SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

                                   FORM 10-KSB

(Mark One)


/X/   ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
      ACT OF 1934

For the fiscal year ended September 30, 1997

/ /   TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934

For the transition period from          to
                              ----------   ----------

                         Commission file number 0-24928

                           THE SOLOMON-PAGE GROUP LTD.
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)


              Delaware                                 51-0353012
   --------------------------------          -------------------------------
   (State or other jurisdiction of            (IRS Employer Identification
    incorporation or organization                        Number)



              1140 Avenue of the Americas, New York, New York 10036
--------------------------------------------------------------------------------
             (Address of Principal Executive Offices)       (Zip Code)

       Registrant's telephone number, including area code: (212) 764-9200
                                                           --------------

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

                                      NONE
                                      ----

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

                      Common Stock, without par value $.001
                         Common Stock Purchase Warrants


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

<PAGE>

                  Check  if there  is no  disclosure  of  delinquent  filers  in
response to Item 405 of Regulation S-B contained in this form, and no disclosure
will be  contained,  to the best of the  Registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB.  /X/

                  State the issuer's  revenues for its most recent  fiscal year:
The  issuer's  revenues  for the  fiscal  year  ended  September  30,  1997 were
$28,996,485.

                  The  aggregate  market  value  of the  voting  stock  held  by
non-affiliates of the Registrant computed by reference to the price at which the
stock was sold on December 31, 1997 was approximately:  $11,603,400.  Solely for
the purposes of this  calculation,  shares held by directors and officers of the
Registrant  have  been  excluded.   Such  exclusion   should  not  be  deemed  a
determination  or an admission by the Registrant that such  individuals  are, in
fact, affiliates of the Registrant.

                  Indicate  the  number  of  shares  outstanding  of each of the
issuer's classes of common stock, as of the latest practicable date: At December
31, 1997,  there were outstanding  5,129,285  shares of the Registrant's  Common
Stock, $.001 par value.

                       DOCUMENTS INCORPORATED BY REFERENCE

                  Certain   portions  of  the   Registrant's   definitive  proxy
statement to be filed not later than January 28, 1998 pursuant to Regulation 14A
are  incorporated  by reference in Items 9 through 12 of Part III of this Annual
Report on Form 10-KSB.

                  Transitional Small Business Disclosure Format (check one):

                  Yes / /  No /X/

<PAGE>


                                     PART I


ITEM 1.           DESCRIPTION OF BUSINESS
                  -----------------------

General

         The  Company  is  a  specialty  niche  provider  of  staffing  services
organized into two primary  operating  divisions:  executive  search / full time
contingency  recruitment and temporary  staffing and  consulting.  The executive
search  and full  time  contingency  recruitment  division  has  eight  lines of
business,  including four industry (capital  markets,  publishing and new media,
healthcare and fashion services),  and four functional (information  technology,
accounting,  human resources and legal).  The temporary  staffing and consulting
division  provides  services to companies  seeking  personnel in the information
technology,  accounting  and human  resources  areas.  The  accounting and human
resources  temporary  staffing and consulting  businesses  commenced  operations
during fiscal 1997.

         In the executive search and full time contingency recruitment division,
fees usually range between 20% and 33% of the placed employee's guaranteed first
year's  compensation.  In the executive  search  sector,  the Company  generally
obtains a non-refundable  retainer of  approximately  one-third of the estimated
fee at the  inception of an  engagement,  with the balance of the fee payable on
terms negotiated with the client. A substantial  portion of the deferred payment
is usually contingent on the successful completion of the placement. In the full
time  contingency   recruitment  sector,  the  entire  fee  is  contingent  upon
successful  completion of the placement,  although under certain circumstances a
non-refundable  retainer  payment of a portion of the fee may be received at the
outset.  In the  temporary  staffing  and  consulting  division,  the Company is
compensated  by its clients for services  provided by  temporary  employees on a
time and materials basis. The Company's  primary costs, in addition to its fixed
costs  such  as  rental  expense,   salaries  of  administrative  personnel  and
advertising,  are  the  variable  costs  attributable  to  payroll  relating  to
temporary staffing  requirements,  commissions of sales and recruiting personnel
and employee benefits.

         The Solomon-Page  Group Ltd. is a Delaware  corporation  formed in June
1993 that succeeded to the business of a predecessor New York  corporation  with
the same name  through a merger that was effected in May 1994.  The  predecessor
commenced operations in 1990.  References herein to the "Company" are references
to The  Solomon-Page  Group Ltd. and its  wholly-owned  subsidiary,  Information
Technology Partners, Inc. ("ITP").

Industry Overview

         According to the Staffing  Industry  Report,  revenues for the staffing
industry  were  expected  to exceed $86 billion for 1997.  Temporary  help,  the
largest  staffing  services  segment,  was  estimated  to have 1997  revenues of
approximately   $54  billion  and  has  grown  at  an  average  annual  rate  of
approximately 19% over the past five years. Information technology services has



<PAGE>

become one of the fastest growing segments to the staffing services industry, as
the  increased  use of  technology  has led to a  dramatic  rise in  demand  for
technical  project  support,  software  development  and other  computer-related
services.  Revenues  from  the  information  technology  services  segment  were
estimated at  approximately  $15 billion for 1997,  representing  a 27% increase
over 1996. The placement and search sector of the staffing  industry consists of
three segments,  retained  search,  contingency  recruitment  and  temp-to-perm.
Revenues  for the  placement  and search  sector  were  estimated  to exceed $10
billion for 1997.

Scope of Staffing Services Provided

         The Company provides its services to clients  primarily in the New York
metropolitan  area, but increasingly on a nationwide and global basis to certain
of the industries and functional  areas that it serves.  The Company's  retained
executive search and contingency  recruitment business is currently divided into
eight groups.

Retained Executive Search

         CAPITAL MARKETS (SALES AND  TRADING/INVESTMENT  BANKING). The Company's
capital markets group primarily services global financial services  institutions
in North  America,  Europe and Asia.  This group places  traders,  institutional
sales  people,  investment  bankers,  research  and  quantitative  analysts  and
portfolio managers, and focuses on middle and senior level positions.

         HEALTH  CARE.  The  Company's  health  care group  services  hospitals,
managed  care firms,  group  health  insurance  companies  and other health care
related companies.  The Company fills primarily middle to senior level executive
positions in various functional areas of the health care industry such as sales,
marketing, operations, financial management and medical management.

         PUBLISHING  AND NEW  MEDIA AND  TECHNOLOGY.  The  Company's  publishing
division  provides  executive search services to businesses  engaged in consumer
and business magazine publishing, educational publishing, professional reference
and trade book publishing,  and information services on a nationwide basis. This
group  handles  primarily  retained  senior  executive  level  searches  in such
functional  areas as editorial,  marketing,  sales,  circulation and product and
technology  development.  One of the fastest  growth areas within the publishing
industry is New Media and Technology. The marketplaces serviced within this area
include  educational  and  consumer  software  publishers,  internet and website
developers, on-line services, CD-ROM producers and distance learning companies.

Contingency Recruitment

         INFORMATION  TECHNOLOGY.  The Company's information technology division
conducts search  assignments  for a diverse client base,  including those in the
investment  banking,  financial  services,   communications,   retail  and  high
technology  industries.   The  division  fills  positions  at  many  levels  and
functions, such as Chief Information Officers and Directors, project managers


                                       -2-

<PAGE>

and programmers,  as well as less technical  positions such as systems liaisons,
business systems analysts and help desk personnel.

         LEGAL PROFESSIONALS.  The Company's legal professional  division serves
primarily  the New York  metropolitan  area,  providing  attorneys to law firms,
financial  institutions  and public and privately held companies.  In law firms,
the division fills positions at the associate, of counsel and partner level. For
corporations,  lawyers are  provided  for all  positions  under the  auspices of
General  Counsel.  Specialty  practice areas include  corporate,  banking,  real
estate,  ERISA and tax law, labor and employment,  environmental law, trusts and
estates, intellectual property and litigation.

         HUMAN  RESOURCES:  The Company's  human resources  division  undertakes
search  assignments  for a diverse  client base,  from Fortune 1000 companies to
mid-size companies,  in various industries such as financial services,  consumer
products, manufacturing, publishing, telecommunications and high technology. The
Company  fills  positions  for such  human  resources  areas as  management  and
organizational   planning,   compensation  and  benefits,  labor  relations  and
training. In addition,  the Company recruits  communications  professionals with
backgrounds   in   areas   including    marketing    communications,    internal
communications,  investor relations, public relations, media relations,  writing
and editing.

         ACCOUNTING  AND FINANCE.  The  Company's  accounting  and finance group
specializes  in  providing  financial  and  accounting  personnel  such as chief
financial  officers,  controllers,  treasurers,  financial  analysts,  financial
systems  managers,  bookkeepers and other related personnel to a wide variety of
corporate  employers  in  various  industries  such  as  publishing,  investment
banking,  advertising,  insurance,  healthcare,  apparel and real estate. Within
this division,  the Company has added a concentration in management  consulting.
This area  focuses on  addressing  the needs of clients in the areas of business
and strategic planning, corporate development and change management.

         FASHION  SERVICES.  The Company's fashion services group specializes in
providing  management,  design and other professionals to clients engaged in the
fashion services and retail industries,  including manufacturers,  specialty and
department  stores,  chains,  mass  merchandisers and catalogue  companies.  The
Company  fills  positions  at the  middle  to  senior  executive  levels in many
functional areas such as buyers, designers, sales and production.

Temporary Staffing and Consulting

         INFORMATION TECHNOLOGY.  The Company's information technology temporary
staffing and consulting business provides services on a time and materials basis
to clients within the financial services, consumer products, telecommunications,
consulting and insurance industries.  The Company supplies skilled professionals
in the areas of Application  Development,  Business Analysis, Help Desk Support,
Networking, Project Management and Quality Assurance.


                                       -3-

<PAGE>


         ACCOUNTING  AND  HUMAN  RESOURCES.  During  Fiscal  1997,  the  Company
expanded  its  existing  presence  within  its full  time  accounting  and human
resources  specialty  niches by  providing  temporary  staffing  and  consulting
services  to  existing  as  well  as new  clients  through  dedicated  teams  of
experienced staffing or industry personnel.

Operational Procedures

         The  Company   concentrates  on  establishing  and  maintaining  strong
relationships  with its clients in each  industry or functional  group.  In this
way, it is able to become  familiar with and sensitive to its clients'  specific
needs, thereby facilitating its ability to provide high-quality services,  which
in turn enhances client loyalty and repeat business.  In addition,  although the
Company's  divisional  structure causes its employees to concentrate on specific
areas, they are trained and compensated to recognize cross-selling opportunities
when they exist.  The Company  believes that its focus on  comprehensive  client
service is one of the primary reasons it receives a large number of new business
referrals from existing clients.

         The  Company  recruits  its  candidates   primarily   through  targeted
telephone  solicitation and referrals by past and current candidates and through
advertising in local and national media and on the Internet.

         Two customers of the Company  accounted for  approximately 11% and 10%,
respectively,  of the Company's  revenues during the fiscal year ended September
30, 1997.

Business Expansion

         During the next fiscal year, the Company  intends to continue to expand
its current retained  executive search,  full-time  contingency  recruitment and
temporary staffing and consulting  business sectors through the retention of its
existing  staff of experienced  personnel  counselors as well as the addition of
new counselors  with  placement  experience,  who will  complement the Company's
current scope of business.  Also, the Company aggressively pursues opportunities
to  attract  highly  skilled  staffing  industry  professionals  in new areas of
retained  executive search,  contingency  recruitment and temporary staffing and
consulting on an ongoing proactive basis.

         The  Company  intends  to focus on  blending  temporary  and full  time
placement  services by  continuing  to expand its existing  presence  within the
Information  Technology,  Accounting,  Legal and Human  Resources  businesses in
order to  capitalize on synergies in client  relationships  as well as extensive
knowledge of applicants and consultants in these  functional areas of expertise.
ITP, the Company's  information  technology  temporary  staffing and  consulting
business,  is  aggressively  pursuing a strategy of continued  rapid  expansion,
either  by  attracting  seasoned  sales  and  recruitment  professionals  or  by
acquisition.  According to staffing industry  analysts,  information  technology
temporary  placement is the most rapidly  growing sector of the staffing  market
with high gross margins and continued forecasts of additional  long-term revenue
growth  potential.  ITP has  recruited  experienced  marketing,  recruiting  and
administrative  professionals to service Fortune 1000 and mid-sized clients on a
local, regional and subsequently


                                       -4-

<PAGE>

nationwide  basis.  The staff comprises  senior level  individuals with existing
client and consultant relationships so that the business can continue to grow in
an  expedient  manner with a high degree of customer  satisfaction.  The Company
believes that this  expansion  will achieve  operating  efficiencies  due to its
existing  infrastructure.  This  expansion  will be  facilitated  through either
internal growth or acquisition.

         This  extension  of  services  would  enable the  Company to expand its
product mix and geographic scope as well as to further the  consultative  nature
of long-term client relationships.  This expansion would also enable the Company
to market a number of  recruitment  services  to  clients by  cross-selling  the
firm's diversified capabilities.

Competition

         The Company  believes  that the personnel  services  industry is highly
competitive  and that the services  provided by the Company are also provided by
many other companies  ranging from local,  small operations to large recruitment
and placement and temporary  personnel  agencies,  many of which are national in
scope. Some of the Company's  competitors,  including all of the national firms,
are substantially larger and have greater financial resources than the Company.

         The Company  believes  that many  clients  generally  use more than one
company to satisfy their personnel requirements, and the major factors affecting
competition in the industry are customer service,  the availability of qualified
personnel,  reputation  for  integrity  and, to varying  degrees,  pricing.  The
Company  believes  that  it  has  a  favorable   competitive  position  that  is
attributable  to its  firm-wide  dedication  to client  service,  integrity  and
knowledge  of the markets it serves,  which  enables it to fulfill its  clients'
needs expeditiously and effectively. In addition, the diverse number of industry
categories and functional  areas of placement  provided by the Company creates a
number of  cross-selling  opportunities  in enhancing  the potential for account
penetration and increased revenues.

Employees

         As of  September  30, 1997,  the staff of the Company  consisted of 110
full-time  employees,  including  the  Company's  four  executive  officers,  76
recruitment  and  placement   counselors  and  30  administrative  and  clerical
employees.   None  of  the  Company's   employees  is  represented  by  a  labor
organization  and  the  Company  is not  aware  of  any  activity  seeking  such
organization.  The Company considers its relationships  with its employees to be
excellent.

Regulation

         The Company's operations are subject to state laws and regulations that
may require  employment  agencies  and/or other  personnel  services firms to be
licensed.   The  principal   requirements  of  such  laws  and  regulations  are
satisfactory  prior  experience  and  good  moral  character.  Requirements  for
licensing vary from state to state in those states that mandate


                                       -5-

<PAGE>


licensing.   The  Company  believes  that  it  has  obtained  all  licenses  and
registrations material to the conduct of its business.

Trademarks and Service Marks

         The Company does not own any  registered  trademarks,  service marks or
trademarks, but may seek the registration of its logo, trade name or domain name
in the future.

ITEM 2.           DESCRIPTION OF PROPERTY
                  -----------------------

         In May 1993, the Company entered into a lease,  expiring  September 30,
2006, for approximately 9,400 square feet of office space in New York, New York,
which is the  Company's  principal  executive  office.  The lease  provides  for
minimum annual rental and utility  obligations  for years two through six of the
lease (after one rent-free year) of approximately  $210,000. It further provides
for minimum annual rental and utility  obligations for years seven through 11 of
the lease of  approximately  $226,000 and for minimum  annual rental and utility
obligations for years 12 and 13 of the lease of approximately $282,000.

         In December  1994,  the Company  amended the lease  described  above to
include  approximately  9,400 square feet of additional office space at the same
location.  The minimum annual rental and utility  obligations for the additional
office space through  September 30, 2000 is  approximately  $259,000 (after four
rent-free  months  following the first  anniversary  and four  rent-free  months
following  the second  anniversary  of the amendment  commencement  date) and is
$306,000 from October 1, 2000 through  September 30, 2006. The Company  occupied
this space in July 1995.

         In April 1997,  the Company leased  approximately  9,400 square feet of
additional office space at its current  headquarters.  The minimum annual rental
and utility obligations for the additional office space through July 14, 1999 is
approximately  $190,000,  approximately  $300,000  from  July 15,  1999  through
December  31, 2001 and is  approximately  $345,000  from January 1, 2002 through
September 30, 2006. The Company occupied this space in August 1997.

ITEM 3.           LEGAL PROCEEDINGS
                  -----------------

                  Not Applicable.

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

                  Not Applicable.



                                       -6-

<PAGE>


                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS
                  ------------------------------------

         The  Company's  Common Stock is traded on the National  Association  of
Securities Dealers Automated Quotation (Nasdaq) SmallCap market under the symbol
SOLP. The table below sets forth the range of sale prices of the Common Stock as
reported by Nasdaq for the fiscal periods specified.


                                                             Common Stock
                                                           High         Low
                                                           ----         ---
Fiscal 1997
-----------

First Quarter....................................        $2-5/16      $1-3/8
Second Quarter...................................         3-1/8       1-15/16
Third Quarter....................................        2-13/16      1-15/16
Fourth Quarter ..................................        3-11/16       2-1/2

Fiscal 1996
-----------

First Quarter....................................         $15/16       $1/2
Second Quarter...................................           7/8        5/16
Third Quarter....................................         2-1/2        27/32
Fourth Quarter ..................................        2-11/16       1-1/2


         As of December 31, 1997,  there were 39 record holders of the Company's
Common Stock.  The Company  believes that there are in excess of 700  beneficial
owners of its Common Stock additional to such record holders.

         The Company has never paid any  dividends  on its Common Stock and does
not  intend  to pay  such  dividends  in the  foreseeable  future.  The  Company
currently  intends to retain any future  earnings for the development and growth
of the Company.

ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OR
                  PLAN OF OPERATION
                  ---------------------------------------

         The  following  discussion  of the  Company's  financial  condition and
results  of  operations  should  be  read in  conjunction  with  the  historical
financial statements and notes thereto appearing elsewhere in this document.


                                       -7-

<PAGE>


Overview

         The  Company  is  a  specialty  niche  provider  of  staffing  services
organized into two primary operating  divisions:  executive search and full time
contingency  recruitment  as well as  temporary  staffing  and  consulting.  The
executive search and full time contingency  recruitment division has eight lines
of business including four industry (capital markets,  publishing and new media,
healthcare and fashion services),  and four functional (information  technology,
accounting,  human resources and legal).  The temporary  staffing and consulting
division provides services to all companies seeking personnel in the information
technology,  accounting  and human  resources  areas.  The  accounting and human
resources  temporary  staffing and consulting  businesses  commenced  operations
during fiscal 1997.

         The following is a summary of the Company's  consolidated financial and
operating data:


                                                 Fiscal Year Ended September 30,
                                                 ------------------------------
Statements of Operations Data:                   1997                 1996
------------------------------                  ------               -----
Revenue                                       $28,996,485         $17,165,836
Income from Operations                          1,691,499             509,313
Net Income                                      1,282,365             710,326
Primary Income Per Common Share                      $.20                $.14
Fully Diluted Income Per Common Share                 .20                $.13

Balance Sheet Data:                          September 30, 1997
-------------------                          ------------------
Working Capital                                $4,921,334
Total Assets                                   12,815,456
Long-term Debt, Net of Current Maturities          36,473
Stockholders' Equity                            8,331,465


Results of Operations

Fiscal 1997 Compared to Fiscal 1996

         Revenue  increased  to  approximately  $28,996,000  for the fiscal year
ended  September  30, 1997 from  approximately  $17,166,000  for the fiscal year
ended September 30, 1996, an increase of approximately $11,830,000 or 69%. These
results were  achieved  with only a 19% increase in  recruitment  and  placement
counselors.   Revenues  from  the  Company's  executive  search  and  full  time
contingency recruitment division experienced an increase of 37% to approximately
$14,517,000   for  the  fiscal  year  ended   September  30,  1997  compared  to
approximately  $10,559,000  for the  same  period  in  1996.  Revenues  from the
Company's   temporary  staffing  and  consulting   division  were  approximately
$14,479,000   for  the  fiscal  year  ended   September  30,  1997  compared  to
approximately   $6,607,000   for  the  same  period  in  1996,  an  increase  of
approximately $7,872,000 or 119%.

         The increase in revenues for the fiscal year ended  September  30, 1997
compared to the fiscal year ended September 30, 1996 for the Company's executive
search and full time contingency  recruitment division is primarily attributable
to the expansion of its client base and


                                       -8-

<PAGE>

strong  demand for  personnel  from  existing  clients.  Also,  the  addition of
experienced  counselors  contributed to the increase in revenues.  The Company's
information  technology  temporary staffing and consulting business  experienced
significant  increases  in  revenues  for fiscal year ended  September  30, 1997
compared to the same  period in 1996.  This  increase  was  attributable  to the
hiring  of  experienced   sales  and   recruiting   personnel  as  well  as  the
establishment  and penetration of customer  relationships.  In addition,  during
fiscal 1997 the Company expanded its existing presence within its accounting and
human resources  specialty niches by providing temporary staffing and consulting
services  to  existing  as  well  as new  clients  through  dedicated  teams  of
experienced  staffing or industry  personnel.  These  expanded  operations  also
contributed to the increase in revenues for the fiscal year ended  September 30,
1997.

         Selling  expenses for the fiscal year ended  September 30, 1997 totaled
approximately   $22,413,000  (77%  of  revenues)   compared  with  approximately
$12,763,000  (74% of revenues) for the fiscal year ended September 30, 1996. The
increase in selling  expenses as a percentage of revenues is directly related to
the Company's temporary staffing and consulting business, which incurred startup
costs during fiscal 1997 associated  with the  commencement of operations in the
accounting and human resources  temporary staffing and consulting  business.  In
addition,  the  Company  has  incurred  costs due to the hiring of senior  level
counselors  within  various  segments  of the  executive  search  and full  time
contingency  recruitment  division.  Such  costs  consist  primarily  of payroll
relating to temporary staffing  requirements,  salaries and commissions of sales
and recruiting personnel, employee benefits, telephone and advertising.

         General  and   Administrative   expenses   increased  to  approximately
$4,555,000  (16% of  revenues)  for the fiscal  year ended  September  30,  1997
compared to approximately  $3,653,000 (21% of revenues),  for the same period in
1996.  The  improvements  as a  percentage  of  revenues  relates  to  operating
efficiencies  and economies of scale  associated  with increased  revenues.  The
increase in general and administrative expenses is primarily a result of planned
business expansion through the retention of additional  administrative personnel
and leasing of additional office space.

         Depreciation  and  Amortization  expense  for  the  fiscal  year  ended
September  30, 1997 totaled  approximately  $337,000  compared to  approximately
$241,000  for same  period in 1996.  The  increase is due to  increased  capital
expenditures  and  the   amortization  of  intangible   assets  related  to  the
acquisition of trade names.

         Income from operations was approximately $1,691,000 for the fiscal year
ended September 30, 1997 compared to approximately  $509,000 for the fiscal year
ended  September 30, 1996. The Company's  operating  results for the fiscal year
ended September 30, 1997 include charges of approximately  $300,000  relating to
the  startup  of its  accounting  and  human  resource  temporary  staffing  and
consulting   business  and  a  $200,000   charge   relating  to  a   potentially
uncollectible receivable.

         Income Tax  Expense for the fiscal  year ended  September  30, 1997 was
approximately  $553,000 compared with approximately  $19,000 for the fiscal year
ended September 30, 1996.


                                       -9-

<PAGE>


At September  30, 1997,  the Company has net  operating  loss  carryforwards  of
approximately  $54,000  which can be  applied  to  future  taxable  income.  The
Company's  effective  tax rate for the fiscal year ended  September 30, 1997 was
approximately  30%  compared  to  approximately  3% in Fiscal  1996,  due to the
utilization of net operating loss carryforwards in Fiscal 1996.

         Due to  the  factors  mentioned  above  net  income  was  approximately
$1,282,000   for  the  fiscal  year  ended   September   30,  1997  compared  to
approximately $710,000 for the fiscal year ended September 30, 1996.

Fiscal 1996 Compared to Fiscal 1995

         Revenue  increased  to  approximately  $17,166,000  for the fiscal year
ended  September 30, 1996,  from  approximately  $7,331,000  for the fiscal year
ended  September 30, 1995,  an increase of  approximately  $9,835,000,  or 134%.
Revenues  from  the  Company's   retained   executive   search  and  contingency
recruitment  business were  approximately  $10,559,000 for the fiscal year ended
September 30, 1996 compared to  approximately  $5,831,000 for the same period in
1995  and  revenues  from  the  professional   interim  staffing  business  were
approximately  $6,607,000 for the fiscal year ended  September 30, 1996 compared
to approximately $1,500,000 for the same period in 1995.

         The increase in revenues for the fiscal year ended  September  30, 1996
compared  with the  fiscal  year  ended  September  30,  1995 for the  Company's
retained  executive search and contingency  recruitment sector can be attributed
to the expansion of its client base,  strong demand for personnel  from existing
clients and hiring of additional  experienced  counselors.  In addition,  during
1995 the Company expanded into providing executive search services to clients in
the  publishing  industry and augmented its presence in the managed  health care
area through the expansion of executive  search  services to managed health care
clients on the West Coast.  These expanded  operations  also  contributed to the
increase in revenues for the fiscal year ended September 30, 1996. The Company's
professional  interim staffing business,  which commenced operations in November
1994,  experienced a significant  increase in revenues for the fiscal year ended
September  30,  1996  compared  to the same  period in 1995.  The  increase  was
attributable  to the retention of experienced  sales and  recruiting  personnel,
establishment  of various  customer  relationships as well as the expansion into
new geographical markets.

         Selling  expenses for the fiscal year ended  September 30, 1996 totaled
approximately   $12,763,000  (74%  of  revenues)   compared  with  approximately
$6,255,000  (85% of revenues) for the fiscal year ended  September 30, 1995. The
improvements as a percentage of revenues  relates to operating  efficiencies and
economies of scale associated with increased  revenues.  The increase in selling
expenses is directly related to the Company's  subsidiary ITP, which contributed
approximately  $5,369,000  of the  increased  costs for the  fiscal  year  ended
September  30,  1996.  Such  costs  consist  primarily  of payroll  relating  to
temporary staffing requirements, salaries and commissions on sales and recurring
personnel, employee benefits and advertising expenses.



                                      -10-

<PAGE>



         General  and   Administrative   expenses   increased  to  approximately
$3,653,000  (21% of revenues) for the fiscal year ended  September 30, 1996 from
approximately  $3,021,000  (41% of revenues) for the fiscal year ended September
30,  1995.  The  improvement  as a percentage  of revenues  relates to operating
efficiencies  and economies of scale  associated  with increased  revenues.  The
increase in general  and  administrative  expenses is  primarily a result of the
Company's  planned  business  expansion  through  the  retention  of  additional
administrative personnel, leasing additional office space and professional fees.

         Depreciation  and  Amortization for the fiscal year ended September 30,
1996 totaled approximately  $241,000 compared to approximately  $148,000 for the
same period in 1995. The increase is due to  amortization  of intangible  assets
related to the  acquisition of trade names along with the acquisition of capital
assets,  such as  computer  equipment,  furniture  and  fixtures  and  leasehold
improvements.

         Income  from  operations  as a result  of the  above-mentioned  factors
increased to  approximately  $509,000 in fiscal 1996 from an  operating  loss of
approximately $2,094,000 in fiscal 1994.

         Due to  the  factors  mentioned  above  net  income  was  approximately
$710,000 for the fiscal year ended  September 30, 1996 compared to a net loss of
approximately $1,928,000 for the fiscal year ended September 30, 1995.

Liquidity and Capital Resources

         As of September 30, 1997, the Company's  sources of liquidity  included
approximately  $1,309,000 in cash and cash  equivalents.  The Company's  working
capital was  approximately  $4,921,000 at September  30, 1997. In addition,  the
Company has available  approximately  $1,251,000 of long term  investments  as a
source of liquidity as required.

         In February 1997, the Company entered into a one year $4,000,000 demand
line  of  credit  facility  agreement  with  The  Dime  Savings  Bank  which  is
collateralized  by all of the  Company's  assets.  The  agreement  provides  for
borrowings  at the Dime  Reference  Rate + 1%  (currently  9.50%) in amounts not
exceeding 80% of eligible  accounts  receivable (as defined therein) and expires
on February 28, 1998, on which date the outstanding principal amount is required
to be repaid. The Company has borrowed approximately $1,400,000 under the credit
facility  during the period from October 9, 1997 to December  31, 1997,  most of
which was used for the  repurchase  of the Company's  Class A redeemable  common
stock  purchase  warrants.  The Company  believes that it will be able to extend
such facility on substantially  the same terms as are currently in effect for an
additional  one year period.  If the Company is unable to extend such  facility,
the  Company   believes  that  an  alternative   facility  can  be  obtained  on
substantially similar terms, although there can be no assurance in such regard.


         Cash flows  provided by (used in) operating  activities  for the fiscal
years  ended  September  30,  1997  and 1996  were  approximately  $292,000  and
($650,000),  respectively.  The  improvement  in cash  flows for the year  ended
September 30, 1997 compared to 1996 was due primarily to


                                      -11-

<PAGE>


higher  earnings.  Cash flows used in investing  activities for the fiscal years
ended September 30, 1997 and 1996 were approximately  $1,861,000 and $1,568,000,
respectively. Most of the cash used in investing activities was for the purchase
of short-term investments and capital expenditures.

         Capital  expenditures  for fiscal 1998 are expected to be approximately
$500,000,  which will primarily relate to the upgrading of computers,  telephone
system and various leasehold improvements.

         On October 31, 1997, the Company  announced that its Board of Directors
had  authorized  the  repurchase  of up to  1,000,000  of the Class A  Warrants.
Purchases  are being  made from time to time on the  Nasdaq  Small Cap market or
otherwise at prevailing  market  prices and may be made in privately  negotiated
transactions. At December 31, 1997, an aggregate of 962,562 Class A Warrants had
been repurchased for an aggregate purchase price of $1,018,303. The Company also
terminated its common stock repurchase plan which was authorized on December 31,
1996.

         The Company  believes  that its current cash  position  and  investment
balances,  together with financing  available under its working capital facility
will be sufficient to support current working capital  requirements for the next
twelve months.

Impact of Inflation

         Inflation has not been a major factor in the Company's  business  since
inception. There can be no assurances that this will continue.

New Authoritative Accounting Pronouncements

         The Financial  Accounting Standards Board ("FASB") has issued Statement
of Financial  Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation,"  in October of 1995.  SFAS No. 123 uses a fair value based method
of accounting for stock options and similar equity  instruments as contrasted to
the  intrinsic  value  based  method  of  accounting  prescribed  by  Accounting
Principles  Board  ("APB")  Opinion  No.  25,  Accounting  for  Stock  Issued to
Employees.  The  accounting  requirements  of SFAS  No.  123 are  effective  for
transactions  entered into in fiscal  years that begin after  December 15, 1995;
the  disclosure  requirements  of SFAS  No.  123  are  effective  for  financial
statements  for fiscal years  beginning  after  December  15, 1995.  The Company
anticipates  continuing  to  account  for  stock-based  compensation  using  the
intrinsic  value  method.  SFAS No. 123 will not have an impact on the Company's
results of operations or financial position.

         The FASB has also issued SFAS No. 128,  "Earnings  per Share," and SFAS
No. 129, "Disclosure of Information about Capital Structure," in February 1997.

         SFAS No. 128  simplifies  the earnings per share  ("EPS")  calculations
required by APB Opinion No. 15, and related  interpretations,  by replacing  the
presentation  of primary  EPS with a  presentation  of basic  EPS.  SFAS No. 128
requires dual presentation of basic and diluted EPS


                                      -12-

<PAGE>


by entities with complex capital structures.  Basic EPS includes no dilution and
is  computed  by  dividing  income  available  to  common  stockholders  by  the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential  dilution of securities  that could share in the earnings
of an entity,  similar to the fully  diluted EPS of APB Opinion No. 15. SFAS No.
128 is  effective  for  financial  statements  issued for periods  ending  after
December  15,  1997,  including  interim  periods;  earlier  application  is not
permitted.   When  adopted,  SFAS  No.  128  will  require  restatement  of  all
prior-period  EPS data presented.  The Company's  basic EPS as calculated  under
SFAS No. 128 would  have been $.25 and $.14 for the years  ended  September  30,
1997 and 1996,  respectively.  The Company diluted EPS as calculated  under SFAS
No. 128 would have been $.23 and $.14 for the years ended September 30, 1997 and
1996, respectively.

         SFAS No. 129 does not change any previous disclosure requirements,  but
rather consolidates existing disclosure requirements for ease of retrieval.

         The FASB also issued SFAS No. 130,  "Reporting  Comprehensive  Income."
SFAS No. 130 is effective for fiscal years  beginning  after  December 15, 1997.
Earlier application is permitted.  Reclassification of financial  statements for
earlier periods provided for comparative purposes is required. The Company is in
the process of determining  its preferred  format.  The adoption of SFAS No. 130
will  have no  impact  on the  Company's  consolidated  results  of  operations,
financial position or cash flows.

         The FASB has issued SFAS No.  131,  "Disclosures  About  Segments of an
Enterprise and Related Information." SFAS No. 131 changes how operating segments
are  reported in annual  financial  statements  and  requires  the  reporting of
selected  information  about  operating  segments in interim  financial  reports
issued to  shareholders.  SFAS No. 131 is effective for periods  beginning after
December  15,  1997,  and  comparative  information  for earlier  years is to be
restated.  SFAS No. 131 need not be applied to interim  financial  statements in
the initial year of its application. The Company is in the process of evaluating
the disclosure requirements. The adoption of SFAS No. 131 will have no impact on
the Company's  consolidated  results of operations,  financial  position or cash
flows.

ITEM 7.           FINANCIAL STATEMENTS
                  --------------------

                  See Index to Financial Statements.

ITEM 8.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE
                  ------------------------------------------------

                  None.



                                      -13-

<PAGE>

                                    PART III

ITEM 9.           DIRECTORS,  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
                  COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
                  -------------------------------------------------------------

                  The  information  required  by this  item is  incorporated  by
reference from the Company's  definitive  proxy  statement to be filed not later
than  January  28,  1998  pursuant to  Regulation  14A of the General  Rules and
Regulations under the Securities Exchange Act of 1934 ("Regulation 14A").

ITEM 10.          EXECUTIVE COMPENSATION
                  ----------------------

                  The  information  required  by this  item is  incorporated  by
reference from the Company's  definitive  proxy  statement to be filed not later
than January 28, 1998 pursuant to Regulation 14A.

ITEM 11.          SECURITY OWNERSHIP OF CERTAIN
                  BENEFICIAL OWNERS AND MANAGEMENT
                  --------------------------------

                  The  information  required  by this  item is  incorporated  by
reference from the Company's  definitive  proxy  statement to be filed not later
than January 28, 1998 pursuant to Regulation 14A.

ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
                  ----------------------------------------------

                  The  information  required  by this  item is  incorporated  by
reference from the Company's  definitive  proxy  statement to be filed not later
than January 28, 1998 pursuant to Regulation 14A.


                                      -14-

<PAGE>


ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K
                  --------------------------------

(a)      EXHIBITS
         --------

Exhibit
Number                Exhibits
------                --------

   3.1       (a)      Certificate   of   Incorporation,   as  amended,   of  The
                      Solomon-Page  Group Ltd.  (Incorporated  by  reference  to
                      Exhibit 3.1(a) to Registration Statement on Form SB-2, No.
                      33-81026)
             (b)      Certificate of Amendment to  Certificate of  Incorporation
                      of The Solomon- Page Group Ltd  (Incorporated by reference
                      to Exhibit 3.1(b) to Registration  Statement on Form SB-2,
                      No. 33-81026)
   3.2                Amended and Restated By-Laws of the Company  (Incorporated
                      by reference to Exhibit 3 to the Company's  Current Report
                      on Form 8-K dated June 8, 1995)
   4.1                Specimen  Common  Stock   Certificate   (Incorporated   by
                      reference to Exhibit 4.1 to Registration Statement on Form
                      SB-2, No. 33-81026)
   4.2                Specimen Warrant  Certificates  (Incorporated by reference
                      to Exhibit 4.2 to Registration Statement on Form SB-2, No.
                      33-81026)
  10.1                1993 Long Term Incentive Plan  (Incorporated  by reference
                      to Exhibit  10.2 to  Registration  Statement on Form SB-2,
                      No. 33-81026)
  10.2                1995   Directors'   Stock   Option  Plan  of  the  Company
                      (Incorporated   by   reference  to  Exhibit  99.1  to  the
                      Company's Current Report on Form 8-K dated June 8, 1995)
  10.3                Employment  Agreement  dated June 14,  1993,  as  amended,
                      between the Company and Herbert Solomon  (Incorporated  by
                      reference  to Exhibit  10.3 to  Registration  Statement on
                      Form SB-2, No. 33-81026)
  10.4                Employment  Agreement  dated June 14,  1993,  as  amended,
                      between  the Company and Lloyd  Solomon  (Incorporated  by
                      reference  to Exhibit  10.4 to  Registration  Statement on
                      Form SB-2, No. 33-81026)
  10.5                Amendment  dated June 8, 1995 to that  certain  Employment
                      Agreement  dated as of June 14,  1993,  by and between the
                      Company and Lloyd  Solomon  (Incorporated  by reference to
                      Exhibit 99.4 to the Company's  Current  Report on Form 8-K
                      dated June 8, 1995)
  10.6                Employment  Agreement  dated June 14,  1993,  as  amended,
                      between  the  Company  and  Scott  Page  (Incorporated  by
                      reference  to Exhibit  10.5 to  Registration  Statement on
                      Form SB-2, No. 33-81026)
  10.7                Amendment  dated June 8, 1995 to that  certain  Employment
                      Agreement  dated as of June 14,  1993,  by and between the
                      Company  and Scott  Page  (Incorporated  by  reference  to
                      Exhibit 99.5 to the Company's  Current  Report on Form 8-K
                      dated June 8, 1995)



                                -15-

<PAGE>

Exhibit
Number                Exhibits
------                --------

  10.8                1996 Stock  Option  Plan,  (Incorporated  by  reference to
                      Exhibit 10.8 to the  Company's  Form 10-KSB for the fiscal
                      year ended September 30, 1996)
  10.9                Form of Indemnification  Agreement between the Company and
                      its officers and directors  (Incorporated  by reference to
                      Exhibit 10.13 to the Company's  Form 10-KSB for the fiscal
                      year ended September 30, 1995)
  10.10               Charter of the Audit  Committee  of the Board of Directors
                      of the Company  (Incorporated by reference to Exhibit 99.2
                      to the Company's  Current Report on Form 8-K dated June 8,
                      1995)
  10.11               The Company's Policy on Transactions in Company Securities
                      by Company Officers, Directors and Employees (Incorporated
                      by  reference  to Exhibit  99.3 to the  Company's  Current
                      Report on Form 8-K dated June 8, 1995)
   *11                Schedule of Computation of Net Income per Common Share
   *23                Consent of Moore Stephens P.C. dated January 12, 1998
   *27                Financial Data Schedule

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


*    Filed herewith.

(b)  Reports on Form 8-K

     None.



                                      -16-

<PAGE>



         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.

                                              THE SOLOMON-PAGE GROUP LTD.


Dated:   January 12, 1998                     By: /S/Lloyd Solomon
                                                   --------------------------
                                                   Lloyd Solomon
                                                   Vice Chairman of the Board
                                                   and Chief Executive Officer



                                POWER OF ATTORNEY

         The  Solomon-Page  Group,  Ltd. and each of the  undersigned  do hereby
appoint Lloyd Solomon, Scott Page and Eric Davis and each of them severally, its
or his true and lawful attorney to execute on behalf of The Solomon-Page  Group,
Ltd. and the  undersigned  any and all  amendments to this Annual Report on Form
10-KSB and to file the same with all  exhibits  thereto and other  documents  in
connection therewith, with the Securities and Exchange Commission;  each of such
attorneys shall have the power to act hereunder with or without the other.

         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:


     Signature                      Title                            Date
     ---------                      -----                            ----


/S/Herbert Solomon            Chairman of the Board and         January 12, 1998
---------------------------   Director
Herbert Solomon



/S/Lloyd Solomon              Vice Chairman of the Board,       January 12, 1998
---------------------------   Chief Executive Officer and
Lloyd Solomon                 Director (Principal Executive
                              Officer)




/S/Scott Page                 President and Director            January 12, 1998
---------------------------
Scott Page



/S/Eric M. Davis              Vice President - Finance, Chief   January 12, 1998
---------------------------   Financial Officer and Director
Eric M. Davis                 (Principal Financial and
                              Accounting Officer)




                                      -17-

<PAGE>


/S/Edward Ehrenberg           Director                          January 9, 1998
---------------------------
Edward Ehrenberg



/S/Joel A. Klarreich          Director                          January 12, 1998
---------------------------
Joel A. Klarreich




                                      -18-

<PAGE>


THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
--------------------------------------------------------------------------------

INDEX TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------




                                                                           Page
                                                                           ----


Independent Auditor's Report .........................................     F-2..

Consolidated Balance Sheet as of September 30, 1997 ..................     F-3..

Consolidated Statements of Operations for the years ended
September 30, 1997 and 1996...........................................     F-5..

Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1997 and 1996...........................................     F-6..

Consolidated Statements of Cash Flows for the years ended
September 30, 1997 and 1996...........................................     F-7..

Notes to Consolidated Financial Statements ...........................     F-8..





                             . . . . . . . . . . . .


                                      F-1

<PAGE>


                          INDEPENDENT AUDITOR'S REPORT


To the Stockholders and Board of Directors of
   The Solomon-Page Group Ltd.


                  We have audited the accompanying consolidated balance sheet of
The Solomon-Page Group Ltd. and its subsidiary as of September 30, 1997, and the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows for each of the two fiscal years in the period ended  September  30, 1997.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
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  consolidated   financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall  consolidated  financial  statement  presentation.  We believe  that our
audits provide a reasonable basis for our opinion.

                  In our opinion, the consolidated financial statements referred
to above present fairly, in all material  respects,  the consolidated  financial
position of The  Solomon-Page  Group Ltd. and its subsidiary as of September 30,
1997, and the consolidated  results of their operations and their cash flows for
each of the two  fiscal  years  in the  period  ended  September  30,  1997,  in
conformity with generally accepted accounting principles.






                                              MOORE STEPHENS, P. C.
                                              Certified Public Accountants.

Cranford, New Jersey 
December 18, 1997, except as to 
Note 14 for which the date is
December 31, 1997


                                      F-2
<PAGE>


THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
--------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997.
--------------------------------------------------------------------------------



ASSETS:
CURRENT ASSETS:
   Cash and Cash Equivalents                           $   409,856
   Investments                                             899,220
   Accounts Receivable - [Net of Allowance 
     for Doubtful Accounts of $125,000]                  7,378,027
   Other Current Assets                                    297,886
                                                        ----------

   TOTAL CURRENT ASSETS                                  8,984,989
                                                        ----------

PROPERTY AND EQUIPMENT:
   Equipment                                             1,155,072
   Furniture and Fixtures                                  406,372
   Leasehold Improvements                                  578,764
                                                        ----------

   Total - At Cost                                       2,140,208
   Less: Accumulated Depreciation                          682,826
                                                        ----------

PROPERTY AND EQUIPMENT -NET                              1,457,382
                                                        ----------

OTHER ASSETS:
   Investments                                           1,251,207
   Intangible Assets - [Net of 
     Accumulated Amortization of $110,569]                 753,564
   Due from Related Parties                                177,920
   Security Deposits                                       133,172
   Restricted Investment                                    34,466
   Other Assets                                             22,756
                                                        ----------

   TOTAL OTHER ASSETS                                    2,373,085
                                                        ----------
   TOTAL ASSETS                                        $12,815,456
                                                        ==========



              The Accompanying Notes are an Integral Part of these
                       Consolidated Financial Statements.

                                      F-3

<PAGE>


THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
--------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997.
--------------------------------------------------------------------------------




LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
   Accrued Payroll and Commissions                                 $ 2,494,101
   Accounts Payable and Accrued Expenses                               967,887
   Income Taxes Payable                                                267,104
   Current Portion of Obligations Under Capital Leases                  63,325
   Other Current Liabilities                                           271,238
                                                                    ----------

   TOTAL CURRENT LIABILITIES                                         4,063,655
                                                                    ----------

LONG-TERM LIABILITIES:
   Obligations Under Capital Leases                                     36,473
   Deferred Credit                                                     383,863
                                                                    ----------

   TOTAL LONG-TERM LIABILITIES                                         420,336
                                                                    ----------

COMMITMENTS AND CONTINGENCIES                                               --
                                                                    ----------

STOCKHOLDERS' EQUITY:
   Preferred Stock - Par Value $.001 Per Share; Authorized
     2,000,000 Shares, None Issued or Outstanding                           --

   Common Stock - Par Value $.001 Per Share;
     Authorized 20,000,000 Shares, 5,139,285 Shares
     Issued and 5,129,285 Shares Outstanding                             5,139

   Additional Paid-in Capital                                        8,488,247

   Treasury Stock; 10,000 Common Shares - At Cost                      (16,250)

   Accumulated Deficit                                                (145,671)
                                                                    ----------

   TOTAL STOCKHOLDERS' EQUITY                                        8,331,465
                                                                    ----------
   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                      $12,815,456
                                                                    ==========


                 The Accompanying Notes are an Integral Part of
                    these Consolidated Financial Statements.

                                      F-4
<PAGE>


THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
--------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------


                                                            Years ended
                                                            -----------
                                                           September 30,
                                                           -------------
                                                   1 9 9 7             1 9 9 6
                                                   -------             -------

REVENUE                                        $ 28,996,485       $ 17,165,836
                                                 ----------         ----------

OPERATING EXPENSES:
   Selling Expenses                              22,412,747         12,762,977
   General and Administrative                     4,555,081          3,652,619
   Depreciation and Amortization                    337,158            240,927
                                                 ----------         ----------

   TOTAL OPERATING EXPENSES                      27,304,986         16,656,523
                                                 ----------         ----------

   INCOME FROM OPERATIONS                         1,691,499            509,313
                                                 ----------         ----------

OTHER INCOME [EXPENSES]:
   Interest and Dividend Income                     133,077            130,937
   Interest Expense                                 (26,820)           (49,215)
   Net Realized and Unrealized 
     Gain on Investments                             37,140            137,411
   Other Income                                          --              1,080
                                                 ----------         ----------

   TOTAL OTHER INCOME                               143,397            220,213
                                                 ----------         ----------

   INCOME BEFORE INCOME TAX EXPENSE               1,834,896            729,526

INCOME TAX EXPENSE                                  552,531             19,200
                                                 ----------         ----------

   NET INCOME                                  $  1,282,365       $    710,326
                                                  =========            =======

PRIMARY INCOME PER COMMON SHARE                $        .20       $        .14
                                                  =========            =======

FULLY DILUTED INCOME PER COMMON SHARE          $        .20       $        .13
                                                  =========            =======





                 The Accompanying Notes are an Integral Part of
                    these Consolidated Financial Statements.


                                      F-5
<PAGE>


THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
--------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                          Additional                                       Total
                                                                          ----------                                       -----
                             Preferred Stock          Common Stock         Paid-in      Treasury Stock    Accumulated  Stockholders'
                             ---------------          ------------         -------      --------------    -----------  -------------
                            Shares      Amount     Shares      Amount      Capital     Shares    Amount     Deficit       Equity
                            ------      ------     ------      ------      -------     ------    ------     -------       ------
<S>                            <C>         <C>    <C>          <C>       <C>            <C>     <C>       <C>            <C>       

Balance - October 1,
   1995                         --         $--    5,139,285    $5,139    $8,488,247         --  $     --  $(2,138,362)   $6,355,024
                                                                                                                        
   Net Income                   --          --           --        --            --         --        --      710,326       710,326
                           -------     -------   ----------    ------    ----------   --------  --------  -----------    ----------
                                                                                                                        
Balance - September 30,                                                                                                 
   1996                         --          --    5,139,285     5,139     8,488,247         --        --   (1,428,036)    7,065,350
                                                                                                                        
   Treasury Shares                                                                                                      
     Purchased                  --          --           --        --            --     10,000   (16,250)          --       (16,250)
                                                                                                                        
   Net Income                   --          --           --        --            --         --        --    1,282,365     1,282,365
                           -------     -------   ----------    ------    ----------   --------  --------  -----------    ----------
                                                                                                                        
Balance - September 30,                                                                                                 
   1997                         --         $--    5,139,285    $5,139    $8,488,247     10,000  $(16,250) $  (145,671)   $8,331,465
                           =======     =======    =========    ======    ==========     ======  ========  ===========    ==========
                                                                                                                      
</TABLE>

                 The Accompanying Notes are an Integral Part of
                    these Consolidated Financial Statements.

                                      F-6
<PAGE>


THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
--------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
                                                                   Years Ended
                                                                  September 30,
                                                               1 9 9 7        1 9 9 6
                                                               -------        -------
<S>                                                        <C>             <C>        
OPERATING ACTIVITIES:
   Net Income                                              $ 1,282,365     $   710,326
                                                           -----------     -----------
   Adjustments  to  Reconcile  Net  Income 
       to Net Cash  Provided  by [Used  for]
     Operating Activities:
     Depreciation and Amortization                             337,158         240,927
     Provision for Losses on Accounts Receivable                35,100         235,157
     [Gain] on Disposal of Assets                                   --            (580)
     Deferred Credit                                           117,871          52,139
     Net Realized and Unrealized Gain on Investments           (37,140)       (137,411)

   Changes in Assets and Liabilities:
     [Increase] Decrease in:
       Accounts Receivable                                  (3,253,036)     (2,944,843)
       Other Current Assets                                    (79,613)       (120,881)
       Security Deposits                                       (47,894)         (7,531)

     Increase [Decrease] in:
       Accounts Payable and Accrued Expenses                 1,491,840       1,260,388
       Income Tax Payable                                      290,104              --
       Other Current Liabilities                               155,676          62,198
                                                           -----------     -----------

     Total Adjustments                                        (989,934)     (1,360,437)
                                                           -----------     -----------

   NET CASH - OPERATING ACTIVITIES                             292,431        (650,111)
                                                           -----------     -----------

INVESTING ACTIVITIES:
   Capital Expenditures                                       (791,427)       (302,189)
   Purchases of Investments                                 (2,183,043)     (4,618,641)
   Proceeds from Sales of Investments                        1,380,081       3,446,508
   Acquisitions of Trade Names                                (264,532)       (179,601)
   Proceeds from Insurance Claim                                    --          23,799
   Advances to Related Parties                                 (11,637)        (46,888)
   Cash Received from Related Parties                           10,000          19,000
   Transfer from Restricted Investment                              --          90,043
                                                           -----------     -----------

   NET CASH - INVESTING ACTIVITIES                          (1,860,558)     (1,567,969)
                                                           -----------     -----------

FINANCING ACTIVITIES:
   Principal Payments Under Capital Lease Obligations         (119,323)       (113,525)
   Purchase of Treasury Stock                                  (16,250)             --
                                                           -----------     -----------

   NET CASH - FINANCING ACTIVITIES                            (135,573)       (113,525)
                                                           -----------     -----------

   NET [DECREASE] IN CASH AND CASH EQUIVALENTS              (1,703,700)     (2,331,605)

CASH AND CASH EQUIVALENTS - BEGINNING OF YEARS               2,113,556       4,445,161
                                                           -----------     -----------

   CASH AND CASH EQUIVALENTS - END OF YEARS                $   409,856     $ 2,113,556
                                                           ===========     ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the years for:
     Interest                                              $    26,820     $    49,215
     Income Taxes                                          $   422,402     $        --
</TABLE>

                 The Accompanying Notes are an Integral Part of
                    these Consolidated Financial Statements.

                                      F-7
<PAGE>


THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

[1] Summary of Significant Accounting Policies

Organization - The Solomon-Page Group Ltd. and its wholly-owned  subsidiary [the
"Company"]   provide  retained   executive  search  and  full-time   contingency
recruitment  services  in the fields of capital  markets,  accounting,  fashion,
human  resources,  legal,  health care,  publishing and information  technology.
Temporary  staffing  and  consulting  services  are  provided  in the  fields of
information technology, accounting and human resources. The Company provides its
services  principally  in the New York  metropolitan  area  through  its offices
located in New York and New  Jersey.  The  Company  also  provides  services  in
California and Georgia through its offices located in those areas.

Principles of Consolidation - The consolidated  financial statements include the
accounts of the Company and its subsidiary.  All material  intercompany accounts
and transactions are eliminated.

Revenue  Recognition - Search  revenues are recognized in full-time  contingency
search  engagements  upon the  successful  completion  of the  assignment.  In a
retained  search  engagement,  the  non-refundable  retainer is recognized  upon
execution of the  agreement,  with the balance  recognized  on completion of the
search. Reserves are established to estimate losses due to placed candidates not
remaining in employment for the Company's  guarantee period.  Temporary staffing
and consulting  revenue is recognized when the temporary  personnel  provide the
service.

Investments - The Company  accounts for investments in accordance with Statement
of Financial  Accounting  Standards  ["SFAS"] No. 115,  "Accounting  for Certain
Investments  in  Debt  and  Equity   Securities."   Management   determines  the
appropriate  classification  of its investments in debt and equity securities at
the time of purchase and reevaluates  such  determination  at each balance sheet
date. Equity securities, and debt securities which the Company does not have the
intent to hold to maturity,  are  classified  as trading or available  for sale.
Securities  available  for sale are carried at fair value,  with any  unrealized
holding  gains and  losses,  net of tax,  reported  in a separate  component  of
shareholders'  equity until  realized.  Trading  securities  are carried at fair
value with any unrealized gains or losses included in earnings. Held to maturity
securities are carried at amortized cost.  Marketable debt and equity securities
available for current  operations are classified in the balance sheet as current
assets while  securities held for  non-current  uses are classified as long-term
assets.  Realized  gains  and  losses  are  calculated  utilizing  the  specific
identification method [See Note 2].

Property and equipment - Equipment,  furniture and  leasehold  improvements  are
recorded at cost.

Depreciation  and   Amortization  -  Depreciation  is  computed   utilizing  the
straight-line method based on estimated useful lives ranging from three to seven
years.  Amortization  is computed  utilizing the  straight-line  method over the
remaining  lease term.  Depreciation  expense was  $272,863 and $203,153 for the
years ended September 30, 1997 and 1996, respectively.

Deferred  Income  Taxes - The Company  accounts  for  deferred  income  taxes in
accordance  with SFAS No. 109,  "Accounting  for Income  Taxes."  The  statement
requires that deferred income taxes reflect the tax consequences on future years
of  differences  between  the tax  bases of  assets  and  liabilities  and their
financial reporting amounts.

Deferred  Credit - The  Company's  lease on its  premises  provides for periodic
increases over the lease term. Pursuant to SFAS No. 13, "Accounting for Leases,"
the Company records rent expense on a straight-line  basis.  The effect of these
differences is recorded as a deferred credit.

Cash and Cash  Equivalents - Cash  equivalents  are comprised of certain  highly
liquid investments with a maturity of three months or less when purchased.


                                      F-8

<PAGE>


THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #2
--------------------------------------------------------------------------------


[1] Summary of Significant Accounting Policies [Continued]

Income  Per Share - Income  per share of common  stock is based on the  weighted
average number of common shares  outstanding for each period  presented.  Common
stock  equivalents  are  included if  dilutive.  The number of weighted  average
common  shares  outstanding  utilized  to compute  primary  income per share was
9,091,644  and  5,139,285  and to  compute  fully  diluted  income per share was
9,091,644  and  5,452,595  for the  years  ended  September  30,  1997 and 1996,
respectively.  For the year  ended  September  30,  1997,  income  per share was
computed using the modified treasury stock method [See Note 13].

Intangibles  - Intangibles  which consist of trade names and customer  lists are
amortized  utilizing the straight-line  method over periods ranging from 5 to 15
years.  When changing  circumstances  warrant the Company evaluates the carrying
value and the periods of  amortization  based on the current and expected future
non-discounted cash flows from operations to determine whether revised estimates
of carrying value or useful lives is required.  Amortization expense was $64,295
and $37,774 for the years ended September 30, 1997 and 1996,  respectively  [See
Note 7].

Concentrations of Credit Risk - Financial  instruments that potentially  subject
the Company to  concentrations of credit risk include cash, cash equivalents and
accounts  receivable  arising from its normal business  activities.  The Company
places  its  cash  and cash  equivalents  with  high  credit  quality  financial
institutions. At September 30, 1997, the Company has approximately $580,000 in a
financial  institution  that is subject to normal  credit  risk  beyond  insured
amounts.

The Company believes that credit risk related to accounts  receivable is limited
due to the large  number of Fortune  1000  companies  comprising  the  Company's
customer base and the diversified  industries in which the Company operates. The
Company has two customers whose sales comprise approximately 21 percent of total
revenue and whose receivables at September 30, 1997 comprise 14 percent of total
accounts  receivable.  The  Company  does not  require  collateral  on  accounts
receivable or other financial instruments.

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

Advertising  -  The  Company  expenses  advertising  costs  as  incurred.  Total
advertising  costs  charged to expense  amounted to  approximately  $207,000 and
$150,000 for the years ended September 30, 1997 and 1996, respectively.

Stock  Based  Compensation  - The  Company  accounts  for  employee  stock based
compensation  under the intrinsic value based method as prescribed by Accounting
Principles  Board ("APB")  Opinion No. 25. The Company applies the provisions of
SFAS No.  123,  "Accounting  for  Stock  Based  Compensation,"  to  non-employee
stock-based  compensation  and  the  pro  forma  disclosure  provisions  of that
statement to employee stock-based compensation.

[2] Investments in Debt and Equity Securities

At September 30, 1997, the Company's securities were classified as available for
sale and held to maturity while at September 30, 1996, the Company's  securities
were  classified as trading and held to maturity.  At September  30, 1997,  cost
approximates fair value for the Company's available for sale securities.



                                      F-9

<PAGE>


THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #3
--------------------------------------------------------------------------------

[2] Investments in Debt and Equity Securities [Continued]

At September  30, 1997,  the  Company's  available for sale and held to maturity
securities consisted of certain highly liquid debt securities.  A summary of the
Company's investments in debt securities is as follows:

                                               September 30, 1997
Financial Statement Caption                Carrying Value Fair Value

Available for Sale:
   Cash and Cash Equivalents             $       9,188     $       9,188
                                         =============     =============
   Investments                           $   2,150,427     $   2,150,427
                                         =============     =============

Held to Maturity:
   Restricted Investment - Noncurrent    $      34,466     $      34,466
                                         =============     =============

Gross proceeds from sale of available for sale securities was $2,041,991 and net
realized gain on sales was $28,990 for the year ended  September  30, 1997.  Net
unrealized  gains on trading  securities  was $4,332 and is included in earnings
for the year ended September 30, 1996.

Contractual  maturities of debt securities  classified as available for sale and
held to maturity are as follows:

                                      Available for Sale     Held to Maturity

Within 1 year                          $     899,220          $      34,466
Between 1 and 5 years                  $   1,251,207          $          --

[3] Due From Related Parties

At September  30, 1997,  the Company had a balance due from various  officers of
the Company aggregating  $177,920 including accrued interest.  The advances bear
interest at 8 percent.  Interest  income on the advances was $11,637 and $10,401
for the  years  ended  September  30,  1997  and  1996,  respectively.  Interest
receivable on the advances was $23,272 at September 30, 1997.

[4] Credit Facility

On February 24, 1997, the Company entered into a $4,000,000 line of credit which
expires on February 28, 1998. The line carries  interest at the banks  reference
rate plus one percent [9.5% at September 30, 1997]. Borrowings are limited to 80
percent  of  eligible   receivables   as  defined  in  the   agreement   and  is
collateralized  by all the assets of the Company.  There were no  borrowings  at
September 30, 1997 [See Note 14].

[5] Leases

Capital  Leases - The Company is the lessee of  furniture,  fixtures  and office
equipment  under capital  leases  expiring in various  years  through 1999.  The
assets and liabilities under capital leases are recorded at the present value of
the net future  minimum  lease  payments.  The assets are  amortized  over their
estimated  productive  lives.  Amortization  of assets under  capital  leases is
included in depreciation expense.

Following is a summary of property held under capital leases:

Furniture and Fixtures                      $   110,481
Office Equipment                                360,778
                                            -----------

Total - At Cost                                 471,259
Less: Accumulated Amortization                  315,127
                                            -----------

   Total                                    $   156,132
   -----                                    ===========

                                      F-10
<PAGE>




THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #4
--------------------------------------------------------------------------------


[5] Leases [Continued]

Minimum  future lease  payments  under capital  leases for each of the next five
years and in the aggregate are:

1998                                                $   75,090
1999                                                    38,497
2000                                                        --
2001                                                        --
2002                                                        --
Thereafter                                                  --
                                                            --
                                                     ---------

Net Minimum Lease Payments                             113,587
Less: Amount Representing Interest                     (13,789)
                                                     ---------

Present Value of Net Minimum Lease Payments             99,798
Less: Current Portion                                   63,325
                                                     ---------

   Long-Term Portion                                $   36,473
   -----------------                                ==========

Operating  Leases - The  Company  leases  office  space under  operating  leases
expiring through September 2006. In lieu of a cash security deposit, the Company
has  delivered to the landlord a letter of credit in the amount of $34,466 which
expires  June 15,  1998.  This  letter  of credit  is  collateralized  by a U.S.
Treasury Bill which is classified as a restricted investment in the accompanying
balance  sheet.  The Company  leases office  equipment  under  operating  leases
expiring through 1999.

Minimum  future rental  payments  under  noncancelable  operating  leases having
remaining  terms in excess of one year as of September  30, 1997 for each of the
next five years and in the aggregate are:

Year Ending
September 30,
   1998                                            $   771,094
   1999                                                769,519
   2000                                                846,742
   2001                                                874,331
   2002                                                905,324
Subsequent to 2002                                   3,294,700
                                                   -----------

   Total Minimum Future Rental Payments            $ 7,461,710
   ------------------------------------            ===========

In addition,  the Company is liable for its pro-rata  share of increases in real
estate taxes and escalations as provided in the lease agreements.

Rent expense was $616,778  and $593,322 for the years ended  September  30, 1997
and 1996, respectively.

[6] Capital Stock

On December 18, 1996, the Company's Board of Directors authorized the repurchase
of up to 500,000  shares of the Company's  common stock from time to time in the
open market or in privately  negotiated  transactions.  The Company  repurchased
10,000 shares during the year ended September 30, 1997 [See Note 14].


                                      F-11

<PAGE>


THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #5
--------------------------------------------------------------------------------


[7] Commitments and Contingencies

Employment  Arrangements - On June 14, 1993, the Company entered into employment
agreements  with Mr. Herbert  Solomon,  Mr. Lloyd Solomon and Mr. Scott Page. In
addition,  Mr.  Herbert  Solomon  and Mr.  Scott  Page are  entitled  to receive
commission   payments  based  on  the  revenues  generated  by  their  executive
recruitment  and  placement  activities  and Mr.  Lloyd  Solomon is  entitled to
receive  incentive  compensation  for each  fiscal  year  during the term of his
employment  equal to that percentage of consolidated  pre-tax  operating  income
that consolidated pre-tax operating income bears to total consolidated  revenue.
These  employment  agreements  are for an initial term of five years  commencing
June 14, 1993 and will be extended automatically for additional one-year periods
unless terminated by either party. These employment agreements also prohibit the
employee from competing with the Company's  business during the term thereof and
for a period of one year  thereafter.  At  September  30,  1997,  the  Company's
obligation for salaries under these  employment  agreements  amounts to $549,000
which is to be paid during the year ending September 30, 1998.

For the years ended  September  30, 1997 and 1996,  approximately  $727,345  and
$615,000,  respectively,  was charged to operations under the commission portion
and  approximately  $200,000  and  $34,000,  respectively  under  the  incentive
compensation portion of the above described executive compensation plans.

On September 18, 1996, the Company  terminated an agreement  relating to 794,136
escrow shares that had been made available for issuance to certain executives of
the  Company.  These  escrow  shares  were to have  been  released  based on the
achievement  by the  Company  of  prescribed  levels  of  pre-tax  earnings.  In
consideration  for terminating the escrow share  agreement,  the Company granted
stock options to purchase 200,000 shares of common stock at fair market value on
the date of grant to each of the three  executives  who would have been eligible
to receive escrow shares.

Litigation - The Company is party to  litigation  arising from the normal course
of business. In managements' opinion, this litigation will not materially affect
the Company's financial position, results of operations or cash flows.

Acquisitions  - In  connection  with certain  acquisitions,  the Company will be
required to pay  purchase  price  adjustments  through July 6, 2000 based on the
achievement  of various  criteria.  These  additional  payments  are  charged to
intangibles  and are amortized over the then  remaining life of the  intangible.
Purchase price adjustments  amounted to $264,532 during the year ended September
30, 1997.

[8] Options and Warrants

On April 1, 1994,  the Company issued 175,000 Class A warrants and 175,000 Class
B warrants in  connection  with  certain  bridge  financing  which was repaid on
October 20,  1994.  The Class A warrants  are  identical  to those issued in the
Company's  initial  public  offering.  The Class B warrants are identical to the
Class A warrants except that the exercise price is $6.00 per share.

On October 20, 1994, in connection  with its initial public offering the Company
issued 2,300,000 Class A redeemable common stock purchase warrants. Each Class A
warrant entitles the holder to purchase one share of common stock exercisable at
$4.50 per share  commencing  October 20, 1995 and  expiring on October 20, 1999.
The Class A warrants are redeemable at $.05 per warrant based on the achievement
of certain criteria [See Note 14].

On October 20, 1994, in connection with its initial public offering, the Company
granted to its  underwriter  an option to purchase an  aggregate  200,000  units
exercisable at $6.60 per unit commencing  October 20, 1995 and expiring  October
20, 1999.

                                      F-12
<PAGE>


THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #6
--------------------------------------------------------------------------------

[8] Options and Warrants [continued]

   
On August 17, 1995, the Company  adopted the 1995  Director's  Stock Option Plan
[the "Director's  Plan"].  The Director's Plan provides for the grant of options
to  purchase  up to  100,000  shares of common  stock to  Directors  who are not
employees of the Company.  Options  granted  under the  Director's  Plan will be
exercisable commencing a minimum of 6 months from the date of grant for a period
of 10 years from the date of grant at an  exercise  price which is not less than
the fair market value of the common stock on the date of the grant. Options vest
at a rate of 50% after one year and 50% after two years.

On August 6, 1993,  the Company  adopted the 1993 Long Term  Incentive Plan [the
"1993 Plan"], which was amended on June 24, 1994. The 1993 Plan provides for the
issuance of  incentive  awards in the form of but not limited to stock  options,
stock appreciation  rights,  restricted stock and performance grants to purchase
up to  1,500,000  shares  of  common  stock and  provides  that all  individuals
performing  services for the Company are eligible to receive  incentive  awards.
The  1993  Plan is  administered  by a  committee  designated  by the  Board  of
Directors. The selection of participants,  allotment of shares, determination of
price and other  conditions of purchase of any awards granted will be determined
by such  committee  at its sole  discretion.  The purpose of the 1993 Plan is to
attract and retain persons instrumental to the success of the Company. Incentive
stock options granted under the 1993 Plan will be exercisable for a period of up
to 10 years from the date of grant at an  exercise  price which is not less than
the fair market value of the common stock on the date of the grant,  except that
the  term  of an  incentive  stock  option  granted  under  the  1993  Plan to a
stockholder  owning more than 10% of the outstanding  shares of the common stock
may not exceed  five years and its  exercise  price may not be less than 110% of
the  fair  market  value  of  the  common  stock  on  the  date  of  the  grant.
Non-executive  officer  options vest at a rate of 33 1/3% after three years,  33
1/3% after four years and 33 1/3% after five years.  Options to purchase 450,000
shares of common  stock have been  granted to  executive  officers and vest at a
rate of 33 1/3% upon grant,  33 1/3% after six months and 33 1/3% after thirteen
months.

On September 17, 1996, the Company adopted the 1996 Stock Option Plan [the "1996
Plan"].  The 1996 Plan  provides  for  awards of  incentive  stock  options  and
non-qualified  options to purchase  up to  1,000,000  shares of common  stock to
employees   and   directors  of  the  Company.   The  1996  Plan  provides  that
non-qualified options must be granted at not less than 80 percent of fair market
value on the date  granted.  No options at less than fair market value have been
awarded.  Options  principally vest at a rate of 33 1/3% after one year, 33 1/3%
after two years and 33 1/3% after three years.
    

A summary of the activity in the option plans is as follows:

                                                          Weighted Average
                                                          ----------------
                                          Shares           Exercise Price
                                          ------           --------------

Outstanding at September 30, 1995        1,372,000        $    1.46

   Granted                                 758,500             2.06
   Exercised                                    --
   Expired/Canceled                       (357,000)            1.49
                                         ---------

Outstanding at September 30, 1996        1,773,500             1.71

   Granted                                 246,750             2.33
   Exercised                                    --
   Expired/Canceled                        (55,000)            1.43
                                         ---------

Outstanding at September 30, 1997        1,965,250             1.80
                                         =========

   
   Exercisable at September 30, 1997       709,666             1.68
   ---------------------------------     =========
    


<PAGE>


THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #7
--------------------------------------------------------------------------------


[8] Options and Warrants [Continued]

If compensation cost for the stock option plans had been determined based on the
fair value at the grant dates for awards  under the plans,  consistent  with the
alternative  method set forth under SFAS No. 123, the  Company's  net income and
net income per share would have been  reduced on a pro forma basis as  indicated
below:


                                             1 9 9 7               1 9 9 6
                                             -------               -------

Year ended September 30:

Primary Income:
   As Reported                             $ 1,282,365          $   710,326
   Pro Forma                               $   952,889          $   307,459

Net Income Per Share:
   As Reported                             $       .20          $       .14
   Pro Forma                               $       .17          $       .06

Fully Diluted Income Per Share
   As Reported                             $       .20          $       .13
   Pro Forma                               $       .16          $       .06

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-  pricing  model  with  the  following   weighted-average
assumptions used for the grants awarded in 1997 and 1996, respectively:

                                                    September 30,
                                                    -------------
                                               1 9 9 7          1 9 9 6
                                               -------          -------

Dividend Yields                                  0.00%            0.00%
Expected Volatility                            105.29%          122.66% 
Risk-Free Interest Rate                          5.99%            6.41%
Expected Lifes                                 4 Years        4.79 Years

The  weighted-average  fair value of options granted was $1.73 and $1.74 for the
years ended September 30, 1997 and 1996, respectively.

The following table summarizes  information about stock options at September 30,
1997:

<TABLE>
<CAPTION>
                                 Outstanding                            Exercisable
                   ----------------------------------------        --------------------------
                                  Weighted         Weighted                       Weighted
   Range of                       Remaining         Average                       Average
Exercise Prices    Shares     Contractual Life   Exercise Price     Shares     Exercise Price
<S>               <C>                             <C>              <C>          <C>        

   
$ .01 to $2.00    1,089,250       7.6 years       $     1.40       473,000      $      1.40
$2.01 to $3.00      876,000       6.6 years       $     2.29       236,666      $      2.25
                  ---------                                        -------

                  1,965,250       7.2 years       $     1.80       709,666      $      1.68
                  =========                                        =======
    
</TABLE>


                                      F-14


<PAGE>




THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #8
--------------------------------------------------------------------------------

[9] Income Taxes Expense

The provision for income tax expense consists of the following:
                                                            September 30,
                                                            -------------
                                                       1 9 9 7      1 9 9 6
                                                       -------      -------
Current:
   Federal                                           $ 835,681    $ 379,000
   Utilization of Net Operating Loss Carryforward     (423,131)    (379,000)
   State and City                                      453,680      200,000
   Utilization of Net Operating Loss Carryforward     (229,504)    (196,000)
                                                     ---------    ---------

   Total Current                                       636,726        4,000
                                                     ---------    ---------

Deferred [Benefit]:
   Federal                                             (60,923)      15,200
   State and City                                      (23,272)          --
                                                     ---------    ---------

   Total Deferred                                      (84,195)      15,200
                                                     ---------    ---------

   Total Income Tax Expense                          $ 552,531    $  19,200
   ------------------------                          =========    =========

Income tax at the federal  statutory rate reconciled to the Company's  effective
rate is as follows:

                                                           September 30,
                                                           -------------
                                                       1 9 9 7      1 9 9 6
                                                       -------      -------

Federal Statutory Rate                                   34.0%       34.0%
Non Deductible Expenses                                   4.4        17.4
Benefit of Net Operating Loss Carryforward              (23.1)      (51.4)
Change in Deferred Tax Asset Valuation Allowance          7.8        --
State Income Taxes [Net of Federal Tax Benefit]           8.1          .5
Other                                                    (1.1)        2.1
                                                       -------      -------

   Effective Rate                                        30.1%        2.6%
   --------------                                      =======      =======

The Company has net operating loss carryforwards of approximately  $54,000 which
will expire in 2009.

The major  components  of  deferred  income tax assets  and  liabilities  are as
follows:

                                                            September 30,
                                                              1 9 9 7
Deferred Tax Liabilities:
   Cash Basis Adjustments                                    $(159,279)
   Accelerated Depreciation                                    (91,332)
                                                             ---------

   Total Deferred Tax Liabilities                             (250,611)

Deferred Tax Assets:
   Rent Deferrals                                              149,972
   Net Operating Loss                                           18,419
   Reserves                                                    156,099
   Other                                                        10,316
                                                             ---------

   Total Deferred Tax Assets                                   334,806

Net Deferred Tax Asset:
   Before Valuation Allowance:                                  84,195
   Valuation Allowance                                       ---------

   Net Deferred Income Tax Asset                             $  84,195
   -----------------------------                             =========

                                      F-15
<PAGE>




THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #9
--------------------------------------------------------------------------------


[9] Income Taxes Expense [Benefit] [Continued]

The net  deferred  income tax asset is included in other  current  assets in the
accompanying balance sheet.

The Company  recorded a reduction of $421,917 in its  valuation  allowance  from
September  30,  1996  due to the  achievement,  and  expected  continuation,  of
profitable operations.

[10] Significant Customers

For the year ended  September 30, 1997,  two  customers  accounted for 11 and 10
percent of revenue.

For the year ended September 30, 1996, one customer  accounted for 15 percent of
revenue.

[11] Retirement Plan

The Company  maintains a 401[k]  savings  plan which  covers  substantially  all
employees.  Under the plan,  employees  may elect to defer up to 15  percent  of
their salary,  subject to the Internal Revenue Code limits. The Company may make
a  discretionary  match as well as a  discretionary  contribution.  The  Company
recorded pension expense of $2,641 and $-0- during the years ended September 30,
1997 and 1996, respectively.

[12] Fair Value of Financial Instruments

Effective October 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 107, "Disclosure about Fair Value of Financial Instruments," which
requires   disclosing  fair  value  to  the  extent  practicable  for  financial
instruments  which are recognized or unrecognized in the balance sheet. The fair
value  of  the  financial   instruments  disclosed  herein  is  not  necessarily
representative  of the amount that could be  realized  or settled,  nor does the
fair value amount  consider the tax  consequences  of realization or settlement.
Carrying  value  approximates  fair  value for  amounts  classified  as due from
related parties as the receivables  carry market rates of interest.  For certain
instruments,  including cash and cash  equivalents,  trade receivables and trade
payables,  it was estimated that the carrying amount approximates fair value for
the majority of these instruments because of their short maturities.

[13] New Authoritative Accounting Pronouncements

The  Financial  Accounting  Standards  Board  ["FASB"]  has issued  Statement of
Financial  Accounting Standards ["SFAS"] No. 128, "Earnings per Share," and SFAS
No. 129, "Disclosure of Information about Capital Structure," in February 1997.

SFAS No. 128 simplifies the earnings per share ["EPS"] calculations  required by
Accounting Principles Board ["APB"] Opinion No. 15, and related interpretations,
by replacing the  presentation  of primary EPS with a presentation of basic EPS.
SFAS No. 128  requires  dual  presentation  of basic and diluted EPS by entities
with complex capital structures.  Basic EPS includes no dilution and is computed
by dividing  income  available to common  stockholders  by the  weighted-average
number of common  shares  outstanding  for the period.  Diluted EPS reflects the
potential  dilution of securities that could share in the earnings of an entity,
similar  to the  fully  diluted  EPS of APB  Opinion  No.  15.  SFAS No.  128 is
effective for financial  statements issued for periods ending after December 15,
1997,  including  interim periods;  earlier  application is not permitted.  When
adopted,  SFAS No. 128 will require  restatement  of all  prior-period  EPS data
presented.  The Company's basic EPS as calculated  under SFAS No. 128 would have
been  $.25  and  $.14  for  the  years  ended   September  30,  1997  and  1996,
respectively.  The Company  diluted EPS as  calculated  under SFAS No. 128 would
have  been  $.23 and $.14 for the  years  ended  September  30,  1997 and  1996,
respectively.


                                      F-16
<PAGE>




THE SOLOMON-PAGE GROUP LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #10
--------------------------------------------------------------------------------


[13] New Authoritative Accounting Pronouncements

SFAS No. 129 does not change any previous  disclosure  requirements,  but rather
consolidates existing disclosure requirements for ease of retrieval.

The Financial  Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting  Standards ["SFAS"] No. 130, "Reporting  Comprehensive  Income." SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997. Earlier
application is permitted.  Reclassification of financial  statements for earlier
periods  provided for  comparative  purposes is required.  The Company is in the
process of determining its preferred  format.  The adoption of SFAS No. 130 will
have no impact on the Company's  consolidated  results of operations,  financial
position or cash flows.

The FASB has issued SFAS No. 131,  "Disclosures  About Segments of an Enterprise
and  Related  Information."  SFAS No. 131  changes how  operating  segments  are
reported in annual  financial  statements and requires the reporting of selected
information  about  operating  segments in interim  financial  reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after December 15,
1997, and comparative  information for earlier years is to be restated. SFAS No.
131 need not be applied to interim  financial  statements in the initial year of
its  application.  The Company is in the process of  evaluating  the  disclosure
requirements.  The adoption of SFAS No. 131 will have no impact on the Company's
consolidated results of operations, financial position or cash flows.

[14] Subsequent Event

On October 31, 1997, the Company's Board of Directors  authorized the repurchase
of up to 1,000,000 of the  Company's  Class A redeemable  common stock  purchase
warrants in open market or privately negotiated  transactions.  Through December
31, 1997, the Company has repurchased  962,562  warrants at a cost of $1,018,303
which was financed  through  borrowings  on the  Company's  line of credit.  The
Company also terminated its common stock repurchase plan which was authorized on
December 31, 1996.





                             . . . . . . . . . . . .

                                      F-17