<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                   FORM 10-Q/A

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

                  For the quarterly period ended JULY 11, 1998

                         Commission file number 0-24990


                          WESTERN STAFF SERVICES, 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 August 21, 1998
                   ----------              ------------------------------------
          Common Stock, $.01 par value              15,839,406 shares


<PAGE>

                  WESTERN STAFF SERVICES, INC. AND SUBSIDIARIES

                                      INDEX

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

Item 1.       Financial Statements

                  Condensed Consolidated Balance Sheets -
                      July 11, 1998 (restated) and November 1, 1997                    3

                  Condensed Consolidated Statements of Operations -
                      12 and 36 weeks ended July 11, 1998 (restated)
                      and July 12, 1997                                                4

                  Condensed Consolidated Statements of Cash Flows -
                      36 weeks ended July 11, 1998 (restated) and July 12, 1997        5

                  Notes to Condensed Consolidated Financial Statements                 6

Item 2.       Management's Discussion and Analysis of Financial Condition
                  and  Results of Operations                                           9

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>

     AMENDED FILING OF FORM 10-Q FOR THE THIRD QUARTER ENDED JULY 11, 1998 AND
                RESTATEMENT OF FINANCIAL STATEMENTS FOR THIS PERIOD

In connection with the preparation of the Company's audited financial statements
for its fiscal year ended October 31, 1998 and subsequent to the filing with the
Commission of its Quarterly Report on Form 10-Q for the third quarter ended July
11, 1998, the Company became aware of certain procedural and clerical errors
that occurred during the third quarter of fiscal 1998 in connection with the
calculation of interim estimated 1998 Medicare revenues for its medical
operations, which were subsequently treated as discontinued operations during
the fourth quarter of fiscal 1998. The Company has restated its financial
results for the third quarter of fiscal 1998. The effect of correcting these
errors by the restatement is to reduce net income for the third quarter of
fiscal 1998 by $565 or $.03 per basic share. This restatement has no effect on
the full fiscal 1998 results of operations as reported by the Company in the
fiscal 1998 fourth quarter press release of its financial results and has no
effect on results of continuing operations.

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

WESTERN STAFF SERVICES, INC.

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

<TABLE>
<CAPTION>
                                                                                     JULY 11                NOVEMBER 1,
                                                                                      1998                      1997
                                                                               --------------------     -------------------
                                                                                   (UNAUDITED 
                                                                                  AND RESTATED)
<S>                                                                            <C>                      <C>
ASSETS

Current assets:
   Cash and cash equivalents                                                   $             7,321      $            4,796
   Trade accounts receivable, less allowance for doubtful
      accounts of $959 and $879                                                             98,061                  96,502
   Due from licensees                                                                        8,145                   6,825
   Deferred income taxes                                                                     3,114                   2,511
   Other current assets                                                                      3,565                   3,421
                                                                               --------------------     -------------------
      Total current assets                                                                 120,206                 114,055

Property, plant and equipment, net                                                          21,439                  19,583
Deferred income taxes                                                                        2,556                     143
Intangible assets, net                                                                      26,807                  19,181
Other assets                                                                                 2,850                   1,568
                                                                               --------------------     -------------------
                                                                               $           173,858      $          154,530
                                                                               --------------------     -------------------
                                                                               --------------------     -------------------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Short-term borrowings                                                       $             3,000      $           19,700
   Current portion of loans payable                                                          3,651                     625
   Current portion of note payable to related party                                            972                     973
   Accounts payable and accrued expenses                                                    43,888                  42,787
   Income taxes payable                                                                      3,649                   4,786
                                                                                  -----------------     -------------------
      Total current liabilities                                                             55,160                  68,871

Loans payable                                                                               45,742                  16,659
Note payable to related party                                                                                          972
Deferred income taxes                                                                                                  494
Other long-term liabilities                                                                 10,256                  10,238
                                                                               --------------------     -------------------
      Total liabilities                                                                    111,158                  97,234
                                                                               --------------------     -------------------

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:
       15,527 shares at July 11, 1998 and 15,507 at November 1, 1997                           155                     103
   Additional paid-in-capital                                                               29,430                  29,073
   Retained earnings                                                                        36,516                  28,994
   Cumulative currency translation                                                         (1,021)                    (89)
                                                                                  --------------------     -------------------
                                                                                            65,080                  58,081
    Less treasury stock at cost, 130 shares at July 11, 1998 and 114 shares
        at November 1, 1997                                                                  2,380                     785
                                                                               --------------------     -------------------
      Total stockholders' equity                                                            62,700                  57,296
                                                                               --------------------     -------------------
                                                                               $           173,858      $          154,530
                                                                               --------------------     -------------------
                                                                               --------------------     -------------------
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>



WESTERN STAFF SERVICES, INC.

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


<TABLE>
<CAPTION>
                                                         12 WEEKS ENDED                                36 WEEKS ENDED
                                              --------------------------------------       ---------------------------------------
                                                  JULY 11,             JULY 12,                JULY 11,             JULY 12,
                                                  1998                 1997                      1998                 1997
                                                (RESTATED)                                    (RESTATED)
                                              -------------------- -----------------       ------------------   ------------------
<S>                                           <C>                  <C>                     <C>                  <C> 
Sales of services                             $        147,330     $        131,004        $         430,060    $         372,136
License fees                                               754                  488                    1,744                1,287
                                              -----------------    -----------------       ------------------   ------------------

Total sales of services and license fees               148,084              131,492                  431,804              373,423

Costs of services                                      115,251              103,451                  335,831              295,389
                                              -----------------    -----------------       ------------------   ------------------

Gross profit                                            32,833               28,041                   95,973               78,034

Franchise agents' share of gross profit                  4,760                4,867                   14,420               13,848
Selling and administrative expenses                     21,277               18,071                   62,190               51,972
Depreciation and amortization                            1,837                1,413                    5,010                3,997
                                              -----------------    -----------------       ------------------   ------------------

Operating income                                         4,959                3,690                   14,353                8,217

Interest expense                                           744                  425                    2,079                1,036
Interest income                                          (100)                 (90)                    (267)                (308)
                                              -----------------    -----------------       ------------------   ------------------

Income before income taxes                               4,315                3,355                   12,541                7,489
Provision for income taxes                               1,727                1,372                    5,017                3,026
                                              -----------------    -----------------       ------------------   ------------------

Net income                                    $          2,588     $          1,983        $           7,524    $           4,463
                                              -----------------    -----------------       ------------------   ------------------
                                              -----------------    -----------------       ------------------   ------------------

Basic earnings per share                      $           0.17     $           0.13        $            0.49    $            0.29
                                              -----------------    -----------------       ------------------   ------------------
                                              -----------------    -----------------       ------------------   ------------------

Diluted earnings per share                    $           0.16     $           0.13        $            0.48    $            0.29
                                              -----------------    -----------------       ------------------   ------------------
                                              -----------------    -----------------       ------------------   ------------------
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       4

<PAGE>

WESTERN STAFF SERVICES, INC.

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

<TABLE>
<CAPTION>
                                                                                       36 WEEKS ENDED
                                                                      -------------------------------------------------
                                                                           JULY 11,                      JULY 12,
                                                                             1998                           1997
                                                                          (RESTATED)
                                                                      ------------------            -------------------
<S>                                                                   <C>                           <C>
CASH FLOWS FROM OPERATING ACTIVITIES

   Net income                                                         $            7,524            $            4,463
   Adjustments to reconcile net income to net cash
      from operating activities:
         Depreciation                                                              3,700                         3,095
         Amortization of intangible assets                                         1,310                           902
         Provision for losses on doubtful accounts                                   564                           780
         Deferred income taxes                                                   (3,417)                       (2,058)
         Other non-cash charges                                                      153
         Changes in assets and liabilities:
           Trade accounts receivable                                             (2,934)                       (5,272)
           Due from licensees                                                    (1,320)                       (2,595)
           Other assets                                                            (649)                       (1,537)
           Accounts payable and accrued expenses                                   1,291                         1,573
           Income taxes payable                                                  (1,198)                            24
           Other long-term liabilities                                                18                            56
                                                                      -------------------           -------------------

Net cash from operating activities                                                 5,042                         (569)
                                                                      -------------------           -------------------

CASH FLOWS FROM INVESTING ACTIVITIES

  Expenditures for purchases of fixed assets                                     (5,917)                       (3,841)
  Payments for intangibles and other investments                                 (8,251)                       (4,586)
  Other, net                                                                       (372)                            76
                                                                      -------------------           -------------------

Net cash from investing activities                                              (14,540)                       (8,351)
                                                                      -------------------           -------------------

CASH FLOWS FROM FINANCING ACTIVITIES

  Net (repayments) borrowings under line of credit agreements                   (16,700)                         9,400
  Principal payments on loans payable                                           (19,791)                       (1,089)
  Proceeds from issuance of loans payable                                         50,900                         7,200
  Repayment of note to related party                                               (973)                         (973)
  Issuance of common stock under stock option/purchase plans                       1,455                            87
  Repurchase of common stock                                                     (2,794)                         (966)
  Distributions to stockholders                                                                                (2,500)
                                                                      -------------------           -------------------

Net cash from financing activities                                                12,097                        11,159
                                                                      -------------------           -------------------

Effect of exchange rate on cash                                                     (74)                          (40)
                                                                      -------------------           -------------------

Net change in cash and cash equivalents                                            2,525                         2,199
Cash and cash equivalents at beginning of period                                   4,796                         2,849
                                                                      -------------------           -------------------

Cash and cash equivalents at end of period                            $            7,321            $            5,048
                                                                      -------------------           -------------------
                                                                      -------------------           -------------------
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       5

<PAGE>

WESTERN STAFF SERVICES, INC.

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

1.   RESTATEMENT OF INTERIM FINANCIAL STATEMENTS

     In connection with the preparation of the Company's audited financial
     statements for its fiscal year ended October 31, 1998 and subsequent to the
     filing with the Commission of its Quarterly Report on Form 10-Q for the
     third quarter ended July 11, 1998, the Company became aware of certain
     procedural and clerical errors that occurred during the third quarter of
     fiscal 1998 in connection with the calculation of interim estimated 1998
     Medicare revenues for its medical operations, which were subsequently
     treated as discontinued operations during the fourth quarter of fiscal
     1998. The errors resulted in an overstatement of Medicare revenues and
     accounts receivable for the third quarter of fiscal 1998 of $941, a
     resulting overstatement of income taxes and income taxes payable of $376,
     an overstatement of net income and stockholders' equity of $565 and an
     overstatement of basic earnings per share of $0.03 and diluted earnings per
     share of $0.04.

2.   BASIS OF PRESENTATION

     The accompanying condensed consolidated financial statements of Western 
     Staff Services, Inc. and its domestic and foreign subsidiaries 
     (together, the Company), as of and for the 12 and 36 week periods ended 
     July 11, 1998 and July 12, 1997 are unaudited. Material intercompany 
     accounts and transactions have been eliminated.

     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 November 1, 1997.

     The Company's fiscal year is a 52 or 53 week period ending the Saturday 
     nearest the end of October. For interim reporting purposes, the first 
     three fiscal quarters comprise 12 weeks each while the fourth fiscal 
     quarter consists of 16 or 17 weeks. The results of operations for the 12 
     and 36 week periods ended July 11, 1998 are not necessarily indicative 
     of the results to be expected for the full fiscal year or for any future 
     period.

     Certain amounts in the July 12, 1997 financial statements have been 
     reclassified to conform to the presentation adopted for July 11, 1998.

3.   EARNINGS PER SHARE

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

                                       6
<PAGE>

WESTERN STAFF SERVICES, INC.

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

<TABLE>
<CAPTION>
                                                                    12 WEEKS ENDED                        36 WEEKS ENDED
                                                           ----------------------------------    ----------------------------------
                                                              JULY 11,           JULY 12,           JULY 11,           JULY 12,
                                                               1998                1997              1998                1997
                                                             (RESTATED)                            (RESTATED)
                                                           ---------------    ---------------    ---------------    -------------
<S>                                                        <C>                <C>                <C>                <C>
Net income                                                 $        2,588     $        1,983     $        7,524     $        4,463
                                                           ---------------    ---------------    ---------------    ---------------

Denominator for basic earnings per share -
       weighted average shares                                     15,498             15,376             15,454             15,435

Effect of dilutive securities:
       Stock options                                                  295                  1                234                  2
                                                           ---------------    ---------------    ---------------    ---------------
Denominator for diluted earnings per share - adjusted
       weighted average shares and assumed conversions             15,793             15,377             15,688             15,437
                                                           ---------------    ---------------    ---------------    ---------------
                                                           ---------------    ---------------    ---------------    ---------------
Basic earnings per share                                   $         0.17     $         0.13     $         0.49     $         0.29
                                                           ---------------    ---------------    ---------------    ---------------
                                                           ---------------    ---------------    ---------------    ---------------
Diluted earnings per share                                 $         0.16     $         0.13     $         0.48     $         0.29
                                                           ---------------    ---------------    ---------------    ---------------
                                                           ---------------    ---------------    ---------------    ---------------
Anti-dilutive weighted shares excluded from diluted
       earnings per share                                                                618                  3                625
                                                                        -
                                                           ---------------    ---------------    ---------------    ---------------
                                                           ---------------    ---------------    ---------------    ---------------
</TABLE>


     On May 7, 1998, the Board of Directors declared a three-for-two common 
     stock split effected in the form of a stock dividend payable on May 29, 
     1998 to shareholders of record at the close of business on May 18, 1998. 
     All share and per share data in the condensed consolidated financial 
     statements have been retroactively adjusted for the stock split.

     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 antidilutive.

4.   FINANCING ARRANGEMENTS

     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 Company's revolving 
     credit agreement of $22.6 million, with the remainder to be used for 
     working capital and general corporate purposes.

5.   ACQUISITIONS

     On June 2, 1998, the Company filed a Form S-4 shelf registration 
     statement with the Securities and Exchange Commission registering 
     1,500 shares of its $.01 par value 

                                       7
<PAGE>

WESTERN STAFF SERVICES, INC.

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

     common stock which may be offered in the future in connection with the 
     Company's ongoing acquisition program, of which approximately 1,100 
     shares remain available for issuance. On July 13, 1998, the Company 
     completed an acquisition of substantially all of the assets of The 
     Personnel Connection, Inc. Consideration for the acquisition consisted 
     of cash and common stock.

6.   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.

                                       8
<PAGE>

WESTERN STAFF SERVICES, 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 Western Staff Services, 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 November 1, 1997.

In addition to historical information, management's discussion and analysis 
includes certain forward-looking statements regarding events and financial 
trends which may affect the Company's future operating results and financial 
position. These forward-looking statements include, but are not limited to, 
statements regarding gross margins, 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 result 
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. 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 "Business" section of the Company's Annual Report 
on Form 10-K for the fiscal year ended November 1, 1997.

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 
businesses and government agencies. The Company has over 50 years of 
experience in the 

                                       9
<PAGE>

WESTERN STAFF SERVICES, INC.

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

staffing industry and operates through over 425 offices in 44 states, the 
District of Columbia, Guam and five foreign countries.

The Company differentiates itself from other large temporary staffing 
companies by focusing, through its business services division, 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/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. 
The Company also provides, through its medical services division, qualified 
personnel to serve home care and institutional staffing needs.

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.

RESULTS OF OPERATIONS

FISCAL QUARTER ENDED JULY 11, 1998 COMPARED TO FISCAL QUARTER ENDED JULY 12,
1997

SALES OF SERVICES AND LICENSE FEES. Sales of services increased $16.3 
million, or 12.5%, for the fiscal quarter ended July 11, 1998 as compared to 
the fiscal quarter ended July 12, 1997. The increase resulted from a 6.7% 
increase in billed hours and a 3.8% increase in average billing rates per 
hour. Billed hours increased primarily due to increased demand for the 
Company's services in existing offices, the impact of acquisitions and new 
office openings. Same store sales increased approximately 10.0% for the third 
quarter of fiscal 1998 as compared to the third quarter of fiscal 1997. 
Acquisitions accounted for approximately $10.0 million of the increase in 
sales of services. Sales of services for the third quarter of fiscal 1998 
increased 12.1%, 3.2% and 32.2%, respectively, for the Company's domestic 
business services, international business services and medical services, as 
compared to the third quarter of fiscal 1997. Excluding the effect of foreign 
currency rate fluctuations, sales of services increased 17.5% for 
international 

                                       10
<PAGE>

WESTERN STAFF SERVICES, INC.

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

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 are charged to licensed offices based either on a percentage of 
sales or of gross profit generated by the licensed offices. License fees 
increased $266,000, or 54.5%, for the fiscal quarter ended July 11, 1998 as 
compared to the fiscal quarter ended July 12, 1997. During the period from 
July 13, 1997 to July 11, 1998, eight franchise agents converted to the 
license program and two licensees purchased the Company's interest in their 
licenses and became independent such that they are no longer affiliated with 
the Company.

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 $11.8 million, or 11.4%, for the fiscal quarter ended July 11, 1998 
as compared to the fiscal quarter ended July 12, 1997. Gross margin increased 
from 21.3% in the third quarter of fiscal 1997 to 22.2% in the third quarter 
of fiscal 1998, primarily due to the Company's gross profit improvement 
program implemented during the first quarter of fiscal 1997 and lower 
workers' compensation and unemployment insurance costs as a percentage of 
sales of services and license fees. During the first quarter of fiscal 1997 
the Company initiated a nationwide program designed to maximize gross margin 
by increasing prices to select customers and focusing on higher margin 
business. Primarily as a result of this program, the Company generated 
progressively higher gross margin throughout fiscal 1997. Gross margin 
increased from 20.4% in the first quarter of fiscal 1997 to 21.0%, 21.3%, and 
22.1% for the second, third and fourth quarters, respectively, of fiscal 
1997. Gross margin dropped slightly to 22.0% for the first quarter of fiscal 
1998 as compared to the fourth quarter of fiscal 1997 due to increased 
holiday pay and seasonal factors, however, gross margin once again increased 
to 22.5% and 22.2% for the second and third quarters, respectively, of fiscal 
1998. The Company will continue with its efforts to improve gross margin 
where feasible; however, there can be no assurance that the Company will be 
successful in either increasing or maintaining gross margin.

Workers' compensation costs were 3.2% of payroll for the fiscal quarter ended 
July 11, 1998 and 3.8% for the fiscal quarter ended July 12, 1997. These 
costs may vary depending upon the mix of business between clerical staffing, 
light industrial staffing and medical services 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 the remainder of fiscal 1998. These rates will be evaluated 
again at the end of the fiscal year. There can be no assurance that the 
Company's programs to control workers' compensation expenses will be 

                                       11
<PAGE>

WESTERN STAFF SERVICES, INC.

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

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 
$107,000, or 2.2%, for the fiscal quarter ended July 11, 1998 as compared to 
the fiscal quarter ended July 12, 1997. As a percentage of sales of services 
and license fees, franchise agents' share of gross profit declined from 3.7% 
during the third quarter of fiscal 1997 to 3.2% for the third quarter of 
fiscal 1998. This decrease is primarily the result of a decrease in the 
proportion of sales and gross profit attributable to franchise agent offices 
as compared to Company-owned.

SELLING AND ADMINISTRATIVE EXPENSES (INCLUDING DEPRECIATION AND 
AMORTIZATION). Selling and administrative expenses increased $3.6 million, or 
18.6%, for the third quarter of fiscal 1998 as compared to the same period 
for fiscal 1997. As a percentage of sales of services and license fees, 
selling and administrative expenses increased from 14.8% for the fiscal 1997 
quarter to 15.6% for the fiscal 1998 quarter. The increase in selling and 
administrative expenses as a percentage of sales of services and license fees 
was primarily due to higher incentive compensation costs, a higher proportion 
of business generated through Company-owned offices as compared to franchise 
agent offices, and higher amortization costs resulting from increased 
acquisition activity. The Company's incentive compensation plans are directed 
towards increasing gross profit and operating income. These incentive costs 
increased during the third quarter of fiscal 1998 as a direct result of the 
significant increases in both gross profit and operating income for the third 
quarter of fiscal 1998 as compared to the third quarter of fiscal 1997. The 
relative volume of franchise business also affects the overall selling and 
administrative costs. As the proportion of franchise sales and gross profit 
declines relative to total sales, 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 enterprise-wide 
systems over a 24 month period. Capital expenditures under the plan are 
expected to approximate $10.0 million including costs of hardware, software 
and internal and external costs associated with the implementation of the 
project. The Company estimates it will incur $5.0 million of such capital 
expenditures during fiscal 1998 and $5.0 million during fiscal 1999.

The initial phase will be to replace the Company's back-office financial 
reporting systems and should be completed by the end of the first 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 
first or second quarter 

                                       12
<PAGE>

WESTERN STAFF SERVICES, INC.

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

of fiscal 1999. The second phase will be 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 first quarter of fiscal 1999, with roll-out to all 
domestic business services offices estimated to take approximately 18 months. 
Concurrent with the development of the new front-end system, the Company 
intends to begin 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 actual roll-out of the network to 
the field offices is planned to be completed over an approximate 18 month 
period. 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 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 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. In connection with this plan, 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 late in fiscal 1999 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 $319,000, or 75.1%, for the 
fiscal quarter ended July 11, 1998 as compared to the fiscal quarter ended 
July 12, 1997, reflecting higher average borrowings outstanding during the 
fiscal 1998 quarter required to support the Company's internal growth and 
acquisitions. As a result of increased borrowings required to support the 
Company's growth, including additional acquisitions and working capital 
needs, the Company 

                                       13
<PAGE>

WESTERN STAFF SERVICES, INC.

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

anticipates higher interest expense for the remainder of fiscal 1998 as 
compared to the same period in fiscal 1997.

PROVISION FOR INCOME TAXES. The provision for income taxes for the third 
quarter of fiscal 1998 was $1.7 million as compared to $1.4 million for the 
third quarter of fiscal 1997. This increase was due primarily to the increase 
in income before income taxes of $1.0 million. The effective income tax rate 
for each of the fiscal quarters ended July 11, 1998 and July 12, 1997 was 
40.0%. The Company currently estimates that the effective income tax rate for 
fiscal 1998 will be approximately 40.0%.

36 WEEKS ENDED JULY 11, 1998 COMPARED TO 36 WEEKS ENDED JULY 12, 1997

SALES OF SERVICES AND LICENSE FEES. Sales of services increased $57.9 
million, or 15.6%, for the 36 weeks ended July 11, 1998 as compared to the 
same period in fiscal 1997. The increase resulted from a 10.3% increase in 
billed hours and a 2.7% increase in average billing rates per hour. Billed 
hours increased primarily due to increased demand for the Company's services 
in existing offices, the impact of acquisitions and new office openings. Same 
store sales increased approximately 11.1% for the 36 weeks ended July 11, 
1998 as compared to the same period in fiscal 1997. Acquisitions accounted 
for approximately $25.9 million of the increase in sales of services. Sales 
of services for the 36 weeks ended July 11, 1998 increased 14.6%, 5.4% and 
42.6%, respectively, for the Company's domestic business services, 
international business services and medical services, as compared to the same 
period in fiscal 1997. Excluding the effect of foreign currency rate 
fluctuations, sales of services increased 17.7% 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 $457,000, or 35.5%, for the 36 weeks ended July 11, 
1998 as compared to the same period in fiscal 1997, primarily due to the same 
factors as noted above for the third quarter of fiscal 1998.

COSTS OF SERVICES. Costs of services increased $40.4 million, or 13.7% for 
the 36 weeks ended July 11, 1998 as compared same period in fiscal 1997. 
Gross margin increased from 20.9% in the fiscal 1997 period to 22.2% for the 
same period of fiscal 1998, primarily due to the same factors as noted above 
for the third quarter of fiscal 1998.

FRANCHISE AGENTS' SHARE OF GROSS PROFIT. Franchise agents' share of gross 
profit increased $572,000, or 4.1%, for the 36 weeks ended July 11, 1998 as 
compared to the same period in fiscal 1997. As a percentage of sales of 
services and license fees, franchise agents' share of gross profit declined 
from 3.7% during the 36 weeks ended July 12, 1997 to 3.3% for the same period 
in fiscal 1998. This decrease is primarily the result of a decrease in the 
proportion of sales and gross profits for franchise offices as compared to 
Company-owned offices.

                                       14
<PAGE>

WESTERN STAFF SERVICES, INC.

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

SELLING AND ADMINISTRATIVE EXPENSES (INCLUDING DEPRECIATION AND 
AMORTIZATION). Selling and administrative expenses increased $11.2 million, 
or 20.0%, for the 36 weeks ended July 11, 1998 as compared to the same period 
for fiscal 1997. As a percentage of sales of services and license fees, 
selling and administrative expenses increased from 15.0% for the fiscal 1997 
period to 15.6% for the fiscal 1998 period due to the same factors as noted 
above for the third quarter of fiscal 1998.

INTEREST EXPENSE. Interest expense increased $1.0 million, or 100.7%, for the 
36 weeks ended July 11, 1998 as compared to the same period in fiscal 1997, 
reflecting higher average borrowings outstanding during the fiscal 1998 
period required to support the Company's internal growth and acquisitions.

PROVISION FOR INCOME TAXES. The provision for income taxes for the 36 weeks 
ended July 11, 1998 was $5.0 million as compared to $3.0 million for the 
comparable fiscal 1997 period. This increase was due primarily to the 
increase in income before income taxes of $5.1 million. The effective income 
tax rate for each of the 36 week periods of 1998 and 1997 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 and 60 to 120 days after 
billing for medical 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.

Net cash provided from (used by) operating activities was $5.0 million and 
($569,000) for the 36 weeks ended July 11, 1998 and July 12, 1997, 
respectively. The increase in cash flows from operating activities is 
primarily due to higher net income and higher depreciation and amortization 
during the fiscal 1998 period. The Company is continuing to focus efforts on 
collection of accounts receivable to reduce the overall days outstanding, 
particularly for Medicare reimbursements. The Company has implemented a 
number of procedures and incentive programs for both corporate and field 
staff designed to reduce the average number of days outstanding. However, 
there can be no assurance that these programs will be effective in improving 
the cash flow related to Company receivables.

Cash used for capital expenditures, which are generally for software, 
computers and peripherals, and office furniture and equipment, totaled $5.9 
million for the 36 weeks ended July 11, 1998 and $3.8 million for the 36 
weeks ended July 12, 1997. The increase in capital expenditures during the 
1998 period is associated with initial payments for the Company's next 
generation 

                                       15
<PAGE>

WESTERN STAFF SERVICES, INC.

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

management information and support systems. Capital expenditures for these 
systems are expected to approximate $10.0 million including costs of 
hardware, software and internal and external costs associated with 
implementation of the project. The Company currently estimates it will incur 
$5.0 million of such capital expenditures during fiscal 1998 and $5.0 million 
during fiscal 1999.

During the 36 week periods ended July 11, 1998 and July 12, 1997, cash 
outflows for new acquisitions and for contingent payments under existing 
acquisitions totaled $8.3 million and $4.6 million, respectively. Payments of 
$146,000 and $2.1 million related to acquisitions are due for the remainder 
of fiscal 1998 and for fiscal 1999, respectively, with additional 
consideration contingent on sales, gross profit or pre-tax income of the 
acquired businesses in future periods.

During the 36 week periods ended July 11, 1998 and July 12, 1997, the Company 
increased total borrowings by a net $13.4 million and $14.5 million, 
respectively, primarily to support the Company's growth and to fund 
acquisitions and capital expenditures. Distributions to stockholders totaled 
$2.5 million in the fiscal 1997 period representing the remaining 
undistributed S corporation earnings of the Company. The Company does not 
anticipate declaring or paying any cash dividends on its common stock in the 
foreseeable future.

During the 36 weeks ended July 11, 1998 and July 12, 1997, the Company 
repurchased 163,500 and 150,000 shares of common stock, respectively, on the 
open market for aggregate cash consideration of $2.8 million and $1.0 
million, respectively. During the 36 weeks ended July 11, 1998, 147,783 
shares were reissued and 20,120 new shares were issued under the employee 
stock option and purchase plans with aggregate cash proceeds of $1.5 million.

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 Company's revolving credit agreement of 
$22.6 million, with the remainder to be used for working capital and general 
corporate purposes.

The Company also has senior secured credit facilities for up to $108.0 
million consisting of a $90.0 million, five-year revolving credit 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 and total debt to total 
capitalization. The credit facility contains covenants which, among other 
things, require the Company to maintain certain financial ratios and 
generally 

                                       16
<PAGE>

WESTERN STAFF SERVICES, INC.

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

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 July 11, 1998, the Company had $10.0 million in outstanding letters of 
credit, had borrowed $3.0 million under the revolving agreement and had $22.1 
million available under the formula based revolving credit agreement.

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.

MEDICAL OPERATIONS

As a provider of home care services, the Company is subject to changing 
federal and state regulations relating to the licensing and certification of 
its offices and the sale and delivery of its services. Changes in the law and 
regulations as well as new interpretations enforced by the relevant 
regulatory agencies could have a material adverse effect on the Company's 
business, results of operations, cash flows or financial condition.

On August 5, 1997, President Clinton signed into law the Balanced Budget Act 
of 1997 (Budget Act), resulting in significant changes to cost based 
reimbursement for Medicare services provided by home health care providers 
including the reduction of cost limits. Home health agencies will be 
reimbursed the lowest of: (1) actual costs of operating the agency's Medicare 
services; (2) a reduced aggregate cost per visit rate; or (3) an aggregate 
per beneficiary limit.

The Budget Act requires the Health Care Financing Administration of the U.S. 
Department of Health and Human Services (HCFA) to implement a Prospective 
Payment System (PPS) for fiscal years beginning on or after October 1, 1999 
to replace this cost-based system. The PPS will pay home health agencies a 
fixed amount for services rendered without regard to their costs. There can 
be no assurance that such prospective payment rates will cover the costs 
incurred by the Company to provide Medicare home health care services.

The impact of these changes on the Company will be to reduce the amount of 
costs that will be reimbursable, pursuant to the Medicare program, effective 
November 2, 1997. To address the potential impact of these reimbursement 
reductions, the Company is assessing the effectiveness of its patient care 
services and is developing strategies to increase efficiency in providing 
care to patients. In addition, the Company is reviewing its expenditures for 
operating costs and general and administrative expenses in an effort to 
ensure that its costs will be within the amounts that may be reimbursable 
under the new regulations. However, because the Company cannot presently 
determine the actual number of patients that will be serviced, the severity 
of their illnesses or the extent of its ability to reduce general or 
administrative expenses, there can be no assurance that the ultimate 
adjustments to 

                                       17
<PAGE>

WESTERN STAFF SERVICES, INC.

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

revenue as a result of the new regulations will not have a material adverse 
effect on the business, results of operations, cash flows or financial 
condition of the Company.

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, develop and implement its plan.

The Company has completed a significant portion of its system inventory and 
evaluation phase and expects to complete this process by the end of the 
fourth quarter of fiscal 1998. To date the Company has identified one group 
of non-compliant mission critical back-office systems that are currently 
scheduled for replacement in the normal course of business. The Company 
expects that these systems will be replaced with Year 2000 compliant systems 
by the end of the first quarter of fiscal 1999. The Company has identified 
one additional mission critical back-office system that is not fully Year 
2000 compliant and is currently testing this system to determine the extent 
of required modification. The Company expects to make modifications to this 
system and complete testing of such modifications, along with modifying and 
testing any other systems subsequently identified during the evaluation 
phase, to bring its systems to full Year 2000 compliance by the end of the 
second quarter of fiscal 1999. Although the Company does not expect that the 
impact of the Year 2000 issue will be material in systems still under 
evaluation, there can be no assurance that the Company will not discover Year 
2000 issues in the course of its evaluation process that would have a 
material adverse effect on the business, results of operations, cash flows or 
financial condition of the Company. Furthermore, should the Company be 
unsuccessful in taking corrective action to bring mission critical systems to 
full Year 2000 compliance by the end of 1999, there would be a material 
adverse effect on the business, results of operations, cash flows and 
financial condition of the Company.

To date, the costs incurred by the Company with respect to Year 2000 
compliance have not been material. Future anticipated costs will be difficult 
to estimate until after the completion of the inventory and evaluation phase 
of the project; however, the Company does not currently anticipate that such 
costs will be material.

                                       18
<PAGE>

WESTERN STAFF SERVICES, INC.

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

The Company has also begun to survey third-party suppliers and vendors, 
including key financial institutions, for Year 2000 compliance. The Company 
expects to complete this survey in the first quarter of fiscal 1999. At this 
time the Company cannot estimate the effect that non-compliant systems at 
these entities, if any, could have on the business, results of operations, 
cash flows or financial condition of the Company, 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" is scheduled to 
be introduced in certain European countries that are part of the Economic and 
Monetary Union (EMU). During 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 and financial condition.

SUBSEQUENT EVENT

In July 1998, the Company signed a letter of intent to sell its medical 
services subsidiary subject to completion of due diligence. No definitive 
acquisition agreement has been executed to date, and there can be no 
assurance that the transaction will be successfully concluded.

                                       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

               Any stockholder proposal submitted with respect to the
           Company's Annual Meeting of Stockholders, which proposal is
           submitted outside the requirements of Rule 14a-8 under the
           Securities Exchange Act of 1934, will be considered untimely
           for purposes of Rule 14a-4 and Rule 14a-5 if notice thereof is
           received by the Company after January 3, 1999.

Item 6.    EXHIBITS AND REPORTS ON FORM 8-K

               (a)  Exhibits

                                    EXHIBIT INDEX
<TABLE>
<CAPTION>

Exhibit
Number                               Description
------                               -----------
<S>        <C>
10.3.3(1)  Employment Agreement between the Company and Michael K. Phippen
10.8.10(1) Second Amendment to Credit Agreement dated as of July 23, 1998
27.1       Financial Data Schedule (Restated)
</TABLE>
-----------------
(1)  Incorporated by reference to exhibits of the Registrant's Form 10-Q for 
     the quarter ended July 11, 1998 filed on August 25, 1998.

               (b)  Reports on Form 8-K

               No reports on Form 8-K were filed in or for the 36 week period
           ended July 11, 1998.

                                       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.


                                               WESTERN STAFF SERVICES, INC.


     January 29, 1999                           /Paul A. Norberg/
    -----------------              --------------------------------------------
         Date                                    Paul A. Norberg
                                        Executive Vice President and Chief
                                                Financial Officer


                                       21