<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 APRIL 17, 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 June 1, 1999
   ----------------------------                    ---------------------------
   Common Stock, $.01 par value                         15,848,487 shares

<PAGE>

                         WESTAFF, INC. AND SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>
                                                                                      PAGE
                                                                                      ----
<S>      <C>                                                                          <C>
PART I.  FINANCIAL INFORMATION

Item 1.   Financial Statements
               Condensed Consolidated Balance Sheets -
                 April 17, 1999 and October 31, 1998                                     3

               Condensed Consolidated Statements of Operations -
                 12 and 24 weeks ended April 17, 1999 and April 18, 1998                 4

               Condensed Consolidated Statements of Cash Flows -
                 24 weeks ended April 17, 1999 and April 18, 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                                                             22

Item 2.   Changes in Securities                                                         22

Item 3.   Defaults upon Senior Securities                                               22

Item 4.   Submission of Matters to a Vote of Security Holders                           22

Item 5.   Other Information                                                             22

Item 6.   Exhibits and Reports on Form 8-K                                              23

Signatures                                                                              24
</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>
                                                                             APRIL 17,      OCTOBER 31,
                                                                               1999            1998
<S>                                                                         ------------    ------------
ASSETS                                                                     (Unaudited)
                                                                           <C>             <C>
Current assets:
  Cash and cash equivalents                                                $      4,645    $      4,651
  Trade accounts receivable, less allowance for doubtful
    accounts of $1,158 and $786                                                  79,469          87,552
  Due from licensees                                                              4,313           3,235
  Deferred income taxes                                                           9,685           6,725
  Net assets of discontinued operations                                          19,484          23,753
  Other current assets                                                            6,590           5,705
                                                                           ------------    ------------
      Total current assets                                                      124,186         131,621

Property, plant and equipment, net                                               22,823          21,320
Deferred income taxes                                                             4,733           3,981
Intangible assets, net                                                           38,220          37,678
Other long-term assets                                                            2,253           2,545
                                                                           ------------    ------------
                                                                           $    192,215    $    197,145
                                                                           ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Short-term borrowings                                                   $     17,400    $     15,600
   Current portion of loans payable                                               3,500           3,851
   Current portion of note payable to related party                                                 972
   Accounts payable and accrued expenses                                         43,323          52,787
   Income taxes payable                                                           1,726             709
                                                                           ------------    ------------
      Total current liabilities                                                  65,949          73,919

Loans payable                                                                    43,417          44,708
Other long-term liabilities                                                      10,983          11,035
                                                                           ------------    ------------
      Total liabilities                                                         120,349         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 April 17, 1999 and October 31, 1998                                   159             159
  Additional paid-in-capital                                                     37,382          37,341
  Retained earnings                                                              35,787          32,679
  Cumulative currency translation                                                  (726)           (774)
                                                                           ------------    ------------
                                                                                 72,602          69,405
  Less treasury stock at cost, 52 shares at April 17, 1999 and
    108 shares at October 31, 1998                                                  736           1,922
                                                                           ------------    ------------
    Total stockholders' equity                                                   71,866          67,483
                                                                           ------------    ------------
                                                                           $    192,215    $    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                   24 WEEKS ENDED
                                                            ----------------------------    ----------------------------
                                                              APRIL 17,      APRIL 18,         APRIL 17,       APRIL 18,
                                                                1999           1998              1999            1998
                                                            ------------   -------------    ------------    ------------
<S>                                                         <C>             <C>             <C>             <C>
Sales of services                                           $    141,920   $    127,982     $    278,335    $    254,990
License fees                                                         729            356            1,397             596
                                                            ------------   -------------    ------------    ------------
Total sales of services and license fees                         142,649        128,338          279,732         255,586

Costs of services                                                112,485        101,339          220,829         202,618
                                                            ------------   -------------    ------------    ------------
Gross profit                                                      30,164         26,999           58,903          52,968

Franchise agents' share of gross profit                            3,698          3,657            7,000           7,598
Selling and administrative expenses                               19,412         17,463           38,644          34,564
Depreciation and amortization                                      1,867          1,430            3,689           2,809
                                                            ------------   -------------    ------------    ------------

Operating income from continuing operations                        5,187          4,449            9,570           7,997

Interest expense                                                     505            312            1,069             602
Interest income                                                      (95)           (83)            (178)           (163)
                                                            ------------   -------------    ------------    ------------
Income from continuing operations before income taxes              4,777          4,220            8,679           7,558
Provision for income taxes                                         1,911          1,688            3,471           3,023
                                                            ------------   -------------    ------------    ------------
Income from continuing operations                                  2,866          2,532            5,208           4,535
                                                            ------------   -------------    ------------    ------------
Discontinued operations:
Income from discontinued operations, net of income taxes                            168                              401
Estimated loss on disposal, net of income taxes                   (1,315)                         (1,315)
                                                            ------------   -------------    ------------    ------------
Total discontinued operations, net of income taxes                (1,315)           168           (1,315)            401
                                                            ------------   -------------    ------------    ------------
Net income                                                  $      1,551   $      2,700     $      3,893    $      4,936
                                                            ============   =============    ============    ============
Earnings (loss) per share:

     Continuing operations:
        Basic                                               $       0.18   $       0.16     $       0.33    $       0.29
                                                            ============   =============    ============    ============
        Diluted                                             $       0.18   $       0.16     $       0.33    $       0.29
                                                            ============   =============    ============    ============
     Discontinued operations:
        Basic                                               $      (0.08)  $       0.01     $      (0.08)   $       0.03
                                                            ============   =============    ============    ============
        Diluted                                             $      (0.08)  $       0.01     $      (0.08)   $       0.03
                                                            ============   =============    ============    ============
     Net income:
        Basic                                               $       0.10   $       0.17     $       0.25    $       0.32
                                                            ============   =============    ============    ============
        Diluted                                             $       0.10   $       0.17     $       0.25    $       0.32
                                                            ============   =============    ============    ============
Weighted average shares outstanding - basic                       15,902         15,478           15,873          15,433
                                                            ============   =============    ============    ============
Weigthed average shares outstanding - diluted                     15,902         15,703           15,874          15,609
                                                            ============   =============    ============    ============
</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>
                                                                  24 WEEKS ENDED
                                                           ----------------------------
                                                             APRIL 17,       APRIL 18,
                                                               1999            1998
                                                           ------------    ------------
<S>                                                        <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                               $      3,893    $      4,936
  Adjustments to reconcile net income to net cash
   from operating activities:
    Depreciation                                                  2,560           2,368
    Amortization of intangible assets                             1,129             805
    Provision for losses on doubtful accounts                       767             465
    Deferred income taxes                                        (3,707)         (2,379)
    Other non-cash charges                                                          153
    Changes in assets and liabilities:
      Trade accounts receivable                                   7,334           4,168
      Due from licensees                                         (1,079)           (851)
      Other assets                                                 (724)           (861)
      Accounts payable and accrued expenses                      (9,381)         (1,732)
      Income taxes payable                                        1,040          (3,939)
      Other long-term liabilities                                   (50)             50
                                                           ------------

Net cash provided by continuing operations                        1,782
Net cash provided by discontinued operations                      3,610
                                                           ------------    ------------
Net cash provided by operating activities                         5,392           3,183
                                                           ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures                                           (4,162)         (1,986)
  Payments for intangibles and other investments                   (994)         (5,562)
  Investing activities of discontinued operations
    Capital expenditures                                            (44)
    Proceeds from sales of assets                                   703
    Non-cash proceeds - note receivable                             (92)
  Other, net                                                        (40)           (385)
                                                           ------------    ------------

Net cash used in investing activities                            (4,629)         (7,933)
                                                           ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Net borrowings under line of credit agreements                  1,800           1,200
  Proceeds from issuance of loans payable                                         2,900
  Principal payments on loans payable                            (2,844)         (1,239)
  Issuance of common stock                                          458           1,247
  Repurchase of common stock                                        (56)           (343)
                                                           ------------    ------------

Net cash (used in) provided by financing activities                (642)          3,765
                                                           ------------    ------------

Effect of exchange rate on cash                                    (127)            (56)
                                                           ------------    ------------

Net change in cash and cash equivalents                              (6)         (1,041)
Cash and cash equivalents at beginning of period                  4,651           4,796
                                                           ------------    ------------
Cash and cash equivalents at end of period                 $      4,645    $      3,755
                                                           ============    ============
</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 and 24 week periods ended April 17, 1999 and April
     18, 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 24 weeks ended
     April 17, 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 and 24 week period ended April 17,
     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 April 18, 1998 financial statements have been
     reclassified as required with respect to discontinued operations. Share
     and per share data as of April 18, 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. During the
     fourth quarter of fiscal 1998, the Company recorded an after-tax charge
     of $3,480 on the

                                       6
<PAGE>


WESTAFF, INC.

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

     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.

     During the first and second quarters of fiscal 1999 the Company completed
     the sale of certain of its franchise agent and company-owned medical
     offices for cash and notes receivable in the amount of $795 and also
     entered into a termination agreement with one of its medical licensees.

     On May 15,1999, the company signed a definitive agreement for the sale
     of the remaining medical business. The sale is currently scheduled to
     close in early June and is contingent on approval of financing. Under
     the terms of the agreement, the Company will retain the accounts
     receivable and due from licensee balances. As a result of the agreement,
     the Company re-evaluated its estimated loss on disposal of the
     discontinued medical business and during the second quarter recorded an
     additional estimated after-tax loss of $1,315 or $0.08 per share. The
     loss includes estimated costs for collecting the remaining accounts
     receivable, additional reserves for trade and Medicare accounts
     receivable, estimated costs to finalize and settle all open Medicare
     cost reports and other charges.

     Revenues of the medical operations were $11,475 and $14,227 for the 12
     weeks ended April 17, 1999 and April 18, 1998, respectively, and $23,956
     and $28,134 for the 24 weeks ended April 17, 1999 and April 18, 1998,
     respectively. Medical operations' revenues 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, which includes the accounts receivable and due from licensees
     to be retained by the Company, is as follows:

<TABLE>
<CAPTION>

                                                                 APRIL 17,           OCTOBER 31,
                                                                   1999                 1998
                                                              ----------------   -----------------
                                                                 (Unaudited)

<S>                                                           <C>                <C>
Current assets (primarily receivables)                        $         19,205   $          21,675
Property, plant and equipment, net                                       1,846               2,085
Intangible assets, net                                                   3,730               5,712
Other assets                                                               297                 285
Current liabilities                                                     (5,382)             (5,930)
Noncurrent liabilities                                                    (212)                (74)
                                                              ----------------   ------------------
Net assets of discontinued operations                         $         19,484   $          23,753
                                                              ----------------   -----------------
                                                              ----------------   -----------------
</TABLE>

                                       7
<PAGE>


WESTAFF, INC.

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


3.   EARNINGS PER SHARE

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

<TABLE>
<CAPTION>

                                                                      12 WEEKS ENDED                       24 WEEKS ENDED
                                                              --------------------------------     --------------------------------
                                                                 APRIL 17,         APRIL 18,          APRIL 17,         APRIL 18,
                                                                   1999              1998               1999              1998
                                                              --------------    --------------     --------------    --------------

<S>                                                           <C>               <C>                <C>               <C>
Income from continuing operations                             $        2,866    $        2,532     $        5,208    $        4,535
                                                              --------------    --------------     --------------    --------------

Denominator for basic earnings per share -
       weighted average shares                                        15,902            15,478             15,873            15,433


Effect of dilutive securities:
       Stock options                                                                       225                  1               176
                                                              --------------    --------------     --------------    --------------
Denominator for diluted earnings per share - adjusted
       weighted average shares and assumed conversions                15,902            15,703             15,874            15,609
                                                              ==============    ==============     ==============    ==============
Basic earnings per share                                      $         0.18    $         0.16     $         0.33    $         0.29
                                                              ==============    ==============     ==============    ==============
Diluted earnings per share                                    $         0.18    $         0.16     $         0.33    $         0.29
                                                              ==============    ==============     ==============    ==============

Antidilutive weighted shares excluded from diluted
     earnings per share
                                                                         758                 2                750                 1
                                                              --------------    --------------     --------------    --------------
</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

                                       8
<PAGE>


WESTAFF, INC.

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


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

<S>                                                 <C>                <C>                <C>
12 WEEKS ENDED APRIL 17, 1999

Sales of services and license fees                  $       123,325    $         19,324   $        142,649
Operating income from continuing operations         $         4,987    $            200   $          5,187

12 WEEKS ENDED APRIL 18, 1998

Sales of services and license fees                  $       112,130    $         16,208   $        128,338
Operating income from continuing operations         $         4,313    $            136   $          4,449

24 WEEKS ENDED APRIL 17, 1999

Sales of services and license fees                  $       240,978    $         38,754   $        279,732
Operating income from continuing operations         $         9,086    $            484   $          9,570

24 WEEKS ENDED APRIL 18, 1998

Sales of services and license fees                  $       222,532    $         33,054   $        255,586
Operating income from continuing operations         $         7,500    $            497   $          7,997
</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 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 risks and uncertainties relating to the ability of the Company to
complete the disposal 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
April 17, 1999 and October 31, 1998, the operating results of the
discontinued operations in the Condensed Consolidated Statements of
Operations for the 12 and 24 weeks ended April 17, 1999 and April 18, 1998
and the cash flows from discontinued operations in the Condensed Consolidated
Statement of Cash Flows for the 24 weeks ended April 17, 1999.

During the first and second quarters of fiscal 1999 the Company completed the
sale of certain of its franchise agent and company-owned medical offices and
also entered into a termination agreement with one of its medical licensees.
On May 15, 1999, the Company signed a definitive agreement for the sale of
the remaining medical business. The sale is currently scheduled to

                                       11
<PAGE>

WESTAFF, INC.

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


close in early June and is contingent on approval of financing. Under the
terms of the agreement, the Company will retain the accounts receivable and
due from licensee balances. As a result of the agreement, the Company
re-evaluated its estimated loss on disposal of the discontinued medical
business and during the second quarter recorded an additional estimated
after-tax loss of $1.3 million or $0.08 per diluted share. The loss includes
estimated costs for collecting the remaining accounts receivable, additional
reserves for trade and Medicare accounts receivable, estimated costs to
finalize and settle all open Medicare cost reports and other charges. The
amount of the estimated loss on disposal of the medical operations is based
on a number of assumptions including the timing of the closing of the current
agreement, estimated net realizable value of the operations, estimated costs
and write-offs required to collect the remaining accounts receivable
balances, estimated selling expenses and estimated costs to be incurred in
filing and settling all remaining Medicare cost reports. 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 disposal 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 APRIL 17, 1999 COMPARED TO FISCAL QUARTER ENDED APRIL
18, 1998

SALES OF SERVICES AND LICENSE FEES. Sales of services increased $13.9
million, or 10.9%, for the fiscal quarter ended April 17, 1999 as compared to
the fiscal quarter ended April 18, 1998. The increase resulted from a 7.2%
increase in billed hours and a 3.4% 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 $9.4 million of the increase in sales of services while the
conversion of the franchise agents to the license program resulted in a $4.6
million decrease in reported sales of services. Same store sales increased
approximately 3.7% for the second quarter of fiscal 1999 as compared to the
second quarter of fiscal 1998. Sales of services for fiscal 1999 increased
9.7% and 19.2%, 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
22.9% for international business services. The increase in average billing
rates primarily reflects the ongoing effects of the Company's gross profit
improvement program, changes in the Company's overall business mix and
inflationary factors. The Company continues to experience a relatively slow
rate of sales growth

                                       12
<PAGE>

WESTAFF, INC.

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


as compared with levels experienced during the first half of fiscal 1998.
This slowing is consistent with industry trends and is likely to continue
throughout 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 $373,000, or 104.8%, for the fiscal quarter ended April 17, 1999 as
compared to the fiscal quarter ended April 18, 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 $11.1 million, or 11.0%, for the fiscal quarter ended April 17,
1999 as compared to the fiscal quarter ended April 18, 1998. Gross margin
increased from 21.0% in the second quarter of fiscal 1998 to 21.1% in the
second quarter of fiscal 1999, primarily due to higher license fees and lower
workers' compensation costs as a percentage of sales of services and license
fees. Gross margin for international business services increased slightly
from 21.4% in the second quarter of fiscal 1998 to 21.5% for the second
quarter of fiscal 1999. 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 second quarter of
fiscal 1999 and 3.3% for the second 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 through 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 increased $41,000,
or 1.1%, for the second quarter of fiscal 1999 as compared to the second
quarter of

                                       13
<PAGE>

WESTAFF, INC.

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


fiscal 1998. As a percentage of sales of services and license fees, franchise
agents' share of gross profit declined from 2.8% during the second quarter of
fiscal 1998 to 2.6% for the second 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 $2.4 million, or
12.6%, for the second quarter of fiscal 1999 as compared to the second
quarter of fiscal 1998. As a percentage of sales of services and license
fees, selling and administrative expenses increased from 14.7% for the second
quarter of fiscal 1998 to 14.9% for the second 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 during fiscal 1998. 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 $12.5 million including costs of hardware, software and
internal and external costs associated with the implementation of the project.

The initial phase to replace the Company's back-office financial reporting
systems was completed during the second quarter of fiscal 1999 resulting in
increased depreciation expenses starting in the second quarter of fiscal
1999. The second phase will be the implementation and rollout 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 third quarter of fiscal 1999, with rollout to all domestic business
services offices estimated to take approximately 18 to 24 months. The Company
has also begun implementation and rollout 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 rollout of the
network to the field offices is in process and the Company expects to
complete the rollout over the next 12 months. As the individual branch
offices are converted to the new integrated front-office system and network,
the Company will incur increased training and depreciation costs.
Furthermore, as each office is connected to the WAN, the Company will 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 systems, which may offset the incremental costs from

                                       14
<PAGE>

WESTAFF, INC.

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


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 the billing and activities
management systems during the fourth quarter of fiscal 1999 and expects to
complete the new payroll system in fiscal 2000 with a phased rollout 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 rollout period, the Company will be required to
operate the old payroll system and new integrated system 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 $193,000, or 61.9%, for the
second quarter of fiscal 1999 as compared to the second 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 second
quarter of fiscal 1999 was $1.9 million as compared to $1.7 million for the
second quarter of fiscal 1998. This increase was due primarily to the
increase in income before income taxes of $557,000. 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%.

24 WEEK PERIOD ENDED APRIL 17, 1999 COMPARED TO 24 WEEK PERIOD ENDED APRIL
18, 1998

SALES OF SERVICES AND LICENSE FEES. Sales of services increased $23.3
million, or 9.2%, for the 24 weeks ended April 17, 1999 as compared to the
same period in fiscal 1998. The increase resulted from a 4.9% increase in
billed hours and a 4.1% 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.

                                       15

<PAGE>

WESTAFF, INC.

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

Acquisitions accounted for approximately $20.4 million of the increase
in sales of services while the conversion of the franchise agents to the license
program resulted in a $10.0 million decrease in reported sales of services. Same
store sales increased approximately 1.0% for the 24 weeks ended April 17, 1999
as compared to the same period in fiscal 1998. Sales of services for the 24
weeks ended April 17, 1999 increased 8.0% and 17.2%, respectively, for domestic
business services and international business services as compared to the same
period in fiscal 1998. Excluding the effect of foreign currency rate
fluctuations, sales of services increased 22.0% 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.

License fees increased $801,000 or 134.4%, for the 24 week period ended April
17, 1999 as compared to the same period in fiscal 1998 primarily as a result of
conversions of franchise agents to the license program.

COSTS OF SERVICES. Costs of services increased $18.2 million, or 9.0%, for the
24 week period ended April 17, 1999 as compared to the same period in fiscal
1998. Gross margin increased from 20.7% in the fiscal 1998 period to 21.1% for
the same period in fiscal 1999, primarily due to higher license fees and lower
workers' compensation costs as a percentage of sales of services and license
fees. Gross margin for international business services was 21.4% for each of the
fiscal 1998 and fiscal 1999 periods. Workers' compensation costs were 2.9% of
payroll for the 24 week period ended April 17, 1999 and 3.4% for the 24 week
period ended April 18, 1998.

FRANCHISE AGENTS' SHARE OF GROSS PROFIT. Franchise agents' share of gross profit
decreased $598,000 or 7.9%, for the 24 weeks ended April 17, 1999 as compared to
the 24 weeks ended April 18, 1998. As a percentage of sales of services and
license fees, franchise agents' share of gross profit declined from 3.0% during
the fiscal 1998 period to 2.5% for the fiscal 1999 period. 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 $5.0 million, or 13.3%, for the 24
weeks ended April 17, 1999 as compared to the 24 weeks ended April 18, 1998. As
a percentage of sales of services and license fees, selling and administrative
expenses increased from 14.6% for the fiscal 1998 period to 15.1% for the fiscal
1999 period. The increase in selling and administrative expenses as a percentage
of sales of services and license fees was primarily due to the same factors as
noted above for the second quarter of fiscal 1999.

INTEREST EXPENSE. Interest expense increased $467,000, or 77.6%, for the 24
weeks ended April 17, 1999 as compared to the 24 weeks ended April 18, 1998,
reflecting higher average borrowings outstanding required to support the
Company's internal growth and acquisitions.


                                       16
<PAGE>

WESTAFF, INC.

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

PROVISION FOR INCOME TAXES. The provision for income taxes for the 24 weeks
ended April 17, 1999 was $3.5 million as compared to $3.0 million for the same
period in fiscal 1998. This increase was due primarily to the increase in income
before income taxes of $1.1 million. The effective income tax rate for both the
fiscal 1999 and fiscal 1998 periods was 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 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 fiscal 1999
period. Cash flows are presented on a consolidated basis for the fiscal 1998
period.

Net cash from operating activities was $5.4 million for the 24 weeks ended April
17, 1999 and $3.2 million for the 24 weeks ended April 18, 1998. The increase in
cash from operating activities is primarily due to a reduction in the net assets
of the discontinued operations, primarily resulting from collections of
receivables.

Cash used for capital expenditures, which are generally for software, computers
and peripherals, and office furniture and equipment, totaled $4.2 million for
the 24 weeks ended April 17, 1999 and $2.0 million for the 24 weeks ended April
18, 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 $12.5 million including costs of hardware, software and internal
and external costs associated with implementation of the project. The Company
incurred a total of $3.1 million of such capital expenditures during the first
two quarters of fiscal 1999 and expects to spend a total of approximately $4.5
million during fiscal 1999 and approximately $1.6 million during fiscal 2000.

Cash outflows for new acquisitions and for contingent payments under existing
acquisitions totaled $1.0 million for the 24 weeks ended April 17, 1999 and $5.6
million for the 24 weeks ended April 18, 1998. Payments of $480,000 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. Cash
flows from investing activities of discontinued operations includes a net inflow
of $567,000 primarily relating to proceeds received from the sale of one of the
Company's medical affiliates.


                                       17
<PAGE>

WESTAFF, INC.

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

The Company decreased borrowings by a net $1.0 million during the 24 weeks ended
April 17, 1999. During the 24 week period ended April 18, 1998, the Company
increased borrowings by a net $2.9 million, primarily to fund acquisitions.

During the 24 week periods ended April 17, 1999 and April 18, 1998, the Company
repurchased 11,000 and 30,000 shares, respectively, of common stock on the open
market for aggregate cash consideration of $56,000 and $342,500, respectively.
During the 24 weeks ended April 17, 1999, 67,681 shares were reissued under the
employee stock option and purchase plans with aggregate cash proceeds of
$458,000.

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 capitalization ratio. The Company was in compliance with these covenants
as of April 17, 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 April 17, 1999, the Company had
$8.6 million in outstanding letters of credit and had borrowed $17.4 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 April 17, 1999, the Company was in
compliance with its covenants.

On May 15, 1999, the Company signed a definitive agreement for the sale of the
remaining medical business. The sale is currently scheduled to close in early
June and is contingent on approval of financing. Under the terms of
the agreement, the Company will retain the medical accounts receivable and due
from licensee balances. Proceeds from the sale as well as cash received on
collection of the medical receivables will generally 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


                                       18
<PAGE>

WESTAFF, INC.

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

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 April 17, 1999, options
to purchase an aggregate of 763,380 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

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 and implement its plan.

The Company has completed its initial system inventory and evaluation phase. For
its domestic operations, the Company identified one group of non-compliant
mission critical back-office systems and completed the installation of Year 2000
compliant replacement systems during the second quarter of fiscal 1999. The
Company identified one additional mission critical system (the Billing and A/R
system) that was not fully Year 2000 compliant and initiated steps to modify
this system to bring it into compliance. However, during the second quarter of
fiscal 1999, the Company decided to replace the Billing and A/R system with a
new, Year 2000 compliant system rather than to further remediate the existing
system. The Company's plan had originally called for replacing the old Billing
and A/R system during fiscal 2000; however, as a result of the successful and
timely implementation of the Company's other back-office systems and the
enhanced features that the new Billing and A/R system will provide, the Company
decided to shorten the timetable for implementing the new system. The Company
currently


                                       19
<PAGE>

WESTAFF, INC.

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

estimates that it will complete the installation of the new Billing and A/R
system by September 30, 1999. The Company expects to bring its domestic
operations systems to full Year 2000 compliance by September 30, 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 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.

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 operations 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 surveyed the majority of its 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 third 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.


                                       20
<PAGE>

WESTAFF, INC.

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

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.




                                       21
<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

                           (a) At the Annual Meeting of Stockholders on March
                               30, 1999 (the 1999 Annual Meeting) W. Robert
                               Stover was elected as a Class III director to
                               serve a three-year term and until his successor
                               is elected. The voting was as follows:

<TABLE>
<CAPTION>
                                                                        Votes
                                                                 ---------------------
                                                                 For            Withheld
                                                               ------         -----------
                               <S>                          <C>                   <C>
                                    W. Robert Stover        14,951,708            42,489
</TABLE>

                               The terms of Jack D. Samuelson and Gilbert L.
                               Sheffield as Class I Directors will continue
                               until the Company's 2000 annual meeting, and
                               the terms of Michael K. Phippen and Paul A.
                               Norberg as Class II Directors will continue
                               until the Company's 2001 annual meeting.

                           (b) At the 1999 Annual Meeting, the proposal to
                               ratify the selection of PricewaterhouseCoopers
                               LLP as independent accountants for the Company
                               for the fiscal year 1999 ending October 30, 1999
                               was voted upon and passed as follows:

<TABLE>
                               <S>                                <C>
                                    Affirmative Votes             14,984,074
                                    Negative Votes                     8,832
                                    Abstentions                        1,291
                                    Broker Non-votes                       0
</TABLE>

Item 5.           OTHER INFORMATION

                           Not applicable.

<PAGE>

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

Item 6.           EXHIBITS AND REPORTS ON FORM 8-K

                           (a)      Exhibits




                                  EXHIBIT INDEX

<TABLE>
<CAPTION>

Exhibit
Number                            Description
-------                           -----------
<S>               <C>
27.1              Financial Data Schedule

</TABLE>
-----------------

                           (b)      Reports on Form 8-K

                                    Current Report on Form 8-K dated May 27,
                  1999 filed with the Securities and Exchange Commission on May
                  27, 1999.


                                       23
<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.

June 1, 1999                       /s/ Paul A. Norberg
-------------------------         -----------------------------
          Date                            Paul A. Norberg
                                  Executive Vice President and
                                     Chief Financial Officer


                                       24