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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO

(Mark One)

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED OCTOBER 3, 2004 OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                         to                         

Commission file number 0-5260

101 Enterprise

Registrant’s Telephone Number, Including Area Code

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:

     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    þ    No    o

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

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

     The aggregate market value of the Class A Common Stock held by non-affiliates of the registrant based upon the closing sales price of its Class A Common Stock on March 28, 2004 on the NASDAQ National Market was $87,547,295. The aggregate market value of the Class B Common Stock (which converts to Class A upon certain transactions) held by non-affiliates of the registrant based upon the closing sales price of its Class A Common Stock on March 28, 2004 on the NASDAQ National Market was $563,338.

     The number of shares of Class A Common Stock outstanding as of December 1, 2004 was 8,778,131 and the number of shares of Class B Common Stock outstanding as of December 1, 2004 was 800,312.

DOCUMENTS INCORPORATED BY REFERENCE

     The registrant will file a definitive Proxy Statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended October 3, 2004. Portions of the Company’s Proxy Statement, to be mailed to the shareholders in connection with the Annual Meeting, are incorporated by reference in Part III, Items 10-14, of this report on Form 10-K. Except for the portions expressly incorporated by reference, the Company’s Proxy Statement shall not be deemed to be part of this report.

REMEDYTEMP, INC.

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PART I

      In addition to historical information, the description of business below, management’s discussion and analysis in Part II and other statements contained elsewhere in this Annual Report on Form 10-K, include certain forward-looking statements, including, but not limited to, those related to the growth and strategies, future operating results and financial position as well as economic and market events and trends of RemedyTemp, Inc., including its wholly-owned subsidiaries (collectively, the “Company”). All forward-looking statements made by the Company, including such statements herein, include material risks and uncertainties and are subject to change based on factors beyond the control of the Company (certain of such statements are identified by the use of words such as “anticipate,” “believe,” “estimate,” “intend,” “plan,” “expect,” “will,” or “future”). Accordingly, the Company’s actual results may differ materially from those expressed or implied in any such forward-looking statements as a result of various factors, including, without limitation, the success of certain cost reduction efforts, the continued performance of the RemX® specialty division, the Company’s ability to realize improvements in the months ahead, changes in general or local economic conditions that could impact the Company’s expected financial results, the availability of sufficient personnel, various costs relating to temporary workers and personnel, including but not limited to workers’ compensation and state unemployment rates, the Company’s ability to expand its sales capacity and channels, to open new points of distribution and expand in core geographic markets, attract and retain clients and franchisees/licensees, the outcome of litigation, software integration and implementation, application of deferred tax assets and other factors described in the Company’s filings with the Securities and Exchange Commission regarding risks affecting the Company’s financial condition and results of operations. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. The following should be read in conjunction with the Consolidated Financial Statements of the Company and Notes thereto.

General

      RemedyTemp, Inc. (“Remedy” or the “Company”), founded in 1965 and incorporated in California in 1974, is a national provider of clerical, light industrial, information technology and financial temporary staffing services to industrial, service and technology companies, professional organizations and governmental agencies. The Company provides its services in 35 states, Puerto Rico and Canada through a network of 238 offices, of which 130 are Company-owned and 108 are independently-managed franchises. During the twelve months ended October 3, 2004, the Company placed approximately 124,000 temporary workers, known as “associates,” and provided approximately 39 million hours of staffing services to over 10,000 clients.

      The Company has positioned itself to take advantage of trends in the temporary staffing industry, such as increased integration of temporary workers as a significant, long-term workforce component in both manufacturing and service-oriented companies and increased outsourcing by clients of certain staffing functions. Historically, the Company focused on the clerical and light industrial sectors of the nation’s temporary workforce. Beginning in November 1998, the Company began servicing the information technology sector, and in fiscal 2002 began servicing the financial and accounting sector. The clerical, light industrial, information technology and financial sectors comprise approximately 83.0% of the nation’s temporary staffing industry revenues, according to the Staffing Industry Analysts, Inc. (“SIA”), an independent staffing industry publication. Additionally, the Company intends to continue focusing its efforts in these areas. Through the use of innovative technologies and value-added services, the Company strives to partner with its clients to deliver total solutions to their temporary staffing needs. The Company’s expertise in providing associates who possess the skills and attitudinal characteristics necessary to “fit” into its clients’ organizations and perform at a superior level distinguishes the Company as a premium provider of temporary staffing services and technologies.

      The Company has invested significant human and financial resources in the development of proprietary technologies designed to enable the Company to provide its clients with premium temporary workers and

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      Additionally, the Company provides master vendor and on-site management programs to its clients in an effort to streamline the management of the temporary workforce and reduce the overall costs. As a master vendor, Remedy provides clients with centralized order processing, sub-contractor management and regular business reviews to track performance. The on-site management program provides a dedicated representative “on-site” at the client location to manage Remedy’s temporary workforce including developing, coordinating and managing associate orientation, order fulfillment, payroll tracking and other personnel issues.

      Management believes that the Company’s proprietary technologies and workforce management programs give the Company advantages over competing temporary staffing companies that do not provide similar value-added services.

      This Annual Report, and each of the Company’s other periodic and current reports, including any amendments, are available, free of charge, on our website, www.remedytemp.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. The information contained on the website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this report.

The Staffing Industry

      According to the SIA July 2004 report, temporary help revenues in the United States staffing industry averaged approximately a 0.1% decline from 1999 to 2002 as compared to projected revenue growth of 7.4% from $76.0 billion in 2003 to $81.6 billion in 2004. This is the second year of consecutive growth in temporary help revenue resulting from the overall economic growth in the United States during the last twelve months. Historically, the temporary staffing industry has experienced its greatest growth during economic recoveries. During fiscal 2003, growth was slow to materialize out of this recovery, apparently due to high productivity gains, which kept job creation to a minimum. However, fiscal 2004 showed signs of stronger growth as evidenced not only by the Company’s revenue growth but growth throughout the staffing industry.

      The staffing services industry was once used predominately as a short-term solution for greater workforce needs during peak production periods and to replace workers who were abruptly terminated or who were absent due to illness or vacation. Since the late 1980s, the use of temporary services has evolved into a permanent and significant component of the staffing plans of many employers. Corporate restructuring, government regulations, advances in technology and the desire by many business entities to shift employee costs from a fixed to a variable expense have resulted in the use of a wide range of staffing alternatives by businesses. Flexible staffing alternatives allow businesses to respond quickly and aggressively to changing market conditions which many economists and analysts believe is critical to future economic growth.

      Additionally, it is widely accepted by economists that temporary staffing also encourages greater work force participation, which is critical as the U.S. faces a labor shortage. Temporary staffing provides employment flexibility and options to people who might otherwise choose not to work. Flexible work arrangements offer choices that fit the diverse needs and preferences of potential employees thereby contributing to increased participation and enhanced productivity. These, along with various other economic and social factors, have increased the help supply services employment rate from 1.1% of the non-farm U.S.

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      The clerical, light industrial, information technology and financial sectors represent the largest four sectors of the temporary staffing industry. A staffing industry report by SIA, based on 2003 revenues, reported that the office and clerical sector accounted for $19.7 billion or approximately 26.0% of the temporary staffing industry revenues, the light industrial sector accounted for $16.5 billion or approximately 21.8% of industry revenues, the technical/information technology sectors accounted for $19.4 billion or approximately 25.6% of industry revenues, and the financial sector accounted for $7.3 billion or approximately 9.6% of industry revenues. Historically, the overall growth in temporary staffing revenues has resulted primarily from growth in these four sectors. While all sectors in the temporary staffing industry experienced contraction in 2002 and 2003, industry reports currently project modest growth in 2004 and higher growth in 2005.

Operations

      The Company provides temporary personnel in the following three industry sectors: clerical, light industrial, and specialty staffing.

      Clerical Services — As the use of temporary staffing has become more prevalent, the range of clerical positions provided by the Company has expanded beyond traditional secretarial staff to include a broad range of general business environment personnel. Clerical services include executive assistants, word processors, customer service representatives, data entry operators, hosts, telemarketers, other general office staff and call center agents, including customer service, help desk/product support, order takers, market surveyors, collection agents and telesales.

      Light Industrial Services — Light industrial services personnel are furnished for a variety of assignments including assembly work (such as mechanical assemblers, general assemblers, solderers and electronic assemblers), factory work (including merchandise packagers, machine operators and pricing and tagging personnel), warehouse work (such as general laborers, stock clerks, material handlers, order pullers, forklift operators, palletizers and shipping/receiving clerks), technical work (such as lab technicians, quality control technicians, bench technicians, test operators, electronic technicians, inspectors, drafters, checkers, designers, expediters and buyers) and general services (such as maintenance and repair personnel, janitors and food service workers).

      The Company also provides solutions for clients’ logistics staffing needs, including distribution and fulfillment. Logistics is the management of inventory, and includes warehousing, transportation, distribution and supply of goods. The Company supplies temporary associates in the following categories: inventory takers, material processors, warehouse workers, boxers, mail clerks, expeditors and inventory control clerks.

      Specialty Services — The Company provides specialty staffing services in the areas of information technology, finance and accounting and high level office staffing through its RemX® division. The RemX® division and brands are exclusively a Company owned operation. The Company now operates 37 offices within the RemX®division in the following specialty areas:

      Information Technology Services. In November 1998, the Company began providing information technology temporary staffing and consulting services under the name RemX Technology Group®. RemX Technology Group®, now known as RemX® IT Staffing, supplies contract staffing and consulting professionals on a temporary, temp-to-hire or direct hire basis in key technology categories including hardware and software engineering, database design development, application development, Internet/ Intranet site development, networking, software quality assurance and technical support. The Company currently has 11 RemX® IT Staffing offices.

      Financial Staffing. RemX® Financial Staffing was launched during fiscal 2002 with ten office openings. RemX® Financial Staffing is a highly specialized division focusing on placing financial and accounting personnel in key positions within the financial sector. RemX® Financial Staffing provides its clients with controllers, financial analysts, certified public accountants, auditors, senior/staff accountants and a variety of

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      OfficeStaff Services. The Company’s newest division was launched during fiscal 2003 with its first RemX® OfficeStaff office opening. RemX® OfficeStaff specializes in the recruitment and placement of high level administrative support personnel, including administrative assistants, office managers and corporate receptionists on a temporary, temp-to-hire or direct hire basis. The Company currently has six RemX® OfficeStaff offices.

     Office Organization.

      The Company provides its services through a network of 238 office locations, 130 of which are owned and operated by the Company and 108 of which are operated as independently-managed franchised offices. The table below sets forth the geographic distribution of the Company-owned and independently-managed offices as of October 3, 2004.

(1)	Includes Arizona, Colorado, Hawaii, Idaho, Nevada, Oregon, Utah and Washington.
(2)	Includes Illinois, Indiana, Iowa, Michigan, Missouri, Nebraska, Ohio and Wisconsin.
(3)	Includes Arkansas, Florida, Georgia, Kentucky, Louisiana, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia.
(4)	Includes Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New York, Pennsylvania and the District of Columbia.

     Company-Owned Offices.

      The Company-owned offices provide clerical, light industrial, information technology and financial staffing and are primarily concentrated in California, with locations in 19 other states and the District of Columbia. These offices are organized into five divisions; each managed by an Operational Vice President and other regional staff who provide operational support for the offices in their regions. Company-owned offices are organized into different matrices based upon geographic location and/or service offerings. Each matrix has an office manager who is accountable for the day-to-day operations and profitability of the offices within that matrix.

      Managers report to their Operational Vice Presidents, and together they are responsible for sales, client development and retention, recruitment, placement and retention of associates and general administration for their respective offices and regions. The Company believes that this decentralized structure contributes to the initiative and commitment of its management team and that its incentive compensation approach motivates managers to increase profits.

      Company-owned offices had average sales per office of approximately $2.6 million for fiscal 2004 and fiscal 2003. The density of Company-owned offices in certain areas enables the Company to spread fixed costs

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     Independently-Managed Franchised Offices.

      Independently-managed franchised offices provide clerical and light industrial services and have been an important element of the Company’s growth strategy for more than a decade. Such offices have enabled the Company to expand into new markets with highly qualified franchisees without significant capital expenditures. The majority of the Company’s offices outside California are independently-managed franchises. Franchise agreements have ten-year terms and are renewable for successive five-year or ten-year terms, depending upon when such agreements originated. Such agreements cover exclusive geographic territories and contain minimum revenue performance standards. The Company’s franchise agreements are structured in either a “traditional” franchise format or a “licensed” franchise format.

      In general, franchise offices opened from 1987 to 1990 are operated as traditional franchises, and independently-managed offices opened since 1990 are operated as licensed franchise offices. The Company moved from the traditional to the licensed franchise format to exercise more control over the collection and tracking of the receivables generated by the independently-managed offices and to allow the Company to grow without being limited by the financial resources of traditional franchisees. Accordingly, the number of traditional franchise offices is not anticipated to increase, except in certain circumstances when a licensed franchise office may convert to the traditional franchise format. Additionally, existing traditional franchisees have the option under their contract to open new franchise offices within their territory. The number of licensed franchise offices is expected to increase because new independently-managed offices will be opened in licensed franchise format and offices currently operated as traditional franchises may, depending upon various factors, convert to the licensed franchise format. If the number of traditional franchise offices is reduced, royalty revenues will decrease.

      Traditional Franchises. The Company employed a traditional franchise model primarily from 1987 until 1990 (referred to as both “traditional franchise” and “traditional franchisee”). As of October 3, 2004, 10 of the Company’s 108 independently-managed offices were traditional franchises. These traditional franchisees pay all lease and working capital costs, fund payroll and collect clients’ accounts. Generally, traditional franchisees pay the Company an initial franchise fee and continuing franchise fees, or royalties, equal to approximately 7.0% of gross billings. Royalty fees are reduced when the franchisee serves a national client as these clients typically have lower margins and for franchisees that have renewed their franchise agreement and qualify for a discounted rate (ranging from 5.5% – 6.5%) based on gross billings. Traditional franchisees employ all office management staff and all temporary personnel affiliated with their offices. The Company provides training, the right to use certain designated service marks and trademarks, its business model, proprietary computer programs, as well as operational support. Material rights and terms of the form of the franchise agreement for traditional franchise offices include the right to operate a Remedy franchise business within an exclusive geographic territory, a non-exclusive license of the Remedy trademarks and service marks designated for use and operation of the franchised business, disclosure and use of Remedy’s trade secrets and operating guidance from Remedy. Furthermore, pursuant to the terms of the form of franchise agreement for traditional franchise offices, franchisees shall indemnify Remedy from any liability that may arise in connection with the franchised business and must comply with certain minimum performance standards and operating procedures. The Company no longer offers this form of franchise agreement.

      Licensed Franchises. Since 1990, the Company has recruited new franchisees under the licensed franchise format (referred to as “licensed franchise,” “licensed franchisee” and/or “licensee”). The Company moved from the traditional franchise to the licensed franchise format to exercise more control over the collection and tracking of the receivables of the independently-managed offices and to allow the Company to grow without being limited by the financial resources of traditional franchisees. As of October 3, 2004, 98 of the Company’s 108 independently-managed office locations were licensed franchise offices. The licensed franchise format differs from the traditional franchise format in that the licensee employs all management

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      Generally, licensed franchisees pay the Company an initial franchise fee of $10,000 — $18,000 and continuing franchise fees consist of the Company’s share of the licensee’s gross profit as discussed above. Licensed franchise agreements entered into subsequent to January 2002 provide for deferred payment of a portion of the initial franchise fee. Currently, the initial investment for a licensed franchise business is estimated to be $98,000 — $211,000 as disclosed in the Company’s Uniform Franchise Offering Circular (“UFOC”) to be issued by December 31, 2004 in accordance with Federal Trade Commission regulations. As outlined in the UFOC, this estimated initial investment includes the initial franchise fee payable to the Company, as well as estimated expenditures to various vendors for pre-operating costs and operating costs for the initial six months of operation. Continuing franchise fees are excluded from the total estimated initial investment. Refer to the franchise agreement for licensed offices, filed as an exhibit to this Annual Report on Form 10-K, for additional rights and terms of the franchise agreement currently offered by the Company.

      From time to time, the Company may selectively purchase traditional and licensed franchise operations for strategic reasons, including facilitating its expansion plans of increased market presence in identified geographic regions. Refer to Note 6 to notes to consolidated financial statements for further discussion on the Company’s acquisitions. The Company continually reassesses its current operating structure and in view of its strategic plans will consolidate or close certain Company-owned offices (see Note 7 to notes to consolidated financial statements).

Seasonality

      The Company’s quarterly operating results are affected by the number of billing days in the quarter and the seasonality of its clients’ businesses. The first fiscal quarter has historically been strong as a result of manufacturing and retail emphasis on holiday sales. Historically, the second fiscal quarter shows a slight decline in comparable revenues from the first fiscal quarter. Revenue growth has historically accelerated in each of the third and fourth fiscal quarters as manufacturers, retailers and service businesses increase their level of business activity.

Clients

      The Company serves the needs of small, medium-size and Fortune 500 businesses in a variety of industries. During fiscal 2004 and 2003, the Company serviced over 10,000 clients nationwide. The Company’s ten highest volume clients in fiscal 2004 and fiscal 2003 accounted for approximately 23.4% and 21.8%, respectively, of the Company’s total revenues. No single client accounted for more than 4.1% and 4.4% of the Company’s total revenues for fiscal 2004 and fiscal 2003, respectively.

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Competition

      The temporary services industry is highly competitive with limited barriers to entry. The Company believes that its largest competitors in the clerical and light industrial sectors include Adecco S.A., Kelly Services, Inc., Manpower Inc., Spherion Corporation, Labor Ready, Ablest, Inc., and Westaff, Inc. These and other large competitors have nationwide operations with substantially greater resources than the Company, which among other things could enable them to attempt to maintain or increase their market share by reducing prices. In addition, there are a number of other medium-sized firms that are regional or emphasize specialized niches and compete with the Company in certain markets where they have a stronger presence. Finally, numerous small or single-office firms compete effectively with the Company’s offices in their limited areas. In the information technology and financial sectors, the Company believes that its competitors include MPS Group, Inc., Robert Half International, Inc., Adecco S.A., Alternative Resources Corporation, On Assignment, Inc., KForce, Comsys and CDI Corporation.

      The Company’s management believes that the most important competitive factors in obtaining and retaining its targeted clients are understanding the customer’s specific job requirements, the ability to provide qualified temporary personnel in a timely manner and the quality and price of services. The primary competitive factors in obtaining qualified candidates for temporary employment assignments are wages, benefits and responsiveness to work schedules.

      The Company expects ongoing vigorous competition and pricing pressure from national, regional and local providers, and there is no assurance that the Company will be able to maintain or increase its market share or profitability.

Workers’ Compensation

      Remedy provides workers’ compensation insurance to its temporary associates and colleagues. Effective April 1, 2001 and for workers’ compensation claims originating in the majority of states (referred to as non-monopolistic states), the Company has contracted with independent, third-party carriers for workers’ compensation insurance and claims administration. Each annual contract covers all workers’ compensation claim costs greater than a specified deductible amount, on a “per occurrence” basis. The Company is self-insured for its deductible liability ($250,000 per individual claim incurred from April 1, 2001 to March 31, 2002 and $500,000 for all subsequent claims). The insurance carrier is responsible for incremental losses in excess of the applicable deductible amount.

      Remedy establishes a reserve for the estimated remaining deductible portion of its workers’ compensation claims, representing the estimated ultimate cost of claims and related expenses that have been reported but not settled, and that have been incurred but not reported. The estimated ultimate cost of a claim is determined by applying actuarially determined loss development factors to current claims information. These development factors are determined based upon a detailed actuarial analysis of historical claims experience of both the Company and the staffing industry. The Company periodically updates the actuarial analysis supporting the development factors utilized and revises those development factors, as necessary. Adjustments to the claims reserve are charged or credited to expense in the periods in which they occur. The estimated remaining deductible liability under the aforementioned contracts as of October 3, 2004 is approximately $36.4 million, of which $12.3 million is recorded as current and $24.1 million is recorded as non-current in the accompanying consolidated balance sheets.

      The Company also has an aggregate $2.7 million current liability recorded at October 3, 2004 for amounts due to various state funds related to workers’ compensation. At September 28, 2003, the Company had an aggregate $5.3 million current liability recorded for additional premiums due under previous guaranteed cost policies in addition to amounts due to various state funds.

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      The following table presents the classification of the Company’s workers’ compensation liability and accrued CIGA litigation costs:

      The Company is contractually required to collateralize its remaining obligation under each of these workers’ compensation insurance contracts through the use of irrevocable letters of credit, pledged cash and securities or a combination thereof. The level and type of collateral required for each policy year is determined by the insurance carrier at the inception of the policy year and may be modified periodically. As of October 3, 2004, the Company has outstanding letters of credit of $34.7 million (collateralized with $16.0 million in cash) and pledged cash and securities totaling $21.9 million. Subsequent to year end, the $16.0 million in cash became unrestricted under the new Credit Agreement (see Note 4 to the notes to consolidated financial statements). The pledged cash and securities are restricted and cannot be used for general corporate purposes while the Company’s remaining obligations under the workers’ compensation program are outstanding. Accordingly, the Company has classified these pledged cash and securities as restricted in the accompanying consolidated balance sheets.

      From July 22, 1997 through March 31, 2001, the Company had a fully insured workers’ compensation program with Reliance National Insurance Company (“Reliance”). The annual premium for this program was based upon actual payroll costs multiplied by a fixed rate. Each year, the Company prepaid the premium based upon estimated payroll levels and an adjustment was subsequently made for differences between the estimated and actual amounts. Subsequent to March 31, 2001 (the end of Company’s final policy year with Reliance), Reliance became insolvent and was liquidated. The Company is currently in litigation with the California Insurance Guaranty Association regarding financial responsibility for all remaining open California claims under the Reliance workers’ compensation program. The Company recorded a $5.9 million charge to operating income during the fourth quarter of fiscal 2004 as a result of the October 2004 Court of Appeal’s decision (see further discussion under Item 3. Legal Proceedings).

Employees

      As of October 3, 2004, the Company employed a staff of approximately 700 individuals (excluding temporary associates). During fiscal 2004, approximately 124,000 temporary associates were placed by the Company through Company-owned and independently-managed franchised offices. Approximately 72,000 of the temporary associates were employed by Company-owned offices and approximately 45,000 were employed by the Company, through licensed franchise offices. Approximately 7,000 of the temporary associates were placed by traditional franchise offices and as such are not employed by the Company but rather are legal employees of the traditional franchisees. At any given time during 2004, only a portion of these employees were placed on temporary assignments. The Company has no collective bargaining agreements and believes its employee relations are good.

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Governmental Regulation

      The Company’s marketing and sale of franchises is regulated by the Federal Trade Commission and by authorities in 19 states. In those states, the Company is required to file a registration application, provide notice or qualify for an exemption from registration. The Company has filed, or is in the process of filing, the appropriate registration applications, or has obtained an exemption from such registration requirements. The Company files and distributes, to prospective franchisees, Franchise Offering Circulars and other materials in order to comply with such registration and disclosure requirements. In addition, the Company’s ongoing relationships with its franchisees are regulated by applicable federal and state franchise laws.

Proprietary Rights and Systems

      The Company has developed, either internally or through hired consultants, its HPT®, EDGE® and i/search 2000® computer systems. These and other proprietary systems are trade secrets of the Company and the Company has copyrights to certain software used in these systems.

      The Company has registered the following trademarks and service marks with the U.S. Patent & Trademark Office for use in its operation: REMEDY®, REMEDY TEMPORARY SERVICES®, REMEDYTEMP®, REMEDY TECHNICAL®, CALLER ACCESS®, INTELLISEARCH®, INTELLIGENT STAFFING®, HIRE INTELLIGENCE®, EDGE®, VSM®, HPT®, THE INTELLIGENT TEMPORARY®, REMEDY LOGISTICS GROUP®, REMX TECHNOLOGY GROUP®, REMX® Financial Staffing, REMX® IT Staffing, AXCESS INTERACTIVE CUSTOMER CARE®, RECRUITRAC®, I/SEARCH 2000®, MAPS® and REMX® OfficeStaffing. In addition, the Company asserts ownership of, and has filed applications with the U.S. Patent & Trademark Office to register the service mark MEGABLAST^SM, RemXFactor™, Remedy Manager Match™, Remedy Talent Magnet™, and Remedy Knowledge Bank™. In general, these marks are used by the Company and its licensees and franchisees, except that REMX TECHNOLOGY GROUP®, REMX® Financial Staffing, REMX® IT Staffing, REMX® OfficeStaff and RemXFactor™ are used exclusively by the Company.

Risk Factors

      In evaluating Remedy’s business, you should carefully consider the following risk factors in addition to information contained elsewhere in this Annual Report on Form 10-K.

      Demand for temporary services is significantly affected by the general level of economic activity. As economic activity slows, businesses may reduce their use of temporary employees before undertaking layoffs of their full-time employees, resulting in decreased demand for Remedy’s temporary personnel. Further, in an economic downturn, the Company may face pricing pressure from its clients and increased competition from other staffing companies, which could have a material adverse effect on the Company’s business. The overall slowdown in the U.S. economy in 2001 and 2002 had a significant adverse impact on the Company’s revenues. Additionally, because the Company currently derives a significant portion of its revenues from the California market (approximately 44.0% in fiscal 2004), an economic downturn in California would have a greater impact on the Company than if the Company had a more widely dispersed revenue base.

      The temporary services industry is highly competitive with limited barriers to entry and in recent years has been undergoing significant consolidation. The Company competes in national, regional and local markets with full service agencies and with specialized temporary service agencies. Many competitors are smaller than the Company but have an advantage over the Company in discrete geographic markets because of their stronger local presence. Other competitors are more well-known and have greater marketing and financial resources than the Company, which among other things could enable them to attempt to maintain or increase

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      Remedy depends upon its ability to attract qualified temporary personnel who possess the skills and experience necessary to meet the staffing requirements of its clients. Remedy must continually evaluate and upgrade its base of available qualified personnel to keep pace with changing client needs and emerging technologies. Competition for individuals with proven skills is intense, and demand for these individuals is expected to remain very strong for the foreseeable future. There can be no assurance that qualified personnel will continue to be available to Remedy in sufficient numbers and on terms of employment acceptable to the Company. Remedy’s success will depend on its ability to recruit qualified temporary personnel and retain them.

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

      Remedy is in the business of employing people and placing them in the workplace of other businesses. Attendant risks of these activities include possible claims by clients of employee misconduct or negligence, claims by employees of discrimination or harassment (including claims relating to actions of Remedy’s clients), claims related to the inadvertent employment of illegal aliens or unlicensed personnel, payment of workers’ compensation claims and other similar claims. Remedy has policies and guidelines in place to help reduce its exposure to these risks and has purchased insurance policies against certain risks in amounts that it believes to be adequate. However, there can be no assurances that Remedy will not experience these problems in the future or that Remedy may not incur fines or other losses or negative publicity with respect to these problems that could have a material adverse effect on Remedy’s business.

      Businesses use temporary staffing in part to shift certain employment costs and risks to personnel services companies. For example, Remedy is responsible for, and pays unemployment insurance premiums and workers’ compensation for, its temporary employees. These costs have generally risen as a result of increased claims, general economic conditions and governmental regulation. There can be no assurance that Remedy will be able to increase the fees charged to its clients in the future to keep pace with increased costs. Price competition in the personnel services industry is intense. If Remedy is unable to maintain its margins, it expects that it may choose to stop servicing certain clients. Further, there can be no assurance that certain clients will continue to use Remedy at increased cost. There can be no assurance that Remedy will maintain its margins, and if it does not; its results of operations, financial condition and liquidity could be adversely affected.

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      On November 18, 2003, the Company was notified by the State of California Employment Development Department (the “EDD”) that the Company allegedly underpaid its state unemployment insurance by approximately $2.0 million for the period January 1, 2003 through September 30, 2003. Based on preliminary evaluations and on advice of its outside counsel, the Company believes that its methodology in calculating its state unemployment insurance is in compliance with all applicable laws and regulations. The Company is currently working with outside counsel to resolve this issue, and has not accrued for this amount as of October 3, 2004.

      Remedy retains a portion of the risk under its workers’ compensation program (see “Business — Workers’ Compensation”). The estimated remaining deductible liability for all existing and incurred but not reported claims is accrued based upon actuarial methods using current claims information, as well as prior experience, and may be subsequently revised based on new developments related to such claims. Changes in the estimates underlying the claims reserve are charged or credited to earnings in the period determined, and therefore large fluctuations in any given quarter could materially adversely affect earnings in that period.

      The Company is contractually required to maintain irrevocable letters of credit and pledged cash and securities, currently aggregating $34.7 million and $21.9 million, respectively, to collateralize its remaining recorded obligations under these workers’ compensation insurance contracts. Remedy expects the amount of collateral required will continue to increase. In the event that Remedy loses its current credit facilities, or cash flow and borrowing capacity under the existing credit facilities are insufficient to meet this increasing obligation, the Company will be required to seek additional sources of capital to satisfy its liquidity needs which could have a material adverse effect on the Company’s business.

      The Company derives a substantial amount of its revenues (34.0% in fiscal 2004) from licensed franchise operations. The ownership of the Company’s licensed franchise offices is concentrated, with the ten largest licensed franchisees together accounting for approximately 17.7% of the Company’s revenues in fiscal 2004. There can be no assurance that the Company will be able to attract new franchisees or that the Company will be able to retain its existing franchisees. The loss of one or more of these relationships, or other franchisees who may in the future account for a significant portion of the Company’s revenues, could have a material adverse effect on the Company’s results of operations.

      The Company is subject to bills introduced in Congress and various state legislatures, which, if enacted, could impose conditions that could have a negative financial impact on the Company and harm its business operations. Remedy takes an active role (through its affiliations with, and participation in, various staffing industry organizations) in opposing proposed legislation adverse to its business and in informing policy makers as to the social and economic benefits of its business. However, there can be no assurance or guarantees that any of these bills (or future bills) will not be enacted, in which case, demand for the Company’s services or its financial condition, or both, may suffer.

      In the ordinary conduct of business, the Company is subject to various lawsuits, investigations and claims, covering a wide range of matters, including, but not limited to, employment matters. It is possible that the Company may be required to pay substantial damages or settlement costs in excess of its insurance coverage, which could have a material adverse effect on its financial condition or results of operations. The Company could also incur substantial legal costs, and management’s attention and resources could be diverted from the business. Please see Item 3. Legal Proceedings, for more detailed information on these litigation risks.

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      The Company does not own any real property. The Company leases its corporate headquarters in Aliso Viejo, California, from OTR, an Ohio general partnership. The lease agreement, as amended, provides for leased premises, totaling approximately 51,202 square feet in size, at a fixed rate of $1.80 per square foot per month until September 30, 2007 and $2.05 per square foot per month from October 1, 2007 until September 30, 2010. The base rent includes amounts for operating costs, which include, but are not limited to, property taxes, utilities, supplies, repairs and maintenance, janitorial staff, security staff and insurance premiums on the building. In addition to base rent, the Company is obligated to pay a portion of the increase in operating costs and real property taxes for the leased premises. The Company has an option to renew the lease for an additional term of five years. The Company moved into its current corporate headquarters in September 1998, and the initial term of its lease, as amended, expires on September 30, 2010.

      As of October 3, 2004, the Company leased the space occupied by all of its Company-owned offices. The Company selects the sites for these offices by evaluating proximity to potential clients and available temporary personnel. The company-owned office lease agreements generally provide for terms of three to five years. The inability to renew all or a majority of the leases on similar or favorable terms to the Company could have a material impact on the financial condition of the Company. The Company assists its franchisees in selecting sites for independently-managed offices, but presently does not own and is not obligated under any leases at these sites.

Litigation

     Class Action

      On October 16, 2001, GLF Holding Company, Inc. and Fredrick S. Pallas filed a Complaint in the Superior Court of the State of California, County of Los Angeles, against RemedyTemp, Inc., Remedy Intelligent Staffing, Inc., Remedy Temporary Services, Inc., Karin Somogyi, Paul W. Mikos, and Greg Palmer. The Complaint purported to be a class action brought by the individual plaintiffs on behalf of all of the Company’s franchisees. The Complaint alleged claims for fraud and deceit, negligent misrepresentation, negligence, breach of contract, breach of warranty, conversion, an accounting, unfair and deceptive practices, restitution and equitable relief. On or about December 3, 2002, plaintiffs filed an Amended Complaint alleging these same causes of action, but adding additional facts to the Complaint particularly with respect to the Company’s workers’ compensation program and adding claims regarding unfair competition on behalf of the general public in addition to their existing class action claim. The plaintiffs claimed that Remedy wrongfully induced its franchisees into signing franchise agreements and took other action that caused the franchisees damage.

      The Company believed that plaintiffs’ claims fell within the arbitration clause contained in the franchise agreements signed by plaintiffs. As a result, immediately after plaintiffs filed suit, the Company filed arbitration demands against plaintiffs with the American Arbitration Association. On or about April 1, 2003, the Company amended its arbitration demands to add claims against plaintiffs relating to workers’ compensation.

      The Company denied and continues to deny the allegations in the Complaint. There has been no finding of wrongdoing by the Company. Nevertheless, to avoid costly, disruptive, and time-consuming litigation, and without admitting any wrongdoing or liability, the Company negotiated and agreed to a settlement with plaintiffs and stipulated to the certification of a settlement class comprised of all individuals or entities that entered into a Franchise Agreement (including renewals or amendments thereof) with RemedyTemp, Inc. and/or Remedy Intelligent Staffing, Inc. anytime prior to March 29, 2004.

      On April 6, 2004, the Court preliminarily approved the parties’ settlement agreement and conditionally certified the Settlement Class. All discovery and other proceedings in this action were stayed, except as may be necessary to implement the Settlement Agreement. On September 9, 2004, the Court issued a final approval of the Settlement Agreement. The exposure is deemed immaterial to the Company’s consolidated

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     CIGA

      In early 2002, as a result of the liquidation of Remedy’s former workers’ compensation insurance carrier, Reliance National Insurance Company (“Reliance”), the California Insurance Guarantee Association (“CIGA”) began making efforts to join some of the Company’s clients and their workers’ compensation insurance carriers (collectively, “Clients”), in pending workers’ compensation claims filed by Remedy employees. At the time of these injuries, from July 22, 1997 through March 31, 2001, Remedy was covered by workers’ compensation policies issued by Reliance. The Company believes that, under California law, CIGA is responsible for Reliance’s outstanding liabilities. On April 5, 2002, the California Workers’ Compensation Appeals Board (“WCAB”), at Remedy’s request, consolidated the various workers’ compensation claims in which CIGA sought to join Remedy’s Clients, and agreed to stay proceedings on those claims pending resolution of the issue of CIGA’s obligations to satisfy Reliance’s obligations to Remedy’s employees. The WCAB selected a single test case from the consolidated pending cases in which to decide whether CIGA is responsible for the claims of Remedy’s employees, or can shift such responsibility to the Clients. The trial occurred on September 20, 2002. The WCAB Administrative Law Judge ruled in favor of CIGA, thus allowing the pending workers’ compensation matters to proceed against the Clients. Remedy then filed a motion for reconsideration of the Administrative Law Judge’s decision by the entire WCAB. On March 28, 2003, the WCAB, en banc, affirmed the ruling of the Administrative Law Judge. Thereafter, in May 2003, the Company filed a petition for writ of review of the WCAB’s decision in the California Court of Appeal. The WCAB continued the “stay” in effect since April 5, 2002, thus preventing CIGA from proceeding until the writ proceeding was concluded. In January 2004, the Court of Appeal granted the Company’s petition and undertook to review the WCAB’s decision. The Court heard oral argument in the matter on July 9, 2004.

      On October 20, 2004, the Court of Appeal affirmed the WCAB’s decision. The Company intends to seek further review of that decision by way of rehearing by the Court of Appeal and/or review by the California Supreme Court. On November 18, 2004, the Court of Appeal granted the Company’s petition for rehearing and requested additional briefing on this matter. Both avenues of further review are discretionary with the court such that the Company does not have an absolute right to such review.

      Despite the Company’s determination to further pursue the appellate review process, there can be no assurance that such efforts will be successful in overturning the Court of Appeal’s decision. In the event of a final unfavorable outcome, Remedy may be obligated to reimburse certain clients and believes that it would consider reimbursement of other clients for actual losses incurred as a result of an unfavorable ruling in this matter. If CIGA is permitted to join Remedy’s clients, thus triggering the clients’ insurance carriers’ obligation to respond to the claims of Remedy’s employees, the Company believes that the direct financial exposure to Remedy becomes a function of the ultimate losses on the claims and the impact of such claims, if any, on the clients’ insurance coverage, potentially including but not limited to the clients’ responsibility for any deductibles or retentions under their own workers’ compensation insurance. The Company has received data from the Third Party Administrator (TPA) handling the claims for CIGA, for the claims in question, which totals $31.4 million at October 3, 2004 revised from $40.0 million at June 27, 2004 due to additional information provided to the Company by the TPA. The losses incurred to date represent amounts paid to date by the trustee and the remaining claim reserves on open files.

      Based on the Court of Appeal’s decision, the Company has recorded a $5.9 million charge to operating income. This amount represents the Company’s current estimate based on review of known information and was established for costs associated with the indemnification of certain clients for losses they may suffer as a result of the ruling. The $5.9 million charge was based on the Company’s review of customer contracts, review of the Loss Run received from the TPA handling the claims, actuarial development of the reported claim losses, estimates of customer insurance coverage, and other applicable information. The amount of the charge is therefore subject to change as more information becomes available to the Company. Additionally, the Company reclassified $0.2 million, $0.8 million and $0.4 million of legal expenses incurred in fiscal 2004, 2003, and 2002, respectively, related to the CIGA matter from selling and administrative expense to CIGA

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     Other Litigation

      From time to time, the Company becomes a party to other litigation incidental to its business and operations. The Company maintains insurance coverage that management believes is reasonable and prudent for the business risks that the Company faces. Based on current available information, management does not believe the Company is party to any other legal proceedings that are likely to have a material adverse effect on its business, financial condition, cash flows or results of operations.

     Other Contingency

      On November 18, 2003, the Company was notified by the State of California Employment Development Department (the “EDD”) that the Company allegedly underpaid its state unemployment insurance by approximately $2.0 million for the period January 1, 2003 through September 30, 2003. Based on preliminary evaluations and on advice of its outside counsel, the Company believes that its methodology in calculating its state unemployment insurance is in compliance with all applicable laws and regulations. The Company is currently working with outside counsel to resolve this issue, and has not accrued for this amount as of October 3, 2004.

      No matters were submitted to a vote of the Company’s security holders during the Company’s fourth quarter of the fiscal year ended October 3, 2004.

Executive Officers of the Registrant

      The executive officers of the Company hold their respective positions at the pleasure of the Company’s Board of Directors. The executive officers and their respective ages as of October 3, 2004 are set forth below.

      Greg D. Palmer has served as President and Chief Executive Officer of the Company since January 2001. From January 1998 to January 2001, Mr. Palmer served as Executive Vice President and Chief Operations Officer of the Company. From 1985 to December 1997, and prior to joining the Company, Mr. Palmer served in senior level management positions in the southeast and northeast divisions and previously as Senior Vice President in charge of managing operations in the western United States for Olsten Corporation, formerly a provider of staffing and health care services

      Monty A. Houdeshell has served as Senior Vice President, Chief Financial Officer of the Company since of January 1, 2003. From 1988 until November 1999 he was Vice President, Chief Financial Officer of Furon Company. Prior to 1988, he was Vice President, Chief Financial Officer of Oak Industries, Inc.

      Janet L. Hawkins has served as the Senior Vice President of Sales and Marketing for the Company since July 2003. From 1978 to June 2003, and prior to joining the Company, Ms. Hawkins served as President of Hawkins Advertising and Public Relations.

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      Gunnar B. Gooding has served as Vice President, Human Resources and Legal Affairs of the Company since April 2000 and prior to that as Vice President, General Counsel since September 1998. From September 1989 to September 1998, Mr. Gooding worked as an attorney at Gibson, Dunn & Crutcher LLP where he specialized in employment litigation.

PART II

      Since July 11, 1996, the Company’s Class A Common Stock has been traded on the NASDAQ National Market under the symbol “REMX.” Prior to July 11, 1996, the Company’s stock was not publicly traded. The following table sets forth the high and low sales prices for the Class A Common Stock for fiscal 2004 and fiscal 2003:

      As of December 1, 2004, there were an estimated 68 shareholders of record of the Company’s Class A Common Stock and five shareholders of record of the Company’s Class B Common Stock.

      Subsequent to the Company’s initial public offering in fiscal 1996, the Company has not declared or paid cash dividends on its Class A or Class B Common Stock and does not anticipate that it will do so in the foreseeable future. The present policy of the Company is to retain earnings for use in its operations and the expansion of its business.

Securities Available for Issuance Under Our Equity Compensation Plans

      The following table provides information with respect to the Company’s equity compensation plans as of October 3, 2004, which plans were as follows: the Company’s 1996 Amended and Restated Stock Incentive Plan, 1996 Employee Stock Purchase Plan and the Non-Employee Director Plan.

(1)	Includes 122,978 shares of Common Stock that may be issued under the Company’s 1996 Employee Stock Purchase Plan and 355,073 shares of Common Stock that may be issued under the Company’s 1996 Amended and Restated Stock Incentive Plan.

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(2)	Pertains to shares of Common Stock that may be issued under the Non-Employee Director Plan discussed below.

Non-Employee Director Plan

      Directors who are also employees or officers of the Company receive no extra compensation for their service on the Board. Pursuant to the Non-Employee Director Plan, effective March 16, 1998, and amended by the Board on October 1, 2003, independent directors receive an annual retainer in the form of cash or shares of Common Stock valued at $25,000 on the date of their election or re-election to the Board. For those directors electing to receive their retainer in stock, the shares that are issued under the Non-Employee Director Plan are held in trust, on a deferred basis (subject to an exception for financial hardship) until a director is no longer a director of the Company. Such shares are issued in trust no later than ten business days after the next annual meeting of shareholders following election or re-election, provided that the director has remained a director during such time. The maximum aggregate number of shares that have been authorized for issuance under the Non-Employee Director Plan is 75,000 shares, subject to adjustment upon recapitalization, stock dividends, stock splits and similar changes in the Company’s capitalization as provided in the plan.

Item 6.     Selected Financial Data

      The selected financial data with respect to the Company set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and Notes thereto. The fiscal year end of the Company is a 52 or 53 week period ending the Sunday closest to September 30. Fiscal year 2004 consisted of 53 weeks, all other fiscal years presented consisted of 52 weeks. The following selected financial information as of and for the fiscal

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(1)	The Company recorded a full valuation allowance of $22,581 and $16,879 against the deferred tax assets for fiscal 2004 and 2003, respectively (see Note 5 to the notes to consolidated financial statements).
(2)	Effective September 30, 2002 the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets”. As a result, the Company recorded at non-cash charge of $2,421, net of income taxes of $1,634 (see Note 1 to the notes to consolidated financial statements).
(3)	Certain items in prior periods have been reclassified to conform to current year classifications.

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Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

Company Overview

      The Company provides temporary staffing services to industrial, service and technology businesses, professional organizations and governmental agencies. During the twelve fiscal months ended October 3, 2004, the Company placed approximately 124,000 temporary workers and provided approximately 39 million hours of staffing services to over 10,000 clients. The Company’s revenue was $519.9 million, $482.0 million, and $464.5 million for fiscal years 2004, 2003, and 2002, respectively.

Executive Summary

      The staffing industry is a highly competitive industry, which has contributed to significant price competition and lower margins as major staffing companies have attempted to maintain or gain market share. During the last twelve months, global economic conditions have continued to improve which appears to signal a sustainable job-creating recovery. The demand for temporary staffing has also continued to grow as demonstrated by recent reports from the Bureau of Labor Statistics (the “BLS”) stating that staffing industry companies employed 9.7% more workers in September 2004 than in the same period of 2003 resulting in the sixteenth consecutive month of year-over-year improvements. Management continues to be encouraged by the recent economic data, as well as the steady job growth in the staffing industry. Historic trends in employment growth following a recession have been slowed, due in part to productivity gains and modest new job growth.

      The increases in workers’ compensation costs and state unemployment insurance costs the Company experienced in fiscal 2003 and 2004 have been significant. However, the Company does not expect the increases in state unemployment costs to continue at such a significant rate throughout fiscal 2005 and expects workers compensation costs to continue to stabilize throughout fiscal 2005 as seen in the last six months of fiscal 2004. During the fourth quarter of fiscal 2004, the Company recorded a $5.9 million charge to operating income as a result of an October 2004 Court of Appeal’s decision (see further discussion under Item 3. Legal Proceedings).

      With long-term positive prospects, the staffing industry has always been inherently difficult to forecast due to its dependence on economic factors and the strength of the labor market. However, the Company has developed a forecasting tool jointly with the A. Gary Anderson Center for Economic Research at Chapman University. The Quarterly Labor Forecast Report, which is based upon BLS and other economic factors, helps to predict total demand for temporary labor. The Company has been utilizing this tool for several years and has recently begun to publish the results on a quarterly basis.

      Taking advantage of its strong brand name and infrastructure, the Company has positioned itself for profitable growth in fiscal 2005. The Company’s long-term growth strategies include:

	•	Increasing the proportion of revenue from its Company-owned offices;
	•	Increasing the proportion of revenue generated from outside of California to mitigate rising state unemployment costs and workers’ compensation costs;
	•	Increasing Company-owned office revenues (“Company-owned office revenue” or “direct revenue”) in its higher margin clerical business;
	•	Increasing direct hire revenue (whereby the Company earns a fee for placing an associate in a permanent position);
	•	Targeting small (“retail”) to midsize clients which typically generate higher margins; and
	•	Increasing the number of sales representatives in the field in the next several years (referred to as the Company’s investment hire goal).
	•	Growing the niche sectors of the Company’s business (financial staffing, information technology services and officestaff services) to take advantage of higher gross margins.

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      The following table sets forth for the last five fiscal years, the number of Company-owned, traditional and licensed franchise offices and revenues associated with each. For traditional franchised offices, Company revenues are limited to the royalties revenues earned on gross billings. Average revenues per office are computed by dividing the relevant revenues by the number of related offices. The Company’s long-term revenue growth depends in part upon its ability to continue to attract new clients, retain existing clients and open new offices, as well as its ability to enhance the sales of existing offices beyond historical levels.

Results of Operations (amounts in thousands)

     Fiscal 2004 Compared to Fiscal 2003

     Revenue

	•	The mix between direct, licensed franchise and traditional franchise royalty revenues shifted with direct revenues accounting for 65.7% of total revenues for fiscal 2004 up from 62.3% for fiscal 2003. This overall shift in business mix is consistent with the Company’s long-term strategy of generating a higher proportion of its overall revenues from its Company-owned offices.
	•	Direct revenue increased 13.9% to $341,691 in fiscal 2004 from $300,070 in fiscal 2003. Fiscal 2004 consisted of 53 weeks as compared to 52 weeks in fiscal 2003. The acquisition of two licensed franchises during the second and third quarters of fiscal 2003 and a traditional franchise during the

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		second quarter of fiscal 2004 contributed to the increase in direct revenues (see Note 6 to the consolidated financial statements). Exclusive of the acquisitions, direct revenue increased $19,419. The Company’s RemX® specialty staffing division increased $12,004 to $28,953 for fiscal 2004 from $16,949 for fiscal 2003; $2,645 of the increase in RemX® is attributable to the acquisition of the traditional franchise office during the second quarter of fiscal 2004 as noted above. The Company also experienced increased revenue from the addition of several large new clients and increased revenue from existing clients.
	•	The decrease in licensed franchise revenue is primarily related to the acquisitions of the licensed franchise offices as described above. The acquired offices generated licensed franchise revenue of $12,098 during fiscal 2003 prior to the acquisition dates. Exclusive of these acquisitions, licensed franchise revenue increased $8,535 in fiscal 2004 as a result of increased revenue from new and existing clients.
	•	The Company’s focus on smaller retail clients during fiscal 2004 also contributed to the Company’s revenue growth and improved margins. The Company defines retail clients as clients with annual sales volume under $250 or clerical and RemX® clients with gross margin over 25.0% and light industrial clients with gross margin over 18.0%.
	•	The Company’s investment hire goal had a positive impact on the fiscal 2004 revenue growth with the addition of 101 sales colleagues during the year representing a 68.7% increase in the Company’s sales force over the prior year.

      The following table summarizes the Company’s business mix as a percent of total revenue:

	•	The increase in percentage of revenues generated from the light industrial sector during fiscal 2004 is due to the addition of several new large clients and increased volume from existing clients. The increase was offset slightly by the loss of several smaller clients.
	•	The decreased mix of revenue from the clerical sector is a result of decreased business with existing large volume clients; a significant portion was attributed to the financial services industry, offset somewhat by increased business with existing retail clients.
	•	The continued increase in the revenues generated from the RemX® division and direct hire revenues is consistent with the Company’s long-term strategic plan to shift its overall business mix to higher margin services.

     Cost of Revenues

	•	Total cost of direct and licensed franchise revenues consists of wages and other expenses related to temporary associates and as a percentage of revenues was 82.2% and 84.1% for fiscal 2004 and 2003, respectively. The 5.5% increase in total cost of revenue is consistent with the growth in total revenue with a 1.9% improvement in gross margin.

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	•	The increase in cost of direct revenues is consistent with the 13.9% increase in direct revenue offset with significant improvements in gross margin despite an increase in the state unemployment insurance costs during fiscal 2004. The Company believes that the increase in state unemployment insurance costs will continue primarily outside of California throughout fiscal 2005. The Company experienced a decrease in workers’ compensation expense, which directly contributed to the improvement in direct gross margin of 16.3% for fiscal 2004 as compared to 12.8% for fiscal 2003. The increase in gross margin is also attributable to the Company’s success in its efforts to increase markup (defined as the bill rate/wage rate) and the continued growth in the RemX® division which traditionally generates higher gross margins.
	•	The decrease in cost of licensed franchise revenues is consistent with the 2.0% decrease in licensed franchise revenue.
	•	Overall consolidated gross margin improved to 17.8% as compared to 15.9% for fiscal 2003 and was primarily attributable to the decrease in workers’ compensation expense from $33,197 in fiscal 2003 as compared to $27,944 in fiscal 2004. Increases in the Company’s markup during fiscal 2004, the continued growth in the RemX® division, and increased revenues from retail customers also contributed to the improved gross margins in fiscal 2004. The increase in gross margin was also enhanced with increases in direct hire revenues, whereby the Company earns a fee for placing an associate in a permanent position. The improvements in gross margin were partially offset by increases in state unemployment insurance costs. State unemployment insurance costs represented 2.7% and 1.5% of total cost of revenue for fiscal 2004 and 2003, respectively.

     Operating Expenses

	•	Licensees’ share of gross profit represents the net payments to licensed franchisees based upon a percentage of gross profit generated by the licensed franchise operation. The decrease in licensees’ share of gross profit is consistent with the decrease in licensed franchise revenues and cost of licensed franchise revenues. Licensees’ share of gross profit as a percentage of licensed gross profit increased to 67.1% for fiscal 2004 as compared to 66.6% for fiscal 2003 and primarily resulted from certain large franchisees renewing their licensed franchise agreements during the year, which incorporated certain revenue thresholds, resulting in higher gross profit payouts to the licensees, as well as an increase in direct hire revenue.

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	•	The following table summarizes the significant changes in selling and administrative expenses for fiscal 2004 as compared to fiscal 2003:

*	Other Offices category includes the corporate office

	•	Selling and administrative expenses as a percentage of total revenues were 13.7% for fiscal 2004 as compared to 13.4% for fiscal 2003. The primary factor contributing to the net increase was a $6,840 increase in colleague salaries due to the Company’s sales force investment hire goal and the expansion of the RemX® specialty staffing division, offset by a $1,091 decrease in rent expense resulting from the fiscal 2003 office closures.
	•	During the fourth quarter of fiscal 2004, the Company recorded a $5,877 charge for the costs of indemnifying certain clients for losses they may suffer as a result of the Court of Appeal’s October 2004 decision (see Item 3. Legal Proceedings, regarding CIGA litigation for further discussion). Additionally, the Company reclassified $203, $796, and $355 of legal expenses incurred in fiscal 2004, 2003, and 2002, respectively, related to the CIGA litigation matter from selling and administrative expenses to CIGA litigation costs.
	•	The decrease in depreciation and amortization for fiscal 2004 as compared to fiscal 2003 is due to a $985 amortization charge resulting from a change in accounting estimate related to the useful life of certain capitalized software costs during the fourth quarter of fiscal 2003. Additionally, the decrease resulted from an increase in fully depreciated fixed assets at October 3, 2004 as compared to September 28, 2003. The decrease in depreciation and amortization in fiscal 2004 was offset by the incremental amortization expense from identifiable intangible assets resulting from the franchise acquisition during the second quarter of fiscal 2004 (see Note 6 to the notes to consolidated financial statements).

      Loss from operations decreased $5,390 to an operating loss of $14,447 for fiscal 2004 from an operating loss of $19,837 for fiscal 2003. Improvement in the Company’s operating loss is due to the increase in direct revenues in conjunction with gross margin improvement. The decrease in depreciation and amortization also contributed to the improved operating profits.

      An income tax benefit of $323 was recorded in fiscal 2004 as compared to an income tax provision of $6,646 for fiscal 2003. The Company’s overall effective tax rate of 2.5% for fiscal 2004 differs from the statutory rate due primarily to the current period valuation allowance against the deferred tax asset. The effective tax rate of 29.4% for fiscal 2003 differs from the statutory rate due to the effect of the valuation allowance recorded against the deferred tax asset. The estimated annual effective tax rate is revised quarterly based upon actual operating results, the tax credits earned to date as well as current annual projections. The cumulative impact of any change in the estimated annual effective tax rate is recognized in the period the change in estimate occurs.

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     Fiscal 2003 Compared to Fiscal 2002

     Revenue

	•	The mix between direct, licensed franchise and traditional royalty revenues shifted with direct revenues accounting for 62.3% of total revenues for fiscal 2003 as compared to 57.5% for fiscal 2002. This shift resulted primarily from (i) fewer licensed franchise offices in the current year as a result of the acquisition of a significant licensed franchise consisting of several offices (see Note 6 to the consolidated financial statements), closures due to reduced business and the non-renewal of expired licensed franchisee agreements, and (ii) incremental revenues generated from new Company-owned traditional and specialty staffing offices, as previously discussed. This overall shift in business mix is consistent with the Company’s long-term strategy of generating a higher proportion of its overall revenues from its Company-owned offices.
	•	Total revenues increased 3.8% or $17,427 to $481,965 for fiscal 2003 from $464,538 for fiscal 2002. Direct revenues increased 12.3% to $300,070 from $267,207, licensed franchise revenues decreased 7.8% to $180,262 from $195,588 and traditional franchise royalties and initial franchise fees decreased 6.3% to $1,633 from $1,743 for fiscal 2003 compared to fiscal 2002, respectively. The main contributing factor ($17,733) for the shift between direct and franchise revenue is attributable to the acquisition of two franchises in Tennessee and Texas in the second and third quarters of fiscal 2003. The Company’s fiscal 2003 fourth quarter revenue increased 0.9% over the corresponding quarter in fiscal 2002 and 6.4% over the preceding fiscal 2003 third quarter. Although modest, this overall growth continues to be a positive trend compared with the prior year. The Company’s RemX® specialty staffing division, launched during fiscal 2002, increased revenues $12,533 to 3.5% of total consolidated revenue for fiscal 2003 as compared to 0.9% of total consolidated revenue for fiscal 2002. Additionally, the Company experienced a modest increase in the permanent placement revenues as compared to the prior year. Moreover, the Company’s revenue growth resulted from the change in its strategic plan to shift its overall business mix to higher margin services, in addition to increasing its sales capacity and new sales channels.

      The following table summarizes the Company’s business mix as a percent of total revenue:

	•	Revenues from the light industrial sector decreased as a percentage of total revenues to 67.1% as compared to 68.9% in the prior year.
	•	The percentage of revenues from the clerical business line decreased to 29.0% of revenue for fiscal 2003 as compared to 29.8% of revenue for fiscal 2002.
	•	As discussed earlier, the RemX® division increased to 3.5% of total consolidated revenue and is the Company’s fastest growing business line. The Company opened seven and ten RemX® offices during

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		fiscal 2003 and 2002, respectively. RemX® is exclusively a Company-owned operation that provides specialized finance and accounting, IT staffing and office staffing services.
	•	The Company closed 31 marginally profitable or non-revenue generating Company-owned offices during fiscal 2003. Management continues to strategically evaluate its existing and target markets and will continue to open additional offices where market conditions appear favorable and to consolidate underutilized offices as deemed appropriate.
	•	Our target customer is the small-to-mid size account, generating approximately $250 to $5,000 in annual revenue. The margins typically are higher on this type of business, and it lessens our dependence on individual large-scale accounts. For the fiscal 2003 fourth quarter, our single largest customer represented 5.1% of revenue and the Company’s top ten clients combined comprised approximately 26.0%. Our goal is to significantly lower this percentage over the next three years from 26.0% to less than 15.0%. The Company’s ability to increase revenues depends significantly on the Company’s ability to continue to attract new clients, retain existing clients, open new offices, find and retain licensed franchisees and office managers, and manage newly opened offices to maturity. There can be no assurance that the Company’s revenues will increase.

     Cost of Revenues