~~UNITED~~ ~~STATES~~ Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE


ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 1, 2008
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

ACT OF 1934

FOR THE FISCAL YEAR ENDED OCTOBER 30, 2004

Commission File Number 000-24990

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

DELAWARE (~~Exact~~State ~~name~~or other jurisdiction of ~~registrant~~incorporation asor ~~specified~~organization) in94-1266151 ~~its~~(I.R.S. ~~charter~~Employer Identification No.)

DELAWARE		94-1266151
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

298 NORTH WIGET LANE, WALNUT CREEK, CA 94598-2453
(Address of principal executive offices, including zip code)

~~298~~(925) 930-5300 (Registrant's ~~NORTH~~telephone ~~WIGET LANE~~number, ~~WALNUT~~including ~~CREEK,~~area CAcode) ~~94598-2453~~

Securities registered pursuant to Section 12(~~Address~~b) of ~~principal~~the ~~executive~~Act: ~~offices~~Common Stock, ~~including~~$0.01 ~~zip~~par ~~code)~~value per share

(925) 930-5300

Title of class		Name of each exchange on which registered

Common Stock. $0.01 par value per share		NASDAQ Stock Market LLC (NASDAQ Global Market)

~~(Registrant’s~~ Securities registered ~~telephone~~pursuant ~~number,~~to ~~including~~Section 12(g) ~~area~~of ~~code)~~the Act: None

~~Securities~~ Indicate by ~~registered~~check ~~pursuant~~mark toif ~~Section~~the ~~12(b)~~registrant is a well-known seasoned issuer, as defined in 405 of the Securities Act:. Yes o No ý

~~None~~ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No ý

~~Securities~~ Indicate ~~registered~~by ~~pursuant~~check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 12or 15(gd) 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 ý No o

~~Common~~ Indicate ~~Stock~~by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, ~~$0.01~~and ~~par~~will ~~value~~not ~~per~~be contained, ~~share~~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. ý

~~(Title~~ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of ~~class)~~"large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

~~Indicate by~~Large ~~check~~accelerated ~~mark~~filer ~~whether~~o ~~the~~Accelerated ~~Registrant:~~filer ~~(1)~~o ~~has~~Non-accelerated ~~filed~~filer ~~all~~o ~~reports required to be filed by Section 13 or 15~~(d)Do ofnot ~~the~~check ~~Securities~~if ~~Exchange~~a ~~Act~~smaller ofreporting ~~1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports~~company), ~~and~~Smaller ~~(2)~~reporting ~~has~~company ~~been subject to such filing requirements for the past 90 days. Yes~~ ý ~~No o~~

Indicate by check mark ifwhether ~~disclosure~~the ofregistrant ~~delinquent filers pursuant to Item 405 of Regulation S-K~~ is ~~not~~a ~~contained~~shell ~~herein,~~company ~~and~~(as ~~will not~~defined ~~be contained, to the best of Registrant’s knowledge,~~ in ~~definitive~~Rule 12b-2 ~~proxy or information statements incorporated by reference in Part III~~ of ~~this~~the ~~Form~~Exchange ~~10-K or~~Act). ~~any~~Yes ~~amendment~~o ~~to this Form 10-K.~~ No ý

~~Indicate by~~ As ~~check~~of ~~mark~~April 19, ~~whether~~2008, ~~Registrant~~which iswas anthe ~~accelerated~~last ~~filer~~business ~~(as~~day ~~defined~~of inthe ~~Rule~~registrant's most recently completed second fiscal quarter, the aggregate market value of the ~~12b~~registrant's common stock held by non-2affiliates of the ~~Act).~~registrant ~~Yes~~was o$34,228,871 Nobased ýon the closing sale price as reported on the NASDAQ Global Market.

~~The~~ As ~~aggregate market value~~ of ~~the~~February 11, ~~voting~~2009, ~~and non-voting common stock held by non-affiliates based upon~~ the ~~last~~Registrant ~~sales~~had ~~price~~outstanding ~~for the registrant’s common stock on the Nasdaq National Market on April~~ 16, ~~2004~~702,651 ~~the~~shares ~~last business day~~ of ~~the~~ ~~registrant’s~~Common ~~most recently completed second fiscal quarter, was $20,652,690~~Stock.

~~As of~~ ~~January~~DOCUMENTS ~~27,~~INCORPORATED ~~2005,~~BY ~~the Registrant had outstanding 16,050,812 shares of Common Stock.~~REFERENCE

~~DOCUMENTS~~ The following ~~INCORPORATED~~documents BY(or ~~REFERENCE~~portions thereof) are incorporated herein by reference:

~~The~~ Portions ~~following~~of ~~documents~~the (Registrant's Proxy Statement for its 2009 Annual Meeting of Stockholders or ~~portions~~an ~~thereof)~~amendment to this Annual Report on Form 10-K, in either case to be filed with the Securities and Exchange Commission no later than 120 days after the end of the registrant's fiscal year ended November 1, 2008, are incorporated herein by reference: into Part III of this Annual Report on Form 10-K.

~~Portions~~ ofTable ~~the Registrant’s Proxy Statement for the 2005 Annual Meeting~~ of ~~Stockholders are~~Contents ~~incorporated herein by reference into Part III of this Form 10-K Report.~~

INDEX WESTAFF, INC.

WESTAFF, INC.

		PAGE NO

PART I
ITEM 1.	BUSINESS	3
ITEM 1A.	RISK FACTORS	12
ITEM 1B.	UNRESOLVED STAFF COMMENTS	22
ITEM 2.	PROPERTIES	22
ITEM 3.	LEGAL PROCEEDINGS	22
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	22
PART II
ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	23
ITEM 6.	SELECTED FINANCIAL DATA	24
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	25
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	43
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	44
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	44
ITEM 9A(T).	CONTROLS AND PROCEDURES	44
ITEM 9B.	OTHER INFORMATION	45
PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	46
ITEM 11.	EXECUTIVE COMPENSATION	46
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	46
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	46
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	46
PART IV
ITEM 15.	EXHIBITS FINANCIAL STATEMENT SCHEDULES	47
	SIGNATURES	IV-1
	POWER OF ATTORNEY	IV-1

		PAGE NO
PART I
ITEM 1.	BUSINESS	3
ITEM 2.	PROPERTIES	13
ITEM 3.	LEGAL PROCEEDINGS	13
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	13
ITEM 4A.	EXECUTIVE OFFICERS OF THE REGISTRANT	13
PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	14
ITEM 6.	SELECTED FINANCIAL DATA	16
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	16
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	24
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	24
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	24
ITEM 9A.	CONTROLS AND PROCEDURES	25
ITEM 9B.	OTHER INFORMATION	25
PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	25
ITEM 11.	EXECUTIVE COMPENSATION	25
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	25
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	25
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	25
PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	25
	SIGNATURES	IV-1
	POWER OF ATTORNEY	IV-1

2 Table of Contents

PART I

~~Cautionary~~ Cautionary Note

This Annual Report on Form 10-K contains forward-looking statements ~~that~~ ~~involve~~within ~~risks~~the ~~and~~meaning ~~uncertainties~~of Section 27A ~~regarding~~of ~~Westaff,~~the ~~Inc.~~Securities ~~(the~~Act ~~“Company”). As~~of ~~discussed~~1933 inand ~~greater~~Section 21E ~~detail~~of ~~under~~the ~~“Cautionary~~Securities ~~Statement”~~Exchange inAct ~~Item~~of 71934,as ~~such statements~~amended ~~are~~(the ~~identified~~"Exchange byAct") ~~terms~~which ~~expressing~~are ~~the~~subject ~~Company’s~~to ~~future~~a ~~expectations or~~number ~~projections.~~of ~~The~~risks ~~Company’s~~and ~~actual~~uncertainties. All ~~results~~statements ~~could~~that ~~differ~~are ~~materially~~not ~~from~~historical ~~those anticipated~~facts inare ~~these~~ forward-looking statements, asincluding astatements ~~result~~about ofour ~~certain~~business ~~factors including~~strategy, ~~those~~the ~~set~~timing ~~forth~~of ~~under~~ the ~~heading~~introduction ~~“Factors~~of ~~Affecting~~our ~~Future~~services, ~~Operating Results”~~the ~~beginning~~effect onof ~~page~~Generally Accepted ~~9 below~~Accounting ~~and elsewhere~~Principles in("GAAP") pronouncements, oruncertainty ~~incorporated~~regarding byour ~~reference~~future ~~into~~operating results and our profitability, ~~this~~anticipated ~~Annual~~sources ~~Report~~of onfunds ~~Form~~and all plans, objectives, expectations ~~10-K.~~and ~~Forward-looking~~intentions and the statements ~~speak~~regarding ~~only~~revenue, asexpected ofdomestic ~~the~~revenue ~~date~~growth ofrates ~~this~~for ~~report~~fiscal 2009, ~~and the~~gross ~~Company~~margins ~~undertakes~~and noour ~~obligation~~prospects tofor ~~update~~fiscal or2009. ~~revise~~These ~~such~~ statements ~~to reflect~~appear ~~events~~in ora ~~circumstances~~number ~~after~~of places ~~the~~and ~~date~~can ~~hereof~~be oridentified toby ~~reflect~~ the ~~occurrence~~ use of ~~unanticipated~~forward-looking ~~events~~terminology ~~except~~such as ~~required~~"may," by"will," ~~applicable~~"should," ~~laws~~"expect," ~~and~~"plan," ~~regulations.~~"anticipate," "believe," ~~This~~"estimate," ~~Form~~"predict," ~~10-K~~"future," ~~for~~"intend," or "certain" or the ~~fiscal~~negative ~~year~~of ~~ended~~these ~~October~~terms ~~30,~~or ~~2004~~other variations or comparable terminology, ~~contains~~or ~~service marks~~by discussions of ~~the Company~~strategy.

~~ITEM~~ Actual 1results may vary materially from those in such forward-looking statements as a result of various factors that are identified in "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations," "Item 1A.—Risk ~~BUSINESS~~Factors" and elsewhere in this document. No assurance can be given that the risk factors described in this Annual Report on Form 10-K are all of the factors that could cause actual results to vary materially from the forward-looking statements. All forward-looking statements speak only as of the date of this Annual Report on Form 10-K. Readers should not place undue reliance on these forward- looking statements and are cautioned that any such forward-looking statements are not guarantees of future performance. We assume no obligation to update any forward-looking statements.

~~General~~ References in this Annual Report on Form 10-K to (i) the "Company," the "Registrant," "Westaff," "we," "our," and "us" refer to Westaff, Inc., its predecessor and their respective subsidiaries, unless the context otherwise requires, and (ii) "franchise agents" refer to the Company's franchisees in their roles as limited agents of the Company in recruiting job applicants, soliciting job orders, filling those orders and assisting with collection matters upon request, but otherwise refer to the Company's franchisees in their roles as independent contractors of the Company.

~~The Company~~ This ~~provides~~Annual ~~temporary~~Report ~~staffing~~on ~~services~~Form 10-K ~~primarily~~includes inservice ~~suburban~~marks ~~and~~of ~~rural markets (“secondary markets”)~~Westaff, Inc. asProducts ~~well~~or asservice innames ~~the downtown areas~~ of ~~certain major~~other ~~urban~~companies ~~centers~~mentioned ~~(“primary markets”)~~ in ~~the~~this Annual ~~United~~Report ~~States~~on ~~and~~Form 10-K ~~selected international~~may ~~markets.~~be ~~Through~~trademarks ~~its~~or ~~network~~registered trademarks of ~~Company-owned,~~their ~~franchise~~respective ~~agent and~~owners. ~~licensed~~Investors ~~offices,~~and ~~the~~security ~~Company~~holders ~~offers~~may obtain a ~~wide~~free ~~range~~copy of ~~temporary~~the ~~staffing solutions,~~Annual ~~including~~Report ~~direct hire, replacement, supplemental and~~ on~~-site~~ ~~programs~~Form 10-K ~~to businesses~~ and ~~government~~other ~~agencies.~~documents ~~The~~filed ~~Company’s~~by ~~primary~~Westaff ~~focus~~with ~~is on~~the ~~recruiting~~Securities and ~~placing~~Exchange ~~temporary~~Commission ~~light~~("SEC") ~~industrial~~at ~~and clerical/administrative~~the ~~personnel.~~SEC's ~~The~~website ~~Company~~at ~~has~~http://www.sec.gov. ~~over~~Free 50copies ~~years~~ of ~~experience in~~ the ~~staffing~~Annual ~~industry~~Report on Form 10-K and, asother ofdocuments ~~October~~filed ~~30,~~by ~~2004,~~Westaff ~~operated~~with ~~through~~the ~~256 offices~~SEC inmay 44also ~~states~~be ~~and~~obtained ~~five~~from ~~foreign~~Westaff ~~countries.~~by Asdirecting ofa ~~October~~request ~~30,~~to ~~2004~~Westaff, ~~73%~~Attention: ~~of these~~Chief ~~offices~~Financial ~~were~~Officer, ~~owned~~298 byNorth ~~the~~Wiget Lane, ~~Company~~Walnut ~~and~~Creek, ~~27%~~CA ~~were~~94598-2453, ~~operated by franchise agents and a licensee~~(925) 930-5300.

~~The Company~~ ~~was founded in 1948 and incorporated in California in 1954. In October 1995, the Company reincorporated~~ in ITEM ~~Delaware~~1. ~~The Company’s corporate name was changed to Westaff, Inc~~ BUSINESS. in September 1998. The Company’s executive offices are located at 298 North Wiget Lane, Walnut Creek, California 94598-2453, and its telephone number is (925) 930-5300. The Company transacts business through its subsidiaries, the largest of which is Westaff (USA), Inc., a California corporation, which is the primary operating entity.

~~During fiscal~~ ~~1999, the Company sold its medical business, primarily operated through~~ Western Medical Services, Inc., a wholly-owned subsidiary of the Company. As a result, the Company has classified its medical operations as discontinued operations in the Company’s consolidated financial statements and provides a separate discussion of the medical operations in this Business section. General

~~References~~ We provide staffing services primarily in ~~this~~suburban ~~Form~~and ~~10-K~~rural tomarkets (i"secondary markets"), as well as in the ~~“Company,”~~downtown areas of certain major urban centers ("primary markets") in the ~~“Registrant”~~United orStates ~~“Westaff”~~("US"). ~~refer~~On ~~to Westaff~~March 31, ~~Inc.~~2008, the Company sold its ~~predecessor~~former ~~and~~United ~~their~~Kingdom ~~respective~~operations ~~subsidiaries~~and related subsidiary, ~~unless~~and ~~the~~subsequent to year end, ~~context~~on ~~otherwise~~November 10, ~~requires~~2008, the Company sold its former Australia and ~~(ii)~~New ~~“franchise~~Zealand ~~agents”~~subsidiaries ~~refer~~pursuant to ~~the~~a ~~Company’s franchisees~~definitive inagreement ~~their~~that ~~roles~~was aspreviously ~~limited~~entered ~~agents~~into ofon ~~the~~September 27, 2008. Through our network of Company-owned inand ~~recruiting~~franchise ~~job applicants~~agent offices, ~~soliciting~~we ~~job~~offer ~~orders,~~a ~~filling~~wide ~~those~~range ~~orders~~of ~~and~~staffing ~~handling~~solutions, ~~collection matters~~including ~~upon~~permanent ~~request~~placement, ~~but~~replacement, ~~otherwise~~supplemental ~~refer~~and on-site temporary programs to ~~the~~businesses ~~Company’s~~and ~~franchisees~~government inagencies. ~~their roles~~Our asprimary ~~independent~~focus ~~contractors~~is ofon ~~the~~recruiting ~~Company.~~and

~~Services~~3

~~The Company’s~~Table ~~service~~of ~~offerings are focused primarily on placing temporary light industrial and clerical/administrative staffing personnel and providing direct hire services.~~Contents

~~Light~~placing clerical/administrative ~~Industrial~~and ~~Services.~~light ~~Light~~ industrial ~~services~~ personnel. ~~are~~We ~~placed~~have ~~for~~almost a60 years ~~variety~~ of ~~assignments~~ ~~including~~experience ~~general~~in ~~factory~~the ~~and~~staffing ~~manufacturing~~industry ~~work (including production, assembly~~ and ~~support workers~~, ~~merchandise~~currently ~~packers~~operate ~~and~~through ~~machine operators),~~157 ~~warehouse~~offices ~~work~~in ~~(such~~42 asstates. ~~general~~As ~~laborers, stock clerks, material~~of ~~handlers~~February 11, ~~order pickers~~2009, ~~forklift~~62% ~~operators~~of ~~and~~these ~~shipping/receiving~~offices ~~clerks), technical~~were ~~work~~Company-owned ~~(such as lab technicians, inspectors, quality control technicians~~ and ~~drafters)~~operated and ~~general~~38% ~~services~~were ~~(such~~operated asby ~~maintenance~~franchise ~~and repair personnel, janitors and food service workers)~~agents.

~~Clerical/Administrative~~ During the ~~Services~~second quarter of fiscal year 2008, we sold our operations in the United Kingdom and have classified these operations as discontinued operations in our consolidated financial statements. ~~Clerical/administrative~~During ~~services~~the ~~personnel~~fourth ~~are~~quarter of fiscal year 2008, the Company signed a definitive agreement to sell the remaining international subsidiaries located in Australia and New Zealand and these ~~placed~~operations are classified as discontinued operations in our consolidated financial statements and the assets and liabilities have been classified as held for asale. ~~broad~~The ~~range~~sale of ~~general~~the ~~business~~Company's ~~positions~~remaining international ~~including~~subsidiaries ~~receptionists~~in Australia and New Zealand was completed subsequent to the Company's fiscal year 2008 on November 10, 2008. Our Domestic Business Services operations in the US ~~administrative~~provide ~~assistants,~~a ~~data~~variety ~~entry~~of ~~operators~~staffing services, ~~word~~primarily ~~processors~~in clerical and light industrial positions, ~~customer~~through a network of Company-owned and franchise agent offices located in 42 states. The Company-owned ~~service~~locations ~~representatives,~~are ~~telemarketers~~divided into four geographical regions. The franchise agent offices are managed as a single unit. The Company-owned locations and ~~various~~franchise ~~other~~agent ~~general~~offices are supported centrally by the corporate office located in Walnut Creek, ~~accounting,~~ ~~bookkeeping~~California. We were founded in 1948 and ~~clerical~~incorporated ~~staff~~in California in 1954. In October 1995, we reincorporated in Delaware. Our corporate name was changed ~~Clerical/administrative~~from ~~positions~~Western ~~also~~Staff ~~include~~Services ~~call~~to ~~center~~Westaff, Inc. ~~agents~~in September 1998. Our executive offices are located at 298 North Wiget Lane, ~~such~~Walnut Creek, California 94598-2453, and our telephone asnumber ~~customer~~is ~~service~~(925) 930-5300. We transact business through our subsidiaries, ~~help~~the ~~desk~~largest ~~and~~of ~~technical~~which ~~support~~is ~~staff~~Westaff (USA), Inc., a California corporation, which is our primary operating entity.

3 Recent Developments

~~Direct~~ On ~~Hire~~January 28, ~~Services.~~2009, ~~Direct~~the ~~hire~~Company ~~services~~entered ~~are~~into ~~typically~~an ~~contingent,~~Agreement ~~fee-based~~and ~~services~~Plan toof Merger (the "Merger Agreement") with Koosharem ~~recruit~~Corporation, ~~and~~a ~~fill~~California ~~regular~~corporation ~~staff~~doing ~~positions~~business ~~for~~as ~~customers. These~~Select ~~services~~Staffing ~~include~~("Koosharem") ~~locating~~and Select Merger Sub Inc., ~~screening and~~a ~~assessing~~Delaware ~~candidates~~corporation onand ~~behalf~~wholly-owned subsidiary of ~~customers. If~~Koosharem ~~the~~("Merger ~~candidate~~Sub"), pursuant isto ~~hired~~which byMerger Sub will be merged with and into the ~~customer~~Company, with the Company iscontinuing ~~generally~~after ~~paid~~the amerger ~~contingent~~as ~~fee~~the ~~based~~surviving oncorporation and a ~~percentage~~wholly-owned subsidiary of Koosharem (the ~~annual~~"Merger"), ~~starting~~in ~~compensation~~accordance ~~for~~with and subject to the ~~candidate~~terms ~~placed~~and conditions set forth in the Merger Agreement.

~~The~~ Concurrently ~~Company~~with ~~believes~~the ~~that~~execution ~~temporary~~of ~~light~~the ~~industrial~~Merger ~~and~~Agreement, ~~clerical/administrative staffing~~our ~~services~~principal ~~are~~stockholder, ~~the~~DelStaff, LLC ~~foundation~~("DelStaff"), ofentered into a Stock & Note Purchase Agreement with Koosharem (the ~~staffing~~"Purchase ~~industry~~Agreement"), ~~and~~pursuant to which Koosharem will ~~remain~~purchase, ~~a significant~~immediately ~~market~~prior ~~for~~to the ~~foreseeable~~effective ~~future.~~time ~~The~~of the Merger: (1) all of the Company ~~also~~common ~~believes~~stock that DelStaff then ~~employees~~owns ~~performing~~in ~~temporary~~exchange ~~light~~for ~~industrial~~first lien term loan debt to be issued by Koosharem under Koosharem's first lien credit facility bearing a face amount of $40,000,000 and ~~clerical/administrative~~(2) all of the then outstanding ~~staffing~~subordinated ~~functions~~notes ~~are~~(the "DelStaff Subordinated Notes") issued by the Company to DelStaff under the Subordinated Loan Agreement, ~~and~~dated ~~will~~as ~~remain~~of August 25, an2008, ~~integral~~by ~~part~~and ofamong the ~~labor~~Company, ~~market~~Westaff in(USA), Inc., ~~local~~Westaff Support, Inc., ~~regional~~MediaWorld International (as borrowers) and ~~national~~DelStaff ~~economies~~in ~~around~~exchange for first lien term loan debt to be issued by Koosharem under Koosharem's first lien credit facility bearing a face amount equal to the ~~world~~actual principal amount of the DelStaff Subordinated Notes then outstanding, but not to exceed $3,000,000.

~~The~~ Pursuant to the terms and conditions of the Merger Agreement, at the effective time of the Merger: (1) each outstanding share of Company ~~also~~common ~~provides~~stock (other ~~services~~than ~~within~~those owned by the ~~light~~Company, ~~industrial~~Koosharem, ~~and clerical/administrative~~Merger ~~staffing~~Sub ~~market~~or ~~such~~any assubsidiary ~~temp-to-hire~~of ~~services~~the Company, ~~payrolling,~~ ~~on-site~~Koosharem ~~and~~or ~~on-location~~Merger ~~services~~Sub, and other ~~professional~~than ~~services including~~those ~~skills~~shares with respect to which dissenters rights are properly exercised) will be cancelled and ~~behavioral~~converted ~~assessments~~into the right to receive $1.25 per share in cash (the "Merger Consideration") and ~~coordination~~(2) each outstanding stock option to purchase shares of ~~drug~~Company ~~testing~~common stock, whether or not then exercisable or vested, will be cancelled and ~~background~~converted ~~checking:~~into the right to receive, within ten business days

~~•Temp-to-hire services represent the placement of temporary staff with a customer with the option to convert the temporary staff to a regular customer employee at a later date.~~4

~~•Payrolling~~Table ~~typically involves the transfer~~ of ~~a customer’s short-term seasonal or special use employees to the Company’s payroll for a designated period.~~Contents

~~•On-site~~following the ~~programs~~effective ~~provide~~time ~~administrative~~of ~~services for~~ the ~~Company’s~~Merger, ~~customers~~an ~~such~~amount asin ~~coordinating~~cash ~~all~~(subject ~~temporary~~to ~~staffing services~~applicable ~~throughout~~withholding taxes) equal to (a) the ~~customer’s~~excess, ~~location~~if any, ~~including~~of ~~skills~~the ~~assessment~~Merger ~~and~~Consideration over the per share exercise ~~training~~price of the stock option, multiplied by (b) the number of shares of Company common stock subject to the stock option.

~~•On-location~~ Consummation of ~~programs~~the ~~provide~~Merger ~~for~~is ansubject ~~independent~~to the satisfaction of various conditions, including, among others, the receipt by Koosharem and Merger Sub of the financing pursuant to and on the ~~branch~~terms ~~office~~contemplated ~~located~~by atthe applicable commitment letters, the ~~customer’~~consummation of the transactions under the Purchase Agreement, the requisite approval by the Company's ~~facility.~~stockholders, ~~They~~a ~~are~~requirement ~~typically~~for ~~intended~~the ~~for~~Company ~~large~~to ~~non-seasonal~~hold ~~accounts~~a ~~with~~minimum ~~more~~of ~~than~~ $~~500,000~~9.5 million in ~~annual~~cash ~~revenue.~~and ~~The branch~~equivalents ~~office~~immediately isprior ~~typically~~to ~~staffed~~the byclosing atdate, ~~least~~the ~~one~~lack ~~manager-level~~of ~~employee~~any legal impediment to the Merger, and the lack of any Material Adverse Effect as specified in the Merger Agreement.

~~Both~~ Upon ~~on-site~~the ~~and~~recommendation ~~on-location~~of ~~relationships~~a ~~provide~~special ~~customers~~committee ~~with~~of ~~dedicated~~independent ~~account management~~members ~~which~~of ~~can~~the ~~more~~Company's ~~effectively~~board ~~meet~~of directors (the ~~customer’~~"Special Committee"), all of the members of the Company's ~~changing~~board ~~staffing~~of ~~needs~~directors not affiliated with ~~high~~DelStaff ~~quality,~~approved ~~consistent~~the ~~service.~~Merger ~~These~~Agreement ~~programs~~and ~~tend~~the toPurchase ~~have comparatively~~Agreement. ~~lower~~Robert ~~operating~~W. ~~expenses~~Baird & Co. ~~and~~Incorporated ~~relatively~~provided ~~longer~~a ~~customer~~fairness ~~relationships~~opinion to the Special Committee.

To The ~~complement~~Merger ~~its~~Agreement ~~service~~contains ~~offerings,~~certain termination rights for both the Company, ~~utilizes~~on athe ~~number~~one hand, and Koosharem and Merger Sub, on the other hand. Upon any termination of ~~tools~~the Merger ~~focused~~Agreement, onunder ~~increasing~~specified circumstances, the ~~pool~~Company ofmay ~~qualified~~be ~~candidates~~required ~~using~~to ~~advanced~~pay ~~selection procedures~~Koosharem ~~for~~and ~~potential~~Merger ~~candidates~~Sub ~~(Talent~~a ~~Trak®)~~$2.0 million astermination ~~well~~fee, asand ~~technology-based~~under other specified circumstances, Koosharem and ~~management~~Merger ~~services~~Sub ~~that~~may ~~allow~~be ~~clients~~required to ~~maximize~~pay ~~workforce~~the ~~productivity~~Company ~~(Time Trak®)~~a $2.0 million termination fee. The ~~Company~~foregoing ~~believes~~description ~~that~~of ~~these~~the ~~tools~~Merger ~~enhance~~Agreement ~~its~~and ~~competitive~~the ~~edge~~Purchase Agreement does not purport to be complete and is ~~position~~qualified itin its entirety by reference to ~~more~~the ~~effectively~~full ~~pursue~~text ~~high~~of ~~growth~~the ~~market~~Merger ~~niches~~Agreement ~~such~~and the Purchase Agreement, as applicable. For additional and more detailed information regarding the Merger Agreement, ~~financial~~please ~~services~~refer to our Current Report on Form 8-K that we filed with the Securities and Exchange Commission on February 2, ~~customer~~2009. ~~interaction~~Please ~~centers~~also refer to the risk factors included in Part I, Item 1A "Risk Factors" of this Annual Report on Form 10-K under the heading "The Process and ~~high~~Uncertainties ~~end~~Relating ~~administrative~~to the Proposed Merger Could Adversely ~~placement~~Affect our Business."

~~Talent~~ The Company ~~Trak®~~has agreed to file a proxy statement with the SEC in connection with the proposed Merger. To ~~ensure~~The ~~high~~Company's ~~quality~~stockholders ~~placements~~are ~~for customers~~urged to read the proxy statement and ~~employees,~~other relevant ~~Westaff~~materials ~~uses~~when ~~Talent~~they ~~Trak®~~become toavailable ~~strengthen~~because they will contain important information about the ~~quality~~proposed Merger. The Company's stockholders will be able to obtain a free copy of the proxy ~~its~~statement ~~selection~~and ~~process~~other related documents filed with the SEC by the Company (when they become available) at the SEC's website at www.sec.gov. ~~This~~The ~~comprehensive~~proxy statement ~~selection~~and ~~process~~the ~~includes~~other ~~flexible~~documents (when they become available) will also be available for free at the Company's website at http://www.westaff.com. The ~~recruiting~~Company ~~methods,~~and ~~interviewing~~its directors and ~~reference~~executive ~~checking.~~officers ~~Westaff~~may ~~conducts advanced~~be ~~skills~~deemed to be participants in the solicitation of proxies from stockholders in respect of the Merger Agreement and ~~behavioral~~the ~~assessments~~Merger. ~~using~~Information regarding ~~Talent~~the ~~Trak®~~persons who may, ~~and~~under ~~also~~the rules of the SEC, be considered participants in the solicitation of stockholders in connection with the Merger will be set forth in the proxy statement when it ~~provides~~is filed with the ~~option~~SEC. ~~for~~More ~~both~~detailed ~~background~~information regarding the identity of potential participants, and ~~drug~~their ~~testing~~direct ~~that~~or ~~can~~indirect interests, by securities, holdings or otherwise, will be ~~customized~~set forth in the proxy statement to ~~meet~~be afiled ~~customer’s~~with ~~specific~~the ~~needs~~SEC in connection with the proposed Merger.

~~Time~~ ~~Trak®. This tool provides customers with a web-based~~ ~~management~~ ~~system to assist in maximizing workforce productivity. Time~~ Trak® is a flexible system allowing customers access to information to track a variety of performance measurements such as workforce hours, labor costs, attendance and staff performance. Time Trak® also includes features to automate timecard and payroll processing. Services

~~Markets~~ Our service offerings are focused primarily on placing clerical/administrative and light industrial personnel into both temporary and permanent positions.

~~The Company~~ Clerical/Administrative ~~provides~~Services. Clerical/administrative ~~temporary~~services ~~staffing~~personnel ~~services~~are ~~primarily~~placed infor ~~“secondary~~a ~~markets”, as~~broad ~~well~~range asof ingeneral ~~the~~business ~~downtown~~positions including receptionists, ~~areas~~administrative ofassistants, ~~certain~~data ~~“primary~~entry ~~markets”~~operators, inword ~~the~~processors, ~~United States~~customer service representatives, telemarketers and ~~selected~~various ~~international~~other ~~markets.~~general

The Company’s strategy is to capitalize on its presence in secondary markets and to build market share by targeting small to medium-sized customers, including divisions of Fortune 500 companies. The Company believes that in many cases, such markets are less competitive and less costly to operate in than in the more central areas of primary markets, where a large number of staffing services companies frequently compete for business and occupancy costs are relatively high. In addition, the Company believes that secondary markets are more likely to provide the opportunity to sell retail and recurring business that is characterized by relatively higher gross margins.5

~~The Company~~Table ~~augments~~of ~~this concentration on secondary markets by also focusing on national contracts with~~ Contents

4office, accounting, bookkeeping and clerical staff. Clerical/administrative positions also include call center agents, such as customer service, help desk and technical support staff.

~~customers having~~ Light aIndustrial ~~large presence in these marketplaces~~Services. Light ~~Such~~industrial ~~accounts~~services ~~include~~personnel ~~large clients~~are inplaced ~~multiple~~for ~~locations supported by~~ a ~~dedicated~~variety ~~corporate-level~~of ~~business relationship~~assignments ~~manager.~~including ~~The~~general ~~Company~~factory ~~currently has existing national accounts~~and ~~across many different business sectors such as~~ manufacturing~~, government,~~ ~~financial~~work ~~services~~(including production, ~~technology~~assembly and ~~communications.~~support ~~The~~workers, ~~Company~~merchandise ~~maintains~~packers ~~a professional sales team that services~~ and ~~leverages~~machine ~~existing~~operators), ~~relationships~~warehouse ~~to retain~~work ~~and~~(such ~~grow~~as ~~these~~general ~~accounts.~~laborers, Instock ~~addition~~clerks, ~~the~~material ~~Company~~handlers, ~~continues~~order topickers, ~~develop~~forklift ~~aggressive~~operators ~~marketing~~and ~~programs~~shipping/receiving toclerks), ~~target~~technical ~~and~~work ~~acquire~~(such ~~additional~~as ~~clients~~lab ~~that~~technicians, ~~fit the~~inspectors, ~~Westaff~~quality ~~branch~~control ~~system~~technicians ~~footprint.~~and ~~The~~drafters) ~~Company~~and ~~believes~~general ~~that~~services ~~its~~(such ~~geographic alignment~~as ~~allows~~maintenance itand torepair ~~effectively~~personnel, janitors ~~compete~~and ~~for~~food ~~some~~service ~~of these national contracts~~workers).

~~The Company~~ Permanent ~~markets~~Placement ~~its~~Services. Permanent ~~temporary~~placement ~~staffing~~ services toare ~~local~~typically ~~and~~contingent ~~regional~~fee-based ~~customers through~~services ato ~~network~~recruit ~~of Company-owned~~ and ~~franchise~~fill ~~agent offices, as well as~~regular ~~through~~staff positions ~~its~~for ~~on-site and on-location service locations and through one licensed office~~customers. ~~The~~These ~~Company’s~~services ~~national~~include ~~marketing~~locating, ~~campaigns~~screening ~~are~~and ~~coordinated~~assessing ~~through~~candidates ~~its corporate~~on ~~headquarters~~behalf inof ~~cooperation with US field offices~~customers. ~~Marketing~~If ~~efforts for regional and international markets are conducted at~~ the ~~local~~candidate ~~level.~~is ~~New customers~~hired ~~are developed~~ by the ~~field~~customer, ~~offices~~we ~~primarily~~are ~~through~~generally ~~direct~~paid ~~sales efforts and referrals. The Company has~~ a ~~robust~~fee ~~targeted~~based ~~marketing~~on ~~program and~~ a percentage ~~consultative~~of ~~sales~~the ~~process~~annual ~~that~~starting ~~includes~~compensation ~~telemarketing~~for ~~and~~the ~~e-mail~~candidate ~~marketing~~placed.

~~Recruiting~~ Management believes that clerical/administrative and light industrial staffing services are the foundation of the staffing industry and will remain a significant market for the foreseeable future. Management also believes that employees performing clerical/administrative and light industrial staffing functions are, and will remain, an integral part of the labor market in local, regional and national economies in which we operate.

~~The~~ We ~~Company~~also ~~believes~~provide ~~that~~other aservices ~~key~~within ~~component of its success is~~ the ~~ability~~clerical/administrative ~~to recruit~~ and ~~maintain~~light aindustrial ~~pool~~staffing ofmarket ~~qualified~~such ~~personnel~~as ~~and~~temp-to-hire ~~regularly~~services, ~~place them into~~payrolling, ~~desirable~~on-site and ~~appropriate~~on-location ~~positions. The Company uses comprehensive methods to identify~~services, ~~assess, select~~ and, ~~when~~other ~~appropriate,~~professional ~~measure~~services ~~the~~including skills ~~of its temporary employees to meet the needs of its customers. The Company believes one of its key competitive advantages in attracting~~ and ~~retaining~~behavioral ~~temporary light~~assessments ~~industrial~~ and ~~clerical/administrative~~coordination ~~staffing personnel is its payroll system, which provides it with the ability to print payroll checks at virtually all~~ of ~~its~~drug ~~branch~~testing ~~offices within 24 hours after receipt of a timecard. Most Company-owned offices offer temporary employees a benefit package, including a service bonus~~ and ~~holiday~~background ~~pay~~checking. Franchise agent offices have the option to offer this benefit. All eligible temporary employees have the option to participate in the Company’s 401(k) plan and discounted employee stock purchase plan.

•: Temp-to-hire services represent the placement of temporary staff with a customer with the option to convert the temporary staff to a permanent customer employee at a later date.
•: Payrolling typically involves the transfer of some of the customer's short-term seasonal or special use employees to our payroll for a designated period.
•: On-site programs provide administrative services for our customers such as coordinating all temporary staffing services throughout a customer's location, including skills assessment and training.
•: On-location programs provide for an independent branch office located at the customer's facility. They are typically intended for large non-seasonal accounts with more than $1.0 million in annual revenue. This type of branch office is generally staffed by at least one manager-level employee.

~~Operations~~ Both on-site and on-location relationships provide customers with dedicated account management, which can more effectively meet the customer's changing staffing needs with high quality, consistent service. These programs tend to have comparatively lower operating expenses and relatively longer customer relationships.

~~The~~ We ~~Company~~use ~~operates~~Talent ~~each~~Trak® ~~Company-owned~~to ~~office~~strengthen asthe aquality ~~separate~~of ~~profit~~our ~~center~~selection ~~and provides~~process ~~certain managers considerable operational autonomy~~ and ~~financial incentives.~~to ~~The~~ensure ~~Company~~high ~~also~~quality ~~operates~~placements ~~franchise~~for ~~agent~~customers ~~offices in appropriate~~and ~~markets~~employees. ~~Managers~~This ~~focus~~comprehensive onselection ~~business~~process ~~opportunities~~includes ~~within~~flexible ~~markets~~recruiting ~~and~~methods, ~~are provided~~interviewing ~~centralized~~and ~~support~~reference ~~to achieve success in those markets~~checking. ~~The~~We ~~Company believes~~conduct ~~that~~advanced ~~this~~skills ~~structure~~and ~~allows~~behavioral itassessments tousing ~~recruit~~Talent Trak®, and ~~retain~~also ~~highly~~provide ~~motivated managers who have demonstrated~~ the ~~ability~~option tofor ~~succeed~~both inbackground aand ~~competitive environment.~~drug ~~This~~testing ~~structure~~that ~~also~~can ~~allows~~be ~~managers~~customized ~~and staff~~ to ~~focus~~meet ona ~~market development~~customer's ~~while~~specific ~~relying~~needs. onWe ~~centralized~~maintain ~~services~~contracts ~~for~~with ~~support~~national indrug ~~back-office operations,~~testing ~~such as risk management programs~~ and background ~~unemployment~~testing ~~insurance, credit,~~service ~~collections,~~providers ~~accounting,~~to ~~advice~~help onensure ~~legal~~high quality and ~~regulatory~~consistency ~~matters, quality~~in ~~standards~~assessing ~~and~~our ~~marketing~~candidates.

As of October 30, 2004, the Company operated through a network of 256 offices in 44 states and five foreign countries. In addition, the Company from time to time establishes recruiting offices both for recruiting potential temporary employees and for testing demand for its services in new market areas. The Company’s operations are decentralized, with branch/market, district/regional and zone managers and franchise agents enjoying considerable autonomy in hiring, determining business mix and advertising.6

~~The following~~Table ~~table sets forth information as to the number~~ of ~~offices in operation as of the dates indicated.~~Contents

	Oct. 30, 2000	Nov. 3, 2001	Nov. 2, 2002	Nov. 1, 2003	Oct. 30, 2004
Number of Offices by Ownership (1):
Company-owned	257	254	217	197	187
Franchise agent	81	85	77	72	68
Licensed	16	10	5	1	1
Total	354	349	299	270	256
Number of Offices by Location (1):
Domestic	299	291	246	221	207
International	55	58	53	49	49
Total	354	349	299	270	256

Markets

~~(1) Excludes~~ We ~~Company-owned~~provide ~~recruiting~~staffing ~~offices~~services primarily in "secondary markets," as well as in the downtown areas of certain "primary markets" in the United States.

5 We capitalize on our presence in secondary markets to build market share by targeting small to medium-sized customers, including divisions of Fortune 500 companies. We believe that in many cases, such markets are less competitive and less costly to operate in than in the more central areas of primary markets, where a large number of staffing services companies frequently compete for business and occupancy costs are relatively high.

~~Company-Owned~~ We augment ~~Offices.~~this ~~Employees~~concentration ofon ~~each~~secondary ~~Company-owned~~markets ~~office~~by ~~typically~~also ~~report~~focusing toon aselected ~~branch~~national ~~or market~~contracts ~~manager~~with ~~who~~customers ishaving ~~responsible~~a ~~for~~large ~~day-to-day~~presence ~~operations~~in ~~and~~these ~~the profitability~~marketplaces. ofSuch aaccounts ~~market~~include large ~~that~~clients ~~consists~~in ofmultiple ~~one~~locations tosupported ~~several~~by ~~offices.~~a ~~Branch~~dedicated ~~or market~~corporate-level ~~managers~~business ~~typically~~relationship ~~report to district or regional managers~~manager. ~~District managers,~~We ~~regional~~currently ~~managers~~have ~~and~~existing ~~zone~~national ~~sales~~accounts ~~managers~~across ~~typically~~many ~~report~~different tobusiness ~~zone managers. As~~sectors ofsuch ~~December 31~~as manufacturing, ~~2004~~government, ~~there~~financial ~~were three zone managers~~services, ~~three~~technology ~~zone sales managers, six regional managers~~ and ~~nine district managers~~communications. ~~The~~We ~~Company~~maintain ~~has~~ a ~~variety~~professional ofsales ~~incentive~~team ~~plans~~that inservices ~~place for its domestic~~ and ~~international~~leverages ~~offices.~~existing ~~One~~relationships orto ~~more~~retain ofand ~~these~~grow ~~plans may be~~these ~~offered~~accounts. toIn ~~branch staff as well as market~~addition, ~~district,~~we ~~regional,~~continue ~~zone~~to ~~sales~~develop ~~and zone~~aggressive ~~managers.~~marketing ~~These~~programs ~~plans are designed~~ to ~~motivate~~target ~~employees~~and toacquire ~~maximize~~additional ~~the growth~~clients ~~and~~that ~~profitability~~fit ofour ~~their~~branch ~~offices~~system footprint. ~~The~~Management ~~Company~~ believes that ~~its~~our geographic ~~incentive-based~~alignment ~~compensation~~allows ~~plans~~us ~~encourage employees in its Company-owned offices~~ to ~~increase~~effectively ~~sales~~compete ~~and~~for ~~profits,~~some ~~resulting~~of inthese anational ~~creative and committed team~~contracts.

~~Franchise~~ We market ~~Agent~~our ~~Offices.~~staffing ~~The~~services to local and regional customers through a network of Company’s-owned and franchise ~~agents~~agent ~~have~~offices, ~~the~~as ~~exclusive~~well ~~right~~as bythrough ~~contract~~our toon-site and ~~sell~~on-location ~~certain~~service oflocations. Domestically, our national marketing campaigns are coordinated through our corporate headquarters in cooperation with US field offices. Marketing efforts for regional markets are generally conducted at the ~~Company’s~~local ~~services~~level. ~~and~~New tocustomers ~~use~~are developed by the ~~Company’s~~field ~~service~~offices ~~marks, business~~primarily ~~names~~through direct sales efforts and ~~systems~~referrals. inWe have a ~~specified~~targeted ~~geographic~~marketing ~~territory~~program and a consultative sales process that includes telemarketing, e-mail marketing and direct mail campaigns.

~~The Company’s~~ ~~franchise agent agreements generally allow franchise agents to open~~ ~~multiple~~ ~~offices within their exclusive territories. As of October 30, 2004,~~ the Company’s 36 franchise agents operated 68 franchise agent offices. Sales generated by franchise agent operations and related costs are included in the Company’s consolidated revenue and costs of services, respectively, and during fiscal 2002, 2003, and 2004 franchise agent sales represented 24.1%, 26.4%, and 28.4% respectively, of the Company’s revenue. Recruiting

~~The franchise~~ We ~~agent,~~believe asthat ana ~~independent~~key ~~contractor,~~component isof ~~responsible~~our ~~for~~success ~~establishing and~~is ~~maintaining~~the anability ~~office~~to recruit and ~~paying~~maintain ~~related~~a ~~administrative~~pool of qualified personnel and ~~operating~~regularly place ~~expenses,~~them ~~such~~into asdesirable ~~rent,~~and ~~utilities~~appropriate ~~and~~positions. ~~salaries~~We ofuse ~~its~~comprehensive ~~branch~~methods ~~office~~to ~~staff.~~identify, ~~Each franchise~~assess, ~~agent~~select ~~functions~~and, aswhen aappropriate, ~~limited~~measure ~~agent~~the skills of ~~the~~our ~~Company~~temporary inemployees ~~recruiting~~and ~~job~~permanent placement ~~applicants,~~candidates ~~soliciting~~to ~~job~~meet ~~orders,~~the ~~filling~~needs ~~those~~of ~~orders~~our ~~and~~customers. ~~assisting~~Domestically, ~~and cooperating~~we ~~with~~believe ~~collection~~one ~~matters~~of ~~upon~~our ~~request,~~key ~~but~~competitive ~~otherwise~~advantages ~~functions~~in asattracting ~~an independent~~and ~~contractor.~~retaining Asstaffing ~~franchisor~~personnel is our payroll system, ~~the~~which ~~Company~~provides isus with the ~~employer~~ability ofto ~~the temporary~~print ~~employees~~payroll ~~and~~checks ~~the~~at ~~owner~~virtually all of ~~the~~our ~~customer~~branch ~~accounts~~offices ~~receivable~~within ~~and~~24 hours ~~is responsible~~after ~~for~~receipt ~~paying~~of ~~the~~a ~~wages~~timecard. ofMost ~~the~~Company-owned offices offer temporary employees ~~and~~a ~~all related~~benefit ~~payroll~~package, ~~taxes~~including a service bonus and ~~insurance~~holiday pay. AsFranchise aagent ~~result,~~offices have the ~~Company~~option ~~provides~~to aoffer ~~substantial portion~~this ofbenefit. ~~the~~All ~~working~~eligible ~~capital~~temporary ~~needed~~employees ~~for~~have the ~~franchise~~option ~~agent~~to ~~operations~~participate in our 401(k) savings plan.

~~Franchise agents~~ ~~are required to follow the Company’s operating procedures and standards~~ in ~~recruiting, screening, classifying and retaining temporary personnel.~~ Operations

~~Licensed~~ We ~~Offices. As~~operate ofeach ~~October~~Company-owned ~~30, 2004, one licensee operated one licensed~~ office. ~~The~~as ~~Company~~a isseparate noprofit ~~longer~~center ~~offering the license program. The licensee is the employer of the temporary employees~~ and ~~the~~provide ~~owner~~metric ofdriven ~~the customer~~incentive ~~accounts receivable~~programs. ~~The~~We ~~Company~~also ~~finances the licensees’ temporary~~operate ~~employee~~franchise ~~payroll,~~agent ~~payroll~~offices ~~taxes~~in ~~and~~geographic ~~insurance.~~locations ~~This~~not ~~indebtedness~~serviced ~~is secured~~ by a ~~pledge~~Company-owned ofoffices. ~~the~~This ~~licensees’~~structure ~~accounts~~allows ~~receivable,~~managers ~~tangible~~ and ~~intangible~~staff ~~assets, and the license agreement. Borrowings under the lines of credit bear interest at a rate equal~~ to ~~the~~focus ~~reference~~on ~~rate~~market ofdevelopment ~~Bank~~while ofrelying ~~America, N.A. plus two percentage points. Interest is charged~~ on ~~the~~centralized ~~borrowings~~services ~~only if the~~for ~~outstanding~~support ~~balance~~in ~~exceeds~~back-office ~~certain~~operations, ~~specified~~such ~~limits.~~as ~~Licensees~~risk ~~are~~management ~~required~~programs, ~~to operate~~unemployment ~~within~~insurance, ~~the framework of the Company’s policies and standards~~credit, ~~but must obtain their own workers’ compensation~~collections, ~~liability~~accounting, ~~fidelity~~advice ~~bonding~~on legal and ~~state unemployment~~regulatory ~~insurance coverage~~matters, ~~which~~quality ~~determines~~standards ~~their payroll costs~~and marketing.

~~The~~ Currently ~~Company’s~~we ~~franchise~~operate ~~and~~through ~~license~~a ~~agreements~~network ~~have an initial term~~ of ~~five~~157 ~~years and~~offices ~~are~~in ~~renewable~~42 ~~for multiple five-year terms~~states. ~~The~~In ~~agreements~~addition, ~~generally contain~~from ~~two-year~~time ~~non-competition covenants which the Company vigorously seeks~~ to ~~enforce.~~time ~~Efforts~~we toestablish ~~enforce~~recruiting ~~the~~offices ~~non-competition~~both ~~covenants~~for ~~have~~recruiting ~~resulted~~candidates ~~in litigation brought by the Company following termination of certain franchise agent~~ and ~~license~~for ~~agreements.~~testing ~~In the past five fiscal years, the Company has~~demand ~~commenced~~for ~~one~~our ~~action~~services ~~to enforce the non-competition covenants, which was resolved~~ in ~~the Company’s favor.~~

The Company’s sale of franchises and licenses is regulated by the Federal Trade Commission and by state business opportunity and franchise laws. The Company has either registered, or been exempted from registration, in 13 of the 15 states that require registration in order to offer franchises or licenses. In two of the 15 states, the Company has not yet sought registration and is therefore not currently authorized to offer franchise arrangements.7

~~For financial~~Table ~~information~~of ~~about operating segments for fiscal years 2002, 2003 and 2004, see Note 15 to the consolidated financial statements included in this Annual Report.~~Contents

6new market areas. Our operations are decentralized with area managers, regional vice presidents and franchise agents who oversee the individual branch offices.

~~Seasonality~~ The following table sets forth information as to the number of offices in operation as of the respective dates indicated below:

The Company has experienced significant fluctuations in its operating results and anticipates that these fluctuations may continue. Operating results may fluctuate due to a number of factors, including the demand for the Company’s services, the level of competition within its markets, the Company’s ability to increase the productivity of its existing offices, control costs and expand operations and the availability of qualified temporary personnel. In addition, the Company’s results of operations could be, and have in the past been, adversely affected by severe weather conditions. The Company’s fourth fiscal quarter consists of 16 or 17 weeks, while its first, second and third fiscal quarters consist of 12 weeks each. Moreover, the Company’s results of operations have also historically been subject to seasonal fluctuations. Demand for temporary staffing historically has been greatest during the Company’s fourth fiscal quarter due largely to the planning cycles of many of its customers. Furthermore, sales for the first fiscal quarter are typically lower due to national holidays as well as plant shutdowns during and after the holiday season. These shutdowns and post-holiday season declines negatively impact job orders received by the Company, particularly in the light industrial sector.



Number of Offices by Ownership(1):
Company Owned			97	113	141	180
	Franchise agent		60	61	63	58
	Licensed		—	—	—	1
		Total	157	174	204	239
Number of Offices by Locations(1):
	Domestic		157	156	161	192
	International(2)		—	18	43	47
		Total	157	174	204	239

(1): Excludes Company-owned recruiting offices.
(2): Number of offices as of November 1, 2008 includes Australia and New Zealand due to sale of United Kingdom subsidiary in the second quarter of fiscal year 2008.

~~Customers~~ Company-Owned Offices. Employees of each domestic Company-owned office typically report to an area manager who is responsible for day-to-day operations of multiple branches. Area managers and senior area managers report to regional vice presidents. Regional vice presidents report to the Senior Vice President of Field Operations who, in turn reports directly to the President and Chief Operating Officer. This structure was instituted as a result of the restructuring that occurred in the third quarter of fiscal 2007. Prior to the restructuring each individual branch had a manager who in turn reported to market managers. Additionally, there were eight regional vice presidents who reported directly to the President and Chief Executive Officer.

~~The Company~~ Franchise ~~services~~Agent ~~small and medium sized companies as well as divisions of Fortune 500 companies and local, state and federal government agencies~~Offices. Our Asfranchise ~~is common~~agents inhave the ~~temporary~~exclusive ~~staffing~~right ~~industry,~~by ~~the~~contract ~~Company’s engagements~~ to ~~provide services~~sell tocertain ~~its customers are generally~~ of aour ~~non-exclusive,~~services ~~short-term nature~~ and ~~subject~~ to ~~termination~~use ~~by the customer with little or no notice. During~~our ~~fiscal~~service ~~2004~~marks, business nonames ~~single~~and ~~customer~~systems ~~accounted~~in ~~for~~a ~~more~~specified ~~than~~geographic 4territory.5% ofOur ~~the~~franchise ~~Company’s revenue.~~agent ~~The~~agreements ~~Company’s~~generally 10allow ~~highest~~franchise ~~volume~~agents ~~customers~~to inopen ~~fiscal~~multiple ~~2004~~offices ~~accounted~~within ~~for an~~their ~~aggregate~~exclusive ~~of approximately 14~~territories.2% ~~of the Company’s revenue.~~

~~Competition~~ The franchise agent, as an independent contractor, is responsible for establishing and maintaining an office and paying related administrative and operating expenses, such as rent, utilities and salaries of its branch office staff. Each franchise agent functions as a limited agent of the Company in recruiting job applicants, soliciting job orders, filling those orders and assisting and cooperating with collection matters upon request, but otherwise functions as an independent contractor. As franchisor, we are the employer of the temporary employees and the owner of the customer accounts receivable and are responsible for paying the wages of the temporary employees and all related payroll taxes and insurance. As a result, we provide a substantial portion of the working capital needed for the franchise agent operations.

~~The~~ Franchise ~~temporary~~agents ~~staffing~~are ~~industry~~required ~~is highly competitive with few barriers~~ to ~~entry. The~~follow ~~Company~~our ~~believes~~operating ~~that~~procedures the majority of commercial temporary staffing companies are local, full-service or specialized operations with less than five offices. Within local markets, typically no single company has a dominant share of the market. The Company also competes for qualified temporary personnel and ~~customers~~ ~~with~~standards ~~larger, national full-service and specialized competitors~~ in ~~local,~~ ~~regional,~~customer ~~national~~credit and ~~international markets. The principal national competitors are Adecco SA~~terms, ~~Spherion Corporation (commercial staffing segment)~~recruiting, ~~Kelly~~ ~~Services~~screening, ~~Inc.~~classifying ~~(U.S. commercial staffing~~ and ~~international~~retaining ~~segments), Manpower~~temporary ~~Inc~~personnel., RemedyTemp, Inc. (clerical and light industrial services), Express Personnel Services, Inc., and Randstad North America. Many of the Company’s principal competitors have greater financial, marketing and other resources than the Company. In addition, there are a number of medium-sized firms which compete with the Company in certain markets where they may have a stronger presence, such as regional or specialized markets.

~~The~~ Our ~~Company~~sale ~~believes~~of ~~that~~franchises ~~the~~is ~~competitive~~regulated ~~factors~~by inthe ~~obtaining~~Federal ~~and~~Trade ~~retaining customers~~Commission ~~include~~and ~~understanding~~by ~~customers’~~state ~~specific~~business ~~job~~opportunity ~~requirements, providing qualified temporary personnel in a timely manner, monitoring quality of job performance~~ and ~~pricing~~franchise ~~of services~~laws. ~~Due~~We tohave ~~competitive~~filed ~~pressures~~registrations, ~~it has~~ been ~~difficult~~ ~~for~~exempted ~~the~~from ~~Company~~registration ~~to raise prices even though its costs have increased.~~or ~~The~~filed ~~Company~~a ~~believes~~notice ~~that the primary competitive factors~~ in ~~obtaining qualified~~all ~~candidates~~15 ~~for~~states ~~temporary employment assignments are wages, benefits and flexibility and responsiveness of work schedules. The Company believes~~ that ~~within~~ ~~its~~require ~~primary~~pre-sale ~~light~~registration ~~industrial~~or ~~and~~a ~~clerical/administrative~~notice ~~markets, timeliness~~filing ofunder ~~pay~~franchise isinvestment ~~also a key competitive factor.~~

~~Management Information Systems~~8

~~The~~Table Company’s domestic management information systems provide support to both branch office locations and the corporate back-office. Branch offices utilize a proprietary application designed to assist in candidate search, recruiting, customer order management, customer service, sales management and payroll entry and submission. The application also provides for the sharing of information between branch offices and corporate headquarters. Utilizing this system, field offices capture and input customer, employee, billing and payroll information. This information is electronically captured on centralized servers where payroll, billing and financial information is processed overnight. These systems allow the Company to print checks at its branch offices within 24 hours after receipt of the timecard. Invoices are also processed daily and distributed from the Company’s centralized corporate office. These systems also support branch office operations with daily, weekly, monthly and quarterly reports that provide information ranging from customer activity to office profitability.Contents

~~Each of the Company’s~~laws ~~international~~in ~~operations~~order ~~have~~to ~~implemented~~offer ~~customized~~the orsale ~~third~~of ~~party~~franchises. ~~front office~~We ~~and/or~~have ~~back~~not ~~office~~sought ~~operating~~registration ~~systems~~in ~~that~~one ~~are~~state ~~designed~~in towhich ~~meet~~no ~~the specific~~pre-sale ~~information~~notice ~~technology~~is ~~and reporting requirements within the local jurisdiction~~required.

7 Currently, our 28 franchise agents operate 60 franchise agent offices. Sales generated by franchise agent operations and related costs are included in our consolidated revenue and costs of services, respectively, and during fiscal 2008, 2007 and 2006 franchise agent sales represented 40.1%, 35.8% and 35.1% respectively, of our total revenue.

~~Risk~~ Our ~~Management~~franchise ~~Programs~~agreements have an initial term of five years and are renewable for multiple five-year terms. The agreements generally contain two-year non-competition covenants which we vigorously seek to enforce. Efforts to enforce the non-competition covenants have resulted in litigation brought by us following termination of certain franchise agent agreements.

~~The Company~~ Licensed isOffices. Currently ~~responsible~~we ~~for~~no ~~all~~longer ~~employee-related~~have ~~expenses~~any ~~for~~licensed offices. Previously, licensee offices would act as the ~~temporary~~employer of the ~~staff~~temporary employees and the owner of ~~its~~the customer accounts receivable. The Company~~-owned~~ ~~and~~financed ~~franchise~~the ~~agent~~licensee's ~~offices~~temporary ~~including workers’~~employee ~~compensation~~payroll, ~~unemployment~~payroll taxes and insurance. The licensee secured this advance by pledging their accounts receivable, ~~social~~tangible ~~security~~and ~~taxes~~intangible assets, ~~state~~and the license agreement. Licensees were required to operate within the framework of our policies and standards, but were responsible for their ~~local~~own ~~taxes~~workers' compensation, liability, fidelity bonding and ~~other~~state ~~general~~unemployment ~~payroll~~insurance ~~expenses~~coverage.

~~The Company~~ ~~provides workers’ compensation insurance covering its domestic regular~~ ~~and~~ ~~temporary employees through a long-term relationship with St.~~ Paul-Travelers Indemnity Company (“Travelers”). The Company is self-insured in the states of Ohio and Washington. For fiscal years 2002 and 2003, the Company retained a $500,000 deductible per occurrence for these policies. This retention increased to $750,000 per claim for fiscal 2004, but has been reduced back to $500,000 for fiscal 2005. The Company also purchases workers’ compensation insurance coverage based upon actual payroll classifications in the monopolistic states of Wyoming, North Dakota and West Virginia. Seasonality

~~The~~ We have experienced significant fluctuations in our operating results and anticipate that these fluctuations will continue. Operating ~~Company~~results ismay ~~contractually~~fluctuate ~~required~~due to ~~collateralize~~a ~~its~~number ~~recorded~~of ~~obligations under~~factors, including seasonality, the ~~workers’~~demand ~~compensation~~for ~~insurance~~our ~~contracts~~services, ~~with~~the ~~Travelers~~level ~~through irrevocable~~of ~~letters~~competition within our markets, our ability to increase the productivity of ~~credit~~our existing offices, ~~surety~~control ~~bonds~~costs orand ~~cash~~expand operations and the availability of qualified personnel. AsIn addition, our results of ~~October~~operations 30could be, ~~2004~~and have in the past been, adversely affected by ~~the~~severe ~~aggregate~~weather ~~collateral~~conditions. ~~requirements~~Our ~~have~~fourth ~~been~~fiscal ~~satisfied~~quarter ~~through~~consists ~~$22~~of 16 or 17 weeks, while our first, second and third fiscal quarters consist of 12 weeks each.1 ~~million~~Moreover, our results of operations have historically been subject to seasonal fluctuations, with demand for our services typically greatest during our fourth fiscal quarter due largely to the planning cycles of ~~letters~~many of ~~credit~~our customers. However, demand was flat in the fourth quarter of fiscal year 2008. Furthermore, sales for the first fiscal quarter are typically lower due to national holidays as well as customer shutdowns during and aafter $3the holiday season.8 ~~million~~These ~~surety~~shutdowns ~~bond~~and post-holiday season declines in economic activity negatively impact job orders received by us, particularly in the light industrial sector.

~~The Company’s~~ ~~nationwide risk management program is managed by its Risk Management~~ ~~Department~~ ~~consisting of risk management and workers’ compensation~~ professionals as well as claim administrators who monitor the disposition of all claims and oversee, through an on-line system, all workers’ compensation claim activity. The department utilizes a variety of creative and aggressive workers’ compensation loss prevention and claim management strategies. The risk management program includes claim strategy reviews with the carrier and third party administrator, a return-to-work modified duty program, pre-placement customer safety evaluations and light industrial job approvals, the use of personal protective equipment, and the use of individual local office expense allocation formulas. Customers

~~Employees~~ We service small and medium-sized companies as well as divisions of Fortune 500 companies and local, state and federal government agencies. As is common in the staffing industry, our engagements to provide temporary services to our customers are generally of a non-exclusive, short-term nature and subject to termination by the customer with little or no notice. During fiscal 2008, no single customer accounted for more than 3.8% of our revenue. Our ten highest volume customers in fiscal 2008 accounted for an aggregate of 17.8% of our revenue.

As of October 30, 2004, the Company had approximately 28,000 temporary employees on assignment and employed 834 regular staff. The Company’s employees are not covered by any collective bargaining agreements. The Company believes that its relationships with its employees are good.9

~~Service~~ ~~Marks~~Table of Contents

~~The~~ ~~Company has various~~ ~~service~~ ~~marks registered with the United States Patent and Trademark Office,~~ ~~with the State of California and in various foreign countries, including its primary Westaff® service mark.~~ Competition

The ~~Company~~staffing ~~also~~industry ~~owns~~is highly competitive with few barriers to entry. We believe that the majority of commercial staffing companies ~~other~~are local, full-service ~~marks,~~or ~~including~~specialized ~~Westaff®~~operations ~~(wave~~with ~~design),~~less ~~Talent~~than ~~Trak®,~~five ~~Time Trak®~~offices. Within local markets, Mstypically no single company has a dominant share of the market. ~~Carmen~~We ~~Courtesy®~~also compete for qualified candidates and customers with larger, ~~Accountants~~national ~~USA®~~full-service and specialized competitors in local, ~~AUSA®~~regional, ~~College~~national ~~Greens®,~~and international markets. The principal national competitors ~~Essential~~are ~~Support~~Adecco SA, ~~Services~~Spherion ~~Leader®~~Corporation (commercial staffing segment), EKelly ~~Team®~~Services, Inc., ~~Job~~Manpower Inc., ~~Squad®~~Select Staffing, OnExpress ~~Location~~Personnel ~~& Essential®~~Services, Inc., and ~~Staff~~Randstad North ~~for~~America. ~~Business~~Many ~~Jobs~~of ~~for~~our ~~People®~~principal competitors have greater financial, marketing and other resources than we. ~~The~~ ~~Company~~In ~~has~~addition, ~~filed~~there anare ~~application~~a tonumber of medium- sized firms which compete with us in certain ~~register~~markets ~~the~~where ~~service~~they ~~mark~~may ~~Learning~~have ~~Traksm~~a stronger presence, such as regional or specialized markets.

~~Federal~~ We believe that the competitive factors in obtaining and ~~state~~retaining ~~service mark~~customers ~~registrations~~include ~~may~~understanding becustomers' ~~renewed~~specific ~~indefinitely~~job asrequirements, ~~long~~providing asqualified ~~the~~temporary ~~underlying~~personnel ~~mark~~and ~~remains~~permanent placement candidates in ~~use. The~~a ~~Company~~timely ~~also~~manner, ~~has service~~monitoring ~~marks~~quality ~~related~~of tojob ~~its~~performance ~~former~~and ~~name~~pricing ~~“Western,”~~of ~~including~~services. ~~Western~~We ~~Staff Services®,~~believe ~~Western~~that ~~Accounting~~the ~~Services®,~~primary ~~Western~~competitive ~~Legal~~factors ~~Services®~~in obtaining qualified candidates for temporary employment assignments are wages, benefits, and ~~Western Marketing~~flexibility ~~Services®~~of work schedules.

~~Medical~~ ~~Services~~ Management Information Systems

~~During fiscal~~ Our ~~1999,~~domestic ~~the~~management ~~Company~~information ~~discontinued~~systems ~~its~~provide ~~medical~~support ~~business~~to ~~(Western~~both ~~Medical)~~branch office locations and the corporate back-office. ~~principally~~Branch ~~through~~offices utilize a ~~sale~~proprietary application designed to ~~Intrepid~~assist ~~U.S.A.~~in ~~Inc~~candidate searches, recruiting, customer order management, customer service, sales management and payroll entry and submission. ~~Under~~ The application also provides for the ~~terms~~sharing of ~~the~~information ~~sale~~between branch offices and corporate headquarters. Utilizing this system, ~~the~~field ~~Company~~offices capture and input customer, employee, billing and ~~retained~~payroll ~~the~~information. ~~majority~~This ofinformation ~~accounts~~is ~~receivable~~electronically captured on centralized servers where payroll, ~~including~~billing and financial information is processed. These systems allow us to print checks at our branch offices within 24 hours after receipt of the ~~trade~~timecard. Invoices are also processed daily and ~~Medicare~~distributed from our centralized corporate office. These systems also support branch office ~~accounts~~operations ~~receivable~~with ~~balances~~daily, weekly, monthly and quarterly reports that provide information ranging from customer activity to office profitability.

~~Prior~~ During to fiscal ~~2003~~2004, ~~the~~we ~~Company~~entered ~~appealed~~into ~~Western~~a ~~Medical’s~~license ~~1996~~agreement ~~Medicare~~for ~~cost~~a domestic Business Process Management or BPM system, which was implemented in three phases. The initial phase, which ~~report~~consisted ~~settlement~~of the human resources system for our regular employees, was successfully implemented in July 2005. ~~During~~The second phase, which included the ~~first~~core ~~quarter~~financial systems and the accounts payable module, went live in the beginning of fiscal ~~2003~~year 2006. The final phase, aswhich incorporated a ~~result~~fully ofintegrated ~~the~~payroll and billing system for temporary associates with our in house developed front ~~favorable~~office ~~appeal~~application, ~~settlement~~2nd Wave, went live during the ~~Company~~first ~~recorded~~quarter $0of fiscal 2008.3 ~~million~~In addition, we made certain technology infrastructure upgrades in ~~income~~our ~~from~~former Australian operation ~~discontinued~~during ~~operations~~fiscal 2006.

~~During the~~ ~~third quarter of fiscal 2004, the Company resolved certain significant~~ ~~legal~~ ~~and liability claims and evaluated future risks associated with remaining~~ ~~pending~~ Risk ~~claims. As~~Management ~~a result, $0.2 million of income from discontinued operations was recognized and is reflected in the Consolidated Statement of Operations for the fiscal year ended October 30, 2004.~~Programs

8 Domestically, we are responsible for all employee-related expenses for the temporary staff employees of our Company-owned and franchise agent offices including workers' compensation, unemployment insurance, social security taxes, state and local taxes and other general payroll expenses.

As We ofprovide ~~October~~workers' ~~30,~~compensation ~~2004,~~insurance ~~the~~covering ~~remaining~~our ~~net~~domestic ~~current~~regular ~~liabilities~~and oftemporary ~~the~~employees ~~discontinued medical~~through ~~operations~~a long-term relationship with Travelers Property Casualty Company of America $0("Travelers").2 ~~million~~For ~~are~~fiscal ~~primarily~~years ~~for~~2006 ~~settled~~and ~~but~~2007 ~~unpaid~~we ~~legal claims.~~retained ~~The~~a ~~Company~~$500,000 ~~believes~~deductible itper ~~has~~occurrence ~~adequately~~for ~~reserved~~these ~~for~~policies. In fiscal 2008, the ~~reasonable outcome~~deductible ofwas ~~future~~increased ~~events;~~to ~~however~~$750,000 ~~should~~per ~~actual~~claim. ~~costs~~We ~~differ~~are self-insured ~~materially~~in ~~from those~~the ~~estimated~~states byof ~~management,~~Ohio ~~the~~and ~~Company~~Washington. ~~would~~The ~~record~~number ~~additional~~of ~~losses~~claims ~~(or gains)~~decreased infor ~~future~~fiscal ~~periods.~~year 2008 as compared

~~Availability of Reports~~10

~~Westaff makes~~Table ~~its SEC filings, including financial reports on Form 10-K, 10-Q or 8-K, available free~~ of charge on its web site at www.westaff.com as soon as practicable after filing. Furthermore, Westaff will provide electronic or paper copies of filings free of charge upon written request to the Company’s Chief Financial Officer or Investor Relations representative.Contents

~~Factors~~to ~~Affecting~~fiscal ~~Future~~year ~~Operating~~2007, ~~Results~~however, the average loss amount per claim increased in fiscal year 2008 as compared to the prior year.

~~This~~ We ~~Form~~are ~~10-K~~contractually ~~contains~~required ~~forward-looking~~to ~~statements~~collateralize ~~concerning~~our ~~the~~recorded ~~Company’s~~obligations ~~future programs,~~under ~~products,~~the ~~expenses,~~workers' ~~revenue,~~compensation ~~liquidity~~insurance ~~and~~contracts ~~cash~~with ~~needs~~Travelers asthrough ~~well~~irrevocable asletters ~~the Company’s~~of ~~plans~~credit, ~~and~~surety bonds ~~strategies~~or cash. ~~These~~As ~~forward-looking~~of ~~statements~~November 1, ~~are~~2008, ~~based~~these ~~on current~~aggregate ~~expectations~~collateral ~~and~~requirements ~~the~~have ~~Company~~been ~~assumes~~satisfied nothrough ~~obligation~~$27.3 million toof ~~update~~letters ~~this information,~~of ~~except~~credit asand ~~required~~$1 million byof ~~applicable~~cash ~~laws~~which ~~and~~was recorded ~~regulations.~~as ~~Numerous factors~~a ~~could~~short ~~cause~~term ~~actual~~deposit. ~~results~~An toadditional ~~differ~~deposit ~~significantly~~of ~~from~~$250,000 ~~the~~will ~~results described~~be inpaid ~~these~~when ~~forward-looking~~the ~~statements,~~policy ~~including~~is ~~the~~extended ~~following~~through ~~risk factors~~April 1, 2009.

~~Price~~ Our ~~competition~~nationwide inrisk ~~the~~management ~~staffing~~program ~~industry~~is ~~continues~~managed toby beour ~~intense~~Risk Management Department consisting of risk management and ~~pricing~~workers' compensation professionals as well as claim administrators ~~pressures~~who ~~from~~monitor ~~both~~the ~~competitors~~disposition of all claims and ~~customers~~oversee, ~~may~~through ~~result~~an inon-line ~~reduced~~system, ~~sales~~all workers' compensation claim activity. The department utilizes a variety of creative and aggressive ~~margins~~workers' compensation loss prevention and claim management strategies. The risk management program includes safety programs, claim strategy reviews with the carrier and third-party administrator, a return-to-work modified duty program, pre-placement customer safety evaluations and certain light industrial job approvals, the ~~Company~~use of personal protective equipment, and the use of individual local office expense allocation formulas.

~~The temporary~~ ~~staffing industry is highly competitive with limited barriers to~~ ~~entry~~ ~~and continues to undergo consolidation. The Company expects the level of~~ competition to remain high in the future, and increasing competitive pricing pressures will continue to make it difficult for the Company to raise its prices even though its costs have increased, and may have an adverse effect on the Company’s market share and operating margins. The Company competes in national, regional and local markets with full service agencies and with specialized temporary services agencies. Many competitors are smaller than the Company but may enjoy an advantage over the Company in discrete geographic markets because of their stronger local presence. Other competitors have greater marketing, financial and other resources than the Company that, among other things, could enable them to attempt to maintain or increase their market share by reducing prices. Furthermore, there has been an increase in the number of customers consolidating their staffing services purchases with a single provider or with a small number of providers. The trend to consolidate staffing services purchases has in some cases made it more difficult for Westaff to obtain or retain business. Employees

~~Unemployment insurance~~ Currently ~~premiums~~we ~~and~~have ~~workers’~~approximately ~~compensation~~8,000 ~~costs~~temporary employees on assignment and ~~collateral~~employ ~~for~~345 ~~Westaff’s temporary~~regular staff. Our employees ~~may~~are ~~continue~~not tocovered ~~rise~~by any ~~and~~collective ~~reduce~~bargaining ~~Westaff’s~~agreements. ~~margins~~Management ~~and create~~believes ~~liquidity~~that ~~problems~~its relationships with its employees are good.

~~Westaff is~~ ~~responsible for and pays unemployment insurance premiums and workers’~~ ~~compensation~~ ~~costs for its regular and temporary employees. Recently, these~~ ~~costs~~ Service have risen as a result of increased claims, general economic conditions and governmental regulations. There can be no assurance that Westaff will be able to increase the fees charged to its customers in the future to keep pace with increased costs and if it does not, its results of operations, financial condition and liquidity could be adversely affected.Marks

~~Westaff retains~~ We ahave ~~portion~~various ofservice ~~the~~marks ~~risk~~registered ~~under~~with ~~its~~the ~~workers’~~United ~~compensation~~States ~~program~~Patent ~~(see “Business—Risk Management Programs”). The estimated remaining deductible liability for all existing~~ and ~~incurred~~Trademark ~~but not reported claims is accrued based upon actuarial methods using current claims information~~Office, aswith ~~well~~the asState ~~prior~~of ~~experience,~~California and ~~may be subsequently revised each quarter based on new developments related to such claims. Changes~~ in ~~the estimates underlying the claims reserve are charged or~~ ~~credited~~various toforeign ~~earnings in the period determined~~countries, ~~and~~including ~~therefore~~our ~~large~~primary ~~fluctuations in~~Westaff® ~~any~~service ~~given quarter could materially adversely affect earnings in that period~~mark.

~~The~~ We ~~Company~~also isown ~~contractually~~other ~~required~~service tomarks, ~~collateralize~~including ~~its~~the ~~obligations~~Westaff® tologo, ~~its insurance~~Talent ~~carrier~~Trak®, ~~under~~Learning ~~these~~Trak®, ~~workers’~~West-Tek®, ~~compensation insurance contracts~~Ms. Carmen ~~through~~Courtesy®, ~~irrevocable~~and ~~letters~~Staff offor ~~credit,~~Business ~~surety~~Jobs ~~bonds~~for ~~or cash~~People®. AsFederal ofand ~~October~~state ~~30, 2004,~~service ~~the~~mark ~~Company’s~~registrations ~~aggregate~~may ~~collateral~~be ~~requirements~~renewed ~~under~~indefinitely ~~these~~as ~~contracts have~~long ~~been~~as ~~satisfied~~the ~~through~~underlying ~~$22.1~~mark ~~million~~remains ofin ~~letters of credit and a $3~~use.~~8 million~~ ~~surety bond.~~

~~In recent~~ ~~years, Westaff has funded its annual workers’ compensation obligations~~ to ~~its insurance carrier through monthly installments which totaled $16.0~~ ~~million~~ Available ~~in fiscal 2003, $17.9 million in fiscal 2004 and, based on the 2005 policy, are projected to be $20.6 million for fiscal 2005.~~Information

9 We file electronically with the Securities and Exchange Commission, or the SEC, Annual Reports on From 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act. We maintain a site on the worldwide web at http://www.westaff.com; however, information found on our website is not incorporated by reference into this report. We make available free of charge on or through our website our SEC filings, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Further, a copy of this Annual Report on Form 10-K is located at the SEC's Public Reference Rooms at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements and other information regarding our filings at http://www.sec.gov. Furthermore, we will provide electronic or paper copies of filings free of charge upon written request to our Chief Financial Officer or Chief Operating Officer.

As noted above, annual funding and collateral requirements for the Company’s workers’ compensation program are significant and place pressure on the Company’s liquidity and working capital availability. While the funding agreement is in place for fiscal 2005, the Company’s insurance carrier has the right to request additional collateral based on actual claims. Should the Company be required to provide further collateral in addition to the fiscal 2005 payments, such additional collateral would reduce the Company’s borrowing capacity and its liquidity.11

~~Any significant~~Table ~~recurrent~~of ~~economic downturn could result in the Company’s customers using fewer temporary employees, which could materially adversely affect the Company.~~Contents

~~Demand for~~ ~~the Company’s staffing services is significantly affected by the general~~ ~~level~~ ITEM ~~of economic activity and unemployment in the United States and the countries in which the Company operates~~1A. RISK ~~Frequently, customers use temporary staffing services to manage personnel costs and staffing needs~~FACTORS. When economic activity increases, temporary employees are often added before full-time employees are hired. However, as economic activity slows, many customers reduce their utilization of temporary employees before releasing regular full-time employees. Typically, the Company may experience less demand for its services and more competitive pricing pressure during periods of economic downturn. The recent domestic economic recession and resultant economic uncertainty had a material adverse effect on the Company’s business, results of operations, cash flows and financial condition. A recurrent recession or a significant lag in economic recovery would likely have a further material adverse effect on the Company’s business, results of operations, cash flows or financial position.

~~Westaff~~ This ~~has~~Annual ~~significant~~Report ~~working~~on Form 10-K contains forward-looking statements concerning our future programs, products, ~~capital~~expenses, ~~requirements~~revenue, liquidity and iscash ~~heavily~~needs ~~dependent~~as ~~upon~~well ~~its~~as ~~ability~~our plans and strategies. These forward-looking statements are based on current expectations and we assume no obligation to ~~borrow~~update ~~money~~this information, except as required by applicable laws and regulations. Numerous factors could cause actual results to ~~meet~~differ significantly from the results described in these ~~working~~forward-looking ~~capital~~statements, including ~~requirements~~the following risk factors.

~~The~~ Investing in ~~Company~~our ~~requires significant~~common ~~amounts~~stock involves a high degree of ~~working~~risk. ~~capital~~The tofollowing ~~operate~~risk ~~its~~factors, ~~business~~issues and touncertainties ~~pay expenses~~should ~~relating~~be carefully considered before deciding to ~~employment~~buy, ofhold ~~temporary~~or ~~employees~~sell our common stock. ~~Temporary~~ ~~personnel~~Set ~~are~~forth ~~generally~~below ~~paid~~and elsewhere in this Annual Report on aForm 10-K, and in other documents that we file with the SEC, are risks and uncertainties that could cause the ~~weekly~~Company's ~~basis~~actual ~~while~~results ~~payments~~and financial position to differ materially from ~~customers~~those ~~are~~expressed ~~generally~~or ~~received~~implied 30in forward-looking statements and to 60be ~~days~~below the expectations of public market analysts and ~~after~~investors. ~~billing~~See "Cautionary Statement Regarding Forward-Looking Statements" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations. As" Any aone of the following risks could harm our operating results or financial condition and could result, in a significant decline in the ~~Company~~value of an investment in Westaff Inc. Further, ~~must~~additional ~~maintain~~risks ~~sufficient~~and ~~cash~~uncertainties ~~availability~~that tohave ~~pay~~not ~~temporary~~yet ~~personnel~~been ~~prior~~identified ~~to receiving~~or ~~payment~~which ~~from~~we ~~customers~~currently believe are immaterial may also harm our operating results and financial condition.

The ~~Company~~recent ~~finances~~economic ~~its operations~~downturn ~~primarily~~and ~~through~~recession ~~borrowings~~has ~~under~~materially ~~its revolving credit facilities~~ and ~~also~~adversely ~~through~~affected ~~cash~~our ~~generated~~business byand ~~its~~a ~~operating~~continuation ~~activities. As~~ of ~~December~~current ~~25,~~economic ~~2004,~~conditions ~~the~~could ~~Company’s total~~cause ~~borrowing~~further ~~availability~~harm ~~was~~to ~~$19.8~~our ~~million~~business, ~~with~~financial ~~$13.8 million~~condition, ~~$3.3~~results ~~million~~of ~~and $2.7~~operations ~~million available in the US, UK~~ and ~~Australia,~~cash ~~respectively~~flows.

~~The~~ Demand ~~amount~~for ~~the~~staffing ~~Company~~services is ~~entitled~~ tosignificantly ~~borrow~~affected ~~under~~by ~~its~~the USgeneral ~~revolving~~level ~~credit~~of ~~facility~~economic isactivity. ~~calculated~~According ~~each day~~to ~~and~~the isNational ~~dependent~~Bureau onof Economic Research, the United ~~trade~~States ~~accounts~~economy ~~receivable~~has ~~generated~~been ~~from operations,~~in ~~which~~a ~~are~~recession ~~affected~~since byDecember ~~financial,~~2007. ~~business,~~We ~~economic~~expect ~~and~~that ~~other factors,~~the ascurrent ~~well~~significant aseconomic bydownturn and recession in the ~~daily~~economy ~~timing~~will ofcontinue ~~cash~~to ~~collections~~materially and ~~cash~~adversely ~~outflows. If~~impact the ~~Company~~demand ~~experiences~~for ~~a significant~~staffing services and ~~sustained~~the ~~drop~~Company's inperformance. ~~operating~~As ~~profits,~~economic oractivity ifslows, ~~there~~many ~~are unanticipated~~customers ~~reductions~~reduce intheir ~~cash~~utilization ~~inflows~~of ortemporary ~~increases~~employees inbefore ~~cash~~undertaking ~~outlays,~~layoffs ~~the~~of their ~~Company~~regular ~~may~~full-time beemployees. ~~subject~~Further, todemand ~~cash~~for ~~shortfalls.~~permanent Ifplacement ~~such~~services aalso ~~shortfall~~slows ~~were~~as tothe ~~occur, for~~labor ~~even~~pool adirectly ~~brief~~available ~~period~~to ofour ~~time~~customers' increases, making it ~~may~~easier ~~have~~for athem ~~significant adverse effect on~~to ~~the~~identify ~~Company’s~~new ~~business~~employees directly. ~~Furthermore~~In addition, ~~the~~we ~~Company’s~~have ~~receivables~~experienced ~~may~~and ~~not~~expect ~~be adequate~~to continue to ~~allow~~experience ~~for~~increased ~~borrowings~~pricing ~~for~~pressures from other ~~corporate~~staffing ~~purposes,~~companies ~~such~~adversely asaffecting ~~capital~~our revenues and ~~expenditures~~operating ormargins. ~~growth~~These ~~opportunities,~~adverse impacts may persist and ~~the~~worsen ~~Company~~over ~~would~~the benext ~~less~~several ~~able~~quarters ~~to react~~if tonot ~~changes~~longer, resulting in ~~the~~a ~~market~~material oradverse ~~industry~~effect ~~conditions~~on our financial condition.

The ~~credit~~process ~~facilities contain covenants which, among other things, require the Company to maintain a minimum fixed charge coverage ratio~~ and auncertainties ~~minimum~~relating ~~earnings before interest, taxes, depreciation and amortization (EBITDA). The Company has, in the past, failed~~ to ~~comply with certain of these covenants and has been required to obtain a waiver or amendment to~~ the ~~credit agreement~~proposed ~~from~~Merger ~~its lenders. Any future failure to comply with the covenants under the Company’s credit facilities~~ could ~~result~~adversely inaffect anour event of default which, if not cured or waived, could trigger prepayment obligations. If the Company were forced to refinance borrowings under the current facilities, there can be no assurance that such financing would be available or that such financing would not have a material adverse effect on the Company’s business ~~and financial condition~~. ~~Even if such refinancing were available, the terms could be less favorable and the Company’s results of operations and financial condition could be adversely affected by increased costs and rates.~~

~~During~~ We ~~fiscal~~entered ~~2003~~into ~~and fiscal~~the ~~2004,~~Merger ~~the~~Agreement ~~Company~~with ~~experienced~~Koosharem ~~significant~~Corporation, ~~seasonal~~a ~~and~~California ~~other fluctuations~~corporation indoing ~~its~~business ~~borrowings~~as Select Staffing and ~~borrowing~~Select ~~availability~~Merger Sub Inc., ~~particularly~~a Delaware incorporation ~~the US~~and wholly-owned subsidiary of Koosharem, ~~and~~on ~~has~~January 28, in2009. The pendency of the ~~past,~~Merger ~~been~~could ~~required~~adversely affect our ability to ~~aggressively~~obtain ~~manage~~and ~~its~~retain ~~cash~~customers, to recruit ~~ensure~~temporary ~~adequate~~employees ~~funds~~and to ~~meet~~retain ~~working~~our ~~capital~~existing ~~requirements~~employees. ~~Such~~ ~~steps~~Further, ~~included~~the ~~working~~attention toof ~~improve collections~~our ~~and~~management ~~adjusting~~will be directed at least in part toward the ~~timing~~completion of ~~cash~~a ~~expenditures,~~transaction ~~reducing~~and ~~operating~~thus diverted in part ~~expenses~~from ~~where~~day-to-day ~~feasible~~operations. ~~and~~Our ~~working~~business toand ~~generate~~operating ~~cash~~results ~~from~~could abe ~~variety~~adversely ofaffected ~~other~~by ~~sources~~these factors.

~~The~~ Completion of ~~Company~~the ~~has historically~~Merger ~~experienced~~is ~~periods~~subject to a number of ~~negative~~conditions ~~cash~~which ~~flow~~are ~~from~~largely ~~operations~~or ~~and~~partially outside of our control, including the ability of Koosharem to finalize the financing required ~~investment~~in ~~activities~~a manner satisfactory to our workers compensation carrier, ~~especially~~our ~~during~~ability ~~seasonal~~to ~~peaks~~avoid declines in ~~revenue~~our ~~experienced~~revenues, and our ability to maintain a specified cash and cash equivalent balance immediately prior to closing, all as set forth in the ~~third~~Merger ~~and~~Agreement. ~~fourth~~A ~~quarter~~failure ofto complete the ~~year.~~ Merger would require us to address immediate issues with our existing lenders and to raise additional capital at a time Inwhen our

1012

~~addition,~~Table ~~the Company is required to pledge amounts to secure letters~~ of credit that collateralize certain workers’ compensation obligations and these amounts may increase in future periods. Any such increase in pledged amounts or sustained negative cash flows would decrease amounts available for working capital purposes and could have an adverse affect on the Company’s liquidity and financial condition.Contents

~~Westaff’s~~business may ~~information~~have ~~technology systems~~declined substantially and our alternatives are ~~critical~~limited. There can be no assurance that we would be able to ~~its~~successfully ~~daily~~address issues with our lenders, raise additional capital or address other problems we might face at the time if the Merger is not completed. Accordingly, if the Merger is not completed, we may be immediately unable to, among other things: (1) adequately collateralize our workers' compensation obligations and obtain sufficient workers' compensation coverage to support our operations and ~~the~~(2) satisfy ~~Company~~our ~~has~~liquidity ~~initiated~~requirements and continue our operations as a going concern. Under these circumstances, we may be required to seek alternative transactions and/or consider filing for bankruptcy protection. There can be no assurance that any other ~~process~~alternative transaction similar to ~~replace~~the ~~these~~merger ~~systems~~would ~~beginning~~be inavailable ~~fiscal~~to ~~2005~~us. Further, whether or not the proposed Merger is completed, we will have incurred substantial costs related to the Merger.

~~The~~ While the ~~Company’s~~Merger ~~domestic information~~Agreement ~~management~~is ~~systems~~in effect, ~~located~~we atare asubject ~~co-location~~to ~~facility~~significant ~~and~~restrictions ~~corporate headquarters,~~on ~~are~~our ~~critical~~business toactivities ~~daily~~and ~~operations~~must ofgenerally ~~the~~operate ~~Company’s~~our business. ~~While backup~~in ~~and~~the ~~recovery~~ordinary ~~systems~~course ~~are~~(subject into certain ~~place,~~exceptions ~~should~~or ~~these~~the ~~key~~consent ~~systems~~of ~~fail~~Koosharem) ~~it could~~as ~~severely~~set ~~impact~~forth in the ~~Company’s~~Merger Agreement. These restrictions on our business ~~and~~activities ~~operations,~~could ~~specifically~~limit ~~its~~ our ability to ~~timely~~respond ~~and~~to ~~accurately~~changes ~~pay~~in ~~employees~~business conditions or other events, and ~~bill~~therefore ~~customers~~could have a material adverse effect on our future results of operations or financial condition.

~~The~~ We ~~Company’s domestic back office payroll and billing systems~~ are atcurrently ~~the~~in ~~end~~default ofunder ~~their life cycle and are no longer supported by~~ the ~~companies~~primary ~~who~~credit ~~originally~~facility ~~supplied~~that ~~them.~~we ~~Westaff currently~~use ~~utilizes internal support~~ to ~~maintain~~finance ~~and~~our ~~update these systems~~operations. ~~This includes~~If ~~the~~we ~~process~~are ofunable ~~applying updates~~ to ~~remain~~obtain ~~in compliance with tax mandates and other additional regulatory requirements. This potentially creates exposure should an update not occur in~~ a ~~timely~~waiver ~~fashion,~~or ~~which~~continued ~~could have a~~forbearance ~~material~~with ~~adverse~~respect ~~effect~~to onthis ~~the Company’s business. In fiscal 2005~~default, ~~the~~we ~~Company will~~may ~~begin~~be ~~implementing~~unable ~~a new enterprise-wide information system~~ to ~~replace existing~~satisfy ~~legacy~~our ~~systems.~~liquidity ~~This~~requirements ~~project will require significant investments in new hardware~~ and ~~consulting~~continue ~~fees~~our asoperations ~~well~~ as ~~significant internal personnel resources. While the Company anticipates~~ a ~~successful~~going ~~implementation, there can be no assurance that this initiative will yield the intended results~~concern. ~~Delays in completing or an inability to successfully complete these technology initiatives could adversely affect the Company’s operations.~~

We are currently in default under the Financing Agreement, dated as of February 14, 2008 (the "Financing Agreement"), among Westaff’s (USA), Inc. (as ~~success~~borrower), ~~depends~~the ~~upon~~Company ~~its~~(as ~~ability~~parent guarantor), U.S. Bank National Association (as agent for the lenders, letter of credit issuer and a lender) and Wells Fargo Bank, National Association (as a lender). We finance our operations primarily through cash generated by our operating activities and through borrowings under our revolving line of credit under the Financing Agreement. On May 23, 2008, we received a notice of default from U.S. Bank (as agent for itself and Wells Fargo Bank) stating that (1) an Event of Default (as defined in the Financing Agreement) had occurred due to ~~attract~~our failure to achieve a minimum required Fixed Charge Coverage Ratio (as defined in the Financing Agreement) for our fiscal period ended April 19, 2008; and ~~retain~~(2) as ~~qualified~~a ~~temporary~~result of the Event of Default, effective ~~personnel~~May 21, 2008, U.S. Bank increased the rate of interest to the default rate of interest on the borrowings outstanding under our line of credit. We had no borrowings outstanding under the Financing Agreement, but do have $27.3 million of outstanding letters of credit supporting our workers' compensation obligations. While the Company previously entered into a series of forbearance agreements providing for the lenders to forbear from exercising their default rights and remedies under the Financing Agreement through December 19, 2008, the lenders' agreement to forbear have not been extended past December 19, 2008. Accordingly, the Company does not currently have any waiver or continued forbearance in respect of the Event of Default described above, and the lenders may elect at any time to pursue remedies available to them under the Financing Agreement, such as limiting or terminating Westaff (USA), Inc.'s right to borrow under the Financing Agreement or electing not to renew letters of credit issued under the Financing Agreement.

~~Westaff~~ The ~~depends~~Company ~~upon~~is ~~its~~currently ~~ability~~in todiscussions ~~attract~~with U.S. Bank and ~~retain~~Wells ~~qualified~~Fargo ~~temporary~~to ~~personnel who~~seek ~~possess~~a ~~the~~waiver ~~skills~~or ~~and~~continued ~~experience~~forbearance ~~necessary~~in torespect ~~meet~~of the ~~staffing requirements~~Event of ~~its customers~~Default. ~~Westaff~~There ~~must~~can ~~continually~~be ~~evaluate~~no ~~and~~assurance ~~upgrade~~that the ~~its~~Company ~~base~~will ofbe ~~available~~able ~~qualified personnel~~ to ~~keep~~obtain ~~pace~~a ~~with~~waiver ~~changing~~or ~~client needs~~continued ~~and~~forbearance ~~emerging~~or ~~technologies.~~that ~~Furthermore,~~such a ~~substantial~~waiver ~~number~~or ofcontinued forbearance would be on terms acceptable to the Company’s. ~~temporary~~If ~~employees~~the ~~during~~Company ~~any~~is ~~given~~unable ~~year~~to ~~will~~obtain ~~terminate~~a ~~their~~waiver ~~employment~~or ~~with~~continued forbearance and the ~~Company~~lenders ~~and~~elect ~~accept~~to ~~regular~~pursue ~~staff~~remedies ~~employment~~under ~~with~~the ~~customers of~~Financing Agreement, such as limiting or terminating the Company.'s ~~Competition~~right ~~for~~to ~~individuals~~borrow ~~with~~under ~~proven~~the ~~skills~~Financing ~~remains~~Agreement ~~intense,~~or electing ~~and~~not ~~demand~~to ~~for~~renew ~~these~~letters ~~individuals~~of iscredit, ~~expected~~it towould ~~remain~~have ~~strong~~a ~~for~~material ~~the foreseeable~~adverse ~~future.~~effect ~~There~~on ~~can~~the beCompany's nobusiness, ~~assurance~~financial ~~that~~condition, ~~qualified~~results ~~personnel~~of ~~will continue~~operations, tocash beflows ~~available~~and ability to ~~Westaff~~continue inour ~~sufficient~~operations ~~numbers~~as ~~and~~a going onconcern. ~~terms~~Under ~~of employment~~these ~~acceptable~~circumstances, toand unless the ~~Company.~~pending ~~The~~merger ~~failure~~with toKoosharem ~~recruit~~is completed, ~~train~~we ~~and~~may ~~retain qualified~~be ~~temporary~~required ~~employees~~to ~~could~~seek ~~materially~~alternative ~~adversely~~transactions, ~~affect~~raise ~~the~~additional ~~Company’s~~capital and/or consider ~~business.~~filing for

~~Westaff may be exposed to employment-related claims and costs that could materially adversely affect its business.~~13

~~Westaff is~~Table ~~in the business~~ of ~~employing people and placing them in the workplace of other businesses. Attendant risks of these activities include:~~Contents

•bankruptcy ~~possible~~protection. ~~claims~~There bycan ~~customers~~be ofno ~~employee~~assurance ~~misconduct~~that any alternative transactions and/or ~~negligence,~~additional capital would be available to us in the current challenging economic environment.

• On ~~claims~~January 28, 2009, the carrier under the Company's existing workers compensation insurance program and the beneficiary of a letter of credit expiring on February 28, 2009 previously issued by ~~employees~~U.S. Bank under the Financing Agreement, was notified by U.S. Bank that such letter of ~~discrimination~~credit orwill ~~harassment~~not ~~(including~~be ~~claims~~renewed. ~~relating~~While the Company is currently in discussions with U.S. Bank and Wells Fargo to ~~actions~~seek and extension of ~~Westaff’s~~such ~~customers)~~letter of credit, there can be no assurances that the Company will be able to obtain such an extension.

• In response ~~fines~~to our short term forbearance issues, on August 25, 2008, the Company secured a $3.0 million Subordinated Loan facility with its principal stockholder, Delstaff, LLC. This facility may be used by the Company for working capital and ~~costs~~general ~~related~~business purposes during the term of the facility. The unpaid principal balance under the Subordinated Loan bears interest at an annual rate of twenty percent (20%). Interest is payable-in-kind and accrues monthly in arrears on the first day of each month as an increase in the principal amount of the Subordinated Loan. A default rate applies on all obligations under the Subordinated Loan Agreement from and after the Maturity Date (August 15, 2009) and also during the existence of an Event of Default (as defined in the Subordinated Loan Agreement) at an annual rate of ten percent (10%) also payable-in-kind over the then-existing applicable interest rate and if principal is not repaid on the Maturity Date, an additional 5% of outstanding principal must be paid along with the default rate interest. The obligations under the Subordinated Loan Agreement are secured by a security interest in substantially all of the existing and future assets (the "Subordinated Collateral") of the Company. The lien granted to the ~~inadvertent~~Subordinated Lender in the Subordinated Collateral is ~~employment~~subordinated to the lien in that same collateral granted to U.S. Bank. Borrowings in excess of ~~illegal~~$1.0 million ~~aliens~~require the Subordinated Lender approval. The Subordinated Loan may be prepaid without penalty, subject to approval by U.S. Bank and the terms of an Intercreditor Agreement. Under certain circumstances, the Company must prepay all or a portion of any amounts outstanding under the Subordinated Loan Agreement, subject to the terms of the Intercreditor Agreement. The outstanding loan balance at November 1, 2008 was $2.2 million, which includes a $0.2 million facility fee that was added to the loan balance upon receipt of the initial advance. Accrued and unpaid interest on this note at November 1, 2008 was $40,000. The Company borrowed an additional $500,000 on the subordinated loan on January 7, 2009 and an additional $500,000 on January 29, 2009.

• We ~~payment~~have ofsignificant ~~workers’~~working ~~compensation~~capital ~~claims~~requirements and ~~other~~ ~~similar~~are ~~claims,~~heavily dependent upon our ability to borrow money to meet these working capital requirements.

• We ~~violations~~require significant amounts of ~~wage~~working capital to operate our business and ~~hour~~to pay expenses relating to employment of temporary employees. Temporary personnel are generally paid on a weekly basis while payments from customers are generally received 30 to 60 days after billing. As a result, we must maintain sufficient cash availability to pay temporary personnel prior to receiving payment from customers. Any lack of access to liquid working capital would have an immediate, material, and adverse impact on our business. There can be no assurance that we will be able to access the funds necessary for our liquidity requirements, especially in light of the recent downturn in the economy and dislocations in the credit and capital markets.

• We finance ~~errors~~our operations primarily through cash generated by our operating activities and ~~omissions~~through borrowings under our revolving credit facilities. Our primary credit facility is the Financing Agreement with U.S. Bank and Wells Fargo, which provides for a five-year revolving credit facility with an aggregate commitment of ~~temporary~~up ~~employees~~to $33.0 million. In addition, our former Australian subsidiary maintained a $12.0 million Australian dollar facility agreement with GE Capital that was due to expire in May 2009. As of November 1, 2008, our total borrowing capacity was $3.3 million, consisting of $1.5 million for our domestic operations and $1.8 million for our former Australian operations. On

~~• claims by customers relating to employees’ misuse of customer propriety information, misappropriation of funds, other criminal activity or torts or similar claims.~~14

~~In addition,~~Table ~~some or all~~ of these claims may give rise to litigation, which could be time-consuming to the Company’s management team as well as costly and therefore could have a negative effect on its business. In some instances, Westaff has agreed to indemnify its customers against some or all of these types of liabilities. Westaff 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 assurance that Westaff’s insurance will be sufficient in amount or scope to cover these types of risks in the future. Furthermore, there can be no assurance that Westaff will not experience these problems in the future or that Westaff will not incur fines or other losses or negative publicity with respect to these problems that could have a material adverse effect on Westaff’s business.Contents

11September 27, 2008, the Company entered into a definitive agreement to sell its Australia and New Zealand subsidiaries and the sale was completed on November 10, 2008. In connection with the agreement, the Australian GE Capital debt was paid in full.

~~Westaff’s~~ The ~~Founder~~amounts we are entitled to borrow under our revolving credit facilities are calculated daily and ~~Chairman~~are ~~controls~~dependent ~~more~~on ~~than~~available ~~50%~~cash ofand eligible trade accounts receivable generated from operations, which are affected by financial, business, economic and other factors, as well as by the ~~Company’s~~daily ~~outstanding~~timing ~~stock~~of cash collections and cash outflows. If we experience a significant and sustained ~~thus~~drop ~~allowing~~in ~~him~~operating profits, or if there are unanticipated reductions in cash inflows or increases in cash outlays, we may be subject to ~~exert~~cash or availability shortfalls. If such a shortfall were to occur for even a brief period of time, it may have a significant ~~influence~~adverse effect on ~~the~~our ~~Company’s~~business, ~~management~~financial condition or results of operations. Furthermore, our receivables may not be adequate to allow for borrowings for other corporate purposes, such as capital expenditures or growth opportunities, and ~~affairs~~we would be less able to respond to changes in market or industry conditions.

~~The~~ We ~~Company’s~~typically ~~Chairman~~experience ~~and~~significant ~~Founder,~~seasonal W.and ~~Robert~~other ~~Stover,~~fluctuations ~~beneficially~~in ~~owns~~our ~~directly~~borrowings ~~or indirectly,~~and orborrowing ~~has voting power over~~availability, ~~more~~particularly ~~than~~in ~~50% of~~ the ~~Company’s outstanding~~United ~~stock. As the principal stockholder of the Company~~States, ~~Mr.~~and ~~Stover~~aggressively ~~has the~~manage ~~ability~~our tocash ~~control substantially all matters submitted~~ to ~~the stockholders~~ ~~for~~ensure ~~approval~~adequate ~~and~~funds to ~~exert~~meet ~~significant~~working ~~influence~~capital ~~on the Company’s management and affairs~~requirements. ~~For~~Such ~~example,~~steps ~~Mr.~~include ~~Stover~~working ~~has the ability~~ to ~~sell~~improve ~~his~~collections ~~shares independently,~~ and toadjusting ~~control~~ the ~~election~~timing of ~~the~~cash ~~Board~~expenditures ~~of Directors~~ and ~~the appointment~~reducing ofoperating ~~executive~~expenses ~~management. He also has the ability to control any~~where ~~merger, consolidation, sale of substantially all of the Company’s assets or other strategic decisions affecting the Company or the market value of the stock~~feasible. This concentration of stock and voting power could be used by Mr. Stover to delay or prevent an acquisition of the Company or other strategic action or result in strategic decisions that could negatively impact the value and liquidity of the outstanding stock.

~~The market~~ We ~~for~~have ~~Westaff’s~~historically ~~stock~~experienced ~~may~~periods beof ~~limited~~negative cash flow from operations and investment activities, especially during seasonal peaks in revenue experienced in the ~~stock~~third ~~price~~and ~~may~~fourth fiscal ~~continue~~quarters of the year and in economic downturns. In addition, we are required to bepledge amounts to secure letters of credit that collateralize certain workers' compensation obligations, and ~~extremely~~these ~~volatile~~amounts may increase in future periods. Any such increase in pledged amounts or sustained negative cash flows or reductions in accounts receivable would decrease amounts available for working capital purposes and could have an adverse effect on our liquidity and financial condition.

~~The average~~ We daily trading volume for Westaff’s common stock on the Nasdaq National Market was approximately 8,800 shares from January 1, 2004, through December 31, 2004, and there have been numerous days with virtually no trading in the stock. Accordingly, the market price of Westaff’s common stock is subject to significant fluctuations that have been, and may ~~continue to~~ be, ~~exaggerated because~~unable an active trading market has not developed for the stock. The Company believes that the common stock price has also been negatively affected by the fact that the Company’s stock is thinly traded and the absence of analyst coverage. The lack of analyst reports about the Company’s stock may make it difficult for potential investors to ~~make~~adequately ~~decisions~~collateralize ~~about~~our ~~whether~~workers' tocompensation ~~purchase the~~obligations ~~Company’s~~at ~~stock~~their ~~and~~current ~~may~~levels ~~make~~or itat ~~less likely that investors will purchase the stock, thus further depressing the stock price~~all. ~~These negative factors may make it difficult for stockholders to sell the Company’s common stock, which may result in losses for investors.~~

~~Westaff’s~~ We are contractually obligated to collateralize our workers' compensation obligations under our workers' compensation program through irrevocable letters of ~~business~~credit, ~~may~~surety ~~suffer~~bonds ifor cash. As of November 1, 2008, our aggregate collateral requirements under these contracts have been secured through $27.3 million of letters of credit obtained through our U.S. Bank facility. Our workers' compensation policy expired November 1, 2008 and it ~~loses~~has ~~its~~been ~~key~~extended ~~personnel~~through April 1, 2009. As part of the extension the Company paid $1.0 million in cash collateral on October 31, 2008 and will pay an additional $250,000 by February 28, 2009. These collateral requirements are significant, place pressure on our liquidity and working capital capacity and are dependent on the Company having sufficient accounts receivable and cash balances. If we are not able to obtain a renewal of our letters of credit at a level sufficient to meet our collateral requirements, we could be unable to obtain sufficient workers' compensation coverage to support our operations.

~~Westaff’s~~ On ~~operations~~January 28, ~~are~~2009, ~~dependent~~the onCompany's workers' compensation carrier was notified by the ~~continued~~issuing ~~efforts~~Bank that the letter of ~~its~~credit ~~executive~~issued ~~officers~~in favor of the carrier and expiring on ~~senior~~February 28, ~~management~~2009 will not be renewed. ~~Additionally,~~The ~~Westaff~~Company is ~~dependent~~currently onin ~~the~~discussions ~~performance~~with U.S. Bank and ~~productivity~~ Wells Fargo to seek an extension of ~~its~~the ~~local~~letter ~~managers~~of ~~and~~credit ~~field~~however ~~personnel.~~there ~~Westaff’s~~can ~~ability~~be tono assurances ~~attract~~that ~~and~~the ~~retain~~Company ~~business~~will isreceive ~~significantly~~an ~~affected~~extension. byThe ~~local~~carrier ~~relationships and~~has the ~~quality~~right to draw on the letter of ~~service~~credit ~~rendered~~prior to the expiration. ~~The~~If ~~loss~~the carrier draws on the Letter of ~~those~~Credit, ~~key~~the ~~executive~~issuing ~~officers~~Bank may ~~and~~require ~~senior~~the ~~management~~Company ~~who~~to ~~have~~fund ~~acquired~~the ~~experience~~draw in ~~operating~~cash awhich ~~staffing service~~would ~~company~~require ~~may~~the ~~cause~~Company ato ~~significant~~borrow ~~disruption~~under toits ~~Westaff’s~~credit ~~business~~facility. ~~Moreover,~~ ~~the~~The ~~loss~~Company ofis ~~Westaff’s~~currently ~~key~~in ~~local~~default ~~managers~~under ~~and~~the ~~field~~terms ~~personnel~~of ~~may jeopardize~~its ~~existing~~credit ~~customer~~facility ~~relationships~~and in discussions with ~~businesses~~U.S. ~~that~~Bank ~~continue~~and toWells ~~use Westaff’s~~Fargo ~~staffing~~to ~~services~~seek ~~based~~a ~~upon~~waiver ~~past~~or ~~direct~~continued ~~relationships~~forbearance ~~with~~in ~~these local~~respect ~~managers~~of ~~and~~the ~~field~~event ~~personnel~~of default. ~~Either~~There ofcan ~~these~~be ~~types~~no ofassurance ~~losses~~that ~~could adversely~~the ~~affect~~Company ~~Westaff’s~~will ~~operations,~~be ~~including~~able ~~Westaff’s~~to ~~ability~~obtain toa ~~establish~~waiver or ~~and~~continued ~~maintain~~forbearance ~~customer~~or ~~relationships.~~that such a waiver or

~~Westaff derives a significant portion of its revenue from franchise agent operations.~~15

~~Franchise agent~~Table ~~operations comprise a significant portion~~ of the Company’s revenue. For fiscal 2004, 28.4% of the Company’s total revenue was derived from franchise agent operations. In addition, the Company’s ten largest franchise agents for fiscal 2004 (based on sales volume) accounted for 17.0% of the Company’s revenue. The loss of one or more of the Company’s franchise agents and any associated loss of customers and sales, could have a material adverse effect on the Company’s results of operations.Contents

~~Westaff~~continued forbearance would be on terms acceptable to the Company. If the Company is ~~subject~~ unable to ~~business~~obtain ~~risks~~a ~~associated~~waiver ~~with~~or ~~international~~continued ~~operations~~forbearance and the lenders elect to pursue remedies under the Financing ~~fluctuating~~Agreement, ~~exchange~~such ~~rates~~as limiting or terminating the Company's right to borrow under the Financing Agreement or calling the loan, there can be no assurance that the Company could find alternative sources of capital to repay the loan.

~~The Company~~ We ~~presently~~are ~~has~~exposed ~~operations~~to incredit ~~the~~risks ~~United~~on ~~Kingdom~~collections ~~(UK),~~from ~~Australia,~~our ~~New Zealand~~customers due to, ~~Norway~~among ~~and~~other ~~Denmark~~things, ~~which~~our ~~comprised~~assumption ~~21.9%~~ of the ~~Company’s~~obligation ~~revenue during fiscal 2004. Operations in foreign markets are inherently subject~~ to ~~certain~~ ~~risks,~~make ~~including~~wage, ~~in particular, different cultures and business practices, overlapping or differing~~ tax ~~structures~~, ~~economic~~ and ~~political~~regulatory ~~uncertainties,~~payments ~~compliance issues associated with accounting and reporting requirements and changing, complex or ambiguous foreign laws and regulations, particularly as they relate~~ to ~~employment.~~our ~~All~~temporary of the Company’s sales outside of the United States are denominated in local currencies and, accordingly, the Company is subject to risks associated with fluctuations in exchange rates which could cause a reduction in the Company’s profitsemployees. ~~There can be no assurance that any of these factors will not have a material adverse effect on the Company’s business, results of operations, cash flows or financial condition.~~

~~Westaff~~ We isare exposed to the credit risk of some of our customers. Temporary personnel are typically paid on a weekly basis while payments from customers are generally received 30 to 60 days after billing. We generally assume responsibility for and manage the risks associated with our payroll obligations, including liability for payment of salaries and wages, payroll taxes as well as group health insurance. These obligations are fixed and become a ~~defendant~~liability inof ours, whether or not the associated client to whom these employees have been assigned makes payments required by our service agreement, which exposes us to credit risks. We attempt to mitigate these risks by billing on a ~~variety~~frequent basis, which typically occurs daily or weekly. In addition, we establish an allowance for doubtful accounts for estimated losses resulting from the inability of ~~litigation~~our customers to make required and ~~other~~timely ~~actions~~payments. ~~from~~Further, ~~time~~we carefully monitor the timeliness of our customers' payments and impose strict credit standards. However, there can be no assurance that such steps will be effective in reducing these risks. Finally, the majority of our accounts receivable is used to ~~time~~secure our revolving credit facilities, which we rely on for liquidity. If we fail to adequately manage our credit risks associated with accounts receivable, our financial position could be adversely impacted. Additionally, to the extent that recent turmoil in the credit markets makes it more difficult for some customers to obtain financing, those customers' ability to pay could be adversely impacted, which ~~may~~in turn could have a material adverse effect on ~~the~~our ~~Company’s~~ business, financial condition ~~and~~or results of operations.

12 Price competition in the staffing industry continues to be intense, and pricing pressures from both competitors and customers could adversely impact our financial decisions.

~~Westaff is~~ We ~~regularly~~expect ~~involved~~the inlevel ~~a variety~~ of ~~litigation~~competition ~~arising~~to ~~out~~remain ofhigh ~~its business and,~~ in ~~recent~~the ~~years~~future, ~~has~~and ~~paid~~competitive ~~significant~~pricing ~~amounts~~pressures aswill acontinue ~~result~~to ofmake ~~adverse arbitration~~it ~~awards.~~difficult ~~The~~for ~~Company~~us ~~does~~to ~~not~~raise ~~have~~our ~~insurance for some of these~~prices ~~claims~~to immediately and ~~there~~fully ~~can~~offset beincreased nocosts ~~assurance~~of ~~that~~doing ~~the~~business, ~~insurance~~including ~~coverage~~increased itlabor ~~has~~costs, ~~will cover~~costs ~~all~~for ~~claims~~workers' ~~that~~compensation ~~may~~and, bedomestically, ~~asserted~~state ~~against~~unemployment ~~the Company~~insurance. ~~Should~~If ~~the~~we ~~ultimate judgments~~are ornot ~~settlements~~able to ~~not~~effectively becompete ~~covered~~in byour ~~insurance~~targeted ormarkets, ~~exceed~~our ~~its~~operating ~~insurance coverage,~~margins ~~they~~and ~~could~~other ~~have~~financial aresults ~~material~~will ~~adverse~~be ~~effect~~harmed onand the ~~Company’s~~price ~~results~~ of ~~operations,~~ ~~financial~~our ~~position~~securities ~~and~~could ~~cash flows~~decline. ~~There~~We ~~can~~ also beface ~~no assurance that~~ the ~~Company~~risk ~~will~~that beour ~~able to obtain appropriate and sufficient types or~~current ~~levels of insurance in the future~~ or ~~that~~prospective ~~adequate~~customers ~~replacement~~may ~~policies~~decide ~~will~~to ~~be available~~provide onservices ~~acceptable terms, if at all~~internally.

The ~~Company is~~market ~~subject~~for toour ~~the~~stock ~~risk~~may ofbe ~~new regulations~~limited, ~~which~~and ~~could~~the ~~harm~~stock ~~the~~price ~~Company’s business~~may continue to be extremely volatile.

The average daily trading volume for our common stock on the NASDAQ Global Market was approximately 21,044 shares during the fiscal year ended November 1, ~~Company~~2008. Accordingly, the market price of our common stock is subject to ~~bills~~significant ~~introduced~~fluctuations inthat ~~Congress~~have been, and ~~various~~may ~~state legislatures~~continue to be, asexaggerated ~~well~~because asan inactive trading market has not developed for our common stock. We believe that the ~~foreign~~price ~~countries~~of inour ~~which~~common itstock ~~operates,~~has ~~which, if~~also ~~enacted,~~been ~~could~~negatively ~~impose~~affected ~~conditions~~by the fact that ~~could~~our ~~have~~common astock ~~negative~~is ~~financial~~thinly ~~impact on~~traded and also due to the ~~Company. Such~~absence ~~conditions~~of ~~could~~analyst ~~include~~coverage. ~~new~~The orlack ~~additional~~of ~~benefits,~~analyst ~~taxes~~reports orabout ~~other~~our ~~requirements~~stock ~~that~~may make it difficult for potential investors to make decisions about whether to purchase our stock and may make it less likely that investors ~~increase~~will purchase the ~~Company’s~~stock, ~~costs~~thus offurther ~~operations~~depressing ~~and~~the ~~reduce~~stock ~~future~~price. ~~earnings~~These negative factors may make it difficult for stockholders to sell our common stock, which may result in losses for investors.

~~ITEM 2. PROPERTIES.~~16

~~The Company leases three~~ ~~adjacent~~Table ~~buildings in Walnut Creek, California consisting~~ of ~~approximately 50,000~~Contents ~~square feet which house its executive and administrative offices. The lease is for a term of seven years commencing on January 12, 2003, with an additional five-year option to renew.~~

In Recently ~~addition,~~our ~~the~~common ~~Company leases~~shares ~~space~~traded ~~for~~at ~~its~~prices ~~Company-owned~~below ~~offices in the United States and abroad~~$1. ~~The majority of the leases are for fixed terms of one to five years and contain customary terms and conditions~~00. ~~The~~ ~~Company~~If ~~believes~~this ~~that its~~continues ~~facilities~~in ~~are~~the ~~adequate~~future, ~~for~~our ~~its~~common ~~current~~shares ~~needs~~could ~~and~~be ~~does~~subject ~~not~~to ~~anticipate any~~delisting ~~difficulty~~by ~~replacing~~NASDAQ ~~such~~Stock ~~facilities or locating additional facilities, if needed~~Market.

~~ITEM~~ Our 3common stock currently trades on the NASDAQ Global Market. ~~LEGAL~~On ~~PROCEEDINGS~~September 10, 2008 we received a letter from the NASDAQ Stock Market ("NASDAQ") indicating that for the last 30 consecutive business days prior to the date of the letter, the bid price of Westaff's common stock had closed below the minimum $1.00 per share requirement for continued inclusion under NASDAQ Marketplace Rule 4450 (a)(5) and that we had until March 9, 2009 for the bid price of our common stock to close at $1.00 per share or more for a minimum of 10 consecutive business days to regain compliance. As of the date of this Annual Report on Form 10-K our common stock has not been delisted and continues to be listed on the NASDAQ Global Market. On October 16, 2008, NASDAQ implemented a temporary suspension of the rules requiring a minimum $1.00 closing bid price and a minimum market value of publicly held shares. On December 23, 2008, NASDAQ extended this suspension until April 20, 2009. As a result of the suspension we now remain at the same stage of the compliance process at the time of the suspension. In the event Westaff does not regain compliance, or NASDAQ does not further extend this suspension, NASDAQ will reinstate the compliance process for Westaff's common stock. If our common shares are delisted from the NASDAQ, there may be a limited market for our shares, trading our stock may become more difficult and our share price could decrease even further. If our common shares are not listed on a national securities exchange or the NASDAQ, potential investors may be prohibited from or be less likely to purchase our common shares, limiting the trading market for our stock even further.

In ~~the ordinary~~ ~~course~~February ~~of its business~~2009, the Company iswas ~~periodically~~notified ~~threatened~~by ~~with~~NASDAQ orthat ~~named~~the ~~as a~~closing ~~defendant~~bid inprice ~~various~~of ~~lawsuits. The principal~~Westaff's ~~risks~~common ~~that~~stock ~~the~~has ~~Company~~been ~~insures~~at ~~against,~~$1.00 ~~subject~~per toshare ~~and~~or ~~upon~~greater ~~the~~for ~~terms and~~at ~~conditions~~least of10 ~~its~~consecutive ~~various~~business days. ~~insurance policies~~Accordingly, ~~are~~the ~~workers’~~Company ~~compensation, general~~has ~~liability,~~regained ~~automobile~~compliance ~~liability,~~with ~~property~~Marketplace ~~damage,~~Rule 4450(a)(5) ~~alternative staffing errors~~ and ~~omissions,~~this ~~fiduciary~~matter ~~liability~~is ~~and~~now ~~fidelity losses~~closed.

On If ~~October~~we ~~28, 2003,~~fail Bond International Software, Inc. (“Bond”) filed a demand for arbitration with the American Arbitration Association (“AAA”). Bond sought compensation for the Company’s alleged breach of a 2001 software agreement. The Company filed a counterclaim, seeking the return of monies previously paid to ~~Bond. The~~maintain ~~arbitration hearing~~effective ~~was~~internal ~~held~~control inover ~~September~~our ~~2004. The arbitrator~~financial ~~issued an interim award on October 25~~reporting, ~~2004,~~we ~~agreeing~~may ~~that~~cause ~~the Company~~investors ~~had the right~~ to ~~terminate~~lose ~~the~~confidence ~~agreement but granting Bond “termination charges”~~ in ~~the~~our ~~amount~~reported offinancial ~~$422~~information,~~807, plus interest from January 2002. The arbitrator denied Bond’s claim for~~ ~~damages~~which ~~for~~could breach of the implied covenant of good faith and fair dealing, and denied the Company’s counterclaim. In the final award issued December 4, 2004, the arbitrator ordered the Company to pay Bond $291,352 in attorneys’ fees and costs, and to pay the AAA administrative fees and arbitrator compensation totaling $43,570. The Company has paid the foregoing adverse award. 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 litigation brought by former franchisees or licensees, and administrative claims and lawsuits brought by former employees. Management believes the resolution of these matters will not have aan ~~material~~ adverse effect on ~~the~~our ~~Company’s~~stock ~~financial statements~~price.

~~ITEM~~ Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and current SEC regulations and proposed rules, we are required to include in our annual report 4on Form 10-K a report that assesses the effectiveness of our internal control over financial reporting. ~~SUBMISSION~~In OFaddition, ~~MATTERS~~the TOSEC Aapproved ~~VOTE~~a OFone-year ~~SECURITY~~extension ~~HOLDERS~~of the compliance date for smaller public companies, therefore, beginning with our Form 10-K for the 2010 fiscal year our external auditors will be required to audit our internal control over financial reporting report and include their attestation on that report. The process of fully documenting and testing our internal control procedures in order to satisfy these requirements have resulted and are likely to continue to result in increased general and administrative expenses and the diversion of management time and attention from profit-generating activities to compliance activities. Furthermore, if our management identifies one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective and our business may be harmed. Market perception of our financial condition and the trading price of our stock may also be adversely affected and customer perception of our business may suffer.

~~None~~ Our principal stockholder, together with its affiliates, controls a significant amount of our outstanding common stock thus allowing them to exert significant influence on our management and affairs.

~~ITEM~~ As of November 1, 2008, our principal stockholder, DelStaff LLC ("DelStaff"), together with its affiliates, controls approximately 49.5% of the 4Atotal outstanding shares of our common stock. ~~EXECUTIVE~~The ~~OFFICERS~~members OFof ~~THE~~DelStaff REGISTRANT*are H.I.G. Staffing, 2007, Ltd., Alarian Associates, Inc. and Michael T. Willis. As our principal stockholder, DelStaff and its affiliates have the ability to significantly influence all matters submitted to our stockholders for approval, including the election of directors, and to exert significant influence over our management and affairs. On April 30, 2007, we entered into a Governance

~~The executive officers of the Company and their respective ages as of January 28, 2005, are set forth below.~~17

Name	Age	Position(s) Held
Dwight S. Pedersen	59	President and Chief Executive Officer
Patricia M. Newman	53	Chief Operating Officer
Dirk A. Sodestrom	47	Senior Vice President and Chief Financial Officer
Christa C. Leonard	47	Vice President and Treasurer
Richard G. Gross	49	Senior Vice President, Director of Strategic Business Solutions

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13Agreement with DelStaff, Mr. Willis and Mr. Stover. On May 9, 2007, pursuant to the terms of the Governance Agreement, we expanded the size of our Board of Directors from five to nine directors and appointed the following DelStaff nominees to the Board: Michael T. Willis, John R. Black, Michael R. Phillips, Gerald E. Wedren and John G. Ball. DelStaff also has the ability to strongly influence any merger, consolidation, sale of substantially all of our assets or other strategic decisions affecting us or the market value of the stock. This concentration of stock and voting power could be used by DelStaff to delay or prevent an acquisition of Westaff or other strategic action or result in strategic decisions that could negatively impact the value and liquidity of our outstanding stock.

Joseph R. Coute		57		Vice President and Director of Human Resources
David P. Wilson		42		Vice President, Information Services

We derive a significant portion of our revenue from franchise agent operations.

* Franchise agent operations comprise a significant portion of our revenue. As of November 1, 2008, franchisees represented 40.1% of gross receipts. In ~~Included~~addition, ~~pursuant~~our ten largest franchise agents (based on sales volume) accounted for 27.5% of our revenue. There can be no assurances that we will be able to ~~Instruction~~attract 3new franchisees or that we will be able to ~~Item~~retain ~~401(b)~~our existing franchisees. The loss of ~~Regulation~~one ~~S-K~~or more of our franchise agents and any associated loss of customers and sales could have a material adverse effect on our results of operations.

~~Dwight~~ Our S.service ~~Pedersen.~~agreements ~~Mr.~~may ~~Pedersen~~be ~~was~~terminated ~~appointed~~on asshort ~~President and Chief Executive Officer of the Company effective January 14~~notice, ~~2002.~~leaving Heus ~~has~~vulnerable been a director of the Company since May 1, 2001. He served on the Audit Committee of the Board of Directors from and after that date until he resigned from that committee upon becoming an employee of the Company. Prior to ~~joining~~ ~~the~~loss ~~Company, he was the Executive Vice President~~ of ~~Pinkertons,~~a ~~Inc., where~~significant heamount ~~was employed since January 1, 2000, following the acquisition~~ of ~~American~~ ~~Protective~~customers ~~Services, Inc. He was employed by American Protective Services, Inc. for twenty-six years, having started as its first Controller~~ in ~~1974.~~ ~~After~~ a ~~series~~short ofperiod ~~promotions, including service as Vice President-Finance, Senior Vice President and Executive Vice President~~ of ~~that company, he was named President and a director in 1988 and he became its Chief Executive Officer in 1992~~time. ~~His previous work history includes approximately four years with Wolf & Co., an accounting firm. He is a certified public accountant on inactive status.~~

~~Patricia~~ Our M.service ~~Newman.~~agreements ~~Ms.~~are ~~Newman~~generally ~~was~~cancellable ~~appointed~~with aslittle ~~Chief~~or ~~Operating~~no ~~Officer~~notice ofby the ~~Company~~ ~~effective~~customer ~~November~~to ~~1, 2004~~us. ~~She~~As ~~joined~~a ~~the Company as UK Managing Director in December 1998. In November 2002~~result, ~~she~~our ~~took~~customers oncan ~~the~~terminate ~~added~~their ~~responsibility~~agreement ofwith ~~overseeing the Company’s Denmark~~us ~~and~~at ~~Norway~~any ~~operations. Prior to joining the Company~~time, ~~Ms.~~making ~~Newman~~us ~~was~~particularly ~~employed~~vulnerable byto ~~Kelly~~a ~~Services~~significant decrease in ~~the~~revenue ~~United~~within ~~Kingdom from~~a ~~1989~~short toperiod ~~1998,~~of ~~most~~time ~~recently~~that ascould ~~Commercial~~be ~~Operations~~difficult ~~Director. From 1979~~ to ~~1989~~quickly ~~she was employed by Manpower in the United Kingdom~~replace.

~~Dirk~~ Our A.reserves ~~Sodestrom.~~for ~~Mr.~~workers' ~~Sodestrom~~compensation ~~joined~~claims ~~the~~may ~~Company~~be asinadequate ~~Controller~~to incover ~~February~~our ~~1991.~~ultimate ~~In December 1992~~liability, heand ~~was~~we ~~elected~~may toincur ~~the~~ additional ~~position~~charges ofif ~~Vice President. In June 1998, Mr. Sodestrom was named a Senior Vice President of~~ the ~~Company. Effective~~actual ~~January~~amounts ~~1, 2001, Mr. Sodestrom was appointed as Chief Financial~~exceed ~~Officer.~~the ~~Mr.~~reserved ~~Sodestrom was employed from 1980 to 1991 by Price Waterhouse LLP, most recently as a Senior Audit Manager~~amounts. ~~He is a certified public accountant on inactive status.~~

~~Christa~~ We C.maintain ~~Leonard.~~reserves ~~Ms.~~to ~~Leonard~~cover ~~was~~our ~~hired~~estimated asliabilities ~~Vice~~for ~~President~~workers' ~~and~~compensation ~~Treasurer~~claims based upon actuarial estimates of the ~~Company~~future ~~in November~~cost ~~2000. Ms.~~of ~~Leonard~~claims ~~was~~and related ~~previously~~expenses ~~employed~~which byhave ~~USI~~been ~~Insurance~~reported ~~Services~~but ~~Corp~~not settled, and that have been incurred but not yet reported. asThe ~~Vice~~determination ~~President~~of these reserves is based on a number of factors, ~~Treasury~~ including current and historical ~~Tax~~claims activity, ~~from~~medical ~~1996~~cost totrends ~~2000~~and developments in existing claims. ~~She~~Reserves ~~has~~do ~~approximately~~not ~~nine~~represent ~~years’~~an ~~prior~~exact ~~work~~calculation of liability and are affected by both internal and external events, ~~experience~~such as adverse development on existing claims, changes in ~~the~~medical ~~public~~costs, ~~accounting~~claims ~~field~~handling procedures, ~~most~~administrative ~~recently~~costs, ~~from~~inflation, ~~1995~~legal totrends ~~1996~~and ~~with~~legislative changes. Reserves are adjusted as ~~Roberts~~necessary ~~Schultz~~to &reflect ~~Co.~~new claims and existing claims development, and ~~also~~such ~~with~~adjustments ~~Wallace~~are ~~Meyer~~reflected &in Cothe results of the periods in which the reserves are adjusted. ~~from~~While ~~1992~~we tobelieve our judgments and ~~1994~~estimates are adequate, ~~and~~if ~~KPMG~~our ~~Peat~~reserves ~~Marwick~~are &insufficient ~~Co. from~~to ~~1987~~cover our actual losses, an adjustment could be charged to ~~1992. She~~expense isthat ~~a certified~~may ~~public~~be ~~accountant~~material onto ~~inactive~~our ~~status~~earnings.

~~Richard~~ Workers' G.compensation ~~Gross.~~costs Mr. Gross was hired on October 7, 2002, as Senior Vice President, Director of Strategic Business Solutions. He was previously employed by Spherion as Group Vice President from 2000 to 2002. From 1997 to 2000, he was employed by Tandem Staffing for ~~Industry~~temporary asemployees ~~District~~may ~~Sales~~continue ~~Manager and then promoted~~ to ~~Director of~~rise ~~Sales Operations~~ and ~~Personnel.~~reduce ~~From~~margins 1996 to 1997, he was employed by Professional Detailing Network as District Sales Manager. From 1994 to 1996, he was employed by The Advantage Medical Group, Inc. as Chief Operating Officer. From 1991 to 1994, he was self-employed as a sales and ~~marketing~~require ~~consultant.~~more ~~He was employed from 1978 to 1991 by Allergan Pharmaceuticals and most recently was its Senior Product Manager~~liquidity.

~~Joseph~~ In Rthe United States, we are responsible for and pay workers' compensation costs for our regular and temporary employees. ~~Coute~~In recent years, these costs have risen substantially as a result of increased claims, general economic conditions, increases in healthcare costs and governmental regulations. MrThe frequency of new claims has fallen in fiscal 2008 as compared to prior years, yet the cost per claim continues to increase. Under our workers' compensation insurance program, we maintain "per occurrence" insurance, which only covers claims for a ~~Coute~~particular event above a deductible. This deductible has been ~~employed~~increased byfor ~~the~~our ~~Company~~policy ~~since~~year ~~January~~ending ~~1997~~November 1, as2008 ~~Vice~~from ~~President~~$500,000 to $750,000 per claim for fiscal 2008 claims. Our workers' compensation insurance policy expired November 1, 2008 and ~~Director~~we ofhave ~~Human~~extended ~~Resources~~the policy through April 1, 2009. ~~His~~We ~~previous~~have ~~employer~~provided ~~was~~a ~~Bank~~cash payment of ~~America~~$1 million ~~for approximately~~which 26was ~~years,~~recorded ~~including~~as 16a short ~~years~~term indeposit ~~human~~at ~~resources~~November 1, 2008 and ~~ten~~we ~~years~~will pay an additional $0.3 million in ~~branch~~ ~~operations~~collateral by February 28, 2009. Should our workers' compensation premium costs

David P. Wilson. Mr. Wilson was hired in December 1997, as Field Automation Manager, focusing on the field automation process. In June 1998, he was assigned the additional task of managing the customer service and help desk functions of the Company’s Information Services Department. Mr. Wilson was promoted to Vice President, Information Services in January 2001. He has approximately 20 years work experience in information services, most recently with Triad Systems Corporation as Manager, Financial and Marketing Systems, from 1991 to 1997 and Franklin Covey, Application Design Specialist from 1985 to 1991.18

~~PART~~Table IIof Contents

~~ITEM~~continue to ~~5. MARKET~~increase ~~FOR~~in ~~REGISTRANT’S~~the ~~COMMON~~future, there can be no assurance that we will be able to increase the fees charged to our customers to keep pace with increased costs or if we were unable to obtain ~~EQUITY~~insurance on reasonable terms or forced to significantly increase our deductible per claim, ~~RELATED~~our ~~STOCKHOLDER~~results ~~MATTERS~~of ~~AND~~operations, ~~ISSUER~~financial ~~PURCHASES~~condition OFand ~~EQUITY~~liquidity ~~SECURITIES~~could be adversely affected.

~~Market Information. The Company’s~~ Our ~~Common~~success ~~Stock~~is ~~has~~impacted ~~been~~by ~~included~~our ~~for~~ability ~~quotation~~to inattract ~~the~~and ~~Nasdaq~~retain ~~National Market~~qualified ~~(“Nasdaq”)~~temporary ~~under the symbol “WSTF” since April 30, 1996. The following table sets forth, for the periods indicated, the high~~ and ~~low~~permanent ~~closing sales prices of the Common Stock as reported on Nasdaq~~candidates.

14 We compete with other staffing services to meet our customers' needs, and we must continuously attract reliable candidates to meet the staffing requirements of our customers. Consequently, we must continuously evaluate and upgrade our base of available qualified personnel to keep pace with changing customer needs and emerging technologies. Furthermore, a substantial number of our temporary employees during any given year will terminate their employment with us and accept regular staff employment with our customers. Competition for individuals with proven skills remains intense, and demand for these individuals is expected to remain strong for the foreseeable future. There can be no assurance that qualified candidates will continue to be available to us in sufficient numbers and on acceptable terms to us. The failure to identify, recruit, train and place candidates as well as retain qualified temporary employees over a long period of time could materially adversely affect our business.

	High	Low
Fiscal 2003:
First Quarter ended January 25, 2003	2.50	1.95
Second Quarter ended April 19, 2003	2.35	1.80
Third Quarter ended July 12, 2003	2.90	2.00
Fourth Quarter ended November 1, 2003	2.43	1.60
Fiscal 2004:
First Quarter ended January 24, 2004	2.54	1.90
Second Quarter ended April 17, 2004	2.75	1.75
Third Quarter ended July 10, 2004	3.58	2.16
Fourth Quarter ended October 30, 2004	3.53	2.95
Fiscal 2005:
First Quarter ended January 22, 2005	6.47	3.05

The staffing industry is highly competitive with limited barriers to entry which could limit our ability to maintain or increase market share.

On The ~~December~~staffing ~~31,~~industry ~~2004,~~is ~~the last~~highly ~~reported~~competitive ~~sales~~with ~~price~~limited onbarriers ~~Nasdaq~~to ~~for~~entry ~~the~~and ~~Common~~continues ~~Stock~~to ~~was~~undergo $3consolidation.77 ~~per~~We compete in regional and local markets with ~~share~~large full service agencies, specialized temporary and permanent placement services agencies and small local companies. As While some competitors are smaller than us, they may enjoy an advantage in discrete geographic markets because of ~~December~~a 31stronger local presence. Other competitors have greater marketing, ~~2004~~financial and other resources than us that, among other things, could enable them to attempt to maintain or increase their market share by reducing prices. Furthermore, in past years there has been an increase in the number of customers consolidating their staffing services purchases with a ~~were~~single ~~approximately~~provider 75or ~~shareholders~~with a small number of ~~record~~providers. The trend to consolidate staffing services purchases has in some cases made it more difficult for us to obtain or retain business.

~~Sales~~ The cost of ~~Unregistered~~ ~~Securities. During~~unemployment ~~fiscal~~insurance ~~2004,~~for ~~the~~temporary ~~Company~~employees ~~did~~may ~~not~~rise ~~sell~~and ~~any~~reduce ~~unregistered securities~~our margins.

~~Issuer~~ In the United States, we are responsible for and pay unemployment insurance premiums for our temporary and regular employees. At times, these costs have risen as ~~Purchases~~a result of ~~Equity~~increased ~~Securities~~claims, general economic conditions and government regulations. ~~None~~ ~~during~~Should these costs continue to increase, there can be no assurance that we will be able to increase the ~~fourth~~fees charged ~~quarter~~to our customers in the future to keep pace with the increased costs, and if we do not, our results of ~~fiscal 2004~~operations and liquidity could be adversely affected.

~~Dividends. The~~ Our ~~Company~~information ~~did~~technology ~~not~~systems ~~declare~~are orcritical ~~pay~~to ~~dividends during fiscal 2003 or fiscal 2004. Further,~~ the ~~Company’s~~operations ~~current credit facilities prohibit payment~~ of ~~dividends~~ soour ~~the Company is not currently contemplating a dividend declaration~~business.

~~Securities~~ Our ~~Authorized~~information ~~Under~~management ~~Equity~~systems ~~Plans~~are essential for data exchange and operational communications with branches spread across large geographical distances. ~~The~~ We ~~following~~have ~~table~~replaced ~~sets~~key ~~forth~~component ~~securities~~hardware ~~authorized~~and ~~for~~software ~~issuance~~including ~~under~~backup ~~equity compensation~~systems ~~plans~~within asthe ofpast ~~October~~12 months. 30On November 12, ~~2004~~2007, we implemented a new accounts receivable billing and temporary payroll system. ~~All~~The ~~applicable~~new ~~equity~~system ~~compensation~~receives information from our custom built front office system. We experienced technical issues after conversion that were not detected during the testing phases. These ~~plans~~issues affected both the payroll and billing systems. We believe that we have identified and resolved the significant issues. These issues were ~~previously~~disruptive ~~approved~~to byour ~~security~~business ~~holders~~and could have affected customer and employee relations. Additionally, these issues required significant amount of management time that impacted our ability to sell new services during the first half of fiscal 2008. We have made progress in resolving these

~~EQUITY COMPENSATION PLAN INFORMATION~~19

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)		(c)
Equity compensation plans approved by securities holders	1,035,000	$	3.07	1,389,000

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15specific payroll and billing systems issues. However, any future interruption, impairment or loss of data integrity or malfunction of these systems could severely impact our business, especially our ability to timely and accurately pay employees and bill customers.

~~ITEM~~ Our 6.business is subject to extensive government regulation, which may restrict the types of employment services that we are permitted to offer or result in ~~SELECTED~~additional ~~FINANCIAL~~tax ~~DATA~~or other costs that adversely affect our revenues and earnings.

	Fiscal Year
	2004		2003			2002			2001			2000
	(Amounts in Thousands Except Per Share Amounts and Number of Offices)
Revenue	$	601,476	$	530,299		$	515,253		$	572,592		$	669,205
Operating income (loss) from continuing operations	5,665		(2,837		)	(3,545		)	(18,679		)	14,793
Income (loss) from continuing operations before cumulative effect of change in accounting principle	3,323		(4,774		)	(1,431		)	(32,101		)	7,235
Diluted earnings (loss) per share—continuing operations before cumulative effect of change in accounting principle	$	0.21	$	(0.30	)	$	(0.09	)	$	(2.02	)	$	0.46
Balance Sheet data (at end of period):
Working capital	$	33,514	$	21,237		$	24,072		$	16,562		$	61,767
Total assets	122,408		113,147			121,955			123,175			183,072
Short-term debt and capital lease obligations	16,199		25,842			25,167			30,000			13,250
Long-term debt and capital lease obligations (excluding current portion)	2,125		2,590			2,000			—			37,250
Stockholders’ equity	39,847		35,456			38,950			39,492			73,166
Other operating data:
Number of offices (at end of period)
Company-owned	187		197			217			254			257
Franchise agent	68		72			77			85			81
Licensed	1		1			5			10			16
Total	256		270			299			349			354

We are in the business of employing people and placing them in the workplace of other businesses on either a temporary or permanent basis. As a result, we are subject to extensive laws and regulations relating to employment. Changes in laws or government regulations may result in prohibition or restriction of certain types of employment services we are permitted to offer or the imposition of new or additional benefit, licensing or tax requirements that could reduce our revenues and earnings. There can be no assurance that we will be able to increase the fees charged to our customers in a timely manner and in a sufficient amount to cover increased costs as a result of any changes in laws or government regulations. Any future changes in laws or government regulations may make it more difficult or expensive for us to provide staffing services and could have a material adverse effect on our business, financial condition or results of operations.

~~ITEM~~ We 7.may ~~MANAGEMENT’S~~be ~~DISCUSSION~~exposed ~~AND~~to ~~ANALYSIS~~employment-related ~~OF FINANCIAL~~claims ~~CONDITION~~and ~~AND~~costs ~~RESULTS~~that OFcould ~~OPERATIONS~~materially adversely affect our business.

The ~~following~~ ~~discussion~~risks isrelated ~~intended~~ to ~~assist~~engaging in ~~the~~our ~~understanding~~business ~~and~~include ~~assessment of~~but ~~significant~~are ~~changes~~not ~~and~~limited ~~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 Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-K for the fiscal year ended October 30, 2004.

•: claims by our placed personnel of discrimination and harassment directed at them, including claims arising from the actions of our customers;
•: workers' compensation claims and other similar claims;
•: violations of wage and hour laws and requirements;
•: claims of misconduct, including criminal activity or negligence on the part of our placed personnel;
•: claims by our customers relating to actions by our placed personnel, including property damage and personal injury, misuse of proprietary information and misappropriation of assets or other similar claims; and
•: immigration related claims.

~~Cautionary~~ In addition, ~~Statement~~some or all of these claims may give rise to litigation, which could be time-consuming to our management team, and therefore, could have a negative effect on our business, financial conditions and results of operations. In some instances, we have agreed to indemnify our customers against some or all of these types of liabilities. We have policies and guidelines in place to help reduce our exposure to these risks and have purchased insurance policies against certain risks in amounts that we currently believe to be adequate. However, there can be no assurance that our insurance will be sufficient in amount or scope to cover these types of liabilities or that we will be able to secure insurance coverage for such risks on affordable terms. Furthermore, there can be no assurance that we will not experience these issues in the future or that they could have a material adverse effect on our business.

~~This notice~~ We is intended to take advantage of the “safe harbor” provided by the Private Securities Litigation Reform Act of 1995 with respect to forward-looking statements. Except for the historical information contained herein, the matters discussed should be considered forward-looking statements and readers are ~~cautioned~~ ~~not~~involved ~~to place undue reliance on those statements. The forward-looking statements~~ in ~~this~~an ~~discussion~~action ~~are~~taken ~~made~~by ~~based on information available as of~~ the ~~date~~ ~~hereof~~California ~~and~~Employment ~~are~~Development subject to a number of risks and uncertainties that could cause the Company’s actual results and financial position to differ materially from those expressed or implied in the forward-looking statements and to be below the expectations of public market analysts and investorsDepartment. These risks and uncertainties include, but are not limited to, those discussed in Item 1. “Factors Affecting Future Operating Results”. 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, except as required by applicable laws and regulations.

~~Critical~~ During ~~Accounting~~the ~~Policies~~fourth quarter of fiscal 2005, we were notified by the California Employment Development Department ("EDD") that our domestic operating subsidiaries unemployment tax rates would be increased retroactively for both calendar years 2005 and 2004. The total assessment by the EDD of additional unemployment taxes for both years, net of applied overpayments is approximately

The preparation of the Company’s Consolidated Financial Statements and Notes thereto requires management to make estimates and assumptions affecting the amounts and disclosures reported within those financial statements. These estimates are evaluated on an ongoing basis by management and generally affect revenue recognition, collectibility of accounts receivable, workers’ compensation costs, impairment of goodwill, income taxes, including the valuation allowance for deferred tax assets, and contingencies and litigation. Management’s estimates and 20

16Table of Contents

~~assumptions~~$1.5 million including ~~are~~interest ~~based~~at onapplicable statutory rates. Management believes that it has properly calculated its unemployment insurance tax and is in compliance with all applicable laws ~~historical~~and ~~experiences~~regulations. The Company has timely appealed the ruling by the EDD and ~~other~~is ~~factors~~working ~~believed~~with the outside counsel to beresolve ~~reasonable~~this ~~under~~matter. Additionally, management contends that the notification by the ~~circumstances~~EDD of the 2004 assessment was not timely and holds the position that the assessment is procedurally invalid. ~~However~~ Consequently, ~~actual~~at ~~results~~November 1, 2008, the Company has no reserve for the 2004 ~~under~~assessment ~~circumstances~~and has accrued the assessment for 2005 of $0.3 million, including interest and ~~conditions~~net ~~different~~of ~~than~~an ~~those~~applied ~~assumed~~overpayment. ~~could~~Although ~~result~~we believe that we have properly calculated our unemployment insurance tax and are in compliance with all applicable laws and regulations, there can be no assurances this will be settled in our favor. Management believes the Company is well positioned to defend ~~differences~~against ~~from~~the un-accrued portion and the ~~estimated~~ultimate ~~amounts~~resolution inof this matter will not have a material adverse effect on the Company's consolidated financial statements.

~~The Company~~ We ~~believes~~are ~~the~~a ~~following~~defendant ~~critical~~in ~~accounting~~a ~~policies~~variety ~~are~~of ~~those~~litigation ~~most significantly~~and ~~affected~~other byactions ~~management’s~~from ~~assumptions~~time orto ~~the~~time, ~~use~~which ofmay ~~estimates,~~have ~~and are~~a ~~important~~material toadverse ~~the~~effect ~~understanding~~on ofour ~~its~~ business, ~~operations~~financial condition and results ~~from~~ of operations.

~~Revenue Recognition. The Company~~ We ~~accounts~~are ~~for~~regularly ~~revenue~~involved ~~and~~in ~~the~~a ~~related~~variety ~~direct~~of ~~costs~~litigation inarising ~~accordance~~out ~~with Emerging~~of ~~Issues~~our ~~Task~~business ~~Force No. 99-19~~and, ~~“Reporting~~in ~~Revenue~~recent ~~Gross~~years, ~~versus~~have ~~Net as~~paid ansignificant ~~Agent.”~~amounts ~~Revenue~~as ~~generated~~a byresult ~~franchise agents and related costs~~ of adverse ~~services~~arbitration ~~are~~awards. ~~included~~We asdo ~~part~~not ofhave ~~the~~insurance ~~Company’s~~for ~~consolidated~~some ~~revenue and costs~~ of ~~services,~~these ~~respectively~~claims, ~~since~~and ~~the~~there ~~Company~~can ~~has~~be ~~the~~no ~~direct~~assurance ~~contractual relationships~~that ~~with~~ the ~~customers,~~insurance ~~holds~~coverage ~~title~~we tohave ~~the~~will ~~related~~cover ~~customer receivables~~all ~~and~~claims isthat ~~the~~may ~~legal~~be ~~employer~~asserted ofagainst ~~the temporary employees~~us. ~~Franchise~~ ~~agents’~~Should the ~~sales~~ultimate ~~represented~~judgments ~~28.4%, 26.4%~~or ~~and~~settlements ~~24.1%~~not ofbe ~~the~~covered ~~Company’s~~by ~~revenue~~insurance ~~for~~or ~~fiscal~~exceed ~~2004,~~our ~~2003~~insurance ~~and 2002~~coverage, ~~respectively.~~ ~~The~~they ~~Company~~could ~~also~~have ~~has~~ a ~~licensing~~material ~~program~~adverse ineffect ~~which~~on ~~the~~our ~~licensee has~~results ~~the~~of ~~direct contractual relationships with the customers~~operations, ~~holds~~financial ~~title~~position ~~to the related customer receivables~~ and ~~is the legal employer of the temporary~~cash ~~employees~~flows. ~~Accordingly,~~There ~~sales~~can ~~and~~also ~~costs~~be ofno ~~services~~assurance ~~generated~~that bywe ~~the~~will ~~license operation~~be ~~are~~able ~~not included in the Company’s consolidated financial statements. Fees are paid~~ to ~~the Company~~ ~~based~~obtain ~~either~~appropriate onand asufficient ~~percentage~~types ~~of sales~~ or levels of ~~gross~~insurance ~~profit~~in ~~generated by~~ the ~~licensee~~ ~~and~~future ~~such~~or ~~license~~that ~~fees~~adequate ~~are~~replacement ~~recorded~~policies bywill ~~the~~be ~~Company~~available ason ~~license~~acceptable ~~fees and included in revenue. As of October 30~~terms, ~~2004,~~if ~~the~~at ~~Company had only one remaining licensee and is no longer offering license agreements to new prospects~~all.

~~Collectibility of~~ We ~~Accounts~~have ~~Receivable. The~~assets ~~Company maintains an allowance for doubtful accounts~~ on ~~its~~our ~~accounts receivable~~balance ~~balances~~sheet for ~~estimated losses projected to result from the inability of its customers to make required payments. These allowances,~~ which ~~are~~their ~~$1.1 million~~realization ~~each~~is atdependent ~~October 30, 2004 and November 1, 2003, are largely determined based~~ on ~~customers’~~our ~~financial~~future ~~conditions,~~cash ~~the Company’s historical experiences, interactions with customers and industry trends~~flows. If the financial condition of these customers were to deteriorate to the point it would impair their ability to make the required payments, additional allowances may be required, which could materially adversely affect the financial condition of the Company.

~~Workers’ Compensation~~ As ~~Costs~~of November 1, 2008, we have intangibles of $3.5 ~~The~~million. During the Company's ~~self-insures~~third ~~the~~quarter ~~deductible~~of ~~amount~~fiscal ~~related~~year to2008 ~~workers’ compensation~~in ~~claims,~~light ~~which~~of ~~was~~the ~~$750,000~~continued decline ~~per~~in ~~claim~~revenue ~~for~~and ~~policy~~the ~~year~~continued ~~2004~~decline ~~and $500,000~~in ~~per~~the ~~claim~~market ~~for~~capitalization ~~policy~~of ~~year~~the ~~2003~~Company, ~~and~~management ~~maintains~~determined ~~accruals~~that ~~for~~an ~~these obligations.~~interim ~~These~~impairment ~~accruals~~test ~~amounted~~was tonecessary ~~$16.4~~during ~~million~~the ~~and~~third $9quarter of 2008.8 ~~million~~Based aton ~~October~~the ~~30,~~impairment ~~2004~~evaluation ~~and~~as ~~November~~of July 112, ~~2003~~2008, ~~respectively. The~~it ~~Company~~was ~~accrues~~determined that the ~~estimated~~indefinite ~~costs~~life ~~of these~~franchise ~~claims~~right ~~based~~intangible ~~upon~~was ~~the~~impaired ~~expected~~by ~~loss~~$0.2 million. ~~rates~~Such ~~incurred~~an ~~within~~impairment ~~the~~charge ~~various~~was measured ~~temporary~~in ~~employment~~accordance ~~categories~~with ~~provided~~Statement byof ~~the~~Financial ~~Company~~Accounting Standards ("SFAS") No. 142 At"Goodwill ~~least~~and ~~annually,~~Other Intangible Assets" as the ~~Company~~ ~~obtains~~excess anof ~~independent~~the ~~actuarially~~carrying ~~determined~~value ~~calculation~~over the fair value of the asset. ~~estimated~~After ~~costs~~completing ofthe ~~claims~~intangible ~~actually~~asset ~~made~~impairments, tothe ~~date,~~Company ascompared ~~well~~the asfair ~~claims~~value ~~incurred~~of ~~but not~~the ~~yet~~US ~~reported.~~Domestic ~~The~~Business ~~resulting~~Services ~~calculation~~reporting isunit ~~partially~~to ~~based~~its oncarrying value and determined that the ~~Company’s~~reporting unit ~~historical~~was ~~loss~~impaired. ~~development~~Upon ~~trends~~completion asof ~~well~~Step as2 ~~overall~~of ~~industry~~the ~~trends. As~~impairment test, the Company recorded a ~~result~~goodwill impairment of ~~updates~~$11.4 million in ~~the~~relation ~~actuary’s valuation,~~to ~~revisions~~its ~~may~~US beDomestic ~~made~~Business toServices ~~recorded~~reporting ~~liabilities~~unit. ~~Whereas management~~ ~~believes~~Given the ~~recorded~~continued ~~liabilities~~decline ~~are~~in ~~adequate,~~revenues ~~there~~in ~~are~~the ~~inherent~~fourth ~~limitations in~~quarter of fiscal 2008, the ~~estimation~~Company ~~process~~again ~~whereby~~performed ~~future~~an ~~actual~~impairment ~~loss~~test ~~rates~~for ~~may~~its ~~exceed~~indefinite ~~projected loss~~life ~~rates,~~franchise ~~which~~right ~~could~~intangibles ~~materially~~but ~~adversely~~determined ~~affect~~there was ~~the~~no ~~financial~~material ~~condition~~impairment as of ~~the~~ ~~Company~~November 1, 2008.

~~Goodwill~~ A ~~and~~majority ~~Other~~of ~~Intangible~~the ~~Assets.~~remaining ~~Effective~~intangible ~~November~~asset 3,balance ~~2002, the Company adopted Statement~~ of ~~Financial Accounting Standards (SFAS) No~~$3.5 million ~~142~~as ~~“Goodwill and~~of ~~Other Intangible Assets”. SFAS No.~~November ~~142~~1, ~~requires~~2008 ~~that~~relates ~~goodwill~~to ~~and~~an ~~intangible assets that have~~ indefinite ~~useful~~ ~~lives~~life nofranchise ~~longer~~right berelating ~~amortized~~to ~~but~~the ~~instead~~Houston bemarket. ~~evaluated~~If we ~~for~~are ~~impairment~~unable ~~by applying~~to amaintain ~~fair-value-based~~our ~~test~~projected atlevels ~~least~~of ~~annually~~cash orflows iffor ~~events~~this ~~or circumstances~~market, ~~change~~we ~~that~~ may ~~indicate~~need ~~the~~to ~~fair~~write ~~value~~off of a ~~reporting~~portion ~~unit~~or ~~is below~~all ~~its~~of ~~book~~these ~~value. Intangible~~ assets ~~with~~which ~~finite~~would ~~useful~~result ~~lives~~in ~~continue~~a toreduction ~~be amortized~~of ~~over~~our ~~their~~assets ~~useful~~and ~~lives~~stockholders equity. ~~The~~Furthermore, ~~Company~~under ~~utilizes~~SFAS anNo. 144, ~~independent third-party~~"Accounting ~~valuation~~for ~~firm to determine~~ the ~~fair-value~~Impairment ofor ~~its~~Disposal ~~individual reporting units. The valuation methodologies considered include analyses~~ of ~~discounted~~Long-Lived ~~cash flows at the reporting unit level~~Assets," ~~publicly traded companies multiples within~~ the ~~temporary staffing~~Company ~~industry~~is ~~and~~required ~~historical control premiums paid by acquirers purchasing companies similar~~ to ~~Westaff. As~~assess ~~a result of~~ the ~~initial~~recoverability ~~impairment tests upon adoption~~ of ~~SFAS~~its long-lived ~~No.~~assets ~~142,~~(such ~~the Company~~as ~~recorded~~its aproperty ~~non-cash~~and ~~charge~~equipment) ofwhenever ~~$0.7~~events ~~million~~and tocircumstances ~~reduce~~indicate the carrying value of ~~goodwill~~an inasset ~~its~~or ~~Australia~~asset ~~operations. This~~group ~~charge~~may isnot ~~reflected~~be asrecoverable afrom ~~cumulative~~estimated ~~effect~~cash flows ofexpected ato ~~change~~result ~~in accounting~~from ~~principle~~its inuse ~~the~~and ~~Company’s~~eventual ~~consolidated~~disposition. ~~statement~~If ofwe ~~operations~~are ~~for the~~unable ~~fiscal~~to ~~year~~generate ~~ended~~adequate ~~November~~cash 1,flows ~~2003. The~~we ~~Company~~may ~~performs~~need ~~its~~to ~~annual~~write ~~impairment~~off ~~tests~~a inportion ~~the fourth quarter~~ of ~~each~~our ~~fiscal~~long-lived ~~year~~assets.

1721

~~Income Taxes. The~~Table ~~Company records income taxes using an asset and liability approach that requires the recognition~~ of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. A valuation allowance is established when management determines it is more likely than not that a deferred tax asset is not realizable in the foreseeable future. At October 30, 2004, substantially all of the Company’s net deferred tax assets were offset with a valuation allowance of $18.7 million and at November 1, 2003, 100% of the Company’s net deferred tax assets were offset with a valuation allowance of $19.4 million. The allowances were recorded because the Company assessed it unlikely that these deferred taxes would be realized in future years. If, in future assessments of the realizability of the deferred tax assets, the Company determines that a reduction in the allowance is required, both the valuation allowance and income tax expense would be reduced in the period of such determination.Contents

~~Contingencies and~~ Improper ~~Litigation. In~~disclosure ~~the ordinary course~~ of ~~its~~employee ~~business,~~and ~~the~~customer ~~Company~~data iscould ~~periodically~~result ~~threatened with or named as a defendant~~ in ~~various lawsuits, claims and pending actions. The principal risks that the Company insures against are workers’ compensation, general~~ liability, ~~automobile liability, property damage, alternative staffing errors~~ and ~~omissions,~~harm ~~fiduciary~~to ~~liability~~our ~~and fidelity losses~~reputation. If a potential loss arising from these lawsuits, claims and actions is probable and reasonably estimable, the Company records the estimated liability based on circumstances and assumptions existing at the time. Whereas management believes the recorded liabilities are adequate, there are inherent limitations in the estimation process whereby future actual losses may exceed projected losses, which could materially adversely affect the financial condition of the Company.

~~Executive~~ Our ~~Overview~~business involves the use, storage and transmission of information about our employees and their customers. It is possible that our security controls over personal data and other practices we and our third party service providers follow may not prevent the improper access to or disclosure of personally identifiable information. Such disclosure could harm our reputation and subject us to liability under our contracts and laws that protect personal data, resulting in increased costs or loss of revenue. Further, data privacy is subject to frequently changing rules and regulations. Our failure to adhere to or successfully implement processes in response to changing regulatory requirements in this area could result in legal liability or impairment to our reputation in the marketplace.

~~Fiscal~~ ~~2004 marks the Company’s~~ ~~highest~~ ITEM ~~revenue since fiscal 2000, both for the fourth fiscal quarter and for the fiscal year~~1B. ~~The~~ UNRESOLVED ~~Company~~STAFF ~~is also very pleased to report a return to profitability during fiscal 2004, with annual earnings per share of $0~~COMMENTS.~~22 and fourth quarter earnings per share of $0.15.~~

~~Domestic revenue grew steadily quarter-over-quarter during the year to conclude at a 10~~ None.1% annual increase over fiscal 2003. International revenue increased 27.5% for the year, aided by favorable currency exchange rates. On a constant currency basis, international revenue increased 12.1%. As the Company has been reporting, in recent years gross margins for the staffing industry have been negatively impacted by higher workers’ compensation and state unemployment costs, as well as continued competitive pricing pressures. The Company is encouraged, however, by the increased demand for temporary staffing services throughout fiscal 2004. This, and the Company’s continued focus on growing direct hire revenue, leads the Company to believe that the margin erosion is slowing and a turn around in margins may be forthcoming in the foreseeable future, but there can be no assurances that this will occur.

~~The~~ ~~Company closed fiscal 2004 with~~ an ITEM ~~improved financial position and ample borrowing capacity to meet expected working capital requirements for fiscal 2005~~2. ~~The Company’s strong operating performance enabled it to negotiate amendments to its credit facilities that considerably increased its borrowing capacity~~ PROPERTIES. The Company was also able to successfully negotiate with its insurance carrier the return of $13.8 million in cash that was being held as collateral for its 2004 workers’ compensation obligations in exchange for $9.8 million in letters of credit. In addition, the Company was able to reduce its outstanding surety bond from $9.8 million to $3.8 million, and anticipates elimination of the surety bond completely in the third fiscal quarter of 2005.

~~The~~ We ~~Company~~lease ~~believes~~three itadjacent isbuildings ~~well positioned~~in Walnut Creek, ~~both~~California, ~~strategically~~consisting ~~and~~of ~~financially~~approximately 50,000 tosquare ~~take~~feet, ~~advantage~~which ofhouse ~~a more~~our ~~stable~~executive and ~~growing~~administrative ~~economy~~offices. asThe itlease ~~moves~~is ~~into~~for ~~fiscal~~a ~~2005~~term of seven years which commenced on December 12, 2002.

~~Discontinued~~ In addition, ~~Operations~~we lease space for our Company-owned offices in the United States and abroad. The majority of the leases are for fixed terms of one to five years and contain customary terms and conditions. Management believes that its facilities are adequate for its current needs and does not anticipate any difficulty replacing such facilities or locating additional facilities, if needed.

~~During~~ ~~fiscal 1999, the Company~~ ~~discontinued~~ ITEM ~~its medical business (Western Medical) principally through a sale to Intrepid U~~3.~~S.A.~~ LEGAL ~~Under the terms of the sale, the Company retained the majority of accounts receivable, including trade and Medicare accounts receivable balances~~PROCEEDINGS.

~~Prior~~ In tothe ~~fiscal~~ordinary ~~2003~~course of our business, ~~the~~we ~~Company appealed~~are ~~Western~~periodically ~~Medical’s~~threatened ~~1996~~with ~~Medicare~~or ~~cost~~named ~~report~~as ~~settlement~~a defendant in various lawsuits. ~~During~~ ~~the~~The ~~first~~principal risks ~~quarter~~that ofwe ~~fiscal~~insure ~~2003~~against, assubject ~~a result~~to ofand upon the ~~favorable~~terms ~~appeal~~and ~~settlement~~conditions of our various insurance policies, ~~the~~are ~~Company~~workers' ~~recognized~~compensation, ~~$316~~general liability,~~000~~ ofautomobile liability, property damage, ~~income~~alternative ~~from~~staffing ~~discontinued~~errors ~~operations~~and omissions, fiduciary liability and fidelity losses.

18 During the fourth quarter of fiscal 2005, we were notified by the California Employment Development Department ("EDD") that our domestic operating subsidiaries unemployment tax rates would be increased retroactively for both calendar years 2005 and 2004. The total assessment by the EDD of additional unemployment taxes for both years, net of applied overpayments, is approximately $1.5 million including interest at applicable statutory rates. Management believes that it has properly calculated its unemployment insurance tax and is in compliance with all applicable laws and regulations. The Company has timely appealed the ruling by the EDD and is working with the outside counsel to resolve this matter. Additionally, management contends that the notification by the EDD of the 2004 assessment was not timely and holds the position that the assessment is procedurally invalid. Consequently, at November 1, 2008, the Company has no reserve for the 2004 assessment and has accrued the assessment for 2005 of $0.3 million, including interest and net of an applied overpayment. Although we believe that we have properly calculated our unemployment insurance tax and are in compliance with all applicable laws and regulations, there can be no assurances this will be settled in our favor. Management believes the Company is well positioned to defend against the un-accrued portion and the ultimate resolution of this matter will not have a material adverse effect on the Company's consolidated financial statements.

~~During~~ ~~the third quarter of fiscal 2004, the Company~~ ~~resolved~~ ITEM ~~certain significant legal and liability claims and evaluated future risks associated with remaining pending claims~~4. As SUBMISSION aOF ~~result,~~MATTERS ~~$150,000~~TO ofA ~~income~~VOTE ~~from~~OF ~~discontinued~~SECURITY ~~operations was recorded for the fiscal year ended October 30, 2004~~HOLDERS.

~~Results~~ None. ~~of Continuing Operations~~

~~The table below sets forth, for the three most recent fiscal years, certain results of continuing operations data as a percentage of revenues.~~ 22

	Fiscal Year
	2004		2003		2002
Revenue	100.0	%	100.0	%	100.0	%
Costs of services	83.1	%	82.9	%	81.5	%
Gross profit	16.9	%	17.1	%	18.5	%
Franchise agents’ share of gross profit	3.1	%	3.1	%	3.0	%
Selling and administrative expenses	12.0	%	13.3	%	14.7	%
Depreciation and amortization	0.7	%	1.0	%	1.3	%
Arbitration expenses	0.2	%	0.2	%	(0.1	)%
Restructuring charges	—		—		0.4	%
Operating income (loss) from continuing operations	0.9	%	(0.5	)%	(0.7	)%
Interest expense	0.4	%	0.3	%	0.5	%
Interest income		*		*	(0.1	)%
Income (loss) from continuing operations before income taxes and cumulative effect of change in accounting principle	0.6	%	(0.8	)%	(1.1	)%
Income tax provision (benefit)		*	0.1	%	(0.8	)%
Income (loss) from continuing operations before cumulative effect of change in accounting principle	0.6	%	(0.9	)%	(0.3	)%

Table of Contents

* less ~~than~~ ~~0.1%~~ PART II

~~Fiscal~~ ~~2004~~ ITEM ~~compared~~5. MARKET toFOR ~~Fiscal 2003~~REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

~~Revenue increased~~ Market ~~$71~~Information.2 Our ~~million~~Common orStock ~~13.4%~~has been included for ~~fiscal~~quotation ~~2004~~in the NASDAQ Global Market, asformerly ~~compared~~the toNASDAQ ~~fiscal~~National Market ~~2003. Domestic~~("NASDAQ") under ~~revenue~~the ~~increased~~symbol ~~10.1%~~"WSTF" since April 30, ~~while~~ ~~international~~1996. ~~revenue~~The following table sets forth, ~~before~~for ~~discounting~~the periods indicated, the ~~effects~~high and low closing sales prices of ~~favorable exchange~~the ~~rates,~~Common ~~increased~~Stock ~~27.5%~~as ~~over~~reported ~~fiscal~~on ~~2003~~NASDAQ.

The domestic revenue increase is the result of an increase in billed hours of 8.4% coupled with a modest increase in average bill rates of 1.5%. The growth in domestic billed hours reflects new business as well as increases in volume with various existing customers. Excluding the effect of exchange rate fluctuations, international revenue increased 12.1%, with an increase of 9.9% in billed hours and, on a constant currency basis, an increase in average bill rates of 1.9%.



Fiscal 2007:
	First Quarter ended January 20, 2007	5.73	4.15
	Second Quarter ended April 14, 2007	5.91	4.74
	Third Quarter ended July 7, 2007	5.71	4.24
	Fourth Quarter ended November 3, 2007	5.18	3.47
Fiscal 2008:
	First Quarter ended January 26, 2008	4.23	3.52
	Second Quarter ended April 19, 2008	4.11	2.00
	Third Quarter ended July 12, 2008	2.15	1.02
	Fourth Quarter ended November 1, 2008	1.16	0.23
Fiscal 2009:
	First Quarter ended January 24, 2009	0.92	0.36

~~Fiscal~~ On ~~2004 consecutive quarterly revenue increases for the Company were 3.9%~~February 11, ~~12.7%~~2009, ~~21.4%~~ ~~and 14.9%, respectively, for~~ the ~~first,~~closing ~~second,~~reported ~~third~~sales ~~and~~price ~~fourth~~on ~~quarters as~~NASDAQ ~~compared~~for toour ~~fiscal~~Common ~~2003. For~~Stock ~~the first~~was ~~two four-week accounting periods in fiscal 2005, consolidated revenue for the Company increased 14~~$1.0%12 asper ~~compared to the same periods in fiscal 2004~~share. ~~Based~~ onAs ~~the Company’s view~~ of ~~industry trends~~February 11, as2009, ~~well~~there aswere ~~recent~~approximately ~~trends~~61 ~~in temporary staffing as reported by the Bureau~~stockholders of ~~Labor Statistics, the Company expects these revenue increases to moderate during fiscal 2005~~record.

~~Costs of~~ Sales ~~services include hourly wages~~ of ~~temporary~~Unregistered ~~employees, employer payroll taxes, state unemployment and workers’ compensation insurance and other employee-related costs~~Securities. ~~Costs~~ During ~~of services increased $59.8 million, or 13.6%, in~~ fiscal ~~2004~~2008, aswe ~~compared~~did ~~to fiscal~~not ~~2003. Gross~~sell ~~margin~~any ~~declined~~unregistered ~~from 17~~securities.1% for fiscal 2003 to 16.9% for fiscal 2004. The margin decline reflects the industry-wide strain on domestic margins due to competitive pressures and higher relative state unemployment and workers’ compensation costs. As a percent of direct labor, domestic state unemployment rates increased 0.5 percentage points and domestic workers’ compensation rates increased 0.3 percentage points over the fiscal 2003 rates. International gross margins increased from 20.9% for fiscal 2003 to 21.1% for fiscal 2004, with margin improvements in Australia, Norway and the United Kingdom driven largely by increases in direct hire fees. It is currently anticipated that gross margins will remain relatively flat, or increase slightly, in fiscal 2005 as a result of higher direct hire fees and increases in bill rates relative to costs partially offset by expected increases in domestic state unemployment insurance rates and increased workers’ compensation costs.

19 Issuer Purchases of Equity Securities. None during the fourth quarter of fiscal 2008.

~~The Company’s workers’ compensation costs tend to vary depending upon the mix of business between clerical/administrative and light industrial staffing~~ Dividends. ~~Unexpected~~ We ~~adverse~~did ~~development of open claims and increases in the Company’s incurred but~~ not ~~reported~~declare ~~(IBNR)~~or ~~claims~~pay ~~can~~dividends ~~also significantly~~during ~~affect~~fiscal the level of accruals needed to cover workers’ compensation costs. The Company reviews interim and annual actuarial estimates and monitors claim activity to ensure that accruals remain appropriate in light of loss trends. However2006, ~~unanticipated~~2007 ~~adverse~~or ~~loss development~~fiscal ~~trends can result in a need for additional charges to be recorded~~2008. ~~Based~~ ~~on the results of its annual actuarial valuation~~Further, ~~the~~our ~~Company~~current ~~recorded~~credit afacilities ~~charge of $1.7 million in~~prohibit ~~the~~payment ~~fourth quarter~~ of ~~fiscal 2004 to increase its domestic workers’~~ compensation reserves. The fourth quarter of fiscal 2003 included a similar charge of $1.8 million. Approximately $1.4 million of the fiscal 2004 charge related to adverse loss development for policy years prior to 2004dividends, ~~with approximately~~so ~~$0.8~~we ~~million~~are of that amount relating to policy years 2000 and earlier. The Company aggressively works to close out claims associated with these earlier years; however, many older claims remain problematic. Accordingly, the Company strengthened its overall workers’ compensation reserves to take into account these negative historical trends. However, there can be no assurance that the Company’s efforts to control workers’ compensation costs will be effective or that loss development trends will not ~~require~~currently ~~additional~~contemplating ~~increases~~a individend ~~workers’ compensation accruals in future periods~~declaration.

~~Franchise agents’~~ Securities ~~share~~Authorized ofUnder ~~gross~~Equity ~~profit represents the net distribution paid to franchise agents based either on a percentage of the sales or gross profit generated by the franchise agents’ operations~~Plans. As The ~~a percentage~~following oftable ~~consolidated~~sets ~~revenue,~~forth ~~franchise~~securities ~~agents’~~authorized ~~share of gross profit was 3.1%~~ for ~~both~~issuance ~~fiscal~~under ~~2004~~equity ~~and fiscal 2003.~~ compensation Inplans ~~the~~as ~~first quarter~~ of ~~fiscal 2005~~ November 1, ~~the Company sold one of its franchise agents’ operations back to the franchise agent~~2008. ~~These~~ ~~sold~~All ~~operations~~applicable ~~comprised~~equity ~~3.2%~~compensation ofplans ~~total domestic~~were ~~revenue~~previously ~~for~~approved ~~the~~by ~~fiscal~~security ~~year ended October 30, 2004, and represented four of the Company’s 68 franchise agent offices in operation on October 30, 2004~~holders.

~~Selling and~~ ~~administrative~~EQUITY ~~expenses~~COMPENSATION ~~increased~~PLAN $1.9 million, or 2.7% for the 2004 fiscal year as compared fiscal 2003 primarily due to higher exchange rates used to translate international local currency expenses into U.S. dollars. As a percentage of revenue these expenses decreased from 13.3% to 12.0% largely as a result of the Company generating revenue increases of 13.4% in the current year while limiting selling and administrative expenditure increases to only 2.7%. Selling and administrative expenses for the 2004 fiscal year include a $0.7 million gain on the sale of the Company’s remaining unoccupied corporate headquarters’ building.INFORMATION

Depreciation and amortization decreased $1.0 million or 18.6%, primarily due to reduced capital expenditures, assets becoming fully depreciated and the sales of the Company’s corporate headquarters’ buildings.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

	(a)		(b)		(c)
Equity compensation plans approved by security holders		584,000	$	2.47		973,000

During the fourth quarter of fiscal 2004, the Company received an unfavorable arbitration ruling relating to a contract dispute with one of its vendors. Total costs associated with this claim, including the arbitration award plus related attorneys’ fees, were $1.1 million for fiscal 2004. Fiscal 2003 included a charge of $1.0 million for an unfavorable California appellate court decision, which reversed a superior court ruling regarding a binding arbitration award issued in January of 2002.23

~~Interest expense~~Table ~~increased $0.4 million for fiscal 2004 as compared to fiscal 2003 primarily as a result~~ of higher average borrowings outstanding during the year combined with higher average interest rates. Additionally, fiscal 2004 interest expense includes $0.1 million of interest expense related to the unfavorable arbitration ruling discussed above. It is currently anticipated that average interest rates will continue to rise during fiscal 2005.Contents

~~Effective~~ ~~November 3,~~ ~~2002,~~ ITEM ~~the Company adopted Statement of Financial Accounting Standards (SFAS) No~~6. SELECTED ~~142~~FINANCIAL ~~“Goodwill and Other Intangible Assets”~~DATA. SFAS No. 142 provides that goodwill and other intangible assets with indefinite lives are no longer amortized, but rather are evaluated for impairment by applying a fair-value based test. During fiscal 2003, the Company performed tests for impairment in accordance with the new standard. In the initial test under the transitional provisions of SFAS No. 142, the Company determined that an impairment of $0.7 million existed in its Australia reporting unit. In accordance with SFAS No. 142, the impairment was classified as a cumulative effect of a change in accounting principle and resulted in a restatement of the Company’s net loss for the first fiscal quarter of 2003. The Company performed its annual impairment valuations in the fourth quarters of fiscal 2004 and 2003. No additional impairments were identified.

Fiscal 2003 compared to Fiscal 2002

		Fiscal Year

		2008(1)/(2)/(5)			2007(3)/(5)			2006(5)		2005(4)/(5)		2004(5)
		(Amounts in Thousands, Except Per Share Amounts and Number of Offices)
Revenue		$	324,495		$	439,822		$	482,153	$	470,971	$	470,414
Operating income (loss) from continuing operations(a)			(24,901	)		(5,500	)		3,377		3,174		1,273
Income (loss) from continuing operations(b)			(47,050	)		(4,307	)		1,421		17,727		(468	)
Earnings (loss) per share—continuing operations
	Basic	$	(2.82	)	$	(0.26	)	$	0.09	$	1.09	$	(0.03	)
	Diluted	$	(2.82	)	$	(0.26	)	$	0.09	$	1.08	$	(0.03	)
Balance Sheet data (at end of period):
Working capital		$	18,477		$	39,191		$	41,892	$	40,626	$	33,604
Total assets			74,991			141,292			139,265		138,782		122,408
Short-term debt and capital lease obligations			4,737			9,381			7,135		8,911		16,199
Long-term debt and capital lease obligations (excluding current portion)			165			752			833		3,174		2,125
Stockholders' equity		$	18,619		$	65,895		$	66,009	$	61,621	$	39,847
Other operating data:
Number of offices (at end of period)
Company-owned			113			141			180		175		187
Franchise agent			61			63			58		63		68
Licensed			0			0			1		1		1

	Total		174			204			239		239		256

(a): Amounts exclude intercompany royalty income.
(b): Amounts exclude intercompany royalty income and interest income.
(1): Fiscal 2008 includes $11,540 of impairment of goodwill and intangibles ($0.69 per diluted share).
(2): Fiscal 2008 includes $29,852 due to the establishment of valuation allowance for deferred tax assets ($1.79 per diluted share).
(3): Fiscal 2007 includes $3,111 of restructuring expense ($0.19 per diluted share).
(4): Fiscal 2005 includes the reversal of $16,681 of domestic deferred tax valuation allowance ($1.02 per diluted share).
(5): Results of operations for United Kingdom, Australia, and New Zealand subsidiaires have been reclassified as discontinued operations for all years presented. (See Note 5 under Item. 15—Notes to the Consolidated Financial Statements).

Total revenue increased $15.0 million, or 2.9% for fiscal 2003 as compared to fiscal 2002, primarily due to the effect of favorable exchange rates on international revenue. Increases in revenue as a result of slight increases in average bill rates were substantially offset by decreased bill hours.24

20 Table of Contents

~~Domestic revenue~~ ~~declined 0.3%. The decline was~~ ~~largely~~ ITEM ~~attributable to a reduction in sales for certain high volume, low margin government business, as well decreased demand for staffing services due to the lingering effects of the U~~7. MANAGEMENT'S. ~~economic~~DISCUSSION ~~downturn~~AND ~~and~~ANALYSIS ~~competitive~~OF ~~pricing pressures~~FINANCIAL onCONDITION ~~bill~~AND ~~rates.~~RESULTS ~~The~~OF ~~revenue decline also reflects the Company’s closure or consolidation of underperforming branches~~OPERATIONS. International revenue increased 18.5% over fiscal 2002. Excluding the effect of exchange rate fluctuations, international revenue in fiscal 2003 increased 4.0% with increases of 11.3% in the United Kingdom and 7.4% in Australia offset by net declines in the other international operations.

~~Costs of~~ The ~~services~~following ~~increased~~discussion ~~$19.9~~is ~~million,~~intended orto ~~4.7%,~~assist in ~~fiscal~~the ~~2003~~understanding asand ~~compared~~assessment of significant changes and trends related to the ~~fiscal~~results ~~2002. Gross~~of ~~margin~~operations ~~declined~~and ~~from 18~~financial condition of Westaff, Inc.5%, intogether ~~fiscal~~with ~~2002~~its toconsolidated 17subsidiaries.1% inThis ~~fiscal~~discussion ~~2003~~and ~~primarily~~analysis ~~due~~should tobe ~~decreases~~read in ~~the average~~conjunction ~~markup~~with ofour ~~bill~~consolidated financial ~~rates~~statements ~~over~~and ~~pay~~notes ~~rates,~~thereto ~~due~~included ~~largely~~elsewhere toin ~~the~~this ~~highly competitive~~Annual ~~environment~~Report ~~surrounding~~on Form 10-K for the ~~temporary~~fiscal ~~staffing~~year ~~industry~~ended ~~during fiscal~~November 1, ~~2003~~2008. ~~The~~ ~~decline~~Our infiscal ~~gross~~year ~~margin was~~ends ~~also~~on ~~caused~~the bySaturday nearest ~~increased~~the ~~workers’~~end ~~compensation~~of ~~costs~~October and ~~higher~~consists ~~state unemployment~~of ~~insurance~~either ~~costs,~~52 ~~most~~or ~~notably~~53 weeks. inThe ~~the~~fiscal ~~states~~year ofended ~~California~~November 1, ~~Illinois~~ ~~and~~2008 ~~Texas~~consisted ~~which~~of ~~comprised~~52 weeks ~~approximately~~while ~~26.0%~~the offiscal ~~total~~year ~~domestic~~ended November 3, 2007 ~~temporary~~consisted ~~payroll~~of 53 weeks.

~~Workers’~~ References ~~compensation~~in ~~costs~~this ~~rose~~Annual toReport ~~$18.6~~on Form ~~million,~~10-K orto ~~5.0%~~the of"Company," ~~direct~~"Westaff," ~~labor for fiscal 2003~~"we," ~~up from $14.8 million~~"our," orand ~~4.1%~~"us" ofrefer ~~direct~~to ~~labor for fiscal 2002~~Westaff, Inc. ~~Continued~~, ~~upward~~its ~~trends~~predecessor inand ~~the Company’s~~their ~~actuarially estimated ultimate costs for all open policy years~~respective ~~resulted in an increase in the Company’s workers’ compensation accruals for these estimated costs. Although the frequency of the Company’s claims decreased~~subsidiaries, ~~rising~~unless ~~medical costs and~~ the ~~adverse~~ ~~development~~context ofotherwise ~~several open claims resulted in the need for increased accruals in fiscal 2003~~requires.

~~Franchise agents’~~ ~~share of gross profit increased $1.2 million, or 7.7%, for fiscal~~ ~~2003~~ ~~as compared to fiscal 2002. As a~~ ~~percentage~~ Cautionary ofStatement ~~total~~Regarding revenue, franchise agents’ share of gross profit was 3.1% for fiscal 2003 and 3.0% for fiscal 2002. In the fourth quarter of fiscal 2002, the Company sold its operations in Hawaii and these were converted to franchise offices. During the fourth quarter of fiscal 2003, one licensee’s operations converted to the franchise agent program and two additional companyForward-~~owned~~Looking ~~branches were sold and converted to franchise offices.~~Statements

~~Selling~~ This Annual Report on Form 10-K contains forward-looking statements within the "safe harbor" provisions of the ~~and~~Private ~~administrative~~Securities ~~expenses~~Litigation ~~decreased~~Reform $5Act of 1995.3 Except for statements that are purely historical, all statements included in this Annual Report on Form ~~million~~10-K are forward-looking statements, orand 7readers are cautioned not to place undue reliance on those statements.0% ~~for~~You ~~fiscal~~can also identify these statements by the fact that they do not relate strictly to current facts and use ~~2003~~words such as ~~compared~~"will," to"anticipate," ~~fiscal~~"estimate," ~~2002~~"expect," "project," "intend," "plan," "believe," "target," "forecast," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. The ~~decrease~~forward-looking statements include, ~~partially~~without ~~offset~~limitation byour ~~higher~~ability to achieve better people and process efficiencies as a result of changes to our ~~exchange~~operational ~~rates~~structure, ~~for~~our ability to enhance the ~~international~~profitability ~~operations~~of our accounts through hiring industry-proven placement consultants, ~~reflects~~and ~~reduced~~our ability to reduce selling and administrative costs. ~~through~~These ~~personnel~~statements ~~reductions,~~are ~~office~~only ~~closures~~predictions, and ~~controlled~~actual ~~spending~~events or results may differ materially. As aThe ~~percent~~forward-looking statements provide our current expectations or forecasts of ~~revenue,~~future ~~selling~~events. These forward-looking statements are made based on information available as of the date of this report and are subject to a number of risks and uncertainties that could cause the Company's actual results ~~administrative~~and ~~expenses~~financial ~~decreased~~position to differ materially from 14those expressed or implied in forward-looking statements and to be below the expectations of public market analysts and investors.7% Investors should bear this in ~~fiscal~~mind ~~2002~~as they consider forward-looking statements. These risks and uncertainties include, but are not limited to, 13those discussed in Part I, Item 1A, "Risk Factors" and elsewhere in this Annual Report on Form 10-K.3% ~~fiscal~~You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such ~~2003~~list to be a complete set of all potential risks or uncertainties faced by us.

The ~~decrease~~Company inundertakes ~~depreciation~~no ~~and~~obligation ~~amortization~~to ~~primarily~~publicly ~~reflects~~release the ~~cessation~~results of ~~goodwill~~ ~~amortization~~any ~~under~~revisions ~~SFAS~~to ~~No.~~these ~~142~~forward-looking asstatements ~~noted~~to inreflect ~~“Goodwill”~~events ~~under~~or ~~“Critical~~circumstances after the date hereof or to ~~Accounting~~reflect ~~Policies”~~the ~~above~~occurrence of unanticipated events, except as required by applicable laws and regulations.

~~In February~~ ~~2002, a favorable arbitration ruling reduced a January 2002 adverse~~ ~~arbitration~~ ~~award and the Company determined that $0.7 million of the~~ recorded liabilities were no longer needed. Subsequent to that ruling, the claimants filed a motion with the superior court to correct and confirm the January arbitration ruling. The motion was denied, and the claimants then filed an appeal of the denial. The appellate court overturned the superior court ruling and, as a result, the Company ~~recorded a charge to earnings in the fourth quarter of fiscal 2003 for $950,000.~~Overview

~~Interest expense~~ We ~~decreased~~provide ~~$0.6 million,~~staffing orservices ~~24.8%,~~primarily ~~for~~in ~~fiscal~~suburban ~~2003~~and rural markets ("secondary markets"), as ~~compared~~well toas in the downtown areas of certain ~~fiscal~~major ~~2002~~urban ~~primarily~~centers ~~due~~("primary tomarkets") ~~lower~~in ~~debt~~the ~~levels~~United States ("US") through our network of Company-owned and franchise agent offices. On March 31, 2008, the Company sold its former United ~~Interest~~Kingdom ~~income~~operations ~~decreased~~and $0related subsidiary.~~2 million~~ orOn ~~51.9%~~November 10, ~~during~~2008, the ~~same period~~Company assold its Australia and New Zealand subsidiaries pursuant to a ~~result~~definitive agreement that was previously entered into on September 27, 2008. The sale was completed in the first quarter of ~~reduced~~fiscal ~~cash~~year ~~levels~~2009 and is described in Note 5 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

The provision for income taxes for fiscal 2003 consisted of international income tax provisions of $0.5 million partially offset by certain domestic net tax benefits. At November 1, 2003, the Company maintained valuation allowances equivalent to 100% of its outstanding deferred tax assets, which amounted to $19.4 million.25

~~Liquidity~~Table ~~and~~of ~~Capital Resources~~Contents

~~The~~ We ~~Company~~offer ~~requires~~a ~~significant~~wide ~~amounts~~range of ~~working~~staffing ~~capital~~solutions, toincluding ~~operate~~permanent ~~its~~placement, ~~business~~ replacement, supplemental and on-site temporary programs to ~~pay~~businesses ~~expenses~~and ~~relating~~government toagencies. Our ~~employment~~primary offocus ~~temporary~~is ~~employees~~on recruiting and placing clerical/administrative and light industrial personnel. ~~The~~ ~~Company’s~~We ~~traditional~~have ~~use~~60 years of ~~cash~~experience isin ~~for~~the staffing industry and currently we operate through a ~~financing~~network of ~~accounts~~157 ~~receivable,~~offices ~~particularly~~operated ~~during~~domestically ~~periods~~in 42 states. 62% of ~~economic upswings~~these ~~and~~offices ~~growth~~were Company-owned and ~~during~~operated ~~periods~~and ~~where~~38% ~~sales~~were ~~are~~operated ~~seasonally~~by ~~high~~franchise agents. ~~Temporary~~ ~~personnel~~Our ~~are~~corporate ~~generally~~headquarters ~~paid~~provides ~~on a~~support ~~weekly~~services ~~basis~~to ~~while~~the ~~payments~~field ~~from~~offices, ~~customers~~in ~~are~~areas ~~generally~~such ~~received~~as 30marketing, ~~to 60 days~~human ~~after~~resources, ~~billing~~risk management, legal, strategic sales, accounting, and information technology.

~~The~~ To ~~Company~~complement ~~finances~~our ~~its~~service ~~operations~~offerings, ~~primarily~~which ~~through~~include ~~cash~~temporary ~~generated~~staffing, bypermanent ~~its operating~~placement, ~~activities~~temp-to-hire services, payroll services and ~~borrowings~~on-location programs, ~~under~~we ~~its~~utilize ~~revolving~~a ~~credit~~number ~~facilities. Net~~of ~~cash~~tools ~~provided~~focused byon ~~operating~~increasing ~~activities~~our ~~was $13~~pool of qualified candidates.8 ~~million~~Additionally, ~~for~~we ~~the~~employ ~~fiscal~~a ~~year~~robust, ~~ended~~targeted ~~October~~marketing 30program as well as a consultative sales process, ~~2004~~and both ~~compared~~of these tools assist in our sales efforts to ~~net~~new ~~cash used~~and byexisting ~~operating~~customers. ~~activities~~Management believes all of ~~$4.9~~these ~~million~~tools ~~for~~enhance ~~the~~our ~~fiscal~~competitive ~~year~~edge ~~ended~~and ~~November~~position us to effectively pursue high growth 1,market niches.

21 The staffing industry is highly competitive with generally few barriers to entry, which contributes to significant price competition as competitors attempt to maintain or gain market share. On a prospective basis, we believe our focus on increasing clerical and administrative sales, improving results from underperforming field offices and prudently managing costs will permit us to improve our operating margins.

~~2003. The~~ Our business ~~increase~~tends into ~~cash~~be ~~provided~~seasonal, bywith ~~operating activities~~sales ~~during~~for the first fiscal ~~2004~~quarter istypically ~~primarily~~lower ~~due~~than toother ~~positive~~fiscal ~~net~~quarters. ~~income~~This ~~combined~~decrease results from the traditional holidays that are ~~with~~included awithin ~~more~~the ~~beneficial~~first ~~funding~~fiscal ~~program~~quarter, as well as other customer closures for ~~its~~the ~~2004~~holiday ~~workers’~~season. ~~compensation~~These closures and post-holiday season declines in business activity negatively impact ~~obligations~~orders received from customers, ~~whereby~~particularly in the ~~Company~~light ~~was~~industrial ~~able~~sector. toDemand ~~satisfy~~for ~~its~~staffing ~~collateral requirements~~services ~~through~~historically ~~issuance~~tends ofto ~~letters~~grow ofduring ~~credit~~the ~~rather~~second ~~than~~and ~~cash. These~~third ~~increases~~fiscal ~~were~~quarters ~~partially~~and ~~offset~~has byhistorically ~~increased~~been ~~trade~~greatest ~~accounts~~during ~~receivable~~the asfourth afiscal ~~result~~quarter ofdue largely to customers' planning and business cycles. The recent economic downturn in fiscal ~~2004’s~~2008 ~~revenue~~has negatively impacted this expected historical growth, reducing demand for temporary employees and adversely affecting our sales. In ~~fiscal~~We ~~2003,~~anticipate ~~the~~that ~~Company~~we ~~was required~~may continue to ~~fully~~experience ~~fund~~weaker ~~its~~demand ~~2003~~for ~~workers’~~temporary ~~compensation~~employees ~~obligations~~throughout ~~through~~fiscal ~~cash deposits~~2009.

~~Cash~~ Domestically, ~~used~~payroll ~~for~~taxes ~~capital~~and ~~expenditures,~~related ~~which~~benefits ~~are~~fluctuate ~~primarily~~with ~~for~~the ~~management~~level ~~information systems~~of ~~initiatives,~~payroll ~~other software~~costs, ~~computers~~but ~~and~~tend ~~peripherals,~~to ~~and~~represent ~~office furniture~~a ~~and~~smaller ~~equipment,~~percentage ~~totaled~~of ~~$3.4~~revenue ~~million~~and ~~for~~payroll ~~fiscal~~costs ~~2004. The~~later ~~Company~~in ~~continues~~our tofiscal year ~~invest~~as ~~in enhancements~~federal and ~~upgrades~~state tostatutory ~~its~~wage ~~computer-based~~limits ~~technologies. On~~for ~~August~~unemployment ~~19,~~are ~~2004,~~exceeded ~~the~~on ~~Company entered into~~ a ~~license~~per ~~agreement~~employee ~~for~~basis. aWorkers' ~~new~~compensation expense, ~~back~~which ~~office~~is ~~system. Capital~~incurred ~~expenditures~~domestically, ~~for~~generally ~~this~~varies ~~system~~with ~~were approximately~~both ~~$1.7 million during~~ the ~~fourth~~frequency ~~quarter~~and severity of ~~fiscal~~workplace ~~2004~~injury ~~and~~claims ~~are expected~~reported toduring ~~range~~a ~~from $4~~quarter.0 ~~million~~Adverse toand ~~$5.0~~positive ~~million~~loss ~~during~~development ~~fiscal~~of ~~year~~prior ~~2005. The~~period ~~Company’s~~claims ~~credit~~during ~~agreement currently~~subsequent ~~allows~~quarters upmay toalso acontribute ~~maximum~~to ofthe ~~$6.0~~volatility ~~million~~ in ~~capital~~our ~~expenditures~~estimated ~~for fiscal~~workers' ~~2005~~compensation expense.

~~On February~~ ~~12, 2004, the Company completed the sale of its remaining unoccupied~~ ~~corporate~~ ~~headquarters’ building for cash proceeds of $1.9 million. The proceeds were used to pay down~~ ~~outstanding~~ Critical ~~borrowings~~Accounting under the Company’s revolving credit facilities. The Company has an outstanding $0.7 million irrevocable standby letter of credit as a security deposit for the December 2002 sale leaseback of the land and buildings housing its administrative offices.Policies

The ~~Company~~ ~~has~~preparation ~~generated~~of ~~cash~~our consolidated financial statements and notes thereto in ~~the~~conformity ~~past~~with ~~through~~generally ~~sales~~accepted accounting principles in the United States of ~~Company-owned~~America ~~offices~~ requires management to ~~franchise~~make ~~owners~~certain orestimates ~~sales~~and ofassumptions ~~franchise~~affecting ~~agent~~the amounts and ~~license~~disclosures ~~offices~~reported ~~back~~within tothose ~~the~~financial statements. These estimates are ~~franchise~~evaluated ~~agent~~on oran ~~license~~ongoing ~~owner. In~~basis ~~the first~~by ~~quarter~~management ofand ~~fiscal~~generally ~~2005~~affect revenue recognition, ~~the~~workers' ~~Company~~compensation ~~sold~~costs, ~~one~~collectibility of ~~its~~accounts ~~franchise~~receivable, ~~agents’ operations~~impairment ~~back~~of togoodwill ~~the~~and ~~franchise~~intangible ~~agent~~assets, contingencies, ~~for~~litigation ~~cash~~and ~~proceeds~~income ~~of $1~~taxes.0 ~~million. The~~Management's ~~Company~~estimates ~~has~~and ~~secured~~assumptions ~~the~~are ~~franchise~~based ~~agents’ note~~on ~~payable~~historical ~~obligation~~experiences toand ~~the~~other ~~bank~~factors ~~that~~believed ~~funded~~to ~~the~~be ~~purchase,~~reasonable ~~through~~under athe $1circumstances.0 Actual ~~million~~results ~~letter~~under ofcircumstances ~~credit~~and ~~that~~conditions ~~will~~different ~~decline~~than asthose ~~the~~assumed ~~note~~could ~~obligation~~result isin ~~paid~~differences by from the ~~franchise~~estimated ~~agent~~amounts in the financial statements.

On May 17, 2002, the Company entered into agreements with GE Capital, as primary agent, to provide senior secured credit facilities totaling $65.0 million, expiring in May 2007. The facilities comprise a five-year syndicated Multicurrency Credit Agreement consisting of a $50.0 million US Revolving Loan Commitment, a £2.7 million UK Revolving Loan Commitment (US dollar equivalent of approximately $4.0 million at the date of the agreement), and a $5.0 term loan (the Term Loan), which was repaid during fiscal 2003. In addition, a five-year Australian dollar facility agreement (the A$ Facility Agreement) was executed on May 16, 2002, consisting of an A$12.0 million revolving credit facility (US dollar equivalent of approximately $6.0 million at the date of the agreement).26

~~At November~~Table ~~1, 2003, and through the first quarter~~ of fiscal 2004, the Company was out of compliance with certain financial covenants under its Multicurrency Credit Agreement, including a minimum earnings before interest, taxes, depreciation and amortization (EBITDA) covenant. In February 2004 a fourth amendment to the agreement was executed which, among other things, allowed certain one time addbacks to EBITDA for the fiscal period ended November 1, 2003, which corrected the covenant defaults and reset the EBITDA and certain other covenants going forward.Contents

~~Effective~~ Management ~~July~~believes ~~31, 2004,~~ the ~~Company~~following ~~and~~critical ~~the~~accounting ~~lenders~~policies ~~executed~~reflect ~~a fifth amendment to~~ the ~~Multicurrency~~ ~~Credit~~more ~~Agreement. The amendment~~significant ~~increased~~judgments ~~the~~and ~~eligible~~estimates ~~trade~~used ~~accounts receivable the Company uses~~ in ~~calculating~~ the ~~amount~~preparation itof isour ~~allowed~~consolidated tofinancial ~~borrow, and eliminated previously~~statements. ~~in-place~~There ~~reserves~~have ~~that~~been ~~had~~no ~~reduced~~material ~~the~~changes ~~available borrowings, significantly increasing the availability compared~~ to ~~prior~~these ~~2004~~policies ~~periods. In~~during addition, the amendment lowered the range of margins on bank borrowings and outstanding irrevocable letters of credit, reset the consolidated EBITDA covenant going forward and increased allowable capital expenditures for the fiscal ~~2004 year to $5~~2008.0 ~~million.~~

~~On January~~ Revenue 5,Recognition. We ~~2005,~~record arevenue ~~sixth~~from ~~amendment~~the tosale ~~the~~of ~~Multicurrency~~temporary ~~Credit~~staffing, ~~Agreement~~permanent ~~was executed. The~~placement ~~amendment~~fees, ~~among~~and ~~other~~temp-to-hire fees ~~things,~~by ~~allows~~our aCompany-owned $1and franchised operations.4 ~~million~~Temporary ~~add-back~~staffing ~~adjustment~~revenue toand the ~~EBITDA~~related ~~covenant~~labor ~~at October~~costs ~~30,~~and ~~2004,~~payroll ~~for~~taxes ~~the~~are ~~additional~~recorded ~~workers’~~in ~~compensation~~the ~~charges~~period in which the ~~Company~~services are performed. ~~incurred~~Temp-to-hire ~~during~~fees are generally recorded when the ~~fourth~~temporary ~~quarter~~employee ofis ~~fiscal~~hired ~~2004~~directly by the customer. We reserve for billing adjustments, asprincipally ~~discussed~~related ~~above~~to inoverbillings ~~Results~~and ofclient ~~Operations~~disputes, ~~for~~made after year end that relate to services performed during the fiscal year. ~~2004~~The reserve is estimated based on historical adjustment data as a percent of sales. Permanent ~~The~~placement ~~add-back~~fees ~~will~~are ~~assist~~recorded when the ~~Company~~candidate incommences ~~maintaining~~full-time ~~its~~employment ~~minimum~~and, ~~EBITDA~~if necessary, sales allowances are established to estimate losses due to placed candidates not remaining ~~and~~employed ~~fixed~~for ~~charge~~the ~~covenants~~permanent ~~throughout~~placement ~~fiscal~~guarantee ~~2005~~period, which is typically 30 - 60 days.

At We ~~October~~account ~~30,~~for ~~2004~~our revenue and the related direct costs of our franchise arrangements in accordance with Emerging Issues Task Force ("EITF") 99-19, "Recording Revenue Gross as a Principal versus Net as an Agent." We first assess whether we act as a principal in our transactions or as an agent acting on the ~~Company~~behalf ~~had~~of ~~$22~~others.6 ~~million~~When ~~available~~we ~~under~~are the ~~credit~~principal in a transaction and ~~facilities~~have the risks and ~~was~~rewards of ownership, we record the transaction gross in ~~compliance~~our statements of operations. Where we act merely as an agent, only the net fees earned are recorded in our statements of operations. Under our traditional franchise agreement, we have the direct contractual arrangements with our customers and the contracts are binding on us. We are also the employer of all ~~covenants~~temporary employees ~~under~~in the franchise agents' operations and, as such, are obligated for the temporary employee payroll, related payroll taxes and the risk of loss for accounts receivable collection. As we retain the risks and rewards of ownership, the revenue and costs of services of our franchise agents are included in our results of operations. Each accounting period, we remit to each franchisee either a portion of the gross profit or a portion of the sales generated by its ~~credit~~office(s), based on what the relevant franchise agreement dictates. Franchise agents' sales represented 40.1%, 35.8% and ~~agreements~~35.1% of the Company's total revenue for the fiscal years 2008, 2007 and 2006, respectively. Franchise agents' share of gross profit represents the net distribution paid to the franchise agents for their services in marketing to customers, recruiting temporary employees and servicing customer accounts.

~~The~~ We ~~Company~~also ~~has~~had ana ~~unsecured~~licensing ~~subordinated~~program ~~promissory~~with ~~note~~a ~~payable~~single licensee who converted their business to ~~its~~a ~~principal~~franchise operation in fiscal 2007. Under the licensing program, the licensee had the direct ~~stockholder~~contractual ~~and~~relationships ~~Chairman~~with ofthe customers, held title to the ~~Board~~related ofcustomer ~~Directors~~receivables inand was the ~~amount~~legal employer of $2 the temporary employees.~~0 million~~ ~~with~~Accordingly, arevenue ~~maturity~~and ~~date~~costs of ~~August 18~~services generated by licensee operations are not included in our consolidated financial statements. We advanced funds for payroll, ~~2007~~payroll taxes, insurance and another ~~interest rate~~related ~~equal~~items. Fees are paid to anus ~~indexed~~based ~~rate~~either ason ~~calculated~~a percentage ~~under~~of revenue or of gross profit generated by the ~~Company’s~~licensee ~~credit~~and ~~facilities~~such license fees are recorded by us as license fees and included in revenue. We have not entered into any new licensee ~~plus~~arrangements ~~seven~~for ~~percent,~~the ~~compounded~~periods ~~monthly~~reported and ~~payable~~have no current plans to enter into such arrangements in the future.

22 Workers' Compensation Reserves. We self-insure the deductible amount related to domestic workers' compensation claims, which was $750,000 per claim for policy year 2008 and $500,000 per claim for policy years 2007 and 2006. We maintain reserves for workers' compensation costs based upon actuarial methods utilized to estimate the remaining undiscounted liability for the deductible portion of all claims, including those incurred but not reported. This process includes establishing loss development factors based on our historical claims experience and that of the staffing industry and applying those factors to current claims information to derive an estimate of our ultimate claims liability. The calculated ultimate liability is computed for each policy year and is then reduced by the cumulative claims payments to determine the required reserves. We evaluate the reserve and the underlying assumptions regularly throughout the year and make adjustments accordingly. The key

60 calendar days after the end of each of the Company’s fiscal quarters. Payment of interest is contingent on the Company meeting minimum availability requirements under its credit facilities. Additionally, payments of principal or interest are prohibited in the event of any default under the credit facilities. The sixth amendment to the Company’s Multicurrency Credit Agreement provides for optional prepayment of the note subject to certain borrowing availability limits on the U.S. revolving loan commitment portion of the credit facilities.27

OnTable ~~September 25, 2003, the Company executed a one-year unsecured subordinated draw down note with its principal stockholder and Chairman~~ of the Board of Directors. The note provided for the Chairman to make advances to the Company upon request, at his sole discretion and with no obligation to do so, in an aggregate principal amount not to exceed $1.0 million outstanding at any one time. On December 23, 2003, the Chairman made a $1.0 million advance to the Company under the terms of the note. The advance plus accrued interest was repaid on August 3, 2004.Contents

~~The~~assumptions include ~~Company~~but ~~works~~are tonot ~~balance~~limited ~~its~~to ~~worldwide~~classification ~~cash~~of ~~needs through~~the ~~dividends~~work ~~from~~performed and ~~loans~~estimates toof ~~its~~total ~~international~~loss ~~subsidiaries. These~~based ~~loans~~on ~~and~~the ~~dividends~~severity ~~are~~of ~~limited~~the byinjury. ~~the immediate~~This ~~future~~data ~~cash~~is ~~availability~~based ~~and~~on ~~needs~~past ofhistory ~~each~~and ~~respective~~includes ~~subsidiary,~~an ~~restrictions~~estimate ~~imposed~~of byfuture ~~the~~claims. ~~Company’s~~At ~~senior~~least ~~secured~~annually, ~~debt~~we ~~facilities~~obtain ~~and,~~an ~~in some~~independent ~~cases,~~actuarially ~~statutory~~determined ~~regulations~~calculation of the ~~subsidiary. The~~estimated UScosts ~~operations~~of ~~cannot~~claims ~~directly~~actually ~~draw~~made onto ~~the excess~~date, ~~borrowing~~as ~~availability~~well ofas ~~the~~claims UKincurred orbut ~~Australian~~not ~~operations;~~yet reported. ~~however,~~If the ~~Company~~actual ~~may~~costs ~~request~~of ~~dividends~~such ~~from~~claims ~~the~~and ~~UK. During~~related ~~fiscal~~expenses ~~2004,~~exceed the UKamounts ~~utilized~~estimated, ~~cash~~additional ~~from~~reserves ~~operations~~may ~~and~~be ~~excess borrowing~~required. ~~capacity~~These toreserves ~~pay~~amounted ~~dividends~~ to ~~the~~$23.3 million USand ~~totaling~~ $225.7 9 million~~. The~~ ~~US can also request repayments on its~~at ~~intercompany~~November 1, ~~loan~~2008 toand ~~Australia~~November 3, ~~along~~2007, ~~with~~respectively. ~~intercompany~~While ~~interest~~we ~~and~~believe ~~royalties, although~~that ~~any~~the ~~significant~~recorded ~~remittances~~reserves ~~from Australia~~ are ~~currently~~adequate, ~~restricted under~~there ~~the~~can ~~terms~~be ofno ~~the~~assurances ~~Australia~~that ~~credit facility. However~~future, asunfavorable achanges ~~result~~to ~~of positive operating~~estimates ~~performance~~relied inupon ~~Australia~~ in ~~fiscal 2003 and fiscal 2004,~~ the ~~Company~~determination ~~was notified~~of ~~by its Australian lender that~~ these ~~restrictions~~reserves will benot ~~reduced or eliminated during fiscal 2005~~occur. ~~Outstanding~~ ~~principal on the intercompany loan to Australia was $4.1 million on October 30, 2004.~~

~~The Company~~ Collectibility isof ~~responsible~~Accounts Receivable. We provide an allowance for ~~and~~uncollectible ~~pays~~accounts ~~workers’~~receivable ~~compensation~~based ~~costs~~on ~~for~~an ~~its~~estimation ~~temporary~~of credit losses and billing ~~regular~~adjustments ~~employees~~at ~~and~~a islevel ~~self-insured~~deemed appropriate to adequately provide for ~~the~~known ~~deductible~~and ~~amount~~inherent risks related to ~~workers’~~ ~~compensation~~such ~~claims~~amounts. ~~($750,000~~The ~~per~~allowances ~~claim~~are ~~for~~based ~~fiscal~~on ~~year~~reviews ~~2004~~of ~~and $500,000~~its ~~per~~history ~~claim~~of ~~for~~losses, ~~fiscal 2003.)~~ adjustments, ~~Each~~current ~~policy~~economic ~~year~~conditions ~~the~~and ~~terms~~other offactors ~~the~~that ~~agreement~~warrant ~~with~~consideration ~~the~~in ~~insurance~~estimating ~~carrier are~~potential ~~renegotiated. The~~losses ~~insurance~~including ~~carrier requires~~known ~~the~~information ~~Company~~specific to ~~collateralize~~each ~~its~~customer. ~~obligations~~We ~~through~~evaluate ~~the~~this ~~use~~allowance ofon a regular ~~irrevocable~~basis ~~standby~~throughout ~~letters~~the ofyear ~~credit,~~and ~~surety~~make ~~bonds~~adjustments oras ~~cash. At~~the ~~October~~evaluation ~~30,~~warrants. ~~2004,~~If the ~~Company~~financial ~~had~~condition ~~$22.3 million~~ of ~~outstanding~~our ~~letters~~customers ofwere ~~credit~~ to ~~secure~~deteriorate ~~its~~resulting ~~domestic~~in ~~workers compensation~~an ~~obligations. During~~impairment ~~fiscal 2004,~~of ~~the~~their ~~Company~~ability ~~was~~to ~~cash~~make ~~collateralizing~~payments, additional ~~its~~allowances ~~fiscal~~may ~~2004~~be ~~policy~~required. ~~year~~These ~~through payments~~allowances ~~totaling~~were $131.8 0 million~~. During the~~ ~~fourth~~at ~~quarter~~November 1, of2008, ~~fiscal~~and ~~2004~~$1.3 million at November 3, ~~the~~2007. ~~Company~~Our ~~and~~estimates ~~its~~are ~~insurance~~influenced ~~carrier~~by ~~negotiated~~numerous ~~the~~factors ~~return~~including ofour ~~this~~large, ~~cash~~diverse ~~collateral~~customer ~~and~~base, ~~the~~which ~~Company~~is ~~issued~~disbursed $9across a wide geographical area.~~8 million~~ ofNo ~~letters~~single customer accounted for more than 10% of ~~credit~~accounts inreceivable ~~its~~for ~~place~~fiscal year 2008.

~~The Company~~ Goodwill ~~recently~~and ~~completed~~Other ~~negotiations~~Intangible ~~for~~Assets. Statement ~~its~~of ~~2005~~Financial ~~policy~~Accounting ~~year~~Standards ~~insurance program~~("SFAS") No. ~~Total~~ 142, ~~payments~~"Goodwill ofand ~~$20.6~~Other ~~million~~Intangible ~~will~~Assets" ("SFAS 142") requires that goodwill and certain intangible assets with indefinite useful lives no longer be ~~paid~~amortized inbut ~~monthly~~instead ~~installments,~~be ~~which~~subject ~~commenced~~to onan ~~November~~impairment 1,test ~~2004,~~performed inon an annual basis ~~the~~or ~~amounts~~whenever ofevents $2or circumstances indicate that impairment may have occurred.7 ~~million~~Intangible ~~for~~assets ~~the~~with ~~first~~finite ~~three~~useful ~~installments~~lives ~~and~~continue ~~$1.4~~to ~~million for~~be ~~the~~amortized ~~remaining~~over ~~nine~~their ~~installments~~useful lives. Of The valuation methodologies ~~these~~considered ~~payments,~~include ~~$15.8~~analyses ~~million~~of ~~will~~estimated ~~serve~~future todiscounted cash ~~collateralize~~flows at the ~~Company’s fiscal~~reporting ~~2005~~unit ~~obligations~~level, inpublicly ~~lieu~~traded ofcompanies ~~issuance~~multiples ofwithin ~~additional~~the ~~letters~~temporary ofstaffing industry and historical control ~~credit~~premiums paid by acquirers purchasing companies similar to ours. ~~Cash~~ ~~payments~~As ~~for~~part ~~2005~~of ~~policy year~~the ~~claims~~assessment, ~~will~~management berelies ~~paid~~on ~~out~~a number of ~~this~~factors to discount anticipated future cash ~~collateral~~flows ~~fund. The~~including ~~Company~~operating results, ~~will~~business ~~also~~plans ~~make~~and ~~ongoing~~present value techniques. Rates used to discount cash ~~payments~~ ~~for~~flows ~~claims~~are ~~for~~dependent ~~all~~upon ~~other~~market ~~open~~interest ~~policy~~rates ~~years~~and ~~except~~the ~~2003,~~cost ~~which~~of iscapital ~~fully funded~~at ~~although~~the ~~subject~~valuation date. There are inherent uncertainties related to ~~annual~~these ~~retroactive~~factors ~~premium~~and ~~adjustments~~management's ~~based~~judgment ~~on actual~~in ~~claims~~applying ~~activity~~them to the analysis of goodwill impairment.

In Due ~~addition~~ to ~~its~~the ~~outstanding~~presence ~~letters~~ of ~~credit~~impairment indicators, ~~the~~such ~~Company~~as ~~has an outstanding financial guarantee bond that secures~~ a ~~portion~~decrease ofin ~~its~~revenue, ~~workers’~~market ~~compensation premium~~capitalization and ~~deductible~~operating ~~obligations. The surety~~income ~~bond~~in ~~was~~the ~~$9.8~~third ~~million~~quarter atof ~~the~~fiscal ~~end~~year of2008, ~~fiscal~~management ~~2003~~performed an impairment evaluation and ~~has~~determined ~~been~~that ~~reduced~~the ~~to $3.8~~indefinite ~~million~~life asfranchise ofright ~~the~~intangible ~~end~~was ofimpaired ~~fiscal~~by ~~2004~~$0.2 ~~Based~~million. ~~upon~~Such ~~the~~an ~~terms~~impairment ofcharge ~~the~~was ~~2005~~measured ~~policy~~in ~~agreement~~accordance with ~~its insurance~~SFAS 142 ~~carrier,~~as the ~~Company~~excess ~~anticipates~~of ~~eliminating~~ the ~~surety~~carrying ~~bond~~value ~~during~~over the ~~third quarter~~value of ~~fiscal~~the ~~2005~~asset.

As After ~~noted~~completing ~~above~~the inintangible ~~Results~~asset ofimpairments ~~Operations~~in ~~for~~ the third quarter of fiscal year ~~2004~~2008, the Company ~~received~~ ancompared ~~unfavorable~~the ~~arbitration~~fair ~~ruling~~value ~~relating~~of tothe aDomestic ~~contract~~Business ~~dispute~~Services ~~with one~~reporting ofunit to its carrying ~~vendors~~value and determined that the reporting unit was impaired. ~~Payments~~ Upon completion of the impairment test, the Company recorded a goodwill impairment of $011.9 4 million ~~for~~in relation to its Domestic Business Services reporting unit. The fair value of the ~~award~~Australia ~~plus~~and ~~remaining~~New ~~related~~Zealand ~~attorneys’~~reporting ~~fees~~units were greater ~~paid~~than ~~during~~ the ~~first~~net ~~quarter~~book ofvalue ~~fiscal~~and ~~2005~~accordingly, no further impairment testing was performed.

~~During~~ Given the ~~first~~continued decline in revenues, the Company in the fourth quarter of fiscal ~~2005,~~2008 ~~the~~again ~~Company~~performed ~~received~~an $0impairment test under SFAS 142 for its indefinite life franchise right intangibles and Australia goodwill.5 ~~million~~As a result, goodwill of ~~domestic federal~~the ~~income~~Australia ~~tax~~subsidiary ~~refunds~~was ~~relating~~written todown ~~carryback~~by ~~provisions~~$186,000.

The Company continues to evaluate other opportunities to further strengthen its financial position. However, the Company believes that the additional borrowing capacity provided under the amended credit agreement, together with cash generated through its improving operating performance, will be sufficient to meet the Company’s working capital needs for the foreseeable future.28

23Table of Contents

~~Off-Balance~~There was ~~Sheet~~no ~~Arrangements~~material impairment on the indefinite life franchise right intangibles as of November 1, 2008.

~~None~~ Income Taxes. We account for income taxes by utilizing an asset and liability approach that requires recording deferred tax assets and liabilities for the future year consequences of events that have been recognized in our financial statements or tax returns. As required under SFAS No. 109, "Accounting for Income Taxes", we measure these expected future tax consequences based upon provisions of tax law as currently enacted. The effects of future changes in tax laws are not anticipated. Variations in the actual outcome of these future tax consequences could materially impact our financial position or our results of operations. We also provide a reserve for tax contingencies when we believe a probable and estimable exposure exists. The Company has deferred tax assets on its books from tax benefits from future deductions of workers compensation claims, tax credit carry forwards and net operating losses ("NOL"). The income tax provision from continuing operations at fiscal year ended November 1, 2008 was $19.8 million.

~~Contractual~~ At November 1, ~~Obligations~~2008 all of the Company's net deferred tax assets were offset with a valuation allowance as the Company believes it is more likely than not that all of the net deferred tax assets will not be realizable in the foreseeable future.

~~The~~ Reserves ~~following~~for ~~summarizes~~Legal and Regulatory Liabilities. There are various claims, lawsuits and pending actions against us incident to our operations for which we have recorded liabilities that we believe are appropriate. We evaluate this reserve regularly throughout the ~~Company’s~~year ~~contractual~~and ~~cash~~make ~~obligations~~adjustments as needed. If the actual outcome of these matters is different than expected, an adjustment is charged or credited to expense in ~~future~~the ~~fiscal~~period ~~years~~the (outcome occurs or the period in ~~millions)~~which the estimate changes. Whereas management believes the recorded liabilities are asadequate, ofthere ~~October~~are 30inherent limitations in the estimation process whereby future actual losses may exceed projected losses, ~~2004:~~which could materially adversely affect our financial condition.

	Payment Due by Period (1)
Contractual Obligations	Total		Less than one fiscal year		1 to 3 fiscal years		4 to 5 fiscal years		More than 5 fiscal years
Credit facilities	$	15.7	$	15.7
Promissory note	2.0				$	2.0
Operating leases	11.3		4.0		2.6		$	1.7	$	1.4
Workers’ compensation policy year 2005	20.6		20.6
Capital lease	0.6		0.5		0.1
Total Contractual Obligations	$	50.2	$	40.8	$	4.7	$	1.7	$	1.4

Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (1FASB) ~~The~~issued ~~credit~~Financial ~~agreement expires~~Interpretation inNumber ~~May~~(FIN) ~~2007~~48, ~~but~~"Accounting for Income Tax Uncertainties." FIN 48 defines the ~~Company’s~~threshold ~~lenders~~for ~~could~~recognizing ~~require~~the ~~accelerated payment~~benefits of ~~amounts~~tax ~~outstanding~~return ~~under~~positions in the ~~credit~~financial ~~facilities~~statements inas "more-likely-than-not" to be sustained by the ~~event~~taxing ~~of default~~authority. FIN 48 provides guidance on ~~one~~the orrecognition, ~~more~~measurement and classification of ~~the~~income ~~debt~~tax ~~covenants~~uncertainties, ~~contained~~along ~~therein~~with any related interest and penalties. ~~Payments~~ FIN 48 ~~under~~includes ~~the~~guidance ~~promissory~~concerning ~~note~~accounting ~~are~~for ~~subject to~~income ~~certain~~tax ~~restrictions~~uncertainties ~~regarding~~in ~~borrowing~~interim ~~capacity~~periods and ~~compliances~~increases ~~within~~ the ~~Company’s~~ ~~senior~~level ~~secured~~of ~~credit~~disclosures ~~facilities~~associated with any recorded income tax uncertainties. Any ~~Workers’~~differences ~~compensation~~between ~~obligations~~the ~~for~~amounts ~~policy~~recognized ~~year~~in ~~2005~~the ~~are~~statements ~~based~~of ~~on estimates. If~~financial ~~actual~~position ~~results~~prior ~~differ~~to ~~from these~~the ~~estimates~~adoption of FIN 48 and the ~~Company~~amounts ~~could~~reported beafter ~~required~~adoption toare ~~make~~accounted ~~additional~~for ~~payments~~as ~~to,~~a orcumulative-effect ~~receive~~adjustment ~~refunds~~recorded ~~from,~~to ~~its~~the ~~insurance~~beginning ~~carrier~~balance inof ~~years~~retained ~~subsequent~~earnings. toWe ~~2005~~adopted FIN 48 during the first quarter of fiscal 2008. See Note 2.

~~ITEM~~ In September 7A2006, the FASB issued SFAS No. ~~QUANTITATIVE~~ 157, ~~AND~~"Fair ~~QUALITATIVE~~Value ~~DISCLOSURES~~Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally ~~ABOUT~~accepted ~~MARKET~~accounting ~~RISK~~principles and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB agreed to a one-year deferral for the implementation of SFAS No. 157 for non-financial assets and liabilities to fiscal years beginning after November 15, 2008. We are currently evaluating the impact, if any that the adoption of SFAS No. 157 will have on the Company's operating results and financial condition.

The Company is exposed to certain market risks from transactions that are entered into during the normal course of business. The Company’s primary market risk exposure relates to interest rate risk. At October 30, 2004, the Company’s outstanding debt under variable-rate interest borrowings was approximately $17.7 million. A change of 2% in the interest rates would cause a change in interest expense of approximately $0.2 million on an annual basis. The Company’s exposure to market risk for changes in interest rates is not significant with respect to interest income, as its investment portfolio is not material to its consolidated balance sheet. The Company currently has no plans to hold an investment portfolio that includes derivative financial instruments.29

~~For~~Table ~~the fiscal year ended October 30, 2004, the Company’s international operations comprised 23.4%~~ of its revenue and, as of the end of that period, 21.9% of its total assets. The Company is exposed to foreign currency risk primarily due to its investments in foreign subsidiaries. The Company’s multicurrency credit facility, which allows the Company’s Australia and United Kingdom subsidiaries to borrow in local currencies, partially mitigates the exchange rate risk resulting from fluctuations in foreign currency denominated net investments in these subsidiaries in relation to the U.S. dollar. The Company does not currently hold any market risk sensitive instruments entered into for hedging transaction risks related to foreign currencies. In addition, the Company has not entered into any transactions with derivative financial instruments for trading purposes.Contents

~~ITEM~~ In February 82007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." SFAS No. 159 permits companies to choose to measure ~~FINANCIAL~~many ~~STATEMENTS~~financial ~~AND~~instruments ~~SUPPLEMENTARY~~and ~~DATA~~certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Companies are not allowed to adopt SFAS No. 159 on a retrospective basis unless they choose early adoption. We are evaluating the impact, if any that the adoption of SFAS No. 159 will have on the Company's operating results and financial condition.

~~The~~ In December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial Statements" (an Amendment of ARB 51). SFAS 160 amends ARB 51 to establish accounting and ~~Supplementary~~reporting ~~Data~~standards offor the ~~Company~~non-controlling ~~required~~interest byin ~~this~~a ~~Item~~subsidiary ~~are~~and ~~set~~for ~~forth~~the deconsolidation of a subsidiary. The statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure on the face of the consolidated statement of income, of the ~~pages~~amounts ~~indicated~~of atconsolidated ~~Item~~net ~~15(~~income attributable to the parent and to the non-controlling interest. In addition this statement establishes a) single method of accounting for changes in a parent's ownership interest in a subsidiary that do not result in deconsolidation and requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. SFAS 160 becomes effective for fiscal periods beginning after December 15, 2008. We are currently evaluating the impact of SFAS 160.

~~ITEM~~ 9. ~~CHANGES~~ ~~IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND~~ ~~FINANCIAL~~ Executive ~~DISCLOSURE.~~Overview

~~None~~ Our gross revenues from continuing operations for the fiscal year 2008 were $324.5 million, which represents a decline of $115.3 million, or 26.2% from fiscal year 2007. The decline in revenues was primarily due to the economic downturn that began in early fiscal 2008, the loss of two customers which together made up 6.9% of revenues for the fiscal year ended November 1, 2008, and the closing of a number of branch offices in fiscal year 2007. In addition, the decrease in revenue was a result of the termination of a number of unprofitable customer accounts in 2007 and the disruption in billing caused by our implementation of a new Pay/Bill system during the first quarter of fiscal year 2008.

24 Our loss from continuing operations for the fiscal year 2008 was $47.0 million which was an increase of $42.7 million compared to the fiscal year 2007. The loss from continuing operations for the fiscal year 2008 includes non-cash, one time charges of $29.9 million of income tax expense resulting from the set up of a valuation allowance against 100% of our deferred tax assets, a goodwill and intangible asset impairment charge of $11.5 million, and an out of period adjustment for depreciation expense of $0.9 million. See Note 3.

~~ITEM~~ We have 9Amade changes in our domestic operational structure in an effort to achieve better people and process efficiencies. ~~CONTROLS~~We ~~AND~~are ~~PROCEDURES~~committed to improving the profitability of our organization and increasing our market share. We have had success in reducing our domestic selling and administrative costs in total and we are evaluating and implementing additional opportunities for savings. Further, we are divesting our international subsidiaries in order to concentrate on our core domestic business.

~~The~~ ~~Company carried out~~ an ~~evaluation, under the supervision and with the participation of the Company’s~~ ~~management,~~ Recent including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined under Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934 as amended). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of October 30, 2004 (the end of the period covered by this report) the Company’s disclosure controls and procedures are effective in timely alerting them to material information required to be included in this report. There was no change in the Company’s internal control over financial reporting that occurred during the fiscal period ended October 30, 2004, that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.Developments

~~ITEM~~ On 9BNovember 10, 2008, the Company sold its former Australia and New Zealand subsidiaries for A$19 million (Australian dollars). ~~OTHER~~A$13 million ~~INFORMATION~~of the purchase price was paid at closing, A$3 million of the purchase price was funded by the seller and the remaining A$3 million of the purchase price will be payable in the form of a deferred payment due one year after closing. See Note 19.

~~None.~~ On January 28, 2009, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Koosharem Corporation, a California corporation doing business as Select Staffing

~~PART III~~30

~~ITEM~~Table ~~10.~~of ~~DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.~~Contents

~~The~~("Koosharem") ~~information~~and ~~required~~Select byMerger ~~this Item is incorporated herein by reference to the Company’s Proxy Statement for the 2005 Annual Meeting of Stockholders~~Sub Inc. ~~Information~~, ~~required~~a byDelaware ~~this~~corporation ~~item~~and aswholly-owned tosubsidiary ~~the executive officers~~ of ~~the~~Koosharem ~~Company is~~("Merger ~~included~~Sub"), aspursuant ~~Item 4A of Part I of this Annual Report on Form 10-K as permitted by Instruction 3~~ to ~~Item~~which ~~401(b)~~Merger ofSub ~~Regulation~~will ~~S-K. The~~be ~~Company~~merged ~~has~~with ~~adopted~~and ainto ~~Code of Ethics that applies to all~~ the Company~~’s principal executive~~, ~~financial and accounting~~ ~~officers.~~with ~~The Code of Ethics is posted on~~ the Company ~~website~~continuing ~~at www.westaff.com.~~after ~~The~~the ~~Company~~merger ~~intends~~as ~~to satisfy~~ the ~~requirements~~surviving ~~under~~corporation ~~Item 5.05~~and ofa ~~Form 8~~wholly-Kowned ~~regarding~~subsidiary ~~disclosure~~ of ~~amendments~~Koosharem ~~to,~~(the ~~or waivers from~~"Merger"), ~~provisions~~ ofin ~~its~~accordance ~~Code~~with ofand ~~Ethics~~subject ~~that~~to ~~apply,~~the byterms ~~posting~~and ~~such~~conditions ~~information on the~~set ~~Company’s~~forth ~~website.~~in ~~Copies of~~ the ~~Code~~Merger ~~of Ethics will be provided, free of charge, upon written request directed to Investor Relations, Westaff, Inc~~Agreement.~~, P.O.~~ ~~Box 9280, Walnut Creek, CA 94598.~~

~~ITEM~~ Concurrently with 11the execution of the Merger Agreement, our principal stockholder, DelStaff, LLC ("DelStaff"), entered into a Stock & Note Purchase Agreement with Koosharem (the "Purchase Agreement"), pursuant to which Koosharem will purchase, immediately prior to the effective time of the Merger: (1) all of the Company common stock that DelStaff then owns in exchange for first lien term loan debt to be issued by Koosharem under Koosharem's first lien credit facility bearing a face amount of $40,000,000 and (2) all of the then outstanding subordinated notes (the "DelStaff Subordinated Notes") issued by the Company to DelStaff under the Subordinated Loan Agreement, dated as of August 25, 2008, by and among the Company, Westaff (USA), Inc., ~~EXECUTIVE~~Westaff ~~COMPENSATION~~Support, Inc., MediaWorld International (as borrowers) and DelStaff in exchange for first lien term loan debt to be issued by Koosharem under Koosharem's first lien credit facility bearing a face amount equal to the actual principal amount of the DelStaff Subordinated Notes then outstanding, but not to exceed $3,000,000.

~~The~~ Pursuant ~~information~~to ~~required~~the byterms ~~this~~and ~~Item~~conditions isof ~~incorporated~~the ~~herein~~Merger Agreement, at the effective time of the Merger: (1) each outstanding share of Company common stock (other than those owned by the ~~reference~~Company, toKoosharem, Merger Sub or any subsidiary of the Company, Koosharem or Merger Sub, and other than those shares with respect to which dissenters rights are properly exercised) will be cancelled and converted into the right to receive $1.25 per share in cash (the "Merger Consideration") and (2) each outstanding stock option to purchase shares of Company’s ~~Proxy~~common ~~Statement~~stock, ~~for~~whether or not then exercisable or vested, will be cancelled and converted into the ~~2005~~right ~~Annual~~to ~~Meeting~~receive, within ten business days following the effective time of ~~Stockholders~~the Merger, an amount in cash (subject to applicable withholding taxes) equal to (a) the excess, if any, of the Merger Consideration over the per share exercise price of the stock option, multiplied by (b) the number of shares of Company common stock subject to the stock option.

~~ITEM~~ Consummation of 12the Merger is subject to the satisfaction of various conditions, including, among others, the receipt by Koosharem and Merger Sub of the financing pursuant to and on the terms contemplated by the applicable commitment letters, the consummation of the transactions under the Purchase Agreement, the requisite approval by the Company's stockholders, a requirement for the Company to hold a minimum of $9.5 million ~~SECURITY~~in ~~OWNERSHIP~~cash OFand ~~CERTAIN~~equivalents ~~BENEFICIAL~~immediately ~~OWNERS~~prior to the closing date, the lack of any legal impediment to the Merger, and the lack of any Material Adverse ~~AND~~Effect ~~MANAGEMENT~~as ~~AND~~specified ~~RELATED~~in ~~STOCKHOLDER~~the ~~MATTERS~~Merger Agreement.

~~The~~ Upon ~~information~~the ~~required~~recommendation byof ~~this~~a ~~Item~~special iscommittee ~~incorporated~~of ~~herein~~independent bymembers ~~reference~~of to the Company’'s ~~Proxy~~board ~~Statement~~of ~~for~~directors (the ~~2005~~"Special ~~Annual~~Committee"), ~~Meeting~~all of ~~Stockholders~~the members of the Company's board of directors not affiliated with DelStaff approved the Merger Agreement and the Purchase Agreement. Robert W. Baird & Co. Incorporated provided a fairness opinion to the Special Committee.

~~ITEM~~ The Merger 13Agreement contains certain termination rights for both the Company, on the one hand, and Koosharem and Merger Sub, on the other hand. ~~CERTAIN~~Upon ~~RELATIONSHIPS~~any ~~AND~~termination ~~RELATED~~of ~~TRANSACTIONS~~the Merger Agreement, under specified circumstances, the Company may be required to pay Koosharem and Merger Sub a $2.0 million termination fee, and under other specified circumstances, Koosharem and Merger Sub may be required to pay the Company a $2.0 million termination fee.

See Note 7 of “Notes to Consolidated Financial Statements” under Item 15 of this Form 10-K. The information required by this Item is incorporated herein by reference to the Company’s Proxy Statement for the 2005 Annual Meeting of Stockholders.31

~~ITEM~~ Table ~~14.~~of ~~PRINCIPAL~~Contents ~~ACCOUNTANT FEES AND SERVICES.~~

The ~~information~~ ~~required~~foregoing bydescription ~~this~~of ~~Item~~the Merger Agreement and the Purchase Agreement does not purport to be complete and is ~~incorporated~~qualified ~~herein~~in its entirety by reference to the full text of the Merger Agreement and the Purchase Agreement, as applicable. For additional and more detailed information regarding the Merger Agreement, please refer to our Current Report on Form 8-K that we filed with the Securities and Exchange Commission on February 2, 2009. Please also refer to the risk factors included in Part I, Item 1A "Risk Factors" of this Annual Report on Form 10-K under the heading "Risks Relating to the Pending Merger." The Company’ has agreed to file a proxy statement with the SEC in connection with the proposed Merger. The Company's ~~Proxy~~stockholders ~~Statement~~are urged to read the proxy statement and other relevant materials when they become available because they will contain important information about the proposed Merger. The Company's stockholders will be able to obtain a free copy of the proxy statement and other related documents filed with the SEC by the Company (when they become available) at the SEC's website at www.sec.gov. The proxy statement and the other documents (when they become available) will also be available for free at the ~~2005~~Company's ~~Annual~~website ~~Meeting~~at http://www.westaff.com. The Company and its directors and executive officers may be deemed to be participants in the solicitation of ~~Stockholders~~proxies from stockholders in respect of the Merger Agreement and the Merger. Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of stockholders in connection with the Merger will be set forth in the proxy statement when it is filed with the SEC. More detailed information regarding the identity of potential participants, and their direct or indirect interests, by securities, holdings or otherwise, will be set forth in the proxy statement to be filed with the SEC in connection with the proposed Merger.

~~PART~~ IV Discontinued Operations

~~ITEM~~ On 15March 31, 2008, the Company sold its former United Kingdom operations and related subsidiary for cash payments of $6.3 million ~~EXHIBITS~~net ~~AND~~of ~~FINANCIAL~~transaction ~~STATEMENT~~costs ~~SCHEDULES~~of $0.2 million. In the second quarter of fiscal 2008 the Company recorded a pre-tax gain of $2.0 million ($1.2 million net of tax). During the third quarter of fiscal year 2008, the Company reduced the gain on the sale by about $0.3 million ($0.2 million net of tax) as a result of an amendment to the original sales agreement to forgive the buyer of various payables and royalties due to the Company in lieu of agreeing to any working capital adjustments. During the fourth quarter of fiscal year 2008, the Company further updated its gain calculation which still resulted in a pre-tax gain of $1.7 million but was $0.4 million net of tax. The reason for the change is that during the fourth quarter of fiscal 2008 the Company entered into an agreement to dispose of its two remaining foreign subsidiaries and it does not have any immediate plans to generate foreign source income in the foreseeable future. As a result, the Company determined it will likely not take the foreign tax credit in its income tax return for fiscal 2008 but rather will deduct the related foreign tax expenses in computing taxable income. The Company has reflected the results of the United Kingdom operations as discontinued operations for all years presented on the consolidated statement of operations.

~~(a)~~ On ~~The~~November 10, ~~following~~2008, ~~documents~~the ~~have~~Company ~~been~~sold ~~filed~~its former Australia and New Zealand subsidiaries as adescribed ~~part~~in Note 5 and Note 19. In accordance with FASB Statement No. 144 the Company reclassified the consolidated balance sheets as of ~~this~~November 1, ~~Annual~~2008 ~~Report~~to onshow ~~Form~~the assets and liabilities of these subsidiaries as held for sale. The Company also ~~10-K~~reclassified the operating results for these segments for all years presented as discontinued operations.

1.	Financial Statements
	Report of Independent Registered Public Accounting Firm
	Consolidated Balance Sheets—As of the Fiscal Year Ended October 30, 2004 and the Fiscal Year Ended November 1, 2003

25Table of Contents

	Consolidated Statements of Operations—For Each of the Three Years in the Period Ended October 30, 2004
	Consolidated Statements of Stockholders’ Equity—For Each of the Three Years in the Period Ended October 30, 2004
	Consolidated Statements of Cash Flows—For Each of the Three Years in the Period Ended October 30, 2004
	Notes to Consolidated Financial Statements
2.	Financial Statement Schedules.
	All schedules are omitted because they are not applicable or not required or because the required information is included in the Consolidated Financial Statements or the Notes thereto.
3.	Exhibits. The following exhibits are filed as part of, or incorporated by reference into, this Annual Report:

Results of Continuing Operations

Exhibit Number		Description
3.1.2		Fourth Amended and Restated Certificate of Incorporation. (7)
3.2.4		Amended and Restated Bylaws, effective March 1, 2004. (12)
4.1.1		Form of Specimen Certificate for the Company’s Common Stock. (2)
10.1		Form of Indemnification Agreement between the Company and the Officers and Key Employees of the Company. (1)
10.2		Form of Indemnification Agreement between the Company and the Directors of the Company. (1)
10.3.4		Employment Agreement with W. Robert Stover. (2)
10.3.5		Employment Contract between the Company and Dirk A. Sodestrom. (3)
10.3.5.1		First Amendment to Employment Contract By and Between Westaff Support, Inc. and Dirk A. Sodestrom. (9)
10.3.5.2		Second Amendment to Employment Contract By and Between Westaff Support, Inc. and Dirk A. Sodestrom. (13)
10.3.8		Employment Agreement between the Company and Dwight S. Pedersen. (5)
10.3.8.1		Notice of Grant to Dwight S. Pedersen of Stock Option (Incentive) with Exhibit A, Stock Option Agreement. (15)
10.3.8.2		Notice of Grant to Dwight S. Pedersen of Stock Option (Non-Statutory) with Exhibit A, Stock Option Agreement. (15)
10.3.8.3		First Amendment to Employment Contract By and Among Westaff Support, Inc., Westaff, Inc. and Dwight S. Pedersen. (9)
10.3.8.4		Second Amendment to Employment Agreement By and Among Westaff Support, Inc., Westaff, Inc. and Dwight S. Pedersen. (13)
10.3.8.5		Third Amendment to Employment Agreement By and Among Westaff Support, Inc., Westaff, Inc. and Dwight S. Pedersen. (15)
10.3.8.6		Addendum made the 26th day of January 2005 to agreement between Westaff (UK) Limited (“the Company”) and Patricia M. Newman (“the Employee”) supplemental to an agreement made as of the 1st day of December 1998 between the Company and the Employee; an addendum made as of the 4th day of February 1999 between the Company and the Employee; a letter dated the 3rd day of April 2001 from Bob Stover to Employee; and a memorandum dated 23rd February 2004 between the Company and the Employee.
10.7		Westaff, Inc. 1996 Stock Option/Stock Issuance Plan, as amended and restated. (4)
10.8.20		Credit Agreement dated as of May 17, 2002. (6)
10.8.20.1		First Amendment to Multicurrency Credit Agreement, Limited Waiver and Consent of Guarantors. (8)
10.8.20.2		Second Amendment to Multicurrency Credit Agreement, Limited Waivers and Consent of Guarantors. (9)
10.8.20.3		Third Amendment to Multicurrency Credit Agreement, Limited Waiver and Consent of Guarantors. (10)
10.8.20.4		Fourth Amendment to Multicurrency Credit Agreement, Limited Waivers and Consent of Guarantors. (11)
10.8.20.5		Fifth Amendment to Multicurrency Credit Agreement and Consent of Guarantors. (13)
10.8.20.6		Sixth Amendment to Multicurrency Credit Agreement and Consent of Guarantors. (16)
10.8.21		Deed of Trust, Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing effective as of May 17, 2002. (6)
10.8.22		Pledge Agreement dated as of May 17, 2002. (6)
10.8.23		Security Agreement dated as of May 17, 2002. (6)
10.8.24		Parent Guaranty dated as of May 17, 2002. (6)
10.8.25		Subsidiary Guaranty dated as of May 17, 2002. (6)

The table below sets forth, for the three most recent fiscal years, certain results of continuing operations data as a percentage of revenue.

	Fiscal Year

	2008			2007			2006
Revenue		100.0	%		100.0	%		100.0	%
Cost of services		81.9	%		81.9	%		82.4	%

Gross Profit		18.1	%		18.1	%		17.6	%
Franchise agents' share of gross profit		4.4	%		3.9	%		3.8	%
Selling and administrative expenses		16.2	%		13.9	%		12.3	%
Impairment of goodwill and intangibles		3.6	%		0.0	%		0.0	%
Restructuring expenses		*			0.7	%		0.0	%
Depreciation and amortization		1.6	%		0.7	%		0.9	%

Operating (loss) income from continuing operations		(7.7	)%		(1.3	)%		0.7	%
Interest expense		0.8	%		0.5	%		0.4	%
Interest income		*			*			*

(Loss) income from continuing operations before income taxes		(8.4	)%		(1.8	)%		0.3	%
Income tax provision (benefit)		6.1	%		(0.8	)%		*

(Loss) income from continuing operations		(14.5	)%		(1.0	)%		0.3	%

*: less than 0.1%

10.8.26		Amended and Restated Unsecured Subordinated Noted dated May 17, 2002. (6)
10.8.27		Unsecured Subordinated Draw Down Note dated September 25, 2003. (10)
10.11		Westaff, Inc. Employee Stock Purchase Pan. (4)
10.11.3		International Employee Stock Purchase Plan. (4)
10.12		Westaff Key Employee Transition Compensation Plan. (14)
10.13		Form of Employment Contract with Certain Named Executive Officers. (4)
21.1		Subsidiaries of the Company.
23.1		Consent of Independent Registered Public Accounting Firm
24.1		Power of Attorney (see page IV-1).
31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Going Concern Considerations

~~(1) Incorporated herein~~ The byCompany ~~reference~~has toincurred ~~the~~operating ~~exhibit~~losses ~~with~~since the ~~same~~second ~~number~~quarter ~~filed~~of ~~with~~fiscal 2007, offset by slight operating income in the ~~Company’s~~fourth ~~Registration~~quarter ~~Statement~~of onfiscal ~~Form~~2007. ~~S-1~~The ~~(File~~Company ~~No.~~may ~~33-85536)~~incur ~~declared~~additional ~~effective~~losses by in the ~~Securities~~future, ~~and~~particularly ~~Exchange~~because ~~Commission~~of onthe ~~April~~current ~~30,~~significant ~~1996~~economic downturn and recession.

~~(2) Incorporated~~ The ~~herein~~Company's byoperations, ~~reference~~even toif ~~the~~they ~~exhibit~~perform in accordance with ~~the~~management's ~~same~~expectations, ~~number~~may ~~filed~~not ~~with~~generate sufficient cash flow or accounts receivables to finance the Company’'s ~~Annual~~operations ~~Report~~at oncurrent ~~Form~~levels, ~~10-K~~collateralize ~~for~~workers' compensation liabilities, or permit the ~~fiscal~~Company ~~year~~to ~~ended~~expand ~~October~~its 31business. As a result, ~~1998~~the Company expects to continue to rely on operational cash flow and debt financing to fund operations because equity financing is not likely to be available.

~~(3) Incorporated~~ As ~~herein~~discussed byin ~~reference~~Note 7 to the ~~exhibit~~consolidated financial statements included elsewhere in this Annual Report on Form 10-K, the Company has (through its wholly-owned subsidiary, Westaff (USA), Inc.) entered into a financing agreement with U.S. Bank National Association ("U.S. Bank") as agent, and the ~~same~~lenders ~~number~~thereto, ~~filed~~which provides for a five-year revolving credit facility with an aggregate commitment of up to $33.0 million (the "Financing Agreement"). The Company’s is currently in default under certain covenants of ~~Annual~~the ~~Report~~Financing Agreement and has entered into a Forbearance Agreement that provides for a forbearance period ending on ~~Form~~December 19, ~~10-K~~2008. While the Company is negotiating with its lenders for a waiver or continued forbearance in respect to this default, there can be no assurances that a waiver or continued forbearance can be obtained. If the ~~fiscal~~Company ~~year~~is ~~ended~~unable ~~October~~to 28obtain a waiver or continued forbearance on acceptable terms, ~~2000~~the Company may be unable to access the funds necessary to satisfy its liquidity requirements, or may be unable to obtain letters of credit under the facility needed for the Company to obtain workers' compensation insurance. In that case, its business and operating results would be adversely affected and the Company may be unable to continue its operations as a going concern.

(4) Incorporated herein by reference to the exhibit with the same number filed with the Company’s Annual Report on Form 10-K for the fiscal year ended November 3, 2001.33

~~(5) Incorporated herein~~Table byof ~~reference to the exhibit with the same number filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended January 26, 2002.~~Contents

~~(6) Incorporated~~ In ~~herein~~response byto ~~reference~~the tocontinued default, the ~~exhibit~~Company ~~with~~secured a $3.0 million subordinated loan facility during the ~~same~~fourth ~~number~~quarter ~~filed~~of ~~with~~fiscal 2008, of which the Company’s has used ~~Quarterly~~$2.2 million ~~Report~~as onof ~~Form~~November 1, ~~10-Q~~2008 ~~for~~and has drawn an additional $1.0 million in the first and second quarter ~~ended~~of ~~April~~fiscal ~~20,~~year ~~2002~~2009. This facility may be used by the Company for their working capital and general business purposes during the term of the facility.

~~(7) Incorporated~~ The ~~herein~~Company byhas ~~reference~~extended its workers' compensation insurance through April 1, 2009 which required $1.0 million in cash collateral as of November 1, 2008 and $0.3 million to be paid by February 28, 2009. In addition, the ~~exhibit~~letter ~~with~~of credit for the ~~same~~workers' ~~number~~compensation ~~filed~~insurance ~~with~~expires on February 28, 2009 and the ~~Company’s~~insurance carrier has ~~Quarterly~~received ~~Report~~notification of non-renewal of the letter of credit from the issuing Bank. The forbearance agreement expired on ~~Form~~December 19, ~~10-Q~~2008 ~~for~~and has not been extended. Among other things, the Company has responded to these issues by reducing its headcount by approximately 60 positions in the corporate and field offices during fiscal year 2008 and 65 positions in the first quarter ~~ended~~of ~~July~~fiscal ~~13,~~year ~~2002~~2009. This was accomplished by a combination of attrition and a planned reduction in force. Total severance amounts paid in fiscal year 2008 were immaterial and are included as part of selling and administrative expenses. The Company continues to look for and act on additional cost savings measures within the organization while it is exploring alternative financing arrangements and strategic partnering alternatives. See Note 19.

~~(8) Incorporated~~ ~~herein~~ ~~by reference to the exhibit with the same number filed with the Company’s~~ ~~Annual~~ Fiscal ~~Report~~2008 oncompared ~~Form~~to ~~10-K~~Fiscal ~~for the fiscal year ended November 2, 2002.~~2007

~~(9) Incorporated herein~~ ~~by reference to the exhibit with the same number filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended July 12, 2003.~~Revenue

~~(10) Incorporated herein~~ Gross byrevenue ~~reference~~from tocontinuing ~~the~~operations ~~exhibit~~totaled ~~with~~$324.5 million ~~the~~which ~~same~~represented ~~number~~a ~~filed~~decrease ~~with~~of ~~the~~$115.3 million, ~~Company’s~~or 26.2% ~~Annual~~from ~~Report on Form 10-K for the~~ fiscal ~~year ended November 1, 2003~~2007.

~~(11) Incorporated~~ Fiscal ~~herein~~2008 bycontained ~~reference~~fifty-two toweeks ~~the~~while ~~exhibit~~fiscal ~~with~~2007 ~~the~~contained ~~same~~fifty-three ~~number~~weeks. ~~filed~~After ~~with~~eliminating the ~~Company’s~~effect of this extra week, sales of service declined ~~Quarterly~~$107.0 million ~~Report~~or on24.8%. ~~Form~~This 10was a result of a decrease in revenue from franchise operations as well as company-Qowned ~~for~~operations. Revenue from franchise operations declined 17.2% to $130.2 million due largely to a 21.5% decrease in billed hours as a result of economic downturn. Revenue from company-owned operations declined 30.6% to $195.3 million also due to a decrease of 32.8% in billed hours as a result of the ~~quarter~~economic ~~ended~~downturn ~~January~~and ~~24,~~customer ~~2004~~losses related to the restructuring plan implemented in the third quarter of fiscal 2007.

~~(12) Incorporated~~ On ~~herein~~a bycomparable ~~reference~~52 week tobasis the ~~exhibit~~decline in total billable hours would have been 27.2% with the ~~same~~significant ~~number~~decline ~~filed~~being ~~with~~driven in the ~~Company’s~~domestic market primarily as a result of ~~Current~~the ~~Report~~economy. The decrease in gross revenue was also due to lower billings for several of our large customers. Total billings for the top 20 customers in fiscal year ended 2008 declined 12.2%, or $11.5 million to $82.4 million compared to the prior fiscal year, which was partially offset by an increase in average bill rate and increase in average bill pay spread. The average bill rate on ~~Form~~a ~~8-K~~per ~~dated~~hour ~~March~~basis 1for temporary services increased 3.4% compared to fiscal 2007. Additionally, ~~2004~~revenue from domestic permanent placement and transition fees declined by 52.1% to $2.8 million compared to fiscal 2007.

~~(13) Incorporated herein~~ byCosts ~~reference~~of toservices ~~the~~and ~~exhibit~~gross ~~with the same number filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended July 10, 2004.~~profit

~~(14) Incorporated herein~~ Costs byof ~~reference~~services tofrom ~~the~~continuing ~~exhibit~~operations ~~with~~include ~~the~~hourly ~~same~~wages ~~number~~of ~~filed~~temporary ~~with~~employees, ~~the~~employer ~~Company’s~~payroll taxes, state unemployment ~~Current~~and ~~Report~~workers' oncompensation ~~Form~~costs 8and other temporary employee-Krelated ~~dated~~costs. ~~September~~Costs ~~20,~~of ~~2004~~services from continuing operations decreased $94.6 million or 26.2% to $265.8 million for fiscal 2008 as compared to fiscal 2007.

~~(15) Incorporated~~ Gross ~~herein~~margin byfrom ~~reference~~continuing operations decreased $20.8 million or 26.1% to ~~the~~$58.7 million ~~exhibit~~during ~~with~~fiscal ~~the~~2008 ~~same~~as ~~number~~compared ~~filed~~to ~~with~~fiscal ~~the~~2007. ~~Company’s~~This decrease was primarily as a ~~Current~~result ~~Report~~of ona ~~Form~~decrease ~~8-K~~in ~~dated~~permanent ~~October~~placement 4,revenue ~~2004~~in the fiscal year 2008 compared to the fiscal year 2007. However, our

2734

~~(16) Incorporated herein~~Table byof ~~reference to the exhibit with the same number filed with the Company’s Current Report on Form 8-K dated January 5, 2005.~~Contents

28gross profit as a percent of sales remained at approximately 18.1% in fiscal 2008. Our average pay rate on a per hour basis for domestic temporary services increased 3.2% in fiscal year 2008 compared with the fiscal year 2007. The resulting pay-bill spread on domestic temporary services has increased 3.9% in the fiscal year 2008 as compared to 2007. The change in the pay-bill spread is a result of the continued focus of our sales efforts on opportunities yielding a higher gross margin, which has resulted in decreased sales revenue from lower margin business.

~~REPORT~~ OFFranchise ~~INDEPENDENT REGISTERED~~agents' ~~PUBLIC~~share ~~ACCOUNTING~~of ~~FIRM~~gross profit

To Franchise agents' share of gross profit represents the ~~Board~~net distribution paid to franchise agents based either on a percentage of ~~Directors~~the sales ~~and~~or ~~Stockholders~~gross profit generated by the franchise agents' operations. Franchise agents' share of ~~Westaff,~~gross ~~Inc~~profit decreased $3.0 million or 17.5% to $14.3 million which was slightly more than the decline in overall franchise owned gross revenue. Franchisees generally receive a greater share of permanent placement revenue which declined at a lesser rate than the overall decline in permanent placement revenue during fiscal 2008.

We ~~have~~Selling ~~audited the accompanying consolidated balance sheets of Westaff, Inc.~~ and ~~subsidiaries~~administrative (the Company) as of October 30, 2004 and November 1, 2003, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended October 30, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.expenses

We Selling ~~conducted~~and ~~our~~administrative ~~audits~~expenses indecreased ~~accordance~~$8.7 million ~~with~~or ~~the~~14.2% ~~standards~~to of$52.6 million during the ~~Public~~fiscal year 2008 as ~~Company~~compared ~~Accounting~~to ~~Oversight~~the ~~Board~~fiscal ~~(United~~year ~~States)~~2007. ~~Those~~ ~~standards~~This ~~require~~decrease ~~that~~is weprimarily ~~plan~~attributable to decreased salary and ~~perform~~ ~~the~~related ~~audit~~costs toof ~~obtain~~$7.6 million ~~reasonable~~as ~~assurance~~a ~~about~~result ~~whether~~of decreased headcount in the ~~financial~~domestic operations ~~statements~~following ~~are~~the ~~free~~restructuring in the third quarter of ~~material~~fiscal ~~misstatement~~2007. We achieved cost savings in the areas of facilities, advertising and promotion and supplies totaling $3.1 million as we Anconsciously ~~audit~~looked ~~includes~~at ~~examining,~~opportunities onto areduce ~~test~~spending ~~basis,~~in ~~evidence~~light ~~supporting~~of the ~~amounts~~ decline in gross revenue. In addition, we incurred lower communications and ~~disclosures~~services costs due to improvements made in ~~the~~our information ~~financial~~systems ~~statements~~infrastructure. An ~~audit~~We achieved a reduction in bad debt expense of $0.5 million in fiscal 2008 as compared to fiscal year 2007. Management is also ~~includes~~closely ~~assessing~~monitoring ~~the~~slow paying ~~accounting~~customers ~~principles~~in ~~used~~light of the slowdown in the domestic U.S. economy and ~~significant~~is ~~estimates~~more ~~made~~proactive byin ~~management,~~reserving ~~as well~~for asthose ~~evaluating~~amounts in the ~~overall~~early ~~financial~~stages ~~statement~~of ~~presentation~~identifying concerns. We ~~believe~~These ~~that~~reductions ~~our~~were ~~audits~~offset ~~provide~~by athe ~~reasonable~~recording ~~basis~~of ~~for~~currency translation losses totaling $1.5 million on the Australia note receivable. The losses were recognized in our ~~opinion~~statement of operations commencing in the fourth quarter of fiscal year 2008 because we believe the note will be settled in the foreseeable future due to the upcoming sale of the Australia and New Zealand subsidiaries which was completed on November 10, 2008.

In ~~our~~Impairment ~~opinion, such consolidated financial statements present fairly, in all material respects, the financial position~~ of ~~the~~goodwill ~~Company as of October 30, 2004~~ and ~~November~~intangible 1, 2003, and the results of their operations and their cash flows for each of the three years in the period ended October 30, 2004, in conformity with accounting principles generally accepted in the United States of America.assets

As ~~discussed~~a result of the continued decline in ~~Note~~revenue 5due to the economic downturn, ~~effective~~the ~~November~~continued 3decline in market capitalization for Westaff, ~~2002~~and the magnitude of our recent operating losses the Company ~~changed its~~determined ~~method~~that an interim impairment test was necessary during the third quarter of ~~accounting~~2008. ~~for~~Accordingly, ~~goodwill~~in accordance with SFAS No. 142, "Goodwill and ~~other~~Other ~~intangibles~~Intangible toAssets" ~~conform~~and SFAS No. 144 "Accounting for the Impairment of Disposal of Long-Lived Assets," the Company applied impairment tests to its ~~Statement~~intangible assets, including goodwill during the third quarter of ~~Financial~~2008. ~~Accounting~~As ~~Standards~~a result of this testing and in accordance with SFAS No. 142, ~~Goodwill~~the Company recorded a pre-tax, non-cash charge of approximately $11.5 million in the third quarter of fiscal 2008 related to the impairment of intangible assets and ~~Other~~goodwill associated with the US reporting unit ~~Intangible~~and ~~Assets~~as described in Note 6.

~~DELOITTE~~ &Restructuring ~~TOUCHE LLP~~expense

~~Oakland~~ We recorded charges in the third and fourth quarter of fiscal 2007 related to reduction in force and closure of several branch offices. In connection with the closures we recorded an expense in the third and fourth quarter of fiscal 2007 for severance payments and an estimate for lease termination costs calculated for the remainder of the lease term reduced by an estimate for sublease income. During the fiscal year 2008, ~~California~~the Company successfully negotiated early termination agreements for nine

~~January 26, 2005~~35

~~F-1~~Table of Contents

~~Westaff~~locations and entered into a sublease for four locations, ~~Inc~~the effects of which resulted in an $84,000 reduction in our estimated accrual. The Company is still responsible for lease payments on seven locations and is actively negotiating early terminations, where possible, and sublease opportunities to mitigate its obligation. The restructuring accrual, representing rent expense under non-cancellable leases with lease terms that extend through fiscal year 2012 has been reduced by the current estimated future sublease income.

~~Consolidated~~ ~~Statements~~Depreciation ofand ~~Operations~~amortization

~~(Amounts~~ Depreciation and amortization increased $2.1 million or 65.5% to $5.2 million, excluding the write-down of intangibles of $11.5 million as described in ~~thousands~~Note 6, ~~except~~during ~~per~~fiscal ~~share~~2008 ~~amounts)~~as compared to fiscal 2007. This increase is primarily attributable to an out of period adjustment of $0.9 million in the second quarter of fiscal 2008, resulting in additional depreciation that should have been expensed in prior periods. In addition, the increase was caused by the new Pay-Bill system implementation costs, which were previously capitalized during pre-launch stages and now are amortized to income concurrent with the launch of the system in the first quarter of fiscal 2008.

	October 30,			November 1,
	2004			2003
ASSETS
Current assets:
Cash and cash equivalents	$	6,993		$	4,759
Trade accounts receivable, less allowance for doubtful accounts of $1,124 and $1,067	84,712			74,564
Income taxes receivable	847			536
Deferred income taxes	286
Prepaid expenses	4,530			2,833
Other current assets	877			1,741
Total current assets	98,245			84,433
Property and equipment, net	10,184			12,569
Goodwill	11,760			11,687
Other long-term assets	2,219			4,458
	$	122,408		$	113,147
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Borrowings under revolving credit facilities	$	15,734		$	25,410
Current portion of capital lease obligations	465			432
Accounts payable	2,731			2,013
Accrued expenses	44,944			34,086
Income taxes payable	632			626
Net liabilities of discontinued operations	225			629
Total current liabilities	64,731			63,196
Note payable to related party	2,000			2,000
Long-term capital lease obligations	125			590
Other long-term liabilities	15,705			11,905
Total liabilities	82,561			77,691
Commitments and contingencies (Notes 2, 14 and 16)
Stockholders’ equity:
Preferred stock, $.01 par value; authorized and unissued: 1,000 shares
Common stock, $.01 par value; authorized: 25,000 shares; issued: 16,047 shares at October 30, 2004 and 16,015 shares at November 1, 2003	160			160
Additional paid-in capital	36,768			36,706
Retained earnings (accumulated deficit)	3,025			(448		)
Accumulated other comprehensive loss	(106		)	(962		)
Total stockholders’ equity	39,847			35,456
	$	122,408		$	113,147

Net interest expense

~~See~~ Net ~~accompanying~~interest ~~notes~~expense tofor the fiscal year 2008 and fiscal year 2007 remained consistent at $2.3 million. Lower interest rates ~~consolidated~~during ~~financial~~the ~~statements~~year were offset by an increase in average borrowings.

~~F-2~~ Income tax provision

~~Westaff~~ We recorded an income tax provision on continuing operations of $19.8 million on a pre-tax loss of $27.2 million in fiscal year 2008. The difference between the fiscal year 2008 tax expense of $19.8 million and the fiscal year 2007 benefit of $3.5 million relates primarily to the establishment of a valuation allowance against all of the Company's deferred tax assets of $29.9 million. The Company recorded a valuation allowance in fiscal 2008 due to cumulative losses in recent periods and revised projections indicating continued losses in the foreseeable future. Although it is possible these deferred tax assets could still be realized in the future, ~~Inc~~the Company believes that is it more likely than not that these deferred tax assets will not be realized in the foreseeable future. The 2007 provision differs from statutory rates primarily due to federal tax credits we took advantage of, primarily as a result of the work opportunity tax credit program. In addition, the fiscal 2007 tax provision also derived a substantial tax benefit from net operating losses.

~~Consolidated~~ ~~Statements~~Net ~~of Operations~~loss

~~(Amounts~~ The inresult ~~thousands~~of ~~except~~the aforementioned items plus the gain net of tax on the sale of the U.K. subsidiary of $0.4 million and the net income from discontinued operations of $0.4 million, was a total net loss for the fiscal year 2008 of $46.3 million, or $2.77 per share, ~~amounts)~~as compared with net loss of $1.9 million, or $0.12 per share for the fiscal year 2007.

	Fiscal year ended
	October 30, 2004			November 1, 2003			November 2, 2002
Revenue	$	601,476		$	530,299		$	515,253
Costs of services	499,630			439,801			419,932
Gross profit	101,846			90,498			95,321
Franchise agents’ share of gross profit	18,494			16,599			15,409
Selling and administrative expenses	72,155			70,286			75,537
Depreciation and amortization	4,474			5,500			6,601
Impairment of intangible assets							116
Arbitration expenses (Note 16)	1,058			950			(693		)
Restructuring charges (Note 4)							1,896
Operating income (loss) from continuing operations	5,665			(2,837		)	(3,545		)
Interest expense	2,209			1,762			2,343
Interest income	(106		)	(186		)	(387		)
Income (loss) from continuing operations before income taxes and cumulative effect of change in accounting principle	3,562			(4,413		)	(5,501		)
Provision (benefit) for income taxes	239			361			(4,070		)
Income (loss) from continuing operations before cumulative effect of change in accounting principle	3,323			(4,774		)	(1,431		)
Income from discontinued operations	150			316
Cumulative effect of change in accounting principle				(670		)
Net income (loss)	$	3,473		$	(5,128	)	$	(1,431	)
Earnings (loss) per share - basic and diluted
Continuing operations before cumulative effect of change in accounting principle	$	0.21		$	(0.30	)	$	(0.09	)
Discontinued operations	$	0.01		$	0.02		$	—
Cumulative effect of change in accounting principle	$	—		$	(0.04	)	$	—
Net income (loss)	$	0.22		$	(0.32	)	$	(0.09	)
Weighted average shares outstanding - basic	16,033			15,996			15,945
Weighted average shares outstanding - diluted	16,081			15,996			15,945

Fiscal 2007 compared to Fiscal 2006

~~See~~ ~~accompanying notes to consolidated financial statements.~~Revenue

F- Gross revenue declined by $42.3 million or 8.8% to $439.8 million for fiscal 2007 as compared to fiscal 2006. Fiscal 2007 contained 53 weeks. The estimated sales for the extra week in fiscal 2007 were $8.3 million. The decrease for a comparable 52 week year would have been $50.6 million or 10.5%.

~~Westaff~~ The decline was attributable to a number of factors: the closure of 26 unprofitable offices in fiscal 2007, ~~Inc~~changes in management and field structure, the termination of unprofitable customer relationships and a softening economy. Within our remaining branches, we have continued to focus our

~~Consolidated Statements of Stockholders’ Equity~~36

~~(Amounts~~Table inof ~~thousands)~~Contents

									Accumulated
				Additional		Retained			other
	Common stock			paid-in		earnings			comprehensive			Treasury stock
	Shares	Amount		capital		(accumulated deficit)			loss			Shares		Amount			Total
Balance at November 3, 2001	15,948	$	159	$	36,582	$	6,209		$	(3,301	)	34		$	(157	)	$	39,492
Comprehensive loss:
Net loss						(1,431		)
Currency translation adjustments									784
Total comprehensive loss																	(647		)
Purchase of treasury stock												5		(13		)	(13		)
Stock issued under employees’ stock purchase plans	24	1		45		(98		)				(39	)	170			118
Balance at November 2, 2002	15,972	160		36,627		4,680			(2,517		)						38,950
Comprehensive loss:
Net loss						(5,128		)
Currency translation adjustments									1,555
Total comprehensive loss																	(3,573		)
Stock issued under employees’ stock purchase plans	43			79													79
Balance at November 1, 2003	16,015	160		36,706		(448		)	(962		)	—		—			35,456
Comprehensive income:
Net income						3,473
Currency translation adjustments									856
Total comprehensive income																	4,329
Stock issued under employees’ stock purchase plans	32			62													62
Balance at October 30, 2004	16,047	$	160	$	36,768	$	3,025		$	(106	)	—		$	—		$	39,847

sales efforts on opportunities yielding a higher gross margin. Total billable hours declined 11.2% in fiscal 2007 compared to fiscal 2006. On a comparable 52 week basis the decline in total billable hours would have been 12.9% with the significant decline being driven in the domestic market primarily as a result of the closed offices. The average bill rate for fiscal 2007 increased 3.0% from fiscal 2007 over fiscal 2006 for continuing operations.

~~See~~ ~~accompanying~~Costs ~~notes~~of ~~to consolidated~~services ~~financial~~and ~~statements.~~gross profit

F Costs of services include hourly wages of temporary employees, employer payroll taxes, state unemployment and workers' compensation insurance and other employee-related costs. On a continuing operations basis, costs of services decreased $36.9 million or 9.3% to $360.4 million in fiscal 2007 as compared to fiscal 2006.

~~Westaff~~ Gross margin decreased $5.4 million or 6.4% to $79.4 million as compared to fiscal 2006. However, ~~Inc~~our gross profit as a percent of sales increased from 17.6% in fiscal 2006 to 18.1% in fiscal 2007. Our average pay rate on a per hour basis for domestic temporary services increased 2.4% in fiscal year 2007 compared with the fiscal year 2006. The resulting pay-bill spread on domestic temporary services has increased 4.5% in the fiscal year 2007 as compared to 2006. The change in the pay-bill spread is a result of the continued focus of our sales efforts on opportunities yielding a higher gross margin, which has resulted in decreased sales revenue from lower margin business.

~~Consolidated~~ ~~Statements~~Franchise agents' share of ~~Cash Flows~~gross profit

~~(Amounts~~ Franchise agents' share of gross profit represents the net distribution paid to franchise agents based either on a percentage of the sales or gross profit generated by the franchise agents' operations. Franchise agents' share of gross profit decreased $0.8 million or 4.4% to $17.4 million for fiscal 2007 but remained flat as a percent of total sales at 4%. The decrease was primarily the result of a decrease in ~~thousands)~~gross receipts from our franchise offices of 6.9% in fiscal 2007 as compared to fiscal 2006.

	Fiscal year ended
	October 30,			November 1,			November 2,
	2004			2003			2002
Cash flows from operating activities
Net income (loss)	$	3,473		$	(5,128	)	$	(1,431	)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Income from discontinued operations	(150		)	(316		)
Cumulative effect of change in accounting principle				670
Loss on impairment of intangible assets							116
Depreciation and amortization	4,474			5,500			6,601
Provision for losses on doubtful accounts	1,168			639			1,703
Deferred income taxes	(278		)				1,350
Income from sales of affiliate operations	(25		)	(128		)	(197		)
(Gain) loss on sale or disposal of assets	(657		)	51			193
Other	(198		)	(268		)	60
Changes in assets and liabilities:
Trade accounts receivable	(9,209		)	(3,221		)	(737		)
Other assets	133			(4,541		)	(5,259		)
Accounts payable and accrued expenses	15,089			1,499			50
Income taxes payable	(11		)	(179		)	201
Other liabilities	268			145			1,455
Net cash provided (used) by continuing operations	14,077			(5,277		)	4,105
Net cash (used) provided by discontinued operations	(254		)	340			413
Net cash provided (used) by operating activities	13,823			(4,937		)	4,518
Cash flows from investing activities
Capital expenditures	(3,369		)	(2,593		)	(2,089		)
Payments for intangibles	(4		)				(223		)
Proceeds from sales of affiliate operations	41			328			1,258
Proceeds from sales of assets	1,945			7,386			21
Other, net	(166		)	48			241
Net cash (used) provided by investing activities	(1,553		)	5,169			(792		)
Cash flows from financing activities
Net (repayments) borrowings under line of credit agreements	(9,903		)	5,008			19,551
Proceeds from issuance of notes payable to related parties	1,000						3,000
Payments of notes payable to related parties	(1,000		)	(1,000		)
Proceeds from issuance of long-term debt							5,000
Principal payments on long-term debt and capital lease obligations	(432		)	(4,848		)	(30,500		)
Payment of debt issuance costs	(178		)	(362		)	(1,987		)
Issuance of common stock	63			79			118
Purchase of common stock							(13		)
Net cash used by financing activities	(10,450		)	(1,123		)	(4,831		)
Effect of exchange rate changes on cash	414			166			146
Net change in cash and cash equivalents	2,234			(725		)	(959		)
Cash and cash equivalents at beginning of year	4,759			5,484			6,443
Cash and cash equivalents at end of year	$	6,993		$	4,759		$	5,484
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest	$	1,481		$	1,252		$	3,101
Income taxes paid (refunded), net	786			(4,220		)	(1,949		)
Supplemental schedule of noncash investing and financing activities:
Equipment purchased with capital leases				$	1,369

Selling and administrative expenses

~~See~~ Selling ~~accompanying~~and ~~notes~~administrative expenses increased $2.2 million or 3.7% to $61.3 million for the 2007 fiscal year as compared ~~consolidated~~to ~~financial~~fiscal ~~statements~~2006. There were numerous factors which drove the increase, the largest of which was an increase in incentive compensation of $1.0 million. The other significant increases, totaling $0.4 million, reflected guaranteed amounts paid under a new corporate program designed to retain staff following the restructuring and bonus program for technical implementation of the third phase of the BPM project. The Company also experienced an increase of $1.0 million in recruiting costs associated with a domestic national contract for internet job boards utilized by field offices to attract and identify associates, the recruitment of several new senior executives as well as field sales personnel hired to increase domestic sales.

~~F-5~~ Bad debt expense (net of recoveries) increased 515.4% or $0.9 million to $1.1 million in fiscal 2007. $1.0 million of the increase resulted from charge offs of trade accounts receivables from continuing operations as the collectibility of a number of accounts were challenged by new senior management. The primary component of the increase related to $0.7 million of receivables that related to billings generated in 2006 and prior that were deemed uncollectible in fiscal 2007. The remaining increase in bad debt expense resulted primarily from reserves on notes receivables from franchise holders.

~~Westaff,~~ ~~Inc.~~Restructuring expense

~~Notes~~ In the third quarter of fiscal 2007, the Company approved certain restructuring plans to, ~~Consolidated~~among ~~Financial~~other things, reduce its workforce and ~~Statements~~consolidate facilities. Restructuring charges have been recorded to align the Company's cost structure with changing market conditions and to create a more efficient

~~(Amounts in thousands except per share amounts)~~37

~~1. Basis~~Table of ~~Presentation~~ Contents

~~Basis~~organization. The Company's restructuring charges are comprised primarily of: (i) severance and termination benefit costs related to the reduction of our workforce and (ii) lease ~~presentation~~termination costs. The Company accounted for each of these costs in accordance with FASB No. 146, "Accounting for Costs Associated with Exit or Disposal Activities."

~~Westaff, Inc. (the~~ The ~~Parent),~~restructuring aresulted ~~Delaware~~in ~~corporation,~~the ~~and~~elimination ~~its~~of ~~domestic~~86 ~~and~~field ~~foreign subsidiaries (together~~positions, the ~~Company),~~closure ~~provide~~of ~~temporary~~26 ~~staffing~~branches ~~services~~prior into ~~the~~their ~~United~~lease ~~States, the~~termination ~~United Kingdom, Denmark, Australia, New Zealand~~ and ~~Norway. The~~a ~~consolidated~~reduction ~~financial~~in ~~statements include~~ the ~~accounts~~number of ~~the~~our ~~Parent~~geographic ~~and~~regions from ~~its~~eight ~~domestic~~to ~~and foreign subsidiaries~~four. ~~Intercompany~~ ~~accounts and transactions have been eliminated.~~

~~Translation~~ The Company recorded an expense in fiscal 2007 of ~~foreign~~$3.1 million ~~currencies~~associated with the restructuring plan which includes an estimated liability for leased locations based on the future minimum lease payments reduced by estimated sublease income.

~~The~~ ~~functional currency~~Depreciation ~~for each of the Company’s foreign operations is the applicable local currency. All assets~~ and liabilities that are denominated in foreign currencies are translated into U.S. dollars at exchange rates as of the date of the balance sheet and all revenue and expense accounts are translated using weighted average exchange rates for the periods presented. Translation adjustments and gains or losses on intercompany loans that are of a long-term investment nature are included as a separate component of stockholders’ equity. Aggregate transaction gains included in determining income (loss) from continuing operations were $182, $221 and $251 for fiscal years 2004, 2003 and 2002, respectively, and are included in selling and administrative expenses.amortization

~~Discontinued~~ Depreciation and amortization decreased by $1.0 million or 24.6% to $3.1 million, primarily due to certain technology ~~operations~~related assets becoming fully depreciated early in the year. The Company spent significant resources on the third phase of its BPM system which was originally anticipated to be implemented during fiscal 2007. The BPM system was placed in service in (and did not start depreciating until) the first quarter of fiscal 2008.

~~During~~ ~~fiscal~~Net ~~year 1999,~~interest the Company sold its medical business, primarily operated through Western Medical Services, Inc. (Western Medical), a wholly-owned subsidiary of the Company (see Note 3). As a result, the Company has classified its medical operations as discontinued operations and, accordingly, has segregated the net liabilities of the discontinued operations in the Consolidated Financial Statements and notes thereto.expense

Net interest expense increased 21.6% or $0.4 million to $2. ~~Summary~~3 million for fiscal 2007 as compared to fiscal 2006 primarily as a result of ~~Significant~~higher average interest rates which included an increase in our borrowing rate. The rate increase was imposed on actual borrowings and letters of credits issued to our insurance ~~Accounting~~administrator ~~Policies~~to secure outstanding worker compensation liabilities. The increased rates were offset by lower borrowing amounts during the fiscal year.

~~Fiscal year~~ Income tax provision

The ~~Company’s~~ income tax provision recorded during fiscal ~~year~~2006 isand a2007 52differs orfrom 53statutory ~~week~~rates ~~period~~primarily ~~ending~~due ~~the~~to ~~Saturday~~federal ~~nearest~~tax ~~the~~credits ~~end~~we oftake ~~October. Fiscal~~advantage ~~years 2004~~of, ~~2003~~primarily ~~and 2002~~as ~~each~~a ~~include~~result 52of ~~weeks~~the work opportunity tax credit program. ~~For~~ ~~interim reporting~~In ~~purposes~~addition, the ~~first~~fiscal ~~three~~2007 ~~fiscal~~tax ~~quarters~~provision ~~comprise~~also 12derives ~~weeks~~a ~~each while~~substantial ~~the~~tax ~~fourth~~benefit ~~fiscal~~from ~~quarter~~net ~~consists~~operating oflosses 16generated orin the 17current ~~weeks~~fiscal year.

~~Accounting estimates~~ Net loss

The ~~preparation~~net ~~of financial~~loss ~~statements~~for ~~in conformity with accounting principles generally accepted in~~ the ~~United~~fiscal ~~States~~year ~~requires~~2007 ~~management~~of to$1.9 million, ~~make~~or ~~estimates~~$0.12 ~~and assumptions~~per ~~that~~share, ~~affect~~as ~~the~~compared ~~reported~~with ~~amounts~~net income of ~~assets~~$3.1 million, or ~~and~~$0.19 ~~liabilities~~per ~~and disclosure~~share offor ~~contingent~~the ~~assets~~fiscal ~~and~~year ~~liabilities~~2006 atis ~~the~~a ~~date~~result of the ~~financial statements~~above ~~and~~mentioned ~~the~~items ~~reported amounts of revenue~~ and ~~expenses~~an ~~during~~increase ~~the reporting~~of ~~period~~$0. ~~Actual~~7 million ~~results~~in ~~could differ~~net ~~from~~income ~~those~~for ~~estimates~~discontinued operations.

~~Fair value~~ ofLiquidity ~~financial~~and ~~instruments~~Capital Resources

~~The~~ We ~~carrying~~ require significant amounts of ~~cash,~~working ~~accounts~~capital ~~receivable,~~to ~~accounts~~operate ~~payable~~our business and ~~all~~to ~~other~~pay ~~accrued~~ expenses ~~approximate~~relating ~~fair~~to ~~value~~employment atof ~~October~~temporary employees. ~~30,~~Our ~~2004~~traditional ~~and~~use ~~November 1, 2003 because~~ of ~~the~~cash ~~short~~is ~~maturity~~for financing of ~~these~~accounts ~~items. The~~receivable, ~~fair~~particularly ~~value~~during periods of ~~the~~economic ~~Company’s~~upswings ~~debt~~and ~~instruments~~growth ~~approximates~~when ~~the carrying~~sales ~~value~~are asseasonally ofhigh. ~~October~~Temporary ~~30,~~personnel ~~2004~~are typically ~~and~~paid ~~November~~on 1,a ~~2003~~weekly ~~based~~basis onwhile ~~current rates~~payments ~~available~~from tocustomers ~~the~~are ~~Company~~generally ~~for~~received ~~debt~~30 ~~with~~to ~~similar~~60 days ~~terms~~after billing.

~~Cash and cash equivalents~~38

~~The Company~~ ~~considers~~Table ~~all investments with maturities at purchase~~ of ~~three~~Contents ~~months or less to be cash equivalents.~~

~~Concentrations~~ We finance our operations primarily through cash generated by our operating activities and borrowings under our revolving credit facilities. Net cash provided by operations was $1.4 million for fiscal year ended November 1, 2008, compared to cash provided of ~~credit~~$2.9 million ~~risk~~for the fiscal year ended November 3, 2007, a decrease of $1.5 million. Changes in accounts receivable due to decreased sales and increased cash collections was the largest significant source of cash providing $21.2 million during the fiscal year ended November 1, 2008 as compared to $3.0 million for the fiscal year ended November 3, 2007. This source of cash provided by accounts receivable was offset by an increase in changes in accounts payable and accrued expenses of $11.2 million during fiscal year ended November 1, 2008 as compared to $0.6 million for the fiscal year ended November 3, 2007. For the fiscal year ended November 1, 2008, the net loss of $46.3 million includes $21.4 million of non-cash income tax expense, as described in Note 9, $5.8 million in non-cash depreciation and amortization, and $11.7 million of non-cash impairment to goodwill and intangibles, as described in Note 6, compared with a net loss of $1.9 million and $4.0 million in non-cash depreciation and amortization for the fiscal year ended November 3, 2007. Additionally, included in the Company's net loss for the fiscal year ended November 1, 2008, is a recorded gain, net of tax, of $0.4 million resulting from the sale of our former United Kingdom operations and related subsidiary on March 31, 2008, as described in Note 5.

~~The Company’s~~ Our ~~financial~~domestic ~~instruments~~days ~~that~~sales ~~potentially~~outstanding ~~subject~~(DSO) ~~the~~is ~~Company~~measured toby ~~concentrations~~dividing ~~of credit~~our ~~risk~~ending ~~consist~~net ~~principally~~accounts ofreceivable ~~trade~~balance ~~receivables. However,~~by ~~concentrations~~total sales multiplied by the number of ~~credit~~days ~~risk~~in ~~are~~the fiscal year. DSO at ~~limited~~November 1, ~~due~~2008 decreased to ~~the~~40.3 days ~~large~~from ~~number~~45.0 at November 3, 2007. This decrease in DSO was a result of ~~customers~~increased ~~comprising~~collection ~~the~~efforts ~~Company’s~~in ~~customer~~fiscal year 2008. We continue our ~~base~~efforts ~~and~~to ~~their~~focus ~~dispersion~~on ~~across~~reducing ~~different~~our ~~business~~DSO and ~~geographic~~believe ~~areas. Furthermore,~~that ~~the~~we ~~Company~~will ~~routinely~~be ~~assesses the~~successful ~~financial~~in ~~strength~~further ofreducing ~~its~~DSO ~~customers~~in fiscal year 2009.

~~Revenue~~ Cash ~~recognition~~provided by investing activities was $4.6 million for the fiscal year ended November 1, 2008, as compared to cash used for investing activities of $4.3 million for the fiscal year ended November 3, 2007. Capital expenditures, which are primarily for information system initiatives both domestically and internationally, were $0.6 million for the fiscal year ended November 1, 2008 compared to $4.1 million for the fiscal year ended November 3, 2007. The decrease in capital expenditures for the fiscal year ended November 1, 2008 was primarily a result of significantly less purchases of furniture and equipment both domestically and internationally, and the reduction of expenditures related to the domestic company's Peoplesoft system implementation which substantially occurred in the fiscal year ended November 3, 2007. As noted above in Discontinued Operations, effective March 31, 2008 the Company sold its UK subsidiary operations for proceeds of approximately $5.4 million net of cash acquired by the purchaser of $1.1 million. Expenses relating to the sale totaled $0.2 million.

~~Revenue~~ Cash used ~~from~~in financing activities was $5.3 million in the ~~sale~~fiscal year ended November 1, 2008 compared with cash provided by financing activities of $0.9 million for ~~services~~the isfiscal ~~recognized~~year atended ~~the~~November 3, ~~time~~2007. ~~the~~This ~~service~~increase in cash used for financing activities is ~~performed. The~~primarily ~~Company~~attributable ~~maintains~~to an ~~allowance~~increase ~~for~~in restricted cash of $5.0 million during the fiscal ~~doubtful~~year ~~accounts~~ended onNovember 1, ~~accounts~~2008, ~~receivable~~as ~~for~~described ~~estimated~~in ~~losses~~Note 4. A ~~portion~~In ofthe fiscal year ended November 1, 2008 the ~~Company’s~~company ~~revenue~~paid isdebt ~~derived~~issuance costs of $1.4 million, made principal payments ~~from~~on ~~affiliate~~capital ~~operations~~lease ~~which~~obligations ~~consist~~of $0.5 million and paid down our line of ~~franchise~~credit ~~agent~~by ~~and~~$0.5 million. ~~license~~The Company also increased borrowings on notes by drawing $2.2 million on its ~~operations~~subordinated loan facility.

F On February 14, 2008, the Company (through its wholly-6owned subsidiary Westaff (USA), Inc.) entered into a financing agreement with U.S. Bank National Association ("U.S. Bank"), as agent, and the lenders thereto, which provides for a five-year revolving credit facility that previously provided for an aggregate commitment of up to $50.0 million, including a letter of credit sub-limit of $35.0 million (the "Financing Agreement"). Borrowings under the Financing Agreement bear interest, at the Company's election, at either U.S. Bank's prime rate or at LIBOR plus an applicable LIBOR rate margin ranging from 1.25% to 2.00%. The Financing Agreement provides that a default rate would apply on all loan obligations in the event of default under the Financing Agreement and related

Revenue generated by franchise agents and related costs of services are included as part of the Company’s consolidated revenue and costs of services, respectively, since the Company has the direct contractual relationships with the customers, holds title to the related customer receivables and is the legal employer of the temporary employees. Franchise agents sales represented 28.4%, 26.4% and 24.1% of the Company’s total revenue for fiscal 2004, 2003 and 2002, respectively. The net distribution paid to the franchise agent for services rendered is based either on a percentage of sales or of the gross profit generated by the franchise agent’s operation and is reflected as franchise agents’ share of gross profit in the Consolidated Statements of Operations.39

~~The~~Table ~~Company also has a licensing program in which the licensee has the direct contractual relationships with the customers, holds title to the related customer receivables and is the legal employer~~ of the temporary employees. Accordingly, sales and costs of services generated by the license operation are not included in the Company’s consolidated financial statements. The Company advances funds to licensees for payroll, payroll taxes, insurance and other related items. Fees are paid to the Company based either on a percentage of sales or of gross profit generated by the licensee and such license fees are recorded by the Company as license fees and included in revenue. Advances to licensees are secured by a pledge of the licensee’s trade receivables, tangible and intangible assets and the license agreement. Advances due from licensees bear interest at prime plus two percent but only to the extent the aggregate advances exceed the amount of qualified trade receivables securing the outstanding advances. Under the terms of a lockbox arrangement between the Company and its licensees, the advances are reduced as remittances are received related to licensees’ trade accounts receivable. Licensees have pledged trade receivables of $255 at October 30, 2004 and $229 at November 1, 2003, respectively, as collateral for such advances. Sales generated by license offices (and excluded from the Company’s revenue) were $1,562, $4,417, and $6,102 for fiscal 2004, 2003 and 2002, respectively. The Company currently has only one remaining licensee and is no longer offering license agreements to new prospects.Contents

~~Although the Company has~~documents, ~~the~~at ~~contractual~~a ~~right~~rate toper ~~charge~~annum anof ~~initial~~2.0% ~~franchise~~above orthe ~~license~~applicable ~~fee~~interest ~~that encompasses~~rate. ~~start-up~~Interest ~~supplies~~is ~~and~~payable ~~material~~on ~~and~~a ~~training,~~monthly ~~the~~basis. The Company has ~~not charged~~$27.3 million orof ~~collected~~letters ~~such~~of ~~fees~~credit ~~during~~supporting ~~the fiscal years ended 2004, 2003 and~~workers' ~~2002,~~compensation ~~respectively,~~obligations ~~therefore~~outstanding ~~there~~under isthe noU.S. ~~recorded~~Bank ~~fee~~Credit ~~income~~facility ofat ~~this~~November 1, ~~type included~~2008, inbut ~~the~~no ~~Consolidated~~cash ~~Statements of Operations for those years~~borrowings.

~~Allowance~~ On May 23, 2008, the Company received a notice of default from U.S. Bank National Association ("U.S. Bank") (as agent for ~~doubtful~~itself ~~accounts~~and Wells Fargo Bank, National Association ("Wells Fargo"), as lenders, stating that (1) an Event of Default (as defined in the Financing Agreement) had occurred due to the Company's failure to achieve a minimum required Fixed Charge Coverage Ratio (as defined in the Financing Agreement) for the fiscal period ended April 19, 2008; and (2) as a result of the Event of Default, effective May 21, 2008, U.S. Bank increased the rate of interest to the default rate of interest on the borrowings outstanding under the Financing Agreement.

~~The~~ On July 31, 2008, the Company ~~records~~entered ~~an allowance~~into ~~for~~a ~~doubtful~~Forbearance ~~accounts~~Agreement ~~based~~with onU.S. ~~historical~~Bank ~~experience~~and the lenders. A ~~summary~~Pursuant to the terms of ~~changes~~the Forbearance Agreement, (i) the lenders agreed to forbear from exercising any of their default rights and remedies in response to the ~~reserve~~occurrence ~~for~~and continuance of the Event of Default commencing on the date of the Forbearance Agreement and ~~fiscal~~ending ~~years~~on ~~2004~~August 26, ~~2003~~2008, ~~and~~(ii) the ~~2002~~Company isagreed to a reduction in the aggregate amount of the commitments under the Financing Agreement from $50.0 million to $33.0 million effective as ~~follows:~~of June 23, 2008, and (iii) U.S. Bank agreed to maintain a reserve against the revolving credit availability to cover the Company's payroll and payroll tax obligations.

Fiscal Year Ended	Balance at Beginning of Year		Additions Charged to Costs and Expenses	Deductions	Balance at End of Year
October 30, 2004	$	1,067	1,075	1,018	$	1,124
November 1, 2003	$	1,316	639	888	$	1,067
November 2, 2002	$	1,260	1,510	1,454	$	1,316

On August 27, 2008, the Company entered into an Amended and Restated Forbearance Agreement with U.S. Bank and the lenders, and the lenders agreed to forbear from exercising any of their default rights and remedies through September 30, 2008 so long as no additional Events of Default occur. In addition, pursuant to the terms of the Amended and Restated Forbearance Agreement, (i) the parties agreed that U.S. Bank and the lenders shall continue to maintain a reserve against the revolving credit availability to cover the Company's payroll and payroll tax obligations, (ii) the Company agreed to continue to use its best efforts to have one of its undrawn letters of credit in the face amount of $27.0 million returned in exchange for cash collateral security, (iii) the Company agreed to pay to U.S. Bank and the lenders a one-time forbearance fee in the aggregate amount of $25,000. The interest rates applicable to the loans made pursuant to the Financing Agreement will continue at the default rate through September 30, 2008.

~~Property~~ On September 30, 2008, the Company entered into a Second Amended and Restated Forbearance Agreement with U.S. Bank and the lenders, and the lenders agreed to forbear from ~~plant~~exercising any of their default rights and ~~equipment~~remedies through November 21, 2008, so long as no additional Events of Default occur. In addition, pursuant to the terms of the Second Amended and Restated Forbearance Agreement, (i) the parties agreed to amend the Financing Agreement to add a minimum EBITDA financial covenant in respect of the next five 4-week fiscal periods, (ii) the parties agreed that U.S. Bank and the lenders shall continue to maintain a reserve against the revolving credit availability to cover the Company's payroll and payroll tax obligations, (iii) the Company agreed to continue to use its best efforts to have one of its undrawn letters of credit in the face amount of $27.0 million returned in exchange for cash collateral security, (iv) the Company agreed to comply with certain additional covenants relating to the pending sale of its shares in Westaff (Australia) Pty Limited and Westaff NZ Limited, dated as of September 27, 2008; (v) the Company agreed to provide U.S. Bank and the lenders with evidence that it has renewed its existing workers' compensation insurance policy or obtained a replacement, and (vi) the Company agreed to pay to U.S. Bank and the lenders a one-time forbearance fee in the aggregate amount of $25,000. The interest rates applicable to the loans made pursuant to the Financing Agreement will continue at the default rate through November 21, 2008.

~~Property, plant~~ On ~~and equipment are stated at cost.~~November ~~Depreciation~~20, is2008, ~~computed using~~ the ~~straight-line~~Company ~~method~~entered ~~over~~into ~~the estimated~~a ~~useful~~First ~~lives~~Amendment ofto the ~~related~~Second ~~assets,~~Amended ~~which are twenty-five to thirty-one years for buildings~~ and ~~three~~Restated toForbearance ~~ten~~Agreement ~~years~~with ~~for furniture and equipment~~U. ~~Major~~S. ~~improvements~~Bank ~~to leased office space are capitalized~~ and ~~amortized over~~ the ~~shorter of their useful lives or the terms of the leases~~lenders, ~~generally three to five years. The Company capitalizes internal~~ and ~~external costs incurred in connection with developing or obtaining internal use software in accordance with Statement of Position (SOP) 98-1 “Accounting for~~ the ~~Costs~~lenders ofagreed ~~Computer~~to ~~Software Developed or Obtained for Internal Use.”~~

~~Goodwill~~40

~~Effective~~Table ~~November 3, 2002, the Company adopted Statement~~ of Financial Accounting Standards (SFAS) No. 142 “Goodwill and Other Intangible Assets”. SFAS No. 142 provides that goodwill and other intangible assets with indefinite lives are no longer amortized, but rather are evaluated for impairment by applying a fair-value based test. During fiscal 2004 and fiscal 2003 the Company performed tests for impairment in accordance with the new standard (see Note 5). Prior to adoption of SFAS No. 142, the Company’s management assessed the recoverability of its long-lived assets, including goodwill, under the provisions of SFASContents

~~F-7~~forbear from exercising any of their default rights and remedies through December 5, 2008, so long as no additional Events of Default occur. The Company consented to the revision of certain additional covenants relating to the sale of its shares in Westaff (Australia) Pty Limited and Westaff NZ Limited, completed as of November 10, 2008. The interest rates applicable to the loans made pursuant to the Financing Agreement will continue at the default rate through December 5, 2008.

~~No.121 by determining~~ On ~~whether~~December 3, 2008, the ~~projected~~Company ~~undiscounted~~entered ~~future~~into ~~cash~~a ~~flows~~Second ~~expected~~Amendment to ~~result~~the ~~from~~ Second Amended and Restated Forbearance Agreement with U.S. Bank and the ~~use~~lenders, ofand the ~~asset~~lenders ~~were~~agreed ~~less~~to forbear ~~than~~from ~~the~~exercising ~~carrying~~any ~~value~~of their default rights and remedies through December 19, 2008, so long as no additional Events of ~~the~~Default ~~asset~~occur. In ~~fiscal~~The ~~2002,~~interest ~~this~~rates ~~assessment~~applicable ~~resulted~~to inthe aloans made ~~pre-tax~~pursuant ~~goodwill~~to ~~impairment~~the ~~charge~~Financing ofAgreement ~~$116~~will continue at the default rate through December 19, 2008.

~~Long-lived~~ The ~~assets~~Company is currently outside its forbearance period and is in discussions with its banks in order to seek a waiver or continued forbearance in respect of the Event of Default. There can be no assurance that the Company will be able to obtain a waiver or continued forbearance or that such a waiver or continued forbearance would be on terms acceptable to the Company. If the Company is unable to obtain a waiver or continued forbearance and the lenders elect to pursue remedies under the Financing Agreement, such as limiting or terminating the Company's right to borrow under the Financing Agreement or electing not to renew letters of credit, it would have a material adverse effect on the Company's business, financial condition, results of operations, cash flows and ability to continue our operations as a going concern. Under these circumstances, and unless the pending merger with Koosharem is completed, we may be required to seek alternative transactions, raise additional capital and/or consider filing for bankruptcy protection. There can be no assurance that any alternative transactions and/or additional capital would be available to us in the current challenging economic environment.

~~Effective November~~ On August 325, ~~2002~~ 2008, the Company ~~adopted~~secured ~~SFAS~~a No$3.0 million ~~144~~subordinated loan facility with its principal stockholder, ~~“Accounting~~Delstaff, LLC. ~~for~~This ~~the~~facility ~~Impairment~~may orbe used by the ~~Disposal~~Company for working capital and general business purposes during the term of ~~Long-Lived~~the ~~Assets”~~facility. The unpaid principal balance under the Subordinated Loan bears interest at an annual rate of twenty percent ~~Company’s~~(20%). ~~primary~~Interest ~~long~~is payable-~~lived~~in-kind ~~assets~~and ~~are~~accrues ~~property~~monthly ~~and~~in ~~equipment. SFAS~~arrears Noon the first day of each month as an increase in the principal amount of the Subordinated Loan. ~~144~~A ~~requires~~default arate applies ~~company~~on toall ~~assess~~obligations under the Subordinated Loan Agreement from and after the Maturity Date (August 15, 2009) and also during the existence of an Event of Default (as defined in the ~~recoverability~~Subordinated Loan Agreement) at an annual rate of ~~its~~ten ~~long~~percent (10%) also payable-~~lived~~in-kind ~~assets~~over ~~whenever~~the ~~events~~then-existing applicable interest rate and ~~circumstances~~if principal is not ~~indicate~~repaid on the ~~carrying~~Maturity ~~value~~Date, of an ~~asset~~additional or5% ~~asset~~of ~~group~~outstanding ~~may~~principal ~~not~~must be ~~recoverable~~paid along with the default rate interest. The obligations under the Subordinated Loan Agreement are secured by a ~~from~~security ~~estimated~~interest in substantially all of the existing and future ~~cash~~assets ~~flows~~(the ~~expected~~"Subordinated Collateral") of the Company. The lien granted to ~~result~~the ~~from~~Subordinated ~~its~~Lender ~~use~~in ~~and~~the ~~eventual~~Subordinated Collateral is ~~disposition~~subordinated to the lien in that same collateral granted to U. ~~Additionally,~~S. Bank. Borrowings in excess of $1.0 million require the ~~standard~~Subordinated ~~requires~~Lender ~~expected~~approval. ~~future~~The ~~operating~~Subordinated ~~losses~~Loan ~~from~~may ~~discontinued~~be ~~operations~~prepaid without penalty, subject to beapproval by U.S. Bank and the terms of an Intercreditor Agreement. Under certain circumstances, the Company must ~~displayed~~prepay inall ~~discontinued~~or ~~operations~~a inportion of any amounts outstanding under the ~~period(s)~~Subordinated inLoan ~~which~~Agreement, subject to the ~~losses~~terms ~~are~~of the Intercreditor Agreement. The outstanding loan balance at November 1, 2008 ~~incurred~~was $2.2 million, ~~rather~~which ~~than~~includes asa $0.2 million facility fee that was added to the loan balance upon receipt of the ~~measurement~~initial ~~date~~advance. No ~~impairment~~Accrued ~~charge~~and ~~has~~unpaid ~~been~~interest ~~recorded~~on ~~since~~this note at November 1, 2008 was $40,000. On January 7, 2009 and January 29, 2009, the ~~adoption~~Company was advanced a loan in an aggregate principal amount of ~~SFAS~~$500,000 Noeach for a total of an additional $1.0 million ~~144~~from DelStaff, LLC under the previously-announced loan agreement, dated as of August 25, 2008 (the "Subordinated Loan Agreement"), among DelStaff, LLC and the Borrowers.

~~Workers’~~ The ~~compensation~~Company has an unsecured subordinated promissory note in an amount of $2.0 million, dated May 17, 2002 and payable to the former Chairman of the Board of Directors. The note, matured on

The Company self-insures the deductible amount related to workers’ compensation claims. The deductible amount was $750 per claim for policy year 2004 and $500 per claim for policy years 2003 and 2002. The Company accrues the estimated costs of workers’ compensation claims based upon the expected loss rates within the various temporary employment categories provided by the Company. At least annually, the Company obtains an independent actuarial valuation of the estimated costs of claims incurred and reported and claims incurred but not reported and may adjust the accruals based on the results of the valuations. As of October 30, 2004 and November 1, 2003, the workers’ compensation liabilities were $16,382 and $9,756, respectively, of which $11,900 at October 30, 2004 and $7,500 at November 1, 2003 are included in other long-term liabilities for obligations which are not expected to be paid in the following fiscal year. In fiscal 2003, the Company was required to fully fund its 2003 policy year workers’ compensation obligations through cash deposits, which essentially offset the related accruals recorded for that policy year.41

~~The~~Table ~~Company is contractually required to collateralize its recorded obligations under the workers’ compensation insurance contracts with Travelers Indemnity Company through cash, irrevocable letters~~ of credit or surety bonds. During fiscal 2004, the Company was cash collateralizing its fiscal 2004 policy year through payments totaling $13,779. In the fourth quarter of fiscal 2004, Travelers returned the cash collateral and the Company issued $9,779 of additional letters of credit in its place. As of October 30, 2004, the aggregate collateral requirements were satisfied through $22,311 of letters of credit and a $3,843 million surety bond.Contents

~~Income~~August 18, ~~taxes~~2007, is now past due and has an interest rate equal to an indexed rate as calculated under the Company's credit facilities plus seven percent, compounded monthly and payable 60 calendar days after the end of each of the Company's fiscal quarters. The effective interest rate on November 1, 2008 was 11.0%. Payment of interest is contingent on the Company meeting minimum availability requirements under its credit facilities. Additionally, payments of principal or interest are prohibited in the event of any default under the credit facilities. U.S. Bank, which is the agent and a lender under our primary credit facility, has exercised its right to prohibit repayment of the note. Accrued and unpaid interest on this note at November 1, 2008 was $0.4 million and is included in accrued expenses in the Company's consolidated balance sheets.

~~The Company~~ In ~~records~~addition, ~~income~~our ~~taxes~~former ~~using~~Australian ansubsidiary ~~asset~~maintained ~~and~~a ~~liability~~$12.0 million ~~approach~~Australian ~~that~~dollar ~~requires~~facility ~~the recognition~~agreement ofwith ~~deferred~~GE ~~tax~~Capital ~~assets~~that ~~and~~was ~~liabilities~~due ~~for~~to ~~the~~expire ~~expected~~in ~~future~~May ~~tax consequences~~2009. As of November 1, ~~events~~2008, ~~that~~our ~~have~~total ~~been~~borrowing ~~recognized~~capacity inwas ~~the~~$3.3 million, ~~Company’s~~consisting ~~financial statements~~of or$1.5 million ~~tax~~with ~~returns~~U. AS. ~~valuation allowance~~Bank isfor ~~established~~our ~~when~~domestic itoperations isand ~~more~~$1.8 million ~~likely~~with ~~than~~GE ~~not~~Capital ~~that~~for our aformer ~~deferred~~Australian ~~tax asset~~operations. isOn ~~not~~September 27, ~~realizable~~2008, in the ~~foreseeable~~Company ~~future. In~~entered ~~estimating~~into ~~future~~a ~~tax~~definitive ~~consequences,~~agreement ~~the Company~~to ~~generally~~sell ~~considers~~its ~~all~~Australia ~~expected~~and ~~future~~New ~~events~~Zealand ~~other~~subsidiaries ~~than~~and ~~enactments~~the ofsale was completed on ~~changes~~November 10, in2008. In connection with the ~~tax~~agreement, ~~law~~the orAustralian ~~rates~~GE Capital debt was paid in full.

~~Accounting~~ We ~~for~~work ~~stock-based~~to ~~compensation~~balance our worldwide cash needs through dividends from and loans to our international subsidiaries. These loans and dividends are limited by the cash availability and needs of each respective subsidiary, restrictions imposed by our senior secured debt facilities and, in some cases, statutory regulations of the subsidiary. The U.S. operations cannot directly draw on the excess borrowing availability of the Australian operations; however, we may request repayments on its intercompany loan to Australia, along with intercompany interest and royalties, although remittances from Australia may be limited by certain covenants under the terms of the Australia credit facility. The outstanding principal on the intercompany loan to Australia was approximately $3.6 million at November 1, 2008. An additional $1.1 million was outstanding from New Zealand to the U.S at November 1, 2008. On September 27, 2008, the Company entered into a definitive agreement to sell its Australia and New Zealand subsidiaries at which time the debt was contributed to capital as an increase to the basis of the sale.

~~The Company measures~~ We ~~compensation~~are ~~cost~~responsible for ~~employee stock options~~ and ~~similar~~pay ~~equity~~workers' ~~instruments using~~compensation ~~the~~costs ~~intrinsic~~for ~~value-based~~our ~~method~~domestic oftemporary ~~accounting~~and ~~prescribed~~regular byemployees ~~Accounting Principles~~and ~~Board~~are ~~Opinion~~self-insured ~~No.~~for ~~25,~~the ~~“Accounting~~deductible ~~for~~amount ~~Stock~~related ~~Issued~~ to ~~Employees”(APB~~workers' compensation ~~25),~~claims ~~and~~to ~~follows~~a ~~the~~limit ~~disclosure-only provisions~~ of ~~SFAS~~ ~~No. 123~~$750,000 ~~“Accounting~~per claim for ~~Stock-Based~~fiscal ~~Compensation”,~~2008 asclaims ~~amended~~and ~~by SFAS No. 148~~$500,000 ~~“Accounting~~per claim for ~~Stock-Based~~fiscal ~~Compensation~~years —2007 ~~Transition~~ and ~~Disclosure”~~2006. ~~Accordingly~~ Typically, ~~compensation~~each ~~cost~~policy isyear ~~not recognized~~the ~~for~~terms ~~options~~of ~~granted~~the atagreement ~~fair~~with ~~market~~the insurance ~~value~~carrier are renegotiated. The ~~following~~insurance ~~table~~carrier ~~represents~~requires ~~pro~~us ~~forma~~to ~~net income~~collateralize ~~(loss)~~our ~~and~~obligations ~~pro~~through ~~forma~~the ~~earnings~~use ~~(loss)~~of ~~per~~irrevocable ~~share~~standby ~~had~~letters ~~compensation~~of ~~cost been~~credit, ~~determined~~surety ~~using~~bonds ~~the~~or ~~fair~~cash. ~~value method:~~

	Fiscal year ended
	October 30,			November 1,			November 2,
	2004			2003			2002
Net income (loss) as reported	$	3,473		$	(5,128	)	$	(1,431	)
Employee stock based compensation expense
determined under fair value based method	(443		)	(466		)	(477		)
Pro forma net income (loss)	$	3,030		$	(5,594	)	$	(1,908	)
Earnings (loss) per share as reported	$	0.22		$	(0.32	)	$	(0.09	)
Pro forma earnings (loss) per share	$	0.19		$	(0.35	)	$	(0.12	)

For our 2008 policy year insurance program, we made cash premium payments totaling $4.2 million paid in equal monthly installments, which commenced on November 4, 2007, as compared to $4.8 million paid during fiscal year ended November 3, 2007. Cash payments for 2008 policy year claims will be paid directly by us up to our deductible which was increased from $500,000 per claim to $750,000 per claim for fiscal 2008 claims. As of November 1, 2008, we had outstanding $27.3 million of letters of credit and paid an additional $1.0 million in cash to secure all estimated outstanding obligations under our workers' compensation program for all years except 2003, which is fully funded although subject to annual retroactive premium adjustments based on actual claims activity. We will also make ongoing cash payments for claims for all other open policy years (except for 2003 as noted above).

~~Because~~ We calculate ~~stock~~the ~~options generally~~estimated ~~become~~liabilities ~~exercisable~~associated ~~over~~with ~~several~~these ~~years~~programs ~~and~~based ~~additional~~on ~~grants~~our ~~are likely~~estimate of the ultimate costs to besettle ~~made~~known inclaims ~~future~~as ~~years,~~well ~~the~~as ~~pro~~claims ~~forma~~incurred ~~amounts~~but ~~for~~not ~~compensation~~yet ~~cost~~reported ~~may~~to ~~not~~us be("IBNR ~~indicative~~claims") as of the ~~effects~~balance onsheet ~~net~~date. ~~income~~Our ~~and~~estimated ~~earnings~~liabilities ~~per~~are ~~share~~not ~~for future~~discounted ~~years. See~~and ~~Note~~are 13based ~~for~~ on information onprovided ~~the~~by ~~assumptions~~our ~~used~~insurance inbrokers, ~~determining~~insurers ~~the~~and ~~fair~~actuary, ~~value~~combined ofwith ~~option~~our ~~grants.~~judgment

~~Reclassifications~~42

~~Certain~~Table ~~amounts~~of ~~in the fiscal 2003 and fiscal 2002 financials have been reclassified to conform to the current year presentation.~~Contents

Fregarding a number of assumptions and factors, including the frequency and severity of claims, claims development history, case jurisdiction, applicable legislation and our claims settlement practices. We maintain stop-8loss coverage with third party insurers to limit our total exposure for each of these programs. Significant judgment is required to estimate IBNR amounts as parties have yet to assert such claims. If actual claims trends, including the severity or frequency of claims, differ from our estimates, our financial results could be impacted.

~~Recent~~ We ~~accounting~~continue ~~pronouncements~~to evaluate other opportunities to further strengthen our financial position and improve our liquidity. For a discussion regarding going concern considerations, please see "Going Concern Considerations" above elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations.

In ~~December 2004,~~ ~~the~~ ~~Financial Accounting Standards Board (FASB) issued Statement of Financial~~ ~~Accounting Standards No. 123 (revised 2004) “Share~~ Off-~~Based~~Balance ~~Payment”~~Sheet (SFAS 123 (R)). SFAS 123 (R) replaces FASB Statement No. 123 “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No 25 “Accounting for Stock Issued to Employees”. The statement establishes standards for accounting for share-based payment transactions. Share-based payment transactions are those in which an entity exchanges its equity instruments for goods or services, or in which an entity incurs liabilities in exchange for goods or services, that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. SFAS 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. SFAS 123(R) requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date (with limited exceptions). That cost will be recognized in the entity’s financial statements over the period during which the employee is required to provide services in exchange for the award. The Company is required to adopt SFAS 123(R) in the fourth quarter of fiscal 2005, and has not currently evaluated the impact of adoption on its overall results of operations or financial position.Arrangements

~~In January 2003, the FASB issued FASB Interpretation No~~ None. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51” (FIN 46). FIN 46 provides guidance on identifying variable interest entities and assessing whether or not they should be consolidated. In December 2003, the FASB issued a revised interpretation (FIN-46R) primarily to clarify the required accounting for interests in variable interest entities. The Company adopted the interpretation during fiscal 2004. The adoption did not have a material impact on the Company’s consolidated results of operations or financial position.

~~3. Discontinued~~ ~~Operations~~ Contractual Obligations

~~During~~ The ~~fiscal~~following ~~1999~~summarizes ~~the Company~~our ~~discontinued~~contractual ~~its~~cash ~~medical~~obligations ~~business~~in ~~(Western~~future ~~Medical)~~fiscal ~~principally~~years ~~through a~~(in ~~sale~~millions) toas ~~Intrepid U.S.A. Under the terms~~ of ~~the sale~~November 1, ~~the~~2008: ~~Company retained the majority of accounts receivable, including trade and Medicare accounts receivable balances.~~

Prior to fiscal 2003, the Company appealed Western Medical’s 1996 Medicare cost report settlement. During the first quarter of fiscal 2003, as a result of the favorable appeal settlement, the Company recognized $316 of income from discontinued operations.

	Payment Due by Period

Contractual Obligations	Total		Less than one fiscal year		1 to 3 fiscal years		4 to 5 fiscal years		More than 5 fiscal years
Operating leases	$	5.5	$	2.3	$	3.2	$	—	$	—
Workers' compensation policy year 2009(3)		0.7		0.7		—		—		—
Promissory notes(2)		4.2		4.2		—		—		—
Capital leases—principal		0.8		0.6		0.2		—		—
Capital leases—interest		0.1		0.1		—		—		—
Discontinued operations—credit facilities(1)		4.6		4.6		—		—		—

Total Contractual Obligations	$	15.9	$	12.5	$	3.4	$	—	$	—

(1): The Australian dollar facility agreement (see Note 7) was set to expire in May 2009. The debt has been classified as current liabilities held for sale in the consolidated balance sheet as of November 1, 2008 due to the agreement to sell the Australia subsidiary which was entered into as of September 27, 2008. In connection with the agreement, Westaff (USA), Inc. repaid the debt in full subsequent to year end.
(2): Payments under the promissory notes are subject to certain restrictions regarding borrowing capacity and compliance within our senior secured credit facilities.
(3): Workers' compensation obligations through February 2009 reflect the minimum amount due for premiums only. We self insure for workers' compensation and pay claims as incurred.

~~During~~ ~~the third quarter~~ of ITEM ~~2004, the Company resolved certain significant legal and liability claims and evaluated future risks associated with remaining pending claims~~7A. As QUANTITATIVE aAND ~~result,~~QUALITATIVE ~~$150~~DISCLOSURES ofABOUT ~~income~~MARKET ~~from discontinued operations was recognized and is reflected in the Statement of Operations for the fiscal year ended October 30, 2004~~RISK.

As We are exposed to certain market risks from transactions that are entered into during the normal course of ~~October~~business. Our primary market risk exposure relates to interest rate risk. At November 301, ~~2004,~~ 2008 our outstanding debt for the ~~remaining~~US ~~current~~and ~~liabilities~~Australia reporting units under variable-rate interest borrowings was approximately $9.1 million. A change of two percentage points in the ~~discontinued~~interest ~~medical~~rates ~~operations are~~would ~~for~~cause ~~settled~~a ~~but~~change ~~unpaid~~in ~~claims~~interest expense of approximately $~~190~~0.2 million ~~and~~on ~~other~~an ~~costs~~annual ofbasis. ~~$35~~Our exposure to market risk for changes in interest rates is not significant with respect to interest income, as our investment portfolio is not material to our consolidated balance sheet. We currently have no plans to hold an investment portfolio that includes derivative financial instruments.

	Fiscal Year Ended
	October 20, 2004			November 1, 2003
Balance sheet data:
Current assets				$	15
Current liabilities	$	(225	)	(644		)
Net liabilities of discontinued operations	$	(225	)	$	(629	)

~~4. Restructuring~~ ~~Charges~~Table of Contents

~~During~~ We ~~fiscal~~are ~~2002,~~exposed ~~the~~to ~~Company implemented~~foreign acurrency ~~restructuring~~risk ~~plan~~primarily ~~designed~~due to ~~improve~~our ~~the~~investments ~~Company’s profitability. The restructuring plan resulted~~ in aforeign ~~fiscal 2002 pre-tax charge to operations of $1,896~~subsidiaries. OfSince ~~this amount, $993 was~~ the ~~result~~ ofCompany ~~abandoning~~entered ~~front~~into ~~and~~a ~~back~~definitive ~~office~~agreement ~~management information systems that~~on ~~were~~September 27, ~~under~~2008 ~~development with two software vendors. One of these vendors chose~~ to ~~cease~~sell ~~further development of~~ its ~~portion~~Australia ~~of the project~~ and ~~that~~New ~~caused~~Zealand ~~the~~subsidiaries ~~continued development~~and ~~of these systems to no longer be cost-effective for~~ the ~~Company. In~~sale ~~conjunction~~was ~~with~~not ~~this~~completed ~~abandonment,~~until ~~the Company recognized the historical fees paid to vendors~~November 10, ~~fees paid to consultants and certain in-house development costs as expenses~~2008, ~~all~~there ofis ~~which had~~a ~~been~~risk ~~previously~~that ~~capitalized.~~the Anexchange ~~additional~~rate ~~$629~~will ~~resulted~~fluctuate ~~from severance~~ and ~~other~~negatively ~~employment~~impact ~~termination costs due to planned personnel reductions. Finally, as of~~ the ~~date~~gain ~~the~~on ~~restructuring plan was finalized,~~ the ~~Company decided to close 18 offices within the United States and the resulting termination costs, including lease terminations, were estimated to be $274~~sale.

5 We do not currently hold any market risk sensitive instruments entered into for hedging transaction risks related to foreign currencies. ~~Goodwill~~ In addition, we have not entered into any transactions with derivative financial instruments for trading purposes.

~~Effective~~ ~~November 3,~~ ~~2002,~~ ITEM ~~the Company adopted SFAS No~~8. FINANCIAL ~~142~~STATEMENTS ~~“Goodwill~~AND ~~and~~SUPPLEMENTARY ~~Other Intangible Assets”~~DATA. ~~SFAS No. 142 provides that goodwill and other intangible assets with indefinite lives are no longer amortized, but rather are evaluated for~~

~~F-9~~ Our Financial Statements and Supplementary Data required by this Item are set forth at the pages indicated at Item 15(a).

~~impairment~~ ~~by applying a fair-value based~~ ~~test. The~~ ITEM ~~impairment test is comprised of two parts~~9. ~~The~~ CHANGES ~~first~~IN ~~step~~AND ~~compares the~~DISAGREEMENTS ~~fair~~WITH ~~value~~ACCOUNTANTS ofON aACCOUNTING ~~reporting~~AND ~~unit~~FINANCIAL ~~with its carrying value, including goodwill~~DISCLOSURE. If the carrying value of a reporting unit exceeds its fair value, the second step of the goodwill impairment test must be performed. The second step compares the implied fair value of the reporting units’ goodwill with the respective carrying value to determine the amount of impairment loss, if any.

~~During fiscal 2003, the Company performed tests for impairment in accordance with the new standard~~ None. In the initial test under the transitional provisions of SFAS No. 142, the Company determined that an impairment of $670 existed in its Australia reporting unit. In accordance with SFAS No. 142, the impairment was classified as a cumulative effect of a change in accounting principle and resulted in a restatement of the Company’s net loss for the fiscal quarter ended January 25, 2003.

~~The~~ ~~Company performed its~~ ~~annual~~ ITEM ~~impairment evaluations in the fourth quarters of fiscal 2003 and fiscal 2004~~9A(T). No CONTROLS ~~additional~~AND ~~impairments were identified~~PROCEDURES.

In ~~accordance with SFAS~~ ~~No.~~ Management's ~~142,~~Evaluation ~~no amortization~~ of ~~goodwill~~Disclosure ~~was~~Controls ~~recorded for fiscal 2004~~ and ~~fiscal 2003~~Procedures. During fiscal 2002, the Company recorded goodwill amortization of $875. Excluding this amortization expense, the net loss for fiscal 2002 would have been $556 or $(0.4) per share. The increase in the carrying amount of goodwill of $73 during the fiscal year ended October 30, 2004 was due to the effect of foreign currency translation.

6 We carried out an evaluation required by the 1934 Act, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the 1934 Act. ~~Earnings~~ ~~per~~Based ~~Share~~on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of November 1, 2008 (the end of the period covered by this report), our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the 1934 Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

~~The~~ ~~following~~ ~~table sets~~ ~~forth~~ Management's ~~the~~Annual ~~computation~~Report ofon ~~basic~~Internal ~~and~~Control ~~diluted~~over ~~earnings~~Financial ~~(loss) per share from continuing operations:~~Reporting.

	Fiscal Year Ended
	October 30, 2004		November 1, 2003			November 2, 2002
Income (loss) from continuing operations before cumulative effect of change in accounting principle	$	3,323	$	(4,774	)	$	(1,431	)
Denominator for basic earnings per share - weighted average shares	16,033		15,996			15,945
Effect of dilutive securities:
Stock options	48		—			—
Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions	16,081		15,996			15,945
Basic and diluted earnings (loss) per share from continuing operations before cumulative effect of change in accounting principle	$	0.21	$	(0.30	)	$	(0.09	)
Antidilutive weighted shares excluded from diluted earnings per share	416		1,061			366

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements in accordance with generally accepted accounting principles and includes those policies and procedures that:

•: pertain to the maintenance of records that in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
•: provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and
•: provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

~~7. Transactions with Related Parties~~44

InTable ~~2002, the Company executed an unsecured subordinated promissory note payable to its principal stockholder and Chairman~~ of the Board of Directors in the amount of $2,000 with a maturity date of August 18, 2007 and an interest rate equal to an indexed rate as calculated under the Company’s credit facilities plus seven percent, compounded monthly and payable 60 calendar days after the end of each of the Company’s fiscal quarters. The interest rate in effect on October 30, 2004 was 11.75%. Payment of interest is contingent on the Company meeting minimum availability requirements under its credit facilities. Additionally, payments of principal or interest are prohibited in the event of any default under the credit facilities. Interest paid on this note during fiscal 2004, fiscal 2003 and fiscal 2002 was $222, $230 and $68, respectively.Contents

On Because of ~~September 25,~~its ~~2003~~inherent ~~the Company~~limitations, ~~executed~~internal acontrol ~~one-year~~over ~~unsecured~~financial ~~subordinated~~reporting ~~draw~~may ~~down~~not ~~note~~prevent ~~with~~or ~~its principal~~detect ~~stockholder~~misstatements. ~~and~~Projections ~~Chairman~~ of ~~the~~any ~~Board~~evaluation of ~~Directors. The note provided for~~ the ~~Chairman~~effectiveness toof ~~make~~internal ~~advances~~control toover ~~the~~financial ~~Company~~reporting ~~upon request, at his sole discretion and with no obligation~~ to dofuture ~~so,~~periods inare ansubject ~~aggregate principal amount not~~ to ~~exceed~~the ~~$1,000~~risks ~~outstanding~~and ~~at any~~controls ~~one~~that ~~time.~~may Onbecome ~~December 23,~~inadequate ~~2003~~because ~~the~~of ~~Chairman~~changes ~~made~~in ~~a $1~~conditions,~~000~~ ~~advance~~or to the ~~Company~~degree ~~which~~of ~~was~~compliance ~~repaid~~with ~~on August 3, 2004. Total interest paid on~~ the ~~advance~~policies ~~during~~or ~~fiscal~~procedures ~~2004~~may ~~was $68~~deteriorate.

~~8. Property~~ A material weakness is a control deficiency, ~~Plant~~or ~~and~~combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim ~~Equipment~~financial statements will not be prevented or detected.

~~Property~~ Our management assessed the effectiveness of our internal control over financial reporting at November 1, ~~plant~~ 2008, and ~~equipment~~in ~~consists~~making this assessment, used the criteria set forth by the Committee of Sponsoring Organizations of the ~~following:~~Treadway Commission (COSO) in Internal Control-Integrated Framework in accordance with the standards of the Public Company Accounting Oversight Board (United States).

	October 30, 2004			November 1, 2003
Land and buildings				$	2,251
Computer hardware and software	$	24,542		25,794
Computer equiment under capital lease	1,369			1,369
Equipment, furniture and fixtures	17,787			20,003
	43,698			49,417
Less accumulated depreciation and amortization	(33,514		)	(36,848		)
	$	10,184		$	12,569

During each of the first three quarters of fiscal year 2008, we carried out an evaluation, under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon these evaluations, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to the existence of a continuing material weakness relating to a lack of qualified resources within the accounting department as previously identified in our Quarterly Reports on Form 10-Q for the quarterly periods ended January 26, 2008, April 19, 2008 and July 12, 2008. These prior Quarterly Reports also identified several other weaknesses in our disclosure controls and procedures, which we believe have been remedied, including burdens placed on our existing accounting department by billing system implementation issues, since resolved, a delayed finalization of our fiscal year 2007 audit, since completed, and issues in completing account reconciliations on a timely basis, which the Company has since resolved.

~~Depreciation~~ During ~~expense~~the ~~was~~last $4quarter of fiscal year 2008,~~465,~~ $5we carried out an evaluation,~~307,~~ under the supervision and ~~$5,388~~with ~~for~~the ~~fiscal~~participation ~~years~~of ~~2004~~our senior management, ~~2003~~including our Chief Executive Officer and ~~2002~~Chief Financial Officer, ~~respectively~~ of the effectiveness of the design and operation of our disclosure controls and procedures. ~~Amortization~~The material weakness identified in each of ~~capital~~the ~~leased~~first ~~equipment~~three ~~included~~quarters of fiscal year 2008 relating to lack of qualified resources has been remedied. Effective June 16, 2008, the Company underwent a change in ~~depreciation~~management, by hiring a new Chief Operating Officer and ~~expense~~Chief Financial Officer, both with significant industry and Company experience. Effective September 22, 2008, a new Vice President, Controller was ~~$466~~hired ~~for~~who ~~fiscal~~brings ~~2004~~relevant financial knowledge and ~~$365~~expertise ~~for~~to ~~fiscal~~the ~~2003~~Company. Additionally, a Senior Accounting Manager with over 12 years of experience with the Company was promoted to manage the accounting department.

~~In February 2004,~~ With the ~~Company~~hiring ~~completed~~of ~~the~~key, ~~sale~~experienced executive personnel, resolution of ~~its~~previously ~~remaining~~identified ~~unoccupied~~control ~~corporate headquarters’~~weaknesses, ~~building~~and ~~for~~the ~~proceeds~~strengthening of $1internal controls and procedures,~~938.~~ Management ~~The~~believes ~~$725~~the ~~gain~~material onweakness ~~the~~previously ~~sale~~assessed in each of the ~~land~~first ~~and~~three ~~the~~quarters ~~building~~of isfiscal ~~included~~year ~~in selling~~2008 has been remediated and ~~administration~~conclude ~~expenses~~that ~~for~~our ~~the~~internal ~~fiscal~~control ~~year~~over ~~ended~~financial ~~October~~reporting was effective as of November 301, ~~2004~~ 2008.

F- This Annual Report on Form 10-K does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

~~9. Borrowings~~ ~~Under~~ ITEM ~~Revolving~~9B. OTHER ~~Credit Facilities and Loans Payable~~INFORMATION.

~~On May 17, 2002 the Company entered into agreements with GE Capital, as primary agent, to provide senior secured credit facilities totaling $65,000, expiring in May 2007~~ None. The facilities comprise a five-year syndicated Multicurrency Credit Agreement consisting of a $50,000 US Revolving Loan Commitment, a £2,740 UK Revolving Loan Commitment (US dollar equivalent of approximately $4,000 at the date of the agreement), and a $5,000 term loan (the Term Loan), which was repaid during fiscal 2003. In addition, a five-year Australian dollar facility agreement (the A$ Facility Agreement) was executed on May 16, 2002, consisting of an A$12,000 revolving credit facility (US dollar equivalent of approximately $6,000 at the date of the agreement). Each agreement includes a letter of credit sub-facility. Letters of credit under the agreements expire one year from date of issuance but are automatically renewed for one additional year unless written notice is given to or from the holder.

The US Revolving Loan Commitment provides for an aggregate $50,000 commitment subject to a borrowing base calculation on eligible domestic accounts receivable. Direct advances are also limited by outstanding irrevocable standby letters of credit up to a maximum of $35,000. Interest on borrowings under the commitment is based either on an index rate equal to the higher of the Federal Funds Rate plus 0.50% or the bank prime loan rate, each plus applicable margins of up to 0.50%, or on LIBOR plus margins ranging from 2.25% to 2.75%. Borrowings outstanding under the US Revolving Loan Commitment at October 30, 2004 were $10,974 at a weighted average interest rate of 4.62% and at November 1, 2003 were $21,585 at a weighted average interest rate of 4.36%.45

~~The~~Table UK Revolving Loan Commitment is subject to a borrowing base calculation on eligible Westaff (U.K.) accounts receivable. Interest on outstanding borrowings is based on the British prime rate plus margins of up to 0.50%. Borrowings outstanding under the UK Revolving Loan Commitment were US$1,408 at October 30, 2004 with an interest rate of 4.75% and US$5 at November 1, 2003 with an interest rate of 4.75%.Contents

~~The~~ ~~A$ Facility Agreement is~~ ~~subject~~ ~~to a borrowing base calculation on eligible Westaff (Australia)~~ ~~accounts~~ PART receivable. Direct advances are limited by outstanding letters of credit up to a maximum of A$500. Interest on borrowings is based on the Australian 90-day Bank Bill Swap Rate plus a margin of 2.5% to 3.5%. At October 30, 2004, borrowings of US$3,352 were outstanding under the A$ Facility Agreement at an interest rate of 5.47% and at November 2, 2003 borrowings outstanding were US$3,820 at an interest rate of 4.95%.III

~~The~~ ~~credit facilities expire in May~~ ~~2007~~ ITEM 10. ~~The~~ DIRECTORS ~~Company~~AND ~~has~~EXECUTIVE ~~classified~~OFFICERS ~~all~~AND ~~of its~~CORPORATE borrowings under the revolving credit facilities as a current liability in accordance with Emerging Issues Task Force (EITF) 95-22 “Balance Sheet Classifications of Borrowings Outstanding under Revolving Credit Agreements That Include Both a Subjective Acceleration Clause and a Lock-Box Arrangement”, although the Company has the ability and the intent to maintain these obligations for longer than one yearGOVERNANCE.

The ~~credit~~information ~~facilities~~required ~~are secured~~ by ~~substantially~~this ~~all~~Item ofis ~~the~~incorporated ~~assets~~herein ofby ~~the~~reference ~~Company. GE~~from ~~Capital,~~our inProxy ~~its~~Statement ~~role~~for asour ~~primary~~2009 ~~agent under~~Annual ~~the~~Meeting ~~credit~~of Stockholders ~~facilities,~~or ~~has~~an ~~sole~~amendment ~~dominion~~to ~~and~~this ~~control~~Annual ~~over~~Report ~~the~~on ~~Company’s primary U.S.~~Form 10-K, ~~United~~in ~~Kingdom~~either ~~and~~case ~~Australia~~to ~~cash~~be ~~receipts~~filed ~~accounts. Cash~~with ~~receipts~~the ~~into~~Securities ~~these~~and ~~accounts~~Exchange ~~are~~Commission ~~applied against~~no ~~the~~later ~~Company’s~~than ~~respective~~120 days ~~outstanding~~after ~~obligations under~~ the ~~facilities,~~end ~~with~~of ~~additional~~our ~~borrowings~~fiscal ~~under~~year ~~the~~ended ~~revolving~~November 1, ~~facilities directed into the Company’s disbursement accounts~~2008.

~~The~~ ~~credit facilities contain~~ ~~covenants~~ ITEM ~~which, among other things, require the Company to maintain a minimum fixed charge coverage ratio and a minimum earnings before interest, taxes, depreciation and amortization (EBITDA)~~11. EXECUTIVE The covenants also generally restrict, limit or, in certain circumstances, prohibit the Company with respect to payment of dividends, capital expenditures, disposition of assets, incurrence of debt, mergers and acquisitions, loans to affiliates and purchases of investmentsCOMPENSATION.

On The ~~February 20,~~information ~~2004,~~required ~~the Company~~by ~~and~~this ~~its~~Item ~~lending~~is ~~agents~~incorporated ~~executed~~herein aby ~~fourth~~reference ~~amendment~~from toour ~~the agreement. The~~Proxy ~~amendment~~Statement ~~allowed certain one-time add-backs to EBITDA~~ for ~~the~~our ~~fiscal~~2009 ~~period~~Annual ~~ended~~Meeting ~~November 1, 2003,~~of ~~which~~Stockholders ~~corrected~~or ~~certain~~an ~~covenant defaults and reset the EBITDA and certain other covenants going forward. The~~ amendment ~~also~~to ~~required~~this aAnnual ~~separate~~Report ~~EBITDA covenant calculation for the Company’s domestic operations~~ on ~~a stand-alone basis.~~Form ~~In addition~~10-K, ~~the~~in ~~amendment~~either ~~reset~~case ~~the~~to ~~reserves~~be ~~which~~filed ~~affect~~with the ~~Company’s borrowing~~Securities ~~capacity,~~and ~~redefined~~Exchange ~~eligible~~Commission ~~trade~~no ~~accounts~~later ~~receivable~~than ~~for~~120 days ~~purposes of~~after ~~calculating~~ the ~~US and UK borrowing base, increased the applicable margins~~end ~~on outstanding irrevocable letters~~ of ~~credit~~our ~~by 1.0% and reduced maximum capital expenditures allowed for~~ fiscal ~~2004~~year byended $November 1,~~000~~ 2008.

~~Effective~~ ~~July 31,~~ ~~2004~~ ITEM ~~the Company and its lenders executed a fifth amendment to the Multicurrency Credit Agreement~~12. SECURITY ~~The~~OWNERSHIP ~~amendment~~OF ~~increased~~CERTAIN ~~the~~BENEFICIAL ~~eligible~~OWNERS ~~collateral that~~AND ~~may~~MANAGEMENT beAND ~~used~~RELATED ~~for~~STOCKHOLDER ~~the Company’s borrowing base and eliminated certain reserves against the borrowing availability~~MATTERS. Additionally, the amendment reset consolidated minimum EBITDA covenants, eliminated the requirement for a separate EBITDA covenant calculation for domestic operations, reduced the range of margins on bank borrowings and outstanding letters of credit and increased allowable capital expenditures for fiscal 2004 to $5,000.

F The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2009 Annual Meeting of Stockholders or an amendment to this Annual Report on Form 10-11K, in either case to be filed with the Securities and Exchange Commission no later than 120 days after the end of our fiscal year ended November 1, 2008.

On ~~January 5, 2005,~~ a ITEM ~~sixth amendment to the Multicurrency Credit Agreement was executed~~13. ~~The~~ CERTAIN ~~amendment,~~RELATIONSHIPS ~~among~~AND ~~other~~RELATED ~~things~~TRANSACTIONS, ~~allows~~AND ~~a $1,400~~DIRECTOR add-back adjustment to the EBITDA covenant at October 30, 2004 for additional workers’ compensation charges the Company incurred during the fourth quarter of fiscal 2004 relating to adverse loss development on historical claimsINDEPENDENCE.

At The ~~October 30,~~information ~~2004,~~required ~~the~~by this Item is incorporated herein by reference from our Proxy Statement for our 2009 Annual Meeting of ~~Company~~Stockholders ~~had~~or ~~$22,631~~an ~~available~~amendment ~~under~~to ~~the~~this ~~credit~~Annual ~~facilities~~Report on Form 10-K, ~~$23,011~~ in ~~letters~~either ofcase ~~credit outstanding~~to be filed with the Securities and ~~was~~Exchange inCommission ~~compliance~~no ~~with~~later ~~all~~than ~~covenants~~120 days ~~under~~after the ~~credit~~end ~~agreement~~of our fiscal year ended November 1, 2008.

In ~~addition to its outstanding letters of~~ ~~credit,~~ ITEM ~~the Company has an outstanding financial guarantee bond in the amount of $3,843 that secures a portion of its workers’ compensation premium and deductible obligations~~14. ~~Ninety~~ PRINCIPAL ~~day advance~~ACCOUNTING ~~written~~FEES ~~notice~~AND ~~of non-renewal is required~~SERVICES. ~~Based upon the terms of the 2005 policy agreement with its insurance carrier, the Company expects to eliminate the surety bond in the third quarter of fiscal 2005.~~

The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2009 Annual Meeting of Stockholders or an amendment to this Annual Report on Form 10-K, in either case to be filed with the Securities and Exchange Commission no later than 120 days after the end of our fiscal year ended November 1, 2008. ~~Accrued~~ ~~Expenses~~

~~Accrued expenses consist of the following:~~46

	October 30, 2004		November 1, 2003
Accrued payroll and payroll taxes	$	17,460	$	14,244
Accrued insurance/workers’ compensation	9,392		6,571
Arbitration award and related fees	780		950
Taxes other than income taxes	3,448		2,643
Checks outstanding in excess of book cash balances	5,123		3,754
Other	8,741		5,924
	$	44,944	$		34,086

Table of Contents

~~11. Income~~ ~~Taxes~~ PART IV

~~The~~ ITEM ~~provision (benefit)~~15. EXHIBITS ~~for~~AND ~~income~~FINANCIAL ~~taxes~~STATEMENT ~~from continuing operations consists of the following:~~SCHEDULES.

(a): The following documents have been filed as a part of this Annual Report on Form 10-K.
1.: Financial Statements

	Fiscal year ended
Report of Independent Registered Public Accounting Firm	F-1
	October 30, 2004			November 1, 2003			November 2, 2002
Consolidated Balance Sheets—As of the Fiscal Year Ended November 1, 2008 and November 3, 2007	F-3
Current:
Consolidated Statements of Operations—For Each of the Three Years in the Period Ended November 1, 2008	F-4
Federal	$	(350	)	$	(211	)	$	(5,842	)
Consolidated Statements of Stockholders' Equity—For Each of the Three Years in the Period Ended November 1, 2008	F-5
State and local	175			52			104
Consolidated Statements of Cash Flow—For Each of the Three Years in the Period Ended November 1, 2008	F-6
Foreign	414			520			317
Notes to Consolidated Financial Statements	F-7
	239			361			(5,421		)
Deferred:
Federal							1,345
Foreign							6
	—			—			1,351
Total provision (benefit) for income taxes from continuing operations:	$	239		$	361		$	(4,070	)

2.: Financial Statement Schedules.

~~A reconciliation~~ All ofschedules ~~income~~are ~~taxes~~omitted ~~provided~~because atthey ~~the~~are ~~statutory~~not ~~federal~~applicable ~~rate~~or ~~(35%)~~not ~~and~~required ~~income~~or ~~taxes reported~~because the required information is included in the Consolidated Financial Statements ofor ~~Operations~~the isNotes asthereto. ~~follows:~~

3.: Exhibits.

	Fiscal year ended
	October 30, 2004			November 1, 2003			November 2, 2002
Income tax provision (benefit) computed at federal statutory rate	$	1,247		$	(1,545	)	$	(1,926	)
State taxes (net of federal benefit in 2002)	175			52			67
Permanent differences	1,868			(102		)	63
Tax credits	(2,706		)
Valuation allowances	(122		)	1,994			(2,377		)
Other	(223		)	(38		)	103
Income tax provision (benefit)	$	239		$	361		$	(4,070	)

The following exhibits are filed as part of, or incorporated by reference into, this Annual Report:

The approximate tax effect of temporary differences and carryforwards that give rise to deferred tax balances are as follows (includes the tax effect of temporary differences from discontinued operations):

Exhibit Number			Description

	2.1		Share Sale Agreement dated September 27, 2008 by and between the Company and Humanis Blue Pty Limited.
	2.1.1		Amendment Agreement to the Share Sale Agreement dated October 31, 2008 by and between the Company and Humanis Blue Pty Limited.
	3.1.		Fifth Amended and Restated Certificate of Incorporation.(31)
	3.2.4		Amended and Restated Bylaws, effective March 1, 2004.(6)
	3.2.5		Amendments to the Company's Amended and Restated Bylaws.(16)
	4.1.1		Form of Specimen Certificate for the Company's Common Stock.(2)
	10.1.1		Form of Indemnification Agreement between the Company and the Officers and Key Employees of the Company.(1)
	10.1.2		Governance Agreement dated as of April 30, 2007 by and among the Company, Michael T. Willis and W. Robert Stover.(18)
	10.1.3		Amendment No. 1 to the Governance Agreement dated as of June 2007 by and among the Company and DelStaff, LLC.(31)
	10.1.4		Amendment No. 2 to the Governance Agreement dated as of January 2008 by and among the Company and DelStaff, LLC.(31)
	10.1.5		Resignation letter of Jack D. Samuelson dated August 17, 2007.(25)
	10.2		Form of Indemnification Agreement between the Company and the Directors of the Company.(1)

	October 30, 2004			November 1, 2003
Workers’ compensation	$	8,133		$	5,888
Accruals relating to discontinued operations	86			269
Other liabilities and accruals	1,049			1,393
Federal, state and foreign net operating loss carryforwards	2,552			5,452
Depreciation and amortization	3,027			4,476
Sales of property	1,566			1,896
Tax credits	2,556
Gross deferred tax assets	18,969			19,374
Valuation allowance	(18,683		)	(19,374			)
Net deferred tax asset	$	286		$		0

AtTable ~~October 30, 2004 all~~ of the Company’s net deferred tax assets, except for $286, were offset with a valuation allowance as it is more likely than not that the deferred tax assets will not be realizable in the foreseeable future. The net deferred tax asset of $286 pertains to net operating losses in Australia which are expected to be realizable in the foreseeable future. The decrease in the valuation allowance in the current year is primarily the result of a decrease in the net deferred tax assets. The Company’s deferred tax assets resulting from net operating loss carryforwards expire at varying future dates, with $5 expiring during fiscal 2006, $58 expiring during fiscal 2007, $41 expiring during fiscal 2008 and $2,448 expiring through fiscal 2024. The Company’s deferred tax assets resulting from tax credits are $703 for foreign tax credit carryforwards expiring in 2014 and $1,853 for Work Opportunity Tax Credit carryforwards expiring through 2024.Contents

The domestic and foreign components of income (loss) from continuing operations before income taxes are as follows:

Exhibit Number			Description

	10.3.9		Addendum made the 26^th day of January 2005 to agreement between Westaff (UK) Limited ("the Company") and Patricia M. Newman ("the Employee") supplemental to an agreement made as of the 1^st day of December 1998 between the Company and the Employee, an addendum made as of the 4^th day of February 1999 between the Company and the Employee, a letter dated the 3^rd day of April 2001 from Bob Stover to Employee; and a memorandum dated the 23^rd day of February 2004 between the Company and the Employee.(8)
	10.3.9.1		Employment Agreement executed on April 7, 2005 between Westaff, Inc., Westaff Support, Inc. and Patricia M. Newman.(9)
	10.3.9.2		Transition and Release Agreement dated as of April 30, 2007 by and among Westaff Support, Inc., Westaff, Inc. and Patricia M. Newman.(23)
	10.3.9.3		Notice of Restricted Stock Award and Restricted Stock Agreement dated April 7, 2005.(9)
	10.3.9.4		Notices of Grant of Stock Option dated April 7, 2005 (replaces Exhibit 10.3.9.3).(9)
	10.3.9.5		First Amendment to Employment Agreement between Westaff, Inc., Westaff Support, Inc. and Patricia M. Newman.(10)
	10.3.11.1		Employment Agreement dated as of February 20, 2001, by and between John P. Sanders and the Company.(11)
	10.3.11.2		Key Employee Transition Compensation Plan, dated as of September 20, 2004, by and between John P. Sanders and the Company.(11)
	10.3.11.3		First Amendment to Employment Contract executed on April 21, 2006, by and between John P. Sanders and the Company.(13)
	10.3.11.4		Retention Agreement dated as of May 10, 2007 by and among Westaff, Inc., Westaff (USA), Inc., Westaff Support, Inc. and John P. Sanders.(23)
	10.3.13.1		Employment Agreement dated as of November 28, 2006 by and between Jeffrey A. Elias and Westaff Support, Inc.(15)
	10.3.13.2		Retention Agreement dated as of April 30, 2007 by and among Westaff, Inc., Westaff (USA), Inc., Westaff Support, Inc. and Jeffrey A. Elias.(23)
	10.3.13.3		First Amendment to Employment Agreement by and between Jeffrey A. Elias and Westaff Support, Inc. dated as of August 1, 2007.(24)
	10.3.13.4		Letter Agreement dated November 19, 2007 by and between Jeffrey A. Elias and the Company.(31)
	10.3.13.5		Settlement Agreement and Release in Full dated June 2, 2008 by and between Jeffrey A. Elias and the Company.(33)
	10.3.14.1		Employment Agreement dated as of August 14, 2006 by and between Westaff Support, Inc. and Eric Person.(15)
	10.3.14.2		Addendum to Employment Contract by and between Westaff Support, Inc. and Eric Person dated as of April 12, 2007.(17)
	10.3.14.3		Retention Agreement dated as of April 30, 2007 by and among Westaff, Inc., Westaff (USA), Inc., Westaff Support, Inc. and Peter Eric Person.(23)
	10.3.15		Executive Employment Agreement dated as of June 1, 2007 by and between Michael T. Willis and the Company.(22)
	10.3.15.1		First Amendment to Executive Employment Agreement Between Westaff Support, Inc., Westaff (USA), Inc. and Westaff, Inc. and Michael T. Willis effective as of June 1, 2007.(33)
	10.3.16.1		Employment Offer Letter dated August 2, 2007, by and between Dawn Jaffray and the Company.(31)
	10.3.16.2		Employment Contract dated as of August 2, 2007 by and between Westaff (USA), Inc./Westaff Support and Dawn Jaffray.(31)
	10.3.17		Employment Contract dated as of August 27, 2007 by and between Westaff (USA) Inc./Westaff Support, Inc. and Phillip Bland.(26)

	Fiscal year ended
	October 30, 2004			November 1, 2003			November 2, 2002
Domestic	$		667	$	(5,041	)	$	(4,734	)
Foreign	2,895			628			(767		)
Income (loss) from continuing operations before income taxes and cumulative change in accounting principle	$	3,562		$	(4,413	)	$	(5,501	)

AtTable ~~October 30, 2004, the Parent had cumulative undistributed earnings from foreign subsidiaries~~ of approximately $3,038. Income taxes have not been provided on the undistributed earnings because the Company has deemed the earnings of its foreign subsidiaries as permanently reinvested. These earnings could become subject to additional tax if they were remitted as dividends, or if foreign earnings were lent to the Company. However, to the extent that these earnings were previously taxed in foreign jurisdictions, the Company anticipates the resulting tax amount would qualify for a domestic tax credit.Contents

F-12

Exhibit Number			Description

	10.3.18		Employment Agreement dated as of June 16, 2008 by and between Westaff Support, Inc. and Westaff (USA), Inc. and Stephen J. Russo.(34)
	10.3.19		Employment Agreement dated as of June 16, 2008 by and between Westaff Support, Inc. and Westaff (USA), Inc. and Christa C. Leonard.(34)
	10.3.20		Employment Offer Letter dated September 3, 2008 by and between Sean Wong and the Company.
	10.3.20.1		Employment Contract dated as of September 22, 2008 by and between Westaff (USA), Inc./Westaff Support and Sean Wong.
	10.7		Westaff, Inc. 1996 Stock Option/Stock Issuance Plan, as amended and restated.(7)
	10.8.26		Amended and Restated Unsecured Subordinated Note dated May 17, 2002.(4)
	10.8.28		Forbearance Agreement, Limited Waiver and Consent of Guarantors dated as of October 18, 2007 by and among the Company, General Electric Capital Corporation, and Bank of America, N.A.(27)
	10.8		Financing Agreement dated as of February 14, 2008.(28)
	10.8.29		First Amendment to Financing Agreement dated as of March 31, 2008.(28)
	10.8.30		Continuing Guaranty (Parent Guarantor) dated as of February 14, 2008(28)
	10.8.31		Continuing Guaranty (Subsidiaries) dated as of February 14, 2008.(28)
	10.8.32		Security Agreement dated as of February 14, 2008.(28)
	10.8.33		Stock Pledge Agreement dated as of February 14, 2008.(28)
	10.8.34		Trademark Security Agreement dated as of February 14, 2008.(28)
	10.8.35		Trademark Security Agreement dated as of February 14, 2008.(28)
	10.8.36		Forbearance Agreement dated as of July 31, 2008 by and among the Company, U.S. Bank National Association and Wells Fargo Bank, National Association.(35)
	10.8.37		Subordinated Loan Agreement entered into as of August 25, 2008.
	10.8.38		Subordinated Revolving Note dated August 25, 2008.
	10.8.39		Security Agreement dated August 25, 2008.
	10.8.40		Amended and Restated Forbearance Agreement dated as of August 26, 2008 by and among the Company, U.S. Bank National Association and Wells Fargo Bank, National Association.(36)
	10.8.41		Second Amended and Restated Forbearance Agreement dated as of September 30, 2008 by and among the Company, U.S. Bank National Association and Wells Fargo Bank, National Association.(37)
	10.8.42		Share Sale Agreement dated September 27, 2008 by and between the Company and Humanis Blue Pty Limited.
	10.8.43		Amendment Agreement to the Share Sale Agreement dated October 31, 2008 by and between the Company and Humanis Blue Pty Limited.
	10.11		Westaff, Inc. Employee Stock Purchase Plan.(3)
	10.11.3		International Employee Stock Purchase Plan.(3)
	10.11.4		Westaff, Inc. Employee Stock Purchase Plan (as Amended and Restated July 26, 2006).(14)
	10.11.5		Westaff, Inc. International Employee Stock Purchase Plan (as Amended and Restated July 26, 2006).(14)
	10.11.6		Westaff, Inc. Employee Stock Purchase Plan (as Amended and Restated April 16, 2008).(28)
	10.12		Westaff Key Employee Transition Compensation Plan.(7)
	10.13		Form of Employment Contract with Certain Named Executive Officers.(3)
	10.14.1		Westaff, Inc. 2006 Stock Incentive Plan.(12)
	10.14.2		Westaff, Inc. 2006 Non-Employee Director Option Program.(12)
	10.14.3		Form Notice of Stock Option Award and Stock Option Award Agreement.(12)
	10.14.4		Form Notice of Non-Qualified Stock Option Award and Stock Option Award Agreement.(12)

~~12. Savings Plans~~49

~~The~~Table Company has a nonqualified deferred savings plan for highly compensated employees and a 401(k) savings plan for eligible domestic employees. Under both the deferred and 401(k) savings plans for fiscal year 2004 and fiscal year 2003, employees can elect to contribute up to 60% of their eligible annual compensation subject to statutory limits. During the fiscal 2003 year, the Company suspended its employer matching contribution of 10% of participant contributions up to the first 10% of the employee’s contributions. The Company’s contribution for fiscal 2003 was $77 and for fiscal 2002 was $145.Contents

13. Stockholders’ Equity

Exhibit Number			Description

	16.01		Letter dated May 15, 2007 regarding change in certifying accountant.(19)(20)(21)
	21.1		Subsidiaries of the Company.
	23.1		Consent of Independent Registered Public Accounting Firm—BDO Seidman, LLP
	23.2		Consent of Independent Registered Public Accounting Firm—Deloitte & Touche LLP
	24.1		Power of Attorney (see signature page).
	31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
	31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
	32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1): Incorporated herein by reference to the exhibit with the same number filed with the Company's Registration Statement on Form S-1 (File No. 33-85536) declared effective by the Securities and Exchange Commission on April 30, 1996.
(2): Incorporated herein by reference to the exhibit with the same number filed with the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1998.
(3): Incorporated herein by reference to the exhibit with the same number filed with the Company's Annual Report on Form 10-K for the fiscal year ended November 3, 2001.
(4): Incorporated herein by reference to the exhibit with the same number filed with the Company's Quarterly Report on Form 10-Q for the quarter ended April 20, 2002.
(5): Incorporated herein by reference to the exhibit with the same number filed with the Company's Annual Report on Form 10-K for the fiscal year ended November 2, 2002.
(6): Incorporated herein by reference to the exhibit with the same number filed with the Company's Current Report on Form 8-K dated March 1, 2004.
(7): Incorporated herein by reference to the exhibit with the same number filed with the Company's Current Report on Form 8-K dated September 20, 2004.
(8): Incorporated herein by reference to the exhibit with the same number filed with the Company's Annual Report on Form 10-K for the fiscal year ended October 30, 2004.
(9): Incorporated herein by reference to the exhibit with the same number filed with the Company's Current Report on Form 8-K dated April 7, 2005.
(10): Incorporated herein by reference to the exhibit with the same number filed with the Company's Annual Report on Form 10-K for the fiscal year ended October 29, 2005.
(11): Incorporated herein by reference to Exhibits 10.1 and 10.2 filed with the Company's Current Report on Form 8-K dated March 24, 2006.
(12): Incorporated herein by reference to Exhibits 10.1, 10.2, 10.3 and 10.4 filed with the Company's Current Report on Form 8-K dated April 19, 2006.
(13): Incorporated herein by reference to Exhibits 10.1 filed with the Company's Current Report on Form 8-K dated April 21, 2006.
(14): Incorporated herein by reference to the exhibit with the same number filed with the Company's Annual Report on Form 10-K for the fiscal year ended October 28, 2006.

~~Treasury stock~~50

~~From~~Table ~~time to time, the Company repurchases shares~~ of its common stock on the open market. The repurchased shares may be used for reissuance under the Company’s stock option and employee stock purchase plans. When treasury shares are reissued, any excess of the proceeds over the acquisition cost of the shares is credited to additional paid-in-capital. Excess acquisition cost over the proceeds from reissuance, determined on a first-in first-out basis, is charged to additional paid-in-capital to the extent of previous net “gains”, and then to retained earnings.Contents

(15): Incorporated herein by reference to the exhibit with the same number filed with the Company's Quarterly Report on Form 10-Q for the quarter ended January 20, 2007.
(16): Incorporated herein by reference to Exhibit 3.1 filed with the Company's Current Report on Form 8-K dated April 12, 2007.
(17): Incorporated herein by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K dated April 12, 2007.
(18): Incorporated herein by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K dated April 30, 2007.
(19): Incorporated herein by reference to the exhibit with the same number filed with the Company's Current Report on Form 8-K dated May 9, 2007.
(20): Incorporated herein by reference to Exhibit 16.01 filed with the Company's Current Report on Form 8-K/A dated May 17, 2007.
(21): Incorporated herein by reference to Exhibit 16.01 filed with the Company's Current Report on Form 8-K/A dated May 24, 2007.
(22): Incorporated herein by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K dated June 29, 2007.
(23): Incorporated herein by reference to Exhibit 10.3.9, 10.3.11, 10.3.13 and 10.3.14 filed with the Company's Quarterly Report on Form 10-Q for the quarter ended July 7, 2007.
(24): Incorporated herein by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K dated August 1, 2007.
(25): Incorporated herein by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K dated August 15, 2007 and the Company's Current Report on Form 8-K/A dated August 15, 2007.
(29): Incorporated herein by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K dated August 27, 2007.
(30): Incorporated herein by reference to Exhibit 10.8.20.11 filed with the Company's Current Report on Form 8-K dated October 18, 2007.
(31): Incorporated herein by reference to the exhibits with the same numbers filed with the Company's Annual Report on Form 10-K for the fiscal year ended November 3, 2007.
(32): Incorporated herein by reference to the exhibit with the same number filed with the Company's Quarterly Report on Form 10-Q for the quarter ended April 19, 2008.
(33): Incorporated herein by reference to the exhibit with the same number filed with the Company's Quarterly Report on Form 10-Q for the quarter ended July 12, 2008.
(34): Incorporated herein by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K dated June 16, 2008.
(35): Incorporated herein by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K dated July 31, 2008.
(36): Incorporated herein by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K dated August 27, 2008.
(37): Incorporated hereby by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K dated September 30, 2008.

~~Employee stock purchase plan~~51

~~Under the Company’s~~ ~~1996~~Table ~~Employee Stock Purchase Plan, eligible employees may authorize payroll deductions~~ of upContents to 10% of eligible compensation for the purchase of the Company’s common stock during each semi-annual purchase period. The purchase price will equal the lower of 85% of the fair market value at the beginning of the purchase period or on the last day of the purchase period. The plan provides for the issuance of up to 750 shares of the Company’s common stock. As of October 30, 2004, shares issued under the plan totaled 594.

~~Stock~~ ~~option~~ ~~plan~~ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

~~The 1996 Stock Option/Stock~~Board ~~Issuance Plan provides for the granting~~ of ~~incentive~~Directors and ~~nonqualified stock~~Stockholders options and stock appreciation rights. Incentive stock options may be granted at a price not less than 100% of the fair market value of the Company’s common stock at the date of grant. Nonqualified options may be granted at a price not less than 85% of the fair market value of the Company’s common stock at the date of grant. The options’ vesting schedules vary subject to the participant’s period of future service or to the Company’s or the option holder’s attainment of designated performance goalsWestaff, ~~or otherwise at the discretion of the Board of Directors.~~ Standard vesting is over four years with 25% of the options vesting upon completion of one year of service from the vesting commencement date, and the remaining options vesting in thirty-six equal monthly installmentsInc. ~~No option may have a term in excess of 10~~ ~~years.~~Walnut ~~At October 30~~Creek, ~~2004~~California there were 2,424 shares reserved for issuance under the plan. The maximum number of shares with respect to which stock options, stock appreciation rights and direct stock issuances may be granted to an individual in any calendar year are 1,000 shares. No stock appreciation rights have been granted under the plan.

~~The following table summarizes~~ We ~~the~~have ~~stock~~audited ~~option transactions under~~ the ~~Company’s~~accompanying ~~plan.~~consolidated ~~The~~balance ~~fair~~sheets ~~value~~ of ~~each option~~Westaff, Inc. ~~included in~~ (the ~~table~~"Company") isas ~~estimated~~of onNovember 1, ~~the~~2008 ~~date~~and ofNovember 3, ~~grant~~2007 ~~using~~and the related ~~Black-Scholes~~consolidated ~~option-pricing~~statements ~~model~~of ~~with~~operations, ~~the~~stockholders' ~~following~~equity, ~~weighted~~and ~~average assumptions~~cash flows for ~~options~~each ~~granted~~of inthe ~~fiscal~~two ~~2004,~~years ~~2003~~then ~~and~~ended. ~~2002,~~These ~~respectively: zero~~consolidated ~~dividend~~financial ~~yield,~~statements ~~expected~~are ~~volatility~~the responsibility of ~~145%,~~the ~~154%~~Company's management. ~~and~~Our ~~156%,~~responsibility ~~expected~~is ~~lives of~~to 6express ~~years;~~an ~~and~~opinion ~~risk-free~~on ~~interest~~these ~~rates~~financial ofstatements ~~3.9%,~~based ~~3.2%~~on ~~and~~our 4audits.~~1%.~~

	October 30, 2004				November 1, 2003				November 2, 2002
			Weighted				Weighted				Weighted
			average				average				average
	Shares		exercise price		Shares		exercise price		Shares		exercise price
Options outstanding, beginning of year	1,080		$	3.09	1,419		$	3.10	1,251		$	3.13
Granted at market value	44		2.53		52		2.16		384		3.12
Granted in excess of market value									550		2.35
Cancelled	(89	)	3.14		(391	)	2.97		(766	)	2.63
Options outstanding, end of year	1,035		$	3.07	1,080		$	3.09	1,419		$	3.10
Options exercisable, end of year	562		$	3.47	482		$	3.64	705		$	3.41
Options available for grant, end of year	1,389				1,344				1,005
Total options authorized	2,424				2,424				2,424
Weighted average fair value of options granted during the year:
At market value			$	2.36			$	2.04			$	2.97
In excess of market value											$	2.15

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

~~The~~ In our ~~following~~opinion, ~~table summarizes~~the ~~information~~consolidated ~~about~~financial ~~stock~~statements ~~options~~referred ~~outstanding~~to atabove ~~October~~present fairly, in all material respects, the financial position of Westaff, 30Inc. as of November 1, ~~2004:~~2008 and November 3, 2007, and the results of its operations and its cash flows for each of the two years then ended in conformity with accounting principles generally accepted in the United States of America.

		Options outstanding				Options exercisable
Range of exercise prices		Shares	Weighted average remaining contractual life	Weighted average exercise price		Shares	Weighted average exercise price
$	1.63 -2.35	597	7.26	$	2.33	282	$	2.32
$	2.45 -4.00	370	7.67	3.14		212	3.19
$	6.00 -6.33	12	3.01	8.22		12	6.22
$	9.33 -9.58	53	2.06	9.43		53	9.43
$	16.17 - 16.17	3	3.41	16.17		3	16.17
$	1.63 - 16.17	1,035	7.08	$	3.07	562	$	3.47

We also have audited the reclassification to the consolidated statement of operations for the year ended October 28, 2006 related to certain bank charges from selling and administrative expenses to interest expense, as described in Note 1. We have also audited the reclassifications to the related consolidated statement of operations for the year ended October 28, 2006 for the retrospective reporting of discontinued operations as described in Note 5. In our opinion, such reclassifications are appropriate and have been properly applied. We were not engaged to audit, review or apply any procedures to the 2006 financial statements of the Company referred to above other than with respect to the reclassifications and, accordingly, we do not express an opinion or any other form of assurance on the 2006 financial statements taken as a whole. The reclassifications had no effect on net income (loss) or earnings (loss) per share.

14 The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. ~~Leases~~ As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses, is out of compliance with its bank covenants and may be unable to obtain an extension of its workers compensation policy, that raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

~~The Company leases~~ As ~~real~~discussed ~~and~~in ~~personal~~Note 2 ~~property~~to ~~under~~the ~~operating~~consolidated ~~leases~~financial ~~with~~statements, ~~terms~~effective ~~generally~~July 8, ~~ranging from~~2007, ~~one~~the toCompany ~~five~~changed ~~years.~~its ~~Some~~method of ~~these~~quantifying ~~leases~~misstatements ~~have~~of ~~renewal~~prior ~~options~~year ~~and contain~~financial ~~provisions~~statements ~~for~~and ~~escalation~~adopted ~~based~~the ondual ~~increases~~method inas ~~certain~~required ~~costs incurred~~ by the ~~landlord~~ ~~and~~provisions onof ~~Consumer~~Staff ~~Price~~Accounting ~~Index~~Bulletin ~~adjustments~~No. ~~Rental expense~~ 108, ~~including month-to-month~~"Considering ~~rentals,~~the ~~amounted~~Effects toof ~~$6,421~~Prior inYear ~~fiscal~~Misstatements ~~2004,~~when ~~$6,699~~Quantifying inMisstatements ~~fiscal 2003, and $6,279~~ in ~~fiscal 2002. The~~ ~~Company~~Current ~~also~~Year ~~receives~~Financial ~~rental income from subleases which expire on various dates~~Statements. ~~Sublease~~" ~~income was not material to the Company’s results of operations for any periods presented.~~

~~In fiscal 2003~~BDO Seidman, ~~the~~ LLP ~~Company~~San ~~entered into a sale-leaseback transaction whereby the Company sold and leased back its administrative offices’ land and buildings. The lease~~Francisco, ~~which is~~California ~~being accounted for as an operating lease~~February 11, ~~has~~2009 ~~a term of seven years~~

F-131

~~with an~~Table ~~option to renew for an additional five years. The result~~ of the sale was a net pre-tax gain of approximately $5,300 that the Company deferred and is amortizing as an offset to rent expense over the seven year lease term. A portion of the net proceeds from the sale of $6,866 was used to repay the outstanding principal and interest under a term loan of $4,515 (see Note 8). Additionally, the Company used $1,020 of the net proceeds to pay the outstanding principal and interest of a promissory note payable to the Company’s President and Chief Executive Officer. The remainder of the net proceeds was used to repay outstanding borrowings under the Company’s revolving credit facilities. In connection with the lease agreement, the Company issued a $700 irrevocable standby letter of credit as a security deposit.Contents

~~Future~~ ~~minimum lease~~REPORT ~~payments~~OF ~~for~~INDEPENDENT ~~all~~REGISTERED ~~non-cancelable~~PUBLIC ~~operating~~ACCOUNTING ~~leases at October 30, 2004 are as follows:~~FIRM

Fiscal year
2005	$	4,022
2006	2,599
2007	1,734
2008	1,413
2009	1,257
Thereafter	325
Total minimum lease payments	$	11,350

To the Board of Directors and Stockholders of Westaff, Inc.

In We have ~~December 2002~~audited, ~~the~~ ~~Company~~before ~~entered~~the ~~into~~effects aof ~~lease~~(i) the ~~transaction~~retrospective adjustments for ~~certain~~the ~~information~~discontinued ~~technology~~operations discussed in Note 5 to the consolidated financial statements and ~~equipment. This~~(ii) the ~~lease~~reclassifications related to interest expense described in Note 1 to the consolidated financial statements, ~~which~~the ~~has~~consolidated astatements ~~term~~ of 37operations, ~~months~~stockholders' equity, isand cash ~~being~~flows ~~accounted~~of ~~for~~Westaff, Inc. asand asubsidiaries ~~capital~~(the ~~lease. Capital~~"Company") ~~lease~~for ~~obligations~~the asyear ofended October 3028, 2006 (the 2006 consolidated financial statements before the effects of the retrospective ~~2004~~adjustments for the discontinued operations and the reclassifications to the consolidated financial statements are asnot ~~follows:~~presented herein) . These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

	October 30,
	2004
Minimum lease payments:
Fiscal 2005	$	493
Fiscal 2006	134
Total minimum lease payments	627
Less amount representing interest	(36		)
Present value of net minimum lease payments	591
Less current portion of capital lease obligation	(466		)
Long-term capital lease obligation	$	125

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

15 In our opinion, such 2006 consolidated financial statements, before the effects of (i) the retrospective adjustments for the discontinued operations discussed in Note 5 to the consolidated financial statements and (ii) the reclassifications related to interest expense described in Note 1 to the consolidated financial statements, present fairly, in all material respects, the results of operations and cash flows of Westaff, Inc. ~~Operating~~ ~~Segments~~and subsidiaries for the year ended October 28, 2006, in conformity with accounting principles generally accepted in the United States of America.

~~The Company has four~~ As ~~reportable~~discussed segments: Domestic Business Services, United Kingdom, Australia and Other International. Domestic Business Services provides a variety of temporary staffing services and permanent placements, primarily in ~~clerical and~~Notes 4 ~~light industrial positions, through a network of company-owned~~ and ~~franchise~~ ~~agent~~12 ~~offices. The~~to ~~segment consists of 16 geographically diverse company regions or districts under~~ the ~~direction~~ ofconsolidated ~~regional/district~~financial ~~managers and one combined franchise region~~statements, ~~each identified~~effective ~~as an operating segment.~~October ~~Revenue~~30, ~~from~~2005, ~~Domestic Business Services is derived wholly from~~ the ~~United~~ ~~States~~Company ~~and~~changed its ~~territories. The domestic~~method ~~operating segments meet the aggregation criteria specified under SFAS No. 131 “Disclosures about Segments~~ of anaccounting ~~Enterprise and Related Information”~~ for ~~reporting purposes. The international operations comprise company~~share-~~owned~~based ~~offices providing primarily~~payment ~~clerical~~arrangements ~~and~~to ~~light~~conform industrial temporary staffing services and permanent placements in Australia, the United Kingdom, Norway, Denmark and New Zealand. The Company employs managing directors who oversee all operations in one or more countries. Revenue is attributed to ~~each~~Statement ~~country based on the location~~ of ~~the~~Financial ~~respective~~Accounting ~~country’s~~Standards ~~principal offices~~No. ~~Where appropriate~~ 123(R), ~~two~~Share-Based ~~or more international operations have been combined into one reportable segment as they share a majority of the aggregation criteria and are not individually reportable~~Payment.

~~The~~ We were ~~Company~~not ~~evaluates~~engaged ~~the performance~~to ofaudit, ~~and~~review, ~~allocates~~or ~~resources~~apply any procedures to (i) the ~~reportable~~retrospective ~~segments~~adjustments ~~based~~for ~~on operating~~the ~~income. The~~discontinued ~~accounting policies~~operations ofdiscussed in Note 5 to the ~~segments~~consolidated financial ~~are~~statements and (ii) the ~~same~~reclassifications asrelated ~~those~~to interest expense described in Note 1 ~~2. Certain~~to ~~operating~~the ~~expenses~~consolidated offinancial ~~the~~statements ~~Company’s corporate~~and, ~~headquarters~~accordingly, ~~which~~we ~~are~~do ~~included~~not inexpress ~~Domestic~~an opinion ~~Business~~or ~~Services,~~any ~~are charged~~other toform ~~the~~of ~~international~~assurance ~~entities~~about inwhether ~~the~~such ~~form~~retrospective ofadjustments ~~royalties. Domestic~~for ~~assets~~the ~~relating~~discontinued tooperations ~~the~~and ~~generation~~reclassifications of ~~the~~ ~~royalties,~~interest ~~primarily~~expense ~~property,~~are ~~plant~~appropriate and ~~equipment,~~ have ~~not~~ been ~~allocated~~properly ~~due~~applied. toThose ~~impracticality~~retrospective ~~and~~adjustments ~~are~~for ~~not~~the ~~considered~~discontinued ~~material~~operations ~~for~~and ~~purposes~~the reclassifications of ~~assessing performance~~interest ~~and~~expense ~~making~~were ~~operating~~audited ~~decisions~~by other auditors.

~~The~~/s/ DELOITTE & ~~following~~TOUCHE ~~summarizes~~LLP ~~reporting~~Oakland, ~~segment data for fiscal years 2004~~California January 26, ~~2003~~2007 ~~and 2002:~~

F-142

	Fiscal Year Ended October 30, 2004
	Domestic Business Svcs		United Kingdom		Australia		Other International		Adjustments (1)			Consolidated
Revenue	$	469,878	$	45,088	$	67,708	$	18,802				$	601,476
Operating income from continuing operations	$	2,439	$	2,172	$	722	$	332				$	5,665
Depreciation and amortization	$	3,561	$	361	$	394	$	158				$	4,474
Expenditures for purchases of fixed assets	$	2,849	$	374	$	128	$	40				$	3,391
Total long-lived assets	$	19,184	$	868	$	1,710	$	182				$	21,944
Total assets	$	94,031	$	10,433	$	13,604	$	6,463	$	(2,123	)	$	122,408

Table of Contents

	Fiscal Year Ended November 1, 2003
	Domestic Business Svcs			United Kingdom		Australia			Other International			Adjustments (1)			Consolidated
Revenue	$	427,097		$	33,409	$	52,340		$	17,453					$	530,299
Operating income (loss) from continuing operations	$	(3,696	)	$	1,316	$	(406	)	$	(51	)				$	(2,837	)
Depreciation and amortization	$	4,594		$	290	$	399		$	217					$	5,500
Expenditures for purchases of fixed assets	$	1,816		$	369	$	284		$	124					$	2,593
Total long-lived assets	$	21,319		$	795	$	1,868		$	275					$	24,257
Total assets	$	91,576		$	8,796	$	11,555		$	5,337		$	(4,117	)	$	113,147

Westaff, Inc.

Consolidated Balance Sheets

				November 1, 2008			November 3, 2007
		Fiscal Year Ended November 2, 2002
		Domestic Business Svcs			United Kingdom			Australia			Other International			Consolidated
				(In thousands, except share and per share amounts)
Revenue		$	428,187		$	27,686		$	41,811		$	17,569		$	515,253
ASSETS
Operating income (loss) from continuing operations		$	(2,925	)	$	760		$	(645	)	$	(735	)	$	(3,545	)
Current assets:
Depreciation and amortization		$	5,725		$	284		$	392		$	200		$	6,601
	Cash and cash equivalents			$	86		$	3,277
Expenditures for purchases of fixed assets		$	1,639		$	213		$	147		$	90		$	2,089
	Restricted cash				5,048			—
Payments for intangibles		223			—			—			—			223
	Trade accounts receivable, less allowance for doubtful accounts of $979 and $1,274				35,812			76,098
Total expenditures for long-lived assets		$	1,862		$	213		$	147		$	90		$	2,312
	Deferred income taxes				—			9,688
	Prepaid expenses				1,845			4,059
	Other current assets				1,733			1,833
	Current assets held for sale				13,930			—
		Total current assets			58,454			94,955
Property and equipment, net					9,583			16,186
Deferred income taxes					—			12,076
Goodwill					—			12,628
Intangible assets					3,504			3,695
Other long-term assets					1,923			1,752
Long term assets held for sale					1,527			—
		Total assets		$	74,991		$	141,292
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Borrowing under revolving credit facilities			$	—		$	6,837
	Current portion of capital lease obligations				587			544
	Notes payable to related parties				4,150			2,000
	Accounts payable				1,431			2,226
	Accrued expenses				16,499			34,147
	Short-term portion of workers compensation obligation				7,975			9,897
	Income taxes payable				379			113
	Current liabilities held for sale				8,956			—
		Total current liabilities			39,977			55,764
Long-term capital lease obligations					165			752
Long-term portion of workers compensation obligation					15,300			16,000
Other long-term liabilities					805			2,881
Long-term liabilities held for sale					125			—
		Total liabilities			56,372			75,397
Commitments and contingencies (Notes 4, 10 and 16)
Stockholders' equity:
	Preferred stock, $0.01 par value; authorized and unissued: 1,000,000 shares
	Common stock, $0.01 par value; authorized: 25,000,000 shares; issued and outstanding: 16,697,010 at November 1, 2008 and November 3, 2007				167			167
	Additional paid-in capital				39,727			39,561
	Retained earnings (accumulated deficit)				(21,943	)		24,355
	Accumulated other comprehensive income				668			1,812
		Total stockholders' equity			18,619			65,895
		Total liabilities and stockholders' equity		$	74,991		$	141,292

~~(1) Adjustments reflect~~ ~~assets~~See ~~related~~accompanying notes to ~~discontinued~~consolidated ~~operations~~financial ~~and elimination of domestic investments in international subsidiaries~~statements.

~~16. Commitments and Contingencies~~F-3

In Table ~~the ordinary course~~ of ~~its~~ ~~business,~~Contents the Company is periodically threatened with or named as a defendant in various lawsuits. The principal risks that the Company insures against are workers’ compensation, general liability, automobile liability, property damage, alternative staffing errors and omissions, fiduciary liability and fidelity losses.

On ~~October 28, 2003,~~ ~~Bond International Software~~ Westaff, Inc. Consolidated ~~(“Bond”)~~Statements ~~filed a demand for arbitration with the American Arbitration Association (“AAA”). Bond sought compensation for the Company’s alleged breach~~ of a 2001 software agreement. The Company filed a counterclaim, seeking the return of monies previously paid to Bond. The arbitration hearing was held in September 2004. The arbitrator issued an Interim Award on October 25, 2004, agreeing that the Company had the right to terminate the agreement, but granting Bond “termination charges” in the amount of $423 plus interest from January 2002. The arbitrator denied Bond’s claim for damages for breach of the implied covenant of good faith and fair dealing, and denied the Company’s counterclaim. In the Final Award issued December 4, 2004, the arbitrator ordered the Company to pay Bond $291 in attorneys’ fees and costs, and to pay the AAA administrative fees and arbitrator compensation totaling $44. As a result of the arbitration, the Company recorded a charge of $1,058 in fiscal 2004 for the award and related legal fees.Operations

On March 9, 2000, Synergy Staffing, Inc. (“claimant”) filed a complaint against the Company alleging, among other things, that the Company fraudulently induced the plaintiff to sell the assets of The Personnel Connection, Inc. On January 9, 2002, an arbitration panel rendered an interim award in favor of the claimant for compensatory damages of $2,224 plus interest, as well as reasonable attorneys’ fees and other costs incurred in the proceeding. During the fourth quarter of fiscal 2001, the Company recorded an accrued liability and related pretax charge of $3,600 for the estimated costs of the award. On February 11, 2002, the arbitration panel issued an Order Modifying Interim Award, crediting the Company for $800 previously paid under a price protection clause in the asset purchase agreement and thereby reducing the principal amount of the award to $1,424. As a result of the interim award, the Company determined that $693 of the initial estimated liabilities were no longer required, and recorded the reduction in its fourth fiscal quarter of 2002. The claimant asked the superior court to correct and confirm the interim award. On September 25, 2002, the court denied the plaintiff’s motion. The claimant then filed an appeal of the denial with the appellate court. On October 21, 2003 the appellate court reversed the superior court’s denial of the claimant’s motion. The Company filed a petition for rehearing, which was denied. In December 2003, the claimants agreed to a settlement of $930. Accordingly, the Company recorded a $950 charge to earnings in fiscal 2003 for the cost of the settlement plus related attorneys’ fees.

			Fiscal Year Ended

			November 1, 2008			November 3, 2007			October 28, 2006
			(In thousands, except per share amounts)
Revenue			$	324,495		$	439,822		$	482,153
Costs of services				265,840			360,414			397,336

Gross profit				58,655			79,408			84,817
Franchise agents' share of gross profit				14,313			17,357			18,157
Selling and administrative expenses				52,575			61,291			59,106
Impairment of goodwill and intangibles				11,540			—			—
Restructuring expense (benefit)				(84	)		3,111			—
Depreciation and amortization				5,212			3,149			4,177

Operating (loss) income from continuing operations				(24,901	)		(5,500	)		3,377
Interest expense				2,465			2,414			1,965
Interest income				(140	)		(138	)		(93	)

Income (loss) from continuing operations before taxes				(27,226	)		(7,776	)		1,505
Income tax expense (benefit)				19,824			(3,469	)		84

Income (loss) from continuing operations				(47,050	)		(4,307	)		1,421
Discontinued operations:
	Income from discontinued operations			382			2,373			1,698
	Gain on sale, net of income taxes of $1,312			370			—			—

Total income from discontinued operations, net of income taxes				752			2,373			1,698

Net (loss) income			$	(46,298	)	$	(1,934	)	$	3,119

(Loss) earnings per share:
	Continuing operations—basic and diluted		$	(2.82	)	$	(0.26	)	$	0.09

	Discontinued operations—basic and diluted		$	0.05		$	0.14		$	0.10

	(Loss) earnings per share:
		Basic and diluted	$	(2.77	)	$	(0.12	)	$	0.19

Weighted average shares outstanding—basic				16,697			16,625			16,454

Weighted average shares outstanding—diluted				16,697			16,625			16,526

~~From~~See accompanying ~~time~~notes to ~~time~~consolidated 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. The Company does not believe the outcome of any proceedings on these actions would have a material adverse effect on its financial ~~position, results of operations or cash flows~~statements. ~~The~~ ~~Company is not currently a party to any material litigation, except as disclosed above.~~

~~17. Quarterly Financial Information (Unaudited)~~F-4

~~The following is a~~ ~~summary~~Table of ~~the~~Contents ~~unaudited quarterly financial information for the fiscal years ended October 30, 2004 and November 1, 2003.~~

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter (1)
Fiscal year ended October 30, 2004
Revenue	$	122,483		$	131,172		$	142,266		$	205,555
Gross profit	$	20,646		$	21,985		$	24,627		$	34,588
Income (loss) from continuing operations	$	(906	)	$	168		$	1,605		$	2,455
Income from discontinued operations							150
Net income (loss)	$	(906	)	$	168		$	1,755		$	2,455
Basic and diluted earnings (loss) per share
Income (loss) from continuing operations	$	(0.06	)	$	0.01		$	0.10		$	0.15
Income from discontinued operations	$	—		$	—		$	0.01		$	—
Net income (loss)	$	(0.06	)	$	0.01		$	0.11		$	0.15
Fiscal year ended November 1, 2003
Revenue	$	117,834		$	116,442		$	117,149		$	178,874
Gross profit	$	20,371		$	19,810		$	20,670		$	29,647
Loss from continuing operations before cumulative effect of change in accounting principle	$	(664	)	$	(2,663	)	$	(847	)	$	(600	)
Income from discontinued operations	316
Cumulative effect of change in accounting principle	(670		)
Net loss	$	(1,018	)	$	(2,663	)	$	(847	)	$	(600	)
Basic and diluted earnings (loss) per share
Loss from continuing operations before cumulative effect of change in accounting principle	$	(0.04	)	$	(0.17	)	$	(0.05	)	$	(0.04	)
Income from discontinued operations	$	0.02		$	—		$	—		$	—
Cumulative effect of change in accounting principle	$	(0.04	)	$	—		$	—		$	—
Net loss	$	(0.06	)	$	(0.17	)	$	(0.05	)	$	(0.04	)

Westaff, Inc.

Consolidated Statements of Stockholders' Equity

(1) The results for the fourth quarter of fiscal 2004 include a $1,655 charge for increased workers’ compensation costs due primarily to adverse loss development of historical claims. The quarter also includes a $1,058 charge related to an adverse arbitration award (Note 16). The fourth quarter of fiscal 2003 includes a workers’ compensation charge of $1,838 and a $950 charge as a result of an arbitration ruling (Note 16).

			Common stock										Accumulated other comprehensive income (loss)

			Common stock				Additional paid-in capital			Retained earnings						Deferred stock compensation
			Shares		Amount		Additional paid-in capital			Retained earnings						Deferred stock compensation			Total
			(In thousands)
Balance at October 29,2005				16,378	$	164	$	37,803		$	24,151		$	(443	)	$	(54	)	$	61,621
	Comprehensive income:
		Net income		—		—		—			3,119			—			—
		Currency translation adjustments		—		—		—			—			399			—

	Total comprehensive income																			3,518

	Reclassification of deferred stock
		compensation		—		—		(54	)		—			—			54			—
	Stock issued under employee
		stock plans		184		2		563			—			—			—			565
	Tax benefits from employee stock
		plans		—		—		45			—			—			—			45
	Share-based compensation			—		—		260			—			—			—			260

Balance at October 28, 2006				16,562	$	166	$	38,617		$	27,270		$	(44	)	$	—		$	66,009
Cumulative effect of adjustment from the adoption of SAB No. 108, net of tax (Note 2)				—		—		—			(981	)		—			—			(981	)
	Comprehensive income:
		Net loss		—		—		—			(1,934	)		—			—
		Currency translation adjustments		—		—		—			—			1,856			—

	Total comprehensive loss																			(78	)

	Stock issued under employee
		stock plans (net of 204 shares used in cashless exercise)		135		1		350			—			—			—			351
	Other			—		—		(8	)					—			—			(8	)
	Share-based compensation			—		—		602			—			—			—			602

Balance at November 3, 2007				16,697	$	167	$	39,561		$	24,355		$	1,812		$	—		$	65,895
	Comprehensive income:
		Net loss		—		—		—			(46,298	)		—			—
		Currency translation adjustments		—		—		—			—

Filing Compare · WESTAFF INC