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UNITED STATES
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 June 27, 1999

[ ] 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.
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(Exact name of registrant as specified in its charter)

California 95-2890471
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(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

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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 August 9, 1999 there were 7,045,574 shares of Class A Common Stock
and 1,803,539 shares of Class B Common Stock outstanding.

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REMEDYTEMP, INC.

INDEX

Page No.
--------

PART I--FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheet as of June 27, 1999 and September 27, 1998.............. 3

Consolidated Statement of Income for the three fiscal months and
nine fiscal months ended June 27, 1999 and June 28, 1998 ........................ 4

Consolidated Statement of Cash Flows for the nine fiscal months
ended June 27, 1999 and June 28, 1998............................................ 5

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

Item 2. Management's Discussion and Analysis of Consolidated 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 and Use of Proceeds......................................... *

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

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

Item 5. Other Information................................................................. *

Item 6. Exhibits and Reports on Form 8-K.................................................. 14

SIGNATURES......................................................................................... 15

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* No information provided due to inapplicability of item.

REMEDYTEMP, INC.

PART I--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEET
(amounts in thousands, except per share amounts)

ASSETS

June 27, September 27,
1999 1998
--------- -------------

Current assets:
Cash and cash equivalents......................................... $ 2,628 $ 450
Accounts receivable, net of allowance for doubtful accounts
of $2,655 and $2,647, respectively ............................. 69,256 63,660
Prepaid expenses and other current assets (Note 4)................ 11,689 3,401
Deferred income taxes ............................................ 2,486 2,235
-------- --------

Total current assets ...................................... 86,059 69,746
Fixed assets, net of accumulated depreciation of $14,683 and
$12,560, respectively............................................. 17,828 15,184
Other assets, net.................................................... 2,462 2,567
Deferred income taxes................................................ 501 501
Goodwill, net of accumulated amortization of $268 and $152,
respectively....................................................... 1,730 1,787
-------- --------
$108,580 $ 89,785
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable.................................................. $ 2,430 $ 3,033
Accrued workers' compensation (Note 4)............................ 549 5,535
Accrued payroll, benefits and related costs....................... 11,120 13,604
Accrued licensees' share of gross profit.......................... 3,535 3,194
Line of credit.................................................... 18,750 --
Other accrued expenses............................................ 923 865
Income taxes payable.............................................. 568 809
Capitalized lease obligation...................................... 114 308
-------- --------
Total current liabilities.................................. 37,989 27,348
-------- --------
Commitments and contingent liabilities

Shareholders' equity:
Preferred Stock, $.01 par value; authorized 5,000 shares;
none outstanding.................................................
Class A Common Stock, $.01 par value; authorized 50,000 shares;
7,022 and 7,206 issued and outstanding at June 27, 1999 and
September 27, 1998, respectively................................ 70 72
Class B Non-Voting Common Stock, $.01 par value; authorized
4,530 shares; 1,804 issued and outstanding at June 27, 1999
and September 27, 1998.......................................... 18 18
Additional paid-in capital........................................... 32,034 34,732
Retained earnings.................................................... 38,469 27,615
-------- --------
Total shareholders' equity........................................... 70,591 62,437
-------- --------
$108,580 $ 89,785
======== ========

See accompanying notes to consolidated financial statements.

REMEDYTEMP, INC.

CONSOLIDATED STATEMENT OF INCOME
(amounts in thousands, except per share amounts)

Three Months Ended Nine Months Ended
------------------------- -------------------------
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
--------- --------- --------- ---------

Direct sales ........................... $ 70,415 $ 68,709 $ 199,584 $ 206,619
Licensed sales ......................... 57,678 43,938 161,552 125,204
Franchise royalties .................... 683 691 1,974 2,180
Initial license and franchise fees ..... 39 50 124 137
--------- --------- --------- ---------
Total revenues .................. 128,815 113,388 363,234 334,140
Cost of direct sales ................... 55,774 53,390 157,469 161,936
Cost of licensed sales ................. 43,012 32,556 120,133 93,351
Licensees' share of gross profit ....... 9,983 7,771 28,097 21,644
Selling and administrative expenses .... 12,687 13,251 37,757 39,118
Depreciation and amortization .......... 949 683 2,639 2,016
--------- --------- --------- ---------
Income from operations .......... 6,410 5,737 17,139 16,075
Other income:
Interest (expense) income, net ....... (182) 139 (172) 223
Other, net ........................... 206 175 681 866
--------- --------- --------- ---------
Income before provision for income taxes 6,434 6,051 17,648 17,164
Provision for income taxes ............. 2,477 2,511 6,794 7,123
--------- --------- --------- ---------
Net income ............................. $ 3,957 $ 3,540 $ 10,854 $ 10,041
========= ========= ========= =========

Net income per share, basic (Note 2) ... $ 0.45 $ 0.39 $ 1.22 $ 1.12
========= ========= ========= =========
Weighted-average number of shares ...... 8,825 8,984 8,871 8,954
========= ========= ========= =========

Net income per share, diluted (Note 2) . $ 0.45 $ 0.38 $ 1.22 $ 1.08
========= ========= ========= =========
Weighted-average number of shares ...... 8,838 9,412 8,923 9,297
========= ========= ========= =========

See accompanying notes to consolidated financial statements.

REMEDYTEMP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(amounts in thousands)

Nine Months Ended
-----------------------
June 27, June 28,
1999 1998
-------- --------

Cash flows provided by (used in) operating activities:
Net income ........................................ $ 10,854 $ 10,041
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................. 2,639 2,016
Provision for losses on accounts receivable ... 416 1,004
Deferred taxes ................................ (251) (2,250)
Changes in assets and liabilities:
Accounts receivable ......................... (6,012) (1,539)
Prepaid expenses and other current assets ... 104 (457)
Prepaid workers' compensation ............... (8,392) --
Other assets ................................ 105 24
Accounts payable ............................ (603) (1,539)
Accrued workers' compensation ............... (4,986) 2,210
Accrued payroll, benefits and related costs . (2,484) 125
Accrued licensees' share of gross profit .... 341 606
Other accrued expenses ...................... 58 (64)
Income taxes payable ........................ (241) (1,783)
-------- --------
Net cash (used in) provided by operating activities (8,452) 8,394
-------- --------
Cash flows used in investing activities:
Purchase of fixed assets .......................... (5,167) (7,454)
Purchase of franchises, net of assets acquired .... (59) (1,014)
-------- --------
Net cash used in investing activities ............. (5,226) (8,468)
-------- --------
Cash flows provided by financing activities:
Borrowings under line of credit agreement ......... 23,750 1,000
Repayments under line of credit agreement ......... (5,000) (1,000)
Repayments under capital lease obligation ......... (194) (306)
Proceeds from stock option activity ............... 23 646
Purchase of Company Common Stock .................. (2,957) --
Proceeds from Employee Stock Purchase Plan activity 234 313
-------- --------
Net cash provided by financing activities ......... 15,856 653
-------- --------
Net increase in cash and cash equivalents ........... 2,178 579
Cash and cash equivalents at beginning of period .... 450 5,128
-------- --------
Cash and cash equivalents at end of period .......... $ 2,628 $ 5,707
======== ========
Other cash flow information:
Cash paid during the period for interest .......... $ 272 $ 68
Cash paid during the period for income taxes ...... $ 7,286 $ 11,161

See accompanying notes to consolidated financial statements.

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share amounts)

1. Basis of Presentation

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

The accompanying consolidated balance sheet at June 27, 1999, and the
consolidated statements of income and of cash flows for the nine fiscal months
ended June 27, 1999 are unaudited. These statements have been prepared on the
same basis as the Company's audited consolidated 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 consolidated
financial position and results of operations for such periods. These unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements included in the Company's Form 10-K as filed
with the Securities and Exchange Commission on December 23, 1998.

2. Earnings Per Share Disclosure

Earnings per share is calculated as follows:

Three Fiscal Months Ended
-----------------------------------------------------------------------------------------
June 27, 1999 June 28, 1998
---------------------------------------------- ----------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amounts (Numerator) (Denominator) Amounts
----------- ------------- --------- ----------- ------------- ---------

BASIC EPS
Income available to common
shareholders.................. $3,957 8,825 $ 0.45 $3,540 8,984 $ 0.39
====== ======
EFFECT OF DILUTIVE SECURITIES
Stock options................. $ -- 13 $ -- 428
------ ----- ------ -----
DILUTED EPS
Income available to common
shareholders plus assumed
conversions................... $3,957 8,838 $ 0.45 $3,540 9,412 $ 0.38
====== ===== ======= ====== ===== ======

Nine Fiscal Months Ended
----------------------------------------------------------------------------------------
June 27, 1999 June 28, 1998
---------------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amounts (Numerator) (Denominator) Amounts
----------- ------------- --------- ----------- ------------- ---------

BASIC EPS
Income available to common
shareholders.................. $10,854 8,871 $ 1.22 $10,041 8,954 $1.12
======= =====
EFFECT OF DILUTIVE SECURITIES
Stock options................. $ -- 52 $ -- 343
------- ----- ------- -----
DILUTED EPS
Income available to common
shareholders plus assumed
conversions................... $10,854 8,923 $ 1.22 $10,041 9,297 $1.08
======= ===== ======= ======= ===== =====

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share amounts)

3. Line of Credit Renewal

On March 31, 1999, the Company renewed its revolving line of credit
agreement with Bank of America with renegotiated terms, providing for aggregate
borrowings and letters of credit of $40,000. Interest on outstanding borrowings
is payable monthly. The interest rate is the bank's reference rate minus up to
0.25%, based upon certain financial covenants or, at the Company's discretion,
LIBOR plus a range of 1.0% to 1.375%, based upon the financial covenants. The
line of credit is unsecured and expires on February 28, 2002. The Company
borrowed $18,750 under this agreement during April in connection with the
workers' compensation reinsurance contract discussed below.

4. Workers' Compensation Reinsurance

Effective April 1, 1999, the Company entered into a reinsurance
contract with Reliance National Insurance Company ("Reliance") whereby Reliance
assumed the Company's remaining deductible liability for all open claims
incurred during the period July 22, 1997 to March 31, 1999. Additionally, the
Company entered into a one-year fully insured workers' compensation program with
Reliance. This program has a fixed cost for payroll up to $295,000 and for
payroll exceeding $295,000, the premium is at a lesser rate than the base rate.
The Company paid the aggregate cost of both the reinsurance contract and the
one-year premium, a total of $18,873, to Reliance on April 16, 1999. If the
ultimate aggregate losses exceed current projections, the reinsurance contract
includes a provision for additional payments up to $700.

REMEDYTEMP, INC.

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

In addition to historical information, management's discussion and
analysis 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 the
Company. 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 Year 2000 issues, changes in
general or local economic conditions, the availability of sufficient personnel,
the Company's ability to attract and retain clients and franchisees/licensees
and other 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.

RESULTS OF OPERATIONS

For the Three Fiscal Months Ended June 27, 1999 Compared to the Three Fiscal
Months Ended June 28, 1998

Total revenues increased 13.6% or $15.4 million to $128.8 million for
the three fiscal months ended June 27, 1999 from $113.4 million for the three
fiscal months ended June 28, 1998. Direct revenues increased 2.5% to $70.4
million from $68.7 million, while licensed revenues increased 31.3% to $57.7
million from $43.9 million for the three fiscal months ended June 27, 1999 and
June 28, 1998, respectively. During the fiscal year ended September 27, 1998,
the Company elected not to renew a contract in which the client requested a
substantially reduced gross margin. As of December 1998, the Company
discontinued providing service to this high volume, low gross margin client,
which had primarily been serviced by the Company's direct offices. Excluding
this client, revenues at the direct offices increased 15.3% and total Company
revenue increased 21.8% for the three fiscal months ended June 27, 1999 compared
to the same period in the previous year. The expansion of business at existing
licensed offices as well as the opening of 12 new licensed offices since the
prior period account for the increase in licensed revenue. The Company's
management expects licensed revenue to continue to out-pace direct revenue
growth in the foreseeable future, due to projected office openings and the
average age of franchise offices being less than that of direct offices. The
Company's future revenue increases depend significantly on the Company's ability
to continue to attract new clients, retain existing clients, open new offices
and manage newly opened offices to maturity.

Total cost of direct and licensed sales, which consists of wages and
other expenses related to the temporary associates, increased 14.9% or $12.8
million to $98.8 million for the three fiscal months ended June 27, 1999 from
$85.9 million for the three fiscal months ended June 28, 1998. Such increase was
primarily due to increased revenues as discussed above. Total cost of direct and
licensed sales as a percentage of revenues was 76.7% for the three fiscal months
ended June 27, 1999 compared to 75.8% for the three fiscal months ended June 28,
1998. The increase is due in part to a shift in the mix of business to an
increased percentage of Light Industrial and Technical business, which tends to
have lower gross margins and an increase in workers' compensation rates. See
further discussion of workers' compensation in the Liquidity section. Many
factors, including increased wage costs or other employment expenses, could
adversely affect 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 generally is
based on the number of hours billed. In general, pursuant to terms of the
Company's franchise agreement for licensed offices executed prior to March 31,
1999, the Company's share of gross profit cannot be less than 7.5% of the
licensed operation sales, with the exception of national accounts on which the
Company's fee is reduced to compensate for lower gross margins. For franchise
agreements for licensed offices executed on or after April 1, 1999, the
Company's share of gross profit cannot be less than 8.75% of the licensed
operation's sales. Licensees' share of gross profit increased 28.5% or $2.2
million to $10.0 million for the three fiscal months ended June 27, 1999 from
$7.8 million for the three fiscal months ended June 28, 1998 due to increased
billings at existing licensed offices and to the opening of 12 new offices.
Licensees' share of gross profit as a percentage of total revenues increased to
7.7% for the three fiscal months ended June 27, 1999 from 6.9% for the three
fiscal months ended June 28, 1998 due to increased licensed revenue as a
percentage of total revenue, as discussed above. Licensees' share of gross
profit as a percentage of licensed gross profit remained relatively constant.

REMEDYTEMP, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

Selling, general and administrative expenses, including depreciation
and amortization, decreased 2.1% or $0.3 million to $13.6 million for the three
fiscal months ended June 27, 1999 from $13.9 million for the three fiscal months
ended June 28, 1998. Selling, general and administrative expenses as a
percentage of total revenues decreased to 10.6% for the three fiscal months
ended June 27, 1999 from 12.3% for the three fiscal months ended June 28, 1998.
This reduction was due in part to a decrease in profit sharing and bonus expense
to $709.8 for the three fiscal months ended June 27, 1999 compared to $1,514.7
for the three fiscal months ended June 28, 1998. In general, the Company has
continued to control growth in selling, general and administrative expenses by
tightening cost controls through budgetary analysis, implementing more stringent
hiring and compensation guidelines and variable compensation. 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.
Increases in these expenses could adversely affect the Company's profitability.

Income from operations increased 11.7% or $0.7 million to $6.4 million
for the three fiscal months ended June 27, 1999 from $5.7 million for the three
fiscal months ended June 28, 1998 due to the factors described above. Income
from operations as a percentage of revenues was 5.0% for the three fiscal months
ended June 27, 1999 compared to 5.1% for the three fiscal months ended June 28,
1998.

Net income increased 11.8% or $0.4 million to $4.0 million for the
three fiscal months ended June 27, 1999 from $3.5 million for the three fiscal
months ended June 28, 1998 due to the factors described above. Net income was
also favorably affected by a decrease in the Company's effective tax rate. The
lower rate reflects the expected tax savings from Work Opportunity Credits. As a
percentage of total revenues, net income remained constant at 3.1% for the three
fiscal months ended June 27, 1999 and the three fiscal months ended June 28,
1998. All revenues and results have been internally generated by the Company.

For the Nine Fiscal Months Ended June 27, 1999 Compared to the Nine Fiscal
Months Ended June 28, 1998

Total revenues increased 8.7% or $29.1 million to $363.2 million for
the nine fiscal months ended June 27, 1999 from $334.1 million for the nine
fiscal months ended June 28, 1998. Direct revenues decreased 3.4% to $199.6
million from $206.6 million, while licensed revenues increased 29.0% to $161.6
million from $125.2 million for the nine fiscal months ended June 27, 1999 and
June 28, 1998, respectively. As of December 1998, the Company discontinued
providing service to a high volume, low gross margin client for various reasons,
including the Company's strategic emphasis on maintaining acceptable gross
margin levels on all client accounts. Excluding this client, revenues at the
direct offices increased 11.9% and total Company revenue increased 18.7% for the
nine fiscal months ended June 27, 1999 compared to the same period in the
previous year. The increase in licensed revenue is due to the expansion of
business at existing licensed offices as well as the opening of 12 new licensed
offices since the prior period. The Company's management expects licensed
revenue to continue to out-pace direct revenue growth in the foreseeable future,
due to projected office openings and the average age of franchise offices being
less than that of direct offices. The Company's future revenue increases depend
significantly on the Company's ability to continue to attract new clients,
retain existing clients, open new offices and manage newly opened offices to
maturity.

Total cost of direct and licensed sales, which consists of wages and
other expenses related to the temporary associates, increased 8.7% or $22.3
million to $277.6 million for the nine fiscal months ended June 27, 1999 from
$255.3 million for the nine fiscal months ended June 28, 1998, due to increased
revenues as discussed above. Total cost of direct and licensed sales as a
percentage of revenues was 76.4% for the nine fiscal months ended June 27, 1999
and the nine fiscal months ended June 28, 1998. Many factors, including
increased wage costs or other employment expenses, could adversely affect the
Company's cost of direct and licensed sales.

Licensees' share of gross profit increased 29.8% or $6.5 million to
$28.1 million for the nine fiscal months ended June 27, 1999 from $21.6 million
for the nine fiscal months ended June 28, 1998 due to increased billings at
existing licensed offices and to the opening of 12 new offices. Licensees' share
of gross profit as a percentage of total revenues increased to 7.7% for the nine
fiscal months ended June 27, 1999 from 6.5% for the nine fiscal months ended
June 28, 1998 due to increased licensed revenue as a percentage of total
revenue, as discussed above. Licensees' share of gross profit as a percentage of
licensed gross profit remained relatively constant.

REMEDYTEMP, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

Selling, general and administrative expenses, including depreciation
and amortization, decreased 1.8% or $0.7 million to $40.4 million for the nine
fiscal months ended June 27, 1999 from $41.1 million for the nine fiscal months
ended June 28, 1998. Selling, general and administrative expenses as a
percentage of total revenues decreased to 11.1% for the nine fiscal months ended
June 27, 1999 from 12.3% for the nine fiscal months ended June 28, 1998. Bad
debt expense decreased $588.0 for the nine fiscal months ended June 27, 1999 as
compared to the nine fiscal months ended June 28, 1998 due to successful
collection and recovery efforts resulting in lower writeoffs and required
reserves. Also, profit sharing and bonus expense decreased to $2,891.4 for the
nine fiscal months ended June 27, 1999 compared to $4,346.5 for the nine fiscal
months ended June 28, 1998. In general, the Company has continued to control
growth in selling, general and administrative expenses by tightening cost
controls through budgetary analysis, implementing more stringent hiring and
compensation guidelines and the use of variable compensation. 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.
Increases in these expenses could adversely affect the Company's profitability.

Income from operations increased 6.6% or $1.1 million to $17.1 million
for the nine fiscal months ended June 27, 1999 from $16.1 million for the nine
fiscal months ended June 28, 1998 due to the factors described above. Income
from operations as a percentage of revenues was 4.7% for the nine fiscal months
ended June 27, 1999 compared to 4.8% for the nine fiscal months ended June 28,
1998.

Net income increased 8.1% or $0.8 million to $10.9 million for the nine
fiscal months ended June 27, 1999 from $10.0 million for the nine fiscal months
ended June 28, 1998 due to the factors described above. Net income was also
favorably impacted by a decrease in the Company's effective tax rate. The lower
rate reflects the expected tax savings from Work Opportunity Credits. As a
percentage of total revenues, net income remained constant at 3.0% for both the
nine fiscal months ended June 27, 1999 and the nine fiscal months ended June 28,
1998. All revenues and results have been internally generated by the Company.

Liquidity and Capital Resources

Cash used in operating activities was $8.5 million for the nine fiscal
months ended June 27, 1999 compared with cash provided by operating activities
of $8.4 million for the nine fiscal months ended June 28, 1998. Cash was
impacted primarily by transactions related to the workers' compensation policy
in fiscal 1999, as discussed below.

Effective April 1, 1999, the Company entered into a reinsurance
contract with Reliance National Insurance Company ("Reliance") whereby Reliance
assumed the Company's remaining deductible liability for all open claims
incurred during the period July 22, 1997 to March 31, 1999. Additionally, the
Company entered into a one-year fully insured workers' compensation program with
Reliance. This program has a fixed cost for payroll up to $295.0 million and for
payroll exceeding $295.0 million, the premium is at a lesser rate than the base
rate. The Company paid the aggregate cost of both the reinsurance contract and
the one-year premium, a total of $18.9 million, to Reliance on April 16, 1999.
If the ultimate aggregate losses exceed current projections, the reinsurance
contract includes a provision for additional payments up to $700,000.

The Company has a revolving line of credit agreement with Bank of
America providing for aggregate borrowings and letters of credit of $40.0
million. Interest on outstanding borrowings is payable monthly. The interest
rate is the bank's reference rate minus up to 0.25%, based upon certain
financial covenants or, at the Company's discretion, LIBOR plus a range of 1.0%
to 1.375%, based upon financial covenants. The line of credit is unsecured and
expires on February 28, 2002. The Company had $18.8 million outstanding under
its line of credit and $40,000 in undrawn letters of credit as of June 27, 1999.
The agreement governing the line of credit requires the Company to maintain
certain financial ratios and comply with certain restrictive covenants. The
Company is in compliance with these requirements.

Cash used for purchases of fixed assets was $5.2 million for the nine
fiscal months ended June 27, 1999, and $7.5 million for the nine fiscal months
ended June 28, 1998. The expenditures in fiscal 1999 primarily were associated
with leasehold improvements at direct offices and the Company's new management
information system. Upgrades of computers and hardware to support the new system
began in early calendar year 1999, and implementation of the related software
began in the third fiscal quarter of 1999. During the next twelve months, the
Company anticipates capital

REMEDYTEMP, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

expenditures associated with direct office openings and further investments in
the Company's computer-based technologies to approximate $5.0 million.

In connection with the Company's initial public offering (the
"Offering") in July 1996, the Company terminated its S corporation status and,
as a result, was required to change its overall method of accounting for tax
reporting purposes from the cash method to the accrual method, resulting in a
one-time net charge to earnings in the fourth quarter of fiscal 1996 of
approximately $7.8 million. The Internal Revenue Code allows the Company to
recognize the effects of this termination in its tax returns over a four-year
period. This resulted in additional quarterly installments of $750,000 in the
each of the three fiscal quarters of 1999 and 1998, respectively.

On October 2, 1998, the Board of Directors authorized the Company to
repurchase its outstanding Class A and/or Class B Common Stock in the open
market or in privately negotiated transactions at the prevailing market prices
not to exceed $5,000 in the aggregate. During the nine fiscal months ended June
27, 1999, the Company repurchased 202.9 Class A Common Stock shares at prices
ranging from $12.56 to $15.13, for a total of $2,957.

The Company is contemplating certain strategic acquisitions. Such
acquisitions may have an impact on liquidity depending on the size of the
acquisition.

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

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 in the process
of assessing the readiness of its systems for handling the Year 2000. The
Company is currently developing and implementing a 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 and that partial implementation of the new IT system will be completed
by the end of calendar year 1999. In conjunction with such partial
implementation of the new IT system, the Company has begun to modify its
existing IT systems to avoid a material impact on the Company's ability to
conduct business. Accordingly, the Company believes that partial implementation
of the new IT system, together with the modifications of the Company's current
IT systems, will allow the Company to operate on and after Year 2000 without a
material adverse effect on the Company's financial condition and results of
operations.

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 is
in the process of contacting its clients and material suppliers of products and
services to determine whether the suppliers' operations and the products and
services they provide are Year 2000 compliant and will evaluate 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.

REMEDYTEMP, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

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. The Company is in the process of
implementing a contingency plan effort to modify the Company's existing IT
systems to avoid a material impact on the Company's ability to conduct business
by using such IT systems on and after Year 2000. Currently, the Company
estimates that the total expected costs relating to this effort will be
$200,000.

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
partial implementation of the new IT system, which is believed to be Year 2000
compliant, together with the modification of the Company's current IT systems,
will allow the Company to operate on and after Year 2000 without a material
adverse effect on the Company's financial condition and results of operations.
The Company believes that its most reasonably likely worst case Year 2000
scenario is that certain functions of its new IT system are not implemented on
time and the Company's efforts to make Year 2000 modifications to the existing
IT systems fail. 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 continues to modify existing IT systems, which will allow
the Company to use such systems without a material adverse effect on the
Company's financial condition and results of operations before, on and after
Year 2000. The likely impact of Year 2000 failure 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. The Company
continues to evaluate strategies, including the use of certain available
resources, in formulating its contingency plans for failure of the existing IT
systems. Additionally, the Company is in the process of identifying and
contacting its franchisees, licensees, and the Company's material vendors and
clients and has formulated a system to understand such material third parties'
ability to continue providing services and products after the Year 2000,
including formulating contingency plans, where appropriate. However, the Company
can neither predict nor assure the successful outcome of such third parties'
remediation efforts.

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, and in some years a decline, 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.

REMEDYTEMP, INC.

PART II--OTHER INFORMATION

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 (a)

3.2 Amended and Restated Bylaws of the Company (h)

4.1 Specimen Stock Certificate (a)

4.2 Shareholder Rights Agreement (a)

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

10.2 Paul W. Mikos Employment Agreement

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 Alan M. Purdy Change in Control Severance Agreement

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 RemedyTemp, Inc. Amended and Restated 1996 Stock Incentive Plan(j)

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

10.13 Form of Franchising Agreement for Licensed Offices (h)

10.14 Form of Franchising Agreement for Franchised Offices (a)

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

10.18 Additional Deferred Compensation Agreement for Alan M. Purdy (b)

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

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

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

10.22 RemedyTemp, Inc. Deferred Compensation Plan (e)

10.23 Greg Palmer Employment Agreement (f)

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

10.25 Form of Licensing Agreement for i/search2000TM (h)

10.26 Credit Agreement among Bank of America National Trust and Savings
Association and RemedyTemp, Inc. (j)

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 Quarterly Report on Form 10-Q for the quarterly period
ended December 29, 1996.

(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 March 30, 1997.

(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 June 29, 1997.

(e) 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. This agreement was terminated March 31, 1999

(f) 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 27, 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 June 28, 1998.

(h) 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 27, 1998.

(i) 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 27,1998.

(j) 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 28,1999.

(b) Reports on Form 8-K.

No reports on Form 8-K were filed in the fiscal quarter ended March
1999.

REMEDYTEMP, INC.

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.

August 9, 1999 /s/ PAUL W. MIKOS
-------------------------------------
Paul W. Mikos, President and
Chief Executive Officer

August 9, 1999 /s/ ALAN M. PURDY
-------------------------------------
Senior Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)

REMEDYTEMP, INC.

EXHIBIT INDEX