<PAGE>   1
                                                                    EXHIBIT 13.1


SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                             FISCAL YEAR  ENDED(1)
                                        ----------------------------------------------------------------
                                          1999          1998          1997         1996           1995
                                        --------      --------      --------      --------      --------
                                                  (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                     <C>           <C>           <C>           <C>           <C>
STATEMENT OF INCOME DATA:
Total revenues ...................      $513,536      $451,344      $360,346      $285,519      $209,003

Income before income taxes .......        24,749        23,177        17,424        12,007         6,497
Provision for income taxes(2).....         9,528         9,271         7,231         7,794            97
                                        --------      --------      --------      --------      --------
Net income .......................      $ 15,221      $ 13,906      $ 10,193      $  4,213      $  6,400
                                        ========      ========      ========      ========      ========
Net income per share, basic ......      $   1.72      $   1.55      $   1.15      $   0.58      $   0.94
                                        ========      ========      ========      ========      ========
Weighted-average number of shares,
  basic ..........................         8,864         8,966         8,896         7,225         6,795

Net income per share, diluted ....      $   1.71      $   1.50      $   1.13      $   0.58      $   0.94
                                        ========      ========      ========      ========      ========
Weighted-average number of shares,
  diluted ........................         8,923         9,297         9,042         7,250         6,795

PRO FORMA DATA(2):
Income before income taxes .......                                                $ 12,007      $  6,497
Provision for income taxes .......                                                   4,923         2,599
                                                                                  --------      --------
Net income .......................                                                $  7,084      $  3,898
                                                                                  ========      ========

BALANCE SHEET DATA:
Cash and cash equivalents ........      $  7,887      $    450      $  5,128      $ 10,959      $  2,204
Working capital ..................      $ 51,969      $ 42,398      $ 39,130      $ 35,341      $ 14,649
Total assets .....................      $116,721      $ 89,785      $ 73,806      $ 63,906      $ 43,496
Long-term debt ...................      $      0      $      0      $    281      $    734      $  1,142
Shareholders' equity .............      $ 75,456      $ 62,437      $ 47,061      $ 36,276      $ 19,308
</TABLE>

-------------------
(1)   The fiscal year end of RemedyTemp, Inc., including its wholly-owned
      subsidiaries, (collectively the "Company"), is a 52 or 53 week period
      ending the Sunday closest to September 30. Thus, "fiscal 1999," "fiscal
      1998," "fiscal 1997," "fiscal 1996," and "fiscal 1995" refer to the
      Company's fiscal years ending October 3, 1999, September 27, 1998,
      September 28, 1997, September 29, 1996 and October 1, 1995, respectively.
      Fiscal year 1999 consisted of 53 weeks. All other fiscal years consisted
      of 52 weeks.

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


                                       1

<PAGE>   2

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

FORWARD LOOKING STATEMENTS

         In addition to historical information, management's discussion and
analysis includes certain forward-looking statements, including, but not limited
to, those related to the Company's growth and strategies, future operating
results and financial position as well as economic and market events and trends.
All forward-looking statements made by the Company, including such statements
herein, include material risks and uncertainties and are subject to change based
on factors beyond the control of the Company. Accordingly, the Company's actual
results and financial position could differ materially from those expressed or
implied in any forward-looking statement as a result of various factors,
including without limitation, Year 2000 issues, changes in general or local
economic conditions, the availability of sufficient personnel, increased costs
of personnel and the potential negative impact on margins, the Company's ability
to attract and retain clients and franchisees/licensees and other factors
described in the Company's filings with the Securities and Exchange Commission
regarding risks affecting the Company's financial conditions and results of
operations. The Company does not undertake to publicly update or revise its
forward-looking statements even if experience or future changes make it clear
that any projected results expressed or implied therein will not be realized.
The following should be read in conjunction with the Consolidated Financial
Statements of the Company and Notes thereto.

GENERAL

         The Company provides temporary staffing services to industrial, service
and e-commerce companies, professional organizations and governmental agencies.
During the twelve fiscal months ended October 3, 1999, the Company placed
approximately 162,000 temporary workers and provided over 45.3 million hours of
staffing services to approximately 17,000 clients. From the beginning of fiscal
1995 through the end of fiscal 1999, the Company added 132 offices, for a total
of 251 offices and increased revenues and income before taxes at compound annual
growth rates of approximately 27.4% and 45.4%, respectively, to $513.5 million
and $24.7 million, respectively.

OPERATIONS

         The Company's revenues are derived from Company-owned offices (direct
sales) and independently-managed offices (licensed sales and franchise
royalties). Under the Company's franchise arrangements, the franchisee pays all
lease and working capital costs relating to its office, including funding
payroll and collecting clients' accounts. The franchisee pays the Company an
initial franchise fee and royalties equal to 7% of its gross billings (except
for national accounts on which royalties are paid at a reduced rate). The
Company processes payroll and invoices clients, and the franchisee employs all
management staff and temporary personnel affiliated with its office. Under the
Company's license arrangements, the licensee pays the Company an initial license
fee and pays all lease and operating costs relating to its office. The licensee
employs all management staff affiliated with its office, but the Company employs
all temporary personnel affiliated with the licensed office, handles invoicing
and collecting clients' accounts, and remits to the licensee 60% - 70% of the
office's gross profit. However, the Company's share of the licensed gross profit
is not less than 7.5% of licensee's gross billings, with the exception of
national accounts on which the Company's fee is reduced to compensate for lower
gross margins. The amount of gross profit paid to the licensee is based on the
level of hours billed during the contract year.

         As of October 3, 1999, there were 20 independently-managed offices
operating as franchises and 130 operating as licensed offices. In general,
independently-managed offices opened from 1987 to 1990 are operated as
franchises, and independently-managed offices opened since 1990 are operated as
licensed offices. The Company moved from franchise to license format to exercise
more control over the collection and tracking of the receivables of the
independently-managed offices and to allow the Company to grow without being
limited by the financial resources of franchisees. The number of licensed
offices is expected to increase because new independently-managed offices will
be opened in license format and offices currently operated as franchises may,
depending upon various factors, be converted to license format upon renewal of
their franchise agreements. However, existing franchisees have the option under
their contract to open new franchise offices within their territory. If the
number of franchise offices is reduced, royalty income will decrease.

         The table on the following page sets forth for the last five fiscal
years, the number of Company-owned, franchised and licensed offices and customer
billings associated with each. Total system-wide billings consist of all
services billed to clients by all Company-owned and independently-managed
offices. For the Company-owned offices and licensed offices, all billings are
Company revenues; for franchised offices, Company revenues are royalties.
Average billings per office is computed by dividing the relevant billings by the
number of related offices. The Company's long-term revenue growth depends in
part upon its ability to continue to attract new clients, retain existing
clients and open new offices, as well as its ability to enhance the sales of
existing offices beyond historical levels.


                                       2

<PAGE>   3

<TABLE>
<CAPTION>
                                                            FISCAL YEAR ENDED
                                     ----------------------------------------------------------------
                                       1999          1998          1997          1996          1995
                                     --------      --------      --------      --------      --------
                                                          (DOLLARS IN THOUSANDS)
<S>                                  <C>           <C>           <C>           <C>           <C>
COMPANY-OWNED OFFICES
Number of offices .............           101            98            86            68            63
Average hours billed per office       241,108       241,216       233,233       248,062       217,907
Total billings ................      $279,206      $274,577      $221,679      $184,564      $144,646
Average billings per office ...      $  2,764      $  2,802      $  2,578      $  2,714      $  2,296

LICENSED OFFICES
Number of offices .............           130           117            93            73            58
Average hours billed per office       137,065       118,494       123,813       117,373        96,545
Total billings ................      $231,480      $173,764      $135,532      $ 98,003      $ 61,377
Average billings per office ...      $  1,781      $  1,485      $  1,457      $  1,343      $  1,058

FRANCHISED OFFICES
Number of offices .............            20            19            20            20            21
Average hours billed per office       158,713       184,679       190,345       190,674       175,699
Total billings ................      $ 43,845      $ 45,371      $ 46,526      $ 44,304      $ 41,095
Average billings per office ...      $  2,192      $  2,388      $  2,326      $  2,215      $  1,957
Royalties .....................      $  2,689      $  2,812      $  2,948      $  2,811      $  2,751

TOTAL OFFICES .................           251           234           199           161           142
TOTAL SYSTEM-WIDE BILLINGS ....      $554,531      $493,712      $403,737      $326,871      $247,118
AVERAGE HOURS BILLED PER OFFICE       180,656       175,265       177,786       181,677       162,096
TOTAL COMPANY REVENUES ........      $513,536      $451,344      $360,346      $285,519      $209,003
</TABLE>

WORKERS' COMPENSATION

         From July 22, 1997 through March 31, 1999, the Company utilized an
insured workers' compensation program for Company-owned and licensed offices,
administered through its wholly-owned subsidiary, Remedy Insurance Group, LTD
("RIG"). Under this program the Company paid a deductible of up to $250,000 per
individual claim and purchased excess liability coverage for individual claims
greater than $250,000 and aggregate claims greater than $7.5 million for the
twelve months ended July, 1998, and $7.0 million for the nine months ended
March, 1999.

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

RESULTS OF OPERATIONS

Fiscal 1999 Compared to Fiscal 1998

         Total revenues increased 13.8% or $62.2 million to $513.5 million for
fiscal 1999 from $451.3 million for fiscal 1998. Direct revenues increased 1.7%
to $279.2 million from $274.6 million, while licensed revenues increased 33.2%
to $231.5 million from $173.8 million for fiscal 1999 compared to fiscal 1998,
respectively. During fiscal year 1998, the Company elected not to renew a
contract in which the client requested a substantially reduced gross margin. As
of December 1998, the Company discontinued providing service to this high
volume, low gross margin client, which had primarily been serviced by the
Company's direct offices. Excluding this client, revenues at the direct offices
increased 15.2% and total Company revenue increased 22.6% for fiscal 1999
compared to fiscal 1998. The expansion of business at existing licensed offices
as well as the opening of 13 new licensed offices since the prior year account
for the increase in licensed revenue. Future licensed office growth may be
affected by office conversions subsequent to October 3, 1999. The Company
repurchased six licensed offices in the Reston and Richmond, Virginia areas.
Additionally, four licensed offices in the Charlotte, North Carolina area
converted to franchise offices subsequent to October 3, 1999. The Company's
future revenue increases depend significantly on the Company's ability to
continue to attract new clients and licensees, retain existing clients and
licensees, open new offices and manage newly opened offices to maturity. There
can be no assurances that the Company's revenues will continue to increase.


                                       3


<PAGE>   4

         Total cost of direct and licensed sales, which consists of wages and
other expenses related to the temporary associates, increased 14.4% or $49.7
million to $393.8 million for fiscal 1999 from $344.1 million for fiscal 1998.
Such increase was primarily due to increased revenues as discussed above. Total
cost of direct and licensed sales as a percentage of revenues was 76.7% for
fiscal 1999 compared to 76.2% for fiscal 1998. The increase is due in part to a
shift in the mix of business to an increased percentage of light industrial and
technical business, which tends to have lower gross margins than clerical
business. Many factors, including increased wage costs or other employment
expenses, could adversely affect the Company's cost of direct and licensed
sales.

         Licensees' share of gross profit represents the net payments to
licensees based upon a percentage of gross profit generated by the licensed
operation. The percentage of gross profit earned by the licensee is based on the
number of hours billed. In general, pursuant to terms of the Company's franchise
agreement for licensed offices executed prior to March 31, 1999, the Company's
share of gross profit cannot be less than 7.5% of the licensed operation sales,
with the exception of national accounts on which the Company's fee is reduced to
compensate for lower gross margins. For franchise agreements for licensed
offices executed on or after April 1, 1999, the Company's share of gross profit
cannot be less than 8.75% of the licensed operation's sales. Licensees' share of
gross profit increased 31.4% or $9.5 million to $39.6 million for fiscal 1999
from $30.1 million for fiscal 1998, however licensees' share of gross profit as
a percentage of licensed revenue decreased to 17.1% in fiscal 1999 from 17.3% in
fiscal 1998. Licensees' share of gross profit as a percentage of total revenues
increased to 7.7% for fiscal 1999 from 6.7% for fiscal 1998. This change
resulted from an increase to 45.1% in fiscal 1999 from 38.5% for the previous
fiscal year in the amount of licensed revenues as a percentage of total revenue.

         Selling, general and administrative expenses, including depreciation
and amortization, increased 1.4% or $0.8 million to $56.1 million for fiscal
1999 from $55.3 million for fiscal 1998. Selling, general and administrative
expenses as a percentage of total revenues decreased to 10.9% for fiscal 1999
from 12.3% for fiscal 1998. This reduction was due in part to a decrease in
profit sharing and bonus expense to $5.1 million for fiscal 1999 compared to
$6.1 million for fiscal 1998 and to a reduction in bad debt expense of $1.1
million in fiscal 1999. In general, the Company has continued to control growth
in selling, general and administrative expenses by tightening cost controls
through budgetary analysis, implementing more stringent hiring and compensation
guidelines and variable compensation. There can be no assurance that selling,
general and administrative expenses will not increase in the future, both in
absolute terms and as a percentage of total revenues. Increases in these
expenses could adversely affect the Company's profitability.

         Income from operations increased 10.3% or $2.2 million to $24.1 million
for fiscal 1999 from $21.8 million for fiscal 1998 due to the factors described
above. Operating income as a percentage of revenues decreased to 4.7% for fiscal
1999 from 4.8% for fiscal 1998.

         Net income increased 9.5% or $1.3 million to $15.2 million for fiscal
1999 from $13.9 million for fiscal 1998 due to the factors described above. Net
income was also favorably impacted by a decrease in the Company's effective tax
rate. The lower rate reflects the expected tax savings from Work Opportunity Tax
Credits. As a percentage of total revenues, net income decreased to 3.0% in 1999
from 3.1% in fiscal 1998. All revenues and results have been internally
generated by the Company.

Fiscal 1998 Compared to Fiscal 1997

         Total revenues increased 25.3% or $91.0 million to $451.3 million for
fiscal 1998 from $360.3 million for fiscal 1997. This increase was primarily
attributable to volume increases that resulted from increased billings at
existing offices and expansion of services, including EDGE(R) and call center
activity, and from 35 new offices opened during fiscal 1998.

         Total cost of direct and licensed sales, which consists of wages and
other expenses related to the temporary associates, increased 25.4% or $69.6
million to $344.1 million for fiscal 1998 from $274.5 million for fiscal 1997.
Total cost of direct and licensed sales as a percentage of revenues remained
constant.

         Licensees' share of gross profit represents the net payments to
licensees based upon a percentage of gross profit generated by the licensed
operation. Licensees' share of gross profit increased 31.2% or $7.2 million to
$30.1 million for 1998 from $23.0 million for fiscal 1997. Licensees' share of
gross profit as a percentage of total revenues increased to 6.7% for fiscal 1998
from 6.4% for fiscal 1997. This change resulted from an increase to 38.5% from
37.6% in the amount of licensed revenues as a percentage of total revenue.
Licensees' share of gross profit as a percentage of licensees' total gross
profit increased by 0.5% during fiscal 1998 due to an increase in hours billed
at existing licensed offices.


                                       4

<PAGE>   5

         Selling, general and administrative expenses, which include
depreciation and amortization, increased 17.3% or $8.2 million to $55.3 million
for fiscal 1998 from $47.1 million for fiscal 1997. Selling, general and
administrative expenses as a percentage of total revenues decreased to 12.3% for
fiscal 1998 from 13.1% for fiscal 1997, due to the Company's total revenues
expanding more rapidly than selling, general and administrative expenses.

         Operating income increased 38.5% or $6.1 million to $21.8 million for
fiscal 1998 from $15.8 million for fiscal 1997 due to the factors described
above. Operating income as a percentage of revenues increased to 4.8% for fiscal
1998 from 4.4% for fiscal 1997.

         Income before income taxes increased 33.0% or $5.8 million to $23.2
million for fiscal 1998 from $17.4 million for fiscal 1997 due to the factors
described above. As a percentage of total revenues, income before income taxes
increased to 5.1% in 1998 from 4.8% in fiscal 1997.

LIQUIDITY AND CAPITAL RESOURCES

         Cash used in operating activities was $0.9 million in fiscal 1999 and
cash provided by operating activities was $6.2 million in fiscal 1998. Cash used
in operating activities was significantly impacted by transactions related to
workers' compensation in fiscal 1999, as discussed below. Additionally, the
Company was required to pay $3.0 million in additional tax installments during
both fiscal years 1999 and 1998 resulting from the termination of its
S corporation status in fiscal year 1996.

         Prior to April 1, 1999 the Company had an insured workers' compensation
program through RIG whereby the Company paid a deductible of $250,000 per
individual claim with third party insurance covering individual claims in excess
of the deductible amount. Under this program, the Company accrued for individual
claims at the expected ultimate loss amount based upon current information and
historical loss experience. The deductible was paid, and the liability reduced,
as claims were processed. As a result, the Company had an accrued workers'
compensation liability of $5.2 million under this program at September 28, 1998.
Effective April 1, 1999, the Company entered into a reinsurance contract with
Reliance whereby Reliance assumed the Company's remaining deductible liability
for all open claims incurred during the period July 22, 1997 to March 31, 1999,
thereby accelerating the projected deductible payment and reducing the accrued
workers' compensation liability. Additionally, the Company entered into a
one-year fully insured workers' compensation program with Reliance for the
following year. The Company paid the aggregate cost of both the reinsurance
contract and the one-year premium, a total of $18.9 million, to Reliance on
April 16, 1999 with borrowings under its line of credit agreement. The cost of
the one-year fully insured program was capitalized as a prepaid cost and is
being amortized over twelve months. As a result, the Company has a prepaid
workers' compensation insurance balance of $4.5 million at October 3, 1999.

         The Company has a revolving line of credit agreement with Bank of
America providing for aggregate borrowings and letters of credit of $40.0
million. Interest on outstanding borrowings is payable monthly. The interest
rate is the bank's reference rate minus up to 0.25%, based upon certain
financial covenants or, at the Company's discretion, LIBOR plus a range of 1.0%
to 1.375%, based upon financial covenants. The line of credit is unsecured and
expires on February 28, 2002. The Company had $17.5 million outstanding under
its line of credit and $0 in undrawn letters of credit as of October 3, 1999.
The agreement governing the line of credit requires the Company to maintain
certain financial ratios and comply with certain restrictive covenants. The
Company is in compliance with these covenants.

         Cash used for purchases of fixed assets was $6.6 million and $10.6
million in fiscal 1999 and fiscal 1998, respectively. The purchases in fiscal
1999 primarily resulted from expenditures associated with the Company's new
management information system and branch office openings. Upgrades of computers
and hardware to support the new system were begun and completed during fiscal
year 1999. Implementation of the related software began during fiscal 1999 and
is expected to be completed during fiscal 2000. In fiscal 2000, the Company
anticipates capital expenditures associated with direct office openings and
further investments in the Company's computer-based technologies will
approximate $5.0 million.

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

         During fiscal 1999, the Company acquired two licensed offices in
Stockbridge and College Park, Georgia and during fiscal 1998, the Company
acquired two franchised offices in Orlando, Florida. Subsequent to October 3,
1999, the Company repurchased six licensed offices in the Reston and Richmond,
Virginia areas. The Company is contemplating the continued selective repurchase
of licensed and franchised offices in certain territories with the intent of
expanding the Company's market presence in such regions.

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


                                       5


<PAGE>   6

         On October 2, 1998, the Board of Directors authorized the Company to
repurchase its outstanding Class A and/or Class B Common Stock in the open
market or in privately negotiated transactions at the prevailing market prices
not to exceed $5.0 million in the aggregate. During fiscal 1999, the Company
repurchased 202,900 Class A Common Stock shares at prices ranging from $12.56 to
$15.13, for a total of $3.0 million.

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

YEAR 2000

The Company's State of Readiness

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

         Year 2000 issues may affect the Company's internal systems, including
information technology ("IT") and non-IT systems. The Company assessed the
readiness of its systems for handling the Year 2000. The Company has developed
and is implementing a process to replace all of its material IT systems with a
new IT system. The Company believes that the new IT system and the computer
hardware used to operate the system will be Year 2000 compliant and that partial
implementation of the new IT system will be completed by the end of calendar
year 1999. In conjunction with such partial implementation of the new IT system,
the Company has begun to modify its existing IT systems to avoid a material
impact on the Company's ability to conduct business. Accordingly, the Company
believes that partial implementation of the new IT system, together with the
modifications of the Company's current IT systems, will allow the Company to
operate on and after Year 2000 without a material adverse effect on the
Company's financial condition and results of operations.

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


                                       6

<PAGE>   7

The Costs to Address the Company's Year 2000 Issues

         The Company's new IT system is being implemented for strategic business
reasons unrelated to Year 2000 issues and the implementation schedule was not
accelerated due to Year 2000 issues. The Company is in the process of modifying
the Company's existing IT systems to avoid a material impact on the Company's
ability to conduct business by using such IT systems on and after Year 2000.
Currently, the Company estimates that the total expected costs relating to this
effort will be $200,000.

The Risks to the Company of Year 2000 Issues

         Although unclear at this time, exposure to Year 2000 risks are unlikely
to have a material effect on the Company's results of operations, liquidity and
financial condition. The Company anticipates that partial implementation of the
new IT system, which is believed to be Year 2000 compliant, together with the
modification of the Company's current IT systems, will enable the Company to
operate on and after Year 2000 without a material adverse effect on the
Company's financial condition and results of operations. The Company believes
that its most reasonably likely worst case Year 2000 scenario is that certain
functions of its new IT system are not implemented on time and the Company's
efforts to make Year 2000 modifications to the existing IT systems fail. Such a
scenario could disrupt the Company's business and, therefore, could have a
material adverse effect on the financial condition and results of operations.
Additionally, if any third parties that provide goods or services that are
critical to the Company's business fail to appropriately address their Year 2000
issues, there could be a material adverse effect on the Company's financial
condition and results of operations.

The Company's Contingency Plans

         The Company continues to modify existing IT systems, which will enable
the Company to use such systems without a material adverse effect on the
Company's financial condition and results of operations before, on and after
Year 2000. The likely impact of Year 2000 failure on such existing IT systems
would be in "from-to" reporting and date printing which the Company believes it
can correct without material loss in business operation or function. The Company
has developed a strategy, including using certain available resources and hiring
additional personnel, in formulating its contingency plans for failure of the
existing IT systems. Additionally, the Company has identified and contacted its
franchisees, licensees, and material vendors and clients and has formulated a
system to understand such material third parties' ability to continue providing
services and products after the Year 2000, including formulating contingency
plans, where appropriate. However, the Company can neither predict nor assure
the successful outcome of such third parties' remediation efforts.

SEASONALITY

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

INFLATION

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


                                       7

<PAGE>   8

MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

         Since July 11, 1996, the Company's Class A Common Stock has been traded
on the Nasdaq National Market under the symbol "REMX." Prior to July 11, 1996,
the Company's stock was not publicly traded. The following table sets forth the
high and low sales prices for the Class A common Stock for fiscal 1999 and
fiscal 1998:

<TABLE>
<CAPTION>
                                                        FOR THE THREE MONTHS ENDED
                                         ----------------------------------------------------------
                                         DECEMBER 27,      MARCH 28,      JUNE 27,       OCTOBER 3,
                                             1998            1999           1999            1999
                                         ------------      ---------      --------       ----------
<S>                                         <C>             <C>            <C>             <C>
        High ..........................     $22.13          $18.75         $15.00          $19.50
        Low............................     $11.13          $12.00         $ 9.81          $13.00
</TABLE>


<TABLE>
<CAPTION>
                                         DECEMBER 28,      MARCH 29,      JUNE 28,      SEPTEMBER 27,
                                             1997            1998           1998            1998
                                         ------------      ---------      -------       -------------
<S>                                         <C>             <C>            <C>             <C>
        High ..........................     $28.13          $32.63         $36.25          $29.25
        Low............................     $20.00          $18.75         $23.69          $17.50
</TABLE>

         As of December 15, 1999, there were an estimated 1,900 shareholders of
record of the Company's Class A Common Stock and ten shareholders of record of
the Company's Class B Common Stock.

         Except for the S corporation distributions prior to the Offering and
the declared dividend to the Company's pre-Offering shareholders as discussed in
Note 5 to the Consolidated Financial Statements, the Company has not paid cash
dividends on its Class A or Class B Common Stock and does not anticipate that it
will do so in the foreseeable future. The present policy of the Company is to
retain earnings for use in its operations and the expansion of its business.



                                       8

<PAGE>   9

                                REMEDYTEMP, INC.

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

                                     ASSETS
<TABLE>
<CAPTION>
                                                                          OCTOBER 3,  SEPTEMBER 27,
                                                                            1999          1998
                                                                          ----------   ----------
<S>                                                                       <C>           <C>
Current assets:
   Cash and cash equivalents .......................................      $  7,887      $    450
   Accounts receivable, net of allowance for doubtful accounts
     of $2,038 and $2,647, respectively ............................        76,304        63,660
   Prepaid expenses and other current assets .......................         3,986         3,401
   Prepaid workers' compensation insurance (Note 1) ................         4,476            --
   Deferred income taxes (Note 4) ..................................           581         2,235
                                                                          --------      --------

          Total current assets .....................................        93,234        69,746
Fixed assets, net (Note 2) .........................................        18,204        15,184
Other assets, net ..................................................         2,655         2,567
Deferred income taxes (Note 4) .....................................           924           501

Goodwill, net of accumulated amortization of $296 and $152,
  respectively (Note 6) ............................................         1,704         1,787
                                                                          --------      --------
                                                                          $116,721      $ 89,785
                                                                          ========      ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable ................................................      $  2,909      $  3,033
   Accrued workers' compensation (Note 1) ..........................         1,074         5,535
   Accrued payroll, benefits and related costs .....................        13,141        13,604
   Accrued licensees' share of gross profit ........................         4,857         3,194
   Line of credit (Note 3) .........................................        17,500            --
   Other accrued expenses ..........................................         1,784         1,173
   Income taxes payable (Note 4) ...................................            --           809
                                                                          --------      --------

          Total current liabilities ................................        41,265        27,348
                                                                          --------      --------

Commitments and contingent liabilities (Note 7)

Shareholders' equity:
  Preferred Stock, $.01 par value; authorized 5,000 shares;
    none outstanding ...............................................            --            --
  Class A Common Stock, $.01 par value; authorized 50,000 shares;
    7,055 and 7,206 issued and outstanding at October 3, 1999
    and September 27, 1998, respectively ...........................            71            72
  Class B Non-Voting Common Stock, $.01 par value; authorized 4,530;
    1,804 and 1,806 issued and outstanding at October 3, 1999 and
    September 27, 1998, respectively
                                                                                18            18
   Additional paid-in capital ......................................        32,531        34,732
   Retained earnings ...............................................        42,836        27,615
                                                                          --------      --------
              Total shareholders' equity ...........................        75,456        62,437
                                                                          --------      --------
              Total liabilities and shareholders' equity ...........      $116,721      $ 89,785
                                                                          ========      ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       9

<PAGE>   10

                                REMEDYTEMP, INC.

                        CONSOLIDATED STATEMENTS OF INCOME
                (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                OCTOBER 3,     SEPTEMBER 27,  SEPTEMBER 28,
                                                  1999             1998           1997
                                                ----------     -------------  -----------
<S>                                             <C>             <C>            <C>
Direct sales .............................      $ 279,206       $ 274,577      $ 221,679
Licensed sales ...........................        231,481         173,764        135,532
Franchise royalties ......................          2,689           2,812          2,948
Initial license and franchise fees .......            160             191            187
                                                ---------       ---------      ---------
       Total revenues ....................        513,536         451,344        360,346
Cost of direct sales .....................        220,947         214,870        173,148
Cost of licensed sales ...................        172,817         129,219        101,327
Licensees' share of gross profit .........         39,614          30,138         22,970
Selling and administrative expenses ......         52,403          52,577         44,647
Depreciation and amortization ............          3,696           2,723          2,501
                                                ---------       ---------      ---------
            Income from operations .......         24,059          21,817         15,753
                                                ---------       ---------      ---------
Other income and expense:
  Interest (expense) income, net .........           (251)            263            480
  Other, net .............................            941           1,097          1,191
                                                ---------       ---------      ---------
Income before provision for income taxes .         24,749          23,177         17,424
Provision for income taxes (Note 4) ......          9,528           9,271          7,231
                                                ---------       ---------      ---------
Net income ...............................      $  15,221       $  13,906      $  10,193
                                                =========       =========      =========

Net income per share, basic (Note 9) .....      $    1.72       $    1.55      $    1.15
                                                =========       =========      =========
Weighted-average number of shares, basic .          8,864           8,966          8,896
                                                =========       =========      =========

Net income per share, diluted (Note 9) ...      $    1.71       $    1.50      $    1.13
                                                =========       =========      =========
Weighted-average number of shares, diluted          8,923           9,297          9,042
                                                =========       =========      =========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       10

<PAGE>   11

                                REMEDYTEMP, INC.

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                  CLASS A               CLASS B
                                                COMMON STOCK          COMMON STOCK        ADDITIONAL
                                             ------------------    -------------------     PAID-IN      RETAINED
                                             SHARES      AMOUNT    SHARES       AMOUNT     CAPITAL      EARNINGS     TOTAL
                                             ------      ------    ------       ------    ----------    --------    -------
<S>                                          <C>         <C>       <C>          <C>       <C>           <C>         <C>
Balance at September 29, 1996..........       5,830        $58      3,058         $31      $32,671      $ 3,516     $36,276
   Activity of Employee Stock Purchase
      Plan.............................          12                                            163                      163
   Stock option activity...............          27          1                                 428                      429
   Conversion upon transfer to
      non-affiliates...................          61          1        (61)         (1)
   Net income...........................                                                                 10,193      10,193
                                              -----        ---     ------         ---      -------      -------     -------
Balance at September 28, 1997..........       5,930         60      2,997          30       33,262       13,709      47,061
   Activity of Employee Stock Purchase
      Plan.............................          19                                            313                      313
   Stock option activity...............          66                                            857                      857
   Conversion upon transfer to
      non-affiliates...................       1,191         12     (1,191)        (12)
   Tax benefits from option activity...                                                        300                      300
   Net income...........................                                                                 13,906      13,906
                                              -----        ---     ------         ---      -------      -------     -------
Balance at September 27, 1998..........       7,206         72      1,806          18       34,732       27,615      62,437
   Activity of Employee Stock Purchase
      Plan.............................          26          1                                 333                      334
   Stock option activity...............          24                                            355                      355
   Repurchase of common stock..........        (203)        (2)                             (2,955)                  (2,957)
   Conversion upon transfer to
      non-affiliates...................           2                    (2)
   Tax benefits from option activity...                                                         66                       66
   Net income...........................                                                                 15,221      15,221
                                              -----        ---     ------         ---      -------      -------     -------
Balance at October 3, 1999.............       7,055        $71      1,804         $18      $32,531      $42,836     $75,456
                                              =====        ===     ======         ===      =======      =======     =======
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       11

<PAGE>   12

                                REMEDYTEMP, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                     OCTOBER 3,     SEPTEMBER 27,     SEPTEMBER 28,
                                                                       1999             1998             1997
                                                                     ----------     -------------     -------------
<S>                                                                  <C>              <C>              <C>
Cash flows (used in) provided by operating activities:
   Net income ...............................................        $ 15,221         $ 13,906         $ 10,193
     Adjustments to reconcile net income to net cash
       (used in) provided by operating activities:
       Depreciation and amortization ........................           3,696            2,723            2,501
       Provision for losses on accounts receivable ..........             413            1,519            1,276
       Deferred taxes .......................................             967           (4,546)          (4,938)
       Changes in assets and liabilities:
         Accounts receivable ................................         (13,057)          (9,428)         (14,690)
         Prepaid expenses and other current assets ..........            (585)          (1,414)             354
         Prepaid workers' compensation insurance ............          (4,476)              --               --
         Other assets .......................................             (88)             (65)            (776)
         Accounts payable ...................................            (124)          (1,049)           3,149
         Accrued workers' compensation ......................          (4,461)           2,630            2,355
         Accrued payroll, benefits and related costs ........            (463)           2,115            1,433
         Accrued licensees' share of gross profit ...........           1,663              969              837
         Other accrued expenses .............................             856             (283)            (563)
         Income taxes payable ...............................            (479)            (894)             616
                                                                     --------         --------         --------
   Net cash (used in) provided by operating activities ......            (917)           6,183            1,747
                                                                     --------         --------         --------
Cash flows used in investing activities:
   Purchase of fixed assets .................................          (6,573)         (10,591)          (4,138)
   Purchase of franchises, net of assets acquired ...........             (60)          (1,014)            (925)
   Sale of investments ......................................              --               --            1,016
                                                                     --------         --------         --------
   Net cash used in investing activities ....................          (6,633)         (11,605)          (4,047)
                                                                     --------         --------         --------
Cash flows provided by (used in) financing activities:
   Borrowings under line of credit agreement ................          23,750            1,000              100
   Repayments under line of credit agreement ................          (6,250)          (1,000)            (100)
   Repayments under capital lease obligation ................            (245)            (426)            (416)
   Proceeds from stock option activity ......................             355              857              429
   Repurchase of Company Common Stock .......................          (2,957)              --               --
   Proceeds from Employee Stock Purchase Plan activity ......             334              313              163
   Distributions to pre-Offering shareholders ...............              --               --           (3,707)
                                                                     --------         --------         --------
   Net cash provided by (used in) financing activities ......          14,987              744           (3,531)
                                                                     --------         --------         --------
 Net increase (decrease) in cash and cash equivalents .......           7,437           (4,678)          (5,831)
 Cash and cash equivalents at beginning of period ...........             450            5,128           10,959
                                                                     --------         --------         --------
 Cash and cash equivalents at end of period .................        $  7,887         $    450         $  5,128
                                                                     ========         ========         ========

Other cash flow information:
   Cash paid during the period for interest .................        $    555         $     98         $    110
   Cash paid during the period for income taxes .............        $  9,768         $ 15,011         $  9,981

Non-cash financing activities:
   Utilization of tax benefit from disqualifying dispositions        $   (330)        $    (80)        $     --
   Tax benefit from disqualifying dispositions recorded into
     additional paid-in capital .............................        $     66         $    300         $     --
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       12

<PAGE>   13

                                REMEDYTEMP, INC.

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

1.   DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

         The consolidated financial statements include the accounts of
RemedyTemp, Inc and its wholly-owned subsidiaries, (collectively, the
"Company"). All significant intercompany transactions and balances have been
eliminated.

Description of business

         The Company's principal business is providing temporary personnel to
industrial, service and e-commerce 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) certain transfers to
non-affiliates, (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.

Summary of significant accounting policies

Fiscal year

         The Company's fiscal year includes 52 or 53 weeks, ending on the Sunday
closest to September 30. Fiscal year 1999 consisted of 53 weeks, and fiscal
years 1998 and 1997 consisted of 52 weeks.

Revenue recognition

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

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

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

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


                                       13

<PAGE>   14

                                REMEDYTEMP, INC.

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

Concentrations of credit risk

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

Use of estimates in the preparation of consolidated financial statements

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

Fair value of financial instruments

         The carrying amounts of cash, accounts receivable, accounts payable and
all other accrued expenses 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. The carrying amount of debt
issued under the line of credit agreement approximates fair value at the stated
interest rate, which approximates the current market rate.

Cash and cash equivalents

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

Investments

         The Company accounts for its investments in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
No. 115"). The majority of the Company's investment portfolio consists of
investments related to the Company's deferred compensation program (Note 8).
These investments are classified as trading under the provisions of SFAS No. 115
and are therefore reported at fair value in the accompanying balance sheets.
Both realized and unrealized gains and losses are recorded in other income or
expense and generally offset the change in the deferred compensation liability
which is also included in other income or expense. Investments totaling $1,321
and $239 at October 3, 1999 and September 27, 1998, respectively, are included
in Prepaid expenses and other current assets in the accompanying balance sheets.


                                       14

<PAGE>   15

                                REMEDYTEMP, INC.

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

Fixed assets

         Fixed assets are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets, which are three to five years for furniture
and fixtures and computer equipment, excluding computer server costs, which are
seven years. 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 currently capitalizes the costs of purchased internal-use
software as well as internal and external software development costs related to
its new management information system. These capitalized costs are included in
fixed assets and are amortized over their estimated useful life, not to exceed
seven years.

         In March of 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the
costs of computer software developed or obtained for internal use" which the
Company will be required to adopt beginning in fiscal 2000. Management is
currently assessing the impact of SOP 98-1 but does not anticipate the adoption
will have a significant impact on the Company's current capitalization
practices.

Goodwill

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

Workers' compensation

         From July 22, 1997 through March 31, 1999, Remedy Insurance Group, LTD.
("RIG"), a wholly-owned subsidiary, provided direct and licensed offices with an
insured workers' compensation program. RIG, an offshore insurance captive
domiciled in Bermuda, was incorporated and funded with an amount of $600 of
restricted cash which is classified on the consolidated balance sheets as other
assets. The Company utilized Lindsey Morden, a national Third Party
Administrator to administer claims nationally, and Reliance National Indemnity
Company to provide stop-loss insurance coverage. The Company's deductible under
the insurance program was $250 per individual claim. The stop-loss coverage in
effect paid individual claims costs exceeding $250 and aggregate claims greater
than $7,500 for the twelve months ended July 1998, and $7,000 for the nine
months ended March 1999.

         Effective April 1, 1999, the Company entered into a reinsurance
contract with Reliance National Insurance Company ("Reliance") whereby Reliance
assumed the Company's remaining deductible liability for all open claims
incurred during the period July 22, 1997 to March 31, 1999. Additionally, the
Company entered into a one-year fully insured workers' compensation program with
Reliance. This program has a fixed cost for payroll up to $295,000 (the Base
Rate) and for payroll exceeding $295,000, the premium is at a lesser rate than
the Base Rate. The Company paid the aggregate cost of both the reinsurance
contract and the one-year premium, a total of $18,873, to Reliance on April 16,
1999. As of October 3, 1999, the remaining balance of $4,476 is included in
Prepaid expenses and other assets on the consolidated balance sheets. The
reinsurance contract included a provision for additional payments up to $700 in
the event that ultimate losses exceed the projected losses as of April 1, 1999.
At fiscal year end, the Company provided for the additional $700 due to current
loss projections.

Other income

         Other income consists primarily of fees collected from customers on
past due accounts receivable balances in the amounts of $1,029, $1,091 and
$1,411, for the fiscal years ended October 3, 1999, September 27, 1998 and
September 28, 1997, respectively.


                                       15

<PAGE>   16

                                REMEDYTEMP, INC.

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

Income taxes

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

Accounting for stock-based compensation

         The Company accounts for its stock compensation plans under Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" and
related interpretations. The disclosures required under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No.123") have been included in Note 9.

Reclassifications

         Certain reclassifications have been made to conform the fiscal year
1998 information to the fiscal year 1999 presentation.

2.  FIXED ASSETS

<TABLE>
<CAPTION>
                                                 OCTOBER 3,       SEPTEMBER 27,
                                                    1999              1998
                                                 ----------       -------------
<S>                                              <C>               <C>
Computer equipment and software.....               $16,263          $ 10,502
Furniture and fixtures..............                 4,385             6,429
Leasehold improvements..............                 3,221             3,638
Construction in progress............                 4,176             7,175
                                                   -------          --------
                                                    28,045            27,744
Less accumulated depreciation.......                (9,841)          (12,560)
                                                   -------          --------
                                                   $18,204          $ 15,184
                                                   =======          ========
</TABLE>

         Construction in progress primarily relates to expenditures for the
Company's development and implementation of a new Company-wide management
information system.

3.  LINE OF CREDIT

         On March 31, 1999, the Company renewed its revolving line of credit
agreement with Bank of America, providing for aggregate borrowings and letters
of credit of $40,000. Interest on outstanding borrowings is payable monthly. The
interest rate is the bank's reference rate minus up to 0.25%, based upon certain
financial covenants or, at the Company's discretion, LIBOR plus a range of 1.0%
to 1.375%, based upon the financial covenants. The line of credit is unsecured
and expires on February 28, 2002.

         At October 3, 1999 and September 27, 1998 the Company had $17,500 and
$0, respectively, outstanding under its line of credit agreement. The Company
had outstanding undrawn letters of credit of $0 and $6,700 at October 3, 1999
and September 27, 1998, respectively. Under the provisions of the line of credit
agreement, the Company must maintain certain financial ratios and comply with
certain restrictive covenants. The Company was in compliance with these
requirements for the fiscal years ended October 3, 1999 and September 27, 1998,
respectively.


                                       16

<PAGE>   17

                                REMEDYTEMP, INC.

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

4.  INCOME TAXES

         The Company's provision for income taxes for the three fiscal years
ended October 3, 1999 consists of the following:

<TABLE>
<CAPTION>
                                                                 OCTOBER 3,     SEPTEMBER 27,    SEPTEMBER 28,
                                                                   1999             1998            1997
                                                                 ----------     -------------    -------------
<S>                                                               <C>              <C>               <C>
    Current tax expense:
         Federal............................................      $6,628           $11,042          $ 9,983
         State..............................................       1,933             2,775            2,186
                                                                  ------           -------          -------
                 Total current.........................            8,561            13,817           12,169
                                                                  ------           -------          -------
    Deferred tax expense:
         Federal............................................         867            (3,960)          (4,375)
         State..............................................         100              (586)            (563)
                                                                  ------           -------          -------
                  Total deferred............................         967            (4,546)          (4,938)
                                                                  ------           -------          -------
                  Total provision for income taxes..........      $9,528           $ 9,271          $ 7,231
                                                                  ======           =======          =======
</TABLE>

         The composition of the deferred tax assets (liabilities) at October 3,
1999 and September 27, 1998 is listed below.

<TABLE>
<CAPTION>
                                                                  OCTOBER 3,    SEPTEMBER 27,
                                                                     1999           1998
                                                                  ----------    -------------
<S>                                                                <C>              <C>
     Reserves and accrued liabilities..........................    $ 2,956         $ 5,521
     Depreciation .............................................        568             501
                                                                   -------         -------
                  Gross deferred tax assets....................      3,524           6,022
                                                                   -------         -------

     Prepaid expenses..........................................     (2,019)           (302)
     S corporation cash basis accounting adjustment............         --          (2,984)
                                                                   -------         -------
                  Gross deferred tax liabilities...............     (2,019)         (3,286)
                                                                   -------         -------
     Net deferred tax assets...................................    $ 1,505         $ 2,736
                                                                   =======         =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                         OCTOBER 3,    SEPTEMBER 27,   SEPTEMBER 28,
                                                           1999            1998            1997
                                                         ----------    -------------   -------------
<S>                                                        <C>             <C>            <C>
     Federal tax computed at statutory rate...........     35.0%           35.0%          35.0%
     State taxes, net of federal benefit..............      5.5%            5.3%           5.5%
     Federal tax credits..............................     (2.1)%          (1.0)%         (0.6)%
     Other............................................      0.1%            0.7%           1.6%
                                                            ----            ----           ----
     Total provision for income taxes.................     38.5%           40.0%          41.5%
                                                           =====           =====          =====
</TABLE>


                                       17

<PAGE>   18

                                REMEDYTEMP, INC.

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

5.  RELATED PARTY TRANSACTIONS

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

         Prior to July, 1997, the Company leased its corporate facility from the
largest shareholder and Chairman of the Company, Robert E. McDonough, Sr. The
lease provided for the payment of property taxes, insurance and certain other
operating expenses applicable to the leased property by the lessee. In September
1996, the lease expired and the lease term became month-to-month through July
1997. Rent expense paid to Mr. McDonough under this lease totaled $238 for the
year ended September 28, 1997, the last year of this arrangement.

6.  REPURCHASE OF FRANCHISED AND LICENSED OFFICES

         During fiscal 1999, the Company acquired two licensed offices in
Stockbridge and College Park, Georgia and during fiscal 1998, the Company
acquired two franchised offices in Orlando, Florida. During fiscal 1997, the
Company acquired three licensed offices at the following locations: (i) Grand
Rapids, Michigan, (ii) Worthington, Ohio, and (iii) Atlanta, Georgia, and one
franchised office located in Indianapolis, Indiana. Results of operations for
the acquired licensed and franchised offices are recorded in accordance with the
Company's related revenue recognition policy (Note 1) until the acquisition
date. Subsequent to the acquisition date, the direct office revenue recognition
policy is utilized. Had the results of operations for the franchised offices
been shown as of the beginning of the current and preceding fiscal years, the
consolidated financial information would not be significantly different. These
acquisitions were accounted for under the purchase method of accounting. The
combined purchase prices were allocated primarily to goodwill and are being
amortized over a twenty-year life. The Company is contemplating the continued
selective repurchase of licensed and franchised offices in certain territories
with the intent of expanding the Company's market presence in such regions.

         Subsequent to October 3, 1999 the Company acquired six licensed offices
in the Reston and Richmond, Virginia areas.

7.  COMMITMENTS AND CONTINGENT LIABILITIES

         The Company leases its corporate facility, Company-owned offices and
certain equipment under operating leases. The leases typically require the
Company to pay taxes, insurance and certain other operating expenses applicable
to the leased property. Total rent expense was approximately $3,987, $2,867 and
$2,298 for the years ended October 3, 1999, September 27, 1998 and September 28,
1997, respectively. The Company no longer has any capital lease obligations.

         Future minimum lease commitments under all noncancellable operating
leases as of October 3, 1999 are as follows:

<TABLE>
<CAPTION>

         FISCAL YEAR
         -----------
<S>                                                                  <C>
         2000......................................................  $ 4,034
         2001......................................................    3,459
         2002......................................................    2,957
         2003......................................................    1,611
         2004......................................................      373
                                                                     -------
                Total..............................................  $12,434
                                                                     =======
</TABLE>

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


                                       18

<PAGE>   19

                                REMEDYTEMP, INC.

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

8.  EMPLOYEE BENEFIT PLANS

401(k) Plan

         The Company has an employee savings plan which permits participants to
make contributions by salary reduction pursuant to section 401(k) of the
Internal Revenue Code. The plan is open to qualified full-time and temporary
employees who earn less than $80 per year. The annual amount of employer
contributions to the plan is determined at the discretion of the Board of
Directors, subject to certain limitations. Eligible participants may make
voluntary contributions to the plan and become fully vested in the Company's
contributions over a five-year period. The Company has made no contributions
during the three fiscal years ended October 3, 1999.

Deferred Compensation Plan

         The Company maintains a nonqualified 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 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 and the
employees are general creditors of the Company with respect to the benefits due.
For each of the three years ended October 3, 1999, the amounts charged to
expense relating to the Deferred Compensation Plan were $580, $349 and $0,
respectively. Included in Accrued payroll, benefits and related costs in the
accompanying consolidated balance sheets at October 3, 1999 and September 27,
1998 was $1,016 and $346, respectively, relating to this plan.

9.  SHAREHOLDERS' EQUITY

Employee Stock Purchase Plan

         In connection with the Offering, the Company implemented its 1996
Employee Stock Purchase Plan (the "Purchase Plan"). Under the terms of the
Purchase Plan, eligible employees may purchase shares of the Company's Common
Stock based on payroll deductions. 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. The purchase price for shares granted is the lower of 85% of the
market price of the stock on the first or last day of each six month purchase
period. The Purchase Plan commenced on October 1, 1996. During fiscal 1999, 26
shares were purchased at prices between $10.20 and $18.06, during fiscal 1998,
19 shares were purchased at prices between $13.18 and $20.82 per share and
during fiscal 1997, 12 shares were purchased at a price of $13.18 per share.


                                       19

<PAGE>   20

                                REMEDYTEMP, INC.

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

9.  SHAREHOLDERS' EQUITY (CONTINUED)

Stock Incentive Plan

         In connection with the Offering, the Company implemented its 1996 Stock
Incentive Plan (the "Incentive Plan") for officers, directors and key employees
of the Company. A total of 900 shares were reserved for issuance under the
Incentive Plan. In February, 1998 and 1999, amendments to the Incentive Plan
were approved by votes of the Company's shareholders to reserve an additional
325 and 575 shares, respectively, for issuance under the Incentive Plan.
Accordingly, a total of 1,800 shares have been reserved for issuance under the
Incentive Plan. Options granted to employees of the Company typically may be
exercised within ten years from the grant date and are exercisable in
installments determined by the 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. Grants for 262 shares at prices
between $14.75 and $19.06 per share were made during fiscal year 1999, grants
for 263 shares at prices between $17.93 and $29.00 per share were made during
fiscal year 1998 and grants for 280 shares at prices between $$15.31 and $19.25
were made during fiscal 1997.

Stock Ownership Plan for Outside Directors

         Prior to March 16, 1998, non-employee directors received an annual cash
retainer of $18. Effective March 16, 1998, the Company implemented its
Non-Employee Director Compensation and Deferral Plan (the "Director Plan").
Under the Director Plan, non-employee, non-officer directors receive an annual
retainer in the form of shares of Common Stock with a total value of $20 on the
date of the director's election and/or subsequent reelection to the Board (the
"Director Shares"). The shares are earned ratably over the year and issued at
the end of the annual term. When issued, the Director Shares are held in trust,
on a deferred basis until a director is no longer a director of the Company.
Participation in the Director Plan is mandatory. In February 1999, a total of 4
shares were issued to the trust for services rendered. At October 3, 1999, an
additional 3 shares were earned and will be issued at the next annual meeting of
shareholders in February 2000. As the trust belongs to the Company, all shares
issued to the trust are treated as treasury stock for financial reporting
purposes. All shares issued and earned are included in the diluted weighted
shares outstanding in the earnings per share calculation.

Stock Repurchase

         On October 2, 1998, the Board of Directors authorized the Company to
repurchase its outstanding Class A and/or Class B Common Stock in the open
market or in privately negotiated transactions at the prevailing market prices
not to exceed $5,000 in aggregate. During the fiscal year ended October 3, 1999,
the Company repurchased 202.9 Class A Common Stock shares at prices ranging from
$12.56 to $15.13 for a total of $2,957.


                                       20

<PAGE>   21

                                REMEDYTEMP, INC.

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


9.  SHAREHOLDERS' EQUITY (CONTINUED)

Earnings per share calculation

         During the first fiscal quarter of 1998, the Company adopted Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128")
which became effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 replaces the previous presentation of earnings
per share on the Statements of Income with a dual presentation of Basic Earnings
Per Share ("Basic EPS") and Diluted Earnings Per Share ("Diluted EPS"). Basic
EPS excludes dilution and is computed by dividing net income by the
weighted-average number of common shares outstanding during the period. Diluted
EPS reflects the potential dilution that could occur if stock options and other
commitments to issue Common Stock were exercised, resulting in the issuance of
Common Stock that then shared in the earnings of the Company. As required by
SFAS 128, all prior period EPS data has been restated to conform with the
provisions of this statement. Basic and Diluted EPS under SFAS No. 128 do not
differ materially from Primary Earnings Per Share as previously presented. The
table below sets forth the computation of Basic and Diluted EPS under SFAS 128:

<TABLE>
<CAPTION>
                                                          OCTOBER 3,    SEPTEMBER 27,   SEPTEMBER 28,
                                                             1999           1998            1997
                                                          ----------    -------------   -------------
<S>                                                       <C>           <C>             <C>
BASIC EPS
Income available to common shareholders..............      $15,221        $13,906         $10,193
Weighted-average number of shares, basic.............        8,864          8,966           8,896
   BASIC EPS.........................................      $  1.72        $  1.55         $  1.15
                                                           =======        =======         =======

DILUTED EPS
Income available to common shareholders..............      $15,221        $13,906         $10,193
Weighted-average number of shares, basic.............        8,864          8,966           8,896
Effect of dilutive securities:
   Stock options.....................................           59            331             146
                                                           -------        -------         -------
Weighted-average number of shares - assuming
   dilution..........................................        8,923          9,297           9,042
   DILUTED EPS.......................................      $  1.71        $  1.50         $  1.13
                                                           =======        =======         =======
</TABLE>

         The Company has adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the stock and option plans. Had compensation cost for all
stock and option plans been determined based on the fair value at the grant date
of awards in fiscal 1999, 1998, and 1997 consistent with the provisions of SFAS
No. 123, the Company's net income and net income per share would have been
reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                           October 3,   September 27,   September 28,
                                                             1999           1998            1997
                                                           ----------   -------------   -------------
<S>                                                        <C>          <C>             <C>
Net income - as reported ............................       $15,221        $13,906         $10,193
Net income - pro forma ..............................       $13,397        $12,355         $ 9,514
Basic earnings per share - as reported ..............       $  1.72        $  1.55         $  1.15
Basic earnings per share - pro forma ................       $  1.51        $  1.38         $  1.07
Diluted earnings per share - as reported.............       $  1.71        $  1.50         $  1.13
Diluted earnings per share - pro forma ..............       $  1.50        $  1.34         $  1.05
</TABLE>


                                       21


<PAGE>   22

                                REMEDYTEMP, INC.

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

9.  SHAREHOLDERS' EQUITY (CONTINUED)

         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 1999, 1998 and 1997,
respectively: dividend yield of 0.0%, 0.0% and 0.0%; risk free interest rate of
4.54%, 5.81% and 6.48%; expected volatility of 37.0%, 31.0% and 30.0% and
expected lives of 3.7, 2.9 and 2.8 years. The weighted-average per share
estimated fair value at the date of grant for options granted during fiscal
1999, 1998 and 1997 was $5.26, $6.24 and $4.26, respectively.

         The following table summarizes the activity relating to all stock and
option plans:

<TABLE>
<CAPTION>
                                                    Incentive Plan            Purchase              Options Outside
                                                      Options                Plan Stock              Incentive Plan
                                                ---------------------   ----------------------     ---------------------
                                                            Weighted-                Weighted-                 Weighted-
                                                             Average                  Average                   Average
                                                            Exercise                 Exercise                  Exercise
                                                Shares       Price       Shares        Price       Shares        Price
                                               -------      ---------   -------      ---------     ------      ---------
<S>                                              <C>          <C>       <C>          <C>           <C>         <C>
Option outstanding September 29, 1996            439.4        $13.00         --            --         --             --
Options granted                                  280.0        $15.55       23.6        $13.18         --             --
Options canceled                                 (21.4)       $14.46         --            --         --             --
Options exercised                                (26.4)       $13.00      (12.3)       $13.18         --             --
                                               -------        ------      -----        ------      -----         ------
Options outstanding September 28, 1997           671.6        $14.04       11.3        $13.18         --
Options granted                                  262.8        $21.63       15.5        $19.49      125.0         $20.72
Options canceled                                 (55.4)       $14.95         --            --         --             --
Options exercised                                (65.6)       $13.98      (18.8)       $16.46         --             --
                                               -------        ------      -----        ------      -----         ------
Options outstanding September 27, 1998           813.4        $16.44        8.0        $18.06      125.0         $20.72
Options granted                                  262.0        $15.22       28.0        $10.34         --             --
Options canceled                                 (43.3)       $16.53         --            --         --             --
Options exercised                                (25.4)       $13.91      (26.2)       $12.75         --             --
                                               -------        ------      -----        ------      -----         ------
Options outstanding October 3, 1999            1,006.7        $16.18        9.8        $10.20      125.0         $20.72
                                               =======        ======      =====        ======      =====         ======
</TABLE>

         The number of exercisable options outstanding for the fiscal years
ended 1999, 1998 and 1997 under the plans were 441.3, 241.6 and 114.5 shares,
respectively, at weighted-average prices of $16.37, $15.14 and $13.00 per share,
respectively. The following table summarizes information about stock options
outstanding at October 3, 1999:

<TABLE>
<CAPTION>

                            Options Outstanding                       Options exercisable
        --------------------------------------------------------   -------------------------
                                         Weighted-
                                          Average      Weighted-                   Weighted-
                            Shares       Remaining      Average      Shares         Average
        Exercise Price    Outstanding       Life         Price     Exercisable       Price
        --------------    -----------    ---------     ---------   -----------     ---------
<S>                       <C>            <C>           <C>         <C>             <C>
        $10.00-$13.00       310.1        6.6 years       $12.91       179.6          $13.00
        $13.01-$16.00       421.4        8.4 years       $15.03       129.8          $15.31
        $16.01-$20.00        76.0        8.8 years       $18.34        19.8          $19.01
        $20.01-$25.00       299.0        8.2 years       $21.12        96.4          $21.89
        $25.01-$30.00        35.0        8.5 years       $26.59        15.7          $26.37
</TABLE>


                                       22


<PAGE>   23

                                REMEDYTEMP, INC.

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


10.  UNAUDITED CONSOLIDATED QUARTERLY INFORMATION

<TABLE>
<CAPTION>
                                                                       FOR THE THREE MONTHS ENDED
                                                       ----------------------------------------------------------
                                                       DECEMBER 27,     MARCH 28,       JUNE 27,       OCTOBER 3,
                                                          1998            1999            1999            1999
                                                       ------------     ---------       --------       ----------
<S>                                                     <C>             <C>             <C>             <C>
Total revenues .................................        $119,826        $114,593        $128,815        $150,302
Total cost of direct and licensed sales ........        $ 90,806        $ 88,010        $ 98,786        $116,162
Licensees' share of gross profit ...............        $  9,141        $  8,973        $  9,983        $ 11,517
Selling, general and administrative expenses ...        $ 13,970        $ 12,790        $ 13,636        $ 15,703
Net income .....................................        $  3,685        $  3,211        $  3,957        $  4,368
Net income per share, basic ....................        $   0.41        $   0.36        $   0.45        $   0.49
Net income per share, diluted ..................        $   0.41        $   0.36        $   0.45        $   0.49
</TABLE>


<TABLE>
<CAPTION>
                                                                       FOR THE THREE MONTHS ENDED
                                                       ------------------------------------------------------------

                                                       DECEMBER 28,     MARCH 29,       JUNE 28,      SEPTEMBER 27,
                                                          1997            1998            1998            1998
                                                       ------------     ---------       --------      -------------
<S>                                                     <C>             <C>             <C>             <C>
Total revenues .................................        $111,145        $109,607        $113,388        $117,204
Total cost of direct and licensed sales ........        $ 85,300        $ 84,041        $ 85,946        $ 88,802
Licensees' share of gross profit ...............        $  6,936        $  6,937        $  7,771        $  8,494
Selling, general and administrative expenses....        $ 13,294        $ 13,906        $ 13,934        $ 14,166
Net income .....................................        $  3,515        $  2,986        $  3,540        $  3,865
Net income per share, basic ....................        $   0.39        $   0.33        $   0.39        $   0.43
Net income per share, diluted ..................        $   0.38        $   0.32        $   0.38        $   0.42
</TABLE>


                                       23

<PAGE>   24

                        REPORT OF INDEPENDENT ACCOUNTANTS


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

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of RemedyTemp, Inc. and
its subsidiary (the "Company") at October 3, 1999, and September 27, 1998, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended October 3, 1999, in conformity with accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.



/s/ PRICE WATERHOUSECOOPERS LLP
-----------------------------------
    PricewaterhouseCoopers LLP


Costa Mesa, California
November 12, 1999


                                       24