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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 2, 2002

Commission File Number 000-27130

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WESTAFF, INC.(Exact name of registrant as specified in its charter)

|DELAWARE(State or other jurisdiction of
incorporation and organization) |  | 94-1266151(I.R.S. Employer Identification No.)
|----------------------------------------------------------------------- |  | ----------------------------------------------

298 NORTH WIGET LANE, WALNUT CREEK, CA 94598-2453(Address of principal executive offices, including zip code)

(925) 930-5300(Registrant's telephone number)

Securities
registered pursuant to Section 12(b) of the Act: NoneSecurities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value per share(Title of class)

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

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

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

The
aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $23,414,665 as of December 31, 2002, based on the closing price of the
Registrant's Common Stock on the Nasdaq National Market reported for that trading day. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the
outstanding Common Stock have been excluded from this computation in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive
determination for other purposes.

As
of December 31, 2002, the Registrant had outstanding 15,972,498 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents (or portions thereof) are incorporated herein by reference:

Portions
of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on May 21, 2003 are incorporated herein by reference to this Form 10-K Report.

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INDEX        WESTAFF, INC.

|         |  |                                                                                                |  | PAGE NO.
|-------- |  | ---------------------------------------------------------------------------------------------- |  | --------
|PART I   |  |                                                                                               
|ITEM 1.  |  | BUSINESS                                                                                       |  | 3       
|ITEM 2.  |  | PROPERTIES                                                                                     |  | 14      
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                              |  | 14      
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                            |  | 15      
|ITEM 4A. |  | EXECUTIVE OFFICERS OF THE REGISTRANT                                                           |  | 15      
|PART II  |  |                                                                                               
|ITEM 5.  |  | MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                          |  | 17      
|ITEM 6.  |  | SELECTED FINANCIAL DATA                                                                        |  | 18      
|ITEM 7.  |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          |  | 18      
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                     |  | 29      
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                    |  | 29      
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           |  | 29      
|PART III |  |                                                                                               
|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                             |  | 29      
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                         |  | 29      
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |  | 30      
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                 |  | 30      
|ITEM 14. |  | CONTROLS AND PROCEDURES                                                                        |  | 30      
|PART IV  |  |                                                                                               
|ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                               |  | 31      
|         |  | SIGNATURES                                                                                     |  | IV-2    
|         |  | POWER OF ATTORNEY                                                                              |  | IV-3    

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PART I

ITEM 1. BUSINESS.

The following Business Section contains forward-looking statements that involve risks and uncertainties regarding Westaff, Inc. (the "Company"). The
Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including those set forth under "Factors Affecting Future
Operating Results" beginning on page 10 below and elsewhere in, or incorporated by reference into, this Annual Report on Form 10-K. This Form 10-K for the
fiscal year ended November 2, 2002 contains service marks of the Company.

General

The Company provides temporary staffing services primarily in suburban and rural markets ("secondary markets"), as well as in the downtown areas of certain major
urban centers ("primary markets") in the United States and selected international markets. Through its network of Company-owned, franchise agent and licensed offices, the Company offers a wide range
of temporary staffing solutions, including replacement, supplemental and on-site programs to businesses and government agencies. The Company's primary focus is on recruiting and placing
temporary light industrial and clerical/administrative personnel. The Company has over 50 years of experience in the staffing industry and, as of November 2, 2002, operated through 299
offices in 45 states and five foreign countries. As of November 2, 2002, 72.6% of these offices were owned by the Company, 25.7% were operated by franchise agents and 1.7% were operated by
licensees.

The
Company was founded in 1948 and incorporated in California in 1954. In October 1995, the Company reincorporated in Delaware. The Company's corporate name was changed to
Westaff, Inc. in September 1998. The Company's executive offices are located at 298 North Wiget Lane, Walnut Creek, California 94598-2453, and its telephone number is
(925) 930-5300. The Company transacts business through its subsidiaries, the largest of which is Westaff (USA), Inc., a California corporation, which is the primary operating
entity.

During
fiscal 1999, the Company sold its medical business, primarily operated through Western Medical Services, Inc., a wholly-owned subsidiary of the Company. As a result, the
Company has classified its medical operations as discontinued operations in the Company's Consolidated Financial Statements and provides a separate discussion of the medical operations in this
Business Section.

References
in this Form 10-K to (i) the "Company," the "Registrant" or "Westaff" refer to Westaff, Inc., its predecessor and their respective
subsidiaries, unless the context otherwise requires, and (ii) "franchise agents" refer to the Company's franchisees in their roles as limited agents of the Company in recruiting job applicants,
soliciting job orders, filling those orders and handling collection matters upon request, but otherwise refer to the Company's franchisees in their roles as independent contractors of the Company.

Services

The Company's service offerings are focused primarily on placing temporary light industrial and clerical/administrative staffing personnel.

Light Industrial Services.Light industrial services personnel are placed for a variety of assignments including general
factory and manufacturing work (including production, assembly and support workers, merchandise packers and machine operators), warehouse work (such as general laborers, stock clerks, material
handlers, order pickers, forklift operators and shipping/receiving clerks), technical work (such as lab technicians, inspectors, quality control technicians and drafters) and general services (such as
maintenance and repair personnel, janitors and food service workers).

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Clerical/Administrative Services.Clerical/administrative services personnel are placed for a broad range of general business
positions including receptionists, administrative assistants, data entry operators, word processors, customer service representatives, telemarketers and various other general office, accounting,
bookkeeping and clerical staff. Clerical/administrative positions also include call center agents, such as customer service, help desk and technical support staff.

The
Company believes that temporary light industrial and clerical/administrative staffing services are the foundation of the staffing industry and will remain a significant market for
the foreseeable future. The Company also believes that employees performing temporary light industrial and clerical/administrative staffing functions are, and will remain, an integral part of the
labor market in local, regional and national economies around the world.

The
Company also provides other services within the light industrial and clerical/administrative staffing market such as direct placement and temp-to-hire
services, payrolling, on-site and on-location services, and other professional services including skills and behavioral assessments and coordination of drug testing and
background checking:



Both
on-site and on-location relationships provide customers with dedicated account management which can more effectively meet the customer's changing staffing
needs with high quality, consistent service. These programs tend to have comparatively lower operating expenses and relatively longer customer relationships.

In
addition to these services, during fiscal 2002, the Company introduced two enhancements to its professional services programs. These service enhancements focus on increasing the pool
of qualified candidates using advanced selection procedures for potential candidates (Talent TrakSM) as well as technology based management services that allow clients to maximize
workforce productivity (Time TrakSM). The Company believes that these programs enhance its competitive edge and position it to more effectively pursue high growth market niches such as
financial services, customer interaction centers and high end administrative placement.

To
ensure high quality placements for customers and employees, Westaff introduced Talent TrakSM to strengthen the quality of its selection process. This comprehensive
selection process includes flexible recruiting methods, interviewing and reference checking. Westaff conducts advanced skills and
behavioral assessments using Talent TrakSM, and also provides the option for both background and drug testing that can be customized to meet a customer's specific needs.

Time
TrakSM was introduced to provide customers with a web-based management program system to assist in maximizing workforce productivity. Time
TrakSM is a flexible system allowing customers access to information to track a variety of performance measurements such as workforce hours, labor

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costs, attendance and staff performance. Time TrakSM also includes features to automate time card and payroll processing.

Markets

The Company provides temporary staffing services primarily in "secondary markets", as well as in the downtown areas of certain "primary markets" in the United
States and selected international markets.

The
Company's strategy is to capitalize on its presence in secondary markets and to build market share by targeting small to medium-sized customers, including divisions of Fortune 500
companies. The Company believes that in many cases, such markets are less competitive and less costly to operate than in the more central areas of primary markets, where a large number of staffing
services companies frequently compete for business and occupancy costs are relatively high. In addition, the Company believes that secondary markets are more likely to provide the opportunity to sell
retail and recurring business that is characterized by relatively higher gross margins.

The
Company augments this concentration on secondary markets by also focusing on national contracts with customers having a large presence in these marketplaces. Such accounts include
large clients in multiple locations supported by a dedicated corporate-level business relationship manager. The Company currently has existing national accounts across many different business sectors
such as manufacturing, government, financial services, technology and communications. During fiscal 2001, the Company established a professional sales team that services and leverages existing
relationships to retain and grow these accounts. In addition, the Company is developing aggressive marketing programs to target and acquire additional clients that fit the Westaff branch system
footprint. The Company believes that its geographic alignment allows it to effectively compete for some of these national contracts.

The
Company markets its temporary staffing and related services to local and regional customers through a network of Company-owned, franchise agent and licensed offices, as well as
through its on-site and on-location service locations. The Company coordinates significant amounts of its sales and marketing efforts through its corporate headquarters in
cooperation with branch and regional offices. New customers are obtained through consultative sales presentations, telemarketing, e-mail marketing, referrals from other customers and
advertising in a variety of regional and local media.

Recruiting

The Company believes that a key component of its success is the ability to recruit and maintain a pool of qualified light industrial and clerical/administrative
staffing personnel and regularly place them into desirable positions. The Company uses comprehensive methods to assess, select and, when appropriate, train its temporary employees in order to maintain
a pool of qualified personnel to satisfy ongoing customer demand. The Company believes one of its key competitive advantages in attracting and retaining temporary light industrial and
clerical/administrative staffing personnel is its payroll system, which provides it with the ability to print payroll checks at most of its branch offices within 24 hours after receipt of a
time card. The Company also offers its temporary employees comprehensive benefit, retention and recognition packages, including a service bonus, holiday pay and opportunities to participate in the
Company's contributory 401(k) plan and discounted employee stock purchase plan.

Operations

The Company operates each Company-owned office as a separate profit center and provides certain managers considerable operational autonomy and financial
incentives and operates franchise agent offices in appropriate markets. Managers focus on business opportunities within markets and are provided centralized support to achieve success in those
markets. The Company believes that this

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structure allows it to recruit and retain highly motivated managers who have demonstrated the ability to succeed in a competitive environment. This structure also allows managers and staff to focus
on market development while relying on centralized services for support in back-office operations, such as risk management programs and unemployment insurance, credit, collections,
accounting, advice on legal and regulatory matters, quality standards and marketing.

As
of November 2, 2002, the Company operated through a network of 299 offices in 45 states and five foreign countries. In addition, the Company from time to time establishes
recruiting offices both for recruiting potential temporary employees and for testing demand for its services in new market areas. The Company's operations are decentralized, with market, district,
regional and zone managers and franchise agents and licensees enjoying considerable autonomy in hiring, determining business mix and advertising.

The
following table sets forth information as to the number of offices in operation as of the dates indicated.

|                                   |                 | Oct. 31,
1998 |     | Oct. 30,
1999 |     | Oct. 28,
2000 |     | Nov. 3,
2001 |     | Nov. 2,
2002
|---------------------------------- | --------------- | ------------- | --- | ------------- | --- | ------------- | --- | ------------ | --- | ------------
|Number of Offices by Ownership(1): |                 |               |     |               |     |               |     |              |     |             
|                                   | Company-owned   |               | 267 |               | 264 |               | 257 |              | 254 |             
|                                   | Franchise agent |               | 82  |               | 75  |               | 81  |              | 85  |             
|                                   | Licensed        |               | 25  |               | 24  |               | 16  |              | 10  |             
|                                   |                 |               |     |               |     |               |     |              |     |             
|                                   |                 | Total         |     | 374           |     | 363           |     | 354          |     | 349         
|                                   |                 |               |     |               |     |               |     |              |     |             
|Number of Offices by Location(1):  |                 |               |     |               |     |               |     |              |     |             
|                                   | Domestic        |               | 315 |               | 308 |               | 299 |              | 291 |             
|                                   | International   |               | 59  |               | 55  |               | 55  |              | 58  |             
|                                   |                 |               |     |               |     |               |     |              |     |             
|                                   |                 | Total         |     | 374           |     | 363           |     | 354          |     | 349         
|                                   |                 |               |     |               |     |               |     |              |     |             

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Company-Owned Offices.Employees of each Company-owned office report to a branch or market manager who is responsible for
day-to-day operations and the profitability of a market that consists of one to several offices. Branch or market managers generally report to district or regional managers. As
of December 31, 2002, there were four zone managers, six regional managers and 12 district managers for the domestic Company-owned offices. The Company has a variety of incentive plans in place
for its domestic and international offices. One or more of these plans may be offered to branch staff as well as market, district, regional and zone managers. These plans are designed to motivate
employees to maximize the growth and profitability of their offices. The Company believes that its incentive-based compensation plans encourage employees in its Company-owned offices to increase sales
and profits, resulting in a creative and committed team.

Franchise Agent Offices.The Company's franchise agents have the exclusive right by contract to sell certain of the Company's
services and to use the Company's service marks, business names and systems in a specified geographic territory. The Company's franchise agent agreements generally allow franchise agents to open
multiple offices within their exclusive territories. As of November 2, 2002, the Company's 38 franchise agents operated 77 franchise agent offices. Sales generated by franchise agent operations
and related costs are included in the Company's consolidated sales of services and cost of services, respectively, and during fiscal 2000, 2001 and 2002 franchise agents sales represented 19.6%, 22.3%
and 24.1% respectively, of the Company's sales of services.

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The
franchise agent, as an independent contractor, is responsible for establishing and maintaining an office and paying related administrative and operating expenses, such as rent,
utilities and salaries of its branch office staff. Each franchise agent functions as a limited agent of the Company in recruiting job applicants, soliciting job orders, filling those orders and
assisting and cooperating with collection matters upon request, but otherwise functions as an independent contractor. As franchisor, the Company is the employer of the temporary employees and the
owner of the customer accounts receivable and is responsible for paying the wages of the temporary employees and all related payroll taxes and insurance. As a result, the Company provides a
substantial portion of the working capital needed for the franchise agent operations.

Franchise
agents are required to follow the Company's operating procedures and standards in recruiting, screening, classifying and retaining temporary personnel.

Licensed Offices.As of November 2, 2002, the Company's two licensees operated five licensed offices. During fiscal
2002, one licensee converted to the Company's franchise agent program and the Company purchased the operations of one of its licensees. The Company is no longer offering the license program other than
to the two remaining licensees.

The
licensee is the employer of the temporary employees and the owner of the customer accounts receivable. The Company finances the licensees' temporary employee payroll, payroll taxes
and insurance. This indebtedness is secured by a pledge of the licensees' accounts receivable, tangible and intangible assets, and the license agreements. Borrowings under the lines of credit bear
interest at a rate equal to the reference rate of Bank of America, N.A. plus two percentage points. Interest is charged on the borrowings only if the outstanding balance exceeds certain specified
limits.

Licensees
are required to operate within the framework of the Company's policies and standards, but must obtain their own workers' compensation, liability, fidelity bonding and state
unemployment insurance coverage, which determine their payroll costs.

The
Company's franchise agent and license agreements have an initial term of five years and are renewable for multiple five-year terms. The agreements generally contain
two-year non-competition covenants which the Company vigorously seeks to enforce. Efforts to enforce the non-competition covenants have resulted in litigation
brought by the Company following termination of certain franchise agent and license agreements. In the past five fiscal years, the Company has commenced two actions to enforce the
non-competition covenants. Both of those actions were resolved in the Company's favor.

The
Company's sale of franchises and licenses is regulated by the Federal Trade Commission and by state business opportunity and franchise laws. The Company has either registered, or
been exempted from registration, in 14 of the 15 states that require registration in order to offer franchises or licenses. In one of the 15 states, the Company has not yet sought registration and is
therefore not currently authorized to offer franchise or license arrangements.

Seasonality

The Company has experienced significant fluctuations in its operating results and anticipates that these fluctuations may continue. Operating results may
fluctuate due to a number of factors, including the demand for the Company's services, the level of competition within its markets, the Company's ability to increase the productivity of its existing
offices, control costs and expand operations and the availability of qualified temporary personnel. In addition, the Company's results of operations could be, and have in the past been, adversely
affected by severe weather conditions. The Company's fourth fiscal
quarter consists of 16 or 17 weeks, while its first, second and third fiscal quarters consist of 12 weeks each. Moreover, the Company's results of operations have also historically been subject to
seasonal fluctuations. Demand for temporary staffing historically has been greatest during the Company's fourth fiscal quarter due largely to the planning cycles of many of its customers. Furthermore,
sales for the

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first fiscal quarter are typically lower due to national holidays as well as plant shutdowns during and after the holiday season. These shutdowns and post-holiday season declines
negatively impact job orders received by the Company, particularly in the light industrial sector.

Customers

As is common in the temporary staffing industry, the Company's engagements to provide services to its customers are generally of a non-exclusive,
short-term nature and subject to termination by the customer with little or no notice. During fiscal 2002, no single customer of the Company accounted for more than 10.0% of the Company's
sales of services. The Company's 10 highest volume customers in fiscal 2002, accounted for an aggregate of approximately 16.6% of the Company's sales of services and license fees.

Competition

The temporary staffing industry is highly competitive with few barriers to entry. The Company believes that the majority of commercial temporary staffing
companies are local, full-service or specialized operations with less than five offices. Within local markets, typically no single company has a dominant share of the market. The Company
also competes for qualified temporary personnel and customers with larger, national full-service and specialized competitors in local, regional, national and international markets. The
principal national competitors are Adecco SA, Spherion Corporation (commercial staffing segment), Kelly Services, Inc. (U.S. commercial staffing and international segments),
Manpower Inc., RemedyTemp, Inc. (clerical and light industrial services) and Personnel Group of America, Inc. (commercial staffing services division). Many of the Company's
principal competitors have greater financial, marketing and other resources than the Company. In addition, there are a number of medium-sized firms which compete with the Company in certain markets
where they may have a stronger presence, such as regional or specialized markets.

The
Company believes that the competitive factors in obtaining and retaining customers include understanding customers' specific job requirements, providing qualified temporary personnel
in a timely manner, monitoring quality of job performance and pricing of services. The Company believes that the primary competitive factors in obtaining qualified candidates for temporary employment
assignments are wages, benefits and flexibility and responsiveness of work schedules. The Company believes that within its primary light industrial and clerical/administrative markets, timeliness of
pay is also a key competitive factor.

Management Information Systems

The Company's management information systems provide functionality to both our branch office locations and to the corporate back-office in support of
the Company's operations. Branch office functionality includes a full-featured branch office tool, designed to assist in candidate search and recruiting, and order, customer service and
sales management that also allows for the sharing of information between offices. In addition, branch offices use a billing and payroll application, which is designed to provide timely and accurate
payment for temporary employees and billing to the Company's customers. Under this system, field offices capture and input customer, employee, billing and payroll information. This information is
electronically transferred daily to centralized servers, where payroll, billing and financial information is processed overnight. These systems provide the Company with the ability to print checks at
its branch offices within 24 hours after receipt of the time card. Invoices are also processed daily and distributed from the Company's centralized corporate offices. These systems also support
branch office operations with daily, weekly, monthly and quarterly reports that provide information ranging from customer activity to office profitability.

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Risk Management Programs

The Company is responsible for all employee-related expenses for the temporary staff employees of its Company-owned and franchise agent offices including workers'
compensation, unemployment insurance, social security taxes, state and local taxes and other general payroll expenses.

The
Company provides workers' compensation insurance covering its regular and temporary employees, with a deductible of $500,000 per occurrence, through a long-term
relationship with Travelers Indemnity Company ("Travelers"). The Company is formally self-insured with a retention of $500,000 in the states of Ohio and Washington, and purchases fully
insured workers' compensation coverage based upon actual payroll classifications in the monopolistic states of Wyoming, North Dakota and West Virginia.

The
Company is contractually required to collateralize its recorded obligations under these workers' compensation insurance contracts with Travelers through irrevocable letters of credit
and surety bonds. As of November 2, 2002, the aggregate collateral requirements have been satisfied through $17.3 million of letters of credit and $11.8 million of surety bonds.

The
Company's nationwide risk management program is managed by the Risk Management Department consisting of risk management and workers' compensation professionals and administrators who
monitor the disposition of all claims and oversee, through an on-line system, all workers' compensation claim activity. The department utilizes a variety of creative and aggressive
workers' compensation loss prevention and loss control strategies. The risk management program includes claim strategy reviews with the carrier and third party administrator, post-accident
drug testing, a return-to-work modified duty program, pre-placement customer safety evaluations and light industrial job approvals, the use of personal protective
equipment, and the use of individual local office expense allocation formulas.

Employees

As of November 2, 2002, the Company had approximately 29,000 temporary employees on assignment and employed 923 regular staff. The Company's employees are
not covered by any collective bargaining agreements. The Company believes that its relationships with its employees are good.

Service Marks

The Company has various service marks registered with the United States Patent and Trademark Office, with the State of California and in various foreign
countries, including its primary Westaff® service marks. Federal and state service mark registrations may be renewed indefinitely as long as the underlying mark remains in use. The Company
also has registered the service mark Westaff Wave® and has filed applications to register the service marks Learning TrakSM, Talent TrakSM and Time
TrakSM, all of which we believe are important to our current business strategy.

The
Company also owns other service marks, including Accountants USA®, College Greens®, The Essential Support Services Leader®, E Team®,
Job Squad®, and On Location & Essential®, has pending applications for AUSASM and Staff for Business Jobs for PeopleSM and has service marks
related to its former name "Western," including Western Staff Services®, Western Temporary Services®, Western Staff Services Office and Light Industrial Division®,
Western Accounting Services®, Western Legal Services®, Western Marketing Services®, Western Permanent Services Agency® and Western Photo
Service®.

The
Company is no longer pursuing the marks, It's About Respect and Westaff People Matter and is not maintaining Westemp®, Western Information Network (WIN)® and
1-800-BE A TEMP®.

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Medical Services

During fiscal 1999, the Company sold certain of its franchise agent and Company-owned medical offices and entered into a termination agreement with one of its
medical licensees. During the fourth quarter of fiscal 1999, the Company completed the sale of the remaining medical business to Intrepid U.S.A. Inc. (Intrepid) under an asset purchase
agreement. Under the terms of the sale, the Company retained the trade and Medicare accounts receivable as well as due from licensee balances.

During
fiscal 2000, the Company recorded additional after-tax losses related to discontinued operations of $784,000 or $0.05 per share. This charge was primarily due to lower
than expected settlements of Medicare cost reports.

In
August 2000, Intrepid filed a demand for arbitration seeking compensatory and punitive damages alleging, among other things, that the Company made misrepresentations and
otherwise breached the asset purchase agreement. In fiscal 2001, the arbitrator awarded Intrepid $1.1 million, mainly for
breaches of certain representations, warranties and covenants in the asset purchase agreement, plus arbitration expenses and legal and accounting fees of approximately $0.4 million. Primarily
due to the unfavorable arbitration award and related legal costs, the Company recorded an after-tax loss from discontinued operations of $1.8 million or $0.11 per share, in fiscal
2001.

As
of November 2, 2002, the remaining net current liabilities of the discontinued operations of $0.6 million are primarily for pending legal and malpractice/liability
claims. The Company believes it has adequately reserved for the reasonable outcome of future events; however, should actual costs differ materially from those estimated by management, the Company
would record additional losses (or gains) in future periods.

Availability of Reports

Westaff makes its financial reports on Form 10-K, 10-Q or 8-K available free of charge on its web site at
www.westaff.com as soon as practicable after filing. Furthermore, Westaff will provide electronic or paper copies of filings free of charge upon request to the Company's Chief Financial Officer or
Investor Relations representative.

Factors Affecting Future Operating Results

This Form 10-K contains forward-looking statements concerning the Company's future programs, products, expenses, revenue, liquidity and cash
needs as well as the Company's plans and strategies. These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information. Numerous
factors could cause actual results to differ significantly from the results described in these forward-looking statements, including the following risk factors.

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

The
temporary staffing industry is highly competitive with limited barriers to entry and in recent years has been undergoing significant consolidation. The Company competes in national,
regional and local markets with full service agencies and with specialized temporary services agencies. Many competitors are smaller than the Company but may enjoy an advantage over the Company in
discrete geographic markets because of their stronger local presence. Other competitors have greater marketing, financial and other resources than the Company, which among other things could enable
them to attempt to maintain or increase their market share by reducing prices. Price competition in the staffing industry is intense and pricing pressures from both competitors and customers are
increasing. Furthermore, there has been an increase in the number of customers consolidating their staffing services purchases with a single provider or with a small number of providers. The trend to
consolidate staffing services purchases has in some cases made it more difficult for Westaff to obtain or retain

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business. The Company expects the level of competition to remain high in the future, and continued or increasing competitive pricing pressures may have an adverse effect on the Company's market share
and operating margins.

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

Demand
for the Company's staffing services is significantly affected by the general level of economic activity and unemployment in the United States and the countries in which the
Company operates. Frequently, customers use temporary staffing services to manage personnel costs and staffing needs. When economic activity increases, temporary employees are often added before
full-time employees are hired. However, as economic activity slows, many customers reduce their utilization of temporary employees before releasing full-time employees.
Typically, the Company may experience less demand for its services and more competitive pricing pressure during periods of economic downturn. The recent domestic economic recession and continuing
economic uncertainty has had a material adverse effect on the Company's business, results of operations, cash flows and financial condition. A recurrent recession or a significant lag in economic
recovery would likely have a further material adverse effect on the Company's business, results of operations, cash flows or financial position.

Westaff's borrowing availability under its debt facilities is dependent on an adequate level of receivables and on compliance with affirmative and negative
covenants and is also subject to interest rate fluctuations.

The
amount Westaff is entitled to borrow under its working capital facility is dependent on the receivables generated from future operations, which are affected by financial, business,
economic and other factors. If receivables drop significantly, additional borrowings may not be allowed under the facility and the Company would have to seek other sources of cash to fund its
operations. In addition, the Company may be required to repay the loan in part or in full. The Company's receivables may not be adequate to allow for borrowings for other corporate purposes, such as
capital expenditures or growth opportunities, and the Company would be less able to react to changes in the market or industry conditions. Failure to comply with the covenants under the facility could
result in an event of default which, if not cured or waived, could trigger prepayment obligations. If we are forced to refinance borrowings under the current facility, and such refinancing is
available, the terms could be less favorable and our results of operations and financial condition could be adversely affected by increased costs and rates.

All
of the debt outstanding under the Company's revolving credit facility is subject to variable interest rates, which makes Westaff vulnerable to future increases in interest rates and
which could materially adversely affect the Company's results of operations.

The cost of unemployment insurance premiums and workers' compensation costs for Westaff's temporary employees may rise and reduce Westaff's
margins.

Westaff
is responsible for and pays unemployment insurance premiums and workers' compensation costs for its temporary employees. Recently, these costs have risen as a result of increased
claims, general economic conditions and governmental regulation. There can be no assurance that Westaff will be able to increase the fees charged to its customers in the future to keep pace with
increased costs. As noted previously, price competition in the staffing industry is intense. There can be no assurance that Westaff will be able to maintain or improve its margins, and if it does not,
its results of operations, financial condition and liquidity could be adversely affected.

Westaff
retains a portion of the risk under its workers' compensation program (see "BusinessRisk Management Programs"). The estimated remaining deductible liability for all
existing and incurred but not reported claims is accrued based upon actuarial methods using current claims information, as well as prior experience, and may be subsequently revised each quarter based
on new developments related to such claims. Changes in the estimates underlying the claims reserve are charged or credited

11

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to earnings in the period determined, and therefore large fluctuations in any given quarter could materially adversely affect earnings in that period.

The
Company is contractually required to collateralize its recorded obligations under these workers' compensation insurance contracts through irrevocable letters of credit and surety
bonds. As of November 2, 2002, the Company's aggregate collateral requirements have been satisfied through $17.3 million of letters of credit and $11.8 million of surety bonds.
For the fiscal 2003 workers' compensation policy year, Westaff changed its funding program such that Westaff will fully fund the 2003 policy year through monthly cash installments totaling
$16.0 million for the year. Accordingly, during fiscal 2003, Westaff will not only fund the full 2003 policy year but will also make ongoing cash payments associated with claims paid for all
prior policy years. This will increase the Company's cash flow requirements. This should also result in reduced collateral requirements in the future and the Company's insurance carrier has agreed to
review and possibly reduce the collateral requirements after the end of the second quarter of fiscal 2003. In the event that cash flow and borrowing capacity under the existing credit facilities are
insufficient to meet these cash and collateral obligations, the Company will be required to seek additional sources of funding to satisfy its liquidity needs which could have a material adverse effect
on the Company's business.

Westaff's success depends upon its ability to attract and retain qualified temporary personnel.

Westaff
depends upon its ability to attract and retain qualified temporary personnel who possess the skills and experience necessary to meet the staffing requirements of its customers.
Westaff must continually evaluate and upgrade its base of available qualified personnel to keep pace with changing client needs and emerging technologies. Furthermore, a substantial number of the
Company's temporary employees during any given year will terminate their employment with the Company and
accept regular staff employment with customers of the Company. Competition for individuals with proven skills remains intense, and demand for these individuals is expected to remain strong for the
foreseeable future. There can be no assurance that qualified personnel will continue to be available to Westaff in sufficient numbers and on terms of employment acceptable to the Company. The failure
to recruit, train and retain qualified temporary employees could materially adversely affect the Company's business.

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

Westaff
is in the business of employing people and placing them in the workplace of other businesses. Attendant risks of these activities include:



In
addition, some or all of these claims may give rise to litigation, which could be time-consuming to our management team as well as costly and therefore could have a
negative effect on our business. In some instances, we have agreed to indemnify our customers against some or all of these types of

12

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liabilities. Westaff has policies and guidelines in place to help reduce its exposure to these risks and has purchased insurance policies against certain risks in amounts that it believes to be
adequate. However, there can be no assurance that our insurance will be sufficient in amount or scope to cover these types of risks in the future. Furthermore, there can be no assurance that Westaff
will not experience these problems in the future or that Westaff will not incur fines or other losses or negative publicity with respect to these problems that could have a material adverse effect on
Westaff's business.

Westaff's Founder and Chairman controls more than 50% of the Company's outstanding stock thus allowing him to exert significant influence on the Company's
management and affairs.

The
Company's Chairman and Founder, W. Robert Stover, beneficially owns directly or indirectly, or has voting power over, more than 50% of the Company's outstanding stock. As the
principal stockholder of the Company, Mr. Stover has the ability to control substantially all matters submitted to the stockholders for approval and to exert significant influence on the
Company's management and affairs, including appointments to the Board of Directors and executive management positions.



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

The
Company experienced turnover in the position of Chief Executive Officer in fiscal 2000, 2001 and 2002 during which time four individuals served as Chief Executive Officer. Dwight S.
Pedersen has now served as President and Chief Executive Officer since January 14, 2002, and has been a member of the Board of Directors since May 1, 2001.

Westaff derives a significant portion of its sales of services and license fees from affiliate (franchise agent and licensed) operations.

Affiliate
operations comprise a significant portion of the Company's sales of services and license fees. For fiscal 2002, 24.2% of the Company's total sales of services and license fees
were derived from affiliate operations. In addition, the Company's ten largest franchise agents for fiscal 2002 (based on sales volume) accounted for 13.5% of the Company's sales of services. The loss
of one or more of the Company's franchise agents and any associated loss of customers and sales, could have a material adverse effect on the Company's results of operations.



The Company presently has operations in the United Kingdom, Australia, New Zealand, Norway and Denmark, which comprised 16.9% of the Company's sales of services
and license fees during fiscal 2002. Operations in foreign markets are inherently subject to certain risks, including, in particular, different cultures and business practices, overlapping or
differing tax structures, economic and political uncertainties, compliance issues associated with accounting and reporting requirements and changing, complex or ambiguous foreign laws and regulations,
particularly as they relate to employment. All of the Company's sales outside of the United States are denominated in local currencies and, accordingly, the Company is subject to risks associated with
fluctuations in exchange rates which could cause a

13

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reduction in the Company's profits. There can be no assurance that any of these factors will not have a material adverse effect on the Company's business, results of operations, cash flows or
financial condition.

Westaff is a defendant in a variety of litigation and other actions from time to time, which may have a material adverse effect on our business, financial
condition and results of operations.

Westaff
is regularly involved in a variety of litigation arising out of our business. We do not have insurance for some of these claims and there can be no assurance that the insurance
coverage we have will cover all claims that may be asserted against us. Should the ultimate judgments or settlements not be covered by insurance or exceed our insurance coverage, they could have a
material adverse effect on our results of operations, financial position and cash flows. There can also be no assurance that we will be able to obtain appropriate and sufficient types or levels of
insurance in the future or that adequate replacement policies will be available on acceptable terms, if at all.

ITEM 2. PROPERTIES.

The Company currently owns one building located in Walnut Creek, California, consisting of approximately 16,000 square feet, where the executive offices are
presently located. This building is subject to a trust deed held by its lenders. On December 12, 2002, the Company sold the three buildings
located in Walnut Creek, California, which house its administrative offices, to 1705 Sabre Associates, a California Limited Partnership, which then assigned the lease to Wiget Properties, LLC, a
Delaware Limited Liability Company. The Company has leased back all three of these buildings, consisting of approximately 50,000 square feet, for a term of 7 years commencing on
December 12, 2002, with an additional 5-year option to renew. The Company is planning to relocate its executive offices to these buildings at the end of January or beginning of
February 2003.

In
addition, the Company may lease space for its Company-owed offices in the United States and abroad. The majority of the leases are for fixed terms of one to five years and
contain customary terms and conditions. The Company believes that its facilities are adequate for its current needs and does not anticipate any difficulty replacing such facilities or locating
additional facilities, if needed.

ITEM 3. LEGAL PROCEEDINGS.

In the ordinary course of its business, the Company is periodically threatened with or named as a defendant in various lawsuits. The principal risks that the
Company insures against are workers' compensation, general liability, automobile liability, property damage, alternative staffing errors and omissions, fiduciary liability and fidelity losses.

On
March 9, 2000, Synergy Staffing, Inc. filed a complaint in the Superior Court of the State of California for the County of Los Angeles, Central District. The defendants
named in the case were Westaff, Inc. and several corporate officers. The complaint alleged, among other things, that the defendants fraudulently induced the plaintiff to sell the assets of The
Personnel Connection, Inc. The Company's petition for an order compelling arbitration was granted, the Superior Court lawsuit was stayed, and a demand for arbitration was made that asserted the
legal theories of interference with prospective economic advantage and fraud. The Company's earlier motion for partial summary judgment was granted at the outset of the hearing, resulting in the
dismissal of all the individual defendants except Paul Norberg. The majority of the arbitrators on the panel rendered an interim award on January 9, 2002, in favor of the claimant and against
the Company and Mr. Norberg on the fraud theory. The interim award was for the principal amount of $2,224,327 plus interest. The Company moved to modify the principal amount of the award. The
panel granted the Company's motion and issued an Order Modifying Interim Award on February 11, 2002, crediting the respondents for $800,000 previously paid under a price protection clause in
the asset purchase agreement and thereby reducing the principal amount of the award to $1,424,327. The Company has paid the principal plus interest as

14

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well as the claimant's attorney fees and reimbursement of litigation costs. The claimant thereafter asked the Los Angeles Superior Court to correct and confirm the interim award. On
September 25, 2002, the Court denied the plaintiff's motion. The claimant has since filed an appeal of the denial with the Court of Appeal, Second Appellate District. The parties have yet to
submit briefs.

Except
as disclosed above, the Company is not currently a party to any material litigation. However, from time to time the Company has been threatened with, or named as a defendant in
litigation
brought by former franchisees or licensees, and administrative claims and lawsuits brought by employees or former employees. Management believes the resolution of these matters will not have a
material adverse effect on the Company's financial statements.

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

Not applicable.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT*.

The executive officers of the Company and their respective ages as of January 30, 2003 are set forth below.

|Name                |  | Age |  | Position(s) Held                                   
|------------------- |  | --- |  | ---------------------------------------------------
|Dwight S. Pedersen  |  | 57  |  | President and Chief Executive Officer              
|Dirk A. Sodestrom   |  | 45  |  | Senior Vice President and Chief Financial Officer  
|William M. Herbster |  | 50  |  | Senior Vice President, Product Development         
|Christa C. Leonard  |  | 45  |  | Vice President and Treasurer                       
|John P. Sanders     |  | 38  |  | Vice President and Controller                      
|Richard G. Gross    |  | 47  |  | Senior Vice President, Strategic Business Solutions
|Joseph R. Coute     |  | 55  |  | Vice President and Director of Human Resources     
|David P. Wilson     |  | 40  |  | Vice President, Information Services               

---

Dwight S. Pedersen.Mr. Pedersen was appointed as President and Chief Executive Officer of the Company effective
January 14, 2002. He has been a director of the Company since May 1, 2001. He served on the Audit Committee of the Board of Directors from and after that date until he resigned from that
committee upon becoming an employee of the Company. Prior to joining the Company, he was the Executive Vice President of Pinkertons, Inc., where he was employed since January 1, 2000
following the acquisition of American Protective Services, Inc. He was employed by American Protective Services, Inc. for twenty-six years, having started as its first
Controller in 1974. After a series of promotions, including service as Vice President-Finance, Senior Vice President and Executive Vice President of that company, he was named President and a director
in 1988 and he became its Chief Executive Officer in 1992. His previous work history includes approximately four years with Wolf & Co., an accounting firm. He is a certified public accountant
on inactive status.

Dirk A. Sodestrom.Mr. Sodestrom joined the Company as Controller in February 1991. In December 1992, he
was elected to the additional position of Vice President. In June 1998, Mr. Sodestrom was named a Senior Vice President of the Company. Effective January 1, 2001,
Mr. Sodestrom was appointed as Chief Financial Officer. Mr. Sodestrom was employed from 1980 to 1991 by Price Waterhouse LLP, most recently as a Senior Audit Manager. He is a certified
public accountant on inactive status.

15

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William M. Herbster.Mr. Herbster was hired in December 2001, as Senior Vice President, Product Development. He
has an extensive background in the temporary staffing industry, most recently in 2001 as Executive Vice President of Select Personnel Services. From 1994 to 2001, he was employed by
RemedyTemp, Inc. as Vice President, Sales and Marketing. From 1984 to 1994, he was employed by Manpower Inc. where his most recent title was U.S. Field Marketing Director. His other work
experience includes approximately three years as Field Consultant with Runzheimer and Company, two years as Territory Manager with Economic Laboratory, and approximately three years as Zone Sales
Manager with Motorola Communications and Electronics Division.

Christa C. Leonard.Ms. Leonard was hired as Vice President and Treasurer of the Company in November 2000.
Ms. Leonard was previously employed by USI Insurance Services Corp. as Vice President, Treasury and Tax, from 1996 to 2000. She has approximately nine years' prior work experience in the public
accounting field, most recently from 1995 to 1996 with Roberts Schultz & Co.,
and also with Wallace Meyer & Co. from 1992 to 1994 and KPMG Peat Marwick & Co. from 1987 to 1992. She is a certified public accountant on inactive status.

John P. Sanders.Mr. Sanders was hired in February 2001, as Vice President and Controller. He was previously
employed by Planetweb, Inc. as Controller from 1999 to 2001. Mr. Sanders began his career in 1986 with Deloitte & Touche LLP where he was employed as Manager until 1993. His other
previous work experience in financial management comes from working from 1997 to 1999 with Scan Health Plan as Director of Finance, from 1995 to 1997 with Affiliated Computer Services, Inc. as
Vice President, and from 1993 to 1995 with Price Waterhouse LLP as Senior Manager. He is a certified public accountant on inactive status.

Richard G. Gross.Mr. Gross was hired on October 7, 2002, as Senior Vice President, Director of Strategic
Business Solutions. He was previously employed by Spherion as Group Vice President from 2000 to 2002. From 1997 to 2000, he was employed by Tandem Staffing for Industry as District Sales Manager and
then promoted to Director of Sales Operations and Personnel. From 1996 to 1997, he was employed by Professional Detailing Network as District Sales Manager. From 1994 to 1996, he was employed by The
Advantage Medical Group, Inc. as Chief Operating Officer. From 1991 to 1994, he was self-employed as a sales and marketing consultant. He was employed from 1978 to 1991 by Allergan
Pharmaceuticals and most recently was its Senior Product Manager.

Joseph R. Coute.Mr. Coute has been employed by the Company since January 1997, as Vice President and Director
of Human Resources. His previous employer was Bank of America for approximately 26 years, including 16 years in human resources and ten years in branch operations.

David P. Wilson.Mr. Wilson was hired in December 1997, as Field Automation Manager, focusing on the field
automation process. In June 1998, he was assigned the additional task of managing the customer service and help desk functions of the Company's Information Services Department.
Mr. Wilson was promoted to Vice President, Information Services in January 2001.

16

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's Common Stock has been included for quotation in the Nasdaq National Market ("Nasdaq") under the symbol "WSTF" since April 30, 1996. The
following table sets forth, for the periods indicated, the high and low closing sales prices of the Common Stock as reported on Nasdaq.

High

LowFiscal 2001:First Quarter ended January 20, 2001

$
3.25

$
1.50Second Quarter ended April 14, 2001


3.03


2.31Third Quarter ended July 7, 2001


3.35


2.05Fourth Quarter ended November 3, 2001


2.80


1.35Fiscal 2002:First Quarter ended January 26, 2002


2.50


1.75Second Quarter ended April 20, 2002


2.60


1.90Third Quarter ended July 13, 2002


3.20


2.26Fourth Quarter ended November 2, 2002


3.60


1.90Fiscal 2003:First Quarter ended January 25, 2003


2.50


1.95


On
December 31, 2002, the last reported sales price on Nasdaq for the Common Stock was $2.50 per share. As of December 31, 2002, there were approximately 993 beneficial
owners of the Common Stock.

There
were no equity securities of the Company issued during the fourth fiscal quarter that were not registered under the Securities Act of 1933, as amended (the "Securities Act").

The
Company did not declare or pay dividends during fiscal 2001 and fiscal 2002. Further, the Company's current credit facilities prohibit payment of dividends so the Company is not
currently contemplating a dividend declaration.

The
following table sets forth securities authorized for issuance under equity compensation plans as of November 2, 2002. All applicable equity compensation plans were previously
approved by security holders.

Equity Compensation Plan Information

|Plan category                                          |  | Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights |  | Weighted-average
exercise price of
outstanding options,
warrants and rights |      | Number of securities
remaining available for
future issuance under
equity compensation plans
|------------------------------------------------------ |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ---- | --------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders |  | 1,419,000                                                                                   |  | $                                                                           | 3.10 |                                                                                             

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ITEM 6.    SELECTED FINANCIAL DATA.

|                                                        |                 | Fiscal Year
|------------------------------------------------------- | --------------- | -----------
|
|
|Sales of services and license fees                      |                 | $          
|Operating income (loss)                                 |                 |            
|Income (loss) from continuing operations                |                 |            
|                                                        |                 |            
|Diluted earnings (loss) per sharecontinuing operations |                 | $          
|                                                        |                 |            
|BALANCE SHEET DATA (AT END OF PERIOD):                  |                 |            
|Working capital                                         |                 | $          
|Total assets                                            |                 |            
|Short-term debt                                         |                 |            
|Long-term debt (excluding current portion)              |                 |            
|Stockholders' equity                                    |                 |            
|OTHER OPERATING DATA:                                   |                 |            
|Number of offices (at end of period)                    |                 |            
|                                                        | Company-owned   |            
|                                                        | Franchise agent |            
|                                                        | Licensed        |            
|                                                        |                 |            
|                                                        |                 | Total      
|                                                        |                 |            

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion is intended to assist in the understanding and assessment of significant changes and trends related to the results of operations and
financial condition of Westaff, Inc., together with its consolidated subsidiaries. This discussion and analysis should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto included herein.

In
addition to historical information, this discussion and analysis includes certain forward-looking statements regarding events and financial trends that may affect the Company's future
operating results and financial position. This notice is intended to take advantage of the "safe harbor" provided by the Private Securities Litigation Reform Act of 1995 with respect to such
forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding credit facilities, liquidity and financing, sales, long-lived asset
impairment, gross margin, workers' compensation costs, selling and administrative expenses, interest expense, income taxes, capital expenditures, capital resources, medical operations and
acquisitions. Readers are cautioned not to place undue reliance on these forward-looking statements, which are made based on information available as of the date hereof; actual results may differ
materially. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events, except as required by applicable laws and regulations.

The
forward-looking statements included herein are also subject to a number of other risks and uncertainties that could cause the Company's actual results and financial position to
differ materially from those anticipated in the forward-looking statements. Such risks and uncertainties appear inItem 1, "Factors Affecting Future Operating
Results."Due to those factors, it is possible that in some future

18

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period the Company's results of operations may be below the expectations of public market analysts and investors. In addition, the Company's results of operations have historically been subject to
quarterly and seasonal fluctuations.

Recent Developments

On May 17, 2002, the Company entered into agreements with GE Capital, as primary agent, to provide senior secured credit facilities totaling
$65.0 million, replacing the Company's credit facility that was to expire in March 2003. Proceeds from the new credit facilities were used to repay all outstanding principal and interest
under the Company's senior secured notes, which totaled $31.0 million. In addition, $17.3 million in letters of credit were issued under the new facility to replace $11.8 million
in outstanding letters of credit and $5.5 million of cash on deposit with the Company's insurance carrier.

At
November 2, 2002, the Company had $24.2 million of outstanding borrowings under these credit facilities and maintained the $17.3 million of letters of credit.
Subsequent to the fiscal year end, the Company completed a sale and leaseback of the buildings which house its administrative offices, which provided $6.9 million of cash. All of these proceeds
were used to repay outstanding borrowings. See "Liquidity and Capital Resources" for further information on these recent developments.

Discontinued Operations

During fiscal 1999, the Company sold certain of its franchise agent and Company-owned medical offices and entered into a termination agreement with one of its
medical licensees. During the fourth quarter of fiscal 1999 the Company completed the sale of the remaining medical business to Intrepid U.S.A. Inc. (Intrepid) under an asset purchase
agreement. Under the terms of the sale, the Company retained the trade and Medicare accounts receivable balances as well as the due from licensee balances. In fiscal 1999, the Company recorded
after-tax losses relating to discontinued operations of $6.6 million or $0.42 per share. During fiscal 2000, the Company recorded additional after-tax losses relating to
discontinued operations of $0.8 million or $0.05 per share, primarily resulting from lower than expected settlements of Medicare cost reports. During fiscal 2001, the Company recorded
additional after-tax losses relating to discontinued operations of $1.8 million or $0.11 per share, primarily due to an unfavorable arbitration award between the Company and
Intrepid. Currently, the Company believes it has adequate reserves for estimated liabilities related to the medical business, which primarily relate to pending legal or malpractice liability claims.
However, if actual resolution costs differ materially from those estimated by management, the Company would record additional losses (or gains) in future periods.

Critical Accounting Policies

The preparation of the Company's Consolidated Financial Statements and Notes thereto requires management to make estimates and assumptions affecting the amounts
and disclosures reported within the Financial Statements. These estimates are evaluated on an ongoing basis by management and generally affect revenue recognition, collectibility of accounts
receivable, workers' compensation costs, recoverability of intangible assets, income taxes and contingencies and litigation. Management's estimates and assumptions are based on historical experiences
and other factors believed to be reasonable under the circumstances. However, actual results under circumstances and conditions different than those assumed could result in differences from the
estimated amounts in the Financial Statements.

The
Company believes the following critical accounting policies are important to the understanding of its business operations and results from operations.

Revenue Recognition.The Company accounts for revenues and the related direct costs in accordance with Emerging Issues Task
Force No. 99-19, "Reporting Revenue Gross versus Net as an

19

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Agent." Revenues generated by franchise agents and related costs of services are included as part of the Company's consolidated sales of services and costs of services, respectively, since the
Company has the direct contractual relationships with the customers, holds title to the related customer receivables and is the legal employer of the temporary employees. Franchise agents' sales
represented 19.6%, 22.3% and 24.1% of the Company's sales of services for fiscal 2000, 2001 and 2002, respectively. The Company also has a licensing program in which the licensee has the direct
contractual relationships with the customers, holds title to the related customer receivables and is the legal employer of the temporary employees. Accordingly, sales and costs of services generated
by the license operation are not included in the Company's consolidated financial statements. Fees are paid to the Company based either on a percentage of sales or of gross profit generated by the
licensee and such license fees are recorded by the Company as license fees. As at November 2, 2002, only two licensees were in operation and the Company is not currently considering granting
any future licenses.

Collectibility of Accounts Receivable.The Company maintains an allowance for doubtful accounts on its accounts receivable
balances for estimated losses projected to result from customers' inability to make required payments. These allowances, which are $1.3 million at November 2, 2002 and November 3,
2001, are largely determined based on customers' financial conditions, the Company's historical experiences, interactions with customers and industry trends. If the financial condition of these
customers were to deteriorate to the point it would impair their ability to make the required payments, additional allowances may be required, which could materially adversely affect the financial
condition of the Company.

Workers' Compensation Costs.The Company self-insures the deductible amount related to workers' compensation
claims, which is $0.5 million per claim, and maintains reserves for these obligations. These
reserves amounted to $18.8 million and $18.9 million at November 2, 2002, and November 3, 2001, respectively. The Company accrues the estimated costs of these claims based
upon the expected loss rates incurred within the various temporary employment categories provided by the Company. Annually, the Company obtains an independent actuarially determined calculation of the
estimated costs of claims actually made to date, as well as claims incurred but not yet reported. The resulting calculation is partially based on the Company's historical loss development trends as
well as overall industry trends. This annual evaluation is updated twice during the subsequent fiscal year, at times resulting in revisions to recorded liabilities due to developments relating to
estimates and assumptions made in the annual evaluation. Whereas management believes the recorded liabilities are adequate, there are inherent limitations in the estimation process whereby future
actual loss rates may exceed projected loss rates, which could materially adversely affect the financial condition of the Company.

Recoverability of Intangible Assets.Management of the Company assesses the recoverability of its long-lived
assets, including goodwill and other intangible assets, by determining whether the amortization of the asset's carrying value over its remaining life can be recovered through projected undiscounted
future cash flows from the asset's operations. This analysis is performed at least annually, or when there is evidence that recent events have made a recovery of an asset's carrying value unlikely.
When such estimate of the future undiscounted cash flows is less than the carrying amount of the asset, an impairment exists and an impairment loss is recorded in the financial statements. The Company
recognized impairment losses of $0.1 million and $19.1 million in the fiscal years ended November 2, 2002, and November 3, 2001, respectively.

The
Company is required to adopt Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets" effective at the beginning of the fiscal year
2003. With the adoption of SFAS No. 142, individual goodwill and intangible assets that have indefinite useful lives will no longer be amortized but instead will be evaluated for impairment by
applying a fair-value-based test upon initial adoption of the Statement with impaired assets written down to fair value. Fair-value based

20

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tests will then be conducted at least annually thereafter. Intangible assets with finite useful lives will continue to be amortized over their useful lives. The Company is currently in the process of
completing the initial valuation required within the first six months of SFAS No. 142's adoption and is not currently able to estimate if adoption will have a material effect on its financial
position or results of operations. It is possible that an additional impairment charge could be recorded based on the results of the fair-value approach under the new standard.

Income Taxes.The Company records income taxes using 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 financial statements or tax returns. A valuation allowance is
established when management determines it is more likely than not that a deferred tax asset is not realizable in the foreseeable future on an entity by entity tax basis. At November 3, 2001,
substantially all of the Company's net deferred tax assets were offset with a valuation allowance which amounted to $19.2 million. The allowance was recorded against net operating loss
carryforwards on federal, state and foreign taxes because the Company assessed it was unlikely that these net operating losses would be realized in future years. A valuation allowance equivalent to
100% of the Company's deferred tax assets was maintained at November 2, 2002.

Contingencies and Litigation.In the ordinary course of its business, the Company is periodically threatened with or named as
a defendant in various lawsuits, claims and pending actions. The principal risks that the Company insures against are workers' compensation, general liability, automobile liability, property damage,
alternative staffing errors and omissions, fiduciary liability and fidelity losses. If a potential loss arising from these lawsuits, claims and actions is probable and reasonably estimable, the
Company records the estimated liability based on circumstances and assumptions existing at the time. Whereas management believes the recorded liabilities are adequate, there are inherent limitations
in the estimation process whereby future actual losses may exceed projected losses, which could materially adversely affect the financial condition of the Company.

21

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Results of Continuing Operations

The table below sets forth, for the three most recent fiscal years, certain results of continuing operations data as a percentage of sales of services and license
fees.

|                                                             |  | Fiscal Year |   
|------------------------------------------------------------ |  | ----------- | --
|
|Sales of services                                            |  | 99.9        | % 
|License fees                                                 |  | 0.1         | % 
|                                                             |  |             |   
|Total sales of services and license fees                     |  | 100.0       | % 
|Costs of services                                            |  | 81.5        | % 
|                                                             |  |             |   
|Gross profit                                                 |  | 18.5        | % 
|Franchise agents' share of gross profit                      |  | 3.0         | % 
|Selling and administrative expenses                          |  | 14.7        | % 
|Depreciation and amortization                                |  | 1.3         | % 
|Income from sales of affiliate operations                    |  | *           |   
|Impairment of intangible assets                              |  | *           |   
|Arbitration award                                            |  | (0.1        | )%
|Restructuring charges                                        |  | 0.4         | % 
|                                                             |  |             |   
|Operating income (loss) from continuing operations           |  | (0.7        | )%
|Interest expense                                             |  | 0.5         | % 
|Interest income                                              |  | (0.1        | )%
|                                                             |  |             |   
|Income (loss) from continuing operations before income taxes |  | (1.1        | )%
|Income tax provision (benefit)                               |  | (0.8        | )%
|                                                             |  |             |   
|Income (loss) from continuing operations                     |  | (0.3        | )%
|                                                             |  |             |   

---

Fiscal 2002 compared to Fiscal 2001

Sales of Services and License Fees.Total sales of services decreased $56.4 million, or 9.9% for fiscal 2002 as
compared to fiscal 2001. Average bill rates increased 5.4% in fiscal 2002, primarily due to minor inflationary effects in the geographical areas the Company operates, but billed hours declined 14.5%.
Fiscal 2002 contained fifty-two weeks while fiscal 2001 contained fifty-three; after eliminating the effect of this extra week, billed hours declined 12.8% as compared to fiscal 2001.
Sales of services declined 11.9% domestically, increased 0.3% in the United Kingdom and increased 2.3% in the Company's other international operations. The domestic decline in sales is largely
attributable to the United States' recent economic recession, which resulted in decreased demand for staffing services across the majority of the Company's domestic locations. Domestic pricing
pressures which commenced in the latter portion of fiscal 2001 continued throughout fiscal 2002, negatively affecting domestic sales of services. Through the first two periods of fiscal 2003, the
Company has noted an increase in billable hours and an increase in year-over-year domestic sales of services. However, no assurances can be made that such continued growth in
sales of services will be maintained throughout the remainder of fiscal 2003 and beyond.

Sales
of services in the United Kingdom increased primarily due to favorable exchange rates and an increase in average bill rates of 7.1%, which was largely offset by a decrease in
billable hours of 9.1%. Similarly, other international sales of services increased due to changes in exchange rates and an increase in average bill rates of 3.2%, offset by a decrease in billable
hours of 4.9%.

22

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License
fees are charged to licensed offices based either on a percentage of sales or a percentage of gross profit generated by the license offices. License fees decreased
$0.9 million or 71.1%, for fiscal 2002 as compared to fiscal 2001, primarily due to a decrease in the number of licensees. In the fourth quarter of fiscal 2001, one of the remaining licensees
converted to the Company's franchise agent program. Additionally, in the first quarter of fiscal 2002, the Company purchased the operations of one of its three remaining licensees. Prospectively, the
Company currently expects license fee revenue in fiscal 2003 to be lower than the amounts recognized in fiscal 2002, due to the decreased number of licensees and the fact the Company is not seeking to
enter into any new license arrangements.

Cost of Services.Costs of services include hourly wages of temporary employees, employer payroll taxes, state unemployment
and workers' compensation insurance and other employee-related costs. Costs of
services decreased $37.3 million, or 8.2%, in fiscal 2002 as compared to fiscal 2001. Gross margin declined from 20.1% in fiscal 2001 to 18.5% in fiscal 2002. The decrease in gross margin for
fiscal 2002 is primarily due to the overall effects of the recent domestic recession, which caused significant pricing pressures throughout fiscal 2002. Additionally, a decrease in direct placement
revenues of $1.1 million and a decrease in license fees of $0.9 million caused a $2.0 million decrease in gross profit. The Company strives to improve gross margin where feasible;
however, with the lag in the domestic recession recovery and continued competitive pressures on prices, the opportunities available to increase gross margin are limited. The Company currently
estimates that year over year decreases in gross margin will continue through at least the first quarter of fiscal 2003, and possibly beyond.

Workers'
compensation costs were $14.7 million, or 4.1% of direct labor for fiscal 2002 and $15.6 million, or 4.0% of direct labor fiscal 2001. Recent upward trends in the
Company's actuarially estimated ultimate costs for all open policy years have resulted in an increase in the Company's workers' compensation accruals for these estimated costs. These costs tend to
vary depending upon the mix of business between clerical/administrative staffing and light industrial staffing. The Company currently estimates that the accrual rates for workers' compensation costs
will be in the range of 4.4% to 4.8% of direct labor for fiscal 2003, as a result of increased workers' compensation costs across the industry. The Company reviews interim actuarial estimates and
monitors accrual rates to ensure that they remain appropriate in light of loss trends; however, there can be no assurance that the Company's programs to control workers' compensation costs will be
effective or that loss development trends will not require additional increases in workers' compensation accruals in future periods.

Franchise Agents' Share of Gross Profit.Franchise agents' share of gross profit represents the net distribution paid to
franchise agents based either on a percentage of sales or of gross profit generated by the franchise agents' operation. Franchise agents' share of gross profit decreased $1.7 million, or 10.0%,
for fiscal 2002 as compared to fiscal 2001. As a percentage of total sales of services and license fees, franchise agents' share of gross profit was 3.0% for both fiscal 2002 and 2001. All of the
Company's franchise operations are located within the United States and the gross profit generated from these operations experienced a similar decline as the overall decline in the Company's gross
profit during fiscal 2002. This decline in gross profit from franchise agents caused the franchise's agents share of gross profit to decline accordingly.

Selling and Administrative Expenses (Including Depreciation and Amortization).Selling and administrative expenses decreased
$13.9 million, or 14.5% for fiscal 2002 as compared to fiscal 2001. As a percent of sales of services and license fees, selling and administrative expenses, exclusive of depreciation and
amortization, decreased from 15.5% in fiscal 2001 to 14.7% fiscal 2002. These decreases are primarily due to cost savings realized from personnel reductions and office closures implemented early in
fiscal 2002. The Company continues to closely monitor its variable costs and evaluate the performance of field offices. If warranted, additional under-performing offices may be closed or consolidated
in future periods and additional cost saving measures may be implemented.

23

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However, there can be no assurance that the cost savings implemented from such actions, if enacted, would be sufficient to offset the declining margins.

Sales of Affiliate Operations.The income on sale of affiliate operations decreased $1.9 million, or 90.5% in fiscal
2002 as compared to fiscal 2001. During fiscal 2002, the Company sold its interest in one domestic operation to a franchisor. This operation had been previously developed and operated as a
Company-owned location. In fiscal 2001, the Company sold its interests in two larger affiliate operations to the respective licensors, generating much larger comparative income. Currently, no
dispositions of affiliate operations are contemplated. However, there can be no assurance that none will occur during fiscal 2003 and, if they do, that there will be income from such a disposition.

Arbitration Award.During fiscal 2001, the Company recorded an accrued liability and related pretax charge of
$3.6 million for the estimated cost of an unfavorable arbitration award, plus other related expenses. This estimate was based on management's assumptions as to the ultimate outcome of certain
future events surrounding the arbitration. During fiscal 2002, a favorable ruling reduced the arbitration award by $0.7 million. Currently, the Company does not anticipate future, material
gains or losses from the ultimate resolution of this arbitration.

Restructuring Charges.During the first quarter of fiscal 2002, the Company implemented a restructuring plan designed to
improve the Company's profitability. This restructuring plan resulted in a fiscal 2002 first quarter pre-tax charge of $1.9 million. The plan included costs associated with the
abandonment of certain management information systems which were under development of $1.0 million, severance and other termination costs of $0.6 million and lease termination costs of
$0.3 million, related to the Company's announced layoffs and office closures. Although the Company does continually monitor its financial performance and future cost savings measures may be
implemented, it is not currently considering a similar restructuring plan for fiscal 2003.

Interest.Interest expense decreased $0.2 million, or 7.4%, for fiscal 2002 as compared to fiscal 2001 primarily due
to lower debt levels. Interest income decreased $0.4 million or 49.4% during the same period as a result of reduced cash levels.

Provision (Benefit) for Income Taxes.The Company recorded an income tax benefit of $4.1 million on a
pre-tax loss of $5.5 million during fiscal 2002. This income tax benefit was primarily the result of the reversal of $2.4 million of the deferred tax valuation allowance. The
valuation allowance was reversed because of a change in the tax law that extended the net operating loss carryback period from to two to five years. This change allowed the Company to carry losses
back to earlier tax years resulting in additional tax refunds. Additionally, a tax benefit on the current year pre-tax loss was recognized due to the ability to carry this loss back, at
the federal statutory rate of 35%, resulting in a tax benefit of $1.9 million. Partially offsetting these two benefits were certain state and international income tax provisions amounting to
$0.2 million. At November 2, 2002, the Company has maintained valuation allowances equivalent to 100% of its outstanding net deferred tax assets, which amount to $18.1 million.
Whereas it is possible that these deferred tax assets may be realized in the future, there is currently insufficient evidence to support reversing all or a portion of the valuation allowance.

Fiscal 2001 compared to Fiscal 2000

Sales of Services and License Fees.Sales of services decreased $94.8 million, or 14.2%, for fiscal 2001 as compared
to fiscal 2000. While average bill rates increased 4.2% in fiscal 2001 as compared to fiscal 2000, billed hours declined 17.7%. Fiscal 2001 included fifty-three weeks while fiscal 2000 included
fifty-two weeks. After eliminating the effect of the extra week in fiscal 2001, billed hours declined 19.2%. Sales of services decreased 14.6% for domestic business services and 12.0% for
international business services. The decline in domestic business services reflected the economic slowdown during the year and the resulting recession, which decreased demand for staffing services

24

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across the majority of the Company's geographic regions. In the latter portion of fiscal 2001, the economic environment placed strong competitive pressures on pricing which negatively affected sales
of services. Global economic conditions and declines in foreign currency exchange rates negatively impacted the international results. Excluding the effect of rate fluctuations, fiscal 2001
international sales of services decreased 1.8% as compared to fiscal 2000.

License
fees are charged to licensed offices based either on a percentage of sales or a percentage of gross profit generated by the license offices. License fees decreased
$1.8 million or 57.7%, for fiscal 2001 as compared to fiscal 2000, primarily due to a decrease in licensees. During the fourth quarter of fiscal 2000, the Company purchased the operations of
one of its licensees, two licensees converted to the Company's franchise agent program, and two licensees closed operations. In the second quarter of fiscal 2001, two licensees purchased the Company's
interest in their licensed operations.

Cost of Services.Costs of services include hourly wages of temporary employees, employer payroll taxes, state unemployment
and workers' compensation insurance and other employee-related costs. Costs of services decreased $75.5 million, or 14.2%, for fiscal 2001 as compared to fiscal 2000. Gross margin declined from
20.4% in fiscal 2000 to 20.1% in fiscal 2001; however, during the fourth quarter of fiscal 2000, the Company recorded an additional charge for workers' compensation costs of $2.1 million. The
effective decrease in gross margin for fiscal 2001 is primarily due to lower license fees and the overall effects of the domestic recession.

Franchise Agents' Share of Gross Profit.Franchise agents' share of gross profit represents the net distribution paid to
franchise agents based either on a percentage of sales or of gross profit generated by the franchise agents' operation. Franchise agents' share of gross profit decreased $0.8 million, or 4.4%,
for fiscal 2001 as compared to fiscal 2000. As a percentage of sales of services and license fees, franchise agents' share of gross profit increased from 2.7% during fiscal 2000 to 3.0% for fiscal
2001, reflecting a change in the relative mix of sales of services from Company-owned, franchise agent and international business services.

Selling and Administrative Expenses (Including Depreciation and Amortization).Selling and administrative expenses decreased
$7.5 million, or 7.2%, for fiscal 2001 as compared to fiscal 2000. As a percentage of sales of services and license fees, selling and administrative expenses increased from 15.5% for fiscal
2000 to 16.8% for fiscal 2001. Fiscal 2000 includes $1.9 million in pre-tax charges as a result of the Company's terminated recapitalization. The fiscal 2001 increase is primarily
the result of declining sales outpacing the extent of reductions in selling and administrative expenditures.

Sales of Affiliate Operations.The Company recognized $2.1 million of income on the sale of two licensed operations
during fiscal 2001. No similar sales occurred during fiscal 2000.

Loss on Impairment of Intangible Assets.Management assessed the recoverability of its long-lived assets,
including goodwill and other intangible assets, by determining whether the amortization of the asset's carrying value over its remaining life could be recovered through projected undiscounted future
cash flows from operations. During fiscal 2001, a number of businesses the Company acquired over the past several years were negatively impacted by the economic recession. Based on management's
assessment of projected undiscounted future cash flows and estimates of market value based on industry specific multiples, it was determined that the carrying amount of goodwill and other intangibles
related to specific acquisitions had been permanently impaired in the fourth quarter of fiscal 2001. As a result, the Company recorded a pre-tax charge of $19.1 million to write
down these assets to estimated current net realizable values. No similar impairment existed during fiscal 2000.

Arbitration Award.During fiscal 2001, the Company recorded an accrued liability and related pretax charge of
$3.6 million for the estimated cost of an unfavorable arbitration award, plus other

25

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related expenses. This estimate was based on management's assumptions as to the ultimate outcome of certain future events surrounding the arbitration.

Interest.Interest expense decreased $0.6 million, or 20.1%, for fiscal 2001 as compared to fiscal 2000 due to lower
debt levels under the Company's senior secured credit facilities. Interest income increased $0.4 million or 129.7% during the same period as a result of the short-term investment of
excess cash from operations.

Provision for Income Taxes.For fiscal 2001, the Company had an income tax provision from continuing operations of
approximately $11.7 million on a pre-tax loss of $20.4 million. The income tax provision was primarily caused by recognition of $19.2 million of deferred tax asset
valuation allowances. These allowances were recorded against the tax assets arising from future deduction of federal, state and foreign taxable income because the Company reassessed the potential for
their realization in future years and concluded it was unlikely they would be realized. The Company retained net deferred tax assets of $0.6 million from the net operating loss for fiscal 2001
because it could realize those by carrying them back to taxes paid in fiscal 1999. Additionally, the Company retained a deferred tax asset of $0.8 million for fiscal 2000 taxable income,
because it believed it would realize this as a result of future results of operations.

Absent
the valuation allowances recognized, the Company had an income tax benefit of $7.6 million, which represents an effective tax benefit rate of 37.2%. This income tax benefit
is primarily generated by the charge for the loss on intangible asset impairment and arbitration award noted above and partially reduced due to permanent differences. The effective income tax rate for
fiscal 2000 was 39.5%.

Liquidity and Capital Resources

Historically, the Company has financed its operations through cash generated by operating activities and through various forms of debt and equity financing. The
Company's principal use of cash is for financing of accounts receivable, particularly during periods of economic upswings and growth and during periods where sales are seasonally high throughout the
year. Temporary personnel are generally paid on a weekly basis while payments from customers are generally received 30 to 60 days after billing. As a result of seasonal fluctuations, accounts
receivable balances are historically higher in the fourth fiscal quarter and are generally at their lowest during the first fiscal quarter. Accordingly, short-term borrowings used to
finance accounts receivable generally follow a similar seasonal pattern.

Net
cash provided by operating activities was $4.5 million, $25.6 million and $16.7 million for fiscal 2002, fiscal 2001 and fiscal 2000, respectively. During fiscal
2002, the Company generated cash from operations in spite of a net loss primarily because a number of expenses were non-cash charges, including depreciation, amortization and the
provisions for doubtful accounts. Cash generated from operations decreased $21.1 million as compared fiscal 2001 primarily because fiscal 2001 included an overall decrease in accounts
receivable of $21.6 million. During fiscal 2001, collection of outstanding receivables outpaced the growth of receivables generated by declining sales levels, which is largely attributable to
the domestic recession.

Cash
used for capital expenditures, which are primarily for management information systems initiatives, other software, computers and peripherals, and office furniture and equipment,
totaled $2.1 million, $4.6 million and $4.4 million for fiscal 2002, fiscal 2001 and fiscal 2000, respectively. The decrease in fiscal 2002 is primarily due to the Company's
cessation of further development on an integrated front-to-back office system, which occurred in the first quarter. Currently, the Company anticipates that fiscal 2003 cash
outflows for management information systems and other capital expenditures will be above fiscal 2002 levels, with the bulk of the expenditures related to improvements on its existing management
information systems.

26

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In
the second quarter of fiscal 2001, two licensees purchased the Company's interest in their licensed operations. Of the $2.1 million pre-tax income from the sale of
these operations, the Company received $1.2 million and $0.7 million in cash proceeds during fiscal 2002 and fiscal 2001, respectively.

The
Company used $4.8 million of cash for financing activities during fiscal 2002. On May 17, 2002, the Company entered into agreements with GE Capital, as primary agent,
to provide senior secured credit facilities totaling $65.0 million. The new credit facilities replace a credit facility that was to expire on March 31, 2003. The facilities comprise a
five-year syndicated Multicurrency Credit Agreement consisting of a $50.0 million US Revolving Loan Commitment, a £2.7 million UK Revolving Loan Commitment (US
dollar equivalent of approximately $4.0 million at the date of the agreement), and a $5.0 million term loan (the Term Loan). In addition, a five-year Australian dollar
facility agreement (the A$ Facility Agreement) was executed on May 16, 2002, consisting of an A$12.0 million revolving credit facility (US dollar equivalent of approximately
$6.0 million at the date of the agreement). Each agreement includes a letter of credit sub-facility. Concurrent with the execution of these new credit facilities, the Company repaid
all outstanding principal and interest under its 10-year senior secured notes, which totaled $31.0 million. In addition, $17.3 million in letters of credit were issued under
the new facility to replace $11.8 million in outstanding letters of credit and $5.5 million of cash on deposit with the Company's workers' compensation insurance carrier.

The
US Revolving Loan Commitment provides for an aggregate $50.0 million commitment subject to a borrowing base calculation on eligible domestic accounts receivable. Direct
advances are also limited by outstanding irrevocable standby letters of credit up to a maximum of $35.0 million. The Term Loan is payable in nineteen consecutive quarterly installments of
$0.25 million each, beginning July 1, 2002, with voluntary prepayment without penalty. The UK Revolving Loan Commitment is subject to a borrowing base calculation on eligible Westaff
(U.K.) accounts receivable. The A$ Facility Agreement is subject to a borrowing base calculation on eligible Westaff (Australia) accounts receivable. Direct advances are limited by outstanding letters
of credit up to a maximum of A$0.5 million. Overall, the Multicurrency Credit Agreement calls for a commitment fee, payable monthly in arrears, of 0.50% based on the average daily unused
balance of the combined US/UK revolving loan commitment. Additionally, a variable margin ranging from 1.5% to 2.5% of the total outstanding letters of credit is payable monthly in arrears and the
agreement requires an annual fee of 0.50% of the face amount of each letter of credit which is issued, renewed or extended.

The
credit facilities are secured by substantially all of the assets of the Company, including a deed of trust on the Company's corporate headquarters. GE Capital, in its role as primary
agent under the credit facilities, has sole dominion and control over the Company's primary US, UK and Australia cash receipt accounts. Cash receipts into these accounts are applied against the
Company's respective outstanding obligations under the facilities, with additional borrowings under the revolving facilities directed into the Company's disbursement accounts. Additionally, the credit
facilities contain covenants which, among other things, require the Company to maintain a minimum fixed charge coverage ratio and a minimum earnings before interest, taxes, depreciation and
amortization (EBITDA). The covenants also generally restrict, limit or, in certain circumstances prohibit the Company with respect to payment of dividends, capital expenditures, disposition of assets,
incurrence of debt, mergers and acquisitions, loans to affiliates and purchases of investments. On October 31, 2002, the First Amendment to the Multicurrency Credit Agreement was executed,
which revised the minimum EBITDA covenants, among other things.

In
addition to the credit facilities, the Company executed two unsecured promissory notes to related parties during fiscal 2002. A $2.0 million note was issued to the Company's
principal stockholder and Chairman of the Board of Directors, with a maturity date of August 18, 2007, and bearing interest at
the US Index Rate calculated under the credit facilities, plus seven percent. Payment of interest is contingent on the Company meeting minimum availability requirements under the credit facilities.
Additionally, a $1.0 million note was issued to the Company's President and Chief Executive

27

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Officer, with a maturity date of August 18, 2007. Payment of interest is contingent on the Company meeting minimum availability requirements under the credit facilities. Payment of principal
prior to maturity is required upon the sale of the Company's administrative offices.

The
Company also has an outstanding financial guarantee bond in the amount of $11.8 million that secures a portion of its workers' compensation premium and deductible obligations.
The bond was renewed for one additional year on November 1, 2002, and a 90-day advance written notice of non-renewal is required. The Company is required to fund the
entire estimated costs of policy year 2003 by November 1, 2003. Of this, $3.0 million was paid during fiscal 2002 with the remaining $13.0 million scheduled for payment during
fiscal 2003. Due to this change in premium funding, the Company does not currently anticipate renewal of the bond at its expiration.

During
fiscal 2002, the Company executed net borrowings of $24.6 million under the credit facilities, with $5.0 million of these borrowings having been made under the Term
Loan. At November 2, 2002, the Company had approximately $11.9 million available under the credit facilities, with $17.3 million in letters of credit outstanding. Additionally,
$3.0 million was provided upon the execution of the two related-party unsecured promissory notes. On December 12, 2002, the Company completed a sale leaseback of its administrative
offices, which generated $6.9 million in cash. Accordingly, the prepayment option on the Term Loan was exercised and the outstanding balance was paid in its entirety. Further, the unsecured
$1 million promissory note held by the Company's President and Chief Executive Officer was also paid in its entirety. The remainder was utilized to pay down outstanding borrowings under the US
Revolving Loan Commitment.

During
fiscal 2000, the Company's Board of Directors declared a special cash dividend of $0.30 per share or a total of $4.7 million that was paid in July 2000. The Company
currently does not anticipate declaring or paying any cash dividends on its common stock in the foreseeable future.

The
Company believes that cash reserves, cash generated from operations and the Company's current borrowing capacity will be sufficient to meet anticipated needs for working capital and
capital expenditures at least through the next twelve months.

The
following summarizes the Company's contractual cash obligations in future fiscal years (in millions):

|                                       |  | Payment Due by Period
|-------------------------------------- |  | ---------------------
|
|Credit facilities                      |  | $                    
|Promissory notes                       |  |                      
|Operating leases                       |  |                      
|Workers' compensation policy year 2003 |  |                      
|Capital lease                          |  |                      
|                                       |  |                      
|Total Contractual Cash Obligations     |  | $                    
|                                       |  |                      

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28

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company's exposure to market risk for changes in interest rates is not significant with respect to interest income, as its investment portfolio is not
material to its consolidated balance sheet. Further, the Company currently has no plans to include derivative financial instruments in its investment portfolio. The Company implemented new credit
facilities and two unsecured promissory notes during fiscal 2002, which are described in Item 7,"Liquidity and Capital Resources."The Company's
outstanding liabilities under these debt instruments is $27.2 million at November 2, 2002. Interest rates on borrowings under these facilities are based on varying items dependent on the
specific debt instrument, which include the Federal Funds Rate, the bank's prime rate, LIBOR, the British prime rate and the Australian 90-day Bank Bill Swap Rate and are variable
contingent on changes in these. Based on the outstanding debt at November 2, 2002, a change of 1% in the interest rate would cause a change in interest expense of approximately
$0.3 million on an annual basis.

For
the fiscal year ended November 2, 2002, the Company's international operations comprised 16.9% of its sales of services and, as of the end of that period, 17.7% of its total
assets. The Company is exposed to foreign currency risk primarily due to its investments in foreign subsidiaries. The Company's new multicurrency credit facility, which allows the Company's Australia
and UK subsidiaries to borrow in local currencies, partially mitigates the exchange rate risk resulting from foreign currency denominated net investments in these subsidiaries fluctuating in relation
to the US dollar. The Company does not currently hold any market risk sensitive instruments entered into for hedging transaction risks related to foreign currencies.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Financial Statements and Supplementary Data of the Company required by this Item are set forth at the pages indicated at Item 15(a).

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

Not applicable. For the Company's fiscal years ended November 3, 2001, and November 2, 2002, there were no disagreements with its accountants on
accounting and financial disclosure.

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information included in the Company's Proxy Statement under the caption "Business Experience of Directors" is incorporated herein by reference. Information
required by this item as to the executive officers of the Company is included as Item 4A of Part I of this Annual Report on Form 10-K as permitted by Instruction 3 to Item
401(b) of Regulation S-K.

Section 16(a)
of the Securities Exchange Act of 1934 (the Exchange Act) requires the Company's directors and certain of its officers and persons who own more than 10% of a
registered class of the Company's equity securities to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission. Such persons are further
required to furnish the Company with copies of all such forms they file. Based solely on the Company's review of the copies of such forms it has received, the Company believes all Section 16(a)
filing requirements were satisfied by the Company's directors and executive officers for the fiscal year ended November 2, 2002.

ITEM 11.    EXECUTIVE COMPENSATION.

The information included in the Company's Proxy Statement under the captions "Directors' Compensation", "Executive Compensation Report" and "Executive
Compensation" is incorporated herein by reference.

29

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ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The
information included in the Company's Proxy Statement under the captions "Ownership of Securities" and "Executive Compensation" is incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

See Note 7 of "Notes to Consolidated Financial Statements" under Item 15 of this Form 10-K. In addition, the information included in the
Company's Proxy Statement under the caption "Certain Relationships and Related Transactions" is incorporated herein by reference.

ITEM 14.    CONTROLS AND PROCEDURES.

Within the 90 days prior to the filing of this report, the Company carried out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures.
Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material
information required to be included in this report. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. There have been no significant changes in the
Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of the most recent evaluation.

30

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PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.



Independent Auditors' Report

F-1Report of Independent Public Accountants

F-2Consolidated Balance SheetsAs of the Fiscal Year Ended November 2, 2002 and the Fiscal Year Ended November 3, 2001

F-3Consolidated Statements of OperationsFor the Three-Year Period Ended November 2, 2002

F-4Consolidated Statements of Stockholders' EquityFor the Three-Year Period Ended November 2, 2002

F-5Consolidated Statements of Cash FlowsFor the Three-Year Period Ended November 2, 2002

F-6Notes to Consolidated Financial Statements

F-7






|Exhibit
Number |  | Description                                                                                                                    
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------
|3.1.2          |  | Fourth Amended and Restated Certificate of Incorporation. (7)                                                                  
|3.2.4          |  | Amended and Restated Bylaws, effective May 22, 2002. (7)                                                                       
|4.1.1          |  | Form of Specimen Certificate for the Company's Common Stock. (2)                                                               
|10.1           |  | Form of Indemnification Agreement between the Company and the Officers and Key Employees of the Company. (1)                   
|10.2           |  | Form of Indemnification Agreement between the Company and the Directors of the Company. (1)                                    
|10.3.4         |  | Employment Agreement with W. Robert Stover. (2)                                                                                
|10.3.5         |  | Employment Contract between the Company and Dirk A. Sodestrom. (3)                                                             
|10.3.8         |  | Employment Agreement between the Company and Dwight S. Pedersen. (5)                                                           
|10.3.8.1       |  | Notice of Grant to Dwight S. Pedersen of Stock Option (Incentive) with Exhibit A, Stock Option Agreement. (5)                  
|10.3.8.2       |  | Notice of Grant to Dwight S. Pedersen of Stock Option (Non-Statutory) with Exhibit A, Stock Option Agreement. (5)              
|10.7           |  | Westaff, Inc. 1996 Stock Option/Stock Issuance Plan, as amended and restated. (4)                                              
|10.8.20        |  | Credit Agreement dated as of May 17, 2002. (6)                                                                                 
|10.8.20.1      |  | First Amendment to Multicurrency Credit Agreement, Limited Waivers and Consent of Guarantors                                   
|10.8.21        |  | Deed of Trust, Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing effective as of May 17, 2002. (6)
|10.8.22        |  | Pledge Agreement dated as of May 17, 2002. (6)                                                                                 
|10.8.23        |  | Security Agreement dated as of May 17, 2002. (6)                                                                               

31

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Current
Report on Form 8-K was filed with the Securities and Exchange Commission on September 3, 2002.

32

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INDEPENDENT AUDITORS' REPORT

To
the Board of Directors and Stockholders of Westaff, Inc.

We
have audited the accompanying consolidated balance sheet of Westaff, Inc. and subsidiaries (the Company) as of November 2, 2002, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the year then ended. 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 audit. The consolidated financial statements of Westaff, Inc. and subsidiaries as of November 3, 2001 and for each of the years in the
two-year period then ended were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated
December 19, 2001 (February 11, 2002 with respect to a subsequent event), which report included an explanatory paragraph regarding the Company's ability to continue as a going concern.

We
conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Westaff, Inc. and subsidiaries as of November 2,
2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

DELOITTE &
TOUCHE LLP

Oakland,
California
January 10, 2003

F-1

---

This is a copy of a report previously issued by Arthur Andersen LLP. The report has not been reissued by Arthur Andersen LLP nor has Arthur Andersen LLP provided
a consent to the inclusion of its report in this Form 10-K.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
the Board of Directors and Stockholders of Westaff, Inc.:

We
have audited the accompanying balance sheets of Westaff, Inc. (a Delaware Corporation) and its subsidiaries as of November 3, 2001 and October 28, 2000, and the
related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended November 3, 2001. These financial statements and the schedules
referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We
conducted our audits in accordance with accounting standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Westaff, Inc. and its subsidiaries as of
November 3, 2001 and October 28, 2000, and the results of its operations and its cash flows for each of the three years in the period ended November 3, 2001 in conformity with
accounting principles generally accepted in the United States.

The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the
Company was out of compliance with its debt covenants as of November 3, 2001 and was unable to finalize amended agreements or obtain waivers for the defaults. Also, as discussed in
Note 1, the Company has been notified by the issuer of its financial guarantee bond securing a portion of its workers' compensation obligations that the bond will not be renewed. These matters
raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

Our
audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II "Valuation and Qualifying Accounts and Reserves" is
presented for purposes of additional analysis and is not a required part of the basic financial statements. This information has been subjected to the auditing procedures applied in our audits of the
basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

ARTHUR
ANDERSEN LLP

San
Francisco, California
December 19, 2001 (except with respect to the matter discussed
in Note 1 and Note 15, as to which the date is February 11, 2002)

F-2

---



Westaff, Inc.        Consolidated Balance Sheets        (Amounts in thousands except per share amounts)

|                                                                                             |                                                                                                                                                                                                                 | November 2,
2002           |         | November 3,
2001 |       
|-------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ---------------- | ------
|ASSETS                                                                                       |                                                                                                                                                                                                                 |                            |         |                  |       
|Current assets:                                                                              |                                                                                                                                                                                                                 |                            |         |                  |       
|                                                                                             | Cash and cash equivalents                                                                                                                                                                                       |                            | $       | 5,484            |       
|                                                                                             | Trade accounts receivable, less allowance for doubtful accounts of $1,316 and $1,260                                                                                                                            |                            |         | 70,861           |       
|                                                                                             | Due from licensees                                                                                                                                                                                              |                            |         | 814              |       
|                                                                                             | Income taxes receivable                                                                                                                                                                                         |                            |         | 5,227            |       
|                                                                                             | Deferred income taxes                                                                                                                                                                                           |                            |         |                  |       
|                                                                                             | Prepaid expenses                                                                                                                                                                                                |                            |         | 5,373            |       
|                                                                                             | Other current assets                                                                                                                                                                                            |                            |         | 3,686            |       
|                                                                                             |                                                                                                                                                                                                                 |                            |         |                  |       
|                                                                                             |                                                                                                                                                                                                                 | Total current assets       |         |                  | 91,445
|Property, plant and equipment, net                                                           |                                                                                                                                                                                                                 |                            | 15,778  |                  |       
|Goodwill, net of accumulated amortization of $8,093 and $7,344                               |                                                                                                                                                                                                                 |                            | 12,034  |                  |       
|Other long-term assets                                                                       |                                                                                                                                                                                                                 |                            | 2,698   |                  |       
|                                                                                             |                                                                                                                                                                                                                 |                            |         |                  |       
|                                                                                             |                                                                                                                                                                                                                 | $                          | 121,955 |                  | $     
|                                                                                             |                                                                                                                                                                                                                 |                            |         |                  |       
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                         |                                                                                                                                                                                                                 |                            |         |                  |       
|Current liabilities:                                                                         |                                                                                                                                                                                                                 |                            |         |                  |       
|                                                                                             | Short-term borrowings                                                                                                                                                                                           |                            | $       | 9,667            |       
|                                                                                             | Current portion of loans payable                                                                                                                                                                                |                            |         | 4,500            |       
|                                                                                             | Note payable to related party                                                                                                                                                                                   |                            |         | 1,000            |       
|                                                                                             | Accounts payable                                                                                                                                                                                                |                            |         | 2,657            |       
|                                                                                             | Accrued expenses                                                                                                                                                                                                |                            |         | 38,165           |       
|                                                                                             | Net liabilities of discontinued operations                                                                                                                                                                      |                            |         | 605              |       
|                                                                                             | Income taxes payable                                                                                                                                                                                            |                            |         | 779              |       
|                                                                                             |                                                                                                                                                                                                                 |                            |         |                  |       
|                                                                                             |                                                                                                                                                                                                                 | Total current liabilities  |         |                  | 57,373
|Long-term debt                                                                               |                                                                                                                                                                                                                 |                            | 10,000  |                  |       
|Note payable to related party                                                                |                                                                                                                                                                                                                 |                            | 2,000   |                  |       
|Other long-term liabilities                                                                  |                                                                                                                                                                                                                 |                            | 13,632  |                  |       
|                                                                                             |                                                                                                                                                                                                                 |                            |         |                  |       
|                                                                                             |                                                                                                                                                                                                                 | Total liabilities          |         |                  | 83,005
|                                                                                             |                                                                                                                                                                                                                 |                            |         |                  |       
|Commitments and contingencies (Notes 2, 14, 16 and 17)                                       |                                                                                                                                                                                                                 |                            |         |                  |       
|Stockholders' equity:                                                                        |                                                                                                                                                                                                                 |                            |         |                  |       
|                                                                                             | Preferred stock, $.01 par value; authorized and unissued: 1,000 shares Common stock, $.01 par value; authorized: 25,000 shares; issued: 15,972 shares at November 2, 2002 and 15,948 shares at November 3,
2001 |                            |         | 160              |       
|                                                                                             | Additional paid-in capital                                                                                                                                                                                      |                            |         | 36,627           |       
|                                                                                             | Retained earnings                                                                                                                                                                                               |                            |         | 4,680            |       
|                                                                                             | Accumulated other comprehensive loss                                                                                                                                                                            |                            |         | (2,517           | )     
|                                                                                             |                                                                                                                                                                                                                 |                            |         |                  |       
|                                                                                             |                                                                                                                                                                                                                 |                            | 38,950  |                  |       
|Less treasury stock at cost, no shares at November 2, 2002 and 34 shares at November 3, 2001 |                                                                                                                                                                                                                 |                            |         |                  |       
|                                                                                             |                                                                                                                                                                                                                 |                            |         |                  |       
|                                                                                             |                                                                                                                                                                                                                 | Total stockholders' equity |         |                  | 38,950
|                                                                                             |                                                                                                                                                                                                                 |                            |         |                  |       
|                                                                                             |                                                                                                                                                                                                                 | $                          | 121,955 |                  | $     
|                                                                                             |                                                                                                                                                                                                                 |                            |         |                  |       

See
accompanying notes to consolidated financial statements

F-3

---

Westaff, Inc.        Consolidated Statements of Operations        (Amounts in thousands except per share amounts)

|                                                                 |                          | Fiscal year ended |        
|---------------------------------------------------------------- | ------------------------ | ----------------- | -------
|
|Sales of services                                                |                          | $                 | 514,876
|License fees                                                     |                          |                   | 377    
|                                                                 |                          |                   |        
|Total sales of services and license fees                         |                          |                   | 515,253
|Costs of services                                                |                          |                   | 419,932
|                                                                 |                          |                   |        
|Gross profit                                                     |                          |                   | 95,321 
|Franchise agents' share of gross profit                          |                          |                   | 15,409 
|Selling and administrative expenses                              |                          |                   | 75,734 
|Depreciation and amortization                                    |                          |                   | 6,601  
|Income from sales of affiliate operations                        |                          |                   | (197   
|Impairment of intangible assets                                  |                          |                   | 116    
|Arbitration award (Note 16)                                      |                          |                   | (693   
|Restructuring charges (Note 4)                                   |                          |                   | 1,896  
|                                                                 |                          |                   |        
|Operating income (loss)                                          |                          |                   | (3,545 
|Interest expense                                                 |                          |                   | 2,343  
|Interest income                                                  |                          |                   | (387   
|                                                                 |                          |                   |        
|Income (loss) before income taxes                                |                          |                   | (5,501 
|Income tax provision (benefit)                                   |                          |                   | (4,070 
|                                                                 |                          |                   |        
|Income (loss) from continuing operations                         |                          |                   | (1,431 
|Loss on disposal of discontinued operations, net of income taxes |                          |                   |        
|                                                                 |                          |                   |        
|Net income (loss)                                                |                          | $                 | (1,431 
|                                                                 |                          |                   |        
|Basic and diluted earnings (loss) per share:                     |                          |                   |        
|                                                                 | Continuing operations:   |                   | $      
|                                                                 |                          |                   |        
|                                                                 | Discontinued operations: |                   |        
|                                                                 |                          |                   |        
|                                                                 | Net income (loss):       |                   | $      
|                                                                 |                          |                   |        
|Weighted average shares outstandingbasic                        |                          |                   | 15,945 
|                                                                 |                          |                   |        
|Weighted average shares outstandingdiluted                      |                          |                   | 15,945 
|                                                                 |                          |                   |        

See
accompanying notes to consolidated financial statements.

F-4

---



Westaff, Inc.        Consolidated Statements of Stockholders' Equity        (Amounts in thousands)

|                            |                                                    | Common stock                     |    |   |     |   |   | Accumulated
other
comprehensive
loss |      | Treasury stock |        |        |        
|--------------------------- | -------------------------------------------------- | -------------------------------- | -- | - | --- | - | - | ------------------------------------ | ---- | -------------- | ------ | ------ | -------
|
|
|Balance at October 30, 1999 |                                                    | 15,948                           |    | $ | 159 |   | $ | 37,382                               |      | $              | 38,795 |        | $      
|                            | Comprehensive income:                              |                                  |    |   |     |   |   |                                      |      |                |        |        |        
|                            |                                                    | Net income                       |    |   |     |   |   |                                      |      |                |        |        | 6,451  
|                            |                                                    | Currency translation adjustments |    |   |     |   |   |                                      |      |                |        |        |        
|                            | Total comprehensive income                         |                                  |    |   |     |   |   |                                      |      |                |        |        |        
|                            | Cash dividends                                     |                                  |    |   |     |   |   |                                      |      |                |        | (4,732 | )      
|                            | Payment for stock acquisition contingency          |                                  |    |   |     |   |   |                                      | (800 | )              |        |        |        
|                            | Purchase of treasury stock                         |                                  |    |   |     |   |   |                                      |      |                |        |        |        
|                            | Stock issued under employees' stock purchase plans |                                  |    |   |     |   |   |                                      |      |                |        | (171   | )      
|                            |                                                    |                                  |    |   |     |   |   |                                      |      |                |        |        |        
|Balance at October 28, 2000 |                                                    | 15,948                           |    |   | 159 |   |   | 36,582                               |      |                | 40,343 |        |        
|                            | Comprehensive loss:                                |                                  |    |   |     |   |   |                                      |      |                |        |        |        
|                            |                                                    | Net loss                         |    |   |     |   |   |                                      |      |                |        |        | (33,895
|                            |                                                    | Currency translation adjustments |    |   |     |   |   |                                      |      |                |        |        |        
|                            | Total comprehensive loss                           |                                  |    |   |     |   |   |                                      |      |                |        |        |        
|                            | Stock issued under employees' stock purchase plans |                                  |    |   |     |   |   |                                      |      |                |        | (239   | )      
|                            |                                                    |                                  |    |   |     |   |   |                                      |      |                |        |        |        
|Balance at November 3, 2001 |                                                    | 15,948                           |    |   | 159 |   |   | 36,582                               |      |                | 6,209  |        |        
|                            | Comprehensive loss:                                |                                  |    |   |     |   |   |                                      |      |                |        |        |        
|                            |                                                    | Net loss                         |    |   |     |   |   |                                      |      |                |        |        | (1,431 
|                            |                                                    | Currency translation adjustments |    |   |     |   |   |                                      |      |                |        |        |        
|                            | Total comprehensive loss                           |                                  |    |   |     |   |   |                                      |      |                |        |        |        
|                            | Purchase of treasury stock                         |                                  |    |   |     |   |   |                                      |      |                |        |        |        
|                            | Stock issued under employees' stock purchase plans |                                  | 24 |   |     | 1 |   |                                      | 45   |                |        | (98    | )      
|                            |                                                    |                                  |    |   |     |   |   |                                      |      |                |        |        |        
|Balance at November 2, 2002 |                                                    | 15,972                           |    | $ | 160 |   | $ | 36,627                               |      | $              | 4,680  |        | $      
|                            |                                                    |                                  |    |   |     |   |   |                                      |      |                |        |        |        

See accompanying notes to consolidated financial statements.

F-5

---

Westaff, Inc.        Consolidated Statements of Cash Flows        (Amounts in thousands)

|                                                                     |                                                                                   | Fiscal year ended                         |                                      
|-------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------- | -------------------------------------
|
|Cash flows from operating activities                                 |                                                                                   |                                           |                                      
|                                                                     | Net income (loss)                                                                 |                                           | $                                    
|                                                                     | Adjustments to reconcile net income (loss) to net cash from operating activities: |                                           |                                      
|                                                                     |                                                                                   | Loss from discontinued operations         |                                      
|                                                                     |                                                                                   | Depreciation and amortization             |                                      
|                                                                     |                                                                                   | Loss on impairment of intangible assets   |                                      
|                                                                     |                                                                                   | Arbitration award, net of payments        |                                      
|                                                                     |                                                                                   | Restructuring charges, net of payments    |                                      
|                                                                     |                                                                                   | Provision for losses on doubtful accounts |                                      
|                                                                     |                                                                                   | Deferred income taxes                     |                                      
|                                                                     |                                                                                   | Income from sales of affiliate operations |                                      
|                                                                     |                                                                                   | Loss (gain) on disposal of assets         |                                      
|                                                                     |                                                                                   | Changes in assets and liabilities:        |                                      
|                                                                     |                                                                                   |                                           | Trade accounts receivable            
|                                                                     |                                                                                   |                                           | Due from licensees                   
|                                                                     |                                                                                   |                                           | Other assets                         
|                                                                     |                                                                                   |                                           | Accounts payable and accrued expenses
|                                                                     |                                                                                   |                                           | Income taxes payable                 
|                                                                     |                                                                                   |                                           | Other long-term liabilities          
|                                                                     |                                                                                   |                                           |                                      
|Net cash provided by continuing operations                           |                                                                                   |                                           | 4,105                                
|Net cash provided by discontinued operations                         |                                                                                   |                                           | 413                                  
|                                                                     |                                                                                   |                                           |                                      
|Net cash provided by operating activities                            |                                                                                   |                                           | 4,518                                
|                                                                     |                                                                                   |                                           |                                      
|Cash flows from investing activities                                 |                                                                                   |                                           |                                      
|                                                                     | Capital expenditures                                                              |                                           |                                      
|                                                                     | Net (increase) decrease in notes receivable                                       |                                           |                                      
|                                                                     | Payments for intangibles                                                          |                                           |                                      
|                                                                     | Investing activities of discontinued operations                                   |                                           |                                      
|                                                                     | Proceeds from sales of affiliate operations                                       |                                           |                                      
|                                                                     | Proceeds from sales of assets                                                     |                                           |                                      
|                                                                     |                                                                                   |                                           |                                      
|Net cash used in investing activities                                |                                                                                   |                                           | (792                                 
|                                                                     |                                                                                   |                                           |                                      
|Cash flows from financing activities                                 |                                                                                   |                                           |                                      
|                                                                     | Net borrowings (repayments) under line of credit agreements                       |                                           |                                      
|                                                                     | Proceeds from issuance of notes payable to related parties                        |                                           |                                      
|                                                                     | Proceeds from issuance of long-term debt                                          |                                           |                                      
|                                                                     | Principal payments on long-term debt                                              |                                           |                                      
|                                                                     | Payment of debt issuance costs                                                    |                                           |                                      
|                                                                     | Proceeds from sales of common stock                                               |                                           |                                      
|                                                                     | Purchase of common stock                                                          |                                           |                                      
|                                                                     | Payment for stock acquisition contingency                                         |                                           |                                      
|                                                                     | Dividends paid                                                                    |                                           |                                      
|                                                                     |                                                                                   |                                           |                                      
|Net cash used in financing activities                                |                                                                                   |                                           | (4,831                               
|                                                                     |                                                                                   |                                           |                                      
|Effect of exchange rate changes on cash                              |                                                                                   |                                           | 146                                  
|                                                                     |                                                                                   |                                           |                                      
|Net change in cash and cash equivalents                              |                                                                                   |                                           | (959                                 
|Cash and cash equivalents at beginning of year                       |                                                                                   |                                           | 6,443                                
|                                                                     |                                                                                   |                                           |                                      
|Cash and cash equivalents at end of year                             |                                                                                   | $                                         | 5,484                                
|                                                                     |                                                                                   |                                           |                                      
|Supplemental disclosures of cash flow information                    |                                                                                   |                                           |                                      
|                                                                     | Cash paid during the year for:                                                    |                                           |                                      
|                                                                     |                                                                                   | Interest                                  |                                      
|                                                                     |                                                                                   | Net income taxes paid (refunded)          |                                      
|Supplemental schedule of noncash investing and financing activities: |                                                                                   |                                           |                                      
|                                                                     | Notes receivable from sales of affiliate operations                               |                                           | $                                    

See accompanying notes to consolidated financial statements.

F-6

---



Westaff, Inc.        Notes to Consolidated Financial Statements        (Amounts in thousands except per share amounts)

1.    Basis of Presentation



Westaff, Inc. (the Parent), a Delaware corporation, and its domestic and foreign subsidiaries (together, the Company), provide temporary staffing services
in the United States, the United Kingdom, Denmark, Australia, New Zealand, Norway and, during fiscal 2001 and the first two quarters of fiscal 2002, in Mexico. The consolidated financial statements
include the accounts of the Parent and its domestic and foreign subsidiaries. Intercompany accounts and transactions have been eliminated. The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.



During fiscal year 1999, the Company sold its medical business, primarily operated through Western Medical Services, Inc. (Western Medical), a wholly-owned
subsidiary of the Company (see Note 3). As a result, the Company has classified its medical operations as discontinued operations and, accordingly,
has segregated the net liabilities of the discontinued operations in the Consolidated Financial Statements and notes thereto.

2.    Summary of Significant Accounting Policies



The Company's fiscal year is a 52 or 53 week period ending the Saturday nearest the end of October. Fiscal years 2002 and 2000 each include 52 weeks and fiscal
year 2001 includes 53 weeks. For interim reporting purposes, the first three fiscal quarters comprise 12 weeks each while the fourth fiscal quarter consists of 16 or 17 weeks.



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



The carrying amounts of cash, accounts receivable, accounts payable and all other accrued expenses approximate fair value at November 2, 2002 and
November 3, 2001 because of the short maturity of these items. The fair value of the Company's debt instruments approximates the carrying value as of November 2, 2002 and
November 3, 2001 based on current rates available to the Company for debt with similar terms.



The Company considers all investments with maturities at purchase of three months or less to be cash equivalents.

F-7

---



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.



Revenue from the sale of services is recognized at the time the service is performed. A portion of the Company's sales of services and license fees is derived
from affiliate operations which consist of franchise agent and license operations.

Revenues
generated by franchise agents and related costs of services are included as part of the Company's consolidated sales of services and costs of services, respectively, since the
Company has the direct contractual relationships with the customers, holds title to the related customer receivables and is the legal employer of the temporary employees. The net distribution paid to
the franchise agent for services rendered is based either on a percentage of sales or of the gross profit generated by the franchise agent's operation and is reflected as franchise agents' share of
gross profit in the Consolidated Statements of Operations.

The
Company also has a licensing program in which the licensee has the direct contractual relationships with the customers, holds title to the related customer receivables and is the
legal employer of the temporary employees. Accordingly, sales and costs of services generated by the license operation are not included in the Company's consolidated financial statements. The Company
advances funds to licensees for payroll, payroll taxes, insurance and other related items. Fees are paid to the Company based either on a percentage of sales or of gross profit generated by the
licensee and such
license fees are recorded by the Company as license fees. Due from licensees represents advances made under these financing agreements. These advances are secured by a pledge of the licensee's trade
receivables, tangible and intangible assets and the license agreement. Advances due from licensees bear interest at prime plus two percent but only to the extent the aggregate advances exceed the
amount of qualified trade receivables securing the outstanding advances. Under the terms of a lockbox arrangement between the Company and its licensees, the advances are reduced as remittances are
received related to licensees' trade accounts receivable. Licensees have pledged trade receivables of $880 and $1,511 at November 2, 2002 and November 3, 2001, respectively, as
collateral for such advances. Sales generated by license offices (and excluded from the Company's sales of services) were $6,102, $18,019 and $42,024 for fiscal 2002, 2001 and 2000, respectively.
During fiscal 2001, two licensees purchased the Company's interest in their operations. The Company recorded pre-tax income of $2,069 from the sale of these operations in fiscal 2001. The
Company continues to support its two remaining licensees, but is currently no longer offering license agreements to new prospects.

Although
the Company has the contractual right to charge an initial franchise or license fee that encompasses start-up supplies and material and training, the Company has not
charged or collected such fees during the fiscal years ended 2002, 2001 and 2000, respectively, therefore there is no recorded fee income of this type included in the Statements of Operations for
those years.

F-8

---



Property, plant and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the
related assets, which are twenty-five to thirty-one years for buildings and three to ten years for furniture and equipment. Major improvements to leased office space are
capitalized and amortized over the shorter of their useful lives or the terms of the leases, generally three to five years. The Company capitalizes internal and external costs incurred in connection
with developing or obtaining internal use software in accordance with Statement of Position (SOP) 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use".



Goodwill is amortized on a straight-line basis over 20 to 40 years. Pursuant to the Company's adoption of Statement of Financial Accounting
Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets" (see Recent accounting pronouncements below), beginning November 3, 2002 goodwill will no longer be amortized.



Management of the Company assesses the recoverability of its long-lived assets, including goodwill, by determining whether the amortization of the
asset's balance over its remaining life can be recovered through projected undiscounted future cash flows of the underlying operations. When such estimate of the future undiscounted cash flows is less
than the carrying amount of the asset, a potential impairment exists. During fiscal 2001, a number of businesses the Company acquired over the past years were negatively impacted by the economic
recession. Based on management's assessment of projected undiscounted future cash flows and estimates of market value based on industry multiples, it was determined that a portion of the carrying
amount of goodwill and covenants not to compete related to certain acquisitions had been permanently impaired in the fourth quarter of fiscal 2001. As a result, the Company recorded a
pre-tax charge of $19,121 ($19,099 related to goodwill and $22 related to covenants not to compete) to write down these assets to estimated current net realizable values. During fiscal
2002, an additional pre-tax goodwill impairment of $116 was charged to operations.



The Company self-insures the deductible amount related to workers' compensation claims. The deductible amount was $500 per claim for policy years
2002, 2001 and 2000. The Company accrues the estimated costs of workers' compensation claims based upon the expected loss rates within the various temporary employment categories provided by the
Company. At least annually, the Company obtains an independent actuarial valuation of the estimated costs of claims incurred and reported and claims incurred but not reported. The Company has included
$13,000 and $11,600 in other long-term liabilities at November 2, 2002 and November 3, 2001, respectively, for workers' compensation obligations which are not expected to be
paid in the following fiscal year.

On
November 1, 2002, the Company executed an agreement with its workers' compensation/general liability insurance carrier for the fiscal 2003 policy year. Under the terms of the
new agreement, the Company will pre-pay the carrier for the estimated ultimate cost of the policy year's

F-9

---

claims and related expenses over the fiscal 2003 year. Total contractual payments for premiums as well as pre-paid claims costs will amount to $16,035, of which $3,000 was paid in
fiscal 2002 and is reflected in prepaid expenses on the Company's November 2, 2002 balance sheet.



The Company records income taxes using 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 financial statements or tax returns. A valuation allowance is established when it is more likely than not that a deferred
tax asset is not realizable in the foreseeable future on a tax entity by entity basis. In estimating future tax consequences, the Company generally considers all expected future events other than
enactments of changes in the tax law or rates.



The Company measures compensation cost for employee stock options and similar equity instruments using the intrinsic value-based method of accounting prescribed
by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"(APB 25).



The functional currency for each of the Company's foreign operations is the applicable local currency. All assets and liabilities that are denominated in foreign
currencies are translated into U.S. dollars at year-end exchange rates and all revenue and expense accounts are translated using weighted average exchange rates. Translation
adjustments and gains or losses on intercompany loans that are of a long-term investment nature are included as a separate component of stockholders' equity. Aggregate transaction gains
(losses) included in determining income (loss) from continuing operations were $251, $(12) and $(527) for fiscal years 2002, 2001 and 2000, respectively.



In January 2001, the Financial Accounting Standards Board (FASB) issued EITF Issue No. 01-14, "Income Statement Characterization of
Reimbursements Received for "Out-of-Pocket" Expenses Incurred", which requires that revenues and expenses be reported gross of such "out-of-pocket"
expenses. Application was effective for financial reporting periods beginning after December 15, 2001 with prior periods reclassified to comply with the guidance. Accordingly, sales of services
and costs of services for fiscal years 2001 and 2000 have been reclassified to conform with the presentation adopted for fiscal 2002. The effect of adoption was not significant to any period
presented.

In
July 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible Assets" effective at the beginning of Company's fiscal year 2003. With the adoption of SFAS
No. 142, goodwill and intangible assets that have indefinite useful lives will no longer be amortized, but instead will be evaluated for impairment by applying a fair-value-based
test upon initial adoption of the Statement, and at least annually thereafter, with impaired assets written down to fair value. Intangible assets with finite useful lives will continue to be amortized
over their useful lives. The Company is currently evaluating the impact of adopting SFAS No. 142 on its financial position and results of operations. It is

F-10

---

possible that an additional impairment charge could be recorded based on the results of the fair-value approach under the new standard.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". The new standard supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". The new standard also supercedes the provisions of Accounting Principles Board
No. 30, "Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" and will require expected future operating losses from discontinued operations to be displayed in discontinued operations in the period(s) in which the losses are incurred, rather than
as of the measurement date as presently required. The provisions of SFAS No. 144 are effective on a prospective basis at the beginning of the Company's fiscal year 2003.

In
June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires recognition of a liability for a cost associated with an exit or disposal activity when the
liabiliity is incurred, as opposed to when the entity commits to an exit plan under EITF Issue No. 94-3. The Company is required to adopt SFAS No. 146 for exit or disposal
activities that are initiated after December 31, 2002.



The Company has reclassified certain amounts in the fiscal 2000 and fiscal 2001 financial statements in order to conform to the presentation adopted for fiscal
2002. The effect of adoption was not significant to any period presented.

3.    Discontinued Operations

During fiscal 1999, the Company sold certain of its franchise agent and Company-owned medical offices and entered into a termination agreement with one of its
medical licensees. During the fourth quarter of fiscal 1999, the Company completed the sale of the remaining medical business to Intrepid U.S.A. (Intrepid) under an asset purchase agreement. Under the
terms of the sale, the Company retained the trade and Medicare accounts receivable balances as well as the due from licensee balances.

During
fiscal 2000, the Company recorded additional after-tax losses relating to discontinued operations of $784 or $0.05 per share. This charge was primarily due to lower
than expected settlements of Medicare cost reports.

In
August 2000, Intrepid filed a demand for arbitration seeking compensatory and punitive damages alleging, among other things, that the Company made misrepresentations and
otherwise breached the asset purchase agreement. In fiscal 2001, the arbitrator awarded Intrepid $1,085 mainly for breaches of certain representations, warranties and covenants in the asset purchase
agreement, plus arbitration expenses and legal and accounting fees of approximately $425. Primarily due to the unfavorable arbitration award and related legal costs, the Company recorded an
after-tax loss from discontinued operations of $1,794, or $0.11 per share, in fiscal 2001.

F-11

---

As
of November 2, 2002, the remaining current liabilities of the discontinued medical operations are for pending legal claims of $360, malpractice/liability claims of $365 and
other costs of $10. Included in current assets is $100 due Western Medical in settlement of an indemnity claim. Management believes the resolution of these matters will not have a material adverse
effect on the Company's financial statements.

Summarized
financial data on the discontinued operations is as follows:

|                       |                                                                  | Fiscal Year Ended |  
|---------------------- | ---------------------------------------------------------------- | ----------------- | -
|
|Income statement data: |                                                                  |                   |  
|                       | Estimated loss on disposal                                       |                   |  
|                       | Income tax benefit                                               |                   |  
|                       |                                                                  |                   |  
|                       | Loss on disposal of discontinued operations, net of income taxes |                   |  
|                       |                                                                  |                   |  
|Balance sheet data:    |                                                                  |                   |  
|                       | Current assets (primarily receivables)                           |                   | $
|                       | Current liabilities                                              |                   |  
|                       |                                                                  |                   |  
|                       | Net liabilities of discontinued operations                       |                   | $
|                       |                                                                  |                   |  

4.    Restructuring Charges

During fiscal 2002, the Company implemented a restructuring plan designed to improve the Company's profitability. The restructuring plan resulted in a fiscal 2002
pre-tax charge to operations of $1,896. Of this amount, $993 was the result of abandoning front and back office management information systems that were under development with two software
vendors. One of these vendors chose to cease further development of its portion of the project and that caused the continued development of these systems to no longer be cost-effective for
the Company. In conjunction with this abandonment, the Company recognized the historical fees paid to vendors, fees paid to consultants and certain in-house development costs as expenses,
all of which had been previously capitalized. An additional $629 resulted from severance and other employment termination costs due to planned personnel reductions. Finally, as of the date the
restructuring plan was finalized, the Company decided to close 18 offices within the United States and the resulting termination costs, including lease terminations, were estimated to be $274. At
November 2, 2002, only rent and lease obligations of $60 remain unpaid.

5.    Termination of Recapitalization Agreement

On May 3, 2000, the Company announced that a recapitalization agreement signed on March 7, 2000, between members of the Company's management team
and an investor group led by Cornerstone Equity Investors IV, L.P. and Centre Partners Management LLC to acquire all the outstanding shares of the Company's common stock, was terminated by mutual
consent of all parties. As a result of the agreement termination, the Company incurred $1,904 in pre-tax charges during fiscal 2000, primarily

F-12

---

for fees and legal costs that had been previously capitalized by the Company. These charges are included in selling and administrative expenses in the fiscal 2000 Statement of Operations.

6.    Earnings per Share

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

|                                                                                                    |               | Fiscal Year Ended
|--------------------------------------------------------------------------------------------------- | ------------- | -----------------
|
|Income (loss) from continuing operations                                                            |               | $                
|                                                                                                    |               |                  
|Denominator for basic earnings per shareweighted average shares                                    |               |                  
|Effect of dilutive securities:                                                                      |               |                  
|                                                                                                    | Stock options |                  
|                                                                                                    |               |                  
|Denominator for diluted earnings per shareadjusted weighted average shares and assumed conversions |               |                  
|                                                                                                    |               |                  
|Basic earnings (loss) per share                                                                     |               | $                
|                                                                                                    |               |                  
|Diluted earnings (loss) per share                                                                   |               | $                
|                                                                                                    |               |                  
|Antidilutive weighted shares excluded from diluted earnings per share                               |               |                  
|                                                                                                    |               |                  

F-13

---



7.    Transactions with Related Parties

On April 1, 2002, the Company executed an unsecured subordinated promissory note payable to its principal stockholder and Chairman of the Board of
Directors in the amount of $2,000. The initial term of the note was one year, with an interest rate of 12% per annum, payable monthly on the last business day of each calendar month. On May 17,
2002, the note was amended and restated to extend the maturity date to August 18, 2007. Additionally, the interest rate and payment schedule were amended to a rate equal to the US Index Rate as
calculated under the Company's Multicurrency Credit Agreement (see Note 9) plus seven percent, compounded monthly and payable 60 calendar days after the end of each of the Company's fiscal
quarters. The interest rate in effect on November 2, 2002 was 11.75%. Payment of interest is contingent on the Company meeting minimum availability requirements under its credit facilities.
Additionally, payments of principal or interest are prohibited in the event of any default under the credit facilities. Interest paid during fiscal 2002 was $68.

On
May 17, 2002, the Company executed an unsecured subordinated promissory note payable to its President and Chief Executive Officer (CEO) in the amount of $1,000 with a maturity
date of August 18, 2007 and provisions for accelerated maturity under certain circumstances. The note bears interest at a rate equal to the US Index Rate plus the Applicable Term Loan Index
Margin as calculated under the Company's Multicurrency Credit Agreement (see Note 9), payable 45 calendar days after the end of each of the Company's fiscal periods. The interest rate in effect
on November 2, 2002 was 10.75%. Pursuant to a provision of the promissory note, the Company paid its President and CEO a note fee of $30. Payment of interest is contingent on the Company
meeting minimum availability requirements under its credit facilities. Additionally, payments of principal or interest are prohibited in the event of any default under the credit facilities. Interest
paid during fiscal 2002 was $42. On December 13, 2002, the outstanding principal and interest balance on the note was paid in its entirety (see Note 17).

8.    Property, Plant and Equipment

Property, plant and equipment consists of the following:

November 2,
2002

November 3,
2001Land

$
1,183

$
1,183Buildings


6,706


6,705Computer hardware and software


25,851


26,642Equipment, furniture and fixtures


20,134


21,06053,874


55,590Less accumulated depreciation and amortization


(38,096
)

(35,331
)$
15,778

$
20,259


Depreciation
expense was $5,388, $5,392 and $6,201 for fiscal years 2002, 2001 and 2000, respectively.

F-14

---

9.    Short-term Borrowings and Loans Payable

On May 17, 2002, the Company entered into agreements with GE Capital, as primary agent, to provide senior secured credit facilities totaling $65,000. The
new credit facilities replace a credit facility that was to expire on March 31, 2003. The facilities comprise a five-year syndicated Multicurrency Credit Agreement consisting of a
$50,000 US Revolving Loan Commitment, a £2,740 UK Revolving Loan Commitment (US dollar equivalent of approximately $4,000 at the date of the agreement), and a $5,000 term loan (the Term
Loan). In addition, a five-year Australian dollar facility agreement (the A$ Facility Agreement) was executed on May 16, 2002, consisting of an A$12,000 revolving credit facility
(US dollar equivalent of approximately $6,000 at the date of the agreement). Each agreement includes a letter of credit sub-facility. Concurrent with the execution of these new credit
facilities, the Company repaid all outstanding principal and interest under its 10-year senior secured notes, which totaled $30,999. In addition, $17,343 in letters of credit were issued
under the new facility to replace $11,843 in outstanding letters of credit and $5,500 of cash on deposit with the Company's workers' compensation insurance carrier.

The
US Revolving Loan Commitment provides for an aggregate $50,000 commitment subject to a borrowing base calculation on eligible domestic accounts receivable. Direct advances are also
limited by outstanding irrevocable standby letters of credit up to a maximum of $35,000. Interest on borrowings under the commitment is based either on an index rate equal to the higher of the bank
prime loan rate or the Federal Funds Rate plus 0.50%, plus applicable margins ranging from 0.25% to 1.25%, or on LIBOR plus margins ranging from 2.50% to 3.50%. Borrowings outstanding under the US
Revolving Loan Commitment at November 2, 2002 were $16,908 at a weighted average interest rate of 5.13%.

The
Term Loan bears interest at a variable index rate equal to the higher of the bank prime loan rate or the Federal Funds Rate plus 0.50%. Applicable margins above the index rate vary
from 5.5% to 6.5%. The interest rate in effect at November 2, 2002 was 10.75%. The Term Loan is payable in nineteen consecutive quarterly installments of $250 each, beginning July 1,
2002 with voluntary prepayment without penalty. On December 12, 2002, the prepayment option was exercised and the outstanding balance on the Term Loan was paid in its entirety (see
Note 17).

The
UK Revolving Loan Commitment is subject to a borrowing base calculation on eligible Westaff (U.K.) accounts receivable. Interest on outstanding borrowings is based on the British
prime rate plus applicable margins ranging from 0.25% to 1.25%. At November 2, 2002, borrowings of US$442 were outstanding under the UK Revolving Loan Commitment at an interest rate of 4.75%.

The
Multicurrency Credit Agreement calls for a commitment fee, payable monthly in arrears, of 0.50% based on the average daily unused balance of the combined US/UK revolving loan
commitment. Additionally, a variable margin ranging from 1.5% to 2.5% of the total outstanding letters of credits is payable monthly in arrears and the agreement requires an annual fee of 0.50% of the
face amount of each letter of credit which is issued, renewed or extended. The margin in effect on outstanding letters of credits is 2.0% through July 1, 2003.

The
A$ Facility Agreement is subject to a borrowing base calculation on eligible Westaff (Australia) accounts receivable. Direct advances are limited by outstanding letters of credit up
to a maximum of A$500. Interest on borrowings is based on the Australian 90-day Bank Bill Swap Rate plus a margin of 2.5% to 3.5%. At November 2, 2002, borrowings of US$2,317 were
outstanding under the A$ Facility Agreement at an interest rate of 7.93%. The agreement calls for monthly fees, payable in

F-15

---

arrears, of 0.50% of the average daily unused balance of the facility and from 1.5% to 2.5% of total outstanding letters of credit. The margin in effect on outstanding letters of credits is 2.0%
through July 1, 2003.

Applicable
margins under both the Multicurrency Credit Agreement and the A$ Facility Agreement are subject to quarterly adjustments, on a prospective basis beginning July 1, 2003,
based on the respective borrowers' fixed charge coverage ratio. Letters of credit under the agreements expire one year from date of issuance but are automatically renewed for one additional year
unless written notice is given to or from the holder. At November 2, 2002, the Company had $11,870 available under the credit facilities, with $17,343 in letters of credit outstanding.

The
credit facilities are secured by substantially all of the assets of the Company, including a deed of trust on the Company's corporate headquarters. GE Capital, in its role as primary
agent under the credit facilities, has sole dominion and control over the Company's primary U.S., United Kingdom and Australia cash receipt accounts. Cash receipts into these accounts are applied
against the Company's respective outstanding obligations under the facilities, with additional borrowings under the revolving facilities directed into the Company's disbursement accounts.

The
credit facilities contain covenants which, among other things, require the Company to maintain a minimum fixed charge coverage ratio and a minimum earnings before interest, taxes,
depreciation and amortization (EBITDA). The covenants also generally restrict, limit or, in certain circumstances prohibit the Company with respect to payment of dividends, capital expenditures,
disposition of assets, incurrence of debt, mergers and acquisitions, loans to affiliates and purchases of investments. On October 31, 2002, the first amendment to the Multicurrency Credit
Agreement was executed, which revised the minimum EBITDA covenants, among other things.

In
addition to its outstanding letters of credit, the Company has an outstanding financial guarantee bond in the amount of $11,843 that secures a portion of its workers' compensation
premium and deductible obligations. The bond was renewed for one additional year on November 1, 2002. Ninety day advance written notice of non-renewal is required.

At
November 3, 2001, the Company had $30,000 outstanding principal due under 10-year senior secured notes payable. As a result of a covenant violation, the entire
principal balance was reclassified to a current liability on the Company's Balance Sheet at November 3, 2001. As noted above, concurrent with
the Company's refinancing under a new credit facility, all outstanding principal and interest due on these notes was repaid.

F-16

---

Loans
payable and short-term borrowings consist of the following:

|                                                                                                                                                                |                | November 2,
2002 |        | November 3,
2001 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ---------------- | ------ | ---------------- | -
|Variable rate term loan issued under a senior secured credit facility, collateralized by the assets of the Company, interest rate of 10.75% at November 2, 2002 |                | $                | 4,500  |                  |  
|Revolving credit facility                                                                                                                                       |                |                  | 19,667 |                  |  
|Senior secured notes payable, collateralized by the assets of the Company with semi-annual interest payments at 6.8% per annum                                  |                |                  |        |                  |  
|                                                                                                                                                                |                |                  |        |                  | $
|                                                                                                                                                                |                |                  |        |                  |  
|                                                                                                                                                                | Total debt     |                  |        | 24,167           |  
|Less short-term borrowingsrevolving credit facility                                                                                                            |                |                  | (9,667 | )                |  
|Less current portionterm loan/senior notes                                                                                                                     |                |                  | (4,500 | )                |  
|                                                                                                                                                                |                |                  |        |                  |  
|                                                                                                                                                                | Long-term debt |                  | $      | 10,000           |  
|                                                                                                                                                                |                |                  |        |                  |  

The
Company has classified a portion of its borrowings under the revolving credit facility as long-term debt since the Company has the ability and the intent to maintain
these obligations for longer than one year. The credit facilities expire in May 2007.

10.    Accrued Expenses

Accrued expenses consist of the following:

|                                              |  | November 2,
2002 |        | November 3,
2001
|--------------------------------------------- |  | ---------------- | ------ | ----------------
|Accrued payroll and payroll taxes             |  | $                | 14,385 |                 
|Accrued insurance/workers' compensation       |  |                  | 8,816  |                 
|Arbitration award and related fees            |  |                  | 446    |                 
|Taxes other than income taxes                 |  |                  | 2,844  |                 
|Checks outstanding in excess of bank balances |  |                  | 6,183  |                 
|Other                                         |  |                  | 5,491  |                 
|                                              |  |                  |        |                 
|                                              |  | $                | 38,165 |                 
|                                              |  |                  |        |                 

F-17

---

11.    Income Taxes

The provision (benefit) for income taxes from continuing operations consists of the following:

|                                                                       |                 | Fiscal year ended |       
|---------------------------------------------------------------------- | --------------- | ----------------- | ------
|
|Current:                                                               |                 |                   |       
|                                                                       | Federal         |                   | $     
|                                                                       | State and local |                   |       
|                                                                       | Foreign         |                   |       
|                                                                       |                 |                   |       
|                                                                       |                 |                   | (5,421
|                                                                       |                 |                   |       
|Deferred:                                                              |                 |                   |       
|                                                                       | Federal         |                   |       
|                                                                       | State and local |                   |       
|                                                                       | Foreign         |                   |       
|                                                                       |                 |                   |       
|                                                                       |                 |                   | 1,351 
|                                                                       |                 |                   |       
|Total provision (benefit) for income taxes from continuing operations: |                 | $                 | (4,070
|                                                                       |                 |                   |       

A
reconciliation of income taxes provided at the statutory federal rate (35%) and income taxes reported in the Consolidated Statements of Operations is as follows:

|                                                                  |  | Fiscal year ended
|----------------------------------------------------------------- |  | -----------------
|
|Income tax provision (benefit) computed at federal statutory rate |  | $                
|State taxes (net of federal benefit)                              |  |                  
|Valuation allowance                                               |  |                  
|Permanent differences                                             |  |                  
|Other                                                             |  |                  
|                                                                  |  |                  
|Income tax provision (benefit)                                    |  | $                
|                                                                  |  |                  

At
November 2, 2002, all of the Company's net deferred tax assets were offset with a valuation allowance. The allowance was recorded against $18,073 of the Company's deferred tax
assets as it is more likely than not that the deferred tax assets will not be realizable in the foreseeable future on a tax entity by entity basis. The decrease in the valuation allowance in the
current year is the result of a reduction in the net deferred tax assets due to temporary differences that reversed and increased the tax refund from net operating loss carrybacks.

F-18

---

The
approximate tax effect of temporary differences and carryforwards that give rise to deferred tax balances are as follows (includes the tax effect of temporary differences from
discontinued operations):

Fiscal year endedNovember 2,
2002

November 3,
2001Workers' compensation

$
8,111

$
9,590Accruals relating to discontinued operations


277


253Other liabilities and accruals


1,149


2,298State and foreign net operating loss carryforwards


3,158


2,182Depreciation and amortization


5,378


6,276Gross deferred tax assets


18,073


20,599Valuation allowance


(18,073
)

(19,249
)Net deferred tax asset

$


$
1,350


The
Company's deferred tax assets resulting from net operating loss carryforwards expire at varying future dates, with $30 expiring during fiscal 2003, $27 expiring during fiscal 2004
and $3,101 expiring through fiscal 2022.

The
domestic and foreign components of income (loss) from continuing operations before income taxes are as follows:

|                                                             |  | Fiscal year ended
|------------------------------------------------------------ |  | -----------------
|
|Domestic                                                     |  | $                
|Foreign                                                      |  |                  
|                                                             |  |                  
|Income (loss) from continuing operations before income taxes |  | $                
|                                                             |  |                  

At
November 2, 2002, the Parent had cumulative undistributed earnings from foreign subsidiaries of approximately $3,415. Income taxes have not been provided on the undistributed
earnings because the Company has deemed the earnings of its foreign subsidiaries as permanently reinvested. These earnings could become subject to additional tax if they were remitted as dividends, or
if foreign earnings were lent to the Company. However, to the extent that these earnings were previously taxed in foreign jurisdictions, the Company anticipates the resulting tax amount would qualify
for a domestic tax credit.

F-19

---



12.  Savings Plans

The Company has a nonqualified deferred savings plan for highly compensated employees and a 401(k) savings plan for eligible employees. Under both the deferred
and 401(k) savings plans for fiscal year 2002, employees may elect to contribute up to 60% of their eligible annual compensation, with the Company matching 10% of participant contributions up to the
first 10%. The Company's contribution for fiscal 2002 was $145. For fiscal years 2001 and 2000, eligible contributions were up to 15% with Company matching of 25% of participant contributions up to
the first 10%. The Company's contributions for fiscal 2001 and 2000 were $432 and $333, respectively.

13.  Stockholders' Equity

On June 20, 2000, the Company's Board of Directors declared a special cash dividend of $0.30 per share. The distribution, totaling $4,732 was paid in
July 2000.

In
July 1998, the Company acquired substantially all of the assets of The Personnel Connection, Inc. Consideration for the acquisition consisted of cash and common stock,
with a contingent obligation to issue up to an additional 100 shares of common stock dependent on the fair market value of the Company's stock subsequent to the acquisition. On January 27,
2000, the Company paid the selling parties $800 in lieu of issuing additional shares, with an offsetting reduction to additional paid-in-capital.



From time to time, the Company repurchases shares of its common stock on the open market. The repurchased shares may be used for reissuance under the Company's
stock option and employee stock purchase plans. When treasury shares are reissued, any excess of the proceeds over the acquisition cost
of the shares is credited to additional paid-in-capital. Excess acquisition cost over the proceeds from reissuance, determined on a first-in first-out
basis, is charged to additional paid-in-capital to the extent of previous net "gains", and then to retained earnings.



Under the Company's 1996 Employee Stock Purchase Plan, eligible employees may authorize payroll deductions of up to 10% of eligible compensation for the purchase
of the Company's common stock during each semi-annual purchase period. The purchase price will equal the lower of 85% of the fair market value at the beginning of the purchase period or on
the last day of the purchase period. The plan provides for the issuance of up to 750 shares of the Company's common stock. As of November 2, 2002, shares issued under the plan totaled 519.



The 1996 Stock Option/Stock Issuance Plan provides for the granting of incentive and nonqualified stock options and stock appreciation rights. Incentive stock
options may be granted at a price not less than 100% of the fair market value of the Company's common stock at the date of grant. Nonqualified options may be granted at a price not less than 85% of
the fair market value of the Company's common stock at the date of grant. The options' vesting schedules vary subject to the participant's period of future service or to the Company's or the option
holder's attainment of designated

F-20

---

performance goals, or otherwise at the discretion of the Board of Directors. No option may have a term in excess of 10 years. At November 2, 2002, there were 2,424 shares reserved for
issuance under the plan. The maximum number of shares with respect to which stock options, stock appreciation rights and direct stock issuances may be granted to an individual in any calendar year are
1,000 shares. No stock appreciation rights have been granted under the plan.

The
Company applies APB No. 25 and related interpretations using the intrinsic value method in accounting for its stock plan. Accordingly, compensation cost is not recognized for
options granted at fair market value. The following table represents pro forma net income (loss) and pro forma earnings (loss) per share had compensation cost been determined using the fair value
method:

Fiscal year endedNovember 2,
2002

November 3,
2001

October 28,
2000Net income (loss) as reported

$
(1,431
)
$
(33,895
)
$
6,451Pro forma net income (loss)

$
(1,908
)
$
(34,190
)
$
6,281Earnings (loss) per share as reported

$
(0.09
)
$
(2.14
)
$
0.41Pro forma earnings (loss) per share

$
(0.12
)
$
(2.16
)
$
0.40


Because
stock options generally become exercisable over several years and additional grants are likely to be made in future years, the pro forma amounts for compensation cost may not be
indicative of the effects on net income and earnings per share for future years.

The
fair value of each option included in the following table is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average
assumptions for options granted in fiscal 2002, 2001 and 2000, respectively: zero dividend yield, expected volatility of 156%, 165%, and 76%, expected lives of 6 years; and
risk-free interest rates of 4.1%, 5.1% and 6.1%.

The
following summarizes the stock option transactions under the plan:

|                                                                |                                   | November 2, 2002 |      | November 3, 2001 |      | October 28, 2000
|--------------------------------------------------------------- | --------------------------------- | ---------------- | ---- | ---------------- | ---- | ----------------
|
|Options outstanding, beginning of year                          |                                   | 1,251            |      | $                | 3.13 |                 
|                                                                | Granted at market value           |                  | 384  |                  |      | 3.12            
|                                                                | Granted in excess of market value |                  | 550  |                  |      | 2.35            
|                                                                | Cancelled                         |                  | (766 | )                |      | 2.63            
|                                                                |                                   |                  |      |                  |      |                 
|Options outstanding, end of year                                |                                   | 1,419            |      | $                | 3.10 |                 
|                                                                |                                   |                  |      |                  |      |                 
|Options exercisable, end of year                                |                                   | 705              |      | $                | 3.41 |                 
|                                                                |                                   |                  |      |                  |      |                 
|Options available for grant, end of year                        |                                   | 1,005            |      |                  |      |                 
|                                                                |                                   |                  |      |                  |      |                 
|Weighted average fair value of options granted during the year: |                                   |                  |      |                  |      |                 
|                                                                | At market value                   |                  |      |                  | $    | 2.97            
|                                                                |                                   |                  |      |                  |      |                 
|                                                                | In excess of market value         |                  |      |                  | $    | 2.15            
|                                                                |                                   |                  |      |                  |      |                 

F-21

---

The following table summarizes information about stock options outstanding at November 2, 2002:

|               |  |       |  | Options outstanding |  | Options exercisable
|-------------- |  | ----- |  | ------------------- |  | -------------------
|
|$  1.63-  2.56 |  | 895   |  | 8.93                |  | $                  
|$  3.15-  4.00 |  | 408   |  | 9.61                |  |                    
|$  6.00-  6.33 |  | 17    |  | 5.21                |  |                    
|$  9.33-  9.58 |  | 93    |  | 3.82                |  |                    
|$16.17-16.17   |  | 6     |  | 5.40                |  |                    
|               |  |       |  |                     |  |                    
|$  1.63-16.17  |  | 1,419 |  | 8.47                |  | $                  
|               |  |       |  |                     |  |                    

14.  Leases

The Company leases real and personal property under long-term operating leases. Some of these leases have renewal options for periods ranging from one
to five years and contain provisions for escalation based on increases in certain costs incurred by the landlord and on Consumer Price Index adjustments. Rental expense from continuing operations
amounted to $6,279 in fiscal 2002, $6,595 in fiscal 2001 and $6,451 in fiscal 2000. The Company also receives rental income from subleases which expire on various dates. Sublease income was not
material to the Company's results of operations for any periods presented.

Future
minimum lease payments for all non-cancelable leases at November 2, 2002 are as follows:

Fiscal year2003

$
3,9802004


2,6912005


1,4752006


4472007


180Thereafter


235Total minimum lease payments

$
9,008


F-22

---



15.  Operating Segments

The Company has three reportable segments: domestic business services, the United Kingdom operations and other international business services. Domestic business
services provides temporary staffing services in clerical and light industrial positions through a network of Company-owned, franchise agent and licensed offices. The segment consists of 21
geographically diverse Company regions or districts under the direction of regional/district managers and one combined franchise region, each identified as an operating segment. Revenues from domestic
business services are derived wholly from the United States and its territories. The domestic operating segments meet the aggregation criteria specified under SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information" for reporting purposes. International business services comprise Company-owned offices providing clerical and light industrial temporary staffing
services in Australia, the United Kingdom, Norway, Denmark, New Zealand and, during fiscal 2001 and the first two quarters of fiscal 2002, in Mexico. The Company employs several managing directors who
oversee all operations in one or more countries. Revenues are attributed to each country based on the location of the respective country's principal offices. Where appropriate, two or more
international operations have been combined into one reportable segment as they share a majority of the aggregation criteria and are not individually reportable.

The
Company evaluates the performance of and allocates resources to the reportable segments based on operating income. The accounting policies of the segments are the same as those
described in Note 2. Certain operating expenses of the Company's corporate headquarters, which are included in domestic business services, are charged to international business services in the
form of royalties. Domestic assets relating to the generation of the royalties, primarily property, plant and equipment, have not been allocated due to impracticality and are not considered material
for purposes of assessing performance and making operating decisions.

F-23

---

The
following summarizes reporting segment data for fiscal years 2002, 2001 and 2000:

|                                                   |  | Fiscal Year Ended November 2, 2002 |        
|-------------------------------------------------- |  | ---------------------------------- | -------
|
|Total sales of services and license fees           |  | $                                  | 428,187
|                                                   |  |                                    |        
|Operating income (loss) from continuing operations |  | $                                  | (2,925 
|                                                   |  |                                    |        
|Depreciation and amortization                      |  | $                                  | 5,725  
|                                                   |  |                                    |        
|Expenditures for purchases of fixed assets         |  | $                                  | 1,639  
|Payments for intangibles                           |  |                                    | 223    
|                                                   |  |                                    |        
|Total expenditures for long-lived assets           |  | $                                  | 1,862  
|                                                   |  |                                    |        
|Total long-lived assets                            |  | $                                  | 24,902 
|                                                   |  |                                    |        
|Total assets                                       |  | $                                  | 105,539
|                                                   |  |                                    |        

|                                                   |  | Fiscal Year Ended November 3, 2001 |        
|-------------------------------------------------- |  | ---------------------------------- | -------
|
|Total sales of services and license fees           |  | $                                  | 486,935
|                                                   |  |                                    |        
|Operating income (loss) from continuing operations |  | $                                  | (18,485
|                                                   |  |                                    |        
|Depreciation and amortization                      |  | $                                  | 6,741  
|                                                   |  |                                    |        
|Expenditures for purchases of fixed assets         |  | $                                  | 3,802  
|Payments for intangibles                           |  |                                    |       
|                                                   |  |                                    |        
|Total expenditures for long-lived assets           |  | $                                  | 3,802  
|                                                   |  |                                    |        
|Total long-lived assets                            |  | $                                  | 29,974 
|                                                   |  |                                    |        
|Total assets                                       |  | $                                  | 103,779
|                                                   |  |                                    |        

lcv12]

|                                                   |  | Fiscal Year Ended October 28, 2000
|-------------------------------------------------- |  | ----------------------------------
|
|Total sales of services and license fees           |  | $                                 
|                                                   |  |                                   
|Operating income (loss) from continuing operations |  | $                                 
|                                                   |  |                                   
|Depreciation and amortization                      |  | $                                 
|                                                   |  |                                   
|Expenditures for purchases of fixed assets         |  | $                                 
|Payments for intangibles                           |  |                                   
|                                                   |  |                                   
|Total expenditures for long-lived assets           |  | $                                 
|                                                   |  |                                   

---

F-24

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16.  Commitments and Contingencies

In the ordinary course of its business, the Company is periodically threatened with or named as a defendant in various lawsuits. The principal risks that the
Company insures against are workers' compensation, general liability, automobile liability, property damage, alternative staffing errors and omissions, fiduciary liability and fidelity losses.

On
March 9, 2000, Synergy Staffing, Inc. (Synergy) filed a complaint against the Company alleging, among other things, that they were fraudulently induced to sell the
assets of The Personnel Connection, Inc. During the Company's fiscal year 2002, an arbitration panel awarded Synergy $1,424 for compensatory damages, attorneys' fees and other related costs.
During the fourth quarter of fiscal 2001, the Company recorded an accrued liability and related pretax charge of $3,600 for the estimated cost of the arbitration award, attorney's fees and related
expenses. The estimate was based on management's assumptions as to the ultimate outcome of future events surrounding the arbitration. In connection with the final outcome of the arbitration award in
fiscal 2002, some of these events were
resolved in the Company's favor and $693 of the estimated liabilities were no longer required. The reduction is reflected in the fiscal 2002 Statement of Operations.

From
time to time the Company has been threatened with, or named as a defendant in, lawsuits, including countersuits brought by former franchise agents or licensees, and administrative
claims and lawsuits brought by employees or former employees. The Company does not believe the outcome of any proceedings on these actions would have a material adverse effect on its financial
position, results of operations or cash flows. The Company is not currently a party to any material litigation, except as disclosed above.

17.  Subsequent Events

On December 12, 2002, the Company entered into a sale-leaseback transaction whereby the Company sold and leased back the majority of its
corporate headquarters' land and buildings. The result of the sale was a net pre-tax gain of approximately $5,500 which the Company will defer and amortize to rent expense over the seven
year lease term. Net proceeds from the sale of $6,866 were used to pay the outstanding principal and interest on the Term Loan of $4,515, with the remainder used to pay down outstanding borrowings
under the US Revolving Loan Commitment. Concurrent with the sale-leaseback transaction, the Company prepaid the outstanding principal and interest of $1,020 under the provisions of a
promissory note payable to the Company's President and CEO (see Note 7).

The
lease, which will be accounted for as an operating lease, has a term of seven years with an option to renew the lease for an additional five years. In connection with the lease
agreement, the Company issued a $700 irrevocable standby letter of credit as a security deposit. The minimum lease payments required by the lease over the next seven years are as follows: fiscal
2003$691; fiscal 2004$799; fiscal 2005$825; fiscal 2006$852; fiscal 2007$879; fiscal 2008$908; fiscal
2009$938 and fiscal 2010$103.

F-25

---

18.  Quarterly Financial Information (Unaudited)

The following is a summary of the unaudited quarterly financial information for the fiscal years ended November 2, 2002 and November 3, 2001. The
fourth quarter of fiscal years 2002 and 2001 consist of 16 and 17 weeks, respectively, while all other quarters consist of 12 weeks.

|                                            |                                          | First
Quarter |         | Second
Quarter |   | Third
Quarter |       | Fourth
Quarter |        
|------------------------------------------- | ---------------------------------------- | ------------- | ------- | -------------- | - | ------------- | ----- | -------------- | -------
|Fiscal year ended November 2, 2002          |                                          |               |         |                |   |               |       |                |        
|Sales of services and license fees          |                                          | $             | 106,993 |                | $ | 109,676       |       | $              | 119,104
|Gross profit                                |                                          | $             | 20,003  |                | $ | 20,627        |       | $              | 22,040 
|Net income (loss)                           |                                          | $             | (4,653  | )              | $ | 1,396         |       | $              | (534   
|                                            |                                          |               |         |                |   |               |       |                |        
|Basic and diluted earnings (loss) per share |                                          | $             | (0.29   | )              | $ | 0.09          |       | $              | (0.03  
|                                            |                                          |               |         |                |   |               |       |                |        
|Fiscal year ended November 3, 2001          |                                          |               |         |                |   |               |       |                |        
|Sales of services and license fees          |                                          | $             | 137,058 |                | $ | 127,509       |       | $              | 124,106
|Gross profit                                |                                          | $             | 27,420  |                | $ | 26,063        |       | $              | 25,327 
|Income (loss) from continuing operations    |                                          | $             | 584     |                | $ | 515           |       | $              | 184    
|Loss from discontinued operations           |                                          |               |         |                |   | (1,794        | )     |                |        
|                                            |                                          |               |         |                |   |               |       |                |        
|Net income (loss)                           |                                          | $             | 584     |                | $ | (1,279        | )     | $              | 184    
|                                            |                                          |               |         |                |   |               |       |                |        
|Basic and diluted earnings (loss) per share |                                          |               |         |                |   |               |       |                |        
|                                            | Income (loss) from continuing operations |               | $       | 0.04           |   | $             | 0.03  |                | $      
|                                            |                                          |               |         |                |   |               |       |                |        
|                                            | Loss from discontinued operations        |               | $       |               |   | $             | (0.11 | )              | $      
|                                            |                                          |               |         |                |   |               |       |                |        
|                                            | Net income (loss)                        |               | $       | 0.04           |   | $             | (0.08 | )              | $      
|                                            |                                          |               |         |                |   |               |       |                |        

F-26

---



SCHEDULE II    VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

|                                   |                                                         |  |   | Additions |  |   |        | 
|---------------------------------- | ------------------------------------------------------- |  | - | --------- |  | - | ------ | 
|
|Fiscal Year Ended October 28, 2000 |                                                         |  |   |           |  |   |        | 
|                                   | Allowance for doubtful accounts                         |  | $ | 1,654     |  | $ | 4,264  | 
|                                   | Reserve on notes receivable                             |  |   | 174       |  |   | 150    | 
|                                   | Allowance for doubtful accountsdiscontinued operations |  |   | 7,601     |  |   | 1,043  | 
|                                   | Disposal of discontinued operations                     |  |   | 877       |  |   | 257    | 
|Fiscal Year Ended November 3, 2001 |                                                         |  |   |           |  |   |        | 
|                                   | Allowance for doubtful accounts                         |  | $ | 1,634     |  | $ | 1,418  | 
|                                   | Reserve on notes receivable                             |  |   | 324       |  |   | 100    | 
|                                   | Allowance for doubtful accountsdiscontinued operations |  |   | 107       |  |   |       | 
|                                   | Disposal of discontinued operations                     |  |   | 471       |  |   | 2,466  | 
|                                   | Valuation allowance on deferred tax assets              |  |   |          |  |   | 19,249 | 
|Fiscal Year Ended November 2, 2002 |                                                         |  |   |           |  |   |        | 
|                                   | Allowance for doubtful accounts                         |  | $ | 1,260     |  | $ | 1,510  | 
|                                   | Reserve on notes receivable                             |  |   | 524       |  |   | 193    | 
|                                   | Disposal of discontinued operations                     |  |   | 285       |  |   |       | 
|                                   | Valuation allowance on deferred tax assets              |  |   | 19,249    |  |   |       | 

---

IV-1

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on
behalf of the undersigned, thereunto duly authorized.

| |  | WESTAFF, INC.         
| |  | ----------------------
| |  | By:                   
| |  | Date: January 31, 2003

IV-2

---

POWER OF ATTORNEY

KNOW
ALL PERSONS BY THESE PRESENTS:

That
the undersigned officers and directors of Westaff, Inc., a Delaware corporation, do hereby constitute and appoint Dwight S. Pedersen and Dirk A. Sodestrom the lawful
attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any amendments to this report on Form 10-K and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact or his substitute or substitutes may do or cause
to be done by virtue hereof.

IN
WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated.

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

|Signature                               |  | Title                                                                            |  | Date            
|--------------------------------------- |  | -------------------------------------------------------------------------------- |  | ----------------
|                                        |  |                                                                                  |  |                 
|/s/W. ROBERT STOVERW. Robert Stover     |  | Chairman of the Board                                                            |  | January 31, 2003
|/s/DWIGHT S. PEDERSENDwight S. Pedersen |  | President and Chief Executive Officer and Director (Principal Executive Officer) |  | January 31, 2003
|/s/DIRK A. SODESTROMDirk A. Sodestrom   |  | Senior Vice President and Chief Financial Officer (Principal Financial Officer)  |  | January 31, 2003
|/s/JOHN P. SANDERSJohn P. Sanders       |  | Vice President and Controller (Principal Accounting Officer)                     |  | January 31, 2003
|/s/JACK D. SAMUELSONJack D. Samuelson   |  | Director                                                                         |  | January 31, 2003
|/s/RONALD D. STEVENSRonald D. Stevens   |  | Director                                                                         |  | January 31, 2003
|/s/WALTER W. MACAULEYWalter W. Macauley |  | Director                                                                         |  | January 31, 2003
|                                        |  |                                                                                  |  |                 

IV-3

---

|/s/JANET M. BRADYJanet M. Brady |  | Director |  | January 31, 2003
|------------------------------- |  | -------- |  | ----------------

|*By: |  | /s/DIRK A. SODESTROM
Dirk A. Sodestrom, Attorney-in-Fact |  |  |  | 
|---- |  | -------------------------------------------------------- |  |  |  | 

IV-4

---

CERTIFICATIONS

I,
Dwight S. Pedersen, certify that:

Date:
January 31, 2003

|/s/DWIGHT S. PEDERSENDwight S. Pedersen
President and Chief Executive Officer
Westaff, Inc.
(Principal Executive Officer) | 
|------------------------------------------------------------------------------------------------------------------------- | 

---

I, Dirk A. Sodestrom, certify that:

Date:
January 31, 2003

|/s/DIRK A. SODESTROMDirk A. Sodestrom
Senior Vice President and Chief Financial Officer
Westaff, Inc.
(Principal Financial Officer) | 
|----------------------------------------------------------------------------------------------------------------------------------- | 

---

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