1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q
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/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 30, 1997

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

FOR THE TRANSITION PERIOD FROM _____ TO ______

COMMISSION FILE NUMBER 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

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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 / /

As of May 12, 1997 there were 5,842,373 shares of Class A Common Stock and
3,058,333 shares of Class B Common Stock outstanding.

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REMEDYTEMP, INC.

INDEX

PAGE NO.
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PART I--FINANCIAL INFORMATION

Item 1. Financial Statements

Balance Sheet as of March 30, 1997 and September 29, 1996....................................... 2

Statement of Income for the three fiscal months and six fiscal months ended
March 30, 1997 and March 31, 1996............................................................. 3

Statement of Shareholders' Equity for the fiscal years ended September 29, 1996 and
October 1, 1995, and the six fiscal months ended March 30, 1997............................... 4

Statement of Cash Flows for the six fiscal months ended March 30, 1997 and
March 31, 1996................................................................................ 5

Notes to Financial Statements................................................................... 6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 8

Item 3. Quantitative and Qualitative Disclosure About Market Risk................................... *

PART II--OTHER INFORMATION

Item 1. Legal Proceedings........................................................................... *

Item 2. Changes In Securities....................................................................... *

Item 3. Defaults Upon Senior Securities............................................................. *

Item 4. Submission of Matters to a Vote of Security Holders........................................ 11

Item 5. Other Information........................................................................... 11

Item 6. Exhibits and Reports on Form 8-K............................................................ 12

SIGNATURES................................................................................................ 13

* No information provided due to inapplicability of item.

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PART I--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

REMEDYTEMP, INC.

BALANCE SHEET
(AMOUNTS IN THOUSANDS)

MAR. 30, SEPT. 29,
1997 1996
--------- --------
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 9,837 $ 10,959
Marketable securities................................................................. 0 1,016
Accounts receivable, net of allowance for doubtful accounts........................... 44,974 42,337
Prepaid expenses and other current assets............................................. 2,699 2,177
Current portion of net investment in direct financing leases.......................... 170 164
--------- --------
Total current assets.......................................................... 57,680 56,653
Fixed assets, net....................................................................... 5,808 5,527
Other assets............................................................................ 1,429 1,262
Net investment in direct financing leases............................................... 363 464
--------- --------
Total assets.................................................................. $ 65,280 $ 63,906
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................................... $ 2,202 $ 933
Distributions payable to pre-offering shareholders.................................... 1,375 4,007
Accrued workers' compensation......................................................... 1,720 550
Accrued payroll, benefits and related costs........................................... 9,796 10,056
Accrued licensees' share of gross profit.............................................. 1,669 1,388
Other accrued expenses................................................................ 1,531 1,711
Income taxes payable.................................................................. 0 1,167
Current portion of capitalized lease obligation....................................... 434 416
Deferred income taxes................................................................. 1,084 1,084
--------- --------
Total current liabilities..................................................... 19,811 21,312
Deferred income taxes................................................................... 4,084 5,584
Capitalized lease obligation............................................................ 512 734
--------- --------
Total liabilities............................................................. 24,407 27,630
--------- --------
COMMITMENTS AND CONTINGENT LIABILITIES

SHAREHOLDERS' EQUITY (Note 2):
Preferred Stock, par value $.01; authorized 5,000 shares;
none outstanding
Class A Common Stock, $.01 par value; authorized 50,000
shares; 5,830 issued and outstanding................................................ 58 58
Class B Non-Voting Common Stock, $.01 par value;
authorized 4,530 shares, 3,058 issued and outstanding............................... 31 31
Additional paid-in capital............................................................ 32,671 32,671
Retained earnings..................................................................... 8,113 3,516
--------- --------
Total shareholders' equity.................................................... 40,873 36,276
--------- --------
$ 65,280 $ 63,906
========= ========

See accompanying notes to financial statements.

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REMEDYTEMP, INC.

STATEMENT OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

THREE MONTHS ENDED SIX MONTHS ENDED
------------------- --------------------
MAR 30, MAR 31, MAR 30, MAR 31,
1997 1996 1997 1996
-------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)

Direct sales............................................... $ 52,645 $ 41,407 $ 107,108 $ 83,202
Licensed sales............................................. 30,144 23,354 59,480 45,525
Franchise royalties........................................ 751 656 1,515 1,347
Initial franchise fees..................................... 47 15 47 39
-------- --------- --------- ---------
Total revenues................................... 83,587 65,432 168,150 130,113
Cost of direct sales....................................... 41,263 32,024 83,694 63,620
Cost of licensed sales..................................... 22,439 17,565 44,321 34,229
Licensees' share of gross profit........................... 5,289 3,843 10,304 7,554
Selling and administrative expenses........................ 10,907 9,618 21,577 18,839
Depreciation and amortization.............................. 612 501 1,222 939
--------- --------- --------- ---------
Income from operations........................... 3,077 1,881 7,032 4,932
Other income:
Interest income (expense), net........................... 101 (14) 224 (36)
Other, net............................................... 309 240 602 444
--------- --------- --------- ---------
Income before provision for income taxes................. 3,487 2,107 7,858 5,340
Provision for income taxes....................... 1,447 32 3,261 80
--------- --------- --------- ---------
Net income................................................. $ 2,040 $ 2,075 $ 4,597 $ 5,260
========= ========= ========= =========
Net income per share....................................... $ 0.23 $ 0.51
========= =========
Weighted average number of shares (Note 4)................. 9,005 9,014
========= =========

Unaudited pro forma data (Note 3)
Income before income taxes................................. $ 2,107 $ 5,340
Provision for income taxes................................. 843 2,136
--------- ---------
Pro forma net income....................................... $ 1,264 $ 3,204
========= =========
Pro forma net income per share............................. $ 0.16 $ 0.42
========= =========
Weighted average number of shares.......................... 7,685 7,685
========= =========

See accompanying notes to financial statements.

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REMEDYTEMP, INC.

STATEMENT OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)

CLASS A CLASS B
---------------- ----------------- ADDITIONAL
COMMON STOCK COMMON STOCK PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
------- ------ ------- ------ -------- -------- --------

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..................... 1,472 14 (1,472) (14)
Net proceeds from public offering of common
stock ..................................... 2,093 21 23,387 23,408
Reclassification of S corporation retained
earnings..................................... 9,200 (9,200)
Net income..................................... 4,213 4,213
Distribution to pre-offering shareholders...... (701) (701)
Special distribution to pre-offering
shareholders in connection with initial
public offering.............................. (9,952) (9,952)
------- ---- ------- ------ -------- -------- --------
Balance at September 29, 1996.................. 5,830 58 3,058 31 32,671 3,516 36,276
Unaudited Information:
Net income................................... 4,597 4,597
------- ---- ------- ------ -------- -------- --------
Balance at March 30, 1997...................... 5,830 $ 58 3,058 $ 31 $ 32,671 $ 8,113 $ 40,873
======= ==== ======= ====== ======== ======== ========

See accompanying notes to financial statements.

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REMEDYTEMP, INC.

STATEMENT CASH FLOWS
(AMOUNTS IN THOUSANDS)

SIX MONTHS ENDED
---------------------
MAR 30, MAR 31,
1997 1996
------- --------
(UNAUDITED)

Cash flows provided by (used in) operating activities:
Net income........................................................................... $ 4,597 $ 5,260

Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.................................................. 1,222 939
Provision for losses on accounts receivable.................................... 510 425
Deferred taxes................................................................. (1,500)

Changes in operating assets and liabilities:
Accounts receivable........................................................ (3,147) (216)
Prepaid expenses and other current assets.................................. (522) (65)
Net investment in direct financing leases.................................. 95 9
Other assets............................................................... (167) (42)
Accounts payable........................................................... 1,269 (396)
Accrued workers' compensation.............................................. 1,170 (136)
Accrued payroll, benefits and related costs................................ (260) (216)
Accrued licensees' share of gross profit................................... 281 132
Other accrued expenses..................................................... (180) 668
Income taxes payable....................................................... (1,167) 24
------- --------
Net cash provided by operating activities............................................ 2,201 6,386
------- --------

Cash flows (used in) provided by investing activities:
Purchase of fixed assets............................................................. (1,503) (1,689)
Sale of investments.................................................................. 1,016
------- --------
Net cash used in investing activities................................................ (487) (1,689)
------- --------

Cash flows provided by (used in) financing activities:
Borrowings under line of credit agreement............................................ 100 4,148
Repayments under line of credit agreement............................................ (100) (10,848)
Repayments under capital lease obligation............................................ (204) (201)
Distributions to pre-offering shareholders........................................... (2,632)
------- --------
Net cash used in financing activities................................................ (2,836) (6,901)
------- --------

Net decrease in cash and cash equivalents............................................... (1,122) (2,204)

Cash and cash equivalents at beginning of period........................................ 10,959 2,204
------- --------
Cash and cash equivalents at end of period.............................................. $ 9,837 $ 0
======= ========

Other cash flow information
Cash paid during the period for interest................................................ $ 70 $ 92
Cash paid during the period for income taxes............................................ $ 6,809 $ -

See accompanying notes to financial statements.

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REMEDYTEMP, INC.

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

1. BASIS OF PRESENTATION

The accompanying balance sheet and statement of shareholders' equity
at March 30, 1997, and the statements of income and of cash flows for the six
fiscal months ended March 30, 1997 and March 31, 1996, are unaudited. These
statements have been prepared on the same basis as the Company's audited
financial statements and in the opinion of management reflect all adjustments,
which are only of a normal recurring nature, necessary for a fair presentation
of the financial position and results of operations for such periods. These
unaudited financial statements should be read in conjunction with the audited
financial statements included in the Company's Form 10K/A as filed with the
Securities and Exchange Commission on December 26, 1996.

Certain reclassifications, which have no effect on retained earnings,
have been made to conform the fiscal 1996 information to the fiscal 1997
presentation.

2. RECAPITALIZATION

Concurrent with it's initial public offering in July 1996, the Company
(i) effected a 1.812-for-1 stock split of its outstanding voting and non-voting
common stock, and (ii) amended its Articles of Incorporation to provide for the
issuance of up to 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.

3. UNAUDITED PRO FORMA NET INCOME AND NET INCOME PER SHARE

Prior to its initial public offering, the Company elected treatment as
an S corporation for federal and state income tax purposes. Pro forma net income
for the six fiscal months ended March 31, 1996 represents net income after a pro
forma provision, using a tax rate of 40%, to reflect the estimated income tax
expense of the Company as if it had been subject to normal federal and state
income taxes at C corporation rates for the period.

Pro forma net income per share for the six fiscal months ended March
31, 1996 is computed using the weighted average number of common and common
equivalent shares outstanding during the period, adjusted to include the
estimated 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 initial public offering) including
a $5,000 distribution paid in May 1996 and a $4,952 distribution payable by
April 1997. The Company made the final payment of $1,375 in April 1997. The
computation of pro forma weighted average shares outstanding gives effect to the
stock split being effected in connection with the initial public offering (see
Note 2). Historical net income per share has not been presented in view of prior
period S corporation status.

4. UNAUDITED EARNINGS PER SHARE DISCLOSURE

In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Accounting Standard (SFAS) No. 128 "Accounting for Earnings
per Share", which is effective for financial statements for both annual and
interim periods ending after December 15, 1997. This Statement specifies the
computation, presentation and disclosure requirements for Earnings per Share
(EPS). Early adoption of this Statement is not permitted. However, disclosure of
pro forma EPS amounts using this Statement is allowed. The Basic and Dilutive
EPS under SFAS No. 128 is substantially the same as Primary and Fully Dilutive
EPS under the current regulations.

5. STOCK OPTIONS

In accordance with the terms of the 1996 Stock Incentive Plan, on
February 19, 1997, the Company granted options to purchase 20 shares of Class A
Common Stock to certain of its non-employee directors at $19.25 per share, the
fair market value of the Class A Common Stock on such grant date. Additionally,
on April 23, 1997, the Company granted options to purchase 260 shares of Class A
Common Stock to certain of its executive officers and employees at $15.31 per
share, the fair market value of the Class A Common Stock on such grant date.
This plan is "non-compensatory" under APB No. 25, and accordingly, no
compensation expense is recorded in connection with these grants.

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REMEDYTEMP, INC.

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

6. RELATED PARTY TRANSACTIONS

The Company leases the majority of its corporate facilities from the
principal shareholder of the Company. The lease provides 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. On April 17, 1997 the Company signed a lease
for a new facility, the costs of which should approximate the current expenses
for the corporate facilities. Until the Company moves into the new facility in
fiscal 1998, the lease term of the current location will remain month-to-month.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

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, regarding events and financial trends that
may affect the Company's future operating results and financial position. The
Company's actual results and financial position could differ materially from
those anticipated in the forward-looking statements as a result of competition,
the availability of sufficient personnel, and other risks and uncertainties as
described in detail under the "Risk Factors" section and elsewhere in the
Company's Form 10K/A as filed with the SEC on December 26, 1996.

RESULTS OF OPERATIONS

For the Three Fiscal Months Ended March 30, 1997 compared to the Three Fiscal
Months Ended March 31, 1996

Total revenues increased 27.7% or $18.2 million to $83.6 million for
the three fiscal months ended March 30, 1997 from $65.4 million for the three
fiscal months ended March 31, 1996, due primarily to volume increases
attributable to increased billings at existing offices, expansion of services,
including EDGE(R), and 26 new offices opened since the prior period. The
Company's ability to continue to increase revenues depends upon many 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. There can be no assurance that the Company's revenues will continue to
increase.

Total cost of direct and licensed sales increased 28.5% or $14.1
million to $63.7 million for the three fiscal months ended March 30, 1997 from
$49.6 million for the three fiscal months ended March 31, 1996. Total cost of
direct and licensed sales as a percentage of revenues increased to 76.2% for the
three fiscal months ended March 30, 1997 from 75.8% for the three fiscal months
ended March 31, 1996. This increase was primarily due to 35% revenue growth in
the light industrial business, which generally has lower gross margin rates, as
compared to 17% revenue growth in the clerical and office automation business.
The Company's cost of direct sales as a percentage of direct sales increased 1.1
percentage points to 78.4% for the three fiscal months ended March 30, 1997 from
77.3% for the three fiscal months ended March 31, 1996, while the cost of
licensed sales as a percentage of licensed sales decreased .8 percentage points
to 74.4% for the three fiscal months ended March 30, 1997 from 75.2% for the
three fiscal months ended March 31, 1996. Many factors, including increased wage
and other payroll costs, could have an adverse effect on the Company's cost of
direct and licensed sales.

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. The Company's share of gross profit cannot be less than
7.5% of the licensed operation sales. Licensees' share of gross profit increased
37.6% or $1.4 million to $5.3 million for the three fiscal months ended March
30, 1997 from $3.8 million for the three fiscal months ended March 31, 1996.
Licensees' share of gross profit as a percentage of total revenues increased to
6.3% for the three fiscal months ended March 30, 1997 from 5.9% for the three
fiscal months ended March 31, 1996. This increase resulted from an increase in
licensed offices to 83 at March 30, 1997 from 64 as of March 31, 1996 and from
continued growth in existing licensed offices. Licensees' share of gross profit
as a percentage of licensees' total gross profit increased to 68.6% for the
three fiscal months ended March 30, 1997 from 66.4% for the three fiscal months
ended March 31, 1996 due to an increase in hours billed at existing licensed
offices.

Selling, general and administrative expenses (including depreciation
and amortization) increased 13.8% or $1.4 million to $11.5 million for the three
fiscal months ended March 30, 1997 from $10.1 million for the three fiscal
months ended March 31, 1996. Selling, general and administrative expenses as a
percentage of total revenues decreased to 13.8% for the three fiscal months
ended March 30, 1997 from 15.5% for the three fiscal months ended March 31,
1996, largely 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 implementing more stringent hiring and
compensation guidelines. There can be no assurance that selling, general and
administrative expenses will not increase in the future, both in absolute terms
and as a percentage of total revenues, and increases in these expenses could
adversely affect the Company's profitability.

Operating income increased 63.6% or $1.2 million to $3.1 million for
the three fiscal months ended March 30, 1997 from $1.9 million for the three
fiscal months ended March 31, 1996 due to factors described above. Operating
income as a percentage of revenues increased to 3.7% for the three fiscal months
ended March 30, 1997 from 2.9% for the three fiscal months ended March 31, 1996.

8
10

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)

Income before income taxes increased 65.5% or $1.4 million to $3.5
million for the three fiscal months ended March 30, 1997 from $2.1 million for
the three fiscal months ended March 31, 1996 due to the factors described above.
As a percentage of total revenues, income before income taxes increased to 4.2%
in the three fiscal months ended March 30, 1997 from 3.2% in the three fiscal
months ended March 31, 1996.

For the Six Fiscal Months Ended March 30, 1997 compared to the Six Fiscal Months
Ended March 31, 1996

Total revenues increased 29.2% or $38.0 million to $168.2 million for
the six fiscal months ended March 30, 1997 from $130.1 million for the six
fiscal months ended March 31, 1996, due primarily to volume increases
attributable to increased billings at existing offices, a 2.5% increase in the
average billing rate, expansion of services, including EDGE(R), and 26 new
offices opened since the prior period. The Company's ability to continue to
increase revenues depends upon many 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. There can be no assurance that
the Company's revenues will continue to increase.

Total cost of direct and licensed sales increased 30.8% or $30.2
million to $128.0 million for the six fiscal months ended March 30, 1997 from
$97.8 million for the six fiscal months ended March 31, 1996. Total cost of
direct and licensed sales as a percentage of revenues increased to 76.1% for the
six fiscal months ended March 30, 1997 from 75.2% for the six fiscal months
ended March 31, 1996. This increase was due to 36% revenue growth in the light
industrial business, which generally has lower gross margin rates, as compared
to 18% revenue growth in the clerical and office automation business. The
Company's cost of direct sales as a percentage of direct sales increased 1.6
percentage points to 78.1% for the six fiscal months ended March 30, 1997 from
76.5% for the six fiscal months ended March 31, 1996, while the cost of licensed
sales as a percentage of licensed sales decreased .7 percentage points to 74.5%
for the six fiscal months ended March 30, 1997 from 75.2% for the six fiscal
months ended March 31, 1996. Many factors, including increased wage and other
payroll costs, could have an adverse effect on the Company's cost of direct and
licensed sales.

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. The Company's share of gross profit cannot be less than
7.5% of the licensed operation sales. Licensees' share of gross profit increased
36.4% or $2.8 million to $10.3 million for the six fiscal months ended March 30,
1997 from $7.6 million for the six fiscal months ended March 31, 1996.
Licensees' share of gross profit as a percentage of total revenues increased to
6.1% for the six fiscal months ended March 30, 1997 from 5.8% for the six fiscal
months ended March 31, 1996. This increase resulted from an increase in licensed
offices to 83 at March 30, 1997 from 64 as of March 31, 1996 and from continued
growth in existing licensed offices. Licensees' share of gross profit as a
percentage of licensees' total gross profit increased to 68.0% for the six
fiscal months ended March 30, 1997 from 66.9% for the six fiscal months ended
March 31, 1996 due to an increase in hours billed at existing licensed offices.

Selling, general and administrative expenses (including depreciation
and amortization) increased 15.3% or $3.0 million to $22.8 million for the six
fiscal months ended March 30, 1997 from $19.8 million for the six fiscal months
ended March 31, 1996. Selling, general and administrative expenses as a
percentage of total revenues decreased to 13.6% for the six fiscal months ended
March 30, 1997 from 15.2% for the six fiscal months ended March 31, 1996,
largely 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 implementing more stringent hiring and compensation
guidelines. There can be no assurance that selling, general and administrative
expenses will not increase in the future, both in absolute terms and as a
percentage of total revenues, and increases in these expenses could adversely
affect the Company's profitability.

Operating income increased 42.6% or $2.1 million to $7.0 million for
the six fiscal months ended March 30, 1997 from $4.9 million for the six fiscal
months ended March 31, 1996 due to factors described above. Operating income as
a percentage of revenues increased to 4.2% for the six fiscal months ended March
30, 1997 from 3.8% for the six fiscal months ended March 31, 1996.

Income before income taxes increased 47.2% or $2.5 million to $7.9
million for the six fiscal months ended March 30, 1997 from $5.3 million for the
six fiscal months ended March 31, 1996 due to the factors described above. As a
percentage of total revenues, income before income taxes increased to 4.7% in
the six fiscal months ended March 30, 1997 from 4.1% in the six fiscal months
ended March 31, 1996.

9
11

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)

LIQUIDITY AND CAPITAL RESOURCES

Net cash flow provided by operating activities was $2.2 million and
$6.4 million for the six fiscal months ended March 30, 1997 and March 31, 1996,
respectively. The decrease in net cash flow provided by operating activities for
the six fiscal months ended March 30, 1997 compared to the six fiscal months
ended March 31, 1996 resulted from payment of $3.9 million in estimated taxes
during the six months ended March 30, 1997. No taxes were paid in the
corresponding preceding period given the Company's prior S corporation status.
The decrease in cash flow from operating activities was also caused by growth in
accounts receivable due to additional sales and expanded subcontractor billings,
which do not affect the Company's revenue base. This decrease in cash flows was
offset by additional accounts payable associated with the increase in
subcontracting and increases in the workers' compensation liability for policy
adjustments.

Cash used for purchases of fixed assets, which are generally for
computers and peripherals and office furniture, totaled $1.5 million and $1.7
million for the six fiscal months ended March 30, 1997 and March 31, 1996,
respectively. The Company expects capital expenditures to be approximately $3.6
million over the next 12 months due to anticipated openings of new Company-owned
offices and further investments in the Company's computer-based technologies.

Cash generated by the sale of investments, which are generally
short-term investments with original maturities greater than 90 days but not
more than one year, totaled $1.0 million for the six fiscal months ended March
30, 1997. The proceeds from the sale of investments were used to fund the
distribution payable to the pre-offering shareholders.

The Company has a revolving line of credit agreement with Bank of
America and Union Bank providing for aggregate borrowings and letters of credit
of $25.0 million. Interest on outstanding borrowings is payable monthly at the
prime rate or, at the Company's discretion, LIBOR plus 1.95%. The line of credit
is unsecured and expired on February 29, 1997, however, the Company has obtained
an extension until May 30, 1997. The Company is currently negotiating a new line
of credit. Historically, the principal use of the line of credit has been to
finance receivables and distributions payable to pre-offering shareholders and
to provide a letter of credit required in connection with the Company's
California workers' compensation self-insurance program to meet regulatory
requirements. The Company had no borrowings under its line of credit as of March
30, 1997. The Company is no longer self-insured for workers' compensation and as
a result canceled the letter of credit in January 1997. The bank agreements
governing the lines of credit require the Company to maintain certain financial
ratios and comply with certain restrictive covenants.

During the fourth quarter of fiscal 1996, the Company declared a
distribution to the pre-offering shareholders in an aggregate amount equal to
$4.9 million which represents the pre-offering shareholders' income tax
obligations related to the Company's undistributed S corporation earnings from
October 2, 1995 through July 9, 1996 (the effective termination date of the
Company's S corporation status). The Company made the final payment of
$1.4 million in April 1997.

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 historically been strong as a result of
manufacturing and retail emphasis on holiday sales. The second fiscal quarter
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.

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12

REMEDYTEMP, INC.

PART II--OTHER INFORMATION

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

On February 19, 1997, the Company held its annual meeting of
Shareholders ("the Annual Meeting"). The only matter voted upon by the
shareholders at the Annual Meeting was the election of the seven members of the
Company's Board of Directors to serve until the next annual meeting of
shareholders and until their successors are elected and qualified. The Company's
shareholders elected each of the seven nominees to serve as director according
to the following vote tabulation:

Director Nominee For Against or Withheld Abstentions Brokers Non-Votes
---------------- --- ------------------- ----------- -----------------

William D. Cvengros 4,657,478 1,452 -- --
James L. Doti 4,657,478 1,452 -- --
Robert E. McDonough 4,657,478 1,452 -- --
Paul W. Mikos 4,657,478 1,452 -- --
Susan McDonough Mikos 4,657,478 1,452 -- --
John P. Unroe 4,657,478 1,452 -- --
John B. Zaepfel 4,657,478 1,452 -- --

ITEM 5. OTHER INFORMATION

On April 17, 1997, the Company executed a lease for new corporate
headquarters. The lease agreement is between the Company and Parker-Summit, LLC
and 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. The Company has an option to renew the lease
after the initial term for an additional term of five years. In addition to base
rent, the Company is obligated to pay a percentage of the increase in operating
costs and real property taxes for the leased premises. It is anticipated that
the leased premises will be completed and ready for occupancy towards the end of
1998. Until that time, the lease term of the Company's current headquarters will
remain month-to-month.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Set forth below is a list of the exhibits included as part of this
Quarterly Report:

Number
Exhibit Description
- ------- -----------

3.1 Amended and Restated Articles of Incorporation of the Company*
3.2 Amended and Restated Bylaws of the Company*
4.1 Specimen Stock Certificate*
4.2 Shareholder Rights Agreement*
10.1 Robert B. McDonough, Sr. Amended and Restated Employment Agreement*
10.2 Paul W. Mikos Employment Agreement*
10.3 R. Emmett McDonough Employment Agreement*
10.4 Allocation Agreement with R. Emmett McDonough and Related Trusts*
10.5 Registration Rights Agreement with R. Emmett McDonough and Related Trusts*
10.6 Letter regarding terms of employment and potential severance of Alan M. Purdy*
10.7 Deferred Compensation Agreement for Alan M. Purdy*
10.8 Letter regarding potential severance of Jeffrey A. Elias*
10.9 Form of Indemnification Agreement*
10.10 Lease Agreement between RemedyTemp, Inc. and Robert E. McDonough, Sr.*
10.11 RemedyTemp, Inc. 1996 Stock Incentive Plan*
10.12 RemedyTemp, Inc. 1996 Employee Stock Purchase Plan*
10.13 Form of Franchising Agreement for Licensed Offices*
10.14 Form of Franchising Agreement for Franchised Offices*
10.15 Form of Licensing Agreement for IntellisearchSM*
10.16 Credit Agreement among Bank of America National Trust and Savings Association, Union Bank and
RemedyTemp, Inc. as amended*
10.17 Paul W. Mikos Promissory Note*
10.18 Additional Deferred Compensation Agreement for Alan M. Purdy**
10.19 Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC
11.1 Statement Regarding Computation of Per Share Earnings
27.1 Financial Data Schedule

* 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.

** 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.

(b) Reports on Form 8-K

No reports on Form 8-K were filed in the fiscal quarter ended
March 30, 1997.

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14

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

REMEDYTEMP, INC.

May 12, 1997 /s/ PAUL W. MIKOS
Paul W. Mikos, President and Chief
Executive Officer

May 12, 1997 /s/ ALAN M. PURDY
Senior Vice President and Chief Financial
Officer (Principal Financial Officer)

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15

EXHIBIT INDEX

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

3.1 Amended and Restated Articles of Incorporation of the
Company*

3.2 Amended and Restated Bylaws of the Company*

4.1 Specimen Stock Certificate*

4.2 Shareholder Rights Agreement*

10.1 Robert B. McDonough, Sr. Amended and Restated Employment
Agreement*

10.2 Paul W. Mikos Employment Agreement*

10.3 R. Emmett McDonough Employment Agreement*

10.4 Allocation Agreement with R. Emmett McDonough and Related
Trusts*

10.5 Registration Rights Agreement with R. Emmett McDonough and
Related Trusts*

10.6 Letter regarding terms of employment and potential severance
of Alan M. Purdy*

10.7 Deferred Compensation Agreement for Alan M. Purdy*

10.8 Letter regarding potential severance of Jeffrey A. Elias*

10.9 Form of Indemnification Agreement*

10.10 Lease Agreement between RemedyTemp, Inc. and Robert E.
McDonough, Sr.*

10.11 RemedyTemp, Inc. 1996 Stock Incentive Plan*

10.12 RemedyTemp, Inc. 1996 Employee Stock Purchase Plan*

10.13 Form of Franchising Agreement for Licensed Offices*

10.14 Form of Franchising Agreement for Franchised Offices*

10.15 Form of Licensing Agreement for IntellisearchSM*

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

10.17 Paul W. Mikos Promissory Note*

10.18 Additional Deferred Compensation Agreement for Alan M.
Purdy**

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

11.1 Statement Regarding Computation of Per Share Earnings

27.1 Financial Data Schedule

* 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.

** 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.