10-K

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)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended October 2, 2005
or
o	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 Incorporation or Organization)	(I.R.S. Employer Identification No.)

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:

Title of Each Class

Class A Common Stock $0.01 par value

      Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes o         No þ

      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes o         No þ

      Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes þ         No o

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

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes þ         No o

      Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes o         No þ

      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 April 3, 2005 on the NASDAQ National Market was $62,215,402. The aggregate market value of the Class B Common Stock (which converts to Class A upon certain transactions) held by non-affiliates of the registrant based upon the closing sales price of its Class A Common Stock on April 3, 2005 on the NASDAQ National Market was $21,877.

      The number of shares of Class A Common Stock outstanding as of December 9, 2005 was 8,812,689 and the number of shares of Class B Common Stock outstanding as of December 9, 2005 was 798,188.

DOCUMENTS INCORPORATED BY REFERENCE

      The registrant will file a definitive Proxy Statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended October 2, 2005. 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, Items 10-14, of this report on Form 10-K. Except for the portions expressly incorporated by reference, the Company’s Proxy Statement shall not be deemed to be part of this report.

REMEDYTEMP, INC.

2005 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

		Page No.
PART I
Item 1.	Business		3
Item 1A.	Risk Factors		11
Item 1B.	Unresolved Staff Comments		14
Item 2.	Properties		14
Item 3.	Legal Proceedings		14
Item 4.	Submission of Matters to a Vote of Security Holders.		16
Executive Officers of the Registrant			17
PART II
Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities		17
Item 6.	Selected Financial Data		19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		36
Item 8.	Financial Statements and Supplementary Data		37
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		37
Item 9A.	Controls and Procedures		37
Item 9B.	Other Information		38
PART III
Item 10.	Directors and Executive Officers of the Registrant		38
Item 11.	Executive Compensation		38
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters		38
Item 13.	Certain Relationships and Related Transactions		39
Item 14.	Principal Accounting Fees and Services		39
PART IV
Item 15.	Exhibits and Financial Statement Schedule		39
Signatures			42
EXHIBIT 10.11
EXHIBIT 10.22
EXHIBIT 10.24
EXHIBIT 10.41
EXHIBIT 10.46
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

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      In addition to historical information, the description of business below, management’s discussion and analysis in Part II and other statements contained elsewhere in this Annual Report on Form 10-K include 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., including its wholly owned subsidiaries (collectively, 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 (certain of such statements are identified by the use of words such as “anticipate,” “believe,” “estimate,” “intend,” “plan,” “expect,” “will,” or “future”). Accordingly, the Company’s actual results may differ materially from those expressed or implied in any such forward-looking statements as a result of various factors, including, without limitation, the success of certain cost reduction efforts, the continued performance of the RemX® specialty business unit, the Company’s ability to realize improvements in the months ahead, changes in general or local economic conditions that could impact the Company’s expected financial results, the availability of sufficient personnel, various costs relating to temporary workers and personnel, including but not limited to workers’ compensation and state unemployment rates, the Company’s ability to expand its sales capacity and channels, to open new points of distribution and expand in core geographic markets, attract and retain clients and franchisees/licensees, the outcome of litigation, software integration and implementation, application of deferred tax assets and other factors described below, under “Risk Factors,” and elsewhere herein and in the Company’s filings with the Securities and Exchange Commission regarding risks affecting the Company’s financial condition 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.

(Unless otherwise noted all dollar amounts are in thousands, except for rent per sq. foot and per share amounts)

PART I

Item 1. Business

General

      RemedyTemp, Inc. (“Remedy” or the “Company”), founded in 1965 and incorporated in California in 1974, is a national provider of clerical, light industrial, information technology and financial temporary staffing services to industrial, service and technology companies, professional organizations and governmental agencies. The Company provides its services in 36 states, Puerto Rico and Canada through a network of 238 offices, of which 131 are Company-owned and 107 are independently managed franchises. During the fiscal year ended October 2, 2005, the Company placed approximately 110,000 temporary workers, known as “associates,” and provided approximately 38 million hours of staffing services to over 10,000 clients.

      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 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 also began servicing the information technology sector, and in fiscal year 2002 began servicing the financial and accounting sector. The clerical, light industrial, information technology and financial sectors comprise approximately 86% of the nation’s temporary staffing industry business, according to the American Staffing Association (“ASA”) whose member companies operate more than 15,000 offices across the nation and account for 85% of U.S. industry sales. The Company intends to continue focusing its efforts in these sectors. 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 its clients’ organizations and perform at a superior level distinguishes the Company as a premium provider of temporary staffing services and technologies.

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      The Company has invested significant human and financial resources in the development of proprietary selection, performance management and workforce management 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 interactive systems: Human Performance Technology (“HPT®”), an innovative series of multimedia evaluations used to profile the behavioral characteristics of the Company’s associates; Remedy Knowledge Bank^tmand RemX Verify^tm, exclusive web-based skill and knowledge assessment tools; Remedy X-Ray^tm, a self-screening system that identifies undesirable job candidates with integrity problems; i/Search 2000®, an integrated front office and back office database system that is used to pay temporary associates and bill clients as well as to classify, search and match the Company’s associates to job openings using parameters based upon client needs; Remedy Manager Match^tm and RemXFactor^tm, breakthrough performance management technologies that use personality assessments of client managers and the Company’s associates to provide the insight and information clients need to create more compatible, high-performance relationships; Information Control Center, a centralized 24/7 web-based environment where clients can access Remedy technologies, reports, order forms, procedures, contracts and instructional handbooks, allowing a client’s management team to propel productivity and enhance communication; and Employee Data Gathering and Evaluation (“EDGE®”), a proprietary workforce management system used by the Company at certain client locations to coordinate scheduling, track work time, job performance and generate customized utilization reports for the client’s entire temporary workforce. The EDGE® system is installed at the beginning of a temporary assignment and is removed upon completion of that assignment. The EDGE® system, including the related hardware, is the property of the Company. The Company’s integrated i/Search 2000® has enabled its Company-owned and independently managed offices to streamline operational efficiencies and enhance client service levels.

      Additionally, the Company provides master vendor and on-site management programs to its clients in an effort to streamline the management of the temporary workforce and reduce the overall costs. As a master vendor, Remedy provides clients with centralized order processing, sub-contractor management and regular business reviews to track performance. The on-site management program provides a dedicated representative “on-site” at the client location to manage Remedy’s temporary workforce including developing, coordinating and managing associate orientation, order fulfillment, payroll tracking and other personnel issues.

      Management believes that the Company’s proprietary technologies and workforce management programs give the Company advantages over competing temporary staffing companies that do not provide similar value-added services.

      Copies of the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed with the Securities and Exchange Commission (“SEC”) are available, free of charge, on our website, www.remedytemp.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information contained on the website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this report.

The Staffing Industry

      According to Staffing Industry Analysts, Inc. (“SIA”), an independent staffing industry publication, temporary staffing revenues for 2004 were $82.0 billion, 11% more than in the previous year and nearly on par with the industry’s prior peak year in 2000. In 2005, total U.S. staffing industry revenue is projected to increase 9.1% to $89.5 billion. Similarly, after dropping for several years, direct-hire revenues are estimated to increase about 24% in 2005 to an estimated $17.8 billion. Historically, the temporary staffing industry has experienced its greatest growth during economic recoveries. Fiscal year 2004 showed signs of stronger growth as evidenced not only by the Company’s revenue growth, but growth throughout the staffing industry. During fiscal year 2005, the industry continued to grow, but at a slightly slower rate.

      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

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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 business entities 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. Flexible staffing alternatives allow businesses to respond quickly and aggressively to changing market conditions which many economists and analysts believe is critical to future economic growth.

      Additionally, it is widely accepted by economists that temporary staffing also encourages greater work force participation, which is critical as the U.S. faces a labor shortage. Temporary staffing provides employment flexibility and options to people who might otherwise choose not to work. Flexible work arrangements offer choices that fit the diverse needs and preferences of potential employees thereby contributing to increased participation and enhanced productivity. These along with various other economic and social factors, have increased the help supply services employment rate from 1.1% of the non-farm U.S. workforce in 1990 to 1.9% in 2004, according to U.S. Department of Labor statistics. The ASA estimates that the average daily employment in temporary help services approximated 2.6 million nationwide in 2004.

      The clerical, light industrial, information technology and financial sectors represent the largest four sectors of the temporary staffing industry. A staffing industry report by SIA, based on 2004 revenues, reported that the office and clerical sector accounted for $20.0 billion or approximately 24.4% of the temporary staffing industry revenues, the light industrial sector accounted for $19.8 billion or approximately 24.1% of industry revenues, the technical/ information technology sectors accounted for $15.8 billion or approximately 19.3% of industry revenues, and the financial sector accounted for $8.7 billion or approximately 10.6% of industry revenues. Historically, the overall growth in temporary staffing revenues has resulted primarily from growth in these four sectors. While all sectors in the temporary staffing industry experienced contraction in 2002 and 2003, industry reports currently show growth in 2004 and continuing in 2005.

Operations

      The Company provides temporary personnel and direct-hire services. Subsequent to the fiscal year ended October 2, 2005, the Company has started analyzing its business in two segments: Commercial and Specialty. In turn, these segments provide services to the Industrial, Clerical, Professional and Information Technology business sectors.

Commercial Segment

      The Company provides commercial staffing services in the light industrial and clerical sectors through 61 Company-owned offices and 107 independently managed offices.

      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).

      The Company also provides workforce solutions for clients’ logistics staffing needs, including distribution and fulfillment. Logistics is the management of inventory, and includes transportation, distribution and supply of goods. The Company supplies temporary associates in the following categories: inventory takers, material processors, boxers, mail clerks, expediters and inventory control clerks.

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

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center agents, including customer service, help desk/product support, order takers, market surveyors, collection agents and telesales.

Specialty Segment

      The Company provides specialty staffing services in the areas of high-level clerical and office staffing, information technology, finance and accounting through both its Talent Magnet™ and RemX® business unit. The Talent Magnet™ and RemX® divisions and brands are exclusively Company-owned operations. The Company now operates 33 offices within the Talent Magnet™ business unit and 37 offices within the RemX® business unit in the following specialty areas:

      Business Services. The Company’s newest division, Talent Magnet®, was launched during fiscal year 2005 to complement RemX® Office Staff, by reinforcing the commitment to build brands that focus on the higher margin business sectors. These two business units specialize in the recruitment and placement of high level administrative support personnel, including administrative assistants, office managers, sales associates, marketing representatives, human resource specialists, customer care representatives and corporate receptionists on a temporary, temp-to-hire or direct-hire basis. The Company currently has 33 Talent Magnet® offices of which 27 offices have been converted to the Talent Magnet® by Remedy brand and 5 RemX® OfficeStaff offices.

      Information Technology Services. In November 1998, the Company began providing information technology temporary staffing and consulting services under the name RemX Technology Group®. RemX Technology Group®, now known as RemX® IT Staffing, supplies contract staffing and consulting professionals on a temporary, temp-to-hire or direct-hire basis in key technology categories including hardware and software engineering, database design development, application development, Internet/ Intranet site development, networking, software quality assurance and technical support. The Company currently has 12 RemX® IT Staffing offices.

      Financial Staffing Services. RemX® Financial Staffing was launched during fiscal year 2002 with ten office openings. RemX® Financial Staffing is a highly specialized division focusing on placing financial and accounting personnel in key positions within the financial sector. RemX® Financial Staffing provides its clients with controllers, financial analysts, certified public accountants, auditors, senior/staff accountants and a variety of other positions on a temporary, temp-to-hire or direct-hire basis. The Company currently has 20 RemX® Financial Staffing offices.

      Office Organization. The Company provides its services through a network of 238 office locations, 131 of which are owned and operated by the Company and 107 of which are operated as independently managed franchised offices. The table below sets forth the geographic distribution of the Company-owned and independently managed offices as of October 2, 2005.

					Independently Managed
	Company-Owned Offices				Franchised Offices
									Total
	Commercial		Specialty		Traditional		Licensed		Offices
California		41		31		—		1		73
Western Region(1)		3		5		4		16		28
Midwestern Region(2)		3		4		4		31		42
Southeastern Region(3)		14		17		3		35		69
Northeastern Region(4)		—		13		—		11		24
Puerto Rico		—		—		—		1		1
Canada		—		—		—		1		1
Total		61		70		11		96		238

(1)	Includes Arizona, Colorado, Hawaii, Idaho, Nevada, Oregon, Utah and Washington.
(2)	Includes Illinois, Indiana, Iowa, Michigan, Missouri, Nebraska, Ohio and Wisconsin.

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(3)	Includes Arkansas, Florida, Georgia, Kentucky, Louisiana, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia.
(4)	Includes Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New Hampshire, New York, Pennsylvania and the District of Columbia.

      Company-Owned Offices. The Company-owned offices provide clerical, light industrial, information technology and financial staffing and are primarily concentrated in California, with locations in 17 other states and the District of Columbia. These offices are organized into eight divisions; managed by an Operational Vice President and other regional staff who provide operational support for the offices in their regions. Company-owned offices are organized into different matrices based upon geographic location and/or service offerings. Each matrix has a manager who is accountable for the day-to-day operations and profitability of the offices within that matrix.

      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 this 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 $2.4 million and $2.6 million for fiscal years 2005 and 2004, respectively. The concentration of Company-owned offices in certain geographic areas 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, light industrial, information technology and financial staffing offices, allowing each to specialize and further penetrate its market.

      Independently Managed Franchised Offices. Independently managed franchised offices provide clerical and light industrial services and have been an important element of the Company’s growth strategy for more than a decade. Such offices have enabled the Company to expand into new markets with highly qualified franchisees without significant capital expenditures. The majority of the Company’s offices outside California are independently managed franchises. Franchise agreements generally have ten-year terms and are renewable for successive five-year or ten-year terms, depending upon when such agreements originated. Such agreements cover exclusive geographic territories and contain minimum revenue performance standards. The Company’s franchise agreements are structured in either a “traditional” franchise format or a “licensed” franchise format.

      In general, the franchise offices opened from 1987 to 1990 are operated as traditional franchises, and independently managed offices opened since 1990 are operated as licensed franchise offices. The Company moved from the traditional to the licensed franchise format to exercise more control over the collection and tracking of the receivables generated by the independently managed offices and to allow the Company to grow without being limited by the financial resources of traditional franchisees. Accordingly, the number of traditional franchise offices is not anticipated to increase, except in certain circumstances when a licensed franchise office may convert to the traditional franchise format. Additionally, existing traditional franchisees have the option under their contract to open new franchise offices within their territory. The number of licensed franchise offices is expected to increase because new independently managed offices will be opened in licensed franchise format and offices currently operated as traditional franchises may, depending upon various factors, convert to the licensed franchise format. If the number of traditional franchise offices is reduced, royalty revenues will decrease.

      Traditional Franchises. The Company employed a traditional franchise model primarily from 1987 until 1990 (referred to as both “traditional franchise” and “traditional franchisee”). As of October 2, 2005, 11 of the Company’s 107 independently managed offices were traditional franchises. These traditional franchisees pay all lease and working capital costs, fund payroll and collect clients’ accounts. Generally, traditional franchisees pay the Company an initial franchise fee and continuing franchise fees, or royalties, equal to approximately 7.0% of gross billings. Royalty fees are reduced when the franchisee serves a national client as

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these clients typically have lower margins and for franchisees that have renewed their franchise agreement and qualify for a discounted rate (ranging from 5.5% - 6.5%) based on gross billings. Traditional franchisees employ all office management staff and all temporary personnel affiliated with their offices. The Company provides training, the right to use certain designated service marks and trademarks, its business model, proprietary computer programs, as well as operational support. Material rights and terms of the form of the franchise agreement for traditional franchise offices include the right to operate a Remedy franchise business within an exclusive geographic territory, a non-exclusive license of the Remedy trademarks and service marks designated for use and operation of the franchised business, disclosure and use of Remedy’s trade secrets and operating guidance from Remedy. Furthermore, pursuant to the terms of the form of franchise agreement for traditional franchise offices, franchisees shall indemnify Remedy from any liability that may arise in connection with the franchised business and must comply with certain minimum performance standards and operating procedures. The Company no longer offers this form of franchise agreement to prospective franchisees.

      Licensed Franchises. Since 1990, the Company has recruited new franchisees under the licensed franchise format (referred to as “licensed franchise,” “licensed franchisee” and/or “licensee”). The Company moved from the traditional franchise to the licensed franchise 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 traditional franchisees. As of October 2, 2005, 96 of the Company’s 107 independently managed office locations were licensed franchise offices. The licensed franchise format differs from the traditional franchise format in that the licensee employs all management staff affiliated with its office, but the Company employs all temporary personnel affiliated with the licensed franchise office. The Company funds payroll of the temporary associates, collects clients’ accounts and remits to the licensee 60%-75% of the office’s gross profit, based upon the level of hours billed during the licensee’s contract year. However, the Company’s share of the licensee’s gross profit, representing its continuing franchise fees, is generally not less than 7.5% of the licensee’s gross billings; with the exception of national accounts on which the Company’s fee is reduced to compensate for lower gross margins and for licensees that have renewed their franchise agreement and qualify for a discounted rate (ranging from 6.0% - 7.0%) based on gross revenues. Material rights and terms of the form of the franchise agreement for licensed offices include the right to operate a Remedy franchise business within an exclusive geographic territory, a non-exclusive license of the Remedy trademarks and service marks designated for use and operation of the franchised business, disclosure and use of Remedy’s trade secrets and operating guidance from Remedy. Furthermore, pursuant to the terms of the form of franchise agreement for licensed offices, licensees shall indemnify Remedy from any liability that may arise in connection with the franchised business and must comply with certain minimum performance standards and operating procedures. Currently, the Company only offers this form of franchise agreement to prospective franchisees.

      Generally, licensed franchisees pay the Company an initial franchise fee of $10-$25 and continuing franchise fees consist of the Company’s share of the licensee’s gross profit as discussed above. Licensed franchise agreements entered into subsequent to January 2002 provide for deferred payment of a portion of the initial franchise fee. Currently, the initial investment for a licensed franchise business is estimated to be $109-$236 as disclosed in the Company’s Uniform Franchise Offering Circular (“UFOC”) to be issued by December 31, 2005, in accordance with Federal Trade Commission regulations. As outlined in the UFOC, this estimated initial investment includes the initial franchise fee payable to the Company, as well as estimated expenditures to various vendors for pre-operating costs and operating costs for the initial six months of operation. Continuing franchise fees are excluded from the total estimated initial investment.

      Acquisitions and Office Closures. From time to time, the Company may selectively purchase traditional and licensed franchise operations for strategic reasons, including facilitating its expansion plans of increased market presence in identified geographic regions. The Company continually reassesses its current operating structure and in view of its strategic plans will consolidate or close certain Company-owned offices.

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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. Historically, the second fiscal quarter shows 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. In the second fiscal quarter, gross margins have historically been lower with the affect of state unemployment insurance taxes resetting with the start of the new calendar year.

Clients

      The Company serves the needs of small, mid-size and Fortune 500 businesses in a variety of industries. During fiscal years 2005 and 2004, the Company serviced over 10,000 clients nationwide. The Company’s ten highest volume clients in fiscal years 2005 and 2004 accounted for 22.0% and 23.4%, respectively, of the Company’s total revenues. No single client accounted for more than 3.7% and 4.1% of the Company’s total revenues for fiscal years 2005 and 2004, respectively.

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 S.A., Kelly Services, Inc., Manpower Inc., Spherion Corporation and Labor Ready. These and other large competitors have nationwide operations with 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 mid-sized firms that are regional or emphasize specialized niches and compete with the Company in certain markets where they have a stronger presence. Numerous small or single-office firms compete effectively with the Company’s offices in their limited areas. In the information technology and financial sectors, the Company believes that its competitors include MPS Group, Inc., Robert Half International, Inc., Adecco S.A., Alternative Resources Corporation, On Assignment, Inc., KForce, Comsys and CDI Corporation.

      The Company’s management believes that the most important competitive factors in obtaining and retaining its targeted clients are understanding the customer 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 national, regional and local providers, and there is no assurance that the Company will be able to maintain or increase its market share or profitability.

Workers’ Compensation

      Remedy provides workers’ compensation insurance to its temporary associates and colleagues. Effective April 1, 2001 and for workers’ compensation claims originating in the majority of states (referred to as non-monopolistic states), the Company has contracted with independent, third-party carriers for workers’ compensation insurance and claims administration. Each annual contract covers all workers’ compensation claim costs greater than a specified deductible amount on a “per occurrence” basis. The Company is self-insured for its deductible liability ($250 per individual claim incurred from April 1, 2001 to March 31, 2002 and $500 for all subsequent periods). The insurance carrier is responsible for incremental losses in excess of the applicable deductible amount.

      Remedy establishes a reserve for the estimated remaining deductible portion of its workers’ compensation claims, representing the estimated ultimate cost of claims and related expenses that have been reported but not settled, and that have been incurred but not reported. The estimated ultimate cost of a claim is determined

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by applying actuarially determined loss development factors to current claims information. These development factors are determined based upon a detailed actuarial analysis of historical claims experience of both the Company and the staffing industry. The Company periodically updates the actuarial analysis supporting the development factors utilized and revises those development factors, as necessary. Adjustments to the claims reserve are charged or credited to expense in the periods in which they occur. The estimated remaining deductible liability under the aforementioned contracts as of October 2, 2005 is approximately $38,281, of which, $11,974 is recorded as current and $26,307 is recorded as non-current in the accompanying consolidated balance sheets.

      The Company also has an aggregate $2,552 and $2,677 current liability recorded at October 2, 2005 and October 3, 2004, respectively, for amounts due to various state funds related to workers’ compensation. The following table presents the classification of the Company’s workers’ compensation liability, accrued California Insurance Guarantee Association (“CIGA”) litigation and other liabilities:

			For the Fiscal
			Years Ended
			October 2,		October 3,
			2005		2004
Current
	Liability for various state funds and previous guaranteed cost policies		$	2,552	$	2,677
	Accrued workers’ compensation			11,974		12,359
		Accrued workers’ compensation	$	14,526	$	15,036
Long-term
	Other liabilities		$	116	$	300
	Accrued CIGA litigation costs			5,877		5,877
	Accrued workers’ compensation			26,307		24,090
		Other liabilities	$	32,300	$	30,267

      The Company is contractually required to collateralize its remaining obligation under each of these workers’ compensation insurance contracts through the use of irrevocable letters of credit, pledged cash and securities or a combination thereof. The level and type of collateral required for each policy year is determined by the insurance carrier at the inception of the policy year and may be modified periodically. As of October 2, 2005, the Company had outstanding letters of credit of $36,538 and pledged cash and securities of $21,889 as collateral for these obligations. The pledged cash and securities are restricted and cannot be used for general corporate purposes while the Company’s remaining obligations under the workers’ compensation program are outstanding. At the Company’s discretion and to the extent available, other forms of collateral may be substituted for the pledged cash and securities. The Company has classified these pledged cash and securities as restricted in the accompanying consolidated balance sheets.

      From July 22, 1997 through March 31, 2001, the Company had a fully insured workers’ compensation program with Reliance National Insurance Company (“Reliance”). The annual premium for this program was based upon actual payroll costs multiplied by a fixed rate. Each year, the Company prepaid the premium based upon estimated payroll levels and an adjustment was subsequently made for differences between the estimated and actual amounts. Subsequent to March 31, 2001 (the end of Company’s final policy year with Reliance), Reliance became insolvent and was subsequently liquidated. The Company is currently in litigation with the California Insurance Guaranty Association regarding financial responsibility for all remaining open claims under the Reliance workers’ compensation program. The Company recorded a $5,877 charge to operating income during the fourth quarter of fiscal year 2004 as a result of the October 2004 Court of Appeal’s decision (See Item 3. Legal Proceedings and Note 8 to the consolidated financial statements).

10

Employees

      As of October 2, 2005, the Company employed a staff of approximately 620 individuals (excluding temporary associates). During fiscal year 2005, approximately 110,000 temporary associates were placed by the Company through Company-owned and independently managed franchised offices. Approximately 58,000 of the temporary associates were employed by Company-owned offices and approximately 47,000 were employed by the Company, through licensed franchise offices. Approximately 5,000 of the temporary associates were placed by traditional franchise offices and as such are not employed by the Company but rather are legal employees of the traditional franchisees. At any given time during fiscal year 2005 only a portion of these employees were placed on 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 are regulated by the Federal Trade Commission and by authorities in 19 states. In those states, the Company is required to file a registration application, provide notice or qualify for an exemption from registration. The Company has filed, or is in the process of filing, the appropriate registration applications, or has obtained an exemption from such registration requirements. The Company files and distributes to prospective franchisees 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 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®, EDGE® and i/Search 2000® computer systems. These and other 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 following trademarks and service marks with the U.S. Patent & Trademark Office for use in its operation: REMEDY®, REMEDY TEMPORARY SERVICES®, REMEDYTEMP®, REMEDY TECHNICAL®, CALLER ACCESS®, INTELLIGENT STAFFING®, HIRE INTELLIGENCE®, EDGE®, VSM®, HPT®, THE INTELLIGENT TEMPORARY®, REMEDY LOGISTICS GROUP®, REMX TECHNOLOGY GROUP®, REMX®, REMX® Financial Staffing, REMX® IT Staffing, AXCESS INTERACTIVE CUSTOMER CARE®, RECRUITRAC®, I/SEARCH 2000®, MAPS® and REMX® OfficeStaffing. In addition, the Company asserts ownership of, and has filed applications with the U.S. Patent & Trademark Office to register the service mark MEGABLAST^SM, REMX Verify^TM, Manager Match^TM, Remedy Talent Magnet™, Talent Magnet^TM and Remedy Knowledge Bank™. In general, these marks are used by the Company and its licensees and franchisees, except that REMX TECHNOLOGY GROUP®, REMX®, REMX® Financial Staffing, REMX® IT Staffing, and REMX® OfficeStaff are used exclusively by the Company.

Item 1A.     Risk Factors

      In evaluating Remedy’s business, one should carefully consider the following risk factors in addition to information contained elsewhere in this Annual Report on Form 10-K.

Any significant economic downturn could result in our clients using fewer temporary employees, which could materially adversely affect the Company.

      Demand for temporary services is significantly affected by the general level of economic activity. As economic activity slows, businesses may reduce their use of temporary employees before undertaking layoffs of their full-time employees, resulting in decreased demand for Remedy’s temporary personnel. Further, in an economic downturn, the Company may face pricing pressure from its clients and increased competition from other staffing companies, which could have a material adverse effect on the Company’s business. The overall slowdown in the U.S. economy in 2001 and 2002 had a significant adverse impact on the Company’s revenues. Additionally, because the Company currently derives a significant portion of its revenues from the California

11

market (approximately 39.4% in fiscal year 2005), an economic downturn in California would have a greater impact on the Company than if the Company had a more widely dispersed revenue base.

Remedy operates in highly competitive markets with low barriers to entry, potentially limiting its ability to maintain or increase its market share or profit margins.

      The temporary services industry is highly competitive with limited barriers to entry and in recent years has been undergoing significant consolidation. The Company competes in national, regional and local markets with full service agencies and with specialized temporary service 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 maintain or increase their market share by reducing prices. The Company expects the level of competition to remain high in the future and competitive pricing pressures may have an adverse effect on the Company’s operating margins.

Remedy’s success depends upon its ability to attract and retain qualified temporary personnel.

      Remedy depends upon its ability to attract qualified temporary personnel who possess the skills and experience necessary to meet the staffing requirements of its clients. Remedy must continually evaluate and upgrade its base of available qualified personnel to keep pace with changing client needs and emerging technologies. Competition for individuals with proven skills is intense and demand for these individuals is expected to remain very strong for the foreseeable future. There can be no assurance that qualified personnel will continue to be available to Remedy in sufficient numbers and on terms of employment acceptable to the Company. Remedy’s success will depend on its ability to recruit qualified temporary personnel and retain them.

Remedy’s business may suffer if it loses its key personnel.

      Remedy’s operations are dependent on the continued efforts of its executive officers and senior management. Additionally, Remedy is dependent on the performance and productivity of its local managers, field personnel, franchisees and licensees. Remedy’s ability to attract and retain business is significantly affected by local relationships and the quality of service rendered. The loss of those key executive officers and senior management who have acquired experience in operating a staffing service company may cause a significant disruption to Remedy’s business. Moreover, the loss of Remedy’s key local managers, field personnel or certain franchisees or licensees may jeopardize existing customer relationships with businesses that continue to use Remedy’s staffing services based upon past direct relationships with these local managers, field personnel, franchisees and licensees. Either of these types of losses could adversely affect Remedy’s operations, including Remedy’s ability to establish and maintain customer relationships.

Remedy may be exposed to employment-related claims and costs that could materially adversely affect its business.

      Remedy is in the business of employing people and placing them in the workplace of other businesses. Attendant risks of these activities include possible claims by clients of employee misconduct or negligence, claims by employees of discrimination or harassment (including claims relating to actions of Remedy’s clients), claims related to the inadvertent employment of illegal aliens or unlicensed personnel, payment of workers’ compensation claims and other similar claims. Remedy has policies and guidelines in place to help reduce its exposure to these risks and has purchased insurance policies against certain risks in amounts that it believes to be adequate. However, there can be no assurances that Remedy will not experience these problems in the future or that Remedy may not incur fines or other losses or negative publicity with respect to these problems that could have a material adverse effect on Remedy’s business.

The cost of unemployment insurance premiums and workers’ compensation costs for Remedy’s temporary employees may rise and reduce Remedy’s profit margins.

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      Businesses use temporary staffing in part to shift certain employment costs and risks to personnel services companies. For example, Remedy is responsible for, and pays unemployment insurance premiums and workers’ compensation for, its temporary employees. These costs have generally risen as a result of increased claims, general economic conditions and governmental regulation. There can be no assurance that Remedy will be able to increase the fees charged to its clients in the future to keep pace with increased costs. Price competition in the personnel services industry is intense. If Remedy is unable to maintain its margins, it expects that it may choose to stop servicing certain clients. Further, there can be no assurance that certain clients will continue to use Remedy at increased cost. There can be no assurance that Remedy will maintain its margins, and if it does not; its results of operations, financial condition and liquidity could be adversely affected.

      In late 2003, the Company was notified by the State of California Employment Development Department that the Company allegedly underpaid its state unemployment insurance by approximately $2,000 for the period January 1, 2003 through September 30, 2003. Based on its evaluations and after consultation with outside counsel, the Company believes that the methodology the Company used to calculate these taxes was in compliance with applicable law. The Company is currently working with outside counsel to resolve these matters. As of October 2, 2005, the Company has accrued $983 in connection with the potential settlement of these payroll-related tax matters.

      Remedy retains a portion of the risk under its workers’ compensation program. The estimated remaining deductible liability for all existing and incurred but not reported claims is accrued based upon actuarial methods using current claims information, as well as prior experience, and may be subsequently revised based on new developments related to such claims. Changes in the estimates underlying the claims reserve are charged or credited to earnings in the period determined, and therefore large fluctuations in any given quarter could materially adversely affect earnings in that period.

      The Company is contractually required to maintain irrevocable letters of credit and pledged cash and securities, currently aggregating $36,538 and $21,889, respectively, to collateralize its remaining recorded obligations under these workers’ compensation insurance contracts. Remedy expects the amount of collateral required will continue to increase. In the event that Remedy loses its current credit facilities, or cash flow and borrowing capacity under the existing credit facilities are insufficient to meet this increasing obligation, the Company will be required to seek additional sources of capital to satisfy its liquidity needs which could have a material adverse effect on the Company’s business.

Remedy derives a significant portion of its revenues from licensed franchised operations.

      The Company derives a substantial amount of its revenues (37.4% in fiscal year 2005) from licensed franchise operations. The ownership of the Company’s licensed franchise offices is concentrated, with the ten largest licensed franchisees together accounting for 18.7% of the Company’s revenues in fiscal year 2005. There can be no assurance that the Company will be able to attract new franchisees or that the Company will be able to retain its existing franchisees. The loss of one or more of these relationships, or other franchisees 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.

The Company is continually subject to the risk of new regulations, which could harm its business.

      The Company is subject to bills introduced in Congress and various state legislatures, which, if enacted, could impose conditions that could have a negative financial impact on the Company and harm its business operations. Remedy takes an active role (through its affiliations with, and participation in, various staffing industry organizations) in opposing proposed legislation adverse to its business and in informing policy makers as to the social and economic benefits of its business. However, there can be no assurance or guarantees that any of these bills (or future bills) will not be enacted, in which case, demand for the Company’s services or its financial condition, or both, may suffer.

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The Company faces litigation that could have a material adverse effect on its business, financial condition and results of operations.

      In the ordinary conduct of business, the Company is subject to various lawsuits, investigations and claims, covering a wide range of matters, including, but not limited to, employment matters. It is possible that the Company may be required to pay substantial damages or settlement costs in excess of its insurance coverage, which could have a material adverse effect on its financial condition or results of operations. The Company could also incur substantial legal costs, and management’s attention and resources could be diverted from the business (See Item 3. Legal Proceedings).

Item 1B. Unresolved Staff Comments

      None.

Item 2. Properties

      The Company does not own any real property. The Company leases its corporate headquarters in Aliso Viejo, California, from RREEF America REIT II Corp. FFF. The lease agreement, as amended, provides for leased premises, totaling approximately 51 thousand square feet in size, at a fixed rate of $1.80 per square foot per month until September 30, 2007 and $2.05 per square foot per month from October 1, 2007 until September 30, 2010. 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, 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 for an additional term of five years. The Company moved into its current corporate headquarters in September 1998, and the initial term of its lease, as amended, expires on September 30, 2010.

      As of October 2, 2005, the Company leased the space occupied by all of its Company-owned offices. The Company selects the sites for these offices by evaluating proximity to potential clients and available temporary personnel. The Company-owned office lease agreements generally provide for terms of three to five years. The inability to renew all or a majority of the leases on similar or favorable terms to the Company could have a material impact on the financial condition of the Company. The Company assists its franchisees 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

Litigation

Lindsay Welch-Hess v. Remedy Temporary Services, Inc.

      Commencing in March 2003, the Company was sued in an action entitled Lindsay Welch-Hess v. Remedy Temporary Services, Inc. in San Diego Superior Court. The complaint sought damages under various employment tort claims, including sexual harassment and retaliation stemming from a four-day employment relationship. The complaint also sought damages for unpaid wages under the California Labor Code. The plaintiff later amended the complaint to assert class claims for unpaid wages with respect to certain aspects of the application process. The complaint asserted additional class claims alleging failure to compensate persons assigned to one of Remedy’s clients.

      In November 2004, the Court certified a class consisting of all persons in California who, since October 1999, have applied to the Company for placement in a temporary job, regardless of whether they were ever placed in a temporary assignment by the Company (the “Remedy class”). The Court certified a second class consisting of all persons in California who, since October 1999, were hourly employees hired by Remedy and assigned to a particular client (the “training class”). On February 11, 2005, the Company filed two motions for summary judgment related to the Remedy class and the training class.

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      On May 31, 2005, the Court denied, in part, the Company’s motion for summary judgment related to the Remedy class, which allows that class to pursue the claim for unpaid compensation. On June 27, 2005, the Company filed a writ in Division One of the Fourth Appellate District seeking an order vacating the denial of Remedy’s summary judgment motion related to the Remedy class. On September 27, 2005, the Court of Appeal denied the writ. Subsequently, the Company filed a Petition for Review before the California Supreme Court, which was summarily denied.

      On July 27, 2005, plaintiffs filed an appeal challenging the following two court orders relating to the Remedy class: (1) the order denying class certification as to the tenth cause of action (failure to pay wages upon termination/resignation); and (2) the portion of the Court’s ruling on Remedy’s summary judgment, which prohibits individuals who completed Remedy’s application process but never worked for Remedy from class membership. The Company has filed a motion to dismiss, which has not yet been heard.

      On July 29, 2005, the Court granted Remedy’s motion for summary judgment related to the training class and allowed plaintiffs to recover attorneys’ fees. Plaintiffs filed a motion for reconsideration on various issues, which was denied.

      On September 27, 2005, plaintiffs appealed the Court’s order relating to Remedy’s motion for summary judgment of the training class, but it is unclear at this time what specific aspects of that order are being appealed by plaintiffs. Plaintiffs’ opening brief is due on December 16, 2005. Plaintiffs have also filed a motion to bifurcate the various individual tort claims from the class claims. That motion has not yet been heard.

      The Company intends to vigorously defend this case. At this time, the Company has not established an accrual for this matter because the probability of an unfavorable outcome cannot currently be reasonably estimated.

CIGA

      In early 2002, as a result of the liquidation of Remedy’s former workers’ compensation insurance carrier, Reliance National Insurance Company (“Reliance”), the California Insurance Guarantee Association (“CIGA”) began making efforts to join some of the Company’s clients and their workers’ compensation insurance carriers (collectively, “Clients”), in pending workers’ compensation claims filed by Remedy employees. At the time of these injuries, from July 22, 1997 through March 31, 2001, Remedy was covered by workers’ compensation policies issued by Reliance. The Company believes that under California law, CIGA is responsible for Reliance’s outstanding liabilities. On April 5, 2002, the California Workers’ Compensation Appeals Board (“WCAB”), at Remedy’s request, consolidated the various workers’ compensation claims in which CIGA sought to join Remedy’s Clients, and agreed to stay proceedings on those claims pending resolution of the issue of CIGA’s obligations to satisfy Reliance’s obligations to Remedy’s employees. The WCAB selected a single test case from the consolidated pending cases in which to decide whether CIGA is responsible for the claims of Remedy’s employees, or can shift such responsibility to the Clients. The trial occurred on September 20, 2002. The WCAB Administrative Law Judge ruled in favor of CIGA, thus allowing the pending workers’ compensation matters to proceed against the Clients. Remedy then filed a motion for reconsideration of the Administrative Law Judge’s decision by the entire WCAB. On March 28, 2003, the WCAB affirmed the ruling of the Administrative Law Judge. Thereafter, in May 2003, the Company filed a petition for writ of review of the WCAB’s decision in the California Court of Appeal. The WCAB continued the “stay” in effect since April 5, 2002, thus preventing CIGA from proceeding until the writ proceeding was concluded. In January 2004, the Court of Appeal granted the Company’s petition and undertook to review the WCAB’s decision. The Court of Appeal heard oral argument in the matter on July 9, 2004.

      On October 20, 2004, the Court of Appeal affirmed the WCAB’s decision. On November 18, 2004, the Court of Appeal granted the Company’s petition for rehearing and requested additional briefing on this matter. The Court of Appeal heard oral argument on April 15, 2005. On July 25, 2005, the Court of Appeal issued its decision finding that CIGA should not be dismissed and that the insurance held by Remedy’s Client did not provide other available insurance for the workers’ compensation claim. CIGA appealed this decision with the

15

California Supreme Court. In October 2005, the California Supreme Court declined to hear the appeal and sent the matter back to the WCAB with instructions to enforce the Court of Appeal’s decision.

      On October 25, 2005, Remedy filed a request seeking to dismiss Remedy, its Clients and their insurance companies from the individual WCAB cases and joining CIGA as a defendant. On November 7, 2005, CIGA filed objections to the request for dismissal. A hearing date has not been set.

      Despite the Court of Appeal’s decision, in the event of a final unfavorable outcome, Remedy may be obligated to reimburse certain Clients and believes that it would consider reimbursement of other Clients for actual losses incurred as a result of unfavorable rulings in these matters. If Remedy is unsuccessful in dismissing its Clients from these matters, and if these Clients or their insurance carriers become obligated to respond to the claims of Remedy’s employees, the Company believes that the direct financial exposure to Remedy becomes a function of the ultimate losses on the claims and the impact of such claims, if any, on the Clients’ insurance coverage, potentially including but not limited to the Clients’ responsibility for any deductibles or retentions under their own workers’ compensation insurance. The Company has received data from the Third Party Administrator (“TPA”) handling the claims for CIGA. Such data indicates claims of approximately $31,895 as of October 2, 2005. The losses incurred to date represent amounts paid to date by the trustee and the remaining claim reserves on open files.

      In the fourth quarter of fiscal year 2004, the Company recorded a $5,877 charge to operating income related to the CIGA case. The Company does not currently expect to adjust the reserve as a result of the July 25, 2005 ruling and the October 2005 California Supreme Court declination, until final resolution of the case. This amount represents the Company’s estimate on the basis of a review of known information of costs associated with the indemnification of certain Clients for losses they may suffer as a result of final unfavorable outcomes. The information reviewed included customer contracts, review of the loss run received from the TPA handling the claims, actuarial development of the reported claim losses, estimates of customer insurance coverage, and other applicable information. The amount of the charge is; therefore, subject to change as more information becomes available to the Company. In the event of a final unfavorable outcome, the Company may also choose to reimburse certain Clients that did not enter into contracts with the Company or whose contracts may not have included indemnification language. These costs will be treated as period costs and will be charged to the consolidated statements of operations in the period management decides to make any “goodwill” payments to Clients. Management’s current estimate of future “goodwill” payments is a range of $2,000 to $3,000. This estimate is subject to change.

Other Litigation

      From time to time, the Company becomes a party to other litigation incidental to its business and operations. The Company maintains insurance coverage that management believes is reasonable and prudent for the business risks that the Company faces. Based on current available information, management does not believe the Company is party to any other legal proceedings that are likely to have a material adverse effect on its business, financial condition, cash flows or results of operations.

Other Contingency

      In late 2003, the Company was notified that it may have underpaid certain payroll-related tax liabilities by approximately $2,000 for the period from January 1, 2003 through September 30, 2003. Based on its evaluations and after consultation with outside counsel, the Company believes that the methodology the Company used to calculate these taxes was in compliance with applicable law. The Company is currently working with outside counsel to resolve these matters. As of October 2, 2005, the Company has accrued $983 in connection with the potential settlement of these payroll-related tax matters.

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 fourth quarter of the fiscal year ended October 2, 2005.

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Executive Officers of the Registrant

      The executive officers of the Company hold their respective positions at the pleasure of the Company’s Board of Directors. The executive officers and their respective ages as of October 2, 2005 are set forth below.

Name	Age		Position(s) Held
Greg D. Palmer		49	President and Chief Executive Officer
Monty A. Houdeshell		57	Senior Vice President and Chief Administrative Officer
Janet L. Hawkins		50	Senior Vice President, Sales and Marketing and President, Franchise
Gunnar B. Gooding		42	Vice President, Human Resources and Legal Affairs

      Greg D. Palmer has served as President and Chief Executive Officer of the Company since January 2001. From January 1998 to January 2001, Mr. Palmer served as Executive Vice President and Chief Operations Officer of the Company. From 1985 to December 1997, and prior to joining the Company, 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 Olsten Corporation, formerly a provider of staffing and health care services.

      Monty A. Houdeshell has served as Senior Vice President, Chief Administrative Officer of the Company since December 2004. Since January 2003, he has also served as Senior Vice President, Chief Financial Officer of the Company. From 1988 until November 1999 he was Vice President, Chief Financial Officer of Furon Company. Prior to 1988, he was Vice President, Chief Financial Officer of Oak Industries, Inc.

      Janet L. Hawkins has served as the Senior Vice President of Sales and Marketing for the Company since July 2003. Since December 2004, she has also served as President, Franchise, of the Company. From 1978 to June 2003, and prior to joining the Company, Ms. Hawkins served as President of Hawkins Advertising and Public Relations.

      Gunnar B. Gooding has served as Vice President, Human Resources and Legal Affairs of the Company since April 2000 and prior to that as Vice President, General Counsel from September 1998 to March 2000. From September 1989 to September 1998, Mr. Gooding worked as an attorney at Gibson, Dunn & Crutcher LLP where he specialized in employment litigation.

PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Price Range of Common Stock

      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 years 2005 and 2004:

	For the Three Months Ended
	January 2,		April 3,		July 3,		October 2,
	2005		2005		2005		2005
High	$	11.95	$	11.77	$	11.28	$	9.80
Low	$	9.61	$	9.30	$	7.50	$	7.55

	December 28,		March 28,		June 27,		October 3,
	2003		2004		2004		2004
High	$	13.41	$	13.82	$	14.49	$	12.31
Low	$	10.60	$	10.88	$	11.28	$	7.72

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      As of December 7, 2005, there were an estimated 670 shareholders of the Company’s Class A Common Stock (of which, 70 are holders of record) and 5 shareholders of record of the Company’s Class B Common Stock.

Dividend Policy

      Subsequent to the Company’s initial public offering in fiscal year 1996, the Company has not declared or 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.

Issuer Purchasees of Equity Securities

      Neither our Company nor any affiliated purchaser has made any purchases of the Company’s securities on behalf of the Company.

Securities Available for Issuance Under Our Equity Compensation Plans

      The following table provides information with respect to the Company’s equity compensation plans as of October 2, 2005, which plans were as follows: the Company’s 1996 Amended and Restated Stock Incentive Plan, 1996 Employee Stock Purchase Plan and the Non-Employee Director Plan.

						Number of Securities
				Weighted-Average		Remaining Available for
		Number of Securities to		Exercise Price		Future Issuance under
		be Issued upon Exercise		of Outstanding		Equity Compensation Plans
		of Outstanding Options,		Options, Warrants		(Excluding Securities
		Warrants and Rights		and Rights		Reflected in Column (a))
Plan category		(a)		(b)		(c)
Equity compensation plans approved by security holders			670,562	$	14.47		476,528	(1)
Equity compensation plans not approved by security holders			—		—		35,018	(2)
	Total		670,562	$	14.47		511,546

(1)	Includes 111,689 shares of Common Stock that may be issued under the Company’s 1996 Employee Stock Purchase Plan and 364,839 shares of Common Stock that may be issued under the Company’s 1996 Amended and Restated Stock Incentive Plan.
(2)	Pertains to shares of Common Stock that may be issued under the Non-Employee Director Plan discussed below.

Non-Employee Director Plan

      Directors who are also employees or officers of the Company receive no extra compensation for their service on the Board. Pursuant to the Non-Employee Director Plan, effective March 16, 1998, and amended by the Board on October 1, 2003, independent directors receive an annual retainer in the form of cash or shares of Common Stock valued at $25 on the date of their election or re-election to the Board. For those directors electing to receive their retainer in stock, the shares that are issued under the Non-Employee Director Plan are held in trust, on a deferred basis (subject to an exception for financial hardship) until a director is no longer a director of the Company. Such shares are issued in trust no later than ten business days after the next annual meeting of shareholders following election or re-election, provided that the director has remained a director during such time. The maximum aggregate number of shares that have been authorized for issuance under the Non-Employee Director Plan is 75 shares, subject to adjustment upon recapitalization, stock dividends, stock splits and similar changes in the Company’s capitalization as provided in the plan.

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Item 6. Selected Financial Data

      The selected financial data with respect to the Company set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and Notes thereto. The fiscal year end of the Company is a 52 or 53 week period ending the Sunday closest to September 30. Fiscal year 2004 consisted of 53 weeks, all other fiscal years presented consisted of 52 weeks. The following selected financial information as of and for the fiscal years ended October 2, 2005, October 3, 2004, September 28, 2003, September 29, 2002 and September 30, 2001 has been derived from the audited financial statements of the Company.

	For the Fiscal Years Ended
	2005			2004			2003			2002		2001
	(Amounts in thousands, except per share data)
Statement of Operation Data:
Total revenues	$	514,274		$	519,928		$	481,965		$	464,538	$	519,223
(Loss) income before income taxes and cumulative effect of adoption of a new accounting standard	$	(2,577	)	$	(13,115	)	$	(18,542	)	$	2,514	$	12,356
Provision for (benefit from) income taxes		991			(323	)		8,280			377		3,960
(Loss) income before cumulative effect of adoption of a new accounting standard(1)		(3,568	)		(12,792	)		(26,822	)		2,137		8,396
Cumulative effect of adoption of a new accounting standard, net of tax(2)		—			—			2,421			—		—
Net (loss) income	$	(3,568	)	$	(12,792	)	$	(29,243	)	$	2,137	$	8,396
Earnings per share — basic and diluted:
(Loss) income before cumulative effect of adoption of a new accounting standard	$	(0.39	)	$	(1.42	)	$	(2.98	)	$	0.24	$	0.94
Cumulative effect of adoption of a new accounting standard, net of taxes		—			—			(0.27	)		—		—
Net (loss) income — basic and diluted	$	(0.39	)	$	(1.42	)	$	(3.25	)	$	0.24	$	0.94
Weighted-average number of shares:
Basic		9,050			9,022			9,010			8,973		8,917
Diluted		9,050			9,022			9,010			9,076		8,940
Balance Sheet Data:(3)
Cash and cash equivalents	$	24,954		$	7,075		$	13,236		$	17,311	$	37,362
Restricted cash and investments	$	25,660		$	41,086		$	24,269		$	—	$	—
Investments	$	692		$	339		$	15,730		$	31,745	$	1,708
Working capital	$	55,762		$	54,957		$	56,074		$	83,822	$	74,496
Total assets	$	138,083		$	137,621		$	139,194		$	146,544	$	137,302
Shareholders’ equity	$	61,539		$	63,511		$	75,364		$	102,984	$	99,575

(1)	The Company recorded a full valuation allowance of $25,890, $22,516 and $16,879 against the deferred tax assets for fiscal years 2005, 2004 and 2003, respectively.
(2)	Effective September 30, 2002 the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. As a result, the Company recorded a non-cash charge of $2,421, net of income taxes of $1,634.
(3)	Certain items in prior periods have been reclassified to conform to current year classifications.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Company Overview

      The Company provides temporary personnel and direct-hire services to industrial, service and technology businesses, professional organizations and governmental agencies. During the twelve fiscal months ended October 2, 2005, the Company placed approximately 110,000 temporary workers and provided approximately 38 million hours of staffing services to over 10,000 clients. The Company’s revenue was $514,274, $519,928, and $481,965 for fiscal years 2005, 2004 and 2003, respectively.

Executive Summary

      The staffing industry is a highly competitive industry, which has contributed to significant price competition and lower margins as major staffing companies have attempted to maintain or gain market share. According to ASA, in calendar year 2004, the staffing industry benefited from a strengthening economy. For the first three quarters of calendar year 2005, the U.S. Bureau of Economic Analysis reported real gross domestic product continued to grow by 3.6%; however, at a slower pace than from 4.4% in 2004. With the addition of an average of 280,000 jobs per day, staffing employment grew by 12.4% in 2004, marking the second consecutive year of double-digit growth and returning the industry to employment levels last seen in 2000. It is also fortunate that there appears to have been no material impact to the Company’s business from the numerous weather disasters this year.

      Revenues for fiscal year 2005 amounted to $514,274 compared with $519,928 in fiscal year 2004. The decline primarily reflected the effect of management’s decision to eliminate approximately $35,000 of certain higher risk and lower margin business, principally in California, that did not meet the Company’s strategic directives.

      The Company’s workers’ compensation costs decreased by approximately 14% in fiscal year 2005 compared to fiscal year 2004, resulting from eliminating certain higher risk accounts and enhanced applicant screening. In addition, at the close of fiscal year 2005, Remedy learned that the California Supreme Court decided not to hear an appeal by the California Insurance Guarantee Association (“CIGA”) on a ruling favorable to the Company from the California Court of Appeal. The decision let stand the ruling that CIGA should bear responsibility for the workers’ compensation claims of approximately 500 Remedy employees who were covered by the now defunct Reliance National Insurance Company. In fiscal year 2004, the Company reserved $5,877 in the event the Company did not prevail. However, despite the positive outcome, CIGA continues to make challenges on individual cases at the workers’ compensation judicial level and as a result the Company has not reversed the $5,877 reserve established in fiscal year 2004 (See Item 3. Legal Proceedings).

      With long-term positive prospects, the staffing industry has always been inherently difficult to forecast due to its dependence on economic factors and the strength of the labor market. However, the Company continues to use a forecasting tool developed jointly with the A. Gary Anderson Center for Economic Research at Chapman University. The Quarterly Labor Forecast Report, which is based upon Bureau of Labor Statistics (“BLS”) and other economic factors, helps to predict total demand for temporary labor.

      Taking advantage of its strong brand name and infrastructure, the Company believes it has positioned itself for profitable growth in fiscal year 2006. The Company’s long-term growth strategies include:

•  continuing to grow RemX® by leveraging existing infrastructure and selectively adding to the Company’s sales force;

•  focusing on attracting small to mid-sized accounts across the Company’s business units;

•  continuing to roll out the Company’s new higher margin specialty brand, Talent Magnet by Remedy®;

•  expanding upon the Company’s 78.5% increase in direct-hire revenue in 2005;

•  selectively growing the Company’s base business of light industrial clients now that we have successfully concluded the exiting of high risk, low margin accounts;

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•  expanding the Company’s franchise model in select secondary markets; and

•  remaining vigilant in the Company’s efforts to identify additional cost cutting opportunities to add to those taken at the end of fiscal 2005.

      The following table sets forth for the last five fiscal years, the number of Company-owned, traditional and licensed franchise offices and associated revenues. For traditional franchised offices, Company revenues are limited to the royalties revenues earned on gross billings. Average revenues per office are computed by dividing the relevant revenues by the number of related offices. The Company’s long-term revenue growth depends in part upon its ability to continue to attract new clients, retain existing clients, open new Company-owned and licensee offices, as well as its ability to enhance the sales of existing offices beyond historical levels.

	For the Fiscal Years Ended
	2005		2004		2003		2002		2001
Company-Owned Offices
Number of offices		131		130		116		126		117
Average hours billed per office		166,510		190,974		193,492		168,258		204,782
Total revenue	$	320,322	$	341,691	$	300,070	$	267,207	$	288,396
Average revenue per office	$	2,445	$	2,628	$	2,587	$	2,121	$	2,465
Traditional Franchise Offices
Number of offices		11		10		13		14		17
Average hours billed per office		129,600		167,724		124,696		137,904		180,973
Total billings	$	22,073	$	23,846	$	23,255	$	26,776	$	40,420
Average billings per office	$	2,007	$	2,385	$	1,789	$	1,913	$	2,378
Royalties revenues and initial franchise fees	$	1,439	$	1,538	$	1,633	$	1,743	$	2,591
Licensed Franchise Offices
Number of offices		96		98		109		126		156
Average hours billed per office		140,588		128,365		125,072		115,617		106,185
Total revenue	$	192,513	$	176,699	$	180,262	$	195,588	$	228,236
Average revenue per office	$	2,005	$	1,803	$	1,654	$	1,552	$	1,463
Total Offices		238		238		238		266		290
Average Hours Billed Per Office		154,348		164,217		158,399		141,726		150,348
Total Company Revenues	$	514,274	$	519,928	$	481,965	$	464,538	$	519,223

Consolidated Results of Operations

Fiscal year 2005 Compared to Fiscal year 2004

Revenue

		For the Fiscal
		Years Ended
		October 2,		October 3,
		2005		2004		$ Change			% Change
Company-owned office revenues		$	320,322	$	341,691	$	(21,369	)		(6.3	)%
Licensed franchise revenues			192,513		176,699		15,814			8.9	%
Franchise royalties and initial franchise fees			1,439		1,538		(99	)		(6.4	)%
	Total revenues	$	514,274	$	519,928	$	(5,654	)		(1.1	)%

•  The mix between Company-owned, licensed franchise and traditional franchise royalty revenues shifted with Company-owned revenues accounting for 62.3% of total revenues for fiscal year 2005 down

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	from 65.7% for fiscal year 2004. The decline in total revenues is primarily a result of management’s decision to eliminate approximately $35,000 of certain higher risk and lower margin business, principally in California, that did not meet the Company’s strategic directives.
•	Company-owned revenues decreased 6.3% to $320,322 in fiscal year 2005 from $341,691 in fiscal year 2004. Fiscal year 2005 consisted of 52 weeks as compared to 53 weeks in fiscal year 2004. Exclusive of the extra week, Company-owned revenues decreased $13,618. Revenues from the Company’s RemX® specialty staffing business unit increased $16,726 to $45,679 for fiscal year 2005 from $28,953 for fiscal year 2004.
•	Licensed franchise revenues increased $15,814 in fiscal year 2005 as a result of revenue from new and existing clients. Exclusive of the extra week in 2004, licensed franchise revenues increased $19,465.
•	The Company’s focus on smaller retail and mid-sized clients during fiscal year 2005 continued to contribute to the Company’s improved margins. Our initiative to concentrate on client accounts that spend less than $5,000 annually on temporary staffing services continues to provide tangible returns to the Company. In fiscal year 2005, the number of small and mid-size accounts we serve grew approximately 3% over the prior year, and accounted for approximately 75% of our total volume, versus approximately 72% in fiscal year 2004.
•	The continued increase in the revenues generated from the RemX® business unit and direct-hire services is consistent with the Company’s long-term strategic plan to shift its overall business mix to higher margin services.

Cost of Revenues

		For the Fiscal
		Years Ended
		October 2,		October 3,
		2005		2004		$ Change			% Change
Cost of Company-owned office revenues		$	256,901	$	286,158	$	(29,257	)		(10.2	)%
Cost of licensed franchise revenues			153,721		141,224		12,497			8.8
	Total cost of revenues	$	410,622	$	427,382	$	(16,760	)		(3.9	)%

•  Total cost of Company-owned licensed franchise revenues consists of wages and other expenses related to temporary associates and as a percentage of revenues was 79.8% and 82.2% for fiscal years 2005 and 2004, respectively. The 2.4 percentage point improvement is attributable to a number of factors, including our revenue mix, which included greater contributions from the direct-hire activity of the specialty segment, as well as, temporary business from our RemX® business unit, along with a generally better pricing environment and a 14% reduction in workers’ compensation costs.

•  Correspondingly, overall consolidated gross profit increased 12.0% to $103,652 in fiscal year 2005 from $92,546 in fiscal year 2004. Gross margin improved to 20.2% as compared to 17.8% for fiscal year 2004 and was primarily attributable to improved mix and pricing which helped contribute 1.0 percentage point to the increase; the strength of our direct-hire business accounted for approximately 0.8 percentage points; and lower workers’ compensation costs represented about 0.6 percentage points. State unemployment insurance costs represented 3.1% and 2.7% of total cost of revenue for fiscal years 2005 and 2004, respectively.

•  The decrease in cost of Company-owned revenues (or 3.5 percentage point increase in Company-owned office gross margin) is primarily attributable to improved mix in pricing, which helped achieve a 1.5 percentage points improvement to margin. An adjustment in workers compensation expense had a 0.7 percentage point positive impact. A $5,028 increase in direct-hire revenues contributed 1.3 percentage points to the improved margins. All contributed to the improvement in Company-owned gross margin of 19.8% for fiscal year 2005 as compared to 16.3% for fiscal year 2004.

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•  The increase in cost of licensed franchise revenues is consistent with the 8.9% increase in licensed franchise revenue.

Operating Expenses

		For the Fiscal
		Years Ended
		October 2,		October 3,
		2005		2004		$ Change			% Change
Licensees’ share of gross profit		$	26,282	$	23,818	$	2,464			10.3	%
Selling and administrative expenses			76,245		71,251		4,994			7.0
CIGA litigation costs			315		6,080		(5,765	)		(94.8	)
Depreciation and amortization			5,133		5,844		(711	)		(12.2	)
	Total operating expenses	$	107,975	$	106,993	$	(982	)		(0.9	)%

•  Licensees’ share of gross profit represents the net payments to licensed franchisees based upon a percentage of gross profit generated by the licensed franchise operation. The increase in licensees’ share of gross profit is consistent with the increase in licensed franchise revenues and cost of licensed franchise revenues. Licensees’ share of gross profit as a percentage of licensed gross profit increased to 67.8% for fiscal year 2005 as compared to 67.1% for fiscal year 2004 and primarily resulted from certain large franchisees renewing their licensed franchise agreements during the year, which incorporated certain revenue thresholds, resulting in higher gross profit payouts to the licensees, as well as an increase in direct hire revenue.

      The following table summarizes the significant changes in selling and administrative expenses for fiscal year 2005 as compared to fiscal year 2004:

		Favorable (Unfavorable)
		Consolidated			RemX®			Other
		Change			Change			Offices*
Colleague salary and related taxes		$	(2,889	)	$	(2,531	)	$	(358	)
Profit sharing			(2,099	)		(1,425	)		(674	)
Telephone and datalines			(486	)		(142	)		(344	)
Professional fees			(422	)		0			(422	)
Bad debt			1,309			0			1,309
Other SG&A			(3	)		(312	)		309
Rent			(404	)		(305	)		(99	)
	Net change	$	(4,994	)	$	(4,715	)	$	(279	)

*  Other Offices category includes the corporate office

•  Selling and administrative expenses as a percentage of total revenues were 14.8% for fiscal year 2005 compared to 13.7% for fiscal year 2004. The largest factor contributing to the net increase was a $3,956 increase in colleague salaries and profit sharing due to the Company’s expansion of the RemX® specialty staffing business unit, somewhat offset by recoveries of bad debt expense. Professional fees increased over the prior year due to the impact of the requirements of Sarbanes-Oxley.

•  Fiscal year 2004 was impacted by a charge of $5,877 for the costs of indemnifying certain clients for losses they may suffer as a result of the Court of Appeal’s October 2004 CIGA decision. The Company’s CIGA litigation cost at October 2, 2005 and October 3, 2004 were $315 and $203, respectively (See Item 3. Legal Proceedings).

•  The decrease in depreciation and amortization for fiscal year 2005 as compared to fiscal year 2004 is due to an increase in fully depreciated fixed assets.

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      Loss from operations decreased $10,124 to an operating loss of $4,323 for fiscal year 2005 from an operating loss of $14,447 for fiscal year 2004. Excluding the one time CIGA charge in fiscal year 2004 of $5,877, operating loss was reduced by $4,247 in fiscal year 2005. This resulted from improved gross profits and decreased depreciation and amortization.

      An income tax provision of $991 was recorded in fiscal year 2005 as compared to an income tax benefit of $323 for fiscal year 2004. The Company’s overall effective tax rate of 38.5% for fiscal year 2005 differs from the statutory rate as a result of the Company’s requirement to fully reserve its deferred tax assets due to previous book losses, that results in a tax provision which is substantially on a current tax liability basis. The $991 income tax provision relates to the Company’s tentative federal minimum tax liability as well as the Company’s state and foreign income tax liabilities for the current fiscal year. Even though the Company experienced a loss for book purposes during fiscal 2005, certain expenses are non-deductible for income tax purposes resulting in taxable income. As a result of the full valuation allowance applied against our deferred tax assets, the deferred income tax benefit associated with these temporary differences is not being recorded. Therefore, the only component recorded in fiscal 2005 is the current income tax provision of $991. The effective tax rate of (2.5%) for fiscal year 2004 differs from the statutory rate due primarily to the current period valuation allowance against the deferred tax assets. The estimated annual effective tax rate is revised quarterly based upon actual operating results, the tax credits earned to date as well as current annual projections. The cumulative impact of any change in the estimated annual effective tax rate is recognized in the period the change in estimate occurs.

Fiscal year 2004 Compared to Fiscal year 2003

Revenue

		For the Fiscal
		Years Ended
		October 3,		September 28,
		2004		2003		$ Change			% Change
Company-owned office revenues		$	341,691	$	300,070	$	41,621			13.9	%
Licensed franchise revenues			176,699		180,262		(3,563	)		(2.0	)
Franchise royalties and initial franchise fees			1,538		1,633		(95	)		(5.8	)
	Total revenues	$	519,928	$	481,965	$	37,963			7.9	%

•  The mix between Company-owned, licensed franchise and traditional franchise royalty revenues shifted with Company-owned revenues accounting for 65.7% of total revenues for fiscal year 2004 up from 62.3% for fiscal year 2003. This overall shift in business mix is consistent with the Company’s long-term strategy of buying strategic franchise offices and continuing to grow the RemX® business unit.

•  Company-owned revenue increased 13.9% to $341,691 in fiscal year 2004 from $300,070 in fiscal year 2003. Fiscal year 2004 consisted of 53 weeks as compared to 52 weeks in fiscal year 2003. The acquisition of two licensed franchises during the second and third quarters of fiscal year 2003 and a traditional franchise during the second quarter of fiscal year 2004 also contributed $19,419 to the increase in Company-owned (See Note 6 to the consolidated financial statement). The Company’s RemX® specialty staffing business unit increased $12,004 to $28,953 for fiscal year 2004 from $16,949 for fiscal year 2003; $2,645 of the increase in RemX® is attributable to the acquisition of the traditional franchise office during the second quarter of fiscal year 2004 as noted above. The Company also experienced increased revenue from the addition of several large new clients and increased revenue from existing clients.

•  The decrease in licensed franchise revenue is primarily related to the acquisitions of the licensed franchise offices as described above. The acquired offices generated licensed franchise revenue of $12,098 during fiscal year 2003 prior to the acquisition dates. The increased revenue from new and existing clients in fiscal year 2004 was offset by the reduction in licensed franchise revenues of $8,535.

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•  The Company’s focus on smaller retail clients during fiscal year 2004 also contributed to the Company’s revenue growth and improved margins. The Company defines retail clients as clients with annual sales volume under $250 or clerical and RemX® clients with gross margin over 25.0% and light industrial clients with gross margin over 18.0%.

•  The Company’s investment-hire goal had a positive impact on the fiscal year 2004 revenue growth with the addition of 101 sales colleagues during the year representing a 68.7% increase in the Company’s sales force over the prior year.

•  The continued increase in the revenues generated from the RemX® division and direct-hire revenues is consistent with the Company’s long-term strategic plan to shift its overall business mix to higher margin services.

Cost of Revenues

		For the Fiscal
		Years Ended
		October 3,		September 28,
		2004		2003		$ Change			% Change
Cost of Company-owned office revenues		$	286,158	$	261,628	$	24,530			9.4	%
Cost of licensed franchise revenues			141,224		143,577		(2,353	)		(1.6	)
	Total cost of revenues	$	427,382	$	405,205	$	22,177			5.5	%

•  Total cost of Company-owned and licensed franchise revenues consists of wages and other expenses related to temporary associates and as a percentage of revenues was 82.2% and 84.1% for fiscal years 2004 and 2003, respectively. The 5.5% increase in total cost of revenue is consistent with the growth in total revenue with a 1.9% improvement in gross margin.

•  The increase in cost of Company-owned revenues is consistent with the 13.9% increase in Company-owned revenue offset with significant improvements in gross margin despite an increase in the state unemployment insurance costs during fiscal year 2004. The Company experienced a decrease in workers’ compensation expense, which directly contributed to the improvement in Company-owned gross margin of 16.3% for fiscal year 2004 as compared to 12.8% for fiscal year 2003. The increase in gross margin is also attributable to the Company’s success in its efforts to increase markup (defined as the bill rate/wage rate) and the continued growth in the RemX® business unit, which traditionally generates higher gross margins.

•  The decrease in cost of licensed franchise revenues is consistent with the 2.0% decrease in licensed franchise revenue.

•  Overall consolidated gross margin improved to 17.8% as compared to 15.9% for fiscal year 2003 and was primarily attributable to the decrease in workers’ compensation expense from $33,197 in fiscal year 2003 to $27,944 in fiscal year 2004. Increases in the Company’s markup during fiscal year 2004, the continued growth in the RemX® business unit and increased revenues from retail customers also contributed to the improved gross margins in fiscal year 2004. The increase in gross margin was also enhanced with increases in direct hire revenues, whereby the Company earns a fee for placing an associate in a direct-hire position. The improvements in gross margin were partially offset by increases in state unemployment insurance costs. State unemployment insurance costs represented 2.7% and 1.5% of total cost of revenue for fiscal years 2004 and 2003, respectively.

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Operating Expenses

		For the Fiscal
		Years Ended
		October 3,		September 28,
		2004		2003		$ Change			% Change
Licensees’ share of gross profit		$	23,818	$	24,431	$	(613	)		(2.5	)%
Selling and administrative expenses			71,251		64,622		6,629			10.3
CIGA litigation costs			6,080		796		5,284			664.0
Depreciation and amortization			5,844		6,748		(904	)		(13.4	)
	Total operating expenses	$	106,993	$	96,597	$	10,396			10.8	%

•  Licensees’ share of gross profit represents the net payments to licensed franchisees based upon a percentage of gross profit generated by the licensed franchise operation. The decrease in licensees’ share of gross profit is consistent with the decrease in licensed franchise revenues and cost of licensed franchise revenues. Licensees’ share of gross profit as a percentage of licensed gross profit increased to 67.1% for fiscal year 2004 as compared to 66.6% for fiscal year 2003 and primarily resulted from certain large franchisees renewing their licensed franchise agreements during the year, which incorporated certain revenue thresholds, resulting in higher gross profit payouts to the licensees, as well as an increase in direct-hire revenue.

The following table summarizes the significant changes in selling and administrative expenses for fiscal year 2004 as compared to fiscal year 2003:

		Favorable (Unfavorable)
		Consolidated			RemX®			Other
		Change			Change			Offices*
Colleague salary and related taxes		$	(6,840	)	$	(3,220	)	$	(3,620	)
Colleague travel and business conferences			(434	)		(168	)		(266	)
Royalty payments			(369	)		—			(369	)
Legal fees			(140	)		3			(143	)
Profit sharing			(94	)		(652	)		558
Other SG&A			157			(819	)		976
Rent			1,091			(218	)		1,309
	Net change	$	(6,629	)	$	(5,074	)	$	(1,555	)

*  Other Offices category includes the corporate office

•  Selling and administrative expenses as a percentage of total revenues were 13.7% for fiscal year 2004 as compared to 13.4% for fiscal year 2003. The primary factor contributing to the net increase was a $6,840 increase in colleague salaries due to the Company’s sales force investment hire initiative and the expansion of the RemX® specialty staffing business unit, offset by a $1,091 decrease in rent expense resulting from the fiscal year 2003 office closures.

•  During the fourth quarter of fiscal year 2004, the Company recorded a $5,877 charge for the costs of indemnifying certain clients for losses they may suffer as a result of the Court of Appeal’s October 2004 decision. The Company’s CIGA litigation cost at October 3, 2004 and September 28, 2003 were $203 and $796, respectively (See Item 3. Legal Proceedings).

•  The decrease in depreciation and amortization for fiscal year 2004 as compared to fiscal year 2003 is due to a $985 amortization charge resulting from a change in accounting estimate related to the useful life of certain capitalized software costs during the fourth quarter of fiscal year 2003. Additionally, the decrease resulted from an increase in fully depreciated fixed assets at October 3, 2004 as compared to September 28, 2003. The decrease in depreciation and amortization in fiscal year 2004 was offset by

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the incremental amortization expense from identifiable intangible assets resulting from the franchise acquisition during the second quarter of fiscal year 2004 (See Note 6 to the consolidated financial statement).

      Loss from operations decreased $5,390 to an operating loss of $14,447 for fiscal year 2004 from an operating loss of $19,837 for fiscal year 2003. Reduction in the Company’s operating loss is due to the increase in direct revenues in conjunction with gross margin improvement; the decrease in depreciation and amortization also contributed to the improved operating profits.

      An income tax benefit of $323 was recorded in fiscal year 2004 as compared to an income tax provision of $6,646 for fiscal year 2003. The Company’s overall effective tax rate of (2.5)% for fiscal year 2004 differs from the statutory rate due primarily to the current period valuation allowance against the deferred tax asset. The effective tax rate of 29.4% for fiscal year 2003 differs from the statutory rate due to the effect of the valuation allowance recorded against the deferred tax asset. The estimated annual effective tax rate is revised quarterly based upon actual operating results, the tax credits earned to date as well as current annual projections. The cumulative impact of any change in the estimated annual effective tax rate is recognized in the period the change in estimate occurs.

Segment Information

      Subsequent to the fiscal year ended October 2, 2005, the Company has started analyzing its business in two segments: Commercial and Specialty. In turn, these segments provide services to the Industrial, Clerical, Professional and Information Technology business sectors. The Company’s reportable segments have been determined based on the nature of the services offered to clients and are comprised of the following. The Specialty segment includes the Talent Magnet® and RemX® business units. The Commercial segment includes Light Industrial and Clerical Services (including Company owned, Licensed and Franchised). The reportable segments are each managed separately due to the nature of the services. The supporting offices are organized into eight divisions; managed by an Operational Vice President and other regional staff who provide operational support for the offices in their regions. Company-owned offices are organized into different matrices based upon geographic location and/or service offerings. Each matrix has an office manager who is accountable for the day-to-day operations and profitability of the offices within that matrix. All segment revenues are derived from external customers. Segment income is defined as total revenues less cost of Company-owned office revenues, cost of licensed franchise revenues and licensees’ share of gross profit less allocated expenses, but exclusive of unallocated expenses, which consist of corporate, depreciation and amortization, interest income and other expenses.

      Revenues, gross margin and segment income (loss) for the fiscal years ended October 2, 2005, October 3, 2004 and September 28, 2003 are presented below.

Commercial

      Consisting of 61 Company-owned light industrial focused offices and all 107 independently managed offices, the Commercial staffing segment comprises approximately 80% of the total company revenues. This segment is generally defined by traditional, multi-service staffing of larger volume clients, with less than 20% gross margins. The largest markets serviced include manufacturing of rubber and plastics, food and kindred products, electronic equipment and components, chemicals and printing.

	For the Fiscal Years Ended
	October 2,			October 3,			September 28,			Change
	2005			2004			2003			2005-2004			2004-2003
Revenue	$	409,979		$	425,149		$	394,929			(3.6	)%		7.7	%
Gross Margin		17.5	%		16.3	%		14.5	%		1.2	pp		1.8	pp
Segment Income	$	24,728		$	17,524		$	12,012			41.1	%		45.9	%

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Fiscal year 2005 Compared to Fiscal year 2004

      Fiscal year 2005 consisted of 52 weeks compared to 53 weeks in fiscal year 2004. In fiscal year 2005, net revenue decreased approximately $15,170 from fiscal year 2004, reflecting the additional week in fiscal year 2004 and the impact of selectively reducing higher risk and lower margin business within the Company owned light industrial business unit of the segment, particularly in California, partially offset by new business mainly from the licensee division. The results have continued to improved margins and segment income.

Fiscal year 2004 Compared to Fiscal year 2003

      Fiscal year 2004 consisted of 53 weeks compared to 52 weeks in fiscal year 2003. This segment also experienced increased revenue from the addition of several large new clients and increased revenue from existing clients.

Specialty

      Consisting of 33 Company-owned Talent Magnet focused offices and all 37 RemX® offices, the Specialty segment represents approximately 20% of the total Company’s revenues. The largest markets serviced include business services, depository institutions, and wholesale trade — durable and non-durable goods.

	For the Fiscal Years Ended
	October 2,			October 3,			September 28,			Change
	2005			2004			2003			2005-2004			2004-2003
Revenues	$	104,295		$	94,778		$	87,036			10.0	%		8.9	%
Gross Margin		30.8	%		24.6	%		22.2	%		6.2	pp		2.4	pp
Segment Income (Loss)	$	808		$	(1,536	)	$	(209	)		152.6	%		(634.9	)%

Fiscal year 2005 Compared to Fiscal year 2004

      Fiscal year 2005 consisted of 52 weeks compared to 53 weeks in fiscal year 2004. In fiscal year 2005, net revenue increased $9,517 due to a 57.8% growth from RemX®. RemX® alone represents 8.9% of the total Company volume, up 3.3 percentage points from a year earlier. In addition, direct-hire revenues originating from this business unit nearly doubled. Partially offsetting this is the impact of closing under-performing offices in preparation for organizing the start up of the Talent Magnet business unit.

Fiscal year 2004 Compared to Fiscal year 2003

      Fiscal year 2004 consisted of 53 weeks compared to 52 weeks in fiscal year 2003. The segment’s growth was almost entirely attributable to the RemX® business unit.

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      The following table reconciles segment income from the Company’s Commercial and Specialty segments to consolidated net loss for the fiscal years ended October 2, 2005, October 3, 2004 and September 28, 2003:

			For the Fiscal Years Ended
			2005			2004			2003
Segment income
Total income for reportable segments			$	25,536		$	15,988		$	11,803
Unallocated amounts:
	Corporate and other expenses			(25,993	)		(25,350	)		(26,033	)
	Depreciation and amortization			(3,866	)		(5,085	)		(5,607	)
	Interest income			1,394			1,010			998
	Interest expense			(677	)		(413	)		(434	)
	Other, net			1,029			735			731
	(Provision for) benefit from income taxes			(991	)		323			(8,280	)
	Cumulative effect of adoption of a new accounting standard, net of income taxes of $1,634			—			—			(2,421	)
		Net loss	$	(3,568	)	$	(12,792	)	$	(29,243	)

Liquidity and Capital Resources

      The Company’s balance sheet includes $51,306 in cash and cash equivalents and investments as of October 2, 2005 (including restricted cash and investments discussed below) and the Company continues to have no debt, although letters of credit are outstanding. Historically, the Company has financed its operations through cash generated by operating activities and its credit facility, as necessary. Generally, the Company’s principal uses of cash are working capital needs and capital expenditures (including management information systems initiatives and select office openings) and franchise acquisitions.

      Cash flows from operating, investing and financing activities, as reflected in the accompanying consolidated statements of cash flows, are summarized below:

		For the Fiscal
		Years Ended
		October 2,		October 3,
		2005		2004
Cash provided by (used in):
	Operating activities	$	6,296	$	(495	)
	Investing activities		11,282		(5,885	)
	Financing activities		176		193
	Effect of exchange rate changes on cash		125		26
Net increase (decrease) in cash and cash equivalents			17,879		(6,161	)
Cash and cash equivalents at beginning of period			7,075		13,236
Cash and cash equivalents at end of period		$	24,954	$	7,075

•  Cash flows from operating activities, compared to the preceding year, were primarily impacted by lower net loss, the timing of receivables collections, the timing of payroll disbursements (including incentive compensation payments), as well as the timing of vendor payments.

•  Cash provided by investing activities is primarily related to the Company’s investment portfolio, which includes highly rated debt securities with various maturity dates through fiscal year 2008. During the second quarter of fiscal year 2004, the Company used $16,000 in cash to collateralize its $40,000 line of credit as required by its credit facility (See Note 4 to the consolidated financial statements). As of December 1, 2004, under the Company’s new Credit Agreement, the Company is no longer required to

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maintain the $16,000 collateralization of its line of credit and accordingly, the certificate of deposit has been reclassified within cash and cash equivalents in the consolidated balance sheets. Net cash outflows related to available-for-sale investments were $10,661 during fiscal year 2005 as compared to $2,133 of net cash inflows in fiscal year 2004. Cash used for purchases of fixed assets, including information systems development costs, was $3,345 for fiscal year 2005 and $3,365 for fiscal year 2004. The Company continues to invest in computer-based technologies and select office openings and anticipates approximately $3,500 in related capital expenditures for fiscal year 2006.

•

Cash provided by financing activities is primarily a result of shares of the Company’s Class A Common Stock issued through the Employee Stock Purchase Plan.

      Cash and cash equivalents increased $17,879 in fiscal year 2005 from fiscal year 2004 as a result of the Company’s improved operating activities and cash provided by investing activities primarily related to the proceeds received from the maturity of a $16,000 certificate of deposit that was required as collateral under its prior credit facility (See additional discussion below regarding the Company’s credit facility).

      The Company provides workers’ compensation insurance to its temporary associates and colleagues (See Note 3 to the consolidated financial statements). The Company establishes a reserve for the deductible portion of its workers’ compensation claims using actuarial estimates of the ultimate cost of claims and related expenses that have been reported but not settled, and that have been incurred but not reported. The estimated remaining deductible liability under the aforementioned contracts are $38,281 and $36,449 at October 2, 2005 and October 3, 2004, respectively. The Company recorded $11,974 and $12,359 as current and $26,307 and $24,090 as non-current at October 2, 2005 and October 3, 2004, respectively. The Company also has an aggregate $2,552 and $2,677 current liability recorded at October 2, 2005 and October 3, 2004, respectively, for amounts due to various state funds related to workers’ compensation.

      The Company is contractually required to collateralize its obligation under each of these workers’ compensation insurance contracts through the use of irrevocable letters of credit, pledged cash and securities or a combination thereof. The level and type of collateral required for each policy year is determined by the insurance carrier at the inception of the policy year and may be modified periodically. The Company had outstanding letters of credit totaling $36,538, $34,661 and $21,911 as of October 2, 2005, October 3, 2004 and September 28, 2003, respectively.

      The Company amended and restated its credit facility with Bank of America dated February 4, 2004. The Amended and Restated Credit Agreement (“Credit Agreement”) with Bank of America was effective December 1, 2004. The new Credit Agreement provides for borrowings up to $50,000 with a provision permitting the Company to increase the aggregate amount of borrowings to $60,000. The Company has granted a security interest to Bank of America in all its existing and future assets. The Credit Agreement will expire two years from the closing date, on December 1, 2006. The Credit Agreement bears interest on outstanding borrowings equal to LIBOR plus 1.75% to 2.75% based upon the Company’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) or Bank of America’s prime rate plus 0.00% to 0.50% based on EBITDA. The Company is required to pay monthly fees of 0.25% per annum on the unused portion of the line of credit and monthly fees of 0.75% or 1.50% per annum on outstanding letters of credit based on a pricing matrix. The Credit Agreement requires the Company to comply with a minimum EBITDA covenant which will not go into effect unless the Company’s total liquidity drops below $15,000. Liquidity is defined by the Credit Agreement as unrestricted domestic cash plus excess borrowing availability. Additionally, under the Credit Agreement, the Company is no longer required to maintain a $16,000 Bank of America Certificate of Deposit as collateral as required by its prior credit facility. The Company is in compliance with all financial covenants as prescribed in the Credit Agreement at October 2, 2005. The Company has no borrowings outstanding as of each of the three fiscal years ended October 2, 2005, October 3, 2004 and September 28, 2003, respectively.

      At October 2, 2005, the Company had $9,867 available under the line of credit. The Company believes that this amount plus the letter of credit reductions for previous year programs and the new Credit Agreement described above will be sufficient for the new insurance policy.

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      The following table summarizes the letters of credit and pledged cash and securities at October 2, 2005 and October 3, 2004:

		For the Fiscal
		Years Ended
		October 2,		October 3,
		2005		2004
Collateralized certificate of deposit related to bank agreement		$	—	$	16,000
Deferred compensation investments			3,771		3,161
	Total restricted investments — current	$	3,771	$	19,161
Pledged cash and securities related to workers compensation polices		$	21,889	$	21,925
	Total restricted cash and investments — long-term	$	21,889	$	21,925
Letters of credit		$	36,538	$	34,661

      From July 22, 1997 through March 31, 2001, the Company had a fully insured workers’ compensation program with Reliance National Insurance Company (“Reliance”). Subsequent to March 31, 2001 (the end of Company’s final policy year with Reliance), Reliance became insolvent and is currently in liquidation. The Company is in litigation with the California Insurance Guaranty Association regarding financial responsibility for all remaining open California claims under the Reliance workers’ compensation program. During the fourth quarter of fiscal year 2004, the Company recorded a $5,877 charge for the costs of indemnifying certain clients for losses they may suffer as a result of the Court of Appeal’s October 2004 decision (See Part I, Item 3, Legal Proceedings and Note 8 to the consolidated financial statements). This estimate is subject to change.

      On August 26, 2004, the Company filed a universal shelf registration statement on Form S-3 with the Securities and Exchange Commission (“SEC”). The registration statement covers an aggregate of up to $30,000 of securities registered by the Company, which may consist of common stock, preferred stock, debt securities, depositary shares and or warrants. The registered securities may be sold in one or more offerings in the future. Specific terms and prices will be determined at the time of any offering and included in a related prospectus supplement to be filed with the SEC. To date no securities have been issued pursuant to the universal shelf registration.

      On November 18, 2003, the Company was notified by the State of California Employment Development Department that the Company allegedly underpaid its state unemployment insurance by approximately $2,000 for the period January 1, 2003 through September 30, 2003. Based on preliminary evaluations and on advice of its outside counsel, the Company believes that its methodology in calculating its state unemployment insurance is in compliance with all applicable laws and regulations. As of October 2, 2005, the Company has accrued $983 in connection with the potential settlement of these payroll-related tax matters (See Note 8 to the consolidated financial statements).

      From time to time, the Company may selectively purchase licensed and traditional franchise offices in certain territories with the intent of expanding the Company’s market presence in such regions. The Company may continue evaluating certain strategic acquisitions which 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 of $55,762 and line of credit are adequate to support present operations and to fund future growth and business opportunities for the foreseeable future. Should it be necessary, the Company may issue securities under its effective Form S-3.

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Off-Balance Sheet Arrangements

      The Company has no off-balance sheet arrangements as defined in Regulation S-K 303(a)(4)(ii).

Contractual Obligations

      The Company has no significant contractual obligations not fully recorded in the consolidated balance sheets or fully disclosed in the Notes to the consolidated financial statements.

      As of October 2, 2005, the Company’s contractual obligations included:

	Contractual Obligations Payment Due by Period
			Fiscal		Fiscal		Fiscal
	Total		2006		2007-2008		2009-2010		Thereafter
Operating Leases	$	14,630	$	4,353	$	6,502	$	3,768	$	7
Capital Leases		168		35		70		63		—
Workers’ Compensation*		38,281		11,974		10,822		3,308		12,177
Total	$	53,079	$	16,362	$	17,394	$	7,139	$	12,184

*  Estimated obligation is based upon actuarial analysis and represents the remaining deductible liability under the Company’s current workers’ compensation contracts. This amount excludes $2,552 of amounts due to various state funds related to workers’ compensation.

      On January 12, 2004 (the “closing date”), the Company completed the acquisition of one of its traditional franchise operations consisting of two offices in Texas for $1,800. At the closing date, the Company paid $1,443 in cash ($57 in net amounts owed to the Company by the franchisee were deducted from the cash payment). The remaining $300 will be paid in cash two years from the closing date. Of the total purchase price, $702 was allocated to goodwill. Additionally, $1,100 was allocated to amortizable intangible assets consisting of $610, $370, and $120 for the franchise rights, client relationships and non-competition agreements, respectively, and is being amortized over the estimated useful lives of 6.5 years, 3.5 years and 5.0 years, respectively. The Asset Purchase Agreement includes provisions for contingent payments for the three years subsequent to the closing date and is based upon performance targets related to increases in EBITDA over the prior year. Contingent payments will be accounted for as an increase to the purchase price and recorded as goodwill. To date no contingent payments were required.

      During March and April of fiscal year 2003, the Company acquired a large licensed franchise operation in Tennessee consisting of several offices and purchased assets of a smaller licensed franchise in Texas consisting of one office, respectively. The Stock Purchase Agreement for this acquisition includes a provision for contingent payments for the two years subsequent to December 29, 2002. The contingent payments are based upon performance targets related to increases in the Tennessee offices’ EBITDA over the prior year. The Company was not required to make a payment for the twelve months ended December 28, 2003. A contingent payment was required at December 31, 2004 of $875, which increased the purchase price and was recorded as goodwill in the Company’s consolidated financial statements. Additionally, the Company is required to pay monthly royalties to the prior franchisee based upon revenues of a certain client of the acquired office for as long as Remedy services that client. The Company paid $681 and $836 royalty payments which are included in selling and administrative expenses in the accompanying consolidated statements of operations for fiscal years 2005 and 2004, respectively (See Note 6 to the consolidated financial statements).

Critical Accounting Policies and Estimates

      The discussions and analyses of the Company’s consolidated financial condition and results of operations were based on the Company’s consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the financial statement date and

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reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company’s management reviews and evaluates these estimates and assumptions, including those that relate to revenue recognition, accounts receivable, workers’ compensation costs, goodwill, intangible and other long-lived assets, income taxes including the valuation allowance for deferred tax assets, contingencies and litigation. These estimates are based on historical experience and a variety of other assumptions believed reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.

      Management believes the following critical accounting policies are those most significantly affected by the judgment, estimates and/or assumptions used in the preparation of Remedy’s consolidated financial statements.

      Revenue Recognition — The Company generates revenue from the sale of temporary staffing and direct hire services by its Company-owned and licensed franchise operations and from royalties on sales of such services by its traditional franchise operations. Temporary staffing revenues and the related labor costs and payroll taxes are recorded in the period in which the services are performed. Direct hire revenues are recognized when the direct hire candidate begins full-time employment. Sales allowances are established to estimate losses due to placed candidates not remaining employed for the Company’s direct hire guarantee period, typically 30-100 days and have historically been insignificant to the Company’s overall results of operations.

      The Company accounts for the revenues and the related direct costs of its franchise arrangements in accordance with Emerging Issues Task Force (“EITF”) 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. The Company is required to assess whether it acts as a principal in its transactions or as an agent acting on the behalf of others. Where the Company is the principal in a transaction and has the risks and rewards of ownership, the transaction is recorded gross in the income statement, and where the Company acts merely as an agent, only the net fees earned are recorded in the income statement. Under the Company’s “traditional” franchised agreement, the franchisee has the direct contractual relationship with clients, holds title to the related customer receivables and is the legal employer of the temporary employees. Accordingly, the Company does not include the revenues and direct expenses from these transactions in its income statement and only records the royalty fee earned. Alternatively, under the Company’s “licensed” franchise agreements the Company has the direct contractual relationship with clients, holds title to the related customer receivables and is the legal employer of the temporary employees. As the Company retains the risks and rewards of ownership (such as the liability for the cost of temporary personnel and the risk of loss for collection), the revenues and direct expenses of its licensed franchise operations are included in the Company’s results of operations. The Company remits to each licensed franchisee a portion of the gross margin generated by its office(s).

      Accounts Receivable — Remedy provides an allowance for doubtful accounts on its accounts receivable for estimated losses resulting from the inability of its clients to make required payments. This allowance is based upon management’s analysis of historical write-off levels, current economic trends, routine assessment of its clients’ financial strength and any other known factors impacting collectibility. If the financial condition of its clients were to deteriorate, which may result in the impairment of their ability to make payments, additional allowances may be required. Remedy’s estimates are influenced by the following considerations: the large number of clients and their dispersion across wide geographic areas, the fact that no single customer accounts for 10% or more of its total revenues and its continuing credit evaluation of its clients’ financial conditions.

      Workers’ Compensation Costs — The Company maintains reserves for its workers’ compensation obligations using actuarial methods to estimate the remaining undiscounted liability for the deductible portion of all claims, including those incurred but not reported. This process includes establishing loss development factors, based on the historical claims experience of the Company and the industry, and applying those factors to current claims information to derive an estimate of the Company’s ultimate claims liability. The calculated ultimate liability is then reduced by cumulative claims payments to determine the required reserve. Management evaluates the reserve, and the underlying assumptions, regularly throughout the year and makes adjustments as needed. While management believes that the recorded amounts are adequate, there can be no

33

assurance that changes to management’s estimates will not occur due to limitations inherent in the estimation process.

      Goodwill and Other Intangible Assets — Effective the first quarter of fiscal year 2003, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 applies to goodwill and intangible assets that are not amortized. SFAS No. 142 requires goodwill to no longer be amortized but instead be subject to an impairment test at least annually or if events or circumstances change that may reduce the fair value of the reporting unit below its book value. Reporting units are determined based on geographic groupings of Company-owned offices. Intangible assets with finite lives continue to be amortized over their estimated useful lives. In connection with the initial impairment test upon adoption, the Company obtained valuations of its individual reporting units from an independent third-party valuation firm. The valuation methodologies considered included analyses of discounted cash flows at the reporting unit level, guidelines for publicly traded company multiples and comparable transactions. As a result of these impairment tests, the Company recorded a non-cash charge of $2,421, net of income taxes of $1,634, to reduce the carrying value of the goodwill to its implied fair value. This charge is reflected as a cumulative effect of adoption of a new accounting standard in the Company’s consolidated statements of operations for the fiscal year ended September 28, 2003. The Company performs its annual impairment test at the end of each fiscal year.

      Other Long-Lived Assets — Effective the first quarter of fiscal year 2003, the Company adopted SFAS No. 144, Accounting for the Impairment or disposal of Long-Lived Assets. In accordance with SFAS No. 144, the Company assesses the fair value and recoverability of its long-lived assets including intangible assets subject to amortization, whenever events and circumstances indicate the carrying value of an asset may not be recoverable from estimated future cash flows expected to result from its use and eventual disposition. In doing so, the Company makes assumptions and estimates regarding future cash flows and other factors. The fair value of the long-lived assets is dependent upon the forecasted performance of the Company’s business and the overall economic environment. When it determines that the carrying value of the long-lived assets may not be recoverable, it measures impairment based upon a forecasted discounted cash flow method. If these forecasts are not met, the Company may have to record additional impairment charges not previously recognized. The Company recorded $781 of asset impairment charges related to capitalized software for fiscal year 2003, of which $477 is included in depreciation and amortization and $304 is included in selling and administrative expense. In fiscal years 2004 and 2005, the Company wrote-off approximately $112 and $234 of assets that could no longer be utilized. This charge is included in depreciation and amortization in the accompanying consolidated statements of operations (See Note 1 to the consolidated financial statements).

      Income Taxes — In preparing the Company’s consolidated financial statements, management estimates the Company’s income taxes in each of the taxing jurisdictions in which it operates. This includes estimating the Company’s actual current tax expense together with any temporary differences resulting from the different treatment of certain items, such as the timing for recognizing revenues and expenses, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the Company’s consolidated balance sheets. As a result of a recent successful claim for refund related to Work Opportunity Tax Credits taken for fiscal year 2000, the Company filed similar claims for refunds for fiscal years 2001 through 2003 which are currently under review by the Internal Revenue Service. The Company has not recognized tax benefits related to such claims at this time due to uncertainties that currently exist. However, in the event that the claims are granted in the future in full, cash refunds of $43 and additional tax credit carryforwards of $3,366 could exist. Presently, it is estimated that the tax credit carryforwards would generally create a deferred tax asset with a full valuation allowance.

      Deferred tax assets and liabilities are determined based on temporary differences between income and expenses reported for financial reporting and tax reporting. The Company is required to record a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial performance. The Company had been profitable through the first fiscal quarter

34

of 2003; however, continued market softness and significant increases in workers’ compensation costs resulted in significant losses in fiscal years 2003 and 2004 with the losses narrowing in fiscal year 2005.

      As a result of the Company’s recent cumulative losses, management concluded that a full valuation allowance of $25,890, $22,516 and $16,879 against the deferred tax assets was appropriate as of the end of fiscal years 2005, 2004 and 2003, respectively. While the Company expects to be profitable in fiscal year 2006 and beyond, in view of the recent losses, there is no assurance that there will be sufficient future taxable income to realize the benefit of the deferred tax asset. If, after future assessments of the realizability of the deferred tax assets, the Company determines that a lesser allowance is required, it would record a reduction to income tax expense and the valuation allowance in the period of such determination.

      Contingencies and Litigation — There are various claims, lawsuits and pending actions against the Company incident to its operations. If a loss arising from these actions is probable and can be reasonably estimated, the Company must record the amount of the estimated liability. As additional information becomes available, management will continue assessing any potential liability related to these actions and may need to revise its estimates.

New Accounting Standards

      In June 2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 154, Accounting Changes and Error Corrections — a replacement of APB No. 20 and FAS No. 3 (“SFAS No. 154”). SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. SFAS No. 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. The correction of an error in previously issued financial statements is not an accounting change. However, the reporting of an error correction involves adjustments to previously issued financial statements similar to those generally applicable to reporting an accounting change retrospectively. Therefore, the reporting of a correction of an error by restating previously issued financial statements is also addressed by SFAS No. 154. SFAS No. 154 is required to be adopted in fiscal years beginning after December 15, 2005. The Company does not believe its adoption in fiscal 2007 will have a material impact on its consolidated results of operations or financial position.

      In March 2005, the SEC issued guidance on FASB SFAS 123(R), Share-Based Payments (“SFAS No. 123R”). Staff Accounting Bulletin No. 107 (“SAB 107”) was issued to assist preparers by simplifying some of the implementation challenges of SFAS No. 123R while enhancing the information that investors receive. SAB 107 creates a framework that is premised on two themes: (a) considerable judgment will be required by preparers to successfully implement SFAS No. 123R, specifically when valuing employee stock options; and (b) reasonable individuals, acting in good faith, may conclude differently on the fair value of employee stock options. Key topics covered by SAB 107 include: (a) valuation models — SAB 107 reinforces the flexibility allowed by SFAS No. 123R to choose an option-pricing model that meets the standard’s fair value measurement objective; (b) expected volatility — SAB 107 provides guidance on when it would be appropriate to rely exclusively on either historical or implied volatility in estimating expected volatility; and (c) expected term — the new guidance includes examples and some simplified approaches to determining the expected term under certain circumstances. The Company will apply the principles of SAB 107 in conjunction with its adoption of SFAS No. 123R.

      In December 2004, the FASB issued SFAS No. 123R. This standard requires all share-based payments to employees, including grants of employee stock options, to be expensed in the financial statements based on their fair values beginning with the first annual period beginning after June 15, 2005 (the first quarter of fiscal year 2006 for the Company). The pro forma disclosures permitted under SFAS No. 123 will no longer be allowed as an alternative presentation to recognition in the financial statements. Under SFAS No. 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The

35

transition methods include prospective and retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS No. 123R, while the retroactive methods record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The Company expects to adopt SFAS No. 123R in its first quarter of fiscal year 2006 on a prospective basis, which will require recognition of compensation expense for all stock option or other equity-based awards that vest or become exercisable after the effective date. The Company does not believe its adoption will have a material impact on its consolidated results of operations or financial position.

      In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets — An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions (“SFAS No. 153”). SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21 (b) of APB Opinion No. 29, Accounting for Nonmonetary Transactions, and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for fiscal periods beginning after June 15, 2005. The Company is currently evaluating the requirements of SFAS No. 153, but does not expect it to have a material impact on its consolidated results of operation or financial position.

      In December 2004, the FASB issued Staff Position (“FSP”) No. 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004 (“FSP 109-2”). FSP 109-2 provides further guidance on conforming to the requirements of SFAS No. 109, Accounting for Income Taxes (“SFAS No. 109”), with respect to the timing of evaluating and recording of the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the “Jobs Act”) on a company’s income tax provision and deferred tax accounts. FSP 109-2 states that a company is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109. The Company does not expect to apply this provision based upon its preliminary evaluation.

      In June, 2005 the Emerging Issues Task Force (EITF) issued No. 05-06, Determining the Amortization Period of Leasehold Improvements or Acquired in a Business Combination (“EITF No. 05-06”). EITF No. 05-06 provides that the amortization period for lease hold improvements acquired in a business combination or purchased after the inception of a lease be the shorter of (a) the useful life of the assets or (b) a term that includes required lease periods and renewals that are reasonably assured upon the acquisition of the purchase. The guidance in EITF No. 05-6 will be applied prospectively and is effective for periods beginning after June 29, 2005. The Company does not believe its adoption will have a material impact on its consolidated results of operations or financial position.

Inflation

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

Item 7A. Qualitative and Quantitative Disclosures About Market Risk

      The Company is exposed to market risk resulting from changes in interest rates and equity prices and, to a lesser extent, foreign currency rates. Under its current policy, the Company does not engage in speculative or leveraged transactions to manage exposure to market risk.

      Interest rate risk. The interest rate payable on the Company’s outstanding borrowing is at the Company’s discretion, either the Bank of America’s “prime rate” plus 0.0% or 0.5% (depending on the Company’s EBITDA) or LIBOR plus 1.75% to 2.75% (depending on the Company’s EBITDA) and is paid monthly. The Company is required to pay monthly fees of 0.25% per annum on the unused portion of the line of credit and monthly fees of 0.75% or 1.50% per annum on outstanding letters of credit based on a pricing matrix.

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      In addition, the Company has approximately $22,108 and $15,357 in fixed rate investments consisting of U.S. government securities as of October 2, 2005 and October 3, 2004, respectively. The fixed rate securities mature throughout fiscal year 2007 and have an average weighted interest rate of 2.5%.

      Equity price risk. The Company holds investments in various marketable available-for-sale and trading securities which are subject to price risk. The fair market value of such investments as of October 2, 2005 and October 3, 2004 was $3,839 and $3,227, respectively. The potential change in fair market value of these investments, assuming a 10% change in prices would have been an increase or decrease of $384 and $1,923, respectively.

      Foreign currency risks. To date, the Company has had minimal sales outside the United States. Therefore, it has only minimal exposure to foreign currency exchange risk. The Company does not hedge against foreign currency risks and believes that foreign exchange risk is immaterial to its current business.

Item 8. Financial Statements and Supplementary Data

      The information required by Item 8 of this report is set forth in Item 15(a) under the caption “Financial Statements” as a part of this report.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

      None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

      As of October 2, 2005, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). These disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Company in its periodic reports with the SEC is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that the information is accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. The design of any disclosure controls and procedures also is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

      Based upon their evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective at the reasonable assurance level.

Management’s Report on Internal Control Over Financial Reporting

      Management is responsible for establishing and maintaining adequate internal control over financial reporting. We maintain internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

      Under the supervision and with the participation of management, including the Company’s principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control — Integrated

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Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included an assessment of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Based on this evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of October 2, 2005.

      The Company’s management assessment of the effectiveness of the Company’s internal control over financial reporting as of October 2, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

Changes in Internal Control Over Financial Reporting

      There have been no changes in the Company’s internal control over financial reporting, during the fiscal quarter ended October 2, 2005, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

      None.

PART III

Item 10. Directors and Executive Officers of the Registrant

      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 Board of Directors of the Company required by this item is incorporated by reference from the portion of the Company’s definitive Proxy Statement under the caption “Proposal 1 — Election of Directors.” 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.” Information as to the Audit Committee of the Company required by this item is incorporated by reference from the portion of the Company’s definitive Proxy Statement under the caption “Board Committees and Meetings” 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 2006 Annual Meeting of Shareholders.

      The Company has adopted a Code of Business Conduct and Ethics that applies to all directors and employees, including the Company’s principal executive, financial and accounting officers. This code of ethics is posted on the Company website at www.remedytemp.com. The Company intends to satisfy the requirements under Item 5.05 of Form 8-K regarding disclosure of amendments to, or waivers from, provisions of the Company’s Code of Ethics that apply, by posting such information on the Company’s website. Copies of the Code of Ethics will be provided, free of charge, upon written request directed to Investor Relations, RemedyTemp, Inc. 101 Enterprise, Aliso Viejo, California 92656.

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 2006 Annual Meeting of Shareholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholders Matters

      Information as to Security Ownership of Certain Beneficial Owners and Management and Related Shareholder matters required by this item is incorporated by reference from the Company’s definitive Proxy

38

Statement, under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan 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 2006 Annual Meeting of Shareholders.

Item 13. Certain Relationships and Related Transactions

      Information as to Certain Relationships and Related 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 2006 Annual Meeting of Shareholders.

Item 14. Principal Accounting Fees and Services

      Information as to Principal Accounting Fees and Services required by this item is incorporated by reference from the Company’s definitive Proxy Statement, under the caption “Independent Registered Public Accounting Firm for Fiscal years 2005 and 2004,” 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 2006 Annual Meeting of Shareholders.

PART IV

Item 15. Exhibits and Financial Statement Schedules

      (a) Financial Statements.

(1)	Consolidated Financial Statements filed as part of this Report are set forth in the “Index to Consolidated Financial Statements” on page F-1 of this Report.
(2)	Financial Statement Schedule filed as part of this report is set forth in the “Index to Consolidated Financial Statements” on page F-1 of this report.

      (b) Exhibits

      The following Exhibits are filed as part of this Report:

Exhibit
No.			Description
	3	.1	Amended and Restated Articles of Incorporation of the Company(a)
	3	.2	Amended and Restated Bylaws of the Company(e)
	4	.1	Specimen Stock Certificate(a)
	4	.2	Shareholder Rights Agreement(a)
	10	.1	*Robert E. McDonough, Sr. Amended and Restated Employment Agreement(f)
	10	.2	*Paul W. Mikos Employment Agreement, as amended(g)
	10	.3	*Robert E. McDonough, Sr. Amendment No. 1 to Amended and Restated Employment Agreement(i)
	10	.7	*Deferred Compensation Agreement for Alan M. Purdy(a)
	10	.9	Form of Indemnification Agreement entered into by RemedyTemp, Inc. and each of its directors and certain executive officers(a)
	10	.11	*Amended and Restated RemedyTemp, Inc. 1996 Stock Incentive Plan (effective as of January 1, 2005)
	10	.12	*Amended and Restated RemedyTemp, Inc. 1996 Employee Stock Purchase Plan (effective as of September 26, 2005)(z)
	10	.13	Form of Franchising Agreement for Licensed Offices(k)
	10	.14	Form of Franchising Agreement for Franchised Offices(a)

39

Exhibit
No.			Description
	10	.15	Form of Licensing Agreement for IntelliSearch(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	.22	*RemedyTemp, Inc. Deferred Compensation Plan (effective as of January 1, 2005)
	10	.23	*Amended and Restated Employment Agreement for Greg Palmer(m)
	10	.24	*1998 RemedyTemp, Inc. Amended and Restated Deferred Compensation and Stock Ownership Plan for Outside Directors (effective as of January 1, 2005)
	10	.25	Form of Licensing Agreement for i/Search 2000®(e)
	10	.27	*Paul W. Mikos Severance Agreement and General Release(j)
	10	.28	*Gunnar B. Gooding Employment and Severance Letter(l)
	10	.29	*Cosmas N. Lykos Employment and Severance Letter(l)
	10	.30	*Alan M. Purdy Retirement Agreement and General Release(n)
	10	.31	*Monty Houdeshell Employment Letter(o)
	10	.34	Amendment No. 2 to the Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC(q)
	10	.36	Business Loan Agreement between Bank of America N.A. and RemedyTemp, Inc.(s)
	10	.37	Amended and Restated Credit Agreement between Bank of America, N.A. and Remedy Temp, Inc.(t)
	10	.38	*Robert E. McDonough, Sr. Amendment No. 2 to Amended and Restated Employment Agreement(u)
	10	.39	*Short-term Incentive Bonus Plan for Fiscal 2005(v)
	10	.40	*Amended Agreement with Janet Hawkins(w)
	10	.41	*Deferred Compensation Plan for Greg Palmer
	10	.42	*Form of Change in Control Severance Agreement(x)
	10	.43	*Amendment to Amended and Restated Employment Agreement for Greg Palmer(y)
	10	.44	*Short-Term Incentive Bonus Plan for Fiscal 2006(aa)
	10	.45	*Form of Lock-Up Agreement with certain executive officers(bb)
	10	.46	Summary of Compensation Arrangements for Named Executive Officers and Directors
	23	.1	Consent of Independent Registered Public Accounting Firm
	31	.1	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31	.2	Chief Administrative Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32		Chief Executive Officer and Chief Administrative Officer Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Indicates a management contract or a compensatory plan, contract or arrangement.
(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 Annual Report on Form 10-K for the yearly period ended September 28, 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 27, 1998.

40

(f)	Incorporated by reference to the exhibit of same number to the Registrant’s Quarterly Reports on Form 10-Q for the quarterly period ended December 27, 1998.
(g)	Incorporated by reference to the exhibit of same number to the Registrant’s Quarterly Reports on Form 10-Q for the quarterly period ended June 27, 1999 (original agreement) and for the quarterly period ended December 31, 2000 (amendment).
(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 March 28, 1999.
(i)	Incorporated by reference to exhibit number 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2000.
(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 April 1, 2001.
(k)	Incorporated by reference to the exhibit of same number to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2001.
(l)	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 30, 2001.
(m)	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 30, 2001.
(n)	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 30, 2002.
(o)	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 29, 2002.
(p)	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, 2003.
(q)	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, 2003.
(r)	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, 2004.
(s)	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, 2004.
(t)	Incorporated by reference to the exhibit of same number to Registrant’s Current Report on Form 8-K filed on December 3, 2004.
(u)	Incorporated by reference to the exhibit of same number to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended January 2, 2005.
(v)	Incorporated by reference to Item 1.01 of the Registrant’s Current Report on Form 8-K filed on February 1, 2005.
(w)	Incorporated by reference to Item 10.1 of the Registrant’s Current Report on Form 8-K filed on May 9, 2005.
(x)	Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on April 22, 2005.
(y)	Incorporated by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed on April 22, 2005.
(z)	Incorporated by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed on September 27, 2005.
(aa)	Incorporated by reference to Item 1.01 of the Registrant’s Current Report on Form 8-K filed on September 23, 2005.
(bb)	Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on September 27, 2005.

41

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/ Greg D. Palmer

Greg D. Palmer

President and Chief Executive Officer

December 16, 2005

      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/ Greg D. Palmer Greg D. Palmer	President and Chief Executive Officer	December 16, 2005
/s/ Paul W. Mikos Paul W. Mikos	Chairman of the Board of Directors	December 16, 2005
/s/ Robert E. McDonough Robert E. McDonough, Sr.	Vice-Chairman of the Board of Directors	December 16, 2005
/s/ Monty A. Houdeshell Monty A. Houdeshell	Senior Vice President and Chief Administrative Officer (Principal Financial Officer)	December 16, 2005
/s/ John D. Swancoat John D. Swancoat	Vice President and Controller (Principal Accounting Officer)	December 16, 2005
/s/ William D. Cvengros William D. Cvengros	Director	December 16, 2005
/s/ Gary Brahm Gary Brahm	Director	December 16, 2005
/s/ Robert A. Elliott Robert A. Elliott	Director	December 16, 2005
/s/ Mary George Mary George	Director	December 16, 2005
/s/ J. Michael Hagan J. Michael Hagan	Director	December 16, 2005
/s/ John B. Zaepfel John B. Zaepfel	Director	December 16, 2005

42

REMEDYTEMP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Statements:
	Report of Independent Registered Public Accounting Firm	F-2
	Consolidated Balance Sheets as of October 2, 2005 and October 3, 2004	F-4
	Consolidated Statements of Operations for the three fiscal years ended October 2, 2005, October 3, 2004 and September 28, 2003	F-5
	Consolidated Statements of Shareholders’ Equity for the three fiscal years ended October 2, 2005, October 3, 2004 and September 28, 2003	F-6
	Consolidated Statements of Cash Flows for the three fiscal years ended October 2, 2005, October 3, 2004 and September 28, 2003	F-7
	Notes to Consolidated Financial Statements	F-8
Financial Statement Schedule:
	For the three fiscal years ended October 2, 2005, October 3, 2004 and September 28, 2003
	II — Valuation and Qualifying Accounts	F-35

All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Shareholders of RemedyTemp, Inc.

      We have completed an integrated audit of RemedyTemp, Inc.’s 2005 consolidated financial statements and of its internal control over financial reporting as of October 2, 2005 and audits of its 2004 and 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

      In our opinion, the consolidated financial statements listed in the index appearing on page F-1 present fairly, in all material respects, the financial position of RemedyTemp, Inc. and its subsidiaries at October 2, 2005 and October 3, 2004, and the results of their operations and their cash flows for each of the three years in the period ended October 2, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing on page F-1 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of the Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

Internal control over financial reporting

      Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of October 2, 2005 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 2, 2005, based on criteria established in Internal Control — Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records

F-2

that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

Orange County, California

December 15, 2005

F-3

REMEDYTEMP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

			October 2,			October 3,
			2005			2004
ASSETS
Current assets:
	Cash and cash equivalents		$	24,954		$	7,075
	Investments			692			339
	Restricted investments (Note 1)			3,771			19,161
	Accounts receivable, net of allowance for doubtful accounts of $905 and $2,984, respectively			60,787			63,152
	Prepaid expenses and other current assets			7,406			6,517
	Prepaid workers’ compensation insurance			2,396			2,396
	Current income taxes (Note 5)			—			160
		Total current assets		100,006			98,800
Fixed assets, net (Note 2)				9,696			10,589
Restricted cash and investments (Note 1)				21,889			21,925
Other assets				279			330
Intangible assets, net of accumulated amortization of $1,244 and $700, respectively				1,730			2,274
Goodwill (Note 1)				4,483			3,703
Total Assets			$	138,083		$	137,621
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	1,275		$	4,225
	Accrued workers’ compensation, current portion (Note 3)			14,526			15,036
	Accrued payroll, benefits and related costs			17,979			17,938
	Accrued licensees’ share of gross profit			2,630			2,745
	Other accrued expenses			7,834			3,899
		Total current liabilities		44,244			43,843
Other liabilities (Note 3)				32,300			30,267
		Total liabilities		76,544			74,110
Commitments and contingent liabilities (Note 8)
Shareholders’ equity (Note 11):
	Preferred Stock, $0.01 par value; authorized 5,000 shares; none outstanding			—			—
	Class A Common Stock, $0.01 par value; authorized 50,000 shares; 8,813 and 8,778 shares issued and outstanding at October 2, 2005 and October 3, 2004, respectively			88			88
	Class B Non-Voting Common Stock, $0.01 par value; authorized 4,530 shares; 798 and 800 shares issued and outstanding at October 2, 2005 and October 3, 2004, respectively			8			8
	Additional paid-in capital			41,824			41,522
	Unearned compensation			(2,382	)		(3,737	)
	Accumulated other comprehensive loss			(129	)		(68	)
	Retained earnings			22,130			25,698
		Total shareholders’ equity		61,539			63,511
Total Liabilities and Shareholders’ Equity			$	138,083		$	137,621

See accompanying notes to consolidated financial statements.

F-4

REMEDYTEMP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

			October 2,			October 3,			September 28,
			2005			2004			2003
Company-owned office revenues			$	320,322		$	341,691		$	300,070
Licensed franchise revenues				192,513			176,699			180,262
Franchise royalties and initial franchise fees				1,439			1,538			1,633
		Total revenues		514,274			519,928			481,965
Cost of Company-owned office revenues (exclusive of depreciation and amortization shown below)				256,901			286,158			261,628
Cost of licensed franchise revenues (exclusive of depreciation and amortization shown below)				153,721			141,224			143,577
Licensees’ share of gross profit				26,282			23,818			24,431
Selling and administrative expenses				76,245			71,251			64,622
CIGA litigation costs (Note 8)				315			6,080			796
Depreciation and amortization				5,133			5,844			6,748
Loss from operations				(4,323	)		(14,447	)		(19,837	)
Other income and expense:
	Interest expense			(677	)		(413	)		(434	)
	Interest income			1,394			1,010			998
	Other, net			1,029			735			731
Loss before income taxes and cumulative effect of adoption of a new accounting standard				(2,577	)		(13,115	)		(18,542	)
Provision for (benefit from) income taxes (Note 5)				991			(323	)		8,280
Loss before cumulative effect of adoption of a new accounting standard				(3,568	)		(12,792	)		(26,822	)
Cumulative effect of adoption of a new accounting standard, net of income tax benefit of $1,634				—			—			2,421
Net loss			$	(3,568	)	$	(12,792	)	$	(29,243	)
Loss per share — basic and diluted:
Loss per share before cumulative effect of adoption of a new accounting standard			$	(0.39	)	$	(1.42	)	$	(2.98	)
Cumulative effect per share of adoption of a new accounting standard, net of income taxes				—			—			(0.27	)
Net loss per share			$	(0.39	)	$	(1.42	)	$	(3.25	)
Weighted average shares:
Basic				9,050			9,022			9,010
Diluted				9,050			9,022			9,010

See accompanying notes to consolidated financial statements.

F-5

REMEDYTEMP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

				Class A						Class B															Accumulated
				Common Stock						Common Stock						Additional									Other
																Paid-In			Unearned			Retained			Comprehensive
				Shares			Amount			Shares			Amount			Capital			Compensation			Earnings			(Loss) Income			Total
				(Amounts in thousands)
Balance at September 29, 2002					8,142		$	82			1,253		$	13		$	39,923		$	(4,728	)	$	67,733		$	(39	)	$	102,984
	Activity of Employee Stock Purchase Plan				11												112												112
	Conversion upon transfer to non-affiliates				359			4			(359	)		(4	)														—
	Restricted stock grants				320			3									3,474			(3,477	)								—
	Forfeiture of restricted stock				(63	)		(1	)								(835	)		836									—
	Amortization of unearned compensation																			1,338									1,338
	Comprehensive loss:
		Other comprehensive income:
			Unrealized gain on marketable securities																							152			152
			Translation adjustment																							21			21
			Net loss																				(29,243	)					(29,243	)
		Comprehensive loss																											(29,070	)
Balance at September 28, 2003					8,769			88			894			9			42,674			(6,031	)		38,490			134			75,364
	Activity of Employee Stock Purchase Plan				19												185												185
	Stock-based compensation				1												8												8
	Conversion upon transfer to non-affiliates				94			1			(94	)		(1	)														—
	Forfeiture of restricted stock				(105	)		(1	)								(1,345	)		1,346									—
	Amortization of unearned compensation																			948									948
	Comprehensive loss:
		Other comprehensive (loss) income:
			Unrealized loss on marketable securities																							(228	)		(228	)
			Translation adjustment																							26			26
			Net loss																				(12,792	)					(12,792	)
		Comprehensive loss																											(12,994	)
Balance at October 3, 2004					8,778			88			800			8			41,522			(3,737	)		25,698			(68	)		63,511
	Activity of Employee Stock Purchase Plan				23												176												176
	Stock-based compensation				10												126												126
	Conversion upon transfer to non-affiliates				2						(2	)																	—
	Amortization of unearned compensation																			1,355									1,355
	Comprehensive loss:
		Other comprehensive (loss) income:
			Unrealized loss on marketable securities																							(186	)		(186	)
			Translation adjustment																							125			125
			Net loss																				(3,568	)					(3,568	)
		Comprehensive loss																											(3,629	)
Balance at October 2, 2005					8,813		$	88			798		$	8		$	41,824		$	(2,382	)	$	22,130		$	(129	)	$	61,539

See accompanying notes to consolidated financial statements.

F-6

REMEDYTEMP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

					October 2,			October 3,			September 28,
					2005			2004			2003
					(Amounts in thousands)
Cash flows from operating activities:
	Net loss				$	(3,568	)	$	(12,792	)	$	(29,243	)
		Adjustments to reconcile net loss to net cash from operating activities:
			Cumulative effect of adoption of a new accounting standard, net of income taxes			—			—			2,421
			Depreciation and amortization			5,038			5,844			6,778
			(Recovery of) provision for losses on accounts receivable			(95	)		1,213			1,357
			Stock-based compensation expense			1,427			1,054			1,459
			Gain on sale of securities			(5	)		(70	)		(8	)
			Deferred income taxes			—			—			7,080
			Other			90			—			725
			Changes in assets and liabilities, net of purchase of franchises:
				Trading investments		(610	)		(507	)		(862	)
				Accounts receivable		2,460			(3,771	)		(227	)
				Prepaid expenses and other current assets		(1,007	)		(2,484	)		(934	)
				Other assets		51			1,004			701
				Accounts payable		(2,950	)		(595	)		1,639
				Other liabilities		1,407			3,182			15,809
				Accrued CIGA litigation costs		—			5,877			—
				Accrued payroll, benefits and related costs		41			408			3,743
				Accrued licensees’ share of gross profit		(115	)		514			(635	)
				Other accrued expenses		2,992			458			(407	)
				Income taxes payable		1,140			170			13
Net cash provided by (used in) operating activities						6,296			(495	)		9,409
Cash flows from investing activities:
	Purchase of fixed assets					(3,345	)		(3,365	)		(2,622	)
	Purchase of available-for-sale investments					(10,661	)		(28,033	)		(31,628	)
	Proceeds from maturity and sales of available-for-sale investments					10,128			43,396			26,499
	Restricted cash and investments					16,035			(16,440	)		(2,103	)
	Purchase of franchises					(875	)		(1,443	)		(3,763	)
Net cash provided by (used in) investing activities						11,282			(5,885	)		(13,617	)
Cash flows from financing activities:
	Proceeds from stock option activity					—			8			—
	Proceeds from Employee Stock Purchase Plan activity					176			185			112
Net cash provided by financing activities						176			193			112
Effect of exchange rate changes in cash						125			26			21
Net increase (decrease) in cash and cash equivalents						17,879			(6,161	)		(4,075	)
Cash and cash equivalents at beginning of year						7,075			13,236			17,311
Cash and cash equivalents at end of year					$	24,954		$	7,075		$	13,236
Other cash flow information:
	Cash paid for interest				$	628		$	487		$	348
	Cash (refund) paid for income taxes, net				$	(172	)	$	(512	)	$	445

See accompanying notes to consolidated financial statements.

F-7

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts)

1. Description of business and summary of significant accounting policies

Description of business

      RemedyTemp, Inc.’s (the “Company” or “Remedy”) principal business is providing temporary personnel to industrial, service and technology companies, professional organizations and governmental agencies nationwide.

      The Company has two classes of Common Stock outstanding: Class A Common Stock, which has all voting and other rights normally associated with Common Stock; and Class B Common Stock, which is identical to the Class A Common Stock in all respects except that the Class B Common Stock has no voting rights except with respect to certain amendments of the Company’s Amended and Restated Articles of Incorporation, certain mergers and as otherwise required by law. The Class B Common Stock automatically converts into Class A Common Stock on a share-for-share basis upon the earlier of (i) a transfer to a non-affiliate of the holder thereof in a public offering pursuant to an effective registration statement or Rule 144 promulgated under the Securities Act of 1933, as amended, (ii) the death or legal incapacity of Robert E. McDonough, Sr., or (iii) the tenth anniversary of the completion of the Company’s initial public offering on July 16, 1996.

Basis of presentation

      The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. These financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). All intercompany accounts and transactions have been eliminated in consolidation.

Fiscal years

      The Company’s fiscal year includes 52 or 53 weeks, ending on the Sunday closest to September 30. Fiscal years 2005 and 2003 consisted of 52 weeks. Fiscal year 2004 consisted of 53 weeks. Fiscal year 2006 will consist of 52 weeks.

Revenue recognition

      The Company generates revenue from the sale of temporary staffing and direct-hire services by its Company-owned and licensed franchise operations and from royalties on sales of such services by its traditional franchise operations. Temporary staffing revenues and the related labor costs and payroll taxes are recorded in the period in which the services are performed. Direct-hire revenues are recognized when the direct-hire candidate begins full-time employment. Sales allowances are established to estimate losses due to placed candidates not remaining employed for the Company’s direct-hire guarantee period, typically 30-100 days and have historically been insignificant to the Company’s overall results of operations.

      The Company follows the guidance of Emerging Issues Task Force (“EITF”) 99-19, Recording Revenue Gross as a Principal versus Net as an Agent, in the presentation of revenues and direct costs of revenues. This guidance requires the Company to assess whether it acts as a principal in the transaction or as an agent acting on behalf of others. Where the Company is the principal in the transaction and has the risks and rewards of ownership, the transactions are recorded gross in the consolidated statements of operations.

      The Company utilizes two types of franchise agreements referred to as “traditional” and “licensed.” Under the Company’s traditional franchised agreement, the franchisee has the direct contractual relationship with the clients, holds title to the related customer receivables and is the legal employer of the temporary

F-8

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

employees. Accordingly, revenues and cost of revenues generated by the traditional franchise operations are not included in the Company’s consolidated financial statements. The Company earns and records continuing franchise fees, based upon the contractual percentage of franchise gross revenues, in the period in which the traditional franchisee provides the services. Such fees are recorded by the Company as “Franchise royalties.”

      Under the Company’s licensed franchise agreement, revenues generated by the franchised operation and the related costs of revenues are included in the Company’s consolidated financial statements and are reported as “Licensed franchise revenues” and “Cost of licensed franchise revenues,” respectively. The Company has the direct contractual relationship with the customer, holds title to the related customer receivables and is the legal employer of the temporary employees. Thus, certain risks associated with the licensed franchise operations remain with the Company. The net distribution paid to the licensed franchisee for the services rendered is based on a percentage of the gross profit generated by the licensed operation and is reflected as “Licensees’ share of gross profit” in the consolidated statements of operations. The Company’s share of the licensees’ gross profit represents the continuing franchise fee as outlined in the licensed franchise agreement and is recorded when earned in connection with the related licensed franchise revenues.

      Both traditional and licensed franchisees remit an initial franchise fee (currently $10-$18) for their affiliation with the Company. Generally, this fee is recognized as revenue when substantially all of the initial services required of the Company have been performed, and is reported by the Company as “Initial franchise fees.” However, for franchise agreements entered into after December 31, 2001, a portion of the initial franchise fee is deferred and payable over two years. The Company defers revenue recognition on this portion of the fee until payment is received. Initial services provided to traditional and licensed franchisees consist primarily of training and assistance with opening publicity, both of which are completed prior to the commencement of the franchised operations. Ongoing services provided to traditional franchisees consist primarily of payroll processing, customer billing and operation guidance, as considered necessary. Ongoing services provided to licensed franchisees include employment of temporary employees, payroll processing, customer billing, accounts receivable collection and operation guidance.

Concentrations of credit risk and allowance for doubtful accounts

      The Company’s financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade receivables. The Company performs on-going credit evaluations of its clients and generally does not require collateral. Concentrations of credit risk are limited due to the large number of clients comprising the Company’s customer base and their dispersion across different business and geographic areas. Accounts receivable are carried at the amount estimated to be collectible. The Company maintains an allowance for probable losses based upon management’s analysis of historical write-off levels, current economic trends, routine assessment of its clients’ financial strength and any other known factors impacting collectibility. Recoveries are recognized in the period they are received. The ultimate amount of accounts receivable that become uncollectible could differ from those estimated; however, such losses have generally been within management’s expectations. There was a recovery of $95 in fiscal year 2005 and provision for losses on accounts receivable of $1,213 and $1,357 for fiscal years 2004 and 2003, respectively. Provision and recoveries are included in selling and administrative expenses in the accompanying consolidated statements of operations.

Use of estimates in the preparation of consolidated financial statements

      The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates made in the

F-9

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

preparation of the consolidated financial statements include revenue recognition, the allowance for doubtful accounts, deferred tax assets, estimates to assess the recoverability of long-lived assets, goodwill impairment and workers’ compensation reserves.

Fair value of financial instruments

      The carrying amounts of cash and cash equivalents, investments, restricted cash and investments, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the short maturity of these items. The Company’s investments in equity securities are carried at fair value based upon available market information.

Foreign currency

      The reporting currency of the Company is the United States dollar. The functional currency of the Company’s subsidiary in Canada is the Canadian dollar. Balance sheet accounts denominated in the Canadian dollar (balances in Canadian dollars are not material) are translated at exchange rates as of the date of the balance sheet and statement of operations accounts are translated at average exchange rates for the fiscal year. Translation gains and losses are accumulated as a separate component of accumulated other comprehensive income (loss) within shareholders’ equity.

Cash and cash equivalents

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

Accounting for stock-based compensation

      The Company follows the disclosure-only provisions of Financial Accounting Standards Board of Statements of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123), as amended by SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, and, accordingly, accounts for its stock-based compensation plans using the intrinsic value method under APB No. 25, Accounting for Stock Issued to Employees, and related interpretations.

      The following table illustrates the effect on net loss and net loss per share, had compensation expense for the employee stock-based plans been recorded based on the fair value method under SFAS No. 123, as amended:

	For the Fiscal Years Ended
	October 2,			October 3,			September 28,
	2005			2004			2003
Net loss, as reported	$	(3,568	)	$	(12,792	)	$	(29,243	)
Deduct: total stock-based employee compensation expense determined under fair value based method		(934	)		(494	)		(425	)
Net loss, as adjusted	$	(4,502	)	$	(13,286	)	$	(29,668	)
Basic and diluted net loss per share:
As reported	$	(0.39	)	$	(1.42	)	$	(3.25	)
As adjusted	$	(0.50	)	$	(1.47	)	$	(3.29	)

F-10

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table sets forth the components of stock-based compensation expense included in net loss:

		For the Fiscal Years Ended
		October 2,		October 3,		September 28,
		2005		2004		2003
Restricted stock-based compensation expense		$	1,355	$	948	$	1,338
Board of Directors stock-based compensation expense			71		106		120
Other stock-based compensation expense			1		—		1
	Total	$	1,427	$	1,054	$	1,459

      On September 26, 2005, the Compensation Committee of the Board of Directors of the Company accelerated the vesting of all of the Company’s unvested stock options awarded to officers and employees under the Company’s 1996 Stock Incentive Plan, which had a per share exercise price equal to or greater than $8.01, the closing price of the Company’s common stock on the Nasdaq National Market on September 26, 2005. As a result of the acceleration, options to acquire approximately 122 shares of the Company’s common stock became immediately exercisable. Options held by directors of the Company were not accelerated.

      In the case of executive officers of the Company, this accelerated vesting was conditioned on such optionee entering into a lock-up agreement (the “Lock-Up”) providing that the executive officer will not, subject to limited exceptions, sell, transfer or otherwise dispose of any shares acquired upon exercise of the accelerated portion of the option before that portion of the option would have otherwise vested under the terms of the grant or any severance, employment or other agreement. The stock options subject to the Lock-Up provision totaled 33 shares.

      The decision to accelerate the vesting of these options was based upon the fact that the Company is required to adopt SFAS No. 123 (Revised 2004), Share-Based Payment (“SFAS No. 123R”), in the beginning of fiscal year 2006, which would require the Company to recognize the grant-date fair value of stock options issued to employees as an expense in the consolidated statements of operations. By accelerating the vesting of these options, the Company avoided the need to recognize future compensation expense of approximately $560 in the aggregate that would have otherwise been required under SFAS No. 123R to have been recorded over the remaining scheduled vesting period of the options starting with its adoption on October 3, 2005.

F-11

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Investments

      The Company accounts for its investments in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. At the time of sale, the cost of mutual fund investments are determined using the average cost method and fixed income securities cost is based upon specific identification. All investments are carried at fair value. The following presents the classification of the Company’s investments (See Note 9, “Employee benefit plans” regarding the deferred compensation plan):

		October 2, 2005
				Gross
		Adjusted		Unrealized
		Cost		Losses			Fair Value
Available-for-sale investments:
U.S. government securities		$	22,409	$	(301	)	$	22,108
Mutual funds			68		—			68
	Total available-for-sale investments	$	22,477	$	(301	)	$	22,176
Classified as:
Available-for-sale							$	22,176
Trading (deferred compensation plan)								3,771
Cash and cash equivalents								405
	Total						$	26,352
Reported as:
Investments							$	692
Restricted investments, short-term (deferred compensation plan)								3,771
Restricted cash and investments, long-term								21,889
	Total						$	26,352

F-12

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		October 3, 2004
				Gross
		Adjusted		Unrealized
		Cost		Losses			Fair Value
Available-for-sale investments:
U.S. government securities		$	15,472	$	(115	)	$	15,357
Auction rate securities			6,400		—			6,400
Mutual funds			66		—			66
	Total available-for-sale investments	$	21,938	$	(115	)	$	21,823
Classified as:
Available-for-sale							$	21,823
Trading (deferred compensation plan)								3,161
Cash and cash equivalents								441
Certificate of deposit								16,000
	Total						$	41,425
Reported as:
Investments							$	339
Restricted investments, short-term								19,161
Restricted cash and investments, long-term								21,925
	Total						$	41,425

      At October 3, 2004, the $16,000 certificate of deposit was classified as a restricted investment in the consolidated balance sheets in compliance with collateralization requirements under the Company’s bank agreement. As of the second quarter of 2005, the Company is no longer required to maintain a $16,000 certificate of deposit as collateral and accordingly has included the amount within cash and cash equivalents.

      Unrealized gains and losses from available-for-sale securities are included in accumulated other comprehensive loss within shareholders’ equity. The following table presents the gross realized gains and losses related to the Company’s available-for-sale securities:

		October 2,		October 3,
		2005		2004
Gross realized gains		$	5	$	76
Gross realized losses			—		(5	)
	Total	$	5	$	71

      Holding gains (losses) on trading securities, are offset by the change in the deferred compensation liability. The following table presents the net holding gains (losses) related to the Company’s trading securities:

	October 2,		October 3,
	2005		2004
Net holding gains (losses)	$	317	$	193

F-13

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table summarizes the fair value and gross unrealized losses related to the Company’s available-for-sale securities that have been in a continuous unrealized loss position at October 2, 2005:

	Less than 12 Months					Greater than 12 Months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
U.S. government securities	$	7,892	$	(76	)	$	14,216	$	(225	)	$	22,108	$	(301	)

      The Company periodically reviews its investment portfolio to determine if any investment is other-than-temporarily impaired due to changes in credit risk or other potential valuation concerns. At October 2, 2005, the Company believes that its investments are not impaired. While certain available-for-sale debt securities have fair values that are below cost, the Company believes that it is probable that principal and interest will be collected in accordance with contractual terms, and that the decline in market value is due to changes in interest rates and not due to increased credit risk. The cost and estimated fair value of available-for-sale fixed income securities at October 2, 2005 and October 3, 2004, by contractual maturity, were as follows:

		October 2, 2005
		Cost Basis		Fair Value
Due within one year		$	7,968	$	7,892
Due after one year through 3 years			14,509		14,284
	Total	$	22,477	$	22,176

		October 3, 2004
		Cost Basis		Fair Value
Due within one year		$	6,400	$	6,400
Due after one year through 3 years			15,538		15,423
	Total	$	21,938	$	21,823

Fixed assets

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

      The Company accounts for long-lived assets, including other purchased intangible assets, in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which requires impairment losses to be recorded on long-lived assets, including intangible assets subject to amortization, used in operations when indicators of impairment, such as significant economic slowdowns in the industry, are present. Reviews are performed to determine whether the carrying value of an asset is impaired, based on comparisons to undiscounted expected future cash flows. If this comparison indicates that there is impairment, the impaired asset is written down to fair value, which is typically calculated using quoted market prices and/or discounted expected future cash flows. Impairment is based on the excess of the carrying amount over the fair value of those assets.

      During fiscal years 2005 and 2004, the Company wrote off approximately $112 and $234 of fixed assets that could no longer be utilized. This charge is included in depreciation and amortization in the accompanying consolidated statements of operations.

      The Company capitalizes the costs of purchased software or internal and external development costs for its internal-use information system in accordance with Statement of Position 98-1, Accounting for the Cost of

F-14

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Computer Software Developed or Obtained for Internal Use (“SOP 98-1”). In accordance with SOP 98-1, the Company commences amortization at the time the software is ready for its intended use. Amortization is determined using the straight-line method over the expected useful life of the software, usually between three and five years. These capitalized costs are included in fixed assets in the accompanying consolidated balance sheets. During fiscal year 2003, the Company wrote off approximately $304 of capitalized software that could no longer be utilized. This charge is included in selling and administrative expenses in the accompanying consolidated statements of operations. During the fourth quarter of fiscal year 2003, the Company changed the estimated useful life of the capitalized software used to manage sales and track client activities. The primary factor contributing to the change in the estimated useful life was that the software’s function was no longer consistent with the Company’s strategic plan and its offices were not fully utilizing the system. The Company discontinued use of the software in November 2003. The change in accounting estimate resulted in an additional amortization charge of approximately $985 and is included in depreciation and amortization in the accompanying consolidated statements of operations for the year ended September 28, 2003.

      Additionally, during the fourth quarter of fiscal year 2003, certain impairment indicators were present and the Company performed a review for impairment and determined that the estimated future cash flows from certain capitalized software development costs were less than their carrying amount and wrote off approximately $477. The primary impairment indicator was the change in the Company’s strategic focus to higher margin business. The impairment charge is included in depreciation and amortization in the accompanying consolidated statements of operations.

Goodwill and other intangible assets

      In accordance with SFAS No. 142, Goodwill and Intangible Assets, goodwill is tested for impairment at the reporting unit level on an annual basis in the Company’s fourth fiscal quarter or more frequently if indicators of impairment exist. Reporting units are determined based on geographic groupings of Company-owned offices. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair value of the Company’s reporting units with the reporting unit’s carrying amount, including goodwill. The fair value of reporting units is generally determined using the income approach. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the second step of the goodwill impairment test is performed to determine the amount of any impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill.

      In fiscal 2003, upon adoption of SFAS No. 142 the Company performed the two-step goodwill impairment test process and obtained assistance from a third-party in performing the valuations of its individual reporting units. The valuation methodologies considered included analyses of discounted cash flows at the reporting unit level, guidelines for publicly traded company multiples and comparable transactions. As a result of these impairment tests, the Company recorded a non-cash charge of $2,421, net of income taxes of $1,634, to reduce the carrying value of the goodwill to its implied fair value. This charge is reflected as a cumulative effect of adoption of a new accounting standard in the Company’s consolidated statements of operations for the year ended September 28, 2003.

F-15

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table presents the changes in the carrying value of the Company’s goodwill:

		October 2,			October 3,
		2005			2004
Beginning balance		$	3,703		$	3,030
	Goodwill recorded in connection with purchase of franchise operations		—			700
	Goodwill recorded in connection with contingent consideration earned		875			—
	Other adjustments		(95	)		(27	)
Ending balance		$	4,483		$	3,703

      At October 2, 2005, goodwill consists of purchased franchise operations, which include operations in Texas, Tennessee, Michigan and Philadelphia. During fiscal year 2005, the Company closed its Willmington, Delaware office and recognized an impairment charge of $64. This office was closed as a result of non-performance. In addition, the Company turned over its Ohio reporting unit to a franchisee for future gross margin splits. The Company recognized an impairment charge of $31 during fiscal year 2005 related to the Ohio reporting unit.

      The following tables present details of the Company’s intangible assets:

		October 2, 2005
				Accumulated
		Gross		Amortization			Net
Franchise rights		$	2,090	$	(780	)	$	1,310
Client relationships			470		(254	)		216
Non-competition agreements			414		(210	)		204
	Total	$	2,974	$	(1,244	)	$	1,730

		October 3, 2004
				Accumulated
		Gross		Amortization			Net
Franchise rights		$	2,090	$	(446	)	$	1,644
Client relationships			470		(120	)		350
Non-competition agreements			414		(134	)		280
	Total	$	2,974	$	(700	)	$	2,274

      The weighted average amortization period is 6.3 years for franchise rights; 3.5 years for client relationships; and 5.0 years for non-competition agreements. Amortization expense related to other intangible assets was $544, $481 and $195 for fiscal years 2005, 2004 and 2003, respectively.

      The estimated future amortization expense of intangible assets as of October 2, 2005, is as follows:

2006		$	542
2007			493
2008			379
2009			242
2010			74
	Total	$	1,730

F-16

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other income, net

      Other income, net consists primarily of late fees collected from clients on past due accounts receivable balances in the amounts of $697, $678 and $685 for the fiscal years 2005, 2004 and 2003, respectively.

Advertising costs

      The Company expenses advertising costs as incurred. Advertising expenses were $1,199, $1,071 and $931 for fiscal years 2005, 2004 and 2003, respectively.

Income taxes

      The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Under this method, deferred income taxes are recognized for the estimated tax consequences in future years of differences between the tax bases of assets and liabilities and the financial reporting amounts at each year-end based on enacted tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established to reduce deferred tax assets to the amount expected to be realized when, in management’s opinion, it is more likely than not that some portion of the deferred tax assets will not be realized. The provision for income taxes represents current taxes payable net of the change during the period in deferred tax assets and liabilities.

Variable interest entities

      During the second quarter of fiscal year 2004 the Company adopted FASB Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities (“FIN 46R”). FIN 46R provides the principles to consider in determining when variable interest entities (“VIE”) must be consolidated in the financial statements of the primary beneficiary. Variable interests are contractual, ownership or other monetary interests in an entity that change with changes in the fair value of the entity’s net assets exclusive of variable interests. An entity is considered to be a VIE when its capital is insufficient to permit it to finance its activities without additional subordinated financial support or its equity investors, as a group, lack the characteristics of having a controlling financial interest. FIN 46R requires the consolidation of entities which are determined to be VIEs when the reporting company determines that it will absorb a majority of the VIE’s expected losses, receive a majority of the VIE’s residual returns, or both. The company that is required to consolidate the VIE is called the primary beneficiary.

      The Company has two forms of franchise arrangements, traditional and licensed and has determined that the franchise arrangements alone do not create a variable interest. However, the Company has provided limited financing to certain franchisees or licensees, which does create a potential variable interest relationship. Based on further analysis performed by the Company, management has determined that these franchisees or licensees are not VIEs. Accordingly, consolidation of these franchisees and licensees is not required.

Reclassifications

      Certain amounts in the prior years consolidated financial statements have been reclassified to conform to the current year presentation. At April 3, 2005, the Company reclassified its investments in auction rate securities from cash and cash equivalents to short-term investments for the current and all prior periods. Corresponding adjustments to the Consolidated Statement of Cash Flows for the fiscal years ended October 2, 2005, October 3, 2004 and September 28, 2003 of the Company have also been made to reflect the gross purchases and sales of these securities as investing activities rather than as a component of cash and cash equivalents. The change in classification does not affect cash flows from operations or from financing activities

F-17

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

for any period previously reported in the Consolidated Statements of Cash Flows, nor does it affect net income or loss for any period previously reported in the Consolidated Statements of Operations.

	As Reported						As Reclassified
	Cash and Cash						Cash and Cash
	Equivalents						Equivalents
	and Restricted		Restricted				and Restricted		Restricted
Fiscal Year Ended	Cash		Investments		Total		Cash		Investments		Total
2005	$	—	$	—	$	—	$	—	$	—	$	—
2004		6,400		—		6,400		457		5,943		6,400
2003		4,900		—		4,900		—		4,900		4,900

	As Reported							As Reclassified
					Net cash							Net Cash
	Restricted				Provided By			Restricted				Provided By
	Investment				(Used In)			Investment				(Used In)
					Investing							Investing
Fiscal Year Ended	Purchases		Maturities		Activities			Purchases		Maturities		Activities
2005	$	—	$	6,400	$	11,282		$	—	$	6,400	$	11,282
2004		1,500		—		(5,680	)		6,400		4,900		(5,885	)
2003		—		3,890		(22,415	)		5,525		9,415		(13,617	)

Segment Reporting

      At October 2, 2005, the Company has one reportable segment. All operational long-lived assets are located in the United States, except for the Canadian operations.

New Accounting Standards

      In June 2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 154, Accounting Changes and Error Corrections — a replacement of APB No. 20 and FAS No. 3 (“SFAS No. 154”). SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. SFAS No. 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. The correction of an error in previously issued financial statements is not an accounting change. However, the reporting of an error correction involves adjustments to previously issued financial statements similar to those generally applicable to reporting an accounting change retrospectively. Therefore, the reporting of a correction of an error by restating previously issued financial statements is also addressed by SFAS No. 154. SFAS No. 154 is required to be adopted in fiscal years beginning after December 15, 2005. The Company does not believe its adoption in fiscal 2007 will have a material impact on its consolidated results of operations or financial position.

      In March 2005, the SEC issued guidance on FASB SFAS 123(R), Share-Based Payments (“SFAS No. 123R”). Staff Accounting Bulletin No. 107 (“SAB 107”) was issued to assist preparers by simplifying some of the implementation challenges of SFAS No. 123R while enhancing the information that investors receive. SAB 107 creates a framework that is premised on two themes: (a) considerable judgment will be required by preparers to successfully implement SFAS No. 123R, specifically when valuing employee stock options; and (b) reasonable individuals, acting in good faith, may conclude differently on the fair value of employee stock options. Key topics covered by SAB 107 include: (a) valuation models — SAB 107 reinforces the flexibility allowed by SFAS No. 123R to choose an option-pricing model that meets the standard’s fair value measurement objective; (b) expected volatility — SAB 107 provides guidance on when it

F-18

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

would be appropriate to rely exclusively on either historical or implied volatility in estimating expected volatility; and (c) expected term — the new guidance includes examples and some simplified approaches to determining the expected term under certain circumstances. The Company will apply the principles of SAB 107 in conjunction with its adoption of SFAS No. 123R.

      In December 2004, the FASB issued SFAS No. 123R. This standard requires all share-based payments to employees, including grants of employee stock options, to be expensed in the financial statements based on their fair values beginning with the first annual period beginning after June 15, 2005 (the first quarter of fiscal year 2006 for the Company). The pro forma disclosures permitted under SFAS No. 123 will no longer be allowed as an alternative presentation to recognition in the financial statements. Under SFAS No. 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition methods include modified prospective and modified retrospective adoption options. Under the modified retrospective option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The modified prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS No. 123R, while the retroactive methods record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The Company expects to adopt SFAS No. 123R in its first quarter of fiscal year 2006 on a modified prospective basis, which will require recognition of compensation expense for all stock option or other equity-based awards that vest or become exercisable after the effective date. The Company does not believe its adoption will have a material impact on its consolidated results of operations or financial position.

      In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets — An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions (“SFAS No. 153”). SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21 (b) of APB Opinion No. 29, Accounting for Nonmonetary Transactions, and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for fiscal periods beginning after June 15, 2005. The Company is currently evaluating the requirements of SFAS No. 153, but does not expect it to have a material impact on its consolidated results of operation or financial position.

      In December 2004, the FASB issued Staff Position (“FSP”) No. 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004 (“FSP 109-2”). FSP 109-2 provides further guidance on conforming to the requirements of SFAS No. 109, Accounting for Income Taxes (“SFAS No. 109”), with respect to the timing of evaluating and recording of the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the “Jobs Act”) on a company’s income tax provision and deferred tax accounts. FSP 109-2 states that a company is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109. The Company does not expect to apply this provision based upon its preliminary evaluation.

      In June, 2005 the Emerging Issues Task Force (EITF) issued No. 05-06, Determining the Amortization Period of Leasehold Improvements or Acquired in a Business Combination (“EITF No. 05-06”). EITF No. 05-06 provides that the amortization period for lease hold improvements acquired in a business combination or purchased after the inception of a lease be the shorter of (a) the useful life of the assets or (b) a term that includes required lease periods and renewals that are reasonably assured upon the acquisition of the purchase. The guidance in EITF No. 05-6 will be applied prospectively and is effective for periods beginning after June 29, 2005. The Company does not believe its adoption will have a material impact on its consolidated results of operations or financial position.

F-19

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Fixed assets

      The following table presents details of the Company’s fixed assets:

	October 2,		October 3,
	2005		2004
Computer equipment and software	$	25,542	$	24,807
Furniture and fixtures		6,244		5,751
Leasehold improvements		2,558		2,480
Construction in progress		1,940		974
		36,284		34,012
Less accumulated depreciation and amortization		26,588		23,423
Fixed assets, net	$	9,696	$	10,589

      Construction in progress primarily relates to software development and implementation costs for various internal-use information systems. The Company’s depreciation and amortization was $5,133, $5,844, and $6,748 for fiscal years 2005, 2004 and 2003, respectively.

3. Workers’ compensation

      The Company provides workers’ compensation insurance to its temporary associates and colleagues. Effective April 1, 2001 and for workers’ compensation claims originating in the majority of states (referred to as non-monopolistic states), the Company has contracted with independent, third-party carriers for workers’ compensation insurance and claims administration. Each annual contract covers all workers’ compensation claim costs greater than a specified deductible amount on a “per occurrence” basis. The Company is self-insured for its deductible liability ($250 per individual claim incurred from April 1, 2001 to March 31, 2002 and $500 for all subsequent periods). The insurance carrier is responsible for incremental losses in excess of the applicable deductible amount.

      The Company establishes a reserve for the estimated remaining deductible portion of its workers’ compensation claims, representing the estimated ultimate cost of claims and related expenses that have been reported but not settled, and that have been incurred but not reported. The estimated ultimate cost of a claim is determined by applying actuarially determined loss development factors to current claims information. These development factors are determined based upon a detailed actuarial analysis of historical claims experience of both the Company and the staffing industry. The Company periodically updates the actuarial analysis supporting the development factors utilized and revises those development factors, as necessary. Adjustments to the claims reserve are recorded to expense or income in the years in which they occur. The estimated remaining deductible liability under the aforementioned contracts are $38,281 and $36,449 at October 2, 2005 and October 3, 2004, respectively. The Company recorded $11,974 and $12,359 as current and $26,307 and $24,090 as non-current at October 2, 2005 and October 3, 2004, respectively.

F-20

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company also has an aggregate $2,552 and $2,667 current liability recorded at October 2, 2005 and October 3, 2004, respectively, for amounts due to various state funds related to workers’ compensation. The following table presents the classification of the Company’s workers’ compensation liability, accrued CIGA litigation and other liabilities:

			October 2,		October 3,
			2005		2004
Current
	Liability for various state funds and previous guaranteed cost policies		$	2,552	$	2,677
	Accrued workers’ compensation			11,974		12,359
		Accrued workers’ compensation	$	14,526	$	15,036
Long-term
	Other liabilities		$	116	$	300
	Accrued CIGA litigation			5,877		5,877
	Accrued workers’ compensation			26,307		24,090
		Other liabilities	$	32,300	$	30,267

      The Company is contractually required to collateralize its remaining obligation under each of these workers’ compensation insurance contracts through the use of irrevocable letters of credit, pledged cash and securities or a combination thereof. The level and type of collateral required for each policy year is determined by the insurance carrier at the inception of the policy year and may be modified periodically. As of October 2, 2005, the Company had outstanding letters of credit of $36,538 and pledged cash and securities of $21,889 as collateral for these obligations. The pledged cash and securities are restricted and cannot be used for general corporate purposes while the Company’s remaining obligations under the workers’ compensation program are outstanding. At the Company’s discretion and to the extent available, other forms of collateral may be substituted for the pledged cash and securities. The Company has classified these pledged cash and securities as restricted in the accompanying consolidated balance sheets.

      From July 22, 1997 through March 31, 2001, the Company had a fully insured workers’ compensation program with Reliance National Insurance Company (“Reliance”). The annual premium for this program was based upon actual payroll costs multiplied by a fixed rate. Each year, the Company prepaid the premium based upon estimated payroll levels and an adjustment was subsequently made for differences between the estimated and actual amounts. Subsequent to March 31, 2001 (the end of Company’s final policy year with Reliance), Reliance became insolvent and was subsequently liquidated. The Company is currently in litigation with the California Insurance Guaranty Association regarding financial responsibility for all remaining open claims under the Reliance workers’ compensation program. The Company recorded a $5,877 charge to operating income during the fourth quarter of fiscal 2004 as a result of the October 2004 Court of Appeal’s decision (See Note 8).

4. Line of credit

      The Company amended and restated its credit facility with Bank of America dated February 4, 2004. The Amended and Restated Credit Agreement (“Credit Agreement”) with Bank of America was effective December 1, 2004.

      The new Credit Agreement provides for borrowings up to $50,000 with a provision permitting the Company to increase the aggregate amount of borrowings to $60,000. The Company has granted a security interest to Bank of America in all its existing and future assets. The Credit Agreement will expire two years from the closing date, on December 1, 2006. The Credit Agreement bears interest on outstanding borrowings

F-21

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

equal to LIBOR plus 1.75% to 2.75% based upon the Company’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) or prime rate plus 0.00% to 0.50% based on EBITDA. The Company is also required to pay monthly fees of 0.25% per annum on the unused portion of the line of credit and monthly fees of 0.75% or 1.50% per annum on outstanding letters of credit based on a pricing matrix. The Credit Agreement requires the Company to comply with a minimum EBITDA covenant, which will not go into effect unless the Company’s total liquidity drops below $15,000. Liquidity is defined by the Credit Agreement as unrestricted domestic cash plus excess borrowing availability. Additionally, under the Credit Agreement, the Company is no longer required to maintain a $16,000 Bank of America Certificate of Deposit as collateral as required by its prior credit facility. The Company is in compliance with all financial covenants as prescribed in the Credit Agreement at October 2, 2005.

      Prior to December 1, 2004, the Company’s credit facility with Bank of America dated February 4, 2004 provided for aggregate borrowings not to exceed $40,000, including any letters of credit existing under the prior credit agreement. The Company’s obligation under the line of credit was collateralized by certain assets of the Company. In addition, the Company was required to maintain a $16,000 Bank of America Certificate of Deposit to satisfy the collateral requirement, which was classified as restricted cash and investments at October 3, 2004 in the accompanying consolidated balance sheets. The interest rate on the outstanding borrowings, was at the Company’s discretion, either prime rate plus 0.0% or 0.5% (depending on the amount of outstanding borrowings) or LIBOR plus 0.75% or 1.5% (depending on the amount of outstanding borrowings) and was paid monthly. The interest rate on outstanding letters of credit was 0.75% for amounts up to $16,000 and 1.5% for amounts greater than $16,000. The Company was required to pay quarterly fees of 0.25% per annum on the unused portion of the line of credit. Under the agreement, the Company was also required to comply with certain restrictive covenants, the most restrictive limited the Company’s net loss for each fiscal quarter and on a fiscal year-to-date basis.

      The Company has no borrowings outstanding as of October 2, 2005 and October 3, 2004. The Company had outstanding letters of credit totaling $36,538, $34,661 and $21,911 at October 2, 2005, October 3, 2004 and September 28, 2003, respectively, to collateralize its remaining workers’ compensation deductible liability (See Note 3).

5. Income taxes

      The Company’s provision for (benefit from) income taxes consists of the following:

		For the Fiscal Years Ended
		October 2,		October 3,			September 28,
		2005		2004			2003
Current tax expense (benefit):
	Federal	$	579	$	(260	)	$	(241	)
	State		288		(261	)		518
	Foreign		124		198			40
Total current			991		(323	)		317
Deferred tax expense:
	Federal		—		—			5,537
	State		—		—			792
Total deferred			—		—			6,329
Total provision for (benefit from ) income taxes		$	991	$	(323	)	$	6,646

F-22

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The federal tax provision consists of three components; current Alternative Minimum Tax of $1,299, release of reserve for uncertain tax positions of $(161) and a refund claim received of $(559) related to Work Opportunity Tax Credits for fiscal year 2000.

      Deferred tax assets and liabilities are determined based on temporary differences between income and expenses reported for financial reporting and tax reporting. The Company is required to record a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial performance. The Company had been profitable through the first fiscal quarter of 2003, however, continued market softness and significant increases in workers’ compensation costs resulted in significant losses in fiscal year 2003. The Company continued to experience losses throughout fiscal years 2004 and 2005.

      As a result of the Company’s cumulative losses, management concluded that a full valuation allowance of $25,890 and $22,516 against the deferred tax assets was appropriate for fiscal years 2005 and 2004, respectively. If, after future assessments of the realizability of the deferred tax assets, the Company determines a lesser allowance is required, it would record a reduction to income tax expense and the valuation allowance in the period of such determination.

      The composition of the deferred tax assets (liabilities) is as follows:

		For the Fiscal
		Years Ended
		October 2,			October 3,
		2005			2004
Deferred income tax assets:
	Deferred compensation	$	2,982		$	2,476
	Accrued workers’ compensation		15,942			14,433
	Accrued CIGA litigation costs		2,433			2,414
	Accrued settlement		389			—
	Bad debt expense		361			1,178
	Job tax credits		4,343			2,684
	State net operating loss carryforward		26			122
	Other, net		1,646			1,535
Total deferred income tax asset		$	28,122		$	24,842
Prepaid expenses			(814	)		(813	)
Depreciation and amortization			(1,418	)		(1,513	)
Total deferred income tax liability		$	(2,232	)	$	(2,326	)
Net deferred income tax asset before valuation allowance			25,890			22,516
Valuation allowance			(25,890	)		(22,516	)
Net deferred income tax asset		$	—		$	—

F-23

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

	For the Fiscal Years Ended
	October 2,			October 3,			September 28,
	2005			2004			2003
Federal tax computed at statutory rate		(35.0	)%		(35.0	)%		(35.0	)%
State taxes, net of federal benefit		(4.6	)		(4.6	)		(4.4	)
Federal tax credits		(91.1	)		(6.7	)		(6.7	)
Meals and entertainment		5.5			0.6			0.6
Change in valuation allowance		171.2			43.5			75.2
Change in reserve for uncertain tax positions		(6.2	)		—			—
Other		(1.3	)		(0.3	)		(0.3	)
Total provision for income taxes		38.5	%		(2.5	)%		29.4	%

      An income tax provision of $991 was recorded in fiscal year 2005 as compared to an income tax benefit of $323 for fiscal year 2004. The Company’s overall effective tax rate of 38.5% for fiscal year 2005 differs from the statutory rate as a result of the Company’s requirement to fully reserve its deferred tax assets due to previous book losses, that results in a tax provision which is substantially on a current tax liability basis. The $991 income tax provision relates to the Company’s tentative federal minimum tax liability as well as the Company’s state and foreign income tax liabilities for the current fiscal year. Even though the Company experienced a loss for book purposes during fiscal 2005, certain expenses are non-deductible for income tax purposes resulting in taxable income. As a result of the full valuation allowance applied against our deferred tax assets, the deferred income tax benefit associated with these temporary differences is not being recorded. Therefore, the only component recorded in fiscal 2005 is the current income tax provision of $991. The effective tax rate of (2.5%) for fiscal year 2004 differs from the statutory rate due primarily to the current period valuation allowance against the deferred tax asset. The estimated annual effective tax rate is revised quarterly based upon actual operating results, the tax credits earned to date as well as current annual projections. The cumulative impact of any change in the estimated annual effective tax rate is recognized in the period the change in estimate occurs.

      The Company released a portion of their tax reserve for uncertain tax positions during fiscal 2005 due to the successful resolution of Puerto Rico related tax matters. In addition, the reserve related to job tax credits claimed on the Company’s federal income tax returns was also reduced due to the expiration of the statute of limitations for a prior year filing.

6. Purchase of franchised operations

      From time to time, the Company may selectively purchase traditional and licensed franchise operations for strategic reasons, including facilitating its expansion plans of increased market presence in identified geographic regions. The consolidated financial statements include the results of operations of these offices commencing as of their respective acquisition dates. Results of operations for the acquired licensed operations are recorded in accordance with the Company’s related revenue recognition policy until the acquisition date. Prior to the acquisitions, the revenues and related costs of revenues for licensed franchises are recognized as licensed franchise revenues and cost of licensed franchise revenues in the consolidated statements of operations. For traditional franchise operations prior to acquisition, the revenues are recorded as franchise royalties. Subsequent to the acquisitions, the revenues and related costs of revenues are recognized as direct revenues and cost of direct revenues in the consolidated statements of operations. These acquisitions were accounted for under the purchase method of accounting.

F-24

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      On January 12, 2004 (the “closing date”), the Company completed the acquisition of one of its traditional franchise operations consisting of two offices in Texas for $1,800. At the closing date, the Company paid $1,443 in cash ($57 in net amounts owed to the Company by the franchisee were deducted from the cash payment). The remaining $300 will be paid in cash two years from the closing date. Of the total purchase price, $702 was allocated to goodwill. Additionally, $1,100 was allocated to amortizable intangible assets consisting of $610, $370, and $120 for the franchise rights, client relationships and non-competition agreements, respectively, and is being amortized over the estimated useful lives of 6.5 years, 3.5 years and 5.0 years, respectively. The Asset Purchase Agreement includes provisions for contingent payments for the three years subsequent to the closing date and is based upon performance targets related to increases in EBITDA over the prior year. Contingent payments will be accounted for as an increase to the purchase price and recorded as goodwill.

      During March and April of fiscal year 2003, the Company acquired a large licensed franchise operation in Tennessee consisting of several offices and purchased assets of a smaller licensed franchise in Texas consisting of one office, respectively. The combined purchase price was $3,763 ($3,720 for the Tennessee franchise and $43 for the Texas franchise). The Company recorded goodwill of $2,833 ($2,799 for the Tennessee franchise and $34 for the Texas franchise). In connection with the Tennessee acquisition, $1,840 of the purchase price was allocated to amortizable intangible assets consisting of $1,480, $100, and $260 for franchise rights, client relationships and non-competition agreement, respectively, and is being amortized over the estimated useful lives of 6.2 years, 3.5 years, and 5.0 years, respectively. The Stock Purchase Agreement for the Tennessee acquisition included a provision for contingent payments for the two years subsequent to December 29, 2002. The contingent payments are based upon performance targets related to increases in the Tennessee offices’ EBITDA over the prior year. The Company was not required to make a payment for the twelve months ended December 28, 2003. A contingent payment was required at December 31, 2004 of $875, which increased the purchase price and was recorded as goodwill in the Company’s consolidated financial statements. Additionally, the Company is required to pay monthly royalties to the prior franchisee based upon revenues of a certain client of the Tennessee office for as long as Remedy services that client. The Company paid $681 and $836 royalty payments which are included in selling and administrative expenses in the accompanying consolidated statements of operations for fiscal years 2005 and 2004, respectively.

7. Office closures

      The Company’s strategic plan focuses on increasing the percentage of business from higher margin service lines, increasing sales through targeted sales force and distribution channel expansion and enhancing operating margins through continuous productivity improvements. As a result, and given overall industry and market conditions, the Company is continually reassessing its current operating structure. During fiscal years 2005 and 2004, the Company closed several company owned offices and recorded charges of $392 and $45, respectively, related to contract lease obligations included in selling and administrative expenses in the Company’s consolidated statements of operations. At October 2, 2005 and October 3, 2004, the remaining liability resulting from the closed office charges was $232 and $130, respectively, and relates to estimated losses on subleases and the remaining net lease payments on closed locations that will be paid out through fiscal year 2007. During the third quarter of fiscal year 2003, the Company implemented plans to close or consolidate certain Company-owned offices, specifically those that were under-performing or primarily dedicated to recruiting activities. During the third and fourth quarters of fiscal year 2003, the Company recorded a $992 charge for costs in connection with these plans, including $689 related to contractual lease obligations and $303 for severance benefits, fixed asset disposals and other costs associated with these office closures. The $992 charge is included in selling and administrative expenses in the Company’s consolidated statements of operations for the fiscal year ended September 28, 2003.

F-25

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8. Commitments and contingent liabilities

Operating and capital leases

      The Company leases its corporate facility, Company-owned offices and certain equipment under operating and capital leases. The leases typically require the Company to pay taxes, insurance and certain other operating expenses applicable to the leased property. Future minimum lease commitments under all non-cancelable operating and capital leases as of October 2, 2005 are as follows:

		Operating			Capital
		Leases			Leases
2006		$	4,353		$	35
2007			3,615			35
2008			2,887			35
2009			2,189			35
2010			1,579			28
Thereafter		$	7		$	—
Amounts representing interest			—			(30	)
			14,630			138
Less sublease income			(178	)		—
Less: capital lease obligations, short term portion			—			(22	)
	Total	$	14,452		$	$116

      Rent expense under the Company’s operating leases as of October 2, 2005, October 3, 2004 and September 28, 2003 is as follows:

		For the Fiscal Years Ended
		October 2,			October 3,			September 28,
		2005			2004			2003
Rent expense		$	5,422		$	5,199		$	6,362
Less: sublease income			(149	)		(175	)		(182	)
	Net rent expense	$	5,273		$	5,024		$	6,180

Litigation

Lindsay Welch-Hess v. Remedy Temporary Services, Inc.

      Commencing in March 2003, the Company was sued in an action entitled Lindsay Welch-Hess v. Remedy Temporary Services, Inc. in San Diego Superior Court. The complaint sought damages under various employment tort claims, including sexual harassment and retaliation stemming from a four-day employment relationship. The complaint also sought damages for unpaid wages under the California Labor Code. The plaintiff later amended the complaint to assert class claims for unpaid wages with respect to certain aspects of the application process. The complaint asserted additional class claims alleging failure to compensate persons assigned to one of Remedy’s clients.

      In November 2004, the Court certified a class consisting of all persons in California who, since October 1999, have applied to the Company for placement in a temporary job, regardless of whether they were ever placed in a temporary assignment by the Company (the “Remedy class”). The Court certified a second class consisting of all persons in California who, since October 1999, were hourly employees hired by Remedy and

F-26

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

assigned to a particular client (the “training class”). On February 11, 2005, the Company filed two motions for summary judgment related to the Remedy class and the training class.

      On May 31, 2005, the Court denied, in part, the Company’s motion for summary judgment related to the Remedy class, which allows that class to pursue the claim for unpaid compensation. On June 27, 2005, the Company filed a writ in Division One of the Fourth Appellate District seeking an order vacating the denial of Remedy’s summary judgment motion related to the Remedy class. On September 27, 2005, the Court of Appeal denied the writ. Subsequently, the Company filed a Petition for Review before the California Supreme Court, which was summarily denied.

      On July 27, 2005, plaintiffs filed an appeal challenging the following two court orders relating to the Remedy class: (1) the order denying class certification as to the tenth cause of action (failure to pay wages upon termination/resignation); and (2) the portion of the trial court’s ruling on Remedy’s summary judgment, which prohibits individuals who completed Remedy’s application process but never worked for Remedy from class membership. The Company has filed a motion to dismiss, which has not yet been heard.

      On July 29, 2005, the Court granted Remedy’s motion for summary judgment related to the training class and allowed plaintiffs to recover attorneys’ fees. Plaintiffs filed a motion for reconsideration on various issues, which was denied.

      On September 27, 2005, plaintiffs appealed the Court’s order relating to Remedy’s motion for summary judgment of the training class, but it is unclear at this time what specific aspects of that order are being appealed by plaintiffs. Plaintiffs’ opening brief is due on December 16, 2005. Plaintiffs have also filed a motion to bifurcate the various individual tort claims from the class claims. That motion has not yet been heard.

      The Company intends to vigorously defend this case. At this time, the Company has not estimated an accrual for this matter because the probability of an unfavorable outcome cannot currently be reasonably estimated.

CIGA

      In early 2002, as a result of the liquidation of Remedy’s former workers’ compensation insurance carrier, Reliance National Insurance Company (“Reliance”), the California Insurance Guarantee Association (“CIGA”) began making efforts to join some of the Company’s clients and their workers’ compensation insurance carriers (collectively, “Clients”), in pending workers’ compensation claims filed by Remedy employees. At the time of these injuries, from July 22, 1997 through March 31, 2001, Remedy was covered by workers’ compensation policies issued by Reliance. The Company believes that under California law, CIGA is responsible for Reliance’s outstanding liabilities. On April 5, 2002, the California Workers’ Compensation Appeals Board (“WCAB”), at Remedy’s request, consolidated the various workers’ compensation claims in which CIGA sought to join Remedy’s Clients, and agreed to stay proceedings on those claims pending resolution of the issue of CIGA’s obligations to satisfy Reliance’s obligations to Remedy’s employees. The WCAB selected a single test case from the consolidated pending cases in which to decide whether CIGA is responsible for the claims of Remedy’s employees, or can shift such responsibility to the Clients. The trial occurred on September 20, 2002. The WCAB Administrative Law Judge ruled in favor of CIGA, thus allowing the pending workers’ compensation matters to proceed against the Clients. Remedy then filed a motion for reconsideration of the Administrative Law Judge’s decision by the entire WCAB. On March 28, 2003, the WCAB affirmed the ruling of the Administrative Law Judge. Thereafter, in May 2003, the Company filed a petition for writ of review of the WCAB’s decision in the California Court of Appeal. The WCAB continued the “stay” in effect since April 5, 2002, thus preventing CIGA from proceeding until the writ proceeding was concluded. In January 2004, the Court of Appeal granted the Company’s petition and undertook to review the WCAB’s decision. The Court of Appeal heard oral argument in the matter on July 9, 2004.

F-27

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      On October 20, 2004, the Court of Appeal affirmed the WCAB’s decision. On November 18, 2004, the Court of Appeal granted the Company’s petition for rehearing and requested additional briefing on this matter. The Court of Appeal heard oral argument on April 15, 2005. On July 25, 2005, the Court of Appeal issued its decision finding that CIGA should not be dismissed and that the insurance held by Remedy’s Client did not provide other available insurance for the workers’ compensation claim. CIGA appealed this decision with the California Supreme Court. In October 2005, the California Supreme Court declined to hear the appeal and sent the matter back to the WCAB with instructions to enforce the Court of Appeal’s decision.

      On October 25, 2005, Remedy filed a request for order seeking to dismiss Remedy, its Clients and their insurance companies from the individual WCAB cases and joining CIGA as a defendant. On November 7, 2005, CIGA filed objections to the request for dismissal. A hearing date has not been set.

      Despite the Court of Appeal’s decision, in the event of a final unfavorable outcome, Remedy may be obligated to reimburse certain Clients and believes that it would consider reimbursement of other Clients for actual losses incurred as a result of unfavorable rulings in these matters. If Remedy is unsuccessful in dismissing Remedy’s Clients from these matters, and if these Clients or their insurance carriers become obligated to respond to the claims of Remedy’s employees, the Company believes that the direct financial exposure to Remedy becomes a function of the ultimate losses on the claims and the impact of such claims, if any, on the Clients’ insurance coverage, potentially including but not limited to the Clients’ responsibility for any deductibles or retentions under their own workers’ compensation insurance. The Company has received data from the Third Party Administrator (“TPA”) handling the claims for CIGA. Such data indicates claims of approximately $31,895 as of October 2, 2005. The losses incurred to date represent amounts paid to date by the trustee and the remaining claim reserves on open files.

      In the fourth quarter of fiscal year 2004, the Company recorded a $5,877 charge to operating income related to the CIGA case. The Company does not currently expect to adjust the reserve as a result of the July 25, 2005 ruling and the October 2005 California Supreme Court declination, until final resolution of the case. This amount represents the Company’s estimate on the basis of a review of known information and was established for costs associated with the indemnification of certain Clients for losses they may suffer as a result of final unfavorable outcomes. The information reviewed included customer contracts, review of the loss run received from the TPA handling the claims, actuarial development of the reported claim losses, estimates of customer insurance coverage, and other applicable information. The amount of the charge is, therefore, subject to change as more information becomes available to the Company. In the event of a final unfavorable outcome, the Company may also choose to reimburse certain Clients that did not enter into contracts with the Company or whose contracts may not have included indemnification language. These costs will be treated as period costs and will be charged to the consolidated statements of operations in the period management decides to make any “goodwill” payments to Clients. Management’s current estimate of future “goodwill” payments is a range of $2,000 to $3,000. This estimate is subject to change.

Other Litigation

      From time to time, the Company becomes a party to other litigation incidental to its business and operations. The Company maintains insurance coverage that management believes is reasonable and prudent for the business risks that the Company faces. Based on current available information, management does not believe the Company is party to any other legal proceedings that are likely to have a material adverse effect on its business, financial condition, cash flows or results of operations.

Other Contingency

      In late 2003, the Company was notified that it may have underpaid certain payroll-related tax liabilities by approximately $2,000 for the period from January 1, 2003 through September 30, 2003. Based on its

F-28

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

evaluations and after consultation with outside counsel, the Company believes that the methodology the Company used to calculate these taxes was in compliance with applicable law. The Company is currently working with outside counsel to resolve these matters. As of October 2, 2005, the Company has accrued $983 in connection with the potential settlement of these payroll-related tax matters.

9. Employee benefit plans

401(k) Plan

      The Company has an employee savings plan which permits participants to make contributions by salary deduction pursuant to section 401(k) of the Internal Revenue Code. The plan is open to qualified full-time and temporary employees who earn less than $90 per year. The annual amount of employer contributions to the plan is determined at the discretion of the Board of Directors, subject to certain limitations. Eligible participants may make voluntary contributions to the plan and become fully vested in the Company’s contributions over a five-year period. The Company made $47, $40, and $38 in contributions during fiscal years 2005, 2004 and 2003, respectively.

Deferred Compensation Plan

      The Company maintains a non-qualified deferred compensation plan (the “Deferred Compensation Plan”) for certain executives of the Company. Under the Deferred Compensation Plan, eligible participants may defer receipt of up to 100% of their base compensation and bonuses on a pretax basis until specified future dates, upon retirement or death. The deferred amounts are placed in a trust and invested by the Company. Participants recommend investment vehicles for the funds, subject to approval by the trustees. The balance due each participant increases or decreases as a result of the related investment gains and losses. The trust and the investments therein are assets of the Company; however, for internal purposes, the Company has classified the assets as restricted investments in the accompanying balance sheets even though there are no contractual restrictions as to the use of the assets by the Company. The participants of the Deferred Compensation Plan are general creditors of the Company with respect to benefits due. For the fiscal years ended 2005, 2004 and 2003, the amounts charged to compensation expense within selling and administrative expenses offset by gains or losses on trading securities within other income or expense relating to the Deferred Compensation Plan were $858, $659 and $880, respectively. Included in accrued payroll, benefits and related costs in the accompanying consolidated balance sheets at October 2, 2005 and October 3, 2004 was $3,880 and $3,277, respectively, relating to amounts owed by the Company to the plan participants.

10. Accumulated other comprehensive loss

      The components of accumulated other comprehensive losses are as follows:

	For the Fiscal
	Years Ended
	October 2,			October 3,
	2005			2004
Accumulated unrealized loss on investments	$	(301	)	$	(115	)
Accumulated translation adjustments		172			47
Total accumulated other comprehensive loss	$	(129	)	$	(68	)

F-29

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11. Shareholders’ equity

Earnings per share calculation

      The Company is required to disclose basic and diluted earnings per share (“EPS”) in accordance with SFAS No. 128, Earnings Per Share. Basic EPS is calculated using income divided by the weighted average number of common shares outstanding during the period. Diluted EPS is calculated similar to basic EPS except that the weighted average number of common shares is increased to include the number of additional common shares that would have been outstanding if the potential dilutive common shares, such as options, had been issued and restricted shares had vested.

      The table below sets forth the computation of basic and diluted earnings per share:

		For the Fiscal Years Ended
		October 2,			October 3,			September 28,
		2005			2004			2003
Numerator:
	Loss before cumulative effect of adoption of a new accounting standard	$	(3,568	)	$	(12,792	)	$	(26,822	)
	Cumulative effect of adoption of a new accounting standard, net of income taxes		—			—			2,421
	Net loss	$	(3,568	)	$	(12,792	)	$	(29,243	)
Denominator:
	Weighted-average number of shares, basic		9,050			9,022			9,010
	Effect of dilutive securities: Stock options		—			—			—
	Weighted-average number of shares — assuming dilution		9,050			9,022			9,010
Earnings per share — Basic and Diluted:
	Loss before cumulative effect of adoption of a new accounting standard	$	(0.39	)	$	(1.42	)	$	(2.98	)
	Cumulative effect of adoption of a new accounting standard, net of income taxes		—			—			(0.27	)
	Net loss	$	(0.39	)	$	(1.42	)	$	(3.25	)

      Potential common shares, consisting of stock options and restricted stock, of 1,238, 1,295 and 565 for fiscal years 2005, 2004 and 2003, respectively, have been excluded from the calculation of diluted shares because the effect of their inclusion would be antidilutive.

Employee Stock Purchase Plan

      In connection with the Company’s initial public offering in July 1996 (the “Offering”), the Company implemented its 1996 Employee Stock Purchase Plan (the “Purchase Plan”). The Purchase Plan commenced on October 1, 1996. Under the terms of the Purchase Plan, as amended, eligible employees may purchase shares of the Company’s Common Stock based on payroll deductions. A total of 250 shares were reserved for issuance under the Purchase Plan. On August 16, 1999, the Purchase Plan was amended to enable employees of the Company’s subsidiaries to participate in the Purchase Plan. On September 26, 2005, the Purchase Plan was amended so that the price that employees pay for the stock purchased at the end of each offering period will be equal to 95% of the fair market value of the common stock at the end of the offering period with no look-back provision. During fiscal year 2005, 11 shares were purchased at a price of $8.33 per share, during fiscal year 2004, 19 shares were purchased at prices between $11.22 and $8.87 per share, and during fiscal year

F-30

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2003, 11 shares were purchased at prices between $10.23 and $10.65 per share. As of October 2, 2005, 112 shares of Common Stock were available for issuance under the Purchase Plan. The total amount of activity was $94, $185 and $112 during fiscal years 2005, 2004 and 2003, respectively.

Stock Ownership Plan for Outside Directors

      Directors who are also employees or officers of the Company receive no extra compensation for their service on the Board. Pursuant to the Non-Employee Director Plan, effective March 16, 1998, and amended by the Board on October 1, 2003, independent directors receive an annual retainer in the form of cash or shares of Common Stock valued at $25 on the date of their election or re-election to the Board. For those directors electing to receive their retainer in stock, the Shares that are issued under the Non-Employee Director Plan are held in trust, on a deferred basis (subject to an exception for financial hardship) until a director is no longer a director of the Company. Such shares are earned ratably over the year and are issued in trust no later than ten business days after the next annual meeting of shareholders following election or re-election, provided that the director has remained a director during such time. The maximum aggregate number of shares that have been authorized for issuance under the Non-Employee Director Plan is 75 shares, subject to adjustment upon recapitalization, stock dividends, stock splits and similar changes in the Company’s capitalization as provided in the plan. As of October 2, 2005, 35 shares of Common Stock were available for issuance under the Non-Employee Director Plan. In February 2005, 2004 and 2003, a total of 4, 13 and 9 shares, respectively, were issued to the trust for services rendered. As the trust belongs to the Company, all shares issued to the trust are treated as Company-owned for financial reporting purposes. All shares issued and earned are included in the diluted shares outstanding calculation.

Phantom Stock Plan

      The Company created a Phantom Stock Plan (“the Plan”) to entice certain individuals to participate in the start-up of the Company’s RemX® specialty business unit. The Plan was designed to reward the participants based upon five full years of RemX® operations. The participants of the Plan were granted phantom shares at the commencement of employment. The value of the phantom shares will be determined based on the performance of the division and the Company’s earnings multiple. At the end of five years, the phantom shares will be valued; 25% of the award will be paid out and the remaining award will be paid out annually at 25% per year over the next 3 years. Participants must be employed by the Company to receive payment and the amount earned will be paid out in cash or 50% cash and stock at the Company’s election. During fiscal year 2005, the Company determined that the probability of certain performance in the Plan would likely be met based upon the current and expected performance of the RemX® specialty business unit. Accordingly, the Company recorded an expense accrual and charge to operations of $76. Until the final measurement date is reached, the Company will reassess the expense accrual on a quarterly basis and changes in the estimate of the expense accrual will be accounted for as cumulative catch-up adjustments.

Stock Incentive Plan

      The Company’s 1996 Stock Incentive Plan, as amended, (the “Incentive Plan”) provides for the grant of stock-based awards, including incentive stock options, non-qualified stock options, restricted stock and stock appreciation rights, among others, to key employees and members of the Company’s Board of Directors. A total of 1,800 shares have been reserved for issuance under the Incentive Plan, and as of October 2, 2005, approximately 365 shares were available for future grants. Options granted to employees typically may be exercised within ten years from the grant date and are exercisable in installments determined by the Leadership, Development and Compensation Committee of the Board of Directors. Options granted to non-employee, non-officer directors prior to the Offering were immediately exercisable. Options granted to non-employee, non-officer directors subsequent to the Offering are typically 50% exercisable immediately and 50% exercisable upon the date of the next annual shareholders meeting.

F-31

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table summarizes the Company’s grant activity as of October 2, 2005, October 3, 2004 and September 28, 2003:

Fiscal Years	# of Grants		Low		High
2005		77.0	$	8.08	$	9.75
2004		15.0		8.26		13.28
2003		158.3		10.23		12.25

      During fiscal years 2005 and 2004, no shares of restricted Class A Common Stock were granted. During fiscal years 2003 and 2002, the Compensation Committee of the Board of Directors authorized and issued 320 and 425 shares of restricted Class A Common Stock, respectively, to certain officers of the Company (the “Restricted Stock”) under the Incentive Plan. These shares have no purchase price and cliff vest after five years. However, the Restricted Stock is subject to accelerated vesting after three years if certain performance goals are achieved. All unvested Restricted Stock shall be forfeited upon voluntary termination or termination for cause. Upon involuntary termination for other than cause, 20% vests one year from the grant date with the remaining unvested shares vesting at 1.66% each month thereafter. In connection with the Restricted Stock granted in fiscal year 2002, the executives were required to forfeit all outstanding stock options at that time. As a result, a total of 592 stock options were forfeited and cancelled in connection with these grants. Based upon the fair market value of its Class A Common Stock on the respective grant dates, the Company recorded unearned compensation totaling $3,477 and $5,904, as a component of shareholders’ equity, in connection with the Restricted Stock grants during fiscal years 2003 and 2002, respectively. The unearned compensation is being amortized and charged to operations over the vesting period. During fiscal years 2005, 2004 and 2003, zero, 105 and 63 shares of the Restricted Stock were forfeited, respectively.

      The following table summarizes the activity relating to all stock and option plans, exclusive of the Restricted Stock grants previously discussed:

											Options Outside
	Incentive Plan Options					Stock Purchase Plan					Incentive Plan
				Weighted-Average					Weighted-Average				Weighted-Average
	Shares			Exercise Price		Shares			Exercise Price		Shares		Exercise Price
Outstanding September 29, 2002		663.6		$	15.95		—		$	—		—	$	—
Granted		158.3		$	11.91		10.6		$	10.42		—	$	—
Cancelled		(120.2	)	$	15.75		—		$	—		—	$	—
Exercised		—		$	—		(10.6	)	$	10.42		—	$	—
Outstanding September 28, 2003		701.7		$	15.07		—		$	—		—	$	—
Granted		15.0		$	10.46		18.7		$	9.88		—	$	—
Cancelled		(45.6	)	$	13.67		—		$	—		—	$	—
Exercised		(0.7	)	$	11.88		(18.7	)	$	9.88		—	$	—
Outstanding October 3, 2004		670.4		$	15.07		—		$	—		—	$	—
Granted		77.0		$	9.41		22.9		$	7.69		—	$	—
Cancelled		(76.9	)	$	14.65		—		$	—		—	$	—
Exercised		—		$	—		(22.9	)	$	7.69		—	$	—
Outstanding October 2, 2005		670.5		$	14.47		—		$	—		—	$	—

F-32

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table summarizes the number of exercisable options outstanding at their weighted average price at October 2, 2005, October 3, 2004 and September 28, 2003:

			Weighted Avg.
Fiscal Years	Shares		Price
2005		660.1	$	14.53
2004		531.5		15.80
2003		485.5		16.21

      The fair value of each option grant has been estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for the grants in fiscal years 2005, 2004 and 2003, respectively:

Assumptions	2005			2004			2003
Dividend Yield		0.0	%		0.0	%		0.0	%
Risk-Free Interest		4.04	%		2.43	%		3.12	%
Volatility		46.0	%		48.9	%		49.3	%
Expected Life		5.6			2.8			5.6
Weighted Average Per Share	$	4.84		$	4.15		$	5.83

      The following table summarizes information about stock options outstanding at October 2, 2005:

Options Outstanding								Options Exercisable
				Weighted-Average
		Shares		Remaining Life		Weighted-Average		Shares		Weighted-Average
Exercise Price		Outstanding		(in years)		Price		Exercisable		Price
	$ 8.00 - $10.0		0 74.5		9.6	$	9.26		67.0	$	9.21
	$10.01 - $13.00		227.0		4.9	$	12.13		224.0	$	12.13
	$13.01 - $16.00		234.8		4.8	$	14.74		234.8	$	14.74
	$16.01 - $20.00		55.0		3.8	$	17.58		55.0	$	17.58
	$20.01 - $25.00		69.3		2.6	$	22.64		69.3	$	22.64
	$25.01 - $30.00		10.0		2.5	$	26.19		10.0	$	26.19

F-33

REMEDYTEMP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13. Unaudited consolidated quarterly information

	For the Three Fiscal Months Ended
	January 2,			April 3,			July 3,			October 2,
	2005			2005			2005			2005
Total revenues	$	137,356		$	125,263		$	122,257		$	129,398
Total cost of direct and licensed revenues	$	110,565		$	100,431		$	97,565		$	102,060
Licensees’ share of gross profit	$	6,468		$	6,392		$	6,418		$	7,005
Selling and administrative expense, CIGA litigation costs and depreciation and amortization	$	20,810		$	20,544		$	20,265		$	20,076
Net loss	$	(22	)	$	(1,381	)	$	(1,446	)	$	(719	)
Net loss per share — basic and diluted	$	(0.00	)	$	(0.15	)	$	(0.16	)	$	(0.08	)

	For the Three Fiscal Months Ended
	December 28,			March 28,			June 27,			October 3,
	2003			2004			2004			2004
Total revenues	$	126,011		$	115,385		$	129,250		$	149,282
Total cost of direct and licensed revenues	$	105,521		$	96,113		$	105,472		$	120,276
Licensees’ share of gross profit	$	5,817		$	5,327		$	5,900		$	6,774
Selling and administrative expense, CIGA litigation costs and depreciation and amortization	$	18,190		$	18,148		$	19,368		$	27,469
Net loss	$	(3,316	)	$	(4,025	)	$	(1,308	)	$	(4,143	)
Net loss per share — basic and diluted	$	(0.37	)	$	(0.45	)	$	(0.14	)	$	(0.46	)

      Net loss per share is computed independently for each of the quarters presented and the summation of quarterly amounts may not equal the total net loss per share reported for the year.

F-34

REMEDYTEMP, INC.

FINANCIAL STATEMENT SCHEDULE

(Amounts in thousands)

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

	Balance at
	Beginning of							Balance at
Allowance for Doubtful Accounts Receivable	Period		Additions			Deductions(1)		End of Period
Year ended October 2, 2005	$	2,984	$	(95	)	$	1,984	$	905
Year ended October 3, 2004	$	2,627	$	1,213		$	856	$	2,984
Year ended September 28, 2003	$	1,913	$	1,357		$	643	$	2,627

      (1) Represents net write-offs of bad debts

	Balance at
	Beginning of						Balance at
Deferred Tax Asset Valuation Allowance	Period		Additions		Deductions		End of Period
Year ended October 2, 2005	$	22,516	$	3,374	$	—	$	25,890
Year ended October 3, 2004	$	16,879	$	5,637	$	—	$	22,516
Year ended September 28, 2003	$	—	$	16,879	$	—	$	16,879

F-35

EXHIBIT INDEX

Exhibit
No.			Description
	3	.1	Amended and Restated Articles of Incorporation of the Company(a)
	3	.2	Amended and Restated Bylaws of the Company(e)
	4	.1	Specimen Stock Certificate(a)
	4	.2	Shareholder Rights Agreement(a)
	10	.1	*Robert E. McDonough, Sr. Amended and Restated Employment Agreement(f)
	10	.2	*Paul W. Mikos Employment Agreement, as amended(g)
	10	.3	*Robert E. McDonough, Sr. Amendment No. 1 to Amended and Restated Employment Agreement(i)
	10	.7	*Deferred Compensation Agreement for Alan M. Purdy(a)
	10	.9	Form of Indemnification Agreement entered into by RemedyTemp, Inc. and each of its directors and certain executive officers(a)
	10	.11	*Amended and Restated RemedyTemp, Inc. 1996 Stock Incentive Plan (effective as of January 1, 2005)
	10	.12	*Amended and Restated RemedyTemp, Inc. 1996 Employee Stock Purchase Plan (effective as of September 26, 2005)(z)
	10	.13	Form of Franchising Agreement for Licensed Offices(k)
	10	.14	Form of Franchising Agreement for Franchised Offices(a)
	10	.15	Form of Licensing Agreement for IntelliSearch®(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	.22	*RemedyTemp, Inc. Deferred Compensation Plan (effective as of January 1, 2005)
	10	.23	*Amended and Restated Employment Agreement for Greg Palmer(m)
	10	.24	*1998 RemedyTemp, Inc. Amended and Restated Deferred Compensation and Stock Ownership Plan for Outside Directors (effective as of January 1, 2005)
	10	.25	Form of Licensing Agreement for i/Search 2000(e)
	10	.27	*Paul W. Mikos Severance Agreement and General Release(j)
	10	.28	*Gunnar B. Gooding Employment and Severance Letter(l)
	10	.29	*Cosmas N. Lykos Employment and Severance Letter(l)
	10	.30	*Alan M. Purdy Retirement Agreement and General Release(n)
	10	.31	*Monty Houdeshell Employment Letter(o)
	10	.34	Amendment No. 2 to the Lease Agreement between RemedyTemp, Inc. and Parker-Summit, LLC(q)
	10	.36	Business Loan Agreement between Bank of America N.A. and RemedyTemp, Inc.(s)
	10	.37	Amended and Restated Credit Agreement between Bank of America, N.A. and Remedy Temp, Inc.(t)
	10	.38	*Robert E. McDonough, Sr. Amendment No. 2 to Amended and Restated Employment Agreement(u)
	10	.39	*Short-term Incentive Bonus Plan for Fiscal 2005(v)
	10	.40	*Amended Agreement with Janet Hawkins(w)
	10	.41	*Deferred Compensation Plan for Greg Palmer
	10	.42	*Form of Change in Control Severance Agreement(x)
	10	.43	*Amendment to Amended and Restated Employment Agreement for Greg Palmer(y)
	10	.44	*Short-Term Incentive Bonus Plan for Fiscal 2006(aa)
	10	.45	*Form of Lock-Up Agreement with certain executive officers(bb)
	10	.46	Summary of Compensation Arrangements for Named Executive Officers and Directors

Exhibit
No.			Description
	23	.1	Consent of Independent Registered Public Accounting Firm
	31	.1	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31	.2	Chief Administrative Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32		Chief Executive Officer and Chief Administrative Officer Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Indicates a management contract or a compensatory plan, contract or arrangement.
(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 Annual Report on Form 10-K for the yearly period ended September 28, 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 27, 1998.
(f)	Incorporated by reference to the exhibit of same number to the Registrant’s Quarterly Reports on Form 10-Q for the quarterly period ended December 27, 1998.
(g)	Incorporated by reference to the exhibit of same number to the Registrant’s Quarterly Reports on Form 10-Q for the quarterly period ended June 27, 1999 (original agreement) and for the quarterly period ended December 31, 2000 (amendment).
(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 March 28, 1999.
(i)	Incorporated by reference to exhibit number 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2000.
(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 April 1, 2001.
(k)	Incorporated by reference to the exhibit of same number to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2001.
(l)	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 30, 2001.
(m)	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 30, 2001.
(n)	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 30, 2002.
(o)	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 29, 2002.
(p)	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, 2003.
(q)	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, 2003.
(r)	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, 2004.
(s)	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, 2004.

(t)	Incorporated by reference to the exhibit of same number to Registrant’s Current Report on Form 8-K filed on December 3, 2004.
(u)	Incorporated by reference to the exhibit of same number to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended January 2, 2005.
(v)	Incorporated by reference to Item 1.01 of the Registrant’s Current Report on Form 8-K filed on February 1, 2005.
(w)	Incorporated by reference to Item 10.1 of the Registrant’s Current Report on Form 8-K filed on May 9, 2005.
(x)	Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on April 22, 2005.
(y)	Incorporated by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed on April 22, 2005.
(z)	Incorporated by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed on September 27, 2005.
(aa)	Incorporated by reference to Item 1.01 of the Registrant’s Current Report on Form 8-K filed on September 23, 2005.
(bb)	Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on September 27, 2005.

EX-10.11

                                                                   EXHIBIT 10.11

                                REMEDYTEMP, INC.
                                (THE "COMPANY")

                            1996 STOCK INCENTIVE PLAN

             (AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 2005)

                                    ARTICLE I
                                   DEFINITIONS

          1.01 DEFINITIONS. Capitalized terms used in the Plan and not otherwise
defined shall have the meanings set forth below:

          (a) "AWARD" means an Incentive Award or a Non-employee Director's
Option.

          (b) "BOARD" means the Board of Directors of the Company.

          (c) "CODE" means the Internal Revenue Code of 1986, as amended from
time to time. Where the context so requires, a reference to a particular Code
section or regulation thereunder shall also be a reference to any successor
provision of the Code to such section or regulation.

          (d) "COMMISSION" means the Securities and Exchange Commission.

          (e) "COMMITTEE" means the committee appointed by the Board to
administer the Plan and, to the extent required to comply with Rule 16b-3 under
the Exchange Act, consisting of two or more Board members, each of whom shall be
a "Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange
Act. In addition, if Incentive Awards are to be made to persons subject to
Section 162(m) of the Code and such awards are intended to constitute
Performance-Based Compensation, then each of the Committee's members shall also
be an "outside director," as such term is defined in the regulations under
Section 162(m) of the Code.

          (f) "COMMON STOCK" means the Class A Common Stock of the Company,
$0.01 par value.

          (g) "DIVIDEND EQUIVALENT" means a right granted by the Company under
Section 3.07 to a holder of a Stock Option, Stock Appreciation Right, or other
Award denominated in shares of Common Stock to receive from the Company during
the Applicable Dividend Period (as defined in Section 3.07) payments equivalent
to the amount of dividends payable to holders of the number of shares of Common
Stock underlying such Stock Option, Stock Appreciation Right, or other Award.

          (h) "ELIGIBLE PERSON" shall include, as determined by the Committee,
officers or key employees, consultants, and advisors of the Company or a
Subsidiary other than Non-Employee Directors."



          (i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended. Where the context so requires, a reference to a particular section of
the Exchange Act or rule thereunder shall also refer to any successor provision
to such section or rule.

          (j) "FAIR MARKET VALUE" of a share of the Company's capital stock as
of a particular date shall be: (i) if the stock is listed on an established
stock exchange or exchanges (including, for this purpose, The Nasdaq National
Market), the mean between the highest and lowest sale prices of the stock quoted
for such date in the Transactions Index of each such exchange as averaged with
such mean price as reported on any and all other exchanges, as published in The
Wall Street Journal and determined by the Committee, or, if no sale price was
quoted in any such Index for such date, then as of the next preceding date on
which such a sale price was quoted; or (ii) if the stock is not then listed on
an exchange, the average of the closing bid and asked prices per share for the
stock in the over-the-counter market as quoted on the NASDAQ system on such date
(in the case of (i) or (ii), subject to adjustment as and if necessary and
appropriate to set an exercise price not less than 100% of the fair market value
of the stock on the date an option is granted); or (iii) if the stock is not
then listed on an exchange or quoted in the over-the-counter market, an amount
determined in good faith by the Committee; provided, however, that when
appropriate, the Committee in determining Fair Market Value of capital stock of
the Company may take into account such other factors as it may deem appropriate
under the circumstances. Notwithstanding the foregoing, the Fair Market Value of
capital stock for purposes of grants of Incentive Stock Options shall be
determined in compliance with applicable provisions of the Code. The Fair Market
Value of rights or property other than capital stock of the Company means the
fair market value thereof as determined by the Committee on the basis of such
factors as it may deem appropriate.

          (k) "INCENTIVE AWARD" means any Stock Option, Restricted Stock, Stock
Appreciation Right or Dividend Equivalent granted or sold to an Eligible Person
under the Plan, but not a Non-employee Director's Option.

          (l) "INCENTIVE STOCK OPTION" means a Stock Option that qualifies as an
incentive stock option under Section 422 of the Code and the regulations
thereunder.

          (m) "JUST CAUSE DISMISSAL" means a termination of a Recipient's
employment for any of the following reasons: (i) the Recipient violates any
reasonable rule or regulation of the Board or the Recipient's superiors or the
Chief Executive Officer or President of the Company that results in damage to
the Company or which the Recipient fails to correct within a reasonable time
after written notice; (ii) any willful misconduct or gross negligence by the
Recipient in the discharge of the responsibilities assigned to him or her; (iii)
any willful failure to perform his or her job as required to meet Company
objectives; (iv) any wrongful conduct of a Recipient which has an adverse impact
on the Company or which constitutes a misappropriation of Company assets; (v)
the Recipient's performing services for any other person or entity which
competes with the Company while he or she is employed by the Company, without
the written approval of the Chief Executive Officer or President of the Company;
or (vi) any other conduct that the Board or Committee determines constitutes
Just Cause for Dismissal, provided, however, that if a Recipient is party to an
employment agreement with the Company providing for just cause dismissal (or
some comparable notion) of Recipient from his or her employment with the
Company, "Just Cause Dismissal" purposes of the Plan shall have the same meaning
as ascribed thereto or to such comparable notion in such employment agreement.

          (n) "NON-EMPLOYEE DIRECTOR" means a director of the Company who
qualifies as a "Non-Employee Director" under Rule 16b-3 under the Exchange Act.


                                        2



          (o) "NON-EMPLOYEE DIRECTOR'S OPTION" means a Stock Option granted to a
Non-employee Director pursuant to Article IV of the Plan.

          (p) "NON-QUALIFIED STOCK OPTION" means a Stock Option that is not an
Incentive Stock Option.

          (q) "OPTION" or "STOCK OPTION" means a right to purchase Common Stock
granted under the Plan, and can be an Incentive Stock Option or a Non-qualified
Stock Option.

          (r) "PAYMENT EVENT" means the event or events giving rise to the right
to payment of a Performance Award.

          (s) "PERFORMANCE AWARD" means an award granted under Section 3.03,
payable in cash, Common Stock or a combination thereof, which vests and becomes
payable over a period of time upon attainment of performance criteria
established in connection with the grant of the award.

          (t) "PERFORMANCE-BASED COMPENSATION" means performance-based
compensation as described in Section 162(m) of the Code and the regulations
thereunder. If the amount of compensation a Recipient will receive under any
Incentive Award is not based solely on an increase in the value of Common Stock
after the date of grant or award, the Committee, in order to qualify an
Incentive Award as performance-based compensation under Section 162(m) of the
Code and the regulations thereunder, can condition the grant, award, vesting, or
exercisability of such an award on the attainment of a preestablished, objective
performance goal. For this purpose, a preestablished, objective performance goal
may include one or more of the following performance criteria: (i) cash flow,
(ii) earnings per share (including earnings before interest, taxes, and
amortization), (iii) return on equity, (iv) total stockholder return, (v) return
on capital, (vi) return on assets or net assets, (vii) income or net income,
(viii) operating margin, (ix) return on operating revenue, and (x) any other
similar performance criteria contemplated by the regulations under Section
162(m).

          (u) "PERMANENT DISABILITY" means that the Recipient becomes physically
or mentally incapacitated or disabled so that he or she is unable to perform
substantially the same services as he or she performed prior to incurring such
incapacity or disability (the Company, at its option and expense, being entitled
to retain a physician to confirm the existence of such incapacity or disability,
and the determination of such physician to be binding upon the Company and the
Recipient), and such incapacity or disability continues for a period of three
consecutive months or six months in any 12-month period or such other period(s)
as may be determined by the Committee with respect to any Option, provided that
for purposes of determining the period during which an Incentive Stock Option
may be exercised pursuant to Section 3.02(g)(ii) hereof, Permanent Disability
shall mean "permanent and total disability" as defined in Section 22(e) of the
Code.

          (v) "PURCHASE PRICE" means the purchase price (if any) to be paid by a
Recipient for Restricted Stock as determined by the Committee (which price shall
be at least equal to the minimum price required under applicable laws and
regulations for the issuance of Common Stock which is nontransferable and
subject to a substantial risk of forfeiture until specific conditions are met).

          (w) "RECIPIENT" means a recipient of an Award hereunder.


                                        3



          (x) "RESTRICTED STOCK" means Common Stock that is the subject of an
award made under Section 3.04 and which is nontransferable and subject to a
substantial risk of forfeiture until specific conditions are met as set forth in
this Plan and in any statement evidencing the grant of such Award.

          (y) "SECURITIES ACT" means the Securities Act of 1933, as amended.

          (z) "STOCK APPRECIATION RIGHT" or "SAR" means a right granted under
Section 3.05 to receive a payment that is measured with reference to the amount
by which the Fair Market Value of a specified number of shares of Common Stock
appreciates from a specified date, such as the date of grant of the SAR, to the
date of exercise.

          (aa) "STOCK PAYMENT" means a payment in shares of the Company's Common
Stock to replace all or any portion of the compensation (other than base salary)
that would otherwise become payable to a Recipient.

          (bb) "SUBSIDIARY" has the meaning as set forth under Section 424(f) of
the Code.

                                   ARTICLE II
                                     GENERAL

          2.01 ADOPTION. The Plan has been adopted by the Board and approved by
the shareholders of the Company and is effective immediately prior to the
closing of the initial public offering of the Company's securities.

          2.02 PURPOSE. The purpose of the Plan is to promote the interests of
the Company and its shareholders by using investment interests in the Company to
attract and retain key personnel, to encourage and reward their contributions to
the performance of the Company, and to align their interests with the interests
of Company's shareholders.

          2.03 ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee, which, subject to the express provisions of the Plan, shall have the
power to construe the Plan and any agreements or memoranda defining the rights
and obligations of the Company and Recipients thereunder, to determine all
questions arising thereunder, to adopt and amend such rules and regulations for
the administration thereof as it may deem desirable, and otherwise to carry out
the terms of the Plan and such agreements and confirming memoranda. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Award granted under the Plan shall be final. Any action taken by, or
inaction of, the Committee relating to the Plan or Awards shall be within the
absolute discretion of the Committee and shall be conclusive and binding upon
all persons. No member of the Committee shall be liable for any such action or
inaction except in circumstances involving bad faith of himself or herself.
Subject only to compliance with the express provisions hereof, the Committee may
act in its absolute discretion in matters related to the Plan or Awards,
provided, however, that notwithstanding anything herein to the contrary, the
Committee shall have no authority or discretion as to the selection of persons
eligible to receive Non-employee Director's Options or the timing, exercise
price, or number of shares covered by Non-employee Director's Options, which
matters are specifically governed by the Plan. Any action of the Committee with
respect to administration of the Plan shall be taken pursuant to a majority vote
or unanimous written consent of its members. Subject to the requirements of
Section 1.01(e), the Board may from time to time increase or


                                        4



decrease the number of members of the Committee, remove from membership on the
Committee all or any portion of its members, and appoint such person or persons
as it desires to fill any vacancy existing on the Committee, whether caused by
removal, resignation or otherwise.

          2.04 PARTICIPATION. A person shall be eligible to receive grants of
Incentive Awards under the Plan if, at the time of the Award's grant, he or she
is an Eligible Person.

          2.05 SHARES OF COMMON STOCK SUBJECT TO PLAN.

          (a) Plan Limit and Counting. The shares that may be issued upon
exercise of or in the form of Awards under the Plan shall be authorized and
unissued shares of Common Stock, previously issued shares of Common Stock
reacquired by the Company, and unused Award shares pursuant to the final
sentence of this Section 2.05(a). The aggregate number of shares that may be
issued pursuant to Awards under the Plan shall not exceed 1,800,000 shares of
Common Stock, subject to adjustment in accordance with Article V. Shares of
Common Stock subject to unexercised portions of any Award granted under the Plan
that expire, terminate or are cancelled, and shares of Common Stock issued
pursuant to an Award under the Plan that are reacquired by the Company pursuant
to the terms of the Award under which such shares were issued, will again become
available for the grant of further Awards under this Plan.

          (b) Annual Limit. Notwithstanding any other provision of this Plan, no
Eligible Person shall be granted Incentive Awards with respect to more than
100,000 shares of Common Stock in any one calendar year; provided, however, that
this limitation shall not apply if it is not required in order for the
compensation attributable to Incentive Awards hereunder to qualify as
Performance-Based Compensation. The limitation set forth in this Section 2.05(b)
shall be subject to adjustment as provided in Article V, but only to the extent
such adjustment would not affect the status of compensation attributable to
Incentive Awards hereunder as Performance-Based Compensation.

          2.06 AWARDS SUBJECT TO PLAN.

          (a) Terms. Each Award shall be subject to the terms and conditions of
the Plan and such other terms and conditions (whether or not applicable to any
other award) established by the Committee as are not inconsistent with the
purpose and provisions of the Plan including, without limitation, provisions to
assist the Recipient in financing the purchase of Common Stock through the
exercise of Stock Options, provisions for the forfeiture of or restrictions on
resale or other disposition of shares of Common Stock acquired under any Award,
provisions giving the Company the right to repurchase shares of Common Stock
acquired under any Award in the event the Recipient elects to dispose of such
shares, and provisions to comply with federal and state securities laws and
federal and state income tax withholding requirements.

          (b) Award Documents. Each Award granted under the Plan shall be
evidenced by an award agreement duly executed on behalf of the Company and by
the Recipient or, in the Committee's discretion, a confirming memorandum issued
by the Company to the Recipient, setting forth such terms and conditions
applicable to the Award as the Committee may in its discretion determine. Such
option agreements or confirming memoranda may but need not be identical and
shall comply with and be subject to the terms and conditions of the Plan, a copy
of which shall be provided to each Recipient and incorporated by reference into
each option agreement or confirming memorandum. Any award agreement or
confirming memorandum may contain such other terms, provisions and conditions
not inconsistent with the Plan as may be determined by the Committee.


                                        5



          2.07 AMENDMENTS.

          (a) Amendment and Suspension of the Plan. The Board or the Committee
may, insofar as permitted by applicable laws and regulations, from time to time
suspend or discontinue the Plan or revise or amend it in any respect whatsoever,
and the Plan as so revised or amended will govern all options thereunder,
including those granted before such revision or amendment, except that no such
amendment shall impair or diminish in any material respect any rights or impose
additional material obligations under any Award theretofore granted under the
Plan without the consent of the person to whom such Award was granted.
Amendments shall be subject to approval by the Company's shareholders only to
the extent required to comply with the express provisions of the Plan and
applicable laws or regulations.

          (b) Amendment of Incentive Awards. Subject to the requirements set
forth in the Plan for amendment of particular Incentive Awards, the Committee
may, with the consent of a Recipient, make such modifications in the terms and
conditions of an Incentive Award as it deems advisable. Without limiting the
generality of the foregoing, the Committee may, in its discretion with the
consent of the Recipient, at any time and from time to time after the grant of
any Incentive Award accelerate or extend the vesting or exercise period of the
Incentive Award in whole or part. Notwithstanding the above, upon obtaining
prior approval by the Company's shareholders, the Committee may adjust or reduce
the purchase or exercise price of Incentive Awards by cancellation of such
Incentive Awards and granting of Incentive Awards at lower purchase or exercise
prices or by modification, extension or renewal of such Incentive Awards. If the
Committee, with the consent of the Recipient, amends the exercise price of an
Option or Stock Appreciation Right below the Fair Market Value, such change will
be a "modification" of the existing grant, as that term is defined in the
proposed regulations of section 409A of the Internal Revenue Code, and will be
treated as a new grant and will not qualify from the exclusion from coverage
under section 409A.

          (c) Other Rights. Except as otherwise provided in this Plan or in the
applicable award agreement or confirming memorandum, no amendment, suspension or
termination of the Plan will, without the consent of the Recipient, alter,
terminate, impair or adversely affect any right or obligation under any Award
previously granted under the Plan.

          2.08 TERM OF PLAN. Awards may be granted under the Plan until the
tenth anniversary of the effective date of the Plan, whereupon the Plan shall
terminate. No Awards may be granted during any suspension of the Plan or after
its termination for any reason. Notwithstanding the foregoing, each Award
properly granted under the Plan shall remain in effect until such Award has been
exercised or terminated in accordance with its terms and the terms of the Plan.

          2.09 RESTRICTIONS. All Awards granted under the Plan shall be subject
to the requirement that, if at any time the Company shall determine, in its
discretion, that the listing, registration or qualification of the shares
subject to Awards granted under the Plan upon any securities exchange or under
any state or federal law, or the consent or approval of any government or
regulatory body or authority, is necessary or desirable as a condition of, or in
connection with, the granting of such an Award or the issuance, if any, or
purchase of shares in connection therewith, such Award may not be exercised in
whole or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company. Unless the shares of stock covered by an Award
granted under the Plan have been effectively registered under the Securities
Act, the Company shall be under no obligation to issue such shares unless the
Recipient shall give a written representation and undertaking to the Company
satisfactory in form and scope to counsel to the


                                        6



Company and upon which, in the opinion of such counsel, the Company may
reasonably rely, that he or she is acquiring such shares for his or her own
account as an investment and not with a view to, or for sale in connection with,
the distribution of any such shares of stock, and that he or she will make no
transfer of the same except in compliance with any rules and regulations in
force at the time of such transfer under the Securities Act, or any other
applicable law or regulation, and that if shares of stock are issued without
such registration, a legend to this effect may be endorsed upon the securities
so issued, and the Company may order its transfer agent to stop transfers of
such shares.

          2.10 NONASSIGNABILITY. No Award granted under the Plan shall be
assignable or transferable except (a) by will or by the laws of descent and
distribution, or (b) subject to the final sentence of this Section 2.10, upon
dissolution of marriage pursuant to a qualified domestic relations order or, in
the discretion of the Committee and under circumstances that would not adversely
affect the interests of the Company, pursuant to a nominal transfer that does
not result in a change in beneficial ownership. During the lifetime of a
Recipient, an Award granted to him or her shall be exercisable only by the
Recipient (or the Recipient's permitted transferee) or his or her guardian or
legal representative. Notwithstanding the foregoing, (x) no Award owned by a
Recipient subject to Section 16 of the Exchange Act may be assigned or
transferred in any manner inconsistent with Rule 16b-3 as interpreted and
administered by the Commission and its staff, and (y) Incentive Stock Options
(or other Awards subject to transfer restrictions under the Code) may not be
assigned or transferred in violation of Section 422(b)(5) of the Code or the
Treasury Regulations thereunder, and nothing herein is intended to allow such
assignment or transfer.

          2.11 WITHHOLDING TAXES. Whenever shares of stock are to be issued upon
exercise of or in connection with an Award granted under the Plan or
subsequently transferred, the Committee shall have the right to require the
Recipient to remit to the Company an amount sufficient to satisfy any federal,
state and local withholding tax requirements prior to issuance of such shares.
The Committee may, in the exercise of its discretion, allow satisfaction of tax
withholding requirements by accepting delivery of stock of the Company or by
withholding a portion of the stock otherwise issuable in connection with an
Award.

          2.12 RIGHTS OF ELIGIBLE PERSONS AND RECIPIENTS. Except as otherwise
set forth herein, a Recipient or a permitted transferee of an Award shall have
no rights as a shareholder with respect to any shares issuable or issued in
connection with the Award until the date of the receipt by the Company of all
amounts payable in connection with exercise of the Award and performance by the
Recipient of all obligations thereunder. Status as an Eligible Person shall not
be construed as a commitment that any Award will be granted under this Plan to
an Eligible Person or to Eligible Persons generally. Nothing contained in this
Plan (or in award agreements or confirming memoranda or in any other documents
related to this Plan or to Awards granted hereunder) shall confer upon any
Eligible Person or Recipient any right to continue in the employ of the Company
or any of its subsidiaries or affiliates or constitute any contract or agreement
of employment or engagement, or interfere in any way with the right of the
Company or any of its subsidiaries or affiliates to reduce such person's
compensation or other benefits or to terminate the employment of such Eligible
Person or Recipient, with or without cause. No person shall have any right,
title or interest in any fund or in any specific asset (including shares of
capital stock) of the Company or any of its subsidiaries or affiliates by reason
of any Award granted hereunder. Neither this Plan (or any documents related
hereto) nor any action taken pursuant hereto shall be construed to create a
trust of any kind or a fiduciary relationship between the Company or any of its
subsidiaries or affiliates and any person. To the extent that any person
acquires a right to receive an Award hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Company.


                                        7



          2.13 OTHER COMPENSATION PLANS. The adoption of the Plan shall not
affect any other stock option, incentive or other compensation plans in effect
for the Company, and the Plan shall not preclude the Company from establishing
any other forms of incentive or other compensation for employees, directors, or
advisors of the Company, whether or not approved by shareholders.

          2.14 PLAN BINDING ON SUCCESSORS. The Plan shall be binding upon the
successors and assigns of the Company.

          2.15 PARTICIPATION BY FOREIGN EMPLOYEES. Notwithstanding anything to
the contrary herein, the Committee may, consistent with the purposes of the
Plan, modify grants of Awards to confer the intended benefits of the Plan upon
Recipients who are foreign nationals or employed outside of the United States to
recognize differences in applicable law, tax policy or local custom.

                                   ARTICLE III
                                     AWARDS

          3.01 GRANTS OF AWARDS. Subject to the express provisions of the Plan,
the Committee may from time to time in its discretion select the Eligible
Persons to whom, and the time or times at which, Incentive Awards shall be
granted or sold, the nature of each Incentive Award, the number of shares of
Common Stock or the number of rights that make up or underlie each Incentive
Award, the period for the exercise of each Incentive Award, the performance
criteria (which need not be identical) utilized to measure the value of
Performance Awards, and such other terms and conditions applicable to each
individual Incentive Award as the Committee shall determine. The Committee may
grant at any time new Incentive Awards to an Eligible Person who has previously
received Incentive Awards or other grants (including other stock options)
whether such prior Incentive Awards or such other grants are still outstanding,
have previously been exercised in whole or in part, or are cancelled in
connection with the issuance of new Incentive Awards. The Committee may grant
Incentive Awards singly or in combination or in tandem with other Incentive
Awards as it determines in its discretion. The purchase price or initial value
and any and all other terms and conditions of the Incentive Awards may be
established by the Committee without regard to existing Incentive Awards or
other grants. Further, the Committee may amend in a manner not inconsistent with
the Plan the terms of any existing Incentive Award previously granted to such
Eligible Person, provided that the consent of the Recipient shall be required
for amendments that impair or diminish in any material respect any rights or
impose additional material obligations under the Incentive Award to be amended.
Notwithstanding the foregoing, however, members of the Committee shall not be
eligible to receive Incentive Awards.

          3.02 STOCK OPTIONS.

          (a) Nature of Stock Options. Stock Options may be Incentive Stock
Options or Non-qualified Stock Options; Stock Options granted as Incentive Stock
Options that fail or cease to qualify as such shall be treated as Non-qualified
Stock Options hereunder.

          (b) Setting the Exercise Price. The exercise price for each Option
shall be the Fair Market Value of the Common Stock subject to the Option. Upon
obtaining prior approval by the Company's shareholders, the Committee, with the
consent of the Recipient, and subject to compliance with statutory or
administrative requirements applicable to Incentive Stock Options, may amend the
terms of any Option (other than a Non-employee Director's Option) to provide
that the exercise price of the shares remaining subject to the Option shall be
reestablished at a


                                        8



price below the existing exercise price thereof or effect a reduction in
exercise price by cancellation of an existing option and grant of a replacement
option at an exercise price below the existing exercise price thereof. If the
Committee, with the consent of the Recipient, amends the exercise price of an
Option below the Fair Market Value, such change will be a "modification" of the
existing grant, as that term is defined in the proposed regulations of section
409A of the Internal Revenue Code, and will be treated as a new grant and will
not qualify from the exclusion from coverage under section 409A. If the exercise
price of an Option is reduced (or such Option is canceled for a new Option), and
such Option is Performance-Based Compensation, the reduction of the Option's
price (or the cancellation and grant of a new Option) shall be treated as the
grant of a new Option and both the old and new Option shall be taken into
account for purposes of applying the stock limit of Section 2.05(b). No
modification of any other term or provision of any Option which is amended in
accordance with the foregoing shall be required, although the Committee may, in
its discretion, make such further modifications of any such Option (other than
Non-employee Director's Options) as are not inconsistent with the Plan.

          (c) Payment of the Exercise Price. The exercise price shall be payable
upon the exercise of an Option in legal tender of the United States or capital
stock of the Company delivered in transfer to the Company by or on behalf of the
person exercising the Option and duly endorsed in blank or accompanied by stock
powers duly endorsed in blank, with signatures guaranteed in accordance with the
Exchange Act if required by the Committee, or retained by the Company from the
Stock otherwise issuable upon exercise or surrender of vested and/or exercisable
Awards or other equity incentive awards previously granted to the Recipient and
being exercised (if applicable) (in either case valued at Fair Market Value as
of the exercise date); or such other consideration as the Committee may from
time to time in the exercise of its discretion deem acceptable in any particular
instance, provided, however, that the Committee may, in the exercise of its
discretion, (i) allow exercise of an Option in a broker-assisted or similar
transaction in which the exercise price is not received by the Company until
promptly after exercise, and/or (ii) allow the Company to loan the exercise
price to the person entitled to exercise the Option, if the exercise will be
followed by a prompt sale of some or all of the underlying shares and a portion
of the sales proceeds is dedicated to full payment of the Exercise Price and
amounts required pursuant to Section 2.11.

          (d) Option Period and Vesting. Options granted hereunder (other than
Non-employee Director's Options) shall vest and may be exercised as determined
by the Committee, except that exercise of such Options after termination of the
Recipient's employment shall be subject to Section 3.02(g). Each Option granted
hereunder (other than a Non-employee Director's Option) and all rights or
obligations thereunder shall expire on such date as shall be determined by the
Committee, but not later than ten years after the date the Option is granted, or
five years after the date of grant in the case of a Recipient of an Incentive
Stock Option who at the time of grant owns more than 10% of the combined voting
power of the Company (after application of the constructive ownership rules of
Section 424(d) of the Code), or any Parent or Subsidiary (as defined in Sections
424(e) and (f) of the Code, respectively), and shall be subject to earlier
termination as herein provided.

          (e) Exercise of Options. Except as otherwise provided herein, an
Option may become exercisable, in whole or in part, on the date or dates
specified by the Committee (or, in the case of Non-employee Director's Options,
the Plan) and thereafter shall remain exercisable until the expiration or
earlier termination of the Option. No Option shall be exercisable except in
respect of whole shares, and fractional share interests shall be disregarded.
Not less than 100 shares of stock (or such other amount as is set forth in the
applicable option agreement or confirming memorandum) may be purchased at one
time and Options must be exercised in multiples of 100 unless the number
purchased upon exercise is the total number at the time


                                        9



available for purchase under the terms of the Option. An Option shall be deemed
to be exercised when the Secretary or other designated official of the Company
receives written notice of such exercise from the Recipient, together with
payment of the exercise price and any amounts required under Section 2.11.
Notwithstanding any other provision of the Plan, the Committee may impose, by
rule and in option agreements or confirming memoranda, such conditions upon the
exercise of Options (including, without limitation, conditions limiting the time
of exercise to specified periods) as may be required to satisfy applicable
regulatory requirements, including without limitation Rule 10b-5 or Rule 16b-3
(or any successor rule) under the Exchange Act and any applicable section of or
regulation under the Code.

          (f) Limitation on Exercise of Incentive Stock Options. The aggregate
Fair Market Value (determined as of the respective date or dates of grant) of
the stock for which one or more Options granted to any Recipient under the Plan
(or any other option plan of the Company or any of its subsidiaries or
affiliates) may for the first time become exercisable as Incentive Stock Options
under the federal tax laws during any one calendar year shall not exceed
$100,000. Any Options granted as Incentive Stock Options pursuant to the Plan in
excess of such limitation shall be treated as Non-qualified Stock Options.

          (g) Termination of Employment.

               (i) Termination for Cause. Except as otherwise provided in a
written agreement between the Company and the Recipient, which may be entered
into at any time before or after termination, in the event of a Just Cause
Dismissal of a Recipient all of the Recipient's unexercised Options, whether or
not vested, shall expire and become unexercisable as of the date of such Just
Cause Dismissal.

               (ii) Termination other than Just Cause Dismissal. Subject to
subsection (i) above and subsection (iii) below, and except as otherwise
provided in a written agreement between the Company and the Recipient, or a
confirming memorandum issued by the Company to the Recipient with the
Recipient's consent, which may be entered into or delivered at any time before
or after termination, in the event of a Recipient's termination of employment
for:

                    (A) any reason other than Just Cause Dismissal, death, or
     Permanent Disability, the Recipient's unexercised Options, whether or not
     vested, shall expire and become unexercisable as of the earlier of (1) the
     date such Options would expire in accordance with their terms if the
     Recipient remained employed or (2) three calendar months after the date of
     termination in the case of Incentive Stock Options, or six months after the
     date of termination in the case of Non-qualified Stock Options.

                    (B) death or Permanent Disability, the Recipient's
     unexercised Options, whether or not vested, shall expire and become
     unexercisable as of the earlier of (1) the date such Options would expire
     in accordance with their terms if the Recipient remained employed or (2) 12
     months after the date of termination.

               (iii) Alteration of Vesting and Exercise Periods. Notwithstanding
anything to the contrary in subsections (i) or (ii) above, the Committee may in
its discretion pursuant to Section 2.07(b) designate shorter or longer periods
to exercise Options following a Recipient's termination of employment. Provided
that if the Committee determines to designate a longer period for the Recipient
to exercise Options, such period of time shall not be longer than the later of
(1) the fifteenth (15) day of the third month following the date at which, or
(2) December 31 of the calendar year in which, the stock right would otherwise
have expired if the stock right had not been extended, based on the terms of the
stock right at the original grant date.


                                       10



Options shall be exercisable by a Recipient (or his successor in interest)
following such Recipient's termination of employment only to the extent that
installments thereof had become exercisable on or prior to the date of such
termination unless the Company has a written agreement with the Recipient of the
Option providing otherwise or the vesting period is extended pursuant to Section
2.07(b).

          3.03 PERFORMANCE AWARDS.

          (a) Grant of Performance Award. The Committee shall determine the
performance criteria (which need not be identical and may be established on an
individual or group basis) governing Performance Awards, the terms thereof, and
the form and time of payment of Performance Awards.

          (b) Payment of Award; Limitation. Upon satisfaction of the conditions
applicable to a Performance Award, payment will be made to the Recipient in cash
or in shares of Common Stock valued at Fair Market Value or a combination of
Common Stock and cash, as the Committee in its discretion may determine, but no
later than 2 1/2 months after the year in which the satisfaction of the
conditions applicable to the Performance Award occurs.

          (c) Annual Limit. Notwithstanding any other provision of this Plan, no
Eligible Person shall be paid a Performance Award in excess of $250,000 in any
one calendar year; provided, however, that this limitation shall not apply to
the extent it is not required in order for the compensation attributable to the
Performance Award hereunder to qualify as Performance-Based Compensation.

          (d) Expiration of Performance Award. If any Recipient's employment
with the Company is terminated for any reason other than normal retirement,
death, or Permanent Disability prior to the time a Performance Award or any
portion thereof becomes payable, all of the Recipient's rights under the unpaid
portion of the Performance Award shall expire and terminate unless otherwise
determined by the Committee. In the event of termination of employment by reason
of death, Permanent Disability or normal retirement, the Committee, in its
discretion, may determine what portions, if any, of the Performance Award should
be paid to the Recipient.

          3.04 RESTRICTED STOCK.

          (a) Award of Restricted Stock. The Committee shall determine the
Purchase Price (if any) applicable to Restricted Stock, the terms of payment of
the Purchase Price, the restrictions upon the Restricted Stock, and when such
restrictions shall lapse.

          (b) Requirements of Restricted Stock. All shares of Restricted Stock
granted or sold pursuant to the Plan will be subject to the following
conditions:

               (i) No Transfer. The shares may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, alienated or
encumbered until the restrictions are removed or expire;

               (ii) Certificates. The Committee may require that the
certificates representing Restricted Stock granted or sold to a Recipient
pursuant to the Plan remain in the physical custody of an escrow holder or the
Company until all restrictions are removed or expire;


                                       11



               (iii) Restrictive Legends. Each certificate representing
Restricted Stock granted or sold to a Recipient pursuant to the Plan will bear
such legend or legends making reference to the restrictions imposed upon such
Restricted Stock as the Committee in its discretion deems necessary or
appropriate to enforce such restrictions; and

               (iv) Other Restrictions. The Committee may impose such other
conditions on Restricted Stock as the Committee may deem advisable including,
without limitation, restrictions under the Securities Act, under the Exchange
Act, under the requirements of any stock exchange upon which such Restricted
Stock or shares of the same class are then listed and under any blue sky or
other securities laws applicable to such shares.

          (c) Lapse of Restrictions. The restrictions imposed upon Restricted
Stock will lapse in accordance with such schedule or other conditions as are
determined by the Committee.

          (d) Rights of Recipient. Subject to the provisions of Section 3.04(b)
and any restrictions imposed upon the Restricted Stock, the Recipient will have
all rights of a shareholder with respect to the Restricted Stock granted or sold
to such Recipient under the Plan, including the right to vote the shares and
receive all dividends and other distributions paid or made with respect thereto.

          (e) Termination of Employment. Unless the Committee in its discretion
determines otherwise, upon a Recipient's termination of employment for any
reason, all of the Recipient's Restricted Stock remaining subject to
restrictions imposed pursuant to the Plan on the date of such termination of
employment shall be repurchased by the Company at the Purchase Price (if any)
paid therefor by the Recipient.

          3.05 STOCK APPRECIATION RIGHTS.

          (a) Granting of Stock Appreciation Rights. The Committee may approve
the grant to Eligible Persons of Stock Appreciation Rights, related or unrelated
to Options, at any time.

          (b) SARs Related to Options.

               (i) A Stock Appreciation Right granted in connection with an
Option granted under this Plan will entitle the holder of the related Option,
upon exercise of the Stock Appreciation Right, to surrender such Option, or any
portion thereof to the extent unexercised, with respect to the number of shares
as to which such Stock Appreciation Right is exercised, and to receive payment
of an amount computed pursuant to Section 3.05(b)(iii). Such Option will, to the
extent surrendered, then cease to be exercisable.

               (ii) A Stock Appreciation Right granted in connection with an
Option hereunder will be exercisable at such time or times, and only to the
extent that, the related Option is exercisable, and will not be transferable
except to the extent that such related Option may be transferable.

               (iii) Upon the exercise of a Stock Appreciation Right related to
an Option, the Holder will be entitled to receive payment of an amount
determined by multiplying: (i) the difference obtained by subtracting the
Exercise Price of a share of Common Stock specified in the related Option from
the Fair Market Value of a share of Common Stock on the date of exercise of such
Stock Appreciation Right (or as of such other date or as of the occurrence of
such event as may have been specified in the instrument evidencing the grant of


                                       12



the Stock Appreciation Right), by (ii) the number of shares as to which such
Stock Appreciation Right is exercised.

          (c) SARs Unrelated to Options. The Committee may grant Stock
Appreciation Rights unrelated to Options to Eligible Persons. Section
3.05(b)(iii) shall be used to determine the amount payable at exercise under
such Stock Appreciation Right, except that in lieu of the Option Exercise Price
specified in the related Option the initial base amount specified in the Award
shall be used.

          (d) Limits. Notwithstanding the foregoing, the Committee, in its
discretion, may place a dollar limitation on the maximum amount that will be
payable upon the exercise of a Stock Appreciation Right under the Plan.

          (e) Payments. Payment of the amount determined under the foregoing
provisions may be made solely in whole shares of Common Stock valued at their
Fair Market Value on the date of exercise of the Stock Appreciation Right or,
alternatively, at the sole discretion of the Committee, in cash or in a
combination of cash and shares of Common Stock as the Committee deems advisable.
The Committee has full discretion to determine the form in which payment of A
Stock Appreciation Right will be made and to consent to or disapprove the
election of a Recipient to receive cash in full or partial settlement of a Stock
Appreciation Right. If the Committee decides to make full payment in shares of
Common Stock, and the amount payable results in a fractional share, payment for
the fractional share will be made in cash.

          (f) Rule 16b-3. The Committee may, at the time a Stock Appreciation
Right is granted, impose such conditions on the exercise of the Stock
Appreciation Right as may be required to satisfy the requirements of Rule 16b-3
under the Exchange Act (or any other comparable provisions in effect at the time
or times in question).

          (g) Termination of Employment. Section 3.02(g) will govern the
treatment of Stock Appreciation Rights upon the termination of a Recipient's
employment with the Company.

          3.06 STOCK PAYMENTS. The Committee may approve Stock Payments of the
Company's Common Stock to any Eligible Person for all or any portion of the
compensation (other than base salary) or other payment that would otherwise
become payable by the Company to the Eligible Person in cash.

          3.07 DIVIDEND EQUIVALENTS. The Committee may grant Dividend
Equivalents to any Recipient who has received a Stock Option, SAR, or other
Award denominated in shares of Common Stock. Such Dividend Equivalents shall be
effective and shall entitle the recipients thereof to payments during the
"APPLICABLE DIVIDEND PERIOD," which shall be no later than 2 1/2 months
following the calendar year for which the Dividend Equivalents are granted.
Dividend Equivalents may be paid in cash, Common Stock, or other Awards; the
amount of Dividend Equivalents paid other than in cash shall be determined by
the Committee by application of such formula as the Committee may deem
appropriate to translate the cash value of dividends paid to the alternative
form of payment of the Dividend Equivalent. Dividend Equivalents shall be
computed as of each dividend record date and shall be payable to recipients
thereof at such time as the Committee may determine. Notwithstanding the
foregoing, if it is intended that an Incentive Award qualify as
Performance-Based Compensation and the amount of the compensation the Eligible
Person could receive under the award is based solely on an increase in value of
the underlying stock after the date of grant or award (i.e., the grant, vesting,
or exercisability of the award is not conditioned upon the attainment of a
preestablished, objective


                                       13



performance goal described in Section 1.01(t)), then the payment of any Dividend
Equivalents related to the award shall not be made contingent on the exercise of
the award.

                                   ARTICLE IV
                         NON-EMPLOYEE DIRECTOR'S OPTIONS

          4.01 GRANTS OF ORIGINAL AND INITIAL OPTIONS.

          (a) Original Options. Persons serving as Non-employee Directors as of
the closing of the initial public offering of the Company's securities shall,
upon such closing, receive a one-time grant of an option to purchase up to
10,000 shares (or 15,000 shares if such person has served as a director of the
Company for at least two years) of the Company's Common Stock at an exercise
price per share equal to the price to the public in such initial public
offering, subject to adjustment as set forth in Article V. Options granted under
this Section 4.01(a) are "ORIGINAL OPTIONS" for purposes hereof.

          (b) Initial Options. Each Non-employee Director who joins the Board
after the consummation of the initial public offering of the Company's
securities shall, upon first becoming a Non-employee Director ("Eligible
Director"), receive a one-time grant of an option to purchase up to 5,000 shares
of the Company's Common Stock at an exercise price per share equal to the Fair
Market Value of the Company's Common Stock on the date of grant, subject to (a)
vesting as set forth in Section 4.03, and (b) adjustment as set forth in Article
V. Options granted under this Section 4.01(b) are "INITIAL OPTIONS" for purposes
hereof.

          4.02 GRANTS OF ADDITIONAL OPTIONS. Immediately following the annual
meeting of shareholders of the Company next following an Eligible Director's
becoming an Eligible Director, and immediately following each subsequent annual
meeting of shareholders of the Company, in each case if the Eligible Director
has served as a director since his or her election or appointment and has been
re-elected as a director at such annual meeting or is continuing as a director
without being re-elected due to the classification of the board, such Eligible
Director shall automatically receive an option to purchase up to 2,500 shares of
the Company's Common Stock (an "ADDITIONAL OPTION"). In addition to the
Additional Options described above, an individual who was previously an Eligible
Director and received an initial grant of stock options under the Plan or
pursuant to a prior option plan for the Company's directors, who then ceased to
be a director for any reason, and who then again becomes an Eligible Director,
shall upon again becoming an Eligible Director automatically receive an
Additional Option. The exercise price per share for all Additional Options shall
be equal to the fair market value of the Company's Common Stock on the date of
grant, subject to (a) vesting as set forth in Section 4.03, and (b) adjustment
as set forth in Article V. No individual may receive Additional Options to
purchase more than an aggregate of 20,000 shares of the Company's Common Stock,
less the number of additional options received under any other option plan for
the Company's directors.

          4.03 VESTING. Original Options shall vest and become exercisable with
respect to all underlying shares upon grant. Initial Options shall vest and
become exercisable with respect to 50% of the underlying shares upon the date of
grant and 50% of the underlying shares immediately prior to the next annual
shareholders' meeting following the date of grant (or, if an annual meeting of
shareholders occurs within six months after the grant date, then immediately
prior to the second annual shareholders' meeting after the date of grant), if
the Recipient has remained a director from the grant date to such vesting time.
Additional Options shall vest and become exercisable with respect to all
underlying shares upon the earlier of (y) the first anniversary the grant date
or (z) immediately prior to the annual meeting of shareholders of the


                                       14



Company next following the grant date, if the optionee has served as a director
from the grant date to such earlier date. Notwithstanding the foregoing,
however, Initial Options and Additional Options that have not vested and become
exercisable at the time the optionee ceases to be a director shall terminate.

          4.04 EXERCISE. The exercise price for Non-employee Directors' Options
shall be payable as set forth in Section 3.02(c). Non-employee Directors'
Options shall be exercised in the manner provided in Section 3.02(e).

          4.05 TERM OF OPTIONS AND EFFECT OF TERMINATION. Notwithstanding any
other provision of the Plan, no Non-employee Director's Option granted under the
Plan shall be exercisable after the expiration of ten years from the effective
date of its grant. In the event that the recipient of any Non-employee
Directors' Options granted under the Plan shall cease to be a director of the
Company, (a) all Original Options and Initial Options granted under this plan to
such recipient shall be exercisable, to the extent already exercisable at the
date such recipient ceases to be a director and regardless of the reason the
recipient ceases to be a director, for a period of 365 days after that date (or,
if sooner, until the expiration of the option according to its terms), and shall
then terminate; and (b) all Additional Options granted under this Plan to such
recipient shall be exercisable, to the extent already exercisable at the date
such recipient ceases to be a director, for a period of 365 days after that date
(or, if sooner, until the expiration of the option according to its terms) if he
or she ceases to be a director because of death or permanent disability, or for
a period of 90 days after that date (or, if sooner, until the expiration of the
option according to its terms) if he or she ceases to be a director for any
other reason, and shall then terminate. In the event of the death of an optionee
while such optionee is a director of the Company or within the period after
termination of such status during which he or she is permitted to exercise an
option, such option may be exercised by any person or persons designated by the
optionee on a beneficiary designation form adopted by the Plan administrator for
such purpose or, if there is no effective beneficiary designation form on file
with the Company, by the executors or administrators of the optionee's estate or
by any person or persons who shall have acquired the option directly from the
optionee by his or her will or the applicable laws of descent and distribution.

                                    ARTICLE V
                             CORPORATE TRANSACTIONS

          5.01 ANTI-DILUTION ADJUSTMENTS. The number of shares of Common Stock
available for issuance upon exercise of Awards granted under the Plan, the
number of shares for which each Award can be exercised, and the exercise price
per share of Awards shall be appropriately and proportionately adjusted for any
increase or decrease in the number of issued and outstanding shares of Common
Stock resulting from a subdivision or consolidation of shares or the payment of
a stock dividend or any other increase or decrease in the number of issued and
outstanding shares of capital stock of the Company effected without receipt of
consideration by the Company. No fractional interests will be issued under the
Plan resulting from any such adjustments. The preceding sentence shall not
result in an adjustment to the terms of an Incentive Stock Option unless such
adjustment either (a) would not cause the Option to lose its status as an
Incentive Stock Option or (b) is agreed to in writing by the Committee and the
Recipient.

          5.02 REORGANIZATIONS; MERGERS; CHANGES IN CONTROL. Subject to the
other provisions of this Section 5.02, if the Company shall consummate any
reorganization or merger or consolidation in which holders of shares of the
Company's Common Stock are entitled to receive in respect of such shares any
other consideration (including, without limitation, a


                                       15



different number of such shares), each Award outstanding under the Plan
exercisable for Common Stock shall thereafter be exercisable, in accordance with
the Plan, only for the kind and amount of securities, cash and/or other property
receivable upon such reorganization or merger or consolidation by a holder of
the same number of shares of Common Stock as are subject to that Award
immediately prior to such reorganization or merger or consolidation, and any
appropriate adjustments will be made to the exercise price thereof. In addition,
if a Change in Control (as defined below) occurs and in connection with such
Change in Control any Recipient's employment with the Company is terminated,
then subject to the terms of any written employment agreement between the
Company and the Recipient and the specific terms of any Award, such Recipient
shall have the right to exercise or receive the full benefit of his or her
Awards granted under the Plan in whole or in part during the applicable time
period provided in Section 3.02(g) without regard to any vesting or performance
requirements or other milestones. For purposes hereof, but without limitation, a
Recipient's employment with the Company will be deemed to have been terminated
in connection with a Change of Control if (a) the Recipient is removed from his
or her employment with the Company by or resigns his or her employment with the
Company upon request of a Person (as defined in paragraph (i) below) exercising
practical voting control over the Company following the Change in Control or a
person acting upon authority or at the instruction of such Person, or (b) the
Recipient's position is eliminated as a result of a reduction in force within
150 days after the consummation of the Change in Control. In addition, if a
Change in Control occurs and in connection with such Change in Control any
recipient of a Non-employee Director's Option granted under the Plan ceases to
be a director of the Company or its successor, then such recipient shall have
the right to exercise his or her Non-Employee Director's Options granted under
the Plan in whole or in part during the applicable time period provided in
Section 4.05 without regard to any vesting requirements. For purposes hereof,
but without limitation, a director will be deemed to have ceased to be a
director of the Company or its successor in connection with a Change in Control
if such director (a) is removed by or resigns upon request of a Person (as
defined in paragraph (i) below) exercising practical voting control over the
Company following the Change in Control or a person acting upon authority or at
the instruction of such Person, or (b) is willing and able to continue as a
director of the Company or its successor but is not re-elected to or retained on
the Company's board of directors by the Company's shareholders through the
shareholder vote or consent action for election of directors that precedes and
is taken in connection with, or next follows, the Change in Control, and is not
elected or appointed to the board of directors of the successor. For purposes
hereof, a "CHANGE IN CONTROL" means the following and shall be deemed to occur
if any of the following events occur:

     (I)  The acquisition by any individual, entity or group (within the meaning
          of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person")) of
          beneficial ownership (within the meaning of Rule 13d-3 promulgated
          under the Exchange Act) of 50% or more of either (1) the
          then-outstanding shares of common stock of the Company (the
          "Outstanding Company Common Stock") or (2) the combined voting power
          of the then-outstanding voting securities of the Company entitled to
          vote generally in the election of directors (the "Outstanding Company
          Voting Securities"); provided, however, that, for purposes of this
          definition, the following acquisitions shall not constitute a Change
          in Control; (A) any acquisition directly from the Company, (B) any
          acquisition by the Company, (C) any acquisition by any employee
          benefit plan (or related trust) sponsored or maintained by the Company
          or any affiliate of the Company or a successor, or (D) any acquisition
          by any entity pursuant to a transaction that complies with clauses
          (iii)(A), (B) and (C) below;

     (II) Individuals who, as of the Effective Date, constitute the Board (the
          "Incumbent Board") cease for any reason to constitute at least a
          majority of the Board; provided,


                                       16



          however, that any individual becoming a director subsequent to the
          Effective Date whose election, or nomination for election by the
          Company's shareholders, was approved by a vote of a least a majority
          of the directors then comprising the Incumbent Board (including for
          these purposes, the new members whose election or nomination was so
          approved, without counting the member and his predecessor twice) shall
          be considered as though such individual were a member of the Incumbent
          Board, but excluding, for this purpose, any such individual whose
          initial assumption of office occurs as a result of an actual or
          threatened election contest with respect to the election or removal of
          directors or other actual or threatened solicitation of proxies or
          consents by or on behalf of a Person other than the Board;

     (III) Consummation of a reorganization, merger, statutory share exchange or
          consolidation or similar corporate transaction involving the Company
          or any of its subsidiaries, a sale or other disposition of all or
          substantially all of the assets of the Company, or the acquisition of
          assets or stock of another entity by the Company or any of its
          subsidiaries (each, a "Business Combination"), (A) all or
          substantially all of the individuals and entities that were the
          beneficial owners of the Outstanding Company Common Stock and the
          outstanding Company Voting Securities immediately prior to such
          Business Combination beneficially own, directly or indirectly, more
          than 50% of the then-outstanding shares of common stock and the
          combined voting power of the then-outstanding voting securities
          entitled to vote generally in the election of directors, as the case
          may be, of the entity resulting from such Business Combination
          (including, without limitation, an entity that, as a result of such
          transaction, owns the Company or all or substantially all of the
          Company's assets directly or through one or more subsidiaries (a
          "Parent")) in substantially the same proportions as their ownership
          immediately prior to such Business Combination of the Outstanding
          Company Common Stock and the Outstanding Company Voting Securities, as
          the case may be, (B) no Person (excluding any entity resulting from
          such Business Combination or a Parent or any employee benefit plan (or
          related trust) of the Company or such entity resulting from such
          Business Combination or Parent) beneficially owns, directly or
          indirectly, more than 50% of, respectively, the then-outstanding
          shares of common stock of the entity resulting from such Business
          Combination or the combined voting power of the then-outstanding
          voting securities of such entity, except to the extent that the
          ownership in excess of 50% existed prior to the Business Combination,
          and (C) at least a majority of the members of the board of directors
          or trustees of the entity resulting from such Business Combination or
          a Parent were members of the Incumbent Board at the time of the
          execution of the initial agreement or of the action of the Board
          providing for such Business Combination; or

     (IV) Approval by the shareholders of the Company of a complete liquidation
          or dissolution of the Company other than in the context of a
          transaction that does not constitute a Change in Control under clause
          (iii) above.

          5.03 DETERMINATION BY THE COMMITTEE. To the extent that the foregoing
adjustments relate to stock or securities of the Company, such adjustments shall
be made by the Committee, whose determination in that respect shall be final,
binding and conclusive. The grant of an Award pursuant to the Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all of any part of its business or assets.


                                       17

EX-10.22

                                                                   EXHIBIT 10.22

                                REMEDYTEMP, INC.

                           DEFERRED COMPENSATION PLAN

                 AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2005



                                REMEDYTEMP, INC.

                           DEFERRED COMPENSATION PLAN

     THIS DEFERRED COMPENSATION PLAN is amended and restated effective January
1, 2005, with reference to the following:

A. The Company originally adopted this Plan effective as of September 29, 1997,
to provide key employees a tax deferred, capital accumulation, retention
program.

B. This Plan is intended to provide benefits to a select group of management or
highly compensated personnel in order to attract and retain the highest quality
executives. This Plan is not intended to be a qualified plan within the meaning,
of sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as amended
(the "Code") but is intended to be a nonqualified deferred compensation plan
that complies with the terms of Code section 409A.

C. This Plan is intended to be an unfunded plan for purposes of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Company
contributions and voluntary compensation deferrals shall be held in a "Rabbi
Trust," as that term is defined in Revenue Procedure 99-64, 1992-9 C.B. 493.

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

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

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

     1.2 Board means the Board of Directors of RemedyTemp, Inc. and its
successors.


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

     1.4 Change in Control means any one or more of the following:

     (I)  The acquisition by any individual, entity or group (within the meaning
          of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person")) of
          beneficial ownership (within the meaning of Rule 13d-3 promulgated
          under the Exchange Act) of 50% or more of either (1) the
          then-outstanding shares of common stock of the Company (the
          "Outstanding Company Common Stock") or (2) the combined voting power
          of the then-outstanding voting securities of the Company entitled to
          vote generally in the election of directors (the "Outstanding Company
          Voting Securities"); provided, however, that, for purposes of this
          definition, the following acquisitions shall not constitute a Change
          in Control; (A) any acquisition directly from the Company, (B) any
          acquisition by the Company, (C) any acquisition by any employee
          benefit plan


                                       1



          (or related trust) sponsored or maintained by the Company or any
          affiliate of the Company or a successor, or (D) any acquisition by any
          entity pursuant to a transaction that complies with clauses (iii)(A),
          (B) and (C) below;

     (II) Individuals who, as of the Effective Date, constitute the Board (the
          "Incumbent Board") cease for any reason to constitute at least a
          majority of the Board; provided, however, that any individual becoming
          a director subsequent to the Effective Date whose election, or
          nomination for election by the Company's shareholders, was approved by
          a vote of a least a majority of the directors then comprising the
          Incumbent Board (including for these purposes, the new members whose
          election or nomination was so approved, without counting the member
          and his predecessor twice) shall be considered as though such
          individual were a member of the Incumbent Board, but excluding, for
          this purpose, any such individual whose initial assumption of office
          occurs as a result of an actual or threatened election contest with
          respect to the election or removal of directors or other actual or
          threatened solicitation of proxies or consents by or on behalf of a
          Person other than the Board;

     (III) Consummation of a reorganization, merger, statutory share exchange or
          consolidation or similar corporate transaction involving the Company
          or any of its subsidiaries, a sale or other disposition of all or
          substantially all of the assets of the Company, or the acquisition of
          assets or stock of another entity by the Company or any of its
          subsidiaries (each, a "Business Combination"), (A) all or
          substantially all of the individuals and entities that were the
          beneficial owners of the Outstanding Company Common Stock and the
          outstanding Company Voting Securities immediately prior to such
          Business Combination beneficially own, directly or indirectly, more
          than 50% of the then-outstanding shares of common stock and the
          combined voting power of the then-outstanding voting securities
          entitled to vote generally in the election of directors, as the case
          may be, of the entity resulting from such Business Combination
          (including, without limitation, an entity that, as a result of such
          transaction, owns the Company or all or substantially all of the
          Company's assets directly or through one or more subsidiaries (a
          "Parent")) in substantially the same proportions as their ownership
          immediately prior to such Business Combination of the Outstanding
          Company Common Stock and the Outstanding Company Voting Securities, as
          the case may be, (B) no Person (excluding any entity resulting from
          such Business Combination or a Parent or any employee benefit plan (or
          related trust) of the Company or such entity resulting from such
          Business Combination or Parent) beneficially owns, directly or
          indirectly, more than 50% of, respectively, the then-outstanding
          shares of common stock of the entity resulting from such Business
          Combination or the combined voting power of the then-outstanding
          voting securities of such entity, except to the extent that the
          ownership in excess of 50% existed prior to the Business Combination,
          and (C) at least a majority of the members of the board of directors
          or trustees of the entity resulting from such Business Combination or
          a Parent were members of the Incumbent Board at the time of the
          execution of the initial agreement or of the action of the Board
          providing for such Business Combination; or

     (IV) Approval by the shareholders of the Company of a complete liquidation
          or dissolution of the Company other than in the context of a
          transaction that does not constitute a Change in Control under clause
          (iii) above.


                                       2



     1.5 Company means RemedyTemp, Inc., a California corporation, and other
subsidiaries or affiliated companies of RemedyTemp, Inc. that have been or are
in the future permitted by RemedyTemp, Inc. to join the Plan as an additional
Company in accordance with this Plan. Notwithstanding any other provision in the
Plan to the contrary, RemedyTemp, Inc. shall have the power, acting alone and
without the consent of any other entity or person, to amend or terminate the
Plan, to appoint the Trustee and members of the Board or to exercise other
powers reserved to the Company, and such act by RemedyTemp, Inc. shall be
binding on the other Companies that have adopted the Plan and all other persons
interested in the Plan. The Company shall act through a resolution of the Board
or the executive committee of the Board, or, if applicable, may act through a
delegate of the Board or executive committee. A reference to "Company" shall be
deemed to include RemedyTemp, Inc., provided that notwithstanding anything in
the Plan to the contrary, any power reserved to the Company may be exercised by
RemedyTemp, Inc. acting alone, without the necessity of further action or
consent by the Trustee, other Companies, the Board, or any other person.

     1.6 Disability means, with respect to a Participant, (i) the inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or can be expected to last for a continuous period of not less than twelve
(12) months, or (ii) the receipt of income replacement benefits for a period of
not less than three (3) months under an accident and health plan covering
employees of the participant's employer, by reason of any medically determinable
physical or mental impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than twelve (12) months. A
Participant who has suffered a Disability shall be Disabled within the meaning
of this Section 1.6.

The determination of whether a Participant is Disabled shall be made by the CEO.
A Participant who believes he has suffered a Disability shall make application
to the CEO, on a form prescribed by the CEO, for a determination of whether he
is Disabled. The Participant shall cooperate in providing any information to the
CEO that he or she requires in making the determination, including, but not
limited to, access to the Participant's medical records, direct contact with his
physician and physical examination by a physician selected by the Company. Any
Participant who does not fully cooperate shall be deemed not Disabled by the CEO
and shall be so notified. Any determination by the CEO that a Disability exists
under the provisions of this Section 1.6 shall be final, subject to the review
procedures set forth in Section 7.5.

     1.7 Financial Hardship means an unanticipated emergency that is caused by
an event beyond the control of the Participant that would result in severe
financial distress to the Participant resulting from (i) a sudden and unexpected
illness or accident of the Participant or a dependent of the Participant (as
defined in section 152(a) of the Code), (ii) a loss of the Participant's
property due to casualty, or (iii) such other extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant, all as determined in the sole discretion of the Committee.

     1.8 Key Employee means an employee of the Company, selected by the CEO, who
is a member of a select group of management or highly compensated employees
within the


                                       3



meaning of ERISA Section 201(2) and who is a "highly compensated employee" as
that term is defined in section 414(q) of the Internal Revenue Code of 1986, as
amended, or would be a highly compensated employee but for satisfaction of the
lookback requirement of section 414(q); provided that if such employee becomes
eligible to participate in the 401(k) plan either by reason of an amendment to
such plan or because such employee no longer falls within the definition of a
highly compensated employee, such employee shall no longer be eligible to
participate in this Plan.

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

     1.10 Plan means the RemedyTemp, Inc. Deferred Compensation Plan as amended
and restated effective January 1, 2005 by this document and the Trust Agreement
established in connection herewith.

     1.11 Plan Committee means the individuals appointed by the Board from time
to time to administer the Plan as provided herein.

     1.12 Plan Quarter means one quarter of the Plan Year. Any Plan Year
consists of the following Plan Quarters: (i) January 1 through March 31 (ii)
April 1 through June 30 (iii) July 1 through September 30; or (iv) October 1
through December 31.

     1.13 Plan Year means the period beginning on January 1 of each calendar
year and continuing through December 31 of such calendar year.

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

     1.15 Specified Employee shall mean a key employee (as defined in section
416(i) of the Code without regard to paragraph (5) thereof) of a corporation any
stock of which is publicly traded on an established securities market.

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


                                       4



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

2. Participation.

     2.1 Eligibility. A Key Employee of the Company is eligible to participate
in this Plan on the first day of the Plan Quarter first following the date as of
which both of the following events have occurred: (A) the CEO has designated him
or her in writing as a Participant in the Plan or the Participant becomes a Key
Employee, as defined in Section 1.7 during the Plan Year, and (B) the Key
Employee has made a Written Election in accordance with the terms of Section 2.4
below.

     2.2 Entry Date. Any Key Employee who has met the Eligibility Requirements
specified in Section 2.1 as of the Effective Date of this Plan shall become a
Participant in the Plan as of the Effective Date. If any employee of the Company
becomes a Key Employee, as defined in Section 1.7, such employee shall be
eligible to participate in the Plan on the first day of the following Plan
Quarter.

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

     2.4 Written Election by Participant. Each Key Employee designated by the
CEO as a Participant for a Plan Year shall submit a Written Election prior to
the first day of the Plan Year in which he will be a Participant; provided,
however, that if permitted under rules established by the Plan Committee, if the
Participant is entitled to a bonus that is determined to be performance based
compensation within the meaning of Code section 409A and related guidance issued
by the Internal Revenue Service thereunder, an election to defer such
compensation may be made at any time prior to six (6) months before the end of
the measuring period for the determination of the amount of such bonus. If an
employee becomes eligible to participate in the Plan after the beginning of the
Plan Year, such employee must make an election, with respect to services
performed and Plan Year Compensation earned subsequent to the election, within
thirty (30) days from the Participant's Entry Date.

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

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

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


                                       5



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

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

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

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

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

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

     (3)  A Participant may change the date or form of distribution by
          submitting a new Written Election to the Company, provided that (i)
          such change is submitted not later than the end of the second calendar
          year preceding the calendar year of the originally designated date of
          distribution, (ii) the new date of distribution, if any, is subsequent
          to the original date of distribution (iii) any change does not take
          effect until twelve (12) months after the change is executed (iv) if
          the change relates to payment of Retirement Benefit or Termination of
          Service Benefit the payment with respect to such election must be
          deferred for a period of no less than five (5) years from the date
          such payment would otherwise have been made, and (v) a change to the
          payment of an In-Service Withdrawal must be made no later than twelve
          (12) months before the date of the first scheduled payment.

Notwithstanding Section 2.4(B) a Participant may elect during all or part of the
calendar year 2005 to terminate participation in the Plan or cancel his Written
Election provided that the amounts subject to the termination or cancellation
are includible in income of the Participant in the calendar year 2005, or if
later, the taxable year in which the amounts are earned and vested.

     2.5 Duration of Participation. Any Key Employee who has become a
Participant at any time shall remain a Participant, even though he is no longer
an Active Participant, until his


                                       6



entire benefit under the terms of the Plan has been paid to him (or to his
Beneficiary in the event of his death), at which time he ceases to be a
Participant.

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

3. Contributions and Allocation.

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

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

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

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

     3.5 Funding. The assets of the Plan shall be held under the Trust Agreement
(a "grantor trust") designated in Section 1.16 above. As such, the Plan is
intended to be an unfunded plan for purposes of the requirements of ERISA and
the Code. Notwithstanding the provisions under the terms of the Plan that
amounts contributed to this Plan, plus earnings thereon, shall be allocated to
separate Accounts of Participants, all such amounts credited to such individual
Accounts shall remain the general assets of the Employer, and as such shall
remain subject to the claims of the general creditors of the Company. This Plan
and the related Trust Agreement do not create, nor does any Employee,
Participant or Beneficiary have, any right with respect to any specific assets
of the Company or the Plan.


                                       7



4. Vesting of Accounts. The Account of each Participant shall be 100% vested in
such Participant at all times.

5. Types of Benefits.

     5.1 Retirement Benefit. A Participant's Retirement Benefit is the unpaid
balance of his or her Account which equals the total of all contributions made
by the Participant and allocated to the Participant's Account and all earnings
credited to the Account in accordance with the terms of the Plan and the Trust
Agreement, less any distributions already paid. In the case of a Specified
Employee as that term is defined in Section 1.15, the Retirement Benefit shall
not be made earlier than six (6) months after the date of termination of
employment with the Company (or, if earlier, the date of death of the
Participant). If a Participant makes a change in the form of distribution on the
Written Election, such election may not take effect until twelve (12) months
after the date on which the election is made, and the first payment with respect
to such election must be deferred for a period of five (5) years from the date
such payment would otherwise have been made.

     5.2 Termination of Service Benefit. If a Participant elects to receive his
or her Retirement Benefit upon termination of his employment with the Company,
the Company will pay the Retirement Benefit, calculated under Section 5.1, under
the applicable form elected by the Participant in the Written Election. In the
case of a Specified Employee as that term is defined in Section 1.15, the
Termination of Service Benefit shall not be made earlier than six (6) months
after the date of termination of employment with the Company (or, if earlier,
the date of death of the Participant).

     5.3 Disability Benefit. If a participant becomes Disabled as defined in
Section 1.6 above, the Company will pay the Retirement Benefit, calculated under
Section 5.1, under the applicable form elected by the Participant in the Written
Election.

     5.4 Death Benefit.

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

          (B) If a Participant dies while still employed by the Company and the
     Company has purchased a life insurance contract in correction with such
     Participant's Retirement Benefit, the Company will pay the Participant's
     designated Beneficiary the greater of the Retirement Benefit as determined
     under Section 5.1 above or the Projected Retirement Benefit (as defined
     below), under the applicable form elected by the Participant in his Written
     Election. "Projected Retirement Benefit" means the amount determined by
     projecting the Participant's contribution for the Participant's first year
     of


                                       8



     participation hereunder at an assumed earnings rate determined by the Plan
     Committee to retirement at Normal Retirement Age.

     5.5 In-Service Withdrawal. A Participant may designate, at the time of
deferral, a date in the future for receipt of an In-Service Withdrawal. Such
withdrawal may be paid while the Participant remains employed with the Company,
but shall be paid without Credited Earnings attributable to such Participant
Contribution (which Credited earnings shall be distributed upon termination of
employment or retirement) in four (4) equal yearly installments commencing on
January 1: of the second Plan Year following the Plan Year of deferral (the
"In-Service Commencement Year"); provided, however, that a Participant may elect
to defer commencement of an In-Service Withdrawal for an additional five years
by delivery to the Company of a written election not later than the last day of
the Plan Year prior to the Plan Year immediately preceding the In-Service
Commencement Year.

     5.6 Financial Hardship Benefit. A Participant may request a portion of the
Retirement Benefit as a Financial Hardship Benefit at any time by providing the
Plan Committee, to its satisfaction, with a written election to do so, proof of
an unforeseeable financial hardship, and proof that all other financial
resources have been explored and utilized. The amount of a Financial Hardship
Benefit shall be limited to the lesser of the amount needed for the Financial
Hardship plus amounts necessary to pay taxes reasonably anticipated as a result
of the distribution, after taking into account the extent to which such hardship
is or may be relieved through reimbursement or compensation by insurance or by
liquidation of the Participant's assets. In consideration for receiving a
Financial Hardship Benefit, the Participant will not be permitted to make
further contributions to the Plan for the remainder of the Plan Year and the
following Plan Year.

6. Distributions.

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

          (A) Retirement Benefit, Termination of Service Benefit, Disability
     Benefit, and Death Benefit shall be paid in (i) one lump sum; (ii) 5 yearly
     installments; (iii) 10 yearly installments; or (iv) 15 yearly installments
     or (v) a Participant may elect to have the Company purchase an annuity on
     his behalf for the amount of his benefit as provided in Sections 5.1
     through 5.4, above, respectively;

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

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

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


                                       9



          (A) Retirement Benefit, Disability Benefit, and Death Benefit payments
     shall commence on the later of (i) the date specified in the Participant's
     initial election form or (ii) January 15 of the Plan Year immediately
     following the date on which the Participant retires, becomes disabled, or
     dies;

          (B) Termination of Service Benefit shall commence on the later of (i)
     the date specified in the Participant's initial election form or (ii)
     January 15 of the Plan Year immediately following the date on which the
     Participant, terminates service, except in the case of a Specified Employee
     as that term is defined in Section 1.15, the Termination of Service Benefit
     shall not be made earlier than six (6) months after the date of termination
     of employment with the Company (or, if earlier, the date of death of the
     Participant).

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

          (D) Financial Hardship Benefit payments shall be made as soon as
     reasonably practicable after a request for a Financial Hardship Benefit is
     approved by the Plan Committee.

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

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

     7.2 Termination of Plan. The Company reserves the right to terminate the
Plan at any time by resolution of the Plan Committee. In the event of Plan
termination, the Company shall determine the Account Balances of the
Participants as if they had experienced a Termination of Employment on the date
of Plan termination or, if Plan termination occurs after the date upon which a
Participant was eligible to Retire, then with respect to that Participant as if
he or she had Retired on the date of Plan termination within thirty (30) days of
the Plan's termination. Benefits so determined will be distributed as provided
in Sections 5 and 6 above.

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

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


                                       10



Notwithstanding the first paragraph of this Section 8, the Company may transfer
assets to a trust pursuant to a Trust Agreement, a copy of which is attached.
Such trust is intended to (i) be a grantor trust, as defined in Section 671 of
the Code and (ii) assist the Company to meet its obligations under the Plan.

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

9. Administration.

     9.1 Plan Committee. The Plan shall be administered by the Plan Committee.
The Plan Committee shall have full authority and power to administer and
construe the Plan, subject to applicable requirements of law. Without limiting
the generality of the foregoing, the Plan Committee shall have the powers
indicated in the foregoing Sections of the Plan and the following additional
powers and duties:

          (A) To make and enforce such rules and regulations as it deems
     necessary or proper for the administration of the Plan;

          (B) To interpret the Plan and to decide all questions concerning the
     Plan;

          (C) To determine the amount and the recipient of any payments to be
     made under the Plan;

          (D) To designate and value any investments deemed held in the
     Accounts; and

          (E) To make all other determinations and to take all other steps
     necessary or advisable for the administration of the Plan.

All decisions made by the Plan Committee pursuant to the provisions of the Plan
shall be made in its sole discretion and shall be final, conclusive, and binding
upon all parties.

     9.2 Delegation of Duties. The Plan Committee may delegate such of its
duties and may engage such experts and other persons as it deems appropriate in
connection with administering the Plan. The Plan Committee shall be entitled to
rely conclusively upon, and shall be fully protected in any action taken by the
Plan Committee, in good faith in reliance upon any opinions or reports furnished
them by any such experts or other persons.

     9.3 Indemnification of Committee. The Company agrees to indemnify and to
defend to the fullest extent permitted by law any person serving as a member of
the Plan Committee, and each employee of the Company or any of its affiliates
appointed by the Plan Committee to carry out duties under this Plan, against all
liabilities, Carnages, costs and expenses (including attorneys' fees and amounts
paid in settlement of any claims approved by the Company)


                                       11



occasioned by any act or omission to act in connection with the Plan, if such
act or omission is in good faith.

     9.4 Liability. To the extent permitted by law, neither the Plan Committee
nor any other person shall incur any liability to any acts or for any failure to
act except for liability arising out of such person's own willful misconduct or
willful breach of the Plan.

     9.5 Claims Review Procedure.

          (A) A claim for benefits may be filed, in writing, with the Plan
     Committee. A written disposition of a claim shall be furnished to the
     claimant within a reasonable time after the claim for benefits is filed. In
     the event a claim for benefits is denied, the Plan Committee shall provide
     the claimant with the reasons for denial.

          (B) A claimant whose claim for benefits was denied may file for a
     review of such denial, with the Plan Committee, no later than 60 days after
     he has received written notification of the denial.

          (C) The Plan Committee shall give a request for review a full and fair
     review. If the claim for benefits is denied upon completion of a full and
     fair review, notice of such denial shall be provided to the claimant within
     60 days after the Plan Committee's receipt of such written claim for
     review. This 60-day period may be extended in the event of special
     circumstances. Such special circumstances shall be communicated to the
     claimant in writing within the 60-day period. If there is an extension, a
     decision shall be made as soon as possible, but not later than 120 days
     after receipt by the Plan Committee of such claim for review.

          (D) If benefits are provided or administered by an insurance company,
     insurance service, or other similar organization subject to regulation
     under the insurance laws of a state, the claims procedure relating to these
     benefits shall be the procedure used by that entity. In addition, that
     company, service, or organization will be the entity to which claims are
     addressed.

10. General Provisions.

     11.

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

In any event, if a Participant or Beneficiary who has designated another
Beneficiary is divorced, all beneficiary designations executed prior to the
effective date of the dissolution of marriage (or other decree or order entered
under applicable state law) are automatically revoked under the terms of this
Section 10.1. In such event, the Participant or Beneficiary may designate one or
more Beneficiaries in accordance with the terms of this Section 10.1. If none is
made following


                                       12



the effective date of the dissolution of the marriage, the individual's benefit
shall pass under the laws of interstate succession and the terms of the next
following paragraph.

If a Participant fails to file a valid designation of beneficiary with the Plan
Committee under the provisions of this Section 10.1, or if a designated
Beneficiary fails to survive to receive any or all payments due hereunder, then
the death benefit payable under this Plan shall be payable to the Participant's
(or the Beneficiary's) spouse; if no spouse survives, then to the Participant's
(or Beneficiary's) children, with equal shares among living children and with
the living descendants of a deceased child receiving equal portions of the
deceased child's share; in the absence of spouse or descendants, to the
Participant's (or Beneficiary's) parents; and in the absence of spouse,
descendants or parents, to the Participant's (or Beneficiary's) brothers and
sisters, levity the living descendants of a deceased brother and those of a
deceased sister receiving equal portions of the deceased brother's or sister's
share; in the absence of any of the persons named herein, to the Participant's
(or Beneficiary's) estate.

For purposes of this Section 10.1, the term "descendant" means all persons who
are descended from the person referred to either by birth to or legal adoption
by such person, and "child" or "children" includes adopted children.

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

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

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

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

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

     10.7 Gender Usage. The use of the masculine gender includes the feminine
gender for


                                       13



all purposes of this Plan.

     10.8 Expenses. The Company shall pay all costs of administration of the
Plan.

     IN WITNESS WHEREOF, the Committee has approved this amendment and
restatement of the Plan effective January 1, 2005.

REMEDYTEMP, INC.


By: /s/ Gunnar B. Gooding
    ---------------------------------
    Senior Vice President,
    Human Resources and Legal Affairs


                                       14

EX-10.24

                                                                   EXHIBIT 10.24

                              1998 REMEDYTEMP, INC.

                 AMENDED AND RESTATED DEFERRED COMPENSATION AND
                              STOCK OWNERSHIP PLAN
                              FOR OUTSIDE DIRECTORS

             (AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 2005)



                                TABLE OF CONTENTS

                              1998 REMEDYTEMP, INC.

              AMDENDED AND RESTATED DEFERRED COMPENSATION AND STOCK
                                 OWNERSHIP PLAN
                              FOR OUTSIDE DIRECTORS

             (Amended and Restated Effective As of January 1, 2005)



                                                                            PAGE
                                                                            ----
                                                                      
Article 1.    Establishment and Purpose                                       1
Article 2.    Administration                                                  1
Article 3.    Participation in the Plan                                       2
Article 4.    Stock Subject to the Plan                                       2
Article 5.    Deferral of Retainer Fees                                       3
Article 6.    Deferral Procedures                                             3
Article 7.    Deferred Compensation Accounts                                  5
Article 8.    Rights of Participants                                          6
Article 9.    Securities Laws                                                 6
Article 10.   Withholding Taxes                                               7
Article 11.   Amendment and Termination of the Plan                           7
Article 12.   Effective Date and Duration of the Plan                         7
Article 13.   Miscellaneous                                                   7
DEFERRAL ELECTION FORM
DeSIGNATION OF BENEFICIARY FORM




                              1998 REMEDYTEMP, INC.

                 AMDENDED AND RESTATED DEFERRED COMPENSATION AND
                              STOCK OWNERSHIP PLAN
                              FOR OUTSIDE DIRECTORS

             (Amended and Restated Effective As of January 1, 2005)

     ARTICLE 1. ESTABLISHMENT AND PURPOSE.

          1.1 ESTABLISHMENT. RemedyTemp, Inc., a California corporation (the
"COMPANY"), established, effective as of March 16, 1998 (the "EFFECTIVE DATE"),
this director pay and deferred compensation plan, which shall be known as the
1998 RemedyTemp, Inc. Deferred Compensation and Stock Ownership Plan for Outside
Directors (the "PLAN"), for present and future members of the board of directors
of the Company (the "BOARD") who are not employees or officers of the Company.
The Plan was amended, upon shareholder approval effective February 27, 2003, to
increase the aggregate number of shares of the Company's Class A Common Stock,
par value $.01 per share, that may be issued under the Plan and was amended and
restated, effective as of October 1, 2003, to allow participants in the Plan the
option to receive all of the Retainer Fees (as defined below) in Stock on a
deferral basis. The Plan was amended and restated effective January 1, 2005 to
comply with section 409A of the Internal Revenue Code.

          1.2 PURPOSE. The purposes of the Plan are (i) to provide members of
the Board who are not employees or officers of the Company with the opportunity
to receive all of their Retainer Fees (as defined below) in the form of the
Company's Class A Common Stock, par value $.01 per share ("STOCK") on a deferral
basis, subject to the terms of the Plan and (ii) to advance the interests of the
Company and its shareholders by increasing the Stock ownership of the Company's
non-employee directors thereby aligning their interests more closely with the
interests of the Company's other shareholders. By adopting the Plan, the Company
desires to enhance its ability to attract and retain members of the Board
("DIRECTORS") of outstanding competence.

     ARTICLE 2. ADMINISTRATION.

          2.1 AUTHORITY OF THE BOARD. The Plan shall be administered by the full
Board, and to the extent permissible under Section 16 of the Securities Exchange
Act of 1934, as amended, the Board may delegate ministerial duties to the Chief
Human Resources Officer or any other executive or executives of the Company. The
Board shall have the power to construe the Plan, to resolve all questions
arising under the Plan, to adopt and amend such rules and regulations for the
administration of the Plan as it may deem desirable, and otherwise to carry out
the terms of the Plan. Neither the Board nor any officer or employee thereof
shall be liable for any action or determination taken or made under the Plan in
good faith. Notwithstanding the foregoing, the Board shall have no authority or
discretion as to the persons who will participate in the Plan, the number of
shares of Stock to be issued under the Plan, the time at which such grants are
made, the number of shares of Stock to be granted at any particular time, or any
other matters that are specifically governed by the provisions of the Plan.

          2.2 DECISIONS BINDING. The determinations, interpretations, and other
actions of the Board of or under the Plan shall be final and binding for all
purposes and on all persons.

          2.3 ARBITRATION. Any individual making a claim for benefits under this
Plan may contest the Board's decision to deny such claim or appeal therefrom
only by submitting the


                                                                               1



matter to binding arbitration before a single arbitrator. Any arbitration shall
be held in Orange County, California, unless otherwise agreed to by the Board.
The arbitration shall be conducted pursuant to the Commercial Arbitration Rules
of the American Arbitration Association.

          The arbitrator's authority shall be limited to the affirmation or
reversal of the Board's denial of the claim or appeal, and the arbitrator shall
have no power to alter, add to, or subtract from any provision of this Plan.
Each party shall bear its own attorney's fees and costs of arbitration. Judgment
on the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof.

          2.4 INDEMNIFICATION. Each person who is or shall have been a member of
the Board shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit, or proceeding to which he or she may be a defendant, or in which he or she
may be a party by reason of any act or omission by such Board member in his or
her capacity as an administrator of the Plan, and against and from any and all
amounts paid by him or her in settlement thereof, with the Company's approval,
or paid by him or her in satisfaction of any judgment in any such action, suit,
or proceeding against him or her, provided he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same before he or she
undertakes to handle and defend it on his or her own behalf. The foregoing right
of indemnification shall not be exclusive of any other rights or indemnification
to which such persons may be entitled under the Company's Articles of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the
Company may have to indemnify them or hold them harmless.

     ARTICLE 3. PARTICIPATION IN THE PLAN.

          Directors of the Company who are not employees or officers of the
Company or any subsidiary of the Company ("ELIGIBLE DIRECTORS") may participate
in the Plan. Each Eligible Director may enter into an agreement with the Company
in such form as the Company shall determine consistent with the provisions of
the Plan for purposes of implementing the Plan or effecting its purposes. In the
event of any inconsistency between the provisions of the Plan and any such
agreement, the provisions of the Plan shall govern. In the event an Eligible
Director no longer meets the requirements for participation in the Plan, such
Eligible Director shall become an inactive Eligible Director, retaining all the
rights described under the Plan, until such time that the Eligible Director
again becomes an active Eligible Director.

     ARTICLE 4. STOCK SUBJECT TO THE PLAN.

          4.1 NUMBER OF SHARES. The shares that may be issued under the Plan
shall be authorized and unissued shares of the Company's Stock. The maximum
aggregate number of shares that may be issued under the Plan shall be
seventy-five thousand (75,000), subject to adjustment upon changes in
capitalization of the Company as provided in Article 4.2. The maximum aggregate
number of shares issuable under the Plan may be increased from time to time by
approval of the Board, and by the shareholders of the Company if shareholder
approval is required pursuant to the applicable rules of any stock exchange, or,
in the opinion of the Company's counsel, any other law or regulation binding
upon the Company.

          4.2 ADJUSTMENTS. If the Company shall at any time increase or decrease
the number of its issued and outstanding shares of Stock (whether by reason of
reorganization, merger, consolidation, recapitalization, stock dividend, stock
split, combination of shares, exchange of shares, change in corporate structure,
or otherwise), then the number of shares of Stock still available for issue
hereunder shall be increased or decreased appropriately and proportionately.


                                                                               2



     ARTICLE 5. DEFERRAL OF RETAINER FEES.

          5.1 PAYMENT OF FEES. An Eligible Director may, upon his or her
election in accordance with procedures established by the Company, elect to
defer his or her annual cash retainer fees (annual amount and pro-rata portions
thereof for partial years of directorship are set by the Board) paid to such
Director for serving as a member of the Board ("RETAINER FEES"), under the Plan,
subject to the terms and conditions set forth in this Article 5 ("DEFERRED
AMOUNTS"). All other fees received by Eligible Directors from the Company,
including his or her fees normally paid to a Director on a per meeting basis for
attending a meeting of the Board or a committee thereof ("MEETING FEES") are not
subject to the terms of this Plan.

          5.2 DEEMED INVESTMENT OF DEFERRED AMOUNTS.

               5.2.1 DEEMED INVESTMENTS OF DEFERRED AMOUNTS. Deferred Amounts
shall be deemed to be invested in Stock. Such amounts shall be deemed to be
credited to the Eligible Director's account under the Plan as of the date the
Retainer Fees otherwise would have been payable to the Eligible Director in
cash. The Eligible Director's account shall be deemed to hold the number of
shares of Stock determined by dividing the Deferred Amount by the Fair Market
Value of the Stock on the date the amount is deemed to be credited to the
Eligible Director's account.

               5.2.2 FAIR MARKET VALUE. For the purposes of the Plan, the "FAIR
MARKET VALUE" of the Stock as of any issuance or deferral date shall be the mean
between the highest and lowest sales price of the Stock on the New York Stock
Exchange (or another national stock exchange or the NASDAQ National Market
System, if the Stock trades thereon but not on the NYSE) as of such date (or, if
no such shares were traded on such date, as of the next preceding day on which
there was such a trade, provided that the closing price on such preceding date
is not less than 100% of the fair market value of the Stock, as determined in
good faith by the Company, on the date of issuance). If at any time the Stock is
no longer traded on a national stock exchange or the NASDAQ National Market
System, the Fair Market Value of the Stock as of any issuance date shall be as
determined by the Company in good faith in the exercise of its reasonable
discretion.

          5.3 RIGHTS OF THE ELIGIBLE DIRECTOR. Except as otherwise provided
under this Plan and that certain Trust Agreement (if any) of even date herewith
entered into by and among the Company and the Trustees with respect to the Plan,
an Eligible Director shall, with respect to shares of Stock deemed to be held
under such Eligible Director's account, have all of the rights of a holder of
the Stock, including the right to receive dividends paid on such Stock and the
right to vote the Stock at meetings of shareholders of the Company. Upon
delivery, such Stock will be nonforfeitable.

     ARTICLE 6. DEFERRAL PROCEDURES.

          6.1 DEFERRAL OF RETAINER FEES. If an Eligible Director elects to defer
Retainer Fees under the Plan, such election shall automatically remain in effect
for all periods the Eligible Director remains a Director until changed by the
Eligible Director pursuant to procedures established by the Committee. All
Retainer Fees deferred under the Plan shall be deemed to be invested as set
forth in Article 5.2 hereof.

          6.2 PAYMENT FORM OF DEFERRED AMOUNTS. Subject to Article 6.3, Eligible
Directors shall be entitled to elect to receive distribution of all the Deferred
Amounts at the end of the deferral period in a single lump distribution. Such
distribution shall be in the form of Stock. In lieu of a lump sum distribution,
the Eligible Director may elect to receive distributions under the Plan by means
of installments. If no effective election is made, the Eligible Director


                                                                               3



will be paid in a single lump distribution. For all Eligible Directors as of the
Effective Date, elections to receive distributions in annual installments rather
than in one lump distribution, shall be made by completing a "Deferral Election
Form" within thirty (30) calendar days after the Effective Date. Otherwise,
those persons becoming Eligible Directors after the Effective Date shall
complete a Deferral Election Form not later than thirty (30) calendar days upon
becoming an Eligible Director under the Plan.

               6.2.1 ONE LUMP DISTRIBUTION. Unless otherwise elected on a
Deferral Election Form, all Deferred Amounts under the Plan shall be distributed
in a single transaction made to the Eligible Director in January following the
year in which he or she ceases to serve as a Director for any reason (a
"DISTRIBUTION Date", which shall also mean the date any installment payment is
paid pursuant to Article 6.2.2).

               6.2.2 INSTALLMENT DISTRIBUTIONS. Eligible Directors may elect to
receive the distribution of Deferred Amounts in annual installments, with a
minimum number of installments of two (2), and a maximum number of installments
of ten (10) by completing a Deferral Election Form as provided in Article 6.2.
The initial distribution shall be made in January following the year in which he
or she ceases to serve as a Director for any reason. The remaining installment
distributions shall be made in January of each year thereafter until the
Eligible Director's entire deferred account has been distributed in full. The
amount of each installment distribution shall be determined immediately prior to
each such payment and shall equal the number of Shares credited to the Eligible
Director's account, multiplied by a fraction, the numerator of which is one (1),
and the denominator of which is the number of installment payments remaining.

          Subject to the following rules, Eligible Directors shall be permitted
to change the form of elected deferral distribution pursuant to this Article 6
from a single distribution to installment distributions ("Permitted Change"),
but not from installment distribution to a single distribution. A Permitted
Change shall be made by filing a revised election form on an Deferral Election
Form as described in Article 6.2 herein, specifying the new form of distribution
provided that:

          (1) An election to change the form of distribution must be made no
later than December 31 at least one (1) full year prior to the distribution
commencement date as described in Article 6.2 herein. If a new election is
submitted after this date, the election shall be null and void, and the form of
distribution shall be determined under the Eligible Director's original election

          (2) No further election to change a form of distribution shall be
permitted with respect to Deferred Amounts already subject to a revised election
submitted pursuant to this Article 6; and

          (3) The payments that are subject to the change in election must be
delayed at least five (5) years from the date the payments would have otherwise
been made under the previous election (except in the case of payments due to
death or a financial hardship).

          Notwithstanding anything to the contrary herein, the Board may elect
at any time, in its sole and absolute discretion, to make distribution of the
Deferred Amount to the Eligible Director in a single lump distribution,
notwithstanding the Eligible Director's election to receive such Deferred Amount
in the form of installments.

          6.3 FINANCIAL HARDSHIP. The Board shall have the authority to alter
the timing or manner of payment of Deferred Amounts in the event that the
Eligible Director


                                                                               4



establishes, to the satisfaction of the Board, severe financial hardship. In
such event, the Board may, in its sole discretion:

     (a) Authorize the cessation of deferrals by such Eligible Director under
     the Plan; or

     (b) Provide that all, or a portion, of the shares of Deferred Amounts shall
     immediately be paid to the Eligible Director in a lump sum payment of
     Stock.

          For purposes of this Article 6.3 "severe financial hardship" shall
mean any financial hardship resulting from extraordinary and unforseeable
circumstances arising as a result of one or more recent events beyond the
control of the Eligible Director. In any event, payment may not be made to the
extent such emergency is or may be relieved: (i) through reimbursement or
compensation by insurance or otherwise; (ii) by liquidation of the Eligible
Director's assets, to the extent the liquidation of such assets would not itself
cause severe financial hardship; or (iii) by cessation of deferrals under the
Plan. Withdrawals of amounts because of a severe financial hardship may only be
permitted to the extent reasonably necessary to satisfy the hardship, plus to
pay taxes on the withdrawal. Examples of what are not considered to be severe
financial hardships include the need to send an Eligible Director's child to
college or the desire to purchase a home. The Eligible Director's account will
be credited with earnings in accordance with the Plan up to the date of
distribution. The severity of the financial hardship shall be judged by the
Board. The Board's decision with respect to the severity of financial hardship
and the manner in which, if at all, the Eligible Director's future deferral
opportunities shall be ceased, and/or the manner in which, if at all, the
payment of deferred amounts to the Eligible Director shall be altered or
modified, shall be final, conclusive, and not subject to appeal.

          6.4 PLAN SHARES. All shares of Stock issued or issuable under the Plan
shall be deducted from the shares available under the Plan at the time first
issued and deferred under the Plan, provided that shares deferred and not
ultimately issued and delivered to the Eligible Director shall be returned to
the pool of available shares under the Plan.

     ARTICLE 7. DEFERRED COMPENSATION ACCOUNTS.

          7.1 ELIGIBLE DIRECTORS' ACCOUNTS. The Company shall establish and
maintain an individual bookkeeping account for the Deferred Amounts of each
Eligible Director under Article 6 herein. Each account shall be credited as of
the date the amount deferred otherwise would have become due and payable to the
Eligible Director and as provided in Article 7.2. Each Eligible Director's
account shall be one hundred percent (100%) vested at all times.

          7.2 DIVIDENDS ON STOCK. Any dividends paid on the deferred Stock, if
any, shall be paid to the Eligible Director in Stock (without interest) not
later than ten (10) days after the date such dividend payment on the Stock was
made.

          7.3 CHARGES AGAINST ACCOUNTS. There shall be charged against each
Eligible Director's deferred account any distributions made to the Eligible
Director or to his or her beneficiary.

          7.4 DESIGNATION OF BENEFICIARY. Each Eligible Director shall designate
a beneficiary or beneficiaries who, upon the Eligible Director's death, will
receive the Deferred Amount that otherwise would have been paid to the Eligible
Director under the Plan. All designations shall be signed by the Eligible
Director, and shall be in such form as prescribed by the Board. Each designation
shall be effective as of the date delivered to the Chief Human Resources Officer
of the Company prior to the Eligible Director's death. In the event that all the
beneficiaries named by an Eligible Director pursuant to this Article 7.4
predecease the Eligible Director, the Deferred Amount that would have been paid
to the Eligible Director or the Eligible


                                                                               5



Director's beneficiaries shall be paid to the Eligible Director's estate. In the
event an Eligible Director does not designate a beneficiary, or for any reason
such designation is ineffective, in whole or in part, the Deferred Amount that
otherwise would have been paid to the Eligible Director or the Eligible
Director's beneficiaries under the Plan shall be paid to the Eligible Director's
estate.

     ARTICLE 8. RIGHTS OF PARTICIPANTS.

          8.1 CONTRACTUAL OBLIGATION. The Plan shall create a contractual
obligation on the part of the Company to make payments from the Eligible
Directors' accounts when due. Payment of account balances shall be made out of
the general funds of the Company.

          8.2 UNSECURED INTEREST. No Eligible Director or party claiming an
interest in deferred amounts of an Eligible Director shall have any interest
whatsoever in any specific asset of the Company. To the extent that any party
acquires a right to receive payments under the Plan, such right shall be
equivalent to that of an unsecured general creditor of the Company. The Company
shall have no duty to set aside or invest any amounts credited to Eligible
Directors' account under the Plan.

          Nothing in this Plan shall create a trust of any kind or a fiduciary
relationship between the Company and any Eligible Director. Nevertheless, the
Company may establish one or more trusts, with such trustee as the Board may
approve, for the purpose of providing for the payment of deferred amounts and
earnings thereon. Such trust or trusts may be irrevocable, but the assets
thereof shall be subject to the claims of the Company's general creditors in the
event of the Company's bankruptcy or insolvency. To the extent any deferred
amounts and earnings thereon under the Plan are actually paid from any such
trust, the Company shall have no further obligation with respect thereto, but to
the extent not so paid, such deferred amounts and earnings thereon shall remain
the obligation of, and shall be paid by, the Company.

          8.3 NO GUARANTEE OF PRINCIPAL OR EARNINGS. Nothing contained in the
Plan shall constitute a guarantee by the Company or any other person or entity
that the amounts deferred hereunder will increase or shall not decrease in value
due to the deemed investment of such amounts in Stock. Stock may be a volatile
investment and decreases in the value thereof may result in a loss of some or
all of the principal amounts deferred hereunder. Thus, it is possible for the
value of an Eligible Director's account to decrease as a result of its
investment in Stock, if the value of the Stock decreases.

     ARTICLE 9. SECURITIES LAWS.

          9.1 INVESTMENT REPRESENTATIONS. The Company may require any Eligible
Director to whom an issuance of securities is made, or a deferred delivery
obligation is undertaken, as a condition of receiving securities pursuant to
such issuance or obligation, to give written assurances in substance and form
satisfactory to the Company and its counsel to the effect that such person is
acquiring the securities for his/her own account for investment and not with any
present intention of selling or otherwise distributing the same in violation of
applicable securities laws, and to such other effects as the Company deems
necessary or appropriate to comply with Federal and applicable state securities
laws.

          9.2 LISTING, REGISTRATION, AND QUALIFICATION. Anything to the contrary
herein notwithstanding, each issuance of securities shall be subject to the
requirement that, if at any time the Company or its counsel shall determine that
the listing, registration, or qualification of the securities subject to such
issuance upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, is necessary or
advisable as a condition of, or in connection with, such issuance of securities,
such issuance shall


                                                                               6



not occur in whole or in part unless such listing, registration, qualification,
consent, or approval shall have been effected or obtained on conditions
acceptable to the Company. Nothing herein shall be deemed to require the Company
to apply for or to obtain such listing, registration, or qualification.

          9.3 RESTRICTIONS ON TRANSFER. The securities issued under the Plan
shall be restricted by the Company as to transfer unless the grants are made
under a registration statement that is effective under the Securities Act of
1933, as amended, or unless the Company receives an opinion of counsel
satisfactory to the Company to the effect that registration under state or
federal securities laws is not required with respect to such transfer.

     ARTICLE 10. WITHHOLDING TAXES.

          Whenever shares of Stock are to be issued under the Plan, the Company
shall have the right prior to the delivery of any certificate or certificates
for such shares to require the recipient to remit to the Company an amount
sufficient to satisfy federal, state and local withholding tax requirements (if
any) attributable to the issuance. In the absence of payment by a grantee to the
Company of an amount sufficient to satisfy such withholding taxes, or an
alternative arrangement with the grantee that is satisfactory to the Company,
the Company may make such provisions as it deems appropriate for the withholding
of any such taxes which the Company determines it is required to withhold.

     ARTICLE 11. AMENDMENT AND TERMINATION OF THE PLAN.

          The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time-to-time in any respect the Board may
deem to be in the best interests of the Company; provided, however, that no such
amendment shall be effective without approval of the shareholders of the Company
if shareholder approval of the amendment is then required pursuant to the
applicable rules of any securities exchange, or, in the opinion of the Company's
counsel, any other law or regulation binding on the Company.

     ARTICLE 12. EFFECTIVE DATE AND DURATION OF THE PLAN.

          The Plan shall become effective at the time that it is approved by the
Board. The Plan shall terminate at 11:59 p.m. on December 31, 2008, unless
sooner terminated or extended by action of the Board. Elections may be made
under the Plan prior to its effectiveness, but no issuances under the Plan shall
be made before its effectiveness or after its termination (except with respect
to Deferred Amounts previously deferred under the Plan).

     ARTICLE 13. MISCELLANEOUS.

          13.1 NOTICE. Unless otherwise prescribed by the Board, any notice or
filing required or permitted to be given to the Company under the Plan shall be
sufficient if in writing and hand delivered, or sent by registered or certified
mail to the Chief Human Resources Officer of the Company. Notice to the Chief
Human Resources Officer of the Company, if mailed, shall be addressed to the
principal executive offices of the Company. Notice mailed to an Eligible
Director shall be at such address as is given in the records of the Company.
Notices shall be deemed given as of the date of delivery or, if delivery is made
by mail, as of the date shown on the postmark on the receipt for registration or
certification.

          13.2 NO SHAREHOLDER RIGHTS CONFERRED. Nothing contained in the Plan or
any agreement hereunder will confer upon any director any rights of a
shareholder of the Company unless and until shares of Stock are issued to such
Eligible Director upon the payment of Stock.


                                                                               7



          13.3 GRANTED SHARES HAVE SAME STATUS AS ISSUED SHARES. Any shares of
Stock of the Company issued as a stock dividend, or as a result of stock splits,
combinations, exchanges of shares, reorganizations, mergers, consolidations or
otherwise with respect to shares of Stock granted pursuant to the Plan shall
have the same status and be subject to the same restrictions as the shares
granted.

          13.4 NO RIGHT TO STOCK. Nothing in the Plan shall be construed to give
any Director of the Company any right to a grant of Stock under the Plan unless
all conditions described within the Plan are met as determined in the sole
discretion of the Board.

          13.5 SUCCESSORS. All obligations of the Company under the Plan shall
be binding on any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase, merger, consolidation,
or otherwise, of all or substantially all of the business and/or assets of the
Company.

          13.6 COSTS OF THE PLAN. All costs of implementing and administering
the Plan shall be borne by the Company.

          13.7 SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.

          13.8 APPLICABLE LAW. The Plan and all rights and obligations under the
Plan shall be construed in accordance with and governed by the laws of the State
of California, excluding its conflicts of laws principles.

          13.9 NONTRANSFERABILITY. Eligible Director's rights to deferred
amounts, contributions, and earnings accrued thereon under the Plan may not be
sold, transferred, assigned, or otherwise alienated or hypothecated, other than
by will or by the laws of descent and distribution, nor shall the company make
any payment under the Plan to any assignee or creditor of an Eligible Director
or other person based upon community or other marital rights except in
accordance with the terms of the Plan.


                                                                               8

EX-10.41

                                                                   EXHIBIT 10.41

                                REMEDYTEMP, INC.

                       SPECIAL DEFERRED COMPENSATION PLAN

                                        PREPARED BY:

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



                                REMEDYTEMP, INC.
                       SPECIAL DEFERRED COMPENSATION PLAN

          THIS SPECIAL DEFERRED COMPENSATION PLAN is amended and restated
effective January 1, 2005, with reference to the following:

          A. REMEDYTEMP, INC., a California corporation (the "Company"),
originally adopted this Plan effective as of January 5, 1998.

          B. The Company and Greg Palmer ("Palmer") entered into an employment
agreement (the "Agreement"), pursuant to a letter from the Company to Palmer
dated December 17, 1997.

          C. This Plan is adopted by the Company pursuant to section 13.2 of the
Agreement.

          D. This Plan is not intended to be a qualified plan within the meaning
of sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as amended
(the "Code") but is intended to be a nonqualified deferred compensation plan
that complies with the terms of Code section 409A. This Plan is intended to be
an unfunded plan for purposes of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). Company contributions shall be held in a "Rabbi
Trust," as that term is defined in Revenue Procedure 92-64, 1992-2 C.B. 422.

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

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

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

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

          1.3. Disability means (i) Palmer's inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be expected to
last for a continuous period of not less than twelve (12) months, or (ii)
Palmer's receipt of income replacement benefits for a period of not less than
three (3) months under an accident and health plan covering employees of the
Company, by reason of any medically determinable physical or mental impairment
which can be expected to result in death or can be expected to last for a
continuous period of not less than twelve (12) months

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


                                        2



          1.5. Plan Committee means the individuals appointed by the Board from
time to time to administer the Plan as provided herein. Initially, as of the
effective date of the Plan, members of the Plan Committee are Jeffrey A. Elias
and Alan Purdy.

          1.6. Shares means four thousand nine hundred eighty-five (4,985)
shares of the Company's Class A Common Stock.

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

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

          2. Contribution and Allocation.

          2.1. Company Contribution and Allocation. On behalf of Palmer, the
Company has contributed to the Plan the sum of one hundred thousand dollars
($100,000) which has been used to purchase the Shares. Such contribution shall
be allocated to Palmer's Company Account and be credited with dividends, if any,
as provided in Section 2.2 below.

          2.2. Credited Earnings. Palmer's Company Account shall be credited
with dividends, if any, paid on the Shares held in such Account. Notwithstanding
the foregoing, the Trustee shall, at the direction of the Plan Committee, have
the duty and authority to invest the trust assets and funds in accordance with
the terms of the Trust Agreement, and all rights associated with the trust
assets shall be exercised by the Trustee as designated by the Plan Committee and
shall in no event be exercisable by or be settled upon Palmer or his
Beneficiaries.

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

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

          Notwithstanding the provisions under the terms of the Plan that
amounts contributed to this Plan, plus earnings thereon, shall be allocated to a
separate Account of Palmer, all such amounts credited to such individual Account
shall remain the general assets of the Employer, and as such shall remain
subject to the claims of the general creditors of the Company. This Plan and the
related Trust Agreement do not create, nor does Palmer or any Beneficiary have,
any right with respect to any specific assets of the Company or the Plan, until
such time as Palmer's Company Account shall become 100% vested as provided in
Section 3.


                                        3



          3. Vesting. Palmer's Company Account shall become 100% vested upon the
earlier of: (A) his completion of five years of employment (including any period
of disability in which the Company continues to pay Palmer's salary, as provided
in section 7 of the Agreement) from Palmer's effective start date; or (B)
termination of his employment for any reason, including with and without cause,
and death.

          4. Distributions.

          4.1 Planned Distribution. Once Palmer's Company Account becomes 100%
vested, the Shares (or their equivalent in the event of a conversion of such
Shares) held and all earnings credited thereon shall be distributed to him as
soon as practicable thereafter. However, as provided in section 13.2 of the
Agreement, Palmer may defer the Shares and earnings thereon during the term of
his Amended and Restated Employment Agreement. If Palmer continues to defer the
Shares and earnings under the Special Deferred Compensation Plan, such amounts
shall not be paid earlier than six (6) months after the date of termination of
employment with the Company (or, if earlier, the date of death of the
Participant).

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

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

          Notwithstanding the first paragraph of this Section 6, the Company
will transfer the Shares to a trust pursuant to a Trust Agreement, a copy of
which is attached. Such Trust Agreement created by the Company is intended to be
a grantor trust, and any assets held by such trust to assist the Company in
meeting its obligations under the Plan will conform to the terms of the model
trust, as described in Revenue Procedure 92-64, 1992-2 C.B. 422, promulgated by
the Internal Revenue Service.

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


                                        4



          7. Miscellaneous.

          7.1. Designation of Beneficiary. Palmer shall designate, in writing,
one or more beneficiaries to receive his benefit under the provisions of Section
2 in the event he dies before the Company has paid his vested benefit. Palmer
shall file the written designation with the Plan Committee. Palmer may revoke a
previous beneficiary designation by filing a new written beneficiary designation
with the Plan Committee.

          In any event, if Palmer or his Beneficiary who has designated another
Beneficiary is divorced, all beneficiary designations executed prior to the
effective date of the dissolution of marriage (or other decree or order entered
under applicable state law) are automatically revoked under the terms of this
Section 7.1. In such event, Palmer or his Beneficiary may designate one or more
Beneficiaries in accordance with the terms of this Section 7.1. If none is made
following the effective date of the dissolution of the marriage, the
individual's benefit shall pass under the laws of intestate succession and the
terms of the next following paragraph.

          If Palmer fails to file a valid designation of beneficiary with the
Plan Committee under the provisions of this Section 7.1, or if a designated
Beneficiary fails to survive to receive any or all payments due hereunder, then
the death benefit payable under this Plan shall be payable to Palmer's (or his
Beneficiary's) spouse; if no spouse survives, then to the Palmer's (or his
Beneficiary's) children, with equal shares among living children and with the
living descendants of a deceased child receiving equal portions of the deceased
child's share; in the absence of spouse or descendants, to Palmer's (or his
Beneficiary's) parents; and in the absence of spouse, descendants or parents, to
Palmer's (or his Beneficiary's) brothers and sisters, with the living
descendants of a deceased brother and those of a deceased sister receiving equal
portions of the deceased brother's or sister's share; in the absence of any of
the persons name herein, to Palmer's (or his Beneficiary's) estate.

          For purposes of this Section 7.1, the term "descendant" means all
persons who are descended from the person referred to either by birth to or
legal adoption by such person, and "child" or "children" includes adopted
children.

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

          7.3. Benefit. This Plan constitutes an agreement between the Company
and Palmer which is binding upon and inures to the Company, its successors and
assigns and upon Palmer and his heirs and legal representatives.

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


                                        5



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

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

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

          7.8. Claims Review Procedure.

          (A) A claim for benefits may be filed, in writing, with the Plan
Committee. A written disposition of a claim shall be furnished to the claimant
with a reasonable time after the claim for benefits is filed. In the event a
claim for benefits is denied, the Plan Committee shall provide the claimant with
the reasons for denial.

          (B) A claimant whose claim for benefits was denied may file for a
review of such denial, with the Plan Committee, no later than 60 days after he
has received written notification of the denial.

          (C) The Plan Committee shall give a request for review a full and fair
review. If the claim for benefits is denied upon completion of a full and fair
review, notice of such denial shall be provided to the claimant within 60 days
after the Plan Committee's receipt of such written claim for review. This 60-day
period may be extended in the event of special circumstances. Such special
circumstances shall be communicated to the claimant in writing within the 60-day
period. If there is an extension, a decision shall be made as soon as possible,
but not later than 120 days after receipt by the Plan Committee of such claim
for review.

          (D) If benefits are provided or administered by an insurance company,
insurance service, or other similar organization which is subject to regulation
under the insurance laws, the claims procedure relating to these benefits may
provide for review. If so, that company, service, or organization will be the
entity to which claims are addressed.

          7.9. No Other Agreements or Understandings. This Plan represents the
sole agreement between the Company and Palmer concerning its subject matter and
it supersedes all prior agreements, arrangements, understandings, warranties,
representations, and statements between the parties concerning its subject
matter, except to the extent the Agreement is specifically referred to herein.


                                        6



          8. Administration.

          8.1. Plan Committee. The Plan shall be administered by the Plan
Committee. The Plan Committee shall have full authority and power to administer
and construe the Plan, subject to applicable requirements of law. Without
limiting the generality of the foregoing, the Plan Committee shall have the
powers indicated in the foregoing Sections of this Plan and the following
additional powers and duties:

          (A) To make and enforce such rules and regulations as it deems
necessary or proper for the administration of the Plan;

          (B) To interpret the Plan and to decide all questions concerning the
Plan;

          (C) To determine the amount and the recipient of any payments to be
made under the Plan;

          (D) To value the Shares deemed held in Palmer's Company Account; and

          (E) To make all other determinations and to take all other steps
necessary or advisable for the administration of the Plan.

          All decisions made by the Plan Committee pursuant to the provisions of
the Plan shall be made in its sole discretion and shall be final, conclusive,
and binding upon all parties.

          8.2. Delegation of Duties. The Plan Committee may delegate such of its
duties and may engage such experts and other persons as it deems appropriate in
connection with administering the Plan. The Plan Committee shall be entitled to
rely conclusively upon, and shall be fully protected in any action taken by the
Plan Committee, in good faith in reliance upon any opinions or reports furnished
them by any such experts or other persons.

          8.3. Indemnification of Committee. The Company agrees to indemnify and
to defend to the fullest extent permitted by law any person serving as a member
of the Plan Committee, and each employee of the Company or any of its affiliates
appointed by the Plan Committee to carry out duties under this Plan, against all
liabilities, damages, costs and expenses (including attorneys' fees and amounts
paid in settlement of any claims approved by the Company) occasioned by any act
or omission to act in connection with the Plan, if such act or omission is in
good faith.


                                        7



          8.4. Liability. To the extent permitted by law, neither the Plan
Committee nor any other person shall incur any liability for any acts or for any
failure to act except for liability arising out of such person's own willful
misconduct or willful breach of the Plan.

          IN WITNESS WHEREOF, the Company has adopted the amended and restated
version of the Plan on November 29, 2005, effective January 1, 2005.

                                        REMEDYTEMP, INC.


                                        By: /s/ Gunnar B. Gooding
                                            ------------------------------------
                                            Gunnar B. Gooding
                                            Senior Vice President, Human
                                            Resources and Legal Affairs


                                        8

EX-10.46

                                                                   EXHIBIT 10.46


                                RemedyTemp, Inc.
                      Summary of Compensation Arrangements
                                       for
                     Named Executive Officers and Directors

NAMED EXECUTIVE OFFICERS
- ------------------------

This summary sheet reports current base salaries and certain other compensation
of current executive officers of RemedyTemp, Inc. (the "Company") who will be
named in the Summary Compensation Table in the Proxy Statement that will be
filed by the Company in connection with its 2006 Annual Meeting of Shareholders
(the "named executive officers").



Named Executive Officer                                      Current Base Salary
- -----------------------                                      -------------------
                                                          
Greg Palmer                                                  $535,612
President and Chief Executive Officer

Monty Houdeshell                                             $267,806
Senior Vice President and Chief Administrative Officer

Gunnar Gooding                                               $243,225
Senior Vice President, Human Resources and Legal
Affairs

Janet Hawkins                                                $260,000
Senior Vice President, Marketing, and President,
Franchise


The named executive officers are eligible to receive cash bonus awards under the
Company's Fiscal Year 2006 Short-Term Incentive Plan. The plan applies to the
fiscal year beginning October 3, 2005. The target bonuses for each of the named
executive officers are as follows: Greg Palmer's target bonus is 60%; Monty
Houdeshell's target bonus is 60%; Gunnar Gooding's target bonus is 50%; and
Janet Hawkins' target bonus is 50%. These target bonuses represent a percentage
of annual base salary. The range of payouts under the plan is from 75% to 150%
of the target bonus percentage.

The named executive officers are entitled to participate in various Company
plans as set forth in the exhibits to the Company's filings with the Securities
and Exchange Commission (the "SEC"). They may be eligible to receive perquisites
and other personal benefits as disclosed in the Company's Proxy Statement.

DIRECTORS
- ---------

Independent directors receive an annual retainer in the form of cash or shares
of Common Stock valued at $25,000 on the date of their election or re-election
to the Board of Directors (the "Board"). The Chairman of the Board receives an
aggregate of $45,000 annual retainer. Additionally, the following cash fees are
paid by the Company to each independent director per meeting attended: $2,000
per Board meeting; $2,000 per Audit Committee meeting with the Chair receiving a
$10,000 annual retainer; $1,500 for each meeting of all other committees of the
Board, with the Chair receiving a total of $2,000. Independent directors are
also eligible to participate in certain Company plans filed as exhibits to the
Company's filings with the SEC. Directors who are also employees or officers of
the Company receive no extra compensation for their service on the Board.

Mr. Robert E. McDonough, Sr., the Company's founder and vice-chairman of the
Board, has an employment agreement with the Company providing for an annual base
salary of $100,000. He is also entitled to certain other personal benefits as
described in his employment agreement, a copy of which is filed as an exhibit to
the current report on Form 8-K, filed by the Company on December 13, 2004.

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 333-11307, 333-11277, 333-47581, 333-55823 and 333-75611) and the Registration Statement on Form S-3 (No. 333-118585) of RemedyTemp, Inc. of our report dated December 15, 2005 relating to the financial statements, financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

PricewaterhouseCoopers LLP

Orange County, California
December 16, 2005

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Greg Palmer, certify that:

1.	I have reviewed this annual report on Form 10-K of RemedyTemp, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:      December 16, 2005

/s/ Greg D. Palmer

Greg D. Palmer
President and Chief Executive Officer
RemedyTemp, Inc.
(Principal Executive Officer) 

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF ADMINISTRATIVE OFFICER

I, Monty A. Houdeshell, certify that:

1.	I have reviewed this annual report on Form 10-K of RemedyTemp, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:      December 16, 2005

/s/ Monty A. Houdeshell

Monty A. Houdeshell
Senior Vice President and Chief Administrative Officer
RemedyTemp, Inc.
(Principal Financial Officer) 

EX-32

EXHIBIT 32

CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of RemedyTemp, Inc., a California corporation (the “Company”), does hereby certify with respect to the Annual Report of the Company on Form 10-K for the year ended October 2, 2005 as filed with the Securities and Exchange Commission (the “10-K Report”) that to the best of his knowledge:

(1)	the 10-K Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)	the information contained in the 10-K Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

December 16, 2005	/s/ GREG D. PALMER
	Greg D. Palmer
	President and Chief Executive Officer RemedyTemp, Inc.
December 16, 2005	/s/ MONTY A. HOUDESHELL
	Monty A. Houdeshell
	Senior Vice President and Chief Administrative Officer RemedyTemp, Inc.

     A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

     The foregoing certification is being furnished to the Securities and Exchange Commission pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.