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 27, 1998

[ ] 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)

101 Enterprise
Aliso Viejo, California 92656
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number including area code: (949) 425-7600

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 Stock $.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. [ ]

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 Class
A Common Stock on December 15, 1998 on the Nasdaq National Market was
$75,372,126. The aggregate market value of the Class B Common Stock (which
converts to Class A upon sale) held by non-affiliates of the registrant based
upon the closing sales price of its Class A Common Stock on December 15, 1998 on
the Nasdaq National Market was $4,805,112.

The number of shares of Class A Common Stock outstanding as of December
15, 1998 was 7,062,524 and the number of shares of Class B Common Stock
outstanding as of December 15, 1998 was 1,805,539.

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
27, 1998. The Company's Annual Report to Shareholders will be mailed to the
Securities and Exchange Commission and the Company's shareholders in connection
with the Company's Annual Meeting of Shareholders scheduled to be held on
February 17, 1999 (the "Annual Meeting"). The registrant will file a definitive
Proxy Statement pursuant to Regulation 14A within 120 days of the end of the
fiscal year end September 27, 1998. Portions of the Company's Proxy Statement,
to be mailed to the shareholders in connection with the Annual Meeting, 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.

REMEDYTEMP, INC.
1998 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

PART I
------
PAGE NO.
--------

Item 1 Business 3
Item 2 Properties 9
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote of Security Holders 9
Executive Officers of the Registrant 10

PART II
-------

Item 5 Market for Registrant's Common Equity and Related Shareholder Matters 11
Item 6 Selected Financial Data 11
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 7A Quantitative and Qualitative Disclosures About Market Risk *
Item 8 Financial Statements and Supplementary Data 11
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 11

PART III
--------

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

PART IV
-------

Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 13
Signatures 15

* No information provided due to inapplicability of item.

PART I

ITEM 1. BUSINESS

In addition to historical information, the description of business below
includes certain forward-looking statements, including, but not limited to,
those related to the growth and strategies, future operating results and
financial position as well as economic and market events and trends of
RemedyTemp, Inc. (the "Company"), including its wholly-owned subsidiary, Remedy
Insurance Group, LTD ("RIG"). All forward-looking statements made by the
Company, including such statements herein, include material risks and
uncertainties and are subject to change based on factors beyond the control of
the Company. Accordingly, the Company's actual results and financial position
could differ materially from those expressed or implied in any forward-looking
statement as a result of various factors, including without limitation those
factors described in the Company's filings with the Securities and Exchange
Commission regarding risks affecting the Company's financial conditions and
results of operations. The Company does not undertake to publicly update or
revise its forward-looking statements even if experience or future changes make
it clear that any projected results expressed or implied therein will not be
realized. 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 in
1974, 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 37
states and Puerto Rico through a network of 234 offices, of which 98 are
Company-owned and 136 are independently-managed. During the twelve months ended
September 27, 1998, the Company placed approximately 136,000 temporary workers,
known as "associates," and provided over 41.0 million hours of staffing services
to approximately 17,000 clients. From the beginning of fiscal 1994 through the
end of fiscal 1998, the Company added 140 offices and increased revenues and
income before taxes at compound annual growth rates of 30.1% and 65.7%
respectively, to $451.3 million and $23.2 million, respectively.

The consolidated financial statements include the accounts of the
Company, including its wholly-owned subsidiary, RIG. RIG is an offshore
insurance captive domiciled in Bermuda, incorporated in September 1996 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. Historically, the Company focused on the clerical
and light industrial sectors of the nation's temporary workforce. Beginning in
November 1998, the Company began also to focus on the information technology
sector. The clerical, light industrial and information technology sectors
comprise approximately 80.5% of the nation's temporary staffing industry
revenues, according to the Staffing Industry Analysts, Inc. ("SIA"), an
independent staffing industry publication. Additionally, the Company intends to
increase its efforts in the call center and logistics areas of its clerical and
light industrial sectors, respectively. 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 and technologies.

Over the past five 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 primary 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(R), 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.
The Company is currently in the process of implementing its new information
technology system, i/search 2000(TM), which is intended to replace
Intellisearch(R). The Company believes that i/search 2000(TM) will enable its
Company-owned and independently-managed offices to streamline operational
efficiencies and enhance client service levels. Implementation of i/search
2000(TM) is scheduled to be completed by October 1999. Management believes that
the Company's proprietary 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 SIA to have exceeded $54.5 billion in 1997. This represents an
increase of approximately 15.7% over 1996 and, since 1993, industry revenues
have increased at a compound annual rate of approximately 17.2%. Economic and
social factors have increased the portion of the non-farm U.S. workforce working
on a temporary basis from 1.4% in 1993 to 2.0% in 1997, according to the
National Association of Temporary and Staffing Services ("NATSS"), an
independent trade organization for the staffing industry. NATSS estimates that
there are now approximately 2.7 million workers employed nationwide by temporary
staffing service providers.

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, light industrial and information technology sectors
represent the largest three sectors of the temporary staffing industry. A
staffing industry report by SIA, based on 1997 revenues, reported that the
office and clerical sector accounted for $15.7 billion or approximately 28.8% of
the temporary staffing industry revenues, while the light industrial sector
accounted for $13.3 billion or approximately 24.4% of industry revenues, and the
information technology sector accounted for $14.8 billion or approximately 27.2%
of industry revenues. According to SIA, from 1993 through 1997, industry
revenues for the office and clerical sector increased by approximately $6.1
billion, representing a compound annual growth rate of approximately 13.1%, and
industry revenues for the light industrial sector increased by approximately
$5.4 billion, representing a compound annual growth rate of approximately 13.9%.
Industry revenues for the information technology sector increased by
approximately $9.1 billion, representing a compound annual growth rate of
approximately 26.9%. In the aggregate, these three sectors constituted
approximately 80.5% of the $25.6 billion increase in industry revenues during
the period.

OPERATIONS

The Company provides temporary personnel in the following three industry
sectors: clerical, light industrial and information technology.

Clerical Services. As 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.

Within the clerical services sector, the Company's Caller Access
division addresses the needs of clients for call center agents. Caller Access
services include customer service, help desk/product support, customer service,
order takers, market surveyors, collections agents and telesales.

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 and buyers) and general
services (such as maintenance and repair personnel, janitors and food service
workers).

In August 1998, the Company created the Remedy Logistics Group to
provide solutions for clients' logistics staffing needs. Logistics is the
management of inventory, and includes warehousing, transportation, distribution
and supply of goods. Remedy Logistics Group supplies temporary associates within
the following categories: inventory takers, forklift operators, shipping clerks,
material processors, warehouse workers, boxers, mail clerks, expeditors and
inventory control clerks.

Information Technology Services. In November 1998, the Company's newest
division, RemX Technology Group(SM), began providing information technology
temporary staffing and consulting services. RemX Technology Group(SM) will
supply contract staffing and consulting professionals in key technology
categories including hardware and software engineering, database design
development, Internet/Intranet site development, networking, software quality
assurance, and technical support.

Office Organization.

The Company provides its services through a network of 234 office
locations, 98 of which are owned and operated by the Company and 136 of which
are operated as franchised or licensed offices. The table below sets forth the
geographic distribution of the Company-owned and independently-managed offices.

COMPANY-OWNED LICENSED AND TOTAL
OFFICES FRANCHISED OFFICES OFFICES
------------- ------------------ -------

California.............. 82 2 84
Western Region(1)....... 6 19 25
Midwestern Region(2).... 5 32 37
Southeastern Region(3).. 5 65 70
Northeastern Region(4).. 0 17 17
International(5)........ 0 1 1
-- --- ---
Total................... 98 136 234
== === ===

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

(2) Includes Illinois, Indiana, Iowa, 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.

(5) Includes Puerto Rico.

Company-Owned Offices.

The Company-owned offices are concentrated in California, with locations
in 11 other states. These offices are organized into five regions, each managed
by an Operational 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 Operational 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 $2.8
million for fiscal 1998. 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 ten 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 or ten-year terms depending upon when such
agreements were originally entered into. 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 27, 1998, 19 of the Company's 136
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. 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, trademarks 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 27, 1998, 117
of the Company's 136 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. To reflect the increased value-added services
and proprietary technologies provided by the Company, beginning in January 1999
and only for new licensees, the Company will remit to such licensees 60%-65%
of the office's gross profit, based on the level of hours billed during the
contract year.

CLIENTS

During the twelve months ended September 27, 1998, the Company served
approximately 17,000 clients nationwide. The Company's ten highest volume
clients in fiscal 1998 accounted for approximately 13.8% of the Company's
system-wide gross billings. No single client accounted for more than 6% of the
Company's system-wide gross billings for fiscal 1998.

COMPETITION

The temporary services industry is highly competitive with limited
barriers to entry. The Company believes that its largest competitors in the
clerical and light industrial sectors 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. In
the information technology sector, the Company believes that its competitors
include Alternative Resources, Data Processing Resources Corporation, Hall
Kinion, Metamor Worldwide and Modis Professional Services.

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 RIG enables 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. This aggregate stop-loss coverage
is based on projected levels of workers' compensation wages and will vary to the
extent that actual wage levels differ from the projection.

EMPLOYEES

As of September 27, 1998, the Company employed a staff of approximately
500 individuals (excluding temporary associates). During fiscal 1998,
approximately 136,000 temporary associates were placed by the Company through
Company-owned and independently-managed offices. Approximately 61,000 of the
temporary associates were employed by Company-owned offices and approximately
62,000 were employed through licensed offices. Approximately 13,000 of the
temporary associates were placed by franchised offices, and are not employed by
the Company but are legal employees of the franchised offices. At any given time
during 1998, only a portion of these employees were assigned to temporary
assignments. 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 37 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.

PROPRIETARY RIGHTS AND SYSTEMS

The Company has developed, either internally or through hired
consultants, its HPT(R), EDGE(R), IntelliSearch(R), and i/search 2000(TM)
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), INTELLISEARCH(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 following trademarks and service marks: I/SEARCH 2000(TM), REMX
TECHNOLOGY GROUP(SM), REMX(SM), STARS(SM), NON-STOP(SM), and WE WON'T SEND YOU A
DUMMY(SM). These marks are used by the Company and its licensees and
franchisees.

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.

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 52.6%
in fiscal 1998), 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, find and
retain clients and manage costs.

Franchising and Licensing Risks. The Company derives a substantial
amount of its revenues (approximately 44.4% in fiscal 1998) 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 19.6% of the Company's system-wide billings in
fiscal 1998. 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.

Year 2000 Compliance

The Company's State of Readiness. Many computer systems and other
equipment with embedded chips or processors use only two digits to represent the
year and may be unable to process accurately certain data before, during or
after the Year 2000. Consequently, business and governmental entities are at
risk for possible miscalculations or systems failures causing disruptions in
their business operation. Furthermore, the Year 2000 is a leap year, which may
present additional issues for computer systems and other equipment with embedded
chips or processors.

Year 2000 issues may affect the Company's internal systems, including
information technology ("IT") and non-IT systems. The Company is assessing the
readiness of its systems for handling the Year 2000. Although the assessment is
still underway, the Company currently believes that all material IT systems will
be compliant by the Year 2000. The Company is in the final year of a three-year
development and implementation process to replace all of its material IT systems
with a new IT system. The Company believes that the new IT system and the
computer hardware used to operate the system will be Year 2000 compliant. The
Company anticipates that implementation of the new IT system will be completed
for all "back office" systems (i.e. payroll, billing, general ledger, accounts
payable, and accounts receivable) by June of 1999. The Company plans to
implement the "front office" applications (i.e. administration, search and
retrieval of data, and coordination or temporary employees) of the new IT system
to all Company-owned offices by April of 1999 and to all independently-managed
offices by October of 1999. There can be no guarantee that these estimated dates
will be achieved, and actual results could differ materially from those
anticipated.

Based on information currently available, the Company believes that it
does not have any material specific-dependencies on its non-IT systems (devices
that have imbedded microprocessors). Accordingly the Company believes that the
Year 2000 poses no material risk to the Company's non-IT systems. The Company
intends to contact its material suppliers of products and services to determine
that the suppliers' operations and the products and services they provide are
Year 2000 compliant or to monitor their progress toward Year 2000 compliance.
There can be no assurance that the Company's material suppliers, vendors or
other third parties will not suffer a Year 2000 business disruption. Such
failures could have a material adverse affect on the Company's financial
condition and results of operations.

The Costs to Address the Company's Year 2000 Issues. The Company's new
IT system is being implemented for strategic business reasons unrelated to Year
2000 issues and the implementation schedule was not accelerated due to Year 2000
issues. Therefore, no specific costs were incurred to address Year 2000 issues.

The Risks to the Company of Year 2000 Issues. Although unclear at this
time, the Company believes that its exposure to Year 2000 risks are unlikely to
have a material effect on the Company's results of operations, liquidity and
financial condition. The Company anticipates that the new IT system will be
implemented prior to Year 2000 and such system is believed to be Year 2000
compliant. Although the Company expects to implement its new IT system prior to
the Year 2000, there is no guarantee that this result will be achieved.
Consequently, the Company believes that its most reasonably likely worst case
Year 2000 scenario is that the new IT system is not implemented on time. Such a
scenario could disrupt the Company's business and therefore could have a
material adverse effect on the financial condition and results of operations.
Additionally, if any third parties that provide goods or services that are
critical to the Company's business fail to appropriately address their Year 2000
issues, there could be a material adverse effect on the Company's financial
condition and results of operations.

The Company's Contingency Plans. The Company has not completed the
systems integration testing of the new IT system. Accordingly, the Company has
not fully assessed its risks from potential Year 2000 failure of the new IT
system and, therefore has not yet developed any Year 2000-specific contingency
plans. The Company intends to develop such contingency plans if the results of
systems integration testing identify a business function at risk. Additionally,
should an unforeseen delay in the implementation of the Company's new IT system
occur, failure to meet critical milestones in the Company's implementation plans
would provide advance notice, and steps would be taken so that Year 2000 issues
could be corrected in the Company's existing IT system to avoid a material
impact on the Company's ability to conduct business. The likely impact on such
existing IT systems would be in "from-to" reporting and date printing which the
Company believes it can correct without material loss in business operation or
function. Additionally, the Company is currently undertaking steps to identify
its material vendors and to formulate a system to understand material third
parties' ability to continue providing services and products after Year 2000.
The Company intends to monitor its material suppliers, vendors, and distributors
to avoid any business interruption in Year 2000, including formulating
contingency plans. However, the Company can neither predict nor assure the
successful outcome of such third parties' remediation efforts.

ITEM 2. PROPERTIES

The Company does not own any real property. The Company leases its
corporate headquarters in Aliso Viejo, California, from Parker-Summit, LLC. The
lease agreement provides for leased premises, totaling 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. The base rent
includes amounts for operating costs, which include, but are not limited to,
property taxes, utilities, supplies, repairs and maintenance, janitorial staff,
security staff and insurance premiums on the building. 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. The Company moved into its current corporate
headquarters in September 1998.

From July 1997 to September 1998, the Company leased its 13,185 square
foot national headquarters 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 provided for the Company to pay property taxes, insurance
and certain other operating expenses applicable to the leased property.

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 27, 1998, the Company leased the space occupied by the
majority of its 98 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 27, 1998.

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officer employees of the Company and their respective ages
as of September 27, 1998, are set forth below.

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

Robert E. McDonough, Sr. 76 Chairman of the Board of Directors
Paul W. Mikos 53 Chief Executive Officer, President and Director
Greg Palmer 42 Executive Vice President and Chief Operations Officer
Alan M. Purdy 58 Senior Vice President and Chief Financial Officer
Jeffrey A. Elias 41 Senior Vice President, Human Resources and Administration
William M. Herbster 46 Vice President, Marketing
Norman H. Leibson 53 Vice President, Information Technology

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 strategic 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 (a director of the Company)
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 and the son-in-law of Robert E. McDonough,
Sr.

Greg Palmer has served as Executive Vice President and Chief Operations
Officer of the Company since January 1998. From 1985 to December 1997, Mr.
Palmer served in senior level management positions in the Southeast and
Northeast divisions and previously as Senior Vice President in charge of
managing operations in the Western United States for Olsen Corporation, a
provider of staffing and health care services.

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.
(dba 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. (dba Millers Outpost), a
subsidiary of American Retail Group, and from November 1983 until August 1992,
he was a Vice President of Carter Hawley Hale.

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 following table sets forth the
high and low sales prices for the Class A Common Stock for fiscal 1998 and
fiscal 1997:

FOR THE THREE MONTHS ENDED
--------------------------------------------------

DECEMBER 28, MARCH 29, JUNE 28, SEPTEMBER 27,
1997 1998 1998 1998
----------- --------- -------- ------------

High .................... $ 28.13 $ 32.63 $ 36.25 $ 29.25
Low...................... $ 20.00 $ 18.75 $ 23.69 $ 17.50

DECEMBER 29, MARCH 30, JUNE 29, SEPTEMBER 28,
1996 1997 1997 1997
----------- --------- -------- ------------

High .................... $ 22.50 $ 20.00 $ 18.75 $ 22.75
Low...................... $ 14.25 $ 15.13 $ 14.88 $ 17.00

As of December 15, 1998, there were an estimated 1,750 shareholders of
record 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 27, 1998, under the heading "Selected Financial
Data," to be mailed to the Securities and Exchange Commission (the "Commission")
and the Company's shareholders prior to the Company's Annual Meeting of
Shareholders, which is scheduled to be held on February 17, 1999.

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 27, 1998 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 on February 17, 1999.

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 27, 1998, 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 on February 17, 1999.

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

None.

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 reporting persons'
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 "Section 16(A) Beneficial Ownership Reporting
Compliance" 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 on February 17,
1999.

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 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 on February 17, 1999.

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 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 on February 17, 1999.

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 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 on February 17, 1999.

PART IV

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

(a) Financial Statements.

PAGE NUMBER
IN ANNUAL
REPORT TO
SHAREHOLDERS
------------

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

Consolidated Balance Sheet as of September 27, 1998 and
September 28, 1997 13

Consolidated Statement of Income for the three fiscal years
ended September 27, 1998, September 28, 1997 and September 29,
1996 14

Consolidated Statement of Shareholders' Equity for the three
fiscal years ended September 27, 1998, September 28, 1997 and
September 29, 1996 15

Consolidated Statement of Cash Flows for three fiscal years
ended September 27, 1998, September 28, 1997 and September 29,
1996 16

Notes to Consolidated Financial Statements 17-25

(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.

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

3.1 Amended and Restated Articles of Incorporation of the Company(a)

3.2 Amended and Restated Bylaws of the Company

4.1 Specimen Stock Certificate(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)

10.11 Amended and restated RemedyTemp, Inc. 1996 Stock Incentive Plan

10.12 RemedyTemp, Inc. 1996 Employee Stock Purchase Plan(a)

10.13 Form of Franchising Agreement for Licensed Offices

13
14

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

10.14 Form of Franchising Agreement for Franchised Offices(a)

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

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.(f)

10.22 RemedyTemp, Inc. Deferred Compensation Plan(f)

10.23 Greg Palmer Employment Agreement(g)

10.24 1998 RemedyTemp, Inc. Deferred Compensation and Stock Ownership Plan for
Outside Directors(h)

10.25 Form of Licensing Agreement for i/search 2000(TM)

13.1 RemedyTemp, Inc. 1998 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 Annual Report on Form 10-K for the yearly period
ended September 28, 1997.

(g) 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 28, 1997.

(h) 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 29, 1998.

(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.

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 21, 1998

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

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

/s/ ROBERT E. MCDONOUGH Chairman of the Board of December 21, 1998
- ------------------------------- Directors
Robert E. McDonough, Sr.

/s/ PAUL W. MIKOS President and Chief Executive December 21, 1998
- ------------------------------- Officer
Paul W. Mikos

/s/ ALAN M. PURDY Senior Vice President and Chief December 21, 1998
- ------------------------------- Financial Officer (Principal
Alan M. Purdy Financial and Accounting Officer)

/s/ SUSAN MCDONOUGH MIKOS Director, Corporate Secretary December 21, 1998
- -------------------------------
Susan McDonough Mikos

/s/ WILLIAM D. CVENGROS Director December 21, 1998
- -------------------------------
William D. Cvengros

/s/ JAMES L. DOTI Director December 21, 1998
- -------------------------------
James L. Doti, Ph.D.

/s/ ROBERT A. ELLIOTT Director December 21, 1998
- ------------------------------
Robert A. Elliott

/s/ J. MICHAEL HAGAN Director December 21, 1998
- ------------------------------
J. Michael Hagan

/s/ JOHN B. ZAEPFEL Director December 21, 1998
- ------------------------------
John B. Zaepfel

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 13, 1998 appearing on page 25 of the 1998 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)(2) 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/ PRICEWATERHOUSECOOPERS LLP
-------------------------------
PricewaterhouseCoopers LLP

Costa Mesa, California
November 13, 1998

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

BALANCE AT BALANCE AT
BEGINNING OF END OF
DESCRIPTION PERIOD ADDITIONS DEDUCTIONS(1) PERIOD
- ----------- ------------ --------- ------------- ----------

Allowance for Doubtful Accounts
Receivable:

Year ended September 27, 1998 $ 2,612 $ 1,519 $ 1,484 $ 2,647
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

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

INDEX TO EXHIBITS