DLH Holdings Corp. – ‘DEFM14A’ on 11/17/98

As of:  Tuesday, 11/17/98   ·   Accession #:  950123-98-10028   ·   File #:  0-18492

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Definitive Proxy Solicitation Material — Merger or Acquisition   —   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: DEFM14A     Digital Solutions, Inc.                              182    730K 

Document Table of Contents

DEFM14A
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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT 
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE  
SECURITIES EXCHANGE ACT OF 1934 

Filed by the Registrant [x]                                                     
Filed by a party other than the Registrant [ ]                                  

Check the appropriate box:                                                      
    [ ] Preliminary Proxy Statement               [ ] Confidential, For Use of
                                                     the Commission only (as
                                               permitted by Rule
                                         14a-6(e)(2)

[X] Definitive Proxy Statement                                        
[ ] Definitive Additional Materials                                   
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12     

DIGITAL SOLUTIONS, INC. 
________________________________________________________________________________
(Name of the Corporation as Specified in Charter) 

Donald T. Kelly, Secretary
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (check the appropriate box)                               
[ ] No Fee required                                                   
     [x] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11

(1) Title of each class of securities to which transaction applies:             
Common Stock                                                      
________________________________________________________________________________

(2) Aggregate number of securities to which transaction applies:                
9,383,334                                                         
________________________________________________________________________________

(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:                                                 
$1.60                                                             
________________________________________________________________________________

(4) Proposed maximum aggregate value of transaction:                            
$15,014,000                                                       
________________________________________________________________________________

[ ]  Check box if any part of the fee is offset as provided by Exchange Act Rule
  0-11(a)(2) and identify the filing for which the offsetting fee was paid
    previously. Identify the previous filing by registration statement number,
or form or schedule and the date of filing.                           

(1) Amount previously paid:                                                     
$3,003                                                          
________________________________________________________________________________

(2) Form schedule or registration number:                                       
________________________________________________________________________________

(3) Filing party:                                                               
________________________________________________________________________________

(4) Dated filed:                                                                
________________________________________________________________________________

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DIGITAL SOLUTIONS, INC. 
300 ATRIUM DRIVE, SOMERSET, NEW JERSEY 08873
------------------------

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS 
------------------------

  NOTICE IS HEREBY GIVEN that a Special Meeting of shareholders of Digital
Solutions, Inc., a New Jersey corporation (the "Company") will be held on       
Thursday, December 17, 1998 at 9:30 A.M., Eastern Time, at the Somerset         
Marriott, 110 Davidson Avenue, Somerset, New Jersey 08873 for the following     
purposes:                                                                       

    1. To consider and vote upon a proposal to approve and adopt two
separate agreements entitled Plan and Agreement of Merger and         
Reorganization, dated as of October 29, 1998 (together, the "Merger   
Agreement") entered into among the Company, ten specially formed      
 subsidiaries of the Company (the "Merger Corporations"), ten affiliated
entities operating under the tradename the TeamStaff Companies (the   
"TeamStaff Entities") and the shareholders of the TeamStaff Entities  
   providing for the acquisition by way of mergers (collectively referred to
  as the "Merger") of the TeamStaff Entities with the Merger Corporations,
the result of which the TeamStaff Entities will become wholly-owned   
  subsidiaries of the Company and pursuant to which Merger the Company may
issue up to an aggregate of 9,383,334 shares of Common Stock; and     

     2. If the Merger Agreement is approved, to consider and approve a
    proposal to amend the Company's Certificate of Incorporation to change the
    name of the Company from Digital Solutions, Inc. to "TeamStaff, Inc."; and

to transact such other business as may properly be brought before the Special   
Meeting or any adjournment thereof.                                             

The accompanying Proxy Statement dated November 12, 1998 describes the
proposed Merger and the terms of the Merger Agreement in detail. Shareholders of
record holding shares of the Company's Common Stock as of October 30, 1998 (the 
"Record Date") are entitled to attend and vote at the Special Meeting.          

 YOUR VOTE IS IMPORTANT. You are cordially invited to attend the Special
Meeting. Whether or not you plan to attend, please complete, date and sign the  
accompanying proxy and return it promptly in the enclosed envelope to assure    
that your shares are represented at the Special Meeting. If you do attend, you  
may revoke any prior proxy and vote your shares in person if you wish to do so. 
Any prior proxy will automatically be revoked if you execute the accompanying   
proxy or if you notify the Secretary of the Company, in writing, prior to the   
Special Meeting.                                                                

                                      By Order of the Board of Directors

                   Donald T. Kelly
             Secretary
Dated:  November 12, 1998                                                       

WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE  
AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN    
ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF    
MAILED IN THE UNITED STATES.                                                    

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DIGITAL SOLUTIONS, INC. 
300 ATRIUM DRIVE
SOMERSET, NEW JERSEY 08873

PROXY STATEMENT 
FOR 
SPECIAL MEETING OF SHAREHOLDERS 
TO BE HELD ON DECEMBER 17, 1998 

     This Proxy Statement and the accompanying form of proxy have been mailed on
or about November 12, 1998 to the holders of the Common Stock, par value $.001  
per share ("Common Stock") of DIGITAL SOLUTIONS, INC., a New Jersey corporation 
(the "Company" or "Digital") on October 30, 1998 (the "Record Date") in         
connection with the solicitation of proxies by the Board of Directors of the    
Company for use at the Special Meeting of shareholders to be held on December   
17, 1998 at 9:30 A.M. at the Somerset Marriott, 110 Davidson Avenue, Somerset,  
New Jersey 08873 and at any adjournment thereof.                                

At the Special Meeting, the shareholders of the Company will:         

          1. Consider and vote upon a proposal to approve and adopt two separate
    agreements entitled Plan and Agreement of Merger and Reorganization, dated
as of October 29, 1998 (together, the "Merger Agreement") among the   
     Company, ten specially formed subsidiaries (the "Merger Corporations"), ten
   affiliated entities operating under the name the TeamStaff Companies (the
"TeamStaff Entities") and the shareholders of the TeamStaff Entities  
   providing for the acquisition by way of mergers (collectively referred to
  as the "Merger") of the TeamStaff Entities with the Merger Corporations,
the result of which the TeamStaff Entities will become wholly-owned   
  subsidiaries of the Company and pursuant to which Merger the Company may
issue up to an aggregate of 9,383,334 shares of Common Stock; and     

     2. If the Merger Agreement is approved, to consider and approve a
    proposal to amend the Company's Certificate of Incorporation to change the
    name of the Company from Digital Solutions, Inc. to "TeamStaff, Inc."; and

to transact such other business as may properly be brought before the 
Special Meeting or any adjournment thereof.                                     

    The Merger Agreement and the transactions contemplated thereby are complex
and are discussed in detail in this Proxy Statement and accompanying Exhibits.  
Shareholders are urged to read the contents of this Proxy Statement in its      
entirety.                                                                       

The TeamStaff Entities are privately owned companies engaged in the   
professional employer services business similar to the business operations of   
the Company. The Board of Directors believes that the Merger is in the best     
interests of the Company because (i) as a result of the Merger the Company's    
revenues will be increased by approximately 86% (based upon the fiscal year     
ended September 30, 1997), (ii) the combined entities will have approximately   
11,000 worksite employees (iii) the Merger is expected to allow the Company to  
enjoy opportunities for operating efficiencies and synergies from the combined  
entities and (iv) the Merger provides the Company with an avenue of expansion   
into the southeastern United States. The shareholders of Digital will not be    
receiving any consideration as a result of the Merger, but will continue to be  
shareholders of Digital and will therefore benefit from the combination of the  
TeamStaff Entities with the Company.                                            

   THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, HAS
DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY
AND ITS SHAREHOLDERS, AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF 
THE MERGER AGREEMENT AND THE MERGER.                                            

SOLICITATION, VOTING AND REVOCABILITY OF PROXY                                  

   Shares of the Company's Common Stock represented by an effective proxy in
the accompanying form will, unless contrary instructions are specified in the   
proxy, be voted (i) FOR the approval and adoption of the                        

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Merger Agreement and the Merger and the issuances of the Company's Common Stock 
as contemplated in the Merger Agreement and (ii) FOR the proposal to change the 
Company's name to "TeamStaff, Inc." Each share of Common Stock is entitled to   
one vote. Voting is on a noncumulative basis.                                   

 Under the New Jersey Business Corporation Act, shareholders entitled to
cast a majority of the votes at the Special Meeting must be present, either in  
person or by proxy, to have a quorum for the Special Meeting. Any proxy may be  
revoked at any time before it is voted. A shareholder may revoke a proxy by     
submitting a proxy bearing a later date or by notifying the Secretary of the    
Company either in writing prior to the Special Meeting or in person at the      
Special Meeting. Revocation is effective only upon receipt of such notice by the
Secretary. Approval and adoption of the Merger Agreement and the change of      
corporate name requires the affirmative vote of a majority of the votes cast at 
the Special Meeting. Accordingly, abstentions will not count as yes or no votes 
but will be counted for quorum purposes.                                        

    The Company will bear the cost of the solicitation of proxies by the Board
of Directors. The Board of Directors may use the services of its executive      
officers, employees and directors to solicit proxies from shareholders in person
and by mail, telegram and telephone. In addition, the Company expects to retain 
the services of Hill & Knowlton, Inc., a proxy solicitation firm to assist it in
the solicitation of votes for a fee not to exceed approximately $8,000. The     
Company will also reimburse Hill & Knowlton, Inc. for its reasonable expenses   
and indemnify it against certain liabilities, including certain liabilities     
under the federal securities laws. Arrangements may also be made with brokers,  
fiduciaries, custodians, and nominees to send proxies, proxy statements and     
other material to the beneficial owners of the Company's Common Stock held of   
record by such persons, and the Company may reimburse them for reasonable       
out-of-pocket expenses incurred by them in so doing.                            

 Representatives of the Company's independent public accountants, Arthur
Andersen LLP, are expected to be present at the Special Meeting, will have the  
opportunity to make a statement if they so desire, and will be available to     
respond to appropriate questions.                                               

  The principal executive offices of the Company are located at 300 Atrium
Drive, Somerset, New Jersey 08873; the Company's telephone number is (732)      
748-1700.                                                                       

AVAILABLE INFORMATION                                                           

    The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance        
herewith files reports and other information with the Securities and Exchange   
Commission (the "SEC"). These reports and other information can be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,   
Judiciary Plaza, 450 Fifth Street, N. W., Washington, D.C. 20549, and at the    
following Regional Offices of the SEC: Seven World Trade Center, New York, New  
York 10048, and Northwestern Atrium Center, 800 West Madison Street, Chicago,   
Illinois 60661. Copies of such material can also be obtained from the Public    
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The SEC also maintains a World Wide Web Site that contains    
reports, proxy and information statements and other information regarding       
registrants that file electronically with the SEC. The address of that site is  
http://www.sec.gov.                                                             

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EXHIBITS                                                                        

The following documents are annexed hereto and are incorporated by    
reference in this Proxy Statement:                                              

                                                                [Download Table]
                                                                        
Exhibit A:  Plan and Agreement of Merger and Reorganization dated as of 
            October 29, 1998 among the Company, the Merger Corporations,
            the TeamStaff Entities and certain individuals and trusts as
            shareholders of the TeamStaff Entities;                     
Exhibit B:  Report on Form 10-K of Digital Solutions, Inc. for the      
            fiscal year ended September 30, 1997;                       

Exhibit C:  Quarterly Report on Form 10-Q of Digital Solutions, Inc. for
            the quarter ended June 30, 1998;                            

Exhibit D:  Audited Financial Statements of the TeamStaff Entities for  
            the years ended December 31, 1995, 1996 and December 31,    
            1997;                                                       

Exhibit E:  Management's Discussion and Analysis of Financial Condition 
            and Results of Operations of the TeamStaff Entities for the 
            fiscal years ended December 31, 1997, 1996 and 1995 and the 
            six months ended June 30, 1998 and June 30, 1997.           

Exhibit F:  Unaudited Financial Statements of the TeamStaff Entities for
            the six months ended June 30, 1998 and 1997.                

Exhibit G:  Form of Amendment to the Amended and Restated Certificate of
            Incorporation.                                              

Exhibit H:  Consent of Arthur Andersen LLP                              

Exhibit I:  Consent of KPMG Peat Marwick LLP                            

Exhibit J:  Consent of Grant Thornton LLP                               

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VOTING SECURITIES AND SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND       
MANAGEMENT                                                                      

  The securities entitled to vote at the Special Meeting are the Company's
Common Stock. Each share of Common Stock entitles its holder to one vote on each
matter submitted to shareholders. The close of business on October 30, 1998 has 
been fixed as the record date for the determination of shareholders entitled to 
notice of and to vote at the Special Meeting and any adjournment thereof. As of 
October 30, 1998, 19,356,833 shares of Common Stock were issued and outstanding.
Voting of the shares of Common Stock is on a noncumulative basis.               

   The following table sets forth certain information as of October 30, 1998
with respect to (i) each director and executive officer of the Company (ii) the 
persons (including any "group" as that term is used in Section 13(d)(3) of the  
Exchange Act) known by the Company to be the beneficial owner of more than five 
percent of any class of the Company's voting securities and (iii) officers and  
directors as a group. The only class of voting securities of the Company is the 
Common Stock.                                                                   

                                                        [Enlarge/Download Table]

                                               NUMBER OF SHARES   PERCENT OF COMPANY'S
             NAME OF SHAREHOLDER AND ADDRESS  PRESENTLY OWNED(1)      COMMON STOCK    
             -------------------------------  ------------------  --------------------
                                                                                      
Karl W. Dieckmann(2)                                315,743               1.63%       
  c/o Digital Solutions, Inc.                                                         
  300 Atrium Drive                                                                    
  Somerset, NJ 08873                                                                  
George J. Eklund(3)                                 495,545               2.52%       
  c/o Digital Solutions, Inc.                                                         
  300 Atrium Drive                                                                    
  Somerset, NJ 08873                                                                  
Senator John H. Ewing(4)                            126,125                  *        
  76 Claremont Road                                                                   
  Barnardsville, NJ 07924                                                             
William J. Marino(5)                                 93,617                  *        
  c/o Blue Cross/Blue Shield                                                          
    of New Jersey                                                                     
  3 Penn Plaza East                                                                   
  Newark, NJ 07105                                                                    
Donald W. Kappauf(6)                                551,248               2.84%       
  c/o Digital Solutions, Inc.                                                         
  300 Atrium Drive                                                                    
  Somerset, NJ 08873                                                                  
Donald T. Kelly(7)                                   53,850                  *        
  c/o Digital Solutions, Inc.                                                         
  300 Atrium Drive                                                                    
  Somerset, NJ 08873                                                                  
Charles R. Dees Jr. Ph.D.(8)                          5,000                  *        
  c/o Digital Solutions, Inc.                                                         
  300 Atrium Drive                                                                    
  Somerset, NJ 08873                                                                  
Martin J. Delaney(9)                                 63,823                  *        
  c/o Digital Solutions, Inc.                                                         
  300 Atrium Drive                                                                    
  Somerset, NJ 08873                                                                  
All officers and directors as a group                                         %       
  (8) persons(2,3,4,5,6,7,8,9)                    1,699,951               8.48        

---------------                                                                 
* Less than 1 percent.                                                      

(1) Ownership consists of sole voting and investment power except as otherwise  
noted.                                                                  

(2) Includes options to purchase 15,000 shares of the Company's Common Stock,   
and warrants to purchase 10,000 shares of Common Stock, and excludes    
unvested options to purchase 5,000 shares of Common Stock.              

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(3) Includes options to purchase 380,100 shares of the Company's Common Stock,  
 and excludes unvested options to purchase 120,000 shares of Common Stock.

(4) Includes options to purchase 40,000 shares of Common Stock, Warrants to     
    purchase 2,500 shares and excludes unvested options to purchase 5,000 shares
of Common Stock.                                                        

(5) Includes options to purchase 10,000 shares of the Company's Common Stock,   
and excludes unvested options to purchase 5,000 shares of Common Stock. 

(6) Includes options to purchase 175,000 shares of the Company's Common Stock,  
 and excludes unvested options to purchase 125,000 shares of Common Stock.

(7) Includes options to purchase 45,000 shares of Common Stock, and excludes    
unvested options to purchase 35,000 shares of Common Stock.             

(8) Excludes unvested options to purchase 1,250 shares of Common Stock and      
includes vested options to purchase 5,000 shares of Common Stock.       

(9) Excludes unvested options to purchase 1,250 shares of Common Stock and      
includes vested options to purchase 5,000 shares of Common Stock.       

CERTAIN REPORTS                                                                 

    Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers, and persons who own, directly or          
indirectly, more than 10% of a registered class of the Company's equity         
securities, to file with the Securities and Exchange Commission (SEC) reports of
ownership and reports of changes in ownership of common stock and other equity  
securities of the Company. Officers, directors and greater than 10% shareholders
are required by SEC regulations to furnish the Company with copies of all       
Section 16(a) forms that they file. Based solely on review of the copies of such
reports received by the Company, the Company believes that all Section 16(a)    
filing requirements applicable to officers, directors and 10% shareholders were 
complied with during the 1997 fiscal year.                                      

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PROPOSAL I

APPROVAL OF THE MERGER AGREEMENT
AMONG THE COMPANY AND THE TEAMSTAFF ENTITIES

PROPOSAL                                                                        

   The Board of Directors have submitted for shareholder approval a proposal
to approve the Merger Agreement dated as of October 29, 1998 among the Company, 
the Merger Corporations, the TeamStaff Entities and the shareholders of the     
TeamStaff Entities. The following describes certain aspects of the proposed     
Merger, including material provisions of the Merger Agreement. The following    
description of the Merger does not purport to be complete and is qualified in   
its entirety by reference to the Merger Agreement, which is attached as Exhibit 
A to this Proxy Statement and is incorporated herein by reference. Shareholders 
are urged to read the Merger Agreement carefully. Capitalized terms used in this
section or elsewhere in this Proxy Statement but not defined in this Proxy      
Statement shall have the meanings attributed to them in the Merger Agreement.   

Approval of the Merger Agreement by the Company's shareholders is not 
required by the Company's Certificate of Incorporation, its Bylaws or under the 
New Jersey Business Corporation Act. The Company's Common Stock is listed for   
trading on the SmallCap Market of the Nasdaq Stock Market, Inc. and under its   
rules a listed company must obtain shareholder approval for any transaction     
which will result in the issuance of securities by the listed company equal to  
or exceeding 20% of the listed company's outstanding securities. On October 30, 
1998, the Company had outstanding 19,356,833 shares of Common Stock. The Merger 
Agreement provides that the Company will issue a minimum of 8,233,334 shares of 
its Common Stock which represents approximately 42.5% of its currently          
outstanding Common Stock, thereby requiring shareholder approval under the      
Nasdaq SmallCap Market rules. Upon consummation of the transaction, assuming the
Company issues 8,233,334 shares to the shareholders of the TeamStaff Entities,  
such shareholders will own approximately 29.8% of the outstanding shares of     
Common Stock of the Company. Under certain circumstances, the Company may be    
required to issue up to 750,000 additional shares (an additional 2.7%) in order 
to consummate the transaction. In addition, the Company has agreed to issue to  
its investment banker approximately 400,000 shares of its Common Stock.         

SUMMARY OF THE TERMS OF MERGER AGREEMENT                                        

General                                                                     

The Company has entered into two separate agreements entitled Plan and
Agreement of Merger and Reorganization, dated as of October 29, 1998, with the  
TeamStaff Entities and the shareholders owning all of the shares of the         
TeamStaff Entities. The TeamStaff Entities are privately owned. The Company     
intends to acquire the TeamStaff Entities through a merger of 10 newly formed   
subsidiaries of the Company (sometimes referred to as the "Merger Corporations")
with the 10 entities which comprise the TeamStaff Entities. After the Merger,   
assuming approval by shareholders, the 10 TeamStaff Entities will be            
wholly-owned subsidiaries of the Company.                                       

    THE CORPORATE EXISTENCE OF THE COMPANY WILL NOT BE AFFECTED BY THE MERGER.

The TeamStaff Entities are comprised of the following corporations:   
TeamStaff Holding Company, Inc. ("THC"), The TeamStaff Companies, Inc. ("TSC"), 
Employer Support Services, Inc, ("ESS"), TeamStaff U.S.A., Inc. ("TUSA"),       
TeamStaff, Inc. ("TSI"), TeamStaff II, Inc. ("TSI II"), TeamStaff III, Inc.     
("TSI III"), TeamStaff IV, Inc. ("TSIV"), TeamStaff V, Inc. ("TSV") and         
TeamStaff Insurance Services, Inc. ("TIS"). Each of the entities are Florida    
corporations with its principal address at 1211 N. Westshore Blvd., Suite 806,  
Tampa, Florida 33607.                                                           

  The parties have entered into two separate agreements solely to preserve
the "tax free exchange " status of the merger of nine of the TeamStaff Entities 
under Section 368 of the Internal Revenue Code. The second merger agreement will
provide for the acquisition of TSV. The terms and conditions of this separate   
merger                                                                          

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agreement for the TSV merger are exactly the same as the other merger agreement 
for the nine TeamStaff Entities except for certain tax free language which has  
been deleted from this second agreement. For purposes of this Proxy Statement,  
all of the Mergers are deemed one transaction and approval of the Merger        
Agreement includes approval of both agreements. See the discussion below        
entitled "Federal Tax Consequences; Accounting Treatment of Merger."            

    The shareholders of the TeamStaff Entities and other parties to the Merger
agreement are: Warren M. Cason ("WC"), Dorothy C. Cason ("DC"), Kirk A. Scoggins
("KS"), Melissa C. Scoggins, as trustee of the Kirk Allan Scoggins 1997 Three   
Year Grantor Retained Annuity Trust, dated 7/1/97 (the "KS Trust") and Warren M.
Cason, Jr., as trustee of the Dorothy C. Cason 1997 Three Year Grantor Retained 
Annuity Trust, dated 7/1/97 (the "WC Trust"). The shareholders of the TeamStaff 
Entities are collectively referred to in this Proxy Statement as the "Sellers").

Consideration Payable to the Sellers of the TeamStaff Entities              

 Pursuant to the terms of the Merger Agreement: (A) all of the shares of
common stock of the TeamStaff Entities shall be converted into the right to     
receive 8,233,334 shares of Digital Solutions, Inc. Common Stock; (B) each share
of outstanding preferred stock of the TeamStaff Entities ("TeamStaff Preferred  
Shares") shall be exchanged for the right to receive an amount equal to         
$1,800,000 plus accrued dividends to the date of Closing (approximately $252,000
as of September 30, 1998) divided by the number of preferred shares issued and  
outstanding (the "Preferred Share Payment") and (C) Digital shall cause to be   
paid outstanding debt owed by the TeamStaff Entities to the Sellers in an amount
not to exceed $1,079,000 (the "Debt Payment"). The 8,233,334 shares, the Debt   
Payment and the Preferred Share Payment are sometimes referred to as the "Merger
Consideration". The sole TeamStaff Entity with outstanding TeamStaff Preferred  
Shares is TSV.                                                                  

    Pursuant to the terms of the Merger Agreement, the Company is not required
to close on the Merger unless the Company obtains financing of approximately    
$4,500,000. In the event that the Company is unable to obtain financing from its
lender (as discussed below) in the amount of approximately $4,500,000, which    
management believes is necessary to consummate the Merger and fund the combined 
entities following the Merger, then the Company may be required to alter the    
terms of the consideration payable to the Sellers or obtain alternative sources 
of funds. The alternative terms may include the issuance of debt or debt        
convertible into Common Stock or the sale of equity. As a result of the         
uncertainty of its financing, the Company is also seeking approval, as part of  
the approval of the Merger, to issue up to an additional 750,000 shares of      
Common Stock. THEREFORE, APPROVAL OF THE MERGER WILL ALSO BE DEEMED TO BE       
APPROVAL OF THE ISSUANCE TO THE SELLERS OF THE CONTEMPLATED 8,233,334 SHARES, UP
TO 750,000 ADDITIONAL SHARES AND 400,000 SHARES TO BE ISSUED TO THE COMPANY'S   
INVESTMENT BANKER.                                                              

THE SHAREHOLDERS OF THE DIGITAL SOLUTIONS, INC. ARE NOT RECEIVING ANY 
PAYMENTS OF ANY KIND (STOCK OR CASH OR OTHERWISE) AS A RESULT OF THE MERGER.    

On August 10, 1998, the day prior to the announcement of the proposed 
Merger, the high bid and low sales price of the Company's Common Stock on the   
Nasdaq SmallCap Stock Market was $1.75 and $1.696. On October 28, 1998, the day 
prior to execution of the Merger Agreement, the high bid and low sales price of 
the Company's Common Stock on the Nasdaq SmallCap Stock Market was $1.1875 and  
$1.125, respectively.                                                           

Conditions and Termination; Regulatory Approvals                            

The Merger is contingent upon several factors and events such as: (i) 
approval of the Board of Directors and shareholders of each of the TeamStaff    
Entities and the Company; (ii) termination of all waiting periods under the     
Hart-Scott-Rodino Antitrust Improvements Act of 1976; (iii) the Company         
obtaining financing for the transaction in an amount of approximately $4,500,000
upon terms acceptable to the Company; and (iv) approval of the Florida          
Department of Business and Professional Regulations for the contemplated change 
in ownership of the TeamStaff Entities.                                         

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    All of the shareholders of the TeamStaff Entities have advised the Company
that they intend to vote in favor of the Merger.                                

Federal Tax Consequences; Accounting Treatment of Merger                    

The Company believes that there are no federal or other income tax    
consequences of the Merger for the shareholders of the Company because the      
shareholders are not receiving any form of payment as a result of the           
transaction. The shareholders of the Company will continue to hold shares of    
Common Stock of the Company.                                                    

 The Company intends to utilize the "purchase" accounting method for the
acquisition of the TeamStaff Entities. The purchase price paid by the Company   
will be allocated based upon the fair market value of assets acquired and       
liabilities assumed. The parties will be providing a schedule to the Merger     
Agreement setting forth such allocations. The excess of the purchase price over 
the amounts so allocated will be treated as goodwill.                           

Related Agreements                                                          

    If the Merger is consummated, the Company has agreed to pay up to $750,000
of the transaction costs (including accounting, legal and investment banker     
fees) of the TeamStaff Entities and the Sellers. These fees include             
approximately $300,000 of fees due to the Company's financial advisor, Raymond  
James & Associates, Inc., which has also served as financial advisor to the Team
Staff Entities. The Company also is paying Raymond James & Associates, Inc. fees
for representing the Company.                                                   

   The Company will enter into a two year employment agreement with Mr. Kirk
Scoggins, the President and a principal shareholder of the TeamStaff Entities   
whereby Mr. Scoggins will be employed by the Company as the President of its    
professional employer organization division. The Company has also agreed to     
appoint Mr. Scoggins to its Board of Directors and to consider appointment of a 
second person mutually acceptable to the Company and the Sellers. In addition to
the foregoing, the Company has agreed to forgive approximately $135,000 owed by 
Mr. Scoggins to the TeamStaff Entities provided Mr. Scoggins is employed by the 
Company for the next two years.                                                 

    It is a condition to the Merger Agreement that the Company and certain key
employees of the TeamStaff Entities will also enter into non-competition        
agreements which will provide that the key employees will not solicit customers 
or employes of the Company during a period of two years following the Merger in 
certain states where the TeamStaff Entities conduct business, including the     
state of Florida.                                                               

   In addition, pursuant to the Merger Agreement, the Sellers have agreed to
vote all shares owned by them during the two year period following the Merger,  
in favor of management's nominees to the Board of Directors at all special or   
annual meetings of the Company's shareholders.                                  

  The shares to be issued to the Sellers in the Merger will be "restricted
shares" under the Securities Act of 1933, as amended (the "Act"). "Restricted   
shares" may not be sold by the holder unless (i) a registration statement is    
filed with, and declared effective by, the SEC or (ii) pursuant to Rule 144     
promulgated by the SEC or (iii) there exists an exemption from the registration 
requirements of the Act. Pursuant to the terms of the Merger Agreement and a    
related registration rights agreement to be entered into between the Company and
the Sellers, the Company has agreed to use its best efforts to have declared    
effective by the SEC, on the first anniversary of the Merger, a registration    
statement under the Act covering the resale by the Sellers of one-third of the  
shares of the Company's Common Stock being issued to the Sellers. In addition,  
the Company has agreed to use its best efforts to have registration statements  
for one third of the shares declared effective by the SEC on each of the second 
and third anniversary dates of the Merger.                                      

Appraisal Rights                                                            

   The Company's shareholders are not entitled to appraisal rights under the
New Jersey Business Corporation Act.                                            

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THE MERGER AGREEMENT                                                            

General                                                                     

   The Plan of Agreement and Merger, a copy of which is annexed as Exhibit A
provides for the acquisition by the Company of the TeamStaff Entities. The      
acquisition will be consummated through the merger of the Merger Corporations   
into the TeamStaff Entities. The Merger Corporations have no operations and were
formed solely to consummate the Merger. As a result of the Merger of the newly  
formed subsidiaries into the TeamStaff Entities, the TeamStaff Entities will be 
the surviving entities and will be wholly-owned subsidiaries of the Company.    

    THE CORPORATE EXISTENCE OF THE COMPANY WILL NOT BE AFFECTED BY THE MERGER.

     The Merger Agreement also sets forth certain representations and warranties
by the parties regarding their ownership, operations and financial status, as   
well as conditions to be consummated prior to consummation of the Merger. The   
Company has made representations regarding, among other things: (i) its         
corporate and capital structure; (ii) its corporate authority to consummate the 
transaction; (iii) the accuracy of its filings with the SEC and the financial   
statements filed with its SEC reports; (iv) its business operations; and (v) the
absence of litigation which would materially affect the business of the Company.
The TeamStaff Entities have made similar representations to the Company         
(excluding any representations or warranties regarding SEC filings since the    
Team Staff Entities are private companies and do not file reports with the SEC),
as well as additional representations, including those regarding (i) contracts  
and agreements to which the TeamStaff Entities are a party; (ii) the status of  
leases to which the TeamStaff Entities are a party; (iii) insurance matters;    
(iv) litigation matters; (v) tax filings and payments during the last three     
years and (vi) ownership of intellectual property such as trademarks. The Merger
Agreement provides that the Sellers and Digital will each indemnify the other   
party under certain circumstances for the breach of any representation or       
warranty.                                                                       

   The Merger will be consummated as soon as possible following satisfaction
of the conditions to Closing, including approval by the shareholders of the     
Company. The Company and the TeamStaff Entities expect to close on the          
transactions contemplated by the Merger Agreement in December 1998, assuming the
conditions are satisfied.                                                       

Consideration Payable to the Sellers of the TeamStaff Entities              

Pursuant to the terms of the Merger Agreement the Merger Consideration
consists of: (A) 8,233,334 shares of Digital Common Stock in exchange for all of
the shares of common stock of the TeamStaff Entities; (B) $1,800,000 plus       
accrued dividends to closing (approximately $252,000 as of September 30, 1998)  
in cash in exchange for all outstanding TeamStaff Preferred Shares and (C) an   
amount not to exceed $1,079,000 to pay outstanding debt owed by the TeamStaff   
Entities to the Sellers.                                                        

    Pursuant to the terms of the Merger Agreement, the Company is not required
to consummate the Merger unless the Company obtains financing of approximately  
$4,500,000. In the event that the Company is unable to obtain financing from its
lender (as discussed below) in the amount of approximately $4,500,000, which    
management believes is necessary to consummate the Merger and fund the combined 
entities following the Merger, then the Company may be required to alter the    
terms of the consideration payable to the Sellers or obtain alternative sources 
of funds. The alternatives terms may include the issuance of debt or debt       
convertible into Common Stock or the sale of equity. As a result of the         
uncertainty of its financing, the Company is also seeking approval from its     
shareholders, as part of the approval of the Merger, to issue up to an          
additional 750,000 shares of Common Stock. The Company will also be issuing     
approximately 400,000 shares to its investment banker. THEREFORE, APPROVAL OF   
THE MERGER WILL ALSO BE DEEMED TO BE APPROVAL OF BOTH THE ISSUANCE OF THE       
CONTEMPLATED 8,233,334 SHARES, UP TO 750,000 ADDITIONAL SHARES AND THE 400,000  
SHARES TO ITS INVESTMENT BANKER.                                                

  THE SHAREHOLDERS OF THE COMPANY ARE NOT RECEIVING ANY PAYMENTS (STOCK OR
CASH OR OTHERWISE) AS A RESULT OF THE MERGER.                                   

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Description of the TeamStaff Entities                                       

    The TeamStaff Entities are 10 separate privately held Florida corporations
which operate as a group in the employment related service business. The        
TeamStaff Entities have their principal office in Tampa, Florida and operate in 
over 20 states. The TeamStaff Entities are members of both the National         
Association of Professional Employer Organizations ("NAPEO") and the Florida    
Association of Professional Employer Organization. The initial TeamStaff Entity 
was founded in 1989 and additional corporations have joined the group from time 
to time as the business has expanded. The principal address of the TeamStaff    
Entities is 1211 N. Westshore Boulevard, Suite 806, Tampa, Florida and its      
telephone number is (813)289-1981.                                              

   The TeamStaff Entities provide human resource management services such as
payroll administration, personnel administration, employee benefits             
administration, workers' compensation, insurance coverage and claims management,
risk management and related services. The TeamStaff Entities offer their        
services to businesses throughout the United States with a strong emphasis in   
the southeastern United States. At present, target clients of the TeamStaff     
Entities are involved light manufacturing, golf course management, resort       
property management, educational and clerical operations, technical sales and   
service and franchise operations. The TeamStaff Entities provide their services 
through the following four customer care divisions, each of which is a distinct 
yet interrelated service unit: workers' compensation and risk management        
services; human resources services; employee benefits services; and payroll     
administration services.                                                        

For the six months ended June 30, 1998, the TeamStaff Entities had    
approximately 5,600 worksite employees servicing approximately 260 clients      
located in over 20 states. During the same period, based upon the unaudited     
financial statements of the TeamStaff Entities provided by the TeamStaff        
Entities to the Company (which unaudited financial statements appear as Exhibit 
F annexed hereto), the TeamStaff Entities had revenues of approximately         
$53,800,000, gross profit of approximately $2,100,000 and net income of         
approximately $95,000. For the fiscal year ended December 31, 1997, based upon  
the audited financial statements of the TeamStaff Entities provided by the      
TeamStaff Entities to the Company (which audited financial statements appear as 
Exhibit D annexed hereto), the TeamStaff Entities had revenues of approximately 
$105,246,000, gross profit of approximately $3,300,000 and a net loss of        
approximately $352,000.                                                         

Reasons for the Merger; Background of Merger; Recommendation of the Board of
Directors                                                                       

   THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, HAS
DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY
AND ITS SHAREHOLDERS, AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF 
THE MERGER AGREEMENT, THE MERGER AND THE ISSUANCE OF THE SHARES. Members of the 
Board of Directors and officers hold 978,451 shares of Common Stock of the      
Company as of October 30, 1998 and have advised the Company that they intend to 
vote in favor of the Merger.                                                    

Approval of the Merger Agreement by the Company's shareholders is not 
required by the Company's Certificate of Incorporation, its Bylaws or under the 
New Jersey Business Corporation Act. The Company's Common Stock is listed for   
trading on the SmallCap Market of the Nasdaq Stock Market, and under its rules a
listed company must obtain shareholder approval for any transaction which will  
result in the issuance of securities by the listed company equal to or exceeding
20% of the Company's outstanding securities. On October 30, 1998, the Company   
had outstanding 19,356,833 shares of Common Stock. The Merger Agreement provides
that the Company will issue an aggregate of 8,233,334 shares of its Common Stock
to the Sellers which represents approximately 42.5% of its outstanding Common   
Stock, thereby requiring shareholder approval under the Nasdaq SmallCap rules.  
In the event the Company were required to obtain additional alternative         
financing, the Company may be required to issue up to an aggregate of 8,983,334 
shares of Common Stock.                                                         

 The Board of Directors believes that the TeamStaff Entities provide the
Company with an opportunity to expand its operations in one of the fastest      
growing areas of the United States. The Board of Directors also believes that   
the Merger will allow the Company to enjoy opportunities for operating          
efficiencies and synergies                                                      
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from the combined entities. The TeamStaff Entities are engaged in the           
professional employer services business similar to the business operations of   
the Company. The TeamStaff Entities have operations centered in the southeastern
United States, with presences in Tampa, Florida; Raleigh/Durham, North Carolina;
Dallas, Texas; Atlanta, Georgia; and Jacksonville, Florida. The combined        
entities will have approximately 11,000 worksite employees which will result in 
savings from economies of scale such as allowing the Company to negotiate lower 
costs with its insurance carriers for insurance, including workers compensation.
Additionally, the Board believes that the TeamStaff Entities have stronger sales
and marketing operations than the Company presently has and therefore the post  
merger entities will be able to combine Digital's financial operations          
capabilities with the sales and marketing operations of TeamStaff. Further,     
acquisition of the TeamStaff Entities, whose business is concentrated in the    
southeastern United States, will provide the Company with quicker access to this
market than were the Company to attempt to expand its operations on its own.    

  The shareholders of Digital will not be receiving any consideration as a
result of the Merger, but will continue to be shareholders of Digital and will  
therefore benefit from the combination of the TeamStaff Entities with the       
Company.                                                                        

The management of the Company and the TeamStaff Entities commenced    
negotiating the acquisition in June, 1998 and entered into a letter of intent on
August 11, 1998. The Board of Directors preliminarily approved the terms of the 
letter of intent and the Merger Agreement at a meeting held by the Board of     
Directors on September 16, 1998. In late September 1998, the parties agreed to  
fix the number of shares payable to the Seller as of October 1, 1998 based upon 
a price of $1.00 per share. The Board of Directors considered several factors in
determining that the terms of the Merger were fair to the Company and its       
shareholders. Among the factors considered were the related business operations;
the potential savings from a combination of the two entities; the financial     
condition of the two entities; the resources of the two entities; and the       
potential revenues and earnings of the combined entities. The Board also        
considered the market value of the Common Stock of the Company compared to other
companies which are competitors of the Company and are publicly held, as well as
prices paid by other entities for acquisitions of professional employer service 
businesses in the last few years. On August 10, 1998, the day prior to the      
announcement of the proposed Merger, the high bid and low sales price of the    
Company's Common Stock on the Nasdaq SmallCap Stock Market was $1.75 and $1.696.
On October 28, 1998, the day prior to the Merger Agreement, the high bid and low
sales of the Company's Common Stock on the Nasdaq SmallCap Stock Market was     
$1.1875, and $1.125, respectively.                                              

   The Board of Directors believes that the terms of the Merger are fair and
reasonable to the shareholders of the Company. The shareholders of the Company  
will continue to hold shares of the Company's Common Stock, but management of   
the Company believes that the revenues and operations of the combined entity    
will be greater and stronger than prior to the Merger. The Board and the        
Company's management believe that the Company's future prospects be enhanced by 
increasing its revenues and extending its operations and believe that the       
acquisition of the TeamStaff entities provide a positive avenue by which to     
increase revenue. During the year ended December 31, 1997, the TeamStaff        
Entities had revenues of approximately $105,246,000. The Company had revenues of
approximately $122,695,000 for its fiscal year ended September 30, 1997 and     
revenues of approximately $102,122,000 for the nine month period ended June 30, 
1998. The Company had a net loss of approximately $2,832,000 and net income of  
approximately $2,496,000 respectively, for the fiscal year ended September 30,  
1997 and nine months ended June 30, 1998. The TeamStaff Entities had a loss of  
approximately $352,000 and net income of approximately $95,000 for the year     
ended December 31, 1997 and the six months ended June 30, 1998. Although there  
can be no assurances, the Board of Directors expects that the combined entities 
will have annualized combined revenues for the next fiscal year in excess of    
$240 million. With the anticipated level of revenues, the Company believes it   
will rank within the top 15% of the professional employer organization revenues 
in the United States.                                                           

No Opinion of Financial Advisor                                             

   The terms of the Merger Agreement and the Merger were negotiated at arm's
length between the management of the Company and the TeamStaff Entities. The    
investment banking firm of Raymond James &                                      
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Associates, Inc. has served as an advisor to both the Company and the TeamStaff 
Entities and has not rendered an opinion with respect to the terms of the       
transaction.                                                                    

Conditions and Termination; Regulatory Approvals                            

The Merger is contingent upon several factors and events such as: (i) 
approval of the shareholders of each of the TeamStaff Entities and the Company; 
(ii) termination of all waiting periods under the Hart-Scott-Rodino Improvements
Act of 1976; (iii) the Company's lenders approving financing for the transaction
in an amount of approximately $4,500,000 upon terms acceptable to the Company;  
and (iv) approval of the Florida Department of Business and Professional        
Regulations for the contemplated change in ownership of the TeamStaff Entities. 

    All of the shareholders of the TeamStaff Entities have advised the Company
that they intend to vote in favor of the Merger. The shareholders of the        
TeamStaff Entities do not own shares of Common Stock or other securities of the 
Company.                                                                        

Under the Hart-Scott-Rodino Improvements Act of 1976 and the rules    
promulgated thereunder, by the Federal Trade Commission ("FTC"), the Merger     
cannot be consummated until notifications have been given and certain           
information has been furnished to the FTC and the Antitrust Division of the     
Department of Justice ("Antitrust Division") and specified waiting periods have 
been satisfied. The parties intend to file their applications under the         
Hart-Scott-Rodino Improvements Act of 1976 prior to the Special Meeting. At any 
time before or after consummation of the Merger, the Antitrust Division or the  
FTC or any state authority could take such action under the antitrust laws as it
deems necessary or desirable in the public interest, including seeking to enjoin
the consummation of the Merger or seeking divestiture of substantial assets of  
the Company. Private parties may also seek to take legal action under the       
antitrust laws under certain circumstances.                                     

   Pursuant to the laws of the State of Florida, the TeamStaff Entities hold
licenses to operate in the professional employer and employee leasing business. 
Licensed entities such as the TeamStaff Entities are required to obtain approval
of the Florida Department of Business and Professional Regulations whenever     
there is a change of ownership of the licensed entity such as the change        
proposed by the Merger. The parties submitted their applications to the Florida 
Department of Business and Professional Regulations in October 1998 have been   
notified that the Department of Business and Professional Regulations has       
scheduled a hearing on change in control for November 18, 1998.                 

There can be no assurance that the required approvals and consents,   
including those of the FTC and the Florida Department of Business and           
Professional Regulations, will be obtained.                                     

  The Company has received a proposal from its lender to provide financing
for the Merger. The Company has requested that the lender provide financing of  
approximately $4,500,000 which funds will be used to consummate the Merger,     
including the Debt Payment and Preferred Share Payment and expenses of the      
transaction. As of the date of this Proxy Statement, no definitive agreements   
with the lender have been negotiated or executed. The lender has advised the    
Company that it is continuing its due diligence regarding the transaction,      
including a review of the financial condition of the TeamStaff Entities. There  
can be no assurance that the Company will be able to obtain financing from its  
lender on terms acceptable to it. Pursuant to the terms of the Merger Agreement,
the Company is not required to close on the Merger unless the Company obtains   
financing of approximately $4,500,000. In the event that the Company is unable  
to obtain financing from its lender (as discussed below) in the amount of       
approximately $4,500,000, which management believes is necessary to consummate  
the Merger and fund the combined entities following the Merger, then the Company
may be required to alter the terms of the consideration payable to the Sellers  
or obtain alternative sources of funds.                                         

 It is a condition to the Merger that the parties enter into one or more
escrow agreements to provide for the escrow of a certain number of shares to be 
received by the Sellers as a result of the Merger. The escrow will be           
established in order to provide for the payment by the Sellers of any breach of 
representations or                                                              

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warranties made by them and for which the Company may be entitled to            
indemnification under the terms of the Merger Agreement. The Merger Agreement   
provides for two types of escrow funds, as described below.                     

The first escrow fund is intended for indemnification as a result the 
breach by the Sellers of general representations and warranties. This first fund
is in the amount of $525,000 and provides for the escrow of such number of      
Digital shares as may be determined by dividing $525,000 by the Escrow Market   
Price. For purposes of the Merger Agreement, "Escrow Market Price" of the shares
of the Company's Common Stock means the average closing sale price of a share of
Common Stock on the Nasdaq SmallCap Market for the five trading days ending     
three days prior to Closing. For example, if the Escrow Market Price were $1.00,
the Sellers would be required to place 525,000 shares into escrow. In order to  
obtain payment from the first escrow fund, the Company must make a claim within 
18 months of closing.                                                           

 The second escrow fund is intended for indemnification for any payments
which Digital may be required to make, up to $600,000 in connection with (i)    
litigation and settlement of potential liabilities emanating from the TeamStaff 
Entities' past involvement with a workers' compensation self insurance fund in  
Florida ("USEC") and (ii) amounts which the TeamStaff Entities may owe to CIGNA,
a former medical insurer of the TeamStaff Entities in excess of the amounts     
reserved by the TeamStaff Entities. The Escrow fund will be utilized to provide 
funds for amounts which may be paid for claims in excess of the amounts reserved
by the TeamStaff Entities prior to the acquisition. With respect to the CIGNA   
and USEC matters, the TeamStaff Entities have established reserves of           
approximately $456,000 in the aggregate. The Sellers have agreed to place into  
escrow such number of Digital shares as may be determined by dividing $600,000  
by the Escrow Market Price. For example, if the Escrow Market Price were $1.00  
per share and were the closing to occur based upon such price the Sellers would 
be placing into escrow 600,000 shares of the Company's Common Stock in order to 
provide a fund for indemnification. In order to obtain payment from the second  
escrow fund, the Company must make a claim within three years of the closing. In
the event the USEC litigation and CIGNA matters are settled prior to closing the
escrow will not be required. In the event that both matters are settled prior to
the end of the three year period, any shares remaining in escrow will be        
returned to the Sellers.                                                        

Except in the event of fraud, the Company cannot collect any monies or
shares from the Sellers for the breach of any representation or warranty except 
from the escrow funds and cannot collect more than the amount of shares in      
escrow. The Company has agreed to indemnify the Sellers for the breach by the   
Company of any representation or warranty made by it in an amount not to exceed 
$525,000. The Company has agreed that it will not make any claims against the   
escrow funds until payments made by it exceed a threshold of $100,000 and then  
only for such excesses.                                                         

     In addition to the foregoing conditions to closing, (i) counsel to both the
TeamStaff Entities and the Company must deliver legal opinions concerning the   
transaction, ownership of the respective parties, due authorization and other   
corporate matters (ii) there may be no governmental action or injunction or     
other suit or proceeding related to the transaction or which materially effects 
the businesses of either the Company or the TeamStaff Entities. Certain         
conditions, as well as the breach of representations or warranties by either    
party may be waived by the parties, except for those conditions involving       
shareholder or governmental approvals and the requirement that the Company      
obtain financing from its lenders.                                              

 It is a condition to closing that the Company enter into a registration
rights agreement with the Sellers providing for the registration under the Act  
of the shares to be received by the Sellers under the Merger Agreement. The     
shares to be issued to the Sellers in the Merger will be "restricted shares"    
under the Act. The Company has agreed to use its best efforts to have declared  
effective by the SEC a registration statement under the Act covering the resale 
by the Sellers of one-third of the shares received by them as Merger            
Consideration on each of the first, second and third anniversaries of the       
Closing.                                                                        

  The Merger Agreement may be terminated: (i) prior to closing upon mutual
agreement of the parties; (ii) by the Company in the event it is unable to      
secure the necessary funding from its lenders of at least $4,500,000; (iii) by  
either party in the event the other party has caused a material breach of a     
representation or warranty which is not timely cured or (iv) by either party if 
closing has not occurred prior to March 31, 1999.                               

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Federal Tax Consequences; Accounting Treatment of Merger                    

The Company believes that there are no federal or other income tax    
consequences of the Merger for the shareholders of the Company because the      
shareholders are not receiving any form of payment as a result of the           
transaction. The shareholders of the Company will continue to hold shares of    
Common Stock of the Company.                                                    

 The Company intends to utilize the "purchase" accounting method for the
acquisition of the TeamStaff Entities. The purchase price paid by the Company   
will be allocated based upon the fair market value of assets acquired and       
liabilities assumed. The parties will be providing a schedule to the Merger     
Agreement setting forth such allocations. The excess of the purchase price over 
the amounts so allocated will be treated as goodwill.                           

   It is the parties' intention that except for the merger related to one of
the TeamStaff Entities, TSV, the transactions qualify as a "tax free exchange"  
under Section 368 of the Internal Revenue Code. This tax free exchange does not 
effect the shareholders of the Company but is solely for the benefit of the     
Sellers. The parties have further agreed that the merger of TSV will not qualify
as a tax free exchange as a result of the payment by the Company of $1,800,000  
plus accrued dividends (approximately $252,000 as of September 30, 1998) in cash
for the TeamStaff Preferred Shares which were issued by TSV. As a result, a     
separate merger agreement has been entered into for the TSV merger. The terms   
and conditions of this separate merger are exactly the same as the other merger 
agreement except for certain tax free language which has been deleted from this 
second agreement. For purposes of this Proxy Statement, all of the Mergers are  
deemed one transaction and approval of the Merger Agreement includes approval of
both agreements.                                                                

Related Agreements;                                                         

   The Company will enter into a two year employment agreement with Mr. Kirk
A. Scoggins, the President and a principal shareholder of the TeamStaff         
Entities, whereby Mr. Scoggins will be employed by the Company as its President 
of its professional employer organization business. The Company has also agreed 
to appoint Mr. Scoggins to its Board of Directors and to consider appointment of
a second person mutually acceptable to the Company and the Sellers. The Company 
has agreed to use its best efforts to obtain the election of Mr. Scoggins to its
Board of Directors for the two year period following the Closing. Under the     
terms of his employment agreement, Mr. Scoggins will receive a base salary of   
$175,000 and options to acquire 100,000 shares of the Company's Common Stock.   
The options will vest over two years and have an exercise price equal to the    
fair market value of the Company's Common Stock on the date of closing.         
Additionally, the agreement will contain certain incentive bonus clauses which  
will be based upon performance of the professional employer division. In        
addition, debt in the amount of $135,000 owed by Mr. Scoggins to the Company    
will be forgiven. The agreement with Mr. Scoggins will contain certain          
non-compete and non-disclosure provisions upon terms acceptable to the parties  
for a period of two years following termination of his employment.              

    It is a condition to the Merger Agreement that the Company and certain key
employees of the TeamStaff Entities will also enter into non-competition        
agreements which will provide that the key employees will not solicit customers 
or employees of the Company during a period of two years following the Merger in
certain states where the TeamStaff Entities conduct business, including the     
state of Florida.                                                               

   In addition, pursuant to the Merger Agreement, the Sellers have agreed to
vote all shares owned by them during the two year period following the Merger,  
in favor of management's nominees to the Board of Directors at all special or   
annual meetings of the Company's shareholders.                                  

Agreement Not To Solicit Other Offers                                       

     Pursuant to the terms of the Merger Agreement, the Sellers have agreed that
they will not, and will not permit the TeamStaff Entities to, directly or       
indirectly, initiate, solicit, encourage or otherwise facilitate any offers or  
the making of any proposal with respect to a merger, reorganization, share      
exchange or similar                                                             

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transaction a sale of the securities or assets of the TeamStaff Entities to any 
person other than the Company. The Sellers have also agreed not to vote any of  
the shares held by them in favor of any other proposal or offer.                

Expenses and Termination Fees                                               

   The Merger Agreement provides that the Company will pay up to $750,000 of
the legal, accounting and investment bankers fees of the TeamStaff Entities     
incurred by them in connection with the Merger. In the event the Merger is not  
consummated, the parties shall bear their own costs and expenses. These fees    
include approximately $300,000 of fees due to Raymond James & Associates, Inc.  
for representing the Sellers Raymond James & Associates, Inc. also served as    
advisor to the Company, and will be receiving approximately 400,000 shares of   
Common Stock. Approval of the Merger will also be deemed approval of the        
issuance of the 400,000 shares to Raymond James & Associates, Inc.              

Directors and Officers of the TeamStaff Entities.                           

   The directors and officers of the post Merger TeamStaff Entities shall be
as follows:                                                                     

                                                                [Download Table]

NAME                                                         TITLE     
----                                                         -----     
                                                                       
Donald Kappauf..........................    Chairman/Director          
Kirk Scoggins...........................    President                  
                                            Chief Financial            
Donald Kelly............................    Officer/Secretary/Treasurer

Management of the Company                                                   

  Pursuant to the terms of the Merger Agreement, the Company has agreed to
appoint Mr. Kirk Scoggins to the Board of Directors effective at the closing of 
the Merger and to use its best efforts to obtain his election at subsequent     
meetings of shareholders for a period of two years following the Closing. The   
Company has also agreed to consider appointment of a second person mutually     
acceptable as a nominee of the Sellers to the Company's Board of Directors.     
Except for the election of Mr. Kirk Scoggins to the Company's Board of Directors
there are no anticipated changes to the current officers and directors of the   
Company.                                                                        

   In addition, pursuant to the Merger Agreement, the Sellers have agreed to
vote all shares owned by them during the two year period following the Merger,  
in favor of management's nominees to the Board of Directors at all special or   
annual meetings of the Company's shareholders.                                  

The executive officers and directors of the Company are as follows:   

                                                                [Download Table]

NAME                   AGE                    OFFICE                  
----                   ---  ------------------------------------------
                                                                      
Karl W. Dieckmann      69   Chairman of the Board of Directors        
George J. Eklund       54   Director                                  
Donald T. Kelly        48   Vice President, Chief Financial Officer   
                            and Corporate Secretary                   
Senator John H. Ewing  77   Director                                  
William J. Marino      54   Director                                  
Donald W. Kappauf      52   President, Chief Executive Officer and    
                            Director                                  
Charles R. Dees, Jr.   58   Director                                  
Martin J. Delaney      55   Director                                  

   Each director is elected for a period of one year at the Company's annual
meeting of shareholders and will serve until his successor is duly elected by   
the shareholders. Shareholders are not being requested to vote upon the election
of directors at the Special Meeting.                                            

Amendment and Waiver                                                        

The provisions of the Merger Agreement and related agreements may be  
amended by the parties at any time prior to the consummation of the Merger by   
means of a written agreement executed and delivered by                          

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duly authorized officers or representatives of the respective parties. The      
conditions of the Merger Agreement, including closing conditions, subject to    
applicable law, may be waived by the party intended to be the beneficiary of    
such condition.                                                                 

Appraisal Rights                                                            

   The Company's shareholders are not entitled to appraisal rights under the
New Jersey Business Corporation Act.                                            

Vote Required for Approval                                                  

 The approval of a majority of the votes cast at the special Meeting (in
person or by proxy) is required to approve the Merger Agreement and the Merger. 
The approval of the Company's shareholders is required pursuant to the terms of 
the Merger Agreement. Officers and directors of the Company own 928,451 shares  
of Common Stock and have advised the Company that they intend to vote in favor  
of the Merger.                                                                  

 THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE TERMS OF THE MERGER
AGREEMENT, HAS DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS 
OF, THE COMPANY AND ITS SHAREHOLDERS, AND RECOMMENDS THAT THE SHAREHOLDERS VOTE 
FOR APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.                            

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SELECTED FINANCIAL DATA                                                         

The following selected financial data has been abstracted from, is    
qualified in its entirety by, and should be read in conjunction with the        
financial statements of the Company and the notes thereto appearing elsewhere in
this Proxy Statement or previously filed with the SEC. The statement of         
operations data of the Company for the fiscal years ended September 30, 1993,   
1994, 1995, 1996 and 1997, respectively, and the balance sheet data at September
30, 1993, 1994, 1995, 1996 and 1997 are derived from the audited financial      
statements included in the Company's Form 10-K annexed hereto as Exhibit B, or  
previously filed with the SEC. The statement of operations data of the Company  
for the nine months ended June 30, 1998, and the balance sheet data at June 30, 
1998 are derived from the unaudited financial statements included in the        
Company's Form 10-Q annexed hereto as Exhibit C, as previously filed with the   
SEC.                                                                            

                                                        [Enlarge/Download Table]

                                                            YEARS ENDED SEPTEMBER 30                       
                                      ---------------------------------------------------------------------
                       JUNE 30, 1998      1997           1996          1995          1994          1993    
                       -------------  ------------   ------------   -----------   -----------   -----------
                                                                                                           
OPERATING DATA:                                                                                            
Revenues.............  $102,122,000   $122,695,000   $100,927,000   $73,821,000   $37,998,000   $14,681,000
Direct Expenses......    94,588,000    113,894,000     92,490,000    68,530,000    34,939,000    12,459,000
Gross Profit.........     7,534,000      8,801,000      8,437,000     5,291,000     3,059,000     2,222,000
Selling, General &                                                                                         
  Administrative                                                                                           
  Expenses (includes                                                                                       
  depreciation and                                                                                         
  amortization.......     6,179,000     11,316,000      8,801,000     7,547,000     2,695,000     1,962,000
Income (Loss) From                                                                                         
  Continuing                                                                                               
  Operations.........     1,355,000     (2,515,000)      (364,000)   (2,256,000)      364,000       260,000
Net Income (Loss)....  $  2,496,000   $ (2,832,000)  $   (597,000)  $(3,316,000)  $   720,000   $   301,000
Basic Earnings (Loss)                                                                                      
  Per Common                                                                                               
  Share(1)...........  $       0.13   $      (0.15)  $      (0.04)  $     (0.24)  $      0.06   $      0.03
Weighted Average                                                                                           
  Shares                                                                                                   
  Outstanding........    19,263,097     19,070,349     16,840,371    13,595,382    10,597,537     5,484,353
Diluted Earnings                                                                                           
  (Loss) Per Common                                                                                        
  Share(1)...........  $       0.13   $      (0.15)  $      (0.04)  $     (0.24)  $      0.05   $      0.03
Diluted Shares                                                                                             
  Outstanding........    19,504,058     19,070,349     16,840,371    13,595,382    12,867,027     6,339,255
Dividends Paid Per                                                                                         
  Preferred Stock....  $       0.00   $       0.00   $       0.00   $      0.00   $      3.30   $      4.00

BALANCE SHEET DATA:                                                             

                                                        [Enlarge/Download Table]
                                                                                                       
Assets............... $ 15,784,000  $ 14,163,000   $ 14,800,000  $13,816,000   $ 7,727,000  $ 4,264,000
Liabilities..........    8,166,000     9,291,000      7,632,000   10,967,000     2,671,000    1,079,000
Long-Term Debt.......    3,096,000        89,000        100,000      175,000       107,000      241,000
Working Capital                                                                                        
  (Deficiency).......    3,299,000    (1,401,000)       286,000   (4,771,000)    1,146,000    1,920,000
Shareholders'                                                                                          
  Equity............. $  7,618,000  $  4,872,000   $  7,168,000  $ 2,849,000   $ 5,056,000  $ 3,195,000

---------------                                                                 
(1) Basic and diluted earnings per share have replaced primary and fully diluted
earnings per share in accordance with Statement on Financial Accounting 
Standards No. 128.                                                      

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PRO FORMA CONSOLIDATED FINANCIAL DATA 
OF DIGITAL SOLUTIONS AND THE TEAMSTAFF ENTITIES 

  The unaudited pro forma condensed combined financial data as of June 30,
1998 and for the twelve months ended September 30, 1997 and the nine months     
ended June 30, 1998 give effect to the Merger, accounted for under the          
"purchase" accounting method. The unaudited pro forma condensed combined        
financial data is based upon the historical consolidated financial statements of
Digital and the TeamStaff Entities under the assumptions and adjustments set    
forth in the notes to such proforma financial data.                             

    The unaudited pro forma condensed combined balance sheet data assumes that
the Merger was consummated on June 30, 1998, and the unaudited pro forma        
condensed combined statement of operations data assumes that the Merger was     
consummated on October 1, 1996. The fiscal year of Digital ends on September 30,
and the fiscal year of the TeamStaff Entities ends on December 31. For purposes 
of presenting the unaudited pro forma condensed combined statement of operations
data, the historical financial statements of the TeamStaff Entities for the year
ended December 31, 1997 were combined with the historical financial statements  
of Digital for the year ended September 30, 1997. The historical financial      
statements of Digital for the nine months ended June 30, 1998 have been combined
with the compiled historical financial statements of the TeamStaff Entities for 
the compiled nine months ended June 30, 1998.                                   

For purposes of presenting the unaudited pro forma condensed combined 
balance sheet data, TeamStaff's assets and liabilities have been recorded at    
their estimated fair market values and the excess purchase price has been       
assigned to goodwill, which is being amortized over a 20-year period. The fair  
value of the TeamStaff Entities assets and liabilities is based on preliminary  
estimates. Upon completion of a detailed review of assets and liabilities,      
including intangibles, certain adjustments may be required to finalize the      
purchase accounting adjustments. The unaudited pro forma condensed combined     
statement of operation data excludes any benefits that may result due to        
synergies that may be derived and the elimination of duplicative efforts in     
connection with the acquisition of the TeamStaff Entities.                      

     The unaudited pro forma condensed combined financial statement data may not
be indicative of the results that actually would have occurred if the           
acquisition of the TeamStaff Entities had been consummated on the dates         
indicated or which may be obtained in the future. The unaudited pro forma       
condensed combined financial statement data should be read in conjunction with  
the historical consolidated financial statements for Digital and the TeamStaff  
Entities.                                                                       

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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA 
JUNE 30, 1998 

                                                        [Enlarge/Download Table]

                                    HISTORICAL                          PRO FORMA                
                            --------------------------    -------------------------------------- 
                              DIGITAL       TEAMSTAFF     ADJUSTMENTS                 COMBINED   
                            -----------    -----------    ------------               ----------- 
                                                                                                 
                                             ASSETS                                              
CURRENT ASSETS                                                                                   
  Cash....................  $ 1,806,000    $        --    $  1,364,000(1),(3),(4),(8) $ 3,170,000
  Restricted Cash.........      738,000             --              --                   738,000 
  Accounts receivable, net                                                                       
     of allowance.........    4,924,000      2,886,000              --                 7,810,000 
  Notes Receivable........           --      2,182,000      (2,182,000)(3)                    -- 
  Other current assets....      901,000        244,000              --                 1,145,000 
                            -----------    -----------    ------------               ----------- 
          Total current                                                                          
            assets........    8,369,000      5,312,000        (818,000)               12,863,000 
EQUIPMENT AND                                                                                    
  IMPROVEMENTS............      766,000        230,000              --                   996,000 
DEFERRED TAX ASSET........    1,916,000             --              --                 1,916,000 
GOODWILL, net of                                                                                 
  amortization............    4,158,000             --      11,354,000(2)             15,512,000 
OTHER ASSETS..............      575,000        394,000              --                   969,000 
                            -----------    -----------    ------------               ----------- 
          TOTAL ASSETS....  $15,784,000    $ 5,936,000    $ 10,536,000               $32,256,000 
                            ===========    ===========    ============               =========== 
                              LIABILITIES AND SHAREHOLDERS' EQUITY                               
CURRENT LIABILITIES                                                                              
  Current portion of long-                                                                       
     term debt............  $   541,000    $ 3,203,000    $ (1,203,000)(1),(3),(4)   $ 2,541,000 
  Accounts payable........    1,680,000        795,000              --                 2,475,000 
  Accrued expenses and                                                                           
     other................    2,849,000      3,602,000       1,100,000(5)              7,551,000 
                            -----------    -----------    ------------               ----------- 
          Total current                                                                          
            liabilities...    5,070,000      7,600,000        (103,000)               12,567,000 
LONG-TERM DEBT............    3,096,000         65,000       2,435,000(4)              5,596,000 
                            -----------    -----------    ------------               ----------- 
          Total                                                                                  
            Liabilities...    8,166,000      7,665,000       2,332,000                18,163,000 
                                 COMMITMENTS AND CONTINGENCIES                                   
SHAREHOLDERS' EQUITY                                                                             
  Common Stock............       19,000         47,000         (39,000)(6),(7)            27,000 
  Preferred Stock.........           --      1,800,000      (1,800,000)(8)                    -- 
  Additional paid-in                                                                             
     capital..............   13,643,000      1,776,000       4,691,000(2),(5),(6),(7)  20,110,000
  Accumulated deficit.....   (6,044,000)    (5,352,000)      5,352,000(6)             (6,044,000)
                            -----------    -----------    ------------               ----------- 
          Total                                                                                  
            shareholders'                                                                        
            equity                                                                               
            (deficit).....    7,618,000     (1,729,000)      8,204,000                14,093,000 
                            -----------    -----------    ------------               ----------- 
          TOTAL                                                                                  
            LIABILITIES                                                                          
            AND EQUITY....  $15,784,000    $ 5,936,000    $ 10,536,000               $32,256,000 
                            ===========    ===========    ============               =========== 

---------------                                                                 
(1) Includes $4,500,000 of borrowings from a financial institution required to  
effect the merger.                                                      

(2) Represents the adjustment to record estimated goodwill related to the       
    TeamStaff acquisition and adjustments to reflect the estimated fair value of
   the intangibles. The estimated fair value of the Digital common stock to be
    issued was based on the October 1, 1998 closing price of the stock as listed
   on the SmallCap Market System of the NASDQ, discounted for the restrictions
of trading to be placed on the                                          

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   common stock and the fact that the stock is thinly traded (a total discount
  of 25% of the listed price). The consideration to be issued by Digital has
  been adjusted to include direct costs of the merger payable by Digital and
the TeamStaff shareholders' deficit.                                    

(3) Represents the settlement of TeamStaff shareholders' notes payable          
($3,147,000) and notes receivable ($2,182,000) at the date of merger.   

(4) Includes the repayment of the TeamStaff bank debt of $121,000 at the closing
of the merger.                                                          

(5) Represents estimated acquisition costs.                                     

(6) Represents the elimination of TeamStaff's historical equity accounts.       

(7) Includes the issuance of 8,633,334 shares of Digital common stock to        
TeamStaff shareholders (8,233,334 shares) and the Company's investment  
banker (400,000 shares) at an estimated fair market value of $6,475,000 
  ($8,000 par value common stock and $6,467,000 additional paid-in capital).

(8) Includes the redemption of the preferred stock for $1,800,000 in cash and   
 dividends of $250,000 not declared but required to be paid as part of the
merger agreement.                                                       

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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS DATA 
NINE MONTHS ENDED JUNE 30, 1998 

                                                        [Enlarge/Download Table]

                                           HISTORICAL                                                                         
                                  -----------------------------                                                               
                                                   TEAMSTAFF                       TEAMSTAFF              PRO FORMA           
                                                 6 MONTHS ENDED    CONFORMING    9 MONTHS ENDED  ---------------------------- 
                                    DIGITAL        30-JUN-98     ADJUSTMENTS(3)    30-JUN-98     ADJUSTMENTS       COMBINED   
                                  ------------   --------------  --------------  --------------  ------------    ------------ 
                                                                                                                              
REVENUES......................... $102,122,000    $53,796,000     $30,516,000     $84,312,000    $         --    $186,434,000 
DIRECT EXPENSES..................   94,588,000     51,677,000      29,481,000      81,158,000              --     175,746,000 
                                  ------------    -----------     -----------     -----------    ------------    ------------ 
    Gross profit.................    7,534,000      2,119,000       1,035,000       3,154,000              --      10,688,000 
SELLING, GENERAL AND                                                                                                          
  ADMINISTRATIVE EXPENSES........    5,677,000      1,925,000       1,284,000       3,209,000              --       8,886,000 
DEPRECIATION AND AMORTIZATION....      502,000         45,000          39,000          84,000         426,000(1)    1,012,000 
                                  ------------    -----------     -----------     -----------    ------------    ------------ 
    Income from operations.......    1,355,000        149,000        (288,000)       (139,000)       (426,000)        790,000 
                                  ------------    -----------     -----------     -----------    ------------    ------------ 
OTHER INCOME (EXPENSE)                                                                                                        
    Interest expense, net........     (329,000)       (57,000)         26,000         (31,000)       (304,000)(2)     (664,000
    Other income.................           --          3,000         (29,000)        (26,000)                        (26,000 
                                  ------------    -----------     -----------     -----------    ------------    ------------ 
                                      (329,000)       (54,000)         (3,000)        (57,000)       (304,000)       (690,000 
                                  ------------    -----------     -----------     -----------    ------------    ------------ 
      Income before tax..........    1,026,000         95,000        (291,000)       (196,000)       (730,000)        100,000 
INCOME TAX BENEFIT...............    1,470,000             --              --              --              --       1,470,000 
                                  ------------    -----------     -----------     -----------    ------------    ------------ 
NET INCOME/(LOSS)................ $  2,496,000    $    95,000     $  (291,000)    $  (196,000)   $  (730,000)    $  1,570,000 
                                  ============    ===========     ===========     ===========    ============    ============ 
BASIC EARNINGS PER COMMON                                                                                                     
  SHARE.......................... $       0.13                                                                   $       0.06 
                                  ============                                                                   ============ 
WEIGHTED AVERAGE SHARES                                                                                                       
  OUTSTANDING....................   19,263,097                                                      8,633,334(4)   27,896,431 
                                  ============                                                   ============    ============ 
DILUTED EARNINGS PER COMMON                                                                                                   
  SHARE.......................... $       0.13                                                                   $       0.06 
                                  ============                                                                   ============ 
DILUTED SHARES OUTSTANDING.......   19,504,058                                                      8,633,334(4)   28,137,392 
                                  ============                                                   ============    ============ 

---------------                                                                 
(1) Represents the amortization of additional goodwill over 20 years.           

(2) Represents the increase in interest expense resulting from the financing of 
the merger.                                                             

(3) Represents the results from operations of TeamStaff for the three months    
ended December 31, 1997.                                                

(4) Includes 8,233,334 common shares to be issued to TeamStaff shareholders and 
400,000 common shares to Digital's investment bankers.                  

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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS DATA 
YEAR ENDED SEPTEMBER 30, 1997 

                                                        [Enlarge/Download Table]

                                                           HISTORICAL                     PRO FORMA           
                                                  ----------------------------   ---------------------------  
                                                    DIGITAL        TEAMSTAFF     ADJUSTMENTS      COMBINED    
                                                  ------------    ------------   -----------    ------------  
                                                                                                              
Revenues......................................... $122,695,000    $105,246,000   $        --    $227,941,000  
Direct Expenses..................................  113,894,000     101,948,000            --     215,842,000  
                                                  ------------    ------------   -----------    ------------  
  Gross profit...................................    8,801,000       3,298,000            --      12,099,000  
Selling, General and Administrative Expenses.....   10,306,000       3,703,000            --      14,009,000  
Depreciation and Amortization....................    1,010,000          84,000       568,000(1)    1,662,000  
                                                  ------------    ------------   -----------    ------------  
  Loss from operations...........................   (2,515,000)       (489,000)     (568,000)     (3,572,000) 
                                                  ------------    ------------   -----------    ------------  
Other Income (Expense)                                                                                        
  Interest expense, net..........................     (317,000)        (47,000)     (919,000)(2)   (1,283,000)
  Other income...................................           --         184,000            --         184,000  
                                                  ------------    ------------   -----------    ------------  
                                                      (317,000)        137,000      (919,000)     (1,099,000) 
                                                  ------------    ------------   -----------    ------------  
Net Loss......................................... $ (2,832,000)   $   (352,000)  $(1,487,000)   $ (4,671,000) 
                                                  ============    ============   ===========    ============  
Basic and Diluted Loss Per Common Share.......... $      (0.15)                                 $      (0.17) 
                                                  ============                                  ============  
Weighted Average Shares Outstanding..............   19,070,349                     8,633,334      27,703,683  
                                                  ============                   ===========    ============  

---------------                                                                 
(1) Represents the amortization of additional goodwill over 20 years.           

(2) Represents the increase in interest expense from additional debt as a result
of the acquisition of the TeamStaff Entities offset by interest expense 
 eliminated as a result of historical debt of the TeamStaff Entities to be
paid at the time of merger.                                             

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PROPOSAL II 

AMENDMENT TO CERTIFICATE OF INCORPORATION 
TO CHANGE THE NAME OF THE COMPANY 

The Board of Directors has also submitted for shareholder approval its
proposal to change the name of the Company from Digital Solutions, Inc. to      
TeamStaff, Inc. THE NAME CHANGE WILL NOT BE CONSUMMATED UNLESS SHAREHOLDERS     
APPROVE THE MERGER AGREEMENT AND THE MERGER AS DISCUSSED IN PROPOSAL I.         

  The Board of Directors believes that the Company's present name does not
reflect the Company's present business and intended future business direction.  
The Company is engaged in the professional employer services, temporary employee
staffing and payroll business. The Board has determined that its current name   
has no connection to these businesses. In addition, the Board believes that the 
TeamStaff Entities have created goodwill in its name and that the Company should
utilize this goodwill after the acquisition.                                    

   A form of the Amendment to the Company's Amended and Restated Certificate
of Incorporation is annexed to this Proxy Statement as Exhibit G reflecting the 
name change.                                                                    

  Shareholders will be requested to submit their share certificates to the
Company Stock Transfer Agent for exchange, and following adoption of Proposal II
and filing of an Amendment to the Company's Amended and Restated Certificate of 
Incorporation with the Secretary of State of New Jersey changing the name of the
Company, all new share certificates issued by the Company will be printed with  
the Company's new name. The Company estimates that the costs of this change of  
name, including printing expenses, license modifications, various state         
regulatory and local filings and other related costs, will not exceed $125,000. 
The Company has conducted a limited search for the availability of the new name 
in the states where it and the TeamStaff Entities conduct business. In the event
that the Company determines that the costs of changing the name will exceed its 
expectations or a conflict in the use of the name arises, the name change may   
not be implemented.                                                             

VOTE REQUIRED                                                                   

    The affirmative vote of the holders of a majority of the votes cast at the
Special Meeting, is required for the approval of this Proposal II. The directors
and officers of the Company and other shareholders owning of record and         
beneficially, directly and indirectly, an aggregate of approximately 978,451    
shares of Common Stock, constituting approximately 5% of such shares outstanding
on the Record Date, have agreed to vote in favor of Proposal II.                

     THE BOARD OF DIRECTORS DEEMS PROPOSAL II TO BE IN THE BEST INTERESTS OF THE
COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.      

FINANCIAL INFORMATION                                                           

A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 1997, INCLUDING FINANCIAL STATEMENTS, FILED WITH THE        
SECURITIES AND EXCHANGE COMMISSION IS ANNEXED HERETO AS EXHIBIT B.              

  A COPY OF THE COMPANY'S REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED
JUNE 30, 1998 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS ANNEXED      
HERETO AS EXHIBIT C.                                                            

   A COPY OF THE AUDITED FINANCIAL STATEMENTS FOR THE TEAMSTAFF ENTITIES FOR
THE FISCAL YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 IS ANNEXED HERETO AS    
EXHIBIT D.                                                                      

     A COPY OF THE UNAUDITED FINANCIAL STATEMENTS FOR THE TEAMSTAFF ENTITIES FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997 IS ANNEXED HERETO AS       
EXHIBIT F.                                                                      

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III.  OTHER BUSINESS

   As of the date of this Proxy Statement, the only business which the Board
of Directors intends to present, and knows that others will present, at the     
Special Meeting is that above. If any other matter or matters are properly      
brought before the Special Meeting, or any adjournments thereof, it is the      
intention of the persons named in the accompanying form of proxy to vote the    
proxy on such matters in accordance with their judgment.                        

SHAREHOLDER PROPOSALS                                                           

 Proposals of shareholders intended to be presented at the Corporation's
1999 Annual Meeting of Stockholders must be received by the Corporation on or   
before November 20, 1998 to be eligible for inclusion in the Corporation's proxy
statement and form of proxy to be used in connection with the l999 Annual       
Meeting of Shareholders.                                                        

                        By Order of the Board of Directors

     Donald T. Kelly

Secretary 

November 12, 1998                                                               

  WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE
AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED 
IF IT IS MAILED IN THE UNITED STATES OF AMERICA.                                

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 EXHIBIT A
TO
PROXY STATEMENT OF
 DIGITAL SOLUTIONS, INC.

 PLAN AND AGREEMENT OF MERGER AND REORGANIZATION

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PLAN AND AGREEMENT
OF
 MERGER AND REORGANIZATION

 AMONG

DIGITAL SOLUTIONS, INC.,

DGAC I,INC., DGAC II, INC., DGAC III, INC., DGAC IV, INC., DGAC VI, INC., 
DGAC VII, INC., DGAC VIII, INC., DGAC IX, INC., DGAC X, INC.

 AND

TEAMSTAFF, INC.,

 TEAMSTAFF II, INC.,

TEAMSTAFF III, INC.,

 TEAMSTAFF IV, INC.,

THE TEAMSTAFF COMPANIES, INC.,

TEAMSTAFF HOLDING COMPANY, INC.,

EMPLOYER SUPPORT SERVICES, INC.,

 TEAMSTAFF USA., INC.,

 TEAMSTAFF INSURANCE SERVICES, INC.,

 AND

WARREN M. CASON,

 DOROTHY C. CASON,

 KIRK A. SCOGGINS,

MELISSA C. SCOGGINS, AS TRUSTEE OF THE
 KIRK ALLAN SCOGGINS 1997 THREE YEAR
 GRANTOR RETAINED ANNUITY TRUST, DATED 7/1/97,

 WARREN M. CASON, JR., AS TRUSTEE OF THE
DOROTHY C. CASON 1997 THREE YEAR
 GRANTOR RETAINED ANNUITY TRUST, DATED 7/1/97,

Dated as of October 29, 1998

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 TABLE OF CONTENTS

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                                                                                 Page
                                                                                     
 1. Definitions ................................................................     
 2. Basic Transaction ..........................................................     
     (a) The Merger ............................................................     
     (b) The Closing ...........................................................     
     (c) Deliveries at the Closing .............................................     
     (d) Effect of the Merger ..................................................     
     (e) Closing of Transfer Records ...........................................     
3. Representations and Warranties Concerning the Transaction ...................     
     (a) Representations and Warranties of the Sellers .........................     
     (b) Representations and Warranties of Digital and the Merger                    
         Corporations ..........................................................     
 4. Representations and Warranties Concerning the TeamStaff Entities ...........     
     (a) Organization, Qualification, and Corporate Power ......................     
     (b) Capitalization ........................................................     
     (c) Noncontravention ......................................................     
     (d) Brokers' Fees .........................................................     
     (e) Title to Assets .......................................................     
     (f) Financial Statements ..................................................     
     (g) Events Subsequent to Most Recent Fiscal Year End ......................     
     (h) Undisclosed Liabilities ...............................................     
     (i) Legal Compliance ......................................................     
     (j) Tax Matters ...........................................................     
     (k) Real Property Interests ...............................................     
     (l) Intellectual Property .................................................     
     (m) Tangible Assets .......................................................     
     (n) Contracts .............................................................     
     (o) Notes and Accounts Receivable .........................................     
     (p) Powers of Attorney ....................................................     
     (q) Insurance .............................................................     
     (r) Litigation ............................................................     
     (s) Employees .............................................................     
     (t) Employee Benefits .....................................................     
     (u) Guaranties ............................................................     
     (v) Environment, Health, and Safety .......................................     
     (w) Certain Business Relationships with the TeamStaff Entities ............     
     (x) USEC Litigation .......................................................     
     (y) CIGNA Medical Program Claims ..........................................     
     (z) Disclosure ............................................................     

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 5. Pre-Closing Covenants ......................................................     
     (a) General ...............................................................     
     (b) Notices and Consents ..................................................     
     (c) Operation of Business .................................................     
     (d) Preservation of Business ..............................................     
     (e) Full Access ...........................................................     
     (f) Notice of Developments ................................................     
     (g) Exclusivity ...........................................................     
6. Post-Closing Covenants ......................................................     
     (a) General ...............................................................     
     (b) Litigation Support ....................................................     
     (c) Transition ............................................................     
     (d) Confidentiality .......................................................     
     (e) Covenant Not to Compete ...............................................     
7. Conditions to Obligation to Close ...........................................     
     (a) Conditions to Obligation of Digital ...................................     
     (b) Conditions to Obligation of the Sellers ...............................     
8. Remedies for Breaches of This Agreement .....................................     
     (a) Survival of Representations and Warranties ............................     
     (b) Indemnification Provisions for Benefit of Digital .....................     
     (c) Indemnification Provisions for Benefit of the Sellers .................     
     (d) Matters Involving Third Parties .......................................     
     (e) Determination of Adverse Consequences .................................     
     (f) Other Indemnification Provisions ......................................     
 9. Termination ................................................................     
     (a) Termination of Agreement ..............................................     
     (b) Effect of Termination .................................................     
10. Miscellaneous ..............................................................     
     (a) Press Releases and Public Announcements ...............................     
     (b) No Third-Party Beneficiaries ..........................................     
     (c) Entire Agreement ......................................................     
     (d) Succession and Assignment .............................................     
     (e) Counterparts ..........................................................     
     (f) Headings ..............................................................     

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                                                                            Page
                                                                                

(g) Notices ...............................................................     
(h) Governing Law .........................................................     
(i) Amendments and Waivers ................................................     
(j) Severability ..........................................................     
(k) Expenses ..............................................................     
(l) Construction ..........................................................     
(m) Incorporation of Exhibits, Appendices, and Schedules ..................     
(n) Specific Performance ..................................................     
(o) Section 338(h)(10) Tax Election .......................................     

EXHIBITS AND SCHEDULES                                                          

Exhibit A       Form of Scoggins Employment Agreement                           
Exhibit B       TeamStaff Financial Statements                                  
Exhibit C       Form of Non-Competition Agreement                               
Exhibit D       Form of Opinion of Counsel to TeamStaff Entities and the Sellers
Exhibit E       Form of Opinion of Counsel to Digital                           
Exhibit F       Form of Articles of Merger                                      
Exhibit G       Form of Registration Rights Agreement                           
Exhibit H       Form of Escrow Agreement                                        
Exhibit I       Seller's Debt Repayment Schedule                                
Exhibit J       List of Employees to Execute Non-Competition Agreements         
Exhibit K       Form of Voting Agreement                                        

Sellers' Disclosure Schedule    Exceptions to the Sellers' Representation and   
Warranties      

Digital Disclosure Schedule     Exceptions to Digital's Representations and     
Warranties      

TeamStaff Disclosure Schedule   Exceptions to Representations and Warranties    
                 Concerning the TeamStaff Entities

Appendix I    Allocation of Merger Consideration, Debt Payment and Preferred    
Share Payment                                       

Appendix II   List of Sellers' Expenses to be paid by Digital                   

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 PLAN AND AGREEMENT OF
 MERGER AND REORGANIZATION

        This Plan and Agreement of Merger and Reorganization (the "Agreement")
is entered into as of October 29, 1998, by and among Digital Solutions, Inc., a 
New Jersey corporation with its principal address at 300 Atrium Drive, Somerset,
New Jersey 08873 ("Digital"), DGAC I, Inc. ("DGACI"), DGAC II, Inc., ("DGACII"),
DGAC III, Inc., ("DGACIII"), DGAC IV, Inc., ("DGACIV"), DGAC VI, Inc.,          
("DGACVI"), DGAC VII, Inc., ("DGACVII"), DGAC VIII, Inc., ("DGACVIII"), DGAC IX,
Inc., ("DGACIX"), and DGAC 10, Inc., ("DGACX"), each a Florida corporation and a
direct wholly-owned subsidiary of Digital with its principal address at 300     
Atrium Drive, Somerset, New Jersey 08873 (collectively, DGACI, DGACII, DGACIII, 
DGACIV, DGACVI, DGACVII, DGACVIII, DGACIX and DGACX are referred to as the      
"Merger Corporations"), TeamStaff Holding Company, Inc. ("THC"), The TeamStaff  
Companies, Inc. ("TSC"), Employer Support Services, Inc. ("ESS"), TeamStaff     
U.S.A., Inc. ("TUSA"), TeamStaff, Inc. ("TSI"), TeamStaff II, Inc. ("TSI II"),  
TeamStaff III, Inc. ("TSI III"), TeamStaff IV, Inc. ("TSIV") and TeamStaff      
Insurance Services, Inc. ("TIS"), each a Florida corporation with its principal 
address at 1211 S. Westshore Blvd., Suite 806, Tampa, Florida 33607             
(collectively, THC, TSC, ESS, TUSA, TSI, TSII, TSIII and TSIV are referred to as
the "TeamStaff Entities"), Warren M. Cason ("WC"), Dorothy C. Cason ("DC"),     
Kirk A. Scoggins ("KS"), Melissa C. Scoggins, as trustee of the Kirk Allan      
Scoggins 1997 Three Year Grantor Retained Annuity Trust, dated July 1, 1997 (the
"WC Trust") and Warren M. Cason, Jr., as trustee of the Dorothy C. Cason 1997   
Three Year Grantor Retained Annuity Trust, dated July 1,1997 (the "DC Trust")   
WC, DC, KS, the KS Trust and the DC Trust are collectively referred to in this  
Agreement as the "Sellers"). Digital, the Merger Corporations, the TeamStaff    
Entities and the Sellers are referred to collectively in this Agreement as the  
"Parties."                                                                      

WITNESSETH

    WHEREAS, the Sellers own all of the issued and outstanding capital
stock of each of the TeamStaff Entities and are desirous of selling such capital
stock to Digital and Digital is desirous of purchasing said capital stock;      

     WHEREAS, the respective boards of directors of Digital, each of the
Merger Corporations and each of the TeamStaff Entities have approved the        
transactions contemplated by this Agreement, as applicable, and have determined 
that it is desirable and in their respective best interests to consummate the   
Mergers described in Section 2(a) below;                                        

   WHEREAS, the Merger Corporations are wholly-owned subsidiaries of
Digital which were formed to merge with and into the TeamStaff Entities;        

       WHEREAS, upon the terms and conditions contained herein, Digital will
acquire all of the outstanding capital stock of the TeamStaff Entities for a    
combination of shares of Common Stock                                           

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of Digital and cash through separate reverse subsidiary mergers of the Merger   
Corporations with and into the TeamStaff Entities;                              

WHEREAS, it is the intention of the Parties that the Mergers  
contemplated herein qualify as tax free reorganizations within the meaning of   
Section 368 (a)(2)(E) of the Code (as defined below);                           

     WHEREAS, the parties have agreed that in the event the transactions
contemplated herein do not qualify as a "tax free" reorganization within the    
meaning of Section 368 of the Code, Digital shall have the right to make, at its
option, an election under Section 338 (h)(10) of the Code and the Sellers shall 
cooperate with Digital in such election.                                        

         NOW THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and       
covenants herein contained, the Parties agree as follows.                       

1. Definitions.                                                                 

 "Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.                                           

         "Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,   
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid  
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and    
fees, including court costs and attorneys' fees and expenses.                   

        "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.                                  

     "Affiliated Group" means any affiliated group within the meaning of
Code Sec. 1504 or any similar group defined under a similar provision of state, 
local or foreign law.                                                           

  "Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,       
action, failure to act, or transaction that forms or could form the basis for   
any specified consequence.                                                      

"Closing" has the meaning set forth in Section 2(b) below.    

 "Closing Date" has the meaning set forth in Section 2(b) below.

"Code" means the Internal Revenue Code of 1986, as amended.   

 "Confidential Information" means any information concerning the
operations, businesses and affairs of either TeamStaff and its Subsidiaries or  
Digital, as the context may require, that is not already generally available to 
the public. Without limiting the foregoing, "Confidential Information" shall    
include marketing and sales information, customer and account lists and pricing 
information, internal forecasts and projections and employee information.       

      "Controlled Group of Corporations" has the meaning set forth in Code
Sec. 1563.                                                                      

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    "Debt Payment" has the meaning set forth in Section 2(d)(v) below.

         "Deferred Intercompany Transaction" has the meaning set forth in Treas.
Reg. Section 1.1502-13.                                                         

        "Digital Authorizations" has the meaning set forth in Section 3(b)(ii)
below.                                                                          

         "Digital Balance Sheet" has the meaning set forth in Section 3(b)(viii)
below.                                                                          

         "Digital Disclosure Schedule" has the meaning set forth in Section 3(b)
below.                                                                          

     "Digital Financial Statements" has the meaning set forth in Section
3(b)(vi)(B) below.                                                              

 "Digital Preferred Shares" has the meaning set forth in Section
3(b)(xii) below.                                                                

"Digital SEC Documents" has the meaning set forth in Section  
3(b)(vi)(A) below.                                                              

         "Digital Shares" means the Common Stock of Digital, par value $.001 per
share.                                                                          

"DGAC I" has the meaning set forth in the preface above.      

"DGAC II" has the meaning set forth in the preface above.     

"DGAC III" has the meaning set forth in the preface above.    

"DGAC IV" has the meaning set forth in the preface above.     

"DGAC VI" has the meaning set forth in the preface above.     

"DGAC VII" has the meaning set forth in the preface above.    

"DGAC VIII" has the meaning set forth in the preface above.   

"DGAC IX" has the meaning set forth in the preface above.     

"DGAC X" has the meaning set forth in the preface above.      

      "Effective Time" has the meaning set forth in Section 2(d)(i) below.

"Employee Benefit Plan" means any (a) nonqualified deferred   
compensation or retirement plan or arrangement which is an Employee Pension     
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement 
which is an Employee Pension Benefit Plan, (c) qualified defined benefit        
retirement plan or arrangement which is an Employee Pension Benefit Plan        
(including any                                                                  

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Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe    
benefit plan or program.                                                        

         "Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2).                                                                           

         "Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec.
3(1).                                                                           

  "Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource    
Conservation and Recovery Act of 1976, and the Occupational Safety and Health   
Act of 1970, each as amended, together with all other laws (including rules,    
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all  
agencies thereof) concerning pollution or protection of the environment, public 
health and safety, or employee health and safety, including laws relating to    
emissions, discharges, releases, or threatened releases of pollutants,          
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes  
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,   
transport, or handling of pollutants, contaminants, or chemical, industrial,    
hazardous, or toxic materials or wastes.                                        

       "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.                                                                        

   "Escrow Agreements" has the meaning set forth in Section 7(a)(xi)
below.                                                                          

  "Escrow Market Price" means the average closing sales price of a
Digital Share on the SmallCap Market of the Nasdaq Stock Market, Inc. for the   
five trading days ending three business days prior to Closing.                  

"ESS" has the meaning set forth in the preface above.         

        "Excess Loss Account" has the meaning set forth in Treas. Reg. Section
1.1502-19.                                                                      

     "Expense Payment" has the meaning set forth in Section 10(k) below.

       "Extremely Hazardous Substance" has the meaning set forth in Sec. 302
of the Emergency Planning and Community Right-to-Know Act of 1986, as amended.  

"Fiduciary" has the meaning set forth in ERISA Sec. 3(21).    

        "Financial Statement" has the meaning set forth in Section 4(f) below.

        "GAAP" means United States generally accepted accounting principles as
in effect from time to time.                                                    

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"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust 
Improvements Act of 1976, as amended.                                           

      "Indemnified Party" has the meaning set forth in Section 8(d) below.

       "Indemnifying Party" has the meaning set forth in Section 8(d) below.

         "Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto, 
and all patents, patent applications, and patent disclosures, together with all 
reissuances, continuations, continuations-in-part, revisions, extensions, and   
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,  
trade names, and corporate names, together with all translations, adaptations,  
derivations, and combinations thereof and including all goodwill associated     
therewith, and all applications, registrations, and renewals in connection      
therewith, (c) all copyrightable works, all copyrights, and all applications,   
registrations, and renewals in connection therewith, (d) all mask works and all 
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and    
development, know-how, formulas, compositions, manufacturing and production     
processes and techniques, technical data, designs, drawings, specifications,    
customer and supplier lists, pricing and cost information, and business and     
marketing plans and proposals), (f) all computer software (including data and   
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).                      

    "Knowledge" means actual knowledge after reasonable investigation.

    "Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or      
unaccrued, whether liquidated or unliquidated, and whether due or to become     
due), including any liability for Taxes.                                        

     "Material Adverse Effect" means any event on or with respect to any
entity which, is materially adverse to the condition (financial or otherwise),  
of the properties, assets (including intangible assets), Liabilities, business, 
results of operations or prospects of such entity.                              

     "Merger Consideration" has the meaning set forth in Section 2(d)(v)
below.                                                                          

       "Merger Corporations" has the meaning set forth in the preface above.

      "Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.                                           

         "Most Recent Financial Statements" has the meaning set forth in Section
4(f) below.                                                                     

     "Most Recent Fiscal Month End" has the meaning set forth in Section
4(f) below.                                                                     

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         "Most Recent Fiscal Year End" has the meaning set forth in Section 4(f)
below.                                                                          

     "Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37).

     "Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).                                                                     

"Party" has the meaning set forth in the preface above.       

"PBGC" means the Pension Benefit Guaranty Corporation.        

"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated 
organization, or a governmental entity (or any department, agency, or political 
subdivision thereof).                                                           

        "Preferred Share Payment" has the meaning set forth in Section 2(d)(v)
below.                                                                          

      "Prohibited Transaction" has the meaning set forth in ERISA Sec. 406
and Code Sec. 4975.                                                             

  "Reportable Event" has the meaning set forth in ERISA Sec. 4043.

"SEC" means the Securities and Exchange Commission.           

"Securities Act" means the Securities Act of 1933, as amended.

         "Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.                                                                        

    "Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,   
and similar liens, (b) liens for Taxes not yet due and payable or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)   
purchase money liens and liens securing rental payments under capital lease     
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.                         

"Sellers" has the meaning set forth in the preface above.     

         "Seller's Debt Schedule" means the schedule of outstanding debt annexed
hereto as Exhibit I which schedule sets forth the name of the debtholder and the
amount of debt owned by each of the TeamStaff Entities to the debtholder.       

     "Sellers' Disclosure Schedule" has the meaning set forth in Section
3(a) below.                                                                     

      "Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the 
power to vote or direct the voting of sufficient securities to elect a majority 
of the directors.                                                               

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 "Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,   
premium, windfall profits, environmental (including taxes under Code Sec. 59A), 
customs duties, capital stock, franchise, profits, withholding, social security 
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,        
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.                                   

       "Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or 
attachment thereto, and including any amendment thereof.                        

        "TeamStaff Disclosure Schedule" has the meaning set forth in Section 4
below.                                                                          

      "TeamStaff Entities" has the meaning set forth in the preface above.

   "TeamStaff Plan" has the meaning set forth in Section 4(t) below.

    "TeamStaff Preferred Shares" means the 1800 issued and outstanding
shares of Preferred Stock of TSV.                                               

   "TeamStaff Shares" means the issued and outstanding shares of the
Common Stock of the TeamStaff Entities.                                         

"THC" has the meaning set forth in the preface above.         

      "Third Party Claim" has the meaning set forth in Section 8(d) below.

"Threshold" has the meaning set forth in Section 8(b) below.  

"TIS" has the meaning set forth in the preface above.         

"TSC" has the meaning set forth in the preface above.         

"TSI" has the meaning set forth in the preface above.         

"TSII" has the meaning set forth in the preface above.        

"TSIII" has the meaning set forth in the preface above.       

"TSIV" has the meaning set forth in the preface above.        

"TSV" has the meaning set forth in Section 7 (a) below.       

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"TUSA" has the meaning set forth in the preface above.        

"USEC" has the meaning set forth in Section 4(x) below.       

2. Basic Transaction.                                                           

     (a) The Mergers. Subject to the terms and conditions of this Agreement, the
Merger Corporations will merge with and into the TeamStaff Entities (each such  
separate merger is referred to as a "Merger" and all of the Mergers collectively
as the "Mergers") at the Effective Time. The TeamStaff Entities shall be the    
corporations surviving the Mergers (sometimes referred to individually as the   
"Surviving Corporation" and collectively as the "Surviving Corporations").      

       (b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Goldstein & DiGioia
LLP at 369 Lexington Avenue in New York, New York, commencing at 9:00 a.m. local
time on the second business day following the satisfaction or waiver of all     
conditions to the obligations of the Parties to consummate the transactions     
contemplated hereby (other than conditions with respect to actions the          
respective Parties will take at the Closing itself) or such other date as       
Digital and the Sellers may mutually determine (the "Closing Date").            

     (c) Deliveries at the Closing. At the Closing, (i) the Sellers will
deliver to Digital the various certificates, instruments, and documents referred
to in Section 7(a) below, (ii) Digital will deliver to the Sellers the various  
certificates, instruments, and documents referred to in Section 7(b) below,     
(iii) each of the Sellers will deliver to Digital stock certificates            
representing all of his or its TeamStaff Shares and TeamStaff Preferred Shares, 
endorsed in blank or accompanied by duly executed stock powers, (iv) Digital    
will deliver to each of the Sellers the consideration specified in Section      
2(d)(v) below and (v) the TeamStaff Entities and the Merger Corporations will   
file with the Secretary of State of Florida articles of merger in the form      
attached hereto as Exhibit F (the "Articles of Merger").                        

(d) Effect of Mergers.                                        

               (i) General. The Mergers shall become effective at the time
(the "Effective Time") the TeamStaff Entities and the Merger  
         Corporations file the Articles of Merger with the Secretary of State of
      the State of Florida. The Mergers shall have the effect set forth in
       the Florida Business Corporation Act. The Surviving Corporations may,
  at any time after the Effective Time, take any action (including
     executing and delivering any document) in the name and on behalf of
      either the TeamStaff Entities or the Merger Corporations in order to
carry out and effectuate the transactions contemplated by this
Agreement.                                                    

                 (ii) Articles of Incorporation. The Articles of Incorporation
       of the Surviving Corporations shall be amended and restated at and as
of the Effective Time to read as did                          

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      the Articles of Incorporation of the Merger Corporations immediately
    prior to the Effective Time (except that the name of the Surviving
Corporations will remain unchanged).                          

                (iii) Bylaws. The Bylaws of the Surviving Corporations shall
        be amended and restated at and as of the Effective Time to read as did
the Bylaws of the Merger Corporations immediately prior to the
         Effective Time (except that the name of the Surviving Corporations will
remain unchanged).                                            

                  (iv) Directors and Officers. (A) The directors and officers of
        the Surviving Corporations at and as of the Effective Time shall be as
follows:                                                      

                                                                [Download Table]

Name                           Title                    
----                           -----                    
                                                        
Donald Kappauf        Chairman/Director                 
Kirk Scoggins         President                         
Donald Kelly          Chief Financial Officer/Secretary/
                      Treasurer                         

                           (B) The current directors of Digital will continue to
      serve in such capacity after the Closing. In addition, Digital shall
    nominate and use its best efforts to cause KS to be elected to the
        Digital Board of Directors for a period of two years from the Closing.
     The Sellers further agree to vote all of the Digital Shares held by
      Sellers, their nominees, affiliates and transferees, in favor of the
         election of all nominees for election to the Digital Board of Directors
       proposed by a majority of the Board of Directors, for a period of two
  years from the Closing. This provision shall not be binding upon
  Digital Shares that are sold by the Sellers either pursuant to a
         registration statement or Rule 144 promulgated by the SEC. In addition,
     Digital hereby agrees that its Board of Directors shall consider in
       good faith the appointment and/or election of a second nominee of the
sellers to its Board of Directors during such two year period.

               (v) Merger Consideration and Debt Payment. At and as of the
         Effective Time, (A) all of the TeamStaff Shares shall be converted into
the right to receive 8,233,334 Digital Shares (the "Merger    
     Consideration"); and (B) Digital shall cause to be paid outstanding
 debt owed by the TeamStaff Entities to the Sellers in an amount
     (including principal and interest up to the date of Closing) not to
        exceed $1,050,000 (the "Debt Payment") in accordance with the Seller's
         Debt Schedule. No TeamStaff Share or TeamStaff Preferred Share shall be
     deemed to be outstanding or to have any rights other than those set
forth above in this Section 2(d)(v) after the Effective Time. 

                The Merger Consideration and Debt Payment shall be allocated
in accordance with Appendix I annexed hereto.                 

              (vi) At and as of the Effective Time, each share of common
         stock, $.001 par value per share of: (A) DGAC I shall be converted into
       one share of common stock, $1.00 par value per share of THC; (B) DGAC
       II shall be converted into one share of common stock, $1.00 par value
     per share of TSC; (C) DGAC III shall be converted into one share of

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      common stock, $1.00 par value per share of ESS; (D) DGAC IV shall be
        converted into one share of common stock, $1.00 par value per share of
      TUSA; (E) DGAC VI shall be converted into one share of common stock,
         $1.00 par value per share of TSII; (F) DGAC VII shall be converted into
         one share of common stock, $1.00 par value per share of TSIII; (G) DGAC
         VIII shall be converted into one share of common stock, $1.00 par value
     per share of TSIV: (H) DGAC IX shall be converted into one share of
        common stock $1.00 par value per share of TSI; and (I) DGAC X shall be
        converted into one share of common stock, $1.00 par value per share of
TIS.                                                          

     (e) Closing of Transfer Records. After the close of business on the
Closing Date, transfers of TeamStaff Shares and TeamStaff Preferred Shares      
outstanding prior to the Effective Time shall not be made on the stock transfer 
books of the Surviving Corporations.                                            

3. Representations and Warranties Concerning the Transaction.                   

        (a) Representations and Warranties of the Sellers. Each of the Sellers
jointly and severally represents and warrants to Digital that the statements    
contained in this Section 3(a) are correct and complete as of the date of this  
Agreement and will be correct and complete as of the Closing Date (as though    
made then and as though the Closing Date were substituted for the date of this  
Agreement throughout this Section 3(a)) with respect to himself or itself,      
except as set forth in the disclosure schedule delivered by the Sellers to      
Digital and attached hereto (the "Sellers' Disclosure Schedule"). Nothing in the
Sellers' Disclosure Schedule shall be deemed adequate to disclose an exception  
to a representation or warranty made herein, however, unless the Sellers'       
Disclosure Schedule identifies the exception with reasonable particularity and  
describes the relevant facts in reasonable detail. The Sellers' Disclosure      
Schedule will be arranged in paragraphs corresponding to the lettered and       
numbered paragraphs contained in this Section 3(a).                             

               (i) Authorization of Transaction. The Seller has full power
and authority (including, if the Seller is a corporation, full
      corporate power and authority) to execute and deliver this Agreement
 and to perform his or its obligations hereunder. This Agreement
     constitutes the valid and legally binding obligation of the Seller,
     enforceable in accordance with its terms and conditions. The Seller
  need not give any notice to, make any filing with, or obtain any
       authorization, consent, or approval of any government or governmental
     agency in order to consummate the transactions contemplated by this
        Agreement other than notice and filings pursuant to (A) the Hart-Scott
        Rodino Act and (B) the Florida Department of Business and Professional
      Regulations and any other required state filings where the TeamStaff
Entities conduct or are registered to conduct business.       

                 (ii) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions   
  contemplated hereby, will (A) violate any constitution, statute,
        regulation, rule, injunction, judgment, order, decree, ruling, charge,
       or other restriction of any government, governmental agency, or court
        to which the Seller is subject or, if the Seller is a corporation, any
provision of its charter or bylaws or (B)                     

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   conflict with, result in a breach of, constitute a default under,
 result in the acceleration of, create in any party the right to
       accelerate, terminate, modify, or cancel, or require any notice under
any agreement, contract, lease, license, instrument, or other 
    arrangement to which the Seller is a party or by which he or it is
bound or to which any of his or its assets is subject.        

                  (iii) Brokers' Fees. The Seller has no Liability or obligation
     to pay any fees or commissions to any broker, finder, or agent with
      respect to the transactions contemplated by this Agreement for which
     Digital could become liable or obligated other than fees payable to
    Raymond James & Associates, Inc. and SunTrust Equitable Securities
Corporation.                                                  

                (iv) Investment. The Seller (A) understands that the Digital
        Shares have not been registered under the Securities Act, or under any
        state securities laws, and are being offered and sold in reliance upon
        federal and state exemptions for transactions not involving any public
         offering, (B) is acquiring the Digital Shares solely for his or its own
account for investment purposes, and not with a view to the   
      distribution thereof, (C) is a sophisticated investor with knowledge
    and experience in business and financial matters, (D) has received
       certain information concerning Digital and has had the opportunity to
   obtain additional information as desired in order to evaluate the
         merits and the risks inherent in holding the Digital Shares, and (E) is
         able to bear the economic risk and lack of liquidity inherent in owning
and holding the Digital Shares.                               

             (v) Ownership of TeamStaff Shares and TeamStaff Preferred
        Shares. The Seller holds of record and owns beneficially the number of
      TeamStaff Shares and/or TeamStaff Preferred Shares set forth next to
       his or its name in Section 4(b) of the TeamStaff Disclosure Schedule,
free and clear of any restrictions on transfer (other than any
   restrictions under the Securities Act and state securities laws),
Taxes, Security Interests, options, warrants, purchase rights,
      contracts, commitments, equities, claims, and demands. Except as set
   forth on Section 3(a)(v) of the Sellers' Disclosure Schedule, the
        Seller is not a party to any option, warrant, purchase right, or other
         contract or commitment that could require the Seller to sell, transfer,
        or otherwise dispose of any capital stock of TeamStaff Entities (other
     than this Agreement). Except as set forth on Section 3(a)(v) of the
       Sellers' Disclosure Schedule, the Seller is not a party to any voting
       trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of TeamStaff.                     

(b) Representations and Warranties of Digital and the Merger  
Corporations. Digital and the Merger Corporations each represent and warrant to 
the Sellers that the statements contained in this Section 3(b) are correct and  
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were       
substituted for the date of this Agreement throughout this Section 3(b)), except
as set forth in the disclosure schedule delivered to the Sellers by Digital and 
attached hereto. Nothing in the Digital Disclosure Schedule shall be deemed     
adequate to disclose an exception to a representation or                        

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warranty made herein, however, unless the Digital Disclosure Schedule identifies
the exception with reasonable particularity and describes the relevant facts in 
reasonable detail. The Digital Disclosure Schedule will be arranged in          
paragraphs corresponding to the lettered and numbered paragraphs contained in   
this Section 3(b).                                                              

                 (i) Organization of Digital and the Merger Corporations. Each
of Digital and the Merger Corporations is a corporation duly  
        incorporated, validly existing, and in good standing under the laws of
the jurisdiction of its incorporation.                        

              (ii) Authorization of Transaction. Each of Digital and the
  Merger Corporations has full power and authority (including full
      corporate power and authority) to execute and deliver this Agreement
      and to perform its obligations hereunder, except for the approval of
    the shareholders and Board of Directors of Digital which approvals
       shall be a condition to Closing. This Agreement constitutes the valid
  and legally binding obligation of each of Digital and the Merger
        Corporations, enforceable in accordance with its terms and conditions.
         Neither Digital nor any of the Merger Corporations need give any notice
    to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to 
       consummate the transactions contemplated by this Agreement other than
      notice and filings pursuant to (A) the Hart-Scott Rodino Act (B) the
     Florida Department of Business and Professional Regulations (C) the
  Nasdaq SmallCap Stock Market with respect to the issuance of the
Digital Shares and (D) the Securities Exchange Act.           

                  (iii) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions   
  contemplated hereby, will (A) violate any constitution, statute,
        regulation, rule, injunction, judgment, order, decree, ruling, charge,
       or other restriction of any government, governmental agency, or court
      to which Digital or any of the Merger Corporations is subject or any
   provision of its charter or bylaws or (B) other than the required
   approval of FINOVA Capital Corporation conflict with, result in a
       breach of, constitute a default under, result in the acceleration of,
    create in any party the right to accelerate, terminate, modify, or
     cancel, or require any notice under any agreement, contract, lease,
   license, instrument, or other arrangement to which Digital or the
        Merger Corporations are a party or by which they are bound or to which
any of their respective assets are subject.                   

                 (iv) Brokers' Fees. Digital has no Liability or obligation to
  pay any fees or commissions to any broker, finder, or agent with
      respect to the transactions contemplated by this Agreement for which
        any Seller could become liable or obligated other than fees payable to
    Raymond James & Associates, Inc. and SunTrust Equitable Securities
Corporation.                                                  

                 (v) Investment. Digital is not acquiring the TeamStaff Shares
        or TeamStaff Preferred Shares with a view to or for sale in connection
         with any distribution thereof within the meaning of the Securities Act.

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             (vi) SEC Documents: Financial Statements. (A) Digital has
      furnished to the Sellers a true and complete copy of each statement,
       report, registration statement (with the prospectus in the form filed
   pursuant to Rule 424 (b) of the Securities Act), definitive proxy
         statement, and other filing filed with the SEC by Digital since January
       1, 1996, and prior to the Effective Time, Digital will have furnished
       the Sellers with true and complete copies of any additional documents
      filed with the SEC by Digital after the date hereof and prior to the
Effective Time (collectively, the "Digital SEC Documents"). In
         addition, Digital has made available to the Sellers all Exhibits to the
     Digital SEC Documents filed prior to the date of this Agreement and
 will promptly make available to the Sellers all exhibits to any
     additional Digital SEC Documents filed prior to the Effective Time.

             (B) All documents required to be filed as exhibits to the
         Digital SEC Documents have been so filed, and all material contracts so
        filed as exhibits are in full force and effect except those which have
       expired in accordance with their terms and neither Digital nor any of
       its Subsidiaries is in material default under such material contracts
         except where such default would not have a Material Adverse Effect upon
       Digital and its Subsidiaries taken as a whole. As of their respective
  filing dates, the Digital SEC Documents complied in all material
       respects with the requirements of the Securities Exchange Act and the
    Securities Act and none of the Digital SEC Documents contained any
         untrue statement of a material fact or omitted to state a material fact
        required to be stated therein or necessary to make the statements made
     therein, in light of the circumstances in which they were made, not
    misleading, except to the extent corrected by a subsequently filed
         Digital SEC Document prior to the date of this Agreement. The financial
     statements of Digital, including the notes thereto, included in the
 Digital SEC Documents (the "Digital Financial Statements") were
      complete and correct in all material respects as of their respective
      dates, completed as to form in all material respects with applicable
         accounting requirements and with the published rules and regulations of
     the SEC with respect thereto as of their respective dates, and have
     been prepared in accordance with GAAP applied on a basis consistent
         throughout the periods indicated and consistent with each other (except
       as may be indicated in the notes thereto or, in the case of unaudited
         statements included in Quarterly Reports on Form 10-Qs, as permitted by
     Form 10-Q promulgated by the SEC). The Digital Financial Statements
   fairly present the consolidated financial condition and operating
     results of Digital and its Subsidiaries at the dates and during the
periods indicated therein (subject, in the case of unaudited  
        statements, to normal, recurring year-end adjustments). There has been
       no change in Digital's accounting policies except as described in the
notes to the Digital Financial Statements.                    

                (vii) No Adverse Changes. Since October 1, 1997, Digital has
    conducted its business in the ordinary course consistent with past
       practice and there has not occurred except as may be described in the
        Digital SEC Documents: (i) any change, event condition (whether or not
    covered by insurance) that has resulted in, or might reasonably be
     expected to result in, a Material Adverse Effect to Digital and its
       Subsidiaries taken as a whole; (ii) any acquisition, sale or transfer
of any material asset of Digital or any of its                

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Subsidiaries other than in the ordinary course of business and
       consistent with past practice; (iii) any change in accounting methods
    or practices (including any change in depreciation or amortization
       policies or rates) by Digital or any revaluation by Digital of any of
  its assets; (iv) any declaration, setting aside, or payment of a
      dividend or other distribution with respect to the Digital Shares or
     any direct or indirect redemption, purchase or other acquisition by
 Digital of any of its shares of capital stock; (v) any material
        contract entered into by Digital, other than in the Ordinary Course of
    Business and as provided to the TeamStaff Entities or any material
         amendment or termination of, or default under, any material contract to
         which Digital is a party or by which it is bound; (vi) any amendment or
      change to Digital's Certificate of Incorporation or Bylaws; or (vii)
      any agreement by Digital or any of its Subsidiaries to do any of the
        things described in the preceding clauses (i) through (vi) (other than
  negotiations with the TeamStaff Entities and its representatives
regarding the transactions contemplated by this Agreement).   

                  (viii) Absence of Undisclosed Liabilities. Except as set forth
 on Section 3(b)(viii) of the Digital Disclosure Schedule to the
Knowledge of Digital, Digital has no material obligations or  
       liabilities of any nature (matured or unmatured, fixed or contingent)
  other than (i) those set forth or adequately provided for in the
       Balance Sheet included in Digital's quarterly Report on Form 10-Q for
    the period ended June 30, 1998 (the "Digital Balance Sheet"), (ii)
       those incurred in the Ordinary Course of Business and not required to
        be set forth in the Digital Balance Sheet in accordance with GAAP, and
   (iii) those incurred in the Ordinary Course of Business since the
Digital Balance Sheet Date and consistent with past practice. 

            (ix) Governmental Authorization. Digital and each of its
  Subsidiaries have obtained each federal, state, county, local or
foreign governmental consent license; permit grant, or other  
      authorization of any government, government agency or court to which
Digital is subject (i) pursuant to which Digital or any of its
     Subsidiaries currently operates or holds any interest in any of its
         properties or (ii) that is required for the operation of Digital of any
       of its Subsidiaries business or the holding of any such interest ((i)
       and (ii) herein collectively called Digital Authorizations"), and all
     of such Digital Authorizations are in full force and effect, except
        where the failure to obtain or have any of such Digital Authorizations
       could not reasonably be expected to have a Material Adverse Effect on
Digital and its Subsidiaries, taken as a whole.               

             (x) Compliance With Laws. To Digital's Knowledge, each of
      Digital and its Subsidiaries has complied with, are not in violation
        of, and have not received any notices of violation with respect to any
  federal, state, local or foreign statute, law or regulation with
       respect to the conduct of its business, or the ownership or operation
      of its business, except for such violations or failures to comply as
       could not be reasonably expected to have a Material Adverse Effect on
Digital and its Subsidiaries, taken as a whole.               

               (xi) Litigation. Except as set forth on Section 3(b)(xi) of
      the Digital Disclosure Schedule, there is no private or governmental
action, suit, proceeding, claim, arbitration                  

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        or investigation pending before any agency, court or tribunal, foreign
or domestic, or, to the Knowledge of Digital or any of its    
        Subsidiaries, threatened against Digital or any of its Subsidiaries or
        any of their respective properties or any of their respective officers
         or directors (in their capacities as such) that, individually or in the
    aggregate, could reasonably be expected to have a Material Adverse
   Effect on Digital. Except as set forth on Section 3(b)(xi) of the
    Digital Disclosure Schedule, there is no judgment, decree or order
    against Digital or any of its Subsidiaries or, to the Knowledge of
       Digital or any of its Subsidiaries, any of their respective directors
         or officers (in their capacities as such) that could prevent, enjoin or
        materially alter or delay any of the transactions contemplated by this
    Agreement, or that could reasonably be expected to have a Material
Adverse Effect on Digital.                                    

                (xii) Capitalization of Digital and the Merger Corporations.
       The entire authorized capital stock of Digital consists of 40,000,000
       Digital Shares and 5,000,000 shares of preferred stock, par value $10
    per share (the "Digital Preferred Shares"). As of October 28, 1998
    there were 19,356,833 Digital Shares issued and outstanding and no
        Digital Preferred Shares issued and outstanding. The entire authorized
         capital stock of each of the Merger Corporations consists of 100 shares
         of common stock, par value $.001 per share, all of which are issued and
     outstanding and are owned, legally and beneficially by Digital. All
        outstanding shares of Digital and each of the Merger Corporations have
been duly authorized and validly issued and are fully paid and
     nonassessable. Digital also has issued and outstanding warrants and
        options as fully described in the Digital's Annual Report on Form 10-K
         for the fiscal year ended September 30, 1997, and Proxy Statement dated
        February 16, 1998 for its Annual Meeting of Shareholders held on March
       18, 1998. Except for options (i) issued or issuable from time to time
         to employees and directors under the Digital option plans, (ii) options
      which may be issued to the Equity Group and options and (iii) 28,000
        options issued to Raymond Jones & Associates, Inc., there are no other
     options, warrants, calls, rights, commitments, or agreements of any
       character to which Digital or any of the Merger Corporations is or by
     which any of them is bound, obligating Digital or any of the Merger
        Corporations to issue, deliver, sell, repurchase or redeem or cause to
        be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of Digital or any of the Merger Corporations or 
       obligating Digital or any of the Merger Corporations to grant, extend
    or enter into any such option, warrant, call, right, commitment or
        agreement. The Digital Shares to be issued pursuant to the Merger will
   be duly authorized, validly issued, fully paid and nonassessable.

         (xiii) Disclosure. The representations and warranties
         contained in this Section 3(b) do not contain any untrue statement of a
        material fact or fail to state any material fact necessary in order to
        make the statements and information contained in this Section 3(b) not
misleading.                                                   

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4. Representations and Warranties Concerning the TeamStaff Entities.            

  The Sellers represent and warrant to Digital that the statements
contained in this Section 4 are correct and complete as of the date of this     
Agreement and will be correct and complete as of the Closing Date (as though    
made then and as though the Closing Date were substituted for the date of this  
Agreement throughout this Section 4), except as set forth in the disclosure     
schedule delivered by the Sellers to Digital on the date hereof and initialed by
the Parties (the "TeamStaff Disclosure Schedule"). Nothing in the TeamStaff     
Disclosure Schedule shall be deemed adequate to disclose an exception to a      
representation or warranty made herein, however, unless the TeamStaff Disclosure
Schedule identifies the exception with reasonable particularity and describes   
the relevant facts in reasonable detail. The TeamStaff Disclosure Schedule will 
be arranged in paragraphs corresponding to the lettered and numbered paragraphs 
contained in this Section 4.                                                    

   (a) Organization, Qualification, and Corporate Power. Each of the
TeamStaff Entities is a corporation duly organized, validly existing, and in    
good standing (or with active status) under the laws of the jurisdiction of its 
incorporation. Each of the TeamStaff Entities is duly authorized to conduct     
business and is in good standing under the laws of each jurisdiction where such 
qualification is required. Each of the TeamStaff Entities has full corporate    
power and authority and all licenses, permits, and authorizations necessary to  
carry on the businesses in which it is engaged and in which it presently        
proposes to engage and to own and use the properties owned and used by it.      
Section 4(a) of the Disclosure Schedule lists the directors and officers of each
of the TeamStaff Entities. The Sellers have delivered to Digital correct and    
complete copies of the charter and bylaws of each of the TeamStaff Entities (as 
amended to date). The minute books (containing the records of meetings of the   
shareholders, the board of directors, and any committees of the board of        
directors), the stock certificate books, and the stock record books of each of  
the TeamStaff Entities are correct and complete in all material respects. None  
of the TeamStaff Entities is in default under or in violation of any provision  
of its charter or bylaws.                                                       

     (b) Capitalization. The entire authorized capital stock of: (i) THC
consists of 10,000 shares of common stock, par value $1.00 per share, of which  
200 shares are issued and outstanding; (ii) TSC consists of (A) 50,000 shares of
common stock, par value $1.00 per share, of which 29,000 shares are issued and  
outstanding and (B) 10,000 shares of preferred stock, par value $1.00 per share,
of which no shares are issued and outstanding; (iii) ESS consists of (A) 10,000 
shares of common stock, par value $1.00 per share, of which 3,800 shares are    
issued and outstanding and (B) 10,000 shares of preferred stock, par value $1.00
per share, of which no shares are issued and outstanding; (iv) TUSA consists of 
(A) 10,000 shares of common stock, par value $1.00 per share, of which 3,800    
shares are issued and outstanding and (B) 10,000 shares of preferred stock, par 
value $1.00 per share, of which no shares are issued and outstanding, (v) TSI   
consists of (A) 10,000 shares of common stock, par value $1.00 per share, of    
which 9,700 shares are issued and outstanding and (B) 10,000 shares of preferred
stock, par value $1.00 per share, of which no shares are issued and outstanding;
(vi) TSII consists of (A) 10,000 shares of common stock, par value $1.00 per    
share, of which 100 shares are issued and outstanding and (B) 10,000 share of   
preferred stock, par value 1.00 per share, of which no shares are issued and    
outstanding;                                                                    

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(vii) TSIII consists of (A) 10,000 shares of common stock, par value $1.00 per  
share, of which 100 shares are issued and outstanding and (B) 10,000 shares of  
preferred stock, par value $1.00 per share, of which no shares are issued and   
outstanding; (viii) TSIV consists of (A) 10,000 shares of common stock, par     
value $1.00 per share, of which 100 shares are issued and outstanding and (B)   
10,000 shares of preferred stock, par value $1.00 per share, of which no shares 
are issued and outstanding; and (iv) TIS consists of (A) 10,000 shares of common
stock, par value $1.00 per share, of which 100 shares are issued and outstanding
and (B) 10,000 shares of preferred stock, par value $1.00 per share, of which no
shares are issued and outstanding.                                              

   All of the issued and outstanding TeamStaff Shares and Team Staff
Preferred Shares have been duly authorized, are validly issued, fully paid, and 
nonassessable, and are held of record by the respective Sellers as set forth on 
Section 4(b) of the TeamStaff Disclosure Schedule. There are no outstanding or  
authorized options, warrants, purchase rights, subscription rights, conversion  
rights, exchange rights, or other contracts or commitments that could require   
any of the TeamStaff Entities to issue, sell, or otherwise cause to become      
outstanding any of its capital stock. There are no outstanding or authorized    
stock appreciation, phantom stock, profit participation, or similar rights with 
respect to any such TeamStaff Entity. There are no voting trusts, proxies, or   
other agreements or understandings with respect to the voting of the capital    
stock of the TeamStaff Entities, except as set forth on Section 4(b) of the     
TeamStaff Disclosure Schedule.                                                  

      (c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will   
(i) violate any constitution, statute, regulation, rule, injunction, judgment,  
order, decree, ruling, charge, or other restriction of any government,          
governmental agency, or court to which any of the TeamStaff Entities is subject 
or any provision of the charter or bylaws of any of the TeamStaff Entities or   
(ii) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,    
modify, or cancel, or require any notice under any agreement, contract, lease,  
license, instrument, or other arrangement to which any of the TeamStaff Entities
is a party or by which it is bound or to which any of its assets is subject (or 
result in the imposition of any Security Interest upon any of its assets). None 
of The TeamStaff Entities needs to give any notice to, make any filing with, or 
obtain any authorization, consent, or approval of any government or governmental
agency in order for the Parties to consummate the transactions contemplated by  
this Agreement other than notices and filings pursuant to the Hart-Scott Rodino 
Act and (B) the Florida Department of Business and Professional Regulation and  
any other required state filings where the TeamStaff Entities conduct or are    
registered to conduct business, except where the failure to give notice, to     
file, or to obtain any authorization, consent, or approval would not have a     
Material Adverse Effect on the TeamStaff Entities take as a whole or on the     
ability of the Parties to consummate the transactions contemplated by this      
Agreement.                                                                      

        (d) Brokers' Fees. None of the TeamStaff Entities has any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with  
respect to the transactions contemplated by this Agreement other than fees      
payable to Raymond James & Associates, Inc. and Sun Trust Equitable Securities  
Corporation.                                                                    

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 (e) Title to Assets. Except as set forth on Section 4(e) of the
TeamStaff Disclosure Schedule, the TeamStaff Entities have good and marketable  
title to, or a valid leasehold interest in, the properties and assets used by   
them, located on their premises, or shown on the Most Recent Balance Sheet or   
acquired after the date thereof, free and clear of all Security Interests,      
except for properties and assets disposed of in the Ordinary Course of Business 
since the date of the Most Recent Balance Sheet.                                

(f) Financial Statements. Attached hereto as Exhibit B are the
following financial statements (collectively the "Financial Statements"): (i)   
audited combined balance sheets and statements of income, changes in            
shareholders' equity, and cash flow as of and for the fiscal years ended        
December 31, 1996 and December 31, 1997 (the "Most Recent Fiscal Year End") for 
the TeamStaff Entities; and (ii) unaudited combined balance sheets and          
statements of income (the "Most Recent Financial Statements") as of and for the 
8 months ended August 31, 1998 (the "Most Recent Fiscal Month End") for the     
TeamStaff Entities. The Financial Statements (including the notes thereto) have 
been prepared in accordance with GAAP applied on a consistent basis throughout  
the periods covered thereby, present fairly the financial condition of the      
TeamStaff Entities as of such dates and the results of operations of the        
TeamStaff Entities for such periods, are correct and complete, and are          
consistent with the books and records of the TeamStaff Entities (which books and
records are correct and complete); provided, however, that the Most Recent      
Financial Statements are subject to normal year-end adjustments (which will not 
be material individually or in the aggregate) and lack footnotes and other      
presentation items.                                                             

      (g) Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End, there has not been any adverse change in the business,  
financial condition, operations, results of operations, or future prospects of  
the TeamStaff Entities taken as a whole. Without limiting the generality of the 
foregoing, since that date:                                                     

        (i) None of the TeamStaff Entities has sold, leased,
     transferred, or assigned any of its assets, tangible or intangible,
         other than for a fair consideration in the Ordinary Course of Business;

             (ii) Except as set forth on Section 4(g) of the TeamStaff
      Disclosure Schedule, none of the TeamStaff Entities has entered into
    any agreement, contract (including, without limitation, employment
  agreements), lease, or license (or series of related agreements,
        contracts, leases, and licenses) either involving more than $50,000 or
outside the Ordinary Course of Business;                      

              (iii) Except as set forth on Section 4(g) of the TeamStaff
         Disclosure Schedule, no party (including any of the TeamStaff Entities)
   has accelerated, terminated, modified, or canceled any agreement,
contract, lease, or license (or series of related agreements, 
       contracts, leases, and licenses) involving more than $50,000 to which
     any of the TeamStaff Entities is a party or by which any of them is
bound;                                                        

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             (iv) Except as set forth on Section 4(g) of the TeamStaff
    Disclosure Schedule none of the TeamStaff Entities has imposed any
   Security Interest upon any of its assets, tangible or intangible;

            (v) Except as set forth on Section 4(g) of the TeamStaff
         Disclosure Schedule none of the TeamStaff Entities has made any capital
expenditure (or series of related capital expenditures) either
         involving more than $50,000 or outside the Ordinary Course of Business;

             (vi) Except as set forth on Section 4(g) of the TeamStaff
         Disclosure Schedule none of the TeamStaff Entities has made any capital
     investment in, any loan to, or any acquisition of the securities or
        assets of, any other Person (or series of related capital investments,
        loans, and acquisitions) either involving more than $20,000 or outside
the Ordinary Course of Business;                              

              (vii) Except as set forth on Section 4(g) of the TeamStaff
    Disclosure Schedule, none of the TeamStaff Entities has issued any
      note, bond, or other debt security or created, incurred, assumed, or
     guaranteed any indebtedness for borrowed money or capitalized lease
        obligation either involving more than $20,000 singly or $50,000 in the
aggregate;                                                    

               (viii) Except as set forth on Section 4(g) of the TeamStaff
    Disclosure Schedule, none of the TeamStaff Entities has delayed or
         postponed the payment of accounts payable and other Liabilities outside
the Ordinary Course of Business;                              

             (ix) Except as set forth on Section 4(g) of the TeamStaff
   Disclosure Schedule, none of the TeamStaff Entities has canceled,
   compromised, waived, or released any right or claim (or series of
  related rights and claims) either involving more than $50,000 or
outside the Ordinary Course of Business;                      

            (x) Except as set forth on Section 4(g) of the TeamStaff
     Disclosure Schedule, none of the TeamStaff Entities has granted any
  license or sublicense of any rights under or with respect to any
Intellectual Property;                                        

             (xi) Except as set forth on Section 4(g) of the TeamStaff
         Disclosure Schedule, there has been no change made or authorized in the
charter or bylaws of any of TeamStaff and its Subsidiaries;   

              (xii) Except as set forth on Section 4(g) of the TeamStaff
       Disclosure Schedule, none of the TeamStaff Entities has issued, sold,
   or otherwise disposed of any of its capital stock, or granted any
     options, warrants, or other rights to purchase or obtain (including
   upon conversion, exchange, or exercise) any of its capital stock;

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               (xiii) Except as set forth on Section 4(g) of the TeamStaff
       Disclosure Schedule, none of the TeamStaff Entities has declared, set
      aside, or paid any dividend or made any distribution with respect to
        its capital stock (whether in cash or in kind) or redeemed, purchased,
         or otherwise acquired any of its capital stock or made any distribution
    of any kind to its shareholders including, without limitation, any
distributions to shareholders for the purpose of paying such  
 shareholders for Subchapter S income Tax Liabilities; provided,
  however, notwithstanding the foregoing, prior to the Closing the
        TeamStaff Entities shall be permitted to make a bonus payment to KS in
the amount of $75,000;                                        

            (xiv) None of the TeamStaff Entities has experienced any
       damage, destruction, or loss (whether or not covered by insurance) to
its property;                                                 

             (xv) Except as set forth on Section 4(g) of the TeamStaff
       Disclosure Schedule, none of the TeamStaff Entities has made any loan
       to, or entered into any other transaction with, any of its directors,
  officers, and employees outside the Ordinary Course of Business;

              (xvi) Except as set forth on Section 4(g) of the TeamStaff
      Disclosure Schedule, none of the TeamStaff Entities has entered into
        any employment contract or collective bargaining agreement, written or
         oral, or modified the terms of any existing such contract or agreement;

               (xvii) Except as set forth on Section 4(g) of the TeamStaff
     Disclosure Schedule, none of the TeamStaff Entities has granted any
     increase in the compensation of any of its directors, officers, and
employees outside the Ordinary Course of Business;            

                (xviii) Except as set forth on Section 4(g) of the TeamStaff
 Disclosure Schedule none of the TeamStaff Entities has adopted,
        amended, modified, or terminated any bonus, profit-sharing, incentive,
      severance, or other plan, contract, or commitment for the benefit of
         any of its directors, officers, and employees (or taken any such action
with respect to any other Employee Benefit Plan);             

              (xix) Except as set forth on Section 4(g) of the TeamStaff
        Disclosure Schedule, none of the TeamStaff Entities has made any other
    change in employment terms for any of its directors, officers, and
employees;                                                    

              (xx) None of the TeamStaff Entities has made or pledged to
         make any charitable or political contribution in excess of an aggregate
of $10,000;                                                   

              (xxi) Except as set forth on Section 4(g) of the TeamStaff
        Disclosure Schedule, there has not been any other material occurrence,
     event, incident, action, failure to act, or transaction outside the
      Ordinary Course of Business involving any of the TeamStaff Entities;
and                                                           

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                 (xxii) None of the TeamStaff Entities has committed to any of
the foregoing.                                                

         (h) Undisclosed Liabilities. To the Knowledge of the Sellers, except as
set forth on Section 4(h) of the TeamStaff Disclosure Schedule, none of the     
TeamStaff Entities has any Liability (and there is no Basis for any present or  
future action, suit, proceeding, hearing, investigation, charge, complaint,     
claim, or demand against any of them giving rise to any Liability), except for  
(i) Liabilities set forth on the face of the Most Recent Balance Sheet (or in   
any notes thereto) or (ii) Liabilities which have arisen after the Most Recent  
Fiscal Month End in the Ordinary Course of Business (none of which results from,
arises out of, relates to, is in the nature of, or was caused by any breach of  
contract, breach of warranty, tort, infringement, or violation of law) or (iii) 
expenditures within the Ordinary Course of Business or which do not exceed      
$20,000 individually or $50,000 in the aggregate.                               

    (i) Legal Compliance. To the Knowledge of the Sellers, each of the
TeamStaff Entities, has complied with all applicable laws (including rules,     
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all  
agencies thereof) except where such non-compliance has not and would not have a 
Material Adverse Effect upon the TeamStaff Entities or their respective         
businesses or operations, taken as a whole, and no action, suit, proceeding,    
hearing, investigation, charge, complaint, claim, demand, or notice has been    
filed or commenced against any of them alleging any failure so to comply. Each  
of the TeamStaff Entities holds all licenses and permits required to be held by 
it under the laws of the State of Florida and counties therein and all other    
jurisdictions in which it operates in order to operate its business as currently
operated and none of the TeamStaff Entities has received any notice, written or 
otherwise, of the initiation of proceedings to revoke any such license or       
permit, except where such failure to hold any such licenses or permits would not
have a Material Adverse Effect on the TeamStaff Entities taken as a whole.      

       (j) Tax Matters. Except as set forth on Section 4(j) of the TeamStaff
Disclosure Schedule:                                                            

                (i) Each of the TeamStaff Entities has filed all Tax Returns
         that it was required to file , and has paid all Taxes shown on such Tax
      Returns as owing, except where the failure to file Tax Returns or to
     pay Taxes would not have a Material Adverse Effect on the TeamStaff
  Entities taken as a whole. All such Tax Returns were correct and
 complete in all material respects. All Taxes owed by any of the
    TeamStaff Entities (or the Sellers as a result of the Subchapter S
       status of any of the TeamStaff Entities) (whether or not shown on any
  Tax Return) have been paid in all material respects. None of the
     TeamStaff Entities currently is the beneficiary of any extension of
         time within which to file any Tax Return. No claim has been made within
         the last three (3) years by an authority in a jurisdiction where any of
        the TeamStaff Entities or any Seller does not file Tax Returns that it
        or he is or may be subject to taxation by that jurisdiction. There are
    no Security Interests on any of the assets of any of the TeamStaff
         Entities that arose in connection with any failure (or alleged failure)
to pay any Tax.                                               

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                 (ii) Each of the TeamStaff Entities has withheld and paid all
     Taxes required to have been withheld (including payroll and related
 taxes) and paid in connection with amounts paid or owing to any
         employee, independent contractor, creditor, shareholder, or other third
party.                                                        

         (iii) Except as set forth on Section 4(j)(iii) of the
     TeamStaff Disclosure Schedule, no Seller or director or officer (or
        employee responsible for Tax matters) of any of the TeamStaff Entities
       has any Knowledge of any expected assessments of any additional Taxes
   for any period for which Tax Returns have been filed. There is no
       dispute or claim concerning any Tax Liability of any of the TeamStaff
      Entities either (A) claimed or raised by any authority in writing or
        (B) as to which any of the Sellers and the directors and officers (and
      employees responsible for Tax matters) of the TeamStaff Entities has
         Knowledge based upon personal contact with any agent of such authority.
      Section 4(j) of the TeamStaff Disclosure Schedule lists all federal,
        state, local, and foreign income Tax Returns filed with respect to any
 of the TeamStaff Entities for taxable periods ended on or after
        December 31, 1995, indicates those Tax Returns that have been audited,
   and indicates those Tax Returns that currently are the subject of
   audit. The Sellers have delivered to Digital correct and complete
    copies of all federal income Tax Returns, examination reports, and
        statements of deficiencies assessed against or agreed to by any of the
TeamStaff Entities since December 31, 1995.                   

                 (iv) None of the TeamStaff Entities has waived any statute of
         limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.                    

                (v) None of the TeamStaff Entities has filed a consent under
   Code Sec. 341(f) concerning collapsible corporations. None of the
    TeamStaff Entities has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain   
       circumstances could obligate it to make any payments that will not be
     deductible under Code Sec. 280G. None of the TeamStaff Entities has
   been a United States real property holding corporation within the
       meaning of Code Sec. 897(c)(2) during the applicable period specified
   in Code Sec. 897(c)(1)(A)(ii). Each of the TeamStaff Entities has
         disclosed on its federal income Tax Returns all positions taken therein
        that could give rise to a substantial understatement of federal income
 Tax within the meaning of Code Sec. 6662. None of the TeamStaff
         Entities is a party to any Tax allocation or sharing agreement. None of
     the TeamStaff Entities (A) has been a member of an Affiliated Group
     filing a consolidated federal income Tax Return (other than a group
         consisting of only the TeamStaff Entities) or (B) has any Liability for
    the Taxes of any Person (other than any of the TeamStaff Entities)
        under Treas. Reg. Section 1.1502-6 (or any similar provision of state,
       local, or foreign law), as a transferee or successor, by contract, or
otherwise.                                                    

              (vi) Section 4(j)(vi) of the TeamStaff Disclosure Schedule
  sets forth the following information with respect to each of the
    TeamStaff Entities as of the most recent practicable date: (A) the
         basis of each TeamStaff Entity in its assets; (B) the amount of any net

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      operating loss, net capital loss, unused investment or other credit,
         unused foreign tax, or excess charitable contribution allocable to such
   TeamStaff Entity; and (C) the amount of any deferred gain or loss
        allocable to TeamStaff Entity arising out of any Deferred Intercompany
Transaction.                                                  

                 (vii) The unpaid Taxes of the TeamStaff Entities (A) did not,
    as of the Most Recent Fiscal Month End, exceed the reserve for Tax
      Liability (rather than any reserve for deferred Taxes established to
      reflect timing differences between book and Tax income) set forth on
     the face of the Most Recent Balance Sheet (rather than in any notes
         thereto) and (B) do not exceed that reserve as adjusted for the passage
         of time through the Closing Date in accordance with the past custom and
 practice of the TeamStaff Entities in filing their Tax Returns.

              (k) Real Property Interests. Section 4(k) of the TeamStaff
Disclosure Schedule lists and describes briefly all real property leased or     
subleased to any of the TeamStaff Entities. The Sellers have delivered to       
Digital correct and complete copies of the leases and subleases listed on       
Section 4(k) of the TeamStaff Disclosure Schedule (as amended to date). With    
respect to each lease and sublease listed in Section 4(k) of the TeamStaff      
Disclosure Schedule, except for matters that do not have a Material Adverse     
Effect on the TeamStaff Entities taken as a whole:                              

                        (A) as regards the TeamStaff Entities the lease or
               sublease is legal, valid, binding, enforceable, and in full
force and effect;                           

                        (B) as regards the TeamStaff Entities the lease or
       sublease will continue to be legal, valid, binding,
                enforceable, and in full force and effect on identical terms
               following the consummation of the transactions contemplated
hereby;                                     

                          (C) to the Seller's Knowledge, no party to the lease
                  or sublease is in material breach or default, and no event has
                  occurred which, with notice or lapse of time, would constitute
       a material breach or default or permit termination,
modification, or acceleration thereunder;   

                          (D) to the Seller's Knowledge, no party to the lease
     or sublease has repudiated any provision thereof;

                          (E) there are no material disputes, oral agreements,
                  or forbearance programs in effect as to the lease or sublease;

                           (F) as regards the TeamStaff Entities with respect to
                  each sublease, the representations and warranties set forth in
               subsections (A) through (E) above are true and correct with
respect to the underlying lease;            

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                      (G) none of the TeamStaff Entities has assigned,
         transferred, conveyed, mortgaged, deeded in trust, or
             encumbered any interest in the leasehold or subleasehold;

                          (H) to the Seller's Knowledge, all facilities leased
          or subleased thereunder have received all approvals of
             governmental authorities (including licenses and permits)
              required in connection with the operation thereof and have
              been operated and maintained in accordance with applicable
laws, rules, and regulations;               

                           (I) all facilities leased or subleased thereunder are
                supplied with utilities and other services necessary for the
operation of said facilities; and           

                     (J) to the Seller's Knowledge, the owner of the
                 facility leased or subleased has good and marketable title to
               the parcel of real property, free and clear of any Security
                  Interest, easement, covenant, or other restriction, except for
            installments of special easements not yet delinquent and
                  recorded easements, covenants, and other restrictions which do
           not impair the current use, occupancy, or value, or the
            marketability of title, of the property subject thereto.

(l) Intellectual Property.                                    

           (i) The TeamStaff Entities own or have the right to use
pursuant to license, sublicense, agreement, or permission all 
        Intellectual Property necessary for the operation of the businesses of
         the TeamStaff Entities as presently conducted and as presently proposed
      to be conducted. Each item of Intellectual Property owned or used by
any of the TeamStaff Entities immediately prior to the Closing
       hereunder will be owned or available for use by such TeamStaff Entity
         on identical terms and conditions immediately subsequent to the Closing
       hereunder, except as set forth on Section 4(l). Each of the TeamStaff
    Entities has taken all reasonably necessary action to maintain and
  protect each item of Intellectual Property that it owns or uses.

                (ii) To the Knowledge of the Sellers, except as set forth in
         Section 4(l) of the TeamStaff Disclosure Schedule none of the TeamStaff
   Entities has interfered with, infringed upon, misappropriated, or
       otherwise come into conflict with any Intellectual Property rights of
       third parties, and none of the Sellers and the directors and officers
       (and employees with responsibility for Intellectual Property matters)
    of the TeamStaff Entities has ever received any charge, complaint,
        claim, demand, or notice alleging any such interference, infringement,
     misappropriation, or violation (including any claim that any of the
        TeamStaff Entities must license or refrain from using any Intellectual
     Property rights of any third party). To the Knowledge of any of the
Sellers and the directors and officers (and employees with    
    responsibility for Intellectual Property matters) of the TeamStaff
Entities, except as set forth in Section 4(l) of the TeamStaff
Disclosure Schedule no third                                  

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party has interfered with, infringed upon, misappropriated, or
       otherwise come into conflict with any Intellectual Property rights of
any of the TeamStaff Entities.                                

                (iii) Section 4(l)(iii) of the TeamStaff Disclosure Schedule
        identifies each patent or registration which has been issued to any of
the TeamStaff Entities with respect to any of its Intellectual
         Property, identifies each pending patent application or application for
        registration which any of the TeamStaff Entities has made with respect
   to any of its Intellectual Property, and identifies each license,
        agreement, or other permission which any of the TeamStaff Entities has
    granted to any third party with respect to any of its Intellectual
        Property (together with any exceptions). The Sellers have delivered to
         Digital correct and complete copies of all such patents, registrations,
    applications, licenses, agreements, and permissions (as amended to
         date) and have made available to Digital correct and complete copies of
      all other written documentation evidencing ownership and prosecution
       (if applicable) of each such item. Section 4(l)(iii) of the TeamStaff
     Disclosure Schedule also identifies each trade name or unregistered
        trademark used by any of the TeamStaff Entities in connection with any
       of its businesses. With respect to each item of Intellectual Property
 required to be identified in Section 4(l)(iii) of the TeamStaff
   Disclosure Schedule and except for matters which would not have a
     Material Adverse Effect on the TeamStaff Entities taken as a whole:

                          (A) The TeamStaff Entities possess all right, title,
          and interest in and to the item, free and clear of any
     Security Interest, license, or other restriction;

                    (B) The item is not subject to any outstanding
           injunction, judgment, order, decree, ruling, or charge;

               (C) No action, suit, proceeding, hearing,
                 investigation, charge, complaint, claim, or demand is pending
           or, to the Knowledge of the Sellers is threatened which
              challenges the legality, validity, enforceability, use, or
ownership of the item; and                  

                           (D) None of the TeamStaff Entities has ever agreed to
         indemnify any Person for or against any interference,
                  infringement, misappropriation, or other conflict with respect
to the item.                                

          (iv) Section 4(l) of the TeamStaff Disclosure Schedule
         identifies each item of Intellectual Property that any third party owns
  and that any of the TeamStaff Entities uses pursuant to license,
     sublicense, agreement, or permission. The Sellers have delivered to
        Digital correct and complete copies of all such licenses, sublicenses,
        agreements, and permissions (as amended to date). With respect to each
    item of Intellectual Property required to be identified in Section
      4(l)(iv) of the TeamStaff Disclosure Schedule and except for matters
 which would not have a Material Adverse Effect on the TeamStaff
Entities taken as a whole:                                    

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                           (A) the license, sublicense, agreement, or permission
                covering the item is legal, valid, binding, enforceable, and
in full force and effect;                   

                           (B) the license, sublicense, agreement, or permission
                  will continue to be legal, valid, binding, enforceable, and in
          full force and effect on identical terms following the
Closing;                                    

                         (C) no party to the license, sublicense, agreement,
           or permission is in breach or default, and no event has
                  occurred which with notice or lapse of time would constitute a
             breach or default or permit termination, modification, or
acceleration thereunder;                    

                         (D) no party to the license, sublicense, agreement,
       or permission has repudiated any provision thereof;

              (E) with respect to each sublicense, the
               representations and warranties set forth in subsections (A)
                  through (D) above are materially true and correct with respect
to the underlying license;                  

                         (F) the underlying item of Intellectual Property is
               not subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;                  

               (G) no action, suit, proceeding, hearing,
                 investigation, charge, complaint, claim, or demand is pending
             or, to the Knowledge of the Sellers and the directors and
                officers (and employees with responsibility for Intellectual
              Property matters) of the TeamStaff Entities, is threatened
                 which challenges the legality, validity, or enforceability of
     the underlying item of Intellectual Property; and

                        (H) none of the TeamStaff Entities has granted any
            sublicense or similar right with respect to the license,
sublicense, agreement, or permission.       

                 (v) To the Knowledge of the Sellers, the use by the TeamStaff
       Entities of their respective Intellectual Property does not interfere
      with, infringe upon, misappropriate, or otherwise come into conflict
        with, any Intellectual Property rights of third parties as a result of
the continue operation of its business as presently conducted.

 (m) Tangible Assets. Except as set forth on Section 4(m) of the
TeamStaff Disclosure Schedule, the TeamStaff Entities own or lease all          
buildings, machinery, equipment, and other tangible assets necessary for the    
conduct of their businesses as presently conducted. Each such tangible asset is 
free from defects (patent and latent), has been maintained in accordance with   
normal industry practice, is in good operating condition and repair (subject to 
normal wear and tear), and is suitable for the purposes for which it presently  
is used with such exceptions as would not have a Material Adverse Effect upon   
the TeamStaff Entities.                                                         

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        (n) Contracts. Section 4(n) of the TeamStaff Disclosure Schedule lists
the following contracts and other agreements to which any of the TeamStaff      
Entities is a party:                                                            

              (i) any agreement (or group of related agreements) for the
      lease of personal property to or from any Person providing for lease
payments in excess of $30,000 per annum;                      

               (ii) any agreement (or group of related agreements) for the
         furnishing or receipt of services, the performance of which will extend
     over a period of more than one year, result in a loss to any of the
      TeamStaff Entities in excess of $30,000, or involve consideration in
excess of $30,000;                                            

                  (iii) any agreement concerning a partnership or joint venture;

             (iv) any agreement (or group of related agreements) under
         which it has created, incurred, assumed, or guaranteed any indebtedness
       for borrowed money, or any capitalized lease obligation, in excess of
         $30,000 or under which it has imposed a Security Interest on any of its
assets, tangible or intangible;                               

   (v) any agreement concerning confidentiality or
noncompetition;                                               

        (vi) any agreement with any of the Sellers and their
Affiliates (other than the TeamStaff Entities);               

                 (vii) any profit sharing, stock option, stock purchase, stock
  appreciation, deferred compensation, severance, or other plan or
 arrangement for the benefit of its current or former directors,
officers, and employees;                                      

(viii) any collective bargaining agreement; 

                (ix) any agreement for the employment of any individual on a
   full-time, part-time, consulting, or other basis providing annual
    compensation in excess of $30,000 or providing severance benefits;

               (x) any agreement under which it has advanced or loaned any
     amount to any of its directors, officers, and employees outside the
Ordinary Course of Business;                                  

                (xi) any agreement under which the consequences of a default
        or termination could have an adverse effect on the business, financial
      condition, operations, results of operations, or future prospects of
any of the TeamStaff Entities; or                             

                  (xii) any other agreement (or group of related agreements) the
   performance of which involves consideration in excess of $30,000.

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The Sellers have delivered to Digital a correct and complete copy of each       
written agreement listed in Section 4(n) of the TeamStaff Disclosure Schedule   
(as amended to date) and a written summary setting forth the terms and          
conditions of each oral agreement referred to in Section 4(n) of the TeamStaff  
Disclosure Schedule. With respect to each such agreement and except for matters 
which would not have a Material Adverse Effect on the TeamStaff Entities taken  
as a whole: (A) as regards the TeamStaff Entities the agreement is legal, valid,
binding, enforceable, and in full force and effect; (B) as regards the TeamStaff
Entities the agreement will continue to be legal, valid, binding, enforceable,  
and in full force and effect on identical terms following the consummation of   
the transactions contemplated hereby; (C) to the Knowledge of the Sellers, no   
party is in breach or default, and no event has occurred which with notice or   
lapse of time would constitute a breach or default, or permit termination,      
modification, or acceleration, under the agreement; and (D) to the Knowledge of 
the Sellers, no party has repudiated any provision of the agreement.            

         (o) Notes and Accounts Receivable. All notes and accounts receivable of
the TeamStaff Entities are reflected properly on their books and records, are   
valid receivables subject to no setoffs or counterclaims, are current and       
collectible, and to the Knowledge of the Sellers will be collected in accordance
with their terms at their recorded amounts subject only to the reserve for bad  
debts set forth on the face of the Most Recent Balance Sheet (rather than in any
notes thereto) as adjusted for the passage of time through the Closing Date in  
accordance with the past custom and practice of the TeamStaff Entities.         

  (p) Powers of Attorney. Section 4(p) of the TeamStaff Disclosure
Schedule sets forth outstanding powers of attorney executed on behalf of any of 
the TeamStaff Entities.                                                         

  (q) Insurance. Section 4(q) of the TeamStaff Disclosure Schedule
contains each insurance policy (including policies providing property, casualty,
liability, and workers' compensation coverage and bond and surety arrangements) 
to which any of the TeamStaff Entities has been a party, a named insured, or    
otherwise the beneficiary of coverage at any time within the past three (3)     
years.                                                                          

         With respect to each such insurance policy and except for matters which
would not have a Material Adverse Effect on the TeamStaff Entities taken as a   
whole, to the Knowledge of the Sellers: (A) the policy is legal, valid, binding,
enforceable, and in full force and effect; (B) the policy will continue to be   
legal, valid, binding, enforceable, and in full force and effect on identical   
terms following the consummation of the transactions contemplated hereby; (C)   
none of the TeamStaff Entities or any other party to the policy is in material  
breach or default (including with respect to the payment of premiums or the     
giving of notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default, or permit termination,         
modification, or acceleration, under the policy; and (D) no party to the policy 
has repudiated any provision thereof. Each of the TeamStaff Entities has been   
covered during the past three (3) years by insurance in scope and amount        
customary and reasonable for the businesses in which it has engaged during the  
aforementioned period.                                                          

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        (r) Litigation. Section 4(r) of the TeamStaff Disclosure Schedule sets
forth each instance in which any of the TeamStaff Entities (i) is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a 
party or to the Knowledge of the Sellers and the directors and officers (and    
employees with responsibility for litigation matters) of any of the TeamStaff   
Entities is threatened to be made a party to any action, suit, proceeding,      
hearing, or investigation of, in, or before any court or quasi-judicial or      
administrative agency of any federal, state, local, or foreign jurisdiction or  
before any arbitrator. Except where the injunction, order, decree, ruling,      
action, suit, proceeding, hearing, or investigation would not have a Material   
Adverse Effect on the TeamStaff Entities taken a whole, none of the actions,    
suits, proceedings, hearings, and investigations set forth in Section 4(r) of   
the TeamStaff Disclosure Schedule could result in any adverse change in the     
business, financial condition, operations, results of operations, or future     
prospects of any of the TeamStaff Entities. None of the Sellers and the         
directors and officers (and employees with responsibility for litigation        
matters) of the TeamStaff Entities has Knowledge of any circumstances that might
reasonably be expected to result in any such action, suit, proceeding, hearing, 
or investigation which may be brought or threatened against any of the TeamStaff
Entities.                                                                       

         (s) Employees. To the Knowledge of any of the Sellers and the directors
and officers (and employees with responsibility for employment matters) of the  
TeamStaff Entities, no executive, key employee, or group of employees has any   
plans to terminate employment with any of the TeamStaff Entities. None of the   
TeamStaff Entities is a party to or bound by any collective bargaining          
agreement, nor has any of them experienced any strikes, grievances, claims of   
unfair labor practices, or other collective bargaining disputes. To the         
Knowledge of the Sellers, none of the TeamStaff Entities has committed any      
unfair labor practice. None of the Sellers and the directors and officers (and  
employees with responsibility for human resource matters) has any Knowledge of  
any organizational effort presently being made or threatened by or on behalf of 
any labor union with respect to employees of any of the TeamStaff Entities.     

(t) Employee Benefits.                                        

  (i) Section 4(t) of the TeamStaff Disclosure Schedule lists each
     Employee Benefit Plan that any TeamStaff Entity has established and
        maintains for the benefit of the employees of such TeamStaff Entity or
        to which any TeamStaff Entity contributes on behalf of the employee of
        such TeamStaff Entity (collectively, the "TeamStaff Plan"), and except
    as set forth on Section 4(t) of the TeamStaff Disclosure Schedule:

                      (A) Each TeamStaff Plan (and each related trust,
                  insurance contract, or fund) complies in form and in operation
                in all material respects with the applicable requirements of
ERISA, the Code, and other applicable laws. 

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                          (B) All required reports and descriptions (including
               Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's,
                 and Summary Plan Descriptions) have been filed or distributed
                  appropriately with respect to each such Employee Benefit Plan.
                The requirements of Part 6 of Subtitle B of Title I of ERISA
                  and of Code Sec. 4980B have been met with respect to each such
            TeamStaff Plan that is an Employee Welfare Benefit Plan.

                   (C) All contributions (including all employer
              contributions and employee salary reduction contributions)
                  which are due have been paid to each such TeamStaff Plan which
                 is an Employee Pension Benefit Plan and all contributions for
                 any period ending on or before the Closing Date which are not
                yet due have been paid to each such Employee Pension Benefit
          Plan or accrued in accordance with the past custom and
             practice of the TeamStaff Entities. All premiums or other
                 payments for all periods ending on or before the Closing Date
                 have been paid with respect to each such TeamStaff Plan which
is an Employee Welfare Benefit Plan.        

                          (D) Each TeamStaff Plan which is an Employee Pension
           Benefit Plan has received, within the last two years, a
            favorable determination letter from the Internal Revenue
                Service to the effect that it meets the requirements of Code
Sec. 401 (a).                               

                          (E) None of the TeamStaff Entities or the Controlled
             Group of Corporations which included any of the TeamStaff
             Entities currently sponsors or contributes to or has ever
                 sponsored or contributed to any Employee Benefit Plan that is
subject to Title IV of ERISA.               

                           (F) The Sellers have delivered to Digital correct and
          complete copies of the plan documents and summary plan
               descriptions, the most recent determination letter received
                from the Internal Revenue Service, the most recent Form 5500
              Annual Report, and all related trust agreements, insurance
                contracts, and other funding agreements which implement each
TeamStaff Plan.                             

              (ii) To the Knowledge of any of the Sellers, no Prohibited
                 Transactions have occurred with respect to any TeamStaff Plan
              and no Fiduciary has any Liability for breach of fiduciary
                 duty or any other failure to act or comply in connection with
         the administration or investment of the assets of any
           TeamStaff Plan. No action, suit, proceeding, hearing or
           investigation with respect to the administration or the
              investment of the assets of any TeamStaff Plan (other than
                routine claims for benefits) is pending or, to the Knowledge
           of the Sellers, threatened. None of the Sellers (or any
          officer with responsibility for ERISA matters) has any
Knowledge                                   

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                               of any Basis for any such action, suit,
                             proceeding, hearing or investigation.

                     (A) No such TeamStaff Plan which is an Employee
                Pension Benefit Plan (other than any Multiemployer Plan) has
                  been completely or partially terminated or been the subject of
                  a Reportable Event as to which notices would be required to be
               filed with the PBGC. No proceeding by the PBGC to terminate
          any such Employee Pension Benefit Plan (other than any
                  Multiemployer Plan) has been instituted or to the Knowledge of
the Sellers threatened.                     

                         (B) There have been no Prohibited Transactions with
            respect to any such TeamStaff Plan. No Fiduciary has any
                  Liability for breach of fiduciary duty or any other failure to
          act or comply in connection with the administration or
           investment of the assets of any such TeamStaff Plan. No
            action, suit, proceeding, hearing, or investigation with
                 respect to the administration or the investment of the assets
             of any such TeamStaff Plan (other than routine claims for
            benefits) is pending or to the Knowledge of the Sellers,
threatened.                                 

                          (C) None of the TeamStaff Entities has incurred, and
               none of the Sellers (or any officer with responsibility for
                ERISA matters) has Knowledge of any circumstances that might
            reasonably be expected to result in any of the TeamStaff
                  Entities incurring, any Liability to the PBGC (other than PBGC
          premium payments) or otherwise under Title IV of ERISA
               (including any withdrawal Liability) or under the Code with
           respect to any such TeamStaff Plan which is an Employee
Pension Benefit Plan.                       

                 (iii) Other than the Multiemployer Plans set forth on Section
       4(t)(iii) of the TeamStaff Disclosure Schedule, none of the TeamStaff
         Entities, and the other members of the Controlled Group of Corporations
that includes the TeamStaff Entities contributes to, ever has 
contributed to, or ever has been required to contribute to any
Multiemployer Plan or has any Liability (including withdrawal 
Liability) under any Multiemployer Plan.                      

              (iv) None of the TeamStaff Entities maintains, or ever has
   maintained or contributes, ever has contributed, or ever has been
       required to contribute to any Employee Welfare Benefit Plan providing
       medical, health, or life insurance or other welfare-type benefits for
      current or future retired or terminated employees, their spouses, or
   their dependents (other than in accordance with Code Sec. 4980B).

  (u) Guaranties. None of the TeamStaff Entities is a guarantor or
otherwise is liable for any Liability or obligation (including indebtedness) of 
any other Person.                                                               

(v) Environment, Health, and Safety.                          

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              (i) To the Knowledge of the Sellers, each of the TeamStaff
         Entities, and their respective predecessors and Affiliates has complied
       with all Environmental, Health, and Safety Laws, and no action, suit,
       proceeding, hearing, investigation, charge, complaint, claim, demand,
        or notice has been filed or commenced against any of them alleging any
        failure to so comply. Without limiting the generality of the preceding
sentence, each of the TeamStaff Entities, and their respective
      predecessors and Affiliates has obtained and been in compliance with
     all of the terms and conditions of all permits, licenses, and other
    authorizations which are required under, and has complied with all
       other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are
contained in, all Environmental, Health, and Safety Laws.     

               (ii) To the Knowledge of the Sellers, none of the TeamStaff
     Entities has any Liability (and none of the TeamStaff Entities, and
         their respective predecessors and Affiliates has handled or disposed of
        any substance, arranged for the disposal of any substance, exposed any
         employee or other individual to any substance or condition, or owned or
     operated any property or facility in any manner that could form the
    Basis for any present or future action, suit, proceeding, hearing,
       investigation, charge, complaint, claim, or demand against any of the
    TeamStaff Entities giving rise to any Liability) for damage to any
   site, location, or body of water (surface or subsurface), for any
       illness of or personal injury to any employee or other individual, or
 for any reason under any Environmental, Health, and Safety Law.

                 (iii) To the Knowledge of the Sellers, except as set forth in
       Section 4(v) of the TeamStaff Disclosure Schedule, all properties and
     equipment used in the business of the TeamStaff Entities, and their
    respective predecessors and Affiliates have been free of asbestos,
PCB's, methylene chloride, trichloroethylene,                 
   1,2-trans-dichloroethylene, dioxins, dibenzofurans, and Extremely
Hazardous Substances.                                         

        (w) Certain Business Relationships with the TeamStaff Entities. Except
as set forth on Section 4(w) of the TeamStaff Disclosure Schedule, none of the  
Sellers and their Affiliates has been involved in any business arrangement or   
relationship with any of the TeamStaff Entities within the past 12 months, and  
none of the Sellers and their Affiliates owns any asset, tangible or intangible,
which is used in the business of any of the TeamStaff Entities.                 

     (x) USEC Litigation. The Sellers have delivered to Digital true and
correct copies of all material documents related to the United States Employer  
Consumer Self Insurance Fund of Florida and the United States Employer Consumer 
Self Insurance Fund of Georgia, (collectively "USEC") including agreements among
the participants in USEC, complaints in any litigation or administrative        
proceedings, answers, motions and rulings and reports of consultants to the     
TeamStaff Entities, related to the USEC litigation. The ultimate liability of   
the TeamStaff Entities with respect to USEC will not exceed $391,000, which is  
the amount of the reserve appearing in the Financial Statements of the TeamStaff
Entities delivered to Digital.                                                  

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         (y) CIGNA Medical Program Claims. The Sellers have delivered to Digital
all material documents related to the CIGNA medical insurance program. The      
ultimate liability of the TeamStaff Entities with respect to the CIGNA medical  
insurance program will not exceed $79,384 which is the amount of the reserve for
such liability appearing in the Financial Statements of the TeamStaff Entities  
delivered to Digital.                                                           

      (z) Disclosure. The representations and warranties contained in this
Section 4 do not contain any untrue statement of a material fact or omit to     
state any material fact necessary in order to make the statements and           
information contained in this Section 4 not misleading.                         

5. Pre-Closing Covenants. The Parties agree as follows with respect to the      
period between the execution of this Agreement and the Closing.                 

      (a) General. Each of the Parties will use his or its reasonable best
efforts to take all action and to do all things necessary, proper, or advisable 
in order to consummate and make effective the transactions contemplated by this 
Agreement (including satisfaction, but not waiver, of the closing conditions set
forth in Section 7 below).                                                      

      (b) Notices and Consents. The Sellers will use their reasonable best
efforts to cause each of the TeamStaff Entities to give any notices to third    
parties, and will cause each of the TeamStaff Entities to use its reasonable    
best efforts to obtain any third-party consents, that Digital may request in    
connection with the matters referred to in Section 4(c) above. Each of the      
Parties will (and the Sellers will cause each of the TeamStaff Entities to) give
any notices to, make any filings with, and use its reasonable best efforts to   
obtain any authorizations, consents, and approvals of governments and           
governmental agencies in connection with the matters referred to in Section     
3(a)(ii), Section 3(b)(ii), and Section 4(c) above. Without limiting the        
generality of the foregoing, each of the Parties will file (and the Sellers will
cause each of the TeamStaff Entities to file) any (i) Notification and Report   
Forms and related material that he or it may be required to file with the       
Federal Trade Commission and the Antitrust Division of the United States        
Department of Justice under the Hart-Scott-Rodino Act, will use his or its      
reasonable best efforts to obtain (and the Sellers will cause each of the       
TeamStaff Entities to use its reasonable best efforts to obtain) an early       
termination of the applicable waiting period, and will make (and the Sellers    
will cause each of the TeamStaff Entities to make) any further filings pursuant 
thereto that may be necessary proper, or advisable in connection therewith and  
(ii) any notices or applications to the Florida Department of Business and      
Professional Regulation and any other required state filings where the TeamStaff
Entities conduct, or are registered or licensed to conduct, business.           

        (c) Operation of Business. The Sellers will not cause or permit any of
the TeamStaff Entities to engage in any practice, take any action, or enter into
any transaction outside the Ordinary Course of Business. Without limiting the   
generality of the foregoing, the Sellers will not cause or permit any of the    
TeamStaff Entities to (i) declare, set aside, or pay any dividend or make any   
distribution with respect to its capital stock or redeem, purchase, or otherwise
acquire any of its capital stock, (ii) otherwise engage in any practice, take   
any action, or enter into any                                                   

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transaction of the sort described in Section 4(h) above, except repayment of any
third party loans outstanding in accordance with their terms (there being no    
voluntary prepayment by the TeamStaff Entities) or (iii) make any distributions 
(including without limitation, payments intended to fund Tax Liabilities of the 
Sellers) to Sellers except for normal and ordinary payment of salary to KS and a
one time payment of $75,000 prior to Closing.                                   

  (d) Preservation of Business. The Sellers will cause each of the
TeamStaff Entities to keep its business and properties substantially intact,    
including its present operations, physical facilities, working conditions, and  
relationships with lessors, licensors, suppliers, customers and employees.      

        (e) Full Access. Each of the Sellers will permit, and the Sellers will
cause each of the TeamStaff Entities to permit, representatives of Digital to   
have full access at all reasonable times, and in a manner so as not to interfere
with the normal business operations of the TeamStaff Entities to all premises,  
properties, personnel, books, records (including Tax records), contracts, and   
documents of or pertaining to each of the TeamStaff Entities.                   

    (f) Notice of Developments. (i) The Parties shall notify the other
Parties in writing of any development causing a breach of any of the            
representations and warranties contained in this Agreement. Unless the          
non-breaching Party has the right to terminate this Agreement pursuant to       
Section 9(a)(v) below by reason of the development and exercises that right     
within the period of 10 business days referred to in Section 9(a) (v) below, the
written notice pursuant to this Section 5(f)(i) will be deemed to have amended  
the applicable disclosure schedule, to have qualified the representations and   
warranties contained in this Agreement, and to have cured any misrepresentation 
or breach of warranty that otherwise might have existed under this Agreement by 
reason of the development.                                                      

                 (ii) Each Party will give prompt written notice to the others
of any material adverse development causing a breach of any of his or its own   
representations and warranties in Sections 3 and 4 above.                       

     (g) Exclusivity. None of the Sellers will (and the Sellers will not
cause or permit any of the TeamStaff Entities to) (i) solicit, initiate, or     
encourage the submission of any proposal or offer from any Person relating to   
the acquisition of any capital stock or other voting securities, or any         
substantial portion of the assets of, any of the TeamStaff Entities (including  
any acquisition structured as a merger, consolidation, or share exchange) or    
(ii) participate in any discussions or negotiations regarding, furnish any      
information with respect to, assist or participate in, or facilitate in any     
other manner any effort or attempt by any Person to do or seek any of the       
foregoing. None of the Sellers will vote their TeamStaff Shares in favor of any 
such acquisition structured as a merger, consolidation, or share exchange. The  
Sellers will notify Digital in writing immediately if any Person makes any      
proposal, offer, inquiry, or contact with respect to any of the foregoing.      

6. Post-Closing Covenants. The Parties agree as follows with respect to the     
period following the Closing.                                                   

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       (a) General. In case at any time after the Closing any further action
is necessary to carry out the purposes of this Agreement, each of the Parties   
will take such further action (including the execution and delivery of such     
further instruments and documents) as any other Party reasonably may request,   
all at the sole cost and expense of the requesting Party (unless the requesting 
Party is entitled to indemnification therefor under Section 8 below). The       
Sellers acknowledge and agree that from and after the Closing Digital will be   
entitled to possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to the TeamStaff Entities;  
provided, however, that, after Closing, Digital shall provide the Sellers with  
reasonable access to and the right to copy such documents, books, records       
(including Tax records), agreements, and financia1 data where the Sellers have a
legitimate purpose including without limitation in the event of an Internal     
Revenue Service audit.                                                          

   (b) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,       
hearing, investigation, charge, complaint, claim, or demand in connection with  
(i) any transaction contemplated under this Agreement or (ii) any fact,         
situation, circumstance, status, condition, activity, practice, plan,           
occurrence, event, incident, action, failure to act, or transaction on or prior 
to the Closing Date involving any of the TeamStaff Entities, each of the other  
Parties will cooperate with him or it and his or its counsel in the contest or  
defense, make available their personnel, and provide such testimony and access  
to their books and records as shall be necessary in connection with the contest 
or defense, all at the sole cost and expense of the contesting or defending     
Party (unless the contesting or defending Party is entitled to indemnification  
therefor under Section 8 below).                                                

  (c) Transition. None of the Sellers will take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,   
customer, supplier, or other business associate of any of the TeamStaff Entities
from maintaining the same business relationships with the TeamStaff Entities    
after the Closing as it maintained with the TeamStaff Entities prior to the     
Closing. Each of the Sellers will refer all customer inquiries relating to the  
businesses of the TeamStaff Entities to Digital or the Surviving Corporation    
from and after the Closing.                                                     

     (d) Confidentiality. (i) Each of the Sellers will treat and hold as
such all of the Confidential Information, refrain from using any of the         
Confidential Information except in connection with this Agreement, and deliver  
promptly to Digital or destroy, at the request and option of Digital, all       
tangible embodiments (and all copies) of the Confidential Information which are 
in his or its possession. In the event that any of the Sellers is requested or  
required (by oral question or request for information or documents in any legal 
proceeding, interrogatory, subpoena, civil investigative demand, or similar     
process) to disclose any Confidential Information, such Seller will notify      
Digital promptly of the request or requirement so that Digital may seek an      
appropriate protective order or waive compliance with the provisions of this    
Section 6(d). If, in the absence of a protective order or the receipt of a      
waiver hereunder, any of the Sellers is, on the advice of counsel, compelled to 
disclose any Confidential Information to any tribunal or else stand liable for  
contempt, such Seller may disclose the Confidential Information to the tribunal;
provided, however, that the disclosing Seller shall use his or its reasonable   
best efforts to obtain, at the                                                  

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reasonable request of Digital, (and at the expense of Digital) an order or other
assurance that confidential treatment will be accorded to such portion of the   
Confidential Information required to be disclosed as Digital shall designate.   
The foregoing provisions shall not apply to any Confidential Information which  
is generally available to the public immediately prior to the time of           
disclosure.                                                                     

                 (ii) Digital and its Subsidiaries will treat and hold as such
all of the Confidential Information, refrain from using any of the Confidential 
Information except in connection with this Agreement, and deliver promptly to   
the Sellers or destroy, at the request and option of the Sellers, all tangible  
embodiments (and all copies) of the Confidential Information which are in its   
possession. In the event that Digital or any its Subsidiaries is requested or   
required (by oral question or request for information or documents in any legal 
proceeding, interrogatory, subpoena, civil investigative demand, or similar     
process) to disclose any Confidential Information, that Seller will notify      
Digital promptly of the request or requirement so that the Sellers may seek an  
appropriate protective order or waive compliance with the provisions of this    
Section 6(d). If, in the absence of a protective order or the receipt of a      
waiver hereunder, Digital or any of its Subsidiaries is, on the advice of       
counsel, compelled to disclose any Confidential Information to any tribunal or  
else stand liable for contempt, that Digital and its Subsidiaries may disclose  
the Confidential Information to the tribunal; provided, however, Digital and its
Subsidiaries shall use their reasonable best efforts to obtain, at the          
reasonable request of the Sellers, (and at the expense of Sellers) an order or  
other assurance that confidential treatment will be accorded to such portion of 
the Confidential Information required to be disclosed as the Sellers shall      
designate. The foregoing provisions shall not apply to any Confidential         
Information which is generally available to the public immediately prior to the 
time of disclosure.                                                             

       (e) Covenant Not to Compete. For a period of three (3) years from and
after the Closing Date, WC will not engage directly or indirectly in any        
business that any of the TeamStaff Entities conducts as of the Closing Date in  
any geographic area in which any of the TeamStaff Entities conducts that        
business as of the Closing Date; provided, however, that no owner of less than  
1% of the outstanding stock of any publicly traded corporation shall be deemed  
to engage solely by reason thereof in any of its businesses. If the final       
judgment of a court of competent jurisdiction declares that any term or         
provision of this Section 6(e) is invalid or unenforceable, the Parties agree   
that the court making the determination of invalidity or unenforceability shall 
have the power to reduce the scope, duration, or area of the term or provision, 
to delete specific words or phrases, or to replace any invalid or unenforceable 
term or provision with a term or provision that is valid and enforceable and    
that comes closest to expressing the intention of the invalid or unenforceable  
term or provision, and this Agreement shall be enforceable as so modified after 
the expiration of the time within which the judgment may be appealed. In        
addition, certain key employees of TeamStaff listed on Exhibit J to this        
Agreement shall enter into non-competition agreements substantially in form of  
Exhibit C annexed hereto with Digital that for a period of two years from the   
termination of their employment they will not engage directly or indirectly in  
any business that any of the TeamStaff Entities conducts as of the Closing Date 
in the states of Florida, Georgia, New Jersey, New York or Texas; provided,     
however, that no owner of less than 1% of the                                   

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outstanding stock of any publicly traded corporation shall be deemed to engage  
solely by reason thereof in any of its businesses.                              

7. Conditions to Obligation to Close.                                           

       (a) Conditions to Obligation of Digital. The obligation of Digital to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:                         

               (i) the representations and warranties set forth in Section
    3(a) and Section 4 above shall be true and correct in all material
respects at and as of the Closing Date;                       

                  (ii) the Sellers shall have performed and complied with all of
         their covenants hereunder in all material respects through the Closing;

               (iii) the TeamStaff Entities shall have procured all of the
third party consents specified in Section 5(b) above;         

           (iv) no action, suit, or proceeding shall be pending or
        threatened before any court or quasi-judicial or administrative agency
     of any federal, state, local, or foreign jurisdiction or before any
        arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
   transactions contemplated by this Agreement, (B) cause any of the
       transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of Digital to own
       TeamStaff Shares and to control the TeamStaff Entities, or (D) affect
        adversely the right of any of the TeamStaff Entities to own its assets
         and to operate its businesses (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);                

                 (v) the Sellers shall have delivered to Digital a certificate
      to the effect that each of the conditions specified above in Section
7(a)(i)-(iv) is satisfied in all respects;                    

           (vi) all applicable waiting periods (and any extensions
  thereof) under the Hart-Scott - Rodino Act shall have expired or
         otherwise been terminated and the Parties shall have received all other
         authorizations, consents, and approvals of governments and governmental
  agencies referred to in Section 3(a)(ii), Section 3(b)(iii), and
Section 4(c) above;                                           

              (vii) Digital and KS shall have entered into an employment
  agreement substantially in the form annexed hereto as Exhibit A;

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                  (viii) Digital shall have received from counsel to the Sellers
     an opinion in form and substance as set forth in Exhibit D attached
 hereto, addressed to Digital, and dated as of the Closing Date;

                (ix) Digital shall have received the resignations, effective
  as of the Closing, of each director and officer of the TeamStaff
        Entities other than those whom Digital shall have specified in writing
at least five business days prior to the Closing;             

            (x) Digital shall have obtained, on terms and conditions
       satisfactory to it, all of the financing it needs in an amount of not
less than $4,500,000 in order to consummate the transactions  
      contemplated hereby and fund the working capital requirements of the
TeamStaff Entities after the Closing;                         

                 (xi) Digital shall have received from the Sellers one or more
         duly executed escrow agreements (collectively the "Escrow Agreements"),
      substantially in the form of Exhibit H annexed hereto, together with
      stock certificates and stock powers properly executed, to effect the
        following: (i) in order to provide security for payment by the Sellers
of any Adverse Consequences for which Digital is entitled to  
        indemnification for the breach of any representation or warranty other
       than as set forth in clause (ii) below, such number of Digital Shares
    received by the Sellers as Merger Consideration as shall equal the
        quotient determined by dividing $525,000 by the Escrow Market Price of
       the Digital Shares; and (ii) in order to provide security for payment
    by the Sellers of any Adverse Consequences (except for the initial
      $50,000 of legal fees incurred by Digital and the TeamStaff Entities
    after the Closing for settlement of the USEC litigation) for which
       Digital is entitled to indemnification with respect to amounts (A) in
         excess of the reserve for USEC as set forth on the Financial Statements
        of the TeamStaff Entities, and (B) with respect to liability emanating
        from the CIGNA medical insurance policy, such number of Digital Shares
    received by the Sellers as Merger Consideration as shall equal the
        quotient determined by dividing $600,000 by the Escrow Market Price of
the Digital Shares.                                           

       (xii) Digital shall have received properly executed
       non-competition agreements and employment agreements from the persons
listed on Exhibit J;                                          

             (xiii) Digital shall have received from Sun Trust Bank of
     Tampa Bay confirmation that all loans and debt owed to it have been
 repaid in full and Sun Trust Bank of Tampa Bay has released all
       security interests and liens against the TeamStaff Entities and their
respective assets;                                            

            (xiv) Digital and KS shall have entered into one or more
       agreements whereby Digital and KS have agreed that debt owed by KS to
         the TeamStaff Entities in the amount of $135,000 shall be forgiven over
         a period of two years, one-half being forgiven on the first anniversary
        of the Closing and the remaining one-half being forgiven on the second
         anniversary of the Closing and provided KS is then employed by Digital.

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        (xv) Digital shall have received the approval of its
     shareholders for the transactions contemplated herein in accordance
         with the Business Corporation Act of New Jersey and the approval of its
Board of Directors;                                           

                (xvi) Digital, its wholly owned Subsidiary DGAC V, TeamStaff
      V, Inc. ("TSV")and the Sellers shall have entered into an agreement,
       substantially in the form of this Agreement and upon such other terms
       as are mutually satisfactory to the Parties, providing for the merger
of DGAC V with and into TSV.                                  

              (xvii) Digital shall have received a written waiver of all
       claims from employees of the TeamStaff Entities for any compensation,
     bonus or other payments which may have been promised or due to such
employees for the transactions contemplated herein.           

                (xviii) all actions to be taken by the Sellers in connection
   with consummation of the transactions contemplated hereby and all
      certificates, opinions, instruments, and other documents required to
     effect the transactions contemplated hereby will be satisfactory in
form and substance to Digital.                                

Digital may waive any condition specified in this Section 7(a) if it executes a 
writing so stating at or prior to the Closing.                                  

    (b) Conditions to Obligation of the Sellers. The obligation of the
Sellers to consummate the transactions to be performed by them in connection    
with the Closing is subject to satisfaction of the following conditions:        

               (i) the representations and warranties set forth in Section
         3(b) above shall be true and correct in all material respects at and as
of the Closing Date;                                          

                 (ii) Digital and the Merger Corporations shall have performed
  and complied with all of its covenants hereunder in all material
respects through the Closing;                                 

            (iii) no action, suit, or proceeding shall be pending or
        threatened before any court or quasi-judicial or administrative agency
     of any federal, state, local, or foreign jurisdiction or before any
        arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
     transactions contemplated by this Agreement or (B) cause any of the
       transactions contemplated by this Agreement to be rescinded following
        consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect);                                

                  (iv) Digital shall have delivered to the Sellers a certificate
      to the effect that each of the conditions specified above in Section
7(b)(i)-(iii) is satisfied in all respects;                   

          (v) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or
         otherwise been terminated and the Parties shall have received all other
         authorizations, consents, and approvals of governments and governmental
         agencies referred to in Section 3(a)(ii), Section 3(b)(ii), and Section
4(c) above;                                                   

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             (vi) Digital and KS shall have entered into an employment
  agreement substantially in the form annexed hereto as Exhibit A;

                 (vii) the Sellers shall have received from counsel to Digital
     and the Merger Corporations an opinion in form and substance as set
         forth in Exhibit E attached hereto, addressed to the Sellers, and dated
as of the Closing Date;                                       

               (viii) Digital shall have executed and delivered to each of
        the Sellers the Registration Rights Agreement in the form of Exhibit F
with respect to the Digital Shares;                           

               (ix) Digital shall have delivered to each Seller the Merger
     Consideration, and the Debt Payment and shall have made the Expense
Payment;                                                      

          (x) Digital and KS shall have entered into one or more
       agreements whereby Digital and KS have agreed that debt owed by KS to
         the TeamStaff Entities in the amount of $135,000 shall be forgiven over
         a period of two years, one-half being forgiven on the first anniversary
        of the Closing and the remaining one-half being forgiven on the second
         anniversary of the Closing and provided KS is then employed by Digital.

                  (xii) Digital, its wholly owned subsidiary DGAC V, TSV and the
         Sellers shall have entered into an agreement, substantially in the form
of this Agreement and upon such other terms as are mutually   
      satisfactory to the Parties, providing for the merger of DGAC V with
and into TSV.                                                 

                (xiii) all actions to be taken by Digital in connection with
consummation of the transactions contemplated hereby and all  
      certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Sellers.            

                  (xiv) Digital and the Sellers shall have entered into a voting
agreement substantially in the form annexed hereto as Exhibit K;                

The Sellers may waive any condition specified in this Section 7(b) if they      
execute a writing so stating at or prior to the Closing.                        

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8. Remedies for Breaches of This Agreement.                                     

(a) Survival of Representations and Warranties. All of the    
representations and warranties of the Sellers contained in Section 4 of this    
Agreement shall survive the Closing hereunder (unless Digital had received from 
Sellers written notice of any misrepresentation or breach of warranty prior to  
the time of Closing and expressly waived in writing such breach or              
misrepresentation) and continue in full force and effect for a period of 18     
months from the Closing Date; provided, however, representations and warranties 
set forth in Section 4 (y) and Section 4 (x) shall survive until the third      
anniversary date of the Closing. All claims arising out of a breach of the      
general representations and warranties other than CIGNA and USEC must be made   
within 18 months of the Closing.                                                

         (b) Indemnification Provisions for Benefit of Digital. In the event any
of the Sellers breaches (or in the event any third party alleges facts that, if 
true, would mean any of the Sellers has breached) any of their representations, 
warranties, and covenants contained herein, and, if there is an applicable      
survival period pursuant to Section 8(a) above, provided that Digital makes a   
written claim for indemnification against any of the Sellers pursuant to Section
10(g) below within such survival period, then each of the Sellers agrees to     
indemnify Digital from and against the entirety of any Adverse Consequences     
Digital may suffer through and after the date of the claim for indemnification  
(including any Adverse Consequences Digital may suffer after the end of any     
applicable survival period) resulting from, arising out of, relating to, in the 
nature of, or caused by the breach (or the alleged breach); provided, however,  
that the Sellers shall not have any obligation to indemnify Digital from and    
against any Adverse Consequences caused proximately by the breach of any        
representation or warranty of the Sellers contained in Section 4 above until    
Digital has suffered Adverse Consequences by reason of all such breaches (or    
alleged breaches) in excess of a $100,000 aggregate threshold (the "Threshold") 
and such indemnification shall be made by the Sellers only to the extent of any 
excess over the Threshold. The maximum Liability that will be payable to Digital
by the Sellers pursuant to this Section 8(b) shall be limited as follows: (i)   
for any Adverse Consequences for which Digital is entitled to indemnification   
for the breach of any representation or warranty other than as set forth in     
clause (ii) below, the sum of $525,000; and (ii) for any Adverse Consequences   
(except for the initial $50,000 of legal fees incurred by Digital and the       
TeamStaff Entities after the Closing for settlement of the USEC litigation) for 
which Digital is entitled to indemnification with respect to amounts (A) in     
excess of the reserve for USEC as set forth on the Financial Statements of the  
TeamStaff Entities, and (B) with respect to liability emanating from the CIGNA  
medical insurance policy, the sum of $600,000; provided, however, in the event  
that a court of competent jurisdiction determines that the Sellers committed    
fraud with respect to any representation or warranty, then Digital shall have   
the right to indemnification from the Seller or Sellers who has or have         
committed such fraud for the full amount of any Adverse                         

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Consequences suffered by Digital as a result of such fraud. In addition to the  
foregoing, Digital shall not be entitled to indemnification for the initial     
$50,000 of legal fees incurred by it or the TeamStaff Entities after the Closing
in connection with the settlement of the USEC litigation. Any liability incurred
by the Sellers pursuant to the terms of this paragraph 8(b) shall be paid by the
Sellers to Digital in cash within 30 days of written demand therefore by        
Digital; provided, that in the event such demand shall be served by Digital     
within one year from the Closing, the Sellers may, at the option of Digital, pay
such liability by a note payable to the order of Digital bearing interest at the
rate of the rate equal to the prime rate plus 5% per annum, and payable 90 days 
after the first anniversary of the Closing.                                     

         (c) Indemnification Provisions for Benefit of the Sellers. In the event
Digital breaches (or in the event any third party alleges facts that, if true,  
would mean Digital has breached) any of its representations, warranties, and    
covenants contained herein, and, if there is an applicable survival period      
pursuant to Section 8(a) above, provided that any of the Sellers makes a written
claim for indemnification against Digital pursuant to Section 10(g) below within
such survival period, then Digital agrees to indemnify each of the Sellers from 
and against the entirety of any Adverse Consequences the Seller may suffer      
through and after the date of the claim for indemnification (including any      
Adverse Consequences the Seller may suffer after the end of any applicable      
survival period) resulting from, arising out of, relating to, in the nature of, 
or caused by the breach (or the alleged breach); provided, however, that Digital
shall not have any obligation to indemnify the Sellers from and against any     
Adverse Consequences resulting from, arising out of, relating to, in the nature 
of, or caused by the breach (or the alleged breach) of any representation or    
warranty of Digital until the Sellers have suffered Adverse Consequences by     
reason of all such breaches (or alleged breaches) in excess of a $100,000       
aggregate threshold. The maximum Liability that will be payable by Digital to   
the Sellers pursuant to this Section 8(c) shall be $525,000;provided, however,  
in the event that a court of competent jurisdiction determines that Digital     
committed fraud with respect to any representation or warranty, then the Sellers
shall have the right to indemnification from Digital for the full amount of any 
Adverse Consequences suffered by the Sellers as a result of such fraud. Any     
liability of Digital hereunder payable to the Sellers shall be satisfied by     
delivery of shares of Common Stock of Digital, valued at the Exact Market Price,
or in cash, at the option of Digital.                                           

(d) Matters Involving Third Parties.                          

      (i) If any third party shall notify any Party (the
         "Indemnified Party") with respect to any matter (a "Third Party Claim")
      which may give rise to a claim for indemnification against any other
 Party (the "Indemnifying Party") under this Section 8, then the
        Indemnified Party shall promptly (and in any event within ten business
   days after receiving notice of the Third Party Claim) notify each
         Indemnifying Party thereof in writing; provided, however, that no delay
    on the part of the Indemnified Party in notifying any Indemnifying
Party shall relieve the Indemnifying Party from any obligation
         hereunder unless (and then solely to the extent) the Indemnifying Party
thereby is prejudiced.                                        

                 (ii) Any Indemnifying Party will have the right to defend the
     Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the                         

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      Indemnified Party so long as (A) the Indemnifying Party notifies the
         Indemnified Party in writing within 15 days after the Indemnified Party
       has given notice of the Third Party Claim that the Indemnifying Party
       will indemnify the Indemnified Party from and against the entirety of
     any Adverse Consequences the Indemnified Party may suffer resulting
       from, arising out of, relating to, in the nature of, or caused by the
        Third Party Claim, (B) the Indemnifying Party provides the Indemnified
         Party with evidence reasonably acceptable to the Indemnified Party that
    the Indemnifying Party will have the financial resources to defend
against the Third Party Claim and fulfill its indemnification 
      obligations hereunder, (C) the Third Party Claim involves only money
        damages and does not seek an injunction or other equitable relief, (D)
        settlement of, or an adverse judgment with respect to, the Third Party
    Claim is not, in the good faith judgment of the Indemnified Party,
  likely to establish a precedential custom or practice materially
        adverse to the continuing business interests of the Indemnified Party,
        and (E) the Indemnifying Party conducts the defense of the Third Party
Claim actively and diligently.                                

             (iii) So long as the Indemnifying Party is conducting the
      defense of the Third Party Claim in accordance with Section 8(d)(ii)
        above, (A) the Indemnified Party may retain separate co-counsel at its
         sole cost and expense and participate in the defense of the Third Party
       Claim, (B) the Indemnified Party will not consent to the entry of any
       judgment or enter into any settlement with respect to the Third Party
        Claim without the prior written consent of the Indemnifying Party (not
      to be withheld unreasonably) and (C) the Indemnifying Party will not
        consent to the entry of any judgment or enter into any settlement with
       respect to the Third Party Claim without the prior written consent of
the Indemnified Party (not to be withheld unreasonably).      

               (iv) In the event any of the conditions in Section 8(d)(ii)
        above fail to be complied with, however, (A) the Indemnified Party may
        defend against, and consent to the entry of any judgment or enter into
        any settlement with respect to, the Third Party Claim in any manner it
     reasonably may deem appropriate (and the Indemnified Party need not
     consult with, or obtain any consent from, any Indemnifying Party in
        connection therewith), (B) the Indemnifying Parties will reimburse the
        Indemnified Party promptly and periodically for the costs of defending
         against the Third Party Claim (including reasonable attorneys' fees and
         expenses), and (C) the Indemnifying Parties will remain responsible for
     any Adverse Consequences the Indemnified Party may suffer resulting
       from, arising out of, relating to, in the nature of, or caused by the
     Third Party Claim to the fullest extent provided in this Section 8,
subject to the limitations set forth in Section 8(b).         

(e) Determination of Adverse Consequences. All claims for     
indemnification payments under this Section 8 shall be made in good faith and   
although a claim may be made hereunder, no payments shall be made for the       
benefit of the Indemnified Party until the Indemnified Party has incurred actual
out-of pocket expenses; provided, however, in the event Digital has made a claim
for indemnification prior to the termination of any applicable escrow period, no
Digital Shares shall be released from escrow until such time as the claim has   
been resolved.                                                                  

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         (f) Other Indemnification Provisions. Each of the Sellers hereby agrees
that he or it will not make any claim for indemnification against any of        
TeamStaff and its Subsidiaries by reason of the fact that he or it was a        
director, officer, employee, or agent of any such entity or was serving at the  
request of any such entity as a partner, trustee, director, officer, employee,  
or agent of another entity (whether such claim is for judgments, damages,       
penalties, fines, costs, amounts paid in settlement, losses, expenses, or       
otherwise and whether such claim is pursuant to any statute, charter document,  
bylaw, agreement, or otherwise) with respect to any action, suit, proceeding,   
complaint, claim, or demand brought by Digital or any Third Party against such  
Seller (whether such action, suit, proceeding, complaint, claim, or demand is   
pursuant to this Agreement, applicable law, or otherwise).                      

9. Termination.                                               

         (a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:                                                    

               (i) Digital and the Sellers may terminate this Agreement by
mutual written consent at any time prior to the Closing;      

               (ii) Digital may terminate this Agreement by giving written
         notice to the Sellers at any time prior to the Closing (A) in the event
        any of the Sellers has breached any material representation, warranty,
  or covenant contained in this Agreement in any material respect,
    Digital has notified the Sellers of the breach, and the breach has
         continued without cure for a period of the earlier of (I) 30 days after
     the notice of breach or (II) the Closing Date or (B) if the Closing
       shall not have occurred on or before March 31, 1999, by reason of the
      failure of any condition precedent under Section 7(a) hereof (unless
 the failure results primarily from Digital itself breaching any
     representation, warranty, or covenant contained in this Agreement);

            (iii) the Sellers may terminate this Agreement by giving
       written notice to Digital at any time prior to the Closing (A) in the
      event Digital has breached any material representation, warranty, or
      covenant contained in this Agreement in any material respect, any of
    the Sellers has notified Digital of the breach, and the breach has
       continued without cure for a period of the earlier to occur of (I) 30
        days after the notice of breach or (II) the Closing Date or (B) if the
        Closing shall not have occurred on or before March 31, 1999, by reason
     of the failure of any condition precedent under Section 7(b) hereof
(unless the failure results primarily from any of the Sellers 
themselves breaching any representation, warranty, or covenant
contained in this Agreement).                                 

                  (iv) Digital may terminate this Agreement in the event that it
   does not obtain approval of its shareholders for the transactions
         contemplated herein prior to March 31, 1999; provided, however, Digital
       shall use reasonable good faith efforts to obtain such approval prior
to such date.                                                 

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           (v) either Party may terminate this Agreement by giving
       written notice to the other Party at any time prior to the Closing in
     the event (a) either Party has within the previous 10 business days
        given any notice to the other Party pursuant to Section 5(f) (i) above
     and (b) the development that is the subject of the notice has had a
       Material Adverse Effect on the non-breaching party, taken as a whole;

   (b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 9(a) above, all rights and obligations of the Parties       
hereunder shall terminate without any Liability of any Party to any other Party 
(except for any Liability of any Party then in breach).                         

10. Miscellaneous.                                                              

    (a) Press Releases and Public Announcements. Neither the TeamStaff
Entities nor the Sellers shall issue any press release or make any public       
announcement relating to the subject matter of this Agreement prior to the      
Closing without the prior written approval of Digital. Digital may make any     
public disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case Digital will use its reasonable best efforts to advise the Sellers prior to
making the disclosure).                                                         

       (b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective  
successors and permitted assigns.                                               

        (c) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,   
written or oral, to the extent they related in any way to the subject matter    
hereof.                                                                         

         (d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his  
or its rights, interests, or obligations hereunder without the prior written    
approval of Digital and the Sellers; provided, however, that Digital may (i)    
assign any or all of its rights and interests hereunder to one or more of its   
Affiliates and (ii) designate one or more of its Affiliates to perform its      
obligations hereunder (in any or all of which cases Digital nonetheless shall   
remain responsible for the performance of all of its obligations hereunder).    

 (e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which        
together will constitute one and the same instrument.                           

    (f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or    
interpretation of this Agreement.                                               

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(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed (i) duly given if (and then    
delivered three business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended        
recipient or (ii) duly given if (and then delivered one business day after) it  
is sent by overnight courier and                                                

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addressed to the intended recipient. All notices shall be sent to the addresses 
as set forth below:                                                             

If to the Sellers:                    Copy to:                
Warren M Cason                        Holland & Knight LLP    
c/o Holland & Knight LLP              400 North Ashley Drive  
400 North Ashley Drive                Suite 2300              
Suite 2300                            Tampa, Florida 33602    
     Tampa, Florida 336                    Attn: Robert J. Grammig, Esq.

If to the Sellers: (continued)                                

Kirk A. Scoggins                                              
1901 Brookline Ave.                                           
Tampa, FL 33629                                               

If to Digital:                        Copy to:                
Digital Solutions, Inc.               Goldstein & DiGioia LLP 
     300 Atrium Drive                      369 Lexington Avenue, 18th Fl
Somerset, NJ 08873                    New York, NY 10017      
     Attn: Donald Kappauf                  Attn: Brian C. Daughney, Esq.

Any Party may send any notice, request, demand, claim, or other communication   
hereunder to the intended recipient at the address set forth above using any    
other means (including personal delivery, expedited courier, messenger service, 
telecopy, telex, ordinary mail, or electronic mail), but no such notice,        
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any   
Party may change the address to which notices, requests, demands, claims, and   
other communications hereunder are to be delivered by giving the other Parties  
notice in the manner herein set forth.                                          

         (h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New Jersey without giving     
effect to any choice or conflict of law provision or rule (whether of the State 
of New Jersey or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New Jersey.                    

   (i) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by      
Digital and the Sellers. No waiver by any Party of any default,                 
misrepresentation, or breach of warranty or covenant hereunder, whether         
intentional or not, shall be deemed to extend to any prior or subsequent        
default, misrepresentation, or breach of warranty or covenant hereunder or      
affect in any way any rights arising by virtue of any prior or subsequent such  
occurrence.                                                                     

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   (j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect  
the validity or enforceability of the remaining terms and provisions hereof or  
the validity or enforceability of the offending term or provision in any other  
situation or in any other jurisdiction.                                         

        (k) Expenses. Digital shall bear its own costs and expenses (including
legal fees and expenses) incurred in connection with this Agreement and the     
transactions contemplated hereby and agrees to pay at the Closing up to $750,000
of reasonable costs and expenses of the TeamStaff Entities and the Sellers      
(including fees of Sun Trust Equitable Securities Corporation, Raymond James &  
Associates, Inc. and their reasonable legal and accounting fees and expenses    
including Holland & Knight LLP and Grant Thornton LLP) paid to unaffiliated     
third parties as set forth on Appendix II, in connection with this Agreement or 
any of the transactions contemplated hereby (the "Expense Payment").            
Notwithstanding the foregoing, neither Digital, the Merger Corporations nor the 
TeamStaff Entities shall bear any obligation or have any liability for any      
finders or brokers fees or legal or accounting expenses in excess of said       
$750,000. In addition, Digital shall receive a credit for the full amount of any
advances paid to any third party.                                               

(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or        
question of intent or interpretation arises, this Agreement shall be construed  
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of   
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and           
regulations promulgated thereunder, unless the context requires otherwise. The  
word "including" shall mean including without limitation. The Parties intend    
that each representation, warranty, and covenant contained herein shall have    
independent significance. If any Party has breached any representation,         
warranty, or covenant contained herein in any respect, the fact that there      
exists another representation, warranty, or covenant relating to the same       
subject matter (regardless of the relative levels of specificity) which the     
Party has not breached shall not detract from or mitigate the fact that the     
Party is in breach of the first representation, warranty, or covenant.          

      (m) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
Appendices, and Schedules identified in this Agreement are incorporated herein  
by reference and made a part hereof.                                            

       (n) Specific Performance. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the     
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that   
the other Parties shall be entitled to an injunction or injunctions to prevent  
breaches of the provisions of this Agreement and to enforce specifically this   
Agreement and the terms and provisions hereof in any action instituted in any   
court of the United States or any state thereof having jurisdiction over the    
Parties and the matter in addition to any other remedy to which they may be     
entitled, at law or in equity.                                                  

       (o) Section 338(h)(10) Tax Election. The Parties hereby agree that in
the event the transactions contemplated herein do not qualify as tax free       
reorganizations under the Section 368 of the Code, then Digital shall have the  
right, in its sole discretion, to make an election under Section 338(h)(10) of  
the Code and the Sellers shall join with Digital in making such election.       

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        IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
as of the date first above written.                                             

                       DIGITAL SOLUTIONS, INC.

                              By: __________________________
                       Name:
                        Title:

THE TEAMSTAFF COMPANIES, INC.                                                   

By:_____________________________                                                
Kirk A. Scoggins                                              
President                                                     

TEAMSTAFF HOLDING COMPANY, INC.                                                 

By:_____________________________                                                
Kirk A. Scoggins                                              
President                                                     

EMPLOYER SUPPORT SERVICES, INC.                                                 

By:____________________________                                                 
Kirk A. Scoggins                                              
President                                                     

TEAMSTAFF, INC.                                                                 

By:_____________________________                                                
Kirk A. Scoggins                                              
President                                                     

TEAMSTAFF USA, INC.                                                             

By:_____________________________                                                
Kirk A. Scoggins                                              
President                                                     

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TEAMSTAFF II, INC.                                                              

By:_______________________________                                              
Kirk A. Scoggins                                              
President                                                     

TEAMSTAFF III, INC.                                                             

By:_______________________________                                              
Kirk A. Scoggins                                              
President                                                     

TEAMSTAFF IV, INC.                                                              

By:_______________________________                                              
Kirk A. Scoggins                                              
President                                                     

TEAMSTAFF INSURANCE SERVICES, INC.                                              

By:_______________________________                                              
Kirk A. Scoggins                                              
President                                                     

SHAREHOLDERS:                                                                   

__________________________________                                              
Warren M. Cason, Shareholder                                                    

__________________________________                                              
Dorothy C. Cason, Shareholder                                                   

__________________________________                                              
Kirk A. Scoggins, Shareholder                                                   

__________________________________                                              
Melissa C. Scoggins, as Trustee of the Kirk                                     
Allan Scoggins 1997 Three Year Grantor                                          
Retained Annuity Trust,  dated 7/1/97,                                          
Shareholder                                                                     

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__________________________________                                              
Warren M. Cason, Jr.,  Trustee of the                                           
Dorothy C. Cason 1997 Three Year Grantor                                        
Retained Annuity Trust,  dated  7/1/97,                                         
Shareholder                                                                     

DGACI, INC.                              DGACII, INC.                           

By: ______________________________       By:____________________________        
Name:                                    Name:                
Title:                                   Title:               

DGACIII, INC.                            DGACIV, INC.                           

By: ______________________________       By:____________________________        
Name:                                    Name:                
Title:                                   Title:               

DGACVI, INC.                                                                    

By: ______________________________                                              
Name:                                                         
Title:                                                        

DGACVII, INC.                            DGACVIII, INC.                         

By: ______________________________       By:____________________________        
Name:                                    Name:                
Title:                                   Title:               

DGACIX, INC.                             DGACX, INC.                            

By: ______________________________       By:____________________________        
Name:                                    Name:                
Title:                                   Title:               

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                                                                     EXHIBIT B

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 FORM 10-K

 FOR ANNUAL AND TRANSITION REPORTS
 PURSUANT TO SECTIONS 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)                                                                      

/X/                        ANNUAL REPORT PURSUANT TO SECTION 13 ON 15(d) OF     
                   THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997

OR

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

FOR THE TRANSITION PERIOD FROM ___ TO 

 COMMISSION FILE NO. 0-18492

 DIGITAL SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)

          NEW JERSEY                                22-1899798
  (State or other jurisdiction of                   (I.R.S. Employer
    incorporation or organization)                 Identification No.)
300 ATRIUM DRIVE, SOMERSET, NEW JERSEY                    08873       
(Address of principal executive offices)                 (Zip Code)     

 REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (732) 748-1700

 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                              NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS               WHICH REGISTERED    

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NONE                                      

 [Cover Page 1 of 2 Pages]

 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

 COMMON STOCK, $.001 PAR VALUE PER SHARE
(Title of class)

         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    / /

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

       On January 2, 1998, the aggregate market value of the voting stock of
Digital Solutions, Inc. (consisting of Common Stock, $.001 par value per share) 
held by non-affiliates of the Registrant was approximately $34,332,000 based    
upon the average bid and asked price for such Common Stock on said date as      
reported by Nasdaq. On such date, there were issued and outstanding 19,141,760  
shares of Common Stock of the Registrant.                                       

 DOCUMENTS INCORPORATED BY REFERENCE

 Proxy Statement for 1998 Annual Meeting of Shareholders

 [Cover Page 2 of 2 Pages]

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PART I

ITEM 1.  BUSINESS                                                               

INTRODUCTION                                                                    

       Digital Solutions, Inc. ("DSI" or "the Company"), was founded in 1969
as a payroll service company and has evolved into a leading provider of human   
resource management services to a wide variety of industries in 50 states.      

DSI currently offers three general categories of services: (1)
professional employer organization ("PEO") services, (2) employer administrative
services, such as payroll processing, personnel and administration, benefits    
administration and tax filing; and, (3) contract staffing, or the placement of  
temporary and permanent employees. DSI currently furnishes PEO, payroll and     
contract staffing services to over 1,438 client organizations with approximately
5,000 worksite PEO and staffing employees, and believes that it currently ranks,
in terms of revenues and worksite employee base, as one of the largest          
professional employer organizations in the United States. In addition, DSI      
places temporary help in hospitals and clinics throughout the United States     
through its Houston, Texas and Clearwater, Florida offices. The Company has     
three regional offices in Somerset, New Jersey; Houston, Texas; and Clearwater, 
Florida and five sales service centers in New York, New York; El Paso and       
Houston, Texas; Clearwater, Florida; and Somerset, New Jersey.                  

 Essentially, the Company provides services that function as the
personnel department for small to medium sized companies. The Company believes  
that by offering services which relieve small and medium size businesses of the 
ever increasing burden of employee related record keeping, payroll processing,  
benefits administration, employment of temporary and permanent specialized      
employees and other human resource functions, the Company will position itself  
to take advantage of a major growth opportunity during this decade and the next.

         Recognizing the desire by many small businesses to be relieved not only
of the human resource administrative functions, but also of the responsibility  
to manage employees and oversee operational tasks ancillary to their core       
business, the Company has formulated a strategy of emphasizing PEO and          
"outsourcing" services. In PEO, a service provider becomes an employer of the   
client company's employees and provides these employees to the client to perform
their intended functions at the worksite. In outsourcing, the service provider  
is not only responsible for human resource administration but also assumes      
ultimate responsibility in some cases for management of the employees and their 
job functions. For example, a provider of outsourcing services could be engaged 
by a hospital or clinic to manage the maintenance and operation of the facility.
The medical staff would still be responsible for the medical                    

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functions but the physical plant would be managed by the provider.              

        DSI is focusing its future growth on the PEO and outsourcing industry.
The Company's expansion program will focus on internal growth through the cross 
marketing of its PEO services to its entire client base and the acquisition of  
compatible businesses strategically situated in new areas or with a client base 
serviceable from existing facilities.                                           

      DSI is now committed to focusing on the PEO and outsourcing industry
for its future growth and to convert Staff-Rx, the Company's medical contract   
staffing subsidiary, into more than a staffing business by focusing on PEO,     
outsourcing and facilities management. While DSI will continue to sell          
stand-alone employer services, such as payroll and tax filing, it will emphasize
the PEO component of its service offerings with a goal of becoming the leading  
provider of PEO services in the United States. A major component of the         
Company's growth strategy is the acquisition of well situated independent PEO   
companies whose business can be integrated into the Companies operations.       
However, there can be no assurance any such acquisition will be consummated by  
the Company.                                                                    

      Digital Solutions, Inc. was organized under the laws of the State of
New Jersey on November 25, 1969 and maintains executive offices at 300 Atrium   
Drive, Somerset, New Jersey 08873 where its telephone number is (732) 748-1700. 

GENERAL BUSINESS DEVELOPMENTS DURING THE LAST FISCAL YEAR                       

BANK CREDIT LINE                                                                

        In February 1995, the Company entered into a one year revolving credit
line facility (the "Line") with a bank which was subsequently extended and      
amended on seven occasions. Each loan extension has been for limited periods of 
time. The fifth amendment executed as of December 31, 1996, restricted the      
Company from borrowing any additional funds available on the Line and required  
weekly principal payments of $10,000, effective February 24, 1997. Effective    
October 31, 1997, the Company entered into the seventh amendment to the loan    
agreement. Under the terms of this agreement, which expires October 31, 1998,   
the Company was required to grant to the bank 500,000 warrants to purchase the  
Company's common stock. The warrants will vest in amounts of 200,000 and 300,000
as of April 30, 1998 and October 31, 1998, respectively, if the obligations     
under the loan agreement are not paid in full by these dates. The warrants have 
an exercise price of $2.4375 per share which was the fair market value of the   
stock at the date of the agreement. The Company is obligated to make monthly    
payments of interest on the outstanding amounts at the bank's floating base rate
plus three percent (11.5% at September 30, 1997). The Line is collateralized by 
all of the                                                                      

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Company's assets. On December 1, 1997, as a requirement of the extension of its 
bank line of credit, the Company raised $250,000. These funds were an equity    
investment provided by its directors, a former director and executive officers  
and will be available for general corporate purposes.                           

         To address the capital needs of the Company, management is presently in
discussions with several financial institutions. There can be no assurance that 
the Company will be successful in its efforts to raise additional funds.        

SERVICES                                                                        

PROFESSIONAL EMPLOYER ORGANIZATION (PEO)                                        

       The Company's core business, and the area management will continue to
promote, is its PEO services. When a client utilizes the Company's PEO services,
the client administratively transfers all or some of its employees to DSI which 
then provides them to the client. DSI thereby becomes the recognized legal      
co-employer and is responsible for all human resource functions, including      
payroll, benefits administration, tax reporting and personnel record keeping.   
The client still manages the employees and determines salary and duties in the  
same fashion as any employer. However, the client is relieved of reporting and  
tax filing requirements and other administrative tasks. Moreover, because of    
economies of scale, DSI is able to negotiate favorable terms on workers'        
compensation insurance, health benefits, retirement programs, and other valuable
services. The client company benefits because it can now offer its employees the
same or similar benefits as its larger competitors, and successfully compete in 
recruiting highly qualified personnel, as well as build the morale and loyalty  
of its staff.                                                                   

The benefits DSI can offer include:                           

COMPREHENSIVE MAJOR MEDICAL PLANS -- DSI believes that medical
insurance costs have forced small employers to reduce coverage provided to its  
employees and to increase employee contributions. DSI is able to leverage its   
large employee base and allow their clients to offer a variety of health        
coverage plans from traditional indemnity plans to Health Maintenance           
Organizations (HMO) or Preferred Provider Organizations (PPO).                  

     DENTAL AND VISION COVERAGE -- Such coverage is generally beyond the
reach of most small groups, but it is a cost effective option which can be      
provided by DSI.                                                                

         LIFE INSURANCE -- Affordable basic coverage is available, plus optional
supplemental life.                                                              

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       SECTION 125 PREMIUM CONVERSION PLAN -- Employees can pay for benefits
with pre-tax earnings, reduce their taxable income and FICA payments, and       
increase their take-home pay.                                                   

        401(K) RETIREMENT PLANS -- DSI believes that most small groups are not
provided with any significant retirement benefits due to the administrative and 
regulatory requirements associated with the establishment and maintenance of    
retirement plans. DSI enables small business owners to offer their employees    
retirement programs comparable to those of major corporations. Such plans can be
used to increase morale, productivity and promote employee loyalty.             

       CREDIT UNION -- An opportunity for employees to borrow money at lower
interest than offered at most banks.                                            

        PAYROLL SERVICES -- Although ancillary to the PEO services, clients no
longer incur the expense of payroll processing either through in-house staff or 
outside service. DSI's PEO services include all payroll and payroll tax         
processing.                                                                     

        UNEMPLOYMENT COMPENSATION COST CONTROL -- DSI provides an unemployment
compensation cost control program to aggressively manage unemployment claims.   

     HUMAN RESOURCES MANAGEMENT SERVICES -- DSI can provide clients with
expertise in areas such as personnel policies and procedures, hiring and firing,
training, compensation and performance evaluation.                              

         WORKERS COMPENSATION PROGRAM -- DSI has a national workers compensation
policy which can provide DSI with a significant advantage in marketing its      
services, particularly in jurisdictions where workers compensation policies are 
difficult to obtain at reasonable costs. DSI also provides its clients where    
applicable with independent safety analysis and risk management services to     
reduce worker's injuries and claims.                                            

      By relieving client companies of personnel administrative tasks, the
client is able to focus on its core business. The client is also able to offer a
broader benefits package for its employees, a competitive rate in workers'      
compensation insurance, and savings in time and paperwork previously required in
connection with personnel administration.                                       

PAYROLL SERVICES                                                                

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         DSI was established as a payroll service firm in 1969, and continues to
provide basic payroll services to its clients. Historically, DSI provided these 
services primarily to the construction industry and currently 60% of the        
Company's approximately 1,000 payroll service clients are in the construction   
industry. DSI offers most, if not all, of what other payroll services provide,  
including the preparation of checks, government reports, W-2's (including       
magnetic tape filings), remote processing (via modem) directly to the clients   
offices, and service.                                                           

In addition, DSI offers a wide array of tax reporting services
including accrual of tax summaries, timely deposit of taxes, impounding of tax  
refunds, filing of returns, distribution of quarterly and year-end statements   
and responding to agency inquiries.                                             

CONTRACT STAFFING SERVICES                                                      

        DSI's contract staffing subsidiaries have, in the aggregate, more than
27 years of experience in placing permanent and temporary employees with        
specialized skills and talents with regional, national and international        
employers. Contract Staffing enables clients to attain management and           
productivity goals by matching highly trained professionals and technical       
personnel to specific project requirements. DSI works in two specific markets   
where it places people on a temporary long term assignment, or on a permanent   
basis: (1) technical employees such as engineers, information systems           
specialists and project managers primarily with Fortune 100 companies for       
specific projects, and, (2) radiologists, therapists, nurses, doctors with      
hospitals, clinics and therapy centers throughout the 50 states. Clients whose  
staff requirements vary depending on the level of current projects or business  
are able to secure the services of highly qualified individuals on an interim   
basis.                                                                          

DSI's staffing services provide clients with the ability to   
"rightsize"; that is, expand or reduce its workforce in response to changing    
business conditions. DSI provides numerous benefits to the client, such as      
saving the costs of salary and benefits of a permanent employee whose services  
are not needed throughout the year. The client also avoids the costs,           
uncertainty and delays associated with searches for qualified interim employees.
The Company also provides insurance bonding where necessary and assumes all     
responsibility for payroll tax filing and reporting functions, thereby saving   
the client administrative responsibility for all payroll, workers' compensation,
unemployment and medical benefits.                                              

    DSI also increases the pool of qualified applicants for the client
since contract staffing employees have access to a wide array of benefits such  
as health and life insurance, Section 125 premium conversion plans, and 401(k)  
retirement plans. These benefits provide interim employees with the motivation  
of full-time workers without additional benefit costs to the client. A client is
also able to temporarily rehire a retired                                       

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employee for short-term or specialized projects without jeopardizing their      
pension plan.                                                                   

ACQUISITION STRATEGY                                                            

     A key component of the Company's growth strategy has been, and will
continue to be, the acquisition of compatible businesses to expand its          
operations and customer base. Currently, the human resource service industry    
includes numerous small companies seeking to develop services, operations and   
customer base similar to those developed by the Company. The Company has        
actively acquired companies in the human resource industry during the last five 
years. However, with the business and strategy of the Company further developed,
acquisitions in the future will be concentrated in the PEO and outsourcing      
business. The Company believes that with a limited number of key acquisitions of
regional PEO companies who possess a strong customer base and regional          
reputation, the Company will be able to grow into an industry leader, in not    
only revenue size, but in scope of services offered.                            

       A prospective acquisition candidate may be either a public or private
company, but will be required to meet certain financial criteria and growth     
potential established by the Company. The Company evaluates acquisition         
candidates by analyzing the company's management, operations and customer base, 
which must complement or expand the Company's operations; financial stability,  
including the company's profitability and cash flow. The Company's long term    
plan is to expand sales and income potential by achieving economies of scale as 
it expands and regionalizes its revenue base. However, there can be no assurance
that the Company will be able to successfully identify, acquire and integrate   
into the Company operations, compatible PEO companies.                          

        Although the Company did not consummate any acquisitions during fiscal
1997, management anticipates its acquisition activities will increase next      
fiscal year. Any such acquisition activity will be subject to, among other      
things, general economic conditions and the Company's ability to raise capital  
or utilize its securities.                                                      

CUSTOMERS                                                                       

      The Company's customer base consists of over 1,438 client companies,
representing approximately 33,000 employees (including payroll services) as of  
September 30, 1997. The Company's client base is broadly distributed throughout 
a wide variety of industries; however, more than 60% of the customers in the    
payroll processing area are in the construction industry and substantially all  
of Staff-RX customers are in the healthcare industry.                           

     The Company intends to maintain diversity within its client base to
lower its exposure to downturns or volatility in any particular industry and    
help insulate the Company to some extent from general economic cycles. All      
prospective customers are                                                       

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also evaluated individually on the basis of workers' compensation risk, group   
medical history, unemployment history and operating stability.                  

SALES AND MARKETING                                                             

  The Company has established sales teams in all of its locations.

  Sales personnel offer a full array of DSI services, professional
employment, payroll and contract staffing, which supports the cross-marketing of
DSI's products and enables the sales representative to employ a professional    
consultative approach to satisfying clients needs rather than forcing a single  
solution.                                                                       

      All sales personnel have quotas and are held accountable on a weekly
basis with a sales meeting held in each location where the activity for the week
is discussed.                                                                   

       The Company has also implemented several focused marketing activities
to increase sales opportunities. DSI has been licensed by the various state     
Boards of Accountancy to hold continuing professional education seminars for    
CPAs. In addition, the Company has become an active participant in many trade   
and community associations and chambers of commerce.                            

COMPETITION                                                                     

     The PEO industry consists of approximately 2,500 companies, most of
which serve a single market or region. The Company believes that there are      
several PEOs with annual revenue exceeding $500 million. The largest PEO is     
Staff Leasing of Bradenton, Florida with revenue in excess of $1 billion. While 
there are several other large PEOs among the approximately 2,500 companies, many
are located in Florida and other states in the Sunbelt. The Company considers   
its primary competition to be these large national and regional PEO providers,  
as well as the traditional form of employment of employees.                     

        The payroll services industry is characterized by intense competition.
The principal competitive factors are price and service. Management believes    
that Automatic Data Processing, Inc., and Paychex, Inc., which each purchased   
PEOs in Florida, will be major competitors in the future. The Company also      
competes with manual payroll systems sold by numerous companies, as well as     
other providers of computerized payroll services including banks, and smaller   
independent companies. Some companies have in-house computer capability to      
generate their own payroll documents and reports. The increasing availability of
personal computers at low cost may result in additional businesses acquiring    
such capabilities. In the area of providing temporary technical and medical     
personnel, the Company competes with companies                                  

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such as Volt Information Services, Butler Arde, Olsten and Tech Aid, Inc., among
others. Many of these competitors have longer operating histories and greater   
financial resources than the Company.                                           

  The Company competes with these companies by offering customized
products, personalized service, competitive prices and specialized personnel to 
satisfy a client's particular employee requirements.                            

         DSI believes that its broad scope of human resource management services
and its commitment to quality service will differentiate it from its            
competition. Many companies compete in the various segments of the human        
resource and financial services marketplace. However, the Company believes there
are none which compete in all of them and offer the broad range of services     
which the Company offers. DSI believes that its concentration on providing      
comprehensive services and moving into facilities management or outsourcing of  
human resource management services will set it apart from its competitors. While
many of the PEOs entered the industry as a result of workers' compensation or   
health insurance problems, DSI is establishing itself as a professional employer
organization which will assist companies, small and large, with all of their    
human resource management challenges.                                           

INDUSTRY REGULATION                                                             

INTRODUCTION                                                                    

     The Company's operations are affected by numerous federal and state
laws relating to labor, tax and employment matters. By entering into a          
co-employer relationship with employees who are assigned to work at client      
company locations (sometimes referred to as "worksite employees"), the Company  
assumes certain obligations and responsibilities of an employer under these     
federal and state laws. Many of these federal and state laws were enacted prior 
to the development of nontraditional employment relationships, such as          
professional employer organizations, temporary employment, and outsourcing      
arrangements, and do not specifically address the obligations and               
responsibilities of nontraditional employers. In addition, the definition of    
"employer" under these laws is not uniform. Accordingly, the application of     
these laws to the Company's business cannot be assured.                         

         Some governmental agencies that regulate employment and labor laws have
developed rules that specifically address labor and employment issues raised by 
the relationship among clients and PEOs. Existing regulations are relatively new
and, therefore, their interpretation and application by administrative agencies 
and federal and state courts is limited or non-existent. The development of     
additional regulations and interpretation of existing regulations can be        
expected to evolve over time. The                                               

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Company cannot predict with certainty the nature or direction of the development
of federal, state and local regulations.                                        

    As an employer, the Company is subject to all federal statutes and
regulations governing its employer-employee relationships.                      

FEDERAL EMPLOYMENT TAXES                                                        

   The Company assumes the sole responsibility and liability for the
payment of federal and state employment taxes with respect to wages and salaries
paid to its employees, including worksite employees. There are essentially three
types of federal employment tax obligations: (i) withholding of income tax      
requirements governed by Code Section 3401, et seq.; (ii) obligations under     
FICA, governed by Code Section 3401, et seq.; and, (iii) obligations under the  
Federal Unemployment Tax Act (FUTA), governed by Code Section 3301, et seq.     

      Under these Code sections, employers have the obligation to withhold
and remit the employer portion and, where applicable, the employee portion of   
these taxes. There is still considerable uncertainty as to the status of leased 
employees in relation to these statutes. While the Company believes that it can 
assume the client company's withholding obligations, in the event the Company   
fails to meet these obligations, the client company may be held jointly and     
severally liable for these payments. These interpretive uncertainties may have  
an impact on the Company's PEO business.                                        

EMPLOYEE BENEFIT PLANS                                                          

     The Company offers various employee benefit plans to its employees,
including its worksite employees. These plans include a 401(k) Plan (a          
profit-sharing plan with a cash or deferred arrangement ("CODA") under Code     
Section 401(k)), a Section 125 plan, a group health plan, a group life insurance
plan and a group disability insurance plan. Generally, employee benefit plans   
are subject to provisions of both the Code and the Employee Retirement Income   
Security Act ("ERISA").                                                         

     In order to qualify for favorable tax treatment under the Code, the
plans must be established and maintained by an employer for the exclusive       
benefit of its employees. In addition to the employer/employee threshold,       
pension and profit-sharing plans, including plans that offer CODAs under Code   
Section 401(k) and matching contributions under Code Section 401(m), must       
satisfy certain other requirements under the Code. These other requirements are 
generally designed to prevent discrimination                                    

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in favor of highly compensated employees to the detriment of non-highly         
compensated employees with respect to both the availability of, and the         
benefits, rights and features offered, in qualified employee benefit plans.     

        Employee pension and welfare benefit plans are also governed by ERISA.
ERISA defines "employer" as "any person acting directly as an employer, or      
indirectly in the interest of an employer, in relation to an employee benefit   
plan." ERISA defines the term "employee" as "any individual employed by an      
employer." A definitive judicial interpretation of "employer" in the context of 
a PEO arrangement has not been established. If the Company were found not to be 
an employer for ERISA purposes, its plans would not comply with ERISA and the   
level of services the Company could offer may be adversely affected. Further, as
a result of such finding, the Company and its plans would not enjoy the         
preemption of state laws provided by ERISA and could be subject to varying state
laws and regulations, as well as to claims based upon state common laws.        

       In addition to ERISA and the Code provisions discussed herein, issues
related to the relationship between the Company and its worksite employees may  
also arise under other federal laws, including other federal income tax laws.   

STATE REGULATION                                                                

        As an employer, the Company is subject to all statutes and regulations
governing the employer-employee relationship. The Staff Leasing Services        
Licensing Act (the "Act") now regulates PEOs in Texas. The Act, which became    
effective on September 1, 1993, established a mandatory licensing scheme for    
PEOs and expressly recognizes a licensee as the employer of the assigned        
employee for purposes of the Texas Unemployment Compensation Act. The Company   
possesses a license to offer PEO services in the state of Texas.                

     While many states do not explicitly regulate PEOs, approximately 16
states have passed laws that have licensing or registration requirements for    
PEOs and other states are considering such regulation. Such laws vary from state
to state, but generally provide for monitoring the fiscal responsibility of     
PEOs. Whether or not a state has licensing, registration or certification       
requirements, the Company faces a number of other state and local regulations   
that could impact its operations. The Company is currently licensed in Florida  
and New Mexico as well as Texas.                                                

EMPLOYEES                                                                       

 As of January 2, 1998, the Company employed 117 employees, both
full-time and part-time, including executive officers, a reduction from 133     
during the previous                                                             

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fiscal year. The Company also employs approximately 4,500 leased employees and  
500 temporary employees on client assignments. The Company believes its         
relationship with its employees is satisfactory.                                

ITEM 2.  PROPERTIES                                                             

OPERATIONS AND FACILITIES                                                       

     The Company currently has three processing centers in Somerset, New
Jersey, Houston, Texas and Clearwater, Florida. The Company also has five sales 
service centers which are located in New York City, Somerset, New Jersey,       
Clearwater, Florida, Houston, and El Paso, Texas. A sales service center is an  
office used primarily for sales efforts and client services. The Company's      
strategy is to target acquisitions in the current areas of operation, whereby   
the Company will acquire a business or business accounts and absorb these       
accounts into the current operations with minimal additional overhead. The      
Company intends to continue its national expansion efforts in fiscal years      
1998-1999, most likely through additional acquisitions.                         

       DSI leases its 15,000 square foot corporate headquarters in Somerset,
New Jersey, as well as offices in Clearwater, Florida and Houston, Texas. The   
Company also leases sales offices in New York City and El Paso, Texas. The      
facilities provide sufficient capacity to meet demands for the foreseeable      
future. In fiscal year 1997, the Company's total lease expenses were $537,000.  

         Although DSI's offices are equipped with software and computer systems,
the Company is currently evaluating all systems including hardware and will     
upgrade accordingly. At the Company's headquarters in Somerset, New Jersey, two 
high speed Xerox printers produce 200,000 plus checks monthly for its client    
base. These machines, which are integrated with the software system, do all of  
the printing on the checks, including the client name, the employee, dates, as  
well as the "Micro Encoding".                                                   

The following is summary information on DSI's facilities:     

                                                                [Download Table]


                               APPROXIMATE  EXPIRATION                   
LOCATION                       SQUARE FEET      DATE         TERMS       
--------                       -----------      ----         -----       
                                                                         
DSI Staff RX, Inc. (Houston)       5,398       9/30/99  $13,440 per month
2 Northpoint Drive, Suite 110      7,396       2/28/00                   

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                                                                [Download Table]

                                                                       
Houston, TX 77060                                                      

DSI Staff RX, Inc. (Clearwater)       2,805  5/31/00  $ 3,272 per month
601 Cleveland Sreet Suite 350                                          
Clearwater, FL 34615                                                   

Staff ConnXions Southwest (El Paso)   3,126  3/31/02  $ 3,759 per month
4050 Rio Bravo, Suite 151                                              
El Paso, TX 79902                                                      

Corporate Office                     15,244  9/30/07  $23,819 per month
300 Atrium Drive                                                       
Somerset, NJ 08873                                                     

New York Office                         391  4/30/01  $ 3,082 per month
245 Fifth Avenue, Suite 2104                                           
New York, NY 10016                                                     

ITEM 3. LEGAL PROCEEDINGS                                                       

        In October 1995, the Company entered into a note and finance agreement
with LNB Investment Corporation (LNB) providing for the loan to the Company of  
up to $3,000,000. The loan was for a term of 15 months and was to be secured by 
shares of the Company's common stock having a market value of no less than four 
times the outstanding balance of the loan. LNB agreed not to sell or otherwise  
liquidate the shares unless the Company were to default under the loan agreement
and failed to cure such default after notice. A total of 7,500,000 shares to be 
pledged as collateral were registered under a registration statement filed under
the Securities Act of 1933, as amended.                                         

      The Company issued 1,783,334 shares in the name of LNB and delivered
the shares to a depository to secure the first portion of the loan of           
$1,000,000. In January 1996, the Company determined that the shares pledged as  
collateral had been transferred and sold in violation of the loan and finance   
agreement. As a result, the financing agreement was terminated and never funded.
Through the efforts of the Company, 1,258,334 of these shares were recovered and
the Company received proceeds of $229,000 for a partial payment on the 525,000  
shares not recovered.                                                           

     In March 1996, the Company commenced action against LNB, Donaldson,
Lufkin & Jenrette Securities Corporation and other individuals to recover       
damages on account of the wrongful sale of the Company's common stock. On July  
2, 1997, the Company settled the action. Without admitting or denying the       
allegations in the complaint, the defendants agreed to pay $676,000 of which    
$426,000 has been paid with the balance of $250,000 to be paid by LNB           

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on or before August 4, 1997. The payment was not made by LNB as of December 16, 
1997. The Company has commenced collection proceedings. The subsequent payment  
is secured by a confession of judgment and a mortgage in the amount of $625,000.
The payments under the settlement agreement are in addition to $229,000         
previously received from LNB bringing the total recovered to approximately      
$905,000, assuming LNB complies with the terms of the settlement and remits the 
last payment of $250,000. The agreement also provides that upon payment of all  
sums due under the settlement agreement, LNB shall be deemed to have made full  
restitution to the Company for the claims alleged in the action.                

       The Company is engaged in no other litigation, the effect of which is
anticipated to have a material adverse impact on the Company.                   

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS                       

NOT APPLICABLE                              

 PART II

ITEM 5.  MARKET OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY              
AND RELATED STOCKHOLDER MATTERS                               

A.       Principal Market                                                       

         The Company's Common Stock is traded in the over-the-counter market and
included in the SmallCap Market System of the National Association of Securities
Dealers, Inc. ("NASDAQ") under the symbol "DGSI".                               

B.       Market Information                                                     

      The Company's common stock commenced trading in the over-the-counter
market on May 15, 1986. The range of high and low bid prices for such securities
for the periods indicated below, are:                                           

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Common Stock                                                                    

                                                                [Download Table]

FISCAL YEAR 1996  HIGH      LOW    
----------------  ----      ---    
                                   
1st Quarter       5 15/16   1 15/32
2nd Quarter       6 15/16   4 5/16 
3rd Quarter       6 1/8     3 9/16 
4th Quarter       6 1/4     3 5/8  

FISCAL YEAR 1997  HIGH      LOW    
----------------  ----      ---    
1st Quarter       6 1/4     3 1/8  
2nd Quarter       3 15/16   1 13/16
3rd Quarter       2 7/16    1 9/16 
4th Quarter       2 5/16    1 9/16 

FISCAL YEAR 1998  HIGH     LOW     
----------------  ----     ---     
1st Quarter       2 11/16  1 1/2   

    The above quotations, reported by NASDAQ, represent prices between
dealers and do not include retail mark-ups, mark-downs or commissions. Such     
quotations do not necessarily represent actual transactions.                    

C.       Dividends                                                              

        The payment by the Company of cash dividends, if any, rests within the
discretion of its Board of Directors and, among other things, will depend upon  
the Company's earnings, capital requirements and financial condition, as well as
other relevant factors. The Company has not declared any cash dividends on its  
common stock since inception, and has no present intention of paying any cash   
dividends on its common stock in the foreseeable future.                        

D.       Approximated Number of Equity Security Holders                         

        The approximate number of record holders of the Company's common stock
as of January 2, 1998 was 329. Such number of record holders was determined from
the Company's stockholder records, and does not include beneficial owners of the
Company's common stock whose shares are held in the names of various security   
holders, dealers and clearing agencies. The Company believes there are in excess
of 500 beneficial holders of the Company's common stock.                        

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ITEM 6. SELECTED FINANCIAL DATA                                                 

                                                        [Enlarge/Download Table]


                                                          YEARS ENDED SEPTEMBER 30                         

                                         1997          1996          1995           1994         1993      

OPERATING DATA:                                                                                            

                                                                                                           
Operating Revenues                  $122,695,000   $100,927,000   $73,821,000    $37,998,000   $14,681,000 

Direct Costs                         113,894,000     92,490,000    68,530,000     34,939,000    12,459,000 

Gross Profit                           8,801,000      8,437,000     5,291,000      3,059,000     2,222,000 

Selling, General & Administrative                                                                          
 Expenses (includes Depreciation      11,316,000      8,801,000     7,547,000      2,695,000     1,962,000 
 and Amortization)                                                                                         

Income (Loss) From Continuing                                                                              
 Operations                          (2,515,000)      (364,000)   (2,256,000)        364,000       260,000 

Net Income (Loss)                   $(2,832,000)     $(597,000)  $(3,316,000)       $720,000      $301,000 

Income (Loss) From Continuing                                                                              
 Operations Per Share of Common                                                                            
 Stock                                   ($0.13)        ($0.02)        ($0.16)          $0.03         $0.04

Net Income (Loss) Per Share              ($0.15)        ($0.04)        ($0.24)          $0.05         $0.04

Dividends Paid Per Preferred Stock                                                                         
                                           $0.00          $0.00         $0.00          $3.30         $4.00 

BALANCE SHEET DATA:                                                                                        

Assets                               $14,163,000    $14,800,000   $13,816,000     $7,727,000    $4,264,000 

Liabilities                            9,291,000      7,632,000    10,967,000      2,671,000     1,079,000 

Long-Term Debt                            89,000        100,000       175,000        107,000       241,000 

Working Capital (Deficiency)          (1,401,000)       286,000    (4,771,000)     1,146,000     1,920,000 

Shareholders' Equity                  $4,872,000     $7,168,000    $2,849,000     $5,056,000    $3,195,000 

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

RESULTS OF OPERATIONS                                                           

 Certain statements contained herein constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act  
of 1995 (the "1995 Reform Act"). The Company desires to avail itself of certain 
"safe harbor" provisions of the 1995 Reform Act and is therefore including this 
special note to enable the Company to do so. Forward-looking statements included
in this Report on Form 10-K involve known and unknown risks, uncertainties, and 
other factors which could cause the Company's actual results, performance       
(financial or operating) or achievements to differ from the future results,     
performance (financial or operating) achievements expressed or implied by such  
forward looking statements. Such future results are based upon management's best
estimates based upon current conditions and the most recent results of          
operations. These risks include, but are not limited to, risks associated with  
the Company's recent losses, the Company's ongoing need for a new credit        
facility, need for additional capital, risks of recently consummated            
acquisitions as well as future acquisitions, effects of competition and         
technological changes and dependence upon key personnel.                        

Fiscal Year 1997 as Compared to Fiscal Year 1996                                

   Operating revenues for the fiscal year 1997 were $122,695,000 as compared
to fiscal year 1996 of $100,927,000 which represents an increase of $21,768,000 
or 21.6%. This increase is due to the efforts of the internal sales force to    
continually bring in new business which accounted for all of the increase. PEO  
services accounted for 83% of the growth, while the balance is attributed to the
Company's staffing business.                                                    

Direct costs for fiscal year 1997 were $113,894,000 as compared to    
$92,490,000 for fiscal year 1996 which represents an increase of $21,404,000, or
23.1%. The workers' compensation profit for the first four months of fiscal 1996
of $493,000 was recorded as a reduction of selling, general and administrative  
expenses, whereas subsequent to that the revenue and direct costs for the       
workers' compensation program were reflected in their respective accounts. In   
addition, the first nine months of fiscal 1997 included $308,000 in             
underbilled/excess charges for PEO medical expenses. After adjusting for the    
treatment of the workers' compensation profit, one-time charges of $678,000     
recorded in the second quarter of 1997 (primarily due to increased workers'     
compensation charges) and medical expenses, direct costs increased $20,911,000  
or 22.7%. As a percentage of revenue, and on an adjusted basis, direct costs for
fiscal 1997 and fiscal 1996 were 92% and 91.1% respectively. This increase is   
attributed to the increase in the PEO business as well as the new workers'      
compensation program, in which the Company is now expensing the maximum workers'
compensation exposure on a current basis.                                       

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Gross profits were $8,801,000 and $8,437,000 for fiscal 1997 and 1996,
respectively, for an increase of 4.3%. Giving effect to the previously discussed
adjustments, gross profits for fiscal 1997 and 1996 would have been $9,787,000  
and $8,930,000, respectively. As a percentage of revenue, adjusted gross profits
for fiscal 1997 and 1996 would have been 8% and 8.8%, respectively, reflecting  
the increased PEO business in fiscal 1997 which has lower margins but adds more 
dollars of gross profit.                                                        

Selling, general and administrative costs ("SG&A") for fiscal 1997    
increased $2,334,000, or 29%, from $7,972,000 in fiscal 1996 to $10,306,000. Of 
this increase, $1,973,000 pertains to charges recorded in the second quarter of 
fiscal 1997, $1,000,000 of which was to increase the bad debt reserve with the  
balance for other miscellaneous items. Giving effect to these adjustments, SG&A 
increased 4.5%.                                                                 

    Depreciation and amortization increased $181,000 in fiscal 1997 due to the
write-off of all the intangible assets of Digital Insurance Services ($261,000) 
recorded in the second fiscal quarter.                                          

   Net loss for fiscal 1997 was ($2,832,000) versus a net loss of ($597,000)
in fiscal 1996. The increased loss is due to $3,100,000 in adjustments recorded 
in the second quarter of 1997.                                                  

Fiscal Year 1996 as Compared to Fiscal Year 1995                                

   Operating revenues for the fiscal year 1996 were $100,927,000 as compared
to fiscal year 1995 of $73,821,000 which represents an increase of 36.7%. This  
increase is attributable to the increased sales efforts of the internal sales   
force as well as the full year impact of the acquisition of Turnkey Services    
which was acquired in May, 1995.                                                

   Direct costs as a percentage of revenue for fiscal year 1996 was 91.6% as
compared to 92.8% for the prior fiscal year. These changes are attributable to  
the increased margins in the PEO business due to reduced costs of the Company's 
workers' compensation programs and the full year effect of the acquisition of   
Turnkey Services. The Company provides management personnel services to certain 
clients of Turnkey Services which generate higher than average administrative   
fees. The reduction in workers' compensation costs were achieved through better 
managed claims experience.                                                      

  Selling, general and administrative costs ("SG&A") increased $1,270,000.
This growth in expenses includes $195,000 in charges for intangibles associated 
with acquisitions that were not consummated during the year and $309,000 in an  
increase in allowance for doubtful accounts attributable to accounts that have  
aged beyond acceptable limits but which the Company continues to pursue.        
Approximately $500,000 is attributable to the full year impact of Turnkey       
Services which was acquired May 1, 1995. Additionally, the Company reversed     
$515,000 in                                                                     

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previously established reserves for claims which the Company resolved in its    
favor. As a percentage of gross profit, SG&A expenses are 94.5% in fiscal 1996  
as compared to 126.7% in fiscal 1995 and 88.1% in fiscal 1994. Management       
believes that although there is improvement from 1995, it will continue to      
improve this margin in the future.                                              

 Net loss before taxes was ($563,000) in fiscal year 1996 as compared to
loss of ($3,453,000) in fiscal year 1995. This decrease in net loss is primarily
attributable to the increase in gross profit and the decrease in SG&A as a      
percentage of gross profit, explained above.                                    

Fiscal Year 1995 as Compared to Fiscal Year 1994                                

     Operating revenues for the fiscal year 1995 were $73,821,000 as compared to
fiscal year 1994 of $37,998,000. This represents an increase of $35,823,000 or  
94%. This increase is attributable to the increased sales efforts of the        
internal sales force $15,700,000, as well as the acquisition of Staff Rx        
$8,400,000, Turnkey Services, Inc. $6,200,000 and the full year effect of the   
other PEO companies which were acquired in the second quarter of fiscal year    
1994 $5,500,000.                                                                

   Direct costs as a percentage of revenue for fiscal year 1995 was 92.8% as
compared to 92.0% in fiscal year 1994. This increase is due to the continued    
growth in the PEO business which has a higher direct cost than any other        
segment, as a percentage of revenues.                                           

 Selling, general and administrative costs ("SG&A") increased $4,007,000
from fiscal year 1994 and was primarily due to: (i) increased selling and       
marketing expenses including the cost of direct mail efforts and the addition of
15 senior account managers (sales force); (ii) additions at the corporate level 
needed to help position and transform the Company into a national firm; (iii)   
the establishment of a Houston processing center to support client and sales    
activities in the Southwest and Florida; and, (iv) establishment of certain     
necessary reserves and balances at year end.                                    

Net loss before tax benefit was ($3,453,000) for fiscal year 1995 as  
compared to a net gain of $720,000 the prior year. In accordance with Statement 
of Financial Standards 109 (SFAS 109), the Company has recorded an additional   
tax asset of $160,000 in the current fiscal year of 1994, representing the      
expected future utilization of existing net operating loss carryforwards against
operating income. As of September 30, 1995, the Company has recorded total      
deferred assets of $760,000, which it believes, based on the current level of   
sales activity and the positive impacts of recent acquisitions, will more likely
than not be realized in accordance with SFAS 109.                               

Liquidity and Capital Resources                                                 

The Company's working capital for fiscal year 1997 was a deficit of   
($1,401,000) versus                                                             

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$286,000 in fiscal 1996. At September 30, 1997, the Company had cash of         
$841,000, restricted cash of $738,000 and net accounts receivable of $5,820,000.

In February 1995, the Company entered into a one year revolving credit
line facility (the "Line") with a bank which was subsequently extended and      
amended on seven occasions. Each loan extension has been for limited periods of 
time. The fifth amendment executed as of December 31, 1996, restricted the      
Company from borrowing any additional funds available on the Line and required  
weekly principal payments of $10,000, effective February 24, 1997. Effective    
October 31, 1997, the Company entered into the seventh amendment to the loan    
agreement. Under the terms of this agreement, which expires October 31, 1998,   
the Company was required to grant to the bank 500,000 warrants to purchase the  
Company's common stock. The warrants will vest in amounts of 200,000 and 300,000
as of April 30, 1998 and October 31, 1998, respectively, if the obligations     
under the loan agreement are not paid in full by these dates. The warrants have 
an exercise price of $2.4375 per share, which was the fair market value of the  
stock at the date of the agreement. The Company is obligated to make monthly    
payments of interest on the outstanding amounts at the bank's floating base rate
plus three percent (11.5% at September 30, 1997). Under the present amendment,  
the Company can not borrow additional funds and continues to make weekly        
principal payments of $10,000. The line is collateralized by all of the         
Company's assets. At September 30, 1997 and December 31, 1997, the total amount 
outstanding on the Line was $2,697,000 and $2,567,000, respectively. In December
1997, the Company's directors and executive officers, as well as a former       
director, made an equity investment of $250,000 for general corporate purposes. 
The raising of these funds was a requirement of the recently negotiated bank    
line of credit extension.                                                       

To address the capital needs of the Company, management is presently in         
discussions with several financial institutions. There can be no assurance that 
the Company will be successful in its efforts to raise additional funds. At the 
present time, the Company does not have funds available to repay the Line.      
Repayment of the Line is due in full on October 31, 1998.                       

In December 1996, due to the favorable trends in losses in its Workers'         
Compensation program, the Company's former carrier reduced its letter of credit 
requirement from $1,610,000 to $1,193,000 which resulted in $417,000 in         
additional cash available. Of this availability, $344,000 has been added to     
working capital during the quarter ended December 31, 1996 while the balance of 
$73,000 was added to working capital during the quarter ended March 31, 1997.   

Inflation and changing prices have not had a material effect on the Company's   
net revenues and results of operations in the last three fiscal years, as the   
Company has been able to modify its prices to respond to inflation and changing 
prices.                                                                         

ITEM 8.     FINANCIAL STATEMENTS                                                

See Attached Financial Statements appearing at pages F-1 through F-18.

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

Not Applicable.                                                       

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS                                       

The executive officers and directors of the Company are as follows:   

                                                                [Download Table]

NAME                   AGE  OFFICE                                 
----                   ---  ------                                 

                                                                   
Karl W. Dieckmann      69   Chairman of the Board of Directors     

George J. Eklund       54   Director                               

Donald T. Kelly        48   Vice President, Chief Financial Officer
                            and Corporate Secretary                

Senator John H. Ewing  77   Director                               

William J. Marino      54   Director                               

Donald W. Kappauf      51   President and Chief Executive Officer  

    Each director is elected for a period of one year at the Company's
annual meeting of shareholders and will serve until his successor is duly       
elected by the shareholders.                                                    

        Karl W. Dieckmann, Director of the Company since April, 1990, has been
Chairman of the Board since November, 1991. From 1980 to 1988, Mr. Dieckmann was
the Executive Vice President of Science Management Corporation and managed the  
Engineering, Technology and Management Services Groups. From 1948 to 1980, Mr.  
Dieckmann was employed by the Allied Corporation (now Allied Signal Corporation)
in various capacities including President, Semet Solvay Division; Executive Vice
President, Industrial Chemicals Division; Vice President Technical -- Fibers    
Division; Group General Manager -- Fabricated Products Division; and General    
Manager --Plastics Division, as well as various positions with the Chemicals    
Division.                                                                       

      George J. Eklund became President and Chief Operating Officer of the
Company on September 21, 1994, and President and Chief Executive Officer on     
March 13, 1996. On December 16, 1997, Mr. Eklund's position changed for health  
reasons but he remains active with the Company. From 1992 to 1994, Mr. Eklund   
was President of the                                                            

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Human Resource Information Services division of Fiserv, Inc., which provides    
outsourcing services. From 1977 to 1992, Mr. Eklund was employed by ADP         
(Automatic Data Processing) in various positions eventually serving as Corporate
Vice President and Eastern Division President. His eastern division served the  
northeast area of the country.                                                  

         Donald T. Kelly, has been Chief Financial Officer and Vice President of
Finance since he joined DSI on January 20, 1997. He was elected Corporate       
Secretary in August of 1997. Mr. Kelly was Vice President and Chief Financial   
Officer of Wireless Cable International and its predecessor company, Cross      
Country Wireless, Inc. from 1993 to 1997. From 1987 to 1993, he was Vice        
President of Finance and Administration at Potters Industries.                  

        Senator John H. Ewing, has been a Director of the Company since April,
1990. Senator Ewing has been a State Senator for the state of New Jersey from   
1978 to the present. From 1968 to 1977, Senator Ewing was a New Jersey State    
Assemblyman. From 1940 to 1968, he was employed by Abercrombie and Fitch Co.,   
New York City, and eventually rose to the position of Chairman of the Board.    
Senator Ewing is also currently Chairman of the New Jersey Senate Education     
Committee.                                                                      

        William J. Marino, President and Chief Executive Officer of Blue Cross
and Blue Shield of New Jersey, joined the Board of Directors in October, 1995.  
He joined Blue Cross and Blue Shield in 1992 and was named to his present post  
in 1994. From 1968 to 1991, Mr. Marino held a variety of sales, marketing and   
management positions with the Prudential Insurance Company of America. He is    
Chairman of the Board of Trustees of the United Way of Essex and West Hudson    
(NJ) and is Chairman of the Board of Directors and Executive Committee of the   
Regional Business Partnership, and a Trustee of the New Jersey Network          
Foundation, St. Peter's College and the Newark Museum.                          

   Donald W. Kappauf became President and Chief Executive Officer of
Digital Solutions, Inc. on December 16, 1997. Mr. Kappauf joined Digital        
Solutions, Inc. in 1990 and has held several senior management positions        
including Division President and Executive Vice President. From 1988 to 1990, Mr
Kappauf was President of Perm Staff/Temp Staff in Princeton, New Jersey. He was 
Assistant Vice President of SMC Engineering and then President of SMC Personnel 
Support from 1968 to 1988.                                                      

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION                     
IN COMPENSATION DECISIONS                                                       

      Karl W. Dieckmann, John H. Ewing and William J. Marino served on the
Company's Compensation Committee during the last fiscal year.                   

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ITEM 11. EXECUTIVE COMPENSATION                                                 

The following provides certain summary information concerning 
compensation paid or accrued by the Company during the years ended September 30,
1997, 1996 and 1995 to the Company's Chief Executive Officer and each of the    
executive officers of the Company who received in excess of $100,000 in         
compensation during the last fiscal year.                                       

                                                                [Download Table]

                                                                       LONG TERM   
                                ANNUAL COMPENSATION                   COMPENSATION 
NAME AND                  YEAR    SALARY          BONUS     OTHER     OPTIONS/SAR'S
PRINCIPAL POSITION                                                                 

                                                                                   
Raymond Skiptunis (1)     1997    $0              $0        $210,000  0            
                          1996    $214,061        $0        $0        0            
                          1995    $193,542        $0        $0        0            

George J. Eklund, (2)     1997    $210,000        $0        $0        0            
Chief Executive Officer   1996    $207,924        $100,000  $0        300,000      
                          1995    $181,866        $50,000   $0        0            

Donald T. Kelly, (3)      1997     $90,865        $20,000   $0        30,000       
Chief Financial Officer                                                            

Louis J. Monari, (4)      1997    $106,077        $0        $0        0            
Vice President            1996     $91,539        $20,000   $0        30,000       
                          1995     $90,538        $15,000   $0        0            

Donald W. Kappauf, (5)    1997    $121,154        $0        $0        0            
Executive Vice President                                                           
                          1996    $110,000        $20,000   $0        0            
                          1995    $110,000        $0        $0        0            

(1)      Mr. Skiptunis was replaced as Chief Executive Officer by Mr. Eklund in 
 March, 1996. The other compensation of $210,000 during 1997 was
severance pay.                                                

(2)      Mr. Eklund's employment with the Company commenced on September        
     19,1994. He assumed the position of Chief Executive Office in March
1996.                                                         

(3)      Mr. Kelly was granted a sign on bonus of $20,000 at employment, on     
January 20, 1997.                                             

(4)      Mr. Monari's employment terminated in July, 1997.                      

(5)      This includes Mr. Kappauf's compensation for the executive vice        
       president position he assumed on August 27, 1997. His compensation in
1997, prior to becoming executive                             

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vice president was $105,288. Compensation for 1996 and 1995 was for his         
position as Division Vice President.                                            

 The Corporation provides normal and customary life and health insurance
benefits to all of its employees including executive officers. The Corporation  
has no retirement or pension plan other than a 401(k), which is voluntary.      

Compensation of Directors                                                       

    Directors who are employees of the Company are not compensated for
services in such capacity except under the Director Plan, as defined below.     
Non-Employee Directors receive $400 per meeting, $50 in travel expenses, and    
$250 for each committee meeting. Effective October 1, 1997 the meeting and      
committee meeting fees were increased to $1,000 and $500 respectively.          

Employment Agreement                                                            

       Effective March 12, 1996, the Company entered into a new employment
agreement with Mr. Eklund for a three year term. The employment agreement       
provided for (i) annual compensation of $210,000 for the first year of the      
agreement increasing at the discretion of the Company; (ii) a bonus in          
accordance with a plan to be established by the Company; (iii) the award of     
stock options to purchase 300,000 shares of the Company's common stock, subject 
to vesting requirements; (iv) certain insurance and severance benefits; and (v) 
a $700 per month automobile allowance. Effective December 16, 1997, Mr. Eklund's
position was changed for health reasons. The Company and Mr. Eklund have entered
into an agreement regarding the change in his position. Pursuant to this        
agreement, Mr. Eklund no longer serves as President and Chief Executive Officer 
of the Company. Mr. Eklund remains a Director. Mr. Eklund will continue to      
receive his salary and certain other benefits as provided in his original       
employment agreement.                                                           

Effective December 16, 1997, the Company entered into a verbal
agreement with Mr. Donald Kappauf wherein Mr. Kappauf assumed the duties of     
President and Chief Executive Officer. The agreement provides for (i) annual    
compensation of $165,000 for the first year of the agreement increasing at the  
discretion of the Company; (ii) a bonus equivalent to 6% of the Company's       
pre-tax profit for fiscal 1998 (8% of the amount over $2,500,000) provided the  
Company's earnings before taxes are at least $1,500,000; (iii) the award of     
stock options to purchase 100,000 shares of the Company's common stock, 50,000  
of which will vest in one year while the remainder will vest in two years; (iv) 
a two year term.                                                                

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OPTION/SAR GRANTS IN LAST FISCAL YEAR                                           

                                                                [Download Table]

                         OPTION/SAR GRANTS IN LAST FISCAL YEAR                    
                                  (INDIVIDUAL GRANTS)                             

                 NO. OF               PERCENTAGE                                  
                 SECURITIES           OF TOTAL                                    
                 UNDERLYING           OPTIONS/             EXERCISE OF            
                 OPTIONS              GRANTED IN           BASE PRICE   EXPIRATION
                 GRANTED              FISCAL YEAR          PER SHARE    DATE      
NAME                                                                              

                                                                                  
Donald T. Kelly  30,000               29%                  $1.875       01/20/02  

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR                           
AND FY-END OPTION/SAR VALUES                                                    

      The following table sets forth information with respect to the named
executive officers concerning exercise of stock options and SARs during the last
fiscal year and the value of unexercised options and SARs held as of the year   
ended September 30, 1997.                                                       

                                                                [Download Table]


                                       NUMBER OF SECURITIES                        
                                       UNDERLYING            VALUE OF UNEXERCISED  
                                       UNEXERCISED           IN-THE-MONEY OPTIONS  
                   SHARES              OPTIONS/SARS          AS OF AT SEPTEMBER 30,
                   ACQUIRED            SEPTEMBER 30, 1997    1997                  
                   ON        VALUE     EXERCISABLE/          EXERCISABLE/          
NAME               EXERCISE  REALIZED  UNEXERCISABLE         UNEXERCISABLE(1)      
----               --------  --------  -------------         ----------------      

                                                                                   
George J. Eklund   0         0         300,000/200,000       $0/$0                 
Louis Monari       0         0         30,000/20,000         $63,900/$0            
Donald W. Kappauf  0         0         100,000/0             $213,000/$0           

Donald T. Kelly    0         0         10,000/20,000         $21,300/$42,600       

(1)      Based upon a closing bid price of the Common Stock at $2.1300 per share
on September 30, 1997.                                        

1990 STOCK OPTION PLANS                                                         

         In April, 1990, the Board of Directors adopted the 1990 Employees Stock
Option Plan (the "1990 Plan") which was approved by shareholders in August,     
1990. The                                                                       

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1990 Plan provides for the grant of options to purchase up to 1,000,000 shares  
of the Company's common stock. Under the terms of the 1990 Plan, options granted
thereunder may be designated as options which qualify for incentive stock option
treatment ("ISOs") under Section 422A of the Code, or options which do not so   
qualify ("Non-ISO's").                                                          

         The 1990 Plan is administered by a Stock Option Committee designated by
the Board of Directors. The Stock Option Committee has the discretion to        
determine the eligible employees to whom, and the times and the price at which, 
options will be granted; whether such options shall be ISOs or Non-ISOs; the    
periods during which each option will be exercisable; and the number of shares  
subject to each option. The Committee has full authority to interpret the 1990  
Plan and to establish and amend rules and regulations relating thereto.         

       Under the 1990 Plan, the exercise price of an option designated as an
ISO shall not be less than the fair market value of the common stock on the date
the option is granted. However, in the event an option designated as an ISO is  
granted to a ten percent (10%) shareholder (as defined in the 1988 Plan), such  
exercise price shall be at least 110% of such fair market value. Exercise prices
of Non-ISO options may be less than such fair market value.                     

         The aggregate fair market value of shares subject to options granted to
a participant, which are designated as ISOs and which become exercisable in any 
calendar year, shall not exceed $100,000.                                       

       The Stock Option Committee may, in its sole discretion, grant bonuses
or authorize loans to or guarantee loans obtained by an optionee to enable such 
optionee to pay any taxes that may arise in connection with the exercise or     
cancellation of an option.                                                      

    Unless sooner terminated, the 1990 Plan will expire in April 2000.

 In April 1990, the Board of Directors adopted the Non-Executive
Director Stock Option Plan (the "Director Plan") which was approved by          
shareholders in August, 1991 and amended in March 1996. The Director Plan       
provides for issuance of a maximum of 500,000 shares of common stock upon the   
exercise of stock options arising under the Director Plan. Options may be       
granted under the Director Plan until April, 2000 to: (i) non-executive         
directors as defined and, (ii) members of any advisory board established by the 
Company who are not full-time employees of the Company or any of its            
subsidiaries. The Director Plan provides that each non-executive director is    
automatically granted an option to purchase 5,000 shares upon joining the Board 
and each September lst, pro rata, based on the time the director has served in  
such                                                                            

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capacity during the previously year. Similarly, each eligible director of       
an advisory board will receive on each September lst an option to purchase 5,000
shares of the Company's common stock each September lst. The Directors' Plan    
also provides that directors, upon joining the Board, and for one (1) year      
thereafter, will be entitled to purchase restricted stock from the Company at a 
price equal to 80% of the closing bid price on the date of purchase up to an    
aggregate purchase price of $50,000.                                            

         The exercise price for options granted under the Director Plan shall be
100% of the fair market value of the common stock on the date of grant. Until   
otherwise provided in the Stock Option Plan, the exercise price of options      
granted under the Director Plan must be paid at the time of exercise, either in 
cash, by delivery of shares of common stock of the Company or by a combination  
of each. The term of each option commences on the date it is granted and unless 
terminated sooner as provided in the Director Plan, expires five (5) years from 
the date of grant. The Director Plan shall be administered by a committee of the
board of directors composed of not fewer than three persons who are officers of 
the Company (the "Committee"). The Committee has no discretion to determine     
which non-executive director or advisory board member will receive options or   
the number of shares subject to the option, the term of the option or the       
exercisability of the option. However, the Committee will make all              
determinations of the interpretation of the Director Plan. Options granted under
the Director Plan are not qualified for incentive stock option treatment.       

        In April 1990, the Board of Directors adopted and in August, 1990, the
Company's shareholders approved the Senior Management Incentive Plan (the       
"Management Plan") for use in connection with the issuance of stock, options and
other stock purchase rights to executive officers and other key employees and   
consultants who render significant services to the Company and its subsidiaries.
It is contemplated that only those executive management employees (generally the
Chairman of the Board, Chief Executive Officer, Chief Operating Officer,        
President and Vice Presidents of the Company or Presidents of the Company's     
subsidiaries) who perform services of special importance to the Company will be 
eligible to participate under the Management Plan. A total of 5,000,000 shares  
of common stock will be reserved for issuance under the Management Plan. Awards 
made under the Management Plan will be subject to three-(3) year vesting        
periods, although the vesting periods are subject to the discretion of the      
Administrator.                                                                  

       Unless otherwise indicated, the Management Plan is to be administered
by the Board of Directors or a committee of the Board, if one is appointed for  
this purpose (the Board or such committee, as the case may be, shall be referred
to in the following description as the "Administrator"). The Management Plan    
generally provides that, unless the Administrator determines otherwise, each    
option or right granted under a plan shall become exercisable in full upon      
certain "change of control" events as                                           

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described in the Management Plan. If any change is made in the stock subject to 
the Management Plan, or subject to any right or option granted under the        
Management Plan (through merger, consolidation, reorganization,                 
recapitalization, stock dividend, dividend in property other than cash, stock   
split, liquidating dividend, combination of shares, exchange of shares, change  
in corporate structure or otherwise), the Administrator will make appropriate   
adjustments to such plans and the classes, number of shares and price per share 
of stock subject to outstanding rights or options. The Management Plan permits  
awards until April, 2000.                                                       

     Directors who are not otherwise employed by the Company will not be
eligible for participation in the Management Plan.                              

   The Management Plan provides four types of awards: stock options,
incentive stock rights, stock appreciation rights (including limited stock      
appreciation rights) and restricted stock purchase agreements, as described     
below.                                                                          

         Options granted under the Management Plan may be either incentive stock
options ("ISOs") or options which do not qualify as ISOs ("non-ISOs") similar to
the options granted under the 1990 Plan.                                        

       Incentive stock rights consist of incentive stock units equivalent to
one share of common stock in consideration for services performed for the       
Company. If the employment or consulting services of the holder with the Company
terminate prior to the end of the incentive period relating to the units        
awarded, the rights shall thereupon be null and void, except that if termination
is caused by death or permanent disability, the holder or his heirs, as the case
may be, shall be entitled to receive a pro-rata portion of the shares           
represented by the units, based upon that portion of the incentive period which 
shall have elapsed prior to the death or disability.                            

  Restricted stock purchase agreements provide for the sale by the
Company of shares of common stock at a price to be determined by the Board of   
Directors, which shares shall be subject to restrictions on disposition for a   
stated period during which the purchaser must continue employment with the      
Company in order to retain the shares. Payment can be made in cash, a promissory
note or a combination of both. If termination of employment occurs for any      
reason within six months after the date of purchase, or for any reason other    
than death or by retirement with the consent of the Company after the six month 
period, but prior to the time that the restrictions on disposition lapse, the   
Company shall have the option to reacquire the shares at the original purchase  
price.                                                                          

        Restricted shares awarded under the Management Plan will be subject to
a period of time designated by the Administrator (the "restricted period")      
during which the                                                                

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recipient must continue to render services to the Company before the restricted 
shares will become vested. The Administrator may also impose other restrictions,
terms and conditions that must be fulfilled before the restricted shares may    
vest.                                                                           

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information as of January 2,
1998 with respect to each director, each of the named executive officers as     
defined in Item 402(a)(3), and directors and executive officers of the Company  
as a group, and to the persons known by the Company to be the beneficial owner  
of more than five percent of any class of the Company's voting securities.      

                                                                [Download Table]


                            Number of Shares    Percent of Company's
Name of Shareholder         Presently Owned(1)  Outstanding Stock   
-------------------         ------------------  -----------------   

                                                                    
Karl W. Dieckmann(2)        310,743             1.6%                
c/o Digital Solutions, Inc.                                         
300 Atrium Drive                                                    
Somerset, NJ 08873                                                  

George J. Eklund(3)         379,545             2.0%                
c/o Digital Solutions, Inc.                                         
300 Atrium Drive                                                    
Somerset, NJ 08873                                                  

Senator John H. Ewing(4)    120,625             *                   
76 Claremont Road                                                   
Barnardsville, NJ 07924                                             

William J. Marino(5)         88,617             *                   
c/o Blue Cross/Blue Shield                                          
      of New Jersey                                                 
3 Penn Plaza East                                                   
Newark, NJ 07105                                                    

Donald W. Kappauf(6)        526,248             2.75%               
c/o Digital Solutions, Inc.                                         
300 Atrium Drive                                                    
Somerset, NJ 08873                                                  

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                                                                [Download Table]


                                                       
Donald T. Kelly(7)                        18,850  *    
c/o Digital Solutions, Inc.                            
300 Atrium Drive                                       
Somerset, NJ 08873                                     

All officers and directors as a group  1,444,628  7.55%
(6) persons (2,3,4,5,6,7)                              

*        Less than 1 percent.                                                   

(1)      Ownership consists of sole voting and investment power except as       
otherwise noted.                                              

(2)      Includes options to purchase 10,000 shares of the Company's common     
    stock, and warrants to purchase 10,000 shares of common stock, and
     excludes unvested options to purchase 5,000 shares of common stock.

(3)      Includes options to purchase 300,000 shares of the Company's common    
    stock, and excludes unvested options to purchase 200,000 shares of
common stock.                                                 

(4)      Includes options to purchase 35,000 shares of common stock, and        
     excludes unvested options to purchase 5,000 shares of common stock.

(5)      Includes options to purchase 10,000 shares of the Company's common     
         stock, and excludes unvested options to purchase 5,000 shares of common
stock.                                                        

(6)      Includes options to purchase 150,000 shares of the Company's common    
    stock, and excludes unvested options to purchase 150,000 shares of
common stock.                                                 

(7)      Includes options to purchase 10,000 shares of common stock, and        
      excludes unvested options to purchase 70,000 shares of common stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                         

        For information concerning employment agreements with and compensation
of the Corporation's executive officers and directors, see "Executive           
Compensation".                                                                  

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

(a)      1. Financial Statements                                                

       The financial statements and schedules of the Company are included in
Part II, Item 8 of this report and appear as pages F-1 through F-18 and includes
page S-1.                                                                       

         2. All other schedules have been omitted since the required information
is not present or is not present in amounts sufficient to require submission of 
the schedule, or because the information required is included in the            
Consolidated Financial Statements or the notes thereto.                         

3. Exhibit List                                               

      The exhibits designated with an asterisk (*) are filed herewith. All
other exhibits have been previously filed with the Commission and, pursuant to  
17 C.F.R. Secs. 20l.24 and 240.12b-32, are incorporated by reference to the     
document referenced in brackets following the descriptions of such exhibits.    

EXHIBIT                                                                         

                                                        [Enlarge/Download Table]

EXHIBIT NO.           DESCRIPTION                                                                          

                                                                                                           
3.1      --  Amended and Restated Certificate of Incorporation of Registrant (Exhibit A to                 
             Definitive Proxy Material dated July 20, 1990)                                                

3 (c)    --  By-Laws of Registrant (Exhibit 10.1 to Form 8-K dated March 2l, 1990)                         

10.6.1  *--  Lease dated May 30, 1997 for office space at 300 Atrium, Somerset, New                        
             Jersey                                                                                        

10.15.1   -  Employment agreement between George J. Eklund and the Company dated March 12, 1996            

10.15.2 *--  Amended employment agreement between George J. Eklund and the Company dated December 16, 1997 

10.16.1 *--  Seventh Amended Loan Agreement between Registrant and Summit Bank and sixth amended Promissory
             Note                                                                                          

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21.0  --          Subsidiaries (Exhibit 21 to Form 10-K for fiscal 1996)        

23.1 *--          Consent of Arthur Andersen LLP to the incorporation of        
            its report on the Company's financial statements for the
          fiscal year ended 1997 into the Company's registration
Statement on form S-3 file number 33-85526. 

23.2 *--          Consent of Arthur Andersen LLP to the incorporation of        
            its report on the Company's financial statements for the
          fiscal year ended 1997 into the Company's registration
Statement on form S-3 file number 33-70928. 

23.3 *--          Consent of Arthur Andersen LLP to the incorporation of        
            its report on the Company's financial statements for the
          fiscal year ended 1997 into the Company's registration
Statement on form S-3 file number 33-91700. 

23.4 *--          Consent of Arthur Andersen LLP to the incorporation of        
            its report on the Company's financial statements for the
          fiscal year ended 1997 into the Company's registration
Statement on form S-3 file number 33-09313. 

27.  *--          Financial Data Schedule.                                      

(b)   Reports on Form 8-K. No 8-K reports were filed in the last fiscal quarter.

(c)   See Item (a)(3) above.                                                    

(d)   See Schedule II annexed hereto and appearing at page S-1.                 

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                                    SIGNATURES

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

   DIGITAL SOLUTIONS, INC.

/s/Donald W. Kappauf
                 -------------------------------------

Donald W. Kappauf   
                 President and Chief Executive Officer

Dated: January 13, 1998                                                         

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

/s/George J. Eklund                  Director                   January 13, 1998
----------------------------                                                    
George J. Eklund                                                                

/s/Karl W. Dieckmann                 Chairman of the Board      January 13, 1998
----------------------------                                                    
Karl W. Dieckmann                                                               

/s/John H. Ewing                     Director                   January 13, 1998
----------------------------                                                    
Senator John H. Ewing                                                           

/s/William J. Marino                 Director                   January 13, 1998
----------------------------                                                    
William J. Marino                                                               

/s/Donald W. Kappauf                 President & Chief          January 13, 1998
----------------------------           Executive Officer                        
Donald W. Kappauf                                                               

/s/Donald T. Kelly                   Chief Financial Officer    January 13, 1998
----------------------------           & Corporate Secretary                    
Donald T. Kelly                                                                 

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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES

 INDEX TO FINANCIAL STATEMENTS

                                                        [Enlarge/Download Table]

                                                                                  Page
                                                                                  ----

                                                                                      
Report Of Independent Public Accountants                                           F-2

Consolidated Balance Sheets As Of September 30, 1997 And 1996                      F-3

Consolidated Statements Of Operations For The Years Ended                             
   September 30, 1997, 1996 And 1995                                               F-5

Consolidated Statements Of Shareholders' Equity For The Years Ended                   
   September 30, 1997, 1996 And 1995                                               F-6

Consolidated Statements Of Cash Flows For The Years Ended                             
   September 30, 1997, 1996 And 1995                                               F-7

Notes To Consolidated Financial Statements                                         F-9

Schedule I -- Valuation And Qualifying Accounts For The Years Ended                   
   September 30, 1997, 1996 and 1995                                               S-1

Schedules other than those listed above have been omitted as they are either not      
   required or because the related information has been included in the notes to      
   consolidated financial statements                                                  

F-1 

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of                                   

Digital Solutions, Inc.:                                        

We have audited the accompanying consolidated balance sheets of Digital         
Solutions, Inc. and subsidiaries (the "Company") as of September 30, 1997 and   
1996, and the related consolidated statements of operations, shareholders'      
equity and cash flows for each of the three years in the period ended September 
30, 1997. These consolidated financial statements and the schedule referred to  
below are the responsibility of the Company's management. Our responsibility is 
to express an opinion on these consolidated financial statements and schedule   
based on our audits.                                                            

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

In our opinion, the financial statements referred to above present fairly, in   
all material respects, the financial position of Digital Solutions, Inc. and    
subsidiaries as of September 30, 1997 and 1996, and the results of their        
operations and their cash flows for each of the three years in the period ended 
September 30, 1997 in conformity with generally accepted accounting principles. 

Our audits were made for the purpose of forming an opinion on the basic         
consolidated financial statements taken as a whole. The schedule listed in the  
index to the financial statements is presented for purposes of complying with   
the Securities and Exchange Commission's rules and regulations and is not part  
of the basic consolidated financial statements. This schedule has been subjected
to the auditing procedures applied in our audit of the basic consolidated       
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic    
consolidated financial statements taken as a whole.                             

                   ARTHUR ANDERSEN LLP

Roseland, New Jersey                                                            
December 23, 1997                                                               

F-2 

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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1997 AND 1996

                                                        [Enlarge/Download Table]

                                       ASSETS                         1997                 1996    
                                       ------                         ----                 ----    
                                                                                                   
CURRENT ASSETS:                                                                                    
   Cash                                                                $841,000                 $0 
   Restricted cash (Note 8)                                             738,000          1,155,000 
   Accounts receivable, net of allowance for doubtful accounts                                     
     of $862,000 at September 30, 1997 and $339,000                                                
     at September 30, 1996                                            5,820,000          6,338,000 
   Notes due from officers                                                    0            136,000 
   Other current assets                                                 402,000            189,000 
                                                                -----------------  ----------------

                Total current assets                                  7,801,000          7,818,000 
                                                                -----------------  ----------------

EQUIPMENT AND IMPROVEMENTS:                                                                        
   Equipment                                                          3,170,000          2,883,000 
   Leasehold improvements                                                47,000            180,000 
                                                                -----------------  ----------------

                                                                      3,217,000          3,063,000 

   Less - accumulated depreciation and amortization                   2,310,000          2,226,000 
                                                                -----------------  ----------------

                                                                        907,000            837,000 

DEFERRED TAX ASSET (Note 4)                                             760,000            760,000 

GOODWILL, net of accumulated amortization of $835,000 in 1997                                      
   and $713,000 in 1996 (Notes 2 and 3)                               4,344,000          4,780,000 

OTHER ASSETS                                                            351,000            605,000 
                                                                -----------------  ----------------

                                                                    $14,163,000        $14,800,000 
                                                                =================  ================

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

F-3 

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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1997 AND 1996

                                                        [Enlarge/Download Table]

                        LIABILITIES AND SHAREHOLDERS' EQUITY                      1997              1996       
                        ------------------------------------                      ----              ----       

                                                                                                               
CURRENT LIABILITIES:                                                                                           
   Short-term borrowings (Notes 5 and 8)                                        $2,697,000         $2,907,000  
   Current portion of long-term debt (Note 7)                                      113,000             88,000  
   Accounts payable                                                              2,254,000          1,620,000  
   Accrued expenses and other current liabilities (Note 6)                       4,138,000          2,917,000  
                                                                            -----------------  ----------------

                Total current liabilities                                        9,202,000          7,532,000  

LONG-TERM DEBT, net of current portion (Note 7)                                     89,000            100,000  

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

                Total liabilities                                                9,291,000          7,632,000  
                                                                            -----------------  ----------------

COMMITMENTS AND CONTINGENCIES (Note 8)                                                                         

SHAREHOLDERS' EQUITY (Notes 8 and 9):                                                                          

   Common stock, $.001 par value; authorized 40,000,000 shares; issued and                                     
     outstanding 19,141,760 in 1997 and 18,786,609 in 1996                          19,000             19,000  
   Additional paid-in capital                                                   13,393,000         12,857,000  
   Accumulated deficit                                                          (8,540,000)        (5,708,000) 
                                                                            -----------------  ----------------

                                                                                 4,872,000          7,168,000  
                                                                            -----------------  ----------------

                                                                               $14,163,000        $14,800,000  
                                                                            =================  ================

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

F-4 

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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF OPERATIONS

                                                        [Enlarge/Download Table]


                                                       For the Years Ended September 30              
                                          -----------------------------------------------------------
                                                1997                 1996                 1995       
                                          -----------------    -----------------    -----------------

                                                                                                     
OPERATING REVENUES                            $122,695,000         $100,927,000         $73,821,000  

DIRECT OPERATING COSTS                         113,894,000           92,490,000          68,530,000  
                                          -----------------    -----------------    -----------------

                Gross profit                     8,801,000            8,437,000           5,291,000  

SELLING, GENERAL AND ADMINISTRATIVE                                                                  
   EXPENSES (Note 8)                            10,306,000            7,972,000           6,702,000  

DEPRECIATION AND AMORTIZATION                    1,010,000              829,000             845,000  
                                          -----------------    -----------------    -----------------

                Loss from operations            (2,515,000)            (364,000)         (2,256,000) 
                                          -----------------    -----------------    -----------------

OTHER CREDITS (CHARGES):                                                                             
   Interest income                                  60,000              173,000             124,000  
   Interest expense (Notes 5 and 7)               (377,000)            (422,000)           (935,000) 
   Other income (expense)                                0               50,000            (386,000) 
                                          -----------------    -----------------    -----------------

                                                  (317,000)            (199,000)         (1,197,000) 
                                          -----------------    -----------------    -----------------

                Loss before income taxes        (2,832,000)            (563,000)         (3,453,000) 

INCOME TAX (EXPENSE) BENEFIT (Note 4)                    0              (34,000)            137,000  
                                          -----------------    -----------------    -----------------

                Net loss                       ($2,832,000)           ($597,000)        ($3,316,000) 
                                          =================    =================    =================

NET LOSS PER COMMON SHARE                          ($0.15)              ($0.04)             ($0.24)  
                                          =================    =================    =================

WEIGHTED AVERAGE NUMBER OF                                                                           
   COMMON SHARES OUTSTANDING                    19,070,349           16,840,371          13,595,382  
                                          =================    =================    =================

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

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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

 FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

                                                        [Enlarge/Download Table]


                                                           Common Stock                   Additional                       
                                                  Shares Issued                            Paid-In                         
                                                    (Retired)            Amount            Capital            Deficit      
                                                 -----------------  -----------------  -----------------  -----------------
                                                                                                                           
BALANCE, September 30, 1994                           12,125,753            $ 12,000      $   6,492,000      $  (1,795,000)

  Exercise of stock options                            1,605,426               2,000            853,000                    
  Exercise of stock warrants                             206,500                   -            110,000                    
  Retirement of common stock in connection with                                                                            
      exercise of stock options and warrants            (249,255)                  -                  -                    
  Common stock issued in connection with the                                                                               
      acquisition of Staff Rx                            360,000                   -            743,000                    
  Expenses related to private placement of                                                                                 
      common stock                                              -                  -           (164,000)                   
  Common stock issued in connection with the                                                                               
      acquisition of Turnkey Services, Inc.                68,205                  -            166,000                    
  Common stock retired related to the                                                                                      
      acquisition of The Alternative Source,                                                                               
      Inc., Ram Technical Corp. and MLB                                                                                    
      Medical Staffing, Inc.                             (112,714)                 -           (254,000)                   
  Net loss                                                      -                  -                  -         (3,316,000)
                                                 -----------------  -----------------  -----------------  -----------------

BALANCE, September 30, 1995                            14,003,915             14,000          7,946,000         (5,111,000)

  Common stock issued in connection with                                                                                   
      private placements, net of expenses               2,304,200              2,000          4,526,000                   -
  Common stock received and retired in                                                                                     
      satisfaction of officer loans                      (107,130)                 -           (679,000)                  -
  Common stock issued                                     525,000              1,000            228,000                   -
  Exercise of stock options                               794,157              1,000             48,000                   -
  Exercise of stock warrants                            1,209,799              1,000            703,000                   -
  Stock issued for services rendered                       56,668                  -             85,000                   -
  Net loss                                                      -                  -                  -           (597,000)
                                                 -----------------  -----------------  -----------------  -----------------

BALANCE, September 30, 1996                            18,786,609             19,000         12,857,000         (5,708,000)

  Exercise of stock options                               204,471                  -             53,000                    
  Exercise of stock warrants                              117,347                  -            181,000                    
  Stock issued for employee bonus                          33,333                  -            100,000                    
  Proceeds related to LNB settlement,                                                                                      
      net of expenses                                           -                  -            202,000                    
  Net loss                                                      -                  -                  -         (2,832,000)
                                                 -----------------  -----------------  -----------------  -----------------

BALANCE, September 30, 1997                            19,141,760            $19,000       $ 13,393,000      $  (8,540,000)
                                                 =================  =================  =================  =================

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

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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                        [Enlarge/Download Table]


                                                                   For the Years Ended September 30             
                                                       ---------------------------------------------------------
                                                             1997                1996                1995       
                                                       -----------------    ----------------    ----------------
                                                                                                                
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                           
   Net loss                                                ($2,832,000)           ($597,000)        ($3,316,000)
   Adjustments to reconcile net loss to net                                                                     
     cash used in operating activities-                                                                         
     Deferred income taxes                                           0                    0            (160,000)
     Depreciation and amortization                           1,010,000              829,000             845,000 
     Provision for doubtful accounts                         1,120,000              462,000             153,000 
       Amortization of rent deferral                                 0                    0              28,000 
     Stock issued employee bonus                               100,000               85,000                   0 
   Changes in operating assets and liabilities-                                                                 
     Increase in accounts receivable                          (602,000)          (1,871,000)         (2,490,000)
     Decrease (increase) in other assets                      (106,000)             239,000            (909,000)
     Increase (decrease) in accounts payable, accrued                                                           
       expenses and other current liabilities                1,855,000             (278,000)          2,806,000 
     Decrease in other liabilities                                   0              (75,000)            (55,000)
     Decrease (increase) in restricted cash                    417,000           (1,155,000)                  0 
                                                       -----------------    ----------------    ----------------
                Net cash provided by (used in)                                                                  
                   operating activities                        962,000           (2,361,000)         (3,098,000)
                                                       -----------------    ----------------    ----------------

CASH FLOWS FROM INVESTING ACTIVITIES:                                                                           
   Purchases of equipment and improvements                    (361,000)            (187,000)           (355,000)
   Acquisitions of businesses, net of cash acquired                  0                    0          (1,351,000)
                                                       -----------------    ----------------    ----------------

                Net cash used in investing activities         (361,000)            (187,000)         (1,706,000)
                                                       -----------------    ----------------    ----------------

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

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                                                        [Enlarge/Download Table]


                                                                       For the Years Ended September 30              
                                                           ----------------------------------------------------------
                                                                 1997                1996                 1995       
                                                           -----------------    ----------------    -----------------

                                                                                                                     
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                
   (Repayments) proceeds from borrowings on                                                                          
     revolving line of credit                                    ($210,000)           ($225,000)         $2,122,000  
   Principal payments on long-term debt                                  0             (941,000)           (443,000) 
   (Principal payments) proceeds on                                                                                  
     subordinated bridge loan                                            0           (1,887,000)          1,887,000  
   Proceeds from other borrowings, net of repayments                14,000               71,000             837,000  
   Net proceeds from issuance of common stock,                                                                       
     net of expenses                                                     0            4,528,000             245,000  
   Net proceeds from the exercise of stock options                                                                   
     and warrants                                                  234,000              753,000                   0  
   Net proceeds from common stock issued                                 0              229,000                   0  
   Proceeds from LNB settlement, net of expenses                   202,000                    0                   0  
   Other                                                                 0                    0              (2,000) 
                                                           -----------------    ----------------    -----------------

                Net cash provided by financing activities          240,000            2,528,000           4,646,000  
                                                           -----------------    ----------------    -----------------

                Net increase (decrease) in cash                    841,000              (20,000)           (158,000) 

CASH AT BEGINNING OF PERIOD                                              0               20,000             178,000  
                                                           -----------------    ----------------    -----------------

CASH  AT END OF PERIOD                                            $841,000                   $0             $20,000  
                                                           =================    ================    =================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW                                                                                
   INFORMATION:                                                                                                      
     Cash paid during the period for-                                                                                
       Interest                                                   $363,000             $412,000            $705,000  
                                                           =================    ================    =================

SUPPLEMENTAL DISCLOSURES OF NONCASH                                                                                  
   TRANSACTIONS:                                                                                                     
     Value of common stock issued in a business                                                                      
       acquisition                                                      $0                   $0            $909,000  
                                                           =================    ================    =================
     Value of common stock retired in satisfaction of                                                                
       shareholder loans                                                $0             $679,000                  $0  
                                                           =================    ================    =================

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

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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  ORGANIZATION AND BUSINESS:                                                 

      Digital Solutions, Inc. (the Company) was incorporated under the laws of
 the State of New Jersey on November 25, 1969. The Company, with its
subsidiaries, provides a broad spectrum of human resource services
 including professional employer services, payroll processing, human
resource administration and placement of temporary and permanent  
employees.                                                        

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:                                

Basis of Presentation-                                            

      The accompanying consolidated financial statements include those of DSI,
      a New Jersey Corporation and its wholly-owned subsidiaries; DSI Contract
     Staffing, DSI Staff ConnXions-Northeast, DSI Staff ConnXions Southwest,
    and DSI Staff Rx, Inc. The results of operations of acquired companies
      (see Note 3) have been included in the consolidated financial statements
     from the date of acquisition. All significant intercompany balances and
transactions have been eliminated in the consolidated financial   
statements.                                                       

      As more fully explained in Note 5, the Company has recently extended its
  line of credit and is currently in discussion with several financial
    institutions to receive additional financing for its capital needs. In
       addition, management has instituted several cost reduction programs in an
effort to address its recurring operating losses. These management
    initiatives have resulted in return to profitability of the Company in
   the 4th quarter of fiscal 1997. Based upon the actions instituted and
      forecast operating cash flows, management of the Company believes it can
    sustain operations for at least twelve months from September 30, 1997.

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.                                                        

Revenue Policy-                                                   

The Company recognizes revenue in connection with its professional
     employer organization program (PEO) and its temporary placement service
  program when the services have been provided. Revenues represent the
       Company's billings to customers, with the corresponding cost of providing
      those services reflected as direct operating expenses. Payroll services,
      commissions and other fees for administrative services are recognized as
revenue as the related service is provided.                       

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Equipment and Improvements-                                       

Equipment and improvements are stated at cost. Depreciation and   
   amortization are provided using straight-line and accelerated methods
     over the estimated useful asset lives (3 to 5 years) and the shorter of
 the lease term or estimated useful life for leasehold improvements.

Goodwill-                                                         

       Goodwill represents the excess of the cost of companies acquired over the
 fair value of their net assets at the acquisition date and is being
       amortized on a straight line basis over 20 years for substantially all of
    the Company's acquisitions (see Note 3). Goodwill amortization expense
     charged to operations was approximately $434,000 for 1997, $415,000 for
1996 and $327,000 for 1995. Amortization expense for 1997 and 1996
includes a provision for goodwill impairment as described below.  

       During 1995, the Company adopted the provisions of Statement of Financial
       Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived
  Assets" ("SFAS 121"). SFAS 121 requires, among other things, that an
     entity review its long-lived assets and certain related intangibles for
     impairment whenever changes in circumstances indicate that the carrying
     amount of an asset may not be fully recoverable. As a result of certain
      of the acquisitions described in Note 3 experiencing operating cash flow
       losses, the Company, utilizing the present value of estimated future cash
flows from these operations discounted at a rate of return (15%), 
determined that some impairment had occurred in certain of these  
       acquisitions. As a result, the Company charged approximately $195,000 and
      $180,000 of additional amortization to depreciation and amortization for
the year ended September 30, 1996 and 1995, respectively.         

      In 1997, the Company decided not to remain in the insurance business and
      elected to write off $261,000 in intangible assets of Digital Insurance,
Inc.                                                              

Insurance Programs-                                               

The Company previously maintained a large deductible workers'     
       compensation insurance program which was replaced on April 1, 1997 with a
      new program. Under the old program the Company still maintains a reserve
       for claims that are outstanding as of the balance sheet date. However the
new program requires the funding of anticipated loss reserves on a
     current basis. To be conservative the Company expenses the maximum loss
     it can be held accountable for under this program which is greater than
the current funding requirement.                                  

Net Loss Per Common Share-                                        

    Net loss per common share is based upon the weighted average number of
      shares outstanding. Outstanding stock options and warrants have not been
       considered in the computations of net loss per common share in 1997, 1996
and 1995 since their effect was antidilutive. In March, 1997 the  
Financial Accounting Standards Board issued Statement on Financial
     Accounting Standards Number 128, (Earnings Per Share) [(SFAS No. 128)].
  SFAS No. 128 is effective for fiscal years ending after December 15,
1997, and when adopted, it will require restatement of prior year 
      earnings per share. If the Company had adopted SFAS No. 128 for the year
   ended September, 1997 there would have been no effect on earnings per
share.                                                            

Statement of Cash Flows-                                          

     For purposes of the statements of cash flows, the Company considers all
     liquid investments purchased with a maturity of three months or less to
be cash equivalents.                                              

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(3)  ACQUISITIONS:                                                              

   The following acquisitions have been accounted for under the purchase
   method of accounting. Accordingly, the results of operations of these
     entities have been included in the consolidated financial statements of
the Company since the date of acquisition.                        

Turnkey Services, Inc.-                                           

In May 1995, the Company, through its subsidiary, DSI Staff       
       ConnXions-Southwest, purchased certain assets of a PEO company located in
     El Paso, Texas, Turnkey Services, Inc. The assets acquired included the
       customer lists and all owned and leased assets utilized by Turnkey in its
business operations, subject to interest of equipment lessors. In 
   consideration for the assets, the Company paid to Turnkey $784,000 in
cash and a note payable and issued common stock in the amount of  
   $166,000. In addition, the Company incurred approximately $200,000 in
transaction costs and recorded goodwill of approximately $989,000 
associated with this acquisition.                                 

 If this acquisition had been included in the consolidated financial
       statements for the entire year ended September 30, 1995, the effect would
not have been significant.                                        

Staff Rx, Inc.-                                                   

In November 1994, the Company acquired certain assets of several  
   affiliated contract staffing firms through the Company's wholly-owned
  subsidiary DSI-Staff Rx, Inc. in exchange for $200,000 in cash and a
promissory note for $1,300,000. In addition, the Company incurred 
  approximately $266,000 in transaction costs and recorded goodwill of
approximately $1,766,000, associated with this acquisition.       

   In March 1995, the Company issued 360,000 shares of its common stock,
  valued at $743,000, to satisfy part of the aforementioned promissory
note. The balance was paid in cash.                               

 If this acquisition had been included in the consolidated financial
       statements for the entire year ended September 30, 1995, the effect would
not have been significant.                                        

(4)  INCOME TAXES:                                                              

At September 30, 1997, the Company had available operating loss   
 carryforwards of approximately $6,945,000 to reduce future periods'
    taxable income. The carryforwards expire in various years beginning in
2004 and extending through 2012.                                  

     The Company has recorded a $760,000 deferred tax asset at September 30,
    1997 and 1996. This represents management's estimate of the income tax
benefits to be realized upon utilization of a portion of its net  
   operating losses for which management believes utilization to be more
 likely than not. In order for the Company to realize a $760,000 tax
     benefit, the Company would have to generate approximately $2,000,000 in
     future taxable income. Management believes the Company's operations can
      generate sufficient taxable income to realize this tax asset as a result
     of recent business developments, its ability to meet its operating plan
as well as the resolution of significant past problems which had  
adversely affected the Company in prior years.                    

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The income tax benefit reflected in the consolidated statement of 
   operations for 1995 represents a portion of the recorded deferred tax
asset described above.                                            

   An analysis of the Company's deferred income tax asset is as follows-

                                                        [Enlarge/Download Table]

                                                        1997                 1996     
                                             -------------------- --------------------
                                                                                      
Net operating loss carryforwards                  $2,500,000           $1,985,000     
Accrued workers' compensation                        476,000              278,000     
Allowance for doubtful accounts                      310,000              122,000     
Other items, net                                     154,000                    0     
                                             -------------------- --------------------

     Gross deferred income tax asset               3,440,000            2,335,000     
Valuation allowance                               (2,680,000)          (1,575,000)    
                                             -------------------- --------------------

                  Deferred income tax asset         $760,000             $760,000     
                                             ==================== ====================

(5)  SHORT-TERM BORROWINGS:                                                     

    In February 1995, the Company entered into a one year revolving credit
    line facility (the "Line") with a bank which was subsequently extended
      and amended on seven occasions. Each loan extension has been for limited
    periods of time. The fifth amendment executed as of December 31, 1996,
     restricted the Company from borrowing any additional funds available on
   the Line and required weekly principal payments of $10,000, effective
     February 24, 1997. Effective October 31, 1997, the Company entered into
  the seventh amendment to the loan agreement. Under the terms of this
    agreement, which expires October 31, 1998, the Company was required to
 grant to the bank 500,000 warrants to purchase the Company's common
   stock. The warrants will vest in amounts of 200,000 and 300,000 as of
   April 30, 1998 and October 31, 1998, respectively, if the obligations
under the loan agreement are not paid in full by these dates. The 
     warrants have an exercise price of $2.4375 per share which was the fair
    market value of the stock at the date of the agreement. The Company is
       obligated to make monthly payments of interest on the outstanding amounts
     at the bank's floating base rate plus three percent (11.5% at September
      30, 1997). The Line is collateralized by all of the Company's assets. On
December 1, 1997, as a requirement of the Line, the Company raised
$250,000. These funds were an equity investment provided by its   
       directors, a former director and executive officers and will be available
for general corporate purposes.                                   

     To address the capital needs of the Company, management is presently in
discussions with several financial institutions. There can be no  
   assurance that the Company will be successful in its efforts to raise
additional funds.                                                 

      During 1995, the Company issued approximately $1,975,000 of Subordinated
     Bridge Notes to various investors. The notes bore interest at a rate of
12% per annum (which was increased to 16% in November, 1995 in    
       consideration for extending the maturity date) and were repaid in full in
    1996. In connection with the issuance of these notes, the Company also
     granted these investors warrants to purchase the Company's common stock
(see Note 9).                                                     

       Other information with respect to short term borrowings for 1997 and 1996
is as follows-                                                    

                                                        [Enlarge/Download Table]


                                                        1997              1996       
                                                  -----------------  ----------------
                                                                                     
Balance at end of period                               $2,697,000         $2,907,000 
Maximum amount outstanding during period                3,017,000          5,019,000 
Weighted average balance outstanding during the                                      
  period                                                2,916,000          3,382,000 
Weighted average interest rate during the period         11.16%             12.31%   

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(6)  ACCRUED EXPENSES AND                                                       
OTHER CURRENT LIABILITIES:                                            

      Accrued expenses and other current liabilities at September 30, 1997 and
1996 consist of the following-                                    

                                                                [Download Table]

                                               1997             1996      
                                          ---------------  ---------------
                                                                          
Payroll and payroll taxes                    $2,271,000       $1,888,000  
Worker's compensation insurance reserves      1,321,000          631,000  
Legal                                           134,000          100,000  
Other                                           412,000          298,000  
                                          ---------------  ---------------

                                             $4,138,000       $2,917,000  
                                          ===============  ===============

(7)  LONG-TERM DEBT:                                                            

      Long-term debt at September 30, 1997 and 1996 consists of the following-

                                                                [Download Table]

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

                                                   
Leases                    $202,000       $188,000  

Less- Current portion     (113,000)       (88,000) 
                       -------------  -------------

                           $89,000       $100,000  
                       =============  =============

   Maturities of long-term debt as of September 30, 1997 are as follows-

                                                                [Download Table]


   Year Ending                     
  September 30                     
------------------                 
                                   
      1998              $113,000   
      1999                48,000   
      2000                34,000   
      2001                 7,000   
                    ---------------

                        $202,000   
                    ===============

(8)  COMMITMENTS AND CONTINGENCIES:                                             

Leases-                                                           

      In November 1991, the Company entered into a lease for its corporate
     headquarters facility. The lease term extended 69 months with fixed
     monthly payments of $18,000. The Company recognized rent expense of
         $253,000 under this lease in 1997, 1996 and 1995. Commencing September,
 1997, the Company relocated its corporate headquarters to a new
       facility. The lease for this facility extends through September, 2007
         and provides for minimum annual payments of $286,000. The old lease was
         a triple net lease resulting in actual total payments approximating the
      lease payments in the new building. Rent expense under all operating
     leases was $537,000 in 1997, $627,000 in 1996 and $384,000 in 1995.

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      Minimum payments under noncancellable lease obligations at September 30,
1997 are as follows-                                              

                                                                [Download Table]


   Year Ending                                                              
  September 30                                                              
------------------                                                          
                                                                            
      1998                                                       $   567,000
      1999                                                           572,000
      2000                                                           434,000
      2001                                                           353,000
      2002                                                           308,000
   Thereafter                                                      1,601,000
                                                         -------------------

                                                                 $ 3,835,000
                                                         ===================

Workers' Compensation Policy-                                     

     In connection with the Company's former workers' compensation insurance
    policy which expired on April 1, 1997, the insurance company developed
     reserve factors on each claim that may or may not materialize after the
   claim is fully investigated. Generally Accepted Accounting Principles
    require that all incurred, but not paid claims, as well as an estimate
     for claims incurred, but not reported (IBNR), be accrued on the balance
       sheet as a current liability, although a portion of the claims may not be
     paid in the following 12 months. As of September 30, 1997 and September
     30, 1996, this accrual amounted to $818,000 and $631,000, respectively.
       On April 1, 1997, the Company entered into a workers' compensation policy
  with a new carrier. Under the terms of the new workers' compensation
       insurance program the Company fully accrues the maximum loss on a monthly
    basis. During the twelve months ended September 30, 1997 and 1996, the
     Company recognized approximately $868,000 and $1,332,000, respectively,
as its share of premiums collected from customers covered by these
  policies in excess of claims and fees paid. The decrease in reported
workers' compensation profit is due to the revised methodology in 
   evaluating the Company's exposure as reported in the Company's second
fiscal quarter 10-Q and the new insurance program.                

      The Company has outstanding letters of credit amounting to $1,193,000 as
of September 30, 1997. The letters of credit are required to      
 collateralize unpaid claims in connection with the Company's former
      workers' compensation insurance policy and can only be drawn upon by the
       beneficiary if the Company does not perform according to the terms of the
       related agreement. The Company has collateralized these letters of credit
  by maintaining compensating restricted cash balances of $738,000 and
   utilizing $455,000 of amounts available under its line of credit. The
      Company's current policy does not require a letter of credit because the
Company funds the estimated loss reserves on a monthly basis.     

Legal Proceedings-                                                

    In October 1995, the Company entered into a note and finance agreement
 with LNB Investment Corporation (LNB) providing for the loan to the
       Company of up to $3,000,000. The loan was for a term of 15 months and was
   to be secured by shares of the Company's common stock having a market
       value of no less than four times the outstanding balance of the loan. LNB
     agreed not to sell or otherwise liquidate the shares unless the Company
      were to default under the loan agreement and failed to cure such default
   after notice. A total of 7,500,000 shares to be pledged as collateral
       were registered under a registration statement filed under the Securities
Act of 1933, as amended.                                          

      The Company issued 1,783,334 shares in the name of LNB and delivered the
shares to a depository to secure the first portion of the loan of 
$1,000,000. In January 1996, the Company determined               

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        that the shares pledged as collateral had been transferred and sold in
         violation of the loan and finance agreement. As a result, the financing
       agreement was terminated and never funded. Through the efforts of the
   Company, 1,258,334 of these shares were recovered and the Company
    received proceeds of $229,000 for a partial payment on the 525,000
shares not recovered.                                         

     In March 1996, the Company commenced action against LNB, Donaldson,
   Lufkin & Jenrette Securities Corporation and other individuals to
         recover damages on account of the wrongful sale of the Company's common
 stock. On July 2, 1997, the Company settled the action. Without
       admitting or denying the allegations in the complaint, the defendants
      agreed to pay $676,000 of which $426,000 ($202,000, net of expenses)
    has been paid with the balance of $250,000 to be paid by LNB on or
       before August 4, 1997. The payment was not made by LNB as of December
16, 1997 and as a result, the Company has commenced collection
   proceedings. The subsequent payment is secured by a confession of
       judgment and a mortgage in the amount of $625,000. The payments under
 the settlement agreement are in addition to $229,000 previously
 received from LNB bringing the total recovered to approximately
      $905,000, assuming LNB complies with the terms of the settlement and
       remits the last payment of $250,000. The agreement also provides that
        upon payment of all sums due under the settlement agreement, LNB shall
       be deemed to have made full restitution to the Company for the claims
alleged in the action.                                        

      At September 30, 1997 the Company is involved in various other legal
       proceedings incurred in the normal course of business. In the opinion
       of management and its counsel, none of these proceedings would have a
      material effect, if adversely decided, on the consolidated financial
position or results of operations of the Company.             

(9)    SHAREHOLDERS' EQUITY                                                     

Private Placements-                                           

         In November, 1995, the Company issued in a private placement 500 Shares
        of $.10 par value Series B Convertible Preferred Stock. Holders of the
      preferred stock were entitled to dividends of $60 per annum, payable
        semiannually and had the right to convert up to 50% of their shares at
  any time after 41 days from the date of issuance of the Series B
Preferred Stock and 100% after 60 days after issuance into the
    Company's common stock at a conversion price equaled to 75% of the
   average closing price at the date of conversion. In January 1996,
     holders of the Company's preferred stock exercised their conversion
      privilege and received 421,792 shares of the Company's common stock.
         The Company realized net proceeds of $437,000 from the proceeds of this
offering.                                                     

        Additionally, during 1996 the Company raised an additional $4,091,000,
        net of expenses through a private placement of 1,882,408 shares of its
      common stock. The proceeds from these offerings were used in part to
      pay down the balance on the Subordinated Bridge Notes, collateralize
        letters of credit issued to secure the Company's workers' compensation
program (see Note 8) and for working capital needs.           

         On December 1, 1997, as a requirement of the extension of its bank line
    of credit, the Company raised $250,000. These funds were an equity
       investment provided by its directors, a former director and executive
officers and will be available for general corporate purposes.

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Stock Warrants -                                                  

    The following is a summary of the outstanding warrants to purchase the
      Company's common stock at September 30, 1997 as a result of various debt
    and equity offerings that have occurred since the Company's inception:

                                                        [Enlarge/Download Table]

                                                 Exercise Price Per      Number of Shares of    
Exercise Period From       Exercise Period          Common Share        Common Stock Reserved   
                                 To                                                             
----------------------  ----------------------  ---------------------  -------------------------
                                                                                                
October 1991            October 2001                    0.75                   100,000          
June 1993               June 1998                       0.75                    25,000          
August 1993             August 1998                     0.75                       300          
September 1993          September 1998                  1.06                    50,000          
January 1995            January 2000                    1.90                    64,350          
April 1995              April 2000                      2.50                     5,000          
October 1995            October 2000                    2.25                    24,000          
December 1995           December 2000                   1.56                     5,000          
June 1996               June 2001                       2.70                   112,979          

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

                                                                               386,629          
                                                                           =============        

Stock Option Plans -                                              

  In April 1990 the Company adopted three stock option plans, the 1990
  Employees Stock Option Plan, the Non-Executive Director Stock Option
    Plan, and the Senior Management Incentive Plan (collectively the "1990
      Plans"). The 1990 Plans will remain in effect until April 2000 or unless
terminated sooner by the Board of Directors.                      

     The 1990 Employees Stock Option Plan (the "Employee Plan") provides for
   options to be granted to employees, including certain officers of the
       Company, for the purchase of up to 1,000,000 shares of common stock. Some
   of the options granted under the 1990 Plan are intended to qualify as
   incentive stock options under the Internal Revenue Code. The exercise
    price of incentive stock options granted may not be less than the fair
market value of the shares on the date of grant, or in certain    
      circumstances, an option price at least equal to 110% of the fair market
   value of the stock at the time the option is granted. Options granted
      under the plan may not be exercised more than ten years from the date of
 the grant (or in certain circumstances, five years from the date of
grant).                                                           

 The Non-Executive Director Stock Option Plan (the "Director Plan"),
    provides for the issuance of options for the purchase of up to 500,000
shares of common stock. Eligible participants are directors of the
Company who are also not employees of the Company and nonemployee 
   directors of any advisory board established by the Company. Under the
    terms of the Director Plan, the exercise price of options granted will
     equal 100% of the fair market value of the common stock at the date the
      options are granted. Options will be granted to eligible participants as
follows: 5,000 upon becoming nonexecutive directors and 5,000 each
     September 1, commencing September 1, 1990 provided such person had been
     eligible for the preceding 12 months. Directors of advisory boards will
       receive on each September 1 an option to purchase 10,000 shares of common
     stock, providing such director has served as a director of the advisory
       board for the previous 12 month period. The term of each option commences
     on the date it is granted and expires five years from grant date unless
terminated sooner as provided in the Director Plan.               

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       The Senior Management Incentive Plan (the "Management Plan") provides
        for the issuance of stock, options and other stock rights to executive
         officers and other key employees who render significant services to the
        Company. Under the terms of the Management Plan, the exercise price of
        options granted will equal 100% of the fair market value of the common
        stock at the date the options are granted. A total of 5,000,000 shares
      of common stock have been reserved for issuance under the Management
      Plan. Awards made under the Management Plan are generally subject to
       three-year vesting periods (subject to the discretion of the Board of
        Directors), but may become exercisable in full upon certain "change of
control" events as defined in the Management Plan.            

     The following tables summarizes the activity in the Company's stock
option plans for the year ended September 30, 1997 and 1996.  

                                                        [Enlarge/Download Table]

                         Options                                                              Options      
                       Outstanding                                                          Outstanding    
                      September 30,                                                        September 30,   
       Plan                1996          Granted (1)       Canceled        Exercised            1997       
-------------------  -----------------  --------------  ---------------  ---------------  -----------------

                                                                                                           
Employee Plan               248,558           60,000         135,751            79,682            93,125   
Director Plan                71,250           15,000          10,000                 0            76,250   
Management                                                                                                 
  Plan                      977,540           30,000         207,751           124,789           675,000   
                     -----------------  --------------  ---------------  ---------------  -----------------

                          1,297,348          105,000         353,502           204,471           844,375   
                     =================  ==============  ===============  ===============  =================

         (1)  Options granted during 1997 have a weighted average exercise price
              and weighted average fair value of $1.875 and $1.12, respectively.

                                                        [Enlarge/Download Table]


                         Options                                                              Options      
                       Outstanding                                                          Outstanding    
                      September 30,                                                        September 30,   
       Plan                1995          Granted(2)        Canceled        Exercised            1996       
-------------------  -----------------  --------------  ---------------  ---------------  -----------------

                                                                                                           
Employee Plan               186,964          131,500           6,655            63,251           248,558   
Director Plan                70,000           31,250               0            30,000            71,250   
Management                                                                                                 
  Plan                    1,451,500          350,000         123,054           700,906           977,540   
                     -----------------  --------------  ---------------  ---------------  -----------------

                          1,708,464          512,750         129,709           794,157         1,297,348   
                     =================  ==============  ===============  ===============  =================

        (2) Options granted during 1996 have a weighted average exercise price
   and weighted average fair value of $4.63 and $2.40, respectively.

         During 1997, certain individuals exercised options by delivering to the
     Company shares previously purchased in consideration for the option
       price. The amounts reflected in additional paid in capital are net of
the fair market value of the shares redeemed by the Company.  

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    Options outstanding as of September 30, 1997 become exercisable as
follows-                                                      

                                                        [Enlarge/Download Table]

                     Exercise                                                                              
      Plan            Price          Total           1997           1998         1999         Thereafter   
-----------------  -------------  -------------  --------------  -----------  ------------  ---------------

                                                                                                           
Employee               $0.75-          93,125          41,178        24,614       15,833          11,500   
  Plan                 $6.50                                                                               

Director               $0.81-          76,250          61,250        15,000            0             0     
  Plan                 $4.4375                                                                             

Management              $.875-        675,000         438,999       124,000      112,001             0     
  Plan                 $5.8125                                                                             
                                  -------------  --------------  -----------  ------------  ---------------

                                      844,375         541,427       163,614      127,834        11,500     
                                  =============  ==============  ===========  ============  ===============

         In accordance with Statement of Financial Accounting Standards No. 123,
  "Accounting for Stock-Based Compensation" ("FAS 123"), which was
         effective October 1, 1996, the fair value of option grants is estimated
       on the date of grant using the Black-Scholes option-pricing model for
    proforma footnote purposes with the following assumptions used for
      options granted subsequent to October 1, 1996; dividend yield of 0%,
  risk-free interest rate of 6.31% and 6.64% in 1997 and 1996, and
        expected option life of 4 years. Expected volatility was assumed to be
73.5% and 78% in 1997 and 1996, respectively.                 

        As permitted by FAS 123, the Company has chosen to continue to account
       for its employee stock-based compensation at their intrinsic value in
        accordance with Accounting Principle Board Opinion No. 25. Accordingly
  no compensation expense has been recognized for its stock option
  compensation plans. Had the fair value method of accounting been
      applied to the company's stock option plans, the tax-effected impact
would be as follows:                                          

                                                        [Enlarge/Download Table]

                                                              ------------------ -------------------
(Thousands of dollars except per share amounts)                          1997               1996    
                                                              ------------------ -------------------
                                                                                                    
Net loss as reported                                                   $2,832               $597    
Estimated fair value of the year's option grants, net of tax                                        
                                                                           76                788    
                                                              ------------------ -------------------
Net loss adjusted                                                                                   
                                                                       $2,908             $1,385    
                                                              ------------------ -------------------

Adjusted net loss per share                                                                         
                                                                       $.15               $.08      
                                                              ================== ===================

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                                                                      SCHEDULE I

DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES

 VALUATION AND QUALIFYING ACCOUNTS

 FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

                                                        [Enlarge/Download Table]


                                                 (c) Additions         (d)                                        
                                 (b) Balance       Charged to     Deductions -                                    
                                 at Beginning      Costs and           Net          (e) Other       (f) Balance   
       (a) Description             of Year          Expenses       Write-Offs       Adjustment     at End of Year 
------------------------------  ---------------  ---------------  --------------  ---------------  ---------------

Allowance for doubtful                                                                                            
accounts, year ended-                                                                                             

                                                                                                                  
     September 30, 1997            $339,000        $1,120,000        ($597,000)             $0          $862,000  
                                 =============   ==============   ==============  ===============   ============= 

     September 30, 1996            $150,000          $462,000        ($273,000)             $0          $339,000  
                                 =============   ==============   ==============  ===============   ============= 

     September 30, 1995             $99,000          $153,000        ($102,000)             $0          $150,000  
                                 =============   ==============   ==============  ===============   ============= 

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                                                                       EXHIBIT C

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

 FORM 10-Q

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

For the quarterly period ended  June 30, 1998                                   

OR

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

For the transition period from                  to                              

 Commission File No. 0-18492

 DIGITAL SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)

New Jersey                                         22-1899798     
(State or other jurisdiction of                        (I.R.S. Employer         
incorporation or organization)                      Identification Number)      

300 Atrium Drive, Somerset, NJ                              08873               
(Address of principal executive offices)                  (Zip Code)            

Registrant's telephone number, including area code: (732) 748-1700              

Former name, former address and former fiscal year, if changed
since last report.

         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    
    ---          ---

19,298,010 shares of Common Stock, par value $.001 per share, were outstanding  
as of July 24, 1998.                                                            

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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES
 FORM 10-Q

 June 30, 1998

 Table of Contents

                                                                        Page No.
                                                                        --------
Part I - Financial Information                                                  

Item 1.           Consolidated Balance Sheets as of                             
June 30, 1998 (Unaudited) and               
               September 30, 1997                                        3

Consolidated Statements of                  
Income for the three months ended           
               June 30, 1998 and 1997 (Unaudited)                        5

Consolidated Statements of                  
Income for the nine months ended            
               June 30, 1998 and 1997 (Unaudited)                        6

 Consolidated Statements of Cash Flows for the
nine months ended June 30, 1998 and 1997    
               (Unaudited)                                               7

Notes to Consolidated Financial Statements  
               (Unaudited)                                               8

Item 2.           Management's discussion and analysis of                       
                financial condition and results of operations             11

Part II - Other Information                                                     

Item 1.           Legal Proceedings                                         15  

Item 5.           Other Information                                         15  

Item 6.           Exhibits and Reports on Form 8-K                          15  

Signatures                                                                  16  

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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS

                                                                [Download Table]

                                                      JUNE 30,   SEPTEMBER 30,
                                                        1998         1997     
                                                    -----------  -------------
                                                    (unaudited)               
                                                                              
ASSETS                                                                        

CURRENT ASSETS                                                                

         Cash                                       $ 1,806,000  $   841,000  
         Restricted Cash                                738,000      738,000  
         Accounts receivable, net of allowance        4,924,000    5,820,000  
         Other current assets                           901,000      402,000  
                                                    -----------  -----------  
              Total current assets                    8,369,000    7,801,000  

EQUIPMENT AND IMPROVEMENTS                                                    

         Equipment                                    3,254,000    3,170,000  
         Leasehold improvements                          47,000       47,000  
                                                    -----------  -----------  
                                                      3,301,000    3,217,000  

         Accumulated depreciation and amortization    2,535,000    2,310,000  
                                                    -----------  -----------  
                                                        766,000      907,000  

DEFERRED TAX ASSET                                    1,916,000      760,000  

GOODWILL, net of amortization                         4,158,000    4,344,000  

OTHER ASSETS                                            575,000      351,000  
                                                    -----------  -----------  

         TOTAL ASSETS                               $15,784,000  $14,163,000  
                                                    ===========  ===========  

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

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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS

                                                        [Enlarge/Download Table]

                                                                         JUNE 30,     SEPTEMBER 30,
                                                                           1998            1997    
                                                                       ------------   -------------
                                                                       (unaudited)                 
                                                                                                   
LIABILITIES AND SHAREHOLDERS' EQUITY                                                               

CURRENT LIABILITIES                                                                                
         Short-term borrowings                                         $         --   $  2,697,000 
         Current portion of long-term debt                                  541,000        113,000 
         Accounts payable                                                 1,680,000      2,254,000 
         Accrued expenses and other current liabilities                   2,849,000      4,138,000 
                                                                       ------------   ------------ 
              Total current liabilities                                   5,070,000      9,202,000 

LONG-TERM DEBT                                                            3,096,000         89,000 
                                                                       ------------   ------------ 
              Total Liabilities                                           8,166,000      9,291,000 

COMMITMENTS AND CONTINGENCIES                                                                      

SHAREHOLDERS' EQUITY                                                                               
         Common Stock, $.001 par value; authorized 40,000,000 shares;                              
              issued and outstanding 19,298,010 and 19,141,760 at                                  
              June 30, 1998 and September 30, 1997, respectively             19,000         19,000 
         Additional paid-in capital                                      13,643,000     13,393,000 
         Accumulated deficit                                             (6,044,000)    (8,540,000)
                                                                       ------------   ------------ 
              Total shareholders' equity                                  7,618,000      4,872,000 
                                                                       ------------   ------------ 

         TOTAL LIABILITIES AND EQUITY                                  $ 15,784,000   $ 14,163,000 
                                                                       ============   ============ 

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

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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)

                                                                [Download Table]

                                                    FOR THE THREE MONTHS ENDED  
                                                            JUNE 30,            
                                                  ----------------------------- 
                                                      1998             1997     
                                                  ------------     ------------ 
                                                                                
REVENUES                                          $ 35,885,000     $ 31,185,000 

DIRECT EXPENSES                                     33,182,000       28,908,000 
                                                  ------------     ------------ 

         Gross profit                                2,703,000        2,277,000 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES         2,059,000        2,034,000 

DEPRECIATION AND AMORTIZATION                          163,000          213,000 
                                                  ------------     ------------ 

         Income from operations                        481,000           30,000 
                                                  ------------     ------------ 

OTHER INCOME (EXPENSE)                                                          
         Interest and other income                      14,000            1,000 
         Interest expense                             (173,000)         (88,000)
                                                  ------------     ------------ 
                                                      (159,000)         (87,000)
                                                  ------------     ------------ 

              Income (loss) before tax                 322,000          (57,000)

INCOME TAX BENEFIT                                   1,470,000               -- 
                                                  ------------     ------------ 

NET INCOME (LOSS)                                 $  1,792,000     $    (57,000)
                                                  ============     ============ 

BASIC EARNINGS (LOSS) PER COMMON SHARE            $       0.09     $      (0.00)
                                                  ============     ============ 

WEIGHTED AVERAGE SHARES OUTSTANDING                 19,298,010       19,103,854 
                                                  ============     ============ 

DILUTED EARNINGS (LOSS) PER COMMON SHARE          $       0.09     $      (0.00)
                                                  ============     ============ 

DILUTED SHARES OUTSTANDING                          19,548,671       19,103,854 
                                                  ============     ============ 

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

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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)

                                                                [Download Table]

                                                   FOR THE NINE MONTHS ENDED    
                                                           JUNE 30,             
                                                ------------------------------- 
                                                    1998               1997     
                                                -------------     ------------- 
                                                                                
REVENUES                                        $ 102,122,000     $  92,295,000 

DIRECT EXPENSES                                    94,588,000        85,911,000 
                                                -------------     ------------- 

         Gross profit                               7,534,000         6,384,000 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES        5,677,000         8,402,000 

DEPRECIATION AND AMORTIZATION                         502,000           830,000 
                                                -------------     ------------- 

         Income (loss) from operations              1,355,000        (2,848,000)
                                                -------------     ------------- 

OTHER INCOME (EXPENSE)                                                          
         Interest and other income                     37,000            34,000 
         Interest expense                            (366,000)         (284,000)
                                                -------------     ------------- 
                                                     (329,000)         (250,000)
                                                -------------     ------------- 

              Income (loss) before tax              1,026,000        (3,098,000)

INCOME TAX BENEFIT                                  1,470,000                -- 
                                                -------------     ------------- 

NET INCOME (LOSS)                               $   2,496,000     $  (3,098,000)
                                                =============     ============= 

BASIC EARNINGS (LOSS) PER COMMON SHARE          $        0.13     $       (0.16)
                                                =============     ============= 

WEIGHTED AVERAGE SHARES OUTSTANDING                19,263,097        19,048,901 
                                                =============     ============= 

DILUTED EARNINGS (LOSS) PER COMMON SHARE        $        0.13     $       (0.16)
                                                =============     ============= 

DILUTED SHARES OUTSTANDING                         19,504,058        19,048,901 
                                                =============     ============= 

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

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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)

                                                        [Enlarge/Download Table]

                                                                    FOR THE NINE MONTHS     
                                                                         JUNE 30,           
                                                                --------------------------- 
                                                                    1998            1997    
                                                                -----------     ----------- 
                                                                                            
CASH FLOWS FROM OPERATING ACTIVITIES                                                        
      Net income (loss)                                         $ 2,496,000     $(3,098,000)
      Adjustments to reconcile net income (loss) to net                                     
         cash provided by operating activities:                                             
         Depreciation and amortization                              502,000         830,000 
         Provision for doubtful accounts                             69,000       1,085,000 
         Deferred taxes                                          (1,470,000)             -- 
         Other non cash items                                            --       1,109,000 

      Changes in operating assets and liabilities:                                          
         Accounts receivable                                        827,000         403,000 
         Other current assets                                      (499,000)       (293,000)
         Notes due from officers                                         --         136,000 
         Accounts payable, accrued expenses and                                             
           other current liabilities                             (1,865,000)        369,000 
                                                                -----------     ----------- 

                     Net cash provided by operating activities       60,000         541,000 
                                                                -----------     ----------- 

CASH FLOWS FROM INVESTING ACTIVITIES                                                        
      Purchase of equipment and improvements                        (84,000)       (163,000)
                                                                -----------     ----------- 

CASH FLOWS FROM FINANCING ACTIVITIES                                                        
      Proceeds from borrowings on line of credit                  3,600,000         410,000 
      Repayments on long term debt                                  (42,000)             -- 
      Repayments on revolving line of credit                     (2,697,000)       (490,000)
      Payments under capital lease obligations                     (122,000)        (44,000)
      Proceeds from letter of credit termination                         --         417,000 
      Proceeds from issuance of common stock and                                            
           exercise of common stock options and warrants - net      250,000         208,000 
                                                                -----------     ----------- 

                     Net cash provided by financing activities      989,000         501,000 
                                                                -----------     ----------- 

      Net increase in cash                                          965,000         879,000 

CASH AT BEGINNING OF PERIOD                                         841,000              -- 
                                                                -----------     ----------- 

CASH AT END OF PERIOD                                           $ 1,806,000     $   879,000 
                                                                ===========     =========== 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                           

      Cash paid during the period for interest                  $   276,000     $   265,000 
                                                                ===========     =========== 

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

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DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES                                        
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      
(Unaudited)                                                                     

(1) ORGANIZATION AND BUSINESS                                                   

Digital Solutions, Inc. (the Company) was incorporated under the laws of the    
State of New Jersey on November 25, 1969. The Company, with its subsidiaries,   
provides a broad spectrum of human resource services including Professional     
Employer Organization (PEO) services, payroll processing, human resource        
administration and placement of temporary and permanent employees.              

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                  

Basis of Presentation                                                           

The consolidated financial statements included herein have been prepared by the 
registrant, without audit, pursuant to the rules and regulations of the         
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally 
accepted accounting principles have been condensed or omitted pursuant to such  
rules and regulations, although the registrant believes that the disclosures are
adequate to make the information presented not misleading. These consolidated   
financial statements should be read in conjunction with the consolidated        
financial statements and the notes thereto included in the Company's latest     
annual report on Form 10-K. This financial information reflects, in the opinion 
of management, all adjustments necessary to present fairly the results for the  
interim periods. The results of operations for such interim periods are not     
necessarily indicative of the results for the full year.                        

The accompanying consolidated financial statements include those of DSI, a New  
Jersey Corporation and its wholly-owned subsidiaries; DSI Contract Staffing, DSI
Staff ConnXions - Northeast, Inc., DSI Staff ConnXions - Southwest, Inc., and   
DSI Staff Rx, Inc. The results of operations of acquired companies have been    
included in the consolidated financial statements from the date of acquisition. 
All significant intercompany balances and transactions have been eliminated in  
the consolidated financial statements.                                          

Earnings Per Common Share                                                       

In March 1997, the Financial Accounting Standards Board issued Statement on     
Financial Accounting Standards Number 128, "Earnings Per Share" (FAS No. 128).  
FAS 128 requires the presentation of basic earnings per share and diluted       
earnings per share for all periods presented. "Basic earnings per share"        
represents net income divided by the                                            

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weighted average shares outstanding. "Diluted earnings per share" represents net
income divided by weighted average shares outstanding adjusted for the          
incremental dilution of outstanding and vested stock options and warrants.      

A reconciliation of weighted average number of common shares outstanding to     
weighted average common shares outstanding assuming dilution is as follows:     

                                                        [Enlarge/Download Table]

                                           Three Months Ended June 30,  Nine Months Ended June 30,
                                           ---------------------------  --------------------------
                                              1998             1997        1998            1997   
                                           ----------       ----------  ----------      ----------
                                                                                                  
Weighted average number of common shares   19,298,010       19,103,854  19,263,097      19,048,901

Dilutive share equivalents of outstanding                                                         
stock options                                 250,661               --     240,961              --
                                           ----------       ----------  ----------      ----------
Weighted average number of common shares                                                          
assuming dilution                          19,548,671       19,103,854  19,504,058      19,048,901
                                           ==========       ==========  ==========      ==========

Stock options and warrants outstanding at June 30, 1998 to purchase 686,479     
shares of common stock were not included in the computation of earnings per     
share assuming dilution because the options were antidilutive.                  

(3)   INCOME TAXES                                                              

Income taxes for the quarter ended June 30, 1998 reflected a net tax benefit of 
$1,470,000 relating to a reduction in the Company's valuation allowance. As of  
September 30, 1997, the Company had established a deferred tax valuation        
allowance of $2,680,000. In view of the continued earnings improvement of the   
Company over the last four quarters and its current financial position and      
prospects, management has determined that it is more likely than not that the   
majority of such valuation allowance will be realized. As of June 30, 1998, the 
Company's valuation allowance approximated $680,000.                            

(4) COMMITMENTS AND CONTINGENCIES                                               

In connection with the Company's former workers' compensation insurance policy  
which expired on April 1, 1997, the insurance company developed reserve factors 
on each claim that may or may not materialize after the claim is fully          
investigated. Generally Accepted Accounting Principles require that all         
incurred, but not paid claims, as well as an estimate for claims incurred, but  
not reported (IBNR), be accrued on the balance sheet as a current liability,    
although a portion of the claims may not be paid in the following 12 months. On 
April 1, 1997, the Company entered into a workers' compensation policy with a   
new carrier. During the nine months ended June 30, 1998 and 1997, the Company   
recognized approximately $717,000 and $694,000, respectively, as its share of   
premiums collected from customers covered by these policies in excess of claims 
and fees paid.                                                                  

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The Company has outstanding letters of credit amounting to $1,193,000 as of June
30, 1998. The letters of credit are required to collateralize unpaid claims in  
connection with the Company's former workers' compensation insurance policy and 
can only be drawn upon by the beneficiary if the Company does not perform       
according to the terms of the related agreement. The Company has collateralized 
these letters of credit by maintaining compensating restricted cash balances of 
$738,000 and utilizing $455,000 of amounts available under its line of credit.  
The Company's current policy does not require a letter of credit because the    
Company funds the estimated loss reserves on a monthly basis.                   

(5)  SHAREHOLDERS' EQUITY                                                       

During the first nine months of fiscal 1998, $250,000 was received from an      
equity investment by the Company directors and executive officers, as well as   
from a former director, to be used for general corporate purposes.              

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

Results of Operations                                                           

 Certain statements contained herein constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act  
of 1995 (the "1995 Reform Act"). Digital Solutions, Inc. (the "Company") desires
to avail itself of certain "safe harbor" provisions of the 1995 Reform Act and  
is therefore including this special note to enable the Company to do so.        
Forward-looking statements included in this report involve known and unknown    
risks, uncertainties, and other factors which could cause the Company's actual  
results, performance (financial or operating) or achievements to differ from the
future results, performance (financial or operating) achievements expressed or  
implied by such forward looking statements. Such future results are based upon  
management's best estimates based upon current conditions and the most recent   
results of operations. These risks include, but are not limited to, risks       
associated with the Company's risks of future acquisitions, effects of          
competition and technological changes and dependence upon key personnel.        

     The Company's revenues for the three months ended June 30, 1998 and
1997 were $35,885,000 and $31,185,000, respectively, which represents an        
increase of $4,700,000 or 15.1%. For the nine months ended June 30, 1998 and    
1997, the Company's revenues were $102,122,000 and $92,295,000, respectively,   
which represents an increase of $9,827,000 or 10.6%. This increase is due to the
efforts of the internal sales force to continually bring in new business which  
accounted for all of the increase. Revenues for the first nine months ended June
30, 1997 include approximately $8,000,000 in revenue from two contracts         
completed in the third quarter of fiscal 1997. Excluding these contracts,       
revenues for the first nine months of fiscal 1998 increased 21% over the        
comparable prior year period.                                                   

      Direct expenses were $33,182,000 for the three months ended June 30,
1998 and $28,908,000 for the comparable period last year, representing an       
increase of $4,274,000 or 14.8%. This increase represents the corresponding     
higher costs associated with higher revenues. As a percentage of revenue, direct
expenses for the three months ended June 30, 1998 and 1997 were 92.5% and 92.7%.
For the nine months ended June 30, 1998 and 1997, direct costs increased        
$8,677,000 or 10.1%, from $85,911,000 to $94,588,000, respectively. This        
increase represents the corresponding higher costs associated with higher       
revenues. As a percentage of revenue, direct costs for the nine months ended    
June 30, 1998 and 1997 were 92.6% and 93.1%, respectively.                      

     Gross profits were $2,703,000 and $2,277,000 for the quarters ended
June 30, 1998 and 1997, respectively, or an increase of $426,000. Gross profits,
as a percentage of revenue, were 7.5% and 7.3% for the quarters ended June 30,  
1998 and 1997,                                                                  

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respectively. For the nine months ended June 30, 1998 and 1997, gross profits   
increased to $7,534,000 from $6,384,000, respectively. As a percentage of       
revenue, gross profits for the nine months ended June 30, 1998 and 1997 were    
7.4% and 6.9%, respectively. The increase in gross profits as a percentage of   
revenue is attributed to an increase in the percentage of the medical staffing  
business which has a higher margin.                                             

SG&A costs for the quarters ended June 30, 1998 and 1997 were 
$2,059,000 and $2,034,000, respectively, representing an increase of $25,000 or 
1.2%. This increase is attributed to the corresponding increase in revenue. For 
the nine months ended June 30, 1998 and 1997 SG&A decreased from $8,402,000 to  
$5,677,000, respectively. Included in the nine months ended June 30, 1997 SG&A  
costs were $2,024,000 of items including $1,002,000 to increase the Company's   
bad debt reserve, $300,000 to absorb miscellaneous charges, $124,000 to correct 
unrecorded 1996 expenses, $102,000 to establish a vacation pay accrual, $81,000 
to change supplies accounting, $93,000 to establish a reserve for severance     
costs, a $51,000 severance charge and $271,000 for various other miscellaneous  
items. The need to substantially increase the Company's bad debt reserve became 
evident after January, 1997 when previously current clients became seriously    
delinquent. The Company is currently filing legal claims to recover some of     
these amounts. Excluding these items, SG&A decreased by $701,000 which was      
attributable to the reduction in overhead costs implemented in the fourth fiscal
quarter of 1997.                                                                

        Depreciation and amortization for the quarters ended June 30, 1998 and
1997 decreased to $163,000 from $213,000, respectively, or $50,000. The decrease
was attributable to several intangible assets that have become fully amortized  
in the current fiscal year. For the nine month period ended June 30, 1998 and   
1997, depreciation and amortization decreased from $830,000 to $502,000,        
respectively, or $328,000. The majority of the decrease was attributable to the 
writing off of the intangible assets of Digital Insurance Services, Inc. in the 
first quarter of 1997, as a result of management's decision to abandon these    
assets since it was decided not to remain in the insurance business.            

      Income taxes for the quarter ended June 30, 1998 reflected a net tax
benefit of $1,470,000 relating to a reduction in the Company's valuation        
allowance. As of September 30, 1997, the Company had established a deferred tax 
valuation allowance of $2,680,000. In view of the continued earnings improvement
of the Company over the last four quarters and its current financial position   
and prospects, management has determined that it is more likely than not that   
the majority of such valuation allowance will be realized. As of June 30, 1998, 
the Company's valuation allowance approximated $680,000.                        

          Net income for the quarter ended June 30, 1998 was $1,792,000 versus a
net loss of $57,000 for the similar period in 1997. This increase of $1,849,000 
is attributed to the $1,470,000 in net tax benefits and the overhead reductions 
implemented in the fourth fiscal quarter of 1997. For the nine months ended June
30, 1998 the Company reported                                                   

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net income of $2,496,000 versus a loss of $3,098,000 in the similar period of   
1997 or an increase of $5,594,000. This increase is attributable to the $3.1    
million in adjustments recorded in fiscal 1997, the net tax benefit of          
$1,470,000 recorded in fiscal 1998 and the overhead reductions implemented in   
the fourth fiscal quarter of 1997.                                              

Liquidity and Capital Resources                                                 

The Company's working capital position as of June 30, 1998 was
$3,299,000 versus a working capital deficit of ($1,401,000) as of September 30, 
1997. The improved working capital position is attributable to the continued    
earnings improvement of the Company and the successful refinancing of the       
Company's short term borrowings, as discussed below, to a long term credit      
facility. At June 30, 1998, the Company had cash of $1,806,000, restricted cash 
of $738,000 and accounts receivable of $4,924,000.                              

        In February 1995, the Company entered into a one year revolving credit
line facility (the "Line") with a bank which was subsequently extended and      
amended on seven occasions. At September 30, 1997 the total amount outstanding  
on the Line was $2,697,000. On April 29, 1998, the Company was successful in    
replacing the former credit facility with a new long term credit facility from  
FINOVA Capital Corporation totaling $4.5 million. The credit facility includes a
three year term loan for $2.5 million, with a five year amortization, at prime +
3% (currently 11.5%) and a $2 million revolving line of credit secured by       
certain accounts receivable of the Company at prime + 1% (currently 9.5%).      
Taking various fees into consideration and assuming the Company continuously    
fully utilizes the revolver, the effective rate of interest on the total        
borrowings is approximately 16.1%. The Balance Sheet as of June 30, 1998        
reflects the categorization of the debt between short-term and long-term due to 
the new financing. The short-term portion reflects the next twelve months of    
principal payments due FINOVA starting June 1, 1998. The long-term portion      
reflects the balance of the debt owed as of June 30, 1998.                      

     Inflation and changing prices have not had a material effect on the
Company's net revenues and results of operations in the last three fiscal years,
as the Company has been able to modify its prices to respond to inflation and   
changing prices.                                                                

            The Company anticipates that its available funds, together with cash
generated from operations and amounts that may be borrowed under the credit     
facility will be sufficient to fund working capital and debt service            
requirements for the next twelve months.                                        

Year 2000 Issue                                                                 

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   The year 2000 issue is the programming of computer systems to
recognize the values "00" in a date field as the year 2000 and not the year     
1900. The Company began steps in 1997 to reasonably ensure that the software it 
utilizes will be year 2000 compliant. The Company is utilizing internal staff   
and external sources to make its information technology/computer systems year   
2000 compliant. The Company believes that with modifications to existing        
software and conversions to new software, the year 2000 issue will not pose     
significant operational problems. The costs of these modifications are not      
expected to have a material impact on the Company's financial position.         

Statement of Financial Accounting Standards                                     

      In June, 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 130, "Reporting          
Comprehensive Income" ("SFAS 130"), which establishes standards for reporting   
and displaying comprehensive income and its components. The components of       
comprehensive income refer to revenues, expenses, gains and losses that are     
excluded from net income under current accounting standards, including          
unrecognized foreign currency translation items, minimum pension liability      
adjustments and unrealized gains and losses on certain investments in debt and  
equity securities. SFAS 130 requires that all items that are recognized under   
accounting standards as components of comprehensive income be reported in a     
financial statement displayed in equal prominence with the other financial      
statements; the total of other comprehensive income for a period is required to 
be transferred to a component of equity that is separately displayed in a       
statement of financial position at the end of an accounting period. SFAS 130 is 
effective for both interim and annual periods beginning after fiscal December   
15, 1997, at which time the Company will adopt the provisions. The Company does 
not expect SFAS 130 to have a material effect on reported results.              

   In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related     
Information" ("SFAS 131"). SFAS 131 establishes standards for the way public    
enterprises are to report information about operating segments in interim       
financial statements and requires the reporting of selected information about   
operating segments in interim financial reports issued to shareholders. It also 
establishes standards for related disclosures about products and services,      
geographic areas and major customers. SFAS 131 is effective for periods         
beginning after fiscal December 15, 1997, at which time the Company will adopt  
the provisions. The Company does not expect SFAS 131 to have a material effect  
on reported results.                                                            

      In April 1998, the AICPA issued Statement of Position 98-5 ("SOP
98-5"), "Reporting on the Cost of Startup Activities". SOP 98-5 provides        
guidance on the financial reporting of startup costs and organization costs and 
requires that the cost of startup activities and organization costs be expensed 
as incurred. SOP 98-5 is effective for fiscal years beginning after December 15,
1998, at which time the Company will adopt the                                  

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provisions. The Company does not expect SOP 98-5 to have a material effect on   
reported results.                                                               

PART II                                                                         
 OTHER INFORMATION

Item 1.  Legal Proceedings                                                      

 At June 30, 1998 the Company is involved in various other legal
proceedings incurred in the normal course of business. The Company continues to 
pursue the collection of past due accounts receivable balances. In the opinion  
of management and its counsel, none of these proceedings would have a material  
effect, if adversely decided, on the consolidated financial position or results 
of operations of the Company.                                                   

Item 5.  Other Information                                                      

 On April 28, 1998, the Company entered into a loan and security
agreement (the "Agreement") with Finova Capital Corporation ("Finova") which    
provided a facility in the aggregate amount of $4,500,000. The facility includes
a revolving loan in the maximum amount of $2,000,000 secured by certain eligible
receivables as defined in the Agreement, and a three-year term loan in the      
aggregate amount of $2,500.000. The term loan bears interest at the rate of     
prime plus 3% and the revolving loan bears interest at prime plus 1%. The       
proceeds of the loan were used to repay the existing balance of the Company's   
previous credit facility maintained with Summit Bank, and for general working   
capital. The timely retirement of the Summit Bank facility enabled the Company  
to cancel a warrant to purchase 500,000 shares of Common Stock issued to Summit 
upon the renewal of the bank loan in October 1997. In addition, the Company was 
also required to pay additional fees and expenses of Finova in connection with  
the establishment of the credit facility.                                       

         On July 14, 1998, the Company announced that two new directors had been
elected, increasing the board membership to seven. The new directors are Mr.    
Charles R. Dees, Jr. Ph.D., a nationally known university administrator and     
former official in the U.S. Department of Education and Mr. Martin J. Delaney,  
a prominent healthcare executive.                                               

Item 6.  Exhibits and Reports on Form 8-K                                       

(a) Exhibits - None                                                             

(b) Reports on Form 8-K                                                         

none filed during the quarter ended June 30, 1998.                              

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SIGNATURES

      Pursuant to the requirements 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.                                          

                               DIGITAL SOLUTIONS, INC.
                    (Registrant)

                               /s/ Donald W. Kappauf
                               -----------------------
                         Donald W. Kappauf
                               Chief Executive Officer

                           /s/ Donald T. Kelly
                               -----------------------
                       Donald T. Kelly
                               Chief Financial Officer

Date: July 24, 1998                                                             

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                                                               EXHIBIT D

COMBINED FINANCIAL STATEMENTS                                                   
AND REPORT OF INDEPENDENT                                                       
CERTIFIED PUBLIC ACCOUNTANTS                                                    

TEAMSTAFF COMPANIES, INC. AND                                                   
AFFILIATED COMPANIES                                                            

DECEMBER 31, 1997, 1996 and 1995                                                

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Report of Independent Certified Public Accountants

Board of Directors                                                              
TeamStaff Companies, Inc.                                                       
and Affiliated Companies                                                    

We have audited the accompanying combined balance sheets of TeamStaff Companies,
Inc. and Affiliated Companies as of December 31, 1997 and 1996, and the related 
combined statements of operations, shareholders' deficit and cash flows for the 
years then ended. These combined financial statements are the responsibility of 
the Company's management. Our responsibility is to express an opinion on these  
combined financial statements based on our audits.                              

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

In our opinion, the combined financial statements referred to above present     
fairly, in all material respects, the combined financial position of TeamStaff  
Companies, Inc. and Affiliated Companies as of December 31, 1997 and 1996, and  
the combined results of their operations and their combined cash flows for the  
years then ended, in conformity with generally accepted accounting principles.  

                            Grant Thornton LLP

Tampa, Florida                                                                  
April 24, 1998                                                                  

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Independent Auditors' Report

The Board of Directors                                                          
TeamStaff Companies, Inc.                                                       
and Affiliated Companies                                                    

We have audited the accompanying combined statements of operations,             
shareholders' deficit and cash flows of TeamStaff Companies, Inc. and Affiliated
Companies for the year ended December 31, 1995. These combined financial        
statements are the responsibility of the Company's management. Our              
responsibility is to express an opinion on these combined financial statements  
based on our audit.                                                             

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

In our opinion, the combined financial statements referred to above present     
fairly, in all material respects, the results of operations and the cash flows  
of TeamStaff Companies, Inc. and Affiliated Companies for the year ended        
December 31, 1995, in conformity with generally accepted accounting principles. 

                               KPMG Peat Marwick LLP

New Orleans, Louisiana                                                          
April 4, 1996                                                                   

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TeamStaff Companies, Inc. and Affiliated Companies
 COMBINED BALANCE SHEETS

                                                        [Enlarge/Download Table]

                                                                                     December 31,         
                                                                              --------------------------- 
                                        ASSETS                                   1997            1996     
                                                                              -----------     ----------- 
                                                                                                          
CURRENT ASSETS                                                                                            
  Cash                                                                        $   861,932     $    50,568 
  Accounts receivable, net of allowance for doubtful accounts of $-0- and                                 
    $45,556, respectively                                                       2,680,260       2,035,504 
  Notes receivable from shareholders                                              338,382         321,570 
  Due from voluntary employees' beneficiary association                                --         145,511 
  Deposits with workers' compensation insurer                                     333,703          75,000 
  Restricted certificate of deposit pledged to workers' compensation insurer           --         900,000 
                                                                              -----------     ----------- 
               Total current assets                                             4,214,277       3,528,153 

FURNITURE, FIXTURES AND EQUIPMENT, net                                            239,076         171,325 
NOTE RECEIVABLE FROM SHAREHOLDER                                                1,800,000       1,800,000 
OTHER ASSETS                                                                      314,318         388,447 
                                                                              -----------     ----------- 

               Total assets                                                   $ 6,567,671     $ 5,887,925 
                                                                              ===========     =========== 

                         LIABILITIES AND SHAREHOLDERS' DEFICIT                                            
CURRENT LIABILITIES                                                                                       
  Book overdraft in bank account                                              $        --     $   620,182 
  Accounts payable and accrued expenses                                           795,739         164,576 
  Accrued salaries, wages and payroll taxes                                     3,447,981       2,115,042 
  Accrued workers' compensation claims                                            462,115         856,229 
  Current maturities of note payable                                               33,326              -- 
  Current maturities of notes payable to shareholders                             847,000         689,000 
  Other liabilities                                                                15,310         131,000 
                                                                              -----------     ----------- 
                Total current liabilities                                       5,601,471       4,576,029 

ACCRUED WORKERS' COMPENSATION CLAIMS                                              400,000         441,668 
NOTES PAYABLE TO SHAREHOLDERS, less current portion                             2,300,000       2,300,000 
NOTE PAYABLE, less current portion                                                 55,563              -- 
CLIENT DEPOSITS                                                                    33,850          41,546 

COMMITMENTS AND CONTINGENCIES                                                          --              -- 

SHAREHOLDERS' DEFICIT                                                                                     
  Preferred stock                                                               1,800,000       1,800,000 
  Common stock                                                                     46,800          46,800 
  Additional paid-in capital                                                    1,776,704       1,776,704 
  Accumulated deficit                                                          (5,446,717)     (5,094,822)
                                                                              -----------     ----------- 
               Total shareholders' deficit                                     (1,823,213)     (1,471,318)
                                                                              -----------     ----------- 

               Total liabilities and shareholders' deficit                    $ 6,567,671     $ 5,887,925 
                                                                              ===========     =========== 

The accompanying notes are an integral part of these statements.

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TeamStaff Companies, Inc. and Affiliated Companies
 COMBINED STATEMENTS OF OPERATIONS

                                                        [Enlarge/Download Table]

                                                         Year Ended December 31,              
                                            ------------------------------------------------- 
                                                1997              1996              1995      
                                            -------------     -------------     ------------- 
                                                                                              
Revenues                                    $ 105,246,022     $  76,026,835     $  61,972,534 

Direct costs:                                                                                 
  Salaries and wages of worksite employees     90,099,908        64,498,444        52,485,309 
  Benefits and payroll taxes                   11,847,485        10,135,880         6,889,104 
                                            -------------     -------------     ------------- 
     Total direct costs                       101,947,393        74,634,324        59,374,413 
                                            -------------     -------------     ------------- 

Gross profit                                    3,298,629         1,392,511         2,598,121 

Operating expenses:                                                                           
  Administrative personnel                      1,953,141         1,686,942         1,321,752 
  General and administrative expenses           1,834,147         1,801,962         1,672,811 
                                            -------------     -------------     ------------- 
     Total operating expenses                   3,787,288         3,488,904         2,994,563 
                                            -------------     -------------     ------------- 

Loss from operations                             (488,659)       (2,096,393)         (396,442)

Other income (expense):                                                                       
  Interest, net                                   (46,769)          (84,595)          (66,454)
  Other                                           183,533            71,982           139,890 
                                            -------------     -------------     ------------- 
     Total other income (expense)                 136,764           (12,613)           73,436 
                                            -------------     -------------     ------------- 

     NET LOSS                               $    (351,895)    $  (2,109,006)    $    (323,006)
                                            =============     =============     ============= 

The accompanying notes are an integral part of these statements.

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TeamStaff Companies, Inc. and Affiliated Companies
 COMBINED STATEMENT OF SHAREHOLDERS' DEFICIT
Years ended December 31, 1997, 1996 and 1995

                                                        [Enlarge/Download Table]

                                                            Additional                             
                                   Preferred      Common      paid-in    Accumulated               
                                     stock        stock       capital      deficit        Total    
                                  -----------  -----------  -----------  -----------   ----------- 
                                                                                                   
Balances at December 31, 1994     $        --  $    46,500  $ 1,776,704  $(2,662,810)  $  (839,606)

Issuance of 100 shares of common                                                                   
  stock of TeamStaff III, Inc.             --          100           --           --           100 

Issuance of 100 shares of common                                                                   
  stock of TeamStaff IV, Inc.              --          100           --           --           100 

Issuance of 100 shares of common                                                                   
  stock of TeamStaff V, Inc.               --          100           --           --           100 

Net Loss                                   --           --           --     (323,006)     (323,006)
                                  -----------  -----------  -----------  -----------   ----------- 

Balances at December 31, 1995              --       46,800    1,776,704   (2,985,816)   (1,162,312)

Issuance of preferred stock of                                                                     
  TeamStaff V, Inc.                 1,800,000           --           --           --     1,800,000 

Net loss                                   --           --           --   (2,109,006)   (2,109,006)
                                  -----------  -----------  -----------  -----------   ----------- 

Balances at December 31, 1996       1,800,000       46,800    1,776,704   (5,094,822)   (1,471,318)

Net loss                                   --           --           --     (351,895)     (351,895)
                                  -----------  -----------  -----------  -----------   ----------- 

Balance at December 31, 1997      $ 1,800,000  $    46,800  $ 1,776,704  $(5,446,717)  $(1,823,213)
                                  ===========  ===========  ===========  ===========   =========== 

The accompanying notes are an integral part of this statement.

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 TeamStaff Companies Inc. and Affiliated Companies
 COMBINED STATEMENTS OF CASH FLOWS

                                                        [Enlarge/Download Table]

                                                                       Year ended December 31,           
                                                             ------------------------------------------- 
                                                                1997            1996            1995     
                                                             -----------     -----------     ----------- 
                                                                                                         
Increase (decrease) in cash                                                                              
Cash flows from operating activities:                                                                    
  Net loss                                                   $  (351,895)    $(2,109,006)    $  (323,006)
  Adjustments to reconcile net loss to net cash provided by                                              
    (used in) operating activities:                                                                      
      Depreciation and amortization                               83,753          68,898          81,053 
      Changes in assets and liabilities:                                                                 
        Accounts receivable                                     (644,756)       (852,012)       (660,475)
        Notes receivable from shareholders                       (16,812)     (1,853,209)           (640)
        Due from voluntary employees' beneficiary                                                        
           association                                           145,511        (549,824)         61,188 
        Deposit with workers' compensation insurer              (258,703)             --         (25,000)
        Other assets                                              73,281          35,066        (121,077)
        Accounts payable and accrued expenses                    631,163        (136,710)        (84,675)
        Accrued salaries, wages and payroll taxes              1,332,939         750,747         979,534 
        Accrued workers' compensation claims                    (435,782)        682,681          65,346 
        Other liabilities                                       (115,690)        (16,679)         24,274 
        Client deposits                                           (7,696)         10,558          10,800 
                                                             -----------     -----------     ----------- 
               Net cash  provided by (used in) operating                                                 
                 activities                                      435,313      (3,969,490)          7,322 

Cash flows from investing activities                                                                     
  Purchase of furniture, fixtures and equipment                 (150,656)        (70,787)        (36,373)
  Restricted certificate of deposit                              900,000              --        (546,316)
                                                              -----------     -----------     -----------
               Net cash used in investing activities             749,344         (70,787)       (582,689)

Cash flows from financing activities:                                                                    
  Proceeds from notes payable to shareholders                    158,000       2,308,000         394,292 
  Proceeds from note payable                                     100,000              --              -- 
  Payments of notes payable to shareholders                           --        (186,292)             -- 
  Payments of note payable                                       (11,111)             --              -- 
  Net change in book overdraft in bank account                  (620,182)       (104,770)         90,580 
  Proceeds from issuance of preferred stock                           --       1,800,000              -- 
  Proceeds from issuance of common stock                              --              --             300 
                                                             -----------     -----------     ----------- 
               Net cash provided by (used in) financing                                                  
                 activities                                     (373,293)      3,816,938         485,172 
                                                             -----------     -----------     ----------- 

Net increase (decrease) in cash                                  811,364        (223,339)        (90,195)

Cash at beginning of year                                         50,568         273,907         364,102 
                                                             -----------     -----------     ----------- 
Cash at end of year                                          $   861,932     $    50,568     $   273,907 
                                                             ===========     ===========     =========== 

Supplemental cash flow information:                                                                      
  Cash paid for interest                                     $   276,889     $    84,595     $    66,454 
                                                             ===========     ===========     =========== 

The accompanying notes are an integral part of these statements.

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TeamStaff Companies, Inc. and Affiliated Companies
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995

NOTE A - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  

TeamStaff Companies, Inc. and Affiliates (collectively referred to as "the      
Company" or "TeamStaff") are professional employer organizations ("PEO") which  
provide professional employer services through its service arrangements with its
clients. The Company provides human resource management services, including     
payroll processing, personnel administration, employee benefits administration, 
workers' compensation insurance coverage and claims management, risk management,
and other human resource services. The Company earns a fee for providing human  
resource services, generally computed as a percent of gross wages of payroll    
processed. The majority of the Company's clients are located in the State of    
Florida.                                                                        

The following are the significant accounting policies followed by the Company in
preparing its combined financial statements.                                    

1. Principles of Combination                                                    

The accompanying combined financial statements of TeamStaff Companies, Inc. and 
Affiliated Companies include the accounts of The TeamStaff Companies, Inc.,     
TeamStaff, Inc., TeamStaff II, Inc., TeamStaff III, Inc., TeamStaff IV, Inc.,   
TeamStaff V, Inc., TeamStaff U.S.A., Inc., TeamStaff Insurance Services, Inc.,  
and Employer Support Services, Inc. All material intercompany balances and      
transactions have been eliminated.                                              

2. Use of Estimates                                                             

In preparing the Company's financial statements, management is required to make 
estimates and assumptions that affect the reported amounts of assets and        
liabilities, the disclosure of contingent assets and liabilities at the date of 
the financial statements, and the reported amounts of revenues and expenses     
during the reporting period. The more significant estimates relate to the       
Company's accrued workers' compensation claims. Actual results could differ from
those estimates.                                                                

3. Cash and Cash Equivalents                                                    

For purposes of the statement of cash flows, the Company considers cash in banks
and certificates of deposit with original maturities of ninety days or less to  
be cash equivalents. There were no cash equivalents at December 31, 1997 and    
1996.                                                                           

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TeamStaff Companies, Inc. and Affiliated Companies
NOTES TO COMBINED FINANCIAL STATEMENTS
  December 31, 1997, 1996 and 1995

NOTE A - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued                                                     

4. Revenue Recognition                                                          

Revenues and expenses and the related receivables and payables are recognized   
during the period in which the worksite employee earns wages. The Company's     
client service contracts generally provide for the billing and collection of    
revenues prior to or concurrent with the delivery of payrolls. Ordinarily, the  
Company does not grant credit to its clients; however, credit is granted on a   
case-by-case basis at the discretion of management.                             

Accounts receivable consists primarily of billed receivables of approximately   
$430,000 and $380,000 and unbilled receivables of approximately $2,250,000 and  
$1,700,000 at December 31, 1997 and 1996.                                       

5. Furniture, Fixtures and Equipment                                            

Furniture, fixtures and equipment are stated at cost. Depreciation is computed  
utilizing the straight-line method over the estimated useful lives of the       
assets, principally ranging from 5-7 years.                                     

6. Other Assets                                                                 

Included in other assets and receivables is approximately $26,000 and $73,000 of
advances to a shareholder and the shareholder's family at December 31, 1997 and 
1996, respectively.                                                             

7. Reserves for Workers' Compensation Claims                                    

Client employees were covered under an insurance policy with Northbrook         
Insurance Company (Northbrook) until August 1996, at which time the coverage was
changed to a policy with American International Group (AIG). The Northbrook     
policy provided a specific loss limitation of $500,000 per occurrence. The AIG  
policy provides for a range of premium costs depending on the claims activity   
during the policy year and limits the aggregate claims exposure to a percentage 
of workers' compensation payroll.                                               

From January 1, 1991 through July 31, 1994, all client employees were covered   
under fully insured policies with United States Employer Consumer Association,  
Inc. Self-Insured Fund (USEC), which is currently in receivership (See Note H). 

Claims for workers' compensation benefits covered through the USEC, Northbrook  
and AIG policies, are administered by the respective workers' compensation      
insurers (the Insurers). The Insurers evaluate all workers' compensation claims 
and pay qualifying claims. The Company employs a staff of risk managers         
responsible for assisting the Insurers in the review and evaluation of claims.  

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TeamStaff Companies, Inc. and Affiliated Companies
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995

NOTE A - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued                                                     

Reserves for workers' compensation claims represent the Company's estimated     
undiscounted liability for the settlement of workers' compensation claims, both 
reported and incurred but not reported, as of the balance sheet date. The       
Company's reserves are established based in part upon information provided by   
the Company's Insurers. Management believes that the reserves for workers'      
compensation claims are adequate. While management uses available information,  
including historical loss ratios, to estimate reserves, future adjustments may  
be necessary based on actual losses.                                            

8. Income Taxes                                                                 

All companies in the group are Subchapter S corporations, except for TeamStaff  
V, Inc. which is a C-corporation. The Company's policy is to record income tax  
expenses on the C-corporation financial statements based on applicable statutory
rates.                                                                          

The C-corporation uses the asset and liability method to account for income     
taxes. The objective of the asset and liability method is to establish deferred 
tax assets and liabilities at enacted tax rates expected to be in effect when   
such amounts are realized or settled. The principal temporary difference between
the basis of assets and liabilities for financial reporting and tax purposes    
relates to reserves for workers' compensation and health insurance claims and   
net operating loss carryforwards. Net deferred tax assets related to such       
differences have been offset by a valuation allowance due to the uncertainty of 
their ultimate realization. Income tax expense is not presented on the statement
of operations, as it is not material.                                           

The Subchapter S corporations do not provide for income taxes in the            
accompanying combined financial statements because those companies' results of  
operations are allocated directly to their shareholders.                        

9. Fair Value of Financial Instruments                                          

The carrying amounts of the Company's accounts receivable, notes receivable from
shareholders, certificate of deposit, accounts payable and accrued expenses,    
accrued salaries, wages and payroll taxes, due from voluntary employees'        
beneficiary association, accrued workers' compensation and notes payable at     
December 31, 1997 and 1996, approximate fair value due to the short-term nature 
of these items.                                                                 

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TeamStaff Companies, Inc. and Affiliated Companies
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995

NOTE B - LIQUIDITY                                                              

During 1997 and 1996, the Company's net loss was $351,895 and $2,109,006,       
respectively, and at December 31, 1997 and 1996 the accumulated deficit totaled 
$5,446,717 and $5,094,822, respectively.                                        

The significant reduction in the operating loss for 1997 as compared to 1996 was
primarily attributable to the Company's containment of workers' compensation    
losses, which were achieved by the Company implementing a more aggressive       
approach to claim management and the change in the workers' compensation        
insurance carrier. Management intends to continue improving the operating       
results by better controlling its health insurance-related costs and increasing 
gross client revenues. Management believes that these steps will result in      
economies of scale and greater contribution to net income.                      

The Company has also obtained a commitment from the shareholders to indemnify   
the Company against any and all losses resulting from the inability of or the   
failure by the Company to meet its obligations. Management believes that the    
indemnification and the cash flow from operations will be sufficient to provide 
the Company with the resources to continue its operations through the current   
year.                                                                           

NOTE C - NOTES RECEIVABLE FROM SHAREHOLDERS                                     

The notes receivable from shareholders relate to nine notes outstanding from two
shareholders. The notes have fixed interest rates ranging from 8% to 10%,       
payable quarterly or at the due date. All principle on these notes are due on   
December 31, 1998 and January 31, 1999.                                         

NOTE D - FURNITURE, FIXTURES AND EQUIPMENT                                      

A summary of furniture, fixtures and equipment at December 31, is as follows:   

                                                                [Download Table]

                                                       1997             1996    
                                                     ---------        --------- 
                                                                                
Computer equipment                                   $ 331,673        $ 240,020 
Furniture and fixtures                                 110,224           59,590 
Leasehold improvements                                  24,866           24,866 
                                                     ---------        --------- 
                                                       466,763          324,476 
      Less accumulated depreciation                   (227,687)        (153,151)
                                                     ---------        --------- 

                                                     $ 239,076        $ 171,325 
                                                     =========        ========= 

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TeamStaff Companies, Inc. and Affiliated Companies
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995

NOTE E - NOTES PAYABLE TO SHAREHOLDERS                                          

A summary of notes payable to shareholders at December 31, is as follows:       

                                                        [Enlarge/Download Table]

                                                                              1997          1996     
                                                                           -----------   ----------- 
                                                                                                     
Note payable to shareholder, dated December 27, 1996, principal due on                               
January 31, 1999, interest due quarterly at 10%                            $ 1,800,000   $ 1,800,000 

Note payable to shareholder, dated December 27, 1996, principal due on                               
January 31, 1999, interest due quarterly at 10%                                500,000       500,000 

Note payable to shareholder, dated November 15, 1994, principal due on                               
December 31, 1998, interest due annually at 7.25%                               50,000        50,000 

Note payable to shareholder, dated July 31, 1995, principal due on                                   
December 31, 1998, interest due quarterly at LIBOR (5.97% at December 31,                            
1997) plus 1%                                                                  350,000       350,000 

Note payable to shareholder, dated December 29, 1993, principal due on                               
December 31, 1998, interest due monthly at 8%                                  132,000       124,000 

Note payable to shareholder, dated December 31, 1997, principal due on                               
December 31, 1998, interest due annually at 9%                                  50,000            -- 

Note payable to shareholder, dated December 29, 1993, principal due on                               
December 31, 1998, interest due monthly at 9%                                  100,000       100,000 

Note payable to shareholder, dated December 31, 1997, principal due on                               
December 31, 1998, interest due annually at 9%                                 100,000            -- 

Note payable to shareholder, dated December 29, 1993, principal due on                               
December 31, 1998, interest due monthly at 9%                                   65,000        65,000 
                                                                           -----------   ----------- 
                                                                             3,147,000     2,989,000 
Less current portion                                                          (847,000)     (689,000)
                                                                           -----------   ----------- 

                                                                           $ 2,300,000   $ 2,300,000 
                                                                           ===========   =========== 

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TeamStaff Companies, Inc. and Affiliated Companies
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995

NOTE F - NOTE PAYABLE                                                           

                                                                [Download Table]

                                                                         1997   
                                                                       -------- 
                                                                                
Note payable to a bank, dated August 5, 1997, principal due on August           
5, 2000, interest due quarterly at LIBOR plus 1% (5.97% at December             
31, 1997)                                                              $ 88,889 

Less current portion                                                    (33,326)
                                                                       -------- 

                                                                       $ 55,563 
                                                                       ======== 

NOTE G- EMPLOYEE BENEFIT PLANS                                                  

Voluntary Employees' Beneficiary Association                                    

In 1996 and 1995, the Company sponsored a fully insured health plan (the Plan)  
covering all full-time employees of its clients. The Plan's assets were held in 
a voluntary employees' beneficiary association trust for federal income tax     
purposes. The Company administered claims for benefits under the Plan. During   
1996 and 1995, all Plan participants were covered under traditional fully       
insured policies. Payments to the plan in 1996 and 1995 totaled approximately   
$2,260,000 and $1,380,000, respectively. The Company terminated the Plan        
effective December 31, 1996.                                                    

401(k) Contribution Plan                                                        

In 1996, the Company established a deferred compensation plan (the "Plan") under
Section 401(a)(g) of the Internal Revenue Code. Generally, any employee of the  
Company, including those leased to clients, is eligible to participate in the   
Plan upon completion of a year of service and after attaining the age of 21     
years. At its discretion, the Company may make matching contributions to the    
Plan. Generally, employees become partially vested in Company contributions     
after 2 years of service and are fully vested after 6 years of service. In 1997 
and 1996, approximately $190,000 and $54,000, respectively, were contributed by 
the Company to the Plan.                                                        

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TeamStaff Companies, Inc. and Affiliated Companies
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995

NOTE H - COMMITMENTS AND CONTINGENCIES                                          

Pledged Certificate of Deposit                                                  

As security under the Northbrook insurance policy described previously, the     
Company had pledged a certificate of deposit of $900,000 to Northbrook as of    
December 31, 1996. During 1997, this certificate was transferred to Northbrook  
to use for claim payments, resulting in a $258,703 deposit balance at December  
31, 1997. In addition, as required under the Northbrook policy, the Company also
maintains a $75,000 deposit with the insurer, which is used to fund all claims. 

Workers' Compensation Claim                                                     

The Company has a contingent liability for a potential assessment from a former 
worker's compensation insurer, which is currently in receivership. The Company  
used the insurer for policy years prior to 1994. The Company is a member of the 
insured group and has been given an assessment of $1.1 million for its portion  
of the $38 million assessed to the group. The Company is currently in litigation
for this assessment and management, after consultation with legal counsel, has  
recorded approximately $400,000 of reserves for this claim. In the event that   
other parties of the group are unable to satisfy their assessments, additional  
assessments could be given to the Company.                                      

Operating Leases                                                                

The Company has various operating lease agreements for their offices and        
equipment. Future minimum lease payments required under these operating leases  
for the years ended December 31, are as follows:                                

                                                                [Download Table]
                                                                                
1998                                                                     $68,539
1999                                                                      24,674
2000                                                                      13,699
2001                                                                      11,176
Thereafter                                                                 6,519

The leases provide for payment of taxes and other expenses by the Company. Rent 
expense was approximately $168,000, $164,000 and $127,000 for the years ended   
December 31, 1997, 1996 and 1995, respectively.                                 

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TeamStaff Companies, Inc. and Affiliated Companies
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995

NOTE H - COMMITMENTS AND CONTINGENCIES - Continued                              

Legal Proceedings                                                               

Various legal actions and proceedings are pending or threatened against the     
Company and include suits relating to its professional employer services. While 
the final outcome of these matters cannot be predicted at this time and many of 
them may take a number of years to resolve, management believes, after          
consultations with counsel, that these proceedings are subject to meritorious   
defenses, are covered by insurance, or, if not so covered, any ultimate         
liability will not have a material adverse effect on the financial position,    
results of operations, or liquidity of the Company.                             

NOTE I - CAPITAL STOCK                                                          

Preferred and common stock balances consist of the following at December 31,    
1997 and 1996:                                                                  

                                                        [Enlarge/Download Table]

                                                                        Preferred  Common  
                                                                          Stock     Stock  
                                                                          -----     -----  
                                                                                           
THE TEAMSTAFF COMPANIES, INC.                                                              

Common stock - Authorized 10,000 shares of $1.00 par value; issued and                     
outstanding 29,000 shares.                                                $    --   $29,000

EMPLOYER SUPPORT SERVICES, INC.                                                            

Common stock - Authorized 10,000 shares of $1.00 par value; issued and                     
outstanding 3,800 shares.                                                      --     3,800

TEAMSTAFF II, INC.                                                                         

Common stock - Authorized 10,000 shares of $1.00 par value; issued and                     
outstanding 100 shares.                                                        --       100

TEAMSTAFF III, INC.                                                                        

Common stock - authorized 10,000 shares of $1.00 par value; issued and                     
outstanding 100 shares.                                                        --       100

TEAMSTAFF IV, INC.                                                                         

Common stock - Authorized 10,000 shares of $1.00 par value; issued and                     
outstanding 100 shares.                                                        --       100

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TeamStaff Companies, Inc. and Affiliated Companies
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995

NOTE I - CAPITAL STOCK - Continued                                              

                                                        [Enlarge/Download Table]

                                                                        Preferred      Common   
                                                                          Stock         Stock   
                                                                        ----------   ---------- 
                                                                                                
TEAMSTAFF V, INC.                                                                               

Preferred stock - 8% cumulative - $1,000 par value; authorized, 10,000                          
shares; issued and outstanding 1,800 shares.                              1,800,000           --

Common stock - Authorized 10,000 shares of $1.00 par value; issued and                          
outstanding 100 shares.                                                          --          100

TEAMSTAFF INSURANCE, INC.                                                                       

Common stock - Authorized 10,000 shares of $1.00 par value; issued and                          
outstanding 100 shares.                                                          --          100

TEAMSTAFF U.S.A., INC.                                                                          

Common stock - Authorized 10,000 shares of $1.00 par value; issued and                          
outstanding 3,800 shares.                                                        --        3,800

TEAMSTAFF, INC.                                                                                 

Common stock - Authorized 10,000 shares of $1.00 par value; issued and                          
outstanding 9,700 shares.                                                        --        9,700
                                                                        ----------   ---------- 

                                                                        $1,800,000   $   46,800 
                                                                        ==========   ========== 

All companies have authorized 10,000 shares of $1.00 preferred stock; with the  
exception of those issued above, no shares are issued and outstanding.          

NOTE J - RELATED PARTY TRANSACTION                                              

In 1996, a shareholder gave the Company $1,800,000 in exchange for 10,000 shares
of preferred stock in TeamStaff V, Inc. TeamStaff V., Inc. then loaned the      
$1,800,000 to the shareholder (resulting in the $1,800,000 long-term note       
receivable) who in turn loaned the $1,800,000 to TeamStaff, Inc. (resulting in  
the $1,800,000 note payable). The interest rates on the note receivable and note
payable are identical.                                                          

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NOTE K - INCOME TAXES (UNAUDITED)                                               

The Company is considering being acquired in a business combination being       
accounted for as a purchase. Upon completion of this transaction, the S         
corporations included in the Company will become subject to corporate income    
taxes. The acquirer will recognize a deferred tax benefit for cumulative        
temporary differences between financial and tax reporting as of the date of the 
acquisition. If the acquisition had occurred at December 31, 1997, the deferred 
tax benefit would have been approximately $400,000, which principally relates to
the reserves for workers' compensation claims. Additionally, pro forma tax      
expense is not presented as the benefit derived from each year's loss would have
been offset by a corresponding increase in a valuation allowance against the    
benefit.                                                                        

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                                                               EXHIBIT E

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      
OPERATIONS OF TEAMSTAFF COMPANIES, INC. AND AFFILIATES                          

RESULTS OF OPERATIONS                                                           

   Certain statements contained herein constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the 
"1995 Reform Act"). TeamStaff Companies, Inc. and Affiliates (collectively      
referred to herein as the "Company") desires to avail itself of certain         
"safe harbor" provisions of the 1995 Reform Act and is therefore including this 
special note to enable the TeamStaff Entities to do so. Forward-looking         
statements included in this discussion involve known and unknown risks,         
uncertainties, and other factors which could cause the TeamStaff Entities'      
actual results, performance (financial or operating) or achievements to differ  
from the future results, performance (financial or operational) achievements    
expressed or implied by such forward looking statements. Such future results are
based upon management's best estimates based upon current conditions and the    
most recent results of operations. These risks include, but are not limited to, 
risks associated with the TeamStaff Entities' recent losses, need for additional
capital, effects of competition and technological changes and dependence upon   
key personnel.                                                                  

   The year 2000 issues may materially affect the TeamStaff Entities' services
or competitive conditions. This issue affects computer systems that have        
time-sensitive programs that may not properly recognize the year 2000. This     
could result in major systems failures or miscalculations. The Company has begun
the process of identifying, evaluating, and implementing changes to computer    
programs necessary to address the year 2000 issues in order to provide          
uninterrupted normal operations of critical business systems before, during and 
after the year 2000. If necessary modifications and conversions are not         
completed in a timely manner, the year 2000 issue may have a materially adverse 
effect on the results of operations and financial condition of the Company. The 
total cost associated with the required modifications and conversions is not    
known at this time, however, it is not expected to be material to the Company's 
financial position and is being expensed as incurred.                           

Year Ended December 31, 1997 as Compared to Year Ended December 31, 1996        

  Operating revenue for the year ended December 31, 1997 was $105,246,022 as
compared to the year ended December 31, 1996 of $76,026,835 which represents an 
increase of $29,219,187, or 38.4%. This increase was due to the efforts of the  
internal sales force to continually bring in new business, which accounted for  
all of the increase.                                                            

Direct costs for the year ended December 31, 1997 were $101,947,393 as  
compared to $74,634,324 for the year ended December 31, 1996 which represents an
increase of $27,313,069, or 36.6%. The Company experienced unusually high       
workers compensation claim losses in both 1997 and 1996 due to significant      
adverse development of claims. As a result, the Company received excess workers 
compensation claim losses of approximately $493,000 and $870,000 for the year   
ended December 31, 1997 and December 31, 1996, respectively. After adjusting for
the excess workers compensation losses, as a percentage of revenue,             
direct costs, for year ended December 31, 1997 and 1996 were 96.4% and 97.0%,   
respectively.                                                                   

 Gross profits were $3,298,629 and $1,392,511 for the years ended December
31, 1997 and 1996, respectively, for an increase of 137%. Giving effect to the  
previously discussed excess workers compensation claim losses, gross profits for
years ended December 31, 1997 and 1996 would have been $3,791,629 and           
$2,262,511, respectively. As a percentage of revenue, adjusted gross profits for
years ended December 31, 1997 and 1996 would have been 3.6% and 3.0%,           
respectively. The increase was due to the TeamStaff Entities' implementation of 
an aggressive workers compensation claims management program, resulting in      
significantly lower workers compensation direct claim costs.                    

   Operating expenses for the year ended December 31, 1997 increased $298,384,
or 8.6%, from $3,488,904 for the year ended December 31, 1996 to $3,787,288. Of 
this increase, $266,199 related to personnel expenses, as a result of additional
administrative personnel hired due to the increase in business volume.          

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 Net loss for the year ended December 31, 1997 was ($351,895) versus a net
loss of ($2,109,006) for the year ended December 31, 1996. The reduction of the 
loss was due to the increase in sales volume and more effective workers         
compensation claims management.                                                 

Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995      

 Operating revenue for the year ended December 31, 1996 was $76,026,835 as
compared to the year ended December 31, 1995 of $61,972,534 which represents an 
increase of $14,054,301, or 22.7%. This increase was due to the efforts of the  
internal sales force to continually bring in new business, which accounted for  
all of the increase.                                                            

Direct costs for the year ended December 31, 1996 were $74,634,324 as   
compared to $59,374,413 for the year ended December 31, 1995 which represents an
increase of $15,259,911, or 25.7%. The Company incurred unusually high workers  
compensation claim losses of approximately $870,000 due to adverse claim        
development for the year ended December 31, 1996.  After adjusting for the      
excessive additional workers compensation claim losses, as a percentage of      
revenue, direct costs, for year ended December 31, 1996 and 1995 were 97.0% and 
95.8%, respectively. In addition, the TeamStaff Entities incurred approximately 
$380,000 in excess medical claim losses for the year ended December 31, 1996.   

 Gross profits were $1,392,511 and $2,598,121 for years ended December 31,
1996 and 1995, respectively, for a decrease of 46.4%. Giving effect to the      
previously discussed excess workers compensation claim losses, gross profits for
year ended December 31, 1996 would have been $2,262,511. As a percentage of     
revenue, adjusted gross profits for years ended December 31, 1996 and 1995 would
have been 3.0% and 4.2%, respectively. The decrease was a result of the         
TeamStaff Entities incurring significantly high medical claim costs due to being
under a minimum premium medical policy.                                         

   Operating expenses for the year ended December 31, 1996 increased $494,341,
or 16.5%, from $2,994,563 for the year ended December 31, 1995 to $3,488,904. Of
this increase, $365,190 related to personnel expenses, as a result of additional
administrative personnel hired due to the increase in business volume.          

   Net loss for the year ended December 31, 1996 was ($2,109,006) versus a net
loss of ($323,006) for the year ended December 31, 1995. The increase in loss   
was due primarily to the $870,000 in excessive workers compensation losses,     
$380,000 excess medical claim losses and an increase in operating expenses.     

Six Months Ended June 30, 1998 as Compared to Six Months Ended June 30, 1997  

   Operating revenue for the six months ended June 30, 1998 was $53,795,852 as
compared to the six months ended June 30, 1997 of $47,279,494, which represents 
an increase of $6,516,358, or 13.8%. This increase was due to the efforts of the
internal sales force to continually bring in new business, which accounted for  
all of the increase.                                                            

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Direct costs for the six months ended June 30, 1998 were $51,676,717 as 
compared to $45,452,126 for the six months ended June 30, 1997, which represents
an increase of $6,224,591, or 13.7%. The increase was entirely due to the       
related increase in revenues.                                                   

  Gross profits were $2,119,135 and $1,827,368 for the six months ended June
30, 1998 and 1997, respectively, for an increase of 16.0%. The increase was due 
to the related increase in revenues.                                            

Operating expenses for the six months ended June 30, 1998 increased     
$329,744, or 20.1%, from $1,640,605 for the six months ended June 30, 1997 to   
$1,970,349. Of this increase, $145,655 related to personnel expenses, as a      
result of additional administrative personnel hired due to the increase in      
business volume. Non-personnel operating expenses increased by $184,089 of which
$98,636 was due to professional fees, primarily as a result of the Company's    
negotiations for an unsuccessful acquisition.                                   

  Net income for the six months ended June 30, 1998 was $94,843 versus a net
income of $162,308 for the six months ended June 30, 1997. The decrease was due 
primarily to the professional fees incurred as noted above.                     

Liquidity and Capital Resources                                                 

  The working capital of the TeamStaff Entities position as of June 30, 1998
was a deficit of $1,832,163 versus a deficit of $1,387,194 for the year ended   
December 31, 1997. The decrease in working capital was primarily due to         
shareholder's notes payable of $2,300,000 being classified as current           
liabilities at June 30, 1998. These notes have a due date of January 31, 1999.  

  At June 30, 1998 and December 31, 1997, the TeamStaff Entities had cash of
$0 and $861,932, respectively, and net accounts receivable of $2,885,999 and    
$2,680,260, respectively. Net accounts receivable was inclusive of unbilled     
receivables of $2,250,000 for both periods. The reduction in cash was a result  
of the paydown of workers compensation claim reserves ($389,492) and as         
reduction of accrued salaries, wages and payroll taxes ($612,824).              

The TeamStaff Entities borrowed $50,000 from a bank for purposes of     
acquiring capital equipment. The bank loan is personally guaranteed by a        
shareholder. As of June 30, 1998, the Company had used $36,764 of the proceeds. 
The Company has not pursued additional funding arrangements from a third party  
lender.                                                                         

   The TeamStaff Entities has also obtained a commitment from the shareholders
to indemnify the TeamStaff Entities against any and all losses resulting from   
the inability of or the failure by the Company to meet its obligations.         
Management believes that the indemnification and the cash flow from operations  
will be sufficient to provide the Company with the resources to continue its    
operations through the next twelve months.                                      

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The Board of Directors                                                          
Teamstaff Companies, Inc. and Affiliated Companies:                             

We consent to the incorporation by reference in the registration statements on  
Form S-3 (No. 33-70928 and No. 33-09313) of Digital Solutions, Inc. of our      
report dated April 4, 1996, with respect to the combined statements of          
operations, shareholders' deficit, and cash flows of Teamstaff Companies, Inc.  
and Affiliated Companies for the year ended December 31, 1995, which report     
appears in the proxy statement of Digital Solutions, Inc. dated November 2,     
1998.                                                                           

KPMG Peat Marwick LLP                                                           

New Orleans, Louisiana                                                          
November 2, 1998                                                                

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                                                                   Exhibit F

  TeamStaff Companies, Inc. and Affiliated Companies
COMBINED BALANCE SHEET
 June 30, 1998
 (unaudited)

ASSETS

                                                                [Download Table]
                                                                           
CURRENT ASSETS                                                             
  Cash                                                         $        -- 
  Accounts receivable                                            2,885,999 
  Notes receivable from shareholders                             2,181,839 
  Deposits with workers' compensation insurer                      243,937 
                                                                ---------- 
               Total current assets                              5,311,775 

FURNITURE, FIXTURES AND EQUIPMENT, net                             230,452 
OTHER ASSETS                                                       393,918 
                                                                ---------- 
               Total assets                                    $ 5,936,145 
                                                               =========== 

                      LIABILITIES AND SHAREHOLDERS' DEFICIT                

CURRENT LIABILITIES                                                        
  Book overdraft in bank account                               $   239,057 
  Accounts payable and accrued expenses                            794,545 
  Accrued salaries, wages and payroll taxes                      2,835,157 
  Accrued workers' compensation claims                              72,623 
  Current maturities of note payable                                55,556 
  Notes payable to shareholders                                  3,147,000 
                                                               ----------- 
                Total current liabilities                        7,143,938 

ACCRUED WORKERS' COMPENSATION CLAIMS                               400,000 
NOTE PAYABLE, less current portion                                  64,815 
CLIENT DEPOSITS                                                     55,762 

COMMITMENTS AND CONTINGENCIES                                           -- 

SHAREHOLDERS' DEFICIT                                                      
  Preferred stock                                                1,800,000 
  Common stock                                                      46,800 
  Additional paid-in capital                                     1,776,704 
  Accumulated deficit                                           (5,351,874)
                                                               ----------- 

               Total shareholders' deficit                      (1,728,370)
                                                               ----------- 
               Total liabilities and shareholders' deficit     $ 5,936,145 
                                                               =========== 

  The accompanying notes are an integral part of this statement.

   1

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  TeamStaff Companies, Inc. and Affiliated Companies
 COMBINED STATEMENTS OF EARNINGS
 (Unaudited)

                                                                [Download Table]

                                                        Six Months          
                                                       Ended June 30,       
                                              ----------------------------- 
                                                  1998             1997     
                                              ------------     ------------ 
                                                                            
Revenues                                      $ 53,795,852     $ 47,279,494 

Direct costs:                                                               
  Salaries and wages of worksite employees      45,790,494       39,667,362 
  Benefits and payroll taxes                     5,886,223        5,784,764 
                                              ------------     ------------ 
     Total direct costs                         51,676,717       45,452,126 

Gross profit                                     2,119,135        1,827,368 

Operating expenses:                                                         
  Administrative personnel                         991,641          845,986 
  General and administrative expenses              978,708          794,619 
                                              ------------     ------------ 
     Total operating expenses                    1,970,349        1,640,605 

Income from operations                             148,786          186,763 

Other income (expense):                                                     
  Interest, net                                    (57,153)         (48,314)
  Other                                              3,210           23,859 
                                              ------------     ------------ 

     Total other income (expense)                  (53,943)         (24,455)
                                              ------------     ------------ 

     NET INCOME                               $     94,843     $    162,308 
                                              ============     ============ 

The accompanying notes are an integral part of these statements.

2 

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  TeamStaff Companies, Inc. and Affiliated Companies
 COMBINED STATEMENTS OF CASH FLOWS
 (unaudited)

                                                        [Enlarge/Download Table]

                                                                Six Months Ended June 30,  
                                                               --------------------------- 
                                                                   1998          1997      
                                                               -----------     ----------- 
                                                                                           
Increase (decrease) in cash                                                                
Cash flows from operating activities:                                                      
  Net income                                                   $    94,843     $   162,308 
  Adjustments to reconcile net income to net cash provided                                 
  by (used in) operating activities:                                                       
      Depreciation and amortization                                 45,388          28,104 
      Changes in assets and liabilities:                                                   
        Accounts receivable                                       (205,739)        (76,720)
        Notes receivable from shareholders                         (43,457)             -- 
        Due from voluntary employees' beneficiary association           --         145,511 
        Deposit with workers' compensation insurer                  89,766              -- 
        Other assets                                               (79,600)         77,248 
        Accounts payable and accrued expenses                       (1,194)        557,560 
        Accrued salaries, wages and payroll taxes                 (612,824)        124,052 
        Accrued workers' compensation claims                      (389,492)       (760,291)
        Other liabilities                                          (15,310)       (131,000)
        Client deposits                                             21,912          (6,393)
                                                               -----------     ----------- 

        Net cash  provided by (used in) operating activities    (1,095,707)        120,379 

Cash flows from investing activities                                                       
  Purchase of furniture, fixtures and equipment                    (36,764)        (20,428)
                                                               -----------     ----------- 

        Net cash used in investing activities                      (36,764)        (20,428)

Cash flows from financing activities:                                                      
  Proceeds from note payable                                        50,000           4,887 
  Payments of note payable                                         (18,518)         (1,287)
  Net change in book overdraft in bank account                     239,057        (154,118)
                                                               -----------     ----------- 

        Net cash provided by (used in) financing activities        270,539        (150,518)
                                                               -----------     ----------- 

Net decrease in cash                                              (861,932)        (50,567)

Cash at beginning of period                                        861,932          50,567 
                                                               -----------     ----------- 

Cash at end of period                                          $        --     $        -- 
                                                               ===========     =========== 

Supplemental cash flow information:                                                        
  Cash paid for interest                                       $    57,152     $    48,314 
                                                               ===========     =========== 

The accompanying notes are an integral part of these statements.

3 

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  TeamStaff Companies, Inc. and Affiliated Companies
NOTES TO COMBINED FINANCIAL STATEMENTS
June 30, 1998 and 1997
 (unaudited)

NOTE A - BASIS OF PRESENTATION                                                  

The consolidated financial statements included herein have been prepared by     
TeamStaff Companies, Inc. and Affiliated Companies (the Company), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial     
statements prepared in accordance with generally accepted accounting principles 
have been condensed or omitted pursuant to such rules and regulations, although 
the Company believes that the disclosures are adequate to make the information  
presented not misleading. These combined financial statements should be read in 
conjunction with the combined financial statements and the notes thereto        
included in the Company's December 31, 1997 financial statements. This financial
information reflects, in the opinion of management, all adjustments necessary to
present fairly the results for the interim periods. The results of operations   
for such interim periods are not necessarily indicative of the results for the  
full year.                                                                      

NOTE B - NOTES RECEIVABLE FROM SHAREHOLDERS                                     

During the six months ended June 30, 1998, a shareholder borrowed an additional 
$43,357 from the Company. The note has a stated rate of 9% and is due in June   
1999.                                                                           

4 

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                                                                     EXHIBIT G
FORM OF 
CERTIFICATE OF AMENDMENT
TO THE  
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION 
OF  
DIGITAL SOLUTIONS, INC.   

To:   Secretary of State                                                        
State of New Jersey                                                 

  Pursuant to the Provisions of Section 14A:9-2(4) and Section 14A:9-4(3),
Corporations, General, of the New Jersey Statutes, the undersigned corporation  
executes the following Certificate of Amendment to its Amended and Restated     
Certificate of Incorporation:                                                   

1.   The name of the Corporation is Digital Solutions, Inc.           

 2.   The following amendment to the Amended and Restated Certificate of
       Incorporation was approved by the Board of Directors and thereafter
          duly adopted by the shareholders of the corporation on the   th day of
, 1998:                                     

        Resolved, that Article FIRST of the Amended and Restated Certificate
of Incorporation be amended to read as follows:             

"FIRST: The name of the corporation is "TeamStaff, Inc."    

   3.   The only class of securities entitled to vote upon the amendment was
      the Common Stock. The number of shares of Common Stock entitled to
vote upon the amendment was 19,356,833.                     

4.   The number of shares voting for and against such amendment is as 
follows:                                                    

Number of Shares Voting For            Number of Shares Voting Against          
Amendment                              Amendment                                
---------------------------            -------------------------------          

IN WITNESS WHEREOF, the undersigned has executed this Certificate of  
Amendment to the Amended and Restated Certificate of incorporation as of the    
th day of     , 1998.                                                       

                     DIGITAL SOLUTIONS, INC.

By:       
                                     -----------------------------------------
                        Donald W. Kappauf, President

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                                                             EXHIBIT H

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 

As independent public accountants, we hereby consent to the  use in   
this Proxy Statement of our report dated  December 23, 1997 included in         
Digital Solutions, Inc, and subsidiaries Form 10-K for the year ended           
September 30, 1997. It should be noted that we have not audited any financial   
statements of the Company subsequent to September 30, 1997 or performed any     
audit procedures subsequent to the date of our report.                          

                             ARTHUR ANDERSEN LLP

Roseland, New Jersey                                                            
October 30, 1998                                                                

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                                                           EXHIBIT I

The Board of Directors                                                          
Teamstaff Companies, Inc. and Affiliated Companies:                             

We consent to the incorporation by reference in the registration statements on  
Form S-3 (No. 33-70928 and No. 33-09313) of Digital Solutions, Inc. of our      
report dated April 4, 1996, with respect to the combined statements of          
operations, shareholders' deficit, and cash flows of Teamstaff Companies, Inc.  
and Affiliated Companies for the year ended December 31, 1995, which report     
appears in the proxy statement of Digital Solutions, Inc. dated November 2,     
1998.                                                                           

KPMG Peat Marwick LLP                                                           

New Orleans, Louisiana                                                          
October 29, 1998                                                                

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                                                                       EXHIBIT J

   CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated April 24, 1998, accompanying the combined       
financial statements of TeamStaff Companies, Inc. and Affiliated Companies for  
the years ended December 31, 1977 and 1996 contained in the proxy statement of  
Digital Solutions, Inc. dated November, 2, 1998. We consent to the use of the   
aforementioned report in the proxy statement.                                   

GRANT THORNTON LLP                                                              

Tampa, Florida                                                                  
October 29, 1998                                                                

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DIGITAL SOLUTIONS, INC. 

SPECIAL MEETING OF SHAREHOLDERS -- DECEMBER 17, 1998

PROXY SOLICITED BY THE BOARD OF DIRECTORS 

    The undersigned hereby appoints Karl W. Dieckmann and Donald W. Kappauf, and
each of them, proxies, with full power of substitution, to vote all shares of   
common stock of Digital Solutions, Inc owned by the undersigned at the Special  
Meeting of shareholders of Digital Solutions, Inc. to be held on December 17,   
1998 and at any adjournments thereof, hereby revoking any proxy heretofore      
given. The undersigned instructs such proxies to vote:                          

   I.  Proposal to approve and adopt two separate agreements entitled Plan and
Agreement of Merger and Reorganization, dated as of October 29, 1998 (together, 
the "Merger Agreement") entered into among the Company, ten specially formed    
subsidiaries of the Company (the "Merger Corporations"), ten affiliated entities
operating under the tradename the TeamStaff Companies (the "TeamStaff Entities")
and the shareholders of the TeamStaff Entities. Providing for the acquisition by
way of mergers (collectively referred to as the "Merger") of the TeamStaff      
Entities with the Merger Corporations, the result of which the TeamStaff        
Entities will become wholly-owned subsidiaries of the Company and pursuant to   
which Merger the Company may issue up to an aggregate of 9,383,334 shares of    
Common Stock and to vote upon any other business as may properly become before  
the meeting or any adjournment thereof, all as described in the Proxy Statement 
of the Company dated November 12, 1998, receipt of which is hereby acknowledged.

/ /  FOR            / /  AGAINST            / /  ABSTAIN

  II.  Proposal to approve, only in the event that Proposal I at the Special
Meeting is approved and adopted, an amendment to the Amended and Restated       
Certificate of Incorporation to change the name of the Company from Digital     
Solutions, Inc. to TeamStaff, Inc.                                              

/ /  FOR            / /  AGAINST            / /  ABSTAIN

(continued on the reverse side) 

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   Either of the proxies or their respective substitutes, who shall be present
and acting shall have and may exercise all the powers hereby granted. The shares
represented by this proxy will be voted (i) FOR the proposal to approve the     
Merger with the TeamStaff Entities and the issuance of up to 9,383,334 shares of
Common Stock and (ii) FOR the proposal to change the name of the Company to     
TeamStaff, Inc., unless contrary instructions are given. Said proxies will use  
their discretion with respect to any other matters which properly come before   
the meeting.                                                                    

        Date
                                          --------------------------------------

          Signed
                                          --------------------------------------

                                    (Please date and sign exactly as
                                     accounts. Each joint owner should
                                    sign. Executors, administrators,
                                       trustees, etc. should also indicate
                  when signing.)

                                       The proxy is solicited on behalf of
                                       the Board of Directors. Please sign
                                        and return in the enclosed envelope.

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