REMEDYTEMP INC, 10-K405, 1997-12-24

REMEDYTEMP INC
10-K405, 1997-12-24
HELP SUPPLY SERVICES

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<PAGE> 1

UNITED STATES
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 or 15 (d) of the Securities
Exchange Act of 1934 For the fiscal year ended September 28, 1997

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

Commission file number 0-5260

REMEDYTEMP, INC.
(Exact Name of Registrant as Specified in Its Charter)

California 95-2890471
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)

32122 Camino Capistrano
San Juan Capistrano, California 92675
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number including area code: (714) 661-1211

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:

Name of Each Exchange
Title of Each Class on Which Registered
Class A common $.01 par value Nasdaq National Market

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 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 the Form 10-K or by
amendment to this Form 10-K. [X]

The aggregate market value of the Class A Common Stock held by
non-affiliates of the registrant based upon the closing sales price of its
Common Stock on December 15, 1997 on the Nasdaq National Market was $81,205,584.

The number of shares of Class A Common Stock outstanding as of December
15, 1997 was 6,015,933 and the number of shares of Class B Common Stock
outstanding as of December 15, 1997 was 2,930,733.

DOCUMENTS INCORPORATED BY REFERENCE

Part I and Part II of this report incorporate information by reference from
the Company's Annual Report to Shareholders for the fiscal year ended September
28, 1997. The Company's Annual Report to Shareholders will be mailed to the
Securities and Exchange Commission (the "Commission") and the Company's
shareholders in connection with the Company's Annual Meeting of Shareholders
scheduled to be held on February 18, 1998. The registrant will file a definitive
Proxy Statement pursuant to Regulation 14A within 120 days of the end of the
fiscal year end September 28, 1997. Portions of the Company's Proxy Statement to
mailed to the shareholders in connection with the Company's Annual Meeting of
Shareholders, scheduled to be held on February 18, 1998, are incorporated by
reference in Part III of this report. Except for the portions expressly
incorporated by reference, the Company's Proxy Statement and Annual Report
shall not be deemed to be part of this report.

<PAGE> 2

REMEDYTEMP, INC.
1997 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS
<TABLE>
<CAPTION>

PART I
PAGE NO.
--------
<S> <C> <C>
Item 1 Business 3
Item 2 Properties 7
Item 3 Legal Proceedings 8
Item 4 Submission of Matters to a Vote of Security Holders 8

PART II

Item 5 Market for Registrant's Common Equity and
Related Shareholder Matters 10
Item 6 Selected Financial Data 10
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 8 Financial Statements and Supplementary Data 10
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 10

PART III

Item 10 Directors and Executive Officers of the Registrant 11
Item 11 Executive Compensation 11
Item 12 Security Ownership of Certain Beneficial Owners and Management 11
Item 13 Certain Relationships and Related Transactions 11

PART IV

Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 12
Signatures 14

</TABLE>

<PAGE> 3

PART I

ITEM 1. BUSINESS

In addition to historical information, the description of business below
includes certain forward-looking statements, including those related to the
Company's growth and strategies, future operating results and financial position
as well as economic and market events and trends. The Company's actual results
and financial position could differ materially from those anticipated in the
forward-looking statements as a result of various factors. These factors
include: competition, market conditions, the availability of sufficient
personnel, the Company's ability to sustain historical growth rates and margins
and control costs, and other risks and uncertainties as discussed below in the
"Risk Factors" section, and in Part 1 in the Company's Prospectus dated July 10,
1996. The following should be read in conjunction with the Consolidated
Financial Statements of the Company and Notes thereto.

GENERAL

RemedyTemp, Inc., founded in 1965 and incorporated in California, is a
rapidly growing national provider of clerical and light industrial temporary
staffing services to industrial and service companies, professional
organizations and governmental agencies. The Company provides its services in 36
states through a network of 199 offices, of which 86 are Company-owned and 113
are independently-managed. During the twelve months ended September 28, 1997,
the Company placed approximately 130,000 temporary workers, known as
"associates," and provided over 35.4 million hours of staffing services to over
16,000 clients. From the beginning of fiscal 1993 through the end of fiscal
1997, the Company added 118 offices and increased revenues and income before
taxes at compound annual growth rates of 30.9% and 63.7% respectively, to $360.3
million and $17.4 million, respectively.

The consolidated financial statements include the accounts of RemedyTemp,
Inc. (the "Company"), including its wholly-owned subsidiary, Remedy Insurance
Group, LTD ("RIG"). RIG is an offshore insurance captive domiciled in Bermuda,
incorporated in July, 1997 to provide the Company's direct and licensed offices
with a self-insured workers' compensation program.

The Company has positioned itself to take advantage of trends in the
temporary staffing industry, such as increased integration of temporary workers
as a significant, long-term workforce component in both manufacturing and
service-oriented companies and increased outsourcing by clients or businesses of
certain staffing functions. The Company focuses on the clerical and light
industrial sectors of the nation's temporary workforce, which together comprise
approximately 71% of the nation's temporary staffing industry revenues,
according to the National Association of Temporary and Staffing Services
("NATSS"), an independent trade organization for the staffing industry. Through
the use of innovative technologies and value-added services, the Company strives
to partner with its clients to deliver total solutions to their temporary
staffing needs. The Company's expertise in providing associates who possess the
skills and attitudinal characteristics necessary to "fit" into clients'
organizations and perform at a superior level distinguishes the Company as a
premium provider of temporary staffing services.

Over the past four years, the Company has invested significant human and
financial resources in the development of proprietary technologies designed to
enable the Company to provide its clients with premium temporary workers and
unique value-added services. The Company's proprietary technologies are
maintained and offered in the following three interactive systems: Human
Performance Technology ("HPT(R)"), an innovative series of multimedia
evaluations used to profile the attitudinal characteristics of the Company's
associates; IntelliSearch(SM), a computer database used to classify, search and
match the Company's associates to job openings using parameters based upon
client needs; and Employee Data Gathering and Evaluation ("EDGE(R)"), a
proprietary computer system installed at client locations to coordinate
scheduling and track job performance of the client's entire temporary workforce.
EDGE(R) also has the capability to customize invoices and utilization reports.
Management believes that these technologies give the Company advantages over
competing temporary staffing companies that do not provide similar value-added
services.

THE STAFFING INDUSTRY

Revenues for the United States temporary staffing services industry were
projected by NATSS to have exceeded $43.6 billion in 1996. This represents an
increase of approximately 11.2% over 1995 and, since 1992, industry revenues
have increased at a compound annual rate of approximately 15.0%. Economic and
social factors have increased the portion of the non-farm U.S. workforce working
on a temporary basis from 1.0% in 1991 to 1.9% in 1996, according to NATSS.
NATSS estimates that there are now approximately 2.5 million workers employed
nationwide by temporary staffing services providers. According to NATSS, more
than 90% of all businesses in the United States utilize staffing services.

<PAGE> 4

The staffing services industry was once used predominately as a short-term
solution for greater workforce needs during peak production periods and to
replace workers who were abruptly terminated or who were absent due to illness
or vacation. Since the late 1980s, the use of temporary services has evolved
into a permanent and significant component of the staffing plans of many
employers. Corporate restructuring, government regulations, advances in
technology, and the desire by many companies to shift employee costs from a
fixed to a variable expense have resulted in the use of a wide range of staffing
alternatives by businesses. In addition, the high cost of recruitment and the
risk of employment litigation have led to increasing use of temporary staffing
as a means of evaluating the qualifications of personnel before hiring them on a
full-time basis, as well as accomplishing reductions in workforce without the
risk of wrongful termination liability.

The clerical and light industrial sectors represent the largest two sectors
of the temporary staffing industry. A staffing industry report by NATSS, based
on 1996 revenues, reported that the office and clerical sector accounted for
$16.9 billion or approximately 39% of the temporary staffing industry revenues,
while the light industrial sector accounted for $13.9 billion or approximately
32% of industry revenues. According to NATSS, from 1992 through 1996, industry
revenues for the office and clerical sector increased by approximately $5.3
billion, representing a compound annual growth rate of approximately 10%, and
industry revenues for the light industrial sector increased by approximately
$7.0 billion, representing a compound annual growth rate of approximately 19.5%.
In the aggregate, these two sectors constituted approximately 66.0% of the $18.7
billion increase in industry revenues during the period.

OPERATIONS

The Company provides temporary personnel in two industry sectors: clerical
and light industrial.

Clerical Services. As the use of temporary staffing has become more
prevalent, the range of clerical positions provided by the Company has expanded
beyond traditional secretarial staff to include a broad range of general
business environment personnel. Clerical services include executive assistants,
word processors, customer service representatives, data entry operators,
accountants, bookkeepers, hosts, telemarketers, computer operators, and other
general office staff.

Light Industrial Services. Light industrial services personnel are furnished
for a variety of assignments including assembly work (such as mechanical
assemblers, general assemblers, solderers and electronic assemblers), factory
work (including merchandise packagers, machine operators, and pricing and
tagging personnel), warehouse work (such as general laborers, stock clerks,
material handlers, order pullers, forklift operators, palletizers and
shipping/receiving clerks), technical work (such as lab technicians, quality
control technicians, bench technicians, test operators, electronic technicians,
inspectors, drafters, checkers, designers, expediters, buyers, electronic
engineers and mechanical engineers) and general services (such as maintenance
and repair personnel, janitors and food service workers).

Office Organization.

The Company provides its services through a network of 199 office locations,
86 of which are owned and operated by the Company and 113 of which are operated
as franchised or licensed offices. The table on the following page sets forth
the geographic distribution of the Company-owned and independently-managed
offices.

COMPANY-OWNED LICENSED AND TOTAL
OFFICES FRANCHISED OFFICES OFFICES
------- ------------------ -------
<S> <C> <C> <C>
California.............. 74 2 76
Western Region(1)....... 5 18 23
Midwestern Region(2).... 4 29 33
Southeastern Region(3).. 3 45 48
Northeastern Region(4).. 0 19 19
-- ---- ----
Total................... 86 113 199
== ==== ====
</TABLE>

(1) Includes Arizona, Colorado, Hawaii, Idaho, Nevada, New Mexico, Oregon, Utah
and Washington.

(2) Includes Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, Ohio and
Wisconsin.

(3) Includes Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, North
Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia.

(4) Includes Connecticut, Maryland, Massachusetts, New Jersey, New York and
Pennsylvania

Company-Owned Offices.

The Company-owned offices are concentrated in California, with locations in
nine other states. These offices are organized into four regions, each managed
by a Regional Vice President and other regional staff who provide operational
support for the offices in their regions. Each Company-owned office has an
on-site manager who is accountable for the day-to-day operations and
profitability of that office.

Managers report to their Regional Vice Presidents, and together they are
responsible for sales, client development and retention, recruitment, placement
and retention of associates, and general administration for their respective
offices and regions. The Company believes that its decentralized structure
contributes to the initiative and commitment of its management team and that its
incentive compensation approach motivates managers to increase profits.

Company-owned offices had average sales per office of approximately $2.6
million for fiscal 1997. The Company often pursues a "fill-in" strategy to
expand its market penetration by transferring clients on the periphery of an
existing office's territory to a newly-opened office, which can then use those
established accounts as a base for further expansion. The density of
Company-owned offices in certain areas also enables the Company to spread fixed
costs such as advertising, recruiting and administration over a larger revenue
base, and also to share associates and provide clients with superior coverage
and service capabilities. In addition, the Company has divided highly successful
Company-owned offices into separate clerical and light industrial offices,
allowing each to specialize and further penetrate its market.

Independently-Managed Offices.

Independently-managed offices, structured in either franchise or license
format, have been an important element of the Company's growth strategy over the
last nine years. Such offices have enabled the Company to expand into new
markets with highly qualified franchisees and licensees, without significant
capital expenditures. Most of the Company's offices outside California are
independently-managed. Independent office agreements have ten-year terms and are
renewable for successive five-year terms. Such agreements cover exclusive
geographic territories and contain minimum revenue performance standards.

Franchises. The Company employed a traditional franchise model from 1987
until 1990. As of September 28, 1997, 20 of the Company's 113
independently-managed offices were franchises. Franchisees pay all lease and
working capital costs, fund payroll and collect clients' accounts. Franchisees
pay the Company an initial franchise fee and royalties equal to approximately 7%
of gross billings. Royalty fees are reduced when the franchisee serves a
national client, since they typically have lower margins, causing actual
royalties to be 6.3%-7.0% of franchise gross billings over the last five years.
Franchisees employ all office management staff and all temporary personnel
affiliated with their offices. The Company provides training, the right to use
the Company's service marks and business model, proprietary computer programs
and operational support.

Licenses. Since 1990, the Company has recruited new independent office
managers as licensees. The Company switched from franchise to license format to
exercise more control over the collection and tracking of the receivables of the
independently-managed offices and to allow the Company to grow without being
limited by the financial resources of franchisees. As of September 28, 1997, 93
of the Company's 113 independently-managed office locations were licensed
offices. The license format differs from the franchise format in that the
Company acts as the employer of all temporary personnel affiliated with the
office. The Company funds payroll, collects clients' accounts, and remits to the
licensee 60-70% of the office's gross profit, based on the level of hours billed
during the contract year.

<PAGE> 6

CLIENTS

During the twelve months ended September 28, 1997, the Company served over
16,000 clients nationwide. The Company's ten highest volume clients in fiscal
1997 accounted for approximately 13.4% of the Company's system-wide gross
billings. No single client accounted for more than 5% of the Company's
system-wide gross billings for fiscal 1997.

COMPETITION

The temporary services industry is highly competitive with limited barriers
to entry. The Company believes that no single competitor has more than a 14%
share of the national temporary services market. The largest competitors of the
Company include Adecco Employment Services, Interim Services, Inc., Kelly
Services, Inc., Manpower Inc., Norrell Corporation, Robert Half International,
Inc. and The Olsten Corporation. These and other large competitors have
nationwide operations with substantially greater resources than the Company,
which among other things could enable them to attempt to maintain or increase
their market share by reducing prices. In addition, there are a number of other
medium-sized firms that are regional or emphasize specialized niches and compete
with the Company in certain markets where they have a stronger presence.
Finally, numerous small or single-office firms compete effectively with the
Company's offices in their limited areas.

The Company's management believes that the most important competitive
factors in obtaining and retaining its targeted clients are an understanding of
a customer's specific job requirements, the ability to provide qualified
temporary personnel in a timely manner and the quality and price of services.
The primary competitive factors in obtaining qualified candidates for temporary
employment assignments are wages, benefits and responsiveness to work schedules.

The Company expects ongoing vigorous competition and pricing pressure from
both national, regional and local providers, and there is no assurance that the
Company will be able to maintain or increase its market share or gross margins.

WORKERS' COMPENSATION

As of July 22, 1997, the Company began a self-insured workers' compensation
program for direct and licensed offices, administered through RIG. Management
believes this program allows the Company to control its claims administration,
allocate safety resources where they are needed and develop efficient and cost
effective methods of financing workers' compensation. The Company is responsible
for individual claims up to $250,000 and has purchased excess liability coverage
for individual claims greater than $250,000 and aggregate claims greater than
$7.5 million.

EMPLOYEES

As of September 28, 1997, the Company had a staff of approximately 480
individuals (excluding temporary associates). Approximately 130,000 temporary
associates were placed by the Company during fiscal 1997, of which approximately
57,000 were employed by Company-owned offices and approximately 73,000 were
employed by independently-managed offices. At any given time during 1997, only a
portion of these employees were assigned. The Company has no collective
bargaining agreements and believes its employee relations are good.

GOVERNMENTAL REGULATION

The Company's marketing and sale of franchises and licenses is regulated by
the Federal Trade Commission and by authorities in 19 states. Additionally, 15
of the 36 states in which the Company provides its services require franchisers
to file a registration application, provide notice or qualify for an exemption.
The Company has filed the appropriate registration application or provided
notice in seven of these states and has obtained an exemption from such
registration requirements in the remaining eight states. The Company files and
distributes to prospective franchisees and licensees Franchise Offering
Circulars and other materials in order to comply with such registration and
disclosure requirements. In addition, the Company's ongoing relationships with
its franchisees and licensees are regulated by applicable federal and state
franchise laws.

<PAGE> 7

PROPRIETARY RIGHTS AND SYSTEMS

The Company has developed, either internally or through hired consultants,
its HPT(R), EDGE(R), IntelliSearchSM and RemXSM computer systems. These
proprietary systems are trade secrets of the Company and the Company has
copyrights to certain software used in these systems.

The Company has registered the service marks REMEDY(R), REMEDY TEMPORARY
SERVICES(R), REMEDYTEMP(R), INTELLIGENT STAFFING(R), HIRE INTELLIGENCE(R),
EDGE(R), VSM(R), HPT(R), and THE INTELLIGENT TEMPORARY(R) with the U.S. Patent &
Trademark Office. In addition, the Company asserts ownership of, and has filed
applications with the U.S. Patent & Trademark Office to register, the service
marks RemXSM, STARSSM, NON-STOPSM, INTELLISEARCHSM and WE WON'T SEND YOU A
DUMMYSM. These marks are used by the Company and its licensees and franchisees.

RISK FACTORS

Among the risks affecting the Company are the following:

Fluctuations in the General Economy. Demand for temporary services is
significantly affected by the general level of economic activity. As economic
activity slows, many companies reduce their use of temporary employees before
undertaking layoffs of their full-time employees. Further, in an economic
downturn, the Company may face pricing pressure from its customers and increased
competition from other staffing companies, which could have a material adverse
effect on the Company's business. Since the Company currently derives more than
half of its system-wide billings from the California market (approximately 52.4%
in fiscal 1997), an economic downturn in California would have a greater impact
on the Company than if the Company had a more widely dispersed revenue base.

Competitive Market. The temporary services industry is highly competitive
with limited barriers to entry. The Company competes in national, regional and
local markets with full service agencies and with specialized temporary services
agencies. Many competitors are smaller than the Company but have an advantage
over the Company in discrete geographic markets because of their stronger local
presence. Other competitors are more well-known and have greater marketing and
financial resources than the Company, which among other things could enable them
to attempt to maintain or increase their market share by reducing prices. The
Company expects the level of competition to remain high, and competitive pricing
pressures may have an adverse effect on the Company's operating margins.

Ability to Continue Company Growth. The Company has grown rapidly in recent
years by opening new offices and increasing the volume of services provided
through existing offices. There can be no assurance that the Company will
continue to be able to maintain or expand its market presence in its current
locations or to successfully enter other markets. The ability of the Company to
continue its growth will depend on a number of factors including existing and
emerging competition, the availability of working capital to support such
growth, and the Company's ability to maintain margins in the face of pricing
pressures, find and retain new qualified licensees and office managers, recruit
and train additional qualified temporary personnel, and manage costs.

Franchising and Licensing Risks. The Company derives a substantial amount of
its revenues (approximately 38.5% in fiscal 1997) from franchised and licensed
operations. The ownership of the Company's franchised and licensed offices is
concentrated, with the ten largest franchisees and licensees together accounting
for approximately 21.6% of the Company's system-wide billings in fiscal 1997.
The loss of one or more of these relationships, or other franchisees or
licensees who may in the future account for a significant portion of the
Company's revenues, could have a material adverse effect on the Company's
results of operations.

ITEM 2. PROPERTIES

The Company does not own any real property. The Company leases its 13,185
square foot national headquarters corporate facility in San Juan Capistrano,
California from Mitchell Land and Improvement Company, at a cost of $14,583 per
month ($1.11 per square foot per month.) The lease agreement term is two years,
beginning July 15, 1997. The lease includes a 60-day cancellation clause and
provides for the Company to pay property taxes, insurance and certain other
operating expenses applicable to the leased property.

On April 17, 1997, the Company executed a lease with Parker-Summit, LLC for
a new national headquarters corporate facility. The lease agreement provides for
leased premises, projected to be approximately 52,500 square feet in size, at a
fixed rate of $1.93 per square foot per month, for a fixed term of five and
one-half years from the date of occupancy. In addition to base rent, after the
first year of occupancy the Company is obligated to pay a portion of the
increase in operating costs

<PAGE> 8

and real property taxes for the leased premises. The Company has an option to
renew the lease after the initial term for an additional term of five years. It
is anticipated that the leased premises will be completed and ready for
occupancy in August 1998.

Prior to July, 1997 the Company leased its national headquarters corporate
facility from the principal shareholder and Chairman of the Company, Robert E.
McDonough, Sr. The lease provided for the payment of property taxes, insurance
and certain other operating expenses applicable to the leased property by the
lessee. In September 1996, the lease expired and the lease term became
month-to-month through July 1997.

As of September 28, 1997, the Company leased the space occupied by all 86 of
its Company-owned offices. The Company selects the sites for these offices by
evaluating proximity to potential clients and available temporary personnel. The
Company assists its franchisees and licensees in selecting sites for
independently-managed offices, but presently does not own and is not obligated
under any leases at these sites.

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company becomes a party to litigation incidental to
its business. The Company maintains insurance coverage that management believes
is reasonable and prudent for the business risks that the Company faces. In
management's opinion, no pending legal proceeding is likely to have a material
adverse effect on the Company.

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

No matters were submitted to a vote of the Company's security holders during
the Company's fourth quarter of the fiscal year ended September 28, 1997.

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officer employees of the Company and their respective ages as
of September 28, 1997, are set forth below.
<TABLE>
<CAPTION>

NAME AGE POSITION(S) HELD
---- --- ----------------

<S> <C> <C>
Robert E. McDonough, Sr. 75 Chairman of the Board of Directors
Paul W. Mikos 52 Chief Executive Officer, President and Director
Alan M. Purdy 57 Senior Vice President and Chief Financial Officer
Jeffrey A. Elias 40 Senior Vice President, Human Resources and Administration
William M. Herbster 45 Vice President, Marketing
Norman H. Leibson 52 Vice President, Information Technology
Rosemary F. Beck 51 Vice President, Operations--Northern Region
Alice M. Bowers 47 Vice President, Operations--Southwest Region
Warren Heeg, Jr. 61 Vice President, Client Relations
Delza de Avellar Neblett 46 Vice President, Caller Access Division
Joseph J. Pulaski 64 Vice President, Light Industrial/Technical Division
Richard G. Rhydderch 60 Vice President, Franchise/License Development
Karin Somogyi 39 Vice President, Franchise/License Operations
Susan McDonough Mikos 50 Director, Corporate Secretary
</TABLE>

Robert E. McDonough, Sr. has served as Chairman of the Board of Directors of
the Company (the "Board") since August 1978. Mr. McDonough founded the Company
in 1965 and has been continuously involved in the management and long-term
operation and planning of the Company since that time. For 29 years, until May
1994, he served as the Company's Chief Executive Officer. Mr. McDonough is the
father of Susan McDonough Mikos and the father-in-law of Paul W. Mikos.

Paul W. Mikos has served in various positions in the Company since 1977,
including as President since 1985. Mr. Mikos has served as Chief Executive
Officer of the Company since January 1996 and as a Director of the Company since
May 1993. From May 1994 until January 1996, he served as Co-Chief Executive
Officer of the Company. Prior to joining the Company, Mr. Mikos worked for ARA
as a Regional Sales Director from August 1976 until October 1977. From July 1968
until August 1976, Mr. Mikos worked for IBM in sales management. Mr. Mikos is
the husband of Susan McDonough Mikos, the brother of Alice Bowers and the
son-in-law of Robert E. McDonough, Sr.

<PAGE> 9

Alan M. Purdy has served as Senior Vice President and Chief Financial
Officer since November 1996 and prior to that as Vice President and Chief
Financial Officer since February 1994. From January 1993 until December 1993, he
was Senior Vice President and Chief Financial Officer of Builder's Emporium, a
division of Collins and Aikman Group, Inc. From March 1988 until August 1992, he
was Senior Vice President and Chief Financial Officer of HUB Distributing, Inc.
(d.b.a. Millers Outpost), a subsidiary of American Retail Group. From January
1986 until October 1987, he was Senior Vice President and Chief Financial
Officer of Robinson's of Florida, a subsidiary of The May Department Stores
Company. From April 1983 until January 1986, he served as Senior Vice President
and Chief Financial Officer of B. Dalton Booksellers, a subsidiary of the Dayton
Hudson Corp.

Jeffrey A. Elias has served as Senior Vice President, Human Resources and
Administration since November 1996 and prior to that as Vice President, Human
Resources and Risk Management since December 1992. From January 1991 to December
1992, he was Director, Human Resources and Risk Management for Adia Services,
Inc.

William M. Herbster has served as Vice President, Marketing since January
1994. From January 1985 until January 1994, he was with Manpower, Inc., a
temporary staffing company, as Director of U.S. Marketing from April 1990 to
January 1994, Manager of Office Automation Services from September 1987 to April
1990, and Marketing Manager, Great Lakes and Northeast Region from January 1985
to September 1987.

Norman H. Leibson has served as Vice President, Information Technology
Systems since November 1994. From March 1992 until November 1994, Mr. Leibson
was a Vice President of HUB Distributing, Inc. (d.b.a. Millers Outpost), a
subsidiary of American Retail Group, and from November 1983 until August 1992,
he was a Vice President of Carter Hawley Hale.

Rosemary F. Beck has served as Vice President, Operations--Northern Region
since February 1992. Ms. Beck came to the Company in 1992 after fourteen years
in the temporary staffing industry with Adia Services, Inc., a temporary
staffing company, where she held various positions including Senior Area Vice
President.

Alice M. Bowers has served as Vice President, Operations--Southwest Region
since March 1995. Ms. Bowers began her tenure at the Company in June 1978 as a
Branch Manager and has served as an Area Leader, Regional Manager, Assistant
Vice President, Operations and Consultant to the Company. Ms. Bowers is the
sister of Paul W. Mikos.

Warren J. Heeg, Jr. has served as Vice President, Client Relations since
April 1996. From July 1994 until March 1996, Mr. Heeg was the Company's Vice
President, Franchise Sales and, from November 1989 until June 1994, he served as
the Company's Vice President, National Accounts.

Delza de Avellar Neblett has served as Vice President, Caller Access since
November 1996 and prior to that as Vice President, Operations and Systems since
January 1996. Ms. Neblett began her career with the Company in 1988. From August
1992 to October 1994 she served as a Vice President of the Company, designing
and implementing the Company's IntelliSearchSM, HPT(R) and Non-StopSM systems.

Joseph J. Pulaski has served as Vice President, Light Industrial/Technical
Division since 1990. He began his career with the Company in 1976 and has at
various times held the positions of Director of Marketing and President of the
Company.

Richard G. Rhydderch has served as Vice President, Franchise/License
Development since May 1988. From April 1986 until April 1988, Mr. Rhydderch was
Vice President, Franchise Marketing/Sales for Snelling & Snelling, Inc., an
employment services company. From March 1985 until April 1986, he was National
Franchise Sales Director for Tender Sender, Inc., a shipping and gift-wrap
company.

Karin Somogyi has served as Vice President, Franchise/License Operations
since November 1995. From October 1993 until October 1995, she was the Company's
Assistant Vice President, Franchise Operations. Before joining the Company, Ms.
Somogyi was with Adia Services, Inc., as Director of Franchise Services from
January 1991 until September 1993, and as Franchise Sales Executive from January
1990 until January 1991.

Susan McDonough Mikos has served as the Company's Corporate Secretary since
January 1996 and has been a Director of the Company since November 1992. For the
past five years, Ms. Mikos has been a homemaker. Ms. Mikos is the daughter of
Robert E. McDonough, Sr., and the wife of Paul W. Mikos.

9
<PAGE> 10

PART II

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

Since July 11, 1996, the Company's Class A Common Stock has been traded on
The Nasdaq National Market under the symbol "REMX." Prior to July 11, 1996, the
Company's stock was not publicly traded. The high and low sales prices for the
Class A Common Stock as reported by The Nasdaq National Market for the period of
July 11, 1996 to September 29, 1996 were $20.25 and $13.00, respectively. The
following table sets forth the same data for fiscal 1997:

FOR THE THREE MONTHS ENDED
--------------------------------------------------
DECEMBER 29, MARCH 30, JUNE 29, SEPTEMBER 28,
1996 1997 1997 1997
---- ---- ---- ----

As of December 3, 1997, there were an estimated 1,520 shareholders of
record, of which an estimated 1,463 were beneficial shareholders of the
Company's Class A Common Stock, and there were ten shareholders of record of the
Company's Class B Common Stock.

Except for the S corporation distributions prior to the Company's initial
public offering (the "Offering") and the declared dividend to the Company's
pre-Offering shareholders as discussed in Note 1 to the Consolidated Financial
Statements, incorporated by reference from the Company's Annual Report to
Shareholders (see Item 8 of this report), the Company has not paid cash
dividends on its Class A or Class B Common Stock and does not anticipate that it
will do so in the foreseeable future. The present policy of the Company is to
retain earnings for use in its operations and the expansion of its business.

ITEM 6. SELECTED FINANCIAL DATA

Information as to Selected Financial Data required by this item is
incorporated by reference from the Company's Annual Report to Shareholders for
the fiscal year ended September 28, 1997, under the heading "Selected Financial
Data," to be mailed to the Commission and the Company's shareholders prior to
the Company's Annual Meeting of Shareholders, which is scheduled to be held
February 18, 1998.

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

Information as to Management's Discussion and Analysis of Financial
Condition and Results of Operations required by this item is incorporated by
reference from the Company's Annual Report to Shareholders for the fiscal year
ended September 28, 1997 under the heading "Management's Discussion and Analysis
of Consolidated Financial Condition and Results of Operations," to be mailed to
the Commission and the Company's shareholders prior to the Company's Annual
Meeting of Shareholders, which is scheduled to be held February 18, 1998.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information as to Financial Statements and Supplementary Data required by
this item is incorporated by reference from the Company's Annual Report to
Shareholders for the fiscal year ended September 28, 1997, under the section
"Financial Statements and Notes thereto," to be mailed to the Commission and the
Company's shareholders prior to the Company's Annual Meeting of Shareholders,
which is scheduled to be held February 18, 1998.

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

None.

<PAGE> 11

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

Information as to the officers of the Company required by this item is set forth
at the end of Part I of this report under the caption "Executive Officers of the
Registrant." Information as to the Company's directors and compliance with
Section 16(a) of the Exchange Act, required by this item, is incorporated by
reference from the portion of the Company's definitive Proxy Statement under the
caption "Proposal 2--Election of Directors" to be filed with the Commission
pursuant to Regulation 14A under the Exchange Act and mailed to the Company's
shareholders prior to the Company's Annual Meeting of Shareholders, which is
scheduled to be held February 18, 1998.

ITEM 11. EXECUTIVE COMPENSATION

Information as to Executive Compensation required by this item is
incorporated by reference from the Company's definitive Proxy Statement, under
the caption "Executive Compensation and Other Information", to be filed with the
Commission pursuant to Regulation A and mailed to the Company's shareholders
prior to the Company's Annual Meeting of Shareholders, which is scheduled to be
held February 18, 1998.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information as to Security Ownership of Certain Beneficial Owners and
Management required by this item is incorporated by reference from the Company's
definitive Proxy Statement, under the caption "Security Ownership of Certain
Beneficial Owners and Management", to be filed with the Commission pursuant to
Regulation A and mailed to the Company's shareholders prior to the Company's
Annual Meeting of Shareholders, which is scheduled to be held February 18, 1998.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information as to Certain Relationships and Certain Transactions required by
this item is incorporated by reference from the Company's definitive Proxy
Statement, under the caption "Certain Transactions", to be filed with the
Commission pursuant to Regulation A and mailed to the Company's shareholders
prior to the Company's Annual Meeting of Shareholders, which is scheduled to be
held February 18, 1998.

<PAGE> 12

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>

(a) Financial Statements.
PAGE NUMBER
IN ANNUAL
REPORT TO
SHAREHOLDERS
------------

<S> <C>
(1) Consolidated Financial Statements. (Data incorporated by
reference from the attached Annual Report to Shareholders):

Consolidated Balance Sheet as of September 29, 1997 and September
29, 1996 17

Consolidated Statement of Income for the three fiscal years ended
September 28, 1997, September 29, 1996 and October 1, 1995 18

Consolidated Statement of Shareholders' Equity for the three fiscal
years ended September 28, 1997, September 29, 1996 and October 1,
1995 19

Consolidated Statement of Cash Flows for three fiscal years ended
September 28, 1997, September 29, 1996 and October 1, 1995 20

Notes to Consolidated Financial Statements 21-29

(2) Financial Statement Schedules

Report of Independent Accountants on Financial Statement
Schedule

SCHEDULE II - Valuation and Qualifying Accounts

(3) The following Exhibits are filed as part of this Report
</TABLE>

NUMBER
EXHIBIT DESCRIPTION
- ------- -----------

<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Company(a)

3.2 Amended and Restated Bylaws of the Company(a)

4.1 Specimen Stock Certificate(a)

4.2 Shareholder Rights Agreement(a)

10.1 Robert E. McDonough, Sr. Amended and Restated Employment Agreement(a)

10.2 Paul W. Mikos Employment Agreement(a)

10.3 R. Emmett McDonough Employment Agreement(a)

10.4 Allocation Agreement with R. Emmett McDonough and Related Trusts(a)

10.5 Registration Rights Agreement with R. Emmett McDonough and Related
Trusts(a)

10.6 Letter regarding terms of employment and potential severance of Alan M.
Purdy(a)

10.7 Deferred Compensation Agreement for Alan M. Purdy(a)

10.8 Letter regarding potential severance of Jeffrey A. Elias(a)

10.9 Form of Indemnification Agreement(a)

10.10 Lease Agreement between RemedyTemp, Inc. and Robert E. McDonough,
Sr.(b)

10.11 RemedyTemp, Inc. 1996 Stock Incentive Plan(a)

10.12 RemedyTemp, Inc. 1996 Employee Stock Purchase Plan(a)
</TABLE>

12
<PAGE> 13

<S> <C>
10.13 Form of Franchising Agreement for Licensed Offices(a)

10.14 Form of Franchising Agreement for Franchised Offices(a)

10.15 Form of Licensing Agreement for IntelliSearch(SM)(a)

10.16 Credit Agreement among Bank of America National Trust and Savings
Association, Union Bank and RemedyTemp, Inc. as amended(f)

10.17 Paul W. Mikos Promissory Note(a)

10.18 Additional Deferred compensation Agreement for Alan M. Purdy(c)

10.19 Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC(d)

10.20 Lease Agreement between RemedyTemp, Inc. and Mitchell Land &
Improvement Company(e)

10.21 Credit Agreement among Bank of America National Trust and Savings
Association and RemedyTemp, Inc.

10.22 RemedyTemp, Inc. Deferred Compensation Plan

11.1 Statement Regarding Computation of Per Share Earnings

13.1 RemedyTemp, Inc. 1997 Annual Report to Shareholders

23.1 Consent of Independent Accountants

27.1 Financial Data Schedule

(a) Incorporated by reference to the exhibit of same number to the
Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as
amended.

(b) Incorporated by reference to the exhibit of same number to the
Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as
amended. This agreement was terminated July 15, 1997.

(c) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 1996.

(d) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 30, 1997.

(e) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended June 29, 1997.

(f) Incorporated by reference to the exhibit of same number to the
Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as
amended. This agreement was terminated August 24, 1997.

(b) Reports on Form 8-K:

No reports on Form 8-K have been filed during the last quarter of the
period covered by this Report.
</TABLE>

<PAGE> 14

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.

REMEDYTEMP, INC.

/s/ PAUL W. MIKOS
- --------------------------------------
Paul W. Mikos
President and Chief Executive Officer

December 23, 1997

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

SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ ROBERT E. MCDONOUGH Chairman of the Board of December 23, 1997
- --------------------------- Directors
Robert E. McDonough, Sr.

/s/ ALAN M. PURDY Senior Vice President and December 23, 1997
- --------------------------- Chief Financial Officer
Alan M. Purdy (Principal Financial Officer)

/s/ SUSAN MCDONOUGH MIKOS Director, Corporate December 23, 1997
- --------------------------- Secretary
Susan McDonough Mikos

/s/ JAMES L. DOTI Director December 23, 1997
- ---------------------------
James L. Doti, Ph.D.

/s/ WILLIAM D. CVENGROS Director December 23, 1997
- ---------------------------
William D. Cvengros

/s/ ROBERT A. ELLIOTT Director December 23, 1997
- ---------------------------
Robert A. Elliott

/s/ JOHN B. ZAEPFEL Director December 23, 1997
- ---------------------------
John B. Zaepfel
</TABLE>

<PAGE> 15

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
of RemedyTemp, Inc.

Our audits of the consolidated financial statements referred to in our report
dated November 14, 1997 appearing on page 29 of the 1997 Annual Report to
Shareholders of RemedyTemp, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.

/S/ PRICE WATERHOUSE LLP
- ------------------------
Price Waterhouse LLP
Costa Mesa, California
November 14, 1997

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

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

BALANCE AT BALANCE AT
BEGINNING OF END OF
DESCRIPTION PERIOD ADDITIONS DEDUCTIONS(1) PERIOD
- ----------- ------ --------- ------------- ------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Receivable:

Year ended September 28, 1997 $2,111 $1,276 $ 775 $2,612
Year ended September 29, 1996 1,950 1,621 1,460 2,111
Year ended October 1, 1995 1,492 1,221 763 1,950

</TABLE>

- ----------
(1) Represents write-offs of bad debts

15
<PAGE> 16

EXHIBIT INDEX

NUMBER
EXHIBIT DESCRIPTION
- ------- -----------

<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Company(a)

3.2 Amended and Restated Bylaws of the Company(a)

4.1 Specimen Stock Certificate(a)

4.2 Shareholder Rights Agreement(a)

10.1 Robert B. McDonough, Sr. Amended and Restated Employment Agreement(a)

10.2 Paul W. Mikos Employment Agreement(a)

10.3 R. Emmett McDonough Employment Agreement(a)

10.4 Allocation Agreement with R. Emmett McDonough and Related Trusts(a)

10.5 Registration Rights Agreement with R. Emmett McDonough and Related
Trusts(a)

10.6 Letter regarding terms of employment and potential severance of Alan M.
Purdy(a)

10.7 Deferred Compensation Agreement for Alan M. Purdy(a)

10.8 Letter regarding potential severance of Jeffrey A. Elias(a)

10.9 Form of Indemnification Agreement(a)

10.10 Lease Agreement between RemedyTemp, Inc. and Robert E. McDonough,
Sr.(b)

10.11 RemedyTemp, Inc. 1996 Stock Incentive Plan(a)

10.12 RemedyTemp, Inc. 1996 Employee Stock Purchase Plan(a)
</TABLE>

16
<PAGE> 17

<S> <C>
10.13 Form of Franchising Agreement for Licensed Offices(a)

10.14 Form of Franchising Agreement for Franchised Offices(a)

10.15 Form of Licensing Agreement for IntelliSearch(SM)(a)

10.16 Credit Agreement among Bank of America National Trust and Savings
Association, Union Bank and RemedyTemp, Inc. as amended(f)

10.17 Paul W. Mikos Promissory Note(a)

10.18 Additional Deferred compensation Agreement for Alan M. Purdy(c)

10.19 Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC(d)

10.20 Lease Agreement between RemedyTemp, Inc. and Mitchell Land &
Improvement Company(e)

10.21 Credit Agreement among Bank of America National Trust and Savings
Association and RemedyTemp, Inc.

10.22 Deferred Compensation Agreement for the Executives of RemedyTemp, Inc.

11.1 Statement Regarding Computation of Per Share Earnings

13.1 RemedyTemp, Inc. 1997 Annual Report to Shareholders

23.1 Consent of Independent Accountants

27.1 Financial Data Schedule

(a) Incorporated by reference to the exhibit of same number to the
Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as
amended.

(b) Incorporated by reference to the exhibit of same number to the
Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as
amended. This agreement was terminated July 15, 1997.

(c) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 1996.

(d) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 30, 1997.

(e) Incorporated by reference to the exhibit of same number to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended June 29, 1997.

(f) Incorporated by reference to the exhibit of same number to the
Registrant's Registration Statement on Form S-1 (Reg. No. 333-4276), as
amended. This agreement was terminated August 24, 1997.

(b) Reports on Form 8-K:

No reports on Form 8-K have been filed during the last quarter of the
period covered by this Report.
</TABLE>

<PAGE> 1
EXHIBIT 10.21
================================================================================
(LOGO) Bank of America Business Loan Agreement
National Trust and Savings Association
- --------------------------------------------------------------------------------
This Agreement dated as of 8-25, 1997, is between Bank of America National
Trust and Savings Association (the "Bank") and RemedyTemp, Inc. (the
"Borrower").

1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS

1.1 Line of Credit Amount.

(a) During the availability period described below, the Bank will provide a
line of credit (the "Facility No. 1") to the Borrower. Subject to
subparagraph (c) below, the amount of the line of credit (the "Facility No.
1 Commitment") is Thirty Million Dollars ($30,000,000).

(b) This is a revolving line of credit with a within line facility for letters
of credit. During the availability period, the Borrower may repay principal
amounts and reborrow them.

(c) The Borrower agrees not to permit the outstanding principal balance of the
line of credit plus the outstanding amounts of any letters of credit,
including amounts drawn on letters of credit and not yet reimbursed, and
the outstanding principal balance of the Facility No. 2 Commitment to
exceed the Facility No. 1 Commitment.

1.2 Availability Period. The line of credit is available between the date of
this Agreement and February 28, 1999 (the "Facility No. 1 Expiration Date")
unless the Borrower is in default.

1.3 Interest Rate.

(a) Unless the Borrower elects an optional interest rate as described below,
the interest rate is the Bank's Reference Rate.

(b) The Reference Rate is the rate of interest publicly announced from time to
time by the Bank in San Francisco, California, as its Reference Rate. The
Reference Rate is set by the Bank based on various factors, including the
Bank's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans. The Bank
may price loans to its customers at, above, or below the Reference Rate.
Any change in the Reference Rate shall take effect at the opening of
business on the day specified in the public announcement of a change in the
Bank's Reference Rate.

1.4 Repayment Terms.

(a) The Borrower will pay interest on September 1, 1997, and then monthly
thereafter until payment in full of any principal outstanding under this
line of credit.

(b) The Borrower will repay in full all principal and any unpaid interest or
other charges outstanding under this line of credit no later than the
Facility No. 1 Expiration Date.

(c) Any amount bearing interest at an optional interest rate (as described
below) may be repaid at the end of the applicable interest period, which
shall be no later than the Facility No. 1 Expiration Date.

1.5 Optional Interest Rates. Instead of the interest rate based on the Bank's
Reference Rate, the Borrower may elect to have all or portions of the line
of credit (during the availability period) bear interest at the rate(s)
described below during an interest period agreed to by the Bank and the
Borrower. Each interest rate is a rate per year. Interest will be paid on
the last day of each interest period, and on the first day each month

-1-
<PAGE> 2
during the interest period. At the end of any interest period, the interest
rate will revert to the rate based on the Reference Rate, unless the Borrower
has designated another optional interest rate for the portion.

1.6 Short Term Fixed Rate. The Borrower may elect to have all or portions of
the principal balance of the line of credit bear interest at the Short Term
Fixed Rate, subject to the following requirements:

(a) The "Short Term Fixed Rate" means the Short Term Rate plus one and one-half
(1.50) percentage points.

(b) The "Short Term Base Rate" means the fixed interest rate per annum,
determined solely by the Bank on the first day of the applicable interest
period for the Short Term Fixed Rate portion, as the rate at which the Bank
would be able to borrow funds in the Money Market in the amount of the
Short Term Fixed Rate portion and with an interest and principal payment
schedule equal to the Short Term Fixed Rate portion and for a term equal to
the applicable interest period. The Short Term Base Rate shall include
adjustments for reserve requirements, federal deposit insurance, and any
other similar adjustment which the Bank deems appropriate. The Short Term
Base Rate is the Bank's estimate only and the Bank is under no obligation
to actually purchase or match funds for any transaction.

(c) "Money Market" means one or more wholesale funding markets available to the
Bank, including domestic negotiable certificates of deposit, eurodollar
deposits, bank deposit notes or other appropriate money market instruments
selected by the Bank.

(d) The interest period during which the Short Term Fixed Rate will be in
effect will be no shorter than 14 days and no longer than one year.

(e) Each Short Term Fixed Rate portion will be for an amount not less than Five
Hundred Dollars ($500,000).

(f) Any portion of the principal balance of the line of credit already bearing
interest at the Short Term Fixed Rate will not be converted to a different
rate during its interest period.

(g) Each prepayment of a Short Term Fixed Rate portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid, and a prepayment fee equal to the
amount (if any) by which:

(i) the additional interest which would have been payable on the amount
prepaid had it not been prepaid, exceeds

(ii) the interest which would have been recoverable by the Bank by placing
the amount prepaid on deposit in the Money Market for a period
starting on the date on which it was prepaid and ending on the last
day of the interest period for such portion (or the scheduled payment
date for the amount prepaid, if earlier).

1.7 Offshore Rate. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the Offshore Rate
plus one and one-half (1.50) percentage points. Designation of an Offshore
Rate portion is subject to the following requirements:

(a) The interest period during which the Offshore Rate will be no shorter than
30 days and no longer than one year. The last day of the interest period
will be determined by the Bank using the practices of the offshore dollar
inter-bank market.

(b) Each Offshore Rate portion will be for an amount not less than Five Hundred
Thousand Dollars ($500,000).

-2-
<PAGE> 3

(c) The "Offshore Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All amounts
in the calculation will be determined by the Bank as of the first day of
the interest period.

Offshore Rate = Grand Cayman Rate
----------------------------
(1.00 -- Reserve Percentage)

Where,

(i) "Grand Cayman Rate" means the interest rate (rounded upward to the
nearest 1/16th of one percent) at which the Bank's Grand Cayman
Branch, Grand Cayman, British West Indies, would offer U.S. dollar
deposits for the applicable interest period to other major banks in
the offshore dollar inter-bank markets.

(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member
banks of the Federal Reserve System for Eurocurrency Liabilities, as
defined in the Federal Reserve Board Regulation D, rounded upward to
the nearest 1/100 of one percent. The percentage will be expressed as
a decimal, and will include, but not be limited to, marginal,
emergency, supplemental, special, and other reserve percentages.

(d) The Borrower may not elect an Offshore Rate with respect to any portion of
the principal balance of the line of credit which is scheduled to be
repaid before the last day of the applicable interest period

(e) Any portion of the principal balance of the line of credit already bearing
interest at the Offshore Rate will not be converted to a different rate
during its interest period.

(f) Each prepayment of an Offshore Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid, and a prepayment fee equal to the amount
(if any) by which:

(i) the additional interest which would have been payable on the amount
prepaid had it not been paid until the last day of the interest
period, exceeds

(ii) the interest which would have been recoverable by the Bank by placing
the amount prepaid on deposit in the offshore dollar market for a
period starting on the date on which it was prepaid and ending on the
last day of the interest period for such portion.

(g) The Bank will have no obligation to accept an election for an Offshore
Rate portion if any of the following described events has occurred and is
continuing:

(i) Dollar deposits in the principal amount, and for periods equal to the
interest period, of an Offshore Rate portion are not available in the
offshore dollar inter-bank markets; or

(ii) the Offshore Rate does not accurately reflect the cost of an Offshore
Rate portion.

1.8 LIBOR RATE. The Borrower may elect to have all or portions of the
principal balance bear interest at the LIBOR Rate plus one and one-half
(1.50) percentage points. Designation of a LIBOR Rate portion is subject
to the following requirements:

(a) The interest period during which the LIBOR Rate will be in effect will be
one, two, three, four, six, or twelve months. The first day of the
interest period must be a day other than a Saturday or a Sunday on which
the Bank is open for business in California, New York and London and
dealing in offshore dollars *a "LIBOR Banking Day"). The last day of the
interest period and the actual number of days during the interest period
will be determined by the Bank using the practices of the London
inter-bank market.

(b) Each LIBOR Rate portion will be for an amount not less than (i) Five
Hundred Thousand Dollars ($500,000) if the interest period is one month
and (ii) Two Hundred Fifty Thousand Dollars ($250,000) if the interest
period is two months or longer.

-3-
<PAGE> 4
(c) The "LIBOR Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All
amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)

LIBOR Rate = London Inter-Bank Offered Rate
------------------------------
1.00 - Reserve Percentage)

Where,

(i) "London Inter-Bank Offered Rate" means the average per annum
interest rate at which U.S. dollar deposits would be offered
for the applicable interest period by major banks in the London
inter-bank market, as shown on the Telerate Page 3750 (or such
other page as may replace it) at approximately 11:00 a.m.
London time two (2) London Banking Days before the commencement
of the interest period. If such rate does not appear on the
Telerate Page 3750 (or such other page that may replace it),
the rate for that interest period will be determined by such
alternate method as reasonably selected by Bank. A "London
Banking Day" is a day on which the Bank's London Branch is
open for business and dealing in offshore dollars.

(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve Board Regulation D,
rounded upward to the nearest 1/100 of one percent. The
percentage will be expressed as a decimal, and will include, but
not be limited to, marginal, emergency, supplemental, special,
and other reserve percentages.

(d) The Borrower shall irrevocably request a LIBOR Rate portion no later
than 12:00 noon San Francisco time on the LIBOR Banking Day preceding
the day on which the London Inter-Bank Offered Rate will be set, as
specified above.

(e) The Borrower may not elect a LIBOR Rate with respect to any principal
amount which is scheduled to be repaid before the last day of the
applicable interest period.

(f) Any portion of the principal balance already bearing interest at the
LIBOR Rate will not be converted to a different rate during its
interest period.

(g) Each prepayment of a LIBOR Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid and a prepayment fee as described
below. A "prepayment" is a payment of an amount on a date earlier than
the scheduled payment date for such amount as required by this
Agreement. The prepayment fee shall be equal to the amount (if any) by
which:

(i) the additional interest which would have been payable during
the interest period on the amount prepaid had it not been
prepaid, exceeds

(ii) the interest which would have been recoverable by the Bank
by placing the amount prepaid on deposit in the domestic
certificate of deposit market, for eurodollar deposit market,
or other appropriate money market selected by the Bank, for a
period starting on the date on which it was prepaid and ending
on the last day of the interest period for such portion (or the
scheduled payment date for the amount prepaid, if earlier).

(h) The Bank will have no obligation to accept an election for a LIBOR Rate
portion if any of the following described events has occurred and is
continuing:

(i) Dollar deposits in the principal amount, and for periods equal
to the interest period, of a LIBOR Rate portion are not
available in the London inter-bank market; or

-4-

<PAGE> 5

(ii) the LIBOR Rate does not accurately reflect the cost of a LIBOR
Rate portion.

1.9 LETTERS OF CREDIT. This line of credit may be used for financing
standby letters of credit with a maximum maturity of one (1) year but not to
extend beyond the Facility No. 1 Expiration Date. Each standby letter of credit
may include a provision providing that the maturity date may be automatically
extended each year for an additional year unless the Bank gives written notice
to the contrary. The amount of letters of credit outstanding at any one time,
(including amounts drawn on letters of credit and not yet reimbursed), may not
exceed Four Million Dollars ($4,000,000). The following letter of credit is
outstanding from the Bank for the account of the Borrower:

Letter of Credit Number Amount
----------------------- ------
250089 $150,000

As of the date of this Agreement, this letter of credit shall be deemed to be
outstanding under this Agreement, and shall be subject to all the terms and
conditions stated in this Agreement.

The Borrower agrees:

(a) any sum drawn under a letter of credit may, at the option of the Bank,
be added to the principal amount outstanding under this Agreement. The
amount will bear interest and be due as described elsewhere in this
Agreement.

(b) if there is a default under this Agreement, to immediately prepay and
make the Bank whole for any outstanding letters of credit.

(c) the issuance of any letter of credit and any amendment to a letter of
credit is subject to the Bank's written approval and must be in form and
content satisfactory to the Bank and in favor of a beneficiary
acceptable to the Bank.

(d) to sign the Bank's form Application and Agreement for Standby Letter of
Credit.

(e) to pay any issuance and/or other fees that the Bank notifies the
Borrower will be charged for issuing and processing letters of credit
for the Borrower.

(f) to allow the Bank to automatically charge its checking account for
applicable fees, discounts, and other charges.

(g) to pay the Bank a non-refundable fee equal to .90% per annum of the
outstanding undrawn amount of each standby letter of credit, payable
quarterly in advance, calculated on the basis of the face amount
outstanding on the day the fee is calculated. If there is a default
under this Agreement, at the Bank's option, the amount of the fee shall
be increased to 2.90% per annum, effective starting on the day the Bank
provides notice of the increase to the Borrower.

2. FACILITY NO. 2: TERM LOAN FACILITY AMOUNT AND TERMS

2.1 AMOUNT AND TERMS.

(a) During the availability period, the Borrower may request Term Loans from
the Bank in a total principal amount not to exceed Eight Million Dollars
($8,000,000) (the "Facility No. 2 Commitment").

(b) The availability period is from the date of this Agreement through
February 28, 1999 (the "Facility No. 2 Expiration Date"), unless the
Borrower is in default.

(c) Each Term Loan made by the Bank under this facility (the "Facility No.
2") will reduce the amount of the Facility No. 1 Commitment available
for extensions of credit other than Term Loans.

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<PAGE> 6
"Term Loan" means a term loan under this facility used to finance an
Acceptable Acquisition.

"Acceptable Acquisition" means an Acquisition:

(i) Where the business being acquired is substantially the same as
the Borrower's present business.

(ii) Which is undertaken in accordance with all applicable requirements
of law.

(iii) Where prior, effective written consent or approval of such
Acquisition has been given by the board of directors or equivalent
governing body of the acquiree.

(iv) Where the Borrower has delivered to the Bank a compliance
certificate showing that, immediately prior to the Acquisition, the
Borrower is in full compliance with all the terms of this Agreement.

(v) Where the Borrower has delivered to the Bank pro forma balance
sheet showing that, immediately after the Acquisition, the Borrower
will be in full compliance with all of the terms and conditions of
this Agreement.

"Acquisition" means any transaction or series of related transactions for
the purpose of or resulting, directly or indirectly, in (i) the
acquisition by the Borrower of all or substantially all of the assets of a
person or entity or of any business or division of a person or entity,
(ii) the acquisition by the Borrower of in excess of fifty percent (50%)
of the capital stock, partnership interests, membership interests or equity
of any person or entity, or otherwise causing any entity to become a
subsidiary of the borrower, or (iii) a merger or consolidation or any
other combination by the Borrower with another person or entity (other
than an entity that is a subsidiary of the Borrower) provided that the
Borrower or its subsidiary is the surviving entity.

2.2 INTEREST RATE. Unless the Borrower elects an optional interest rate as
described below, the interest rate is the Bank's Reference Rate.

2.3 REPAYMENT TERMS.

(a) The Borrower will pay all accrued but unpaid interest on September 1,
1997, and then monthly thereafter and upon payment in full of the
principal of the loan.

(b) The Borrower will repay the principal amount of each Term Loan in up to 60
successive approximately equal monthly installments starting on the date
which is 30 days after the date on which each such loan is made.

(c) The Borrower may prepay the loan in full or in part at any time. The
prepayment will be applied to the most remote payment of principal due
under this Agreement.

2.4 OPTIONAL INTEREST RATES. Instead of the interest rate based on the Bank's
Reference Rate, the Borrower may elect to have all or portions of the Term
Loans bear interest at the rate(s) described below during an interest period
agreed to by the Bank and the Borrower. Each interest rate is a rate per year.
Interest will be paid on the last day of each interest period, and on the first
day each month during the interest period. At the end of any interest period,
the interest rate will revert to the rate based on the Reference Rate, unless
the Borrower has designated another optional interest rate for the portion.

2.5 LONG TERM RATE. The Borrower may elect to have all or portions of the
principal balance of the Term Loans bear interest at the Long Term Rate,
subject to the following requirements:

(a) The interest period during which the Long Term Rate will be in effect will
be one year or more.

(b) The "Long Term Rate" means the Long Term Base Rate plus one and
three-quarters (1.75) percentage points.

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<PAGE> 7
(c) The "Long Term Base Rate" means the fixed interest rate per annum,
determined solely by the Bank on the first day of the applicable interest
period for the Long Term Rate portion, as the rate at which the Bank would
be able to borrow funds in the Money Market in the amount of the Long Term
Rate portion and with an interest payment frequency and principal repayment
schedule equal to the Long Term Rate portion and for a term equal to the
applicable interest period. The Long Term Base Rate shall include
adjustments for reserve requirements, federal deposit insurance, and any
other similar adjustment which the Bank deems appropriate. The Long Term
Base Rate is the Bank's estimate only and the Bank is under no obligation
to actually purchase or match funds for any transaction.

(d) "Money Market" means one or more wholesale funding markets available to
the Bank, including domestic negotiable certificates of deposit,
eurodollar deposits, bank deposit notes or other appropriate money market
instruments selected by the Bank.

(e) Each Long Term Rate portion will be for an amount not less than One
Hundred Thousand Dollars ($100,000).

(f) Any portion of the principal balance of a Term Loan already bearing
interest at the Long Term Rate will not be converted to a different rate
during its interest period.

(g) The Borrower may prepay the Long Term Rate portion in whole or in part in
the minimum amount of One Hundred Thousand Dollars ($100,000). The
Borrower will give the Bank irrevocable written notice of the Borrower's
intention to make the prepayment, specifying the date and amount of the
prepayment. The notice must be received by the Bank at least 5 banking
days in advance of the prepayment. All prepayments of principal on the
Long Term Rate portion will be applied on the most remote payment of
principal then unpaid.

(h) Each prepayment of a Long Term Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by payment of all
accrued interest on the amount of the prepayment and the prepayment fee
described below.

(i) The prepayment fee will be the sum of fees calculated separately for each
Prepaid Installment, as follows:

(i) The bank will first determine the amount of interest which would
have accrued each month for the Prepaid Installment had it remained
outstanding until the applicable Original Payment Date, using the
Long Term Rate;

(ii) The Bank will then subtract from each monthly interest amount
determined in (i), above, the amount of interest which would accrue
for that Prepaid Installment if it were reinvested from the date of
prepayment through the Original Payment date, using the following
rate:

(A) If the Original Payment Date is more than 5 years after the date
of prepayment: the Treasury Rate plus one-quarter of one
percentage point;

(B) If the Original Payment Date is 5 years or less after the date
of prepayment: the Money Market Rate.

(iii) If (i) minus (ii) for the Prepaid Installment is greater than zero,
the Bank will discount the monthly differences to the date of
prepayment by the rate used in (ii) above. The sum of the discounted
monthly differences is the prepayment fee for that Prepaid
Installment.

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<PAGE> 8
(j) The following definitions will apply to the calculation of the
prepayment fee:

"Money Market Rate" means the fixed interest rate per annum which the
Bank determines could be obtained by reinvesting a specified Prepaid
installment in the Money Market from the date of prepayment through the
Original Payment Date.

"Prepaid Payment Dates" mean the dates on which principal of the Long
Term Rate portion would been paid if there had been no prepayment. If a
portion of the principal would have been paid later than the end of the
interest period in effect at the time of prepayment, then the Original
Payment Date for that portion will be the last day of the interest
period.

"Prepaid Installment" means the amount of the prepaid principal of the
Long Term Rate portion which would have been paid on a single Original
Payment Date.

"Treasury Rate" means the interest rate yield for U.S. Government
Treasury Securities which the Bank determines could be obtained by
reinvesting a specified Prepaid Installment in such securities from the
date of prepayment through the Original Payment Date.

(k) The Bank may adjust the Treasury Rate and Money Market Rate to reflect
the compounding, accrual basis, or other costs of the Long Term Rate
portion. Each of the rates is the Bank's estimate only and the Bank is
under no obligation to actually reinvest any prepayment. The rates will
be based on information from either the Telerate or Reuters
information services, The Wall Street Journal, or other information
sources the Bank deems appropriate.

2.6 LIBOR RATE. The Borrower may elect to have all or portions of the
principal balance bear interest at the LIBOR rate plus one and three-quarters
(1.75) percentage points. Designation of LIBOR Rate portion is subject to the
following requirements:

(a) The interest period during which the LIBOR Rate will be in effect will
be one, two, three, four, or six months. The first day of the interest
period must be a day other than a Saturday or a Sunday on which the Bank
is open for business in California, New York and London and dealing in
offshore dollars (a "LIBOR Banking Day"). The last day of the interest
period and the actual number of days during the interest period will be
determined by the Bank using the practices of the London inter-bank
market.

(c) The "LIBOR Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All
amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)

LIBOR Rate = London Inter-Bank Offered Rate
------------------------------
1.00 - Reserve Percentage
Where,

(i) "London Inter-Bank Offered Rate" means the average per annum
interest rate at which U.S. dollar deposits would be offered for
the applicable interest period by major banks in the London
inter-bank market, as shown on the Telerate Page 3750 (or such
other page as may replace it) at approximately 11:00 a.m. London
time two (2) London Banking Days before the commencement of the
interest period. If such rate does not appear on the Telerate
Page 3750 (or such other page that may replace it), the rate for
that interest period will be determined by such alternate method
as reasonably selected by Bank. A "London Banking Day" is a day
on which the Bank's London Branch is open for business and
dealing in offshore dollars.

-8-

<PAGE> 9
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained
by member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve Board Regulation D,
rounded upward to the nearest 1/100 of one percent. The
percentage will be expressed as a decimal, and will include, but
not be limited to, marginal, emergency, supplemental, special,
and other reserve percentages.

(e) The Borrower may not elect a LIBOR Rate with respect to any principal
amount which is scheduled to be repaid before the last day of the
applicable interest period.

(f) Any portion of the principal balance already bearing interest at the
LIBOR Rate will not be converted to a different rate during its
interest period.

(g) Each prepayment of a LIBOR Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid and a prepayment fee as described
below. A "prepayment" is a payment of an amount on a date earlier than
the scheduled payment date for which such amount as required by this
Agreement. The prepayment fee shall be equal to the amount (if any) by
which:

(i) the additional interest which would have been payable during
the interest period on the amount prepaid had it not been
prepaid, exceeds

(ii) the interest which would have been recoverable by the Bank
by placing the amount prepaid on deposit in the domestic
certificate of deposit market, the eurodollar deposit market,
or other appropriate money market selected by the Bank, for a
period starting on the date on which it was prepaid and ending
on the last day of the interest period for such portion (or the
scheduled payment date for the amount prepaid, if earlier).

(h) The Bank will have no obligation to accept an election for a LIBOR Rate
portion if any of the following described events has occurred and is
continuing:

(i) Dollar deposits in the principal amount, and for periods equal
to the interest period, of a LIBOR Rate portion are not
available in the London Inter-bank market; or

(ii) the LIBOR Rate does not accurately reflect the cost a LIBOR
Rate portion.

3. EXPENSES

The Borrower agrees to reimburse the Bank for any expenses it incurs in the
preparation of this Agreement and any agreement or instrument required by this
Agreement. Expenses include, but are not limited to, reasonable attorney's
fees, including any allocated costs of the Bank's in-house counsel.

4. DISBURSEMENTS, PAYMENTS AND COSTS

4.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be
made in writing in a manner acceptable to the Bank, or by another means
acceptable to the Bank.

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<PAGE> 10
4.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each payment
by the Borrower will be:

(a) made at the Bank's branch (or other location) selected by the Bank from
time to time;

(b) made for the account of the Bank's branch selected by the Bank from time
to time;

(d) evidenced by records kept by the Bank. In addition, the Bank may, at its
discretion, require the Borrower to sign one or more promissory notes.

4.3 TELEPHONE AUTHORIZATION.

(a) The Bank may honor telephone instructions for advances or repayments or
for the designation of optional interest rates given by any one of the
individuals authorized to sign loan agreements on behalf of the Borrower,
or any other individual designated by any one of such authorized signers.

(b) Advances will be deposited in and repayments will be withdrawn from the
Borrower's account number 14969-01000, or such other of the Borrower's
accounts with the Bank as designated in writing by the Borrower.

(c) The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) from all liability, loss, and costs in connection
with any act resulting from telephone instructions it reasonably believes
are made by any individual authorized by the Borrower to give such
instructions. This indemnity and excuse will survive this Agreement.

4.4 DIRECT DEBIT.

(a) The Borrower agrees that interest and principal payments and any fees will
be deducted automatically on the due date from checking account number
14969-01000, or such other of the Borrower's accounts with the Bank as
designated in writing by the Borrower.

(b) The Bank will debit the account on the dates the payments become due. If a
due date does not fall on a banking day, the Bank will debit the account
on the first banking day following the due date.

(c) The Borrower will maintain sufficient funds in the account on the dates
the Bank enters debits authorized by this Agreement. If there are
insufficient funds in the account on the date the Bank enters any debit
authorized by this Agreement, the debit will be reversed.

4.5 BANKING DAYS. Unless otherwise provided in this Agreement, a banking day is
a day other than a Saturday or a Sunday on which the Bank is open for business
in California. For amounts bearing interest at an offshore rate (if any), a
banking day is a day other than a Saturday or a Sunday on which the Bank is open
for business in California and dealing in offshore dollars. All payments and
disbursements which would be due on a day which is not a banking day will be due
on the next banking day. All payments received on a day which is not a banking
day will be applied to the credit on the next banking day.

4.6 TAXES. The Borrower will not deduct any taxes from any payments it makes to
the Bank. If any government authority imposes any taxes on any payments made by
the Borrower, the Borrower will pay the taxes and will also pay to the Bank, at
the time interest is paid, any additional amount which the Bank specifies as
necessary to preserve the after-tax yield the Bank would have received if such
taxes had not been imposed. Upon request by the Bank, the Borrower will confirm
that it has paid the taxes by giving the Bank official tax receipts (or
notarized copies) within 30 days after the due date. However, the Borrower will
not pay the Bank's net income taxes.

4.7 ADDITIONAL COSTS. The Borrower will pay the Bank, on demand, or the Bank's
costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all

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<PAGE> 11
national banks or a class of all national banks. The costs and losses will be
allocated to the loan in a manner determined by the Bank, using any reasonable
method. The costs include the following:

(a) any reserve or deposit requirement; and

(b) any capital requirements relating to the Bank's assets and commitments
for credit.

4.8 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher
fee than if a 365-day year is used.

4.9 INTEREST ON LATE PAYMENTS. At the Bank's sole option in each instance,
any amount not paid when due under this Agreement (including interest) shall
bear interest from the due date at the Bank's Reference Rate. This may result
in compounding of interest.

4.10 DEFAULT RATE. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will at the
option of the Bank bear interest at a rate per annum which is two (2.0)
percentage points higher than the rate of interest otherwise provided under
this Agreement. This will not constitute a waiver of any default.

5. CONDITIONS

5.1 CONDITIONS TO FIRST EXTENSION OF CREDIT. The Bank must receive the
following items, in form and content acceptable to the Bank, before it is
required to extend any credit to the Borrower under this Agreement:

(a) AUTHORIZATIONS. Evidence that the execution, delivery and performance by
the Borrower (and any guarantor) of this Agreement and any instrument or
agreement required under this Agreement have been duly authorized.

(b) OTHER ITEMS. Any other items that the Bank reasonably requires.

5.2 CONDITIONS TO EACH TERM LOAN.

(a) Receipt by the Bank of an original, executed promissory note evidencing
the Term Loan.

(b) Receipt by the Bank of financial statements of the business or entity to
be acquired for the immediately preceding three (3) fiscal years.

(c) If the Acceptable Acquisition involves the Borrower's purchase of stock
of the entity being acquired, an opinion of the Borrower's counsel with
regard to such matters as the Bank may request, including without
limitation liability limitation issues.

(d) Receipt by the Bank of a compliance certificate showing that the
Borrower is in full compliance with all of the terms of this Agreement.

(e) Receipt by the Bank of evidence that, immediately prior to consummation
of the Acceptable Acquisition, the Borrower's adjusted Fixed Charge
Coverage Ratio is at lease 1.50:1, calculated over the immediately
preceding four (f) fiscal quarter. This ratio will be adjusted to
include (i) the projected debt service (principal and interest at the
then current Reference Rate) relating to the Term Loan for four (4)
fiscal quarters and (ii) any net loss (but not income) after taxes of
the business or entity to be acquired over the immediately preceding
four (4) fiscal quarters.

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<PAGE> 12
fiscal quarter, using the year-to-date results on an annualized basis. For
purposes of this calculation, indebtedness outstanding during the debt
reduction period required under Paragraph 7.9 below shall be treated as if
it were being amortized over sixty (60) months. The current portion of long
term debt will be measured as of the last day of each quarter.

6. REPRESENTATIONS AND WARRANTIES

When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation.

6.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.

6.2 AUTHORIZATION. This Agreement, and any instrument or agreement
required hereunder, are within the Borrower's powers, have been duly
authorized, and do not conflict with any of its organizational papers.

6.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed
and delivered, will be similarly legal, valid, binding and enforceable.

6.4 GOOD STANDING. In each state in which the Borrower does business, it
is properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.

6.5 NO CONFLICTS. This Agreement does not conflict with any law,
agreement, or obligation by which the Borrower is bound.

6.6 FINANCIAL INFORMATION. All financial and other information that has
been or will be supplied to the Bank is:

(a) sufficiently complete to give the Bank accurate knowledge of the Borrower's
(and any guarantor's) financial condition.

(b) in form and content required by the Bank.

6.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower, which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.

6.8 PERMITS, FRANCHISES. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade
name rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged.

6.9 OTHER OBLIGATIONS. The Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.

6.10 INCOME TAX RETURNS. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year.

6.11 NO EVENT OF DEFAULT. There is no event which is, or with notice or lapse
of time or both would be, a default under this Agreement.

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<PAGE> 13
6.12 ERISA PLANS.

(a) The Borrower has fulfilled its obligations, if any, under the minimum
funding standards of ERISA and the Code with respect to each Plan and is
in compliance in all material respects with the presently applicable
provisions of ERISA and the Code, and has not incurred any liability with
respect to any Plan under Title IV of ERISA.

(b) No reportable event has occurred under Section 4043(b) of ERISA for which
the PBGC requires 30 day notice.

(c) No action by the Borrower to terminate or withdraw from any Plan has been
taken and no notice of intent to terminate a Plan has been filed under
Section 4041 of ERISA.

(d) No proceeding has been commenced with respect to a Plan under Section 4042
of ERISA, and no event has occurred or condition exists which might
constitute grounds for the commencement of such a proceeding.

(e) The following terms have the meanings indicated for purposes of this
Agreement:

(i) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.

(ii) "ERISA" means the Employee Retirement Income Act of 1974, as
amended from time to time.

(iii) "PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.

(iv) "Plan" means any employee pension benefit plan maintained or
contributed to by the Borrower and insured by the Pension Benefit
Guaranty Corporation under Title IV of ERISA.

6.13 LOCATION OF BORROWER. The Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrower's signature on this Agreement.

7. COVENANTS

The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:

7.1 USE OF PROCEEDS. To use the proceeds of Facility No. 1 only for working
capital and buy-back of the Borrower's existing franchises; to use performance
and financial standby letters of credit for general business purposes and to
support self-insured workers' compensation program; and to use the proceeds of
Facility No. 2 only to finance Acceptable Acquisitions subject to the terms and
conditions of this Agreement.

7.2 FINANCIAL INFORMATION. To provide the following financial information and
statements and such additional information as requested by the Bank from time
to time:

(a) Within 120 days of the Borrower's fiscal year end, the Borrower's annual
report to shareholders, which shall include financial statements for such
year. These financial statements must be audited (with an unqualified
opinion) by a Certified Public Accountant ("CPA") acceptable to the Bank.

(b) Within 90 days of the Borrower's fiscal year end, the Borrower's Form 10-K
Annual Report.

(d) If filed with the Securities and Exchange Commission, the Borrower's Form
8K Current Report, within 15 days after any such filing.

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<PAGE> 14
(e) Commencing with the fiscal quarter ending June 30, 1997, within 45 days of
the period's end (including the fourth fiscal quarter), a compliance
certificate of the Borrower signed by an authorized financial officer of
the Borrower setting forth (i) the information and computations (in
sufficient detail) to establish that the Borrower is in compliance with all
financial covenants at the end of the period covered by the financial
statements then being furnished and (ii) whether there existed as of the
date of such financial statements and whether there exists as of the date
of the certificate, any default under this Agreement and, if any such
default exists, specifying the nature thereof and the action the Borrower
is taking and proposes to take with respect thereto.

(f) Within 120 days of the Borrower's fiscal year end, the Borrower's financial
projections and budget on a quarterly basis for the following fiscal year.

(g) Within 30 days after mailing to the Borrower's shareholders but not later
than February 28 of each year, the Borrower's annual proxy statement.

(h) Within 90 days of the Borrower's fiscal year end, a listing of franchisee
and company-owned offices.

(i) Within 120 days of the Borrower's fiscal year end, a copy of the Borrower's
current insurance policy evidencing:

(i) coverage of the Borrower's workers' compensation liability for
1986-1996 and the annual guaranteed cost and/or stop loss policy so
long as the Borrower insures its workers' compensation liability with
an outside insurance company; or

(ii) re-insurance coverage of workers' compensation claims in excess of
Three Hundred Fifty Thousand Dollars ($350,000) per occurrence from an
insurance company acceptable to the Bank, and with an A.M. Best rating
of not less than "A".

(j) Promptly upon request of the Bank, such other statements, lists of property
and accounts, budgets, forecasts or reports as to the Borrower as the Bank
may reasonably request.

7.3 CURRENT RATIO. To maintain a ratio of current assets to current
liabilities, as of the end of each fiscal quarter, at least equal to 1.30:1.
For the purposes of this computation, all amounts outstanding under Facility
No. 1, but excluding outstanding standby letters of credit, shall be
considered current liabilities.

7.4 TANGIBLE NET WORTH. To maintain a sum of (i) Tangible Net Worth plus (ii)
loans to franchisees that are more than one (1) year old and are not in
default, at least equal to the sum of the following:

(a) Thirty-Five Million Five Hundred Thousand Dollars ($35,500,000); plus

(b) commencing with the fiscal quarter ending March 31, 1997, the sum of (i)
80% of net income after income taxes (without subtracting losses) earned in
each quarterly accounting period, minus (ii) goodwill related to Acceptable
Acquisitions not to exceed a total of Eight Million Dollars ($8,000,000)
plus (iii) the net proceeds of any capital infusions.

"Tangible Net Worth" means the gross book value of the assets of the Borrower
(exclusive of goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred charges and
other like intangibles, and notes, loans and receivables due from affiliates,
officers, and shareholders of the Borrower, except for receivables due from
franchisees and licensees incurred in the normal course of business) plus up to
Three Million Dollars ($3,000,000) in goodwill incurred from the buy-back of the
Borrower's franchisees less all liabilities, including but not limited to
accrued and deferred income taxes, and any reserves against assets.

7.5 TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. To maintain a ratio of the
Borrower's total liabilities to Tangible Net Worth not exceeding 1.80:1. "Total
liabilities" means the sum of current liabilities plus long term liabilities.

7.6 FIXED CHARGE COVERAGE RATIO. To maintain a Fixed Charge Coverage Ratio of
at least 1.25:1.

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<PAGE> 15
7.7 OTHER DEBTS. Not to have outstanding or incur any direct or contingent
debts or lease obligations (other than those to the Bank), or become liable for
the debts of others without the Bank's written consent. This does not prohibit:

(a) Acquiring goods, supplies, or merchandise on normal trade credit.

(b) Endorsing negotiable instruments received in the usual course of
business.

(d) Additional Debts for capitalized leases which do not exceed Two Million
Dollars ($2,000,000).

7.8 OTHER LIENS. Not to create, assume, or allow any security interest or
lien (including judicial liens) on property the Borrower now or later owns,
excepts:

(a) Deeds of Trust and security agreements in favor of the Bank.

(b) Lines for taxes not yet due.

7.9 DEBT REDUCTION REQUIREMENT. To reduce the amount of all advances
outstanding under Facility No. 1 to not more than Five Million Dollars
($5,000,000) for a period of at least 30 consecutive calendar days in each line
year. "Line-year" means the period between February 28, 1997, and February 28,
1998, and each subsequent one-year period (if any). For the purposes of this
paragraph, "advances" does not include undrawn amounts of outstanding letters
of credit.

7.10 NOTICES TO BANK. To promptly notify the Bank in writing of:

(a) any lawsuit over Five Hundred Thousand Dollars ($500,000) against the
Borrower (or any guarantor).

(b) any substantial dispute between the Borrower (or any guarantor) and any
government authority.

(d) any material adverse change in the Borrower's (or any guarantor's)
financial condition or operations.

(e) any change in the Borrower's name, legal structure, place of business,
or chief executive office if the Borrower has more than one place of
business.

7.11 BOOKS AND RECORDS. To maintain adequate books and records.

7.12 AUDITS. To allow the bank and its agents to inspect the Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.

7.13 COMPLIANCE WITH LAWS. To comply with the laws (including any fictitious
name statute), regulations, and orders of any government body with authority
over the Borrower's business.

7.14. PRESERVATION OF RIGHTS. To maintain and preserve all rights,
privileges, and franchises the Borrower now has.

7.15. MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or
replacements to keep the Borrower's properties in good working condition.

-15-
<PAGE> 16
7.16 COOPERATION. To take any action requested by the Bank to carry out the
intent of this Agreement.

7.17 GENERAL BUSINESS INSURANCE. To maintain and keep in force insurance of
the type usual for the business it is in, and deliver to the Bank upon the
Bank's request a copy of each insurance policy or, if permitted by the Bank, a
certificate of insurance listing all insurance in force.

7.18 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written
consent:

(a) engage in any business activities substantially different from the
Borrower's present business.

(b) liquidate or dissolve the Borrower's business.

(c) enter into any consolidation, merger, pool, syndicate, or other
combination or become a member of a joint venture, partner in a
partnership, or a member of a limited liability company.

(d) lease, or dispose of all or a substantial part of the Borrower's
business of the Borrower's assets.

(e) make Acquisitions; provided, however that the Borrower may make
Acceptable Acquisitions if the total consideration therefor, including
assumption of debt, does not exceed Eight Million Dollars ($8,000,000)
on a cumulative basis in any line year. This is in addition to the Three
Million Dollars ($3,000,000) from the buy-back of Borrower's
franchisees/licensees.

(f) sell or otherwise dispose of any assets for less than fair market value,
or enter into any sale and leaseback agreement covering any of its fixed
or capital assets.

7.19 ERISA Plans. To give prompt written notice to the Bank of:

(a) The occurrence of any reportable event under Section 4043(b) of ERISA
for which the PBGC requires 30 day notice.

(b) Any action by the Borrower to terminate or withdraw from a Plan or the
filing of any notice of intent to terminate under Section 4041 of ERISA.

(d) The commencement of any proceeding with respect to a Plan under Section
4042 of ERISA.

8. DEFAULT

If any of the following events occur, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If an event of default occurs under the
paragraph entitled "Bankruptcy," below, with respect to the Borrower, then the
entire debt outstanding under this Agreement will automatically be due
immediately.

8.1 FAILURE TO PAY. The Borrower fails to make a payment under this
Agreement when due.

8.2 FALSE INFORMATION. The Borrower has given the Bank false or misleading
information or representations.

8.3 BANKRUPTCY. The Borrower (or any guarantor) files a bankruptcy
petition, a bankruptcy petition is filed against the Borrower (or any
guarantor), or the Borrower (or any guarantor) makes a general assignment for
the benefit of credits.

8.4 RECEIVERS. A receiver or similar official is appointed for the
Borrower's (or any guarantor's) business, or the business is terminated.

-16-
<PAGE> 17
8.5 LAWSUITS. Any lawsuit or lawsuits are filed on behalf of one or more trade
creditors against the Borrower in an aggregate amount of One Million Dollars
($1,000,000) or more in excess of any insurance coverage.

8.6 JUDGMENTS. Any judgments or arbitration awards are entered against the
Borrower (or any guarantor), or the Borrower (or any guarantor) enters into any
settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of Five Hundred Thousand Dollars ($500,000) or more in excess
of any insurance coverage.

8.7 GOVERNMENT ACTION. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's (or any guarantor's)
financial condition or ability to repay.

8.8 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the Borrower's
(or any guarantor's) financial condition, properties or prospects, or ability to
repay the loan.

8.9 CROSS-DEFAULT. Any default occurs under any agreement in connection with
any credit the Borrower (or any guarantor) has obtained from anyone else or
which the Borrower (or any guarantor) has guaranteed.

8.10 OTHER BANK AGREEMENTS. The Borrower (or any guarantor) fails to meet the
conditions of, or fails to perform any obligation under any other agreement the
Borrower (or any guarantor) has with the Bank or any affiliate of the Bank.

8.11 ERISA PLANS. The occurrence of any one or more of the following events
with respect to the Borrower, provided such event or events could reasonably be
expected, in the judgment of the Bank, to subject the Borrower to any tax,
penalty or liability (or any combination of the foregoing) which, in the
aggregate, could have a material adverse effect on the financial condition of
the Borrower with respect to a Plan:

(a) A reportable event shall occur with respect to a Plan which is, in the
reasonable judgment of the Bank likely to result in the termination of such
Plan for purposes of Title IV of ERISA.

(b) Any Plan termination (or commencement of proceedings to terminate a Plan)
or the Borrower's full or partial withdrawal from a Plan.

8.12 OTHER BREACH UNDER AGREEMENT. The Borrower fails to meet the conditions
of, or fails to perform any obligation under, any term of this Agreement not
specifically referred to in this Article.

9. ENFORCING THIS AGREEMENT; MISCELLANEOUS

9.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.

9.2 CALIFORNIA LAW. This Agreement is governed by California law.

9.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and
the Bank's successors and assignees. The Borrower agrees that it may not assign
this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the right
of set-off against the Borrower.

9.4 ARBITRATION.

(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those that
arise from:

(i) This Agreement (including any renewals, extensions or modifications of
this Agreement);

-17-

<PAGE> 18
(ii) Any document, agreement or procedure related to or delivered in
connection with this Agreement;

(iii) Any violation of this Agreement; or

(iv) Any claims for damages resulting from any business conducted
between the Borrower and the Bank, including claims for injury to
persons, property or business interests (torts).

(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United States
Arbitration Act. The United States Arbitration Act will apply even though
this Agreement provides that it is governed by California law.

(c) Arbitration proceedings will be administered by the American Arbitration
Association and will be subject to its commercial rules of arbitration.

(d) For purposes of the application of the statute of limitations, the filing
of an arbitration pursuant to this paragraph is the equivalent of the
filing of a lawsuit, and any claim or controversy which may be arbitrated
under this paragraph is subject to any applicable statute of limitations.
The arbitrators will have the authority to decide whether any such claim or
controversy is barred by the statute of limitations and, if so, to dismiss
the arbitration on that basis.

(e) If there is a dispute as to whether an issue is arbitrable, the arbitrators
will have the authority to resolve any such dispute.

(f) The decision that results from an arbitration proceeding may be submitted
to any authorized court of law to be confirmed and enforced.

(g) The procedure described above will not apply if the controversy or claim,
at the time of the proposed submission to arbitration, arises from or
relates to an obligation to the Bank secured by real property located in
California. In this case, both the Borrower and the Bank must consent to
submission of the claim or controversy to arbitration. If both parties do
not consent to arbitration, the controversy or claim will be settled as
follows:

(i) The Borrower and the Bank will designate a referee (or a panel of
referees) selected under the auspices of the American Arbitration
Association in the same manner as arbitrators are selected in
Association-sponsored proceedings;

(ii) The designated referee (or the panel of referees) will be
appointed by a court as provided in California Code of Civil
Procedure Section 638 and the following related sections;

(iii) The referee (or the presiding referee of the panel) will be an
active attorney or a retired judge; and

(iv) The award that results from the decision of the referee (or the
panel) will be entered as a judgment in the court that appointed
the referee, in accordance with the provisions of California Code
of Civil Procedure Sections 644 and 645.

(h) This provision does not limit the right of the Borrower or the Bank to:

(i) exercise self-help remedies such as setoff;

(ii) foreclose against or sell any real or personal property
collateral; or

(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:

(A) an interim remedy; and/or

(B) additional or supplementary remedies.

-18-
<PAGE> 19
(i) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right to the Borrower or the Bank, including
the suing party, to submit the controversy or claim to arbitration if
the other party contests the lawsuit. However, if the controversy or
claim arises from or relates to an obligation to the Bank which is
secured by real property located in California at the time of the
proposed submission to arbitration, this right is limited according to
the provision above requiring the consent of both the Borrower and the
Bank to seek resolution through arbitration.

(j) If the Bank forecloses against any real property securing this
Agreement, the Bank has the option to exercise the power of sale under
the deed of trust or mortgage, or to proceed by judicial foreclosure.

9.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default. Any consent or waiver under this Agreement must be
in writing.

9.6 ADMINISTRATION COSTS. The Borrower shall pay the Bank for all
reasonable costs incurred by the Bank in connection with administering this
Agreement.

9.7 ATTORNEY'S FEES. The Borrower shall reimburse the Bank for any
reasonable costs and attorney's fees incurred by the Bank in connection with
the enforcement or preservation of any rights or remedies under this Agreement
and any other documents executed in connection with this Agreement, and in
connection with any amendment, waiver, "workout" or restructuring under this
agreement. In the event that any case is commenced by or against the Borrower
under the Bankruptcy Code (Title 11, United States Code) or any similar or
successor statue, the Bank is entitled to recover costs and reasonable
attorneys' fees incurred by the Bank related to the preservation, protection,
or enforcement of any rights of the Bank in such a case. As used in this
paragraph, "attorney's fees" includes the allocated costs of the Bank's
in-house counsel.

9.8 ONE AGREEMENT. This Agreement and any related security or other
agreements required by this Agreement, collectively:

(a) represent the sum of the understandings and agreements between the Bank
and the Borrower concerning this credit; and

(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and

(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.

In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.

9.9 NOTICES. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and
the Borrower may specify from time to time in writing.

9.10 HEADINGS. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.

9.11 COUNTERPARTS. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same agreement.

9.12 PRIOR AGREEMENT SUPERSEDED. This Agreement supersedes the Credit
Agreement entered into as of July 5, 1995, between the Bank and the Borrower,
and any credit outstanding thereunder shall be deemed to be outstanding under
this Agreement.

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<PAGE> 20
This Agreement is executed as of the date stated at the top of the first page.

[LOGO]
Bank of America RemedyTemp, Inc.
National Trust and Savings Association

x /s/ T.A. MILES x /s/ ALAN M. PURDY
--------------------------- ---------------------------
By: T.A. Miles By: Alan M. Purdy
Title: Vice President Title: Vice President and
Chief Financial Officer

Address where notices to the Bank Address where notices to the
are to be sent: Borrower are to be sent:

Inland Empire Regional Commercial
Banking Office #1496
3650 14th Street, Second Floor 32122 Camino Capistrano
Riverside, CA 92501 San Juan Capistrano, CA 92693

-20-

<PAGE> 1
EXHIBIT 10.22

REMEDYTEMP, INC.

DEFERRED COMPENSATION PLAN

PREPARED BY:

REISH & LUFTMAN
A PROFESSIONAL CORPORATION
ATTORNEYS AT LAW
TENTH FLOOR
11755 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90025
(310) 478-5656

<PAGE> 2

REMEDYTEMP, INC.
DEFERRED COMPENSATION PLAN

THIS DEFERRED COMPENSATION PLAN is adopted by REMEDYTEMP, INC., a
California corporation (the "Company"), effective as of September 29, 1997, with
reference to the following:

A. The Company is establishing this Plan to provide key employees a tax
deferred, capital accumulation, retention program.

B. This Plan is intended to provide benefits to a select group of
management or highly compensated personnel in order to attract and retain the
highest quality executives. This Plan is not intended to be a qualified plan
within the meaning of sections 401(a) and 501(a) of the Internal Revenue Code of
1986, as amended (the "Code").

C. This Plan is intended to be an unfunded plan for purposes of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Company
contributions and voluntary compensation deferrals shall be held in a "Rabbi
Trust," as that term is defined in Revenue Procedure 92-64, 1992-2 C.B. 422.

NOW, THEREFORE, the Company hereby adopts the RemedyTemp, Inc. Deferred
Compensation Plan on the following terms and conditions:

1. Definitions. Whenever used in this Plan, the following words and
phrases shall have the meaning set forth below, unless a different meaning is
expressly provided or plainly required by the context in which the words or
phrases are used:

1.1 Beneficiary means a person designated by a Participant to receive
Plan benefits in the event of the Participant's death.

1.2. Board means the Board of Directors of the Company and its
successors.

1.3. CEO means the Chief Executive Officer of the Company and his
successors.

1.4. Change in Control of Company means:

(A) a change in ownership, or power to vote such that 35% or more of
the voting stock of the Company is concentrated in the hands of any one person,
entity or group of related persons or entities or group of persons or entities
acting in concert;

(B) a change in the composition of the Board as a result of which
individuals serving on the Board immediately prior to such change cease to
constitute at least a majority thereof;

<PAGE> 3

(D) substantially all of the assets of the Company are sold or
otherwise transferred to parties that are not within the "controlled group of
corporations" (as defined in section 1563 of the Internal Revenue Code of 1986)
in which the Company is a member.

1.5. Company means RemedyTemp, Inc., a California corporation.

1.6. Disability means (A) "disability" as defined in any group
long-term disability policy or program sponsored by the Company and in effect at
the time a Participant who has suffered a physical or mental impairment makes
application under this Plan for a disability distribution, or (B) if no such
policy or program is in force at such time, "disability" as defined in section
1382c(a)(3) of volume 42 of the United States Code and regulations promulgated
thereunder, provided, however, that the disability (whether under the definition
in (A) or in (B)) must be of a duration of at least six (6) consecutive months
from the date the Participant suffers the disability notwithstanding any
different requirements of duration under either definition in the actual policy
or program or in the United States Code, respectively.

A Participant who has suffered a Disability shall be Disabled within
the meaning of this Section 1.6.

The determination of whether a Participant is Disabled within the
meaning of this Section 1.6 shall be made by the CEO. A Participant who
believes he has suffered a Disability within the meaning of this Section 1.6
shall make application to the CEO, on a form prescribed by the CEO, for a
determination of whether he is Disabled under the terms of this Section 1.6. The
Participant shall make such written application to the CEO on or after the
date which is at least five (5) consecutive months following the date he first
suffered the impairment under consideration. Any determination by the CEO that
a Disability exists under the provisions of this Section 1.6 shall be effective
only after the date the Disability has existed for six (6) consecutive months.
All determinations made by the CEO shall be final, and no Participant shall be
considered Disabled for any purpose whatsoever under the provisions of this Plan
if determined not to be Disabled by the CEO under the procedures set forth in
this Section 1.6.

The CEO shall notify each Participant who has made application under
this Section 1.6, in writing, of his determination within three (3) months of
the date the CEO receives the Participant's application hereunder. The
Participant shall cooperate in providing any information to the CEO which it
requires in making its determination, including, but not limited to, access to
the Participant's medical records, direct contact with his physician and
physical examination by a physician selected by the Company. Any Participant who
does not fully cooperate shall be deemed not Disabled by the CEO and so
notified.

1.7. Key Employee means an employee of the Company, selected by the
CEO, who is a member of a select group of management or highly compensated
employees within the meaning of ss.2520.104-23 of the Department of Labor ERISA
Regulations.

<PAGE> 4

1.8. Participant means (A) a Key Employee designated by the CEO, in
writing, to participate in the benefits under the Plan who timely files a
written election pursuant to Section 2.4, below, and (B) a former Employee who,
at the time of his termination from employment, retirement, death, or occurrence
of Disability, retains, or whose beneficiary retains, benefits earned under the
Plan in accordance with its terms. A Participant is considered an active
participant in the Plan until the earliest of the following: (A) the Participant
retires, dies or becomes Disabled under the terms of this Plan; or (B) the
Participant is determined or believed by the CEO to no longer qualify as a
member of a "select group of highly compensated or management employees" and
such Participant has received distribution of his entire benefit hereunder; or
(C) the Participant terminates employment with the Company.

1.9. Plan means the RemedyTemp, Inc. Deferred Compensation Plan
established by this document and the Trust Agreement established in connection
herewith.

1.10. Plan Year means the period which is the same as the fiscal year
of the Company.

1.11. Plan Year Compensation means the total income paid to an Active
Participant by the Company during any Plan Year, or portion thereof in which he
is a Participant in this Plan, as reflected on the Participant's form W-2. For
purposes of the elections under Section 2.4 of this Plan, Plan Year Compensation
shall consist of one or more of the following types of income: annual base
salary or annual bonus.

1.12. Trust Agreement means the grantor trust established in connection
with this Plan between the Company as grantor and the Trustee.

1.13. Trustee means Union Bank of California, N.A. or any successor
institutional trustee named to succeed such Trustee under the terms of the Trust
Agreement established in connection with this Plan.

2. Participation.

2.1. Eligibility. A Key Employee of the Company is eligible to
participate in this Plan on the entry date first following the date as of which
both of the following events have occurred: (A) the CEO has designated him in
writing as a Participant in the Plan, and (B) the Key Employee has made a
Written Election in accordance with the terms of Section 2.4 below.

2.2. Entry Date. Any Key Employee who has met the Eligibility
Requirements specified in Section 2.1 as of the Effective Date of this Plan
shall become a Participant in the Plan as of the Effective Date. Any Key
Employee of the Company who meets the Eligibility Requirements specified in
Section 2.1 after the Effective Date of this Plan shall become a Participant in
this Plan immediately upon the date on which he has met the Eligibility
Requirements.

<PAGE> 5

2.3. Designation. The CEO shall designate for each Plan Year, in
writing, the name of each Key Employee who shall be entitled to participate in
the Plan for the Plan Year. Such designation by the CEO shall occur on a date
such that each designated Key Employee shall have sufficient time to make his
Written Election as required by Section 2.4 below.

2.4. Written Election by Participant. Each Key Employee designated by
the CEO as a Participant for a Plan Year shall submit a Written Election prior
to the first day of the Plan Year in which he will be a Participant.

(A) Such Written Election shall be made on the form presented to the
Key Employee by the Plan Committee and shall set forth:

(1) his election to participate in this Plan under the terms hereof;

(2) the amount of Plan Year Compensation the Key Employee has
determined to defer under the Plan for the Plan Year, pursuant to
Section 3.1 below;

(3) the investment vehicles into which the Key Employee desires to have
his Account invested, as provided in Section 3.3 below, and the
percentage of his Account allocated to each elected investment
vehicle;

(4) the date on which his benefit is to be distributed which is the
earlier of (a) the date specified for an In-Service Withdrawal or
(b) the later of (i) a specific date or (ii) when he terminates
employment with the Company due to termination of service,
retirement, Disability or death;

(5) the form in which his benefit is to be distributed upon termination
of service or retirement.

(B) A Participant's most recently submitted Written Election shall
remain in effect for subsequent Plan Years until the Participant changes it in
accordance with the following:

(1) A Participant may change the amount of Plan Year Compensation he
will defer under the Plan for future Plan Years by submitting a new
Written Election to the Company. Such new election must be
submitted to the Company on or before the seventh (7th) day
immediately preceding the Plan Year for which the new election is
to be effective. Any election of the amount of Plan Year
Compensation to defer for a given Plan Year shall be irrevocable on
and after the first day of the Plan Year for which the election was
made.

<PAGE> 6

(2) A Participant may change the investment vehicle(s) and the
percentage of his Account allocated to each investment vehicle by
completing and submitting any form or forms required by the
Company.

(3) A Participant may change the date or form of distribution by
submitting a new Written Election to the Company, provided that
such change is submitted at least sixty (60) days prior to the
original date of distribution, the new date of distribution is
subsequent to the original date of distribution, and only one
change may be made after the original election.

2.5. Duration of Participation. Any Key Employee who has become a
Participant at any time shall remain a Participant, even though he is no longer
an Active Participant, until his entire benefit under the terms of the Plan has
been paid to him (or to his Beneficiary in the event of his death), at which
time he ceases to be a Participant.

2.6. Maintenance of Records. The annual Designation of Participants by
the CEO shall be maintained in the corporate minute book. The Written Elections
by Participants shall be maintained in the corporate records with all other
files pertaining to this Plan by the CEO.

3. Contributions and Allocation.

3.1. Participant Contributions. A Participant may elect to defer each
Plan Year a portion, up to 100%, of his Plan Year Compensation, provided that a
Participant may not defer an amount less than the minimum established from year
to year by the CEO. For the initial Plan Year, such minimum shall be $5,000.
Such election shall designate the amount of income deferred during the Plan
Year, in actual dollar amounts or percentages. Once a Participant's
contributions for a Plan Year reach his elected dollar amount or percentages,
such Participant shall not be allowed to defer additional portions of his Plan
Year Compensation for the remainder of the Plan Year. Any deferred amounts in
excess of his elected dollar amount shall be refunded to the Participant as soon
as practicable.

3.2. Allocation of Contributions. All amounts which a Participant
elects to defer under the terms of this Plan shall be allocated to his Account.
Each such Participant Account shall be credited with earnings as provided in
Section 3.3 below.

3.3. Credited Earnings. The Account of each Participant shall be
credited with the actual earnings on the investments allocated to his Account
monthly at the close of the month. Each Participant shall have the right to
designate investments in which all amounts allocated to his Account hereunder
are deemed to be invested and to change such designation monthly.
Notwithstanding the foregoing, the Trustee shall, at the direction of the CEO,
have the duty and authority to invest the trust assets and funds in accordance
with the terms of the Trust Agreement, and all rights associated with the trust
assets shall be exercised by the Trustee as designated by the CEO and shall in
no event be exercisable by or be settled upon Participants or their
Beneficiaries.

<PAGE> 7

3.4. Forfeitures. If any amount of Participant Contributions are
forfeited in any year, such forfeited amounts shall be returned to the Company.

3.5. Funding. The assets of the Plan shall be held under the Trust
Agreement (a "grantor trust") designated in Article I above. As such, the Plan
is intended to be an unfunded plan for purposes of the requirements of ERISA and
the Code.

Notwithstanding the provisions under the terms of the Plan that amounts
contributed to this Plan, plus earnings thereon, shall be allocated to separate
Accounts of Participants, all such amounts credited to such individual Accounts
shall remain the general assets of the Employer, and as such shall remain
subject to the claims of the general creditors of the Company. This Plan and the
related Trust Agreement do not create, nor does any Employee, Participant or
Beneficiary have, any right with respect to any specific assets of the Company
or the Plan.

4. Vesting of Accounts. The Account of each Participant shall be 100%
vested in such Participant at all times, provided that a portion of such Account
shall be forfeited in accordance with Unplanned In-Service Distributions of
Section 6.3.

5. Types of Benefits.

5.1. Retirement Benefit. A Participant's Retirement Benefit is the
unpaid balance of his Account which equals the total of all contributions made
by the Participant and allocated to his Account and all earnings credited to his
Account in accordance with the terms of the Plan and the Trust Agreement, less
any distributions already paid.

5.2. Termination of Service Benefit. If a Participant elects to receive
his Retirement Benefit upon termination of his employment with the Company, or
if a Participant's employment with the Company terminates prior to distribution
of his In-Service Benefit, the Company will pay his Retirement Benefit,
calculated under Section 5.1, under the applicable form elected by the
Participant in his Written Election.

5.3. Disability Benefit. If a Participant becomes Disabled as defined
in Section 1.5 above, the Company will pay his Retirement Benefit, calculated
under Section 5.1, under the applicable form elected by the Participant in his
Written Election.

5.4. Death Benefit.

(A) If a Participant dies after a distribution has commenced or if the
Company has not purchased a life insurance contract in connection with the
Participant's Retirement Benefit, the Company will continue the payments of such
distribution otherwise due to the Participant to his designated Beneficiary,
under the applicable form elected by the Participant in his Written Election.

(B) If a Participant dies while still employed by the Company and the
Company has purchased a life insurance contract in connection with such
Participant's Retirement Benefit,

<PAGE> 8

the Company will pay the Participant's designated Beneficiary the greater of his
Retirement Benefit as determined under Section 5.1 above or his Projected
Retirement Benefit (as defined below), under the applicable form elected by the
Participant in his Written Election. "Projected Retirement Benefit" means the
amount determined by projecting the Participant's contribution for the
Participant's first year of participation hereunder at an assumed earnings rate
of 9% to retirement at age 60.

5.6. In-Service Withdrawal. A Participant may designate a date in the
future for receipt of an In-Service Withdrawal with respect to the Participant's
contribution for a given Plan Year. Such withdrawal may be paid while the
Participant remains employed with the Company, but shall be paid without
Credited Earnings attributable to such Participant Contribution (which Credited
Earnings shall be distributed upon termination of employment or retirement) in
four (4) equal yearly installments commencing on January 15 of the second Plan
Year following the Plan Year of deferral (the "In-Service Commencement Year");
provided, however, that a Participant may elect to defer commencement of an
In-Service Withdrawal for an additional three years by delivery to the Company
of a written election not later than the last day of the Plan Year prior to the
Plan Year immediately preceding the In-Service Commencement Year.

5.7. Unplanned In-Service Benefit. A Participant may elect to receive
his Retirement Benefit as an Unplanned In-Service Benefit at any time by
providing the Plan Committee with a written election to do so. In consideration
for receiving an Unplanned In- Service Benefit, such Participant shall
permanently forfeit an amount equal to ten percent (10%) of his Retirement
Benefit and forgo all future participation in the Plan.

5.8. Financial Hardship Benefit. A Participant may request a portion of
his Retirement Benefit as a Financial Hardship Benefit at any time by providing
the Plan Committee, to its satisfaction, with a written election to do so, proof
of an unforeseeable financial hardship, and proof that all other financial
resources have been explored and utilized. The amount of a Financial Hardship
Benefit shall be limited to the lesser of the amount needed for the financial
hardship or such Participant's Retirement Benefit. In consideration for
receiving a Financial Hardship Benefit, the Participant will not be permitted to
make further contributions to the Plan for the remainder of the Plan Year and
the following Plan Year.

6. Distributions.

6.1 Form of Benefits. The Company shall pay benefits in the form
associated with Type of Benefit elected by the Participant, and, to the extent a
Type of Benefit may be distributed in various forms, the Company shall pay
benefits in the form elected by the Participant. The forms of benefits
associated with the Types of Benefits are the following:

(A) Retirement Benefit, Termination of Service Benefit, Disability
Benefit, and Death Benefit shall be paid in (i) one lump sum; (ii) 5 yearly
installments; (iii) 10 yearly installments; or (iv) 15 yearly installments;

(B) In-Service Withdrawal shall be paid as provided in Section 5.6
above;

<PAGE> 9

(D) Financial Hardship Benefit shall be paid in one lump sum.

6.2. Commencement of Payments. The Company will pay, or begin to pay,
the Types of Benefits under this Plan to the Participant in accordance with the
following:

(A) Retirement Benefit, Termination of Service Benefit, Disability
Benefit, and Death Benefit payments shall commence no later than January 15 of
the Plan Year immediately following the date on which the Participant retires,
terminates service, becomes disabled, or dies;

(B) In-Service Withdrawal payments shall commence on the date
designated by the Participant on his Written Election pursuant to Section 2.4,
provided that such payments are from Participant Contributions that have been in
such Participant's Account for at least three years;

(C) Unplanned In-Service Benefit payments shall commence no later than
sixty-five (65) days after a written request for an Unplanned In-Service Benefit
is received by the Committee;

(D) Financial Hardship Benefit payments shall commence no later than
sixty-five (65) days after a request for a Financial Hardship Benefit is
approved by the Plan Committee.

7. Amendment, Termination of Plan, Change in Control.

7.1. Amendment. The Company reserves the right to amend the Plan at any
time by resolution of the CEO. The CEO will determine the effective date of any
such amendment. The amendment may not deprive any Participant or Beneficiary of
any portion of a benefit under the terms of this Plan at the time of the
amendment.

7.2. Termination of Plan. The Company reserves the right to terminate
the Plan at any time by resolution of the CEO. In the event of Plan termination,
the Company will calculate the Retirement Benefit of each Participant and
distribute such amounts to the Participant or Beneficiary in a lump sum within
thirty (30) days of the Plan's termination.

7.3. Change in Control. In the event of a Change in Control, the Plan
shall terminate and the provisions of Section 7.2 shall control.

8. Benefits Not Funded. Participants and Beneficiaries have the status
of unsecured creditors of the Company, and the Plan constitutes a mere promise
by the Company to make benefit payments in the future. A Participant's or
Beneficiary's interest in the Plan is an unsecured claim against the general
assets of the Company, and neither the Participant nor a Beneficiary has any
right against the account until the Plan has distributed the benefit. All
amounts credited to an account are the general assets of the Company and may be
disposed of or used by the Company in such manner as it determines.

<PAGE> 10

Notwithstanding the first paragraph of this Article VII, the Company
will transfer sufficient cash to a trust pursuant to a Trust Agreement, a copy
of which is attached. Such Trust Agreement created by the Company is intended to
be a grantor trust, and any assets held by such trust to assist the Company in
meeting its obligations under the Plan will conform to the terms of the model
trust, as described in Revenue Procedure 92-64, 1992-2 C.B. 422, promulgated by
the Internal Revenue Service. The Company will make a transfer of cash to the
trust annually in the amount necessary to pay the deferred compensation
required.

It is the intention of the parties that this Plan and the accompanying
Trust Agreement shall constitute an unfunded arrangement maintained for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees for purposes of Title I of the Employee Retirement
Income Security Act of 1974.

9. Miscellaneous.

9.1 Designation of Beneficiary. Each Participant shall designate, in
writing, prior to the date he first becomes a Participant in the Plan, one or
more beneficiaries to receive his benefit under the provisions of Section 5.5.
The Participant shall file the written designation with the Plan Committee. The
Participant may revoke a previous beneficiary designation by filing a new
written beneficiary designation with the Plan Committee.

In any event, if a Participant or Beneficiary who has designated
another Beneficiary is divorced, all beneficiary designations executed prior to
the effective date of the dissolution of marriage (or other decree or order
entered under applicable state law) are automatically revoked under the terms of
this Section 9.1. In such event, the Participant or Beneficiary may designate
one or more Beneficiaries in accordance with the terms of this Section 9.1. If
none is made following the effective date of the dissolution of the marriage,
the individual's benefit shall pass under the laws of intestate succession and
the terms of the next following paragraph.

If a Participant fails to file a valid designation of beneficiary with
the Plan Committee under the provisions of this Section 9.1, or if a designated
Beneficiary fails to survive to receive any or all payments due hereunder, then
the death benefit payable under this Plan shall be payable to the Participant's
(or the Beneficiary's) spouse; if no spouse survives, then to the Participant's
(or Beneficiary's) children, with equal shares among living children and with
the living descendants of a deceased child receiving equal portions of the
deceased child's share; in the absence of spouse or descendants, to the
Participant's (or Beneficiary's) parents; and in the absence of spouse,
descendants or parents, to the Participant's (or Beneficiary's) brothers and
sisters, with the living descendants of a deceased brother and those of a
deceased sister receiving equal portions of the deceased brother's or sister's
share; in the absence of any of the persons name herein, to the Participant's
(or Beneficiary's) estate.

For purposes of this Section 9.1, the term "descendant" means all
persons who are descended from the person referred to either by birth to or
legal adoption by such person, and "child" or "children" includes adopted
children.

<PAGE> 11

9.2. Benefits Not Assignable. The rights of each Participant are not
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment, or garnishment by creditors of the Participant
nor any Beneficiary. Neither the Participant nor Beneficiary may assign,
transfer or pledge the benefits under this Plan. Any attempt to assign, transfer
or pledge a Participant's benefits under this Plan is void.

9.3. Benefit. This Plan constitutes an agreement between the Company
and each of the Participants which is binding upon and inures to the Company,
its successors and assigns and upon the Participant and his heirs and legal
representatives.

9.4. Headings. The headings of the Articles and Sections of this Plan
are included for purposes of convenience only, and shall not affect the
construction or interpretation of any of it provisions.

9.5. Notices. All notices, requests, demands, and other communications
under this Plan shall be in writing and shall be deemed to have been duly given
on the date of service if served personally on the party to whom notice is to be
given, or on the third day after mailing if mailed to the party to whom notice
is to be given, by first class mail, registered or certified (return receipt
requested), postage prepaid, and properly addressed to the last known address to
each party as set forth on the first page thereof. Any party may change its
address for purposes of this Section by giving the other parties written notice
of the new address in the manner set forth above.

9.6. No Loans. The Plan does not permit any loans to be made to any
Participant or Beneficiary.

9.7. Gender Usage. The use of the masculine gender includes the
feminine gender for all purposes of this Plan.

<PAGE> 12

9.8. Expenses. Costs of administration of the Plan shall be paid by the
Company.

IN WITNESS WHEREOF, the Company has adopted the Plan on September 26,
1997, effective September 29, 1997.

REMEDYTEMP, INC.

By: /s/ PAUL W. MIKOS
------------------------------

Paul W. Mikos President
--------------------

By: /s/ ALAN M. PURDY
------------------------------
Assistant
Alan M. Purdy Secretary
--------------------

<PAGE> 13
================================================================================

AMENDMENT NO. 1
---------------

TO THE
------

REMEDYTEMP, INC. DEFERRED COMPENSATION PLAN
-------------------------------------------

Prepared by:

REISH & LUFTMAN
A PROFESSIONAL CORPORATION
ATTORNEYS AT LAW
Tenth Floor
11755 Wilshire Boulevard
Los Angeles, California 90025
(310) 478-5656

<PAGE> 14

================================================================================

AMENDMENT NO 1. TO THE
REMEDYTEMP, INC. DEFERRED COMPENSATION PLAN

The RemedyTemp, Inc. (the "Company") previously established the
RemedyTemp, Inc. Deferred Compensation Plan (the "Plan"), effective September
29, 1997, for a select group of management or highly compensated personnel.

The Company now desires to amend the Plan to change the effective date
of the Plan and allow eligible key employees, to submit a Written Election to
participate within thirty days after the initial effective date of the Plan or
the eligible key employee first becomes eligible to participate.

Therefore, pursuant to the resolutions adopted by the Company's Board
of Directors, the Plan is hereby amended as follows:

1. Notwithstanding any other provision of the Plan to the contrary, the
effective date of the Plan is October 31, 1997.

2. The first paragraph of Section 2.4 of the Plan is amended in its
entirety to read as follows:

"2.4. Written Election by Participant. Each Key Employee
designated by the CEO as a Participant for a Plan Year shall submit a
Written Election prior to the first day of the Plan Year in which he
will be a Participant; provided, however, that in the initial Plan Year
such Written Election shall be submitted within thirty (30) days after
the Plan's initial effective date; and provided further that such
Written Election shall be submitted within thirty (30) days after a Key
Employee is first designated in writing by the CEO as a Participant in
the Plan."

IN WITNESS WHEREOF, the Company hereby causes this Amendment No. 1 to
the RemedyTemp, Inc. Deferred Compensation Plan to be executed on October 30,
1997.

Company: REMEDYTEMP, INC.

By: /s/ PAUL W. MIKOS
-------------------------------
Paul W. Mikos, President

By: /s/ ALAN PURDY
-------------------------------
Alan Purdy, Assistant Secretary

<PAGE> 1

EXHIBIT 11.1

REMEDYTEMP, INC.

STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
---- ----

<S> <C> <C>
Net income(1) ................................... $10,193 $7,084
======= ======
Average shares outstanding .................... 8,896 7,260
Common equivalent shares ...................... 146 25
Assumed shares sold to prepay shareholder
distribution (2) ............................ - 692
------- ------
Weighted average number of common shares ...... 9,042 7,977
======= ======
Earnings per common and common
equivalent share............................. $ 1.13 $ .89
======= ======
</TABLE>

(1) The computation set forth herein for the fiscal year ended September 29,
1996 is based on pro forma net income which reflects the recording by
the Company of additional taxes as if the Company were treated as a C
corporation for all periods presented.

(2) Reflects the estimated number of shares required to be sold by the
Company (as calculated based upon the net proceeds of the Offering) to
pay the pre-Offering shareholder distributions of $9,952. The total
estimated shares of 890 are weighted for the portion of fiscal 1996
prior to the Company's Offering. Subsequent to the Offering, the shares
were actually outstanding and are therefore included in the "average
shares outstanding" amount above. See Note 1 to the Consolidated
Financial Statements, incorporated by reference from the Company's
Annual Report to Shareholders (see Item 8 of this report.)

<PAGE> 1
EXHIBIT 13.1

SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>

FISCAL YEAR ENDED(1)
----------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF INCOME DATA:

<S> <C> <C> <C> <C> <C>
Total revenues ................ $ 360,346 $ 285,519 $ 209,003 $153,005 $121,294

Income before income taxes .... 17,424 12,007 6,497 3,802 1,857
Provision for income taxes (2) 7,231 7,794 97 57 46
---------- ---------- ---------- -------- --------
Net income .................... $ 10,193 $ 4,213 $ 6,400 $ 3,745 $ 1,811
========== ========== ========== ======== ========
Net income per common share ... $ 1.13
PRO FORMA DATA (2):
Income before income taxes .... $ 12,007 $ 6,497 $ 3,802 $ 1,857
Provision for income taxes .... 4,923 2,599 1,521 743
---------- ---------- -------- --------
Net income .................... $ 7,084 $ 3,898 $ 2,281 $ 1,114
========== ========== ======== ========
Net income per common share (3) $ .89 $ .51
Weighted-average common shares
outstanding (3) ............... 9,042,000 7,977,000 7,685,000
BALANCE SHEET DATA:
Cash and cash equivalents ..... $ 5,128 $ 10,959 $ 2,204 $ 1,330 $ 688
Working capital ............... $ 39,130 $ 35,341 $ 14,649 $ 10,610 $ 6,344
Total assets .................. $ 73,806 $ 63,906 $ 43,496 $ 30,490 $ 21,816
Long-term debt ................ $ 281 $ 734 $ 1,142 $ 851 $ 0
Shareholders' equity .......... $ 47,061 $ 36,276 $ 19,308 $ 13,829 $ 10,084
</TABLE>

(1) The fiscal year end of RemedyTemp, Inc., (the "Company"), including its
wholly-owned subsidiary, Remedy Insurance Group, LTD ("RIG"), is a 52 or 53
week period ending the Sunday closest to September 30. Thus, "fiscal 1997,"
"fiscal 1996," "fiscal 1995," "fiscal 1994" and "fiscal 1993" refer to the
Company's fiscal years ending September 28, 1997, September 29, 1996,
October 1, 1995, October 2, 1994 and October 3, 1993, respectively. All
these fiscal years consisted of 52 weeks except for fiscal 1993 which
consisted of 53 weeks.

(2) Prior to the Company's initial public offering (the "Offering") in July
1996, the Company operated as an S corporation under Subchapter S of the
Internal Revenue Code and comparable provisions of certain state income tax
laws. The pro forma income statement data reflects provisions for federal
and state income taxes as if the Company had been subject to federal and
state income taxation as a C corporation during each of the periods
presented. The termination of the Company's S corporation status in
connection with the Offering resulted in a non-recurring net charge to
actual earnings of $7.8 million in the fourth quarter of fiscal 1996. See
"Notes to Consolidated Financial Statements- Note 4."

(3) See "Notes to Consolidated Financial Statements- Note 1 (Pro forma net
income and net income per share)."

MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

GENERAL

The Company provides temporary staffing services to industrial and service
companies, professional organizations and governmental agencies. During the
twelve months ended September 28, 1997, the Company placed approximately 130,000
temporary workers and provided over 35.4 million hours of staffing services to
over 16,000 clients. From the beginning of fiscal 1993 through the end of fiscal
1997, the Company added 118 offices and increased revenues and income before
taxes at compound annual growth rates of approximately 30.9% and 63.7%,
respectively, to $360.3 million and $17.4 million, respectively.

<PAGE> 2

OPERATIONS

The Company's revenues are derived from Company-owned offices (direct sales)
and independently-managed offices (licensed sales and franchise royalties).
Under the Company's franchise arrangements, the franchisee pays all lease and
working capital costs relating to its office, including funding payroll and
collecting clients' accounts. The franchisee pays the Company an initial
franchise fee and royalties equal to 7% of its gross billings (except for
national accounts on which royalties are paid at a reduced rate). The Company
processes payroll and invoices clients, and the franchisee employs all
management staff and temporary personnel affiliated with its office. Under the
Company's license arrangements, the licensee pays the Company an initial license
fee and pays all lease and operating costs relating to its office. The licensee
employs all management staff affiliated with its office, but the Company employs
all temporary personnel affiliated with the licensed office, handles invoicing
and collecting clients' accounts, and remits to the licensee 60%-70% of the
office's gross profit. The amount of gross profit paid to the licensee is based
on the level of hours billed during the contract year.

As of September 28, 1997, there were 20 independently-managed offices
operating as franchises and 93 operating as licensed offices. In general,
independently-managed offices opened from 1987 to 1990 are operated as
franchises, and independently-managed offices opened since 1990 are operated as
licensed offices. The Company switched from franchise to license format to
exercise more control over the collection and tracking of the receivables of the
independently-managed offices and to allow the Company to grow without being
limited by the financial resources of franchisees. The number of licensed
offices is expected to increase because new independently-managed offices will
be opened in license format and offices currently operated as franchises may,
depending upon various factors, be converted to license format upon renewal of
their franchise agreements. As the number of franchise offices is reduced,
royalty income will decrease.

The table on the following page sets forth for the last five fiscal years,
the number of Company-owned, franchised and licensed offices and customer
billings associated with each. Total system-wide billings consists of all
services billed to clients by all Company-owned and independently-managed
offices. For the Company-owned offices and licensed offices, all billings are
Company revenues; for franchised offices, Company revenues are royalties that
range from 6.3% - 7.0% of franchise gross billings over the last five years.
Average hours billed is computed by dividing the relevant billings by the number
of related offices. The Company's long-term revenue growth depends in part upon
its ability to continue to open new offices, as well as its ability to enhance
the sales of existing offices beyond historical levels.
<TABLE>
<CAPTION>

FISCAL YEAR ENDED
---------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
COMPANY-OWNED OFFICES
Number of offices ........... 86 68 63 59 53
Average hours billed per
office ...................... 233,233 248,062 217,907 192,857 172,292
Total billings .............. $221,679 $184,564 $144,646 $119,042 $103,219
Average billings per office . $ 2,578 $ 2,714 $ 2,296 $ 2,018 $ 1,948
LICENSED OFFICES
Number of offices ........... 93 73 58 39 21
Average hours billed per
office ...................... 123,813 117,373 96,545 80,801 74,383
Total billings .............. $135,532 $ 98,003 $ 61,377 $ 31,201 $ 16,036
Average billings per office . $ 1,457 $ 1,343 $ 1,058 $ 800 $ 764
FRANCHISED OFFICES
Number of Offices ........... 20 20 21 21 20
Average hours billed per
office ...................... 190,345 190,674 175,699 163,402 131,621
Total billings .............. $ 46,525 $ 44,304 $ 41,095 $ 36,027 $ 27,133
Average billings per office . $ 2,326 $ 2,215 $ 1,957 $ 1,716 $ 1,357
Royalties ................... $ 2,948 $ 2,811 $ 2,751 $ 2,462 $ 1,938
TOTAL OFFICES ............... 199 161 142 119 94
TOTAL SYSTEM-WIDE BILLINGS .. $403,737 $326,871 $247,118 $186,270 $146,388
AVERAGE HOURS BILLED PER
OFFICE ...................... 177,786 181,677 162,096 150,936 141,765
TOTAL COMPANY REVENUES ...... $360,346 $285,519 $209,003 $153,005 $121,294
</TABLE>

<PAGE> 3

WORKERS' COMPENSATION

RESULTS OF OPERATIONS

Fiscal 1997 Compared to Fiscal 1996

Total revenues increased 26.2% or $74.8 million to $360.3 million for
fiscal 1997 from $285.5 million for fiscal 1996. This increase was primarily
attributable to volume increases that resulted from increased billings at
existing offices and expansion of services, including EDGE(R) and call center
activity, and from 38 new offices opened during fiscal 1997. Future revenue
increases depend to a significant extent on the Company's ability to continue to
open new offices and manage newly opened offices to maturity.

Total cost of direct and licensed sales, which consists of wages and other
expenses related to the temporary associates, increased 27.1% or $58.5 million
to $274.5 million for fiscal 1997 from $216.0 million for fiscal 1996. Total
cost of direct and licensed sales as a percentage of revenues increased to 76.2%
for fiscal 1997 from 75.7% for fiscal 1996. This increase was due to the
expansion of revenue growth in the light industrial business, which generally
has lower gross margin rates than the clerical and office automation business.
The Company's cost of licensed sales as a percentage of licensed sales remained
relatively stable.

Licensees' share of gross profit represents the net payments to licensees
based upon a percentage of gross profit generated by the licensed operation. The
percentage of gross profit earned by the licensee is based on the number of
hours billed. Under the Company's license arrangements, the Company's share of
gross profit cannot be less than 7.5% of the licensed operation sales, with the
exception of national accounts on which the Company's fee is reduced to
compensate for lower gross margins. Licensees' share of gross profit increased
41.0% or $6.7 million to $23.0 million for 1997 from $16.3 million for fiscal
1996. Licensees' share of gross profit as a percentage of total revenues
increased to 6.4% for fiscal 1997 from 5.7% for fiscal 1996. This change
resulted from an increase to 37.6% from 34.3% in the percentage of total
licensed revenues as a percentage of total revenue. Licensees' share of gross
profit as a percentage of licensees' total gross profit increased by 1.2% during
fiscal 1997 due to an increase in hours billed at existing licensed offices.

Selling, general and administrative expenses increased 12.2% or $5.1
million to $47.1 million for fiscal 1997 from $42.0 million for fiscal 1996.
Selling, general and administrative expenses as a percentage of total revenues
decreased to 13.1% for fiscal 1997 from 14.7% for fiscal 1996, due to the
Company's total revenues expanding more rapidly than selling, general and
administrative expenses. The Company has controlled growth in selling, general
and administrative expenses by tightening cost controls through budgetary
analysis and implementation of more stringent hiring and compensation
guidelines. The Company expects selling, general and administrative expenses to
increase as the Company continues to pursue its growth objectives and there can
be no assurance that these expenses will not increase at greater rates in the
future, or constitute a greater percentage of total revenues.

Operating income increased 40.3% or $4.5 million to $15.8 million for
fiscal 1997 from $11.2 million for fiscal 1996 due to the factors described
above. Operating income as a percentage of revenues increased to 4.4% for fiscal
1997 from 3.9% for fiscal 1996.

Income before income taxes increased 45.1% or $5.4 million to $17.4 million
for fiscal 1997 from $12.0 million for fiscal 1996 due to the factors described
above. As a percentage of total revenues, income before income taxes increased
to 4.8% in 1997 from 4.2% in fiscal 1996.

<PAGE> 4

Fiscal 1996 Compared to Fiscal 1995

Total revenues increased 36.6% or $76.5 million to $285.5 million for
fiscal 1996 from $209.0 million for fiscal 1995, primarily attributable to
volume increases. The volume increases resulted from increased billings at
existing offices and expansion of services, including EDGE(R), and from 19 new
offices opened since the prior period.

Total cost of direct and licensed sales increased 38.3% or $59.8 million to
$216.0 million for fiscal 1996 from $156.2 million for fiscal 1995. Total cost
of direct and licensed sales as a percentage of revenues increased to 75.7% for
fiscal 1996 from 74.7% for fiscal 1995 due primarily to a new high volume, lower
gross margin client. The Company's business mix and cost of licensed sales as a
percentage of licensed sales remained relatively stable.

Licensees' share of gross profit represents the net payments to licensees
based upon a percentage of gross profit generated by the licensed operation.
Licensees' share of gross profit increased 57.7% or $6.0 million to $16.3
million for 1996 from $10.3 million for fiscal 1995. Licensees' share of gross
profit as a percentage of total revenues increased to 5.7% for fiscal 1996 from
4.9% for fiscal 1995. This change resulted from an increase to 34.3% from 29.4%
in the percentage of licensed revenues as a percentage of total revenue.
Licensees' share of gross profit as a percentage of licensees' total gross
profit declined by 1.1% during fiscal 1996.

Selling, general and administrative expenses increased 13.2% or $4.9
million to $42.0 million for fiscal 1996 from $37.1 million for fiscal 1995.
Selling, general and administrative expenses as a percentage of total revenues
decreased to 14.7% for fiscal 1996 from 17.8% for fiscal 1995, largely due to
the Company's total revenues expanding more rapidly than selling, general and
administrative expenses. The Company implemented several cost saving measures to
maintain or reduce its level of selling, general and administrative expenses as
a percentage of total revenue. Such measures include the installation of a
Company-wide expense budgeting program to make corporate managers more
accountable for their operating expenditures and the initiation of a profit
sharing plan, at the office level, to reward office and area managers based on
their office operating profit. During fiscal 1996, the Company entered into a
contract with an insurance company whereby the insurance company assumed the
Company's existing self-insured workers' compensation liability for claims
incurred during the period May 1, 1986 through July 22, 1996. As a result of the
contract, the Company reduced its estimated workers' compensation exposure by
$1.4 million (reflected as a reduction in selling and administrative expenses).
These cost savings were substantially offset by a loss reserve recorded for an
unfavorable consulting contract.

Operating income increased 108.7% or $5.8 million to $11.2 million for
fiscal 1996 from $5.4 million for fiscal 1995 due to the factors described
above. Operating income as a percentage of revenues increased to 3.9% for fiscal
1996 from 2.6% for fiscal 1995.

Income before income taxes increased 84.8% or $5.5 million to $12.0 million
for fiscal 1996 from $6.5 million for fiscal 1995 due to the factors described
above. As a percentage of total revenues, income before income taxes increased
to 4.2% in 1996 from 3.1% in fiscal 1995.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities was $1.7 million and $3.3 million in
fiscal 1997 and fiscal 1996, respectively. Cash provided by operating activities
was significantly impacted by changes in working capital primarily resulting
from a substantial increase in business volumes. Additionally, and as discussed
below, the Company was required to pay $3 million in additional tax installments
during fiscal year 1997 resulting from the termination of its S corporation
status in the prior fiscal year.

Cash used for purchases of fixed assets was $4.1 million and $3.2 million
in fiscal 1997 and fiscal 1996, respectively. The increase in fiscal 1997
primarily resulted from expenditures associated with the Company's management
information system. Implementation of this system is expected to begin in fiscal
1998. During fiscal 1998, the Company anticipates capital expenditures
associated with direct office openings, new corporate headquarters and further
investments in the Company's computer-based technologies to approximate $5.5
million.

<PAGE> 5

Prior to the Company's Offering on July 11, 1996, the Company declared
distributions to its pre-Offering shareholders. In accordance with the
declaration, distributions of $3.7 million and $6.6 million were paid to the
pre-Offering shareholders during fiscal 1997 and fiscal 1996, respectively.

In connection with the Offering, the Company terminated its S corporation
status and, as a result, was required to change its overall method of accounting
for tax reporting purposes from the cash method to the accrual method, resulting
in a one-time charge to earnings in the fourth quarter of fiscal 1996 of
approximately $7.8 million. See "Notes to Consolidated Financial Statements-
Note 4." The Internal Revenue Code allows the Company to recognize the effects
of this termination in its tax returns over a four year period. This resulted in
additional quarterly installments totaling $3.0 million in fiscal 1997 and may
have the same impact in fiscal 1998.

The Company has a revolving line of credit agreement with Bank of America
providing for aggregate borrowings and letters of credit of $30.0 million.
Interest on outstanding borrowings is payable monthly at the bank's reference
rate or, at the Company's discretion, LIBOR plus 1.5%. The line of credit is
unsecured and expires on February 28, 1999. The principal use of the line of
credit has been to finance receivables, to provide a letter of credit required
in connection with the Company's workers' compensation self-insurance program
and to finance prior S corporation distributions made to pre-Offering
shareholders. The Company had no balance outstanding under its line of credit
and $150,000 in undrawn letters of credit as of September 28, 1997. The bank
agreement governing the line of credit require the Company to maintain certain
financial ratios and comply with certain restrictive covenants. See "Notes to
Consolidated Financial Statements- Note 3."

The Company believes that its levels of working capital and line of credit are
adequate to support present operations and to fund future growth and business
opportunities.

SEASONALITY

The Company's quarterly operating results are affected by the number of
billing days in the quarter and the seasonality of its clients' businesses. The
first fiscal quarter has been historically strong as a result of manufacturing
and retail emphasis on holiday sales. The second fiscal quarter, from January
through March, historically shows little to no growth in comparable revenues
from the first fiscal quarter. Revenue growth has historically accelerated in
each of the third and fourth fiscal quarters as manufacturers, retailers and
service businesses increase their level of business activity.

INFLATION

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

FORWARD LOOKING STATEMENTS

In addition to historical information, management's discussion and analysis
includes certain forward-looking statements, including those related to the
Company's growth and strategies, future operating results and financial position
as well as economic and market events and trends. The Company's actual results
and financial position could differ materially from those anticipated in the
forward-looking statements as a result of various factors. These factors
include: competition, market conditions, the availability of sufficient
personnel, the Company's ability to sustain historical growth rates and margins
and control costs, and other risks and uncertainties as discussed under the
"Risk Factors" section in the Company's Annual Report on Form 10-K/A as filed
with the SEC on December 26, 1996 and in the Company's Prospectus dated July 10,
1996. The preceding should be read in conjunction with the Consolidated
Financial Statements of the Company and Notes thereto.

<PAGE> 6
REMEDYTEMP, INC.

CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

ASSETS
<TABLE>
<CAPTION>

SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 5,128 $10,959
Marketable securities ...................................... - 1,016
Accounts receivable, net of allowance for doubtful
accounts of $2,612 and $2,111 at September 28, 1997
and September 29, 1996, respectively ..................... 55,751 42,337
Prepaid expenses and other current assets .................. 1,987 2,341
Deferred income taxes (Note 4) ............................. 349 -
------- -------
Total current assets ................................. 63,215 56,653
Fixed assets, net (Note 2) ................................... 7,184 5,527
Other assets (Note 5) ........................................ 2,502 1,726
Goodwill, net of accumulated amortization of $20 (Note 6)..... 905 -
------- -------
$73,806 $63,906
------- -------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable ............................................ $ 4,082 $ 933
Accrued workers' compensation ............................... 2,905 550
Accrued payroll, benefits and related costs ................. 11,489 10,056
Accrued licensees' share of gross profit .................... 2,225 1,388
Other accrued expenses ...................................... 1,148 1,711
Income taxes payable (Note 4) ............................... 1,783 1,167
Current portion of capitalized lease obligation (Note 7) .... 453 416
Deferred income taxes (Note 4) .............................. - 1,084
Distributions payable to pre-Offering shareholders (Note 5) . - 4,007
------- -------
Total current liabilities ............................. 24,085 21,312
Deferred income taxes (Note 4) ................................ 2,379 5,584
Capitalized lease obligation (Note 7) ......................... 281 734
------- -------
26,745 27,630
------- -------
Commitments and contingent liabilities (Note 7)

Shareholders' equity (Note 9):
Preferred Stock, $.01 par value; authorized 5,000 shares;
none outstanding
Class A Common Stock, $.01 par value; authorized 50,000
shares; 5,930 and 5,830 issued and outstanding at
September 28, 1997 and September 29, 1996,
respectively .............................................. 60 58

Class B Non-Voting Common Stock, $.01 par value; authorized
4,530 shares; 2,997 and 3,058 issued and outstanding at
September 28, 1997 and September 29, 1996,
respectively .............................................. 30 31
Additional paid-in capital .................................... 33,262 32,671
Retained earnings ............................................. 13,709 3,516
------- -------
Total shareholders' equity .................................... 47,061 36,276
------- -------
$73,806 $63,906
------- -------
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE> 7

REMEDYTEMP, INC.

CONSOLIDATED STATEMENT OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>

FISCAL YEAR ENDED
-----------------------------------------------
SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1,
1997 1996 1995
--------- --------- ---------

<S> <C> <C> <C>
Direct sales ........................... $221,679 $ 184,564 $ 144,646
Licensed sales ......................... 135,532 98,003 61,377
Franchise royalties .................... 2,948 2,811 2,751
Initial franchise fees ................. 187 141 229
-------- --------- ---------
Total revenues ................... 360,346 285,519 209,003
Cost of direct sales ................... 173,148 142,643 110,159
Cost of licensed sales ................. 101,327 73,347 46,017
Licensees' share of gross profit ....... 22,970 16,287 10,328
Selling and administrative expenses .... 44,647 39,974 35,667
Depreciation and amortization .......... 2,501 2,043 1,453
-------- --------- ---------
Income from operations ........... 15,753 11,225 5,379
Other income:
Interest income (expense), net ....... 480 (64) (23)
Other, net ........................... 1,191 846 1,141
-------- --------- ---------
Income before provision for income taxes 17,424 12,007 6,497
Provision for income taxes (Note 4) .... 7,231 7,794 97
-------- --------- ---------
Net income ............................. $ 10,193 $ 4,213 $ 6,400
======== ========= =========

Net income per share ................... $ 1.13
========
Weighted-average number of shares ...... 9,042
========

Unaudited pro forma data (Notes 1 and 4)
Income before income taxes ............. $ 12,007 $ 6,497
Provision for income taxes ............. 4,923 2,599
--------- ---------
Pro forma net income ................... $ 7,084 $ 3,898
========= =========
Pro forma net income per share ......... $ .89 $ .51
========= =========
Weighted-average number of shares ...... 7,977 7,685
========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE> 8

REMEDYTEMP, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>

CLASS A CLASS B ADDITIONAL
COMMON STOCK COMMON STOCK PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
------- -------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 2, 1994 ....... 2,265 $ 23 4,530 $ 45 $ 84 $13,677 $13,829
Net income ..................... 6,400 6,400
Distributions to shareholders .. (921) (921)
------- -------- ------- -------- ------- ------- -------
Balance at October 1, 1995 ....... 2,265 23 4,530 45 84 19,156 19,308
Conversion of common stock
(Note 1) .................... 1,472 14 (1,472) (14)
Net proceeds from public
offering of common stock .... 2,093 21 23,387 23,408
(Note 1)
Reclassification of S
Corporation retained earnings 9,200 (9,200)
Net income ..................... 4,213 4,213
Distributions to pre-Offering
shareholders ................ (701) (701)
Special distributions to
pre-Offering shareholders in
connection with the initial
public offering (Note 1).... (9,952) (9,952)
------- -------- ------- -------- ------- ------- -------
Balance at September 29, 1996 .... 5,830 58 3,058 31 32,671 3,516 36,276
Activity of Employee Stock
Purchase Plan ............... 12 163 163
Stock option activity .......... 27 1 428 429
Conversion upon transfer to
non-affiliates .............. 61 1 (61) (1)
Net income ..................... 10,193 10,193
------- -------- ------- -------- ------- ------- -------
Balance at September 28, 1997 .... 5,930 $ 60 2,997 $ 30 $33,262 $13,709 $47,061
======= ======== ======= ======== ======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE> 9

REMEDYTEMP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>

FISCAL YEAR ENDED
-----------------------------------------
SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1,
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Cash flows (used in) provided by operating
activities:
Net income ......................................... $ 10,193 $ 4,213 $ 6,400
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................. 2,501 2,043 1,453
Provision for losses on accounts receivable .... 1,276 1,621 1,221
Gain on sale of workers' compensation
liability ...................................... (1,438)
Deferred taxes ................................. (4,938) 6,501 35
Changes in assets and liabilities:
Accounts receivable .......................... (14,690) (10,890) (11,266)
Prepaid expenses and other current assets .... 354 82 (356)
Other assets ................................. (776) (265) (251)
Accounts payable ............................. 3,149 414 423
Accrued workers' compensation ................ 2,355 (4,745) (236)
Accrued payroll, benefits and related
costs......................................... 1,433 2,991 3,150
Accrued licensees' share of gross profit ..... 837 184 649
Other accrued expenses ....................... (563) 1,520 (517)
Income taxes payable ......................... 616 1,083
-------- -------- --------
Net cash provided by operating activities .......... 1,747 3,314 705
-------- -------- --------
Cash flows (used in) provided by investing
activities:
Purchase of fixed assets ........................... (4,138) (3,230) (2,933)
Purchase of franchise offices, net of cash
acquired............................................ (925)
Sale (purchase) of investments ..................... 1,016 (1,016)
-------- -------- --------
Net cash used in investing activities .............. (4,047) (4,246) (2,933)
-------- -------- --------
Cash flows (used in) provided by financing activities:
Borrowings under line of credit agreement .......... 100 16,098 8,029
Repayments under line of credit agreement .......... (100) (22,798) (4,450)
Repayments under capital lease obligation .......... (416) (375) (338)
Proceeds from sale/leaseback agreement ............. 782
Proceeds from stock option activity ................ 429
Proceeds from Employee Stock Purchase Plan
activity ........................................... 163
Net proceeds from IPO .............................. 23,408
Distributions to pre-Offering shareholders ......... (3,707) (6,646) (921)
-------- -------- --------
Net cash (used in) provided by financing
activities ........... (3,531) 9,687 3,102
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents ....................................... (5,831) 8,755 874
Cash and cash equivalents at beginning of period .... 10,959 2,204 1,330
-------- -------- --------
Cash and cash equivalents at end of period .......... $ 5,128 $ 10,959 $ 2,204
======== ======== ========

Other cash flow information:
Cash paid during the period for interest.............. $ 110 $ 327 $ 164
Cash paid during the period for income taxes........... $ 9,981 $ 97 $ 7
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE> 10

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of business

The Company's principal business is providing temporary personnel to
businesses and industry.

The Company has two classes of Common Stock outstanding: Class A Common
Stock, which has all voting and other rights normally associated with common
stock, and Class B Common Stock, which is identical to the Class A Common Stock
in all respects except that the Class B Common Stock has no voting rights except
with respect to certain amendments of the Company's Articles of Incorporation,
certain mergers and as otherwise required by law. The Class B Common Stock will
automatically convert into Class A Common Stock on a share-for-share basis upon
the earlier of (i) certain transfers to non-affiliates, (ii) the death or legal
incapacity of the Chairman of the Company or (iii) the tenth anniversary of the
completion of the Company's initial public offering described below.

Basis of presentation

The consolidated financial statements include the accounts of RemedyTemp,
Inc. (the "Company") including its wholly-owned subsidiary, Remedy Insurance
Group, LTD ("RIG"). See workers' compensation below. All significant
intercompany transactions and balances have been eliminated.

Initial Public Offering

On July 16, 1996, the Company completed an initial public (the "Offering")
of 3,565 shares of its Class A Common Stock at $13.00 per share, of which 2,093
were sold by the Company and 1,472 were sold by certain pre-Offering
shareholders. The shares sold by the pre-Offering shareholders were originally
Class B Common Stock that automatically converted to Class A Common Stock in
connection with the Offering. The net proceeds to the Company from the sale of
2,093 shares of Class A Common Stock were $23,408, after deduction of the
underwriting discount of $1,905 and expenses related to the Offering of $1,900.
A portion of the net proceeds was used to finance distributions to the Company's
pre-Offering shareholders, with the remaining balance reserved for working
capital and other general corporate use. The Company did not receive any of the
proceeds from the sale of the shares of common stock offered by pre-Offering
shareholders.

Recapitalization

Concurrent with the Offering, the Company effected (i) a 1.812-for-1 stock
split of its outstanding voting and non-voting common stock, and (ii) an
amendment to the Company's Articles of Incorporation to authorize 5,000 shares
of preferred stock, par value $.01, an increase in the number of voting common
shares authorized from 10,000 to 50,000, a reclassification of the voting and
non-voting common stock, and a decrease in the number of authorized non-voting
common shares from 7,500 to 4,530. Share and per share amounts for all periods
presented have been adjusted to give retroactive effect to the above.

Summary of significant accounting policies

Fiscal year

The Company's fiscal year includes 52 or 53 weeks, ending on the Sunday
closest to September 30. Fiscal years 1997, 1996 and 1995 consisted of 52 weeks.

<PAGE> 11

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Revenue recognition

Revenue from the sale of services is recognized at the time the service is
performed. A portion of the Company's revenue is derived from affiliate
operations which consist of franchised and licensed operations.

Under the Company's franchised operations, the franchisee has the direct
contractual relationship with the customers, holds title to the related customer
receivables and is the legal employer of the temporary employees. Accordingly,
sales and cost of sales generated by the franchised operations are not included
in the Company's consolidated financial statements. Fees are paid to the Company
based upon a percentage of the gross sales generated by the franchised operation
and such fees are recorded by the Company as "Franchise royalties."

Revenues generated by licensed operations and the related costs of services
are included in the Company's consolidated financial statements and are reported
as "Licensed sales" and "Cost of licensed sales," respectively. The Company has
the direct contractual relationship with the customer, holds title to the
related customer receivables and is the employer of the temporary employees. The
risks associated with the licensed operations remain with the Company.
"Licensee" refers to the Company's affiliates in their role as independent
contractors and limited agents of the Company in recruiting job applicants,
soliciting job orders, filling those orders and handling collection matters upon
request. The Licensee acts as a limited agent for the Company to market the
Company's services within the Licensee's territory. The net distribution paid to
the Licensee for the services rendered is based on a percentage of the gross
profit generated by the Licensee's operation and is reflected as "Licensees'
share of gross profit" in the consolidated statement of income.

Both franchisees and licensees pay an initial fee for their affiliation with
the Company. This fee is recognized as revenue when substantially all of the
initial services required by the Company have been performed, and is reported by
the Company as "Initial franchise fees."

Concentrations of credit risk

The Company's financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. However,
concentrations of credit risk are limited due to the large number of customers
comprising the Company's customer base and their dispersion across different
business and geographic areas. Furthermore, the Company routinely assesses the
financial strength of its customers.

Use of estimates in the preparation of consolidated financial statements

The preparation of consolidated 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
the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.

Cash and cash equivalents

For purposes of financial reporting, cash equivalents represent highly
liquid short-term investments with original maturities of less than 90 days.

Marketable securities

Marketable securities consist primarily of U.S. Treasury securities and
other commercial paper. Marketable securities are carried at cost which
approximated fair market value at September 29, 1996. The Company held no
marketable securities at September 28, 1997.

<PAGE> 12

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Fixed assets

Fixed assets are stated at cost less accumulated depreciation. Depreciation
is computed using the straight-line method over the estimated useful lives of
the related assets, which are three to five years for furniture and fixtures and
computer equipment. Major improvements to leased office space are capitalized
and amortized over the shorter of their useful lives or the term of the lease.

Goodwill

Goodwill consists of the excess of purchase price over the fair value of net
assets of businesses acquired and is amortized on a straight line basis over 20
years. The Company regularly reviews the individual components of the balance
and recognizes any decline in value on a current basis.

Workers' compensation

As of July 22, 1997, RIG began providing direct and licensed offices with a
self-insured workers' compensation program. Management believes that RIG allows
the Company to control its claims administration, allocate safety resources
where they are needed and develop efficient methods of financing workers'
compensation. RIG, an offshore insurance captive domiciled in Bermuda, was
incorporated and funded with an amount of $600 of restricted cash which is
classified on the consolidated balance sheet as other assets. RIG is a component
of the Company's strategic plan to renew the workers' compensation self-insured
program for its operations nationwide. The Company utilizes Lindsey Morden, a
national Third Party Administrator to administer claims nationally, and Reliance
National Indemnity Company to provide stop-loss insurance coverage. This
stop-loss coverage will pay individual claims greater than $250 and aggregate
claims greater than $7,500.

Prior to July 22, 1996, the Company's workers' compensation risk was
self-insured in California. On July 22, 1996, the Company entered into a
contract with an insurance company whereby the insurance company assumed the
Company's existing self-insured workers' compensation liability for claims
incurred during the period May 1, 1986 through July 22, 1996. As a result of the
contract, the Company reduced its estimated workers' compensation exposure by
$1,438 (reflected as a reduction in selling and administrative expenses for the
fiscal year ended September 29, 1996). Additionally, the Company purchased a
guaranteed cost insurance policy to cover workers' compensation claims, in
California, for the period July 22, 1996 to July 22, 1997. For workers'
compensation coverage in states other than California, the Company had similar
guaranteed cost policies.

Other income

Other income consists primarily of fees collected from customers on past due
accounts receivable balances in the amounts of $1,411, $1,064 and $883, for the
years ended September 28, 1997, September 29, 1996 and October 1, 1995,
respectively.

Income taxes

The Company records income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting
for Income Taxes." SFAS No. 109 is an asset and liability approach that requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Company's
consolidated financial statements or tax returns. In estimating future tax
consequences, SFAS No. 109 generally considers all expected future events
including enactments of changes in the tax law or rates.

<PAGE> 13

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Accounting for stock-based compensation

The Company accounts for its stock compensation plans under Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" and
related interpretations. The disclosures required under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No.123) have been included in Note 8.

Pro forma net income and net income per share

Prior to the Offering, the Company elected treatment as an S corporation for
federal and state income tax purposes. Pro forma net income represents net
income after a pro forma tax provision, using a tax rate of 41% and 40% for the
years ended September 29, 1996, and October 1, 1995, respectively, to reflect
the estimated income tax expense of the Company as if it had been subject to
federal and state income taxes for the period.

Pro forma net income per share (unaudited) for fiscal 1996 and fiscal 1995
is computed by using the weighted- average number of common and common
equivalent shares outstanding during the period, adjusted to include the number
of shares required to be sold by the Company to prepay distributions to the
pre-Offering shareholders totaling $9,952 (890 shares as calculated based on the
net proceeds from the Offering) (Note 5). In addition, the computation of pro
forma weighted-average shares outstanding gives effect to the stock split
effected in connection with the Offering.

2. FIXED ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
--------- ---------

<S> <C> <C>
Computer equipment............ $ 8,516 $ 7,679
Furniture and fixtures........ 4,352 3,980
Leasehold improvements........ 2,302 2,032
Construction in progress...... 2,597 -
--------- ---------
17,767 13,691
Less accumulated depreciation. (10,583) (8,164)
$ 7,184 $ 5,527
========= =========
</TABLE>

Included in the above computer equipment are capitalized leases and related
accumulated depreciation of $2,050 and $1,408 at September 28, 1997,
respectively and $2,050 and $998 at September 29, 1996, respectively.
Construction in progress relates to expenditures for the Company's development
and implementation of a new Company-wide management information system.

3. LINE OF CREDIT

The Company has a revolving line of credit agreement with Bank of America,
dated August 25, 1997, which provides for aggregate borrowings of $30,000.
Interest on outstanding borrowings is payable monthly at the bank's reference
rate (8.5% at September 28, 1997) or, at the Company's election, at a fixed rate
equal to LIBOR plus 1.5 % for a predetermined period. The line of credit
agreement expires on February 28, 1999.

At September 28, 1997 and September 29, 1996 the Company had no balances
outstanding under its line of credit agreement. The Company had outstanding
undrawn letters of credit of $150 and $3,985 at September 28, 1997 and September
29, 1996, respectively. Under the provisions of the line of credit agreement,
the Company must maintain certain financial ratios and must comply with certain
restrictive covenants. The Company was in compliance with these requirements for
the fiscal year ended September 28, 1997.

<PAGE> 14

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

4. INCOME TAXES

Prior to the Offering, the Company elected to be taxed as an S corporation
for federal and state income tax purposes. Pursuant to this election, earnings
or losses were subject to tax at the shareholder level rather than the corporate
level. Therefore, no provision was made for federal income tax on earnings or
losses of the Company in the historical consolidated financial statements. In
conjunction with the Offering, the S corporation status was terminated after
July 9, 1996. As a result, the Company was required by the Internal Revenue Code
to change its overall method of accounting for income tax reporting purposes
from the cash basis to the accrual basis. The termination also resulted in a
non-recurring net charge to earnings of $7,793 in the fourth quarter of fiscal
1996 for additional federal and state income tax liability related to the net
change required to adjust the deferred tax assets and liabilities to their
appropriate values utilizing C corporation rates.

The Company's provision for income taxes for the three fiscal years ended
September 28, 1997 consists of the following:
<TABLE>
<CAPTION>

SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1,
1997 1996 1995
---- ---- -------

<S> <C> <C> <C>
Current tax expense:
Federal ................................. $ 9,983 $ 1,123 $ -
State ................................... 2,186 170 62
-------- ------- ------
Total current ................... 12,169 1,293 62
-------- ------- ------
Deferred tax expense:
Federal ................................. (4,375) (1,122) -
State ................................... (563) (170) 35
Deferred tax provision resulting from
termination of S corporation status ... - 7,793 -
-------- ------- ------
Total deferred .................. (4,938) 6,501 35
-------- ------- ------
Total provision for income taxes $ 7,231 $ 7,794 $ 97
======== ======= ======
</TABLE>

The composition of the deferred tax assets (liabilities) at September
28, 1997 and September 29, 1996 is listed below.
<TABLE>
<CAPTION>

SEPTEMBER 28, SEPTEMBER 29,
1997 1996
---- ----

<S> <C> <C>
Reserves and accrued liabilities ............... $ 3,333 $ 1,901
Depreciation ................................... 606 387
------- -------
Gross deferred tax assets ........... 3,939 2,288
------- -------
S corporation cash basis accounting adjustment . (5,969) (8,956)
------- -------
Gross deferred tax liabilities ...... (5,969) (8,956)
------- -------
Net deferred tax liabilities ................... $(2,030) $(6,668)
======= =======
</TABLE>

<PAGE> 15

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

4. INCOME TAXES (CONTINUED)

The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory income tax rates to income
before taxes as a result of the following differences:
<TABLE>
<CAPTION>

SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1,
1997 1996* 1995*
---- ----- -----

<S> <C> <C> <C>
Federal tax computed at statutory rate 35.0% 35.0% 34.0%
State taxes, net of federal benefit .. 5.5% 5.0% 5.0%
Other ................................ 1.0% 1.0% 1.0%
---- ---- ----
Total pro forma provision for income
taxes .............................. 41.5% 41.0% 40.0%
==== ==== ====
</TABLE>
- ----------
*Pro forma due to prior S corporation status

5. RELATED PARTY TRANSACTIONS

Prior to the completion of the Offering, the Company's Board of Directors
declared a distribution of $4,952 to be paid to the Company's pre-Offering
shareholders representing the estimated income tax obligations of the
pre-Offering shareholders on undistributed S corporation earnings from October
2, 1995 through July 9, 1996, the date immediately preceding the termination of
the S corporation status. The distribution, net of advances for the quarterly
estimated tax payments of the pre-Offering shareholders, was paid in fiscal
1997.

Prior to July, 1997, the Company leased its corporate facility from the
principal shareholder of the Company. The lease provided for the payment of
property taxes, insurance and certain other operating expenses applicable to the
leased property by the lessee. In September 1996, the lease expired and the
lease term became month-to-month through July 1997 (Note 7). Rent expense paid
to the principal shareholder totaled $238, $301, and $301 for the years ended
September 28, 1997, September 29, 1996, and October 1, 1995, respectively.

Included in other assets at September 28, 1997 and September 29, 1996 are
advances and notes receivable due from shareholders and officers of the Company
in the amount of $310 and $417, respectively.

6. REPURCHASE OF FRANCHISE OFFICES

During fiscal 1997, the Company acquired three licensed offices at the
following locations: (i) Grand Rapids, Michigan, (ii) Worthington, Ohio, and
(iii) Atlanta, Georgia. Additionally, the Company acquired one franchised office
located in Indianapolis, Indiana. Results of operations for the acquired
licensed offices are recorded under the Company's licensed revenue recognition
policies for the first ten months of the fiscal year (see Note 1) and under the
direct office policies for the last two months of the fiscal year. Results of
operations for the repurchased franchised office are shown under the direct
revenue recognition policies for the last two months of the Company's fiscal
year and royalty revenue was recorded until the repurchase. Had the results of
operations for the franchised office been shown as of the beginning of the
current and preceding fiscal years, the consolidated financial information would
not be significantly different. These acquisitions were accounted for under the
purchase method of accounting. The combined purchase price of $925 was allocated
primarily to goodwill and is being amortized over a twenty-year life. The
Company is contemplating the continued selective repurchase of licensed and
franchised offices in certain territories with the intent of expanding the
Company's market presence in such regions.

<PAGE> 16

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

7. COMMITMENTS AND CONTINGENT LIABILITIES

The Company leases its corporate facility, branch offices and certain
equipment under operating leases. The leases typically require the Company to
pay taxes, insurance and certain other operating expenses applicable to the
leased property. Total rent expense was approximately $2,298, $2,220 and $2,209
for the years ended September 28, 1997, September 29, 1996 and October 1, 1995,
respectively.

On April 17, 1997, the Company executed a lease for new corporate
headquarters. The lease agreement provides for leased premises, projected to be
approximately 52,500 square feet in size, at a fixed rate of $1.93 per square
foot per month, for a fixed term of five and one-half years from the date of
occupancy. In addition to base rent, after the first year of occupancy the
Company is obligated to pay a portion of the increase in operating costs and
real property taxes for the leased premises. The Company has an option to renew
the lease after the initial term for an additional term of five years. It is
anticipated that the leased premises will be completed and ready for occupancy
in August 1998.

On July 15, 1997 the Company executed a two-year lease agreement with an
independent third party for the current corporate facilities. The lease includes
a 60-day cancellation clause and provides for the Company to pay property taxes,
insurance and certain other operating expenses applicable to the leased
property. The Company intends to reside at its current location until the new
facility is ready for occupancy.

In fiscal 1994, the Company entered into a financing agreement for the
purchase of computer and related equipment. Fixed assets totaling $782 and
$1,268 were sold to and leased back from the bank under this agreement for the
fiscal years ended October 1, 1995 and October 2, 1994, respectively. Based upon
the terms of the agreement, the leases were accounted for as capital leases.
There were no additional transactions under this agreement during fiscal 1997 or
fiscal 1996.

Future minimum lease commitments under all noncancellable capital and
operating leases as of September 28, 1997 are as follows:
<TABLE>
<CAPTION>

FISCAL CAPITAL OPERATING
YEAR LEASES LEASES
---- ------ ------
<S> <C> <C>
1998........................................... $453 $2,038
1999........................................... 232 2,414
2000........................................... 49 1,793
2001........................................... - 1,494
2002........................................... - 1,374
---- ------
Total.................................... $734 $9,113
==== ======
</TABLE>

The Company is involved in various claims and legal actions arising in the
ordinary course of business. It is the opinion of management, upon the advice of
legal counsel, that the ultimate disposition of these matters will not
materially affect the Company's consolidated financial position, results of
operations or cash flows.

8. EMPLOYEE BENEFIT PLAN

401(k) plan

The Company has an employee savings plan which permits participants to make
contributions by salary reduction pursuant to section 401(k) of the Internal
Revenue Code. The plan is open to qualified full-time and temporary employees
who earn less than $80 per year. The annual amount of employer contributions to
the plan is determined at the discretion of the board of directors, subject to
certain limitations. Eligible participants may make voluntary contributions to
the plan and become fully vested in the Company's contributions over a five-year
period. The Company has made no contributions during the three fiscal years
ended September 28, 1997.

<PAGE> 17

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

9. SHAREHOLDERS' EQUITY

Employee Stock Purchase Plan

In connection with the Offering, the Company implemented its 1996 Employee
Stock Purchase Plan (the "Purchase Plan"). A total of 250 shares were reserved
for issuance under the Purchase Plan. Under the terms of the Purchase Plan,
eligible employees may purchase shares of the Company's common stock based on
payroll deductions. The purchase price for shares granted is the lower of 85% of
the market price of the stock on the first or last day of each six month
purchase period. The Purchase Plan commenced on October 1, 1996. During fiscal
1997, a total of 12 shares were purchased at a price of $13.18 per share.

Stock Incentive Plan

In connection with the Offering, the Company implemented its 1996 Stock
Incentive Plan (the "Incentive Plan") for officers, directors and key employees
of the Company. A total of 900 shares were reserved for issuance under the
Incentive Plan. Options granted to employees of the Company typically may be
exercised within ten years from the grant date and are exercisable in
installments determined by the Compensation Committee of the Board of Directors.
Options granted to non-employee directors prior to the Offering were immediately
exercisable. Options granted to non-employee directors subsequent to the
Offering are typically 50% exercisable immediately and 50% exercisable upon the
date of the next annual shareholders meeting. Grants for 260 shares at a price
of $15.31 per share and 20 shares at a price of $19.25 per share were made
during fiscal year 1997.

The Company has adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the Purchase and Incentive Plans. Had compensation cost for
both plans been determined based on the fair value at the grant date of awards
in 1997 and 1996 consistent with the provisions of SFAS No. 123, the Company's
net income and net income per share would nave been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>

September 28, 1997 September 29, 1996
<S> <C> <C>
Net income - as reported $ 10,193 $ 7,084*
Net income - pro forma 9,514 6,813
Net income per share - as reported 1.13 0.89*
Net income per share - pro forma 1.05 0.85
</TABLE>

* Pro forma due to prior S corporation status

The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions for the grants in fiscal 1997 and 1996, respectively: dividend yield
of 0.0% and 0.0%; risk free interest rate of 6.48% and 6.61%; expected
volatility of 30.0% and 30.0% and expected lives of 2.8 and 4.7 years. The
weighted-average per share estimated fair value at the date of grant for options
granted during fiscal 1997 and 1996 was $4.26 and $4.88, respectively.

<PAGE> 18

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

9. SHAREHOLDERS' EQUITY (CONTINUED)

The following table summarizes the activity relating to the Incentive and
Purchase Plans:
<TABLE>
<CAPTION>

Incentive Purchase
Plan Options Plan Options

Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Options outstanding
October 1, 1995 ............. - -
Options granted ............... 443.0 $ 13.00 -
Options canceled .............. 3.6 13.00 -
----- ------- ----
Option outstanding
September 29, 1996 .......... 439.4 13.00 -
Options granted ............... 280.0 15.55 23.6 $13.18
Options canceled .............. 21.4 14.46 -
Options exercised ............. 26.4 13.00 12.3 13.18
----- ------- ---- ------
Options outstanding
September 28, 1997 ......... 671.6 11.3
===== ====
</TABLE>

The number of exercisable options outstanding for the fiscal years ended
1997 and 1996 under the plans were 114.5 and 61.0 shares, respectively, at
weighted-average prices of $13.00 and $13.00 per share, respectively. The
following table summarizes information about stock options outstanding at
September 28, 1997:
<TABLE>
<CAPTION>

Options Outstanding Options exercisable

Weighted-
Average
Shares Remaining Weighted- Shares Weighted-Average
Exercise Price Outstanding Life Average Price Exercisable Price
-------------- ----------- --------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$10.00 - $13.00 396.6 8.8 years $ 13.00 114.5 $ 13.00
$13.01 - $16.00 271.3 9.6 years $ 15.31 0 $ 15.31
$16.01 - $20.00 15.0 9.4 years $ 19.25 0 $ 19.25
</TABLE>

<PAGE> 19

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

10. UNAUDITED CONSOLIDATED QUARTERLY INFORMATION
<TABLE>
<CAPTION>

FOR THE THREE MONTHS ENDED
------------------------------------------------------
DECEMBER MARCH JUNE SEPTEMBER
29, 30, 29, 28,
1996 1997 1997 1997
---- ---- ---- ----

<S> <C> <C> <C> <C>
Total revenues ........................ $84,563 $83,587 $92,287 $99,909
Total cost of direct and licensed sales 64,313 63,702 70,058 76,402
Licensees' share of gross profit ...... 5,015 5,289 6,153 6,513
Selling, general and administrative
expenses .............................. 11,280 11,519 12,087 12,262
Net income ............................ 2,557 2,040 2,571 3,025
Net income per share .................. .28 .23 .29 .33

FOR THE THREE MONTHS ENDED
---------------------------------------------------
DECEMBER MARCH JUNE SEPTEMBER
31, 31, 30, 29,
1995 1996 1996 1996
------- ------- ------- -------

Total revenues ........................ $64,681 $65,432 $72,956 $82,450
Total cost of direct and licensed sales 48,260 49,589 55,340 62,801
Licensees' share of gross profit ...... 3,711 3,843 4,309 4,424
Selling, general and administrative
expenses .............................. 9,659 10,119 10,361 11,878
Pro forma net income (1) .............. 1,940 1,264 1,884 1,996
Pro forma net income per share (2) .... 0.25 0.16 0.25 0.23
</TABLE>

- ----------
(1) Pro forma net income represents net income after a pro forma tax provision
reflecting the estimated income tax expense of the Company as if it had been
subject to federal and state income taxes at C corporation rates. See Note
1.

(2) See Note 1 regarding the computation of pro forma net income per share.

<PAGE> 20

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Shareholders of RemedyTemp, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of RemedyTemp,
Inc. and its subsidiary at September 28, 1997, and September 29, 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended September 28, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

/S/ PRICE WATERHOUSE LLP
- ------------------------
Price Waterhouse LLP
Costa Mesa, California
November 14, 1997

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-11307 and 333-11277) of RemedyTemp, Inc. of our
report dated November 14, 1997, appearing on page 29 of the Annual Report to
Shareholders which is incorporated by reference in this Annual Report on Form
10-K. We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on page 15 of such this Form 10-K.

/S/ PRICE WATERHOUSE LLP
- ------------------------
Price Waterhouse LLP
Costa Mesa, California
December 22, 1997

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> SEP-28-1997
<CASH> 5,128
<SECURITIES> 0
<RECEIVABLES> 55,751
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 63,215
<PP&E> 7,184
<DEPRECIATION> 0
<TOTAL-ASSETS> 73,806
<CURRENT-LIABILITIES> 24,085
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 46,971
<TOTAL-LIABILITY-AND-EQUITY> 73,806
<SALES> 0
<TOTAL-REVENUES> 360,346
<CGS> 0
<TOTAL-COSTS> 274,475
<OTHER-EXPENSES> 70,118
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,424
<INCOME-TAX> 7,231
<INCOME-CONTINUING> 10,193
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,193
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 0

</TABLE>