<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549


                                    FORM 10-Q

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

                 For the quarterly period ended JANUARY 20, 2001

                         Commission file number 0-24990


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

<TABLE>

<S>                                        <C>

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

</TABLE>


                                 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:

<TABLE>
<CAPTION>

              Class                           Outstanding at March 6, 2001
              -----                           ----------------------------

<S>                                          <C>

   Common Stock, $.01 par value                     15,871,204 shares

</TABLE>







<PAGE>


                         WESTAFF, INC. AND SUBSIDIARIES
                                      INDEX


<TABLE>
<CAPTION>

                                                                                       PAGE
                                                                                       ----
<S>                                                                                   <C>

PART I.  FINANCIAL INFORMATION

Item 1.       Financial Statements

                  Condensed Consolidated Balance Sheets -
                      January 20, 2001 and October 28, 2000                             3

                  Condensed Consolidated Statements of Operations -
                      12 weeks ended January 20, 2001 and January 22, 2000              4

                  Condensed Consolidated Statements of Cash Flows -
                      12 weeks ended January 20, 2001 and January 22, 2000              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                                                        16

Item 2.       Changes in Securities                                                    16

Item 3.       Defaults upon Senior Securities                                          16

Item 4.       Submission of Matters to a Vote of Security Holders                      17

Item 5.       Other Information                                                        17

Item 6.       Exhibits and Reports on Form 8-K                                         17

Signatures                                                                             18


</TABLE>


<PAGE>


PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

WESTAFF, INC.

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



<TABLE>
<CAPTION>


                                                                                    JANUARY 20,           OCTOBER 28,
                                                                                        2001                 2000
                                                                                 -------------------   ------------------
                                                                                   (Unaudited)

<S>                                                                              <C>                   <C>
ASSETS
Current assets:
     Cash and cash equivalents                                                   $            4,998    $           5,208
     Trade accounts receivable, less allowance for doubtful
        accounts of $1,748 and $1,634                                                        79,249               93,437
     Due from licensees                                                                       3,755                4,387
     Deferred income taxes                                                                    7,455                7,453
     Net assets of discontinued operations                                                    2,522                2,304
     Other current assets                                                                     7,307                9,310
                                                                                 -------------------   ------------------
        Total current assets                                                                105,286              122,099

Property, plant and equipment, net                                                           20,215               20,977
Deferred income taxes                                                                         4,108                4,108
Intangible assets, net                                                                       34,116               34,531
Other long-term assets                                                                        1,619                1,357
                                                                                 -------------------   ------------------
                                                                                 $          165,344    $         183,072
                                                                                 ===================   ==================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Short-term borrowings                                                                             $          10,000
     Current portion of loans payable                                            $            3,000                3,250
     Accounts payable and accrued expenses                                                   38,124               46,704
     Income taxes payable                                                                       747                  378
                                                                                 -------------------   ------------------
        Total current liabilities                                                            41,871               60,332

Loans payable                                                                                36,750               37,250
Other long-term liabilities                                                                  12,357               12,324
                                                                                 -------------------   ------------------
        Total liabilities                                                                    90,978              109,906
                                                                                 -------------------   ------------------

Commitments and contingencies

Stockholders' equity:
     Preferred stock, $.01 par value; authorized and unissued: 1,000 shares
     Common stock, $.01 par value; authorized: 25,000 shares; issued:  15,948
        shares at January 20,2001 and October 28, 2000                                          159                  159
     Additional paid-in-capital                                                              36,582               36,582
     Retained earnings                                                                       40,927               40,343
     Accumulated other comprehensive income                                                  (2,690)              (3,306)
                                                                                 -------------------   ------------------
                                                                                             74,978               73,778
     Less treasury stock at cost,  129 shares at January 20, 2001 and
         October 28, 2000                                                                       612                  612
                                                                                 -------------------   ------------------
        Total stockholders' equity                                                           74,366               73,166
                                                                                 -------------------   ------------------
                                                                                 $          165,344    $         183,072
                                                                                 ===================   ==================


</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>


WESTAFF, INC.

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

<TABLE>
<CAPTION>


                                                                                 12 WEEKS ENDED
                                                                      --------------------------------------
                                                                         JANUARY 20,        JANUARY 22,
                                                                            2001                2000
                                                                      ------------------ -------------------

<S>                                                                   <C>                <C>

Sales of services                                                     $         135,071  $          146,709
License fees                                                                        484                 754
                                                                      ------------------ -------------------

Total sales of services and license fees                                        135,555             147,463

Costs of services                                                               108,135             117,026
                                                                      ------------------ -------------------

Gross profit                                                                     27,420              30,437

Franchise agents' share of gross profit                                           3,686               3,661
Selling and administrative expenses                                              20,229              20,458
Depreciation and amortization                                                     1,842               2,165
                                                                      ------------------ -------------------

Operating income from continuing operations                                       1,663               4,153

Interest expense                                                                    783                 800
Interest income                                                                     (94)                (47)
                                                                      ------------------ -------------------

Income from continuing operations before income taxes                               974               3,400
Provision for income taxes                                                          390               1,343
                                                                      ------------------ -------------------

Net income                                                            $             584  $            2,057
                                                                      ================== ===================



Earnings per share:
        Basic                                                         $            0.04  $             0.13
                                                                      ================== ===================
        Diluted                                                       $            0.04  $             0.13
                                                                      ================== ===================

Weighted average shares outstanding - basic                                      15,819              15,876
                                                                      ================== ===================
Weigthed average shares outstanding - diluted                                    15,820              15,880
                                                                      ================== ===================


</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       4


<PAGE>


WESTAFF, INC.

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


<TABLE>
<CAPTION>


                                                                             12 WEEKS ENDED
                                                                   ------------------------------------
                                                                     JANUARY 20,          JANUARY 22,
                                                                        2001                 2000
                                                                   -----------------   ----------------

<S>                                                                <C>                 <C>

Cash flows from operating activities
    Net income                                                     $            584    $         2,057
    Adjustments to reconcile net income to net cash
     from operating activities:
      Depreciation                                                            1,285              1,605
      Amortization of intangible assets                                         557                560
      Provision for losses on doubtful accounts                                 429                384
      Gain/loss on sale of assets                                                12
      Deferred income taxes                                                       3              1,082
      Changes in assets and liabilities:
        Trade accounts receivable                                            14,280              2,483
        Due from licensees                                                      632               (835)
        Other assets                                                          1,948                665
        Accounts payable and accrued expenses                                (8,798)            (8,685)
        Income taxes payable                                                    355                 64
        Other liabilities                                                        32                 67
                                                                   -----------------   ----------------

Net cash provided by (used in) continuing operations                         11,319               (553)
Net cash (used in) provided by discontinued operations                         (218)               247
                                                                   -----------------   ----------------

Net cash provided by (used in) operating activities                          11,101               (306)
                                                                   -----------------   ----------------

CASH FLOWS FROM INVESTING ACTIVITIES
    Capital expenditures                                                       (360)              (805)
    Investing activities of discontinued operations                                                 23
    Other, net                                                                 (231)                63
                                                                   -----------------   ----------------

Net cash used in investing activities                                          (591)              (719)
                                                                   -----------------   ----------------

CASH FLOWS FROM FINANCING ACTIVITIES
    Net (repayments) borrowings under line of credit agreements             (10,000)             1,500
    Principal payments on loans payable                                        (750)            (1,958)

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

Net cash (used in) financing activities                                     (10,750)              (458)
                                                                   -----------------   ----------------

Effect of exchange rate on cash                                                  30                (83)
                                                                   -----------------   ----------------

Net change in cash and cash equivalents                                        (210)            (1,566)
Cash and cash equivalents at beginning of period                              5,208              3,048
                                                                   -----------------   ----------------
Cash and cash equivalents at end of period                         $          4,998    $         1,482
                                                                   =================   ================

</TABLE>



     See accompanying notes to condensed consolidated financial statements.

                                       5

<PAGE>


WESTAFF, INC.

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

1.   BASIS OF PRESENTATION

     The accompanying condensed consolidated financial statements of Westaff,
     Inc. and its domestic and foreign subsidiaries (together, the Company), as
     of and for the 12 week periods ended January 20, 2001 and January 22, 2000
     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 Financial Statements and
     notes thereto.

     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 28, 2000.

     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 week
     period ended January 20, 2001 are not necessarily indicative of the results
     to be expected for the full fiscal year or for any future period.

2.   DISCONTINUED OPERATIONS

     During the fourth quarter of fiscal 1999 the Company completed the sale of
     its medical business, Western Medical. Western Medical provided 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 licensed
     offices.

     Under the terms of the sale, the Company retained the trade and Medicare
     accounts receivable balances as well as the due from licensee balances. In
     fiscal 1999 the Company recorded an after-tax loss on the discontinued
     operations of $6,611 or $0.42 per share. In fiscal 2000 the Company
     recorded additional after-tax losses relating to discontinued operations of
     $784 or $0.05 per share, primarily due to lower than expected settlements
     of Medicare cost reports. The Company has appealed a number of cost report
     settlements and

                                       6
<PAGE>



WESTAFF, INC.

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


     hopes to recover additional funds in the future; however, there can be no
     assurance that the Company will be successful in its appeals.

     As of January 20, 2001, the Company has received $1,735 in cash proceeds
     from the sale of its medical operations with an additional $1,000 due on
     the balance of the purchase price. The $1,000 balance due, plus interest
     thereon, is owed to the Company under a guaranteed promissory note which is
     in default. (See Note 6.)

     Summarized balance sheet data on the discontinued operations, which
     includes the trade and Medicare accounts receivable and due from licensee
     balances retained by the Company, is as follows:


<TABLE>
<CAPTION>



                                                             JANUARY 20,        OCTOBER 28,
                                                                 2001               2000
                                                           ----------------   ----------------
                                                             (Unaudited)

<S>                                                        <C>                <C>

Current assets (primarily receivables)                     $         2,975    $         2,944

Current liabilities                                                   (452)              (639)
Noncurrent liabilities                                                  (1)                (1)
                                                           ----------------   ----------------
Net assets of discontinued operations                      $         2,522    $         2,304
                                                           ================   ================

</TABLE>



3.   EARNINGS PER SHARE

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



                                       7
<PAGE>



WESTAFF, INC.

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

<TABLE>
<CAPTION>


                                                                                  12 WEEKS ENDED
                                                                          -------------------------------
                                                                          JANUARY 20,       JANUARY 22,
                                                                             2001              2000
                                                                          -------------    --------------

<S>                                                                       <C>              <C>

Net income                                                                $        584     $       2,057
                                                                          -------------    --------------

Denominator for basic earnings per share -
       weighted average shares                                                  15,819            15,876

Effect of dilutive securities:
       Stock options                                                                 1                 4
                                                                          -------------    --------------
Denominator for diluted earnings per share - adjusted
       weighted average shares and assumed conversions                          15,820            15,880
                                                                          =============    ==============

Basic earnings per share                                                  $       0.04     $        0.13
                                                                          =============    ==============
Diluted earnings per share                                                $       0.04     $        0.13
                                                                          =============    ==============

Anti-dilutive weighted shares excluded from diluted
       earnings per share                                                          343               804
                                                                          -------------    --------------


</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.   COMPREHENSIVE INCOME

     Comprehensive income consists of the following:


<TABLE>
<CAPTION>


                                                                            12 WEEKS ENDED
                                                                    --------------------------------
                                                                     JANUARY 20,       JANUARY 22,
                                                                        2001              2000
                                                                    --------------    --------------

<S>                                                                 <C>               <C>

Net income                                                          $         584     $       2,057
Currency translation adjustments                                              616               352

                                                                    --------------    --------------
Comprehensive income                                                $       1,200     $       2,409
                                                                    --------------    --------------


</TABLE>





                                       8
<PAGE>



WESTAFF, INC.

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


5.  OPERATING SEGMENTS

<TABLE>
<CAPTION>



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

<S>                                                <C>                  <C>               <C>

12 WEEKS ENDED JANUARY 20, 2001

Sales of services and license fees                       $ 116,815            $ 18,740          $ 135,555
Operating income from continuing operations              $   1,492            $    171          $   1,663

12 WEEKS ENDED JANUARY 22, 2000

Sales of services and license fees                       $ 124,204            $ 23,259          $ 147,463
Operating income from continuing operations              $   4,034            $    119          $   4,153


</TABLE>



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. Major contingencies are
     discussed below.

     In August 1999, the Company sold substantially all of the assets of its
     medical business. (See Note 2.) The $1,000 balance of the purchase price,
     with interest thereon, is owed to the Company under a guaranteed promissory
     note. The purchaser has defaulted on the obligation and has demanded
     arbitration contending, among other things, that the Company made
     misrepresentations and otherwise breached the asset purchase agreement. The
     Company has denied all liability and is counterclaiming for the balance of
     the purchase price and other charges due. The petitioner filed a reply in
     which it expanded its damages claim. Discovery proceedings were conducted
     and an arbitration hearing has been held. The arbitrator has taken the case
     under submission.

     On March 9, 2000, Synergy Staffing, Inc. filed a complaint in the Superior
     Court of the State of California for the County of Los Angeles. Included
     among the defendants named in the case are the Company, all members of its
     Board of Directors and one of the executive officers. The complaint
     alleges, among other things, that the defendants fraudulently induced the
     plaintiff to sell the assets of The Personnel Connection, Inc. The
     plaintiff sought to have the court grant a jury trial and award the
     plaintiff compensatory and punitive damages and attorneys' fees and other
     costs. The Company's petition for an order compelling arbitration was
     granted, the Superior Court lawsuit was stayed and an arbitration
     proceeding is pending.

     The Company believes these claims and actions are without merit and that
     the outcome of the proceedings will not have a material adverse effect on
     its financial position, results of operations or cash flows.


                                       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 28, 2000.

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. This notice is intended to take advantage of the "safe harbor"
provided by the Private Securities Litigation Reform Act of 1995 with respect to
such forward-looking statements. These forward-looking statements include, but
are not limited to, statements regarding sales, gross margin, workers'
compensation costs, selling and administrative expenses, interest expense,
income taxes, capital resources, medical operations and credit facilities.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. Actual results may differ
materially. The Company undertakes no obligation to publicly release the results
of any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

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: fluctuation in the economy and financial markets, the Company's
ability to expand operations, the demand for temporary workers, the Company's
ability to increase the productivity of existing offices, the effectiveness of
corporate and field management, the risk of losing key employees, the risks
related to franchise and license operations, the effectiveness of the Company's
management information systems, the Company's ability to complete the
implementation of existing systems and planned new systems, the variability of
employee-related costs, the risk of losing customers, the risk associated with
controlling operating expenses, the availability of temporary workers, the
highly competitive industry, the risk of realizing the remaining medical assets
in a timely and cost-effective manner and the risks associated with
acquisitions. 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. Demand for temporary staffing is 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 28, 2000.


                                       10
<PAGE>



WESTAFF, INC.

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


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-location programs to businesses and
government agencies. The Company has over 50 years of experience in the staffing
industry and operates through over 350 business services offices in 44 states,
the District of Columbia and six foreign countries.

The Company differentiates itself from other large temporary staffing companies
by primarily 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.

The general level of economic activity and unemployment in the United States and
the countries in which the Company operates significantly affects demand for the
Company's staffing services. 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
accompanying Condensed Consolidated Financial Statements and Notes thereto.

During fiscal 1999 the Company completed the sale of the medical business. Under
the terms of the sale, the Company retained the trade and Medicare accounts
receivable and due from licensee


                                       11
<PAGE>



WESTAFF, INC.

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


balances. During fiscal 1999 the Company recorded an after-tax loss on the
discontinued operations of $6.6 million or $0.42 per share. In fiscal 2000 the
Company recorded additional after-tax losses relating to discontinued operations
of $784,000 or $0.05 per share, primarily due to lower than expected settlements
of Medicare cost reports. The Company has appealed a number of cost report
settlements and hopes to recover additional funds in the future; however, there
can be no assurance that the Company will be successful in its appeals.

As of January 20, 2001, the Company has received $1.7 million in cash proceeds
from the sale of its medical operations with an additional $1.0 million due on
the balance of the purchase price. The $1.0 million balance due, plus interest
thereon, is owed to the Company under a guaranteed promissory note which is in
default. (See Notes to Condensed Consolidated Financial Statements - Note 6.)

The recorded estimated loss on disposal of the medical operations is based on a
number of assumptions. These include the estimated costs and write-offs required
to collect the remaining Medicare accounts receivable and due from licensee
balances 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 complete the collection of the remaining Medicare accounts receivable and due
from licensee balances on terms and costs similar to those estimated by the
Company. Furthermore, there can be assurance that the Company will be successful
in collecting the remaining $1.0 million outstanding purchase price balance due
on the sale of the medical business. Should the actual costs differ materially
from those estimated by management, the Company would record additional losses
(or gains) in future periods.

RESULTS OF CONTINUING OPERATIONS

FISCAL QUARTER ENDED JANUARY 20, 2001 COMPARED TO FISCAL QUARTER ENDED JANUARY
22, 2000

SALES OF SERVICES AND LICENSE FEES. Sales of services decreased $11.6 million,
or 7.9%, for the fiscal quarter ended January 20, 2001 as compared to the fiscal
quarter ended January 22, 2000. Average billing rates per hour increased 3.4%
for the fiscal 2001 quarter as compared to the fiscal 2000 quarter, while billed
hours declined 11.1%. Same store sales decreased 6.9% for the fiscal quarter
ended January 20, 2001 as compared to the fiscal quarter ended January 22, 2000.
Sales of services decreased 5.8% for domestic business services and 19.4% for
international business services. The current and continuing economic slowdown in
the United States has adversely affected domestic sales of services across most
geographic regions. The Company is experiencing decreasing demand for temporary
staffing services in some sectors of the economy and competitive pressure on
pricing is increasing. Depending upon the extent of the economic slowdown, the
Company currently estimates that its sales will likely decline through at least
the third quarter of fiscal 2001, and possibly beyond. Declines in foreign
currency exchange rates from the first quarter of fiscal 2000 as compared to the
first quarter of fiscal 2001 have negatively impacted the international results
as reported. Excluding the effect of these rate fluctuations, international
sales of services declined 6.0% for the quarter ended January 20, 2001


                                       12
<PAGE>


WESTAFF, INC.

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


as compared to the same period in fiscal 2000. The decrease reflects
increasingly downward economic pressures on most of the Company's international
operations, which could lead to further declining sales.

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
decreased $270,000, or 35.8%, for the fiscal quarter ended January 20, 2001 as
compared to the fiscal quarter ended January 22, 2000. During the fourth quarter
of fiscal 2000, the Company purchased the operations of one of its licensees,
two licensees converted to the Company's franchise agent program and two
licensees essentially closed operations. The Company has recently completed an
agreement with another of its licensees to purchase the Company's interest in
their licensed operations and is expected to record a gain on the sale in the
second fiscal quarter of 2001, however further license fee income from this
operation will cease. The Company is also currently in negotiations with yet
another of its licensees in a similar transaction. Compounding the decrease in
license fees is a decrease in sales of services and gross profit generated by
the remaining licensees as a result of the domestic economic factors discussed
above.

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 decreased $8.9
million, or 7.6%, for the fiscal quarter ended January 20, 2001 as compared to
the fiscal quarter ended January 22, 2000. Gross margin decreased from 20.6% in
the first quarter of fiscal 2000 to 20.2% in the first quarter of fiscal 2001
primarily due to higher workers' compensation costs and lower license fees. The
Company will continue its efforts to improve gross margin where feasible;
however, exclusive of the effect of decreased license fee income, the Company
believes that with increased workers' compensation costs and the current
economic slowdown, the opportunities available to increase gross margin have
been limited.

Workers' compensation costs were 4.0% of direct labor for the first quarter of
fiscal 2001 and 3.4% for the first quarter of fiscal 2000. Although these costs
tend to vary depending upon the mix of business between clerical staffing and
light industrial staffing, recent upward trends in the Company's actuarially
estimated ultimate costs for all open policy years have resulted in an increase
in the Company's workers' compensation accruals for these costs. The Company
currently estimates that the accrual rates for workers' compensation costs will
be in the range of 4.0% to 4.5% of direct labor for the remainder of fiscal
2001, and will be reviewing interim actuarial estimates throughout the remainder
of the fiscal year to ensure that accrual rates remain appropriate in light of
the Company's loss trends. There can be no assurance that the Company's programs
to control workers' compensation costs will be effective or that loss
development trends will not require additional increases in workers'
compensation accruals in future periods.

FRANCHISE AGENTS' SHARE OF GROSS PROFIT. Franchise agents' share of gross profit
represents the net distribution paid to franchise agents based either on a
percentage of sales or of gross profit generated by the franchise agents'
operation. Franchise agents' share of gross profit was relatively flat for the
first quarter of fiscal 2001 as compared to the first quarter of fiscal 2000.


                                       13
<PAGE>



WESTAFF, INC.

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

As a percentage of sales of services and license fees, franchise agents' share
of gross profit was 2.7% and 2.5% for the first quarters of fiscal 2001 and
fiscal 2000, respectively.

SELLING AND ADMINISTRATIVE EXPENSES (INCLUDING DEPRECIATION AND AMORTIZATION).
Selling and administrative expenses decreased $552,000, or 2.4%, for the first
quarter of fiscal 2001 as compared to the first quarter of fiscal 2000. While
actual selling and administrative costs declined, selling and administrative
expenses increased, as a percentage of sales of services and license fees, from
15.3% for the first quarter of fiscal 2000 to 16.3% for the first quarter of
fiscal 2001, primarily due to lower sales volumes. The Company is closely
monitoring all of its operating expenses in an effort to reduce costs where
feasible. Furthermore, the Company is considering a number of cost-containment
initiatives, including the closure or consolidation of non-performing offices,
to help soften the impact of the slowing economy on its profitability. However,
there can be no assurance that material cost savings will be identified or that
implemented cost savings will be adequate to maintain operating income levels if
the economic slowdown continues or deepens.

INTEREST EXPENSE. Interest expense decreased $17,000, or 2.0%, for the first
quarter of fiscal 2001 as compared to the first quarter of fiscal 2000 due to
slightly lower average borrowing levels.

PROVISION FOR INCOME TAXES. The provision for income taxes for the first quarter
of fiscal 2001 was $390,000 as compared to $1.3 million for the first quarter of
fiscal 2000. This decrease was due primarily to the decrease in income before
income taxes of $2.4 million. The effective income tax rate was 40.0% for the
first quarter of fiscal 2001 and 39.5% for the first quarter of fiscal 2000. The
Company currently estimates that the effective income tax rate for fiscal 2001
will be approximately 40.0%.

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company has financed its operations through cash generated by
operating activities and through various forms of debt and equity financings and
bank lines of credit. The Company's principal use of cash is for financing of
accounts receivable, particularly during periods of growth and, in relatively
recent years, for management information system initiatives. 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.

Net cash provided by (used in) operating activities was $11.1 million for the 12
weeks ended January 20, 2001 and ($306,000) for the 12 weeks ended January 22,
2000. The increase in cash from operating activities is primarily due to
decreases in accounts receivable balances as a result of collections and lower
levels of sales for the fiscal 2001 quarter as compared to the fiscal 2000
quarter, partially offset by lower net income and changes in the deferred income
tax effects related to the discontinued medical operations. Net cash used in
investing activities was $591,000 for the first quarter of fiscal 2001 as
compared to $719,000 for the same period in


                                       14
<PAGE>


WESTAFF, INC.

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

fiscal 2000. The Company decreased borrowings by a net $10.8 million during the
12 weeks ended January 20, 2001.

The Company has senior secured credit facilities for up to $108.0 million
consisting of a $90.0 million five-year revolving line of credit and an $18.0
million six-year term loan. 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. As of January 20, 2001 the Company had $7.4 million
available under its revolving credit facility, with no direct advances
outstanding and $11.8 million outstanding for letters of credit. The Company has
senior secured notes outstanding totaling $30.0 million, payable in equal annual
installments beginning in the year 2002. Additionally, effective November 1,
2000, the Company obtained an $11.8 million financial guarantee bond, expiring
November 1, 2001, to secure a portion of its workers' compensation premium and
deductible obligations.

The Company's debt facilities contain certain financial and other covenants, the
most restrictive of which are a minimum fixed charge ratio and a total debt to
capitalization ratio. The Company was in compliance with all covenants as of
January 20, 2001.

Based on current projections, management believes there is a possibility that
the Company may be out of compliance with one of its credit facility's financial
covenants in the second quarter of fiscal 2001. The Company has been out of
compliance with one or more covenants in the past and has received waivers and
amendments with respect to such covenants from its bank group. The Company has
initiated discussions with this bank group to modify its current bank agreements
and to address potential covenant issues that may arise, and believes that such
modifications to the agreement can be completed prior to the end of the second
quarter.

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.

                                       15
<PAGE>


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

Item 1.           LEGAL PROCEEDINGS

                  On March 9, 2000, Synergy Staffing, Inc. filed a complaint in
                  the Superior Court of the State of California for the County
                  of Los Angeles, Central District. The defendants named in the
                  case are Westaff, Inc., W. Robert Stover, Michael K. Phippen,
                  Paul A. Norberg, Jack D. Samuelson, Gilbert L. Sheffield, Mike
                  Ehresman and Does 1-10.

                  The complaint alleges, among other things, that the defendants
                  fraudulently induced the plaintiff to sell the assets of The
                  Personnel Connection, Inc. The plaintiff sought to have the
                  court grant a jury trial, and award the plaintiff compensatory
                  and punitive damages and attorneys' fees and other costs. The
                  Company's petition for an order compelling arbitration was
                  granted, the Superior Court lawsuit has been stayed, a demand
                  for arbitration was made and an arbitration proceeding is
                  pending.

                  On or about August 18, 2000, Intrepid U.S.A. Inc. filed a
                  demand for arbitration with the American Arbitration
                  Association in San Francisco, California. The defendants named
                  in the demand are Westaff (USA), Inc., Western Medical
                  Services, Inc. and two other subsidiary corporations that were
                  involved in the operation of the Company's medical business.

                  The demand alleges, among other things, that the defendants
                  made misrepresentations and otherwise breached the asset
                  purchase agreement for the sale of substantially all the
                  assets of the Company's medical business. The defendants filed
                  an answering statement, counterclaim and demand against
                  guarantors, denying all liability and seeking payment for the
                  accelerated $1.0 million balance of the purchase price and
                  other charges due to the Company. The petitioner filed a reply
                  in which it expanded its damages claim. Discovery proceedings
                  were conducted and an arbitration hearing has been held. The
                  arbitrator has taken the case under submission.

                  Except as disclosed above, the Company is not currently a
                  party to any material litigation. However, from time to time
                  the Company has been threatened with, or named as a defendant
                  in, lawsuits, including countersuits brought by former
                  franchise agents or licensees, 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.


                                       16
<PAGE>


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


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

                           Not applicable.

Item 5.           OTHER INFORMATION

                           Not applicable.


Item 6.           EXHIBITS AND REPORTS ON FORM 8-K

                           (a)      Exhibits

                                    None.

                           (b)      Reports on Form 8-K

                                    No reports on Form 8-K were filed in or for
                  the 12 week period ended January 20, 2001.



                                       17
<PAGE>



                                   SIGNATURES

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


                                            WESTAFF, INC.


 March 6, 2001                         /s/ DIRK A. SODESTROM
---------------                       ---------------------------
    Date                                    Dirk A. Sodestrom
                               Senior Vice President and Chief Financial Officer




                                       18