<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549


                                    FORM 10-Q

       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                             EXCHANGE ACT OF 1934.

                 For the quarterly period ended JANUARY 23, 1999

                         Commission file number 0-24990


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

           DELAWARE                                             94-1266151
   (State or other jurisdiction                              (I.R.S.employer
of incorporation or organization)                         identification number)


                                 301 LENNON LANE
                       WALNUT CREEK, CALIFORNIA 94598-2453
                                 (925) 930-5300
               (Address, including zip code, and telephone number,
        including area code, of registrant's principal executive offices)



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 X   No
                                      ----   ----



Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

              Class                              Outstanding at March 9, 1999
            ---------                            ----------------------------

   Common Stock, $.01 par value                        15,907,087 shares


<PAGE>

                         WESTAFF, INC. AND SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>

                                                                            PAGE
                                                                            ----

<S>                                                                         <C>
PART I.  FINANCIAL INFORMATION

Item 1.    Financial Statements

              Condensed Consolidated Balance Sheets -
                January 23, 1999 and October 31, 1998                          3

              Condensed Consolidated Statements of Operations -
                12 weeks ended January 23, 1999 and January 24, 1998           4

              Condensed Consolidated Statements of Cash Flows -
                12 weeks ended January 23, 1999 and January 24, 1998           5

              Notes to Condensed Consolidated Financial Statements             6

Item 2.    Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                       10

PART II. OTHER INFORMATION

Item 1.    Legal Proceedings                                                  20

Item 2.    Changes in Securities                                              20

Item 3.    Defaults upon Senior Securities                                    20

Item 4.    Submission of Matters to a Vote of Security Holders                20

Item 5.    Other Information                                                  20

Item 6.    Exhibits and Reports on Form 8-K                                   20

Signatures                                                                    21

</TABLE>


<PAGE>

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

WESTAFF, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                    JANUARY 23,           OCTOBER 31,
                                                                                       1999                  1998
                                                                                 -----------------     ----------------
                                                                                    (Unaudited)

<S>                                                                              <C>                   <C>
ASSETS
Current assets:
     Cash and cash equivalents                                                   $           5,011     $          4,651
     Trade accounts receivable, less allowance for doubtful
        accounts of $786 and $786                                                           78,966               87,552
     Due from licensees                                                                      4,112                3,235
     Deferred income taxes                                                                   7,777                6,725
     Net assets of discontinued operations                                                  24,179               23,753
     Other current assets                                                                    5,140                5,705
                                                                                 -----------------     ----------------
      Total current assets                                                                 125,185              131,621

Property, plant and equipment, net                                                          22,850               21,320
Deferred income taxes                                                                        4,357                3,981
Intangible assets, net                                                                      38,535               37,678
Other long-term assets                                                                       2,129                2,545
                                                                                 -----------------     ----------------
                                                                                 $         193,056     $        197,145
                                                                                 -----------------     ----------------


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Short-term borrowings                                                       $          19,900     $         15,600
     Current portion of loans payable                                                        3,697                3,851
     Current portion of note payable to related party                                                               972
     Accounts payable and accrued expenses                                                  42,296               52,787
     Income taxes payable                                                                    1,964                  709
                                                                                 -----------------     ----------------
        Total current liabilities                                                           67,857               73,919

Loans payable                                                                               44,192               44,708
Other long-term liabilities                                                                 11,015               11,035
                                                                                 -----------------     ----------------
        Total liabilities                                                                  123,064              129,662
                                                                                 -----------------     ----------------

Commitments and contingencies

Stockholders' equity:
     Preferred stock, $.01 par value; authorized and unissued: 1,000 shares
     Common stock, $.01 par value; authorized: 25,000 shares; issued:  15,948
        shares at January 23, 1999 and October 31, 1998                                        159                  159
     Additional paid-in-capital                                                             37,382               37,341
     Retained earnings                                                                      34,959               32,679
     Cumulative currency translation                                                          (677)                (774)
                                                                                 -----------------     ----------------
                                                                                            71,823               69,405
     Less treasury stock at cost, 103 shares at January 23, 1999 and
        108 shares at October 31, 1998                                                       1,831                1,922
                                                                                 -----------------     ----------------
        Total stockholders' equity                                                          69,992               67,483
                                                                                 -----------------     ----------------
                                                                                 $         193,056     $        197,145
                                                                                 -----------------     ----------------

</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       3


<PAGE>

WESTAFF, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
------------------------------------------------------------------------------

<TABLE>
<CAPTION>


                                                                                 12 WEEKS ENDED
                                                                       -----------------------------------
                                                                         JANUARY 23,         JANUARY 24,
                                                                             1999                1998
                                                                       ---------------     ---------------

<S>                                                                    <C>                 <C>
Sales of services                                                      $       136,415     $       127,008
License fees                                                                       667                 240
                                                                       ---------------     ---------------

Total sales of services and license fees                                       137,082             127,248

Costs of services                                                              108,344             101,279
                                                                       ---------------     ---------------

Gross profit                                                                    28,738              25,969

Franchise agents' share of gross profit                                          3,302               3,941
Selling and administrative expenses                                             19,233              17,101
Depreciation and amortization                                                    1,822               1,379
                                                                       ---------------     ---------------

Operating income from continuing operations                                      4,381               3,548

Interest expense                                                                   564                 290
Interest income                                                                    (83)                (80)
                                                                       ---------------     ---------------

Income from continuing operations before income taxes                            3,900               3,338
Provision for income taxes                                                       1,560               1,335
                                                                       ---------------     ---------------

Income from continuing operations                                                2,340               2,003

Income from discontinued operations, net of income taxes                                               233

                                                                       ---------------     ---------------
Net income                                                             $         2,340     $         2,236
                                                                       ---------------     ---------------
Earnings (loss) per share:

     Continuing operations:
        Basic                                                          $          0.15     $          0.13
                                                                       ---------------     ---------------
        Diluted                                                        $          0.15     $          0.13
                                                                       ---------------     ---------------
     Discontinued operations:
        Basic                                                          $             -     $          0.02
                                                                       ---------------     ---------------
        Diluted                                                        $             -     $          0.02
                                                                       ---------------     ---------------
     Net income:
        Basic                                                          $          0.15     $          0.15
                                                                       ---------------     ---------------
        Diluted                                                        $          0.15     $          0.15
                                                                       ---------------     ---------------

Weighted average shares outstanding - basic                                     15,843              15,387
                                                                       ---------------     ---------------
Weigthed average shares outstanding - diluted                                   15,846              15,486
                                                                       ---------------     ---------------

</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       4


<PAGE>

WESTAFF, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(AMOUNTS IN THOUSANDS)
------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                             12 WEEKS ENDED
                                                                    ----------------------------------
                                                                     JANUARY 23,         JANUARY 24,
                                                                         1999                1998
                                                                    ---------------     --------------

<S>                                                                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                      $         2,340     $        2,236
    Adjustments to reconcile net income to net cash
     from operating activities:
      Depreciation                                                            1,262              1,162
      Amortization of intangible assets                                         560                399
      Provision for losses on doubtful accounts                                 209                242
      Deferred income taxes                                                  (1,428)            (1,246)
      Changes in assets and liabilities:
        Trade accounts receivable                                             8,439              6,049
        Due from licensees                                                     (877)              (343)
        Other assets                                                            681                410
        Accounts payable and accrued expenses                               (10,448)               312
        Income taxes payable                                                  1,257             (1,519)
        Other long-term liabilities                                             (14)               156
                                                                    ---------------

Net cash provided by continuing operations                                    1,981
Net cash used in discontinued operations                                       (408)
                                                                    ---------------     --------------

Net cash provided by operating activities                                     1,573              7,858
                                                                    ---------------     --------------

CASH FLOWS FROM INVESTING ACTIVITIES
    Capital expenditures                                                     (2,817)              (863)
    Payments for intangibles and other investments                             (861)            (3,314)
    Investing activities of discontinued operations                             (18)
    Other, net                                                                   31               (453)
                                                                    ---------------     --------------

Net cash used in investing activities                                        (3,665)            (4,630)
                                                                    ---------------     --------------

CASH FLOWS FROM FINANCING ACTIVITIES
    Net borrowings (repayments) under line of credit agreements               4,300             (2,300)
    Proceeds from issuance of loans payable                                                      3,050
    Principal payments on loans payable                                      (1,869)            (1,222)
    Issuance of common stock                                                     32
    Repurchase of common stock                                                                    (343)
                                                                    ---------------     --------------

Net cash provided by (used in) financing activities                           2,463               (815)
                                                                    ---------------     --------------

Effect of exchange rate on cash                                                 (11)               (50)
                                                                    ---------------     --------------

Net change in cash and cash equivalents                                         360              2,363
Cash and cash equivalents at beginning of period                              4,651              4,796
                                                                    ---------------     --------------
Cash and cash equivalents at end of period                          $         5,011     $        7,159
                                                                    ---------------     --------------

</TABLE>


    See accompanying notes to condensed consolidated financial statements.

                                       5


<PAGE>



WESTAFF, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
-----------------------------------------------------------------------------


1.   BASIS OF PRESENTATION

     The accompanying condensed consolidated financial statements of Westaff,
     Inc. and its domestic and foreign subsidiaries (together, the Company), as
     of and for the 12 week periods ended January 23, 1999 and January 24, 1998
     are unaudited. Material intercompany accounts and transactions have been
     eliminated.

     In November 1998, the Company announced its plan to sell its medical
     business, primarily operating through Western Medical Services, Inc.
     (Western Medical), a wholly owned subsidiary. As a result of this decision,
     the medical operations are classified as discontinued operations and
     presented as such in these Condensed Consolidated Balance Sheets and
     Condensed Consolidated Statements of Operations, and in the Condensed
     Consolidated Statement of Cash Flows for the 12 weeks ended January 23,
     1999.

     The condensed consolidated financial statements, in the opinion of
     management, reflect all adjustments, which are of a normal recurring
     nature, necessary for a fair presentation of the financial position,
     results of operations and cash flows for the periods presented.

     Certain financial information which is normally included in financial
     statements prepared in accordance with generally accepted accounting
     principles, but which is not required for interim reporting purposes, has
     been condensed or omitted. The accompanying condensed consolidated
     financial statements should be read in conjunction with the financial
     statements and notes thereto included in the Company's Annual Report on
     Form 10-K for the fiscal year ended October 31, 1998.

     The Company's fiscal year is a fifty-two or fifty-three week period ending
     the Saturday nearest the end of October. For interim reporting purposes,
     the first three fiscal quarters comprise twelve weeks each while the fourth
     fiscal quarter consists of sixteen or seventeen weeks. The results of
     operations for the 12 week period ended January 23, 1999 are not
     necessarily indicative of the results to be expected for the full fiscal
     year or for any future period.

     Certain amounts in the January 24, 1998 financial statements have been
     reclassified as required with respect to discontinued operations. Share and
     per share data as of January 24, 1998 have been adjusted for the Company's
     May 1998 three-for-two common stock split.

2.   DISCONTINUED OPERATIONS

     In November 1998, the Company announced its decision to sell Western
     Medical. Western Medical provides temporary health care personnel to serve
     an array of home care and institutional health care needs, including
     Medicare patients, through a network of geographically dispersed
     company-owned, franchise agent and license offices. The Company is actively
     marketing Western Medical and is currently involved in discussions with a


                                       6


<PAGE>

WESTAFF, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
-----------------------------------------------------------------------------

     number of parties who have expressed an interest in the medical operations.
     The Company's goal is to complete the sale of Western Medical by the end of
     the third quarter of fiscal 1999.

     During the fourth quarter of fiscal 1998, the Company recorded an after-tax
     charge of $3,480 on the planned disposal of Western Medical. This after-tax
     charge included $2,500 for the estimated write-down of assets to estimated
     net realizable value, $240 of estimated costs to be incurred in selling the
     operation and $740 of estimated operating losses to be incurred during the
     disposal period. The total after-tax costs and losses incurred during the
     first quarter of fiscal 1999 were approximately $390 for Western Medical.

     Revenues of the medical operations were $12,481 and $13,907 for the 12
     weeks ended January 23, 1999 and January 24, 1998, respectively, and are
     not included in sales of services and license fees as reported in the
     Condensed Consolidated Statements of Operations. Summarized balance sheet
     data for discontinued operations is as follows:

<TABLE>
<CAPTION>

                                                                 JANUARY 23,        OCTOBER 31,
                                                                    1999               1998
                                                               --------------     ---------------
                                                                 (Unaudited)

<S>                                                            <C>                <C>
Current assets (primarily receivables)                         $       22,498     $        21,675
Property, plant and equipment, net                                      1,958               2,085
Intangible assets, net                                                  5,712               5,712
Other assets                                                              237                 285
Current liabilities                                                    (6,118)             (5,930)
Noncurrent liabilities                                                   (108)                (74)
                                                               --------------     ---------------
Net assets of discontinued operations                          $       24,179     $        23,753
                                                               --------------     ---------------

</TABLE>


3.   EARNINGS PER SHARE

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


                                       7


<PAGE>

WESTAFF, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
-----------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                  12 WEEKS ENDED
                                                                        ------------------------------------
                                                                           JANUARY 23,         JANUARY 24,
                                                                              1999                1998
                                                                        ---------------     ---------------

<S>                                                                     <C>                 <C>
Income from continuing operations                                       $         2,340     $         2,003
                                                                        ---------------     ---------------

Denominator for basic earnings per share -
       weighted average shares                                                   15,843              15,387

Effect of dilutive securities:
       Stock options                                                                  3                  99
                                                                        ---------------     ---------------
Denominator for diluted earnings per share - adjusted
       weighted average shares and assumed conversions                           15,846              15,486
                                                                        ---------------     ---------------
                                                                        ---------------     ---------------

Basic earnings per share                                                $          0.15     $          0.13
                                                                        ---------------     ---------------
                                                                        ---------------     ---------------
Diluted earnings per share                                              $          0.15     $          0.13
                                                                        ---------------     ---------------
                                                                        ---------------     ---------------

Antidilutive weighted shares excluded from diluted
       earnings per share                                                           745                  --
                                                                        ---------------     ---------------

</TABLE>

     Anti-dilutive weighted shares represent options to purchase shares of
     common stock which were outstanding but were not included in the
     computation of diluted earnings per share because the options' exercise
     price was greater than the average market price of the common shares during
     the period, and therefore the effect would be anti-dilutive.

4.   OPERATING SEGMENTS

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------
                                                        Domestic    International  Consolidated
------------------------------------------------------------------------------------------------

<S>                                                     <C>            <C>          <C>
12 WEEKS ENDED JANUARY 23, 1999

Sales of services and license fees                      $ 117,653      $ 19,429     $ 137,082

Operating income from continuing operations             $   4,098      $    283     $   4,381

12 WEEKS ENDED JANUARY 24, 1998

Sales of services and license fees                      $ 110,402      $ 16,846     $ 127,248

Operating income from continuing operations             $   3,187      $    361     $   3,548

</TABLE>

5.   COMMITMENTS AND CONTINGENCIES

     The Company is subject to claims and other actions arising in the ordinary
     course of business. Some of these claims and actions have resulted in
     lawsuits in which the Company is a defendant. Management believes that the
     ultimate obligations, if any, which may result


                                       8


<PAGE>

WESTAFF, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
-----------------------------------------------------------------------------

     from unfavorable outcomes of such lawsuits will not have a material adverse
     effect on the business, financial position, results of operations or cash
     flows of the Company and that such obligations, if any, would be adequately
     covered by insurance.


                                       9
<PAGE>

WESTAFF, INC.

ITEM 2. 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 Condensed Consolidated Financial Statements and
Notes thereto included herein and with the Consolidated Financial Statements and
Notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1998.

In addition to historical information, this management's 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. These forward-looking statements include, but are not limited to,
statements regarding sales, acquisitions, gross margin, workers' compensation
costs, selling and administrative expenses, interest expense, income taxes,
capital expenditures, capital resources, management information systems, Year
2000 issues and medical operations. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. 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.

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 include, but are not
limited to: demand for the Company's services, the competition within its
markets, the loss of a principal customer and the Company's ability to increase
the productivity of its existing offices, to control costs, to expand operations
and the availability of sufficient personnel. There are also significant risks
and uncertainties relating to the ability of the Company to dispose of its
medical operations in a timely and cost effective manner. Due to the foregoing
factors, it is possible that in some future 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, with demand for temporary
staffing historically highest in the fourth fiscal quarter, due largely to the
planning cycles of many of the Company's customers, and typically lower in the
first fiscal quarter, due, in part, to national holidays as well as to plant
shutdowns during and after the holiday season. These and other risks and
uncertainties related to the Company's business are described in detail in the
"Factors Affecting Future Operating Results" section of the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1998.

OVERVIEW
The Company provides temporary staffing services primarily in suburban and rural
markets ("secondary markets"), as well as in the downtown areas of 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


                                       10


<PAGE>

WESTAFF, INC.

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

businesses and government agencies. The Company has over 50 years of experience
in the staffing industry and operates through over 370 business services offices
in 45 states, the District of Columbia, Guam and five foreign countries.

The Company differentiates itself from other large temporary staffing companies
by focusing on recruiting and placing essential support personnel in secondary
markets. Essential support personnel often fill clerical, light industrial and
light technical positions such as word processing, data entry, reception,
customer service and telemarketing, warehouse labor, manufacturing, assembly and
lab assistance. These assignments can support either core or non-core functions
of the customer's business, but are always "essential" to daily operations.

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. Companies 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. During these periods of increased economic activity and generally higher
levels of employment, the competition among temporary staffing firms for
qualified temporary personnel is intense. There can be no assurance that during
these periods the Company will be able to recruit the temporary personnel
necessary to fill its customers' job orders in which case the Company's
business, results of operations, cash flows or financial condition may be
adversely affected. As economic activity slows, many companies reduce their
utilization of temporary employees before releasing full-time employees. In
addition, the Company may experience less demand for its services and more
competitive pricing pressure during periods of economic downturn. Therefore, any
significant economic downturn could have a material adverse effect on the
Company's business, results of operations, cash flows or financial condition.

DISCONTINUED OPERATIONS
In November 1998, the Company announced its plan to sell its medical business,
primarily operating through Western Medical Services, Inc., a wholly owned
subsidiary of the Company ("Western Medical"). As a result of this decision, the
Company has classified its medical operations as discontinued operations and,
accordingly, has segregated the net assets of the discontinued operations in the
Condensed Consolidated Balance Sheets at January 23, 1999 and October 31, 1998,
the operating results of the discontinued operations in the Condensed
Consolidated Statements of Operations for fiscal quarters ended January 23, 1999
and January 24, 1998 and the cash flows from discontinued operations in the
Condensed Consolidated Statement of Cash Flows for the fiscal quarter ended
January 23, 1999.

During the fourth quarter of fiscal 1998, the Company recorded an after-tax
charge of $3.5 million on the planned disposal of Western Medical. This
after-tax charge included $2.5 million for the estimated write-down of assets to
estimated net realizable value, $240,000 of estimated costs to be incurred in
selling the operation and $740,000 of estimated operating losses to be incurred
during the disposal period. The total after-tax costs and losses incurred during
the first


                                       11


<PAGE>

WESTAFF, INC.

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

quarter of fiscal 1999 were approximately $390,000 for Western Medical, which is
generally in line with Company estimates.

The Company is actively marketing Western Medical and is currently involved in
discussions with a number of parties who have expressed an interest in the
medical operations. The Company's goal is to complete the sale of Western
Medical by the end of the third quarter of fiscal 1999. However, there can be no
assurance that the Company will be able to complete the sale of its medical
operations by that time. Furthermore, the amount of the estimated loss on
disposal of the medical operations is based on a number of assumptions including
the estimated net realizable value of the operations, estimated selling
expenses, estimated operating losses to be incurred during the disposal period
and the length of time estimated to dispose of the operation. There can be no
assurance that the Company will be able to dispose of the medical operations on
terms and costs similar to those estimated by the Company. Should the actual
sale period, terms or costs differ materially from those estimated by
management, the Company would record additional losses (or gains) in future
periods.

The Company's decision to sell the medical operations was prompted in large
measure by the increasingly complex and unfavorable regulatory environment
affecting the Medicare business and the impact that changes in regulations have
had and will likely continue to have on the ability of the Company to operate
profitably in the medical sector. The disposition of the medical operations will
enable the Company to focus on business services, where management believes that
long-term growth prospects are more attractive.

RESULTS OF CONTINUING OPERATIONS

FISCAL QUARTER ENDED JANUARY 23, 1999 COMPARED TO FISCAL QUARTER ENDED JANUARY
24, 1998

SALES OF SERVICES AND LICENSE FEES. Sales of services increased $9.4 million, or
7.4%, for the fiscal quarter ended January 23, 1999 as compared to fiscal
quarter ended January 24, 1998. The increase resulted from a 2.6% increase in
billed hours and a 4.7% increase in average billing rates per hour. Billed hours
increased primarily due to acquisitions partially offset by decreases in
reported sales of services as a result of the conversion of nine franchise
agents to the license program. Acquisitions accounted for approximately $11.1
million of the increase in sales of services while the conversion of the
franchise agents to the license program resulted in a $5.5 million decrease in
reported sales of services. Same store sales increased approximately 1.2% for
the first quarter of fiscal 1999 as compared to the first quarter of fiscal
1998. Sales of services for fiscal 1999 increased 6.2% and 15.3%, respectively,
for domestic business services and international business services as compared
to fiscal 1998. Excluding the effect of foreign currency rate fluctuations,
sales of services increased 21.1% for international business services. The
increase in average billing rates reflects the ongoing effects of the Company's
gross profit improvement program, changes in the Company's overall business mix
and inflationary factors. In recent months the Company has seen a continued
slowing in the rate of sales growth from 


                                       12


<PAGE>

WESTAFF, INC.

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

levels experienced earlier in fiscal 1998. This slowing is consistent with
industry trends and is likely to continue into fiscal 1999. Furthermore, the
Company has scaled back its near-term acquisition plans and, accordingly, sales
growth from additional acquisitions will likely be minimal at least through the
first three quarters of fiscal 1999 and possibly throughout fiscal 1999.

License fees are charged to licensed offices based either on a percentage of
sales or of gross profit generated by the licensed offices. License fees
increased $427,000, or 177.9%, for the fiscal quarter ended January 23, 1999 as
compared to the fiscal quarter ended January 24, 1998 primarily as a result of
conversions of franchise agents to the license program.

COSTS 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 increased $7.1
million, or 7.0%, for the fiscal quarter ended January 23, 1999 as compared to
January 24, 1998. Gross margin increased from 20.4% in the first quarter of
fiscal 1998 to 21.0% in the first quarter of fiscal 1999, primarily due to
higher license fees and lower workers' compensation costs and state unemployment
insurance costs as a percentage of sales of services and license fees. Gross
margin for international business services decreased slightly from 21.4% in the
first quarter of fiscal 1998 to 21.3% for the first quarter of fiscal 1999,
primarily due to increased sales of lower margin business in Australia. The
Company will continue its efforts to improve gross margin where feasible;
however, within the current business climate, the Company believes that there
are fewer opportunities available to increase gross margin, and, in some areas,
the Company anticipates increased downward pressures on margins due to
competition. There can be no assurance that the Company will be successful in
either increasing or maintaining gross margin.

Workers' compensation costs were 2.9% of payroll for the first quarter of fiscal
1999 and 3.5% for the first quarter of fiscal 1998. These costs tend to vary
depending upon the mix of business between clerical staffing and light
industrial staffing. During the third quarter of fiscal 1998, the Company
evaluated the loss development trends and historical accruals for policy years
1994, 1995 and 1997 as well as the preliminary trends for policy year 1998. As a
result of improvements in loss development trends for these years, during the
third quarter of fiscal 1998, the Company reduced its current accrual rates
related to workers' compensation costs. The Company currently estimates that the
accrual rates for workers' compensation costs will be in the range of 3.0% to
3.3% of direct labor for fiscal 1999. These rates will be evaluated throughout
fiscal 1999 to ensure that they remain appropriate in light of the Company's
loss trends. There can be no assurance that the Company's programs to control
workers' compensation expenses will be effective or that loss development trends
will not require a charge to costs of services in future periods to increase
workers' compensation accruals.

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


                                       13


<PAGE>

WESTAFF, INC.

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

$639,000 or 16.2%, for the first quarter of fiscal 1999 as compared to the first
quarter of fiscal 1998. As a percentage of sales of services and license fees,
franchise agents' share of gross profit declined from 3.1% during the first
quarter of fiscal 1998 period to 2.4% for the first quarter of fiscal 1999. This
decrease is primarily the result of franchise agent conversions to the license
program as noted above.

SELLING AND ADMINISTRATIVE EXPENSES (INCLUDING DEPRECIATION AND AMORTIZATION).
Selling and administrative expenses increased $2.6 million, or 13.9%, for the
first quarter of fiscal 1999 as compared to the first quarter of fiscal 1998. As
a percentage of sales of services and license fees, selling and administrative
expenses increased from 14.5% for the first quarter of fiscal 1998 to 15.3% for
the first quarter of fiscal 1999. The increase in selling and administrative
expenses as a percentage of sales of services and license fees was primarily due
to a higher proportion of business generated through licensed offices and
Company-owned offices as compared to franchise agent offices, and higher
amortization costs resulting from increased acquisition activity. As the
proportion of franchise sales and gross profit declines relative to total sales
(due to conversions from franchise agent offices to licensed offices or
Company-owned offices), franchise agents' share of gross profit declines as a
percentage of sales of services and license fees, and selling and administrative
costs tend to increase as a percentage of sales of services and license fees.

Selling and administrative expenses are also impacted by the Company's
management information systems. In the third quarter of fiscal 1998, the Company
finalized its long-term strategic plan for its next generation management
information and support systems. This plan calls for a phased migration from the
Company's existing systems to the new systems over a 24-month period. Capital
expenditures under the plan are expected to be approximately $12.0 million
including costs of hardware, software and internal and external costs associated
with the implementation of the project.

The initial phase will be to replace the Company's back-office financial
reporting systems and will be completed during the second quarter of fiscal
1999. Since the Company's existing back-office financial reporting systems are
fully depreciated, the implementation of the new back-office systems will result
in increased depreciation expenses starting in the second quarter of fiscal
1999. The second phase will be the implementation and roll-out of a new branch
office integrated search and retrieval and remote data capture module. The
initial pilot for this front-end system is expected to be completed during the
second quarter of fiscal 1999, with roll-out to all domestic business services
offices estimated to take approximately 18 to 24 months. The Company has also
begun implementation and roll-out of a wide area network (WAN) which will allow
enhanced communication and data transmission capabilities among the field and
corporate offices. The Company completed a pilot set-up of the WAN during the
fourth quarter of fiscal 1998. The actual roll-out of the network to the
remaining field offices is planned to be completed over the next 12 months. As
the individual branch offices are converted to the new integrated front-office
system and network, the Company expects to incur increased training and
depreciation costs. Furthermore, as each office is connected to the WAN, the
Company will


                                       14


<PAGE>

WESTAFF, INC.

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

incur increased telecommunication costs. The Company expects to realize
productivity gains as a result of the enhanced communication capabilities and
features of the front-end system which may offset the incremental costs from
the system; however, there can be no assurance that such productivity gains or
cost savings will be realized.

The final phase of the new systems will be the implementation of new payroll,
billing and activities management systems integrating both branch office systems
and back-office financial systems. The Company has reduced the estimated useful
life of its existing payroll/billing system to conform to the replacement
schedule; however, the incremental additional depreciation as a result of the
reduced system life is immaterial to the Company's results of operations. The
Company anticipates completion of this project in fiscal 2000 with a phased
roll-out to offices over a 12-month period. As this final phase is implemented,
the Company expects to incur additional expenses for training and depreciation.
In addition, during the roll-out period, the Company will be required to operate
the old payroll/billing systems and new integrated systems concurrently, which
will result in higher administrative expenses.

The Company believes that the new enterprise-wide systems will provide
significant operating efficiencies for both field and corporate office
personnel. However, there can be no assurance that the Company will meet
anticipated completion dates for system replacements and enhancements consisting
of next generation management information and support systems, that such
replacements and enhancements will be completed in a cost-effective manner or
that such replacements and enhancements will support the Company's future growth
or provide significant gains in efficiency and productivity. The failure of the
replacements and enhancements to meet these expected goals could result in
increased system costs and could have a material adverse effect on the Company's
business, results of operations, cash flows or financial condition.

INTEREST EXPENSE. Interest expense increased $274,000, or 94.5%, for the first
quarter of fiscal 1999 as compared to the first quarter of fiscal 1998,
reflecting higher average borrowings outstanding required to support the
Company's internal growth and acquisitions.

PROVISION FOR INCOME TAXES. The provision for income taxes for the first quarter
of fiscal 1999 was $1.6 million as compared to $1.3 million for the first
quarter of fiscal 1998. This increase was due primarily to the increase in
income before income taxes of $562,000. The effective income tax rate for both
the fiscal 1999 and fiscal 1998 periods was 40.0%. The Company currently
estimates that the effective income tax rate for fiscal 1999 will be
approximately 40.0%.

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 financings and
bank lines of credit. The Company's principal use of cash is for financing of
accounts receivable, particularly during periods of growth and, in recent years,
for acquisitions. Temporary personnel are generally paid


                                       15


<PAGE>

WESTAFF, INC.

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

on a weekly basis while payments from customers are generally received 30 to 60
days after billing for business services. 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. For purposes of the following discussion of
cash flows, the cash flows from discontinued operations have been segregated for
the first quarter of fiscal 1999. Cash flows are presented on a consolidated
basis for the first quarter of fiscal 1998.

Net cash from operating activities was $1.6 million for the fiscal quarter ended
January 23, 1999 and $7.9 million for the fiscal quarter ended January 24, 1998.
The decrease in cash from operating activities is primarily due to decreases in
accounts payable and accrued liabilities for the 1999 period.

Cash used for capital expenditures, which are generally for software, computers
and peripherals, and office furniture and equipment, totaled $2.8 million for
the fiscal quarter ended January 23, 1999 and $863,000 for the fiscal quarter
ended January 24, 1998. The increase in capital expenditures during fiscal 1999
is associated with payments for the Company's next generation management
information and support systems. Capital expenditures for these systems are
expected to be approximately $12.0 million including costs of hardware, software
and internal and external costs associated with implementation of the project.
The Company incurred $2.3 million of such capital expenditures during the first
quarter of fiscal 1999 and expects to spend a total of approximately $4.8
million during fiscal 1999 and approximately $1.0 million during fiscal 2000.

Cash outflows for new acquisitions and for contingent payments under existing
acquisitions totaled $861,000 for the fiscal quarter ended January 23, 1999 and
$3.3 million for the fiscal quarter ended January 24, 1998. Payments of $763,000
and $30,000 related to acquisitions are due for the remainder of fiscal 1999 and
fiscal 2000, respectively, with additional consideration contingent on sales,
gross profit or pre-tax income of the acquired businesses in future periods.

The Company increased borrowings by a net $2.4 million during the fiscal quarter
ended January 23, 1999 primarily to fund capital expenditures. During the fiscal
quarter ended January 24, 1998, the Company reduced borrowings by a net
$500,000.

During the first quarter of fiscal 1998, the Company repurchased 30,000 shares
of common stock on the open market for aggregate cash consideration of $342,500.

On May 20, 1998, the Company executed private placements of 10-year senior
secured notes totaling $30.0 million payable in equal annual installments
beginning in the year 2002. Proceeds from the notes were used to repay
outstanding borrowings under the revolving agreement of $22.6 million, with the
remainder used for working capital and general corporate purposes. Under the
senior secured notes payable, the Company is required to comply with certain
financial and other covenants, the most restrictive of which is a maximum total
debt to


                                       16


<PAGE>

WESTAFF, INC.

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

capitalization ratio. The Company was in compliance with these covenants as of
January 23, 1999.

The Company has senior secured credit facilities for up to $108.0 million 
consisting of a $90.0 million, five-year revolving agreement and an $18.0 
million six-year term loan for working capital needs and general corporate 
purposes, including capital expenditures and acquisitions. Direct advances 
under the revolving credit agreement are limited by outstanding irrevocable 
standby letters of credit up to a maximum amount of $20.0 million. Total 
advances are also limited under formulas based on earnings before interest, 
taxes, depreciation and amortization (EBITDA) and total debt to total 
capitalization. The EBITDA formula is calculated on a rolling four quarter 
basis. The credit facility contains covenants which, among other things, 
require the Company to maintain certain financial ratios and generally 
restrict, limit or, in certain circumstances, prohibit the Company with 
respect to capital expenditures, disposition of assets, incurrence of debt, 
mergers and acquisitions, loans to affiliates and purchases of investments. 
As of January 23, 1999, the Company had $10.0 million in outstanding letters 
of credit and had borrowed $19.9 million under the revolving agreement. 
During the first quarter of 1999, the EBITDA formula related to the revolving 
agreement was amended, for compliance purposes, to provide for an add-back of 
the losses incurred by Western Medical for the third and fourth quarters of 
1998. At January 23, 1999, the Company was in compliance with its covenants.

The Company is currently marketing its medical operations with a goal to
complete the sale of these operations by the end of the third quarter of fiscal
1999. Proceeds from the sale will be used to pay off debt.

On June 2, 1998, the Company filed a Form S-4 shelf registration statement with
the Securities and Exchange Commission registering 1.5 million shares of its
$.01 par value common stock which may be offered in the future in connection
with the Company's acquisitions program, of which approximately 1.1 million
shares remain available for issuance.

The Company has filed registration statements under the Securities Act with
respect to an aggregate of 2.3 million shares of common stock reserved for
issuance under its equity incentive plans, thus permitting the resale of such
shares by non-affiliates in the public market without restriction under the
Securities Act upon the exercise of stock options. As of January 23, 1999,
options to purchase an aggregate of 768,474 shares of common stock were
outstanding under the Company's equity incentive plans.

The Company believes that cash 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.


YEAR 2000


                                       17


<PAGE>

WESTAFF, INC.

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

The Company is in the process of implementing a comprehensive plan to address
the Year 2000 issue, particularly with respect to its mission critical systems.
Mission critical systems are those whose failure poses a risk of disruption to
the Company's ability to provide employment to its temporary employees and
temporary staffing services to its customers. The Year 2000 issue is the result
of computer programs being written using two digits rather than four to define
the applicable year. Any programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations. The Company's plan
includes three phases: (i) a complete inventory and evaluation of all mission
critical systems including both information technology (IT) systems and non-IT
systems such as hardware containing embedded technology, for Year 2000
compliance; (ii) modification or replacement of hardware and software affected
by the Year 2000 issue; and (iii) testing of the modified systems and
formulation of a contingency plan in the event non-compliant systems are not in
place prior to January 1, 2000. The Company is using both internal and external
resources to assess its systems, develop and implement its plan.

The Company has essentially completed its initial system inventory and
evaluation phase. For its domestic operations, the Company has identified one
group of non-compliant mission critical back-office systems and is in the
process of installing Year 2000 compliant replacement systems. The Company
expects that these systems will be implemented during the second quarter of
fiscal 1999. The Company has identified one additional mission critical system
that is not fully Year 2000 compliant and is in the process of modifying this
system to bring it into compliance. The Company estimates that it has completed
approximately 50% of the remediation efforts with respect to this system and
expects to complete all modifications and testing of this system by the end of
April, 1999. The Company expects to bring its domestic operations systems to
full Year 2000 compliance by the end of the second quarter of fiscal 1999. For
the international operations, the Company will be required to replace or upgrade
the payroll/billing systems in two of its international operations and will also
be required to upgrade or replace a number of back office support systems. The
Company is currently in the process of making these changes. The Company
currently plans to have all international operations fully compliant during the
fourth quarter of fiscal 1999. Although the Company does not expect that the
impact of the Year 2000 issue will be material to the Company's domestic or
international operations, there can be no assurance that the Company will not
discover additional Year 2000 issues that would have a material adverse effect
on the Company's business, results of operations, cash flows or financial
condition.

Testing of modified systems, along with quantification of the impact, if any, of
failure to complete any necessary corrective action, is expected to be completed
by the end of the third quarter of fiscal 1999, along with the completion of
contingency plans. Although the Company cannot currently estimate the magnitude
of the impact if mission critical systems have not been made Year 2000 compliant
prior to the end of calendar year 1999, if such systems are not compliant, there
would be a material adverse effect on the Company's business, results of
operations, cash flows or financial condition.


                                       18


<PAGE>

WESTAFF, INC.

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

Estimated costs associated with the replacement of the domestic back-office
systems are included in the cost estimates as discussed above relating to the
Company's next generation management information systems. To date, the remaining
costs incurred by the Company with respect to domestic Year 2000 compliance have
not been material and are not expected to be material for fiscal 1999. For
international operations, costs incurred to date are not material. Total
estimated costs to be incurred for international operations, including costs
associated with upgrading and replacing hardware and software, are currently
estimated to be $650,000. The Company believes that cash from operations and the
Company's current borrowing capacity will be sufficient to cover the costs of
Year 2000 compliance efforts.

The Company has also begun to survey third-party suppliers and vendors,
including key financial institutions, as well as major customers and landlords,
for Year 2000 compliance. The Company expects to complete this survey in the
second quarter of fiscal 1999. At this time the Company cannot estimate the
effect, if any, that non-compliant systems at these entities could have on the
Company's business, results of operations, cash flows or financial condition,
and there can be no assurance that the impact, if any, will not be material.

EUROPEAN CURRENCY

Beginning in January 1999, a new currency called the "euro" was introduced in
certain European countries that are part of the Economic and Monetary Union
(EMU). During calendar year 2002, all EMU countries are expected to be operating
with the euro as their single currency. A significant amount of uncertainty
exists as to the effect the euro will have on the marketplace. Additionally, all
of the rules and regulations have not yet been defined and finalized by the
European Commission with regard to the euro currency. Currently, the Company
does not operate in any countries that are part of the EMU; however, the Company
operates in the United Kingdom and Denmark, which may join the EMU at a future
date. The Company is assessing the effect the euro formation will have on its
internal systems and the sales of its services. The Company expects to take
appropriate actions based on the results of such assessment. The Company has not
yet determined the costs of addressing this issue and there can be no assurance
that this issue and its related costs will not have a material adverse effect on
the Company's business, results of operations, cash flows or financial
condition.


                                       19


<PAGE>

PART II.  OTHER INFORMATION
------------------------------------------------------------------------------

Item 1.       LEGAL PROCEEDINGS

                   The Company is not currently a party to any litigation that
              could have a material adverse effect on its business, results of
              operations, financial position or cash flows. However, from time
              to time the Company has been threatened with, or named as a
              defendant in, lawsuits, including countersuits brought by former
              franchise agents, and administrative claims and lawsuits brought
              by employees or former employees.

Item 2.       CHANGES IN SECURITIES

                   Not applicable.

Item 3.       DEFAULTS UPON SENIOR SECURITIES

                   Not applicable.

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

                   Not applicable.

Item 5.       OTHER INFORMATION

                   Not applicable.


Item 6.       EXHIBITS AND REPORTS ON FORM 8-K

                   (a)   Exhibits


                                  EXHIBIT INDEX

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

10.8.12       Third Amendment to Credit Agreement dated as of January 22, 1999
27.1          Financial Data Schedule

-----------------

                   (b)   Reports on Form 8-K

                         No reports on Form 8-K were filed in or for the 12 week
              period ended January 23, 1999.


                                       20


<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                           WESTAFF, INC.


    March  9, 1999                 /s/     Paul A. Norberg
  -----------------------          ---------------------------------
          Date                             Paul A. Norberg
                                     Executive Vice President and
                                       Chief Financial Officer