no difference to
reconcile in determining net income for basic and diluted earnings per share
purposes.

<TABLE>
<CAPTION>
EARNINGS PER SHARE                             1997         1996         1995
--------------------------------------------------------------------------------
<S>                                        <C>          <C>          <C>
Income available to common shareholders    $  929,715   $  624,023   $  289,573

WEIGHTED AVERAGE SHARES (BASIC)             3,640,699    2,159,502    2,129,616
  Effects of dilutive stock options            47,548           --           --
  Effects of shares issuable from escrow       11,293           --           --
WEIGHTED AVERAGE SHARES (DILUTED)           3,699,540    2,159,502    2,129,616
Earnings per share:
  Basic                                    $      .26   $      .29   $      .14
  Diluted                                  $      .25   $      .29   $      .14
</TABLE>




--------------------------------------------------------------------------------
ACCOUNTING PRONOUNCEMENTS NOT YET EFFECTIVE
In June 1997, the Financial Accounting Standards Board issued SFAS No.130,
"Reporting Comprehensive Income," and SFAS No.131, "Disclosures About Segments
of an Enterprise and Related Information." Both are required for financial
statements in fiscal years beginning after December 15, 1997.

SFAS No. 130 requires comprehensive income to be reported in a financial
statement that is displayed with the same prominence as other financial
statements. As the Company does not currently have any components of
comprehensive income, it is not expected that this statement will affect the
Consolidated Financial Statements.

SFAS No. 131 requires entities to disclose financial and detailed information
about its operating segments in a manner consistent with internal segment
reporting used by the Company to allocate resources and assess financial
performance. The Company has not completed the analyses required to determine
the additional disclosure requirements, if any, for the adoption of SFAS No.131,
but does not anticipate that any changes will be required.

--------------------------------------------------------------------------------
INVESTMENTS
Investments at December 31, 1997 and 1996 are trading securities recorded at
their fair market values. Gross unrealized gains and losses and realized gains
and losses from the sales of investments were not material in 1997 or 1996.


<TABLE>
<CAPTION>
  INVESTMENTS                                   1997         1996
--------------------------------------------------------------------------------
<S>                                         <C>          <C>
  U. S. Government and agency obligations   $       --   $3,999,375
  State and municipal securities               515,000    1,500,000
  One year certificates of deposit                  --    1,500,000
  Corporate debt securities                         --      500,000
                                            $  515,000   $7,499,375

</TABLE>


--------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
On December 10, 1996, the Company completed an initial public offering of its
Common Stock by issuing 1,250,000 shares at $12 per share, which net of
commissions and expenses, resulted in net proceeds of $13,313,754 to the
Company.

The Company is authorized to issue 11 ,000,000 shares of capital stock, no par
value, of which 500,000 are designated as Class A voting preferred shares,
500,000 shares are designated as Class B nonvoting preferred shares and
10,000,000 are authorized shares of Common Stock. None of the preferred shares
are issued or outstanding.

--------------------------------------------------------------------------------
CAPITAL LEASE

The Company has capitalized lease obligations for equipment.

The cost and related accumulated amortization of the assets capitalized under
capital leases were $ 79,402 and $ 48,459 at December 31, 1997 and $35,569 and
$21,341 at December 31, 1996, respectively. Future minimum lease payments are
due according to the following schedule.

<TABLE>
<CAPTION>
     CAPITAL LEASES                         1997
--------------------------------------------------------------------------------
     <S>                                  <C>
     1998                                 $15,496
     1999                                  13,132
     2000                                   6,083
     2001                                   5,576
     Future minimum lease payments         40,287
     Less: amount representing interest    11,218
     Less: current portion                 10,128

     CAPITAL LEASE OBLIGATION,
     NET OF CURRENT PORTION               $18,941
</TABLE>

                                      -31-
<PAGE>   32


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

COMMITMENTS

The Company leases office facilities, automobiles and certain office equipment
under long-term agreements expiring through 2001, which are accounted for as
operating leases. The future minimum lease payments as of December 31, 1997 are
presented in the accompanying table.

<TABLE>
 LEASES
--------------------------------------------------------------------------------
 Year Ending December 31,
<S>                                                    <C>
 1998                                                  $ 548,500
 1999                                                    486,000
 2000                                                    380,000
 2001                                                    105,000
 2002                                                     88,000
 Thereafter                                                1,000
                                                      $1,608,500
</TABLE>

Rent expense under all operating leases was $368,130, $187,158 and $166,337 for
the years ended December 31, 1997, 1996 and 1995, respectively.

The Company currently has agreements with certain officers and other employees
that call for the payment of commissions on future revenues from clients brought
in by these employees. The amount of such payments is determined by the
achievement of certain sales goals while such employees are employed with the
Company, as well as the level of revenues from such employees' clients
subsequent to termination for a certain period, as defined. These commission
agreements are subject to compliance with non-compete agreements which are
effective for one year beyond an employee's termination date. The Company
incurred no expense relating to such agreements in 1997, 1996 or 1995.

The Company entered into a merger agreement in November 1997 to acquire a PEO in
Florida for cash of $320,000 and 129,620 shares of TEAM America Common Stock
valued at $1,280,000. The parties have not reached final agreement on the terms
of the merger as of March 2, 1998.

--------------------------------------------------------------------------------
DEFERRED COMPENSATION LIABILITY

The Company has deferred compensation agreements with certain company and client
employees. The liabilities under these agreements are being accrued over the
participants' remaining periods of employment so that, on the payout date, the
then-present value of the payments will have been accrued. These liabilities
will be funded by life insurance policies. The cash surrender value of such
policies dictates the amount of the deferred compensation benefits due, as
defined by the respective agreements. Expense for 1997, 1996 and 1995 related to
deferred compensation was $163,450 and $71,671, and $30,439, respectively. The
total face value of related life insurance policies was $9,545,000 at December
31,1997.

--------------------------------------------------------------------------------
DEBT OBLIGATIONS

The Company has a $5,000,000 credit facility with a bank which allows the
Company to obtain advances up to such amount without negotiating or exercising
any further agreements. Borrowings under this credit facility are payable upon
demand and bear interest at the lower of the bank's prime rate (8.5% at December
31, 1997) or LIBOR plus two percent (2%). The Company is required to meet
financial covenants pertaining to net worth, tangible net worth, leverage,
current ratio and cash/securities balances. The credit facility is unsecured
and, as of December 31, 1997, no borrowings were outstanding under this credit
facility. The facility expires July 31, 1998. $500,000 was borrowed on the
facility in 1997 for a seven-day period.

--------------------------------------------------------------------------------
EMPLOYEE BENEFIT PROGRAMS

CAFETERIA PLAN - The Company sponsors Section 125 cafeteria plans that include a
fully insured health, dental, vision and prescription card program. The plans
are offered to full-time employees. Entrance to the plan is the first day of the
month following thirty days of service.

401(k) RETIREMENT PLAN - The Company sponsors 401(k) retirement plans that
cover all full-time employees with at least one year of service. The plans do
not provide for Company contributions.

OTHER PROGRAMS - Other available employee programs include health, life,
accidental death and dismemberment insurance, disability insurance and dependent
care assistance programs. Benefits under such programs are funded by the
Company's employees and clients.

--------------------------------------------------------------------------------
RELATED PARTY TRANSACTIONS

The Company had accounts receivable of $38,574 at December 31, 1997 and accounts
payable at December 31, 1997 and 1996 of $20,983 and $24,768, respectively with
related parties including an officer whose law office and two members of the
Board of Directors who are clients of the Company.

During the years ended December 31, 1997, 1996 and 199;, the Company recorded
sales to related parties in the amounts of $175,605, $619,941, and $417,127
respectively. During the years ended December 31, 1997, 1996 and 1995, the
Company purchased services, primarily legal and tax accounting, from related
parties in the amounts of $167,200, $140,250 and $147,109, respectively.

During 1996 the Company purchased stock of a client company for approximately
$20,000.

An officer of the company serves as the trustee of the 401(k) Retirement Plan.

                                      -32-
<PAGE>   33


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

INCOME TAXES

In May 1992 the Company adopted SFAS No. 109 "Accounting for Income Taxes,"
which requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets and liabilities represent
amounts taxable or deductible in the future. These taxable or deductible amounts
are based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities. The components of income tax expense for
the years ended December 31, 1997, 1996 and 1995, and the reconciliation of the
Company's effective tax rate to the statutory federal tax rates and the
significant items giving rise to the deferred income tax assets (liabilities),
as of December 31, 1996 and 1995, are presented in the accompanying tables.

<TABLE>
<CAPTION>
       INCOME TAX EXPENSE            1997         1996         1995
--------------------------------------------------------------------------------
<S>                             <C>          <C>          <C>
     Current:
      Federal                   $ 556,000    $ 516,800    $ 209,833
      State                       160,000       91,200       37,029
     Deferred:
      Increase
       in deferred income
       tax asset                  (44,000)    (150,000)          --
     TOTAL INCOME TAX EXPENSE   $ 672,000    $ 458,000    $ 246,862
</TABLE>


<TABLE>
<CAPTION>
     EFFECTIVE TAX RATE             1997       1996      1995
--------------------------------------------------------------------------------
<S>                                 <C>        <C>       <C>
     Statutory Federal tax rate     34.0%      34.0%     34.0%
      Adjustments:
      state income tax expense       6.0        6.0       6.0
      Amortization
      of intangible assets           5.5         --        --
      Other                         (3.5)       2.3       6.0
     Effective tax rate             42.0%      42.3%     46.0%
</TABLE>

<TABLE>
<CAPTION>
       DEFERRED INCOME TAX ASSETS                     1997         1996
--------------------------------------------------------------------------------
<S>                                              <C>          <C>
     Deferred income tax assets (liabilities):
      Deferred compensation                      $ 159,000    $ 104,000
      Deferred rents                                40,000       50,000
      Depreciation                                 (40,000)     (52,000)
       Total long-term deferred
       income tax asset                          $ 159,000    $ 102,000
      Accrued liabilities                        $ 107,000    $ 120,000
       Total current deferred
       income tax asset                          $ 107,000    $ 120,000
</TABLE>


--------------------------------------------------------------------------------
INCENTIVE STOCK PLAN

Effective December 10, 1996, the Company established an Incentive Stock Plan
(the Plan) for employees which provides for the issuance of up to 350,000 Common
Stock shares. The maximum number of shares that may be awarded during any
calendar year may not exceed 10% of the total number of issued and outstanding
Common Stock shares of the Company

On December 10,1996, the Company granted 184,000 options to certain officers,
employees and directors of the Company to purchase shares of the Company's
Common Stock at a price of $12 per share, the market price on that date.
Options granted to officers and employees vest at 20% per year over a five year
period and options granted to directors vest 100% after one year. All options
expire ten years from the date of grant. On September 3, 1997 al options granted
on December 10, 1996 plus 5,000 options granted on April 1, 1997 were cancelled
and reissued at a price of $8.50 per share.

<TABLE>
<CAPTION>
     INCENTIVE STOCK OPTIONS
--------------------------------------------------------------------------------
<S>                                        <C>
     Option Price $ 12.00 per share
     Balance, December 31,1996              184,000
     Options forfeited, March 28 1997        (4,000)
     Options cancelled, September 3, 1997  (180,000)
     Balance December 31,1997                    --

     Option Price $ 9.75 per share
     Options issued April 1, 1997             5,000
     Options cancelled September 3, 1997     (5,000)
     Balance, December 31, 1997                  --

     Option Price $ 6.75 per share
     Options issued, May 1, 1997             25,000
     Balance, December 31, 1997              25,000

     Option Price $ 8.50 per share
     Options issued September 3, 1997       325,000
     Options forfeited, October 3 1997       (2,000)
     Balance December 31, 1997              323,000
</TABLE>





--------------------------------------------------------------------------------
NON-STATUTORY OPTIONS

The Company has granted non-statutory options in connection with acquisitions
and employment agreements to key executives retained in acquired businesses and
to the officers of the company. All non-statutory options have a ten-Year
exercise period and are issued with an exercise price equal to the fair market
value of company stock on the date of grant. Vesting periods vary depending on
the nature of the grant.

Non-statutory options granted in 1997 are as follows. No non-statutory options
were cancelled in 1997.


<TABLE>
<CAPTION>
     NON-STATUTORY STOCK OPTIONS
--------------------------------------------------------------------------------
     Option Price  Vesting Period           Date Issued             Quantity
      <S>            <C>                  <C>                       <C>
      $ 8.50         5 years              September 3, 1997         168,400
        8.50         5 years              September 8, 1997         223,000
        8.50         Immediate            September 8, 1997         176,037
       10.50         Immediate            November 1, 1997            1,465
       10.50         5 years              November 1, 1997          331,735

          Total outstanding at December 31, 1997                    900,637
</TABLE>

                                      -33-
<PAGE>   34


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

STOCK OPTION COMPENSATION EXPENSE

The Company accounts for stock options according to APB No. 25, under which no
compensation expense has been recognized at the time of grant. Had compensation
cost for the Company's stock options been determined based on fair values at the
grant date consistent with SFAS No. 123, the Company's net income and diluted
earnings per share for 1997 and 1996 would have been reduced to the pro forma
amounts of $694,700 and $0.19 and $613,416 and $0.28, respectively. The fair
values of the options granted are estimated on the date of grant using the
Black-Scholes option pricing model with assumptions of a risk-free interest rate
of 6%, expected lives of 2-6 years and expected volatility of 56% to 62% in both
years. The weighted average fair values of options granted in 1997 and 1996 were
$5.63 and $6.81 per share, respectively.

--------------------------------------------------------------------------------
ACQUISITIONS

In 1997 the Company completed the acquisitions of the stock of four PEO
businesses. These acquisitions were accounted for by the purchase method of
accounting. Total consideration paid for these acquisitions was as follows:

<TABLE>
<S>                                                   <C>
     Cash                                             $ 8,244,000
     Company stock (1,278,817 shares)                 $12,729,000
     Company stock options (176,037 shares)           $   528,000
</TABLE>

The purchase price was allocated to the assets acquired based on their relative
fair market values with the excess allocated to goodwill. 61,467 shares of TEAM
America Corporation Common Stock are held by an independent escrow agent and are
not included in the total shares outstanding or in consideration paid for the
acquisitions. The escrowed shares will be released at the end of the applicable
escrow period and upon the satisfaction of the terms of the escrow agreements,
primarily related to customer retention. The escrow period for 13,538 shares
ends on December 31, 1999; the escrow period for 47,929 shares ends October
October 6, 1998.

The results of operations of of the acquired businesses have been included in
the Company's results from the acquisition date. The following table presents
condensed pro forma operating results as if the businesses had been acquired as
of January 1, 1996. These results are not necessarily an indication of the
operating results that would have occurred had the Company actually operated the
businesses during the periods indicated. Amounts, except per share amounts,
are in $ thousands.


<TABLE>
<CAPTION>
                        1997           1996
                            (Unaudited)
--------------------------------------------------------------------------------
<S>                   <C>         <C>
     Revenues         $230,093    $174,420
     Net loss             (601)       (773)
     Loss per share
      Basic           $   (.13)   $   (.22)
      Diluted         $   (.13)   $   (.22)
</TABLE>


--------------------------------------------------------------------------------
CONTINGENCIES

The Internal Revenue Service (IRS) is conducting a Market Segment Study,
focusing on selected PEOs (not including the Company), in order to examine the
relationships among PEOs, worksite employees and owners of client companies.
The Company has limited knowledge of the nature, scope and status of the
Market Segment Study because it is not a part thereof and the IRS has not
publicly released any information regarding the study to date. In addition, the
Company's 401(k) retirement plan (the Plan) was audited for the year ended
December 31, 1992, and, as part of that audit the IRS regional  office has
asked the IRS national office to issue a Technical Advice Memorandum (TAM)
regarding whether or not the Company is the employer for benefit plan purposes.
The Company has stated its position in a filing with the IRS that it is the
employer for benefit plan purposes.

If the IRS concludes the PEOs are not "employers" of certain worksite employees
for purposes of the Code as a result of either the Market Segment Study
or the TAM, then the tax qualified status of the Plan could be revoked and its
cafeteria plan may lose its favorable tax status. The loss of qualified status
for the Plan and the cafeteria plan could increase the Company's administrative
expenses and, thereby, materially adversely affect the Company's financial
condition and result of operations.

The Company is unable to predict the timing or nature of the findings of the
Market Segment Study, the timing or conclusions of of the TAM, and and the
ultimate outcome of such conclusions or findings. The Company is also unable to
predict the impact which the foregoing will have on the Company's administrative
expenses, and whether the Company's resulting liability exposure, if any, will
relate to past or future operations. Accordingly, the Company is unable to make
a meaningful estimate of the amount if any, of such liability exposure.

The Company has ongoing litigation matters pertaining to worksite employees in
the ordinary course of business which management believes will not have a
material adverse effect on the results of operations or financial condition of
of the Company.

--------------------------------------------------------------------------------
SUBSEQUENT EVENTS

In January 1998 the Company completed the acquisition of three PEO businesses.
Consideration paid for these businesses was cash of $333,070 and 106,228 shares
of TEAM America Common Stock with a total value of $1,062,280. 39,500 shares
with a value of $395,000 also have been escrowed for periods of one to three
years subject to achieving certain performance or employee retention criteria.
In addition, in February, 1998, the Company signed an acquisition agreement for
a PEO business which is expected to be completed on April 1, 1998. The proposed
consideration is $1,250,000 in cash and 110,714 shares of TEAM America Common
Stock valued at $1,550,000, of which shares with a value of $1,250,000 will
he escrowed subject to achieving certain profitability performance criteria.

                                      -34-
<PAGE>   35
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.

         In accordance with General Instruction G(3) to Form 10-K, the
information called for in this Item 10 is incorporated herein by reference to
the Company's Definitive Proxy Statement, to be filed with the Securities and
Exchange Commission (the "SEC") pursuant to Regulation 14A of the General Rules
and Regulations under the Securities Exchange Act of 1934 (the "Exchange Act"),
relating to the Company's Annual Meeting of Shareholders (the "Annual Meeting")
under the captions "NOMINATION AND ELECTION OF DIRECTORS," "EXECUTIVE OFFICERS,"
and "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE."

ITEM 11.          EXECUTIVE COMPENSATION.

         In accordance with General Instruction G(3) to Form 10-K, the
information called for in this Item 11 is incorporated herein by reference to
the Company's Definitive Proxy Statement, to be filed with the SEC pursuant to
Regulation 14A of the General Rules and Regulations under the Exchange Act,
relating to the Company's Annual Meeting under the caption "EXECUTIVE
COMPENSATION." The information set forth under the captions "REPORT OF
COMPENSATION COMMITTEE" and "PERFORMANCE GRAPH" is expressly not incorporated
herein by reference.

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT.

         In accordance with General Instruction G(3) to Form 10-K, the
information called for in this Item 12 is incorporated herein by reference to
the Company's Definitive Proxy Statement, to be filed with the SEC pursuant to
Regulation 14A of the General Rules and Regulations under the Exchange Act,
relating to the Company's Annual Meeting under the caption "SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         In accordance with General Instruction G(3) to Form 10-K, the
information called for in this Item 13 is incorporated herein by reference to
the Company's Definitive Proxy Statement, to be filed with the SEC pursuant to
Regulation 14A of the General Rules and Regulations under the Exchange Act,
relating to the Company's Annual Meeting under the captions "COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" and "CERTAIN RELATIONSHIPS AND
RELATED PARTY TRANSACTIONS."

                                      -35-
<PAGE>   36




                                     PART IV

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

(a)      The following documents are filed as part of this report:

         (1)      The following financial statements of the Company, are
                  included in Item 8 of this report:

                  Report of Independent Public Accountants

                  Consolidated Balance Sheets as of December 31, 1997 and 1996

                  Consolidated Statements of Income for the years ended December
                  31, 1997, 1996 and 1995

                  Consolidated Statements of Stockholders' Equity for
                  the years ended December 31, 1997, 1996 and 1995

                  Consolidated Statements of Cash Flows for the years ended
                  December 31, 1997, 1996 and 1995

                  Notes to Consolidated Financial Statements

         (2)      The following financial statement schedule for the Company is
                  filed as part of this report:

                  Report of Independent Public Accountants on Financial
                  Statement Schedule.

                  Schedule II - Valuation and Qualifying Accounts

                  All other schedules are omitted because the required
                  information is either presented in the financial statements or
                  notes thereto, or is not applicable, required or material.

         (3) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT NO.                DESCRIPTION
-----------                -----------

<S>                        <C>
      2.1                  Agreement and Plan of Merger, dated as of September
                           5, 1997, among the Company, TEAM America
                           Acquisitions, Inc., and Workforce Strategies, Inc.
                           (Reference is made to Exhibit 2 to the Current Report
                           on Form 8-K, dated September 8, 1997, filed with the
                           Securities and Exchange Commission on September 23,
                           1997, and incorporated herein by reference.)

      2.2                  Agreement and Plan of Merger, dated as of October 31,
                           1997, among the Company, TEAM America of Idaho, Inc.,
                           and Aspen Consulting Group, Inc. (Reference is made
                           to Exhibit 2 to the Current Report on Form 8-K, dated
                           October 31, 1997, filed with the Securities and
                           Exchange Commission on November 3, 1997, and
                           incorporated herein by reference.)

      3.1                  Amended Articles of Incorporation of the Company(1)

      3.2                  Amended Code of Regulations of the Company(1)
</TABLE>


                                      -36-
<PAGE>   37



    *10.1                  Company's 1996 Incentive Stock Plan(1)

    *10.2                  Executive employment agreement between the Company
                           and Mr. Richard Schilg, CEO and President(1)

    *10.3                  Executive employment agreement between the Company
                           and Mr. Kevin T. Costello, COO and Executive Vice
                           President (1)

    10.4                   Lease for Cascade Corporate Center dated June 22,
                           1990 between EastGroup Properties and the Company, as
                           amended(1)

     21.1                  Subsidiaries of the Registrant

     23.1                  Consent of Arthur Andersen LLP

     24.1                  Power of Attorney

     27.1                  Financial Data Schedules


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

(1)    Included as an exhibit to the registrant's Registration Statement on Form
       S-1, as amended (File No. 333-13913), and incorporated herein by
       reference.

*      Management contract or compensation plan or arrangement.


(b)      REPORTS ON FORM 8-K

         On September 23, 1997, the Company filed a Form 8-K to report the
acquisition of Workforce Strategies, Inc. by means of a merger with a
wholly-owned subsidiary of the Company (Items 2 and 7).

         On November 3, 1997, the Company filed a Form 8-K to report the
acquisition of Aspen Consulting Group, Inc. by means of a merger with a
wholly-owned subsidiary of the Company (Items 2 and 7).

(c)      EXHIBITS

         The exhibits to this report follow the Consolidated Financial
Statements.

(D)      FINANCIAL STATEMENT SCHEDULES

         The response to this portion of Item 14 is submitted as a separate
section of this report. See Item 14(a)(2) above.

                                      -37-
<PAGE>   38




                                   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.

                                      TEAM AMERICA CORPORATION

Date: March 26, 1998                  By: /s/ Richard C. Schilg
                                          --------------------------------------
                                      Richard C. Schilg, Chairman of the Board,
                                      President and Chief Executive Officer

         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.

<TABLE>
<CAPTION>
SIGNATURE                           TITLE                                       DATE
---------                           -----                                       ----


<S>                        <C>                                                  <C>
/s/ Richard C. Schilg      Chairman of the Board, President and Chief           March 26, 1998
-----------------------    Executive Officer (Principal Executive Officer)
Richard C. Schilg

* Michael R. Goodrich      Chief Financial Officer and Vice President           March 26, 1998
-----------------------    (Principal Financial and Accounting Officer)
Michael R. Goodrich

* Kevin T. Costello        Senior Vice President and Director                   March 26, 1998
-----------------------
Kevin T. Costello

* Paul M. Cash             Senior Vice President and Director                   March 26, 1998
-----------------------
Paul M. Cash

*S. Cash Nickerson         Executive Vice President and Director                March 26, 1998
-----------------------
S. Cash Nickerson

*Charles F. Dugan II       Director                                             March 26, 1998
-----------------------
Charles F. Dugan II

*William W. Johnston       Director                                             March 26, 1998
-----------------------
William W. Johnston

*M. R. Swartz              Director                                             March 26, 1998
-----------------------
M. R. Swartz

*Crystal Faulkner          Director                                             March 26, 1998
-----------------------
Crystal Faulkner
</TABLE>


*By: /s/Richard C. Schilg
     -----------------------------------
     Richard C. Schilg, attorney-in-fact
     for each of the persons indicated


                                      -38-
<PAGE>   39
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors of
  TEAM America Corporation and Subsidiaries:


We have audited in accordance with generally accepted auditing standards the
consolidated financial statements of TEAM America Corporation and subsidiaries
included in this Form 10-K, and have issued our report thereon dated March 2,
1998. Our audits were made for the purposes of forming an opinion on those
statements taken as a whole. The schedule listed in the index is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.


                                             /s/ ARTHUR ANDERSEN LLP

Columbus, Ohio,
  March 2, 1998

                                      -39-
<PAGE>   40



                                   SCHEDULE II

                    TEAM AMERICA CORPORATION AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS

                  YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995


<TABLE>
<CAPTION>
                                                    BALANCE                                               BALANCE
                                                   BEGINNING   CHARGED TO                                 AT END
                                                   OF PERIOD    EXPENSE     WRITE-OFFS     OTHER         OF PERIOD
                                                   ---------    -------     ----------     -----         ---------

Description
-----------

<S>                                                 <C>         <C>          <C>            <C>           <C>
December 31, 1995

   Allowance for doubtful accounts                  $5,406      $35,653      $ 37,793       $    -        $   3,266

December 31, 1996

   Allowance for doubtful accounts                  $3,266      $     -      $  3,266       $     -       $      -

December 31, 1997

   Allowance for doubtful accounts                  $    -      $     -      $      -       $50,000(1)    $  50,000
</TABLE>



(1) Established in connection with the valuation of an acquired business.

                                      -40-